20 Rules of Personal Finance, 7 Traits of Successful investor and All about Meeting Management
Premium Issue - 22
Hi, Welcome to the 22nd Special Edition
Brief Overview of What We will cover in this Issue
Detailed Key Takeaways from the book I am reading Currently
5 Decent Articles to read and Key Takeaways from them.
7 Traits of Successful investor
20 Rules Of Personal Finance
All about Meeting Management
How to handle information overload while Investing (short term) - (Video Clip)
Relevance of P/E in valuation and Risk Management (Video Clip)
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Everything You Need To Know About Saving For Retirement (Ben Carlson) - Part-2
YOU GET WHAT YOU DON’T PAY FOR
Holding low-cost funds doesn’t guarantee that you’ll earn higher returns on your savings but it does guarantee you’ll take home more on a net basis than the alternative the majority of the time.
Of course, expense ratios are not the only costs you incur as an investor. The biggest cost can often come from your own behavior in terms of constantly trying to time the market by jumping in and out of your investments depending on how you feel about the current market or economic environment. Your biggest enemies when it comes to investing are inflation, taxes, costs, and human nature.
DIVERSIFYING ACROSS TIME
Trying to get too cute with the timing of your purchases is sure to lead to suboptimal results eventually because market timing is a game no one can win consistently.
The reason the simple approach beats God is that investing on a regular basis over the long haul gives your savings more time to grow. Constantly trying to invest at the bottom of the market means sitting on the sidelines and missing out on valuable dividend payments and market appreciation.
When dollar cost averaging sometimes you buy higher. Sometimes you buy lower. Sometimes you buy when stocks are undervalued. Sometimes you buy when stocks are overvalued. The only thing that matters is that you keep buying.
Volatility in the stock market is no longer your enemy but your friend. It allows you to average at different price points during different market environments. As a net saver, you should welcome down markets from time to time. Young people with decades ahead of them should say a prayer for falling markets every night before they go to bed.
YOU WILL LOSE MONEY
Only three things in life are promised– death, taxes, and stock market declines.
In the short term, the reasons for market sell-offs feel like they matter a lot and downturns feel like they’ll never end. In the long term, investors tend to forget the specific reasons stocks fell in the past and all corrections look like buying opportunities.
It’s never fun to see that money temporarily disappear but maxing out your IRA would more than make up for the market value loss in your portfolio and leave you with an ending balance of $ 26,000 in that scenario.
Go during stressful market situations. Sometimes you have to fool yourself into staying the course because the temptation to sell is so great when prices are all over the map.
Tricking yourself into saving more can be more useful than most people imagine because knowledge alone is never enough to change your behavior.
WHEN INFORMATION IS USELESS
Human nature is such a powerful force that it can act against your own best interests. Knowledge alone is never enough to change behavior.
Statistics don’t stick with us but stories do.
For your finances: Spend less than you earn, live below your means, prioritize your spending, save and invest early and often, and don’t take on excessive levels of debt.
Unfortunately, this information is useless unless it’s paired with an intelligent concrete plan to change behavior. It’s estimated that 95% of people who lose weight using a diet end up gaining the weight back. Bad habits are hard to break.
TREAT YOUR SAVINGS LIKE A NETFLIX SUBSCRIPTION
For the rest of us, we are constantly trying to strike a balance between enjoying life now and ensuring we have the resources to enjoy life later.
The hardest part about planning for your financial future is a simple fact that no one knows what’s going to happen.
I’ve been a saver for as long as I can remember. So balance for me has been reminding myself that it’s okay to spend money on those areas I care about and cut back on everything else. A life with a full bank account but no experiences or enjoyment is pointless. But a life with an empty bank account can steal your enjoyment now and later in life so there are always trade-offs to consider.
No one ever teaches you about how to spend, or more importantly, prioritize, how you spend.
You simply spend whatever is left over after your retirement contributions and bills have been auto-deducted from your checking account. This allows you to spend money without feeling guilty about it because you’ve already taken care of the financial necessities. It also forces you to spend more on those things that make you happy and cut back elsewhere. Of course, this strategy still requires some thought about what spending areas truly matter to you.
WHEN CAN I RETIRE?
