CONTENT

Editorial,
Dhruv Girdhar ............................................... 4

Real Estate, My Mom, and Mr. Charlie

Munger,
Arun Kumar ................................................... 5

Survive To Thrive,
AnkitKanodia ............................................... 11

Market Lessons,
Manish Dhawan .......................................... 15

Book Review:Trillion Dollar Coach,

Nitin Rao ...................................................... 18

Why Should You Invest and Why Age Is

Just Not A Number in Investing?,
Aditya Kondawar ....................................... 21

The Motivated Ignorance Of Staying

Invested In Underperforming Funds,
The MF Guy ................................................. 26

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EDITORIAL
DHRUV GIRDHAR, DIA JOURNAL
In the recent times, our economy has been going through patchy rides.
Increase in surcharge, slump in the auto sector, fall out of DHFL and
IL&FS and many other unfortunate actions have made a decent dent
in the investors returns.
But we must never let these events affect our investing practice. In fact,
such times are often good times to select good quality companies for
our portfolios and reject the ones that have become laggards.
On the contrary, I have observed that many of the retail investors have
lost confidence in the Indian economy. A lot many have stopped their
SIPs. While a few others are planning to shift towards fixed income
assets.
History shows that such negative times don’t stay forever like diamonds.
In the long run, these negativities will become irrelevant. With a lot of
new businesses and entrepreneurial spirits, the size of opportunities in
the next 10-years is going to be much higher that what we have seen in
the last 30-years.
Have faith in the Indian Economy.
Invest in its growth story. Believe me, you’ll love it in the end.
And last but not the least, I request you to share your honest reviews
regarding the content and everything you like or dislike about this
magazine. Your valuable feedback will surely help us in making this
project even more value adding as we continue publishing our new
editions in future.
You can reach us at:
Twitter: @Delhi_Investors
E-Mail: ghanisht@diainvestors.org
Happy Reading. Happy Investing.

Arun is a financial blogger at
Eighty-Twenty Investor. He
writes about the financial
assets class and psychology
that affects the investment
returns
“WHEN I LOOK AROUND,
ALMOST EVERYONE AROUND
ME HAS A REAL-ESTATE-MADE-
ME-RICH-STORY”
REAL ESTATE, MY
MOM, AND MR.
CHARLIE MUNGER
ARUN KUMAR, EIGHTY TWENTY INVESTOR
Being from the financial industry (which also makes me biased against
real estate), I have the opinion that equities are better over the long
run vis-a-vis real estate to create wealth. But when I look around,
almost everyone around me has a real-estate-made-me-rich-story. I
hardly hear stories of normal-neighbor-next-door kind of people who
have made wealth from equities.
Am I missing something??
In order to solve the confusion, let me seek the help of one of the
greatest minds Mr. Charlie Munger.
My opinion: Equities are better than Real estate to generate long term
wealth
So let me try and argue on the opposite viewpoint i.e. “Real Estate
is better than equities to generate long term wealth” to see if I am
entitled to hold my opinion.
The Wealth Creation Ingredients:

“IS REAL ESTATE IS BETTER THAN
EQUITIES TO GENERATE LONG
TERM WEALTH?”
“OUR OWN PROPERTIES BOUGHT
BY MY PARENTS HAVE BEEN
HELD FOR OVER 20 YEARS AND I
DON’T THINK FOR THE NEXT 10
YEARS ANYONE IS EVEN
THINKING ABOUT SELLING”
“THANKS TO THE VOLATILE
NATURE OF EQUITY MARKETS,
MOST OF US ARE NOT ABLE TO
HOLD EQUITIES OVER A LONG
TIME-PERIOD”
If you remove all the bells and whistles, wealth creation boils down to
the simple formula:
Wealth = Invested amount * (1+returns)^no of years
Thus, wealth creation needs three ingredients in place:
• Long time horizon
• Adequate Investment Amount
• Reasonable returns
So we shall evaluate “real estate investment vs equities” in terms of
ability to create wealth through these three parameters:
1. Long Time Horizon:
In my personal opinion I think this is probably the biggest advantage for
real estate vis-a-vis equities.
While this is anecdotal, you would agree that majority of people who
have created wealth in real estate have held it over decades. 10,20,30-
year investment periods are numbers that you commonly hear when it
comes to real estate.
In fact, our own properties bought by my parents have been held for
over 20 years and I don’t think for the next 10 years anyone is even
thinking about selling.
The major reasons that contribute to this long-term holding is primarily
the emotional connect a home creates, the fact that Indian society still
sees an own home as a status symbol and the inherent belief that over
the long term, home prices will definitely keep going up. The lack of
liquidity, taxation, black money etc. are few other reasons I can think of
for the long holding period.
Unfortunately, this is not the case with equities. Thanks to the volatile
nature of equity markets, most of us are not able to hold equities over a
long time period. You hardly see people who are able to hold on to
equities for long periods.
But what’s this fuss about longer time horizons. Why is it such a big
deal?
Let us understand this with an example of someone who makes 15%
annualized returns:
“COMPOUNDING OR THE
MULTIPLIER EFFECT IS BACK
ENDED”
“MOST OFTEN THAN NOT, THE
FIRST REAL ESTATE INVESTMENT
FOR MOST OF US HAPPENS
AROUND THE AGE OF 30 GIVEN
THE IMMEDIATE PRESSURES
FROM OUR FOLKS AFTER
GETTING MARRIED”
“YOU ACTUALLY END UP
BENEFITING FROM THE MOST
ESSENTIAL BEHAVIOR FOR
WEALTH CREATION – THE
DISCIPLINE OF CONSISTENT
SAVINGS”
While the effect of 15% returns on your investment is gradual in the
initial years the impact magnifies dramatically as your investment
period increases.
The logic is pretty simple – you can see that the money approximately
doubles every 5 years. As you move past the first 20 years, in the next 5
years your doubling effect is phenomenally magnified given that you
already have a 16 times initial amount as your base. Similarly between
25 to 30 years the multiplying effect is doubling on a 33x base which
gives you a 66x returns. See that!!
So as seen, an additional wait of 5 to 10 years brings about a significant
change in your final investment value or put in other words, the
multiplier impact is dramatic as the time frame increases.
Hence the key thing to remember is: Compounding or the multiplier
effect is back ended
While most of us don’t realize this intuitively, real estate investing and
the “my property multiplied by so much” stories are simply a reflection
of this humble boring concept commonly referred to as compounding.
You can refer the table below to see the “multiplier effect” at various
returns for various periods.

