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Risk is what you cannot see

Between 1900 to 1926, American escapologist, and stunt performer Harry Houdini was well known for his escape acts. He amplified his acts to include spectacular and dangerous escapes which involved freeing himself from ropes and chains, escaping from straitjackets or submerged underwater.

Harry Houdini was an amateur boxer and told crowds he could withstand any man’s punch with barely a flinch. He used to invite the strongest man in the audience onstage and ask him to punch him in the stomach as hard as he could.

After a show in 1926 Houdini invited a group of students backstage to meet him. One guy named Gordon Whitehead, walked up and started punching Houdini in the stomach without warning.

Whitehead didn’t mean any harm. He thought he was just re-creating the same trick he had just seen Houdini perform.

But Houdini wasn’t prepared to be punched like he would be onstage. He wasn’t flexing his solar plexus, steadying his stance, and holding his breath like he normally would before the trick. Whitehead caught him off guard.

The next day Houdini woke up doubled over in pain. His appendix was ruptured, almost certainly from Whitehead’s punches… And then Harry Houdini died.

He was probably the most talented person in history at surviving big risks. Tie him up in chains and throw him into a river? No problem. Bury him alive in sand? No issue, he could escape in seconds— because he had a plan.

But a little jab from a student that he didn’t see coming and wasn’t prepared for? That was the biggest risk.

Investment is all about planning and keeping in check what kind of risk we are looking for. If we deviate at all from our path and market catches us off guard, our investment is the immediate sufferer.

Investment is all about plan, execute and review. We would rather earn less returns but not let entire portfolio suffer because of unnecessary adventures.

Hanging by a Thread

Back in 1915, Passenger Shipping companies were struggling to stay afloat, so every penny counted. During that time Captain William Turner was in charge of the massive steamship RMS Lusitania, which regularly sailed between New York and Liverpool, carrying passengers across the Atlantic. During one sail in May, Turner made a small but important decision: he shut down the ship’s fourth boiler room for this particular trip to save on fuel and cut costs.

At first glance, it seemed like a smart move. It saved fuel, helped the company’s bottom line, and only caused a one-day delay in arrival—a minor delay compared to the money saved. No one thought it would matter much. After all, a single day didn’t seem like a big deal for such a huge ship.

This small action triggered huge consequences. That one-day delay meant the Lusitania ended up sailing right into the path of a German submarine, U-20, in the Celtic Sea. On May 7, 1915, without warning, the submarine fired a torpedo that struck the Lusitania. The ship sank fast, taking nearly 1,200 innocent lives.

The tragedy shocked people around the world, especially in the United States. Until that point, the U.S. had tried to stay neutral in World War I, but the attack on a civilian passenger ship stirred strong public outrage. The sinking of the Lusitania became one of the most powerful reasons the U.S. decided to join the war, forever changing global history.

Turning Off a boiler = One Day Delay = Coming right in way of a German Submarine

Small Actions = Big Impact

The above is a tragic example but point to ponder that all big impact event must occur with a small single decision that shape future. In case of investments, investors take many small decisions which leads to bigger financial impact. ‘Waiting for market to correct’, ‘Taking investment decisions from gossips’, ‘Investing under obligation’ etc. are small decisions but they amplify in future. It is long time gone when investors realize that they have taken wrong decisions and now nowhere to return.

Actually, no actions are perfect but one need to keep correcting the course in form of Portfolio reviews as time arise.

Don’t Build Planes out of Straw

In the Second World War, a few tiny islands in the Pacific played host very severe battles between Japanese and American troops. The local people, who had never seen soldiers before watched the violent spectacle happening outside their huts. People in strange uniforms held bones like phone to their ears and spoke into them. Enormous birds (warplanes) circled the skies, dropping packages full of tin cans.

After the war, when the troops had withdrawn and the locals were alone again, something interesting happened. A new cult bounced up on many of the islands—a Cargo Cult. These cults had taken burned down hilltops and encircling the cleared area with stones. They built full-scale planes out of straw and placed them on the artificial runways. Then they constructed radio towers out of bamboo, carved headphones out of wood, and mimicked the movements of the soldiers as they had seen during the war. They lit fires to imitate signal lights and tattooed emblems on their skin like the ones similar on the troop’s uniforms.

