Behind The Curtains – A Candid Conversation With Ravichand, Stock and Ladder

Behind The Curtains - Stock and Ladder

 

Ravi is an Individual Investor, Investment Blogger, and an Avid Reader who is passionately following and investing in the Indian Markets since 1998. He believes in owning a concentrated portfolio of truly outstanding companies (run by honest management) acquired at a fair price. He blogs at Stockandladder.com and actively tweets @stocknladdr

 

Let’s get some insights about his investing journey

 

Dhruv Girdhar, RichifyMeClub: Hello Ravi! First of all, I would like to thank you for taking the time out of your hectic timetable and penning down your thoughts. Behind the Curtains is an initiative by RichifyMeClub to share the insights of the investing journeys of Mentors, Investors and Role Models. Undoubtedly, our readers will acquire a lot of wisdom after reading your story. Please tell us about your investing background and experience. When and how did you start Stock and Ladder? How did the idea really come up?

Ravichand, Stock and Ladder: Thank you, Dhruv. I am humbled and honored for this invite to share my thoughts on investing with your readers.

 

Charlie Munger wisely said, “Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day”.

 

These prophetic words of Munger had a very deep influence on me. I decided that every day I would strive to be a little better and wiser than I was when I woke up. You could be a teacher, scientist, doctor, engineer; continuous learning is a pre-requisite for success in any field including investing. The blog has become my virtual classroom where I can do all that Munger has said of being a lifelong self-learner, voracious reader and trying to get better without actually paying any tuition fees.

 

Besides, you may have all the ideas flying in your head. But the moment you try putting ink to the paper and actually pen down your thoughts is when the clarity or the lack of it emerges. As Buffett said, “There is nothing like writing to force you to think and get your thoughts straight”. Writing on Stock and Ladder makes me crystalize my thoughts. I would strongly recommend everyone to write even if it’s just for yourself.

 

Self- improvement aside, my efforts in writing had a slightly larger objective. Again quoting Munger “The best thing a human being can do is to help another human being know more”

 

During my investing journey of 20 years, I came across my friends and family indulging in what I believe to be “unsound and financially detrimental” investing practices. Let me list down a few of them and I am sure you will be able to relate with many of these:

 

  • Trying to get rich very quickly (if possible by this weekend, can’t wait for months, forget years)
  • Talking to friends, brokers and other investors soliciting “Hot Tips” on where to invest
  • Making Investing decisions by reading analyst reports instead of annual reports
  • Trading frequently (buying & selling) with a short-term perspective ensuring that your broker retires rich
  • Believing blindly what the market ‘experts’ and ‘pundits’ publicly predict on media. (While surfing channels, I even happened to catch a show where an astrologer was predicting how the market will move the next day. Can you beat that?)
  • Adopting a herd mentality and religiously follow the crowd like a deer in the plains of Serengeti

 

The list is just the tip of the iceberg and a complete list can be a blog post in itself. In many cases what I found on questioning was that the investors were actually unaware of sound and prudent investing practices. I wished to do something about this.

 

Seth Klarman in the introduction to his seminal book, Margin of Safety, said on why he wrote the book:

 

The truth is, I am pained by the disastrous investment results experienced by great numbers of unsophisticated or undisciplined investors. If I can persuade just a few of them to avoid dangerous investment strategies and adopt sound ones that are designed to preserve and maintain their hard-earned capital, I will be satisfied. If I should have a wider influence on investor behavior, then I would gladly pay the price of a modest diminution in my own investment returns.”

 

I cannot think of putting this better!!!

 

I am humble enough to know that I am no Seth Klarman to influence millions but if I can positively impact even a few handfuls of investors and dissuade them from unsound investing practices then I will consider it as mission accomplished for Stock and Ladder.

 

Additionally, as the tagline of my website says “Simplifying Stock Market Investing”, I wanted to present the content in a simple language without any references to Greek symbols and complex mathematical equations. A language which can be easily understood by the readers.

 

The appreciations, positive feedbacks, love and support I am receiving makes me believe that I may be on the right path. But yeah, the journey has only just begun and there is a very long way to go.

 

 

Dhruv Girdhar, RichifyMeClub:  That’s amazing, Ravi. I am sure that the investing practices that you have shared will help our readers immensely. Moving ahead, what have been your key learnings while practicing investing in the markets?

