Category Archives: Security & Business Analysis

Stock Picking vs. Portfolio Construction The Role of Checklists

Yesterday, my partner Paresh and I delivered a talk at CFA Society in New Delhi. The topic was “Stock Picking vs. Portfolio Construction: The Role of Checklists.”

You can get the slide deck from here. Do check out the links embedded in the file.

We enjoyed interacting with the members of the CFA community and thank CFA Society for inviting us.

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Update on 5 May: Our host Jitendra Chawla, has posted a note on the talk. You can get it from here.

 

Interview With Equitymaster

Rohan Pinto and Kunal Thanvi of Equitymaster.com came down from Mumbai to my office recently for a chat.

I enjoyed interacting with Rohan and Kunal, who have also attended some of my past lectures.

Here are the transcripts of the two sessions I spent with them.

Part 1

Part 2

Planet MicroCap Podcast

Robert Kraft, Chief Operating Officer and Editor-in-Chief, StockNewsNow.com who also hosts Planet MicroCap Podcasts interviewed me recently. I enjoyed interacting with Robert and learnt that, among other things, Robert is a surfer and so naturally we spoke about Charlie Munger’s mental model called “surfing” 🙂

You can get the recording of the podcast from here. (The surfing bit was not recorded!)

The Truth About Investing by Howard Marks

In March 2017, my partner Paresh, along with the CFA Society, hosted Howard Marks in Mumbai.

I have had the privilege of meeting with Howard a few times and every interaction has made me learn something new. This event was no different. Howard enthralled the audience of about 400 of his fans with an excellent presentation titled “The Truth About Investing.”

You can watch the video from here and get the slides from here.

And here are some pictures taken at the event.

What Do Conservative Value Investors Look For In Risk Seeking Entrepreneurs?

Edited and slightly expanded transcript of talk @ Firebird, Coimbatore.

Link

 

Charlie Munger on the Paradox in Hold vs. Buy Decisions in Long Term Investing

Ok, here’s a paradox for you, the long-term investor.

You already know that owning, that is buying at reasonable prices and steadfastly holding on to good quality businesses, run by good quality managers is likely to be quite profitable over the long term.

And so, based on this belief, you construct a portfolio of such businesses and plan to hold on to it for a long time, allowing the magic of compound interest to do its magic and after you make these investments you are fully invested.

But then after a while you get some cash and that’s what creates this paradoxical situation. Which is that you are no longer willing to buy more of what you already own (because they are too expensive now) but you don’t mind holding on to these businesses you love so much.

And then you meet a trader friend who is quite successful and he politely tells you that you buy your portfolio every day. That is, holding on to a position is the functional equivalent of selling it and immediately buying it back (ignoring transaction costs and taxes). And so if you’re not a buyer anymore of a position you own, then you should be a seller.

I have struggled with this paradox for many years and have written about it in the past (in my interviews with Vishal Khandelwal of Safal Niveshak) and elsewhere where I have basically said that for long-term investors in high-quality businesses, the rules for buying a stock and those for holding a stock are not the same.

In arriving at those conclusions, I was, in part, inspired by the writings of Philip Fisher in his wonderful books and also by the following three quotes by John Maynard Keynes and Ben Franklin.

“The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble, like marriage, except by reason of death or other grave causes, might be a useful remedy for our contemporary evils. For this would force the investor to direct his mind to the long-term prospects and to those only.” — Keynes

“As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.” — Keynes

“Keep your eyes wide open before marriage, half shut afterwards.” — Benjamin Franklin

Well then, on 20 December, I had the privilege and honour of meeting Charlie Munger over a wonderful lunch hosted by Howard Marks. Over two hours, I was mesmerised listening to Mr. Munger speak about many topics.

Here’s what he said about this particular topic:

“Psychologically, I don’t mind holding a company I like and admire and I trust and know that it will be stronger than now after many years. And if the valuation gets a little silly, I just ignore it. So, I own assets that I would never buy at their current prices but I am quite comfortable holding them.

Well, I am almost constitutionally. . . I have a defect. And I just won’t pay 30 times earnings… I have never done that but I have one or two now which are now worth 8 or 10 times what I paid for them and they are still marvellous businesses and are still growing and I just hold them. Many investors I know are like me. I cannot defend it in terms of logic. I don’t defend this logic. I just say this is the way I do it and it keeps me more comfortable to do it this way. And I am entitled to this, it’s my own money and I am entitled to do it my own way. A lot of people are just like me. Li Lu is just like me. He will hold things that he bought a long time ago at tiny prices in what are still great companies but he won’t buy more.” — Charlie Munger

If you agree with Philip Fisher, Charlie Munger, Li Lu (and me) on this, then, please spend some time contemplating the consequences of what Ben Franklin meant (in the context of investing,) when he talked about marriage: that you must keep your eyes wide open before marriage but half shut afterwards. This is especially true when you discuss what you own with someone intelligent who doesn’t own it and especially when you think about the whole situation in terms of what Richard Thaler calls the “endowment effect.”

BFBV Closed Group on Facebook

To my ex-students from MDI who have studied BFBV from me.

I created this Facebook group a few years ago for interaction with you and then forgot to make any formal announcement about it. This is a group where we don’t talk about stocks. We talk about life, MDI memories, career opportunities etc…

Would love to have you on board if you studied BFBV from me (which I will verify before granting permission to join).

Group address: https://www.facebook.com/groups/312501268808729


Sanjay Bakshi

Oh, Those Weapons of Mass Distraction!

Despite the fact that I don’t watch TV, my “anti-library” — books I own and desperately want to read but can’t just find the time do it — keeps growing.

A while back I realized that the most deadly weapon of mass distraction in my life is my smartphone. With apps like Twitter and Facebook on it, it’s just too tempting to go to them than to reach out for my Kindle where most of my books reside waiting for me…

And so I decided to take action.

I deleted Facebook and Twitter apps from my smartphone. I can still go to them through my browser but I have to log in every time. (can’t delete the browser damn!). And because that requires some effort, the time I spend on those apps has dropped by more than 70%

On my laptop (macbook pro) I use technology to fight technology. I have actively started using this app called Self Control. It’s an absolute boon because it

lets you block your own access to distracting websites, your mail servers, or anything else on the Internet. Just set a period of time to block for, add sites to your blacklist, and click “Start.” Until that timer expires, you will be unable to access those sites–even if you restart your computer or delete the application.

For several hours of the day, I block myself from all social media and google news (noise?).

Then, I switched off most notifications from my phone. No more sound or vibration when a message (including from dear wife) or a mail arrives and no notification on number of unread messages/mails etc. I also switched off most notifications on my laptop. And I use the do-not-disturb feature on my iPhone which blocks all calls or messages or those from unknown numbers as long as I want.

For my professional work, which requires focus on long term fundamental performance rather than real time stock price movements, I deleted the google finance bookmark from my laptop and deleted all apps on my phone which gave real-time stock prices. Sorry Bloomberg!

I love technology and what it can do for me. But I absolutely hate it’s ability to distract me from reading and from my work. The above measures have caused my productivity to increase significantly. Perhaps, they will be of some use to you. If you have any tips on how to win against weapons of mass distraction (no I don’t want to give up my smartphone or my laptop!), please share them.

Thank you.

Sanjay Bakshi