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Monday 31 December 2018

ET Article: Investment strategy for election year? Just don't think too much!

2018 has been a very testing year for equity holders. Investors in midcaps and smallcaps have bled profusely. Largecap indices, with the exception of a handful of stocks, have also gone down. This is normal. Equity returns are not linear. Equity as an asset class does not give steady, regular returns. 2017 was a year of super-normal profits. On a two year timeframe investors have still made positive returns. It is the recency effect and the availability bias which plays tricks with our minds and makes us feel that the markets have let us down!
I will not hazard a guess on what the market will be like in 2019. Not because I don’t want to, but simply because I don’t know how to. I know at this time of the year, it is fashionable and probably expected to prognosticate about the next year, but I will refrain from that. Instead let me talk about a few important things that we should keep our eyes out for.
Firstly, let’s talk about the elephant in the room and get it out of the way - the general elections. Historically, Indian markets have had large swings immediately before or after the general elections. However, if we have a 2 year view, elections and its results don’t matter much. In 2004, the Nifty went circuit down post-elections, and yet the market went on to have a great bull rally for the next 3 years. Exactly, the opposite happened in 2009. The market went circuit up and then did not do much for the next 2 years. In the US elections, when Trump won, markets where expected to crash, yet it rallied. Recently, in the state elections, the ruling party lost in 3 of the major states yet the market went up instead of falling as was generally expected. I would argue that not only is it not possible to figure out election results, but it is not important to do so for investing.
Next is the US-China trade war. It is something which is too difficult and complicated to be able to infer its implications. One thing in India’s favour is that most of India’s economy is domestic-consumption driven and not dependent on either US or China.
Oil prices can destabilize our economy to a great extent. How it behaves in 2019 and beyond needs to be on our radar as investors because it can impact the currency and interest rates. We, as a nation, need to start actively looking at renewables and reducing our dependence on oil imports. 2019 is a year as good as any to get started on this.  
Job creation in the age of increasing automation is going to be an ongoing challenge. India needs to be able to support its huge population with jobs. We are in a peculiar situation with a scarcity at both ends of the spectrum. Industry doyens keep talking about unavailability of employable people and on the other hand our youth have no jobs. Should we be focusing on vocational training instead of trying to push everyone to get a graduation degree? What about the quality of education being imparted at various levels?
While these have nothing directly to do with equity investing in 2019, tackling these problems by an enterprise can provide long term mega-themes.
India is a 2.5 trillion dollar economy today. At the current pace, we should double in 8-9 years and then double again in another 8-9 years. In this while, market cap should also go up substantially from current levels because a lot more of the large unlisted players would come to the capital markets through IPOs. At a 100% market cap to GDP ratio, we are looking at approximately 10 trillion market cap in 16 to 18 years.  That is a 5-fold rise at the market level in that time frame. Individual stocks will definitely do much better. So, keep an eye on the longer term wealth creation stories, be invested in a well-chosen portfolio of stocks and fasten your seat belts for a bumpy ride on the way.

This article first appeared in Economic Times on 1-Jan-2019

Friday 21 December 2018

Weekly Reading: Some Interesting Stuff

The creative destruction of capitalism gives it a remarkable advantage over other systems. You sometimes have to be willing and able to tear down in order to build up. The old and proven and venerable must sometimes give way to the new and innovative and transformational.
A capitalist economy should be judged not just on the aggregate economic improvement driven by its innovation but also on the design and strength of the social safety net that cushions the ill, or disadvantaged, or those who simply fail to thrive in their particular setting, geography, industry, or trade. After all, creative destruction is still destruction, even if inevitable and in the service of a net gain to society.

They analyze the DNA in a patient’s cancer cells. Using special algorithms, a computer then scours data on thousands of gene variants, hundreds of anticancer drugs, and millions of drug combinations to find the treatment that best targets the tumor’s abnormalities. It may be a new immunotherapy, old-line chemotherapy, hormonal therapies, or drugs that aren’t specifically approved for cancer.
Precision medicine flips the script on conventional medicine, which typically offers blanket recommendations and prescribes treatments designed to help more people than they harm but that might not work for you. The approach recognizes that we each possess distinct molecular characteristics, and they have an outsize impact on our health.

Third installment on how to write well, by Jason Zweig. This series is a must-read for all those who like serious reading and writing.
The essence of rewriting is destruction.  Journalists and other professional writers almost always call it “killing my darlings.”  Cutting is bloody, but rewriting is what hurts, because it requires brutal self-examination.  Rewriting also hurts more than cutting because, after you already put all that work into striving for perfection, now you have to scan everything you did with a cold, alien, objective eye that focuses on finding every imperfection.  If you can’t find any, you are writing, but you are not a writer.

