BIBLIOPHILE: THE MOST IMPORTANT THING BY HOWARD MARKS “APPRECIATING THE ROLE OF LUCK”

01

While we involve into any of the investment decisions then those decisions are having dependencies on the future. As we know that future is uncertain and it is difficult to predict it. In such uncertain investment environments, luck plays an important role and we have to recognize the role of luck in our investment journey.

02

When we get some result or looking at the result then we must have to think the role of randomness in that generated result.

03

Many outcomes are visible to us but we have to think those outcomes with different viewpoints. If someone has made a risky & uncertain investment and he gets a good outcome from it. We can say that such outcome happens due to luck not due to skill. But people take such outcome as their skill, not consider a role of luck.

For example, baller throw ball towards stump for capturing a wicket of the batsman and that becomes the wrong throw and ball has touch boundary line then it is not a skill of batsman but the role of luck.

Many times, people get the return on investment by just being in the right place at a right time. Not due to their skill.

If someone has invested his fund during the year 2013 with just making a portfolio with random stocks then also that person generated a good return. Doubled your Money in Last 3 Years? Skill or Luck?

In short term, we can able to generate a good return and many a time achieved an abnormal return by just being in the right place at a right time. But what about the long-term result? How we can say that luck always keeps on favoring us.

04

Generally, during a boom period, the person who takes a higher risk get highest returns. But that is not the reason to consider them as the best investors. Very few people appreciate the role of randomness or luck in the life or in investment journey.

Mr. Taleb has mentioned the list of things which are generally mistaken by us.

05

We should understand that when things going right, luck looks like a skill and people misinterpret lucky investors as skillful investors. Many a time, we get an extremely good reward by chance and we make a mistake to consider such result as our skill.

That means batsman hit ball for six and that ball also declared “No ball” and batsman get free hit and he again hit another six on a free hit.

In short run, we can win and make good returns by an occurrence of chances but in a long run, our wise decision provides us a good reward.

06

When we realize that investment outcomes get an influenced by the randomness then we can able to focus on every event with the different perspective. Otherwise, we just thought that such outcomes happen due to our skills only.

We have made a list of assumption for the occurrence of events but we also should focus on the occurrence of other different events; which we may not have assumed. It might be possible that sometimes all other events have collectively more probability to occurred compared to the single event on which we have put the huge focus. Such ignorance becomes dangerous for our financial health.

07

Investing something like a mixture of both skills as well as luck. Investing is not a pure luck like a snake and ladder game or not a purely skilled by the game of chase.

While we play chase then we require a skill to protect ourselves from moves of an opponent’s. We cannot able to win chase just by waiting for the favor of luck and mistake made by an opponent. We have to create a scene where opponent commits a mistake and we can able to win a game.

Whereas, there is not a requirement of a skill in throwing a dice while playing a snake and ladder game.

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But we generally consider our winning as our skill while we should recognize that we are winning a snake and ladder just due to a support of a luck. While we should reach towards 100, we should not forget that there is a snake on 99 number which can bring us towards number 7. And transform our success into failure due to highly dependencies luck. Similar happens to us while we play an investment game on the base of pure luck. We may win till number 98 and maybe that our fortune transforms into failure by destruction in our wealth. We climb many ladders, get many multifold return generator stocks but we forget that such occurrence is due to luck. If we do not have our skill involve in it, then our wealth get destroy. We should not forget that investment requires a luck but also it requires a skill. If we fully dependence on the luck then we should never forget a snake on number 99.

08

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SIMPLE IS BETTER – ISSUE -11 – CASH FLOW STATEMENT

We have seen profit and loss account in Issue-8, Balance sheet in Issue-9 and Relationship between balance sheet and profit & loss account in Issue-10. After understanding of Profit & loss account and Balance sheet, we move forward to the third financial statement in the current issue that is “Cash flow statement”.

