Dear Patrons,

Safe Landing is very important

On September 24, 1972, a Japan Airlines flight landed at Juhu Aerodrome near Bombay instead of the much larger Santacruz Airport (now Chhatrapati Shivaji International Airport) and overran the runway.

As the plane was nearing Bombay, the crew planned to make landing approach to Santacruz Airport (BOM). When speaking with Bombay Air Traffic Control, the controller asked the plane if it had a “visual on the runway?” The pilots replied, “yes, we can see it.” the ATC controller asked the pilots to make a visual approach.

Following these instructions, the pilots flew over Runway 09 and executed a 360-degree turn to approach again from the west. But after doing this 360-degree manoeuvre when the plane touched down on Runway 8, the pilot found it was Juhu Aerodrome 2.3 miles west of (BOM) and used only by small aircraft.

The captain immediately realized the mistake and activated the spoilers and maximum power to the brakes. With not enough runway left, an overrun was unavoidable. As the plane overshot the runway, both engines on the port wing broke off, damaging the main landing gear, which caused the nose of the aircraft to dive into the ground. At the time of the accident, there were 14 crew and 108 passengers on board.

The Airline Company and ATC have blamed each other for this fiasco. However, there is important investing lesson from this incident.

Equity Investors continuously look for better returns scenarios but at the same time some volatile events also arise when their investment land on unknown terrain. Investment journey is not always smooth ride. It often pass through rough situation and investors have to have the ability to land investment properly.

At Shalibhadra, we believe to hand hold investors when the investment pass through rough patch. Investment journey is not always keep on flying but also to land it safely whenever required and again fly high when winds are favorable.

Nishit Siddharth Shah

Dear Patrons,

Follow the Owner, Not the Dog

On a Sunday morning, fund manager based in New York, Ralph Wanger takes his excited dog for a stroll. He follows the same path for the stroll which he followed for years. Starting at Columbus Circle, Through Central Park, ending at Metropolitan Museum. All the years he has been doing this exercise without noticing one thing which he noticed on one fine day.

In his fitness tracking device, he has walked around 1.5 miles on average while the dog has walked more than 2.5 miles. Later that day he realized the reason that the dog was darting randomly in every direction. Both the owner and the dog headed the same direction but the dog had multiple focus at one time while owner had one focus, Metropolitan Museum.

What is astonishing in investment psychology term is that almost all of the market players, big and small, have their eye on the dog (markets), and not the owner (businesses). Investors gets distracted by secondary or peripheral factors while emphasize should be on to focus on the source of information.

For example, in today’s world, many investors have their investment ongoing as well as EMIs ongoing for various expenditures. If the focus of investor shifts to get debt free within certain period and he is firm on that than he might cut down his expense, pay the debt from surpluses or even withdraw some investments to reduce debt. Now that is ‘Following the Owner’s strategy.

While there are also set of investors who are continuously in debt. They consume latest market trends, have expensive lifestyle. Their focus continuously shift to please their own selves. Now this is somewhat ‘Following the Dog’ strategy where they follow random direction as market changes.

As Shalibhadra, we make sure that every investor follow the owner and remain focused on building enough corpus to sustain good lifestyle not just for present but for future as well.

Nishit Siddharth Shah

Dear Patrons,

A story on ‘Trust’.

At a time, Tightrope Walking was widely famous and was practiced by many as adventure.

A similar tightrope walker started to walk on a rope tied between two tall towers at several hundred feet above the ground. He wanted a point to prove to the audience. He was slowly walking & balancing a long stick in his hands. The most dangerous thing was he had his son sitting on his shoulders.
Everyone down were watching him in bated breath and were tensed. He slowly reached the second tower. Everyone clapped, whistled and welcomed him. They shook hands and took selfies.

He asked the crowd, “Do you all think I can walk back on the same rope now from this side to that side?”

Crowd shouted, “Yes, yes, you can.”

“Do you trust me?”, He asked. They said, “Yes, yes we are ready to bet on you.”

He said, “Okay, can anyone of you sit on my shoulder? I will take you to the other side safely.”

Everyone became quite. There was stunned silence.

Belief is different & Trust is different. For Trust you need total surrender. Trust is what we are lacking towards investment opportunities in today’s world.

Instead of betting here and there, we have to trust on our own homeland. To  special message to all NRIs,  India is the Fastest Growing countries in the world. NRIs have easy investment opportunity to invest in India which is not available to other foreigners.

Just like tightrope walker philosophy, don’t just BELIEVE in India’s growth Stories. But TRUST in it and PARTICIPATE in it.

Even Harvard Business Review has recently published article on India’s growth story.

https://bit.ly/HBR23ind

We at SHALIBHADRA storngly believe, trust and participate in India’s growth story.

Nishit Siddharth Shah

Dear Patrons,

‘Misbehaving’

Lets assume a group of students appearing for exams.