When you first set out to save and invest your mindset is often stuck on the idea of becoming rich. As you age and priorities shift, that mindset turns into a fear of dying poor
Stock market crashes and recessions can be scary to live through, especially For retirees who no longer have the human capital or time to wait out a prolonged downturn. But your biggest risk is not market or economic volatility, but running out of money before you keel over.
You’ll never be able to figure out how much enough is in terms of your retirement savings if you don’t have a deep understanding of your spending.
Your investment plan doesn’t need to change every time stocks rise or fall but you do have to incorporate real-world market performance with your built-in expectations.
Any useful investment plan takes into account the need for course corrections on occasion. As the old saying goes, “Plans are useless but planning is indispensable.”
It will be nearly impossible to implement a sound investment plan if you don’t have a handle on your sources of income during retirement.
There are all sorts of risks to consider during retirement including outliving your money, inflation, emergencies, unplanned one-time expenses, healthcare costs, the sequence of your investment returns and general market volatility. This is why diversification among stocks, bonds, cash and other assets is so important. It helps you plan for the wide range of outcomes life tends to throw at you.
The financial aspects of retirement can seem overwhelming but the first step in the process boils down to figuring out what you want to do with your life during your retirement years. You’ll never be able to figure out your finances if you don’t first figure out what you want to buy with your life savings. The entire reason you’re saving in the first place is to purchase your freedom. You’re buying your own time.
So what are you going to do with that time? Travel? Volunteer? Read more? Spend more time with family? Only work on projects that interest you? Even the greatest retirement planning in the world won’t get you very far if you haven’t decided how you’ll spend your time and money. People often spend decades investing their money without giving a second thought to how they’ll invest their time. Studies have shown that experiences and giving back to others often bring the greatest happiness to retirees and help ward off the potential depression which can afflict many who leave the working world.
You can run through all the calculations and spreadsheets you want but life will inevitably get in the way as some of your assumptions will be proven wrong.
In a way, there’s a lot of guessing involved in the process. This is why financial planning is a process and not an event. You don’t simply set a course of action and follow that exact plan for your remaining days. Financial plans should be open-ended because there will always be corrective actions, updates, changes in strategy and difficult decisions that have to be made.
There’s never a perfect time to retire just like there’s no such thing as a perfect portfolio.
Saving, investing and getting your personal finances in order is always more of an exercise in psychology than math especially when money is involved.
Consistency matters but life are inconsistent.
Change can disrupt your retirement plans.
Turning a little money into a lot of money is about patience but patience is useless without a side of discipline and consistency. “Enough” means different things to different people. There is no perfect number when it comes to retirement planning. The end goal will always depend on your circumstances, the standard of living, spending preferences, lifestyle choices, and relationship with money.
WHAT IF YOU GET A LATE START SAVING FOR RETIREMENT?
The best time to start saving was 10 years ago but the second best time is today. Don’t be discouraged if you’re in this place. Many people in this same situation give up saying it’s too late but that’s not the case.
Taking more risk in your portfolio doesn’t guarantee you anything in the markets. The market won’t give you good returns just because you need them. Your savings rate is something you control while no one controls the returns thrown off by the financial markets.
THE 2O RULES OF PERSONAL FINANCE
The whole point of this book is to drive home the importance of personal finance and saving but just to sum things up before a concluding chapter,
1. Avoid credit card debt like the plague.
Not all debt is necessarily bad but credit card debt is by far the worst. If you carry credit card debt for a prolonged period of time, you’re not ready to invest your money in the markets.
2. Building credit is important.
use credit cards to build a solid credit history, but always pay off the balance each month.
3. Income is not the same as savings.
Having a high income does not automatically make you rich; having a low income does not automatically make you poor. All that matters is how much of your income you set aside, not how much you spend. Anyone can spend money to appear wealthy, but true wealth comes from the absence of spending in the form of saving.
4. Saving is more important than investing.
The best investment decision you can make is to set a high savings rate because it gives you a huge margin of safety in life.
5. Live below your means, not within your means.
The only way to get ahead financially is to consistently stay behind your own earnings power.
Delayed gratification is poor branding so just think about this in terms of the time you can buy yourself in the future to do what you want when you want to do it.
