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Author: Tan KW   |   Latest post: Tue, 13 Aug 2019, 10:43 AM

 

Safal Niveshak, Uncopyrighted

Author: Tan KW   |  Publish date: Tue, 13 Aug 2019, 10:43 AM


January 11 2013 was a sad day for the Internet world. That day, Internet pioneer and open information activist Aaron Swartz committed suicide at a young age of 26.

Swartz’s “crime” – he had logged into JSTOR (Journal Storage), a database of scholarly articles, and rapidly downloaded those articles with the intent to make them public.

He didn’t “hack” the network to secure those downloads. MIT is anyways an open network.

He didn’t crack any special password system to get behind JSTOR’s digital walls. All he did was figure out how JSTOR was filing the articles that he wanted and wrote a simple script to quickly gather those articles and then copy them to his computer.

If Swartz had lived to be convicted of the charges against him, he either had to accept the label of a criminal and go to jail for 50 years or fight a million-dollar lawsuit.

Aaron decided to take a third option. He hanged himself!

And with that we have lost an incredible soul, one who had literally spent half of his 26-year-old life doing nothing except working for the public good as far as the Internet and learning are concerned.

It was he who helped develop RSS, revolutionizing how people use the Internet and went on to co-own Reddit, now one of the world’s most popular sites. He was also a key architect of Creative Commons, an organization that helps people share their knowledge and creativity with the world.

It is ironical that the punishment Aaron was supposed to face for downloading academic articles in an effort to make knowledge widely available to the public was harsher than what is accorded in the US to any of these…

  • Manslaughter (10 years in prison)
  • Bank robbery (20-25 years)
  • Selling slaves (20 years)
  • Aiding terrorists (20 years)
  • Threatening the President (5 years)

In other words, Aaron’s punishment would have been the same if he had robbed a bank, then slaughtered people, and then helped al-Qaeda develop nuclear bombs!

Just downloading and distributing academic papers brought him to face such a severe punishment!

This is in a world where the big corporations (and their top men) have destroyed trillions of dollars in investors’ wealth repeatedly, and have gone away scot-free (and with billions in bonuses)!

Anyways, Aaron’s death and the protests that followed prompted the insanely powerful US government to fix some important flaws in the law regulating the Internet so that others can be protected from legal abuse.

But that won’t bring this genius to life again. It won’t restore his shattered family or bring peace to his bewildered friends.

My Ode to Aaron Swartz
I did not hear much about Aaron Swartz until I heard about his death in 2013. But the stupid reason of Internet privacy that destroyed this precious life pained me enough to uncopyright my blog (not many people read the site that time, so I am repeating what I did back in 2013).

Here’s something I did as my ode to Aaron Swartz, and repeating again today for a much bigger audience.

I “uncopyrighted” my blog, Safal Niveshak.

Come, Use My Free Content for Free
Mark Twain said, “Only one thing is impossible for God: To find any sense in any copyright law on the planet.”

To free God from this impossibility, beginning in 2013, I have released all claims on copyright and put all the free content of Safal Niveshak into the public domain.

You don’t need any permission to use the content of this site in an ethical manner. Just a line of credit is appreciated.

Here are some of the things you can do now with the content I’ve created (and will create) if you so desire:

  • All my hand-drawn illustrations are on this page. Please use them freely, but please don’t remove my signature and add yours.  
  • All my articles ever written are on this page. Please use excerpts from these as required, and please give credit. Just don’t use the entire article as it is, for Google may get confused for who wrote it originally.
  • The above two links contain almost 90% of the work I do, and it’s all free to read and use. If you find any of these worthy to be shared for a wider cause, please share. That would make me feel my effort was worth it.

There is no need to email me for permission — you may use anything free on Safal Niveshak for any educational purpose. A credit would be enough.

People may use my work without attribution (and some have done so in the past). But usually, I have realized that people are grateful and give credit where it’s due anyway, without me requiring it.

Of course, I would not want you to share my paid content freely (I need something to run my house, you see)  

I have seen bloggers take plagiarism very seriously. I have been guilty of doing my bit in the past as well. But then, as I have realized over time, thanks to the time I’ve spent in introspection, all of this content that I write on Safal Niveshak isn’t really mine.

We are living in a world of dreams, and anything here belongs to the dreamer (the ultimate power that runs this Universe), not to the individual projection known as Vishal Khandelwal.

At best I am a translator and a custodian of that dreamer’s work, but I can’t really be an owner, not in the strictest sense.