Notes from Durgesh shah's talk at the second Value Investing Pioneer's Summit organised by the CFA Society, New Delhi.

New York Times' collection of the 100 most notable books of 2018

Friday 14 December 2018

Weekly Reading: Some Interesting Stuff

This is one of the best articles' I have read this year. So many wow moments in this. Here are some excerpts:
When a supernova explodes, the blast wave creates high-energy particles that scatter in every direction; scientists believe there is a minute chance that one of the errant particles, known as a cosmic ray, can hit a computer chip on Earth, flipping a 0 to a 1. The world’s most robust computer systems, at NASA, financial firms, and the like, used special hardware that could tolerate single bit-flips. But Google, which was still operating like a startup, bought cheaper computers that lacked that feature. 

They were relentless optimizers. When a car goes around a turn, more ground must be covered by the outside wheels; likewise, the outer edge of a spinning hard disk moves faster than the inner one. Google had moved the most frequently accessed data to the outside, so that bits could flow faster under the read-head, but had left the inner half empty; Jeff and Sanjay used the space to store preprocessed data for common search queries. 

A list of the best scientific innovations of 2018. A fascinating peek into where we as humans are going. Things like the Iron-Man jet suit, indoor smart garden, shape-shifting vehicle wheels and the world's first migraine prevention drug make the list interesting and entertaining.

New technology is the key reason for today’s high equity valuations, he said: “It’s created this vision of a world for all of us where we can have high growth and no inflation forever.” But the United States has had many periods of technological change since the late 1800s and none ever produced permanent high growth and low inflation.
So China will abandon its link to the dollar. “It’s just not conceivable that the second-biggest economy in the world would take its monetary policy from Washington, DC,” Napier said. He expects an initial devaluation, then a free-floating RMB that allows China to inflate away its debt. And when the currency relationship ends, so will the nirvana of high US growth, low inflation, and high equity valuations.

A fascinating article on how Sweden has managed to be great at creating new start-ups in business and the changes it has put in place over the last 30 years to get where it is today.

How can 2018 be complete without something about graphite ;-)
Over the next five years, demand for graphite electrodes is expected to outstrip supply, keeping prices high. (Capacity is expected to grow by 8 percent annually, but demand should grow by 12 percent.) “We see this uplift as structural,” noted Sumangal Nevatia in a Macquarie Research report in June. “With no substitute, growing demand and limited new supply, graphite electrodes are now more a ‘strategic resource’ than a ­‘commodity.’ ”

Thursday 29 November 2018

Weekly Reading - Some Interesting Stuff

A beautiful glimpse into the Bombay Plan, a powerful planning document created by the most powerful businessmen and technocrats of India in 1944, and what it wanted to achieve.
The Bombay Plan’s targets were overwhelmingly more ambitious than anything the Planning Commission of the government of India ever attempted. It had envisaged the doubling of per capita income over fifteen years and proposed appropriate sources of finance for that ambitious target. 

Brian Acton, the founder of WhatsApp, walked away from $850m when he resigned and moved out of Facebook. He speaks at length about that and other aspects. Paints a very poor picture of Facebook as a company. Fascinating read.

Google employees have renewed their public protests against “Project Dragonfly,” a censored and surveillance-enabling search app that Google is reportedly building for the Chinese market.  oogle has said little about Dragonfly, but numerous reports have detailed its planned features, which reportedly range from blocking specific keywords like “human rights” to linking searches with users’ phone numbers.

Verily Life Sciences, a research organisation run by Alphabet, Google's parent company, plans to infect thousands of male Aedes aegypti mosquitoes with Wolbachia, a common bacterium, and release them out in the open. This breed of genetically altered male mosquitoes, which don't bite humans, would then mate with the females, and pass on Wolbachia. Now, if the female mosquitoes lay eggs, those eggs will not hatch!

Food-delivery sites can, in the long run, switch customer loyalty from restaurants to the platform itself. A Swiggy user, for instance, may go for the cheapest or closest option rather than picking a restaurant deliberately. “Once the platforms have enough clout, they can dictate prices or even set up their own kitchens".

This is something which is very concerning and scary for the country, and unfortunately is not getting the importance it deserves from both policymakers and the media.
Employability across education domains are less than 50% across board.