6. If you want to understand your priorities look at where you spend money each month.
The goal is to spend money on things that are important to you but cut back everywhere else.
7. Automate everything.
The best way to save more, avoid late fees, and make your life easier is to automate as much of your financial life as possible.
8. Get the big purchases right.
most important purchases in terms of keeping your finances in order will be the big ones - housing and transportation. Overextending yourself on these two purchases can be a killer because they represent fixed costs and come with more ancillary expenses than most people realize.
9. Build up your liquid savings account.
1O. Cover your insurable needs.
if possible, insure against it. Just remember that insurance is about protecting wealth, not building it.
11. Always get the match.
At the minimum, you should always save enough to get the match so you’re not leaving free money on the table.
12. Save a little more each year.
Few people have the means to immediately reach my goal of saving 10% to 20% of their income each year so the trick is to increase your savings rates every time you get a raise so you’ll never even notice you have more money, to begin with.
Avoiding lifestyle creep can be difficult, but that’s how you build wealth.
13. Choose your friends, neighborhood, and spouse wisely.
Find people to spend your life with who have similar money views as you and it will save you a lot of unnecessary stress, envy, and wasteful spending.
14. Talk about money more often.
Money is a topic that impacts almost every aspect of your life in some way. It’s too important to ignore and sweep under the rug.
15. Material purchases won’t make you happier in the long run.
There is something of a short-term dopamine hit we get through retail therapy but it eventually wears off. Buying stuff won’t make you happier or wealthier because true wealth is all of the stuff you don’t waste money on.
16. Read a book.
There are countless personal finance books out there. If it bores you to death then at least skim through a few and pick out the best pieces of advice from a few different sources to test out.
Invest some money, time, and energy into yourself. It’s the best investment you can make.
17. Know where you stand.
Before knowing where you want to go you have to know where you are. This allows you to make course corrections along the way to your savings rate, investment strategy or financial plan.
18. Taxes matter.
Take advantage of as many tax breaks as you can and always understand your personal tax situation.
19. Make more money.
Saving and/ or cutting back is a great way to get ahead, but it’s an incomplete strategy if you’re not trying to earn more by enhancing your career.
That’s nonsense. You must learn how to sell yourself, improve your skills and negotiate a higher income over time.
2O. Don’t think about retirement, but financial independence.
The goal shouldn’t be about making it to a certain age so you can ride off into the sunset, but rather getting to the point where you don’t have to worry about money anymore. Time is the most important asset in the world because you can’t manufacture more of it.
Retirement is a concept that is still evolving and no one knows how they’ll feel once they reach that age. Becoming financially independent allows you to make decisions about how you spend your time on your own terms.
CONCLUSION: LET ME CONVINCE YOU TO KEEP IT SIMPLE
The advice doesn’t have to be complicated to be effective.
While I can’t prove this as 100% fact, here are the reasons why I believe simple beats complex in the investment world:
It’s easier to be fooled by randomness and complexity. If you torture the data long enough it’s bound to tell you exactly what you want to hear. Complexity invites data-mining, over-optimization, and seeing correlation where there is no causation. Right or wrong, simplifying makes it harder to game your own system.
Complexity is about tactics; simplicity is about systems. Tactics come and go but an overarching philosophy about the way the world works can help you make better decisions in many different scenarios. Simple doesn’t go out of style.
Simple is harder. You have to fight to keep things simple because our natural human impulses make us susceptible to stories and narratives.
Simplicity is more of a psychological exercise while complexity is more about trying to outsmart the competition.
Complexity can lead to unanticipated consequences. Simplicity was once described to me as the art of thoughtful reduction. Sherlock Holmes once said, “If you eliminate the impossible, whatever remains, however improbable, must be thet ruth.” Complexity, on the other hand, opens you up to far more possibilities and surprises, and not always in a good way.
Simplifying is about focusing on what you can control and understanding what you cannot.
Complex problems don’t require complex solutions.
We all want to believe that the Holy Grail of investment sophistication exists and if we can only find the secret sauce all of our problems will be solved. This is why get-rich-quick schemes will always find an audience.
Simple is easier to understand. It’s hard to put a value on the ability to understand exactly what you’re doing and why.
