A Bunch of Sinners Confess

Sinners Confess
  • By Ramaswamy, Sudarshan, Tanvi

Investing is a fascinating game; people with degrees laced with A-Z play this game and yet it is not error-free. Well, nothing in life is error-free, but the sheer volume of fund managers underperforming is colossal. About 75-90% of the Fund Managers underperform the Index. The Investing Game, though simple, is complicated beyond comprehension, and that is where the maze is.

Most people on purpose sound complicated, making them or pressingly look brilliant. In Investing complications add nothing but take away a lot. Forecasting is a look intelligent game, yet forecasting is the biggest charlatan, it has proved beyond evidence that forecasting seldom comes true, and yet most time is allocated to forecasting variables, power the Internet or any business media, the word count spoken on GDP Growth, Inflation,

Fiscal Deficit, Rating Downgrade, and What is the outlook for the Market will be beyond the world’s land space. Forecasting is an addictive game too, Fed said Inflation is transitory, well what the heck? 10-year trades at 4.6 -4.7 %, and please do not underestimate the brilliant Ivy League education of most great economists.

Economists are a different breed, with few exceptions. Hope the few exceptions do not get themselves corrupt with the majority. The environment matters a lot. Michael Burry has been calling for a master recession and stock market crash since in the womb of his mother, Paul Krugman once said the impact of the internet will be no more than a fax machine, really? Maybe he is using a phone which faxes him all the data and helps aid his decision-making.

This charlatan keeps on chugging as oxygen and water in the ocean, yet oxygen and water are needed for survival. Forecasting is definitely not needed. We have—from our dumb investments—learnt a lot and will be elucidating a few worthy considerations. These have shaped our Investing philosophy.

Investing is a Game of Odds

Investing is a game of odds, and the odds are in your favor when you go back and reference history and play the equity game in that specific industry. We all know that Tech has been a great value driver of wealth in America and to play that game was simply not easy. Buffett entered Apple after everyone said, “It was done and dusted.” It was trading at 10x multiple, hindsight makes for a brilliant coach.

Do We Truly Understand This?

Do you truly understand the business, the first hurdle is cleared, but do we truly understand this company, does this company control its destiny? Currently, all PSU Banks have made a stellar run, and we missed it. The last point made us ditch the sector totally. We are okay to look foolish, but we do not want to act foolish.


Catch the Trend that is perfectly fine, but as you do build up returns, go back to the point of Odds in the Industry; as new participants enter, and drive returns back to cost of capital, make sure you exit and make money.

EV trend is a no-brainer, but the odds that a single player will dominate and blow away the current set of competitors are impossible to happen. Reference this to Margins in the Auto Industry, what do the best operate at, few answers will stem from asking questions. Buffett is cutting his position on BYD, as he feels there is better use for his money, the learnings is also Auto industry is a brutal place.

Do not Ignore the No 2, 3 or 4.

The mental hack is to buy the no 1 player and keep holding. The 1 player is good, but keep the valuation handle very close; usually, the leader is well discovered, and the upside is limited, but most people ignore the No. 2 player and onwards, and that is an important aspect to look for, in beverages Celsius has delivered monstrous returns as compared to Coke and Pepsi. Celsius is a 40-bagger in the last 5 years. Think Safari Industry vs. VIP.

Hold Cash

This one is the worst sin of all; the world of finance is filled with such lovely advice that holding cash is useless; the theme of being fully invested has become contagious. A simple question to ponder.

You do not hold cash to time market crashes; you hold them as there is no opportunity, which you understand. This is the only reason to hold cash and not to time the market, Seth Klarman held close to 30-50% cash in his fund and yet he counted as one of the Greats.

Just ask, if all are invested, “Why are close to 85% of Fund Managers underperforming?”

Chasing momentum doesn’t add in the long run, and you can hit 6-sixes once in a lifetime consistently hitting them needs you to be GOD and if you are GOD, what are doing in the Stock Market, you have more important and urgent things to do!

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