You can read the first two parts of this interview at the following links:
Compared to good old days, the amount of noise (useless information in common terms) is much more today. How do you cut out the noise and remove personal biases while evaluating potential investment?
I think one of the keys to investment success is to avoid noise. And the best way to avoid noise is to learn to say ‘No’.
I say ‘No’ to a lot of things. In fact, to most things. That helps. I don’t watch business television, nor do I read newspapers. I have not had a newspaper delivered to my house for the past 5-6 years now. Also, I do not participate in stock discussion forums. That saves me a lot of time and energy that I would have otherwise wasted amidst the noise all around.
It was of course difficult at the start to avoid noise because I used to mix that up with information, and information to me meant wisdom. But ever since I have learnt to differentiate between the noise/information, knowledge, and wisdom, I have tried to keep as much away from the first i.e., noise/information, soak in as much of the second i.e., knowledge, and work towards building wisdom. There’s a long road to travel to become wise, but my journey has begun.
You see, the problem with noise or information is not only that it is diverting and generally useless, but that it is toxic.
Look at how too much noise and information creates commitment and consistency bias amongst most of us. We want to consume so much information because we are perennially in search of the ones that are consistent with our worldviews.
So if I believe, say Tata Motors, is a great business, I will scour for information that proves it is a great business, and dismiss every information that tells me how foolish I am in my belief.
If I believe the Sensex is heading towards 100,000, I will keep myself busy searching for information that validates my belief, and ignore every person who tells me how the stock market does not move in a straight line.
That’s an utter waste for time and brainpower, both of which are in such short supply (at least I can say the same for myself).
In a recent post on Brain Pickings, which I suggest every one trying to become wise must read, the author Maria Popova shared an essay on seeking wisdom in the age of information. She wrote…
We live in a world awash with information, but we seem to face a growing scarcity of wisdom. And what’s worse, we confuse the two. We believe that having access to more information produces more knowledge, which results in more wisdom. But, if anything, the opposite is true — more and more information without the proper context and interpretation only muddles our understanding of the world rather than enriching it.
This barrage of readily available information has also created an environment where one of the worst social sins is to appear uninformed. Ours is a culture where it’s enormously embarrassing not to have an opinion on something, and in order to seem informed, we form our so-called opinions hastily, based on fragmentary bits of information and superficial impressions rather than true understanding.
The Dutch philosopher Spinoza suggested that wisdom is seeing things sub specie eternitatis, that is, in view of eternity.
A fundamental principle of wisdom is to have a long term perspective; to see the big picture; to look beyond the immediate situation.
That’s a great advice for me as an investor – to have a long term perspective; to see the big picture, and to look beyond the immediate situation. That’s the dawn of wisdom.
But them, wisdom requires humility. You must be teachable. You must be willing to live with understanding, with meaning, and with wisdom. And you can do all this only when you say “no” to noise.
This question came in from a reader of Stable Investor. How do you generate investment ideas? Is it through screening, or reading, or blogs, or from your personal sources like friends and fellow investors?
Well, it’s a mix of all.
As far as screening is concerned, I largely used Screener.in, owned and managed by my friend and fellow investor Ayush Mittal. I also sometimes used Morningstar and Google Finance. In fact, I had written a full-fledged post on screening and generating stock ideas here, which I would direct your readers to read.
While don’t read much apart from investment books, among the few magazines I read and find good are Forbes India and Outlook Business. These publish a lot of good insights on businesses, both listed and unlisted.
A few exceptional international blogs I read include Old School Value and Farnam Street, the latter not directly related to investing but to multi-disciplinary mental models.
Finally, I find a lot of great investment ideas inside my existing portfolio itself. 🙂
Thinking back, what would you say was most instrumental in your development toward investing sensibly and successfully in stock markets?
A. Finding my role models, I must say. Sensible investing is something you either pick up instantly or you don’t. So I have been lucky to get introduced to the writings of Buffett, Munger & Co., and then to Prof. Sanjay Bakshi. I just fell in love with what they had to say and that, I believe, has made the difference.
As I understand, you become the average of five people you spend the most of your time with. Three of those five people I spend most of my time with (not face-to-face, but vicariously) are Buffett, Munger, and Prof. Bakshi, and that has really helped me build a sensible process for investing.
How successful that process will be, only time will tell, but I am not worried about the outcome knowing that the process is all I have control on.
So yeah, to answer your question, finding the right role models has been the most instrumental factor in my development toward investing sensibly. And why just investing, these people have helped me tremendously in becoming a better, more humble person, than I was a few years back.
I would like to leave you here with a brilliant quote from Guy Spier’s book The Education of a Value Investor. He writes about the criticality for a budding value investor to find his role models early in life…
…there is no more important aspect of our education as investors, business people, and human beings than to find these exceptional role models who can guide us on our own journey.
Books are a priceless source of wisdom. But people are the ultimate teachers, and there may be lessons that we can only learn from observing them or being in their presence. In many cases, these lessons are never communicated verbally. Yet you feel the guiding spirit of that person when you’re with them.
Role models are highly important for us psychologically, helping to guide us through life during our development, to make important decisions that affect the outcome of our lives, and to help us find happiness in later life.
What is the best advice you got from your investment guru or mentor?
A. I would mention two advices here. One, keep things simple. And two, learn to say ‘No’. Whether it’s how I pick my stocks or how I live my life, these two advices have helped me tremendously.
Simplicity – in thinking, in my investment process, and the kind of businesses I pick – is what I learned largely from Buffett.
Saying ‘no’ to things is what Munger taught me. I believe, Munger’s quote – “All I want to know is where I’m going to die so I’ll never go there” is one of the most important ideas that investors must always remember.
To be continued… (Final Part remains)
Vishal Khandelwal has 11+ years experience as a stock market analyst and investor, and 3+ years as an investing coach. He is the founder of Safal Niveshak, a website dedicated to helping small investors become smart, independent, and successful in their stock market investing. Over the years, Vishal has trained 1,500+ individual investors in the art of investing sensibly in the stock market, through his Workshops and online investing courses.