In Safal Niveshak’s case, the original dreamers also take the form of Warren Buffett, Charlie Munger, and the likes.

So I’m just sharing what I’ve learned from them. How can I claim it as my own?

Also, while Safal Niveshak has started getting a lot of traffic and currently reaches out to over 60,000 tribe members, there are still thousands of small investors who haven’t been exposed to some of the most basic and prudent investing concepts.

So if you can help expose more people to ideas and information that will benefit them, I’ll be immensely thankful to you.

But Please Be Nice with Me
While I’d love when you use my ideas and content and do something creative and generous, please exercise good judgment.

Don’t create headaches for me by doing something sketchy or deceptive.

For example, don’t make it look like I’m recommending or endorsing a stock or a financial product when I didn’t explicitly do so.

Please don’t quote me inaccurately. Please don’t get me a ban from the SEBI.

Mahatma Gandhi said, “Be the change you want to see in the world.”

I like helping people. I like when people remove all barriers to sharing.

By uncopyrighting my free content and ideas, I am trying to do just that – remove all barriers to share my knowledge and ideas freely with the world.

This is something I want to experience as part of my own path of growth, and my wish to let go…to liberate myself.

This is what Aaron Swartz had worked for a large part of his small life. And I could not think of a better way to give my respect to this boy who braved to be a man in a world of cowards.

So come, use any of the free content on Safal Niveshak for the betterment of the world. Just send me some credit. I will appreciate it.

I can’t think of a better tribute to Aaron and many others who are trying to remove all barriers to sharing knowledge and thus making our world brighter and better.

Ultimately, this is what I’ve also learned from Bhagavad Gita –

Whatever has happened, has happened for good.
Whatever is happening, is happening for good.
Whatever will happen, will happen for good.
What did you lose that you are crying?
What did you bring with yourself that you have lost?
What did you give birth to that got destroyed?
Whatever you took, you took from here.
Whatever you gave, you gave here.
What belongs to you today,
Belonged to someone else yesterday,
Will belong to someone else tomorrow.
Change is an established rule of this world.

What do you say?

What are you uncopyrighting?

 

https://www.safalniveshak.com/safal-niveshak-uncopyrighted/

 

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Why Most People Will Never Be Good at Investing - safalniveshak

Author: Tan KW   |  Publish date: Wed, 7 Aug 2019, 1:53 PM


…because most people in the stock market, most of the time, don’t do investing, which is…

  • Thinking how markets work,
  • Understanding how people behave,
  • Studying businesses,
  • Sticking only with what is simple and what they understand, and
  • Buying stocks at appropriate valuations.

Instead, they are busy…

  • Envying (others making money fast or losing money slow),
  • Cloning (others’ stock ideas mindlessly),
  • Predicting (future of markets, stock prices, and economy),
  • Fearing (missing out on future gains),
  • Regretting (past mistakes),
  • Avoiding (accepting current mistakes),
  • Denying (reality, especially when it’s harsh), and
  • Indulging (in useless information and noise)

 


So, with such a busy schedule, where is the time to practice investing?  

 

You see, to become successful at anything, we don’t need to always add more things but give up on some of them.

However, when it comes to investing, giving up on everything mentioned above isn’t as easy as it sounds. All these (mis)attributes make us human, and thus there is no point trying hard to eliminate all of them from our lives at one go.

But if we work towards minimizing these – some starting today, and others over a period of time – we may end up with an outcome better than we had ever imagined.

I would leave you with a couple of quotes from the Upanishads, which signify how what we think and do now, help us create our destinies –

Watch your thoughts; they become words.
Watch your words; they become actions.
Watch your actions; they become habits.
Watch your habits; they become character.
Watch your character; for it becomes your destiny.

You are what your deep, driving desire is.
As your desire is, so is your will.
As your will is, so is your deed.
As your deed, is so is your destiny.

For good or bad, investing does not follow any other path.

 

 

https://www.safalniveshak.com/why-most-people-will-never-be-good-at-investing/

 

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A Story of Courage and Hope from the Life of Charlie Munger - safalniveshak

Author: Tan KW   |  Publish date: Mon, 5 Aug 2019, 4:11 PM


Here is a story I shared with my daughter yesterday and thought this deserves to be shared with a wider audience. It’s that good!

This story is from the life of Charlie Munger, from long ago before he was rich and famous, and before he had such a large and happy family –


Image Source: Poor Charlie’s Almanack; Photograph is of Charlie celebrating his forty-fifth wedding anniversary with his family in 2001

The story dates to 1953 when Charlie, then 29 years old, got divorced from his (first) wife of eight years. Divorce had a huge social stigma attached at that time and it was the first blow for Munger.

