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Investing during volatile markets

Surprises happen, often Taking a step back, we had no clue about the PM’s announcement about the de-monetization (banning of Rs 500 &...

Tuesday, September 18, 2018

Letters to my son #1 – Being human

Many a times we make mistakes, some times we are not taken seriously and sometimes we meet with failure too. Intellectuals as well as idiots are often in love with their own selves, their own ideas and will seldom listen to you. Even in the stock markets, when I regularly come across super-intelligent people every day, many a times, our thoughts and perspective differs. This difference of opinion, will always be there. One must understand to live with it and respect it too. Some people are hot-headed and blunt, and you may feel hurt at times. Some are way-too frank and you may also feel slighted by their way of talking, even when they may mean no harm.

How to deal with these? Should you get angry or ignore it? How to deal with rejection and, sometimes disappointment?

Let me remind you, Krishna, was a simple cowherd to many. He was the best of statesman, a fierce warrior, yet he often maintained his visage of the humble and lovable Gopala. Despite being the incarnation of Lord Vishnu, he still had people like Duryodhana, Shishupala etc disagreeing and even insulting him. He resisted the temptation to fight back on most occasions. Even though he did show his “Virat roopa” or his God form twice, most of the time he maintained his cool, and sought to reason, cajole and tone down the tensions. He respected the difference of opinion, and didn’t try to hijack anyone else’ choice by his own superior intellect/foresight/strength.

Like him, it is important to be approachable and affable to most people. Being human is most important. Krishna being a God, had a purpose in life, which he achieved too. But he didn’t make too much fuss about it, and rather enjoyed and spread happiness wherever and whenever he could. The lord shows us the way to live life in this world, and we can only learn from Him.

Your purpose in life is important, but ONLY to YOU. It is always crucial to maintain a humble self, which will allow you to make mistakes in life, learn and grow as a person. Even the Lord had to bear the lashings of the world, so who are you to expect anything different. So don’t take yourself too seriously that will impede your growth as a person and as a human being. Flow like water, and you will reach your sea.

Your Papa

Friday, January 06, 2017

Contrarian Thinking explained

Going against the herd is the key principle of Value investment. This is where it differs from the chartists etc who essentially try to “go with the flow”. Going with the flow is great while swimming.

Contrarian thinking is not based on ignoring known facts or just trying to be different / brave. It essentially means stripping out the emotions from the current situation and looking at things in black and white.

Explaining with a demo:
Let me make this clear with an example. I am sure“3 idiots” a popular bollywood flick, was enjoyed by one and all (including  me). Most of us will also swear by the “message” of the movie. But on a slightly deeper analysis, the movie shows big fallacies and inconsistencies in its events and incidents.

I will take one: a student commits suicide since the heartless professor didn’t allow him extra time/credits for project submission.

CONSENSUS view: Poor student had to die because of the arrogant SOB Virus (nickname of the teacher). Damn you Virus!!! It was entirely the professor’s fault. Why didn’t he allow extra time / credits for the project? Wow a Quad-coptor!!! (what if incomplete?) He should have awarded full marks to the student for even attempting such a project?? What are lousy grades against a young boy’s life??

Why cant you learn from the netas giving away all those free stuff (free laptops, loan waivers, wi-fi etc) from tax payers’ money and getting praised for their large-hearts?

CONTRARIAN view: Sad & unfortunate that a student commits suicide. He/she should be saved. But was the professor at fault? The student wasn’t in a school project. He was old enough to realise the time required for his ambitious project and match it according to the available time and resources. C'mon we don’t  write 2-pages answer for a 2 marks exam. Even a class 5 student knows that much. Common sense no?

How can a project guide allow extra time to a single student? 
If he does, would he not be unfair to every other student who had worked hard/sacrificed to submit the complete project on timeIt would be like examiner allowing “five minutes extra” to one kid, while every other student are asked to hand over their answer sheets.

Hence, Contrarian view is stripping away the emotions (of young student committing suicide) and realising that the movie is only trying to play with your emotions instead of properly examining the issue.

Business news channels, with their myriad “experts” tend to overplay a particular event zillion of times which does cloud our judgment and makes us act in hasty/emotional response. A value investor must be careful to avoid it.

Caveat: Averaging is usually followed as so called “contrarion” approach. But averaging in a debt-laden company or one which is getting obsolete etc. should be strictly avoided. 

Fun fact: Google Bill Miller + kodak. 

Thursday, November 17, 2016

Investing during volatile markets

Surprises happen, often
Taking a step back, we had no clue about the PM’s announcement about the de-monetization (banning of Rs 500 & Rs 1000 currency notes) and are still to come to terms with the impact and the after effects of the move. Neither had anyone any idea that a certain Donald Trump, a political first-timer, will be elected the President of the US of America! 

But both events happened, and took most, if not all of us, by surprise.

Coming back to Indian markets, the commentators are as divided on the economic and political impact of the anti-black money drive on the common man as they were clueless about such an event unfolding. However, prima facie, I see the following likely outcomes:

  1. Rise in deposits, will bring down rates: If the so far, surge in bank deposits (Rs 4 lakh crores so far; ~4% of total deposits) are anything to go by, the move may shore up bank deposits which in turn would swell short term liquidity in the system, putting downward pressure on interest rates causing the lending rates to start falling.
  2. Correction in prices of traditional black money havens: Maybe you would also have guessed that real estate prices would correct and at least home buying (for self use) may be a good idea in the near term. 
  3. Near term pressure on lending agencies: Equity investments in banks and NBFCs (especially LAP & MFI) may be under pressure for the near term as disbursals, collections as well as borrowers finances take time to adjust.

But all that you probably already knew. So what new can I tell you? 

I will reiterate on sticking to the basics of investing. Hence:
  1. an investor’s long term investment strategy should be influenced by near term/macro events to a limited extent. I believe that usually it’s a mistake to base investment decisions on macro forecasts/events. 
  2. macro events are important market influencers and hence often provide attractive entry/exit levels, which should be made use of. But they should not influence the choice of investment 
  3. investors should continue to invest with a long term view, taking an objective view on individual company’s performance, financial health, quality of business (existence of sustainable advantage & pricing freedom) loosely tempered with appropriate valuation measures 
  4. A long term investors should avoid making too many entry / exits and frequent churn in the portfolio. Sadly, churning is a trait, often encouraged by brokers by providing tips, automated or chat based reccos, rock bottom brokerages etc.

Call to action:

Significant correction has taken place in the markets, and may continue in the next couple of months.

Value investors should ideally take advantage of near term fear / greed of the market.