AA - Abhishek's Attic (place to store stuff to clear my head)!

[basumallick]

Munger invested in Alibaba first in 2020. There is no question about his advanced age. But here the issue is not whether Munger was young or old. The question is of having processes in place (safety nets) which saves you from yourself even if you are old or sick or have some other temporary or permanent challenges. Mistakes can and will be made. How can you reduce the impact of those mistakes is the lesson we need to take away from this.

source: Charlie Munger: 2022 Daily Journal Annual Meeting Transcript | Junto

It is not that Munger does not understand the business of Alibaba. It’s just that he allowed his love for China to overshadow his natural scepticism IMO.

[ChaitanyaC]

I have no other thought about absorbing investing lessons from anywhere, as I also learn vicariously. It is just that I cannot restrict myself looking only at the investing part of the story, and omitting the age factor, that is just me, as I am not too sure if my mind works the same at that age, how it does now. I have nothing to add.

It is a lesson to be remembered nevertheless.

[Mudit.Kushalvardhan]

Agree with this observation of age factor. In the latest edition of Common stocks and uncommon profits by philip fisher, his son has described how at advanced age , Philip Fisher suffered from dementia and towards the end of his life, how this affected his portfolio. Offcourse we dont know for sure, in current times, how Warren buffet or Charlie would be picking stocks or if they have delegated it to their trusted assistants. But as age increases, brain starts decaying and it will have obvious impact on sharpness as well as critical analysis.

[Deven]

Article is loud and clear. Thanks Abhishek.

Selling of airlines stock during covid by buffet is the mistake as per many investors. What’s your thoughts on that?

When business fundamental changes you need to change your view. It seems airlines business changed (WFH, covid restriction) during covid. But now it seems world is back 100%. So business changed for few years, if so that seems mistake.

[basumallick]

I can only say what I would do in that case. Firstly, I would not have bought airline stocks. Secondly, at the onset of the pandemic, I would have booked losses and sold, exactly what Buffett did.

Hindsight is always 20-20. It is easy to say now after 2.5 years that the airline industry is back again, but at that time, there was no understanding of the severity of the impact and how long the distress would last.

[ram1984]

Dada, what is your understanding of margin of safety when it comes to investing and if one is into momentum based quant investing, how does one marry the two?

[basumallick]

Why do you have to marry the two?

The idea and thesis of long term margin of safety based investment is completely different from momentum investing ( whether quant based or otherwise).

In momentum or quant based investing you are trying to buy and sell in usually a defined timeframe. The risk management is done by using stop losses and position sizing.

If you want to buy and hold for a longer period, you are looking for a margin of safety. That can come from buy price (cheapness), balance sheet strength, business quality, management quality, growth etc.

[basumallick]

Nifty at record highs: Should we invest now or wait for a fall?

The eternal dilemma

The market is at an all-time high, should I invest now?

Should I wait for markets to fall before I invest?

Should I redeem some of my mutual funds or stocks and move them to fixed deposits now that rates are higher?

These are the most common questions I get to hear in the last one-two months.

Market Timing – 2D (Donald & Demonetisation)

But before I answer this question, let me tell you a story. In November 2016, I took a partial cash call and sold around 25-30% of my holdings. My rationale was that the US elections was happening on Nov 8th the results would be declared. Hillary Clinton was expected to win. My bet was that Trump would win and that was likely to trigger a fall in the US markets which could possibly cascade here. It was more a tactical trading call with the intention or hope of buying stocks 10-15% cheaper. Well, Trump won. And nothing happened in the US markets. It did not budge, either up or down. And in India, we had the announcement of demonetisation on the same day. In the next few trading sessions, the Nifty corrected sharply and fell below 8000. I got lucky with my market timing call but for something I had no inkling of.

The reason I tell this story often is because it highlights the challenge of short-term market direction and level determination. No one knows what will happen tomorrow, or a week from now, or a month from now. Over longer time horizons, it is slightly easier to do basic trend analysis. For example, it is relatively safe to say that Indian GDP will be much higher than what it is today.