Charlie Munger once said, “Simplicity has a way of improving performance through enabling us to better understand what we are doing.”
Maybe the title of this book was a tad misleading. You won’t find everything you need to know about saving for retirement on these pages. But get the simple stuff right and you’re 95% of the way there.
Everything else will only make small differences around the edges. If you get just 3 big things right when it comes to your money decisions you’ll be better off than the vast majority of Americans:
(1) Save a double-digit percentage of your income.
There are no guarantees in life or finances but saving a decent chunk of your income is one way to allow some room for error. If you can’t get to this goal right away, slowly increase your savings rate over time so you can see some small wins and work up to it.
(2) Automate as much as humanly possible.
Automate your bill payments. Automate savings from your paycheck or checking account. Automatically increase your savings rate every year. And make your investment strategy as rules-based as possible.
(3) Get out of your own way.
This is the hardest one for most people. Knowledge alone is not enough to change your ingrained human nature or the lesser version of yourself.
Someone once asked Amazon founder and CEO Jeff Bezos the best advice he ever received from Warren Buffett. Bezos asked the Oracle of Omaha, “Your investment thesis is so simple, you’re the second richest guy in the world, and it’s so simple. Why doesn’t everyone just copy you?” To which Buffett replied,“ Because nobody wants to get rich slow.” Getting rich slow is relatively simple. But it is definitely not easy.
These are some of the books that have had the biggest impact on my personal finances over the years:
Excerpts and Learning from Articles/Blogs
1) What You Can Learn From One of Warren Buffett’s Smartest Investors
Most investors are better off not trying to beat the market, instead buying passive funds that track a market index.
That efficient-market theory is often oversimplified into a belief no one can beat the market. Prof. Samuelson thought no such thing; he believed that investment skill does exist.
“There will always be some [investors] quicker and smarter than the others and hence capable of greater capital gains,”. Beating the market is hard; identifying people who can beat the market is even harder.
Mr. Buffett adds, “I do think if you know something about finance and about people, you may be able to identify someone out there who can overperform. But for everyone you identify who can, there’ll be 1,000 others who don’t turn out to be able to.”
“That’s what I’ve been telling every rich friend of mine for a long time,” Mr. Buffett says. “People who are rich just can’t accept that fact. If you’re rich, you can buy a lot of things, but on average you can’t buy above-average performance.”
2) Why everyone can’t become an options whiz
If options buying offers low probability of making money, the odds are better on the sell side. But option selling is more dangerous because of its limited scope for gains with unlimited scope for losses, if the stock goes up or down beyond all reason. You can curb losses with a stop-loss or a hedged strategy, but that calls for discipline and willingness to forfeit profits. Even with such rules in place, seasoned options sellers talk of Black Swan events gobbling up many months of profits in a single day.
While options gurus on Twitter and YouTube may tell you that such risks can be easily managed through strategies and rules, greed is a powerful influence on the human mind. Newbies on a winning streak begin to think that they’re skilful traders and take on outsized bets that lead them to ruin. Those on a losing streak fall prey to revenge trading, where they take on irrational risk to claw back their losses from ruthless Mr Market.
Those who’ve succeeded at options trading are often those who’ve perfected their skills at reading technical charts, assessing probabilities and doing nimble mental math to respond to whimsical markets.
For one, webinars can only teach you the principles of options trading and cannot train you to handle your emotions. Two, when ‘professional’ traders share their live trades with legions of followers, you need to ask whether this is purely out of altruistic motives or to amplify their own profits through front-running. If an options trading system is really minting millions for someone, you also need to ask why she is so generously sharing it with you for a nominal fee.
Seasoned traders say that making one’s winning system public is shooting oneself in the foot because, because if hundreds of others pile on to it, executing the strategy and profiting from it becomes an uphill task.
3) Structural Advantage(Moat) And 7 Traits of Successful investor (Mark Sellers)
An economic moat is a structural thing. It is like Southwest Airlines in the 1990s ñ it was so deeply ingrained in the company culture, in every employee, that no one could copy it, even though everyone kind of knew how Southwest was doing it.
