Don’t confuse brains with a bull market – 16 – MASTERING THE MARKET CYCLE

When there is unusual profitability, higher return ratios command by a business then such businesses attract the incremental capital from others. This incremental capital results into the stiff competition and particular business become crowded where such unusual profitability and higher return ratio gone for a toss.

Reversely, businesses which are not able to generate huge profitability, higher return ratios, huge capital requirements etc. then such businesses fail to attract the attention of the new capital so that fewer players remain in the industry and due to challenging business environment, those few also reduces. This consolidation results in moving a cycle of profitability and return ratios to the improvement level.

Examples – high profitability and return ratios become lower (Telecom) and

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Merely 2-3 telecom operators to ~14 telecom operators and then again reach to strong 2 telecom operators. This journey suggests the rise and fall of companies.

lower profitability and return ratios become higher (Paint)

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So that we need to understand that business does not grow to the sky. They all have a cycle. Also, we need to keep in mind that best investors do not get successful all the time. Our human nature makes our success and that also moves in a cycle.

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Success changes the people and they start thinking that they are smarter. Success has a negative consequence also where people become richer and motivation level of them started reducing. Unconventional thinking transforms into conventional thinking. Rather we should know our limitations and also, need to understand that we can fail though we become successful investors.

Successful investors believe that they are mastered in the investing and they have less self-doubt, the worry about being wrong and risk of losses. This invites the risky situations.

We have to keep in mind that – “Don’t confuse brains with a bull market.”

Success teaches us to make money and failure teaches us an important of the risk aversion. We always have to focus on risk while balancing between the aggressiveness and defensiveness. When there is a bull market, everyone gives us a piece of advice. But the quality of advice getting checked during the bear market only.

Making money in the market is always an easy task but keeping secured that earned money is a difficult task.

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We keep doing hard work and keep learning for achieving success in the investing journey. One success does not make us a successful investor.

If we have earned an Rs.100 cr but we do not have the skill to keep it secure then it will not take time to again reach at zero.

We have seen that when the asset is not accepted by the crowd and all are uncomfortable to hold then the particular asset will be available at a bargain. Similar to us, when we start getting popular, everyone wants to make contact with us, everyone accepts our thoughts then we will not be available at a bargain. We also become crowded. We have to keep ourselves grounded and keep reminding ourselves that no rule, no strategy will work forever.

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When risky assets are penalized by the market and due to that, it will be available at the valuation where it will be no riskier.

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When there is a monopoly of the business, business generating good return ratios, decent profitability etc. These invites a competition, these plants a seed of failure. Reversely, when everything seems to be worst, then seeds for success getting planted.

Examples – monopoly kind of business worsening due to competition (Auto OEM) and

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Competitive business turns out to be good (Footwear)

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We believe that a good time will follow more good times but actually, we forget the cyclical nature of everything especially success. So that good time itself having a seed for the bad time and bad time itself having a seed for the good time.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

Read for more detail: Mastering The Market Cycle: Getting the odds on your side by Mr.Howard Marks

BIBLIOPHILE THE MOST IMPORTANT THING BY HOWARD MARKS

One of the books which have influenced me and my investment journey is “The Most Important Thing by Howard Marks”. This book teaches us the most important thing which we need to develop for becoming a wise investor.

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“The Most Important Thing” has many concepts which can help us to our investment journey. I have posted articles on the book. Now, I have compiled different articles into the one file for the ease of reading.

For, All in One Article click – BIBLIOPHILE THE MOST IMPORTANT THING BY HOWARD MARKS

LEARNING INVESTMENT LESSONS FROM MOVIE “SANJU”

Previously I have written a post on learning investment lessons from movies such as Chal Man Jeetva Jaiye”, “Dangal”, “3 IdiotsandRajneeti. Now, I am going to write a few investment lessons from another movie “Sanju”. Sanju movie having very negative comments regarding the reliability of the story but not be go deeper into it. This movie has a very inspirational story and as well as many lessons which we can implement in our life & in our investment career.