This leads us to the question of investment horizon. One of the most important questions in investing is to determine your time horizon. If you are planning to invest and build a corpus over the next 10-20-30 years, then the least you can do is to ignore the vicissitudes of the short term.

The 1-in-4 Rule

I have this rule that I always keep at the back of my mind. It goes like this.

1 in 4 years will be bad where we will lose money.

1 in 4 stocks will not play out the way we thought it would.

1 in 4 stocks we will get in or out too early or too late.

In addition, once every year, we are likely to see a 10% fall in the markets. Once every 2-3 years, a 20% fall and once every 8-10 years a 30%+ fall.

The problem is we don’t really know which of these we are in now. Is this the one year where we will lose money? Or is this the stock which we are making a mistake on?

Since we don’t know if this year will be that bumper year or that bad year, the most rational thing to do, if we have a long-term horizon is to remain invested.

Once we understand this, it is easier to handle the ups and downs. Plan for the occasional speed breaker on the road. It is not that you leave your house only when you know that the road to your destination is all clear with zero traffic. You get out on the road and make the journey. Along the way, sometimes the traffic is slow, sometimes fast and if there are diversions you take them as long as they take you towards the destination.

It is exactly the same here. Just keep in mind the destination in this journey is to compound your capital at a reasonable rate over your investment horizon and not make large capital losses.

Sometimes, waiting for the right moment to invest backfires. What if the market does not fall to the extent you expected? What if the market falls, but you get more scared to invest then? Or what if, the market falls, and you wait for it to fall more, but it doesn’t? These are all scenarios I have seen play out in front of my eyes.

What is the way out?

In one word – SIP. Mutual funds have popularised this concept of rupee cost averaging. Anyone who has a regular income stream should follow a SIP regime. Not necessarily in mutual funds but in their own portfolios. Instead of trying to time the market, it is better to benefit from regularly putting aside a sum. The advantage of a SIP model of investing in our portfolio stocks is that you slowly accumulate stocks in good companies during market downturns and sideways periods, which shows up in your CAGR returns when the market turns up.

Summary

The future is unpredictable. Have a savings and investment plan based on your investment horizon. And then, most importantly, stick to your plan.

This article first appeared in The Economic Times

[rajiv_ag16]

Sir, kudos to such nicely articulated one. Every individual investor goes through this dilemma, time and again. The very incident you described of 2016, is nice to understand different scenarios which may come along the investment journey. Finally, a lot of lessons for us, relatively new- investors.

[Akashdeep]

Thank you dada for this article, for a newbie like me who is just 1 yr in the market, this erased my fears of whether to keep going with my monthly SIP in stocks or wait it out. I am looking at a 10-15 year old horizon and prepared to take any downturns as a buying opportunity.

[basumallick]

The Progress of AI and the Art of Questioning

Since November 30, 2022, the world has been mesmerised by chatGPT. However, this is not our first tryst with AI. As early as 1997, we have seen IBM’s Deep Blue beat the reigning world champion of chess Garry Kasparov after a previously failed attempt.

Questions are at the heart of using chatGPT effectively

Whenever there is a new technology on the horizon, people get divided into adopters and scaremongers. With the advent of chatGPT and more broadly AI, both these groups have mushroomed.

Human history tells us that those who are able to best harness technology are the leaders of that generation. This is especially true in business and in politics. It is no wonder that those countries and companies which possess the best technology rule the world.

For investors, chatGPT has been a boon. The most important skill to use it is the ability to ask questions. Our questions need to be concise, precise, contextual and simple. And that is not something we are adept at. From childhood, our education system teaches us learning by rote. We are rarely asked, permitted or encouraged to question. And that is the skill that we most need to possess in the new era. So, encourage yourself and your next gen to be creative and fearless in asking questions. Because the better questions we ask the better answers we will get.

