Keeping it simple!

 

Investing can be as simple or complicated as you make it to be. I’ ll share a personal example:

I used to be in awe and often get overwhelmed on reading these brilliant analyses of companies and concepts on various blogs across the internet, ” Wow how am I ever going to get so good” or ” I am going to start reading 6 hours a day, everyday (orders top 10 recommended books from Amazon)”.

After passing through a period of mindless reading and running about to various seminars ( which promised the fruit of identifying the next multi-baggers ) in the pursuit of gaining nirvana, I ended up with a 10 page framework and check list to analyse companies. I thought to myself ” Now, finally I am going to crank up those returns and become the best money manager ever”

This feeling did not last long, for 2 reasons:

  1. As I progressed, I realised that most of it was repetitive and as a result I had to think and write the same points over and over again and it took a really long time to finish researching a company
  2.  The framework itself was so vast, it was intimidating, most times as I sat down for research, to my surprise, I was bored rather quickly

On some introspection, I understood the following:

  1. Your only competition is yourself, focus on absolute returns
  2. Understand that knowledge grows gradually with time and experience
  3. Reading the wrong kind of stuff is very dangerous
  4. Reading too many books too soon will not add optimum value, it takes considerable time to absorb concepts and ideas of each book, relax there’s a lot of time, one book at a time, slowly
  5. If the idea is not appealing within the first 30 minutes of the time you spend understanding it, it probably never will be
  6. Luck plays a huge part in determining returns, it is often futile to know everything out there
  7. You are not really investing in the business itself but on the probability of the business doing well in future
  8. Your investing strategy must suit your temperament, different things work for different people, find what works for you
  9. There is no superior or inferior analysis, only returns

So what do I do?:

  1. I read about 1 book every other month(related to investing) and I am really choosy about what I read
  2. My investing framework is only 2 pages
  3. I usually complete my homework on the company within a couple of days max
  4. I try and know enough to understand if the business is going to do well 3-5 years out, My focus is generally on the larger picture
  5. I avoid crunching too many numbers, future is unknown, I’m good if I like the business model of the company and the people running it
  6. I allocate minimum capital at the start and keep adding and averaging up as and when I get more comfortable with the business and the management
  7. I follow very selected blogs of people I admire and which I believe can add good value to my investing life
  8. I don’t watch stock prices very often specially of companies I am invested in
  9. I often write down stuff rather than typing

The investing process has to be fun, engaging and most importantly simple!

Hope this has added some value to your investing journey!

Happy investing!

 

 

Sins of Investing

There are 2 emotions which have predominantly governed the stock markets, Fear and Greed.

There is one more and its called – ENVY.

Past couple of months have been a golden period for equities in India, everything is heading north and returns have really poured in.

Now imagine this –

In a scenario where everybody around you is minting money, everybody is a stock pandit and is painting the best picture possible for the future, brokerage houses have stock recommendations with a minimum 100% upside potential and people are buying fearlessly and flaunting their new stock picking abilities –

You find no opportunities to invest in! let’s say for some reason, your rational mind cannot justify the price you would be paying for the companies you like.

A situation like that, the feeling of being left out can really play with your mind in weird ways, you tend to get envious and jealous of people around and at this very crucial inflexion point you mess up.

Seasoned investors can naturally manage this a lot better, having previously burned their fingers, they focus on generating absolute returns on capital over the long term and do not bother with short-term temporary under performance.

There is nothing more counterproductive than envy. Someone in the world will always be better than you. Of all the sins, envy is easily the worst, because you can’t even have any fun with it. It’s a total net loss.” ~ Charlie Munger

Happy investing!

Investing Resources & Books – 2

This is the 2nd part of the series, you can read the first part Here

Books:

1. The little book that ( still ) beats the market ~ Joel Greenblatt

If you are just starting out, this is should probably be one of the first books that you read, it’s like a foundation course on investing and business. The central theme of the book revolves around the fact that one should buy high quality companies at discounted valuations, as the author says frequently throughout the book ” Find out what the company is worth and pay a lot less for it ”

The Dhandho Investor ~ Mohnish Pabrai

This book is another gem, the main idea the author tries to convey is how to differentiate between risk and uncertainty. I remember one of its quotes very clearly ” Heads I win, Tails I don’t lose much “. It also talks about the power and magic of compounding.

3. The little book that builds wealth ~ Pat Dorsey

This book is all about the various forms of competitive advantages a firm can enjoy which enables it to achieve super-normal profitability for an extended period of time. It provides a good insight into how to identify a business with superior fundamentals

4. The 5 rules of successful stock investing ~ Pat Dorsey

This is slightly more detailed and elaborate and covers a more broader scope of topics, it takes the reader right from the fundamentals of investing to the valuation of companies, all in 1 book. It’s a great book for people to get their basics right and develop a sound investment process

5. One up on Wall Street ~ Peter Lynch

It’s one of my favorite books, I have read this one multiple times, it often reminds me to keep things simple. It emphasizes on investing in companies you know and can understand. There are no complex jargon here. Highly recommended for everybody, no matter what stage of your investing career you are in, this is one book you simply cannot miss

6. The black swan ~ Nasim Taleb

I must confess that I haven’t read the whole book, It proved too heavy and complex for my understanding, however there was one key insight I was able to pick up from the book which also happens to be its main theme ~ The role and impact of highly improbable and unlikely events on our lives. As far as investing is concerned, it has helped me remain skeptical and alert for any potential black swans lurking around

By no means is this list complete and as they say learning never ends, reading is to an investor what water is to life.
Keep reading
Cheers