 

His wife also got almost everything in the separation, including the house. Charlie’s friends revealed that he moved into “dreadful” conditions after this divorce.

He, however, summoned all his courage, worked crazy all week to recover the money lost in the divorce. This was, however, just the beginning and life had to still test him out further.

A year later, Charlie’s 8-year-old son Teddy, was diagnosed with leukemia (blood cancer). He scoured the medical community but quickly discovered the disease was incurable. He and his ex-wife sat in the leukemia ward with the other parents and grandparents in different stages of watching their children waste away. Also, given that there was no medical insurance in those days, Charlie paid for everything out-of-pocket.

As per his friends, each day he would take Teddy to the hospital for checkups while taking care of his other two children and practicing law. Those months were the toughest as he saw his son growing weaker nearing his death.

According to his friend Rick Guerin, Charlie would visit the hospital when his son “was in bed and slowly dying, hold him for a while, then go out walking the streets of Pasadena crying.”

One year after the diagnosis, Teddy Munger passed away at the tender age of 9, leaving Charlie heartbroken.

Charlie was 31 years old, divorced, broke, and burying his young son. It would have been tempting to just give it all up and turn to vices (alcohol, drugs) as so many people around him had done at that time. But Charlie was not that man and he kept going.

Years later, he reflected on the inner turmoil that he could’ve given in to and said –

Generally speaking, envy, resentment, revenge, and self-pity are disastrous modes of thought. Self-pity gets pretty close to paranoia…Every time you find your drifting into self-pity, I don’t care what the cause, your child could be dying from cancer, self-pity is not going to improve the situation. It’s a ridiculous way to behave.

Life will have terrible blows, horrible blows, unfair blows, it doesn’t matter. Some people recover and others don’t. There I think the attitude of Epictetus is the best. He thought that every mischance in life was an opportunity to behave well. Every mischance in life was an opportunity to learn something and that your duty was not to be immersed in self-pity, but to utilize the terrible blow in a constructive fashion. That is a very good idea.

The power of that speech is more memorable to me because Charlie never mentioned the fact that his own son died of cancer.

Anyways, life’s tests continued for Charlie, and at the age of 52, he developed cataracts. A failed surgery left him blind in one eye and caused complications like cancer. His blind eye throbbed with pain so intense that he couldn’t stand up. Desperate to end it, he requested the doctor to remove his entire eye.

Now, when you are an obsessive reader like Charlie, losing your ability to see would seem to be a prison sentence. However, he was undeterred. He told someone close to him, “It’s time for me to learn braille.”

* * *

One of the most life-changing books I have ever read is Viktor Frankl’s Man’s Search for Meaning. The book is a chronicle by Frankl of his experiences as a German Nazi concentration camp inmate during World War II.

 

In this book, Frankl describes his psychotherapeutic method, which involved identifying a purpose in life to feel positively about, and then immersively imagining that outcome.

The central theme of Frankl’s book is ‘survival.’ Although he witnessed and experienced horror, the book focuses less on the details of his own experience and more on how his time under Nazi rule showed him the human ability to survive and endure against all odds.

As Frankl wrote, he saw the lowest parts of humanity while in the camps. He saw fellow prisoners promoted to be in-camp guards turning on their fellow prisoners. He watched as they beat their lifeless, malnourished campmates. He watched sadistic guards treating them as if they were lower than animals. But he also saw individuals rising up like saints above it all.

The part that impacted me the most from the book was this –

When we are no longer able to change a situation, we are challenged to change ourselves…Everything can be taken from a man but one thing: the last of the human freedoms — to choose one’s attitude in any given set of circumstances, to choose one’s own way.

Life (investing included) isn’t easy. And unlike, what we imagine in both scenarios of triumphs and disasters, life isn’t supposed to be linear. It’s not supposed to be a flat line of happiness and smiles, or sadness and pain. It’s not supposed to stay the same, just like you’re not supposed to stay the same.

Life is evolving and changing. It is a constant surge of ups and downs, twists and turns, and as Rudyard Kipling said, “…triumphs and disasters.” Like you have your happy and blissful moments, you are supposed to feel pain, get hurt, and experience losses occasionally.

Now, that does not mean that you deserve every bit of the sadness, defeats, and tragedies that life hands over to you. It’s just part of the unexplainable journey that we are living. It’s just part of what makes us human.

