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Kindle Notes & Highlights
by
Gautam Baid
Read between
August 10 - September 9, 2022
I limit second-line stocks to less than 20 percent of my portfolio.
The key to a lifetime of investment success is not to make brilliant or complex decisions but to avoid doing foolish things.
A black swan is something that comes as a complete surprise to everyone. It’s a risk that is unforeseen; therefore, by definition, it cannot be predicted.
Failure often comes from a failure to imagine failure.
‘worst case’ means ‘the worst we’ve seen in the past.’ But that doesn’t mean things can’t be worse in the future.”
Risk is always present, but we tend to become blind to it in bull markets.
In turbulent times, it pays to be a student of human behavior during similar chaotic situations in history.
Businesses with staying power have stable product characteristics, a strong competitive advantage, a fragmented customer and supplier base, prudent capital allocation, a growth mind-set with a razor-sharp focus on long-term profitability and sustainability, a corporate culture of intelligent and measured risk taking, a cash-rich promoter family or parent company that can infuse capital during periods of high stress, a highly liquid balance sheet, and both the willingness and the capacity to suffer by investing for the long term at the expense of short-term earnings.
From an investor’s point of view, staying power comes from a strong passion for the investing discipline; a constant learning mind-set; a long remaining investing life span; low or no personal debt; frugality; discipline; a sound understanding of human behavior, market history, and cognitive biases; a patient, long-term mind-set; and a supportive family whose importance is appreciated in a big way during the periodic rough times in the market.
Be a business analyst, not a market, macroeconomics, or security analyst. —Charlie Munger
your success will depend on your ability to ignore the worries of the world long enough to allow your stocks to succeed.
bad news is an event or headline whereas good news is a process or statistic.
A $10,000 investment in it turned into $2.25 million. But an investor would have had to suffer through two declines of more than 80 percent and several drops of more than 40 percent along the way.
a crowd goes from controlled logic to uncontrolled emotion, resulting in conscious personalities vanishing into a collective mind.
The key finding in Le Bon’s work is that crowds are mentally unified at the lowest, most barbaric common denominator of their collective unconsciousness—instincts, passions, and feelings—not at the level of facts or reason.
A bubble typically is characterized by some major technological revolution, cheap liquidity, financial innovation that disguises higher leverage
That’s such an obvious concept—that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that’s still going to be lousy. The money still won’t come to you. All of the advantages from great improvements are going to flow through to the customers.
the best time to buy a turnaround is when evidence of a turnaround is already in place. You won’t get in at the bottom, but you will have eliminated a lot of risk and uncertainty.)
you must understand the opposite side of the argument better than the person holding that side does.
Many investors fall in love with their existing holdings (especially if they have identified it after a lot of hard work) and subsequently engage in lazy thinking and do not conduct a rigorous opportunity cost analysis on a regular basis.
The opportunity cost mental model should be used in conjunction with the circle of competence principle. Things that you are incapable of understanding should not form part of the opportunity set from which you determine your opportunity cost.
As an investor, I have a simple rule when looking at new ideas. If I am going to add a new position to my portfolio, it needs to be “significantly better” than what I already own.
Don’t diversify just for the sake of it. Avoid adding anything to your life, your investment portfolio, or your business unless it makes them better.
Sector leaders in a niche area are promising investments, especially if they are identified at a small market-cap stage.
Develop a feel for the market.
most investors fail to distinguish between risk and uncertainty. When they encounter uncertainty, they equate it with risk and shun the stock in question. This creates great buying opportunities for value investors who shun risk (permanent loss of capital) but seek uncertainty on highly favorable terms (a large margin of safety).
it is better to buy a good company in a great sector than a great company in a bad sector.
People obsess about the problems in the world and underestimate the most persistent and bullish long-term phenomenon: the constant, inherent desire in the human race to improve its current state of being.
(no business does a large capacity expansion without strong conviction in the future demand for its product),
A lending business that has just raised a large amount of growth capital should be viewed in the same way as a manufacturing business that has just completed a big capacity expansion.
It turns out that lucky people characteristically organize their lives in such a way that they are in position to experience good luck and to avoid bad luck….
Nothing sedates rationality like large doses of effortless money.”6
Focus on the “karma”—the process and action—and not on the outcome.
You can borrow someone’s idea, but you will never be able to borrow their conviction.
When you blindly clone someone else’s stock picks without doing any due diligence, you forgo the very aspect that makes value investing such an intellectually satisfying activity.
Always zoom out—think in terms of percentage changes in your overall wealth rather than absolute value changes in your individual stocks.
We should embrace inactivity and avoid disturbing the process of compounding
It is more effective to design an environment in which you don’t need willpower than to rely on willpower to conquer your surroundings.
The goals of investment should be happiness, joy, growth, intellectual satisfaction, and eventually, peace, and serenity. Wealth and financial prosperity are natural by-products of lifelong learning.
In addition to the greater tax outgo, be mindful of the huge impact that tiny frictional costs can have on your net worth in the long run.
Reinvesting your dividends through a dividend reinvestment plan (DRIP)
there’s 27,000 public companies.