“The cash flow statement shows how much cash comes in and goes out of the company over the quarter or the year.” – Investopedia

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For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -11 – CASH FLOW STATEMENT

BIBLIOPHILE: THE MOST IMPORTANT THING BY HOWARD MARKS “HAVING A SENSE FOR WHERE WE STAND”

01 WWS

Some category of people does not accept that cycle is unpredictable and largely unknowable, and those people put efforts for predicting the future. Few people ignore the cycle and adopt the buy & hold approach. They do not get aggressive or defensive with their investments in the cycle. Many people have wrongly understood the statement of Mr. Warren Buffett – “Our favorite holding period is forever.”

And the last category which is an appropriate approach for the investment. Such category of people accepts that cycle will occur. Everything moves in a cycle. Fundamental, psychology, prices, etc all moves in a cycle. We cannot able to know when existing trend will go, get the stop and start getting reversed. But we need to be confident enough that trend will stop sooner or later. No trend continuously keeps on going forever.

So that we should try to know where we are standing in the cycle rather than to predict timing and extension of the cycle.

02 WWS

By knowing where we are standing at the cycle, we cannot able to know what will be going to happen in the coming future. But we can prepare ourselves with a probability of occurrence of events.

I can’t change the direction of the wind, but I can adjust my sails to always reach my destination. – Jimmy Dean

Knowing present environment is not much hard compared to knowing future. We can come to know the present environment by observing the behaviour of participants around us, by observing our surrounding environment.

We have to focus on everyday events prevailing to the market. Such events provide us a rough idea of our position at the cycle.

Liquidity

SENSEX TGT

When everyone is aggressive in buying a particular asset then we must have to take care and be aware of the upcoming risk. We should be aggressive in buying a particular asset while everyone is in panic and selling particular assets.

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” ― Warren Buffett

We have to look around and think it by ourselves regarding present situations and make a decision that where we are standing in the cycle. What is market participants doing? What media is talking? Such questions need to be answered by looking at situations around us.

SENSEX 2024-2030

Liquidity 2017

03 WWS

When too much money getting deployed into few assets then huge liquidity drives prices of an asset, such price momentum is not due to its actual fundamental. And also at the higher valuation people are ready to buy an asset aggressively. People are ready to buy Rs.100 worth of asset at Rs.200-300-400…. With the bright future expectations.

We cannot predict when huge liquidity gets dry but as a contrarian investor, we can prepare ourselves for upcoming risk.

04 WWS

05 WWS

We need to check which side majority of our answers falls and as per it, we can make an estimation of the present situation. And can able to prepare ourselves for the situations. When a majority of our answers falls at the happy situation then we have to be cautious towards the present scenario and vice-versa.

06 WWS

Read for more detail: The Most Important Thing Illuminated by Howard Marks

BIBLIOPHILE: THE MOST IMPORTANT THING BY HOWARD MARKS “KNOWING WHAT YOU DON’T KNOW”

01 KWDW

When we concentrate on the small part of the things then we acquire more knowledge regarding particular aspects. We need to work harder and harder to develop our skills by which we can able to know more than another person. Enhancing knowledge will be work like an edge for us to knowing our positions better than others.

Also, we try to identify that where we currently stand, what’s our actual position so that we can prepare ourselves for the further development.

When we predict upcoming changes then we can able to earn money from participating in that changes. But if we have predicted something which is not going to change then it will be near to impossible to earn money. If things do not go to change then we cannot able to earn money by taking benefits of those changes.

It’s very difficult to forecast future and people generally forecast future with regard to what has happened in the past.

So that forecast can get right some of the time but it should be consistent in the getting right every time which can be very difficult.

Some of the people stick to always bullish or always bearish view and keep that view for a longer period. So that sometimes they get right with their forecast. It does not mean that their forecast will be right all the time. If you toss coin 100 times then there are a half of the possibilities to get the head of the coin. We cannot say such outcomes as a consistent outcome.

02 KWDW

We have to check that how many forecasters have predicted meltdown of subprime crisis or again boom was driven due to huge domestic liquidity currently.

