Worth reading and listening 07/07

Some articles and talks that I found worth reading and listening to over last few days:

Video: Why Bruce Berkowitz still likes stocks others hate? LINK

Get Rich Slowly – Jason Zweig LINK

Video: Mohnish Pabrai Talks at Google LINK

 

 

Worth Reading 16/06

Some articles that I found worth reading this week:

Pay Attention to Asset Allocation in this Bull Market  LINK

Active Value Investing: Is it really better?  LINK

Is the Product Attractive? Mental Models and Moats  LINK

The Seduction of Pessimism  LINK

Video Interview: The Contrarian Gene|Seth Klarman (~15 min)  LINK

Video Interview: Buffett, Jorge Paulo Lemann|Brazil Conference (~55 min)  LINK

“Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we’re trying to do. It’s imperfect, but that’s what it’s all about.” -Warren Buffett

Importance of Rebalancing for the Defensive Investor

Often investors – specially those who call themselves defensive – can’t make up their mind on when to sell, as they have no particular reasons for doing so – except looking at market levels. A good answer to that comes from systematic and regular rebalancing (almost scheduled or using some similar discipline).

Came across a good article that explains rebalancing – more important with elevated market levels almost across the board. Should be a good reminder for defensive investors to take stock.

Read it here

Short Story: Space

On a cold evening in November, the Air India flight from Mumbai started its descent to land at the international airport in San Francisco. In the flight were Mr and Mrs Joshi who were visiting their son and daughter-in-law. A retired government of India employee, the seventy year old Mr Joshi and his sixty-five year old wife had visited their son earlier a few years back when he had just completed his studies. But this was their first visit after their son’s wedding five years back in Mumbai.

Meanwhile, their son Ketan and his wife Anusha checked the flight status online.

“Looks like it is on time. Should we start?” Ketan asked his wife.

“Give me 10 minutes. Just replying to this email” Anusha replied.

As they left their home, Ketan realised that perhaps they were already a bit late. It was a cold November evening, and he did not expect the traffic to be heavy. So he thought if he took the highway, they would make it on time.

“Let’s go through Redwood city” Anusha interrupted Ketan’s thoughts. “I realized that we need to pick up some groceries. Your parents will need them.”

Anusha had already told her friends as well as colleagues in office about the impending visit of her in-laws, and how it was going to invade her space and add to all the overhead activities in her life.

As she picked up some items from the grocery store, Ketan asked her to hurry up.

“It’s for your parents. Otherwise I will have to answer why there’s nothing in the fridge” she smirked back at Ketan. She was horror-struck at the prospect of facing such potential situations.

“By the way, do we have extra blankets? It is quite cold” asked Ketan.

“There are some in the storeroom” Anusha responded nonchalantly.

“But are they usable?” Ketan inquired, not quite sure whether they had been used in a while.

“They should be ok for your parents” Anusha told Ketan. “And your father can also use some of your old jackets lying in your wardrobe” she grinned back at her husband.

“Ok cool” Ketan stopped the conversation.

“Hey by the way, we don’t have extra mattresses” he remembered after a while.

“Yes – you will have to rent them out. In any case, they will need those harder ones” Anusha warned almost with a tone of admonition, thinking about all the adjustments she was going to face in the next couple of months.

“Ok – let’s pick them on the way, and put them in the car.”

After a while, Anusha remembered “What about the pooja stuff for your father? I hope he is not going to stick to that here also?”

“Of course. Guess we need that too. Let’s take it from the Indian store. May be we can pick up some Indian food too” Ketan told his wife.

“But I am not going to cook” Anusha scowled back.

“Ok, chill. My mother will cook” Ketan chose the path of least resistance to maintain the peace. And then added with a grin “By the way, my parents are coming to see you.”

“No they are coming to see you” Anusha reprimanded him.

Meanwhile Mr and Mrs Joshi’s flight had landed and they had finished their immigration formalities. Luckily their baggage also arrived in quick time. Mr Joshi put it on the trolley and started walking to the exit.

At the exit, their eyes searched for their son and daughter-in-law but they were nowhere to be seen. Most of the passengers left within about half an hour after that.

“I think we are late” Ketan said, as he pushed the mattresses into his car’s boot. Most of the car was already full with all the things they had bought on the way.

“But we were buying things for your parents so that they don’t have to adjust.” Then looking at the car, she said “Hope your parents don’t have a lot of luggage. There’s no space. What if we get another cab?”

As they reached the airport, they parked their car and walked to the exit. Ketan saw his parents standing alone with their luggage trolley. He realised that they are going to need a cab for it.

“Hope we are not too late” he said to his father.

“No, not at all. We just landed” Mr Joshi replied, happy to see his son, though that was more than an hour back.