Thursday 22 November 2018

Market View: Be cautious, be on the lookout for sustainable earnings growth

Since the last time I wrote in ET Markets, the biggest macro headwind for India has now taken a few steps back. Oil prices are down from its recent highs and keep going down, bringing down the USD-INR down along with it. The macro analysts continue to fret about the impending state elections, general elections next year, US-China trade war and very recently the US market fall. Somehow, I have always seen that there is something or the other to worry about in the global economy. But as the world has seen, companies have survived and thrived over the last century despite two world wars and countless natural and man-made calamities. The challenge is that everyone wants to get rich in a short period of time. No one has the patience and mental fortitude required to hold on to good businesses over their business cycle. Business results, in general, tend to be mean-reverting, which means over time, great results become mediocre and poor results get better.

Now that quarterly results have mostly come in, they indicate a total revenue growth of 20% on aggregate and around 78% of companies have a positive or flat growth. The results of the universe of stocks I track have been improving in the last two quarters and although everything is not hunky-dory as yet, things are not drastically bad as well. Valuations, however, are still on the higher side. Good businesses with long-term earnings visibility continue to be expensive.

Domestic mutual funds continue to see strong inflows. The share of equity-oriented schemes is now 41.2% of the industry assets in October 2018, up from 38% in October 2017. Equity and equity-linked schemes attracted Rs 12,622 crores, besides, Rs 55,296 crore was invested in balanced funds in October. Inflows into SIP funds were at 7,900 crores, up 42% from last year. A sustained inflow of retail capital into the India markets and especially through mutual funds is a good indication of retail participation. This trend is unlikely to wane in the near future as more and more retail investors get used to their monthly SIPs. I see a lot of similarity between India of today and the early 1980s in the US when the retail investment boom was fueled by the 401(k) plan. The 401(k) in my opinion was one of the main catalysts of the biggest 20-year boom in US markets till 2000 dot-com bust.

An investor makes money essentially by earnings growth and PE expansion. The case for PE expansion in India as of now seems limited as we are already above the average historical PE. Incremental returns in the near future are more likely to come from earnings growth, so as active investors we need to focus on those businesses which are able to generate above-average earnings growth. Some sectors such as Chemicals, Hotels, Paper, IT, Optical Fibre and Cables seem to be doing well and should be kept on our watchlist for deeper study.

This article first appeared in Economic Times ET Market Moghuls section on 22-Nov-2018.

Monday 19 November 2018

Weekly Reading - Some Interesting Stuff

A breakthrough, if it happens, that has very large consequences to humans. Xenotransplantation using genetically modified pigs for organ "farming" can be a life saver for people.
After years of setbacks, the past two years have seen a cascade of record-breaking xenotransplants using primate models, and researchers are working with regulators to prepare for clinical trials with humans. The first pig-to-human skin graft using live cells is set to take place this month in Boston. At the same time, Tector is readying a clinical trial in which he will install his triple-knockout pigs’ kidneys in dialysis patients who are unlikely to be considered for human-donor organs.

A critical review of "All is well" book factfulness by Hans Rosling. This article argues that Rosling only cherry picked the "good" data and left the difficult and bad data out of his study to present a rosy picture of the world.

Apple is increasingly "milking" its captive user base to sell services and is unable to sell more gadgets.

A wonderful collection of pictures to remind us how smartphones have become all pervasive in our lives.

An article on Shane Parrish, who runs the best blog in the world, in my opinion, and how he got to doing this.

An interesting article on how labour reforms, specifically wage reform, can improve the capitalist system.

Friday 9 November 2018

Weekly Reading: Some Interesting Stuff

Here is wishing everyone a very Happy Diwali.

Wonderful article on the search for investment edge. Has some wonderful anecdotes.
In 1834, however, the signal from a similar optical telegraph system in France lost its edge when the data became corrupted.
In the world’s first cyber-attack, two bankers bribed a telegraph operator to transmit false information about the bond market to unsuspecting investors in Bordeaux, which would benefit the banker’s positions.

We are not just using plastic, we are eating them too!
If the pieces of plastic were in these people’s digestive tracts, nobody is sure yet how they got there. Some might be coming up the food chain — ingested when we eat creatures that ate plastics, or when we eat creatures that ate creatures that ate plastic, etc. Some may be coming from water bottles and food containers. Other studies have shown that both tap water and bottled water are contaminated with microplastics. A story in National Geographic points out that carpeting and other household items can shed plastic fibers, and that fibers from synthetic clothing are floating around our homes.
Also unknown are the health ramifications, if there are any. In studies of sea birds, ingesting plastic had exposed them to chemicals called phthalates, which are known hormone disrupters.

