April 16, 2017
by calminvestor

What investors can learn from Bezos’s 2017 letter to shareholders

The mighty who fell: too big to succeed

Levi Strauss, Eastman Kodak, Caterpillar, Heinz, American Express, Procter & Gamble, Compaq, Blackberry.

Just a sample of companies, all legendary, that at some point, saw their growth stall, their market caps decline and their very existence questioned. Megatrends in technology and demographic shifts made some of their troubles inevitable. But, I can’t help but think there’s more to that.

In my previous career as a management consultant, I had the opportunity to work with organisations across industries and geographies on a variety of business priorities. Every large organisation of pedigree is around because they’ve done certain things really well. However, their very size and complexity brought with it a certain inexorable slowness in the way things happened. At the sub-system level (design, engineering, marketing, supply chain…) you see frenetic activity; demanding leadership, conference calls, review meetings, workshops, burnt out teams. Yet, the purely incremental, par-for-the-course product release keeps getting pushed back, from it’s timeline of 18 months (which was 12 months behind nimble competition to begin with), to finally limping into market, 24 months after it was kicked off, laden with long-outdated features.

In each case, the prime suspects, to me, have looked like size, and centralisation. The more an organisation looks to run things out of functional mega-structures, the less accountability for outcome, rests at the front-line. Not that they have it easy. Far from it. Measured against derived metrics (number of sales meetings conducted, tickets resolved, Turn-around-time for customer queries…?!), they’re forever scampering to show progress to the myriad national, sub-regional, regional and global designations who needed those updates to justify their not-insignificant payroll.

The perceived benefits of centralisation; shared know-how, cost curves, scale economies etc. look utopian and usually only marginally realised, if at all. So much so that I consider the phrase “synergy benefits” in a corporate press release or earnings announcement as a SELL indicator!

The exception to the rule

And then there’s Amazon. Conventional wisdom says a publicly listed organisation making $136Bn in annual revenue and market cap $422Bn should have those same problems of bloat and inertia. Of struggling to innovate, launch and successfully scale new multi-billion dollar businesses. Then you read the CEO’s letter to shareholders and it makes sense why.

Learning from Jeff Bezos 2017 letter to shareholders

The Calm Investor | Decision making velocity

On being asked when will Amazon move from the “just begun” (Day 1) phase to that of a mature, evolved company (Day 2)

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”

To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.

So how does a company avoid becoming irrelevant?

Such a question can’t have a simple answer. There will be many elements, multiple paths, and many traps. I don’t know the whole answer, but I may know bits of it. Here’s a starter pack of essentials for Day 1 defense: customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.

Continue Reading →

April 2, 2017
by calminvestor

The Calm Investor turns 3 & The best of 2017

The Calm Investor | Best Investing Posts 2017

It’s been three fantastic years since I started The Calm Investor, to share nuggets from my experience and reading about investing in equities, biases in our thinking, work and life in general. Sitting down to put together a post to summarize or synthesize thoughts and books have made me more mindful about the way I read and think. So, thank you to all those who’ve visited for making me a better investor and a learner.

Some of the most-read posts in FY2017:

How the powerful investing concept of compounding applies to so much more, including living a healthier, better life

In a world where every app on our phones vies for our attention, doing meaningful work needs a conscious commitment to Deep Work

Learning from the best, be it investing or otherwise makes a lot of sense. However, it’s important to be aware of how, by looking at the successful, we might be falling prey to survivorship bias

Tough times never last, but tough people do. Or how the universal concept of mean reversion can be the value investor’s secret weapon

A practitioner’s tool to identify and shortlist stocks to invest in using a freely available tool. So many stocks, so little time

Eight rules from a successful contemporary investor. Guy Spier’s Eight Rules for Value Investing

March 13, 2017
by calminvestor

The power of compounding and how it applies to a better life

“What if you didn’t define wealth by money, success or satisfaction, but simply by the number of great people in your life?”

A question put forth by Peter Attia, M.D. in his podcast “How to live a longer, higher quality life” on the excellent investment blog “The Investor’s field guide” by Patrick O’Shaughnessy. The conversation goes on to link the simple yet powerful investing concept of compounding with living a better quality of life. Read on for the highlights of a wide-ranging conversation.

So you want to live a long life?

