I am writing this with immense gratitude to all the followers of Value Investing India, who kept on questioning me about the different aspects of investing and help me improve. I wish you a happy new year and my apologies that I missed it by a week.
The year 2018 was an eventful year where I did some big investments in India and few in Australia and USA. The portfolio took a huge leap especially in the private equity vertical, while businesses and stocks remain slow movers. All in all, I would call it a year of "Big Learnings", where I was being admonished, taught and made learn many important - life and investing lessons. All in all the year improved my pilot checklist, which I always refer before taking off. I have been getting 34% plus returns since the GFC, that's when I actively started investing and the checklist has helped me, even when I am copying someone. You should have one for yourself.
The followers(Value Hackers) understand how important is wealth accumulation and that's the reason they are following the page. So I dedicate this post to the core principles, which are like the laws of nature (refer Magnetism, Newtons Law etc) and applying which, have given any individual investors, better results than others in the same quartile.
Without wasting any time here is the list :
1) Speculation is dangerous
First of all, your thinking that you can bet the market consistently with favourable odds and positive results is a lie. It may be easy enough to digest a ream of statistics and figures about past and present market conditions, but your research or technical research per se may have no predictive value for future and can burn you down. You might be lucky for some time, but sooner or later your performance will be average or below average because you cannot possibly know every important fact about the market movements especially when there are better algorithms working overtime to beat you in the game. It's a dangerous game, avoid it.
2) It's more than just mere numbers
I am good with numbers and off late have started churning numbers in excel a lot as well. Good very good, but here is the catch - Numbers do not tell the complete picture. A company might be very good on papers and has performed well in the past year and the current year, but deep down it's meeting with trouble in near future for e.g due to technology disruption or user behaviour change. Understand the long-term advantages of any business and how customer behaviour and investing behaviour is changing it.
3) Focus on Value and take advantage of the panic
In 2008 when markets were tumbling, I started investing in companies with huge intrinsic value in India e.g. Jockey India, Piramal Enterprise, Indraprastha Gas, Rajesh Exports, United Breweries and few troubled ones like Tech Mahindra and ICICI Bank ( They said it will go broke). I was focusing on how much it's worth (Sum of parts), it's a competitive advantage, what would generate profit in the future. It was a no-brainer and I was ready to hold the stock for more than10 years. Look for companies retained earnings, Price/ Earnings, Book Value, compare these with peers. Check if it's eating itself, make your self familiar with the manager by reading management discussions, reading conference calls answers.
Buffet talks about moat while Elon Musk disregards the value of moat stating that constant technological evolution creates a big moat. Two different perspectives but true. Amazon will fit Buffets definition while Tesla will fit Musk definition, although I will follow Buffets definition, due to a lot of uncertainty in technology.
4) Overtime Stocks will beat many asset class like bonds, real estate, bullion
Although this is not always true (it depends on the time period that is being studied) but it's generally true. Why is that? Well, that's because of retained earnings and dividends. When times are good, companies can boost their dividend payments and investors will bid up share prices, they can also grow in net value and expand (with less debt) and investors will flock to these companies stocks. That does not happen with other asset classes. Your real estate investment cannot expand at the same pace, these companies can and investors are rewarded.
5) Probability (Uncertainty) is not the same as certainty
You may have some excellent analysts' estimates on earning predictions or the latest technical charts on various cycles. That kind of data abounds in the information economy but it won't protect you from the market uncertainty. When there is uncertainty there is fear and doubt about the future economic conditions. If you cannot quantify uncertainty you are preparing for disaster. Antidote would be to balance your portfolio with a higher per cent allocation of certainty and a lesser percentage allocation for uncertainty. Investing passively into an index fund, or investing in an average yield corporate bond would be ideal (Certainty) .
6) Be contrarian but with a better sense of direction
Being a contrarian pays off but you should have a better sense of direction. Don't try to mine the market, but look for opportunities to buy companies/assets at a discount. Most of the time good deals will come to you during the panic. If you can go against the grain, you can boost your long-term total returns.
7) Invest for long-term and use cost averaging to your benefit
Do not forget rule number 3 and buy your stocks on dips
8) Make informed connections and grow your circle of trust
This is one the most important one. Using the internet you can grow your circle of trust slowly and start sharing ideas. People call these mastermind groups and you can learn more about the power of the mastermind from Napolean Hill. Still, use your checklist before taking off. Mastermind also give you the confidence to allocate money.
9) Keep learning
Know your limitation and learn new skills based on that. You might be passionate about cricket but if you know you that you cannot be Virat Kohli, there is no point putting constant effort. Understand your circle of competence and learn a new skill in that area.
