How should I invest? This is one question which has my attention all the time. The more I hear biggies like Mohnish Pabrai and Guy Spier, the more clarity emerges in a cluttered mind which has all sort of crazy ideas in it.
Everyone who enters the world of serious investing goes through some phases. We all start with Ben Graham and his value investing thesis- don’t pay more than 15x earnings and 1.5 times book. This is what I did for close to two years before moving on to the other guys. I then was reading Howard Marks and basically every other thing on value investing, trying to learn from everyone from Buffett to Klarman and to who not. All of this led me to believe, erroneously though that buying and sitting on cheap companies with high assets will eventually make me rich.
I’ve been pretty passionate about investing. Thus, watching everything on YouTube available about Investing led me to the greats of Indian and Global investing. RJ, Ramesh Damani, Ramdeo Agarwal, Samir Arora and everybody else in the Indian league while Marks, Buffett and Munger and others on the global arena. I’ve heard them all, multiple times. When you’re young and new, everything looks wow. You’re drawn towards everything they say and you try and see whether you can replicate some or any of it. However, as time progresses and your portfolio reflects the real results of your actions, you realise Investing is simple but not easy.
I was possibly the only person praying for a 2020 type crash in the markets, when it was going up and above all through 2017-19( 2018 was all but a minor blip). This was more behavioral than analytical that led me to invest heavily all through the crash and call the bottom of the market and also start of the current bull run. Being contrarion is difficult. I firmly believe that the current bull run is here to stay longer than we all expect and this is not even the beginning of a mega run. However, today’s blog isn’t about the market. This is about how I’ve evolved as an Investor.
The big change in my thesis came when I made some real returns on my portfolio in early 2021. Everyone makes money in a growing market but not many sustain it through the next fall. So I was extremely worried about learning two things- how to invest in a rising market and how to avoid a washout in the next bear market. This led me to the key words of longevity and quality. If you buy companies which are going to be around here for the next ten years and will make more money than they do currently, you’re sure to be around in the markets with a higher networth.
Also, the best decision of 2021 was to read this book called Richer, Wiser and Happier by William Green. I got introduced to Nick Sleep and also a new version of Pabrai. In 2019,I’ve read Pabrai’s Dhndho Investor wherein he talked of the truest cigerette butt style of investing we call Value Investing and wasn’t impressed much. However, through him I had also heated Guy Spier who then said how buying Google or Apple was actually Value Investing. Then I was too immersed in the Grahamical philosophy to even take him seriously. A costly mistake it was on my part. So after this book, I heard Pabrai and Spier again along with Nick Sleep’s letters. This I believe is the Holy Grail of Investing.
Nick Sleep and Guy Spier have possibly influenced me the most wherein the two talk of almost two different yet similar kind of investing. Nick talks of understanding the vision of a company early and buying big enough to make a difference in portfolio while Spier talks of buying companies which are going to be around for a hundred years and sitting tight atop them. Both of them have a monk like existence , Nick more of a hermit than anyone else( not one Youtube interview I could find). Also, Nick hates diversification and portfolio sizing which I agree with. If you want to have outsized returns, you must be able to withstand outsized drops in your portfolio valuations in the meantime or else you’ll make stupid decisions. He has held Amazon from the real price at around $20, all the way to $3600! That’s balls! Also, it is 70%of his portfolio. Now how many of us are ready for anything like that.
So here’s what I’m trying to do with the portfolio. Most of my portfolio is in a handful of stocks which I believe are going to grow very, very big five years from now without requiring any fresh capital, thus not diluting equity. Thus my portfolio swings wildly both ways but I’m not worried until 2025.( I’ve held them for three years already and have promised myself to not touch them for next three, easier said than done). Also, one half is in companies which are already pretty large, the gold plated companies I call them, which are serving such simple needs in human lives that they cannot be thought of going away in the next ten-twenty-fifty years. And no, I don’t subscribe to that guy Mukerjee who’s main job is to own whatever is going up and intellectualise it on CNBC.
Holding companies is a game of patience. Most of the people around you are not even trying to hold anything for one year. So once you start to play a game with a longer horizon, you’re at an incredible advantage to everybody around you. If you can invest something with a vision of seven years, you’re a pseduo-promoter. The price may go anywhere in the meantime while the value will grow over time. I may do worse than an index but it doesn’t matter. I’m not playing the game everyone else is. I’m not trying to beat an index or look good on TV. I am trying to invest in a way not many do these days. The returns, well, will take care of themselves.
Life is all about Compounding! 