The exact same thing

The problem with bull markets is there is nothing much to do for the intelligent investor but there is everyone wanting to do something. Like the other day, even my father and my father-in-law now wants to invest in equity mutual funds. Which is not such a bad thing actually – but the timing suggests that it is time to repeat the same old stuff.

So as many times in the past, I went to the ‘Gita’ of value investing “The Intelligent Investor”, and again read some of the underlined writings that need to be repeated at times of such excitement in the markets.

So here goes – some excerpts that are especially to be remembered now. Nothing new, the same old stuff or “the exact same thing” as Jason Zweig says, again:

  1. No statement is more true and better applicable to Wall Street than the famous warning of Santayana: “Those who do not remember the past are condemned to repeat it”.
  2. We have not known a single person who has consistently or lastingly made money by thus “following the market”. We do not hesitate to declare this approach is as fallacious as it is popular.
  3. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of good business conditions. The purchasers view the good current earnings as equivalent to “earning power” and assume that prosperity is equivalent to safety.
  4. The investor’s chief problem – and even his worst enemy – is likely to be himself
  5. Speculative stock movements are carried too far in both directions, frequently in the general market and at all times in at least some of the individual issues.
  6. The beauty of periodic re-balancing is that it forces you to base your investing decisions on a simple, objective standard.
  7. A great company is not a great investment if you pay too much for the stock.
  8. Even the intelligent investor is likely to need considerable will power to keep from following the crowd.
  9. The intelligent investor shouldn’t ignore Mr. Market entirely. Instead, you should do business with him- but only to the extent that it serves your interests.
  10. The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.
  11. High valuations entail high risks.
  12. Investment is most intelligent when it is most businesslike.
  13. Successful investing is about managing risk, not avoiding it. Without a saving faith in the future, no one would ever invest at all. To be an investor, you must be a believer in a better tomorrow.

And finally, this one which is right at the beginning of the book in the foreword by Buffett.

“By developing your discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave.”

 

And there they go again!

..and again!!

That’s the title of a memo sent by the famous investor Howard Marks of Oaktree Capital to his clients recently. And it refers to how he is happiest writing when bull markets start going far, risk aversion disappears and there’s money all around inflating potential bubbles.

It is quite a long memo listing and describing various indicators that seem to be currently aligning together suggesting the prevalence of such a bubble type situation. For those interested in reading it, you can download it here.

But for those who don’t have the inclination or the time to go through the indicators, the what to do section at the end is what is most relevant. And honestly speaking it is nothing new, but it is well worth repeating.

There is no one size fits all action for all – so his answers are more like an essay on the one hand, and philosophy on the other. But the message is clear: There is a time to chase returns and there is a time to assess risk. And the time for caution is here, and the time for assessing low risk options is here.

So for individual intelligent investors, it is nothing new really. Dhirendra Kumar of Value Research Online in his well meaning article here says that it is well worth repeating the old stuff now.

The steps stay the same. They still constitute sticking to your asset allocation, re-balancing your portfolio if it has gone a bit out of whack, continuing to make investments as per your plan, and neglect the markets with a long term orientation.

The problem with this is that there is nothing new. But it still needs repetition, because it is tough to follow in practice.

Jason Zweig – the famous columnist and editor of the book “The Intelligent Investor” once wrote in a column titled “Saving Investors from themselves” (Please make it a point to read it here) that when asked how he defined his job, he said “My job is to write the exact same thing between 50 and 100 times a year in such a way that neither my editors nor my readers will ever think I am repeating myself.”

In my case, fortunately I don’t have to write so often, there is no editor, and readers shouldn’t mind repetition for their own sake. It will save them from themselves.

This is clearly the time to repeat the same old stuff.

As Howard Marks said in his memo, this approach of taking low risk options will not necessarily give you the highest returns, but what it will ensure is that you survive.

Here is what he says towards the ending sections of his memo which are well worth remembering:

“If you refuse to fall into line in carefree markets like today’s, it’s likely that, for a while, you will (a) lag in terms of return (b) look like a old fogey. But neither of those is much of a price to pay if it means keeping your head (and capital)  when others eventually lose theirs.” “They will also make you a long term survivor. I can’t help thinking that’s a prerequisite for investment success.”

So there they go again. And hence it is indeed time to stick to the old stuff, even more so.

 

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!”

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.

Of Gardening and Investing Lessons

“To plant a garden is to believe in tomorrow” said Audrey Hepburn. I realized the truth in it over the past few months.

The wife has been venturing into gardening – a small beginner home garden – for the past few months, and as an observer, contributor and co-passenger, the ride has taught me a few things – about gardening of course, and also about how some of those lessons apply to the pet topic of this blog, investing. Here are the top 5 lessons:

A. Learn the rules, Experiment with what you can manage, and it starts working: Clearly there are a set of rules to learn to plant a garden, and it is important to learn them. Get good seeds, good soil and manure and water the plants are as basic as they can get. But the reality is that there are lots of experiments within this set of rules that are possible and can only be learned by doing. And that’s where your own decision on what type of plants, how many of them and how big a garden you can manage becomes important. Once you get through that and experiment with what you can manage within the overall realities of your life, it starts working. Very much like the rules of investing and how your own decision of what kind of investor you want to be will impact what works for you.

B. Plants grow slowly but there is a funny pleasure in it: You can learn the process, get the seeds and plant them. After that there is not much to do but to watch them grow. And plants grow slowly. Everyday we went to the balcony to watch if there are any sprouts, and for a while nothing happens. There is a unique kind of fun in that too, in watching the plants grow slowly, and unless one learns to enjoy that, you will feel it is way too much trouble. The fruits or the vegetables aren’t going to be seen soon, and unless one enjoys the process more than the outcome, patience will likely get the better of you. Very much like long term intelligent investing where as Graham said you buy something using your process, and hope something good will happen.