Don’t fear AI. Use it as a tech tool as your assistant.

The relentless march of AI

The field of Artificial Intelligence (AI) has progressed significantly over the last three decades. In the 1990s, AI technology progressed in the areas of rule-based systems, expert systems, and machine learning.

The following decade saw the emergence of AI applications across various industries, such as finance, healthcare, and security. The availability of big data and improved computing power led to the development of more complex machine learning models, such as deep learning models.

The 2010s saw rapid progress in several areas related to AI, such as natural language processing, computer vision, robotics, and reinforcement learning. The use of AI in practical applications also exploded, with the development of virtual assistants like Siri, Alexa, Ok Google, autonomous vehicles and personalized recommendation engines.

In 2011, IBM’s Watson computer won the TV quiz show “Jeopardy!”, beating two of the show’s greatest champions. This demonstrated the ability of AI to understand natural language and answer complex questions that previously was beyond the comprehension of machines. In 2012, Google’s DeepMind developed a deep neural network that was able to recognize images in a large dataset with unprecedented accuracy which was a significant advancement in computer vision. In another major breakthrough, in 2016, AlphaGo, a program developed by DeepMind, beat Lee Sedol, a world champion in the board game Go, in a five-game match. This marked a major milestone in AI’s ability to learn and improve from experience.

Using chatGPT

Just to give a glimpse of how I have started using chatGPT, let me share some things that I am doing.

• Summarise a long article – I tend to read a lot and this helps in getting a gist of some articles which I may not read completely. If I find the summary interesting then I might read the full piece.
• Elaborate and get references – I use chatGPT to get references and deep dives into any topic that I may be researching. This was possible earlier with Google search as well, but now I have started using MS Bing and it does a splendid job of integrating chatGPT and web search.
• Writing standard letters or email – All letters or emails to my son’s school or formal applications etc are now written with the aid of chatGPT and it saves precious time.

I am sure there are many other uses of chatGPT. If you are using it in any other way that you find effective, do let me know in your comments.

With chatGPT, a new dimension has opened up with large-scale man-machine-interaction. The potential of doing a natural language search and getting a cogent response from the computer has opened new opportunities for extensive usage. It is best to get used to it and use it to our advantage rather than be fearful of it.

This article first appeared in The Economic Times.

Note: The image in this post is generated by DALL-E.

[Girish_Kolari]

I happened to use ChatGPT and Google Bard for some time My one cent on my usage.

1. Summarizing web links: Web link read in ChatGPT summarise to see what key facts are there and if it has more connected detail Pass to Bard to explore and summarise with more details.
2. Learning new topics: Read about new topic learning for example Automatic Replenishment System(ARS) - you can keep asking for more information as you read I could learn a decent understanding of the subject. I did this using Bard.
3. Understanding quarterly reports: Quarterly report reading comes up with lot of new information it could be passed ChatGPT and Bard and understood more in no time. For example Baja-auto partnered with a UK company conversation I could understand the company its past sales and detail about the partnership.
4. Fact-checking - lot of time in social media or WhatsApp I get a lot of claims you could ask Bard to find out about it. It is very handy to get a better view. For example, Himachal pradesh no salary to employ is present CM or old BJP responsible.
5. Getting feedback on your writing: Ask to summarize your writing to see how it understand - is your point of view is put forward in unstable way.

Few details on my setup

• Chrome Google search plugin to search to have Bard and ChatGPT along the regular Google search.
• Browser plugin to weblink sumeriser for ChatGPT

[basumallick]

A lot of people keep asking how to follow any individual on VP. There is no direct way I know of. Here is a workaround I use.

I use Feedly as my RSS reader. To get the latest from specific users, I add

https://forum.valuepickr.com/u/<<user handle>>/activity

For example, for Hitesh’s posts, I use https://forum.valuepickr.com/u/hitesh2710/activity in my feed.

Hope this helps.

