A Single conversation with a wise man is worth a month’s study of books – Chinese proverb
Continuing with my investing chat series with smart minds, I had a deeply thought provoking conversation with Safir Anand.
Safir is a keen and accomplished Senior Partner with India’s finest law firm for Intellectual Property- Anand & Anand. He is truly a polymath, an entrepreneur, avid reader, trader, long term investor, fashion aficionado and more.
Safir has a wide breadth and depth of understanding of Indian equity markets from all slants and bends. He tweets @safiranand
When I reached out, Safir was gracious enough to spare some time for sharing his investing thoughts. I believe that many hundred hours spent on reading, thinking and investing has permeated into this conversation.
So friends, please grab a cup of coffee, sit back and (hopefully) enjoy the conversation.
Ravichand (S&L): Hi Safir, Please tell us something about yourself. I am especially curious to know how an actively practicing lawyer cum legal professional ventured into the field of investing and carved out a name for yourself.
I am a practicing Intellectual Property Lawyer, a Brand Strategist and someone who is always on the lookout for creativity. Creativity takes several forms such as art, music, and dance on one hand and the exploration of new concepts & ideas on the other.
I belong to the second category where I am guided by an inquisitive mind that is fascinated by how an idea, well harvested and differentiated from other businesses, can result in creating and scaling value to anybody from an individual to a corporate to Government.
I also believe that the pursuit of anything worthwhile should be guided by an essential binding force like a grundnorm. For some, the binding force is necessity (which perhaps led to the expression that necessity is the mother of all inventions), money (some say money can even buy happiness), power (some call power the ultimate aphrodisiac), independence or like.
A term that describes me the best is simply “a pursuit of the passion of learning, improving, improvising and the gratification that the process can result in”.
I ventured into investing initially with the drawback of not understanding how companies were valued and how even on a daily basis, there was a significant dis-connect and disarray between buyers and sellers in trying to find the most appropriate and fair value of a “mystical” number.
The easiest way to start learning is to jump into something and to give it sometime to see whether the indulgence is more of a task or something that starts pulling you towards itself with an excitement akin to a fascinating journey.
I think the fact that investing is an accumulation of facts that may be available to many but a subsequent distillation of human and social behavior in interpretation and in arriving at a likely assessment of the journey of a company vs. an immediate short gratification of price up move or fall implies that the process carries endless opportunities every now and then to:
- Make mistakes and still learn;
- Get it right and learn;
- Take no action and learn;
- Profit from mistakes of others;
- Stand independent and differentiate and then see the work of action;
- Develop a character which could be in the form of either patience, self-control or at times getting arrogant, slipping and getting grounded thereafter with a hope of coming back.
I think there is no “Aha” moment that convinced me that I will do well in investing as every now and then there are Aha moments in both winning and learning from mistakes. The word “Aha” itself is a connotation of discovery much akin to the use of the word “eureka” by Archimedes when he was taking a bath in a tub. There are several Aha moments….
There is an Aha moment also when at the end of a process there is a discovery much on the likes of Sherlock Holmes, who after discovery called it “elementary”.
There is also an Aha moment when sometimes even with a combination of part skills and much luck, you get a result like an extra-ordinary “OO7” moment.
Similarly, there is an Aha moment akin to that of a spectator in a cricket match who jumps to joy when he finds a batsman hitting a ball for a six or four or comments on how the batsman ought to have played on a ball when he gets out, as if he could have done better.
Investing is both sitting strong and building connection. It is a battle of the mind without tumbling on overconfidence, euphoria, greed, fear and has a sense of adrenaline flowing alongside in the process that may or may not always have the desired or optimum outcome.
Ravichand (S&L): That was one terrific opening salvo. A whole bunch of fine thoughts to digest! One thing that really struck me is your inquisitive bend of mind to go along with a strong desire to continuously learn.
William Ward nicely quipped “Curiosity is the wick in the candle of learning” and when you combine continuous learning with a curious mind, voila, you get a fine recipe for success in life and investing.
Moving on, tell us how your investing philosophy or process has evolved over the years? What has influenced your present line of investment thinking?
Investing itself is a process.
The best part of investing is that while the process evolves with time and experience and in that sense may be diversified, in reality investing has always been simple and guided by combination of human control over greed and fear and the ability to differentiate between signals and noise.