Forecasters are called as “I know” school of investors. They are more confident about the future and the things will work out as per their assumptions.

“I don’t know” group of people can able to guard themselves while they have to deal with the future at the macro level.

03 KWDW

We never want to invest for the future which is largely unknowable and on the other hand, we need to face unforeseen future without forecasting the future.

The biggest problems arise when we forget the difference between probability and outcomes. We cannot surely know the occurrence of future events but we can know the probability of the occurrence of the events. When we forget the difference between probability and outcomes then we start predicting future events with surety.

04 KWDW

Investors who ignored such limitations then they make mistakes in their portfolio and also incurred huge losses. Events do not always occur as per our assumptions and we have to be ready for it.

When we do not know the future then we act in a different manner such as we diversify, hedge to the position, taking less leverage, focus on today’s value over a future growth, etc. On the other hand, while we feel that we know the future or future event will occur as per our assumption then we start taking more risk, taking more leverage, play on making an assumption of bright future. If we know the future then we play an aggressive game. We not take a diversification and take a huge leverage.

When we know that there will be no obstacle comes to our way while we are driving then speed, carelessness will increase. And on the other hand, when we know that our way is clear but any obstacle can come on the road anytime then we drive the vehicle more carefully with a speed which we can able to control. Similarly with the investment, when we believe that future is knowable then we behave for investment in a different way and when we believe that future is unknowable then also we behave for investment in a different way.

As the road is clear while we are driving but anytime any vehicle can come to that road and we can able to meet an accident if we do not have a control over our driving. Similarly, if we do not have a control over our investment then any unforeseen event can destroy our wealth. We need to wear a helmet while driving for controlling risk and also take proactive steps while making an investment for guard ourselves against unforeseen accident.

05 KWDW

Read for more detail: The Most Important Thing Illuminated by Howard Marks

BIBLIOPHILE: THE MOST IMPORTANT THING BY HOWARD MARKS “PATIENT OPPORTUNISM”

01 PO

We bought an investment in a panic and sell it at the boom. Such an opportunities, we get during the market cycle. But sometimes being inactive and wait for the opportunity works better in an investment.

02 PO

We bought an investment in a panic and sell it at the boom. Such an opportunities, we get during the market cycle. But sometimes being inactive and wait for the opportunity works better in an investment. We should not be going for chasing an investment rather we should wait for investment opportunities to come to us. When we are chasing an investment then it might happen that we might not get an opportunity at a bargain. We only get bargain where the seller is motivated to sell and such opportunities provide us a bargain.

Every time a great bargain will not be available, cycle – pendulum not at an extreme where we can go against it. Many a time, Market situations are balanced and fairly priced. In that case, we have to make an investment decision from what is available to us.

03 PO

In cricket, we do not try to hit each and every ball. We try to identify proper pitch to hit and till that opportunities, we just need to wait for a proper pitch or just keeps on rotating strikes.

Same with the investment, we should always wait for the proper pitch which is in our competence area and then needs to hit on it.

04 PO

In investing, the penalty is the loss of our capital. And if we try to eliminate such possibilities of getting penalized then, of course, we only remain with the rewarding investment opportunities. But many a time, we also need to miss some winning opportunities for getting our perfect pitch. And that can be bearable compared to the penalty of losing our capital. Staying on the pitch is more important compared to sitting at the stadium and seeing dreams of playing well for winning the match.

05 PO

We should wait for the profit-making opportunities with the control on risk. If we lost our focus on protecting our capital then huge waiting period and higher returns also might not be able to provide us above average returns.

Many a time, we get lucrative profit-making opportunities but for getting those opportunities, we need to take a higher risk and sometimes, we do not even know that we are taking a higher risk.

Generally, people shift towards higher risk investments while they do not get desire returns from the safer investments.

Indian

Before the credit crisis occurs, people tend to take borrowing at a cheaper cost and make an investment into the high return opportunities with the belief of low risk.