Ravichand, Stock and Ladder: The field of investing is like an ocean. As you stand on the shores, you see up to the horizon; but there is a vast expanse much beyond of what you can actually see. Similarly in investing; the more you know, the more you’ll realize that you need to know more.

 

Everything in life including investing teaches you a lesson. You just have to be willing to learn. Every day, Mr. Market (Master) is happy to teach you a new lesson but we as investors (Students) should be willing to learn the lessons and more importantly, act on the lessons learned.

 

As Brian Herbert said,

 

“The capacity to learn is a gift;

The ability to learn is a skill;

The willingness to learn is a choice”

 

Let me share my few key learnings beyond the obvious like Invest within your circle of competence, Always seek a margin of safety, Invest but do not speculate….

 

1. Management matters a lot

On the qualities to look for in a person, Buffett said “Look for 3 things in a person – Intelligence, Energy & Integrity. If they don’t have the last one, don’t bother with the first two”. On similar lines, an investor is best served by investing in companies that are run by competent and honest management with an impeccable track record on integrity.

 

An investor must realize that they are mostly part of the outsiders or minority shareholders and the management as the insiders have a large influence on the actual returns a shareholder will eventually enjoy. Dishonest management, creative accountants, siphoning of funds, management involved in insider trading, poor corporate governance standards are not pieces of imagination and stock market history is replete with many such examples.

 

The ending of such investing stories like Satyam is really a painful one for an individual investor. For a happy ending, the odds are much better if you choose to invest in companies that are run by honest and competent management

 

Forget Satyam, let me give you a recent example. Vakrangee Software until very recently was a darling of Dalal Street. It has been a stellar performer (multi-bagger) for many years with lots of media coverage. In less than six months, the stock has fallen 90% as its auditors quit citing concerns about the books of accounts and corporate governance. Earlier, this company was also under investigation from the regulator in 2012 for alleged insider trading.

 

vakrangee

Image: Vakrangee Software, Source: Google

 

The point here is that irrespective of the returns (multi-bagger) a scrip is delivering, management integrity and corporate governance matters a lot for an individual investor. When you can’t be certain about the integrity and honesty of the management, investors are better served by giving the scrip a pass and watching the party from the sidelines.

 

And it’s not just Vakrangee. Gitanjali Gems, Shilpi Cables, Manpasand Beverages are few of the companies where the management honesty has been questioned. In 2018, after the appointment of National Financial Reporting Authority (NFRA) as the new regulator for auditing & accounting standards of listed companies, more than 30 auditors have quit quoting the lack of information from management.

 

The Lesson: Hitch your wagon and investing journey to companies that are run by honest management with a proven track record for impeccable integrity. Avoid those companies which are run by management whose integrity, transparency and corporate governance standards are questionable or you are uncertain of.

 

2. Compounding works best with outstanding companies

Albert Einstein famously said that “Compounding is the 8th wonder of the world”. Investing in mediocre or good companies is like speed dating or having a romantic one night stand. The fun may last for a short time but after that, you are left to regret. On the other hand, investing in outstanding companies is like a traditional Indian marriage. You are in it for the long haul through the various ups and downs. Actually, the party never ends and. It gets better with time.

 

Ignore the hindsight bias and take a look at outstanding companies across industries, markets, and countries. They have a history of rewarding investors handsomely. One such example of an outstanding company is HDFC Bank

 

3. Keep your Gun always loaded

“When it’s raining gold, reach for a bucket, not a thimble” – Warren Buffett.

To reach out for a large bucket and not a thumb-sized tumbler when an opportunity presents itself, we must have sufficient capital ready to be deployed at short notice. If you are 100% invested then we may not be able to seize the opportunity timely with both hands.

 

I find this happening regularly while speaking to friends:

 

Me: Why don’t you have a look at X scrip, I think it’s a good value and a screaming buy?

Friend: Sorry Ravi. I don’t have any money right now. Next month, I may get a bonus. Will see then.

 

Mr. Market will not toss the opportunities as per your cash flow position. Always maintain a certain percentage of your investment capital as surplus which may be deployed when an opportunity strikes. I have learned this lesson the hard way. Let me share a personal example:

 

It was the year 2010 and in November, CBI arrested the then MD of LIC Housing Finance for indulging in some financial scam. The share price tanked from 280 to 150 in a matter of a few days. Clearly, the market was over-reacting as the fraud amount was relatively meager and the company was backed by the largest Indian Insurance company, LIC.

