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Friday 30 December 2022

2022 - A Year in Review


We are again at that time of the year when people don their thinking hats and reflect on the year gone by. As an investor, I find it very important to reduce my regular investment work and go back and think about what went right and what could be improved upon.

This last week, I actually was inspired by the “Think Week” ritual that Bill Gates used to have. Unlike Gates, I did not go off to a reclusive lake-side retreat all by myself. But I did reduce a lot of my regular work and went back to my pen and diary (sometimes OneNote journal) to look back and also to look forward.

2022 - The year gone by:

Some of the memorable events during the year which we will probably remember for some time were:
  • Start of the Russia-Ukraine war.
  • As per the IMF projections, India surpassed the UK to become the fifth-largest economy.
  • The world population reached 8 billion on November 15, with India being the largest contributor to the milestone, according to the United Nations (UN). India added 177 million to the final score.
  • After a legal battle, Elon Musk finally bought Twitter for $44 billion.
  • Sri Lanka had a major economic crisis precipitated by Covid.
  • Former Tata Sons Chairman Cyrus Mistry passed away in a car crash in Palghar.
  • Rahul Bajaj, the chairman emeritus of the Indian conglomerate Bajaj Group, passed away. He was awarded the third-highest civilian award in India, the Padma Bhushan, in 2001.
  • Passing away of Queen Elizabeth II, the longest-serving British monarch.
  • Covid continued to rear its head from time to time and now is seeing an increase in some countries like China, which has done a 360-degree turnaround from a zero-Covid policy to a completely open policy in a matter of days.

Investing in 2022

This year was gruelling. Stocks went up and then came back time and again. So much so that most of them were flat by the year's end. Making money was difficult. Sometimes, when you do a retrospective analysis, it is difficult to figure out how tough it was, because you tend to ignore the intermediate drawdowns thinking you would have held on during them. Also, some feel that since you have “good quality” stocks, it is better to hold on to them, because they eventually come back up. This may not be always true, at least in the timeframe you are looking at. Sometimes, stocks of even great companies take years and even decades to reach their previous highs. One must always be cognizant of the opportunity cost of alternatives while investing.

2023 - What lies in store?

India is looking to be on a relatively strong wicket. After nearly a decade, banks have cleaned up their balance sheets and overall credit growth is picking up. The credit growth of banks is at a 10-year high of 17.5%.

With just one more full budget before the 2024 elections, the expectation of a growth-led budget is high. Strong investment capex and social policies leading to incremental buying power for the masses augur well for consumer-facing companies. Government capex is at an 18-year high at 2.5% of GDP in 1HFY23. The PLI scheme-led investment is leading private capex. Just the trio of Tata, Ambani and Adani groups are planning an investment of $215bn in the next 5 yrs.

The really big investments are happening in the transition sectors: green energy, EV, 5G and tech/digital. This tailwind is being supported by the realignment of global supply chains – China+1, friendshoring etc.

We are likely to see a peaking of inflation and stabilisation of interest rates, but inflation will not cool off easily. The big components of inflation in India have historically been oil and food. How oil prices behave is anybody’s guess but food inflation is not likely to come down much going by history. In addition, with China back in the global economy, there is expected to be significant demand for oil, metals and other commodities. Chinese markets have probably already bottomed out since we discussed this during the middle of the year.

What should we do?

Markets are likely to remain choppy atleast in H1FY24. Domestic consumption and capex-oriented plays are likely to perform better. Sectors like engineering, capital goods, infrastructure, real estate and autos are likely to remain at the forefront.

Select IT and pharma companies can be identified and added slowly into the portfolio.

It is likely to continue to be a buy-on-dips kind of market for the next 2-3 yrs. It is better to continue sipping into the portfolio stocks or adding capital to your portfolio every month.

Now is not the time to be afraid. It is the time to ignore the noise and silently accumulate.

Wednesday 28 December 2022

Year End Investor Session - Recording

Last evening, I had a short session to discuss the current market situation and what we expect for 2023.