  • We need a mentor who helps us with identifying right or wrong decision

Extract from the movie – We have seen in a movie that Sanjay Dutt having a many up and downs in life and during those tough time Mr. Sunil Dutt has helped him with proper guidance. Due to his guidance and support, Sanju can achieve success. Many times, we require a proper guidance which can help us with making a difference between right or wrong decision.

We have seen in a movie that whenever Sanju get confused, Sunil Dutt has shown him a way to get out of such a situation. He has supported him, encourage him to achieve success. Sunil Dutt has encouraged Sanju to make a right decision and also support when Sanju got stuck into worst situation. Books also in our life work as a mentor. When we do not have a mentor, we can take a help of books which help us with a selection of the right decision. Mentor help us to come out from the struggling situations where we are not able to find out the proper way.

Co-relation in investment life – Our investing life is as similar, we require a true mentor who helps us with a proper guidance and supports us in identifying a right or wrong decision. Whenever we get confuse he can help us with his wisdom which can uplift us to the next level. If we do not have a proper mentor then we should select books and try to learn from it. I had a conversation with few of a successful investor and they told that they did not train by a mentor but they read books from Graham, Phil Fisher, and letter of Buffett and prepare themselves for an investment journey.

  • Drugs and suicide are not a solution to any problem

Extract from the movie – We have faced many problems in our lives and we have to fight with those problems, not give up against those problems. Many a time, people do not just give up against problems, they also start taking shortcuts for getting solutions for staying away from problems such as alcohol, drugs & suicide. Shortcut never provide us with a permanent solution against problems, also its effect badly to our loved ones. We have to fight against those problems and solve it permanently. We have seen in the movie that Sanju has started to take drugs or choose to commit suicide to come out of the difficult situations but that did not provide him with a permanent solution. When he decided to fight against difficult situations then he got a proper permanent solution. I can say it from my experience, I have also faced a few situations which are similar to the movie, I also got depressed but I chose to fight rather take a shortcut. And I am sure many of us chose to fight rather to give up. Fight against difficult situation seems easy compared to short cut but always provide us a proper permanent solution.

Co-relation in investment life – Similar to our life, we have also face difficult situations in our investments career. Many of us face it, fight against it rather take a shortcut. We failed during our investment career many a time, our investment might work worst, and it might not perform as we have thought. If we learn from those difficult situations, increase our efforts to become stronger and decide to fight for the success of our investment career, then we can achieve success in our investment career also. Those who are not able to fight against difficult situations, they choose to take shortcuts such as leaving of investment field (suicide from investment career), taking investment ideas from others, getting dependent on others’ tips (such work as a drug for us). If we take a advice from the mentor for building our investment career more stronger and enhance our efforts to become stronger then it will be a permanent solution for the difficult situation during our investment career. We grow stronger, our investment decisions improve wiser when we face difficult situations and fight against it, learn from it.

  • Sometimes music / other than core work helps to heal us

Extract from the movie – Whenever we are depressed or found it difficult to focus on our core activities then it is better to work something else which can help us to getting heal from our depression and with it, we need to keep on trying to get back to the focus on slowly to our core activities. When we are depressed, distracted or disturbed then it will be difficult for us to get back our focus on our core activities. So that first, we should try to come out of the depressed situation. This really helps us to get back our concentration and become normal from depressing situations. I usually listen to music, do a workout or take a sleep which has to help me a lot to come out of the depressed situation and I can able to again focus on my core activities. We have seen in the movie that whenever Sanju got disturbed, distracted from his acting career, Mr.Sunil Dutt has helped him with music and music has healed his depression.