“Never try to solve a complicated problem without explicitly stating your objective, your strategy and your tactics”

Advise Peter got from his mentor early in his career, which he applies to his current area of research, that of maximising human longevity. Hence, he added the concept of healthspan to the existing idea of lifespan

The Calm Investor | Invest like the best

Source: eatingacademy.com

Lifespan, is easy to explain. In the above chart, x-axis is time, so Lifespan is how long you live. y-axis is a measure of the quality of life. How well are you able to function and operate in a relatively pain-free manner, i.e. Healthspan.

The function starts at 1 (maximum health in the early part of our life). As we move through life, the curve monotonically decreases (meaning it never reverses it’s downward direction). The average human, lives to between 75 and 80, that’s when the curve crosses the x-axis. At 40, it takes its first noticeable dip. Starting at 40, without doing anything about it, we lose 1% muscle mass every year. This decline is highly associated with decline in healthspan. By 70, we’re halfway down the y-axis. So we spend 70 years declining to about half of our capacity, and 5-10 years rapidly declining to zero. How can we make that better?

The objective, for all of us, should therefore be to shift that curve up and to the right. To live longer, sure, but to want more healthspan. To alter the shape of that curve so it’s not a stretch of that exact curve, but to reduce the rate at which it declines.

The core concept of investing (and life)

Continue Reading →

February 7, 2017
by calminvestor
1 Comment

10 insights from HBO’s 2017 ‘Becoming Warren Buffett’ we hadn’t heard before

HBO released a documentary ‘Becoming Warren Buffett’, on the legendary investor earlier this year. It’s an almost intimate portrait of the most-quoted investor in the world. Worth the 1h 28mins. And summarized below, some of the more insightful  (and less often heard) nuggets providing insight into the man, and not just the investor.

10. On learning from the past:

Decorated his office with framed old newspapers from the local library of days of massive market crashes. He calls it “instructive art” that reminds him and everyone in the building that “in the markets, anything can happen”

9. On the circle of competence:

“Investing is a no-called strike business, which is the best business  to be in. I can look at a 1000 different companies, and I don’t have to be right on every one of them, not even 50 of them. I can pick the ball I hit. The trick in investing is to sit there and watch pitch after pitch go by, and wait for the one right in your sweet spot. And the people who’re yelling “Swing you bum!”, ignore them”

8. On the importance of concentrating on a few things:

Bill and Warren got along well after Bill reluctantly agreed on his mother’s insistence to go meet Warren with Melinda. Shortly after they met, Bill’s dad had them all write down on a piece of paper what they had gained the most from the meeting. Both, without discussion, wrote the word “Focus

7. On reputation and doing the right thing:

In front of a Congressional committee after taking over Salomon Brothers after the scandal, on his message to Salomon employees

“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”

6. On health:

“Let’s imagine you get to pick out a car of your choice. Any colour. It’ll be tied up with a bow and be at your house tomorrow. But the catch is, What if you could could only get that one car in your lifetime? You’d care very good of that car. Now, you won’t actually get just one car in your lifetime. But you will get only one body and one mind. And it has to last you a lifetime”

5. On civil rights:

“Wait till women discover, they’re the slaves of the world. My sisters were as smart as I was…but they got the message, a million different ways that their future was limited, and I got the message that the sky is the limit…On the flip side, it’s quite encouraging. If you look at what this country (USA) accomplished only using half its talent, just think of the potential for the future.”

4. On doing what matters to you:

Susie Buffett: “Whoever you are in this life, you don’t want to think you wasted a lot of your energy, love, and time on something useless”

3. On marriage:

“When you get married, it’s not a question of saying, I’m going to put a 14% factor on humour, and 17% on intellect, 22% on looks. It doesn’t work that way.”

2. On humility:

“When I was born in 1930, the odds were probably 40:1 against me being born in the United States. I did win the ovarian lottery on that first day, and on top of that, I was male. Put that down as another 50/50 shot, and now the odds are 80:1 against being born a male in the United States, and it was enormously important in my whole life. To think that makes me superior to anyone else as a human being, is just…I don’t follow that line of reasoning.”

1. On love:

“It’s a very strange thing, love. You can’t get rid of it. If you try to give it out, you get more back. If you try to hang on to it, you lose it.”

