Investing as I see it - Part 3
Make many baskets.
As it will be in the future, it was at the birth of Man There are only four things certain since Social Progress began. That the Dog returns to his Vomit and the Sow returns to her Mire, And the burnt Fool's bandaged finger goes wabbling back to the Fire. ~ The Gods of the Copybook Headings, Rudyard Kipling.
Making many baskets simply means that if you have Rs 100 to invest. Do not go overboard and put more than Rs 20 i.e. 20% in one company. Stock markets are “FUGAAZI”. Lots of dreams . Future is uncertain. Follow the 1/5 rule of DIVERSIFICATION strictly. Not more than 1/5 of your investable capital into one company stock.
The key to winning in life and the stock market is to understand yourself. What kind of risk can you handle? Will your peace vanish if you hold only 3 businesses? Example - One day I read about something the promoter of one of my small cap companies said about cutting dividends which I thought was unfair to minority shareholders. I had a fever back then which turned out to be a serious UTI later on urine test. But the important point is I could not handle that and sold my entire position on a whim. Did that turn out well later? Yes. Was that a wise move? No, you can not make impulsive decisions.
Investing outcomes are luck driven. So, the answer is Know yourself and diversify.
Charlie Munger has his money in majorly 3 stocks - Berkshire, Costco and Lilu’s Fund.
“Diversification is protection against ignorance,” Buffett said. “It makes little sense if you know what you are doing.”
Guy Spier has his money not more than like 5% in one bet. This makes more sense given we are neither Charlie Munger nor the Berkshire’s Warren Buffet.
Personally, if I am taking a big bet than that company should not be risky. Example - If I buy a company with 50% of my total capital, then that company needs to be like a Nestle. Which balances the risk. But each to his own. And I study that company in great detail , its share price track record and figure out a system to value it and find a price to enter the stock when downside is limited.
INVESTING are a loser’s game. Which means people who survive in the market are bound to do good given the growth of India. More than high returns, you need take care of high risk. If you stay in the market in great businesses in growing industries and hoping you did not overpay - you are going to make money, a lots of it in next 5-10 years. But if you put all capital in 1 or 2 small cap companies, there a big chance that you will get detonated. Avoid high risk and automatically you will make money.
Don't let the market push you out.
Make Asymmetric Bets.
Always look for Asymmetry when making the bet. Asymmetry means Unlimited upside with limited downside. Or at least risk/reward skewed in your favor.
Today I see Kotak bank’s Price to Bank is even lesser than the covid’s level when Uday Kotak sold a little portion of his stock to protect the company and increase the capital adequacy ratio. What is the downside at current price for Kotak (2nd Aug 2025) - very little if you ask me . There is a high chance it may be a good bet. But this is not a tip. Its a way to think about risk and reward.
Read about Naval Ravikant and see what he has said on Asymmetric Bets.
Markets fluctuate. You are dealing with FIRE. Keep your Head.
Stock Market is a place to BE AUTHENTIC and joyfully make your PAINTING.
The beauty of stock market is that it is NOT a ZERO-SUM GAME. It is NOT a COMPETITION. If I can make money, you can also make money at the same time. We both can benefit and grow together. Magic. Like the blessing of Godess Lakshmi.
Fortunes require leverage. Business leverage comes from capital, people, and products with no marginal cost of replication (code and media). Capital means money. To raise money, apply your specific knowledge, with accountability, and show resulting good judgment. ~ Naval Ravikant
Stock Market is LEVERAGE PERSONIFIED. So Be Very Careful. It is extremely powerful. Like a knife in the right hands can be used to cut vegetables, fight wars, do surgeries with precision. But in the wrong hands, the same Knife can also be used to wrongfully hurt others in a robbery. You are dealing with FIRE. Good Judgement is awarded here NOT HARD WORK.
Play the game sincerely but not seriously. Do not take any mental load from Stock Market. Instead, make it as a canvas for your painting. Draw your intuitions here. Invest in businesses you like, people you like.
Believe in its power. It rewards original thinking and authenticity unlike the real world. See it is as a place to meditate not a place where you are to make money. Play the game, have fun, make good decisions. As a result, you will make money. But aim should not be making money. But to find great businesses, understand them, understand the people who run them, understand the risks and moat and make the bet. You will be rewarded for your conviction and right decisions.
Do NOT track the market daily. There is a term called “CIRCLE THE WAGONS” which means Invest in Great businesses and forget. Maybe you can track them quarterly but daily is not RECOMMENDED.
Markets can make you go anxiously mad or keep you in a meditative state. When all your positions are great businesses run by FANATIC managements, and each position is less than 5% of your capital. Why worry - WHAT IS LEFT TO BE DONE NOW?
Live my Friend. Play Golf. Do Yoga. Immerse yourself in doing things you love. Once you have done the work, stay invested for the long term. Trust the Market. Circle The Wagons.
Avoid Debt. Avoid the Self Goal.
Neither invest in debt ridden companies nor take leverage / personal loans.
Don’t give in the temptation. Avoid Debt. Avoid Loans. Avoid the f**king Car Loan. Because if you don’t, it possesses the potential to cripple your future.
“Your deepest desire is your destiny." As is your desire, so is your intention. As is your intention, so is your will. As is your will, so is your deed. As is your deed, so is your destiny. ― Upanishads