The year 2018 was an eventful year where I did some big investments in India and few in Australia and USA. The portfolio took a huge leap especially in the private equity vertical, while businesses and stocks remain slow movers. All in all, I would call it a year of "Big Learnings", where I was being admonished, taught and made learn many important - life and investing lessons. All in all the year improved my pilot checklist, which I always refer before taking off. I have been getting 34% plus returns since the GFC, that's when I actively started investing and the checklist has helped me, even when I am copying someone. You should have one for yourself.
The followers(Value Hackers) understand how important is wealth accumulation and that's the reason they are following the page. So I dedicate this post to the core principles, which are like the laws of nature (refer Magnetism, Newtons Law etc) and applying which, have given any individual investors, better results than others in the same quartile.
Without wasting any time here is the list :
1) Speculation is dangerous
First of all, your thinking that you can bet the market consistently with favourable odds and positive results is a lie. It may be easy enough to digest a ream of statistics and figures about past and present market conditions, but your research or technical research per se may have no predictive value for future and can burn you down. You might be lucky for some time, but sooner or later your performance will be average or below average because you cannot possibly know every important fact about the market movements especially when there are better algorithms working overtime to beat you in the game. It's a dangerous game, avoid it.
"It's better to be a little Warren Buffet than a failed Soros."
2) It's more than just mere numbers
I am good with numbers and off late have started churning numbers in excel a lot as well. Good very good, but here is the catch - Numbers do not tell the complete picture. A company might be very good on papers and has performed well in the past year and the current year, but deep down it's meeting with trouble in near future for e.g due to technology disruption or user behaviour change. Understand the long-term advantages of any business and how customer behaviour and investing behaviour is changing it.
3) Focus on Value and take advantage of the panic
In 2008 when markets were tumbling, I started investing in companies with huge intrinsic value in India e.g. Jockey India, Piramal Enterprise, Indraprastha Gas, Rajesh Exports, United Breweries and few troubled ones like Tech Mahindra and ICICI Bank ( They said it will go broke). I was focusing on how much it's worth (Sum of parts), it's a competitive advantage, what would generate profit in the future. It was a no-brainer and I was ready to hold the stock for more than10 years. Look for companies retained earnings, Price/ Earnings, Book Value, compare these with peers. Check if it's eating itself, make your self familiar with the manager by reading management discussions, reading conference calls answers.
Buffet talks about moat while Elon Musk disregards the value of moat stating that constant technological evolution creates a big moat. Two different perspectives but true. Amazon will fit Buffets definition while Tesla will fit Musk definition, although I will follow Buffets definition, due to a lot of uncertainty in technology.
4) Overtime Stocks will beat many asset class like bonds, real estate, bullion
Although this is not always true (it depends on the time period that is being studied) but it's generally true. Why is that? Well, that's because of retained earnings and dividends. When times are good, companies can boost their dividend payments and investors will bid up share prices, they can also grow in net value and expand (with less debt) and investors will flock to these companies stocks. That does not happen with other asset classes. Your real estate investment cannot expand at the same pace, these companies can and investors are rewarded.
5) Probability (Uncertainty) is not the same as certainty
You may have some excellent analysts' estimates on earning predictions or the latest technical charts on various cycles. That kind of data abounds in the information economy but it won't protect you from the market uncertainty. When there is uncertainty there is fear and doubt about the future economic conditions. If you cannot quantify uncertainty you are preparing for disaster. Antidote would be to balance your portfolio with a higher per cent allocation of certainty and a lesser percentage allocation for uncertainty. Investing passively into an index fund, or investing in an average yield corporate bond would be ideal (Certainty) .
6) Be contrarian but with a better sense of direction
Being a contrarian pays off but you should have a better sense of direction. Don't try to mine the market, but look for opportunities to buy companies/assets at a discount. Most of the time good deals will come to you during the panic. If you can go against the grain, you can boost your long-term total returns.
7) Invest for long-term and use cost averaging to your benefit
Do not forget rule number 3 and buy your stocks on dips
8) Make informed connections and grow your circle of trust
This is one the most important one. Using the internet you can grow your circle of trust slowly and start sharing ideas. People call these mastermind groups and you can learn more about the power of the mastermind from Napolean Hill. Still, use your checklist before taking off. Mastermind also give you the confidence to allocate money.
9) Keep learning
Know your limitation and learn new skills based on that. You might be passionate about cricket but if you know you that you cannot be Virat Kohli, there is no point putting constant effort. Understand your circle of competence and learn a new skill in that area.
Enjoy your win, the objective is to ensure prosperity but not to be obsessed with it. Remember to give back 1% of your win.
