Jerry Tsai You’re not as smart as You Think

When the market is into the bull phase, each and every stock in upward momentum. So that everyone who has made an investment is shining and looks like a genius. But we should understand that earning during a bull phase is not our skill, it’s has a role of luck also which has supported us. Our actual skill comes during a bear phase, while we protect our wealth or fall less. But we get confuse and does not appreciate the role of luck during the bull market and make blame to the luck, market, other external factors during the bear market. Such behavior stops us from growing into the investment field.

“APPRECIATING THE ROLE OF LUCK” – Howard Marks

If we could not survive during a bear phase then we definitely going to wipe out or end up with the lower return. But bull phase of the market makes us tempting and overconfidence to our skill rather make an appreciation of luck which has actually perform a role.

Jerry Tsai was run Fidelity Capital Fund by the year 1957 and he was one of the celebrity fund managers during that time. And everyone eager to observe what he was doing.

Mr. Jerry style of managing fund-

Mr. Jerry has earned a return of 296% in the year 1958-1965 compared to 166% return of conservative equity funds. In the year 1965, Mr. Jerry has sold his ownership stake of Fidelity back to the Fidelity for $2.20 million and launched Manhattan Fund.

Mr. Jerry holds a few of the stocks during the year 1968-69 was Polaroid, Xerox, and IBM. These stocks were traded more than 50 times P/E ratio due to the high growth of earning. And University Computing, Mohawk Data, and Fairchild Camera traded at several‐hundred times their trailing 12‐month earnings.

We should be always prepared for the bear phase of the market. And also should avoid hot stocks during a time. Whenever I make any investment decision, I keep the year 1929 – great depression to my mind. So that I can survive and stay prepared for a bear phase of the market. When the market is into the bull phase, everyone talks about the return and focus only on earning a return, they do not like to talk about the risk and also do not focus on the risk. Such behavior has proven as a danger for us. And our behavior also responsible for inviting a bear phase from the bull phase.

The game which is played by Mr. Jerry was not a long term surviving but he believes that he can survive for the long term because he has huge insights for the market moves. And he was overstated for his own skills. We need to understand that everyone can earn during a bull market but survival during the bear market is essential. If things do not fall under the criterion then we should avoid it rather chase for it. Not great company will be a great investment at any price. If we are not able to understand it, then does not able to survive for the long term.

If someone has bought this company during the March-2000, at the high price of around Rs.215 then after the 19 years of the period, he gets returned at 7% CAGR. And if enter to the similar company at the low price of around Rs.138 during the March-2000 then after the 19 years of the period, he gets a returned of 9% CAGR (*Considering recent all-time high price for calculating returns). Though revenue has grown at 26% CAGR, Operating profit grown at 23% CAGR and Net profit also grown at 23% CAGR during the same period. The company is supported by a good management team, good business, leadership position into the industry. During March-2000, the company was traded at 64x P/E at the low price of Rs.138 and this multiple are common nowadays and we consider it as a quality company ask for the premium. We cannot estimate which valuation multiple is high or low but we can understand that what is reasonable and what is not.

Read for more detail: Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick

YOU, ME & BUSINESS – ISSUE -1 – CEMENT

I am going to explain about the cement, manufacturing process of cement, cost associated with cement, different types of cement, cement industry, consolidation to the cement industry and conclusion.

Kindly visit for detail on cement business —> YOU, ME & BUSINESS – ISSUE -1 – CEMENT

LEARNING INVESTMENT LESSONS FROM MOVIE BADLA

previously I have written a post on learning investment lessons from movies such as “Chal Man Jeetva Jaiye”, “Dangal”, “3 Idiots”, “Rajneeti” and “Sanju“. Now, I am going to write a few investment lessons from another movie “Badla”. Badla movie has learning which can help us to make stronger our investment decisions.

• Focus on every detail

Extract from the movie – When we see to the movie, Mr.Bachchan put a huge emphasis on each and every detail, though detail is minor or important. And on the basis of those detail, he tries to solve out the entire story. He has collected all detail, data rather to getting emotionally trapped. Further possibilities of different stories, opinion, decision etc. will be based on the detail which Mr.Bachchan has collected.