06 PO

When prices are keeps on going higher and higher than, we cannot refuse to have a lower returns with the higher risk. Mr.Howard Marks mentioned few aspects while lower returns environments exist.

07 PO

There is no easy way to cope up with such situations. One major mistake people make is reaching for the returns and forgetting the risk. Always seeing dreams for making a century in every match and forget the risk of losing a wicket before hitting a century.

When there is a low return environment then we need an exceptional skill, high risk bearing capabilities and huge luck for generating higher returns.

The major opportunities for buying an investment comes where the holder of an asset are forced to sell it. Such situations create a bargain opportunities for us. When baller is frustrated and then only there will be a chance of occurring a mistake by him and that creates an opportunity for a batsman to hit six. But for hitting a six, we need to protect our wicket and need to stay on the pitch. We get a good opportunity to make a good score when baller is frustrated and throwing lousy balls; not when he is sharply bowling and chance to lose our wicket is higher. Or batsman is frustrated and want to make score then he will lose his wicket. Similarly with the investment; we do not get good investment returns while we are frustrated and want to make an investment or all our friends are earning & we have missed out opportunities. We get good investment returns while all are negative or frustrated and we have the capability to capture the opportunity.

08 PO

Sometimes question raised in our mind that seller can be well informed and rational also then why he sell something at the bargain price?

09 PO

When forced sellers come to sell their assets then market requires a liquidity to buy assets at a bargain price. So that the person who is waiting for an opportunity those only can capture such opportunities.

10 PO

Read for more detail: The Most Important Thing Illuminated by Howard Marks

BIBLIOPHILE: THE MOST IMPORTANT THING BY HOWARD MARKS “FINDING BARGAINS”

01 FB

02 FB

In all the previous articles of the series, I discussed buying a cheaper assets / Investment. But buying cheap does not mean that we should go and buy anything which seems cheaper.

We need to prepare a list of investment ideas which are matches with our criteria, matches with our risk tolerance capabilities and exclude which are not matching with our criteria. There are not each and every idea which are compatible with our risk appetite, we need to work on the ideas which fall under our circle of competence. We get many ideas which can be good but not compatible with our criterion then we need to stay away from it.

Before eating a food, we need to know which kind of food we really like to eat. We do not like each and every food so as similar to it, we need to prepare a list of ideas which match with our criterion.

If we are managing the fund of others, then not only our risk appetite but also risk appetite of clients, we need to focus.

03 FB

The second step is to select an investment idea from the prepared list; which is suitable for the potential returns and risk ratio, value for the money scenario.

After getting the list of the foods which we like then we need to work on the place from where we get a food with requiring quality, where we get food as per our spending, etc. we generally do not prefer to visit the place where food is not available as per our taste and preference.

04 FB

05 FB

If we pay high valuation for the any of the assets then it is logical that our potential returns will be kept on reducing and might be chances of occurrence of loss starts increasing. We made an investment for generating returns and enhancing returns.

We buy food for fulfilling our hunger not for exhibiting of our food dish with expensive food. We sometimes eat expensive food, not on a daily basis. As not only expensive foods can able to fulfill our hunger similar to that not only good and quality investment can able to provide us returns.

We need to focus on the bargain through which we can able to generate a potentially higher returns with minimizing risk.

Sugar IT

As I quoted an example of a good fundamental IT & Pharma company with cheap sugar company.

We can see that if we have bought the comparatively lower fundamentally good stock at a cheap price than this stock has generated a higher return compared to the good fundamental stocks in last 5 years.

Good food means we get a satisfaction & fulfill our hunger from eating that food, and that never matter how much expensive or cheap it is.

In general buying good assets mean, the assets provide us high potential returns relative to lower risk and also has a low price relative to the value of an asset.

06 FB

07 FB

Mr. Howard Marks mentioned that while popularity is high towards stocks and people hates bonds, also many institutions shifting from bond to stocks; such situations provide a bargain for the bonds.

When the time change and people seek for more safety relative to the price appreciation then they start recognizing the potential of bonds.

