Views on Life & on Equity Investing

Wonder, Wealth & Abundance

What is your excuse for not working hard – 2 ?

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Blind person working on a construction site, uses rope to carry bricks on his head.

 

 

Written by amitdipsite

December 31, 2018 at 4:53 am

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What is your excuse for not working hard?

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Written by amitdipsite

December 31, 2018 at 4:45 am

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Which version is correct?

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Few months back in a book that I forget the name of, I read that it took equity investors of 1929, using S&P yardstick, 25 years to break even, i.e until 1954 to make the money back they lost.

Today, I saw a PPT forwarded from someone a slide in which sort of contradicted the above assertion, that was presented by Samir, that S&P returns were ~4x during this period. The context of the presentation was equity as an asset class in comparison with other asset classes, that point was made appropriately. However, its another proof on how statistics can be deceptive.

Non-Inflation

Source: https://iaip.files.wordpress.com/2018/12/Presentation-by-Samir-Arora.pptx

In my previous post, Fooled By Charts, https://lifeandequities.wordpress.com/2018/12/25/fooled-by-charts-before-after/ I mentioned how unwise it is to assume that S&P delivered 300X in the previous century whereas, it actually returned ~17X only, and that, long term (multi-decade charts) should be

A) Inflation adjusted

B) Log scale adjusted

Here is that chart post adjustment.

Inflation-Adjusted

When you invest in frontier markets, you should not be impressed with the stocks that have been 10X in the previous decade, the reason being, there could have been an incidence of hyper or excess inflation in those economies, masking the real return.

Over the previous 148 years (1870 to 2018) S&P has returned 4% CAGR, adjusted for inflation or 25x, but if you do NOT adjust for inflation, the return vaults to 500X, a twenty fold multiple.

148 years s&p.JPG

 

 

http://www.elevendimension-funds.com/

http://www.equityadviser.in/

Please do your own due diligence and consult your investment adviser.

Written by amitdipsite

December 28, 2018 at 5:40 pm

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Fooled by charts: BEFORE / AFTER

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When you date a girl (BEFORE) and then get married (AFTER), the experience varies, its all good because you get exposed to your own shortcomings 🙂 necessary for your growth.

I have been deluded by the charts on two counts:

A) I thought that bear markets typically last 1/3rd of bull markets in duration.

B) I have also been convinced that stock market index returns 100 x over the life time of an individual.

Both the above statements are broadly correct but not if you try to probe further into them.

When you scrape a little deeper and try to find the adorable pancreas (or kidneys for that matter) under that pretty face, you can’t find, they aren’t adorable, beauty is skin deep 🙂

Once adjusted for:

A) Inflation

B) Use Log scale

The picture doesn’t look pretty as they show in BEFORE / AFTER advertisements. In fact, it has the reverse effect.

before_after

BEFORE Simple Dow Chart show 295x returns.

Dow was trading circa 71 in 1915 to 21000 today, WOW! 295X.

Who doesn’t want to make 295X or even more by ‘better than index’ stock picking. Punjabi might say SADKE JAWAN meaning I am in awe or breathtaking.

BEFORE_DOW

AFTER, let us look beneath the surface and gradually take the first layer off, lets adjust the chart log scale on Y axis, after all, earning 50$ on 500$ is not the same as earning 50$ on 50,000$.

DOW_LOG

AFTER, now adjust for inflation. Buying 1 Liter of milk in 1980 at 0.25 INR is not the same as buying it in 2018 for 70 INR. Returns from DOW are now a humble 11X over a 100 year period from 1915 (1700) to 2018 (21000). Looking this the enraged punjabi might say  KANJAR MARJAANEYA, FITTEMUH CHAPPED MAARAN? , meaning “you jerk (and other expressions that do not have an equivalent english counterpart) shall I slap you for deluding me with the first chart”.

DOW_Inflation

Inflation and Log adjusted Bear Market chart shows bear markets last a decade or longer every 10-20 years.

bear market

http://www.elevendimension-funds.com/

http://www.equityadviser.in/

Please do your own due diligence and consult your investment adviser.

Written by amitdipsite

December 25, 2018 at 3:38 am

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Quotes

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You know you’re winning when you’re happy for no reason. When you don’t attach your happiness to anything or anyone, you become free.

I hate to cancel. I know we made plans to get together tonight but that was 2 hours ago. I was younger then, full of hope. But now I’m tired.

Sometimes you simply need to talk to a 5 year old and an 85 year old to put your life back into perspective.

It’s ironic how you feel most alive when your heart skips a few beats.

Money can’t buy happiness but poverty can’t buy anything.

You cannot be lonely if you like the person you’re alone with.

We are all a little weird and crazy and life’s a little weird, and when we find someone whose weirdness and craziness is compatible with ours, we join up with them and fall in mutual weirdness and call it love.

Do your own thinking independently. Be the chess player, not the chess piece.

Whoever best describes a problem is the one most likely to solve it. To be able to ask a question clearly is two-thirds of the way to getting it answered.

To handle yourself, use your head; To handle others, use your heart.

Good girls are found on every corner of the earth but unfortunately the earth is round.

If at first you don’t succeed, destroy all evidence that you tried.

The risk I took was calculated but man, am I bad at math.

If you like me, then raise your hand, If not then raise your standard.

Well, enough about me. Let’s talk about you. What do you think about me?

Most men die at 27, we just bury them at 72.

