The theme of this blog carnival that was sent to me was “ How I arrived at my style of stock investing”. I pondered over it and it seemed as difficult as thinking “ How did I fall in love with the woman that I fell in love with”. It’s a little tough to define, you just know that you are in a state of love and not how you arrived at it.
You meet a woman and she agrees to go out for a coffee with you. You share a few laughs, a few sunsets and some stolen glances and voila you realise you are in love. Investing is something similar, you discover a few annual reports and they start throwing out a story at you. You listen to the business owners talk with passion about their businesses and you decide to be part of that story and go buy a stock. Like love you win some and you lose some and finally mature into what is that will give you lasting joy and you marry that woman and that investing style. ( Of course its always tempting to have the occasional fling with the other woman or the short term trade but then to err is human 🙂 ).
Having stated that I have no clue on how I arrived at my investing style, it poses the obvious next question. So what do I intend to write on?
What influenced my style of stock investing?
Warren E Buffett the greatest investor on this planet is a obviously a great influence especially for value investors like me. But I think the bigger influence has been Buffett’s pal and partner Charlie Munger. Incidentally Buffett himself acknowledges the role that Munger has played. According to Warren Buffett, his business partner, Charlie Munger has ‘the best 30-second mind in the world. He goes from A to Z in one move. He sees the essence of everything before you even finish the sentence’ (Forbes, January 22, 1996).
Munger’s worldly wisdom consists of a set of mental models framed as a latticework to help solve critical business problems. According to Munger, only 80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person. Munger brings models from such diverse fields as physics, psychology, chemistry, economics, business, mathematics investing etc in helping you make a investment choice.
So I thought thru what influences or mental models have I derived from observing the various elements of the world. There are of course the usual suspects like history, psychology, neurology, economic etc which I can write on but I am choosing to write on a very different and interesting topic. Women
I like to observe women, but naturally 🙂 . It is interesting that in the entire animal kingdom, it is only in the human species that the female is more attractive than the male. In all other species it is the male who is more attractive so as to attract his mate.
So is there something to learn from observing women and their behaviour in investing?
Have you ever heard about a woman “Devdas”. A woman committing a suicide over man. But aren’t they supposed to be the emotional types when something goes wrong in a relationship. I find woman extremely practical as compared to men who outwardly will put up a brave image but will sulk for the rest of their lives. Get a few drinks into a guy and he will always recount his first girlfriend. Women are more pragmatic, a fortnight of crying, a dull ache in the corner of their heart and they move on with their lives. They cut their losses and don’t marry into a position when they know it has gone wrong.
How many of us marry into our investing positions even when we know it has gone wrong? Like they say an investment is a trade that went wrong. We get a trade wrong and then rationalise and say that anyway the company is good so let me hold it for a long time and the price will come. We need to learn from women here – cut u r losses when the writing is on the wall.
Women are extremely good at balance sheet analysis. They will love to go on a ride with guy on his 500 cc bike and go to impromptu wild parties. They will love some muscles and spikey hair. I call these guys as the P&L guys. It does look good on paper like it does for us in investing when we read sales up 15%, profits up 30%. But women don’t marry guys just for the P&L. They have a amazing ability to analyse balance sheets. Will this P&L guy earn enough in life to get me a car and a nice house when I m past the age to jump on bikes. Will he take care of me and my kids for the rest of his life. Go out at 10 in the night to buy diapers etc etc. The essential long term bet. Does the guy have great things on the asset side of his balance sheet like ability, money, attitude etc and not too much on the liability side. As value investors it is critical to cut thru the obvious P&L excitement and get into the balance sheet of the company to see whether it will be there 10 years down the line and deliver enough to ensure that you buy some solitaire diamonds for your wife 🙂 .
Women are the greatest bargain hunters on this planet. They have amazing patience & tenacity in looking for bargains. It is the skill to be learned from them when we pick up stocks. The need to be patient and wait for the right bargains when u go shopping for a stock. The tenacity to go all over the planet to find those bargains.
And finally listing down a para from Billy Joel’s “ She’s always a woman”
And she’ll promise you more
Than the Garden of Eden
Then she’ll carelessly cut you
And laugh while you’re bleedin’
But she’ll bring out the best
And the worst you can be
Blame it all on yourself
Cause she’s always a woman to me
As one of my MBA Professor wisely said in my Principles of management class “ If u can handle u r wife then u’ve learnt management”. So if u can understand the moods of a woman, u can understand the moods of the market :-).
Ninad Kunder, an experienced stock investor who educates readers about- Value Investing to Investing Values. His blog investingvalues.blogspot.com is an online account of his thoughts defining the investing value system. Value Investing is the foundation of his stock investing journey.