A very interesting new research on how the potato, brought back by the Spanish from South America in the 16th century to Europe, ushered in an era of high farm productivity, which in turn reduced armed conflict significantly in the following 200 years.

The difference on being humble and being humble :-)

A wonderful compilation of corporate misdemeanors in India by Rudra Chowdhury.

And now, bottled air!!

Thursday 25 October 2018

Weekly reading: Some Interesting Stuff

An account of how Amazon is working with local shop owners in rural India to bring online shopping to the rural masses

The primary risk is a permanent capital impairment or substantial mark-to-market losses. Any investor who has been putting money to work for some time will know that losses can come hard and fast, erasing years of returns. Avoiding these at all costs is, in my opinion at least, worth sacrificing a few percentage points of returns for.

5 Lessons from Jeff Bezos's 21 Years of Shareholder Letters

Wonderful letter to investors from Rajeev Thakkar of PPFAS mutual fund. Easy to read, takes on some very interesting and often asked questions and discusses about it.

James Clear has recently come out with a new book - Atomic Habits. This article is about how to take small (atomic) actions to create good habits or reduce bad ones.
It is remarkable how little friction is required to prevent bad behavior. When I hide beer in the back of the fridge where I can’t see it, I drink less. When I delete social media apps from my phone, it can be weeks before I download them again and log in.

Friday 19 October 2018

Weekly Reading: Some Interesting Stuff

Extraordinary comparison between the Amazon of today and Sears of a century ago to show how uncannily similar they were.

From the start, Sears’s genius was to market itself to consumers as an everything store, with an unrivaled range of products, often sold for minuscule profits. The company’s feel for consumer demand was so uncanny, and its operations so efficient, that it became, for many of its diehard customers, not just the best retail option, but the only one worth considering.

In the decade between 1895 and 1905, Sears’s revenue grew by a factor of 50, from about $750,000 to about $38 million, according to Alfred D. Chandler Jr.’s 1977 book The Visible Hand: The Managerial Revolution in American Business. (By comparison, in the last decade, Amazon’s revenue has grown by a factor of 10.)

Sears was not content to be a one-stop-shop for durable goods. Like Amazon today, the company used its position to enter adjacent businesses. To supplement its huge auto-parts business, Sears started selling car insurance under the Allstate brand. 

A good profile of how Oberoi Realty is bucking the trend in the crowded real estate market.

To be honest, I had never heard of Robert Vinall before this week. He is the owner and fund manager at RV Capital based out of Frankfurt Germany. His fund completed 10 years and he has written a wonderful letter. It encapsulates a lot of learnings that most of us go through. Definitely worth a read.

From a financial perspective, my sell decisions demonstrate that whilst it is correct to sell when a flaw in the investment case becomes apparent, it is often not when the valuation appears rich. In all but the broadest strokes, the future is unknown and unknowable. Where I know the company and its people well and, crucially, trust them, the surprises have normally been positive. What appeared at the time to be a high valuation, was not.

If you are starting today, my advice is to be fully invested, but only to hold the companies you would own if you knew the economy was on the brink of collapse. Incidentally, this is the correct way to invest all the time.

EU is planning to impose a tax on big Tech (google, facebook etc) based on digital presence rather than physical presence. If implemented, it will open up a new frontier of taxation and my guess is most if not all countries will then follow suit.

Read the full article here: https://www.bbc.com/news/business-45813754

Paul Allen, the co-founder of Microsoft, passed away earlier this week. Here is an obituary written by Bill Gates.

Paul foresaw that computers would change the world. Even in high school, before any of us knew what a personal computer was, he was predicting that computer chips would get super-powerful and would eventually give rise to a whole new industry. That insight of his was the cornerstone of everything we did together.
In fact, Microsoft would never have happened without Paul. In December 1974, he and I were both living in the Boston area—he was working, and I was going to college. One day he came and got me, insisting that I rush over to a nearby newsstand with him. When we arrived, he showed me the cover of the January issue of Popular Electronics. It featured a new computer called the Altair 8800, which ran on a powerful new chip. Paul looked at me and said: “This is happening without us!” That moment marked the end of my college career and the beginning of our new company, Microsoft. It happened because of Paul.

Thursday 11 October 2018

Weekly Reading - Some Interesting Reading

The politics of oil price, inflation targeting by the RBI and import duties present a bleak picture for the Indian economy

The story of Nokia's comeback.