They were doing everything right exactly the way it looked before. But without any functioning equipment. It’s not just native people who fall for cargo cults. We might be laughing at cargo cults, but they’re surprisingly widespread among Investors.

One particularly well-established cargo cult ritual can be found among equity investors. It is very common among many investors to have a strict checklist. Like checking international market and trends, sensing geo political situation and analyzing the theories around it, doing technical charting on lots of listed companies etc. They adhere all sort of analysis to make a theory of their investment strategy to succeed or outperform market. But when market goes down at times of Dotcom bubble, Subprime crisis, COVID pandemic or during wars, the experts are often blindsided. Evidently they are very good at identifying and analyzing situation, just not well enough at finding the actual risks.

Wise investor stay far away from any type of cargo cult. The avoid substance less imitation of others. Above all, don’t mimic the behavior of successful investors without truly understanding what made them successful in the first place.

The Scandal of Prediction

Welcome to Sydney – One March evening, a few men and women were standing on the esplanade overlooking the bay outside the Sydney Opera House. They all had come to pay the price of sophistication. Soon they would listen for several hours to a collection of men and women singing in Russian. While Australians were under the illusion that they had built a monument to distinguish their skyline, actually it was a monument to our failure to predict and to plan.

The story is as follows. The Sydney Opera House was supposed to open in early 1963 at a cost of AU$ 7 million. It finally opened its doors more than ten years later, and, although it was a less ambitious version than initially envisioned, it ended up costing around AU$ 104 million. While there are far worse cases of planning failures or failures to forecast, the Sydney Opera House provides an illustration of the difficulties.

Driven by political urgency, construction began in 1959 before the design was finalized. The location, Bennelong Point, was chosen with insufficient geotechnical investigation, leading to unforeseen complications when soft soil rather than sandstone was found. This required deep foundations—700 bored piles—causing massive cost overruns.

Structural engineers were forced to make early decisions based on Scientific Wild Guesses for unknown roof loads and evolving designs. The famous roof wasn’t fully defined until five years after foundational work had already begun. This led to expensive redesigns and rework. Ultimately, the project finished 10 years late and at 29 times the original cost. The case illustrates how optimism and political momentum often override technical realities, leading to disasters that hindsight would have easily predicted.

Infrastructure Projects are relevant to Investment journey

This case study has much relevance in modern time large infrastructure project which needs retrofitting once they start functioning. Such examples are all around us. As investor, we have a built-in tendency to think that we know a little bit more than everyone else which is enough get us into serious trouble. Second, we boast ourselves for all the activities involving prediction and we think we are master of it. This is how we become part of ‘Predicting Scandal’.

Value Re-Served!

The year 2017 is widely considered to have hosted one of the greatest comeback seasons in the history of the lawn tennis. It saw the return of Roger Federer from a disappointing and injury shortened 2016.

Roger Federer was undergoing a difficult phase for the preceding 5 years. From 2003 to 2010, he was almost unbeatable, winning Wimbledon 6 times, the US Open 5 times, 4 Australian Opens and a French Open. For the next six years, Federer won only one major tournament in 2012. It was not good enough for RF fans, who count on number of grand slams won. At 36 years of age and suffering multiple injuries, most thought it was the end of Federer.

In 2017, Federer proved his sceptics wrong. He won two majors – the Australian Open and the Wimbledon Championships, marking the first season since 2009 in which he won multiple majors. Federer won a total of seven titles in the season, the most since 2007. With a win-loss record of 54-5, his winning percentage was the highest since 2006.

But what was different this time…

Audiences noticed that Federer was playing with a new, larger racquet. He had changed the way he played backhand. He was attacking with single handed backhand top spin instead of a more defensive slice. The improved backhand aided better footwork which in turn put him in a better position to hit his forehand as well. Federer also acknowledged this as being an important contributing factor for his success. While Federer was always a great player, he worked to acquire a new one aiding a strong comeback.

