Where will the 'market' go now?

Answer: No-one knows!

Well, sorry! If you thought this was a post which will give you details as to where the market (index) will go from the present level, you are going to be disappointed. Because, I honestly do not know. (No-one does!)

The reason for writing on this topic is as under:
Me and some investor friends were recently having a discussion on this topic, as to 'market kahaa jayega'. Some poeple presented logical and valid arguments, along with supporting data, as to why the index should fall. Others presented a counter-view which was equally logical and supported with data. This got me thinking and the result is that you people have to read another post of mine!

Where will the index go next? Well, each person will have his own view and logic on this topic, depending upon one factor; how much is that person invested!

For those who are heavily invested and are sitting on little cash: This camp will always say that the market will go up. Reason? Well, its because they are already invested to a great extent. People belonging to this camp will read up on and pay most attention to all positive factors, macro and micro. (This happens sub-consciously and not deliberately.) They will gather and collect data which supports their argument that the market has to go up. They will sub-consciously disregard or give little importance to negative facts or find justifications against them. They will always reach a conclusion that the market has to go up. And the sad part is, they think that they have done this 'logically', without any bias.

For those who are on huge cash and are not heavily invested: This camp will obviously say that the market has to go down. (That is why they are on cash, right?!) The people belonging to this camp will do the exact opposite of the people belonging to the first camp. They will gather information and data which shows an extremely grim and negative picture which is conclusive 'proof', supporting their hypothesis. Again, the sad part is that they will sincerely think that they have arrived at the most logical conclusion. They too will sub-consciously ignore all the positive factors and fixate upon the negative ones.

So what can we learn from this?

• Our mind is extremely well designed to JUSTIFY. By hook or crook, the mind will find out reasons to justify an action. In the present case, the action is of being invested, or being on cash. In any case, the mind will work in a way to accurately find out reasons to justify this action.
• Ideally, these reasons should be found first, then the action should follow. However, here, it will inevitably happen that the reasons follow the action. Is there anyone who is fully invested, willing to say that the 'market' has to fall?? Nooo! That person will obviously say that the market will rise! It happens all the time.
• So, what should be done about this? The answer is pretty simple; DON'T TRY TO GUESS WHERE THE MARKET IS GOING! It is a waste of time and energy. We invest in individual stocks. So doesn't it make sense to concentrate our attention and energy on those stocks and companies, instead of trying to time the market? 
• Stocks should be bought and sold on their own merit, irrespective of the market conditions. Personally, I think that is the best way of doing things!

I agree that saying all this is much more simple than actually doing it! Not many will have the courage to buy, when everyone around is saying 'the market will fall'. Very few can do it. But then, very few earn extra-ordinary returns in the market, right?

Cheers and happy investing!

Bring out the animal in you!!

If one looks hard enough, one can see 'investing' all around. One can learn something or the other about investing from virtually all aspects of life.
A good investor needs to possess some qualities. A lot of these are 'in-built', others can be learnt.
In this post, an effort has been made to compare certain qualities of a good investor with those possessed by various members of the animal kingdom!! (If you think I am going bonkers, I wouldn't blame you! But still, do read on.)

Please note that:

• All investors may not possess all the qualities mentioned and honestly, its not necessary too.
• What is most important is that the investor displays the right quality at the right time. (not all the time)
• Some of the qualities mentioned are mutually exclusive.
• Please don't take everything in this post 'literally'.

Sloth - Inactivity

The first one on our list is the Sloth. This tropical rain-forest mammal is an amazing creature. It moves at a top speed of 0.15 mph! 'Sloth' also happens to be one of the seven deadly sins, denoting extreme apathy and inactivity.

In today's 'investing' world, where one is constantly pounded with information, where the need to do something all the time is all-pervasive, where inactivity is unheard of, investors can surely take a cue from the good old Sloth. A lot of times, the best thing to do is to do nothing at all! 