February 1, 2017
by calminvestor

Deep Work: Rules for focussed success in a distracted world

Three quick questions:

  1. How many times do you think you checked your phone today?
  2. If you’re reading this on a laptop or PC, how many browser tabs do you currently have open or have had open in the last hour?
  3. How many work emails did you receive and send today?
The Calm Investor | Deep Work

Source: Linkedin

What do the answers to these questions have anything to do with anything? Plenty, it turns out, according to Cal Newport’s book Deep Work. Cal is an Associate Professor of Computer Science at Georgetown University with a Phd from MIT. His focus has been on understanding  how to perform productive, valuable and meaningful work in an increasingly distracted digital age. In Deep Work, he argues that focus is the new I.Q. in the knowledge economy, and individuals who cultivate their ability to concentrate without distraction will thrive. This post is based on the book, the sections in […] are directly quoted, while the rest is selectively paraphrased.

Deep Work – Shallow Work

Carl Jung, Mark Twain, Woody Allen, Bill Gates. Influential individuals with a formidable list of accomplishments, each from different fields and timelines. What is common to them is their philosophy of carving out time and even space to do some of their most demanding work. Cal calls what they did as “Deep Work”

Deep Work – Professional activities performed in a state of distraction-free concentration that push your cognitive capabilities to their limit. These efforts create new value, improve your skill, and are hard to replicate

Compare that to how you and I typically work. Multiple applications open, powerpoint, a couple of spreadsheets, definitely a browser with multiple tabs. Switching back and forth as our email application constantly buzzes with the arrival of each new (urgent) email. The odd detour to check twitter or facebook, punctuated by the ubiquitous telesales call offering credit cards. i.e. lots of Shallow Work.

Shallow Work – Noncognitively demanding, logistical-style tasks, often performed while distracted. These effort tend not to create much new value in the world and are easy to replicate. A way to identify whether a task is shallow is to ask how many months would it take for a recently graduated college student to get trained on it. If the answer is less than 20+ months, then it’s a candidate for the shallow end.

Continue Reading →

January 20, 2017
by calminvestor

TCI Investment Note: Persistent Systems

This is a post with a difference. For the first time on this site, I’ve tried to articulate my thesis for a specific stock. Note that this is not a recommendation to buy or sell this stock but more a look into the various aspects to consider when identifying your stock picks, which I described conceptually in my post on investment checklists. The sources for financial data are the annual reports and screener.in, those for the industry analysis are various reports available online.

Disclaimer: I currently own the stock and therefore more than likely to be biased.

The Calm Investor | Investment Note Persistent Systems Jan 2017

Persistent Systems


The Calm Investor | Persistent Systems

The Calm Investor | Persistent Systems

Source: Techcrunch ‘The battle is for the customer interface”

This is an oft-repeated graphic on the internet, since it was published in a tech crunch article by Tom Goodwin in Mar, 2015. Below, a short excerpt:

“The value is in the software interface, not the products. It’s not just the smart home. Uber provides average cars in a premium way; Seamless makes the most disgusting of greasy kebab joints appealing and makes its margin from both sides. iTunes for many years took virtually all the profit made in the entire music industry by being just the thin software between the hard work making tunes and the money selling them.”

Persistent Systems is looking to capitalize on this need, for every business to digitally transform the way it interfaces with its stakeholders.

Persistent: Strong player in a niche segment

Unlike the outsourced IT services market worth over USD 500 BN of which IBM, Accenture along with Indian IT majors like TCS, Infosys, Wipro, are well known competitors, outsourced software product development is a niche segment with a 2016 global market estimate of USD 15 BN, growing at a steady rate of 4 – 5% annually.

Difference between traditional IT Services and Outsourced Product Development:

The Calm Investor | Persistent Systems

Product development needs a different set of operational skills to be successful. Established in 1990, Persistent has a demonstrated track record of it’s operational capability in outsourced product development.

In Q4 2016, Forrester classified the company as a “Leader” in the BPM Service Provider space, rated better than much larger overall competition like Accenture, Capgemini, TCS and Cognizant.


The Calm Investor | Persistent Systems

Source: Forrester Wave – BPM Providers

Part 1 – The Fundamentals

Continue Reading →

December 21, 2016
by calminvestor

Everybody’s doing it

In one of his memos at Oaktree Capital, Howard Marks refers to the market as a pendulum swinging between greed and fear. That at any given time, the pendulum i.e. the general consensus tends to be either too greedy or too fearful, and it is when the pendulum is at its fearful extreme that the value investor comes into her own to make intelligent buys. This will sound familiar to most investors.

“Mimicking the herd invites regression to the mean” – Charlie Munger

“Be fearful when others are greedy and greedy when others are fearful” – Warren Buffett

The point of this post is not to belabour the obvious but to highlight how difficult it actually is go against “general consensus” and to sell when the market is hitting new highs or to buy when the opposite is happening.