Written by amitdipsite

December 24, 2018 at 1:53 am

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10x in 10 years

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A number of investors including myself (and Ramdeo Agarwal  mentioned in a couple of interviews) aim for a 10X in 10 years.

This is quite a tall order in any market. Passive investing reached maniacal proportions, with ETF market aggregating nearly 10 Trillion USD in 2018. 2018 has been negative for most asset classes.

There will have to be a reset of funds flow because the previous 10 years were aided by PE expansion.

Sensex India was trading at 1000 Levels in 1990, going by the 10X in 10 years, Sensex will have to be 1000,000 by 2020. (10,000 in 2000, 100,000 in 2010, 1000,000 in 2020).

No index is able to deliver such returns over the long term period. Few lucky companies, whose management also are not aware, deliver such outsized returns. Bill Gates thought that definition of success will be, having a company with 30-50 employees in one of the interviews.

Sensex India delivered 9% CAGR in the recent 4 years, starting 1 Jan 2015 from 27K to 35K today. Asking for 10X every decade requires more than hard work.

sensex

The best industries that are likely to generate maximum wealth, in my opinion, will be software, robotics, medicine and financial. That, however does not imply the best performing stocks will necessarily be from the above sectors.

I have tried to acquire equities and held stocks (and still holding) with an expectation that they could be 100X in 25 years, but its much worse growth rate (20%  CAGR)  in comparison to equities that could double in 3 years (26% CAGR). Which of the two groups is more appealing to me in any particular year depends on an equation comprising temperature in Timbuktu, wind speed in Sahara desert and humidity in Malaysia.

 

http://www.elevendimension-funds.com/

http://www.equityadviser.in/

Please do your own due diligence and consult your investment adviser.

Written by amitdipsite

December 23, 2018 at 5:25 am

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Bashing tech companies

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A number of tech companies are reviled off late, some of it quite justified.

In one of the previous posts (https://lifeandequities.wordpress.com/2018/08/23/social-media-in-our-life/) I shared some disturbing facts. The flow has not reduced, including a personal incident, that some others may also relate.

Facebook allowed Microsoft’s Bing search engine to see the names of virtually all Facebook users’ friends without consent, the records show, and gave Netflix and Spotify the ability to read Facebook users’ private messages.

Source: https://www.nytimes.com/2018/12/18/technology/facebook-privacy.html

In the previous post I mentioned Creepy = Relevant Ads

Facebook (app), Whatsapp (app) eavesdrop on the ambient noise, knows who you are talking to, under what context, for or against, all the time. Some conversations that I had recently for a brand of footwear (not a word was typed on any media, email for that brand of footwear), it was disturbing when a display Ad came up a day after the conversation. This is quite an innocuous example. Imagine every conversation an investment manager has around acquisition and sell off, what power that would give a tech company to the insider information. (Facebook might as well run a machine run Quant Fund based on eavesdropping).

From the previous post:

Solitary/Pack Switch

My working hypothesis has long been that there’s a switch deep in every human personality that can be set in one of two modes. We’re like wolves. We can either be solitary or members of a pack of wolves. I call this switch the Solitary/Pack switch.

When we’re solitary wolves, we’re more free. We’re cautious, but also capable of more joy. We think for ourselves, improvise, create. We scavenge, hunt, hide. We howl once in a while out of pure exuberance.

When we’re in a pack, interactions with others become the most important thing in the world. I don’t know how far that goes with wolves, but it’s dramatic in people. When people are locked in a competitive, hierarchical power structure, as in a corporation, they can lose sight of the reality of what they’re doing because the immediate power struggle looms larger than reality itself.

Scientific communities can also suffer from the switch being set to Pack. For instance, the theoretical physicist Lee Smolin documented how string theorists exerted mob rule for a while in the world of theoretical physics. The pattern is found whenever people form into groups. Street gangs perceive only pack concepts such as territory and revenge, even as they destroy their lives, families, and neighborhoods. The Pack setting of the switch makes you pay so much attention to your peers and enemies in the world of packs that you can become blind to what’s happening right in front of your face.

The switch in people should generally be kept in the Solitary Wolf position. Manias and economic bubbles are also caused by Pack position.

When people are solitary wolves, then each individual has access to slightly different information about the world, and slightly different ways of thinking about that information. I’ve been talking about the relationship between the Solitary setting and personal character, but there are other reasons to keep the switch in the Solitary position.

Jar candy Analogy

Consider a demonstration that is often enacted on the first day of business school. A professor shows a class a big jar of jelly beans and asks each person to estimate the number of beans. Averaging all the estimates usually results in a pretty accurate count. Each person brings different perspectives, cognitive styles, skills, and strategies to the mystery, and the average gets at the agreements between them. (This only works for single-number answers. If you ask a committee to design a product or write a novel, the result comes out like something made by a committee.)

Now suppose that the students could look at the jar only through photos in a social media feed. Different camps of people with different ideas about the number of beans would form and would ridicule each other. Russian intelligence services would add pictures of similar jars with different numbers of beans. Bean promoters would motivate trolls to argue that there aren’t enough beans and you must buy more. And so on. There would no longer be a way to guess the number of beans because the power of diversity will have been compromised. When that happens, markets can no longer offer utility to the world.

You can replace the jar with a political candidate, a product, or anything else.

 

Written by amitdipsite

December 22, 2018 at 3:06 pm

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