As Warren Buffett quotes "Lethargy, bordering on sloth, should remain the cornerstone of an investment style."

Of course, one should not be a sloth all the time. Inactivity is most called for when one can see frenzied activity all around. In short, be a Sloth selectively. :-)

Honey Badger - Fearlessness

Just a few months ago, the indices were at record lows. Valuations in a lot of companies were tempting, to say the least. There were even some well established companies with market cap less than cash on books! But how many of us bought big? Very few. Why? Afraid that the overall stock prices will tank further? 

Well in that case, one can learn a lot from this mean little guy, the Honey Badger. The Honey Badger has been entered in the Guinness Book of World Record as being the world's most fearless animal. About the size of a house-cat, a Honey Badger in a bad mood will attack almost anything that moves. One can find youtube videos of Honey Badgers attacking leopards and lions!

Again, if done inappropriately, this attitude is plain stupid. But one should certainly be fearless specially at times when everyone around is afraid.

Mama Turtle - Emotional Detachment

The female turtle is probably one of the most emotionally detached dudette ever. She comes ashore, lays its eggs and just leaves. She neither cares for the eggs nor for the new-born. They are left to fend for themselves!!

Now i agree this is totally extreme! The only thing we should take from this is emotional detachment.. in this case, towards stocks, not children! A lot of times, for a variety of illogical reasons, investors become emotionally attached to stocks and don't sell them even at ridiculous valuations. Other way round, investors don't buy 'sitters' due to certain mind-blocks or biases. (happens with me too) Emotions often cloud logic and reason. One should not be emotional while investing. So, while emotions may play the central part in other walks of life, in investing, the lesser their involvement, the better.

House Lizard - Cut Your Loss!

The common house-lizard (chipkali) will cause most of the female readers to scream with disgust. But there is something to be learnt from this velvety creature too. :-) When faced with danger, the lizard detaches its tail, which keeps on wriggling on its own. As the predator gets distracted by the wriggling tail, the tail-less lizard makes good its escape. Better to lose a tail, than to lose its life, right? The tail will grow back.
In investing too, sometimes, we need to lose our tail. (not literally of course!). E.g. When we realise that buying a particular stock was a wrong decision and its now quoting at a small loss, we should sell it off immediately without waiting for it to come 'cost-to-cost'. A small loss due to an incorrect decision is perfectly acceptable than losing a big chunk and peace of mind.


Hyena - Opportunistic

This rather repulsive looking creature is a super opportunist! Hyenas are opportunistic feeders and have a keen sense of judgement and risk. They typically trail the bigger cats and feed off the leftovers of their kill.
Similarly, in investing, one should be on the prowl for opportunities where the risk-reward ratio is in one's favour. Special situations (mergers, demergers, acquisitions, takeovers, slump-sale, etc), rights issues and warrants are prime opportunities available for opportunistic investors and decent money can be intelligently made in them. One needs to keep one's eyes and ears open for such opportunities always.


Cat - Curiosity

"Curiosity killed the cat"..so goes an idiom. Well, we aren't planning to do any killing here, don't worry. Cats, by nature are extremely curious. You can play with a cat for hours and it will still want more. They like to explore, try new stuff and often get into trouble.
I believe that an investor also should be just as curious. Curious with regard to companies, their products, the nitty-gritties involved. Curious with regard to learning new stuff, appreciating new techniques and always wanting more. The day one's curiosity ends is the day learning stops. And in investing, one should continue to learn all the time. So a big MEOW to all..


Sheep - Humility

I also do not know why, but sheep look so very humble, don't they? Well, at least to me, they do! (dunno if they are really so) The stock market is a place where humility is rare. People often claim to be far more than they are or something they are not! Successes are trumpeted and failures are quietly swept under the carpet. A lot of people think they are the best, much better than everyone else! In such scenario, a healthy dose of humility is an absolute must. One should never think of oneself as the greatest investor on planet earth. The market shows such people their rightful place soon enough.


