There and back again

Was I Buff T. Warren?
I dont think so; although the lure of 'great quality companies tend to do well' had been extrapolated far.
I remember my pangs of 'I missed it!'

Klarman was right in 1999 when he asked whether Buff T. Warren's portfolio looks an awful lot like Warren Buffett's... The lure of good quality companies got to WB too.
And if WB can go through it - well, we are but mere insects.


I remember thinking -
no damned Mutual fund owns Y company,
there is no decent report out about J company,
investors dont even know what C company really does,
investors thoroughly doubt W company's ability to grow without losses;
And hence, I believed that I am alright.

So in the end, I have to believe that Mrs. Market is simply depressive.
And as is often believed about depression - no bother! just go for a nice comedy and things will be fine - Mrs. Market's depression has no firm rationale.
As I often tell my wife - 'When you gotta go, you gotta go!' - and then she complains about me being in there for an hour.


I was ready for this I believe. (And yet I was fully invested!)
I started making a folder called 'DONT PANIC' (inspired by Hitchhiker's Guide to the Galaxy) in Aug 2016 when too much money was made too fast.
I have not needed that folder until this week.

And the last 2 weeks' events reminded me of something Arpit had may be said: "All money made in the stock market is only a short term loan ready to be called back".

CM has often said "If you are not ready to take a 50% drawdown, you should not be investing"

Now, as Howard Marks often says: We may not know where we are going, but it's very important to know where we are. I guess he meant it about the investing philosophy.

Where are we now?
- In a country that adds may be 13m + net people a year
- Where people still have to buy their first homes
- Full of extremely young people which may cause odd social problems
- But somehow, everybody is getting access to the internet
- Very high savings rate in the country
- A very good ecosystem to service the world (mfcg and services)
- A nominal GDP growth rate of 11-12%+
- A formalisation of people's way of living - identity, credit, electricity, etc
- An irritable world leader who should be thrown out 6 years from now for sure.
- Overcapacity and bubble in the 2nd largest economy in the world
- Slightly higher oil prices
- A more competitive rupee that harms our import bill but makes our export bill awesome



"Risk for them is not being stupid but looking stupid."
I look stupid right now.
But this seems like the point of least risk.
Seems.

Biased about Biases

There are too many biases.
Actively managing the portfolio is a bias; and being too passive is a bias.
A Concentrated portfolio is a bias to conform to Munger's thoughts and a diversified portfolio is a bias to dissipate risk.
Managing other people's money causes incentive and agency biases, and managing only your family's money makes you complacent.

There are lures of greed and envy and exciting names and fantastic prospects,
As Marathe's post said: Biases about circle of competence can interfere with pursuit of knowledge - - many sectors tend to fall outside a value investor's realm of understanding; and yet, a pharma company or a commodities oriented company or a telecom company are still businesses - and these have generated wealth over decades - so, is it our complacency, or is it our bias that keeps us in the consumer goods/ financials spaces?

As my friend Arpit said, there are no fixed ways, and we have to find our way with our investing styles. And once we find that style, may be the style can change, there are no set templates.

So, what should a value investor do?

If the basic principle is margin of safety, then one should keep reverting to that.
And then, one can pursue a pharma company or a graphite electrodes manufacturer, or a lender, etc.
The balance between price and value, and an operator's ability to be an outlier in his industry, can be maintained.
The balance between a megacap and a small cap can also be maintained. A 100 Cr mcap company may struggle to grow because it doesnt understand the power of IT or employee empowerment, and a 50000 Cr mcap company can grow because it has the world as its addressable market; while we still believe that small caps tend to give better returns than large caps.

I last wrote in April 2017; and since then it seems that India has become stronger, companies have started investing again, we have seen a mad rally in the stock market and a great corrective phase now.
But how are our companies?
There seems to be a big dichotomy in lenders (v strong and v weak), there seems to be an unforeseen impact of China environmental/ economic clampdowns on Indian chemical complexes and paper and recycling, and commodities, Indians seem to be becoming much more mobile - for work and leisure.
Things seem quite good.

As for my favourite bias - I remember Mr. Bean's host in the US in the movie.
Mr. Bean was entrusted with taking care of a valuable painting - Whistler's mother.
And he told Bean: "Do nothing! And nothing will go wrong!"
Of course, soon after, Bean was drawing over the painting with a sketchpen.

So, I remind myself; as long as my companies are good:
"Do nothing! And nothing will go wrong!"
Of course, I could get hit by a cab, but that's another story.