The Calm Investor | Conformity

Source: ProCon.org

There is stark evidence of how incredibly difficult it is for you and I to not succumb to the temptation of “going with the crowd”. The video below is the outcome of an experiment done by Solomon Asch, a pioneer in social psychology. The video was featured in an episode of a popular television series, “Candid Camera” in 1962

The experiment went like this. An unsuspecting subject enters an elevator. He’s joined by several of the show’s staff (the subject having no awareness that they are part of the staff). As the elevator makes it’s way up the building, the staff adopt various coordinated positions e.g. first by together facing the back of the elevator, facing the left, taking their hats off and so on. The objective is to observe the reaction of the test subject to these coordinated actions. What would you do if everyone around you does one thing?

It’s well worth the 2 min 31 seconds watch. Make sure to listen to the voiceover for context on what’s happening.

A million years ago, if everyone around you was screaming and running away from the big shadow moving towards your settlement, trying to be contrarian would mean you were quickly weeded out of the gene pool. The very fact that you exist means your ancestors did not make the mistake of pausing to question whether their screaming neighbours might be wrong. The need to conform to the behaviour of the crowd is deeply etched into your lizard brain, like a normal reflex action.

Which is why so few investors beat the market consistently. And it is also why it is an essential skill to develop, to be successful in the long run. Next time the lizard brain tells you to take action out of fear, of missing out, or of losing your savings, pause.

And consider this Rudyard Kipling classic:

If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;

If you can wait and not be tired by waiting,
Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
And yet don’t look too good, nor talk too wise:

If you can dream – and not make dreams your master;
If you can think – and not make thoughts your aim;
If you can meet with Triumph and Disaster
And treat those two impostors just the same;

If you can bear to hear the truth you’ve spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to broken,
And stoop and build ’em up with wornout tools:

If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;

If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: ‘Hold on!’

If you can talk with crowds and keep your virtue,
Or walk with kings – nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much;

If you can fill the unforgiving minute
With sixty seconds’ worth of distance run –
Yours is the Earth and everything that’s in it,
And – which is more – you’ll be a Man an investor my son dear reader!

Additional Reading

What bad design can teach us about investor behaviour – link

December 14, 2016
by calminvestor

Beware advice from the successful

The Calm Investor | Survivorship Bias

Source: Pinterest

Survivorship Bias OR How a mathematician helped win a war

In 1942, in the middle of the bloodiest wars ever seen, the United States military, brought together some of the brightest minds borrowed from the top universities around the country and called it, the Applied Mathematics Panel.

“Here is how it worked: Somewhere inside the vast machinery of war a commander would stumble into a problem. That commander would send a request to the head of the Panel who would then assign the task to the group he thought would best be able to resolve the issue. Scientists in that group would then travel to Washington and meet with top military personnel and advisors and explain to them how they might go about solving the problem. It was like calling technical support, except you called a computational genius who then invented a new way of understanding the world through math in an effort to win a global conflict for control of the planet.”[Source]

One of the members of this group was the Hungarian-born son of a Jewish baker. Abraham Wald had fled to the US in 1938, as the Nazi threat in Europe was reaching it’s pinnacle. The group within the AMP that Wald worked with specialized in air combat and the latest problem he worked on was keeping airplanes in the air.

“In some years of World War II, the chances of a member of a bomber crew making it through a tour of duty were about the same as calling heads in a coin toss and winning. As a member of a World War II bomber crew, you flew for hours above an entire nation that was hoping to murder you while you were suspended in the air, huge, visible from far away, and vulnerable from every direction above and below as bullets and flak streamed out to puncture you. “Ghosts already,” that’s how historian Kevin Wilson described World War II airmen. They expected to die because it always felt like the chances of surviving the next bombing run were about the same as running shirtless across a football field swarming with angry hornets and making it unharmed to the other side. You might make it across once, but if you kept running back and forth, eventually your luck would run out. Any advantage the mathematicians could provide, even a very small one, would make a big difference day after day, mission after mission.”

Given the limitation on how much weight a bomber could carry, military engineers wanted to know “the best places on the planes to add protection (extra armour)”. The military commanders already had a plan in mind. They had done extensive analysis of bombers that had returned from enemy territory, and meticulously tracked where the planes had taken the most damage. Their analysis found bullet holes tended to be clustered around the wings, the tail gunner, and down the center of the body. And this is where they wanted to add extra protection.

Would you agree? Did Wald and his team agree? Continue Reading →