Whitney Tilson ran a reasonably successful fund which he wound up after consistent under-performance. Now, in his new avatar as investment coach to wannabe fund managers, he professes his new, "Make Money" investing style!!
In this presentation, Tilson discusses the pitfalls of both value and growth investing and how he is now combining value and growth in his new strategy.

A very interesting interview of Cliff Asness, one of the pioneers of quantitative investing, discussed on various aspects of quant investing and how it is continuously changing

I usually do not put links to collaborativefund or farnam street blog articles, simply because I expect everyone to read all of their articles. This time I am making an exception, because I think it is very timely for us in India.

"A young investor might have 40 years to save for retirement. But can they withstand a day like yesterday, when the market fell 3.5%? Can they stay optimistic during a deep recession? Avoid chasing what’s done well in the last month? Can they leave their money alone to compound when they’re tempted to buy a boat? You can buy a 10-year bond. Can you put up with a two-year rout?"
"Long-term focus is great. But the long run is just a collection of short runs that need to be managed."

Friday 5 October 2018

Weekly Reading: Some Interesting Reading

I’ve been trading for 15 years now and we’ve made over 50 percent compounded, as a rate of return (each year),” he says, adding, “Nobody can teach you trading; it’s more of a learn by experience kind of a job—each time you make a mistake, you learn from it, and try and avoid that mistake in the future.” -- Nikhil Kamath of Zerodha in Forbes

An extremely good article on how "fake news" is created to manipulate us by using our existing beliefs.
Fake news may now represent an existential threat to democracy, not just because it can be used to subvert and countermand the will of the people, but also because it can be used to destroy the people’s will to act together.
The term “fake news” should not be used to refer to something the reader dislikes or disagrees with.  Likewise, fake news no longer refers to a simple lie. Modern fake news is carefully designed so that its intended readers will not be able to detect that it is false. As importantly, it is crafted individually for each group of readers, to resonate with those readers and to produce the strongest possible emotional response.

A look at how Google is thinking about changing search - moving from answers to journeys, queryless way to get information and use of more visual way of searching.

Google is paying Apple $9 billion in 2018 and $12 billion for remaining the default search engine in Safari browser. All this money for a "free" search service!! So, the question is who owns a user's private data? This article tries to grapple with this question.

Segregating money managers into categories, this article provides an interesting take on the potential evolution of a money manager

Friday 28 September 2018

Weekly Reading - Some Interesting Stuff

A fascinating account of a brave journalist covering the drug lord El Chapo of the Sinaloa cartel and how he lost his life for sticking to his professional ethics.

Fitness, not body weight, is what matters.
Studies have found that anywhere from one-third to three-quarters of people classified as obese are metabolically healthy. They show no signs of elevated blood pressure, insulin resistance or high cholesterol. Meanwhile, about a quarter of non-overweight people are what epidemiologists call “the lean unhealthy.” A 2016 study that followed participants for an average of 19 years found that unfit skinny people were twice as likely to get diabetes as fit fat people. Habits, no matter your size, are what really matter. Dozens of indicators, from vegetable consumption to regular exercise to grip strength, provide a better snapshot of someone’s health than looking at her from across a room.

The Android is 10 years old. Today it is ubiquitous in the mobile world. A quick look at the journey. Also, what next? Will Android be replaced by Fuchsia?

Ultimately we will have automation in areas where it is incomprehensible today. The question remains, what then will be the role of humans?
The people who command six-figure salaries to negotiate multimillion-dollar deals with major brands are being replaced by software that predicts what shoppers want and how much to charge for it.

A nice article on Haigreve Khaitan, a man who has built one of the largest and most elite law firms in India. Today its client list includes marquee companies such as Mahindra & Mahindra, Reliance Industries, Vedanta, Aditya Birla Group, Welspun, and JSW Steel. There’s also Tesla, BMW India, Harley Davidson, Volkswagen India, and private equity firms Advent, Apax Partners, Blackstone, Arpwood Partners, and Kedara Capital. Of the top 12 bankruptcy/insolvency cases in corporate India today, Khaitan & Co is working on nine, including Essar, Electro Steel, and ABG Shipyards.

