Meditations On Investing & Life
I had all these thoughts in my head as the new year was approaching. And I didn’t know how to contain them. So in what may seem an awkward post on investing and life, I decided to entitle this post “Meditations On Investing & life”. Now, my aim is not to philosophize what life and investing is about. But rather, it is a seemingly unconnected flow of the constant and incessant stream of thoughts in my head. I won’t go as far as to call these thoughts realizations but rather, they are lessons and ideas for me in 2019. And perhaps, you too.
Practice Of Non Greed
Now this idea of practicing of non greed is a good thing in the stock market and investing. While Warren Buffett espouses the idea of being greedy when others are fearful, I think there needs to be a line to be drawn in investing. We are in a game where anything that can go wrong will go wrong. Just like a business, the winds of change are ever present. There is no such thing as permanence in the stock market. Hence, businesses come and go with the winds of change. Being greedy and over allocating to one single idea because of a stupendous story seems ludicrous. The thing is our brains are evolved to get hooked onto stories, the narrative fallacy. Imagine what could go wrong with that. Imagine an idea, a distressed entity that could become a 20 baggers, with the right recapitalization and the right control investors. Would you allocate 50% of your portfolio to an instance like that? Now, there is greed in there if you do so. If inside, you feel a thug a pull towards over allocation, then you might want to think again. Investing successfully in the stock markets is about survival as much as it is about earning a return. But first, you have to think about survival first and not the potential amount you could possibly have in your portfolio by the end of 3 years. As I write this, I hold this to true to me just as it may be for others in the game of investing.
Practice Of Detachment
The stock market is a volatile entity. One day, it is happy and the next day it is moody. Benjamin Graham called this entity a manic depressive! But it is there to serve you. the volatility in the stock market will make an investor very anxious. Be detached especially if you know that the price of a stock has gone down by 50%. Assess that the margin of safety is still intact and be steadfast in your decision unless something happens may increase the chances of a permanent loss of capital.
There is a story in detachment we can all learn from, from Bershire’s letter to investors.
Stocks surge and swoon, seemingly untethered to any year-to-year buildup in their underlying value. Over time, however, Ben Graham’s oft-quoted maxim proves true: “In the short run, the market is a voting machine; in the long run, however, it becomes a weighing machine.”
Berkshire, itself, provides some vivid examples of how price randomness in the short term can obscure long-term growth in value. For the last 53 years, the company has built value by reinvesting its earnings and letting compound interest work its magic. Year by year, we have moved forward. Yet Berkshire shares have suffered four truly major dips. Here are the gory details:
This table offers the strongest argument I can muster against ever using borrowed money to own stocks. There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.
If you have made every effort to buy stocks intelligently, with a margin of safety to what it is worth, a portfolio of such stocks may lose money on paper but in the long run with prove to be fruitful.
Buffett Suggests That You Read This In Times Of a Turmoil
If you can keep your head when all about you are losing theirs …
If you can wait and not be tired by waiting …
If you can think – and not make thoughts your aim …
If you can trust yourself when all men doubt you …
Yours is the Earth and everything that’s in it.
Being True To Oneself
For those of you who have read my books, you will understand that my journey had meandered from Buffett to Graham. Buffett was almost impossible to imitate in my view. I realized that I was drawn more to Graham’s ideas and those ideas have stuck with me for a while now. That whole stretch of a 15 years journey was a journey of self realization and becoming true to myself, in a sense, extend myself outwards to the person I already was inside. I like to tell people that the biggest lie that we can tell are those lies we tell ourselves. Honesty to oneself is of utmost importance to me.
This reminds me of a real story, a story of someone I know who threaded the wrong path in life. No names will be mentioned here but I recount the story with vividness. He was by and large extremely mathematical, love to count since young but for some reason, ended up in a profession his parents and siblings chose of him. Why? Because his older sibling had succeeded in that profession and his parents felt that he could do as well in the same profession as his older sibling had shown. His heart had revealed itself to him in an early age that he was meant to do something that was related to “counting” as weird as it sounds. He circled around aimlessly over a decade but that is not the end of the story. He found out what his inclinations were and applied himself to it, becoming so much happier in the process. My heart goes out to him and I hope he does well in life. But these are real events, real situations. And the truth of the matter is that you can only excel in something that you are interested in. It is as if your soul has a signature to it and unless we do what we are inclined and interested in, mediocrity may be an eventuality.
