I’ve been an investor for eight years and an entrepreneur for two months. One thing I have learnt as a student of investing is that if you really think through, living a successful life is eerily similar to having a successful investing career.
Living a successful life has a lot riding on not blowing it up through drugs, crime or a combination of debt and splurging. If you can avoid these three, you are guaranteed to avoid a lot of self-inflicting misery but that does not guarantee that you will be successful. The first rule of investing is about making money and making lots of it. Everyone who is in this market is here to make the highest rate of return possible without blowing it all up in the process. If you avoid a lot of over-activity, leverage and panic, you are bound to not lose a lot of money but that also does not mean that you will make a lot of money either.
So what am I trying to convey here? I mean that if you study the richest investors in this world, you will realise that the absolute bests in business cant make more than 25% a year for about 20 years period. There may be an exception here in Jhunjhunwala or a Jim Simons there but at the end of the day, if you can make 15% a year for 25 years, you are a king in this world.
Also, the best way to do this is to buy great quality stocks when there is blood on the street and sit quietly for the rest of the time. Let market go through its motions and overprice and underprice your stocks for a while but you think like a true minority owner of this business and do nothing much except adding when its selling truly cheap. How do I know this work? Well, you don’t have to look further than think of Buffett and American Express, Jhunjhunwala and Titan, Nick Sleep and Amazon and you’ll have your answer.
This is all right but what do you do as a full time investor then? If you aren’t actively buying and selling or trading the news or actively researching 20 ideas for the week and how GST cut will impact the FMCG or autos and if you aren’t going underweight this or overweight that,how exactly do you call yourself an investor? If you cant tell your friends which stock will go up because Trump did this or how some sector will collapse because theres a war in Ukraine, are you even in the markets?
Well, this is what I call the over-productivity syndrome. Every serious investor knows that the best way to invest is to do nothing during the market hours on 90% of the days but they cant keep their jobs if all they did was to buy a few stocks and did nothing. So they have to invent the newsletters, stock of the month, portfolio-constructions, conference calls with companies, calculate alpha beta delta of the portfolio, how much did the portfolio beat the index over the past three days, etc. Otherwise, the world will think that they are not serious!
What we do at Caelis is what I have termed as Sustained Productive Inactivity. Its not that fancy but since I like to play with words,its something Ive coined to justify myself reading a book during market hours. What I mean is that those who measure productivity by the amount of paperwork they did don’t really understand that productivity in any field and specially investing requires long hours of deep thinking. In order to think through a lot of noise, you need to ingest a lot of great work in the form of books and other material of which Youtube is my favorite. The more you read and learn about the world , the more you are able to remain rational in your decision making and that’s how you generate what is called the investing gut-feeling.
What I have learnt from my reading of the greats is that deep-work is required to make serious progress in any field. Your work should be so deep that you know the A and the Z and everything around it as well. This is how Elon Musk has changed the world and this is where the genius of Nvidia and Apple and the likes have come to shape our worldviews. Deep work cannot be measured by anything except the outcome and that outcome in our case is the rate of return on invested capital. If you are able to produce serious rate of returns for long periods of time, you are on the right track. Everything else is plain noise.
As a full time investor, you are thinking about your positions 24/7 and there is no way you aren’t scared when the stocks fall and aren’t elated when they rise. The most harm you can do is to try and react to the price movement during the market hours as you are either too happy or too sad. In other cases, you are just too bored of not doing anything much and end up either trading or random buy-sell stuff. Everything in this category kills your returns. I have tried my hands at day trading for about 10-12 days in my career and in the stocks which became 20-30x for me during my holding, I have lost money every single time when I was day trading them! So much for my genius!
So now what I try to do is to remain productive by reading a lot through the day and that’s basically what I do for a living. The investing returns are made when you don’t disturb the compounding process, and this is what I am learning better by being an entrepreneur. The Indian market gives enough opportunities which if you can invest well and do nothing much, you can beat every single index or fund manager possible. This is what I call productive inactivity. As you do it for long periods of time, through sustained efforts, you are able to broaden your horizon and produce returns which are beyond imagination.
Ben Graham, Buffett’s mentor in every sense was able to produce about 20% CAGR through 1935-1956 period which also had the worst recession and a world war! Stocks do come back to their reasonable prices even in the worst of the times. This is essential to remember especially when the markets are falling. People did survive 2008 and 2020 and every time, good businesses did see a rise in their stock prices. Panic selling and exuberant buying are the two most dangerous activities in stock market, after possibly leveraged trading.
So the next time you see me posting a book on my status, you know that’s what I do for a living!
Disclaimer:
The views expressed in this blog are personal opinions and are shared for educational and informational purposes only. They should not be considered as financial, investment, or legal advice. I write primarily to document my own learning and thinking process. I am not a SEBI-registered investment adviser, research analyst, or financial influencer, and no part of this blog should be seen as a recommendation to buy, sell, or hold any security. Please do your own research or consult a qualified professional before making any financial decisions.
Life is all about Compounding! 