Crab Spider - Patience

This cute looking fella is the Crab Spider. The most curious feature of the Crab Spider is that it does not weave webs. It does not go hunting after insects too. It sits still patiently, allowing the prey to come within striking range. It can sit still for long periods of time waiting patiently for the next yummy meal.
Now thats patience. Waiting and waiting for the right opportunity to come by. Today, patience is totally lacking in the overall investment community. The definition of 'long term' has become very flexible. In such a scenario, one cannot help but admire the Spider Crab! :-)


Black Panther - Solitude

This fabulous looking creature, the black panther (leopard) lives alone its entire adult life, except during mating. (Hmmmm)
Anyways, relating this to investing, as my good friend Dnyanesh says 'investing is a lonely profession'. I completely agree (although loneliness and solitude are vastly different concepts). As individuals, we are different in all respects. Our investment ideas and processes are equally different. Our decisions are also, in a way, unique. Getting together in groups and discussing investments will only lead to confirmatory biases taking over. Buffett has also strongly advocated the limited use of committee-style investing for getting extra-ordinary returns. Taking cue from the black panther, one should 'hunt' alone. (Also, the idea of the lone hunter/lone ranger sounds so Hollywoodishly cool!)


Dolphin - Have Fun

Dolphins are synonymous with fun. Have you ever seen a sad dolphin?! Even when they are working (a.k.a hunting), they jump around and seem to have a good time.
Similarly, if one is not having fun in one's work, that work is not worth doing, imho. Investing is tremendous fun. (at least I think so) So enjoy, have a good time and make good money. If your investing activity is synonymous with ulcers, blood pressure, tension and sleepless nights, believe me, its just not worth it. Having fun will make you a better investor and a better human. :-)


Well, there you have it. Some of the key qualities of good investors that one can observe in nature. (I am not at all claiming that the above list is exhaustive).
I love to co-relate multiple disciplines and different streams of study and knowledge with investing. It gives one a fresh approach and perspective. If you also liked what you just read (hope you are still awake), then do read this book. Its mind-blowing and a trillion times better than what you just read.
Would love to hear your comments..

Cheers and happy hunting!!!

Some good books worth reading...

"A man who does not read good books has no advantage over the man who cant read!" So says Mark Twain.. And it is so very true. There is a world of knowledge out there. And its yours if you choose to.
Personally, I love to read. Due to time limitations, I read books about investing and psychology only. These books have taught me a lot. They have awed me, humbled me and I have communicated with the greatest minds on earth through these books! Here is a list of good books you also can read and learn from. For simplicity sake, I have categorized them based on various criteria. The order in which the books are mentioned has no significance whatsoever.

The Buffett/Graham/Munger category:

1) Security Analysis - Graham & Dodd
The original text of value investing, first published in 1934. The book is currently in its sixth edition and it is still on the best-sellers list. It is proof that investing is indeed timeless. The book is extremely technical in nature. Readers who are not serious will find it daunting. (To be frank, boring!)

2) The Intelligent Investor - Graham
The follow-up to the Security Analysis book, The Intelligent Investor is yet another classic. Much more simplistically written, I believe it is a must-read for any budding investor.

3) Buffettology/The New Buffettology - Mary Buffett
An excellent book to read about Warren Buffett. Written in simple language.

4) The Snowball - Alice Schroeder
Size-wise, this is the biggest book on Buffett! :-) Personally, it was not big on value addition, for me. After reading this book, one's respect for Buffett as a human being and family man (not as an investor) would surely come down.

5) Poor Charlie's Almanack - Munger
Reading this book has been quite an experience. It takes a huge amount of mental effort to understand and absorb this book. Munger is amazingly smart, equally funny and kinda whimsical.

6) How to pick stocks like Warren Buffett - Timothy Vick
Gives a step-by-step and simplified analysis of Warren Buffett's stock picking approach. But, do remember that understanding Buffett is comparatively easy, implementing Buffett is damn difficult.

