Michael Batnick Looking in the Mirror

Posted on June 22, 2019 by Jimit Zaveri under Bibliophile, Bibliophile: Big Mistakes

Mr.Batnick has mentioned that he has made each of the mistakes made by other well-known investors. He was not clear during his college studies regarding his career. Lastly, he completed his studies into the economics and got a job at a financial planning company for selling insurance. He has sold a policy to his family and not able to sell anything to others. During his job, his father introduces him with a financial advisor and Mr.Batnick has taken place his liking for the wall-street.

During the year 2011, Mr.Batnick has started trading ETFs which are 3x levered. He thought that he can create a fortune by trading. During that time, he got a temporary job and due to his job, though he is not able to stick to the computer, he started trading through options.

He was bearish on the Netflix so that he bought put option of Netflix before earning got announced. The stock fell by 35% and he earned 10 times of his original investment. He started reading on trading, technical analysis. He knows that he couldn’t beat the market but he keeps on doing the same because he does not know anything else.

During the year 2012, he got hired by Josh and Barry. And his journey got started.

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We all have made a mistake to think the stock market as a money printing machine where we put an order and machine make us billionaire sooner. We need to understand that this is not a machine but it’s a platform which facilitates us to make an investment into the various businesses. Businesses having a good time, bad time, best time, worst time as per our life. So that we need to give time to the business to grow, to prosper for creating wealth for every investor. It is just a platform, it does not have emotion, it drives through our emotions.

Everyone has made a mistake, the main difference between best investors and normal people is, best investors learn and grow from their mistakes but normal people do not, they keep their mistakes into their mind and bring them back to achieving the goal. If we want to grow then we need to learn from the mistakes and improve our way of doing things. If we keep on doing things in the same way then the result will remain as same as we have achieved during our mistake. Mistakes provide us an opportunity to change, learn and improve in the way we perform our job.

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

Chris Sacca Dealing with Regret

Posted on June 15, 2019 by Jimit Zaveri under Bibliophile, Bibliophile: Big Mistakes

Many of the immature investors buy overvalued stocks and then they sell when those stocks become cheaper in nature. But this is a wrong way of making an investment and making a decision. If we keep on making a wrong decision, then we keep on feeling a regret which affects our decisions. Our mind carries a past experience which affects our decision. As an investor, we need to make every new decision independently without getting effects from the past experience. If we have a bad past experience then our current decision will affect our regret and if we have a good past experience then our current decision will affect our overconfidence.

After the bad experience, people work more cautiously until they do not again start playing the game. As we again start playing a game, our past experience starts affecting us. When things go up then also greed for taking out profit stop us from getting more gain.

Mr. Chris Sacca is the founder and chairman of Lowercase Capital which is a venture capital fund. This fund considers as one of the successful venture capital funds which have recorded return of 250 times from its initial investment. This fund has put $300000 of a fund to Uber, currently, it’s 5000 times. Some of the other success of Mr. Sacca was Instagram, Uber, Kickstarter, Slack, Automattic (WordPress parent company), Twilio, and Twitter.

He has also a regret of pass on some of the investment. One of the business was Dropbox and giving a pass on to the Dropbox cost him a lot. Another miss of Mr. Sacca was Snap, the parent company of Snapchat. He can speak for his misses because he has a more winner also which has created a fortune. But if we have missed an opportunity or sold-out good businesses earlier then we always remain into the regret. We actually need to move on to the opportunity which we have missed out and need to focus on the other coming opportunities.

Emotional biases affect us badly during our investment journey. If we have a winner into the portfolio and we sold it then also the winner keeps on growing. If we have a loser to the portfolio and we have cut losses then stock again gains from that level. Such situations affect the decision making skill and we make faulty decisions.

As we have seen that Mr. Sacca has missed a few opportunities, Mr. Buffett has missed many and also he has lost money in a few of his investment. Important is that they have never kept their regret with them which has helped them to build an empire. We have to move on rather than sticking with the past decision or getting attached to the previous decision. Our life is full of such decisions and if we stuck with it then we will not make further decisions in our life. We have to learn from our decision and use it for further decisions.

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

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

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