The Wonders of The Future

Thomas Edison did not invent the first light bulb. He just greatly improved upon what others had already built. Actually 1802 – three quarters of a century before Edison’s lightbulb – a British inventor named Humphry Davy created an electric light called an arc lamp, using charcoal rods as a filament. It worked like a lightbulb, but it was impractically bright. One would nearly go blind looking at it and could stay lit only for a few moments before burning out, so it was rarely used. Edison’s contribution was moderating the bulb’s brightness and longevity. That was an enormous breakthrough. But it was built on the back of dozens of previous breakthroughs.

Faraday did experiments with copper disks. It looked like a scientific play with laboratory equipment. Well, it eventually gave us the modern-day dynamos and trolley car.

Same thing today. Maps, Instagram and all of internet wouldn’t be possible without ARPANET. It was a 1960s Department of Defense project linking computers to manage Cold War secrets, which became the foundation for the internet.

And that’s why all innovation is hard to predict and easy to underestimate. The path from A to Z can be so complex that it’s nearly impossible to look at today’s tools. That’s always how it works.

One takeaway here is that it’s easy to always feel like we’re falling behind. Progress is made step-by-step, slowly over time, you realize that tiny little innovations that no one thinks much of are the seeds for what has the potential to compound into something great.

Coming exactly to same point of investment where journey is more important than the start of it. The journey is in the process and not in the identifying the best funds today.

Investment journey is a process not a number. Checking start point of investment is important but periodic review has far more important than everything else.

Casualties of Perfection

Evolution has spent 3.8 billion years testing and proving the idea that some inefficiency is good. The key thing about evolution is that everything dies. The best species can be good at some things but then it dies because of the things it’s not good at.

A century ago, a Russian biologist named Ivan Schmalhausen described how this works. A bigger lion can kill more prey, but it’s also a larger target for hunters to shoot at. A taller tree captures more sunlight, but becomes vulnerable to wind damage. The lion could be bigger and catch more prey; the tree could be taller and get more sun. But in general, they’re all normal and not bigger or taller, because it would backfire.

Many people strive for efficient lives, where no hour is wasted. But an overlooked skill that doesn’t get enough attention is the idea that some amount of inefficient time can be a great thing.

Psychologist Amos Tversky once said that “the secret to doing good research is always be a little underemployed. You waste years by not being able to waste hours.” A little inefficiency is wonderful.

Same in investing. There’s an investing pun that it’s better to be approximately right than precisely wrong. But where does the investor intellect effort go? Toward the pursuit of decimal-point-exactness of prediction that misleads people into thinking they’re investing in best portfolios.

Just like evolution, the more perfect you try to become, the more vulnerable you are.

Precisely for that reasons, market is not perfect. It is always little inefficient and hence there are bull phase and bear phase.

No one can possibly find 100% perfect investment scheme. So we have little room always available in every portfolio. In the end the odds that the economy will become more productive over a good long period is pretty much same for most of the market rather than finding best funds.

Engineering vs. Psychology

During the post-WWII economic boom of the mid-20th century, skyscrapers began shooting up across major U.S. With taller buildings came a massive spike in daily traffic on the elevator systems. Building managers and real estate companies faced a crisis. Tenants and office workers were absolutely furious about “slow elevators.” Large corporate tenants were even threatening to break their leases and move out.

Desperate for a fix, the engineers investigated found solutions which were not possible as the buildings were already built. These physical modifications were either structurally impossible or very expensive. The engineers essentially gave and said, “The elevators are running at their maximum safe mechanical speed. People just have to live with the wait.”

Management approached the problem from a different angle. They brought in industrial psychologists. They analyzed the situation and realized the engineers had been solving the wrong problem.

The True Problem was not about the elevators were “slow”, it was the wait time. The real problem was boredom and anxiety. When people stood in a metal box with absolutely nothing to do, that two-minute ride felt like twenty minutes.

Psychologists suggested to install mirrors in the elevator.

People loved looking themselves in the mirror. This gave them something to do while waiting. All complaints evaporated overnight. The mirrors didn’t make the elevators move faster, but they hacked human brain psychological.

Similarly in Investment decisions, Instead of expending all your energy to find the perfect investment option, make sure you explore the multiple options with framing the right problem.

Even if one get best investment product, there is no use unless if solves the real problem with it. Investment is not about best funds or stocks or best returns, it is about improving the process.

Doing transactions online is not only solution for better investing. It is more about behavioral and psychological stability.

Pocket size scale Scale, Mountain Size Impact

The Tenerife airport disaster in 1977 is the deadliest aircraft accident in history. The error was stunning. One plane took off while another was still on the runway, and the two Boeing 747s collided, killing 583 people on a runway on the Spanish island.

In the aftermath authorities wondered how such an extraordinary catastrophe could occur. One post-mortem study explained exactly how: “Eleven separate coincidences and mistakes, most of them minor… had to fall precisely into place” for the crash to occur. Lots of tiny mistakes added up to a huge one.

It is intuitive that we factor high impact, low probability event and discount low impact, high probability events. It is very easy for us assume the world will break at once as we have been shown in movies and shows. The actual impact happens through low-probability events, so it’s common to discount their happening.

Similarly, the most astounding force in the universe is ‘Evolution’. The thing that developed single-cell organisms into humans who can read this article on an iPad with a terabyte of storage. Evolution is best example of basic math of compounding. It is about compounding of favorable traits over the period of 3.8 billion years.  Minuscule changes compounded them for 3.8 billion years and we are result of this compounding.

You do not need extraordinary change to deliver extraordinary results.

Investor Howard Marks once mentioned. Some investors whose annual results were never ranked in the top quartile, but over a 14 years period he was in the top 4 percent of all investors. If he keeps those for another 10 years, he may be in the top 1 percent of his peers.

The most important question is not “How can I earn the highest returns?” It’s “How can is consistently earn better returns for the longest period of time?”

Correcting investment course at every juncture of investment journey is crucial which adds positively to compounding.

Tiny but Magnificent

In 1961, The Soviets once built and tested a nuclear bomb 1500 times stronger than the one dropped on Hiroshima. Called Tsar Bomba (king of bombs), it was ten times more powerful than every bomb dropped during World War II combined. When tested, its fireball was seen six hundred miles away. Its mushroom cloud went forty-two miles into the sky.

The first nuclear bomb was developed to end World War II. Within a decade after World War II, the world had enough bombs to end the world —all of it. Countries were unlikely to use them in battle because they raised the stakes so high. It would wipe out an enemy’s major city and the enemy country would do the same to other country sixty seconds later.

Big bombs were mass destruction units and neither country would start a war with a big bomb. So in 1960, The USA built smaller, less deadly nuclear bombs called Davy Crockett, which were less powerful and could be fired from the back of a Jeep. These tiny nukes felt less risky without ending the world.

But this idea backfired. It changed the game for the worse.

The risk was that a country would “responsibly” use a tiny nuclear weapon in battle, starting a retaliatory escalation that opened the door to launching one of the big bombs.

Soviet missiles in Cuba during the Cuban Missile Crisis were four thousand times less powerful than Tsar Bomba. But if the Soviets had launched even one of them then there would have been a “99 percent probability” that America would have retaliated with its full nuclear force, according to Secretary of Defense Robert McNamara.

Small risks aren’t the alternative to big risks; they are the trigger.

Investors also take risk so seriously sometimes where they consider taking the small risks more often than taking big risk at once. A Fixed Income investor is avoiding volatility but taking reinvestment risk and taxation risk so high that inflation erode all the returns generated.

Every investor must check their Risk Profile where they may improve. Assessing risk is more important than asking for rewards.

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