To thine own self be true.
Rely On Yourself
Getting investing ideas from people can be a great thing. But it matters how you apply the advice and many times, who you get that advice from. That is the reason why chat rooms, forums and facebook and other social media may not be a great starting place to start an investment portfolio. And anyway, why should you even listen to me? Who am I? I don’t know your circumstances. I don’t even know you. So don’t even listen to me. Always be ready to rely on yourself. Investing is a game of skill and self knowledge. Understanding yourself is half the batter won. No one is here to save you. The only person that is going to save you is you. That is also the reason why one should truly be reliant on oneself and no one else. There is a little story, a parable about self reliance that is just as applicable today as it was in the past.
Two brothers involved in litigation appeared before a Magistrate. One of them was a millionaire, the other a pauper. The Magistrate asked the millionaire how it was that he became so rich and his brother so poor. He said: “Five years ago we inherited equal property from our parents. Fifty thousand dollars fell to his share and fifty thousand dollars to me. This man, regarding himself as wealthy, became lazy, and whatever work was to be done he entrusted to his servants. If he received a letter, he would give it to his servants and say, ‘Go, attend to this business.’ Anything that was to be accomplished he told his servants to do. He lolled away his time in ease and comfort. ‘Eat, drink, and be merry.’ He would always bid his servants, ‘.’Go, go; attend to this business or that.” Speaking of himself the rich man said: “When I got my fifty thousand dollars, I never committed my work to anybody; when anything was to be none, I would always run to do it myself and I always told the servants, ‘Come, come, follow me.’
The words on my lips were always ‘Come, come,’ and the words on the lips of my brother were ‘Go, go.’ Everything he possessed obeyed his motto; his servants, friends, property or wealth went away, entirely left him. My maxim was ‘ Come’; friends come to me, property increased, everything multiplied.
When we depend upon others, we say, “Go. go”. Everything will go away, and when we rely upon Self and trust nothing but theAtman, all things flock to us. If you think yourself a poor, sneaking vermin, that you become, and if you honour yourself and rely on yourself, grandeur you win. What you think, the same you must become.
MORAL: Dependence on others makes us lose, while reliance on Self gains for us everything.
Source : Wisdomlib
Have Faith In Yourself
Faith is necessary in game of investing. Investing is an activity that requires a certain comfort with uncertainty. When you have done your due diligence and made every effort to invest in a margin of safety, the only thing that can help you stay in the game is you.
Have faith in yourself and your abilities. There is no better person to take you across the rivers of uncertainty than you yourself. You are already what you need in your life. Always remember that.
Investing Is A Journey & Not A Destination
It is said that life is a journey and not a destination. The destination in and of itself is not the be all and end all. It is the journey that counts. And that journey is tied to your growth as a person.
Do not think of investing as a destination with a number of zeros in your bank account. Such thinking is what gets one into trouble in investing. Enjoy the process and the journey. If anything, aim to be a better investor instead of aiming to get a certain number of zeros in your bank account.
The japanese word “Kaizen” simply means improvement. Man must grow in all aspects of his life. If not, the results are stagnation. The idea is to set yourself on the course of never ending improvement in all aspects of your life. Material, spiritual, mental and physically well being is to be taken into consideration.
Kaizen also applies to investing. We have to continually learn and grow. We don’t know it all. The day that we claim to know it all is the day we lose our very humility. There is a saying that summarizes the essence of kaizen below.
“We cannot become what we want to be by remaining what we are.”
– Max DePree
Investors Often Underestimate The Idea Of Mean Reversion
The idea of mean reversion is not a cool concept in finance and investing. The latest stories have hook-like tentacles that grasps the minds and the heart of the people. In such an instance, you pay a very high price for storied stocks. Returns will be mediocre. Do not underestimate the power of mean reversion. Beaten down stocks will do more for your portfolio that storied stocks.
Read The Heck Out Of 2019
To be a good investor or even a great one, you have got to be a reading machine. For 2019, you should make it a point to read the heck out of the entire year. There is no need to attend expensive seminars. Take education into your very own hands and start being curious.