As expected the scrip bounced back spectacularly and swiftly within two months.

 

Source: Moneycontrol

 

I knew that it was a screaming buy but did not have any surplus to deploy. I had the opportunity to make 25% in just 2 months but didn’t have the desired cash. This is one such example and I am sure you will be able to relate to many more.

 

Lessons are useful only if we are ready to apply the learnings. In my case, I immediately set out to create a corpus (around 25% of my capital) to seize future opportunities and I diligently replenish it whenever it gets deployed. When the government announced the Demonetization move (out of the blue) in November 2016 and the banking stocks got hammered; I gleefully picked up HDFC Bank at sub-1000 levels. Today, it’s quoting over 2000.

 

Few other important lessons:

 

  • Do not be too rigid with the target price. For example, you decide to buy a scrip at a target price of INR 450. You should have a range of values and not an absolute value. The scrip may come down to 455 but may never actually reach 450 in your lifetime. You would not want to miss a great opportunity trying to save a few pennies.
  • Try maintaining an equanimity. Neither get too elated when you make large profits nor be too sad when you take a loss.
  • An ounce of action is worth tons of theory. You can read all the investing material in the world but if you cannot act and apply the learnings when the opportunity arises then all the reading is useless for wealth creation.
  • Doing the rigorous analysis and then deciding NOT to invest is also an act of active investing. Wait patiently for a “fat pitch in your zone”.
  • Good ideas are a premium and you are perfectly entitled to keep it within yourself. Having said that it would be wonderful to have a selfless, genuine friend/colleague (not idea stealers) as a sounding board for your ideas who will give honest feedback
  • Unless required legally, never discuss or disclose your portfolio publicly. A lot of effort goes in justifying your rationale in the future
  • If someone approaches you for a stock recommendation, politely refuse. In case the individual is genuine then spend some time / guide the person to learn to pick stocks by themselves. As a popular saying goes “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime”

 

 

Dhruv Girdhar, RichifyMeClub: You have made a valid point that one should always set aside a certain amount of surplus and deploy it when required. Moving ahead, every investor draws inspiration from a Guru or Mentor like Warren Buffett, Peter Lynch. Who has been your inspiration when it comes to investing? 

Ravichand, Stock and Ladder: Studying all the great investors like Warren Buffett, Charlie Munger, Ben Graham, Peter Lynch, and Seth Klarman has been extremely valuable. All of them have inspired and enlightened me with their investing wisdom.

 

German mambo and Jazz singer Lou Bega sang a popular hit number “Mambo No.5”. I will Paraphrase the song’s lyrics to answer your question:

 

A little bit of “Buffett” in my life, A little bit of “Munger” by my side,
A little bit of “Graham” is all I need, A little bit of “Fisher” is what I see,
A little bit of “Lynch” in the sun, A little bit of ……………..

 

If you have a look at the List of World’s Richest People, the top ones are all businessmen. Be it Jeff Bezos, Bill Gates, Mark Zuckerberg or Carlos Slim; the only exception being Warren Buffett. Buffett amassed his fortune of $84 Billion solely by investing. For me, this is truly awe-inspiring and shows the enormous potential of wealth creation through intelligent investing. Becoming a Billionaire through investing may turn out to be a little bit stretched but I won’t complain if I end up only being a Millionaire.

 

My biggest takeaway from Munger is the idea of building a Lattice Work of Mental Models for intelligent decision making. Let me phrase it in his own words:

 

Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience both vicarious and direct on this latticework of models. And the models have to come from multiple disciplines because all the wisdom of the world is not to be found in one little academic department.”

 

Graham helped me realize the very essence of intelligent investing – Price is what you pay, Value is what you get.

 

Seth Klarman engrained in me the concept of “Margin of Safety”.

 

In a David Vs Goliath battle between individual investors and fund managers with deep pockets, Peter Lynch inspired the individual investor like me to practice “Investing in what you know” and made me believe that I actually have a chance of spotting the “ten-baggers” much earlier than the big boys.

 

Having said this, the biggest influence and inspiration to my investing thought process has been Philip Fisher.