Here is the recording:

Thursday 8 December 2022



Multidisciplinary learning is one of the best ways to improve our investment acumen. Here is a summary of some of the best learnings of the week.

This week I want to talk about CBDC.
CBDC is short for Central Bank Digital Currency. It is, as the name suggests, a digital form of currency issued by the central bank RBI. It is distinct from UPI, IMPS, NEFT and RTGS as these are not currencies but payment and money transfer mechanisms. In these payment mechanisms, money gets transferred from one bank account to another. While in CBDC that RBI has recently launched as a pilot, money will move from one digital (e.g. mobile) wallet to another digital wallet without going through the banks of either of the two transacting parties. In a sense, it is like giving cash in your wallet to a friend. Neither of your banks gets to know but money has moved from one person to the other.
The idea of CBDC or e₹-R is to make it a digital form of cash and it will be available in the same denominations as cash and it will be first distributed through banks.
Users will be able to transact with e₹-R through a digital wallet offered by the banks and stored on mobile phones and devices. Transactions can be both person-to-person (P2P) and person-to-merchant (P2M). Payments to merchants can be made using QR codes displayed at merchant locations. As per the RBI, “The e₹-R would offer features of physical cash like trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks”.
There are some benefits to e₹-R. It drastically reduces the cost of banknote printing and circulation. It also reduces the cost of transfers and remittances by cutting down on multiple intermediaries. Another important feature is that as it is issued directly by RBI, it will be a liability on the central bank’s balance sheet and not earn any interest for the end user.
The way it is currently structured, as an end-user, I find it indistinguishable from the systems we currently use. To me, it looks a lot like a solution in search of a problem. Maybe I am ignorant, or some use case will appear in the future that will make this a grand success, but for now, I can’t find a single compelling reason why I would prefer using e₹-R over the existing system already in place. I will keep tabs on this and keep updating you from time to time as and when something progresses.
Thought of the Week:
“What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.” ~ Herbert Simon
We need to be very very selective about how we filter information. Putting here a chat with a friend who is himself an extremely accomplished and disciplined investor. The idea is to use humans and AI to curate and suggest what you want to read, listen to or watch. Secondly, we need to be ruthless about protecting our time and attention. I used to feel very guilty about leaving a book or movie midway. Now I don’t care. If the subject does not intrigue me, then I am out.
How to filter your inputs
How to filter your inputs
Video of the Week: How Amancio Ortega Created the Zara Empire
How Amancio Ortega Created the Zara Empire
How Amancio Ortega Created the Zara Empire
Performance of Quiver Smallcase since inception (May 2021)
Performance of Quiver Smallcase since inception (May 2021)
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Min investment: 5 lakhs
Fees: 2% per year. 1/12th of 2% of the fees is deducted every month. It works out to approx INR 840-850 per month.
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Thursday 1 December 2022



Multidisciplinary learning is one of the best ways to improve our investment acumen. Here is a summary of some of the best learnings of the week.

If you have been reading my blog for a while, you will know that I love writing. It helps me collate and clarify my thoughts. I usually write for an audience of one - myself. Paul Graham, one of the best essayists now, writes about why we need to write in this brilliant article. He also ties in the fact that unless you read well, it will be difficult to write well.
The reason it would matter is that writing is not just a way to convey ideas, but also a way to have them.
A good writer doesn’t just think, and then write down what he thought, as a sort of transcript. A good writer will almost always discover new things in the process of writing. And there is, as far as I know, no substitute for this kind of discovery. Talking about your ideas with other people is a good way to develop them. But even after doing this, you’ll find you still discover new things when you sit down to write. There is a kind of thinking that can only be done by writing.
If you need to solve a complicated, ill-defined problem, it will almost always help to write about it. Which in turn means that someone who’s not good at writing will almost always be at a disadvantage in solving such problems.
Another brilliant collation I read this week is from Anil Tulsiram who takes wonderfully detailed notes of brilliant insights from Alix Pasquet III.
Another problem with this is that an action in the past environment that could have be a mistake could be a total success in a different environment. So be careful, you want to learn from your mistakes, you want to be careful from learning too much for your mistakes. You know, no lesson is better than wrong lesson. You want to have a mistake evaluation process. And the key suggestion I would make there is to involve others, is to get feedback from others that will keep you intellectually honest. One thing to remember, by the way, is great investors all go through periods of mistakes.
Thought of the Week
I’m only rich because I know when I’m wrong. I have basically survived by recognising my mistakes. ~ George Soros
The main idea in both this thought and the insights from Alix Pasquet is that we need to be able to analyse our past actions for our mistakes. But while doing that we need to be watchful to understand the reason for the mistake and not just look at the outcome. At a different time, under a different circumstance, the outcome may be very different. The idea is to be able to put the odds of success in our favour if we do a particular activity repeatedly.
Video of the Week: Indian Debt and Equity markets: Aligning India’s future together
Indian Debt and Equity markets: Aligning India’s future together
Indian Debt and Equity markets: Aligning India’s future together
Quiver continues to perform well.
Minimum investment: 5 lakhs
Fees: 2% of capital per year. 1/12th of 2% gets deducted every month. Ex: For a capital of Rs 5 lakh, it works to around Rs 835-840 per month.

