John Paulson You Only Need to Win Once

Posted on June 2, 2019 by Jimit Zaveri under Bibliophile, Bibliophile: Big Mistakes

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Luck is not always going to support us if we do not have the proper skill to make appropriate decisions. If we won by help of luck but make the wrong decisions thereafter then we end up with the losing a game. And for making an appropriate decision, we need to work on developing our skills. If we get success by using a stroke of luck then we cannot say that failure will not come to our way. Actually, success and failure is a cycle so that if we meet success then failure will come to meet us next. By developing a skill, we can reduce the intensity of the failure.

John Paulson has started a hedge fund company with $2 million of own fund in the year 1994. His firm is specialized into the merger arbitrage. But during the year 2005, one of his analyst Mr. Paolo Pellegrini suggested him that US housing market is into the bubble territory. And after reviewing facts presented by Mr. Paolo Pellegrini, Mr. Paulson convinced to go against the housing price. He started acquiring credit default swaps. As he got a confirmation for his idea, he has started acquiring more swaps. The largest mortgage guys of the country were positive on the sub-prime during the year 2005. But outside of his team called him a crazy. He has earned during a fall of subprime in the year 2007 worth of $15 billion for the fund and $4 billion for personal.

After the big success, he started searching for a similar big winning idea. When we get a huge success then we need to save ourselves from the trap of ego. This is a very crucial emotional bias which enters to us and we remain unknowable about it.

Mr. Paulson has an idea to buy more valuable asset compared to inflation during the year 2010. So that he bought gold and gold-related investment worth of $5 billion, he became the largest owner of gold in the world. He could not able to repeat his past success and lost 30%+ value in a year and after that, he lost value for consecutive three years. Mr. Paulson other funds also lost in value and also merger fund where he has an expertise that also falls.

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We cannot able to hit winning shot every-time but when we hit a winning shot, we need to keep those value which we received. But generally, we try to repeat those winning shot again and again which create destruction of wealth for us. I learn from my Guru – Mr. Neeraj Marathe Sir, from Howard Marks and Mr. Ben Graham, that protection of wealth must be our priority. Neeraj Sir always mentioned that if we focus on avoiding mistakes then we won half of the battle. So that we should focus on not to hit a winning shot but rather focus on not to lose money. If we survive into the game then we may have a chance to hit winning shot again. But if we do not survive into the game then there will not be any probability to hit a winning shot again. If we keep our focus on hitting a winning shot then we compromise with the capital protection which is an essential part of the game. And we should not forget it ever.

Read for more detail: Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick

SIMPLE IS BETTER – ISSUE -17 – NUMBERS TELLS YOU EVERYTHING – 2

Posted on May 26, 2019 by Jimit Zaveri under Simple is Better

In the previous article (SIB-16) of the same series, I have explained needs for checking a management quality. And also explained what if we invest in the company which has troublesome management. Now, I am going to explain how we can judge the management through accounting and protect our wealth.

Entire series of “Numbers tells you everything” is based on the books –

I have tried to cover up concepts available with the above books.

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -17 – Numbers tells you everything – 2

Avengers: Endgame and Investment

Posted on May 19, 2019 by Jimit Zaveri under Investment Philosophy

Previously I have written a post on learning investment lessons from movies such as “Chal Man Jeetva Jaiye”, “Dangal”, “3 Idiots”, “Rajneeti”, “Sanju“ and “Badla“. Now, I am going to write a few investment lessons from another movie Avengers: Endgame. Avengers: Endgame is not only a movie but it’s an emotion.

Accept the reality and don’t lose temperament

Extract from the movie – At the starts of the movie, we have seen that Tony Stark stuck in a space and going to die. During the time, he has accepted death and didn’t lose his temperament. He has keep environment live.

Co-relation in real life – We face similar kind of events in our life and investment journey where we do not get any clue about what to do. We should not lose temperament and work on the acceptance of reality.

Don’t lose hope and identity due to failure

Extract from the movie – We have seen that initially, Tony has denied helping Ant-man and Cap for time travel. But later on, he has worked on the time travel mission. He has made it possible to do a time travel.

Co-relation in real life – Similar way in our life and investment, if we faced failure then we should not stay away from our actual identity. Rather we should work on it and turn out our failure into success. If we lose our identity then we cannot get back success and we stuck with the failure for a lifetime. It is obvious that we face failures in our life, our assumptions go wrong, the market takes more time than we have assumed to recognize the value of our investment.

Wait for the opportunity

Extract from the movie – We have seen that Avengers got an opportunity after the 5 years also. They had never think about it. But when the opportunity comes they have captured it and take benefits of it.

Co-relation in real life – In the investment field, we get very limited opportunities to make an investment. We need to wait for the opportunity while we are not getting it. We should not accept failure if we do not get an opportunity for a huge time. We should always wait for the opportunity.

Accept the failure but do not give up

Extract from the movie – We have seen that Thor was not able to accept his failure and he slipped into the depression. He was not ready initially for help to the Hulk but later on, get ready.

Co-relation in real life – Similarly, we should not slip into the depression when we face any failure but we should accept it and work on the turnout our weakness into the strength. If we slip into the depression then we cannot able to capture an opportunity when we get it.