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Co-relation in investment life – Similarly when there is a depressing situation for us in our investing career then rather be getting panic, we should focus on the some of the activities which make us feel better and relaxed. This will reduce our stress, heal our depression so that we can again focus on the investing activities. We have faced such situations many a time during our investing career, investment does not work as we assumed, all assumptions are in place but still not perform in a manner it should perform, etc. These all make us depressed and if we continue to focus on investment with such a depressed mind then there will be a higher chance to make a huge error, bigger blunders. It is better first to be normal and be relaxed then need to again focus on investing activities. Many a time, Small happiness do big miracles. And making a temporary distance from core activities will help to come back with more strength.

  • Need a good circle of buddy

Extract from the movie – We have seen in the movie that Jubin has the spoiled life of Sanju. Due to Jubin, Sanju has started taking drugs & became abdicated to it. Whereas Kamlesh has helped to Sanju for coming out of his drugs abdication and also supported in tough time. If we have a good circle of buddy then they help us to put forward our views and get right views from them. They do not show selfish behavior to us but they provide us a view which is right for us, not views which feel us good. They make a debate with us on views, opinions which create stronger decisions, stronger execution. So that we need a friend like Kamlesh not like a Jubin.

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Co-relation in investment life – Similar to the investment field, we need a circle of a good friend who told us which kind of mistake we have made, who support us during our difficult time, who can make a debate with us on our investment ideas which make our decision stronger. This helps us to make a wise investment decision rather than a biased decision. We have to differentiate who provide us a right view and who provide us a view which makes feel us good. If we stay with the wrong circle of buddy then we always get biased views, they provide us a view which we want to hear. Such views feel us good but not build us wiser. Many a time, we may be missed some important points and if we have the good circle of buddy then we can make discussion with them, we get proper views. I learn that such circle should not be huge, we have few buddies, maybe a max circle of 3-4 members.

  • People will comment negatively, they are judgmental. Shut their mouth with success

Extract from the movie – We have seen in the movie that people, media has made negative comments regarding careers, drugs addiction, consider him a terrorist, etc. But Sanju has made a comeback and achieve a success. Media has put a question mark on his career, also everyone considers that he is finished & never able to come back to his earlier success. He has put efforts to develop himself and come back to his earlier success.

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Co-relation in investment life – Such kind of negative comments, we also get during our investment careers. When our investment ideas do not perform well, we have made some mistakes, we face the difficult time to get proper investment ideas; then we get criticism from people. Many negative comments we get from people, but rather getting depressed with those comments; we need to put efforts on our career. We should focus on putting efforts into our career rather than responding to people. We need to work on identifying our mistakes, learn from it and put efforts to build us wiser. We should work on identifying good investment ideas and build a good portfolio which helps us to create a wealth. Such wealth creation is a response to all negative comments made to us, rather to replying with words to everyone. Negative comments should work for us as a motivation to develop ourselves rather depress us. And if we found useless negative comments from people then need to remember ustaad no. 3 from the movie – “Kuch toh log kahege logon ka kaam hai kahena, chhodo bekaar ki baton mein kaheen beet na jaaye rainaa”

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  • Always hope for the best days coming after worst days

Extract from the movie – We should not give up by experiencing difficult days whereas we should hope for the best time. Our life also works in a cyclical manner, we have worst days also and best days also but never one remain forever. We have seen in the movie that Sanju became a drug addicted but after proper treatment, he again became normal. Also, he has faced many failures in acting career but after putting efforts, be able to achieve success.

Co-relation in investment life – Many a time in an investment career, we faced difficult days but we should put an effort also during those days with the hope of best time is on the way. Sometimes our investment does not work in terms of stock price but all our assumptions for investment are in place then we have to keep faith and hope for the best and have a patience.

  • There is another side of the story, do not just blindly believe in whatever we see or hear

Extract from the movie – We have seen in the movie that Anushka Sharma has played a role where she does not believe blindly to any of the information. She searches for the evidence, truth, and meet people who can help her to reach for truth. If she believes in the information which was given by Jubin then she is not able to reach the truth of the story. But she takes his information as a starting point for an investigation and searches what is the truth.