When we read the fairytale stories of the likes of Munger and Buffett’s lives, and those of the countless other people we think are happy and prosperous today, it is easy to assume they have risen to success on one upward, smooth trajectory.

But what we don’t see is the years of hard work, sweat and blood it has taken to get to where they are today.

Charlie has been able to get ahead as a result of his persistence, carrying on when he was divorced, broke and burying his son. It is important to remember this when you think life has been unfair to you and you indulge in self-pity.

Before I close, here is Charlie’s reply when a shareholder asked him in the 2013 AGM of Daily Journal Corp how does one recover from the reverses in investing and not dwell much on them –

You know what Rudyard Kipling said? Treat those two imposters just the same success and failure. Of course, there’s going to be some failure in making the correct decisions. Nobody bats a thousand. I think it’s important to review your past stupidities so you are less likely to repeat them, but I’m not gnashing my teeth over it or suffering or enduring it. I regard it as perfectly normal to fail and make bad decisions. I think the tragedy in life is to be so timid that you don’t play hard enough so you have some reverses.

If there is one big lesson we can take from Charlie’s life, apart from the one on being a learning machine, it is that we must pick ourselves up after every meltdown we suffer. We must also know that all our struggles and all our failures will lead us to experience something greater and lead us to be someone better.

Then let’s begin all over again. And find the courage to stand up, and face today with just as much hope as we had yesterday.

P.S. Books to read on Charlie’s life and work – Poor Charlie’s Almanack, Damn Right, Seeking Wisdom, Charlie Munger – The Complete Investor

 

https://www.safalniveshak.com/a-story-of-courage-and-hope-from-the-life-of-charlie-munger/

 

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Stock Market Crisis: Your Big Questions…Answered - safalniveshak

Author: Tan KW   |  Publish date: Mon, 29 Jul 2019, 3:54 PM


Here is my attempt to answers a few key questions I have received from Safal Niveshak readers on the current turmoil in the stock market.

You won’t find perfect answers below, but this is just my attempt to help you get over your fears, which may otherwise lead you to act in haste, which can cause some damage to your process of long term wealth creation.

Let’s start right here.

1. Why is the market crashing?
It hasn’t crashed…so far! The BSE-Sensex is down just 6% from its peak this year. BSE-Smallcap is down 14%. BSE-Midcap is down 11%. This isn’t a crash!

If you think it is, you maybe be suffering from ‘denominator blindness’, which is the tendency to focus on the absolute number then the percentage decline. Or you just seem to have been spoilt by rising markets over the past few years and were not investing in 2008 when the last real crash happened. That was painful for people who experienced it with their money (and not just their eyes and ears). We have not seen anything like that since then.

Okay, while I see that since their record highs in late 2018, the midcap and smallcap indices are down around 25% and 35% respective (which unofficially may be termed a bear market in such stocks), most high-quality small and midcap stocks still trade around fair to rich valuations.

We also need to understand that the stock market moves in cycles, and thus fluctuations are inevitable. Like you enjoyed the upcycle for a long time till it turned down last year, you need to happy accept the current part of the cycle too.

Remember what the Bhagavad Gita says – the very texture of life is of duality – pain and pleasure, success and defeat, birth, and death. Investing, with its bull and bear markets, cannot get away from such duality.

You may hold on to the hope that you would isolate your gains, take them home, and throw your losses out. This has been the hope of every ambitious investor, but up to this day no one has succeeded. Anyone who goes after gains (pleasure) must not complain when he comes across losses (pain). Markets serve this reminder frequently, and we must accept this.

2. Ok, not a crash. Why is the market falling?
If you go by the news, people are talking about poor budget, FII outflows, domestic slowdown, poor corporate results, P/E derating, poor monsoons, higher taxes on the rich, bad loans, cheating managements, fragile financial system, etc. But the reality is far more complicated I believe. It’s a mix of all these factors and some more.

My best guess for why the market is falling is that that (more) people are selling more stocks than they are buying. And this seems because there are more people with less stomach to withstand such temporary setbacks.

3. Are we headed to another 2008 like situation?
Ah, whether this situation is like 2008 is impossible to predict. You may be hearing some predictions on business television, but then as I mentioned, predicting is futile and I am not an expert in it.

All I can say is whether this turns out to be like 2008 or not is unknown. But it seems that things could remain difficult for some time to come…and can get more difficult if you continue to watch and read those headlines in business media that has a habit of taking things out of proportions.