“PERSONALLY, I AM NOT A BIG
FAN OF THIS WORKING-YOUR-
ASS-OFF-TO-PAY-EMI’S-
CONCEPT”
“EQUITIES HAVE BEEN TRYING
THEIR HAND AT IMPLEMENTING
THIS BEHAVIORAL CHANGE
THROUGH THE CONCEPT OF
SIPS”
“IN EQUITIES, IT TAKES MOST OF
US SOME TIME TO WARM UP TO
THE IDEA OF STOCKS OR
MUTUAL FUNDS”
So, when it comes to the first ingredient of wealth creation – long time
horizon, real estate scores over equities hands down!!
2. Adequate Investment Amount:
Most often than not, the first real estate investment for most of us
happens around the age of 30 given the immediate pressures from our
folks after getting married. The story generally goes like this – 20% down
payment via our savings and some money from our families and the
remaining 80% through a bank loan. Then for the next 20 years or so,
you are forced to save in order to pay for the EMIs (Equated Monthly
Installment).
While this of course is not something very enjoyable (and personally I
am not a big fan of this working-your-ass-off-to-pay-emi’s-concept),
you actually end up benefiting from the most essential behavior for
wealth creation – the discipline of consistent savings!!
Equities have been trying their hand at implementing this behavioral
change through the concept of SIPs (i.e. Systematic Investment Plan) in
mutual funds. While it’s a great start, I still think the forced saving which
an EMI creates is just simply too powerful.
On one side, there is a sugar patient and on the other, someone like
me who wants to reduce weight by avoiding sugar – the intent is the
same – but who do you think is likely to avoid sugar!! (I hope you are
not checking my pics to confirm the answer)
Again, the amount in play i.e. your invested amount is significantly
large in case of real estate. A long-time frame + large investment
amount is a deadly combination (assuming you get the returns part
reasonably right).
In equities, it takes most of us some time to warm up to the idea of
stocks or mutual funds. Most of us are testing waters with small amounts
in the initial stages and take some time to get comfortable in deploying
large amounts. Not able to do leverage is another disadvantage (and
please..taking leverage for equities is the last thing you should do)
So again, I guess real estate scores over equities in our second
parameter – adequate investment amount as well.
(However, if you are someone who has already saved enough and
don’t need to take a loan for buying real estate then your ability to
invest a large amount is the same be it in equity or real estate. In this
case both equities and real estate have the same advantage)
 3. Reasonable Returns:

Equities have an edge over real estate when it comes to long term
returns. The zero long term gains tax post 1 year is the icing on the
cake. Historically, equity returns in India as seen in the Sensex index has
been around 15%. (Mutual Funds have given 2-4% above the Sensex)

“EQUITIES HAVE AN EDGE OVER

REAL ESTATE WHEN IT COMES TO
LONG TERM RETURNS”

Real Estate Returns have historically been around 10-12% over long
periods (Source: How to Buy a House by E. Jayashree Kurup). And as
seen below you can see that for most periods equities have
comfortably outperformed Real estate returns.

“EQUITIES ARE A PROXY TO

ENTREPRENEURSHIP”

“REAL ESTATE IN TERMS OF

WEALTH CREATION HAS THE
INHERENT ADVANTAGE OF
LONG INVESTMENT TIME
HORIZON AND LARGE
INVESTMENT AMOUNT”

More than the data, my fundamental premise for believing that

equities will have better returns over long term is that – ultimately
equities are a proxy to entrepreneurship. And entrepreneurs logically
should continue to make more money than an apartment.