Co-relation in investment life – It is very essential for us to not believe any of the information blindly. We always look at the information suspiciously and try to find out evidence for the information. If we blindly believe on the information and those information proves wrong then we may incur a huge blunder with our investments. We have to see the story from different angles then only we identify and reach the conclusion that whether it is correct in the way it seems on the first instants. As an investor, it is our duty to check the available information to us rather believe in it and make an action.

If we trust ourselves then we can achieve success in our life.

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Learning Investment Lessons from movie Chal Man Jeetva Jaiye

Jainam Share Consultants had organized a movie day on 6th January 2018 and the name of the movie was “Chal Man Jeetva Jaiye”. I am really thankful to Jainam Family for giving me the chance to watch a worthy movie. I am grateful to the entire cast & crew of the movie for the wonderful performance and script.

I am really grateful to Riddhi who helped me with editing and very effective ideas.

I always believe that we can learn many concepts from our surrounding environment. Similarly, this movie has some of the amazing concepts that I have learned and you can also which can be beneficial to our investment journey and as well as to our life.

  • Decide our process to get success in our life

Extract from the movie – The movie began where it was shown that a father is pressurizing his son, Dev, a lot for achieving victory. Dev, unknowingly started following his father’s dreams but he did not know how to get a victory.

Co-relation in real life – A similar situation happens with all of us when it comes to our investments. Investors’ starts investing in multi-bagger stocks whereas they don’t even have enough knowledge about the company. We need to gather knowledge first and then decide whether the company is worth investing. If we don’t do a thorough study about the company, then there are chances that we might lose our capital rather than achieving reasonable returns.

  • Pressure and stress can affect our decision-making ability

Extract from the movie – Dev was pressurized by his father to achieve victory and as a result, he lost his focus from all aspects and started losing in all the fields. He was often scolded and tortured by his father for not being able to earn medals and certificates.  Dev had always been forced upon the dreams that his father had for him. Dev was never given a chance to explore about his interests and that affected his decision making power.

Dev’s uncle, Vasant, had incurred a major loss in the family business and was highly stressed about it. He got pressurized by thinking about the materialistic and luxurious life of the family that he wanted to maintain and that led him in making a wrong decision. He chooses an unethical way: of leaving the country and doing fraud with the lives of the people by taking away all their money that they had invested in their company. He thinks of this way as ethical because Mr. Ajay Walia (whose company got bankrupt and he lost everything) had also done the same. Looking at someone else do it; made him think of the wrong way as the right way and he forgets about the moral values and ethics that he had learnt from his parents of not doing fraud or cheat with the lives of the people.

Co-relation in real life – Likewise, while there is a mad bull run in the market, when we see our fellow investors making money, we feel stressed and that pressure leads us to unethical thinking. We lose the capability of spotting the good investment companies; thus leading us to losses. Sometimes, such situations encourage us to compromise with our ethics & values for making an investment decision; hence forcing us to make faulty decisions. Rather than getting jealous of others making money, if we focus on our decisions and stick to our ethics; then there will be ample of opportunities coming up within our competence area that will lead us to good returns.

  • Remaining emotionally stable also during the worst period of our life

Extract from the movie – Viren, who is playing a character of Vasant’s son, saw his father being stressed and hence taking wrong decisions. So he keeps himself calm and stays emotionally stable and decides that he won’t let his father take the wrong decision. Vasant asks his family to support him and the whole family does that except Viren and Dev. Although knowing that this is the crucial time for the entire family and they will have to face the whole family; both the brothers decide to stick to the ethical and the correct path. The family often scolded them, tried to emotionally break them and also tried to prove them wrong but these brothers keeps fighting for what’s right and not bothering that it was their family on the other end.