Co-relation in real life – We need to put the focus on the each and every minor detail. We should not avoid any of the detail. We do not know which detail is useful to us, have a huge impact and we have avoided it. When we are analyzing any of the company and avoided a few information, then we may avoid a piece of much useful information too. So that we should make a checklist and keeps on improving our checklist for the covers each and every detail.

• Never trust anyone before knowing the person or ability

Extract from the movie – Ms.Taapsee has not put trust in Mr.Bachchan while discussing the entire story and providing detail to him for solving her case. She has made a discussion on the points which are common and given half information only.

Co-relation in real life – Similar with the investment field also, we get any information, many tips, etc. but we should not put trust on them before knowing the person and ability of them, otherwise we may end up with losing our entire capital also.

• Always focus onto the different possibilities -“Kya main wohi 6 dekh raha hu jo tumne muje dikhaya, ya woh 9 jo muje dekhna chahiye tha”

Extract from the movie – We have seen to the movie that Mr.Bachchan has built up different possibilities which might happen during the different situations or different possibilities for the same situation. Also, he has created doubt on the information provided to him. He has connected the different information available with him and created different stories which also can be possible on the basis of information rather rely upon the story which was communicated to him.

Co-relation in real life – Similarly with the investment also, we do not rely on the information and story getting communicated to us. But we should check what can be the different possibilities for the similar information provided to us. We try to build different possibilities and check what can happen when other possibilities will occur, what will be the results, does our investment will survive, our original hypothesis will prove right, etc. Whenever we do not think the different possibilities of the prevailing information then we believe whatever communicated to us and we may miss with the scenario which can be totally different from our original hypothesis.

• Make proper homework

Extract from the movie – We have seen to the movie that Mr.Bachchan has completed with his homework before meeting to the client. He has collected all the information, evidence, prepare different pieces of evidence, etc. Due to his efforts, he has never lost any of the cases, also he succeeds in getting true information from Ms.Tapsee.

Co-relation in real life – We also need to do proper homework before making any investment decision. This homework protects us from any of the unforeseen events, losing capital, getting false information, stuck into the trap, etc. Due to the proper homework, we can able to generate an above-average return with minimizing the risk associated with investments.

• Do not behave as “Tum jo bataogi wohi mere liye sach hoga (I will put trust on whatever you say)”

Extract from the movie – Mr.Bachchan initially told that he will put trust onto the information which communicated to him through Ms.Tapsee. But after that, he has also created doubt on the information provided by Ms.Taapsee. He has analyzed information rather to blindly believe in the information.

Co-relation in real life – We need not put the blind trust on the information getting communicated to us by the management of the company. We have to create doubt on the sayings, information for reaching the proper conclusion and decision. If we believe blindly on the information given to us then we may get trapped into it and end up with making a losing investment decision.

• Woh murkh hota hai, jo sirf sach ko hi janta hai par sach aur juth ke farq ko nahi janta

Extract from the movie – Very well said by Mr.Bachchan. Mr.Bachchan has understood the difference between truth and lie which has helped him to identify what actually the truth is. And a lie is not able to make him a fool.

Co-relation in real life – If we just know what truth is but does not know that difference between truths and lie then it has a higher probability that we get trapped to the lie which was communicated to us in the mask of truth. No one can make us fool through speaking a lie in the mask of truth. If we are not able to understand this different then people present us wrong information in the mask of truth and we believe it which impact us very badly.

• Hume jo sach lagta hai, jaruri nahi ke voh sabko lage

Extract from the movie – Ms.Taapsee told that she is always speaking the truth but Mr.Bachchan told that it is not necessary that truth is not that what we feel and that is not necessary that everyone else consider it as truth also, the truth is what we can prove. Judge also believe in the truth which we can prove.