So, if you wish to curtail your worries, first please stop watching/reading such media. That will give you ample time and sense to think calmly and wisely through this situation.

After the latest decline, stocks are a little cheaper than they were before it all began. But they could get a lot cheaper still before this is over.

4. Oh, so you are saying the market is still risky?
First, you must learn to differentiate between ‘risk’ and ‘uncertainty.’

Risk is when we don’t know what is going to happen next, but we know the probability of various outcomes from that event. Rolling dice is an example.

Real risks in investing are that of losing money, and missing opportunities. Sadly, we ignore the first risk when stock prices are rising, and the second risk when they are falling.

Uncertainty, on the other hand, is when we don’t know what is going to happen next, and neither do we know the probability of various outcomes from that event. Genuine uncertainty occurs in complex systems, where lots of actors interact over time – the economy and stock market are examples.

Real opportunities for profit only exist in the face of uncertainty, like something we have now. Which means that if we want to invest for success, we not only have to deal with uncertainty, we must seek it out, and then adapt to it.

5. Can’t help…I am still worried! Should I sell and cash out before the market falls further?
Investing is very personal, so there is no single advice that would apply to all. But just understand this that if you are sure of your job (cash flows) for the next few years, you have a monthly surplus, and your goals are far away (say, beyond ten years), just continue investing.

If you are becoming agitated with such a correction (not crash!), then you must be worried. In fact, you must seriously reconsider your decision to be in direct equities.

Remember what George Goodman aka Adam Smith once said – “If you don’t know who you are, [stock market] is an expensive place to find out.”

A long-term view requires an ability to stomach extreme short-term market volatility. If you can’t do that, you may want to move your money to other instruments like bank fixed deposits and liquid/debt funds.

Jason Zweig wrote in a post on WSJ – “In order to capture the potentially higher returns that stocks can offer, you have to reconcile yourself to the certainty of horrifying short-term losses. If you can’t do that, you shouldn’t be in stocks—and shouldn’t feel any shame about it, either.”

6. Is this an opportunity to buy more stocks?
If you have identified businesses that have great potential, according to your analysis, to be wealth compounders, then yes! Such market falls will look like tiny blips over a 10-year period. Don’t interrupt the compounding unless there is a question about the quality of the compounding machine i.e., the underlying business and/or its management.

But here is a caveat – If you think this a time to be greedy because everybody seems to be panicking, then ask yourself whether your greed is driven by your confidence in rational analysis of the business, or is it actually a manifestation of underlying fear, the fear of missing out? Is this really an opportunity or just a distraction?

Don’t forget, short term market fluctuations are severe distractions for our awareness about long term gains.

The few questions you must ask yourself are:

  • Would this fall impact long term cash flows of the businesses I own?
  • Would this fall impact the very foundations of these businesses?
  • Have I invested using borrowed money?
  • Have I invested in stocks based on tips, as I know nothing about the underlying businesses?
  • Would I need the money I’ve invested in stocks over the next 1-3 years?

If the answer to all the above questions is ‘no’, then there is no reason for you to panic. Sit back and relax.

7. So what should I do? I want a final answer.
When you have no move, my friend, you do not move. You do nothing! Sit tight and read a good book.

On the other hand, if you have a well-thought-out move on how to deal with this situation, then move! But first, please move and switch off that business channel. Don’t let the experts’ running commentary fool you into thinking that they can help you identify (especially using charts) some exact entry point at which you can know you’re buying back into stocks at a bargain level. The future is uncertain, and no chart or predication can add any certainty to it.

In all, act wisely and never accept anything at face value. And do not indulge in spreading the market crash panic and rumours further. As the Jewish proverb goes – “What you don’t see with your eyes, don’t witness with your mouth.”

8. All this sounds soothing, but I remain unnerved. What do you suggest I should do?
As I said, don’t worry and don’t act in haste.

And please remember, as always, this too shall pass!

9. Should I shift some money to gold? Heard it’s an insurance against bad times.
Being an Indian, I look at gold more from emotional and traditional reasons. You are right that it acts as insurance in times when other assets are cracking. But you don’t overdo on insurance, do you?

I would not have more than 10% of my portfolio in gold, and especially in case I need to gift it to my daughter in the future. I just do not think more than that is necessary. It does not produce the cash flows, plus its price depends on the greater fool theory. But does it need to be 15% of your portfolio? No, that is too much. I think you are better off owning stocks for the long run.