 

I will list down 5 of his investing gems (in no particular order) which has had a profound impact on my investment thinking:

 

  • I don’t want a lot of good investments; I want a few outstanding ones. In the field of common stocks, a little bit of a great many can never be more than a poor substitute for a few of the outstanding. [The] greatest investment reward comes to those who by good luck or good sense find the occasional company that over the years can grow in sales and profits far more than the industry as a whole.
  • It is not the profit margins of the past but those of the future that are basically important to the investor. Investors’ best stay away from low profit-margin or marginal companies.
  • Go to five companies in an industry, ask each of them intelligent questions about the points of strength and weakness of the other four, and nine times out of ten a surprisingly detailed and accurate picture of all five will emerge (Scuttlebutt).
  • Don’t overstress diversification. Investors have been so oversold on diversification that fears of having too many eggs in one basket has caused them to put far too little into companies they thoroughly know and far too much in others which they know nothing about. Usually, a very long list of securities is not a sign of the brilliant investor, but of one who is unsure of himself.
  • Regardless of how high the rating may be in all other matters, however, if there is a serious question of the lack of a strong management sense of trusteeship for stockholders, the investor should never seriously consider participating in such an enterprise.

 

To summarize, studying successful investors is an education in itself and each one of them influenced my thinking. Philip Fisher, a little more.

 

Charlie Munger put it best when he said “I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.”

 

 

Dhruv Girdhar, RichifyMeClub: You have rightly said that a lot can be learned from the living legends. So, how do you pick stocks? Is it based on some calculation like DCF Analysis or you follow any trend?

Ravichand, Stock and Ladder: During my stint in a B-school, I too was fed the staple diet of Balance Sheet Models, Dividend Discount Models, Free Cash Flow models, Residual Income Methods, Relative Valuation Concepts, Ratio Analysis etc. for equity valuations and picking stocks. However, over a period of time, I have realized that these mathematical programs and formulae are just one of the many criteria’s of stock selection. Yes, accounting is the language of the business and one needs to know how to value a business. However, as Peter Lynch has put it beautifully “Investing is an art, not a science, and people who have been trained rigidly quantify have a big disadvantage”

 

My Formula for picking stocks = My investing Checklist + “Gut”

 

My checklist consists of my investing criteria’s (including the various valuation metrics used) to help me make the stock selection. It keeps evolving over time and there is a regular tweaking of the criteria’s. You may say, this is the easiest part (partly mathematical).

 

Broadly, I follow what I have named as the “8M Model. (I am not getting into the details under each component as this deserves a separate post in itself)

 

Components of the 8M model for stock selection

 

  • Management QualityCompetent, Honest and Trustworthy Management  
  • Margin of SafetyAdequate margin based on valuation models
  • MoatsA sustainable competitive advantage
  • Market ShareA sustainable and significant market share
  • MarginsWorthwhile profit margins
  • Marginal LeverageMinimum debt in the balance sheet
  • Minimum Government / Regulatory interference
  • Minor Capex requirements on a regular basis

 

The most important criterion is what I call “Gut”. By Gut, I refer to the non-quantifiable aspects/your inner voice/your sixth sense which gives you either a positive or negative feeling after considering all the items in your investing checklist. All your mental models, your investment readings and your actual stock market experiences combine and accumulate over time to form the “Art” part of stock selection which helps you make the final investing call.

 

Having said that the criteria’s are not set in stone and may need to be adapted based on each individual scrip. Munger put it best:

 

“You need a different checklist and different mental models for different companies. I can never make it easy by saying, ‘Here are three things.’ You have to derive it yourself to ingrain it in your head for the rest of your life.”

 

 

Dhruv Girdhar, RichifyMeClub: Wow! You have clearly differentiated between Investing as an Art and Science. What is the best investment advice that you have ever received?

Ravichand, Stock and Ladder: As per me, the best advice on investing was delivered via Phil Fishers’ seminal book: Common stocks and Uncommon Profits.

 

In the field of common stocks, a little bit of a great many can never be more than a poor substitute for a few of the outstanding.”

 

This advice struck a deep chord in me and like a powerful magnet, I was attracted to this. Until then I was seeking “good” companies. Actually, the difference between good and outstanding is huge. Consider Axis Bank/ICICI Bank vs. HDFC bank.

 

Why go for the best?

