I was lucky to attend my dear friend Vishal Khandelwal’s Safal Niveshak Investing Workshop held yesterday, Sept 30, 2018, in Mumbai. It was one of the best investments of time I have made.
I was refreshing my memory and noting down some of my learnings from the workshop and I felt that this is something worth sharing with you too.
Vishal takes you through a whirlwind in this day long workshop which was all about value investing.
The first thing to remember is that all good investing is value investing. Everyone else is fooling themselves. This is something I see all good investors say.
The second thing is that you need not be a large investor with pots of money to be successful.
Even if you are a small investor, you can be successful with stock investing. The only requirement is that you learn the key principles of value investing and put them into practice, diligently.
Here are a few of my takeaways.
- Stock investing is tricky. Most people think they are investors in stocks but they are actually not. They are speculators. What’s the difference?
- An investors does thorough analysis of the opportunity/idea/business to know if something is well worth the money or not. If you are not doing that or relying only on the price of the stock, you are a speculator.
- Investors think like owners. They are there to get a pie of a good quality business and share its earnings and growth. If you are a business owner, you can be a good investor and vice versa.
- Which stocks to buy? Ideas are all around you, specially in things you use. But there is more to it.
- You may find a great idea or a stock. However, a business might look great based on what you hear and see. You should put it to the quality test with analysis.
- You need first, the business analysis and then financial analysis to build your shortlist of stocks to invest in.
- You MUST read annual reports and go through the financial statements (Balance Sheet, Profit & Loss, Cash Flow). In fact, pick one company the products of which you use and read up its annual reports. Get a sense of the business, the brand, the competitive advantages, etc.
- You must do a thorough analysis to see if the business has quality earnings, balance sheet is solid and cash flows from business operations can support growth. Does it translate into moats or competitive advantages that will allow the business to benefit from that its competitors?
- Don’t blindly copy others and invest in smallest or micro companies. There is good money to be made in established, high quality businesses too.
- Avoid bad managements, volatile earning records. This can be made out to a great extent by just reading through the annual reports.
- A good business may not be a good stock to buy. Buying at the right price is important.
- There is a market price and there is the underlying or intrinsic value of a business. You must determine the intrinsic value and hence the price that you wish to pay. Basically, as an investor, you are better off getting a bargain on the buying price itself than hoping to sell at a much higher price. This is the essence of Margin of Safety.
- On intrinsic value calculations, while we can’t tell the exact weight of a person or exact age of a woman but we want’t an exact price to buy or sell a stock of a business. Wishful thinking! A range is good enough to take stock.
- There are several ways to figure out the intrinsic value of a business. You can use Discounted Cash Flow method to find out the intrinsic value of a business. However, it can be heavily wrong and biased by your views of the business.
- Instead figure out what the market is expecting. Use Reverse DCF. That is, find out the growth rates the market is expecting at the current price. Invert, always Invert!
- Oh yes, you will need a spreadsheet to do some analysis. Remember though, more fiction is written on MS Excel than on MS Word. At the end, an excel spreadsheet is only a tool. It can help you in your decision but it cannot dictate your decision.
- When it comes to stocks, our mind can drive us bonkers. Your brain/mind will be your biggest enemy in being a successful investor. So, to become a successful stock investor, you need to know the pitfalls that your brain can get you into. Learn mental models to steer clear of pitfalls and make better decisions.
- As an investor, you can develop a significant advantage over more than 99% investors by just doing two things – having a long term time horizon (over 5 years, may be 10 years) and reading annual reports.
- While our mind can create enough fiction on our own, one other fiction that can be very useful to you as an investor is Sherlock Holmes – you have heard that name, right! There are several other books (apart from investing) that you must read.
- Don’t be afraid of mistakes. No investor has a 100% hit rate. In fact, most have made some really bad choices, which turned into valuable lessons for them.
- Keep learning, taking small steps and over many years you can build a portfolio that works for you.
While I stop here, this is by no means even a small portion of what all I learnt. There is a lot lot more about when to sell, margin of safety and learnings from some of the best investors.
Now, if are planning to build your own portfolio of stocks and you have so far not made it to the Safal Niveshak Investing Workshop, you must grab the next chance. I benefited a lot, I believe you can benefit too.