Happy New Year

             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 community followers(Value Hackers) understand how important wealth accumulation is 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. 

You can choose to make your own adjustments, but general theme remains the same.

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.

The Most Important Thing

So you have decided to carry on with me in this journey of creating wealth. Good!

In this post, I will discuss the most important attributes which one should have before one can actually start getting into any sort of investment, be it real estate, stocks, bonds, VC etc. and that attribute is your attitude and mental setup. Believe me, when I started, I thought it’s all numerical but well very soon I found out, it’s more behavioral and psychological and demands one to look things in a larger perspective. Numbers are universal and available to anyone and they are most of the time already added to the price of the asset, thanks to information technology, we can now do the number crunching ourselves.  To be very frank assets tend to be efficient in pricing but still you will see one negative feedback about it which will make the ball rolling downwards. Yes, it’s funny but that is the nature of the things. But then these are the situations an investor has to look for.

Nature has induced fear factor in every one of us , which is needed for every organism to recognise an event and react to it , if that event can cause trouble or is death threatening then fear brings an organism in the zone to make a quick decision to fight or run away, and many choose to run away . But unfortunately many do the same in investing.

In many upcoming posts I will throw light on many such behavioural aspects but now lets focus on the most important things :

1. Your Thinking : I have taken the idea from this fantastic book by Daniel Kahneman . If you have not read this book , you are missing out too much .

The book talk about two systems of thought formation in our brain and this thought formation is eventually responsible for decision-making as well.

• System 1: Fast, automatic, frequent, emotional, stereotypic, subconscious
• System 2: Slow, effortful, infrequent, logical, calculating, conscious

System 1 enables us to come to conclusion very easily and since System 2 is slow and calculating and due to laziness we don’t want to use it most of the time , we tend to rely on system one. And this is what we do in any sort of investing – My neighbour is buying an investment property in so and so area lets invest along with him, I cannot go wrong in property market , I bet in a long run prices will double up etc. etc , these are easy decisions and effortless ones but then they have a huge cost .

Now to be true to all the readers this second level thinking is very important and will give one an edge over others. We will discuss this more in the coming posts but take for example this, before buying a certain product which you like and which everyone around you like, why not ask yourself if this company is a public listed entity, and you will be surprised, it is, in many cases.

Above all the best way to train your mind is to read longer articles (Believe me it’s better than investing your time on meditation, I have tried both) .With the smart phone, instead of spending that time on social media,  play games on it. 

2. Your asset allocation and expenses: The next most important thing is your asset allocation. It’s a myth that you should have ancestral wealth to be rich. You can grow your wealth by saving and investing a portion o your money. Obviously, first invest in yourself to gain a particular skill which will increase your wealth can then parallel to that you can start doing investing in Real Estate, Equity, Startup or a product/ offering of your own.

The whole idea is to multiply the income streams , even though if they bring you little income, we will sort out the low-income earner later if we cannot scale them up.For example,  start an amazon shop or sell some product/service online.

I would also like to add that I have not got good results with diversification but with concentration. I would recommend the same to you, diversify but not in more than three to four things at a time and apply this same logic to everything you do. It helps immensely to cut the clutter.

Always try to bring out more than 10% of your earning for investments and try to be on a 20% mark. It always helps to be in a liquid investment as you can come out easily anytime.

3. Reciprocity towards loss:

As I said you will be tempted to run away from an initiative or an investment when it is under severe losses. This is where most people I believe , give up and never start again. They behave like a cat which once burned by a hot milk pan never went near it again.

I have lost money in My tech startups, I have lost money in my equity investments, I have lost money in Options trading. Yes, I have lost principle, but they gave me an opportunity to learn what I had done wrong and never do that again. In fact, I have seen 70% downfall of my portfolio but still I will be willing to invest the good percentage of my money on a good opportunity, because with my mental model I can add more refinements to an opportunity than when I started.

So it takes a little bit courage to not respond to your losses but take them as an opportunity to learn.

FAITH…

SELF-CONFIDENCE…

DESIRE…

DEFINITE AIM…

ACTION…

Have the above FIVE with you and you will go miles my friends and whenever you get distracted imagine these guys laughing at you .

 

What is Arkad Academy?

I  read lots of books in a year but there are few books which I always come back and re-read , it helps me to keep a watch on my actions and also helps me not going off track. I also manage a facebook page where I keep posting my mistakes and successes . You can check it here . I also have had immense success in with my strategy and I have been able to compound my money with more than 26% return compounded annually.

So Why Arkad Academy and what does the name suggests?  Arkad is a fictional character in this classic book “Richest Man in Babylon” . Arkad worked hard , but whatever he earned was always less for him . He always thought how the rich people around him become rich , they seems to work less and are still rich , whereas he works several hours a day and still not earn enough to make him and his family happy. So when one day a rich business man visited his store he asked him to teach about money and how to be rich. The book is a blueprint for people wanting to start their journey towards getting rich.

This blog is an attempt to teach people about money , strategies they can apply to make money from several sources and become independent in life. I would recommend everyone to by this book and read it at least once. I won’t guarantee you to be rich soon but I have hands on experience , with my 10+ years of investing experience , to give you an edge over huge percentile , in this ever going game of money making.