Blog – Value Investing Almanack – Safal Niveshak

Behaviouronomics: Probability Blindness

June 10, 2018

Most people learn about probability concepts through examples of coins and dice. But that rarely helps in developing an intuitive mind for probabilities. The cure for it is to leverage the idea of natural frequencies.

The day remains deeply etched in my memory. I was in the fifth standard and the maths teacher had introduced the concept of percentages that day. It sounded freakishly alien and I just couldn’t fathom it. I literally had tears in my eyes because it seemed that everybody in the class understood it except me.

The teacher had repeated the definition – percentage is when you normalize any ratio to base of hundred – at least a dozen times in the class that day. It didn’t help.

Then my father explained, “Look. When you divide something in two equal parts, each part is called half, right? Instead of calling it half, let’s call it 50 percent. Now, when you divide something in four equal parts each portion is one fourth, correct? Let’s call that 25 percent.”

Spotlight: Envy, A Powerful Motivator but a Lousy Satisficer

June 5, 2018

The emotions of envy hinge on the habit of maximizing the returns in every area of life. Habitual maximisers always have a creeping anxiety about missing something. If you don’t stop at a near-satisfactory solution, it may take you an eternity to reach the smallest conclusion or perform the smallest act.

Lalchand, a new investor decides to pay a visit to the Mecca of Indian stock market – The Dalal Street. As he approaches the BSE building, a big bright glow sign board catches his attention.

“Guaranteed Multibagger Stock Ideas. Free!” The dancing lights around the letters were hypnotic.

His eyes immediately started searching for all too familiar star mark which usually punctuates such claims and leads you to conditions-apply disclaimer. Unable to find it, he gives in to the temptation and enters the building. An attractive receptionist greets Lalchand. She walks him into a spacious office.
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The Truth About Valuation

May 30, 2018

On May 9, 2018, American retail giant Walmart forked out US$ 16 billion to acquire 77 percent stake in Flipkart. That transaction pegged the value of Flipkart, an Indian online retail firm, at US$ 21 billion. Not bad for a company which began operations with an initial capital of less than Rs 5 lakh merely ten years ago.

Now, is Flipkart really worth that sum?

Before you think about how to answer that question, it’s important to see who is asking that question? In this case, it was Walmart, and clearly, the answer they arrived at was a resounding yes, i.e., they believe that Flipkart is worth US$ 21 billion.

Today, Flipkart’s annual revenue stands at US$ 3 billion. So, Walmart paid seven times the sales. Is that unreasonable? Maybe, maybe not. Consider this – to reach that US$ 3 billion, Flipkart has burnt US$ 7 billion of investors’ money that it has raised so far from venture capitalists. To add insult to the injury, Flipkart has never made a single paisa of profit till now.

So where does Walmart see the value worth US$ 21 billion?

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Investor Insights: Revisiting Lessons from 2008 – Part 1

May 25, 2018

This isn’t your typical VIA interview, but a collection of wisdom from a few investors we have interviewed in the past. The topic is – lessons from the 2008 crisis. A decade has passed since this crisis (time flew, again!), and most lessons would have been forgotten (we have short memories).

As we see around, investors – especially new than old – are practicing speculative behavior. Not many investors who felt the pain in 2008 would possibly think this is a good idea even if no major crisis may be lurking around the corner. And this is exactly what came out from the questions we asked a few seasoned value investors, who were close witness to the crisis in 2008.

Below are their lessons from the crisis, how has their thought process changed (if it has) in this past decade, and their advice to new investors on dealing with similar such crisis in the future.

Shyam Sekhar

Shyam is a value investor and the Chief Ideator and Founder of iThought.

BookWorm: The Drunkard’s Walk

May 15, 2018

All through our lives, we’re incessantly nudged in unexpected directions by random events. The Drunkard’s Walk is a deep exploration of the subjects of chance, uncertainty, luck, randomness, and probability. It offers useful mental models that will give you a totally new vantage point to look at many aspects of our everyday lives.