There are countless books written on Buffett. Be careful about choosing which one to read. Most of them contain the 'Buffett' name just to sell the book.

The Value Investing/Investing category:

1) Common Stocks & Uncommon Profits - Phil Fisher
One of the best books on investing, imho. Fisher should be called as the Father of Simplicity! Reading this book will change your whole outlook towards investing and how you look at companies.

2) Value Investing: From Graham to Buffett and beyond - Bruce Greenwald
Another amazing book. I have been fortunate enough to attend a seminar by Prof. Greenwald and hear him talk. It was a great experience. Definitely a book worth reading.

3) Value Investing - James Montier
For me, Montier is a rockstar! He is one of the world's leading authorities on Behavioural Finance, a subject close to my heart. Montier's work on value investing is also very much worth reading.

4) The Little Book of Value Investing - Christopher Browne
An amazing book. Simplifies the 'investing in a business' approach to a great extent.

5) The Focus Investor - Rockwood
Though not strictly a book on value investing, this book provides an altogether different approach to investing by combining varied investing philosophies. Surely worth reading.

6) The Dhando Investor - Pabrai
For me, this is a coffee table kinda book. Imho, the book is over-rated.

7) Margin of Safety - Klarman
This has to be on your must-read list. An amazingly written book on the concept of margin of safety, which is central to the value investing philosophy.

8) One up on Wall Street - Peter Lynch
9) Beating the Street - Peter Lynch
Both are good books by a very street-smart investor. Lynch was not at all in the value-investing camp, but he earned phenomenal returns (the best ever) as a mutual fund manager.

10) Reminiscences of a Stock Operator - Edwin Leferve
This is not a book on investing as such, its written by a hard-core trader. But its an amazing and wonderful read. One can learn a great deal about the psychology of the markets from this book.

11) Its when you sell that counts - Cassidy
One of the very few books written on the art of selling! Contains a lot of stuff on behavioural finance too.


The Behavioural Finance/Psychology category

1) Predictably Irrational - Dan Ariely
A superb book for anyone interested in psychology. Full of examples and experiments.

2) SWAY - The irresistible pull of Irrational Behaviour - Braffman
Well, the title says it all, doesn't it?

3) Panic - Michael Lewis
A history of how markets panic. Will help you to be ready next time!

4) Behavioural Investing - Montier
Another excellent book on the application of behavioural finance in investing.

5) Seeking wisdom: From Darwin to Munger - Peter Bevelin
Another fascinating book, written in an interesting way.

6) Chaos - James Gleick
A very very complicated book imho. Not directly related to investing, but covers multiple fields and aspects.

7) The (mis)behaviour of markets - Mandelbrot
This book takes a look at the classical financial and valuation models and theories and then takes them apart!


The Entertaining Category

1) Liar's Poker - Michael Lewis
A hilarious look at what happens in a typical investment bank. Amazing book.

2) Where are the Customers' Yachts - Fred Schwed
Another excellent and entertaining take on how Wall Street operates. A must-read.

3) Fooled by Randomness - Taleb
4) The Black Swan - Taleb
Taleb's books take time to understand and digest. But are very absorbing. These two books always help me remain within my aukaad! :-)

5) Damn Right - Janet Lowe
This shouldn't really be in the entertaining category, but I personally found it amazingly entertaining. Anyways, anything on Munger has to be witty and entertaining! Do take a look.


These are few of the books I have read and I would recommend that you also take them up. It would be a life-altering experience. I am in the process of reading more books and would update any good books I come across.. Currently, after going through a Montier phase, I am taking up The Art of Strategy which was sent by my good friend Carlos. Btw, Carlos, if you are reading this, I expect a huge number of comments (a.k.a. brickbats) from you, since 'books' is a matter close to your heart. :-)

Cheers and happy reading!!


P.S. I do not have a soft copy of any of the books, so kindly do not ask me to email soft copies n stuff..