Generally, people start recognizing the potential of the assets while the price of an assets starts appreciating. But people who have identified assets earlier, those can produce above-average returns.

When the restaurant is crowded then only people recognize the popularity of a restaurant. We make a decision by seeing how much-crowded restaurant is. If no one at a restaurant then we generally not prefers to visit by assuming that particular restaurant provides a low-quality food. Similarly with stocks, when everyone is buying particular stocks then we also run for buying those stocks with assuming high quality with high return. We do not check anything and follow the crowd.

We should try to make an investment into the underpriced assets rather than fairly priced. Fairly priced assets just provide fair returns with risk involvement. So that we should focus on underpriced assets with risk involvement for generating above-average returns.

08 FB

Bargain only available while perception is worse compared to the reality towards the asset. If everyone feels good and want to own that assets, then that asset will not be available at a bargain more.

When everyone cannot able to see the potential of the asset then we need to check the reason for unloved of the asset. Unloved assets can be available at the bargain if people hate it more than it should be.

If nobody is loved to the asset then nobody holding it So that demand for the asset will increase when people can able to see the potential of the asset. If our assumption has proven wrong and nobody is holding an asset or people unloved an asset then we might get limited downside or get the least loss from our investment.

When nobody to go for visiting a particular restaurant then we get foods at cheap cost with the proper quality for maintaining its customer.

09 FB

10 FB

Read for more detail: The Most Important Thing Illuminated by Howard Marks

 

Tube Investments of India Ltd. ANNUAL REPORT REVIEW FY2016-17

tii-logo

TI Cycles setup with BSA and Hercules Brands in the year 1949.

Manufacturing Businesses of company includes –

• Engineering Segment (Tubes, Value Added Cold Rolled Strips, & Tubular Components)
• Cycles and Accessories (Bicycles & Fitness Products)
• Metal Formed Products (Chains for Automobile sector & Industrial applications, Doorframe & Channels for Passenger Cars)
• Gears and Gears Products (Investment in Shanthi Gears Limited – Industrial Gears)
• Others (Investment in TI Tsubamex Private Limited – Designing & Manufacturing of Dies)
• 25 Manufacturing Locations and Suppliers to all major automotive OEM’s or Tier 2/3 Suppliers
• TI Absolute Concepts is formed as a 50:50 Joint Venture in the business line of Bicycle Theme based Restaurant and Retail

Annual Report Review FY16-17

Disclaimer: This is not a recommendation to Buy-Sell-Hold. And I am not a SEBI registered analyst.

BIBLIOPHILE: THE MOST IMPORTANT THING BY HOWARD MARKS “CONTRARIANISM”

01

Many investors are following the trend for making their investment decision but for becoming a superior investor, we need to think in an oppositely.

As we have seen that for becoming superior investors, we need to develop a skill of second level thinking. Second level thinking provides us an opportunities to generate above-normal returns and also protect us from the loss of capital. We need to think against the crowd because crowd generally operates at the basic level of thinking rather than the second level of thinking.

If we engaged in doing what others are doing then we also get what others are getting. So for getting superior from others, we need to think differently.

02

When we are joining the herd then following the herd can be dangerous to our financial health. When people are highly optimistic then prices started moving upward, top-level starts to form. And when people are panicky selling then prices started to go down, bottom starts get the form.

03

It seems much easier while we are understanding the concept but it is a much difficult task while we put it into the action.

1) We never come to know that how far pendulum will swing, when it will be reversed and how far it will swing to the opposite direction.

When pendulum starts moving towards an extreme then we are not able to know the extract extreme point and from where it will start reversing. Overpriced stock can become more overpriced and cheaper can become cheaper.

2) We can be only sure about the reaching of the pendulum to the extreme level. We can just make an estimation that pendulum will reach an extreme, reversed it to mid-point and move towards opposite direction where it will reach to another extreme point.