As they prepared to leave the airport, Ketan called for a cab, and gave him the address of their home. As he put the luggage in the boot, and his parents sat in the cab, he explained “Sorry for that. But don’t worry, the cabbie will follow us.”

“No problem” Mr Joshi reassured his son.

Anusha tried to bring a cordial expression on her face. She smiled at her in-laws and said “There’s no space in our car, so we called the cab.” And forcing a jolly grin, she continued, “Welcome to our home!”

Interesting conversation: Mohnish Pabrai with Steve Pomeranz

Came across an interesting conversation that the famous value investor Mohnish Pabrai had with Steve Pomeranz.

He talks about what value investing is, why individual companies matter to him more than broader markets (though not advised for normal passive or ‘defensive’ investors), the importance of temperament which should be a strange mix of patience and decisiveness, and contrary to popular perception – how entrepreneurs are actually looking for low risk opportunities with high potential returns.

You can listen to it at https://beta.prx.org/stories/207163

The audio has many other topics – the Pabrai talk is from minutes 9 to 18, and again from minutes 40 to 55 or so.

Some details of the talk are also at this link: http://www.stevepomeranz.com/mohnish-pabrai/

Lessons from My Journey to Health

I was always what in India is called a “healthy boy”. And I have stayed more or less “healthy” throughout my adult life with a few minor fluctuations. I have been through some ‘before-after’ experiments over the past twenty years, but they have all been in a range.

And every time I ventured down that path, there was no dearth of expert opinions from “Stop oily foods and ban sweets” to “Start jogging with good shoes” or “Be careful with the gym, you must try Yoga” to finally “You don’t need anything, you are quite healthy”.

Over the past 18-20 months, after losing over 25 kgs in 12 months, and then maintaining it for over 6-8 months now, I have actually started realizing what “healthy” really means.

A lot of people who met me after a while are actually surprised on seeing me now, and wonder whether I was ill or went on a crash diet or am under some kind of stress or perhaps, I have some secret to this healthy transformation which I am not revealing.

The reality – like it was said in Kung Fu Panda – is that “there is no secret ingredient”.

And while I am still a beginner on this path, there are definitely some lessons. Lessons which I am hopeful will help a few others to start on their own journey to health. Honestly, it is just a set of healthy practices all put together and adhered to with discipline over a period of time. People who are consciously healthy already know what they are.

It is a bit like investing. The basics are quite simple and there for all to know. That doesn’t mean they are easy to implement, but there’s no secret as such. It is only when you have experts involved in investing that it starts getting complicated.

The same is true with the path to health. The basics are quite simple, but no single person has any incentive to provide them. Some of the issues are structural. For example, the gym trainer doesn’t know (or tell you) much about nutrition. The nutritionist can’t tell you much whether you should run or lift weights. And the doctor doesn’t care about either – as if it is beneath him or her to get into those discussions – all you get is control your weight or cholesterol or sugar or something like that. And the normal person is confused or lives with his own set of theories or myths.

What I understood from my journey to health is that the reality is a combination of all of these. And so, here is a list of things that I learned from my journey to health. Though this is a blog on investing and wealth, the basics of health are not quite different – in fact, I could see some parallel metaphors.

So for those pursuing wealth, hope this list helps prioritize their health.

So here goes:

  1. Food determines 60-70% of your health. What you eat and how much you eat will decide how healthy you end up. We are given other reasons – heredity, genes, lifestyle, body or bone structure, metabolism, but no. Assuming you have no disorders, food IS 60-70% of your health. A bit like – what you do for a living determines the chances of you becoming wealthy.
  2. How much you eat and what you eat are both important. To start with, how much you eat is more important (to determine if you are healthy in the first place), but beyond that, what you eat gains more in importance (to determine how healthy you are and if you will stay that way over long periods). A bit like – how much you earn is important to start with, but what you earn it from is more important over the long term.
  3. Carbohydrates and Fat are as important as Protein and are not to be avoided. Low carb diets or low fat foods don’t work. Normal, regular, even party food is enough. A bit like – all asset types have a role in a portfolio in the right proportions.
  4. Your body needs a fixed number of calories to perform its basic functions and keep you alive and running. This is called the base metabolic rate (BMR) and it depends broadly on your age, weight, height etc. If you want to reduce weight, you must create a deficit to that – meaning the net calories (food – exercise) must be less than the BMR. A bit like – savings are the starting point of wealth. Unless you save, there is no question of getting wealthy.
  5. This calorie deficit can be supplemented by cardiovascular (or aerobic) exercise most measurably i.e. walking, running, swimming, cycling and similar activities. But your body gets used to aerobic exercises quite easily, and they stop having their effect over time. While aerobic exercise has a role, beyond a point it doesn’t burn as many calories, but increases your endurance and does not necessarily make you healthier.
  6. Strength training is the most effective way of losing weight slowly over time on a calorie deficit. It also helps in maintaining the lost weight by increasing lean muscle and hence raising your BMR.
  7. Hence, for a normal person who doesn’t want to train as a athlete, sportsperson or bodybuilder, a balanced exercise routine should consist of both aerobic and strength exercises. A bit like allocating the savings between the right assets will give the most optimal returns. But remember all of this exercise routine is useless unless you get the right food and have a calorie deficit. It is a bit like saying I will optimally invest 5% of my earnings – no point, you might as well spend it.
  8. Over time, adopting healthy food in the right portions most of the time, and incorporating a routine of aerobic and strength training in a disciplined manner is the best way to get and stay healthy.
  9. The best diet is the one you will follow, and the best exercise is the one that you will adopt in your routine. There is no single answer that fits all.
  10. Like it is for investing and wealth, simplicity and discipline are the best answers for food, exercise and health.