After all isn’t it only fair that someone with the ability to generate ideas,
convert them into viable products/services, market and sell them

“THE REAL PROBLEM LIES IN THE
FACT THAT NOT MANY OF US
CAN HANG ON FOR A LONG
PERIOD”
“EQUITIES ARE BETTER THAN
REAL ESTATE TO GENERATE
LONG TERM WEALTH ONLY IF
YOU CAN HANG ON FOR A
LONG TIME PERIOD AND HAVE
A REASONABLY LARGE
INVESTMENT AMOUNT IN PLAY”
profitably, employ people, deploy land etc. should generate a higher
return at least more than the input costs (real estate is an input cost).
So finally, on our third parameter of long term returns, equities score
over real estate.
Parting Thoughts:
Thus, putting all these together,
Real Estate in terms of wealth creation has the inherent advantage of
long investment time horizon and large investment amount. So, the key
is to ensure that you don’t get it wrong on the third component –
reasonable returns. Most important is to not blindly believe that real
estate returns are always great and just like all asset classes, real estate
also goes through cycles and the key is to buy when valuations are
reasonable. (Read more on how to evaluate real estate investments
here)
In Equities, while long term returns are good, the real problem lies in the
fact that not many of us can hang on for a long period (as in real
estate) and most often the capital in play is also not adequate. So as
investors we need to start thinking more on “how do we survive the
volatility” and “how do we inculcate the discipline to save and invest
regularly”.
All other issues such as which stock to buy, fund selection, expense
ratio, index vs active, direct vs regular, how to time equity markets blah
blah.. which take up most of the media and blogging space is a clear
example of missing the tree for the woods. While it’s good to read
about these issues, let’s make sure that as 80:20 investors we get our
long-term investment horizon and savings discipline in place first before
we start worrying on these issues.
So thus, by applying Munger’s framework and thinking through my
mother’s advice, I have finally concluded:
My earlier opinion:
Equities are better than Real estate to generate long term wealth.
My revised opinion:
Equities are better than Real estate to generate long term wealth only
if you can hang on for a long time period and have a reasonably large
investment amount in play.
As always, happy investing folks 😊😊

Ankit Kanodia is the founder of
Smart Sync Services that
provides equity advisory
services
“IF YOU CAN SURVIVE FOR A
LONG TIME, COMPOUND
INTEREST WILL TAKE CARE OF
YOU”
SURVIVE TO THRIVE
ANKIT KANODIA, SMART SYNC SERVICES
Famous investment columnist and author, Morgan Housel makes a
striking point in one of his writings:
“The single most important variable for how you’ll do as an investor is
how long you can stay invested. I’m always astounded when I think
about compound interest and the power that it has for investing. Time is
massively powerful.”
If I had to simplify it in one sentence, I would say: “If you can survive for a
long time, compound interest will take care of you.”
Or to put it more briefly: “Survive to Thrive”
So, the first question we have to ask is why we need to survive?
Wikipedia writes this about the importance of survival for human beings:
“An organism’s fitness is measured by its ability to pass on its genes. The
most straightforward way to accomplish this is to survive to reproductive
age, mate, and then have offspring. These offspring will hold at least a
portion of their parent’s genes, up to all the parent’s genes in asexual
organisms. But for this to happen, an organism must first survive long
enough to reproduce, and this would mainly consist of adopting selfish
behaviors that would allow organisms to maximize their own chances for
survival.”
What could be those selfish behaviors for investors to survive for a long
time? Let’s try to think of some:
The first point is avoiding leverage. More people/companies get
destroyed under the burden of debt than due to any other reason.
Excessive debt is a sure shot barrier to survive for long. When we cut
down debt, we automatically breathe easy and increase our chance of
survival. Debt does something which is best explained by a Warren
Buffett quote:
“If you buy things you do not need, soon you will have to sell things you
need.”