[basumallick]

Why investing in markets is like cooking

In a recent interview, value investor Bill Miller narrated an incident that happened right after the tech bubble burst in 2000. Bruce Greenwald, the famous professor at Columbia University’s Graduate School of Business and an authority on value investing, blasted Miller in a large public gathering.

This is what Miller had to say about the incident. “Bruce got up and proceeded to berate me and said I wasn’t a value investor. He didn’t know why I was even invited to that (the event). And anybody who could own Amazon didn’t know what they were doing. And he proceeded to explain to the whole audience about how Walmart will put Amazon totally out of business… And to Bruce’s credit, a few years later, (at the Columbia Business School’s annual) Graham and Dodd Breakfast, Bruce had to say this when Amazon really took off. There’s a lesson for this, which is, that when a professor tells you that something is not going to work based on his theories about how things work and a professional investor who’s got real money on the line takes the opposite position, go with the investor who’s got real money on the line.”

In another interview, Seth Klarman, another famous investor while discussing investing said that one can’t learn to ride a horse by watching a horse from a distance.

Becoming a Good Investor

These two help reinforce the idea that it is important to be a doer versus a talker in the markets. I have always said that the biggest determinant of investing success is psychology; no amount of reading books or learning from afar is going to help when the market circuits down or up.

If you want to become a good investor, the most important thing to do is to start practising and getting feedback from the market and keep refining your process. Another critical point is to follow those investors whose style gels with your own and who have demonstrated success over a reasonable period of time. It is best not to fall for glib talk from finfluencers on YouTube or the media. Talk is cheap. Sustained performance is what really matters. This is also one of the reasons why SEBI is nowadays cracking down on tipsters on social media. It is up to us to choose who to learn from. Today we have the opportunity to learn from many great and accomplished investors through podcasts, YouTube, blogs and of course books that there is no need to even look at finfluencers with no proven track record.

Investing is a lot like cooking, though slightly more complex and difficult. Think about cooking. You have a few ingredients and a process which is not fixed but depends on you, the cook. Most of the time the quantities of ingredients used would vary from day to day. The quality of the ingredients makes a difference to the dish and it is not always in your control. Just like studying about or watching MasterChef on TV will not help you cook like one, similarly reading Warren Buffett, Charlie Munger, Peter Lynch and others will not make you invest like them.

Investing is a lived skill, not a learned one. The availability of information today, especially on social media, is so much that people tend to get a feeling of expertise just by repeated exposure. However, this is not the same as actually investing and gaining experience.

Exactly Like Cooking

Always remember that you can’t be a great cook by reading one more cookbook or watching one more cookery show. You have to go to the kitchen and actually do it. And exactly like cooking, you can never say you have completely mastered cooking even if you are a master chef, because there are an infinite number of dishes and a culinary disaster is just one burnt pan away.

It is like if you watch a cookery show about making an omelette every day for six months. You might start to feel like an expert, but you may not even know how to light the gas stove. Making a great omelette is not easy. There are many factors to consider, such as how hot the oil should be, how much to beat the eggs, how much salt to add, how long to fry each side, and when to flip. None of this can be learned from watching videos. You need to live through it, experiment with it, and then slowly after a few times you will get a hang of it.

The same thing applies to investing. Repeated exposure to investment discussion provides an illusion of knowledge. However, investing is a “lived” skill. It is something that you learn by doing. The legendary trader Paul Tudor Jones once said, “This skill is not something that they teach in business school. I get very nervous about the retail investor, the average investor, because it’s really, really hard. If this was easy, if there was one formula, one way to do it, we’d all be zillionaires.”

So, if you want to be a successful investor, you need to get out there and start investing. You need to learn by doing. You need to make mistakes and learn from them. You need to experience the ups and downs of the market. Only then will you truly understand investing and be able to make sound investment decisions.

This article first appeared on Moneycontrol.