Similarly for Investment, reshuffling and reviewing your investment performance is one of the most important tasks to perform. Most of the investors focus only the beginning of their investment. They go to extreme extent in selecting schemes with loads of data analysis. However, we firmly believe that it is not the beginning, but your periodic reviewing will generate returns.

The Ultimatum Game

In 1982, 3 economists created an experiment on economic theory.

The rules are simple:

* Player 1 has the money and proposes how to utilise.

* Player 2 can accept or reject the proposal.

Traditional Economic theory says that Player 2 should accept any amount as far as it adds to money in to his pocket. But when real people played, many of them consistently rejected the proposal when they seemed unfair to them!

This theory reveals profound about human behavior. Player 2 literally deny opportunity at his own expense to enforce fairness norms.

One particular conversation worth to mention on how deeply — the Ultimatum Game – shapes investor behavior.

It was a Tuesday morning when one investor, Mr. Shah walked into our office. A successful businessman just sold a property and wanted to invest the proceeds—Rs. 2 crore—in mutual funds. We talked about his investment suitability, risk appetite, investment horizon, diversification and not following past performance for scheme selection.

But Mr. Shah leaned back and said, “That’s all okay. I need at least 18%. I’ve heard of funds giving 20%+. I’m the one taking the risk.” He became Player 1.

His “offer” demanding 18% returns felt like a split that ignored the realities of the market, the effort behind strategy, and the principles of sustainable returns. As player 2 of the Ultimatum game, I had to deny his terms of high expectations. I replied, “we must follow fundamental investing. I can’t offer you which compromise your capital’s long-term wealth. I’d rather walk away from this proposal than put us both in a misaligned position.”

In investing, fairness trumps greed. At Shalibhadra, our role isn’t to agree to every demand—but to protect the integrity of the every transaction, even if it means risking rejection. Because in the long run, trust is built not on maximum gains, but on mutual respect.

Nishit Siddharth Shah

Just matter of Five Minutes

Raj is hero of our story. Raj had to catch a train and was running just little late to the train station. He arrived just 2-3 minutes late to see the train leaving the platform. He was late—not by much, just 2-3 minutes. But that small delay now meant waiting 24 hours for the next train. The station wasn’t his goal; his destination was. Those lost five minutes wasn’t small anymore.

As it is hard to let the old habits go, he sat on a bench and started recalling old incidents which cost him dear. Once he arrived ten minutes late for a job interview. “It’s just 10 minutes,” He thought. But the job went to someone else, and Raj spent six months struggling before another opportunity came along. Those ten minutes had cost him half a year.

A year back, he had been 15 minutes late to a see a relative during his last breaths. Everyone else was too polite to say much, but Raj confessed later that he would regret missing that moment of closure for the rest of his life. 15 minutes had left a permanent gap in his heart.

Reflecting on these stories, Raj realized how he underestimated the impact of small delays. Five minutes here, ten minutes there—what seemed minor could ripple into months or even a lifetime of consequences. It wasn’t about the minutes themselves; it was about the opportunities and memories lost in those moments.

Similarly in our own life, we are absolutely late in certain life decisions. Early on spending and Late in saving. Early in EMI and Late in SIP. Early in withdrawing and Late in investing. Our saving and investing cycle is erratic. In many cases, a lot of time is taken away in planning but execution remains missing. Every day is missed opportunity. While procrastinating by few months seems harmless, but the lost time mean a significantly smaller corpus.

At Shalibhadra, we encourage start their investment journey with ‘One step at a time’. Investor may have large goals but the first step without delay will get them to their goals.

Nishit Siddharth Shah

Conversation of Ro-Ko

In a fictitious yet relevant world, two Indian legendary cricket players were practicing in nets. Rohit Sharma and Virat Kohli were batting with their usual focus. As the kids play, both were taking on the bowlers one by one with sound of the ball striking the bat and goes in the air with much power. As they took turns, Virat, ever the playful, suddenly called out to Rohit.