10. By the way, my portfolio manager just gave me some good news. I made a profit of 40% last year, and now my portfolio is down 30%…so I am still net-net 10% in profit. That’s comforting, isn’t it?
Fire your portfolio manager! 100 growing to 140 and then falling by 30% doesn’t become 110. It becomes, hold your breath, 98. So, I’m sorry, but you are -2% down!

11. Oh my God! Well, let me finally confess something. I recently doubled down on stocks and bought a lot based on my manager’s and friend’s advice. They recommended some beaten down businesses in the NBFC space, though I don’t really understand how that business works. Anyways, now these stocks are substantially lower in prices now. What should I do of them?
Please take my advice here. Sell all your stocks, even if in a loss, and move completely out of the stock market. It is not a place for you. Come back only when you are wiser about your investments, know where you are putting your money, and are willing to do your own homework before investing your hard-earned money.

12. What stocks you are buying?
Short answer – Please spare me!

Long answer – See I told you, the stock market is not a place for you. You will ask for my tips, and God forbid, I give you some, you will blindly invest in them. Then, when those stocks fall and you lose money, you will abuse me and tell me what a fool I am.

So, let me tell you upfront that I am a fool with no good stock tips to offer. Plus, I have been wrong many times in the past. As Jesse Livermore is supposed to have said – “Tips! How people want tips! They crave not only to get them but to give them. There is greed involved, and vanity. It is very amusing, at times, to watch really intelligent people fish for them. And the tip-giver need not hesitate about the quality, for the tip-seeker is not really after good tips, but after any tip. If it makes good, fine! If it doesn’t, better luck with the next.

“It has always seemed to me the height of damfoolishness to trade on tips.

“Tips are just that. Tips. Following blindly is setting you up for epic ruin. First of all you have no idea what position that tipper is in. He may not even hold the stock he is recommending. Even if he is, you have no idea when he will unload his lot. Suppose he is selling his stock to you. Then you would be forced to dump it to someone else for a higher price.”

Got it? No? So again, please spare me!

 

https://www.safalniveshak.com/stock-market-crisis-questions-answered/

 

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Howard Marks Latest memo from Howard Marks: On the Other Hand

Author: Tan KW   |  Publish date: Mon, 29 Jul 2019, 2:26 PM


 Howard Marks Latest memo from Howard Marks: On the Other Hand

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Investing in Uncertain Times - safalniveshak

Author: Tan KW   |  Publish date: Fri, 26 Jul 2019, 3:16 PM


…is almost always more profitable than investing when everything seems certain.

Investors, like most people going about their daily lives, don’t like doubts and uncertainties. So, they pay money and give up opportunities to avoid it.

Of course, it’s a good idea to avoid entirely what you can’t totally get your mind around, successful investing is largely about living through the uncertainties.

If you need reassurance, you’re giving up quite a bit to get it. Like high fees to experts who would predict the future (which you falsely believe as reassurance, which it isn’t), or expensive prices for stocks (because everyone knows their future is clear, which often isn’t).

On the other hand, if you can get in the habit of seeking out uncertainty, you’ll have developed a great instinct. Plus, in the long term, it’s highly profitable.

Mohnish Pabrai wrote in his brilliant book The Dhandho Investor

Wall Street sometimes gets confused between risk and uncertainty, and you can profit handsomely from that confusion. The Street just hates uncertainty, and it demonstrates that hate by collapsing the quoted stock price of the underlying business. Here are a few scenarios that are likely to lead to a depressed stock price:

High risk, low uncertainty
High risk, high uncertainty
Low risk, high uncertainty

The fourth logical combination, low risk and low uncertainty, is loved by Wall Street, and stock prices of these securities sport some of the highest trading multiples. Avoid investing in these businesses. Of the three, the only one of interest to us connoisseurs of the fine art of Dhandho is the low-risk, high-uncertainty combination, which gives us our most sought after coin-toss odds. Heads, I win; tails, I don’t lose much!

While value investors are typically averse to taking high risks, that’s more a reflection of the price they’re willing to pay for any given investment than the types of situations they most often pursue, which are often fraught with uncertainty.

As businesses constantly evolve and change in response to challenges and opportunities, the lack of clarity around those changes. And the risks inherent in the potential outcomes can cause share prices to diverge widely from underlying business values.

The ability to recognize and capitalize upon that dynamic, and understand whether it’s temporary or permanent, is a key element of what sets the best investors apart.

 

https://www.safalniveshak.com/investing-in-uncertain-times/

 

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