Thursday 3 November 2022



Multidisciplinary learning is one of the best ways to improve our investment acumen. Here is a summary of some of the best learnings of the week.

It has been a while since I have been critical of “value investing”. I have friends who keep harping on value, value all the time and yet the main thing that they are looking at is PE. So, most “value investors” are closet cheap PE investors. Anand Sridharan has written about this extremely well in his article “Business owner, not value investor”.
The term has become an oversimplified label for formulaic buying and selling of cheap crap with little regard for the nature of the underlying business. While this isn’t illegal, it is a misnomer. This activity is better represented by replacing “value” with “cheapness” in all media references. Cheapness investing, cheapness factor, cheapness index, cheapness style-box and cheapness screens. What is called value investing is often neither value nor investing.
This confusion is especially severe since the greatest proponent of the term – Warren Buffett – hasn’t practiced cheapness investing in five decades. “Value investing” ends up leading a double life, one referring to Buffett and his disciples and another to the mechanical application of cheapness filters.
The focus is entirely on business, not stock price. Before owning, we spend all our time understanding the nature of the business, the context it operates in, what makes it sustainably good and what risks can spoil the party. Many businesses will drop off our list, either because they’re clearly not worth owning or it’s simply too hard to reliably establish these traits. Likewise, after owning, our focus is entirely on whether the business continues to be worth owning.
Another subject which intrigues me is decision-making. It is an extremely difficult subject simply because you make a decision usually based on incomplete facts and assumptions about the future. The future may or may not turn out as you expected. The decision may or may not turn out to have been a good one but it will only be known in hindsight. One way of looking at decision-making is the one made famous by Jeff Bezos - that of reversible and irreversible decisions.
Once you learn to see decisions through the lens of reversible and irreversible, everything changes. It also changes how you make decisions.
Make reversible decisions as soon as possible and make irreversible decisions as late as possible.
When decisions are reversible, make them fast. Your biggest risk is dragging your feet and not making a decision. The cost to acquire additional information isn’t worth the effort.
When decisions are irreversible, slow them down. The biggest risk is making the wrong decision. The cost to get the information we need to reduce uncertainty is worth the time and effort.
Thought of the Week:
“There will come a time when you believe everything is finished. That will be the beginning.”
​— Louis L'Amour
Every bear market hides the side of a bull market in it. And vice versa. 
Audio/Video of the Week:
Complete story of Israel & Palestine conflict | Jews vs Arabs | Jerusalem | Dr. Vikas Divyakirti
Complete story of Israel & Palestine conflict | Jews vs Arabs | Jerusalem | Dr. Vikas Divyakirti
This is in hindi. But by far the best and most comprehensive summary of the Israel-Palestine conflict. Dr Divyakirti is a fantastic teacher and explains things in a calm, composed manner starting from the biblical roots and traces down a couple of thousand years to the current events.
This is a wonderful watch if you wish to understand the genesis of the longest-standing conflicts of human history.