Wednesday 26 September 2018

ET Article - Focus on your stocks

Rudyard Kipling’s famous poem “If” started with these lines, which can be extended to investing as well.
If you can keep your head when all about you   
    Are losing theirs and blaming it on you,   
If you can trust yourself when all men doubt you,
    But make allowance for their doubting too;   
If you can wait and not be tired by waiting,
    Or being lied about, don’t deal in lies
The last one week has been very eventful. For an investor with a reasonably long time horizon, one of the most important things to do, is to take a step back (or rather many steps back) in such situations and focus on the really important aspects. 
Today the noise and chatter on news and social media about credit, liquidity, bond rates, asset liability mismatch has risen to a fever pitch. I am not sure if all the commentators really understand the nuances of the problem or if they are just regurgitating what they are seeing and hearing. I for one, sure don’t understand the intricate details of credit and liquidity crunch well enough to have an informed opinion.  I realize that if liquidity is a problem and it gets big enough to cause major harm, then the authorities will step to provide that liquidity. Much the same way that the US Fed did during the 2008 financial crisis. In well functioning economies, financial systems are not allowed to collapse. Too much is at risk for all stakeholders. As Seth Klarman recently mentioned in his lessons from 2008 article, “The government – the ultimate short- term-oriented player – cannot with- stand much pain in the economy or the financial markets. Bailouts and rescues are likely to occur, though not with sufficient predictability for investors to comfortably take advantage. “
There are other macro headwinds like oil prices and currency fluctuations. Some of these feed off on one another.
With that premise, at times like this, it is always better to take a hard look at one’s portfolio holdings and ask himself these three questions: 
1. What really has changed? 
2. How have the changes affected the value of the investments under consideration? 
3. Am I sure that my analysis and understanding of the changes is rational and is not being overly influenced by the immediacy and the severity of the news?
As investors, our job is to understand the business we are invested in. We need to continue to focus on that business and the reasons why we have bought those businesses. Most of the time we get pulled into fruitless macro discussions, without pausing to ask how it impacts the companies we are invested in.
I am a strong believer in Warren Buffett’s statement that he never has an opinion on the stock market because, if he did, it would not be any good, and it might interfere with opinions that are good. I have tracked the short-term market predictions of many investors and have found that they were correct less than half the time. Bottomline is that no one knows what the future holds. And we can’t make an investment case by looking at the macros.
Another learning over the years is that if I have conviction in a particular stock, it is always prudent to buy on the way down in tranches. Most of the time, we wait till the dust settles, but by that time, the prices are back up again. Buying high-conviction stocks at a time of major uncertainty has proven to be a profitable exercise. 
In ending, let me also say that these are times, when it is good to take a break from the markets and catchup on the book that you always wanted to read or the Netflix or Amazon prime show you always wanted to binge watch but never really had the time 😊

This article first appeared in Economic Times ET Markets - https://economictimes.indiatimes.com/markets/stocks/news/credit-liquidity-bonds-but-what-do-they-have-to-do-with-my-stocks/articleshow/65961776.cms

Tuesday 25 September 2018

Book Review: Phil Fisher - Common Stocks and Uncommon Profits

With so much happening in the Indian markets this week, I thought I will revisit one of my favourite investment gurus - Phil Fisher. His seminal classic Common Stocks and Uncommon Profits and Other Writings is a book that every investor should read. 

These are good times to take a step back from the market and read the classics to reinforce our understanding of the long term nature of markets and try to filter out the short term noise from the actual important signals.

Here are Phil Fisher's 8 principles.

Buy into companies that have practical plans for achieving dramatic long-range growth in profits and that have inherent qualities making it difficult for new entrants to share in that growth.
Focus on buying these companies when they are out of favour. That is, when, either because of general market conditions or because the financial community at the moment has misconceptions of its true worth, the stock is selling at prices well under what it will be when its true merit is better understood.

There are a relatively small number of truly outstanding companies. Their shares frequently can’t be bought at attractive prices. Therefore, when favourable prices exist, full advantage should be taken of the situation. Funds should be concentrated on the most desirable opportunities. 
Hold the stock until either (a) there has been a fundamental change in its nature (such as a weakening of management through changed personal), or (b) it has grown to a point where it no longer will be growing faster than the economy as a whole. Only in the most exceptional circumstances, if ever, sell because of forecasts as to what the economy or the stock market is going to do because these changes are too difficult to predict. Never sell the most attractive stocks you own for short-term reasons.

