The Power Of Financial Independence

Here’s something that showed up on my Twitter timeline on India’s 75th Independence day.

THE POWER OF FINANCIAL INDEPENDENCE

Your savings, believe it or not, affect the way you stand, the way you walk, the tone of your voice. In short, your physical well-being and self-confidence.

A person without savings is always running. You must. You must take the first job offered, or nearly so. You sit nervously on life’s chairs because any small emergency throws you into the hands of others. Without savings, a person must be too grateful. Gratitude is a fine thing in its place. But a constant state of gratitude is a horrible place to live in.

A person with savings can walk tall. You may appraise opportunities in a relaxed way, have time for judicious estimates and not be rushed by economic necessity.

A person with savings can afford to resign from a job, if your principles so dictate. And for this reason you’ll never need to do so. A person who can afford to quit is much more useful to the company, and therefore more promotable. You can afford to give your company the benefits of your most candid judgments.

A person always concerned about necessities, such as food and rent, can’t afford to think in long-range career terms. You must dart to the most immediate opportunity for ready cash. Without savings, you will spend a lifetime of darting, dodging.

A person with savings can afford the wonderful privilege of being generous in family or neighborhood emergencies. You can take a level stare into the eyes of any one, a friend, a stranger or an enemy. It shapes your personality and character.

The ability to save has nothing to do with the size of income. Many high-income people, who spend it all, are on a treadmill, darting through life like minnows.

The dean of American bankers, J.P. Morgan, once advised a young broker, “Take waste out of your spending: you’ll drive the haste out of your life.”

Will Rogers put it this way, “I’d rather have the company of a janitor, living on what he earned last year… than an actor spending what he’ll earn next year.”

If you don’t need money for college, a home or retirement then save for self-confidence. The state of your savings does have a lot to do with how tall you walk.

(From an advertisement in the 60s, edited to make it gender neutral)

https://twitter.com/aerogeek/status/1559222096445984768

Happy Independence Day 🇮🇳 !!

The Power of Financial Independence!!

One of our most favourite pages on financial independence 👇 pic.twitter.com/fY1OUiH9wd

— 1 Page Finance 📄 (@1PageFinance) August 15, 2022

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Rakesh Jhunjhunwala story in his own words

The long weekend that just went by started with a sad news. Rakesh Jhunjunwala is no more.

He was an eternal optimist on India. And this is what I liked about him.

Here’s a story of Rakesh Jhunjhunwala in his own words.

A must watch for everyone, even if you have the least interest in investing and stocks.

Follow the Owner, Not the Dog

Recently saw this excellent post on my Twitter feed. Loved it. So true. I will admit I have been following the dog in the first few years of my investing journey.

What do you think? Does this resonate with you?

Some related posts

Investing in a Nutshell

Saw this on twitter and this explains a view that takes a decade to assimilate. It certainly took that much time for me.

Will Tech Giants of Today Last?

In a recent Daily Journal Annual Meeting, Charlie Munger was asked

Question: Do the great tech giant franchises of our day, specifically Microsoft, Apple, and Alphabet, have the same long-term durability that Coca-Cola had 30 to 40 years ago?

Charlie Munger: It’s a lot easier to predict who flourished in the past because we know what happened in the past. But now I want to compare what’s gonna happen in the future. Of course, that’s harder.

It’s very hard for me to imagine—that doesn’t mean it couldn’t happen—but I would expect Microsoft, Apple, and Alphabet to be strong 50 years from now—really strong, still strong. But if you’d asked me when I was young what was gonna happen to the department stores that went broke or the newspapers which were broke, and so on, I wouldn’t have predicted that either. I think it’s hard to predict how your world is going to change if you’re going to talk about 70, 80, 90 years.

Just imagine, they wiped out the shareholders of General Motors, they wiped out the shareholders at Kodak. Who in the hell would have predicted that? This technological change can destroy a lot of people. It’s hard to predict for sure in advance.

IPO

From ET

This year Indian equity market saw launch of numerous number of IPO’s. From zomato to cartrade, its raining IPO.

I am part of a couple of whatsapp group whose name has stock in them. Most started by relatives and friends. So whenever there is a new IPO, these groups buzz like a bee.

And almost every time someone or other will ask each others opinion on an IPO, my standard response is to point them to 1993’s annual letter written by Warren Buffet.

An intelligent investor in common stocks will do better in the secondary market than he will do buying new issues…[IPO] market is ruled by controlling stockholders and corporations, who can usually select the timing of offerings or, if the market looks unfavourable, can avoid an offering altogether.

Understandably, these sellers are not going to offer any bargains, either by way of public offering or in a negotiated transaction.

It’s almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors).

Warren Buffet in 1993 Annual Report

Read the entire 1993 Annual report here

Investing is like….

I agree with this and have expressed similar sentiment in being a gardener.

Investing is like planting an orchard

In the beginning, it’s all effort with nothing to show

After a few years, fruit starts to appear

After 10 years, you are reliably producing fruit

After 30 years, you’re producing more fruit than your family could eat in a lifetime

brianferoldi on twitter

An Interesting Investing Story

Everyone knows the investing duo of Warren Buffett and Charlie Munger. But 40 years ago there was a third member, Rick Guerin. The three made investments together. Then Rick kind of disappeared while Warren and Charlie became the most famous investors of all time.