It’s like meditation in a war. I am a firm believer that an investor must be able to identify his area of competence either in terms of companies that he owns or the businesses he understands or based upon the guiding principles of his investment.
There are investors who excel in buying and holding stocks over the long run and may look ‘out of place’ when markets go against them in the short-term while there are other investors who excel in technical and may sound Greek to those who are in the pursuit of fundamentals / long-term value. (Sounding Greek is not the same as looking Greek!!!)
Similarly, there are momentum and swing investors just as there are investors in India and in international markets. There are also different class of investors with some having specialization in cyclical while others more attuned to what is closest to them (IT/Pharma etc.).
A pharmacist chatting with a social media marketing expert may make an interesting point but each will do better in their respective fields of competence.
I think the essential feature again is something that is known ‘within’. This “within” takes forms- grit, patience, perseverance, ego halting, ability to bear the flow of winds against to even sense of knowing wrong, judgment errors and realizing what was a crush vs a lasting bond.
Most of us are not likely to get that within wrong while we are more likely to err when we try to make the serving more exotic by venturing around the outside- economy, globalization, crude, China, USA, and Currency wars.
Similarly in chasing newer nut untested business models and pursuing a never ending chase under the garb of thinking that we will get the highest returns and win a race run by zillions of people every day in the market.
One should not forget that in today’s well informed and connected investing world, it’s not necessary to have “intelligence” vs “intelligence” but good emotion over bad.
Ravichand (S&L): Sticking to one’s area of competence and following the process what works best for us is absolutely spot on.
Remembered what Howard Marks said “There are many, many different ways to make money in the investment business and the one I describe as ours, it’s not necessarily the only right one but it’s the one we like.”
From investing process let’s move on to investment criteria. Based on your current thought process you have mentioned, what are the criteria’s or characteristics you look for in a business for it to be considered investment worthy?
The most essential criteria is simplicity. The second criteria is durability. The third criteria is competence of the management in keeping it simple, durable and scalable. The fourth criteria is measurability of the business and its size of opportunity. You can add one more if you feel generous- alignment of interests.
Measurement is usually in the form of cash flows and shareholders friendliness. Managements that are more attuned to keeping shareholders part of its journey play it better than those with vested or short term or in investing parlance “cyclical” interest.
I am also fascinated by the concept of vacuum that is when an opportunity is created by any friction that is capable of being filled-in by a new age business model. This is akin to the concept of Value Migration that was propagated by Adrian Slywotzky in his well-known book of the same title.
One of the other concept that fascinates me and guides me is the concept of Zebra in Lion Country where it is well-known that herd likes to eat in the center of the Savanna where the grass is least but there is highest amount of safety while the explorer eats grass on the peripheral where the danger of an attack from the Lion is perceived to be higher but the quality of grass is higher.
The survival instincts of those at the peripheral causes them to become more swift just like a systematic workout of the brain or the body to make a person fit while those in the center get easy and low hanging fruit that has much more limited return but exposes them to the risk of obsolescence.
In effect, businesses that are at the verge of value propositions or multiple value propositions are more preferred and this is combined with the contrast to human psychology where the element of greed or fear is assessed from risk to reward perspective.
Ravichand (S&L): Wonderful set of criteria and especially delighted that you are equally fascinated by the “Dean” of small cap investing- Ralph Wagner.
On unearthing multi-baggers, Ralph Wagner had this to say:
If you are looking for a home run- a great investment for 5 or 10 years or more- then the only way to beat this enormous fog that covers the future is to identify a long term trend that will give a particular business some sort of edge”
I have a penchant for compiling investing rules of smart investors. To add to my collection, I am keen to know if there were to be “Safir’s 5 rules for successful stock investing” then what would that be?
My 5 rules for successful stock investing:
- Keep it simple; Black/White is sexy too and never fails even in formal events though it is simple.
- Have some matrix of measurement in qualitative and quantitative terms which matrix has the power of exponential rather than limited effect so that even if you get some calculation wrong, you have enough yards to run.
In a recent movie, BAZAAR, Saif Ali Khan comments “no one remembers a marathon runner but remembers who won the 100 m race”.
