Spotlight

9th January 2018 was the last day at my office. I quit my software job to spend more time pursuing the work that I love, i.e., reading, writing, and building my personal projects. I received calls from a handful of friends when I broke the news. Most of them congratulated me and some showed concerns too about my seemingly hasty decision.

However, one of them asked me a sincere question – “Are you financially free to justify this bold decision?”

It’s hard to discuss money without bringing up the topic of financial freedom, isn’t it? Unfortunately, the idea of financial freedom, like the concept of God, has been abused so much especially in last 10-15 years that it has lost its meaning.

If you’re in a job or profession where you spend a significant amount of time doing things which you’d do even if you weren’t paid for it, you can stop reading here. There’s little this essay can offer you.

However, if you are spending 40-50 hours every week doing something which you’d rather not (but still have to because it pays the bills) then read on.

[Read more…] about Beware the Mirage Called Financial Freedom

Financial freedom shows you the dream of living a boss-free life. Unfortunately, hoping the money to de-slave you is a dangerous strategy. Money merely changes who you are a slave to. Earlier it was the boss; later it’s money itself. Slavery persists. Just the ownership of the slave changes.

9th January 2018 was the last day at my office. I quit my software job to spend more time pursuing the work that I love, i.e., reading, writing, and building my personal projects. I received calls from a handful of friends when I broke the news. Most of them congratulated me and some showed concerns too about my seemingly hasty decision.

However, one of them asked me a sincere question – “Are you financially free to justify this bold decision?”

It’s hard to discuss money without bringing up the topic of financial freedom, isn’t it? Unfortunately, the idea of financial freedom, like the concept of God, has been abused so much especially in last 10-15 years that it has lost its meaning.

[Read more…] about Spotlight: Beware the Mirage Called Financial Freedom

The world today is obsessed with the idea that every problem can be and should be solved efficiently and accurately. Mother nature, on the other hand, believes in simple solutions. We explore, what an investor can learn from the most successful ditching in aviation history.

Chesley “Sully” Sullenberger had 208 seconds to land his plane from the time both the engines caught fire.

On January 15, 2009, US Airways Flight 1549 took off from LaGuardia Airport, New York with 155 people on board including five cabin crew members. Four minutes after the take-off, passengers heard very loud bangs and saw flames from the engines, followed by silence and an odor of jet fuel. Apparently, the plane was struck by a large flock of Canadian geese. A Canadian goose can be as large as ten kgs, big enough to cause serious damage to the airplane engine. On this occasion, the impact killed both the engines.

Realizing that both engines had shut down, Sully assumed manual control of the plane while his co-pilot, Skiles, worked the checklist for engine restart. Twenty seconds after the bird strike, a voice crackled on the radio at the New York Air Traffic Control (ATC).

[Read more…] about Spotlight: Investing and the Power of Simple Ideas

If you can find a business which is investing in building relationships that are based on seamless web of deserved with its customers, suppliers, vendors, shareholders, and employees, you’ve found a business with a strong moat. A moat which is hard to identify with numbers and hence not visible to Mr. Market.

On January 3, 1972, Warren Buffett acquired See’s Candy business for $25 million. This acquisition has an interesting backstory. The first time when an investment advisor approached Buffett for See’s Candy, he showed no interest. Buffett was in Nebraska. See’s Candy was in California.

“The candy business?”, Buffett squirmed, “I don’t think we want to be in the candy business.”

Fortunately, Buffett’s partner Charlie Munger lived in California and he was familiar with See’s Candy brand. On Munger’s advice, Buffett agreed to negotiate. Coming from the Benjamin Graham school of thought, Buffett was reluctant to buy See’s at the asking price. But Munger nudged him in the direction of paying up for quality.

[Read more…] about Spotlight: Seamless Web of Deserved Trust

Most real-world systems are multiplicative in nature. Multiplicative systems are counterintuitive because human brain tends to think in terms of averages. In this post, we explore the connection of mathematics, through the study of multiplicative systems, with Charlie Munger’s idea of avoiding serious mistakes for ensuring superior performance over the long term.

The story of this fund manager is fascinating, instructive and true.

For fifteen consecutive years (1991-2005) Legg Mason Capital Management Value Trust fund, run by Bill Miller, outperformed the S&P 500 index. Not just the overall fifteen-year performance but for every single year in that period. In a world where less than twenty-five percent of the fund managers beat the market in a given year, doing it for 15 calendar years in a row is noteworthy. Even legendary investors like Peter Lynch couldn’t achieve this feat, i.e., consistently doing better than the broader market for such a long time.

Let’s put Miller’s performance in a more tangible form. If you invested $10,000 with Mr. Miller fund at the beginning of 1991, you would have $98,000 at the end of 2005. That’s a 10-bagger in fifteen years, i.e., close to 15 percent CAGR. Not bad. Not great either. However, what’s remarkable was the consistency of market outperformance. The returns came like clockwork. Year after year.

Could it be the case of survivorship bias? Pure luck? Michael Mauboussin, a very successful money manager and author of numerous useful books on investing, estimated that the probability of beating the market in the 15 years ending 2005 was 1 in 2.3 million. Conclusion – it wasn’t luck. Bill Miller was smart and knew his game.

Jason Zweig, a noted financial journalist and official editor of Benjamin Graham’s classic The Intelligent Investor, wrote this about Bill Miller in one of his articles –

Steadfast in his convictions and imperturbable under pressure, Mr. Miller was the ultimate iconoclast. He ran a fund with “value” in its name that feasted on technology

He bought Amazon.com during the Internet bubble. He bought Google in its initial public offering, when it was considered insanely overvalued by many. Your garden-variety fund manager studied economics in college, got an MBA and went straight into money management. Mr. Miller, by contrast, worked as an Army intelligence officer, pursued a Ph.D. in philosophy and was chairman of the Santa Fe Institute, a think tank devoted to the study of complexity in nature and society.
[Read more…] about Spotlight: Avoid Multiplying by Zero