“I’M ALWAYS ASTOUNDED WHEN
I THINK ABOUT COMPOUND
INTEREST AND THE POWER THAT IT
HAS FOR INVESTING”
“MORE PEOPLE/COMPANIES GET
DESTROYED UNDER THE BURDEN
OF DEBT THAN DUE TO ANY
OTHER REASON”
“FOCUS ONLY ON YOUR
CONVICTION IDEAS EVEN
DURING THE EUPHORIC TIMES”
So, as an investor, if you wish to survive for long, you must avoid debt not
only at your portfolio level (by buying nearly debt-free companies) but
also at your personal level (by keeping yourself debt-free and avoiding
credit cards)
Second thing is to focus on your strengths. You cannot do many things
together. You cannot learn about all the companies and industries
right from your initial days of investing. So, you must pick and choose
which ones you are comfortable with to start with.
In a gloomy scenario, we come to know which ones our real conviction
ideas are.
So, the lesson is to focus only on our conviction ideas even during the
euphoric times. If we buy any company just for the sake of higher returns,
we will not be willing to hold them when the market turns for the worse.
As an investor, thus, our efforts should be to become very careful in
picking businesses. Businesses which we are willing to hold even when
their mark-to-market value of such businesses is far lower than our
perceived intrinsic value.
Thirdly, we must adhere to the principle of valuation. The intrinsic value of
any asset is the amount of cash it will generate over its lifetime. While we
all know that it is impossible to calculate it with precision, we must have
this framework in mind before buying shares of any company.
In the pressure of trying to achieve high returns, we often ignore
valuations in a bull market. And it is only in a bear market we realize our
mistakes of paying too much.
The word “Multibagger” in investing was coined by legendary US
investor, Peter Lynch in his 1988 book, “One Up on Wall Street.” This word
has caught a fancy in the investor community ever since the book got
published. However, the sad fact is that more investors go bankrupt
chasing those so-called multi-baggers than investors who manage to
survive.
So, it proves that if you are an investor, your first aim always should be to
survive.
And lastly, being patient with your conviction is paramount. In a bear
market, falling share prices take away all the confidence you have in
your best ideas. And as a rule, news precedes the stock prices.
An effective hack to come out of this is to look at what the news was six
months ago, a year ago, a couple of years ago and five years ago. Be
mindful of the fact that you may always go wrong in your assessment of
a business or a promoter.
However, taking a falling price as the only evidence of performance is
suicidal. To survive in a challenging environment like the stock market,
you must have the stomach to digest large, temporary, but notional
losses in your portfolio.
It’s easier said than done. However, the following conversation with
legendary investor Charlie Munger, the Vice-Chairman of Berkshire
Hathaway might help:
In October of 2009, Charlie Munger was interviewed on the BBC.

“YOU CANNOT LEARN ABOUT
ALL THE COMPANIES AND
INDUSTRIES RIGHT FROM YOUR
INITIAL DAYS OF INVESTING”
“IN A BEAR MARKET, FALLING
SHARE PRICES TAKE AWAY ALL
THE CONFIDENCE YOU HAVE IN
YOUR BEST IDEAS”
“BUFFETT, MUNGER AND ALL
OTHER SUCCESSFUL INVESTORS
WERE PRETTY MUCH LIKE ALL OF
US WHEN THEY STARTED”
Here’s what he had to say about Berkshire Hathaway’s (BRK) stock (it was
down quite a bit at the time) and, more generally, the decline in
common stocks.
So how much does Charlie worry when Berkshire’s common stock
declines?
“Zero. This is the third time that Warren and I have seen our holdings in
Berkshire Hathaway go down, top tick to bottom tick, by 50%. I think it’s in
the nature of long-term shareholding of the normal vicissitudes, in worldly
outcomes, and in markets that the long-term holder has his quoted value
of his stocks go down by say 50%. In fact, you can argue that if you’re
not willing to react with equanimity to a market price decline of 50% two
or three times a century you’re not fit to be a common shareholder, and
you deserve the mediocre result you’re going to get compared to the
people who do have the temperament, who can be more philosophical
about these market fluctuations.”
I know, you must be thinking that we are not like Buffett or Munger.
However, I want to bring this point here.
Buffett, Munger and all other successful investors were pretty much like all
of us when they started.
What made them successful was:
• Willingness to learn from their mistakes.
• An evolving but robust investment process.
• And the uncanny ability to withstand all the volatility of the stock
market and survive for the long term.
If we take Warren Buffett’s example, more than 99% of his current wealth
was earned by him after he attained the age of 54.
So, if you are a 25-year graduate with at least a thirty to forty years of
compounding ahead of you, all you need to focus today is on surviving
those forty years. Hence, the job for you is to work hard, earn well, save
regularly enough and regularly invest those savings in equity.
And if your portfolio survives for the next forty years, you are bound to do
well.
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Manish Dhawan is the founder
of Mystic Wealth- an advisory
platform for Do-It-Yourself
investors
“ONE OF THE BIGGEST LESSONS
FOR EXAMPLE IS HUMAN URGE
TO FIND WHY?”
MARKET LESSONS
MANISH DHAWAN, MYSTIC WEALTH
To say we have had an interesting month would be an
understatement. Stocks fell like nine pins, and they fell irrespective of
TAGS attached to them, blue chip, value company, growth stock,
dividend yield blah blah and they fell irrespective how good a
narrative was behind them.
There is something beautiful about Market fall. I am not a sadist trust
me, it’s just that the market is such a great leveler, A sudden market fall
puts everything in perspective, cuts your ego in half and makes a
philosopher out of you 😉😉
More than anything else, The IMPORTANT Lessons get reinstated.
One of the biggest lessons for example is HUMAN URGE TO FIND WHY?
Spend 15 minutes on Business channels and you will know a well-
articulated 15 sentence reason of Why India had its fall. Crude oil, ILFS,
currency etc. BUT remember these are post facto blabbers. They mean
nothing to a speculator or to an Investor for that matter.
Lesson is Watch them for what they are worth, ENTERTAINMENT. In fact,
NOT EVEN that, because Information overload can actually paralyze
you from pulling the Trigger.
Second Biggest lesson is wat @upticker tweeted: “But no matter the
approach, all emphasized the importance of building a framework that
suits your temperament. Perhaps “Process Bhagvan Che” is the
appropriate middle ground?”
There are primarily 02 ways to milk the Market Cow. Momentum and
Value. The question is NOT which one is BETTER? Instead it is WHICH ONE
SUITS YOU!!
It’s about knowing yourself, who you are and what are your core
values. Are you a contrarian who thinks he is right, and market is
wrong? Are you confident about what you know about the company?
Are you the kind of person who can easily sleep well at night seeing
your portfolio down 50–70%.