 

Outstanding companies usually have a good market share, decent margins, and run by a competent management with an impeccable corporate governance standard. These metrics ensure that the truly wonderful companies are resilient to competition and enjoy some form of the moat (Network, Brand, Patent etc.). Furthermore,

 

  • Neither I need to check the share prices every day nor do I experience the butterflies in my stomach before the results date. Hence, I get a sound sleep at night without worrying much about the markets
  • There is a limited turnover (buying and selling) and hence, lower brokerage
  • As an individual investor, I am able to leverage the edge I have over professional fund managers i.e. the ability to invest for the long term. Time is a good friend of wonderful companies and compounding can cast its magic (over 10 years), only if it’s not interrupted in the shorter durations
  • There is a better chance of filtering out the noise and sticking with the company as the conviction is based on a thorough understanding of the company

 

I am in no way saying that this is the best or the only investing strategy which works. By nature, I have loads of patience and more than willing to play the waiting game. This advice helped me invest based on my strengths, temperament and investing objectives.

 

 

Dhruv Girdhar, RichifyMeClub: That’s wonderful Ravi. You have said it right that Time is a good friend of wonderful companies. Besides, many of us during our journey commit some mistakes. What mistakes made you realize that you really needed to change the way you invested?

Ravichand, Stock and Ladder: Around 2007-08, I got really interested in a company when it seemed that the whole market was also interested in it. I invested in Suzlon shares and picked up 1000 shares at an average price of 320 (PE above 25).

 

Image Source: Google

 

Within months of my purchase, bad news started flowing in that counter: The wind blades started cracking, debt started mounting and promoters started pledging their shares. The scrip quickly became a falling knife with 52-week lows being set virtually every trading day. I finally exited the counter and sold my shares at an average price of around 180 incurring a 50% loss.

 

Robert Kiyosaki quipped on mistakes “There’s a bit of hidden magic in every mistake. The magic is called learning”

 

This mistake was my fees to learn to invest better in the open university of Mr. Market. I went back to my textbooks; read Lynch, Fisher, Buffett and other legendary investors; reflected and introspected on the way I invested. I attribute a large part of the investor I am today to this “learning experience”.

 

Here are my few key learnings:

 

I consider this mistake as a “classic” and a perfect case study on how NOT to invest. My catalog of mistakes from this single investing catastrophe:

 

1. Investing outside my circle of competence

There are all kinds of businesses that Charlie and I don’t understand, but that doesn’t cause us to stay up at night. It just means we go on to the next one, and that’s what the individual investor should do” – Buffett

 

I knew very little about wind power technologies, the business model and intricacies in the wind energy industry, the competitive landscape among other things. I never knew the wind blades might crack, there is a real risk that the local governments may withdraw subsidies or even worse than other forms of alternative energy like solar power may be promoted. My investment in Suzlon was clearly a case of an investment done outside my circle of competence and I paid a price for that mistake.

 

2. Reading analyst reports instead of annual reports

Jim Rogers said on the best advice he ever got – “If you get interested in a company and you read the annual report, he said, you will have done more than 98% of the people on Wall Street. And if you read the footnotes in the annual report you will have done more than 100% of the people on Wall Street.”

 

I vividly remember reading a beautifully worded and extremely well-articulated analyst report which pushed the “Green Energy” theme. The investing rationale was so convincing that I missed doing my independent analysis or at least looking up at the annual accounts. Even a cursory glance would have revealed the mountain of debt being piled up in the balance sheet. Blindly following the analyst report and not backing it up with my own independent analysis by reading the annual reports proved costly.

 

3. Failure to cut my losses quickly

John Maynard Keynes has nicely put it up – “When the facts change, I change my mind. What do you do, Sir?”

 

Every investment decision made may not pan out as originally conceived due to multiple factors. Great investors are responsive to change and possess a key skill called “Flexible thinking” or “Cognitive Flexibility” required to be successful in today’s dynamic investing environment.

 

Clinging on to the losers backed by only “hope” and a failure to cut losses quickly can be disastrous for your investment returns. I learned this the hard way. From the highs of INR 350 at which I had invested, the scrip is today languishing at INR 8. When the facts changed for Suzlon I did not objectively assess the situation and cut my losses quickly resulting in a 50% loss.

 

4. Always insist on Margin of Safety

An “appropriate” margin of safety is essential which is a cardinal principle of intelligent investing. Irrespective of the quality of the business, always insist on a margin of safety. When Buffett said it’s better to pay a “fair” price for a wonderful business, I had totally messed up the concept in my mind. The word here is “fair” and not exorbitant.

