What keeps me ticking ?

Two decades is a long time in an investing career. Investing is believed to be the business which creates the most burn-outs and stock investors are prone to breakdown and bankruptcy. While i know that it can happen to anyone , i learnt that it is within my means to ensure that I dont get there. And , i have enjoyed my investing right through the two decades and this experience has been priceless. No , my saying this has nothing to do with wealth.I never sought to be a wealth creator. Actually, i never saw myself as one. But, there is no denying that the core of my work is centered around wealth and the outcome has resulted in wealth creation.

This bring us to the subject of this piece.

What keeps me ticking ?

Who you are and why you are doing something are core questions for every one of us .

if you are a brilliant techie , then the question of what keeps you passionate about your work does not arise . It is assumed that you get a kick in doing new things with technology. The fact that you are highly paid is mostly viewed as some kind of consequence of your professional excellence. Society sees your work as of greater consequence than your rewards.

If you are a great painter , then the fact that your paintings sell for crores of rupees is not the focal point of society. Society celebrates your personality and the body of your work and finds the value of your work as something incidental.

Society appreciates the skill, craft and excellence that several vocations demand . Musicians , painters , writers , scientists , techies are all seen as practitioners of an art or science and money is the outcome of their proficiency.

Society has always given primacy to proficiency over earning power and we were always taught to think that way. Money was secondary to skill and the middle class celebrated skill and took great pride in it.

So, when your profession involves the management of money , society does not view it as a vocation which involves superior intellectual proficiency and thinking skills of a high order. The management of money is somehow not given its due and viewed as something which is mechanically carried out by people who have understood numbers adequately. Managing money is seen as process involving number crunching and mechanical decision making involving limited intellectual skills. Somehow ,money is thought to be acquired by means not entirely intellectual.


The truth cant be farther than that. Investing which is the principal activity in money management is no less creative as a process than any of the other disciplines like art , music , science or writing . Ideation forms the core of investing and one must visualize the future clearly . An intuitive bent of mind and a sharp ability to develop future perspectives are critical to intelligent investing.

Then why does society dumb-down investing as a discipline ? One possible reason could be that society is innately indifferent to the attributes of intelligent investing. Most of the investing that happens around us involves the treatment of money as `idiot money'. `Idiot money' always follows the Pied Piper of the day everywhere and gets lost in the sea of losses. We see millions of people follow stereotypes for years together hoping that the stereotypes will work. Yet, for every Warren Buffett , there are millions of losers.


Stereotypes rarely result in show-stopping performance or extraordinary outcome , right ? This works no differently with managing money . So we end up conveniently attributing our lack of results to luck or blaming the unknown for our performance ( or the lack of it ).

In a world where soft skills reign supreme , the realization that money management is as much a soft skill as any intellectual vocation is yet to happen. Most people undermine the discipline of investment research.

Investment research is the constant quest for understanding businesses , their demographic relevance to society and the envisioning of their future potential It is a combination of these that makes successful wealth management happen. This has to be adequately supported by adequate understanding of human behaviour and the ability to do the math of future performance.

It is the dynamic challenge thrown by these complex inter disciplinary studies that keeps investors like me fired up and ticking. The constant demands of learning and unlearning keep the mind on an even keel and there is no time or opportunity to feel secure that you know what it takes to win. What it takes to get your act right is dynamic and evolving. You need to be in an evolving- learning mode as long as you want to be an investor.

Jim rohn's words ` Formal education will make you a living. self education will make you a fortune ' sums up the process of investing aptly.


Footnote :
The interesting thing about this note was that i penned it on a day when stocks fell 545 points on the BSE and the mood is absolutely glum and desolate. People do not even want to talk stocks . The time to put one's learning to work is now.

Investing like Rip Van winkle

Rip Van Winkle is a story that is 195 years old. I loved it for the sheer idea. Of sleeping through the harder times only to emerge in a different era of greater positivity. I always wondered what it would be like if one played Rip Van winkle in the stock market and still emerged successful without doing the drudgery of profitable labor. That idea struck me as a powerful concept. If I could do a few things right and think that I would be lost in time for several years only to wake up, would my investments still be taking me to a much happier place. The idea struck me long after I entered the stock markets and spent long years of my time in 'profitable labor'. So, I looked around for answers . The first thing that came to my mind was the power of duration. Let me start asking you a few questions. Do you still hold stocks which you bought in your early years in the market ? Have you tried asking this of someone who has done over two decades in investing. I did . The findings were quite revealing. Few people actually still own the stocks they first bought. Even fewer hold on to stocks they bought in their early years. Even their best picks usually get sold when they perform. Though they bought some of the great companies early on , they sold them when they delivered generous returns and turned multi baggers. I did the same thing several times in my first decade on investing. I always looked to make those smart moves from one company to another . Like switching buses many times on one journey , I shifted from one company to another more lucrative one. The result has been that I have been very busy ideating stocks , understanding relative value and moving capital from a stock enjoying higher valuation to one enjoying lower valuation. That is what i call 'profitable labor '. Then , in the stock market bust of 2008, I sat wondering if the whole thing was worth it. My own experience with Pidilite industries was a good test case. I identified this stock in 1994. It was a fascinating company and I even penned a research report on the company. Then four years later , it turned out to be my best performer. I sold. Ten years later , in 2008, I wondered if the sell was a good decision. It obviously made more sense to have sat on the stock despite seeing huge returns notionally. I did make very decent returns on what I bought post-sale of Pidilite . But the whole exercise seemed more like occupational therapy when I look back at my decisions. Booking profits to find similar companies seems like a futile exercise that only kept me busy pursuing work and excellence. If I did nothing and simply sat on the stock , I still would be much better off . Hindsight may be an easy tool to rationalise. But, it also taught me to appreciate where I needed to evolve . I learnt that i needed to co-exist with a few stocks for very, long extended periods of time. That was the only way I could grow and still be very comfortable with what I owned . This realisation changed my approach towards investing. Instead of focussing on turning my hunger for knowledge into investment decision making, i chose to make a distinction between the two. So though I did make several other investments post 2008, i still ensured that I raised my holding in Pidilite at every correction. How did this help ? Over time, a company where one can simply stay put, remain invested and do nothing turns into an anchor stock of the portfolio. Around a few such companies, one can establish a portfolio that will not change at the core and still grow steadily. Most investors under emphasise the importance of their anchor stocks and believe that they can find replacements. More often, the replacements are not as sound as the original. The risks rise when we replace stocks with other bets which are relatively cheaper. When anchor stocks fail because they weren't meant to be, the portfolio crumbles. So , the desire to be Rip Van Winkle in the stock market is much more than an idea . In fact , it is a powerful tool that helps you screen your own investing , understand your own notion of a long life spent patiently in investing and to correlate who you think you are to the reality. When we believe we are value investors , we often fail to reconcile our beliefs with our own behavior . Rip Van Winkle bridges that perception gap and restores us to who we believe we are. That is my personal experience.

Stay Long , Fare well !

Long term is deemed to be one year in the eyes of the tax man. And, investors tend to believe that the tax man is right. So , investment horizon tends to be fixed in a manner that is connected to the investor's return expectations and the tax man's timeline. If a stock has crossed one year and has returned very decently , investors show willingness to happily part with it. Money on the table excites & entices the investor to making a move. This is something that has puzzled me as my years in investing grew upon me. "So, what is your investment horizon ?" I ask this question of investors who come up to me seeking my thoughts on investing. Most investors give me a horizon linked to the performance of the stock price. The most popular answer would be " Till my stock doubles." So, investors are conditioned to thinking that they must invest in stocks to make them double. And, one they actually double, it would be time to sell them and move on to find another stock that would do just that. Where else has double been an obsessive construct. One place I can think of is in gambling . We have all heard of " Double or quits ? " right. That brings us to the basic question . Should doubling really be a goal ? In my view doubling should hardly matter. If you bought a stock and it has doubled , all you should do is treat that as a milestone. Doubling should reinforce your belief in the stock and all you must do is again validate the price move. Did it happen because you bought into a good business ? Or, was it something extraneous like price manipulation ? As long as you bought into a good business, the fact that the stock price doubled should hardly decide what you must do with it. You need to evaluate what the stock can still do for you if you held on to it for a much longer horizon. If you still think it will deliver strong, stable business growth without altering the firm's competitive position and bargaining power with customers, you must simply stay put. But, most investors fail to stay put. The hunger and craving for activity and ever-flowing new ideas leads to exits from sound existing investment bets. This leads to investors cutting winning bets and then searching for new bets. Finding great investment bets isn't a cakewalk. So, running a great bet for very long durations of time is mostly the best option before investors. That calls for an open investment horizon. When you have an open and extended investment horizon , the only problem an investor will typically face is with his time. What do you do with your time if you have no intent of churning your portfolio ? Masterly inaction in the stock market has to find an engaging vocation that will keep you focussed. Reading on investments and investment ideation are two things investors can engage themselves in . Poring over scores of investment ideas , understanding business dynamics , looking for businesses with strong competitive positions will be the best way in which an investor must engage himself. Finding emerging investment themes is another way in which an investor can prepare himself for the future. So, what should you do with all your findings if you can't act on them ? Investment research is not necessarily done with the goal of actioning every good idea that you come up with. Investment research is meant to keep you wedded to the best ideas by understanding their superiority over peers. So, your work should tell you why a business is superior to others. And, it must give you the clarity and conviction to stick to the best ones even as you study several other good ones. I am a great believer that one should not replace his best idea with several good ones. Instead , he should stay so long with his best idea that it gives him returns beyond his expectations. If you stick to your best ideas, you will have to say no to several good ones. That is one farewell that will let you fare really well.