“IT’S ABOUT KNOWING
YOURSELF, WHO YOU ARE AND
WHAT ARE YOUR CORE VALUES”
“A VALUE GUY NEEDS TO HAVE
GUTS TO BUY MORE OF HIS
POSITION OR OTHER POSITIONS
AS THE MARKET KEEPS FALLING”
“ANOTHER WAY TO ENSURE WE
KEEP WHAT WE HAVE EARNED IS
TO DEPLOY OPTION HEDGES
WHEN TREND CHANGES”
or Are you not cocky about your abilities and convictions and believe
in the wisdom of the market? Believe in Strong risk management to
ensure you never reach a draw down which can trigger your Uncle
point.
Now Trust me, neither path is EASY or BETTER than other. A momentum
guy needs to have guts to square off his positions now and be willing to
look stupid if this was a BOTTOM.
A value guy needs to have guts to buy more of his position or other
positions as the market keeps falling. You can only pull off such acts
when you exactly know who you are, the strategy has to align with your
belief system.
And once you have figured that out, it all boils down to DISCIPLINE to
adhere to the defined process.
Third Lesson, Concept of ABSOLIUTE RETURNS Vs Relative returns.
Mystic Wealth Momentum currently is at 20% return in 18 months. That is
almost twice as good as NIFTY. But that may be a consolation prize for
a mutual fund which compares itself with its benchmarks. For someone
who is chasing Alpha, it is Pathetic that we had to give away so much
back to the market. (We were up 54% in January)
The way to address this problem is Position sizing as a strategy over and
above your current stock selection strategy. I discussed that in detail in
our webinar below. Timing the timing model. (02 ways to do that,
deploy more capital when going is good and less when trend of equity
curve is down. Second, deploy more money on preset drawdown
levels)
Another way to ensure we keep what we have earned is to deploy
Option hedges when trend changes.
Lesson #4. Difference between Practioner and Academicians.
Whatsapp and social media are full of WB and Howard marks quotes
and what one should do ideally in these situations. How you should add
to your positions and how “this too shall pass”.
The first thing a Practioner did, was liquidate all his liquid funds. That is
the way how FAT TONY would think. The LAST thing you want is to lose
your money on an account which was not even meant to generate
ALPHA. Only an academician tries to beat benchmarks in Liquid funds.
Of course, these are extreme views but get the drift. The point is this: Let
us say you have a position in a STOCK and bad news HIT it. What would
you do?
A) Evaluate the situation (if market is irrational, buy more)
B) Do nothing.
C) Sell first Think later.

“A MOMENTUM GUY NEEDS TO
HAVE GUTS TO SQUARE OFF HIS
POSITIONS NOW AND BE
WILLING TO LOOK STUPID IF THIS
WAS ACTUALLY A BOTTOM”
Option C is the correct answer in almost all situations where you have
incomplete information. You can always buy your stock 20% higher
after your detailed analyses.
In both option A and B, you are presuming that you know more than
the market and B) you have complete information. and remember in
these situations you never have complete information, you don’t know
the Fraud angle, or counter party risks etc. etc.
Nestle Maggie example: I would hold and buy more because reason of
fall is known and there is no fraud angle
PC Jeweller: I would sell as I don’t know what the jhol is!!
Comments are welcome 😊😊

Nitin is a Mumbai based
investor and the founder of
Alpha Ideas - an Investment
Blog for Indian Stock Markets
“VERY RARELY, WE HAVE
COACHES WHO HELP US IN OUR
PROFESSIONAL LIFE”
“IF YOU’VE BEEN BLESSED, BE A
BLESSING”
BOOK REVIEW:
TRILLION DOLLAR
COACH
NITIN RAO, ALPHA IDEAS
The Book Trillion Dollar Coach is written by Eric Schmidt, the former
Chairman of Google and his co-authors Jonathan Rosenberg and Alan
Eagle
The Coach in the Book is Bill Campbell who is supposed to have
coached half of Silicon Valley including legends like Steve Jobs, Larry
Page, Sergei Brin, Sheryl Sandberg etc. Trillion Dollars in the title refers to
the wealth created by these companies thanks to the advice and
guidance provided by Bill
Bill Campbell is no more (he died in 2016) and his coachees felt a Book
would be the best way to honour his memory and bring his learnings to
ordinary folks,
In the Indian context, we are used to coaches (or Gurus) who
help/guide us in our personal lives- it can be in spirituality or sports or
Yoga or dance or music etc. But very rarely, we have coaches who
help us in our professional life. And yet, it is our professional lives where
we need the most help and which in turn can have the most impact on
the outside world
The genius of Bill Campbell was that he understood that successful
companies need successful teams. So, along with individual 1-1s, he
used to coach entire teams.
I was astonished to know that he used to sit on staff meetings at
Google to check how the teams work. Any senior recruitment would
need his approval before selection. This was the kind of trust he
enjoyed
The Book contains many lessons regarding trust, loyalty, integrity,
decisiveness, communication, putting the team first, knowing the first
principles etc.
The Book tends to be hagiographic at times which is irritating and takes
away the spotlight from some of the lessons.