Wednesday 2 November 2022

Lessons from Charlie Munger's Folly


It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes. ~ Warren Buffett
This quote has been embedded in my mind since I first read it. So, I try to observe the world and keep reflecting on the mistakes that I and that others around me make. There is a lot to learn. Today, I will discuss one such mistake. And one made by, perhaps, the person I admire most – Charlie Munger. So, when our guru makes a mistake, you should sit up and take notice.
The Alibaba Saga
Here is what happened. Charlie Munger took a bet on the Chinese giant Alibaba. This was just before the Chinese government decided that Jack Ma had grown too big for their comfort and pared his wings. Munger bought his initial stake at around $246 per share. So far so good. Alibaba was a giant in China. It was one of the largest B2B and C2C ecommerce sites in the world. Alibaba was on its way to launching the largest IPO on the Shanghai Exchange in Oct 2020. Just before this, Ma addressed an assembly of high-profile figures in China with a controversial speech that criticised the Chinese financial system. And then suddenly, he practically went missing for three months.
This more or less started the crash in Alibaba’s stock. From above $300 it has now crashed to close to $70, an overall fall close to 75%. 
Alibaba monthly price chart
Alibaba monthly price chart
source: tradingview.com
Munger probably convinced this was a passing phase and things will get back to normal after Jack Ma is “taught” a lesson in adhering to the government line, doubled down and kept adding as the stock kept falling. He added substantial quantities in the Jul-Sep quarter around $182 and again in the Oct-Dec quarter around $145. Each time he nearly doubled his position from before. He probably realised his mistake and sold half his position in the Jan-Mar quarter of 2022 at $115. Today the stock price is around $70.
Munger kept averaging down before booking partial losses
Munger kept averaging down before booking partial losses
Source: gurufocus.com
The Lessons
When I sit and think about this trade, here are the lessons I draw from it.
  1. Macro matters - Nothing really changed in the company. The underlying macro factors changed. The company kept doing the same business it was doing in 2019, yet the stock is down 75%. So, those who say that macro does not matter are simply wrong.
  2. Psychological Bias Impacts All – Even if you have devoted your life to studying and understanding human biases, no one is immune from them. The steadfast belief, a form of narrative fallacy bias, in the superior “Chinese system” that Munger kept alluding to in many of his talks probably blindsided him. Any autocratic system provides great results but only as long as the system works in your interests. If it works in the opposite interests, then the downside could also be equally large. Authority bias may also have had a role to play. Li Lu recommended Alibaba to Munger. Previously, Li Lu had recommended BYD, a Chinese EV giant, and Munger had invested in it and made significant profits. Li Lu is a Chinese-born American investor and familiarity with Chinese businesses was a major advantage for him. Li Lu is also the only person that Munger has given his own money to manage, so one can understand the trust he has in his views. Thirdly, social proof, also probably played a role. Munger had taken a very large and visible position. He had spoken about the great Chinese system. He had praised the Chinese government for stepping in “preemptively to stop speculation”. The challenge with mental biases is when you have a number of them lined up together, they combine and create a lollapalooza effect which has the potential to completely blindside a person.
  3. Lack of risk management system – It does not matter how great an investor you are, you will make mistakes from time to time. There has to be a safety net that you create for yourself when you make a mistake. The one that works well is to use a stop loss. The simple reason is that it puts a floor to the maximum loss to your capital. It lets you get out of your position and then assess more objectively if there is something wrong with your thesis. The worst that can happen is after reviewing your thesis if you think that the stock is still worth buying, you can always buy it back. Otherwise, you are paralysed with a stock with falling prices and keep hoping that something will happen to turn it around. Hope is never a good investment strategy.
Mistakes will be made. You need to keep your guard high all the time. As Richard Feynman famously said, “You must not fool yourself, and you are the easiest person to fool.” As investors, most of the time we keep fooling ourselves. The best way is to have a focus on building processes that will firstly, prevent you making a mistake, and secondly, even if you do, will protect you from making great damage to your portfolio.
Note: This article was first published on The Economic Times.