Friday, July 30, 2010

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" 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!!!


sreenath vijayan said...

hellloo sir,
i like to share some things that happenend when i was on BOLT...

refernce to sloth:
yes this is a great thing to do....u would remeber it was a day when suddenly CNBC the new flashed ....of BNP paribar (three) fund houses apna market didnt even look at details and the only thing i heard next is..."bachhhooo..."....later we came to know is it was small crore fund that broke out...
reference to mama turtle:
it was run of IFCI ....the news of merger was all over the place and i jumped in a bought a "lot" (the times were it was 7250 wala lot) now i jumped in at 80's and holded all the way till 110...(i know a lot of money)...then i did the stupidest thing ...fell in love(no...not a girl but IFCI)...and then it went all the way back since the merger story was off the table...hehehehe
refernce black panther:
this is something i will bet and vouch on ....but the whole temptaiotn of telling it to ur "best frind" or boosting on some group will put u on this is a "art" that we have to learn in ...TIME...with EXPERIENCE...


Priya said...

Excellent take on the investment fundas and mentality. Would love to read more such analogies

Neeraj Marathe said...

Thnx Sreenath for sharing ur experiences..the market is indeed a funny place!

Neeraj Marathe said...

Thnx Priya :-)
Wud try n come up wid new stuff in future too..

Amit B said...

Hey Neeraj,

really nice article.. i strongly believe in all the characteristics that you mentioned.. and yes life is all about investing and one can figure out one's investing style only by observing one's life..

And yeah i fully agree to Dnyanesh Sir remarks on investing being a lonely profession.

He is a true legend for me ( my idol and my mentor)

keep writing such nice articles.

Happy Investing..

Amit B

Neeraj Marathe said...

Hey thnx Amit, glad u liked it..
and ya, DB is a superb investor..and an even better frnd :)

Niraj said...

This should be Investor 101 for all those interested in taking the investment quite seriously unlike me who would just like to give money to some investment banker and ask for the annual report of the profits made.

Very nice and insightful

Neeraj Marathe said...

Hehehe...good one Niraj..quite a hut-ke kinda comment!

Inquisitive Stranger said...

Hi Neeraj,

Awesome post. I dedicate (as a reader) this post to TIP GUY i think he has all the character of these animals when it comes to investing.

Do you plan to write on special situations (mergers, demergers, acquisitions, takeovers, slump-sale, etc). .would love to read them from your prospective, and some tips too :)

Thanks you


Inquisitive Stranger said...

one more question, Dnyanesh, he has a blog?

Neeraj Marathe said...

Thnx Vikrant..ya i too often read TIP GUY's blog articles..
yes i plan to write on special situations. they 1st one i wrote was on Kesar. Currently, i am tinkering wid various rights issues, approaching them as special situations.(not meant for long term investing) Camlin Fine chem, ECE, Sadbhav engg are recent examples.

Neeraj Marathe said...

No Vikrant,
Dnyanesh does not have a blog as far as i know..

Siddharth said...

Hi Neeraj,
Wonderful post, new & experienced investors will both be well served by going through this post carefully. Looking forward to more such post from you.

Neeraj Marathe said...

Hey thnx Siddarth,
Yes, i will also want to write more on such topics..

Anonymous said...

U look like most of the animals in that post ... at various points of time in the day ... must say good article ...

Neeraj Marathe said...

Haha...i hope u dont mean that i LITERALLY look like a Crab Spider or Hyena!
:-) Just kidding...thnx!

Ninad Kunder said...

Great post Neeraj.

I identify with the dolphins. Enjoy the process more than the result.



Neeraj Marathe said...

Thnx Ninad..
Same here!

Unknown said...

Hi Neeraj,

Came across your blog recently. You have a bunch of very good articles and it was fun reading them. You have done a good job by putting all the complex investing theories in a lay man's language. My dad liked your blog too.. and has recommended it to some of his friends to follow...

Waiting for some more stuff from your side... any dates on the next topic???

Neeraj Marathe said...

Hi Parvesh,
Glad to hear that u and ur dad liked the blog. Ya, i try to make things as simple as possible. Investing is a very simple exercise. the more we complicate it, the more difficult it becomes..
as regards updates, i also dont know when the next post will be, or what it will be. I write what strikes me, so its pretty much random in a sense..

Unknown said...

Recently i have started blog surfing and reading, and i must congratulate you on your blog, the research and hard work with deep insight clearly shows!
I have always wondered about th psyche of traders and investors alike and you have put my thoughts in words!

Neeraj Marathe said...

Yes Shazia,
Psychology is perhaps the most important part of investing, imho..

Anandh Sundar said...

Awesome should write more often.since Sept no posts

Neeraj Marathe said...

Thnx man..
Ya i intend to..but cudnt in the last coupla months, coz of a really hectic routine..hope to b more regular now..

Unknown said...

Hey Niraj