There are three basic groups of students in exams: those who mastered the syllabus (Grade A), those who grasped the basic concepts (Grade B), and those who just did not understand it (Grade C). Those above 70 marks will get A, marks between 50 to 70 will get B and marks less than 50 will get C. In a hard examination situation, the average score of the students was 72 out of 100. Despite having generous grading system, the students were unhappy with their results and the dissatisfaction was escalated.

Hence the professor came up with a solution to make the exams out of 137 marks instead of 100 marks. This made the average score of 72 to 96, and the students were happier, even though their actual grades were not affected. There were two outcomes. First, it produced an average score well into the 90s, with some students even getting scores above 100, generating a reaction extra delight. Second, because dividing one’s score by 137 was not easy to do in one’s head, most students did not seem to bother to convert their scores into percentages.

The professor reflects on this experience and concludes that his students were “misbehaving” in the sense that their behaviour was inconsistent with the idealized model of behaviour used in economic theory.

Here is how we relate it to Investments.

In investment behavior class, investors are often unhappy with their current investment returns. In some instances, investors tend to transact even more in expectation to increase the returns. But resultant remains the same. The core behavior theory is that investor choose to optimize and make choices based on rational expectations. In this zest, they ‘misbehave’ with their investments.

Investors also come in sweet talk with number crunching just like the professor did. Financial Salesmen are often in search of opportunities to dump their financial products by committing fixed returns, assuring fixed cash flow or guaranteed NAV products. Unfortunately, it is sometimes not easy for investors to understand the numerical gimmicks of such salesmen.

At Shalibhadra, we avoid numerical gimmicks and set the expectations only at right place which is realistic and achievable.

Nishit Siddharth Shah

Dear Patrons,

I don’t know is its good news or Bad news.

Let me tell you an old story of Indian Farmer.

There is a Farmer and he lives with his Son and they have one horse. The horse runs away. Everyone from the town comes to that farmer that night and says ‘Your horse ran away. OH, NO Terrible News’. The farmer said ‘I don’t know if it’s good news or Bad news. We don’t know yet.’

The next day horse come back with two other horses. Everyone from the village came back and says, ‘What a great news now you have three horses’. The farmer says ‘Well, I don’t know if it’s good news or bad news.’

Then next day his son went out and trains one of the new horses and fell and breaks his back. Everyone comes back and says ’OH, NO, What terrible news.’ And the farmer says, ‘I don’t know if it’s good or bad news.’

The next day the constable from the military comes and says we are taking all able bodied young men to join the military. But the farmer’s son broke his back so he can’t go to the army. Everyone comes that night and says, ‘OH, Good news. Your Son don’t have to go to the army. He will be staying with you.’ The farmer says, ‘I don’t know if it’s good or bad news.’

The idea of this could on and on and on.

All Investors go with same idea of wishing for things to happen in Favour of their investments. But that’s not true always. Market moves either ways. Profit and loss have probability of 50-50 percent.

At Shalibhadra, we subscribe to the idea of the farmer about ‘Who knows!!!’  of good news or bad news. When you invest on both sides, you detach yourself from daily volatility. That is what SIP stands for.

Nishit Siddharth Shah

Dear Patrons,

THINKING PROCESS VERSUS OUTCOME

Lot of Indian cricket fans remember the Hero Cup match between India and South Africa on November 24, 1993 at Eden Gardens in Kolkata. South Africa needed 6 six runs off the last over to win the match. There was an intense discussion between the players and the captain about who should bowl the last over.

All the regular bowlers Kapil Dev, Srinath, Prabhakar and Ankola, had some overs left to bowl. After consultations, the Captain decided to hand over the ball to the 21-year-old Sachin Tendulkar. Sachin was a star batsman, but the whole Eden Gardens was shocked as he came out to bowl the last over. That overturned out to be magical! Sachin got a run out and restricted the batsmen to only 3 runs resulting in India’s victory by 2 runs.

Let’s imagine what if… South Africa had scored quickly and won the game easily. What would be the reaction of the crowd, the media and the experts? Would anyone have spared the captain of severe criticism for such a bold decision that went wrong? Even the captain give any justification, would people care to listen to or believe the justification?

We tend to focus on the outcome to judge whether the decision was right or wrong. However, the decision-making process becomes more important. In the context of equity investing, stock market is always volatile and uncertain but investors only chase the certain outcome and in that process is forgotten.

INVESTORS DON’T NEED TO GET IT RIGHT ALL THE TIME.

No one can get it right all the time. Investment decision-making is about considering the payoffs and their probabilities. The right investment process will provide the right combination of both the factors in a way that brings higher upside when you are right and lower downside when you go wrong.

Following Process >>>> Chasing certain outcome

Nishit Siddharth Shah

Dear Patrons,

Borrowing Shoes to look Rich

In 1888, in Curacao, a Dutch Caribbean island, A bridge was built to connect two parts of the city. A toll tax was proposed but officials wanted it to be a “progressive” tax. So, they decided rich people will pay more to cross the bridge.

So how to identify rich and poor quickly?

They had an idea, rich people wear shoes (its 1888, remember), so they decided to charge a tax based on that. If anyone cross the bridge wearing shoes, he pays a tax, but if he is barefoot, he can cross the bridge for free. This format was Simple, Easy and Brilliant idea… But it failed miserably.

Why? What happened to this progressive idea? A good learning here, the rich always wanted to avoid tax so they simply took off their shoes and crossed the bridge. Paid no tax.

While the poor did not want to be seen as poor. They wanted to show off their status by crossing the bridge wearing shoes, so they wore shoes by buying it or borrowed the shoes to cross the bridge.

The lesson is… Rich stay rich by awareness on cash outflow. Poor stays poor by spending more. Interestingly even in today’s time, we find humans are irrational in spending habits.

The entire behavior is called Hyperbolic Discounting…

Those who are not Rich still wants to show their status to the world. They live by one line ‘Live as if no tomorrow’. They reward their own selves on instantaneous and short term achievements. This zest keep them in a trap of continued borrowing stuff which they actually don’t need.

While Rich people have thought process based on vision and wisdom. They only think of long term and think about their tomorrow irrespective of their social status. This behavioural psychology is the key of successful investor.

Are we wanted to be a rich & wealthy through investments or a person who just “borrows shoes” to cross any “bridge?”

Nishit Siddharth Shah

Dear Patrons,

S.O.S.: Slower, Older and Smarter.

“An Airbus 380 is on its way across the Atlantic. It flies consistently at 1000 kmph at 35,000 feet, when suddenly a Eurofighter Typhoon fighter jet appears.

The pilot of the fighter jet slows down, flies alongside the Airbus and greets the pilot of the passenger plane by radio: “Airbus, boring flight isn’t it? Now have a look here!”

He rolls his jet on its back, accelerates, breaks through the sound barrier, rises rapidly to a height, and then dives down almost to sea level in a breath-taking dive. He loops back next to the Airbus and asks, “Well, how was that?”

The Airbus pilot answers: “Very impressive, but watch this!”

The jet pilot watches the Airbus, but nothing happens. It continues to fly straight, at the same speed. After 15 minutes, the Airbus pilot radios, “Well, how was that? Confused jet pilot asks, “What did you do?”

The AirBus pilot laughs and says, “I got up, stretched my legs, walked to the back of the aircraft to use the washroom, then got a cup of coffee and a chocolate fudge pastry.

The moral of the story is: When you’re young, speed and adrenaline seems to be great. But as you get wiser, you learn that comfort and peace are more important.

A young investor may find it exciting and thrilling by investing in smallcap stock tips, equity derivatives, crypto currencies etc. But a wise investor has learnt from the experience that thrill and excitement is temporary so they prefer consistent and long term investment which my sound boring at first but it is the most suitable of all.

Dear Patrons,

THE EMPATHY GAP

There are two states of mind,

The Cold state: when our mind/thinking is calm and comfortable

The Hot state: when state of mind overrun with emotions and act with impulse

Imagine you are at the supermarket on a Saturday, buying ingredients for dinner you are planning to prepare on Wednesday. If you are starving while you are shopping, you will tend to shop more than your average food quantity. This is because when you are hungry, you imagine to be starving on Wednesday too.

In the same way, if you are shopping after a meal, you will tend to shop a bit less. You will feel stuffed and cannot really imagine being starving hungry on Wednesday.

When we are in the cold state, it is difficult to imagine how we will feel and behave when we are in the hot state vice versa. We are unable to empathize with our opposite state of mind. This is called the Hot-Cold Empathy Gap.

In the cold state, we make good investment plans. We plan to buy more when the market is down, stay away from temptations, invest for long term etc. But the “Doer” in us, many a times, in the hot state of emotions does the exact opposite. We give up againsts the greed, fear and other biases that lead to inferior investment outcomes.

The investment strategy is like a diet. If the Doer in us gives up to temptations of junk and undisciplined food habits, we are not getting any healthier.

Dear Patrons.

Missing the Forest for the Trees!

Belgian surrealist painter Rene Magritte is one of the painting which creates lot of curiosity among the viewers. Name of it is “THE SON OF MAN” (Google it). There is an encrypted message in it. (Read further only if you have google the image).

At first glance, most people would naturally be curious about the face that is hidden by an apple. One can see the face partially but it’s still quite difficult to identify the man. What does the apple signify? What exactly the painting trying to convey for human behavior? For most people, the mind initially focused only on the face. The face is the only thing which is “visibly hidden’.

It is about the psychology of attention and how important it is in the field of investing. Investors often focus on the high frequency short term news / noise and miss out on the long-term goals.

The artist wants to decode a message from the painting which is The closer you look… The lesser you see!!!

Attention is scarce and there is enough noise in the financial markets to keep investors distracted from their core investment process. Here I use ‘noise’ as representative of data / news flow /small events which ideally should not have a significant impact on the investors’ decision-making process. However, noise does take focus away from long term investing and leads to shrinkage of investment horizons. Noise creates excitement and anxiety; and induces participants to trade more. That is the reason for us to remain focused to disciplined investment and control behavior in volatile times.