Co-relation in real life – Market often shows us a challenging period during our investment journey but we need to remain emotionally stable and keep ourselves away from emotional diseases such as ego, envy, greed, fear etc. All such emotions influence our decision and lead us to get deviate from our process. Please refer to the article for further details of how does our emotion influence our investment decision BIBLIOPHILE: THE MOST IMPORTANT THING BY HOWARD MARKS “COMBATING NEGATIVE INFLUENCES”

  • Importance of different viewpoints

Extract from the movie – Vasant and Viren both have different perceptions of the same situation. Viren was enforcing for a different viewpoint which led the entire family re-think about their decision and yes they finally accepted the viewpoint that Viren and Dev has been explaining since the beginning, as it was a better and an ethical way of dealing with the problems. We should accept the viewpoint of the other and try to empathize from their angle. There is a possibility that we might get a new perspective to see a problem and that can be more useful to our decision making.

Co-relation in real life – When it comes to our investment journey; we face the same situation. There are ample of people who will give you too many companies to make investments in, as per their knowledge and their research. But it’s up to us whether to believe all of them or to believe some of them. People have different mindsets and there will be a situation where 1 person days good about the company whereas the other says bad. In such a situation; we get to know a different viewpoint and a different perspective from various people we trust on. But we should at times believe on people and re-think couple of times before investing as it is a matter of our earned money through hard work.

  • Acceptance of our mistake

Extract from the movie – Vasant accepted his mistake of taking a wrong decision due to stress and ego and he decides to change his decision. If he wouldn’t have accepted the viewpoint and changed his decision in time; then that would have led him to lose his brand value, his goodwill, his happiness, his inner peace, the trust that others had in him, his relationships, etc.

Co-relation in real life – We often make mistakes during our investment journey but we need to realize it at the earliest and accept our wrong decision by not getting influenced of other factors. We should think of recovering our losses and increasing our profits rather than feeling guilty on our wrong decision.

  • Have faith in yourself

Extract from the movie – Vasant in his past had grown the business and created a brand value. He had never lost his money. But when he faced such a situation; he had lost faith in his own self and he thought that he doesn’t have the courage to rebuild the empire. But Viren always showed trust in his father’s ability and he kept on saying that he knows that his father has the ability to build an empire again.

Co-relation in real life – During a sluggish market scenario, there are times that even our best investment cannot generate good money for us. But we have to have patience and trust on our decisions that sooner or later we will earn and gain good returns.

  • We are losers just because of ourselves and not because of others

Extract from the movie – Dev was unable to express his thoughts in front of his own family. His continuous failure due to his father pressure had restricted him to open up and talk about what he wanted to. When he was asked to faced his complexions and his fear; only then he fought with his own self and was able to realize that he failed because he had created a belief in his mind that he is unable to do anything in his life.He only can able to create an impression in front of his family after getting the realization of his weaknesses. It was then that he realized that it wasn’t his father that was the cause of his failure but it was his inner self that didn’t let him take a leap. But when he overcame his weaknesses; he achieved success.

Co-relation in real life – We also face similar situations during our investment journey. We might have made losses couple of times. But we should face those failures and try learning of overcoming them rather than withdrawing the money. One should think of recovering the losses and switching from the negative balance (loss) to the positive balance (profits). Because if we don’t think positive then those failures might affect our future decision for making an investment.

As it is rightly said “YOU MAY FIND THE WORST ENEMY OR BEST FRIEND IN YOURSELF”

  • Building brand value takes efforts for years but just a few minutes to ruin it

Extract from the movie – Vasant and his brothers had worked really hard for years to create a brand value for their company. But if he would have decided to take a wrong decision of declaring bankruptcy; then that would have ruined the brand image that they had build in for years. People would have cursed them for their decision as they would have cheated them. And this would have created a negative impact for the company and its image.

Co-relation in real life – Similarly, we should always be careful while taking a decision in life and not make any blunders. We should think with a peaceful mind and not atleast when we are stressed. If done so in stress; we can lose the trust that people have in us and we can harm our reputation which we have built with our hard work over the years. Remember, “DON’T LET ONE MISTAKE RUIN A BEAUTIFUL THING”.

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Kindly watch movie for more insights.

 

 

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