For those primarily seeking major appreciation of their capital, de-emphasize the importance of dividends. The most attractive opportunities are likely to occur in the profitable, but low or no dividend groups. Unusual opportunities are much less likely to be found in situations where a high percentage of profits is paid to stockholders.
Making some mistakes is as much an inherent cost of investment for major gains as making some bad loans is inevitable in even the best run and most profitable lending institution. The important thing is to recognize them as soon as possible, to understand their causes, and to learn how to keep from repeating the mistakes. Willingness to take small losses in some stocks and to let profits grow bigger and bigger in the more promising stocks is a sign of good investment management. Taking small profits in good investments and letting losses grow in bad ones is a sign of abominable investment judgment. A profit should never be taken just for the satisfaction of taking it.
A basic ingredient of outstanding investor is the ability to neither accept blindly whatever may be the dominant opinion in the financial community at the moment nor to reject the prevailing view just to be contrary for the sake of being contrary. Rather, it is to have more knowledge and to apply better judgment, in a thorough evaluation of specific situations, and the moral courage to act “in opposition to the crowd” when your judgment tells you you’re right.
In handling common stocks, as in most other fields of human activity, success greatly depends on a combination of hard work, intelligence, and honesty.

Thursday 20 September 2018

Weekly Reading: Some Interesting Stuff

By dominating retail and digital business services, both of which touch almost every other industry, Bezos is now positioned to move adjacently into just about any business where he finds added value. He's playing in the multibillions in at least four markets—healthcare, entertainment, consumer electronics and advertising—that constitute many of the companies not already terrified of Amazon.
This is a superb article touching most of the facets of Amazon and Bezos. A must-read.

There is a feeling in Silicon Valley that you can say anything you want to investors as long as you think you’re changing the world.
A great article on a legendary short seller - Jim Chanos.

The next crisis might not come from a financial shock at all. The more likely culprit: a cyber-attack that causes disruptions to financial services capabilities, especially payments systems, around the world.

The onset of stress entices the brain into growing new cells responsible for improved memory. However, this effect is only seen when stress is intermittent. As soon as the stress continues beyond a few moments into a prolonged state, it suppresses the brain’s ability to develop new cells.

I love lists. This one has some wonderful quotes and plain simple advice.

Monday 17 September 2018

Book Review: The Art of Thinking Clearly

The Art of Thinking Clearly by Rolf Dobelli is simply a fascinating book on behavioural finance and psychology. It covers a vast number of cognitive biases and provides practical insights as well. This book is good even for non-investors as well.

I will just provide the contents of the book, which in my opinion provides a fascinating glimpse of what one can expect from the book.

This is a book which can and should be read by all.