[basumallick]

Short notes on Li-ion batteries:

1. Lithium-ion batteries have revolutionized the world by powering smartphones, laptops, and wireless headphones.

2. Revenues from lithium-ion batteries are expected to increase to $700bn a year by 2035.

3. Invented in the 1970s and commercialized in 1991 by Sony, lithium-ion batteries are smaller and lighter than previous rechargeable batteries.

4. The global demand for lithium-ion batteries is expected to reach 280 GWh in 2025, up from 150 GWh in 2020.

5. The main challenges to the rollout of lithium-ion batteries are the high cost of the batteries ($100-200 per kWh) and the limited supply of lithium (about 80% of the world’s lithium reserves are located in China).

6. The environmental impact of mining lithium is also a concern, as it can pollute water resources and create dust storms.

7. The safety of lithium-ion batteries is another challenge, as they have been known to catch fire or explode.

8. Two main branches of lithium-ion tech are vying for supremacy: NMC and LFP.

9. NMC batteries are used in the majority of electric vehicles in the West due to their longer range.

10. LFP batteries are dominant in China due to their higher safety levels, lower cost, and manufacturing breakthroughs.

11. The cathode chemistry battle will affect the supply and demand of lithium, nickel, cobalt, and manganese.

12. Western start-ups and Korean battery makers are working to develop their own LFP technology.

13. The choice for the US and Europe represents the delicate balance between reducing reliance on China and maintaining access to competitive and affordable technologies.

[basumallick]

Some more data points on Lithium, this time focused on what China is doing

• Global lithium prices have decreased by over 50% in the first half of 2023.
• Chinese companies are investing heavily in domestic lithium sources to secure access to the metal for the energy transition.
• An auction for the Jiada Lithium Mine in China’s Sichuan province closed at about $580 million, 1,300 times its starting price.
• The auction for the Lijiagoubei Lithium Mine also closed at over 1,700 times the opening bid.
• China’s lithium-battery exports reached $26.7 billion in the first five months of 2023, a 66% increase from the previous year.
• Chinese companies are bidding intensely due to expectations of growing lithium battery demand.
• Geopolitical concerns drive bidding, as access to lithium reserves outside China may face pressure.
• Global lithium demand is forecasted to reach 1.5 million metric tons in 2028, up from 900,000 tons in the current year.
• China refines about 55% of the world’s lithium and has around 12% of the world’s lithium supply from domestic mines.
• China’s Ministry of Natural Resources plans to boost efforts to develop domestic mineral reserves.
• Economic transformation in lithium development due to rising demand for electric vehicles and energy storage.
• China’s domestic lithium rush could lead to a bust due to financing challenges and a lack of industry experience.
• Environmental concerns are significant, as soil degradation and water pollution could limit production growth.
• Beijing is addressing environmental impact through inspections and crackdowns on illegal mining and pollution.

[basumallick]

My learnings on room-temperature superconductors

• Physicists in South Korea claim to have identified a room-temperature, ambient-pressure superconductor called LK-99.
• Room-temperature superconductors could lead to significant technological advancements.
• They could make electricity transmission more efficient, improve electrical batteries, enable carbon-free nuclear fusion energy, and enhance quantum computing.
• Superconductors have zero resistance, perfect conductivity and have transition temperatures at which they become superconducting.
• LK-99’s emergence has generated excitement and revived interest in superconductors.
• Conduction refers to the ease with which a material carries electricity.
• Conductors have good conduction, while insulators resist electricity flow.
• Superconductors offer perfect conduction, which is remarkable.
• Existing superconductors require extreme cold or high pressure to work.
• Room-temperature superconductors eliminate the need for extreme conditions.
• Applications include more efficient energy storage, better nuclear fusion reactors, and improved quantum computing.
• Maglev trains and long-distance electricity transmission could benefit from superconductors.
• Superconducting Magnetic Energy Storage (SMES) offers efficient energy storage.
• LK-99’s existence is debated, with mixed evidence regarding its superconducting properties.
• Researchers globally are attempting to replicate LK-99’s claims, but scepticism remains.
• Room-temperature superconductors could bring about transformative changes in various industries.
• Even if LK-99 is not validated, the renewed focus on practical superconductors is valuable.