3) There are many points which can influence the market behavior, many reasons which make pendulum to swing and not anyone strategy which is always able to generate a higher returns.

04

There are many examples where we can able to see the overpriced situations but we cannot be sure that such situations will reverse from tomorrow and starts going down. It can remain more overpriced and can keep on staying to the same situations for over a period of time.

Expensive

Cheap

We can able to see that expensive stock remains expensive for the longer period of time and cheaper get cheaper over a period of time.

Also, we cannot always go and make a decision to do the opposite of what everyone is doing. We cannot start walking backside as everyone is walking towards the front side. Just doing opposite of what everyone is doing, does not provide us profit-making opportunities. We need to analyse and make a logical reasoning then reach to the conclusion that we should go opposite or not.

Lossing money

If we just do opposite of what others are doing without doing proper homework then also we can able to lose our financial wealth. So that it is not only to take contrarian decision is enough but with it, proper homework is also required.

Sugar

If some assets are temporary getting hate by people & with our proper homework then making a contrarian decision on it help us to generate an above-normal returns.

If everyone like some idea than probably it has done well or doing well. And if everyone is liking some ideas then prices reflect those liking. So much risk involves when crowd changes their mind.  Price can fall significantly due to change in the mind of the crowd; which is harmful to our financial health.

We can able to create above average returns when we can able to buy an investment at the substantial discount. And the discount is available only when the major crowd is not liking it, not at where everyone is liking it.

05

For the protecting our financial health, we require having a skeptical mindset. When we skeptically analyze any situations then we will not fall in trap with the crowd. We have to always keep in mind that what can happen and what is the probability of occurrence of those events.

When a crisis happens than actually, we can able to see & believe in the negative side of the market. But we have to skeptically think regarding the negative side when positive waves going on. We always need to think that what can go wrong while everything is going in a good way.

06

If we believe in the story prevails among the market then we will definitely do what others are doing. We will tend to buy an investment at a high price with expectations of generating higher returns. We keep on buying overpriced securities with an expectation of another great fool will buy it from us. But we always need to keep in mind that while we are buying overpriced assets then we are only the great fool, no one else.

We will buy things which doing well and sell which performing poorly. Such actions resulted towards the losses during the crisis time, also we might not able to take benefits when things recover from the bottom. We remain followers not able to become contrarian.

We need to be skeptical enough for identifying the aspects that which is good for creating wealth and what is not good for it.

07

If we keep on follow the herd then we will not get a chance to evaluate situation skeptically and we will lose while the optimistic situation turnout as a pessimistic situation.

08

09

 

SNOWMAN LOGISTICS LTD. ANNUAL REPORT REVIEW FY2016-17, FY2015-16, FY2014-15

Snowman Logistics Limited, founded in 1993, is an integrated pan-India temperature-controlled logistics services provider.

Gateway Distriparks Limited is the promoter and the largest shareholder of the company. Snowman’s investor profile also includes Mitsubishi Corporation, Mitsubishi Logistics Corporation, International Finance Corporation and Norwest Venture Partners VII-A Mauritius.

Segment wise revenue

Annual Report Review FY16-17FY15-16, FY14-15

Disclaimer: This is not a recommendation to Buy-Sell-Hold. And I am not a SEBI registered analyst.

SIMPLE IS BETTER – ISSUE -10 – RELATIONSHIP BETWEEN PROFIT & LOSS ACCOUNT AND BALANCE SHEET

We have seen profit and loss account in Issue-8 and Balance sheet in Issue-9. There is a relation between profit & loss account and balance sheet; which I am going to discuss in the current issue. We have to understand that relationship for better analysis of the financial statement and make a more wise investment decision.

No financial statement useful to us in isolation. We have to understand the impact of changes in one element on the other element of the financial statements which can be much use to us for knowing hidden stories of the companies. We can become better investors when we can able to understand the hidden truth behind the financial statements.

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -10 – RELATIONSHIP BETWEEN PROFIT & LOSS ACCOUNT AND BALANCE SHEET