“Many shall be restored that now are fallen and many shall fall that now are in honor.” - Horace
I started active investing in 2019 and it's been 4 years of enlightening experience. And I use the word ‘enlightening’ for many reasons. Let me share a few -
I used to think investing is easy, only to find out it's not. It’s (very) hard.
I assumed that reading books would teach me a lot about great investors and their strategies, but it doesn’t. It informed me and made me aware of history, that’s it.
I aspired to walk on the path of these investors and emulate their success. I’m only beginning to realize that it’s almost impossible to duplicate them.
I thought others have human biases and I could see them clearly, but I’m beginning to understand that I’m blind to my biases and hence vulnerable to making as many stupid mistakes as others.
There are many more realizations but I’ll leave that for another day. But this investing game is like 3D Chess - you think your move is a good one unless the counter move puts you in a spot from where, every next move of yours could be a costly one.
And what makes the game even more complicated is the tendency for parabolic discounting from investors and media i.e. humans, as well as other animals, have a natural tendency to vastly overvalue the present and undervalue the future, while also dramatically overestimating our future self-control.
At one time, Nikola Corporation was the darling of the EV Industry and umpteen publications and media channels would shout out loud about the potential of this Tesla Challenger.
It’s taken only 2.5 years for the shareholders to lose 97% of the value since its peak in June 2020. And the founder, Mr. Trevor Milton has been charged with two counts of securities fraud and two counts of wire fraud, pertaining to statements he made while he was acting chairman and CEO of Nikola.
This is an example of optimism about a company turning its founder into a hero and the investment bet as flawless. Only to be brought down to its knees later and looked at as a hopeless situation for its shareholders.
“In a bull market, favorable developments lead to price rises and lift investor psychology. Positive psychology induces aggressive behavior. Aggressive behavior leads to higher prices. Rising prices encourage rosier psychology and further risk-taking. This upward spiral is the essence of a bull market. When it’s underway, it feels unstoppable.” - Howard Marks
In the same period, Oil & Gas has been targeted by Environmentalists, banks have cut funding to this sector, drilling rights have been withheld, pipeline projects have been stalled and inspite of all the bad news in this sector, Chevron stock has risen 200% +, turning a hopeless bet in the face of ESG activism into a flawless one for investors that could see the supply constraints in this commodity.
In just a few years, the whole narrative and sentiment have changed. Exogenous factors or shocks could play a role in this development (Oil & Gas), investigative journalism could shine a light on the skeletons in the cupboard (NMC Group), or human stupidity will get the worse out from incompetent leaders (Nikola). Either way, you could always be caught on this rollercoaster ride between flawless and hopeless.
And this is a wild ride to be on. It becomes very difficult to have an independent view on something when the entire world (at least everyone around you) is talking about a particular asset class eg. Crypto & NFTs. Every Tom Dick & Harry owned it, were leveraging on their Crypto positions, and were buying bored apes being sold on a Ninja Island in the Metaverse.
It was a flawless-looking bet for many, not just Millenials. And here we are looking at 67% of the Bitcoin valuations eroded in the last 1 year alone and many other cryptocurrencies being completely wiped out (Luna), swindling investors of their hard-earned savings.
And I won’t be surprised if you bought into it too because it “felt” like the right thing to do or a “cool” thing to own. “Felt” doesn’t mean we understood it, we just had an opinion based on everyone talking about it and the smartest people in the world also getting involved in it. “Cool” is irrelevant in the world of investing unless it produces a competitive advantage for the company in consideration.
I too have a position in Bitcoin, Ethereum, Avalanche, and Chainlink and I must admit that I do not understand how these blockchain platforms work or their specific use cases. I have a vague understanding of these and was punting on them while keeping my exposure at less than 1.5% of my whole portfolio.
The allocation has saved me, but the losses have only emphasized the adage from Warren Buffet “Stay in your circle of competence.”
Similarly, Northrop Grumman in US and HAL in India were not looked upon due to COVID impact on Aeronautics and not much happening in Defense. Both have turned into multi-baggers, purely because of the very reason they were shunned i.e. they are involved with Aeronautics & Defense. Another hopeless-looking bet that turns flawless for its investors.
Thinking about these gyrations in stock prices of companies reminds me of Morgan Housel’s quote, “A big takeaway from economic history is that the past wasn’t as good as you remember, the present isn’t as bad as you think, and the future will be better than you anticipate.”
I have read this quote umpteen times already, only to serve as a reminder for reconsidering the opinions I may have for events, stocks, or people. I have to ask myself if I’m being swayed away by emotions (mine or others), or am I being seduced by a very strong narrative/story, or am I objectively assessing the topic at hand?
So much of what we consume is purely an opinion, a story, a narrative - could be greed or fear hyped up to 10X proportion - could be spreading virally inducing FOMO from all participants - leading to a tug of war between chasing dreams or exercising caution - tipping the scales on the side of the majority - leading to highs and lows - resulting in the same company looking hopeless today turning into flawless tomorrow.
Not getting sucked in this storm isn’t easy but it’s a necessity for playing this game well. Forming an independent opinion takes a lot of time and energy but there is no way out. Building connections in the industry is a decade-long adventure, but it’s worth it.
I may not have been able to emulate the greatest investors, but I surely am becoming a better version of myself.
Looking forward to where the journey takes me.
You are welcome to join me on the ride :)
Recommendations for the week #
My wife and I have been hooked on an Apple TV series called ‘Bad Sisters’. It’s a fantastic show with so many twists and turns, that it will keep you on the edge of your seat while you also admire the acting of every single actor, especially the narcissist John Paul 👌
Morgan Housel’s post on ‘Little Rules about Big Things’ is a Must Read. Don’t just read it for reading's sake. This piece is a collection of a few of the best one-liners from Morgan’s own toolkit. Read every line and think about how it applies to you and your decision-making framework, because it does.
Came across an upcoming HipHop talent in India and her performance on the Reality Show called Hustle 2.0 was breathtaking. I loved it and can’t stop listening to all her songs. ‘Chill Kinda Guy’ was the best one. Enjoy :)
Wishing you all a Happy Diwali in advance and may you be blessed with a bountiful year ahead🎇
Loads of love and luck.
Manish
Hi Manish
Always look forward to your weekly mail and I keep taking valuable lessons / keep firming up the existing ones.
May Goddesses Saraswati and Lakshmi keep the blessings on you, always.
Happy Diwali