Co-relation in real life – We believes that truth is what we are believing and everyone else also believes in the same manner. But it not necessary that what we believe is only the truth, but the truth is what can be proved. When we have made an investment to any of the company and we believe that company is good, it will able to perform well, etc. but that does not necessarily work as truth and everyone else also believe the company is good and perform well. But the truth is when a company can able to prove it and perform well.

Michael Steinhardt Stay in Your Lane

We can create wealth from trading and investing to equities, commodity, currency, real estate etc. but we should do what is comfortable for us. Each and everything is not comfortable for us which is not comfortable for us, we should not do it at all. A performing task which is out of our comfort zone can prove as expensive for us. If Sachin Tendulkar starts singing and Legendary Lata Mangeshkar start playing cricket than both might meet failure.

We have to follow Mr. Buffett’s advice of circle of competence. Mr. Buffett did not buy any IT stocks during an IT bubble though he under-performed. We can prepare a circle of incompetence for not doing anything which falls into that circle.

Consider fool among others is better than losing capital to demonstrate as a smart.

Michael Steinhardt has a decent performance over the S&P500. If anyone has invested $10000 in the year 1967 then those funds turn out to be $4.8 million and $190000 in the year 1995 from Michael firm and S&P500 respectively.

During the year 1993, Hedge fund has shown a bull run where every investor wants to give their fund to hedge fund manager to make an investment. Here, Mr. Michael also got a huge fund to manage which is around 200 times more than the amount with he has started a fund. But due to huge fund size, he faced difficulties to deploy fund to small & midcap companies so that he has started roaming around the world and started deploying fund to the area which is out of his competence. His major fortune was made through trading to the US stocks but out of US, he was little aware with the economy of businesses and political systems. He has started deploying fund across the world which is out of his expertise.

This mistake has broken him badly psychologically and he could not able to retrieve himself again.

We always have to focus on to the eliminate errors because that is only into our control, everything else we cannot control. If we keep on eliminating errors, then we have a better chance to win the game. During the FY14-18, the majority of the equity fund manager at India got a huge fund inflow due to the huge liquidity and not enough return from other assets class. Hence, many of them have occurred mistakes due to overconfidence and started to go outside their expertise.

I was a deep discount and bargain hunter investor. My investment career gets to evolve with the time and my investment philosophy slowly transform from great bargain to quality businesses. But I have always take care of not losing capital so that I have invested with a lower percentage of my portfolio to the evolving area. Such a way I have made an experiment with my investment decision. (Still, my attraction towards bargain is with me).

Read for more detail: Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick

Jack Bogle Find What Works for You

Wellington fund was founded in the year 1928 who invest with the balanced portfolio of common and preferred stocks and high‐grade bonds, with the objective of providing investors with stability, income, and a little low‐risk growth to keep pace with inflation. During the year 1966, the company has made an acquisition of the Ivest fund. Ivest fund invests more to the common stocks which invite more fluctuations whereas Wellington fund minimizes fluctuations. Wellington fund was one of the few funds who has survived during a great depression of the year 1929.

After the acquisition of Ivest, Wellington’s equity average increased from 55% to 80% and fast turnover also get started.

Their new strategy does not suit them and their fund fall by 55% compared to 31% of fall by the S&P 500. After that, they started a new strategy based on technical analysis. It’s shocking that Mr. Bogle who has formed an index-based strategy and fund into the leadership of him use technical analysis based fund. They lost 40% during the year 1972 and which recovered during the year 1983, after the 11 long years. Their strong offense proven wrong for the defense. And they lost reputation also.

We need to identify the method which is comfortable for us. If we adopt the method which is not comfortable for us then we have to face difficulties. If we adopt the method of others then those borrowed method does not provide us a conviction and create a problem with our investment. Additionally, if we have an investment methodology but we go out of that methodology then it will also affect our wealth.

There is more than one method for creating wealth but if any method of creating wealth is not suitable with our temperament then we should avoid it rather stick with it. Every person is different in risk-taking capability, emotional characteristics, and the different purpose of making an investment so that if one method is suitable to a particular person then it might be possible that the same method is not suitable to the other one. No method is right or wrong but what suits us is right for us.

Read for more detail: Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick