In 2013 Harold Varmus, then director of the National Cancer Institute, gave a speech describing how difficult the war on cancer had become. Eradicating cancer – the National Cancer Act’s goal when it was signed in 1971 – seemed perpetually distant.

Despite the extraordinary progress we have made in understanding the underlying defects in cancer cells, we have not succeeded in controlling cancer as a human disease to the extent that is possible.

One of the missing pieces, Harold Varmus said, is that we focus too much on cancer treatment and not enough on cancer prevention. if you wanted to get the next big leg up in the war on cancer, you had to make prevention the front line.

But prevention is boring. especially compared to the prestige of cancer treatments. Persuading somebody to quit smoking is a psychological exercise. So, people are essentially uninterested in it. It is a fact that getting people to quit smoking can make a bigger impact in the war on cancer than anything a biologist or pharmacist can do in a lifetime.

Complexity is being favoured for its excitement, whereas simplicity may actually do a better job.

In finance, what is taught in college? How to price derivatives? How to calculate net present value? How to make technical graphs? That is all Complex.

Why not to start with simplicity? Discipline, Behaviour control and Consistency are not taught in college.

Reasons – Complexity gives a comforting impression of control, while simplicity is hard to distinguish from cluelessness.

At Shalibhadra, our task is to keep investment simple and keep investor free from jargons of finance world.

Nishit Siddharth Shah

In late 1996, Comet Hale-Bopp was approaching Earth, becoming one of the most widely observed comets in human history. Around the same time, an amateur astronomer posted an image online claiming to show a mysterious, bright companion object following the comet.

Astronomers quickly identified the object as simply a background star (SAO 141894) that appeared blurry due to camera settings. Despite the immediate debunking, the rumor spread rapidly across late-1990s internet forums and paranormal radio programs.

An influencer, Marshall Applewhite started a campaign called “Heaven’s Gate”. As soon as the news of the supposed object behind Hale-Bopp reached Applewhite, he integrated it into their theology. He convinced followers that the alien spacecraft was arriving to collect their souls before Earth’s destruction and take to Heaven’s Gate

As anticipation built, members of Heaven’s Gate rushed to local stores to buy a modern and expensive $3,600 telescope to see the alien ship for themselves. They expected presence of a spacecraft trailing the comet. But to their disappointment, They only saw the comet—no trailing vessel.

Rather than recognizing that the spacecraft did not exist, their psychological commitment to the belief system was too deep to break. They returned the telescope to the store for a full refund, telling the clerk that the telescope was faulty.

It’s surprising when incentives push you toward extreme directions.

In 2009, Jon Stewart interviewed investor and CNBC host Jim Cramer. When pressed on CNBC content that ranged from contradictory to inane, Cramer said, “Look, we’ve got seventeen hours of live TV a day to do. If you’re in the TV business, you can’t cut down on business”

At Shalibhadra, we have been saying this all these since many years. It is becoming evident that investors are continuously consuming variety of information from media sources. Investors getting influenced by this information, taking untimely investment decisions. And the beauty is these influencers are so confident to convince anyone with their theory.

Beware… before getting consumed by someone’s very convincing theory.

Nishit Siddharth Shah

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.