I have been investing for over four years now but the real learnings have been in the past four months. What I mean is not that I have wasted the other time but in order to really find out what works, you have to first eliminate everything that doesn’t.
Ad Charlie Munger says, invert, always invert. So in order to become a great investor, you should first figure out things which will make you a pathetic one. They’re pretty simple to figure- trade extensively, especially on tips, buy stocks which are hot, invest in loss making, debt laden penny stocks etc. So once you’ve found that all these things will quickly turn your million dollars into zero, you know what to not do. So do what’s left- buy companies with long term focus, businesses which are easy to comprehend, profitable and have existed for long time, don’t trade much. Rest is patience to hold as compound interest shows its magic.
Similarly in life, the quest is to become wealthy, not just rich. Wealth works for you even when you’re not looking. If someone holds shares of Reliance, it doesn’t matter if you do anything else special- the company still will make money day in and day out and so will you, in terms of rising share price and dividends. Real wealth is made by letting compounding works- to hold stocks for long enough as the value of underlying business grows first slowly and then exponentially.
So over the past four months, my learning curve has suddenly grown exponentially. I stumbled upon people who’ve taught me things which effectively have changed my investing thesis. Nick Sleep, Mohnish Pabrai, Guy Spears and to a bit Naval Ravikant have had enormous influence on the way I now think and invest. This happened just the way compounding does- slowly and stealthily.
I read close to 50 investing books before I read Richer, Wiser and Happier by William Green which introduced me to Nick Sleep. At the same time, my daily dose of YouTube led me to a refined version of Pabrai who himself has been thoroughly influenced by Sleep’s philosophy. Guy was the common figure in the two and thus, I also read his book and watched his videos. Naval Ravikant happened similarly- I was reading a book on Crypto Billionaires and it so happened that the book mentioned Ravikant. Lo and behold- I met him as well.
Every fortuitous development in my life has happened through books. I kept reading whatever I could find on Amazon as I deemed fit to read and my life changed the way I described- slowly and stealthily. I never did a day’s work but still managed to learn so much as once you put in enough years, compounding works wonders. So it’s been over 7 years that I have been reading and now the learning curve is pretty steep.
What I’m trying to tell you is in order to learn to invest, you must first quickly figure out right role models. Since you don’t know who are the right ones, eliminate the bad one’s. I’ve been pretty lucky that I found Howard Marks and Seth Klarman much before the Covid crash which enabled me to be pretty ready for the bargain sale last year. However, I also realised that while making money in a bear market is tremendously easy , the real quest is to grow it in the subsequent Bull run and to protect it in the next bear phase.( Italics added)
This led me to find out people who have been able to positively grow their money irrespective of bull and bear runs. No, it doesn’t mean I’m trying to find a way that my money will only grow and shares don’t fall in a falling market. What I mean is to find a way to somehow shield the impact of a bad market and not make the common bull market mistakes.
So I learnt that I must do the opposite of what people do in a Bull Market- go up the quality ladder. Most people chase the highest returns in a Bull run- like Basant Maheshwari is now showering praises on SAIL and other quality investors are buying junk stocks, left and right. So I decided to get out of cyclicals like metals and oil stocks and bought Colgate and HUL. I am trying to realign my portfolio in such a way that hypothetically, if there is a 40% drop tomorrow, I’m dead sure that the only thing I have to do is to buy, not flee.
I forgot to mention this guy called Terry Smith. He’s a British investor who’s mantra is- buy good companies, don’t overpay and do nothing. His wisdom has made me believe that it’s much better to buy Colgate at 40x earnings than to hold ONGC at 5x earnings. This wasn’t an easy change but I must confess, I’m at much peace now.
So now my activity level has dropped significantly. I’m basically content with what I’ve now and would only look to buy LIC and NSE, once they’re on sale. The biggest learning has been to think not about the next quarter or even next year, but to visualise what might happen over the next ten plus years. Once you can do that, all you must do is to let the reality unfolds over time. As Munger say- learn to watch paint dry.
Life is all about Compounding! 