[prateekv]

This research has already been falsified. There have been numerous claims like this on room temp, ambient pressure superconductivity in past few years but upon reproduction by other scientists, it was found that the data was fabricated.

[basumallick]

https://www.nature.com/articles/d41586-023-02585-7

New updates

[basumallick]

Lessons from the investing trenches

Since I started investing in 2000, just before the dotcom bust, I have been following the long-term buy-and-hold method for investing. Over the last 23 years, a lot of my investing philosophy and style has changed. This change has been more because I keep observing what is working for me and what is not and I try to keep updating myself.

Let me try and document a few things that I have learned over the years.

1. Stocks are not forever

I was enamoured by Warren Buffett and naively believed everything that he said and was said about him. Over time I realised stocks are not forever, unless, of course, you inherit the business.

2. Be a fair-weather friend of a company

I am willing to partner with a company in its good times and happily part ways in its bad times. As a small investor, I think it is my right and privilege to do that. I can always buy back when the good times are back again.

3. Capital is sacrosanct. Don’t lose it.

Working hard and saving money to invest is not easy. A lot of delayed gratification and sacrifices need to be made along the way. Once capital is accumulated, you don’t want to lose a large part of it. No matter what. So I use stop losses. I know I don’t know everything about a company or an industry or what macro headwind might hit us tomorrow, so it is important to sell and protect my capital.

4. Have multiple strategies

I used to mainly invest in compounders. Over time I realised investing styles are also cyclical in nature. So, to be able to make money relatively consistently, you need to be able to adapt to different strategies. Being dogmatic about a particular style is good for sounding good but harmful for money-making.

Large-cap, mid-cap, small-cap, value, growth, dividend, quality etc. are all factors that work from time to time in the market. Your investment process needs to be flexible to use one or many factors.

5. Look for sustained momentum - both in business and price

The biggest money is made in a company which has business momentum. Think of HDFC Bank for its first 20 years, Bajaj Finance over the last decade, Astral, Asian Paints etc. These have been businesses with strong business momentum which resulted in strong and durable price momentum.

6. Price is the final adjudicator.

Whatever style of investing you follow and whatever is your time horizon, ultimately you will make money if you sell at a higher price than your buy price. If you invest in the greatest company in the world but the stock price does not move in ten years, it is a lousy investment.

7. Value is in the eye of the beholder

Valuation is a subjective exercise. It depends on the intrinsic value and the narrative value. The same stock can be valued by different investors at different levels even with the same input based on their own narratives.

Have a sense of valuation, don’t pay obscene value but also remember you good things are rarely cheap.

8. Get both fundamental and technical factors in your favour

Investing requires us to sift through lots of information to build conviction. Fundamentals tell us about the industry and company. Technicals tell us about the demand and supply in the market.

Saying one is a superior form of information to the other is simply foolish. It is all information. It is your job to be able to use it effectively.

9. Diversify across timeframes

If your inherent nature is to be a long-term investor, get help to capitalise on shorter-term opportunistic bets. If your natural inclination is to be a trader, do the same for your long-term investment portfolio.

I started doing quant-based systems and TechnoFunda mainly because I wanted to augment my long-term investing by capturing shorter-term trends. This has not only helped me have a much smoother return profile but also helped me tremendously in my coverage of stocks.

10. Psychology is the most important thing

The greatest determinant of investing returns is our own psychology. Oddly, I have found that the biggest challenge for most people is to “digest large gains”. Most people get very edgy when stocks start doing well. They want to sell and lock in their profits. Whereas when they are losing money they are okay to hold on because they hope that they will get their price back sometime.

The best investment as an investor is to work on one’s own psychology.

This article first appeared on moneycontrol.