The One Percent Almanack

Wit and Wisdom on Investing, Business, and Life

InvestorInsights: Jayendra Kulkarni

Jayendra Kulkarni, a value investor from Mumbai, shares his 20-year journey in stock market and recounts his discovery of value investing and how it helped him build a framework for finding value.

In this issue, we profile a Mumbai-based value investor, Jayendra Kulkarni. Jayendra has been investing for close to 20 years and invests largely in small and medium sized businesses.

Safal Niveshak (SN): Could you tell us a little about your background, how you got interested in investing, and how you’ve evolved over time as an investor?

Jayendra Kulkarni (JK): I did my Hotel Management from IHM, Mumbai and then a Business Management Diploma. I don’t have any foundational background of Finance. So I started from ground zero – clueless. Naturally the learning curve was steep. It was not intimidating though; simply because I did not know, what I did not know.

I worked for the stock broking division of Apple Finance in the mid 90’s in Marketing and Dealing and that for me was the embarking point. I’d heard about ‘book value’ and ‘PE ratio’ and would spend days sifting through Capital Market and Dalal Street Journal searching for what I thought were under-priced stocks. When only a few of what I thought were Eureka stocks, worked out, I slowly began realizing that the investing process is not a simple two dimensional graph.
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Behaviouronomics: Hyperbolic Discounting

Hyperbolic discounting is a remnant of our animal past. Rats never give up a piece of cheese today to get two pieces tomorrow. Humans aren’t very different too.

Few months back when I quit my job to join Vishal at Safal Niveshak, I had to return my laptop to my earlier employer, and buy a new one for myself. This got me started on the herculean task of selecting from thousands of choices available on numerous e-commerce websites. After weeks of excruciating process of comparing, shortlisting, and researching, I finally zeroed in on my final choice. Then started the wait for online discounts.

Very soon, the so called online-sale-season (i.e., weekend) arrived which offered a ‘whopping’ Rs 75 discount on my selection. So much for the patience, but for a self-proclaimed prudent consumer it still was a good deal!

Just when I was about to place the order, I saw the option of same day delivery for an additional Rs 100. Guess what yours truly did? He didn’t hesitate for a moment to take the offer.

Ironically, I waited for a week for a small discount but when the time came for buying I couldn’t wait another day and forked out extra money just to get my toy immediately. What happened to my admirable qualities of patience and prudence?

A little research on Google revealed that the introduction of ‘get-it-now’ caused me to behave irrationally. Scientists, as usual, have a name for this tendency – Hyperbolic Discounting.

On one hand, when I am forced to wait for six days, I don’t mind waiting for seven days. But when I am told that I can get something today instead of tomorrow, my temptation refuses to wait for another day.
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Spotlight: The Folly of Macroeconomic Forecasting

Is it worth studying the macro factors while analysing a stock? The answer is both Yes and a No. We explore what kind of macro should an investor be concerned about and what should be avoided.

We don’t know what lies ahead in terms of the macro future. Few people if any know more than the consensus about what’s going to happen to the economy, interest rates and market aggregates. Thus, the investor’s time is better spent trying to gain a knowledge advantage regarding ‘the knowable’: industries, companies and securities. The more micro your focus, the great the likelihood you can learn things others don’t.~ Howard Marks

We look at opportunities, as they come along, we try to figure whether we can understand the long term economic prospects of the business. A lot of times the answer is no, then we forget it. We are not making any judgment about where the market is going or we are not looking at any macro factors.

My partner Charlie Munger and I have been working together now 55 years. We’ve talked about every business you can imagine and stocks. We have never had one decision that involved a macro factor. It just doesn’t come up.” ~ Warren Buffett

A profession that has been the butt of most jokes is that of an economist. Though I am sure it is not fun being an economist, whose work involves examining a system with, literally, billions of different moving parts and then trying to come up with predictions or reasonable explanations that, quite frankly, don’t actually exist.

I still remember what they taught me in my college’s macroeconomics class. The equations were always assuming something.

If government increases spending by X, output would grow by Y, but only if you assume taxes weren’t used to support the spending, only if you assume full employment, only if you assume full price elasticity, only if you assume no substitution effect, etc. In short, macroeconomics was and remains a science that behaves with the certainty of physics, but has the track record of alchemy.
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Welcome to Safal Niveshak’s School of Value Investing & Multidisciplinary Thinking

I was recently at one of India’s leading business schools, and was very surprised to see that what they teach their Finance students has not changed a bit from what I learned when I was in such a school myself almost 13 years back. Beta, CAPM, efficient market theory, and derivatives still rule the roost. Students are trained in mock trading, and exposed to a steady stream of business media so that they can take quick and effective trading decisions.

Anyways, while I was there and as I interacted with students, I realized that the lack of proper education in what works and what doesn’t in the real world finance is a grim reality of today’s business education. And things don’t seem like changing a bit.

But a start can definitely be made. And so I decided to frame the curriculum of a business school, if I were to set up one in the future, that taught students the art of value investing, multidisciplinary thinking, and almost everything else they would need to do well in their financial careers.

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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
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Life 2.0: Is Getting Rich Worth It?

Some of the greatest things, the greatest discoveries, have come about by serendipity. Let’s explore its magic here.

I recently wrote about the mental model of Inversion in Safal Niveshak’s Latticework series. ‘Inversion’ suggests that sometimes you stumble upon very useful insights by inverting the problem.

Now, what use is a mental model if you can’t implement it? So let’s use it, for the sake of personal amusement, to investigate one of the most popular problems in the world.

Yes I am talking about the conundrum of – “How to get rich.” The inherent assumption here is that everyone wants to be rich and they are just looking for the “how” part. Keeping that in mind, one of the ways to invert this question is to ask – “Is getting rich worth it?”

Before you decide to skip this article thinking that it’s another one of those “money can’t buy happiness” rant, just stick with me for few more lines and I promise that you won’t regret.

I consider this as an opportunity to wear my curiosity cap and look at the real and practical problems faced by super rich. Now given the fact that the author, yours truly, isn’t so rich (money wise), is it justified for him to comment on problems of rich? So in my defence all I have to say is that I never let my lack of first-hand experience with a topic stop me from speculating on it.

Unlike previous Life 2.0 articles, this post doesn’t aim to provide any ‘how to’ advice. My intention is to share with you a different perspective, the view from the other side of the fence where grass seems greener.
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