I say a marathon runner can afford to slow down and yet win a marathon but a 100 m runner can only win by running. The same 100 m runner won’t win if the path has “unknown hurdles” as he is not used to slowing down.
These unknown hurdles are plenty in a world where too many variables play on a theme. Sometimes you need to slow to see are they friendly or vicious.
- To develop a competence involving yourself by knowing your weakness and trying to concentrate on building a strong character of the mind and at the same time not getting choked out by exuberance, over-confidence or by the noise which is isolated with facts. Building immunity is far better than medication taken to tide over.
The validation of facts is the biggest catalyst to conviction and one has to convince that the transformation from a caterpillar to butterfly is a painful metamorphosis that eventually results in a beautiful creation.
Even a child is born almost alike and has some strengths and some weaknesses. His harnessing of his interests leads the way to his eventual stardom or mediocrity. Stars are born in several fields and including new fields but mediocre usually is amongst the herds.
- Another success rule is the need to keep reading and to bring in diversity. For example, diversity may even come from travel as you can never solve a problem by being in the same place where the problem exists.
A human brain is wired to appreciate progression and sometimes even the act of moving from one location to another during travel gives a signal to the brain that things are progressing vs. being at a stand-still movement in thick of your problem.
- The competence of people that you look at to is equally important with the qualification that the more varied the traits of those people and the more you can imbibe their success and principles while customizing them to your own personality, the better you are likely to get.
Ravichand (S&L): Great set of rules. I especially loved the one on reading. As Charlie Munger said “In my whole life, I have known no wise people who didn’t read all the time – none … ZERO”.
Reading is a key habit every aspiring investor should have. To help us become lifelong learners with a habit of voracious reading, I am assembling a collection of reading lists on best books to read from some of the best investing minds.
Moving on from rule, tell us what has been your best investment idea (need not be the most profitable) till date?
My best investment ideas would center around identification of themes where the scope of the market potential was far in excess of the current size and where this met opportunities in the hands of a company and promoter as was hungry to lead, sometimes laced with brands or technology, or who believed in creating a matrix of the distribution and having power over and above generic players in the same competition.
The examples include early identification of themes in consumer finance such as Bajaj Finance, consumer preference for strong brand power such as Eicher, recognition of huge potential for growth of non-luxury sanitation (Cera) or simple migration from a generic commodity to perception of safety and value in human life coupled with enormous brand power (tire companies like MRF and CEAT).
Ravichand (S&L): Identification of themes is the strong message I am getting and this would involve some serious thinking.
Alas, as Henry Ford put it brilliantly “Thinking is the hardest work there is, which is probably the reason few engage in it”. But yes, the rewards are sweet.
From master stroke let’s move on to mistakes. Mistakes are sometimes referred to as “unexpected learning experiences”. Can you share any important investing mistake(s) you have made and crucially what lessons can we learn from that?
Mistakes are part and parcel of investing and come in several forms. Some of these are centered around misjudgments, some around character particularly when somebody gets carried out by success or fall for a confirmation bias. Sometimes mistakes are only temperament that went wrong.
Mistakes are also made when much of sound overtakes the underlying rationale for investing or where in the race for short-time gain long-term wealth is sacrificed.
The set of mistakes made by investors every time is fairly consistent. The impulsive action and the inability to conquer fear and greed is akin to walking into your own graveyard. Ghost tours may be good for someone selling them but have no repeat value in life. Most pictures you take for memory are only dark!
Lessons are learnt in hindsight including the pursuit of belief that translates purely beyond stock gains and losses and opportunity that goes into stronger beliefs on processes and even supernatural and superstitious beliefs which are part of human character.
Ravichand (S&L): Peter Lynch wisely opined “In this business if you are good, you are right six times out of ten. You are never going to be right nine times out of ten”.
Doing mistakes are acceptable as long as we learn lessons from it. However, it’s much cheaper to learn from others mistakes.
From mistakes made we move on to lessons learnt. What has been the most important investing lesson(s) you have learnt from your time spent (investing) in the market?
The most important investing lesson that I have learnt is that time is your best friend and all good times are followed by rough and all rough times by good.
However, the human nature wants progression and thus there is a concerted will to solve problems rather than prolong them. It’s like saying “once upon a time….and eventually they all lived happily ever after”.
Ravichand (S&L): Very true. Neither good times nor bad times stay forever. As they say, in life, good times become good memories and bad times become good lessons.