A few years ago hedge fund manager Mohnish Pabrai asked Buffett what happened. Rick, Buffett explained, was highly leveraged and got hit with margin calls in the 1970s bear market.

Buffett told Pabrai:

Charlie and I always knew that we would become incredibly wealthy. We were not in a hurry to get wealthy; we knew it would happen. Rick was just as smart as us, but he was in a hurry.

via collaborativefund

If you are looking for investing book to read, I highly recommend starting with The Psychology of Money by Morgan Housel.

Reinforcement

Was reading an investing book and came up with this note on reinforcement from Charlie Munger.

All human beings work better when they get what psychologists call reinforcement. If you get constant rewards, even if you’re Warren Buffett, you’ll respond – and few things give more rewards than being a great investor. The money comes in, people look up to you and maybe some even envy you. And if you buy a whole lot of operating businesses and they win a lot of admiration, there’s a lot of reinforcement.

Learn from this and find out how to prosper by reinforcing the people who are close to you. If you want to be happy in marriage, try to improve yourself as a spouse, not change your spouse. Warren has known this from an early age and it’s helped him a lot. ­

Wesco Annual Meeting Notes 2007

Zigs and Zags

The markets are all time high, despite the situation on the ground. Take any stock portfolio and you will see high returns.

I receive at least one call from my acquaintance on investing in stocks. When the markets are booming like, everyone wants to join in. No one wants to be left behind.

I am not immune to these behaviors. I am looking at my portfolio more often than I should. Have read and clicked on news articles of stock more than I did last year.

I like revisiting the books on investing to stay grounded.

Legendary investor Warren Buffett has this aphorism: My favorite holding period is forever. If we think this way, never planning to sell, we force ourselves to value stocks based on the cash they generate, instead of being distracted by guesses about future prices.

A Buffett variation on this theme is, I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years. If we think this way, we stop speculating about zigs and zags in stock prices and focus on the cash generated by the money machine.

The idea is simple and powerful, but often elusive. It is very hard to buy a stock without looking at what its price has been in the past and thinking about what its price might be in the future. It is very hard to think about waiting patiently for cash to accumulate when it is so tempting to think about making a quick killing by flipping stocks.

From the book Money Machine by Gary Smith

You can learn everyday, but you can’t act everyday….

Stumbled upon this video from the recomeneding gods of youtube. Applies not only to investing but to other things in life.

You can learn everyday, but you can’t act everyday…. – Warren Buffett

Quarterly Results Analysis with Python

Every quarter when results come out, I spend sufficient hours looking at the financial results of the stocks I am tracking to elicit nagging comments from my better half. So developed this simple python script which does the analysis and generates me the PDF which I email to myself to look at during office commute.

The code as always is available at my github page here.

Some sample plots

Intend to update the scripts for other analysis as and when I get some time.

Biggest Economics Stimulus ever in India

If you are into investing or even if you are not, here’s a lucid explanation of what might be the effects of the demonetisation move of PM Modi.

Ten minutes worth spending..

6 Initial Plots for Investing

Here are 6 initial plots that I create for  any business I am looking at as a stock investors.

Capital History

 

Average of Reported Net Profit and Cash Flow from Operations

Value of Each Rupee Invested Back in Business

Growth

 

Expenses

Key Drivers

 

Great Strength

As Elbert Hubbard said “It does not take much strength to do things, but it requires great strength to decide on what to do”.
Similarly in equity investing, it does not take much to trade, but it requires a great strength and patience to decide on what and when to trade.

It’s there to serve you, not to guide you

  
My colleague is a hard core trader. He intellectually understands the Gardner mentality to investing but doesn’t believes in it.
Most of his investing is based on momentum and he trades on news. 

With the recent crush his trades like many have decreased and he is daily looking at the market movement trying to guess if it will rebound or see a new lower bottom. 

Today as we were discussing markets, got reminded of the following Berkshire letter of 1987 about market. 

From: 1987 letter 
Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains.

At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.

Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

Ben’s Mr. Market allegory may seem out-of-date in today’s investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins”?

The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben’s Mr. Market concept firmly in mind.

Following Ben’s teachings, Charlie and I let our marketable equities tell us by their operating results – not by their daily, or even yearly, price quotations – whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it. As Ben said: “In the short run, the market is a voting machine but in the long run it is a weighing machine.” The speed at which a business’s success is recognized, furthermore, is not that important as long as the company’s intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.

Living With The Black Swan

 

From about 2000 years, in many European languages, a black swan was a metaphor for something that was clearly impossible. And then black swans were found in Australia. So a black swan became a metaphor for a completely unexpected event actually occurs, one we had not imagined was impossible. Black swans appear regularly – Skype, iPhone, the Cloud…. If a black swan landed in your marketplace, would you recognize it? Most companies don’t. It’s no coincidence that the average age of companies – big companies – is falling fast, at the same time that black swan events are increasing.

You never see black swans coming – you have to be ready to respond when they arrive. 

This talk is about the kind of thinking and organizational structure that can help you live successfully with the black swans. It is about how to build an innovative, responsive, enduring organization

Goes well with this post on antifragile.

On Seeing Value….

  
So True…..and I am not just talking about investing!!!