The One Percent Almanack

Wit and Wisdom on Investing, Business, and Life

Bookworm: The Little Book That Beats The Market

Before you get put off by the cheesy title, let me share a few words about the author. Joel Greenblatt managed money for Gotham Capital from 1985 to 2006 and generated an annualized returns of 40 percent during that period. In case that didn’t make you jump on your seat, let me put that number in proper perspective (and give you a glimpse into the massive power of compounding). If you invested Rs 1 lac in Gotham fund, over 20 years your initial investment would have turned into a staggering sum of around Rs 8.4 crore

Joel is a practitioner of value investing and pretty successful at it. And to add icing on the cake, Greenblatt is an adjunct professor at Columbia Business School. Which means, he’s an experienced teacher too. This unique mix of skills is extremely rare in the world of investing. This ability to teach by simplifying the ideas is what separates the likes of Warren Buffett and Charlie Munger from all the other successful value investors. Joel Greenblatt is pretty much up there in the same league.

As the title says, it’s a little book. A little over 100 short pages. But don’t get fooled by its brevity and the simplicity of Greenblatt’s message.

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Benefits to VIA Members
 
  • Spotlight: Big ideas from Value Investing and why applying them in your investment decision making will be a great deal
  • InvestorInsights: Interviews with experienced value investors, learners, and deep thinkers
  • StockTalk: Thorough analysis of business models of companies (without any recommendations)
  • Behaviouronomics: Deep analysis of human behaviour and how it impacts investment decision making
  • BookWorm: Reviews of the best books on Value Investing and related subjects
  • Free Course – Financial Statement Analysis for Smart People (otherwise priced at Rs 5,900)
  • Archives: Instant access to our huge archive from the past three years
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InvestorInsights: Shalabh Agarwal

Shalabh Agarwal is the founder of Snowball Capital Investment Advisors LLP. After spending a decade in the equities industry, Shalabh quit his steady and lucrative job in one of the best mutual fund houses in India to follow his passion of value investing. With a strong desire to unravel the stock market mystery, he read varied literature on investing – it was all quite confusing till he came in contact with Warren Buffett through his annual letters and books written on him. Since then Shalabh has been an avid follower of the Value Investing philosophy.

Shalabh has a professional experience of more than ten years including seven years as a ‘buy-side’ analyst in the Indian mutual fund industry. He graduated as a Mechanical Engineer from IIT Delhi and went on to acquire an MBA from IIM Bangalore.

Safal Niveshak (SN): Could you tell us a little about your background, and how you got interested in value investing?

Shalabh Agarwal (SA): I graduated from IIT Delhi in Mechanical Engineering in the year 2000. Generally, the fourth year is less intensive and so most of my time was spent on my B.Tech Project (final year major project), billiards and on surfing. Internet was still new to the campus and I remember Moneycontrol launching virtual stock market games. This was a period when markets were going berserk – shares hitting circuits on almost daily basis.

With absolutely no knowledge of stocks, this euphoria was intriguing enough for me to start participating in virtual stock market games. As luck would have it, I won some weekly / monthly portfolio contests and started receiving Rs 200 / Rs 500 bank cheques as prize money. Now this was something big as the dosa (a South Indian delicacy) at IIT Delhi’s subsidized restaurant used to cost ~Rs 5 then – suddenly, the cash starved me had enough to treat his friends!

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BookWorm: On Writing Well

If you trace the life of greatest thinkers you’d find a common thread among them. Almost all of them were great writers too. William Zinsser gives useful and blunt advice about writing better non-fiction.

What differentiates a mediocre investor from a good investor? Knowledge? Knowledge is necessary but not sufficient. The key is having the ability to apply the knowledge wisely. And that ability is a product of how one thinks. If you trace the life of greatest thinkers you’d find a common thread among them. Almost all of them were great writers too.

Writing isn’t merely a tool for expressing one’s thoughts. It’s also a tool to discover new thoughts, structure them, and refine them. All the great thinkers, inventors, scientists, philosophers, communicators I know have vouched that writing and thinking are connected to each other like Siamese twins. Isaac Asimov, the most prolific sci-fi writer of 20th century, wrote more than 400 books. He used to say, “Writing, to me, is simply thinking through my fingers.”

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Behaviouronomics: The Texas Sharpshooter Fallacy

If hindsight bias and confirmation bias had a baby, it would be the Texas sharpshooter fallacy.

Like any other teenager, I was fascinated by the idea of time travel. I watched a lot of sci-fi movies that sparked my imagination about how cool it would be to teleport to the future. More than the idea of going to the future, what excited me was the possibility of seeing the future. Then in 9th standard, I stumbled upon a book called “The Prophecies of Nostradamus”. Nostradamus was a 16th-century French physician who, perhaps as a hobby, published prophecies about future. What’s remarkable about Nostradamus’ is that his first book, which was published in 1955, has rarely been out of print since his death. It’s said that Nostradamus predictions about significant events including the world wars, assassinations of US presidents, many earthquakes, and other natural calamities have come true. Nostradamus has attracted a following that, along with much of the popular press, credits him with predicting many major world events.

The book that I had in my hands was of course not the original text. It was an interpretation of Nostradamus’ French quatrains (stanza of four lines). The translator claimed that Nostradamus intentionally obfuscated his writings to avoid getting persecuted by the 16th-century French government since many of his predictions were about the royal family. But that didn’t stop me from devouring the book and marvelling at this French dude’s clairvoyance.

Could Nostradamus really see the future? While you puzzle over that thought, let me share two interesting stories. Stories about coincidence.

What are the Odds?

The first story is about two US presidents.
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Lessons from The Bed of Procrustes

The funny thing about quotes is that you can find anything said by an eminent personality that proves your point. History has produced numerous philosophers and genius thinkers who have made a variety of contradictory statements. Some have contradicted their intellectual rivals and some have even contradicted themselves.

Another risk of using famous quotes to prove your point is that the person reading the quote may not have the proper context in his mind and end up interpreting the sentence in a totally different manner.

Nevertheless, famous quotes are famous for a reason. Einstein’s quotes aren’t famous just because Einstein said them. In fact, many of the aphorisms attributed to Einstein weren’t even uttered by him. The famous quotes have the tendency to get etched in our memory because they pack the right combination of the words to convey a powerful idea in the most efficient manner. They may not be true but they make you think.

A quote has served its purpose if it makes you think. Whether you agree with it is something you can decide after you have worked out your own mental muscles by giving it an independent thought. That’s why reading a book of quotes can be a very rewarding experience. Especially, if the book has been written by your favourite author. Nassim Taleb, known for writing thick and idea-dense books, has also authored a relatively less known book called The Bed of Procrustes. He writes –

Aphorisms, maxims, proverbs, short sayings, even, to some extent, epigrams are the earliest literary form – often integrated into what we now call poetry. They carry the cognitive compactness of the sound bite….Aphorisms require us to change our reading habits and approach them in small doses; each one of them is a complete unit, a complete narrative dissociated from others.

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Want to Read More? This content is exclusive for members of Value Investing Almanack. Login to read if you are a member. Else, click here to subscribe.

Benefits to VIA Members
 
  • Spotlight: Big ideas from Value Investing and why applying them in your investment decision making will be a great deal
  • InvestorInsights: Interviews with experienced value investors, learners, and deep thinkers
  • StockTalk: Thorough analysis of business models of companies (without any recommendations)
  • Behaviouronomics: Deep analysis of human behaviour and how it impacts investment decision making
  • BookWorm: Reviews of the best books on Value Investing and related subjects
  • Free Course – Financial Statement Analysis for Smart People (otherwise priced at Rs 5,900)
  • Archives: Instant access to our huge archive from the past three years
Become a VIA Member. Click to Subscribe