“THE BOOK HAS QUITE A FEW
INTERESTING ANECDOTES FROM
BUSINESS AND THE BOARD
ROOM WHICH BRING TO
COLOUR THE BUSINESS ASPECTS
OF SILICON VALLEY”
The Book has quite a few interesting anecdotes from Business and the
Board Room which bring to colour the business aspects of Silicon
Valley.
One amazing aspect of Bill was that he did not charge a dime for his
services.
Some of the hottest companies in Silicon Valley (including Google)
offered him compensation to which his reply was:
“I don’t take cash, I don’t take stock, and I don’t take shit”
Then why did he spend so much time and energy coaching and
guiding others?
His reply was “If you’ve been blessed, be a blessing”
That to me was the greatest lesson from the greatest coach of all time
Do buy this book if interested in becoming a better manager.

Aditya learned the
fundamentals of value
investing from his mother who
buys good vegetables at
cheap prices. Besides, he is a
blogger and writes at Stocks
and Biceps
“GAMBLING CAN BE SAID TO BE
TAKING A CERTAIN AMOUNT OF
RISK FOR A CERTAIN AMOUNT
OF REWARD”
WHY SHOULD YOU
INVEST AND WHY
AGE IS JUST NOT A
NUMBER IN
INVESTING?
ADITYA KONDAWAR, STOCKS AND BICEPS
Clearing the air around Investing: Let’s be honest. When people are
told about investing, they straight away think about gambling.
They think about this:
But we all gamble. A student studies a night before his exams while
gambling his career or future. Our parents sometimes make us do hard
things, which is again a gamble.
A student studies a specific subject because he thinks that subject will
make him more competent, which is again a gamble. Investors
sometimes go against the crowd to buy a beaten down stock as a
contra bet as they see value, which is again a gamble!

“WHEN PEOPLE ARE TOLD
ABOUT INVESTING, THEY
STRAIGHT AWAY THINK ABOUT
GAMBLING”
“RISK IS LIKE VICCO
VAJRADANTI AD, IT ALWAYS
POPS UP IN UNEXPECTED
PLACES”
“WHEN YOU INVEST IN A
FINANCIAL INSTRUMENT KNOW
IN AND OUT OF THE FINANCIAL
INSTRUMENT”
In other words, gambling can be said to be taking a certain amount of
risk for a certain amount of reward. Fair enough right? Risk and Reward
are proportional, greater the risk greater the reward and vice versa.
A student takes up a course which is very niche and not in demand by
employers. But it would be in demand in 2 years, so the student does
the course and his risk pays off, he is employed with a fat salary
package since he is one of the handful few who has done the course.
Risk: Risk is the uncertainty of a certain thing happening or not
happening. For instance, a financial instrument suddenly falling down in
value. Now you certainly don’t want that to happen, do you?
Risk is like Vicco Vajradanti ad, it always pops up in unexpected places.
And the worst thing is that you cannot erase the risk, but you can
transfer the risk or hedge against the risk by placing some counter-bets.
On a serious note, risk is present in all the things we do in a day. Driving
a car, having a bath, exercising in the Gym, eating, drinking or
speaking on the phone (Just watch Final destination to know what I
mean).
It is said knowing the enemy is half the battle won, the same applies for
Investing. Know your enemy or rather know your investment, when you
invest in a financial instrument know in and out of the financial
instrument.
There is no correct time or age to invest, there are only correct
investments: Warren Buffet bought his first stock at the age of 11. At
the age of 11, I was playing Pokemon. We love procrastinating but as
Kabir says in his famous Doha:
 It means do the things today which were supposed to be done
tomorrow and do the things right now which were supposed to be
done today. If you lose the moment, how would the work be done?

“WARREN BUFFET BOUGHT HIS

FIRST STOCK AT THE AGE OF 11. So finally, why should you invest?
AT THE AGE OF 11, I WAS
PLAYING POKEMON” We all love to save and at the end of the day look at our bank
balances and say to ourselves “Damn Homie, I am rich”.