If your competitors know your secret and yet still can’t copy it, that is a structural advantage. That is a moat
There are really only four sources of economic moats that are hard to
duplicate, and thus, long-lasting.
One source would be economies of scale and scope. Walmart is an example of this, as is Cintas in the uniform rental business or Procter & Gamble or Home Depot and Loweís.
Another source is the network effect, ala eBay or Mastercard or Visa or American Express.
A third would be intellectual property rights, such as patents, trademarks, regulatory approvals, or customer goodwill. Disney, Nike, or Genentech would be good examples here.
A fourth and final type of moat would be high customer switching costs. Paychex and Microsoft are great examples of companies that benefit from high customer switching costs
These are the only four types of competitive advantages that are durable because they are very difficult for competitors to duplicate. And just like a company needs to develop a moat or suffer from mediocrity, an investor needs some sort of edge over the competition or he’ll suffer from mediocrity
Just as with a company or an industry, the moats for investors are structural. They have to do with psychology, and psychology is hard-wired into your brain. It’s a part of you.
There are at least seven traits great investors share that are true sources of advantage
Trait #1 is the ability to buy stocks while others are panicking and sell stocks while others are euphoric. Everyone thinks they can do this, but then when October 19, 1987 comes around and the market is crashing all around you, almost no one has the stomach to buy. When the year 1999 comes around and the market is going up almost every day, you can’t bring yourself to sell because if you do, you may fall behind your peers. By late 1999, all these people knew with great certainty that stocks were overvalued, and yet they couldn’t bring themselves to take money off the table because of the ‘‘institutional imperative’’ as Buffett calls it.
The second character trait of a great investor is that he is obsessive about playing the game and wanting to win. These people don't just enjoy investing; they live it. Unfortunately, you can’t learn to be obsessive about something. You either are, or you aren’t. And if you aren’t, you can’t be the next Bruce Berkowitz.
A third trait is the willingness to learn from past mistakes. The thing that is so hard for people and what sets some investors apart is an intense desire to learn from their own mistakes so they can avoid repeating them. Most people would much rather just move on and ignore the dumb things they’ve done in the past. But if you ignore mistakes without fully analyzing them, you will undoubtedly make a similar mistake later in your career.
A fourth trait is an inherent sense of risk based on common sense. I believe the greatest risk control is common sense, but people fall into the habit of sleeping well at night because the computer says they should. They ignore common sense, a mistake I see repeated over and over in the investment world.
Trait #5: Great investors have confidence in their own convictions and stick with them, even when facing criticism. Buffett never get into the dot-com mania thought he was being criticized publicly for ignoring technology stocks. He stuck to his guns when everyone else was abandoning the value investing ship and Barron’s was publishing a picture of him on the cover with the headline ‘‘What’s Wrong, Warren?’’ Of course, it worked out brilliantly for him and made Barron’s look like a perfect contrary indicator.
Sixth, it’s important to have both sides of your brain working, not just the left side. In business school, I met a lot of people who were incredibly smart. But those who were majoring in finance couldn’t write worth a damn and had a hard time coming up with inventive ways to look at a problem. As an investor, you need to perform calculations and have a logical investment thesis. This is your left brain working. But you also need to be able to do things such as judging a management team from subtle cues they give off. You need to be able to step back and take a big-picture view of certain situations rather than analyzing them to death. You need to have a sense of humor and humility and common sense. And most important, I believe you need to be a good writer. Look at Buffett; he’s one of the best writers ever in the business world. It’s not a coincidence that he’s also one of the best investors of all time. If you can’t write clearly, it is my opinion that you don’t think very clearly. And if you donít think clearly, you’re in trouble.
And finally the most important, and rarest, a trait of all: The ability to live through volatility without changing your investment thought process. This is almost impossible for most people to do; when the chips are down they have a terrible time not selling their stocks at a loss. They have a really hard time getting themselves to average down or to put any money into stocks at all when the market is going down. People don’t like short-term pain even if it would result in better long-term results. Very few investors can handle the volatility required for high portfolio returns. They equate short-term volatility with risk. This is irrational; risk means that if you are wrong about a bet you make, you lose money. A swing up or down over a relatively short time period is not a loss and therefore not a risk unless you are prone to panicking at the bottom and locking in the loss.