The Chapters 
1. Why You Should Visit Cemeteries: Survivorship Bias.
2. Does Harvard Make You Smarter?: Swimmer's Body Illusion.
3. Why You See Shapes In The Clouds: Clustering Illusion.
4. If 50 Million People Say Something Foolish, It Is Still Foolish: Social Proof.
5. Why You Should Forget The Past: Sunk Cost Fallacy.
6. Don't Accept Free Drinks: Reciprocity.
7. Beware The 'Special Case': Confirmation Bias (Part 1).
8. Murder Your Darlings: Confirmation Bias (Part 2).
9. Don't Bow To Authority: Authority Bias.
10. Leave Your Supermodel Friends At Home: Contrast Effect.
11. Why We Prefer A Wrong Map To No Map At All: Availability Bias.
12. Why 'No Pain, No Gain' Should Set Alarm Bells Ringing: The It'll Get-Worse-Before-It-Gets-Better Fallacy.
13. Even True Stories Are Fairytales: Story Bias.
14. Why You Should Keep A Diary: Hindsight Bias.
15. Why You Systematically Overestimate Your Knowledge And Abilities: Overconfidence Effect.
16. Don't Take News Anchors Seriously: Chauffeur Knowledge.
17. You Control Less Than You Think: Illusion Of Control.
18. Never Pay Your Lawyer By The Hour: Incentive Super-Response Tendency.
19. The Dubious Efficacy Of Doctors, Consultants And Psychotherapists: Regression To Mean.
20. Never Judge A Decision By Its Outcome: Outcome Bias.
21. Less Is More: The Paradox Of Choice.
22. You Like Me, You Really Really Like Me: Liking Bias.
23. Don't Cling To Things: Endowment Effect.
24. The Inevitability Of Unlikely Events: Coincidence.
25. The Calamity Of Conformity: Groupthink.
26. Why You'll Soon Be Playing Megatrillions: Neglect Of Probability.
27. Why The Last Cookie In The Jar Makes Your Mouth Water: Scarcity Error.
28. When You Hear Hoofbeats, Don't Expect A Zebra: Base-Rate Neglect.
29. Why The 'Balancing Force Of The Universe' Is Baloney: Gambler's Fallacy.
30. Why The Wheel Of Fortune Makes Our Heads Spin: The Anchor.
31. How To Relieve People Of Their Millions: Induction.
32. Why Evil Strikes Harder Than Good: Loss Aversion.
33. Why Teams Are Lazy: Social Loafing.
34. Stumped By A Sheet Of Paper: Exponential Growth.
35. Curb Your Enthusiasm: Winner's Curse.
36. Never Ask A Writer If The Novel Is Autobiographical: Fundamental Attribution Error.
37. Why You Shouldn't Believe In The Stork: False Causality.
38. Everyone Is Beautiful At The Top: Halo Effect.
39. Congratulations! You've Won Russian Roulette: Alternative Paths.
40. False Prophets: Forecast Illusion.
41. The Deception Of Specific Cases: Conjunction Fallacy.
42. It's Not What You Say, But How You Say It: Framing.
43. Why Watching And Waiting Is Torture: Action Bias.
44. Why You Are Either The Solution - Or The Problem: Omission Bias.
45. Don't Blame Me: Self-Serving Bias.
46. Be Careful What You Wish For: Hedonic Treadmill.
47. Do Not Marvel At Your Existence: Self-Selection Bias.
48. Why Experience Can Damage Our Judgement: Association Bias.
49. Be Wary When Things Get Off To A Great Start: Beginner's Luck.
50. Sweet Little Lies: Cognitive Dissonance.
51. Live Each Day As If It Were Your Last - But Only On Sundays: Hyperbolic Discounting.
52. Any Lame Excuse: 'Because' Justification.
53. Decide Better - Decide Less: Decision Fatigue.
54. Would You Wear Hitler's Sweater?: Contagion Bias.
55. Why There Is No Such Thing As An Average War: The Problem With Averages.
56. How Bonuses Destroy Motivation: Motivation Crowding.
57. If You Have Nothing To Say, Say Nothing: Twaddle Tendency.
58. How To Increase The Average Iq Of Two States: Will Rogers Phenomenon.
59. If You Have An Enemy, Give Him Information: Information Bias.
60. Hurts So Good: Effort Justification.
61. Why Small Things Loom Large: The Law Of Small Numbers.
62. Handle With Care: Expectations.
63. Speed Traps Ahead!: Simple Logic.
64. How To Expose A Charlatan: Forer Effect.
65. Volunteer Work Is For The Birds: Volunteer's Folly.
66. Why You Are A Slave To Your Emotions: Affect Heuristic.
67. Be Your Own Heretic: Introspection Illusion.
68. Why You Should Set Fire To Your Ships: Inability To Close Doors
69. Disregard The Brand New: Neomania.
70. Why Propaganda Works: Sleeper Effect.
71. Why It's Never Just A Two-Horse Race: Alternative Blindness.
72. Why We Take Aim At Young Guns: Social Comparison Bias.
73. Why First Impressions Deceive: Primacy And Recency Effects.
74. Why You Can't Beat Home-Made: Not-Invented-Here Syndrome.
75. How To Profit From The Implausible: The Black Swan.
76. Knowledge Is Non-Transferable: Domain Dependence.
77. The Myth Of Like-Mindedness: False-Consensus Effect.
78. You Were Right All Along: Falsification Of History.
79. Why You Identify With Your Football Team: In-Group Out-Group Bias.
80. The Difference Between Risk And Uncertainty: Ambiguity Aversion
81. Why You Go With The Status Quo: Default Effect.
82. Why 'Last Chances' Make Us Panic: Fear Of Regret.
83. How Eye-Catching Details Render Us Blind: Salience Effect.
84. Why Money Is Not Naked: House-Money Effect.
85. Why New Year's Resolutions Don't Work: Procrastination.
86. Build Your Own Castle: Envy.
87. Why You Prefer Novels To Statistics: Personification.
88. You Have No Idea What You Are Overlooking: Illusion Of Attention.
89. Hot Air: Strategic Misrepresentation.
90. Where's The Off Switch?: Overthinking.
91. Why You Take On Too Much: Planning Fallacy.
92. Those Wielding Hammers See Only Nails: Deformation Professionnelle.
93. Mission Accomplished: Zeigarnik Effect.
94. The Boat Matters More Than The Rowing: Illusion Of Skill.
95. Why Checklists Deceive You: Feature-Positive Effect.
96. Drawing The Bull's-Eye Around The Arrow: Cherry-Picking.
97. The Stone-Age Hunt For Scapegoats: Fallacy Of The Single Cause.
98. Speed Demons Make Safe Drivers: Intention-To-Treat Error.

99. Why You Shouldn't Read The News: News Illusion.