Sorry to bust your bubble, but the only person you are fooling is yourself.
I will tell you exactly why:

The highest rate of interest in savings account is offered by Kotak at 6%

For example, at the start of 2012, you have 1,00,000 in your account
and you want to save it till end of 2016. Now you would think that the
below will be your expected interest or earnings:

“THERE IS NO CORRECT TIME OR

AGE TO INVEST, THERE ARE
ONLY CORRECT INVESTMENTS”

“THE BIGGEST MISTAKE PEOPLE

MAKE IS IGNORE THE FACT THAT
THERE EXISTS A HUGE
FINANCIAL MARKET FOR So, your investment turns into Rs.126,247.70 for 4 years (2012-2016). But
FINANCIAL INSTRUMENTS that’s not the real earnings. Some of the below costs are also present:
WHICH BEAR BETTER RETURNS
THAN THE SAVINGS BANK Rs.500/year for 4 years bank service charges: 2000
ACCOUNT”
Minimum Account Balance: 5000

“EQUITY SHARES ARE A PART OF
A COMPANY, AND THE
PROFIT/LOSS IS DIVIDED INTO
EQUAL PARTS AS PER THE
NUMBER OF EQUITY SHARES”
“EQUITY SHARES ARE TRADED
AND INFLUENCED BY THE
MARKET NEWS AND
SENTIMENTS”
“SOME COMPANIES LIKE WIPRO
HAVE RETURNED 535 CRORES
JUST FROM A 20,000 RUPEE
INVESTMENT IN 27 YEARS! BUT
AT THE SAME TIME COMPANIES
HAVE DESTROYED 99% OF THE
WEALTH”
Inflation Rate:
As we can see each year inflation rate (rate of general goods in
economy rises, so therefore rupee buying power decreases)
deteriorates your money. So, your total return would be:
126,247.70 – 2000 – 500 (atm and cheque book charges) – 20% inflation
total over 4 years so it would be 25,250
The above equals to 98,450!
Instead of gaining, you lost money that too 2%.
The biggest mistake people make is ignore the fact that there exists a
huge financial market for financial instruments which bear better
returns than the savings bank account. A savings bank account should
only be used to keep some idle cash for unforeseen requirements.
The biggest mistake people make is ignore the fact that there exists a
huge financial market for financial instruments which bear better
returns than the savings bank account. A savings bank account should
only be used to keep some idle cash for unforeseen requirements.
Now that I have told you there is the Indian stock market for you to
take advantage of, let us see the two financial instruments:
• Equity Shares
• Bonds/Debentures
Equity Shares are a part of a company, and the profit/loss is divided
into equal parts as per the number of equity shares. Equity shares are
traded and influenced by the market news and sentiments and Equity
share investments can give you the best and at the same time the
worst returns depending on the company you have invested.
Some companies like Wipro have returned 535 crores just from a 20,000
Rupee investment in 27 Years! But at the same Time companies have
destroyed 99% of the wealth, so it is imperative to select good
companies.
 Bonds are nothing, but a loan taken by a company from an investor
with the promise to pay him regular interest and the principal on the
date of maturity. Bonds are financial instruments which have a face
value and interest value, for instance if one bond is 100 rupees and it
carries 8% interest for 5 Years. It means for 5 years you will get 8 rupees
“BONDS ARE NOTHING, BUT A each year and 100 rupees at the time of redemption i.e. after 5 years.
LOAN TAKEN BY A COMPANY
Why you should invest early?
FROM AN INVESTOR WITH THE
PROMISE TO PAY HIM REGULAR
Here is a great example why you should invest early, even though the
INTEREST AND THE PRINCIPAL amount may be small.
ON THE DATE OF MATURITY”
As you can see from Case 1 and Case 4, if you started out late, the
amount generated would almost be less than 90% of what was
generated in Case 1.

Compounding is the best thing for your investments, assuming even a

modest 10% yearly return, Rs.1,00,000 invested each year for 25 years,
your corpus would be worth Rs.12,53 Crore.

But if it was easy, everyone would do it and be Crorepatis. However, it

is not tough either. This post was just to clarify the misguided facts
about investing and tell the readers about better returns.

The MF Guy is a CA who helps
investors on Personal Finance
and Mutual Funds. He can be
reached at: @TheMFGuy1
“MANY INVESTORS REMAIN
OPTIMISTIC ABOUT THEIR
UNDERPERFORMING FUNDS
AND STAY INVESTED IN THEM
FOR YEARS, HOPING FOR A
BOUNCE BACK SOME DAY”
THE MOTIVATED
IGNORANCE OF
STAYING INVESTED IN
UNDERPERFORMING
FUNDS
THE MF GUY
We all are conditioned to believe that we need to be optimistic to
make money in equities, what goes down, bounces back, is the
mantra we all hear in every conversation. But there is a thin line
between being optimistic and ignorant.
Driving a car on a busy road and believing in your excellent driving skills
to avoid any accident is being optimistic. But trying to drive a car on a
busy road without knowing how to drive is being ignorant. You may
crash.
In this case you know whether you can drive or not. It isn’t tough, is it?
But when it comes to investing in Mutual Funds, it is surely not as easy to
identify whether you are being optimistic or ignorant.
Many investors remain optimistic about their underperforming funds
and stay invested in them for years, hoping for a bounce back some
day. Such act is called motivated ignorance. Lot more money has
been lost by staying with underperformers than actual loss due to
market falls. Opportunity loss is something which is invisible and eats into
your portfolio returns slowly over years.
Last 5 years returns (CAGR):
Best Multicap Fund: 18.1%
Average Multicap Funds: 11.56%
Worst Multicap Fund: 6.05%
Best Midcap Fund: 16.51%