So those are some of the lessons I have learned in my journey to health.

As is seen above, the basics of health, similar to the basics of wealth are simple but not easy. It is a set of steps that need to be followed with priority and discipline over a long period of time, like a way of life almost maybe.

Finally – there is no one-shot formula. Like the investment disclaimers, this is also not to be taken as health advice. Refer to your own expert for specific advice based on your health condition if required.

I am no health guru – before the past 18 months, I spent most of my life in an unhealthy state of being. But I am hopeful that with this newly acquired knowledge, the future is healthier for me, and also for whoever that gets inspired to adopt it in their life.

Heads I Win, Tails You Lose

“Do you remember Dr Rustom Pavri that character from Munnabhai MBBS that helps Munna pass all exams and not get caught by answering questions secretly on mobile?” asked my broker friend Jigneshbhai when we met for coffee this morning.

Swami and I had a distinct smile of recognition on our faces, but weren’t quite sure why Jigneshbhai was talking about that comic Parsi character.

“My CA friend felt like him yesterday night” he remarked.

Swami and I were wondering why. Seeing that, our broker friend clarified.

“All his trader ‘Munnabhai’ friends were calling him continuously yesterday night, like students who had suddenly got an out of syllabus surprise question in their paper.”

“But this time even my CA friend had no answer to this question. And there was no time to find an answer too!”

Swami and I then realized that Jigneshbhai was referring to the announcement made by the PM and Govt that 500 and 1000 rupee notes would be illegal tender from midnight of Nov 8-9, 2016.

It was the classic out of syllabus surprise question set by a tough paper setter aimed to fail cheating students, and given 10 min before the bell rings.

“And the best part is” continued Jigneshbhai, “that whatever happens, chances are high that the paper setter i.e. PM Modi and his government, win.”

Jigneshbhai was pretty excited about this new announcement and explained the various scenarios why it was a win-win situation for the government.

“Firstly” he said, “if you are a sincere student, this doesn’t apply to you except for a few days of inconvenience of exchanging now illegal tender for valid notes. For that small price, the government gains tremendously in the minds of the common sincere man.”

“Secondly” he continued, “if you are a cheat with cash, you can take the first choice of going to a bank and depositing it, and somehow declaring it. In which case, government gains with tax income.”

“And if you choose not to do it, then you are left with paper which you can’t do much with. In which case again the government gains because they eliminated some unaccounted money without the hassles of catching it.”

“And Thirdly” Jigneshbhai explained, “if you are a cheat with undeclared assets other than cash, you don’t suffer much immediately, but are going to think twice before generating more black money in cash. Again the government gains.”

“Fourthly” my broker friend wasn’t done yet “if none of this happens, the least that happens is the real criminal, drug, fake currency and terrorist organizations are anyway left high and dry with useless paper.”

“And finally” Jigneshbhai concluded, “beyond the economic benefits, the political gains in terms of clean image, brownie points and leaving the opposition with nothing to oppose clearly are like that MasterCard advertisement – things that are beyond measure.”

Jigneshbhai was truly, genuinely excited today. Perhaps after a long time, there was satisfaction felt that being honest mattered, not having black money was good. And the silent black money holder was probably worried for the first time in years.

But it was too early to celebrate. It definitely seemed like the first major step of many more steps of clampdown on domestic black economy. It seemed like an honest attempt, at the very least, and a genuine transformation, at the very best.

The old man in the sprawling bungalow who had been listening to our conversation from the table next to us, reminded us that of all the calculated risks, this would probably rank way up there for this government, with potential gains outstripping possibility of losses – for itself and for the country.

Like Amitabh’s coin in Sholay, it was a case of “Heads I win, Tails you lose.”

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