From lessons we next touch upon advises. What has been the most important investing advice(s) you have ever received on investing?
The most important investing advice’s in no particular order:
- Read everything, hear everything, and believe nothing.
- Do not attach too much value to information that is sold in mass market
- Learn from history, in doing so plan the present and look to the future
- In times of falling market, mistakes and failures re-validate the basics- revisit them again and again as things always go back to basics.
Ravichand (S&L): Wonderful set of advises worth pondering especially the need to learn from the past.
The investing legend Philip fisher had this to say “It seems logical that even before thinking of buying any common stock, the first step is to see how money has been most successfully made in the past”
Studying the superinvestors and figuring out how money was successfully made is what Stock and Ladder is all about.
From advice’s we move on to inspiration. Is there any particular investor(s) or author(s) who have had a significant influence in your investment thinking?
I have been highly influenced by a variety of investors. These include in the Indian context:
- Samir Arora who I think is an excellent big picture thinker and an optimist- a clear master of networking effects and exponential impact;
- Sanjoy Bhattacharyya who understands cash flows and their impact on business valuations and sustainability to perfection. He drools at valuations like a kid with his favorite lollipop and shows a remarkable disinterest including in his voice when things are far and beyond;
- Prashant Jain who repeatedly tells you that superlative returns can come even by simplicity and time. He is like a yoga inspired fund manager
- A variety of lesser known investors who carry great zeal in discovering business models but do not like to be highlighted and who sound just as same on days of euphoria as they are on the days of crackdown.
I sometimes initially mistake them as boring or conservative and with their returns they show me how we can learn from even the unexpected.
Ravichand (S&L): The triumvirate you mentioned are all stalwarts from whom we can draw inspiration.
I specifically loved the way you brought up the focus on the unsung heroes who share their learning and experiences freely. They do not seek recognition willingly but gain our respect automatically.
Next up is one of my favorite question. Let us say a bunch of enthusiastic beginners approached you for advice on how to be a successful stock investor. What would your advice for them be?
My advice for investing beginners:
- Start investing early and continue- keep at it;
- Do not punish yourself for mistakes but treat them as part of a learning journey
- Do not do things that you do not understand or which are so inter-connected and complex that one card can bring down the entire deck.
- While I say this, I find it difficult to enforce on myself, do not get arrogant or feel that you fly in the air. Even planes land!
Ravichand (S&L): I think these are a set of fine advises that hold good for all investors not just beginners.
The advice “start early” cannot be emphasized more to allow “Time” work its compounding magic. I remembered what Buffett said “I made my first investment aged 11. I was wasting my life up until then”
The next thing I wish to pick your brains on is something which is very close to my heart – Books. As a voracious reader yourself can you recommend the best books to read for investors?
My pick of 5 best books to read in no particular order:
- The Zurich Axioms by Max Gunther
- Stocks For The Long Run by Jeremy Siegel
- A Zebra in Lion Country by Everett B. Mattlin and Ralph Wanger
- Mean Market and Lizard Brain by Terry Burnham
- Reminiscences of a Stock Operator by Jesse Livermore
Ravichand (S&L): I should say that is an eclectic collection of fine books to read.
I am assembling reading lists from some of the brightest investing minds to inspire us pick up the best books to read and your suggested reading list will be a great value add to the collection
Even the good things cannot go on forever like this amazing conversation I am having with you.
Here’s the last question from my side- outside your passion for the legal profession and investing, are there any other interests / activities which are close to your heart?
Of course. Let me list down a few:
- Exploring new restaurants
- Travelling to lesser known destinations more in the thick of nature
- Watching films and sometimes co-relating with them
- A pursuit of music where even the discovery of a new good song makes me think as if I have composed it.
Thank you Safir. It was an insightful, informative and an illuminating investing chat.
I wish to place on record my sincere thanks and gratitude for sparing some time to share your investing experiences and wisdom with all the readers of Stock and Ladder.
Paraphrasing Stephen King, “Good conversations just like good books don’t give up all their secrets at once”.
Dear reader, I honestly believe there is so much wisdom packed in this conversation that bookmarking this page and revisiting it to read the conversation again will be helpful in your investing journey.
Keep Learning, Happy Investing.
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