“ONE SHOULD NOT COMPARE
FUND’S PERFORMANCE WITH
PEERS BUT BENCHMARK”
“ONE SHOULD NEVER IGNORE A
BAD PERFORMER”
“IT IS PRUDENT TO RECONSIDER
YOUR INVESTMENT IN SUCH
FUND IF IT NO LONGER SUITS
YOUR OBJECTIVE”
Average Midcap Funds: 12.92%
Worst Midcap Fund: 7.90%
One should never ignore a bad performer. As they say, “one bad
apple can spoil the entire bunch.” Similarly, one underperforming fund
can decay your entire financial plan. What could be those selfish
behaviors for investors to survive for a long time? Let’s try to think of
some:
Firstly, lets understand underperformance – It is when the fund delivers
lower returns than its stated benchmark no. This is nothing to do with its
star rating and performance against peers. One should not compare
Fund’s performance with peers but benchmark. The moot question is
how much underperformance is bad and when is that time when you
are crossing the line from being optimist to becoming ignorant?
I propose a simple “STAR” approach to find answer to this question.
Rate the fund on these four parameters, see if it ticks any two or more
of them, and it is time you say good buy!
STAR stands for – Style of the Fund + Tenure of underperformance +
Asset Manager change + Risk
Style of the fund: Investment style is the core of any fund. Its outcome,
good or bad, are directly linked to its investment style. When the
underperformance in a fund is due to sudden change in its style then it
is a red flag. Some common change and drift in styles are value to
growth, benchmark hugging to contra, multicap to largecap, midcap
to largecap, etc.
Such changes impact the performance of the fund rather
permanently, as each style has its unique risk-return potential and
expecting past performance of a specific style being repeated is not
achievable. In such cases it is prudent to reconsider your investment in
such fund if it no longer suits your objective.
However, if the underperformance is due to style itself, for example, a
value style underperforming in over heated market rally, then it is
prudent to wait for one market cycle at least.
Tenure of underperformance: This is the most critical aspect when it
comes to deciding whether to stay invested or exit from the fund. Many
investors panic after seeing their fund underperforming its benchmark
and peers in last one year.
Sometimes just one year’s underperformance effects 3 and 5-years
trailing performance and investor feels that the fund is underperforming
since last 5 years, which is not true. Hence, looking at calendar year
performance is better indicator than looking at 1, 3 and 5-year trailing
performance.
Underperformance against the benchmark is a concern when it is for
longer period, usually more than 3 years. Easy way to analyse this is
looking at calendar year performance. If the fund has underperformed
its benchmark consistently for 3 calendar years it is high time and you
should exit the fund. Other measures like 3 and 5-year rolling return

“SOMETIMES JUST ONE YEAR’S
UNDERPERFORMANCE EFFECTS 3
AND 5-YEARS TRAILING
PERFORMANCE”
“UNDERPERFORMANCE
AGAINST THE BENCHMARK IS A
CONCERN WHEN IT IS FOR
LONGER PERIOD”
“LOOK FOR THE CREDIBILITY OF
THE NEW FUND MANAGER BY
LOOKING AT PERFORMANCE OF
FUNDS HE HAS MANAGED
EARLIER”
alpha over benchmark can be analysed to see how fund is stacking up
against the benchmark.
Asset Manager change: The Fund Manager is the most important
factor while analyzing the funds future. When Fund Manager changes it
is a time you should review the fund closely. Each Fund Manager has a
different approach, no two humans can think alike, and this is the very
reason that the new fund manager may have very different style and
approach.
Look for the credibility of the new Fund Manager by looking at
performance of funds he has managed earlier. There are instances
where Fund Manager change has affected scheme performance
drastically, but there are also instances where the new Fund Manager
has done a better job than the earlier man on the job. So be careful
and give some time to judge the new Fund Manager and analyse
what changes he is making in the portfolio and is he drifting away from
the earlier style of the fund. The new Fund Manager has no track
record and is churning the portfolio too much to fit his style, you are
better off by exiting the fund.
Risk: Watch out if the fund is taking undue risk due to which the
performance has been impacted. For example, a big fund had taken
huge bet on PSU Banks since last 4 years and it underperformed badly
during that tenure. While the fund ultimately recovered, but those who
wanted money during these 4 years had to exit with poor returns. Such
undue risk is a red flag in a diversified fund.
Look out for any such sector skewed calls in the fund which is dragging
the performance. Such contra calls may take time to recover or may
not even recover. Another area could be concentration in top 10
stocks. Ideally it should not exceed 40% to 50% in a well-diversified
portfolio. Specially in small and midcap funds, diversification is
important. If underperformance is prolonged and is due to such high
concentrated bets it is a red flag.
So next time you are confused stay away from motivated ignorance,
use this simple STAR approach and you may be able to decide whether
you should stay invested of exit the underperforming fund.
Happy Investing!