Accept the uncertainty which can change all the scenario

Extract from the movie – Thanos got aware of the plan of the Avengers and he came from past to the future for capturing all stones from Avengers. Avengers has believed that they collect all the stones and provide lives of those who lose life due to Thanos in infinity war. But Thanos also came to the future and he had attacked the Avengers.

Co-relation in real life – Similarly, we should accept the uncertainty while we make investment decisions. Anything can happen into the investment journey which we do not have assumed. Uncertainty is only certain to happen.

Accept that we cannot control fortune

Extract from the movie – We have seen in infinity war that Avengers cannot able to stop Thanos and Thanos has completed his task. Avengers has made a huge effort to stop to Thanos but Thanos has given death to half of the population of the earth with few of Avengers also. This proves that we only can put efforts but cannot control the fortune.

Co-relation in real life – In the investment field also, we can just work on the company identifying, analyzing, allocation, risk management, etc. But we cannot control our return. The return will be not into our control. It’s just our fortune which we cannot control.

Put entire efforts when the opportunity comes

Extract from the movie – When the opportunity comes to bring back the life of half of the world then Avengers has put entire efforts. Also, when it comes to again protect the entire world by Thanos, they have put their entire efforts and in which we have seen that Tony has lost his life. Hulk got injured and the black widow had sacrificed her life.

Co-relation in real life – We does not know that when the opportunity comes to us. But we have to be ready for the opportunity and when it comes, we must have to put our entire efforts. We do not get investment opportunities on a daily basis so till the time, we are not getting an opportunity, and we should start working on making us stronger and stronger. And when the opportunity comes to have to build up a position.

Accept the disconfirming evidence

Extract from the movie – During the infinity war, we have seen that Dr. Strange had mentioned that they have one chance to win from the 14 million chances. Same into the Age of Ultron, when Tony wants to build a protection shield, then nobody got agreed with him. They said they fight for any uncertainty and either win or lose but that will be together.

Co-relation in real life – We should not think that if we have a good track record of making an investment then we will win the game. But we have to accept the disconfirming evidence and be prepared according to it. We should not negate the disconfirming evidence and prepare for upcoming uncertainty.

Fight with own emotions to win

Extract from the movie – Tony was not ready to help for time travel when Captain America has approached him. He was fearing for losing togetherness of family. He feared because he has faced death very closely. He knows that he can help with the time travel but his fear was stopping him. When Pepper Potts had explained to him that he can help others and he should then Tony got ready to help for time traveling.

Co-relation in real life – Similarly, we also have a fear of losing what we are currently holding or what we can lose from our past failures. We should not keep our past memories to hold us and keep on drain us. We should control the emotion and fight with it. Otherwise, we cannot able to achieve what we want. If we have made an investment mistake in past and those memories holding us and stop us from making a new investment or we are holding an investment which we do not want to lose then we may not able to perform a task which is the demand of time.

John Maynard Keynes The Most Addictive Game

Posted on May 12, 2019 by Jimit Zaveri under Bibliophile, Bibliophile: Big Mistakes

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Every minute market is putting new information, fun, clues, etc. which can be excited and addictive to us. It is a game which always excites us with its nature and it is never ending game so that slowly, we become addictive of it.

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In investing, odds are decided by the human, investor’s expectation. Odds cannot be quantifiable. We all have information but users of that information are human so that human sets prices for the odds which have emotional biases also.

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Mr. Keynes has started managing fund of family and friends with $30,000 in the year 1920 which was turned out to be $80,000 in April 1920. But after that, he made a huge loss which has wiped out entire capital and his father has to help him. Mr. Keynes has started speculating and build the capital worth of $120000 till the end of the year 1922. This success has encouraged him to make speculation into the commodities. Here also, Mr. Keynes lost 80% of his net worth.

Mr. Keynes has worked on to the evolving his investment style.

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He stops focusing on the macroeconomic, currencies, interest rate forecasting, etc. and made the transition of his focus to the cash flow, earning the power of the companies which are selling below the intrinsic value. He put aside his ego and created fortune with the bottom-up approach rather than a top-down approach.

As we have seen in my article on Howard Marks that no investment strategy works forever. It’s cyclical, sometimes growth works, sometimes value works and sometimes momentum works, etc. Mr. Keynes was successful as a value investor but during the year 1936 to 1938, his strategy was failed and he lost around 2/3^rd of his wealth.

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Mr. Keynes has explained his strategy to his clients – we need to look at the discount from the probable and potential intrinsic value, need to hold large quantity for a longer period of time.

Mr. Keynes has shifted from macro to company-specific matrix and short-term to the long-term focused investor. During the year 1928 to 1931, the value of his assets fall by 50% v/s US market fall by 30% but during the year 1932 to 1945, the value of his assets grew by 869% v/s US market rise by 23%. Additionally, his portfolio turnover reduced from 56% to 14%. He has truly focused on the long term investing and due to his long-term thinking, he has delivered a remarkable result during the 1929 great depression and also during World War II.

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We always need to focus on the investing strategy which is suitable to us rather focusing on identifying a perfect strategy and following it. No strategy is perfect in all the market cycle. I like to build a portfolio of bargain stocks which badly fail during the last 2 year were no huge bargain available into the broader market level. But staying with the pre-decided strategy has helped a lot and I can able to outperformed benchmark with decent margins. So we need to select a strategy which suits our temperament and need to stick on it.

Read for more detail: Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick