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Spotlight: Investing During Uncertainty

November 5, 2016

If you have chosen to invest money in stock market, accept the fact that there will be times of uncertainty with no clear visibility into near future. Since you can’t predict what tomorrow will bring, you must be prepared for whatever it does. If you can’t stomach that, perhaps you shouldn’t be in the stock market at all.

There’s no question about the fact that it’s harder to see the future than the present. But the quest for certainty and longing to know the future is an old human endeavour. For centuries, people have been misled by looking for certainties where none existed.

Uncertainty creates acute mental discomfort and there are evolutionary reasons behind it. Before agricultural revolution, homo sapiens lived as hunter-gatherers. In the absence of steady food supply and the constant threat of wild animals, evolution hardwired human brain to resolve uncertainties about its environment. Agricultural revolution resolved the uncertainties about food and danger but opened up new avenues like diseases, famine, and natural calamities. The way the human race has dealt with these problems was to seek answers from authority figures.

Until 500 years back, before the scientific revolution started unfolding the layers that were hiding the secrets of nature, this thirst for certainty was quenched by religion and collective myths. Religion and its CEOs (priests, pope, godmen etc.), who claimed to have a direct connection with God, offered all answers to all the important problems. So, this tendency to equate knowledge with certainty is an old habit. As technology advanced, it gave birth to methods and tools where it became possible to remove a certain class of randomness from human life, like having more control over deadly diseases and adequate supply of food. Today, modern technologies, from mathematical stock prediction methods to medical imaging machines, have made us more confident about many unpredictable things.

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Life 2.0: The Only Scorecard that Matters in Life and Investing

October 30, 2016

Lots of people I know have been victims of harassment and trolling on social media. Over the years, and especially in recent times, I have also been picked on by a few trolls to the point where it became ridiculously easy to predict exactly what they’re going to do on something I post or tweet, and how they are going to blow everything I say out of context, and how they’re going to whine and make a big deal out of things that shouldn’t even be of their concern to begin with.

Earlier I used to respond to these trolls with clarifications and counter-arguments. As I realized, that was useless and disturbing, especially for all others who were also hearing the noise coming out of my home (where these trolls had barged into).

Then I stopped replying to such criticism and kept quiet till people got personal – like someone recently calling me “grossly overrated value homeopathic quack.” 😉 And then I started blocking people sending such stinkers. In fact, I used the blocking tool generously.

Now, I realize even that tool does not serve much purpose. This is because even when I block people sending me negative criticism (and that too personal), I am still giving them and their thoughts some importance.

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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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Super Investor: Peter Lynch

October 30, 2016

If there is one legendary investor who not just beat the market but destroyed it, it is Peter Lynch. Lynch ran Fidelity’s Magellan Fund in the US for 13 years, from 1977 to 1990. During this period, he beat the US stock market index S&P 500 in 11 years. His average annual return during this period stood at a mind-boggling 29%. It means that every US$ 1 invested in his fund in 1977 grew to more than US$ 27 by 1990.

Lynch was not only a great investor, he had a wonderful way of getting across the secrets of his success in everyday language, exemplified by this warning of the perils of putting money into businesses that you don’t understand. His most famous investment principle is simply – Invest in what you know.

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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

BookWorm: Winning The Loser’s Game

October 15, 2016

The investment management business is based on a single basic belief: Investors can beat the market. Unfortunately, when these investors are themselves the market they cannot, as a group, outperform themselves. They’re playing a loser’s game.

Good sense of humour and investment acumen don’t normally go hand in hand. Apart from Warren Buffett there are very few value investors who possess all the three qualities of candour, straight talk, and good humour. Charlie Ellis is one of them.

Ellis is a strong proponent of index funds. According to him, for an individual investor the best strategy to compound wealth over the long term is to shun the active money management and go with index funds. I don’t personally agree that index fund, especially for those who are willing to invest few hours every week in learning the game, is the right choice for all investors. Nevertheless, I find Ellis’ arguments very compelling.

Charles Ellis wrote a paper in 1975 which popularized the concept of loser’s game. The paper talked about how the approach taken by good and bad tennis players is also seen in investing. Ellis’ article was based on Dr. Simon Ramo’s research. The idea was later adopted into this book called Winning The Loser’s Game.

Loser’s Game

Dr. Ramo, in his book Extraordinary Tennis for the Ordinary Tennis Player, argues that in expert tennis the ultimate outcome is determined by the actions of the winner. Professional tennis players stroke the ball hard with laser-like precision through long and often exciting rallies until one player is able to drive the ball just out of reach or force the other player to make an error. These splendid players seldom make mistakes.
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InvestorInsights: Rohit Chauhan

October 15, 2016

Rohit Chauhan is an Engineer / MBA with 20+ years of experience, working in different functions in large corporations in India and abroad. Rohit was introduced to the value investing philosophy in the mid 90s and has since then followed it in managing money for himself and others who have entrusted their capital to him.

Rohit has been writing on the topic of investing for the last 11 years via his blog valueinvestorindia.blogspot.com.

Safal Niveshak (SN): You’ve’ widely covered your journey on your blog, but let me still start with the customary question. How did you get into value investing, and how has your process evolved over the years?

Rohit Chauhan (RC): I got interested in investing as I had to manage my family’s finances after I finished my MBA. I started learning the basics by reading newspapers and books as this was the only way prior to the internet.

I came across a book The Warren Buffett Way in a public library and the book spoke about this billionaire in Omaha who had become rich by investing in stocks using some very common-sense principles. I was hooked.

Over the years, I read as much as I could find on Buffett, which lead me deeper into value investing and to the teachings of Benjamin Graham, Philip Fisher and other greats in this field. So you can say that I have learnt mainly through books and the internet just accelerated the process.

As I was exposed to Buffett at the start of my journey, his philosophy and teachings have formed the bedrock of my approach. Over the years, I have studied other great investors and have dabbled in deep value investments, arbitrage and other opportunities. However, my core philosophy of buying good companies at reasonable prices remains the same.

My process has evolved to become more qualitative and focused on aspects such as the competitive advantage of businesses, industry dynamics and management as these factors finally drive the numbers. This evolution has also happened due to the fact that markets have become much more competitive over the years and it is difficult to find obvious quantitative bargains now.

[Read more…] about InvestorInsights: Rohit Chauhan

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