C. All types of plants and all seasons are important: Not all plants will grow with the same speed, nor will all of them grow in all seasons. There are seasons for planting, and there is a time for harvesting. Every single step in the growing process, every moment of those seasons must be respected. Nothing can be skipped. There are plants that will give vegetables every couple of weeks but then they run out after couple of harvests. And then there are plants that take a long time to bear its first fruit, but then will give you its fruit every season after that. Every type of plant and every season is important. Some plants and seasons are meant for producing great fruits. All others are meant for preparation. Very much like our own investing seasons and plants – where all types of assets and investments are important and bear fruit in different seasons.

smart-investment-garden-quote

D. The final result may not be perfect but who cares: Some plants died midway due to weeds, perhaps due to more or less water, perhaps due to reasons I don’t know. And some plants have grown beyond our wildest imagination. In some cases, all sown seeds sprouted to life, and in some, none came up. As a whole, the garden produced a good variety of vegetables, which though not perfect are good enough for me. Finally I realized that that’s what matters – the result will most likely not be perfect but it doesn’t matter really as long as it is good enough for you. It is difficult to over-engineer outputs in gardening, specially for beginners unless you reach a level of sophistication perhaps. Very much like investing results – it is difficult to predict the future, and with all the bull and bear markets over a lifetime, it is impossible for the result to be perfect. But as long as it meets your purpose, who cares?

E. You plant the seeds, provide the water and the soil, but someone else makes them grow: Now this is a philosophical one. I am sure there is a science to it which I don’t know yet. But despite the science to gardening, I am pretty sure everything is not being done only by the gardener. The gardener perhaps does the best possible to increase the probabilities of a fruitful result, but there are many factors that add up to create the result. You plant the seeds, lay the soil, water them and wait and watch with faith in tomorrow. And it is indeed a miracle that out of that sprouts a plant that not only springs to life and grows but has the ability to bear fruit. It is tough to predict which one will sprout to life, which will grow and which will bear fruit. Hence, leading to my hypothesis that like investing, you master the process to increase the odds, but perhaps someone else makes them grow.

It is no wonder that a learned man like George Bernard Shaw said that “The best place to find God is in a garden. You can dig for him there.”

The Madness of Crowds

Either I am a completely outdated, antique piece who doesn’t get it, or I may be a very calm composed person. I tend to give myself a positive spin with a benefit of doubt thinking it is the latter, but I suspect the former is perhaps closer to the truth.

The last week has seen me pose a dumb look on two seemingly obvious phenomena that I supposedly should have been lapping up and going crazy about. Both of them made me feel like that guy in the ‘Yeh PSPO nahi jaanta’ advertisement with the sheepish smile.

The first happened earlier this week when everyone was talking about a new game called Pokémon GO and I made the mistake of asking a colleague ‘is that a new cartoon series?’ And the second one, perhaps an even bigger faux pas yesterday, specially in Bangalore, was to ask a friend ‘What is this Kabali?’ I probably might have narrowly escaped a thrashing from the onlooking crowd.

I find myself in numerous such situations of late. Perhaps such situations are happening more often in this new age of social and mobile and trending or whatever – again my own benefit of doubt to myself.

Mark Twain said that a ‘Classic′ is a book which people praise and don’t read. In that era, it probably took a long time after a book is released for it to achieve this kind of status. A few of Twain’s own books achieved that kind of status.

It seems that this period has been drastically cut of late. And it applies to not just books, but probably to movies, new products, games, apps, mobile phones, electronic devices, and what have you. And it looks like most of them become classics before they are released. Things people praise, talk about but haven’t yet read or seen – because they are not yet released. And I am left wondering what to do every time such a phenomenon turns up with the ‘Yeh PSPO nahin jaanta’ sheepish look.

This phenomenon was probably started by the iPhone mania in the US. For apps, maybe Angry Birds started it. Harry Potter movies used to see these delusions before release. And lately every new mobile phone release is ‘highly awaited’. So the stampede surrounding Kabali is hardly a surprise.

madnessofcrowds

In the 1841 book, Extraordinary Popular Delusions and the Madness of Crowds, Charles MacKay wrote of the crowd psychology that drive numerous “National Delusions,” “Peculiar Follies,” and “Psychological Delusions.”

“We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”

It does look like these delusions are more frequent of late – perhaps because there are so many objects attracting the attention of these minds (and their pockets) with easy channels of communication.

Many of these delusions are fleeting of course, and in all honesty, quite entertaining. All of them have the common result of getting some money out of your pocket. Some high, some low. A movie ticket here, or a book there, or some paid app, or at best a higher sum for a new electronic device maybe. So the harm is limited somewhat – for all the mania, it won’t leave a big hole in your pocket before, or even if it turns bad, a lasting one on your mind after.

But in the financial markets, these delusions are dime-a-dozen, and can be quite harmful. In fact, much of the day-to-day markets run on some delusion or the other – big or small. Many of them can also last quite long pulling even the most patient and experienced hands in. And with Love in the air (as in my last post), there are lots of new money-dwindling devices (like IPOs, new fund offers, expensive stocks, research reports, technical tips, stories of riches, business news, what have you!) waiting for your mind to get fixated on them. That’s where the madness of crowds can be not just entertaining, but positively harmful as well.

In such delusions, a dissenter from the crowd can look foolish, and despite all the patience, can eventually end up joining in for the fear of missing out. It is only later that one can learn whether one was sane or stupid. It is better to miss out on such madness of crowds – due to being outdated, lazy or composed, or some other reason.

It is worthwhile to remember what Charles Mackay rightly wrote in 1841.

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

Now let me go get my ticket for Kabali.

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