“Hey, Rohit, let’s make a bet,” Virat said with a mischievous tone. “If you hit the longest six in the next match, I’ll give you Rs.1,00,000. But if you can’t, you’ll pay me just Rs.1000.”

Rohit paused, his bat resting on the ground and tightening the gloves. He thought about it for a moment before looking up at Virat and saying, “I don’t like the bet. I won’t participate.”

Virat was surprised. “Why not? You can easily hit a six. And Rs.1,00,000 is not bad deal, is it?”

Rohit smiled but shook his head. “Hitting a six is fun, yes, but it’s not the real game. The real game is in the little things—like running between the wickets, rotating the strike, and building partnerships. Those are the things that win matches.”

Virat trying to understand. Rohit added, “If you aren’t disciplined in the small things, you won’t be disciplined when it matters most. It’s the basics that make the big moments count.”

What we saw in just concluded ICC Champions Trophy was not about hitting 6s and 4s. It was more about small things planned in details. In Investment scenario, portfolio built with hot tips and borrowed information often gives excitement, but not necessary that it is long term sustainable.

Building a corpus is all about chasing a score. Investor may hit 6s and 4s when market gives them chance but when not, they must participate through SIPs systematically and average their investment game.

Seeing Causes and Intentions

Let me start an experiment with 3 sentences.

“Fred’s parents arrived late. The caterers were expected soon. Fred was angry.”

Take a guess on why Fred was angry? Was he angry because caterers did not show on time? Or was he angry because his parents took more time to arrive?

In our network of associations, anger and lack of punctuality are linked as an effect, we immediately start making assumptions for possible causes. However, sometimes there is no such link between anger and the idea of expecting someone. A coherent story is Fred was angry because the flower agency was not picking up the calls.

Finding such causal connections with available limited data point is our automatic operation of System. Such CAUSES AND INTENTIONS immediately start playing role in case of any major international events. Media starts playing their role in randomly connecting dots with limited data points. Remember Covid time in 2020 when everyone was coming to immediate conclusions with limited data points.

In fact, all the headlines do is satisfy our need for coherence: a large event is supposed to have consequences, and consequences need causes to explain them. We have limited information about what happened on a day.

In Investment situation, Investors apparently take decisions by looking at the headlines. If the headlines read, “Some country went for election and someone from leading party will become top most leader in that country”. Investor start taking actions based on the available and limited sources of information.

Investors should have single agenda to follow process of investment at various market levels. Single or random occurrence of events do not alter our and our investor’s confidence.

Lost in a Limbo

Let me share story of King Trishanku, An ancestor of Rama himself. Trishanku’s real name was Satyavrata. He had one seemingly impossible wish – he wanted to enter heaven in his human form, in his mortal body.

He approached a powerful Rishi Vashishth, But the Rishi Vashishth refused Satyavrata’s plea citing would be against the rules of nature. But Satyavrata would not take no for an answer. He turned to the son of Vashishth, Shakti, to convince him to take up the task. When Vashishth heard of this, he cursed Satyavrata of deformed body and his new name became the disparaging Trishanku.

But still determined, Trishanku came upon Rishi Vishwamitra. Rishi Vishwamitra took it upon himself to fulfil Trishanku’s wish. With the powerful powers, Trishanku started to rise to the heavens. But King Indra of heaven did not want Trishanku to enter heaven in his mortal body and break the rules of life and death. So, when Trishanku reached the gates of heaven, Indra refused to let him in.

Thus Trishanku started to fall back to earth. But when Rishi Vishwamitra saw this he refused to allow Trishanku to fall to the earth, and using his powers, he started to push back against Indra to get Trishanku to heaven.

Hence – Vishwamitra would not let him fall to the earth, and Indra was refusing to let him into heaven. So, he hung helplessly upside-down between heaven and earth. What we often call ‘Lost in Limbo’.

In Investment context, Investor lives are continuously trapped in an ever-repeating no-man’s land loop between secured products to high risk products, from current holding of an investment product to temptation of high performing investment product and from obligatory relationships to media noise. They are unable to surpass someone direct or indirect influence on either sides.

Investor should ‘Know the False from’. Something which is not in control must be avoided.