 

When I invested in Suzlon, it was trading at a rich valuation of 25 PE (For simplicity sake I have used PE). Where is the margin of safety here?

 

Dalai Lama XIV said it beautifully “Remember that sometimes not getting what you want is a wonderful stroke of luck.” I cannot agree more. This mistake and the subsequent loss of capital gave me many valuable lessons and has made me a relatively better investor today. I am actually happy to have made that mistake.

 
Dhruv Girdhar, RichifyMeClub: These are some wonderful learnings which come through rich experience. Glad that you have shared them candidly with our readers. Moving ahead, how have you transformed your investing strategy since the day you started investing?

Ravichand, Stock and Ladder: Aristotle said: “Knowing yourself is the beginning of all wisdom”.

 

Let me give you a cricketing analogy. Virender Sehwag and Rahul Dravid are both successful cricketers but with completely different temperament. If you bowl 10 dot balls consequently to both of them, the reactions from both of them will be as distinct as chalk and cheese. Sehwag will become edgy and may try some risky shot to move out of strike whereas Dravid will still be Mr. Cool and may actually defend the 11th ball too.

 

On similar lines, I have realized that your mental makeup and temperament play a huge role in adopting an investing strategy which is applicable to you. If by nature you are a risk-averse, scared of taking losses, anxious and excitable then an active trading strategy may not be appropriate for you.

 

20 years is fairly a long time and over the course of time, my investing philosophy too has evolved. Until 2008, before I committed the Suzlon blunder, I was a different kind of investor. Suzlon blunder made me go back to the drawing board. I read up the wisdom of great investors which made me introspect my strengths and weakness, my circle of competence and eventually helped me devise a strategy which played strictly to my strengths and my temperament.

 

Three pearls of wisdom which greatly influenced my investing strategy:

 

In the field of common stocks, a little bit of a great many can never be more than a poor substitute for a few of the outstanding.” – Philip Fisher

 

To me, it’s obvious that the winner has to bet very selectively. It’s been obvious to me since very early in life. I don’t know why it’s not obvious to very many other people” – Charlie Munger

 

The difference between successful people and really successful people is that really successful people say no to almost everything” – Warren Buffett

 

If I were to put my investing strategy in one sentence then it would be:

 

“I seek to invest in truly outstanding companies that are run by competent and honest management at a ‘fair’ price with a long-term horizon in mind so that compounding can hopefully work its magic”.

 

As a consequence:

 

  • I run an extremely concentrated portfolio and currently, the number of stocks in my portfolio (and for a very long time now) is in single digits. Finding truly outstanding companies is extremely hard as Fisher has put it “Practical investors usually learn their problem is finding enough outstanding investments, rather than choosing among too many”. Besides, diversification is a risk mitigation strategy to preserve your wealth and if you actually know what you are investing in then concentration builds wealth
  • I invest for the very long term (over 5 year’s horizon). I have realized that for compounding to work its magic, we need to give it sufficient time
  • Again related to the above points, the number of trades I do in a year can be counted on my fingers. Feverish activity is the enemy of investment returns. My stock broker is not a happy man

 

 

Dhruv Girdhar, RichifyMeClub: That’s a sound advice that concentrated investing builds wealth over a long period of time. Ravi, there is one more thing that I would like to ask you specifically that 2017 was a great year. 2018 is full of volatility. What do you think will be the trend as we move ahead? And I am pretty certain that our readers too would love to know about the futuristic trends.

Ravichand, Stock and Ladder: Firstly, I love volatility. Placid, sideways markets do not excite me. As Buffett has put it nicely – “The true investor welcomes volatility…a wildly fluctuating market means that irrationally low prices will periodically be attached to solid businesses.

 

Secondly, I don’t bother too much on the trends for a simple reason that I am hopeless in extrapolating the trend and making correct predictions. In the past, I maintained a journal and secretly jotted down my futuristic predictions for some period of time. I can now openly admit that I was wrong every single time.

 

Let me give you a few recent events: Demonetization, UK Brexit vote, US Presidential elections…how many of us got all the three right? I am fairly confident that Demonetization move of the Government hit the investors out of the blue and there was little inkling for such an event which caused significant volatility in the market.

 

But the volatility proved useful as I could pick up few shares in a scrip which I was following for a very long time – HDFC Bank. In the post demonetization volatility, the scrip fell to sub-1000 levels in late 2016. Today, it’s trading at above 2000 levels.