4) P/E Multiples are Deceptively Dangerous
Delusion #1: P/E multiple comparisons for the same rate of profit growth
Delusion #2: Mean reversion of P/E multiple for companies that keep improving capital efficiency
(Do read the full article to understand since they explained the concept beautifully with Business Analysis)
5) 2Point2 Capital Investor Letter
On Meeting Management
While management meetings can occasionally be useful, there are times when they can be counterproductive. Investors must be consciously aware of the behavioral biases that come with proximity to management to avoid taking suboptimal investment decisions. In other words, our mind “needs to be in a constant state of defense against all this crap that is trying to mislead us”.
Different Motivations: Investors and Management have very different motivations when they are interacting with each other. While investors expect to know more about the business in these meetings (especially the risks), most management look at these as sales meetings where they are “selling” the company. As a substantial owner or a part owner through ESOPs, the management is always incentivized to maximize the market cap by talking up his company. It is not in his or her interest to highlight the risks of investing in their company or the challenges faced by the industry in which the company is operating in.
Confirmation Bias: Management is most likely to reinforce the already positive views that the investor might have on the company. If investors are not careful, they are likely to subconsciously confirm their investment thesis on the company instead of challenging it.
Most management will avoid saying anything that dilutes the investment thesis for the investor.
Stockholm Syndrome: As investors spend hours with the management, they develop deep levels of trust and friendship with the management. They are also sometimes enamored by their magnetic personality / or intelligence.
Management always had a way of justifying every red flag that the diligence threw.
Self-Deception: Most management are storytellers (not in a bad way). In many cases, management themselves start believing the stories they have been telling investors. The management may blame “one-offs” or external circumstances for the failure to meet guidance instead of conceding that the business is not performing as per expectation.
No Short-Term Information Edge: Investors should be aware that the information being shared with them is also being shared with a larger number of investors and is probably already reflected in the price.
When are management meetings useful?: Management meetings can be useful in at least two situations. One, investors can learn more about the business model, unit economics, industry structure, etc by interacting with the management. Interaction with the management can fill some of the knowledge gaps that the investor may have. However, it is important not to rely completely on him/her to fill this gap. One must interact with various external participants such as customers, suppliers, competitors, ex-employees, etc to validate their investment thesis and more importantly figure out the risks that no management will tell them.
management meetings can be useful to understand the business/sector, and or relay feedback to management but are definitely not useful to make investment decisions solely based on insights from these meetings. Such meetings may often be counterproductive in taking an unbiased view of the company.
Small Video Clips
➢ S Naren Interview by Equity Capital
Don't Deteriorate your portfolio quality in Bull Market (14:37 to 16:17)
Switching/Selling and 3 Main pillars of Investing (26:54 to 31:03)
Stock Charts (S Naren also watches charts before buying/selling) (32:40 to 35:42)
Investing during inflation, view on money printing (40:11 to 43:35)
➢ Raunak Onkar (PPFAS) interview by Multipie
Relevance of the P/E ratio in Valuation (06:25 to 10:06)
How to Build conviction when you invest and why it is important? (11:28 to 15:17)
How to handle information overload (20:40 to 26:07)
Risk Management Strategy (45:21 to 47:48)
How to read a book effectively? (57:10 To 59:33)
➢ Jim O'Shaughnessy interview
This 4 Investing Apocalypse is more responsible for losses than a bear market (01:36 to 05:28)
Possibilities vs Probabilities (06:54 to 10:05)
Why Buffett's Market Cap to GDP ratio is not relative now? (26:31 to 32:52)
Best-investing advice for most people (50:57 To 52:38)
➢ Future Today Summit held by BQ Prime
Ridham Desai (Global Landscape for Indian Equities) (From - 07:25)
Ravi Pandit (KPIT Technologies) Future of Mobility (From - 48:25)
Kalyani Group & Paras Defence(A ground check on Defence Sector) (From - 01:32:02)
The Big unbundling - ONDC (From - 03:02:48)
Tata Power and JSW Energy (On Power Sector) (From - 03:54:22)
amazing, one of my favorite issue till now, <3
Just an amazing issue!! 👍👌