Keep In Mind The Idea Of Compounding
The idea of compounding is the single most fascinating idea it is to be. If you could compound money at 20% per annum with a starting capital of say $100,000, you get an ending portfolio value of $3.83 million. People forget that compounding really works because you don’t see the results immediately. But give it time and the results will be stupendous.
Don’t take my word for it. Albert Einstein says that :
“Compound interest is the 8th wonder of the world. He who understand it earns it. He who doesn’t pays it.”
Be Simple In Your Lifestyle
Be simple. Simplicity is the foundation of wealth. Flashy cars and clothes do not maketh the man. In fact, ego centric activities will cause one’s downfall. Be simple in your lifestyle and compound your money surely and quietly!
Save Like A Jew
You know what they say. Our society acknowledges that the Jews are some of the wealthiest people on earth. That is why there is a phrase called “Save Like A Jew”. The Jews are known to be great savers. Spend your money wisely and be one heck of a saver! Remember that every dollar saved can be put towards compounding!
Dividends Are Great. Total Returns Are better
There is such great misconceptions in investing for dividends that I wished that Ben Graham would be around to right that. While dividends are great, the idea is to pay as low a price for an investment according to its merits so that one gets capital appreciation as well. I have seen folks overpay for dividends in which the company may not be able to sustain in the future. Think total returns instead!
Stay the Course. Be Invested !
Investing knowledge is cumulative. The longer you stay in the game, the better it is going to be for you. You just have to stay in the game and continuously improve. Losses are part and parcel but once you find your groove, there is no stopping you. Stay invested and stay the course as you captain your own ship!
Love What You Do
If I have mentioned this before, forgive me. But this is quite important. I don’t think anyone can be a great investor without loving the idea of investing, without thinking about it, without liking to do it. You have to love what you do and the extra miles would seem as if it is child’s play to you.
Personally, when I involve myself in other periphery activities in my life, I start to feel lost. And there is this nagging feeling that I am not doing what I am supposed to do. However, when I flip out the charts, the annual reports and the thinking gets going into investing matters, my eyes start to light up and my body reacts to a certain fire, a certain passion within that I cannot for the life of me explain. And the thing is that I am happy. There were some gains in 2018 but there is nothing like the feeling of coming up with a hypothesis, and then seeing it play out in one of my investment themes I have classified in my mind. I play a game of “ifs” in my head and whole branches of probability spread out right in front of me in my mind’s eyes and I feel a sense of satisfaction that money cannot buy. I mean if you could honestly love what you do, you are already in the fortunate 1% according to my calculations. How many people love what they do?
So I think we got it all wrong. People believe that striving for riches is what makes one happy. But I have seen so many rich people who are extremely unhappy and dissatisfied in life. Could we apply Charlie Munger’s philosphy of inverting in this case and working from the back? Perhaps, it is happiness that we should seek first and riches will follow suit naturally.
Wisdom is not intelligence. In fact, I have seen many who are extremely intelligent but they lack the quality of wisdom, the quality of knowing. Wisdom is something to be cultivated. Wisdom encompasses while the intellect defines, sometimes wrongly. Wisdom knows what to do while the intellect stifles, at times. Wisdom is the ability to discern. And the starting point of wisdom may be an honest acknowledgement that we don’t know everything.
Look After Your Health, Yourself & Your Family
Many people spend their entire lives looking for money, chasing after money. There are stories of investment bankers working so hard and eventually falling to diseases such as cancer in their 30’s. So they have got all that money. But what about their health? Health is an intangible. You only realize its importance when you lose it.
Besides, when it comes to investing, you need a long runway. The longer the runway, the better it is for you. It is indeed possible to be wealthy without sacrificing your health and well being in the process. You need that long runway if you want to be a successful investor. And great health is indeed wealth. Think about that for a moment and hold on to that thought!
And of course, your life is not just for you. Look after your family as well. If your family is happy, you would most likely be happy as well.
Nothing can be said here that isn’t already mentioned elsewhere. Gratitude is one of the most powerful tools of human existence. We should always strive to be grateful and thankful for our circumstances in life. No one owes us anything. Gratitude comes back to us in ways that are unimaginable!
Let me end off by saying have a good 2019 and may you be wiser person that you were in 2018. May you and your family be blessed with prosperity, health and happiness!
These books which I have written are case study driven and discuss strategies, mindsets and situational approaches to employing the net current asset value strategy.
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