 

Hence, I am afraid that I can’t confidently present the picture of FY 2018-19. It’s good to remember the wise words of Peter Lynch “I spend about 15 minutes a year on economic analysis. The way you lose money in the stock market is to start off with an economic picture. I also spend 15 minutes a year on where the stock market is going.”

 

 

Dhruv Girdhar, RichifyMeClub: A lot of people fear volatility in the market. And I am convinced that after reading your outlook, they’ll love to befriend it. Besides, you also happen to be a voracious reader. Please recommend some good books that you believe that one should read and re-read.

Ravichand, Stock and Ladder: As Stephen King has said: “Books are a uniquely portable magic and a journey of a lifetime may start with the turning of a page”.

 

I have a personal criterion which I have called G.R.E.A.T, the qualities I seek in a wonderful book.

 

G.R.E.A.T Framework

The 5 criteria’s used to find the best book:

 

G – Generic. The book should be on stock investing in general and not too specific on a particular theme like trading or investor psychology

R – Readable. “Classic: A book that people praise and don’t read” – Mark Twain. The book should be in the simple language, devoid of financial jargons and understandable by a layman who may not even be from a finance or an accounting background. You need not be a finance maverick or proficient with Greek symbols like Alpha, Beta to understand the contents

EExcitable. This is an extremely critical criterion. The book should provide sufficient encouragement and excitement. Moreover, it shouldn’t put you to sleep with its dull writing style

A Accessible. This is a straightforward criterion that the book should be affordable and easily available off the shelf. It should not be impossible to get a copy (like Seth Klarman’s Margin of Safety) nor should it burn a big hole in your wallet

T – Timeless. Lastly, the content should be evergreen. As Italo Calvino has said, “A classic is a book that has never finished saying what it has to say”. It should not be suitable for just a one-time read. Every time you read the book, you should get fresh ideas and perspectives

 

And here are my top picks:

 

  • Common stocks and Uncommon Profits by Phil Fisher. Personally, one of the best books on investing. Just the 15 point checklist is worth the price
  • One Up On Wall Street by Peter Lynch
  • The Dhandho Investor by Mohnish Pabrai
  • The Art of Thinking Clearly by Rolf Dobelli
  • Where are the customers’ Yachts? by Fred Schwed Jr.
  • The Little Book That Builds Wealth by Pat Dorsey
  • The Richest Man in Babylon by George Clason
  • Nobody Wants To Read Your Sh*t by Steven Pressfield. This one is not on investments but this book has literally changed the way I think and write. Whichever profession you may be practicing, this book is a must-read. One paragraph I would like to phrase from this masterpiece:

 

When you understand that nobody wants to read your shit, your mind becomes powerfully concentrated. You begin to understand that writing/reading is, above all, a transaction. The reader donates his time and attention, which are supremely valuable commodities. In return, you the writer must give him something worthy of his gift to you”.

 

 

Dhruv Girdhar, RichifyMeClub: A GREAT Framework, I must say. The way you choose your books to read is commendable. Before we sign off, one final question that I have asked Amit as well as FI. Apart from being a private investor, what else earns your attention? What is it that you love doing apart from investments?

Ravichand, Stock and Ladder: Investing is what I am passionate about. Hence, it takes a large part of my time. I love reading. I try to read on diverse subjects apart from plain fiction. Over the last one year, I have invested a significant portion of my time in blogging too. My interests are intertwined. My reading helps me in my blogging which altogether contribute to my investing.

 

Apart from this, I am also an avid soccer fan. I closely follow the English Premier League and have been supporting one of the leading clubs since 2001. Occasionally, I love to write on football fan sites on football strategy.

 

 

Dhruv Girdhar, RichifyMeClub: Wonderful, Ravi! Thanks a lot for being so straightforward about your investing journey and sharing your rich experience. I wish you all the best in your future accomplishments.

Ravichand, Stock and Ladder: Thank you, Dhruv! I am humbled and honored for this invite to share my thoughts on investing with your readers. I enjoyed reading your conversation with Amit, Midcap Mantra as well as FI. And I am sure that going forward, I’ll get to read many more interesting stories through this amazing interview series. Thanks a lot once again.

 

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To download the PDF Version of this interview, click here.

Link to Ravichand’s Blog – Stock and Ladder

Follow RichifyMeClub on Twitter

 

 

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3 Comments

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