From: Matt Joass mjoass@gmail.

com
Subject: Re: Lifelong Learning
Date: 20 May 2015 14:26
To: Sanjay Bakshi sanjay@valuequestcapital.com

Hi Sanjay,

Many thanks for your thoughtful and considered reply. It has prompted me to think how I can more explicitly incorporate my portfolio reviews in to my
learning process, such as going back and checking past journal entries against the latest review.

You most certainly can make the exchange public and thank you for taking the time to respond.

Thanks,
Matt

On Wed, May 20, 2015 at 1:33 PM, Sanjay Bakshi <sanjay@valuequestcapital.com> wrote:
Hi Matt,

Thanks for your mail. Daniel Coyle has done a tremendous service to humanity for writing that book. I ordered 21 copies yesterday to give to my
friends.

Its true that unlike in sports like archery you dont get instant feedback in long-term investing. But that doesnt mean there is no feedback that is
useful.

Heres what I do when I look for feedback on my decisions on investing in high quality businesses:

1. Every once in a while I look at the business and ask if this is a high quality businesses or not. If, for example, the moat is getting impaired or
is likely to be impaired, then I must consider selling. Factors affecting the quality of the moat are many but keeping Porters five forces
framework is helpful as is quantitative checks (operating performance as compared to competition, resilience of profitability during tough
times, trends in balance sheet quality, return on incremental capital for new expansion projects being taken up by the business etc). Its
important to recognize that doing this too frequently will not be a good idea. By definition, a really good business is very unlikely to be
ruined in a quarter or two. So, there is feedback but I am not likely to get it on a daily or a quarterly basis. Sometimes, of course a negative
black swan event (e.g. an earthquake) could destroy the earning power of the business. Under those circumstances cogitating over a few
quarters about where the moat of that monopoly hotel that now lies in ruins now is impaired or not would be funny and foolish! I cite this
just as an example that sometimes shit happens and one has to act quickly but usually good businesses do not get destroyed in a quarter so
one must try to avoid the noise in the short-term earnings announcements and focus on the big picture.
2. Every once in a while I look at the quality of the management and ask if its the same, better or worse than it was when I first bought into
the business. A bit of caution here however. Once an investment in a great business run by an excellent management has been made, one
should not become overly disappointed by a few mistakes, provided none of them can destroy the business. So this analysis is done keeping in
mind Ben Franklins advice that one should keep ones eyes wide open before marriage but only partly open thereafter. Factors that go into the
quality of the management bucket comprise of checks on operating skills, capital allocation skills and integrity. There are some situations,
however, when the management does something that is wrong from the perspective of the minority shareholders. under such situations the
question to ask is: Knowing what I now know about the intention of the management, would this business pass the management quality
test? If the answer is a no, then I must exit from the business. In other words, some things are to be tolerated, others not. Its not physics. Its
very subjective and different people come to different conclusions. It just helps to monitor the overall quality of managements decisions over
time and make the judgement using Ben Franklins Prudential Algebra framework.
3. Every once in a while, I look at the market value of the business and try to understand if its run up faster than fundamentals or is lagging
the fundamentals. So long as I am satisfied from the feedback I get from 1 and 2 above, I dont get overly worried about the former. I know
from studying the history of great value creators that there will always be periods when the stock outperforms the business and there will be
periods when the reverse happens. Once eyes should be on the playing field (covered in 1 and 2 above) and not on the scoreboard. This kind
of thinking has really helped me a lot as an investors and has also helped my firm's clients too!

There is very good feedback in long-term value investing. If your process is good, then over time, you should get good results. Over time, the role of
luck diminishes and process dominates. So all the feedback should be directed towards the validity of the investment process.

Additionally, I think its a very good idea to follow the Shane Parrish's advice on writing up a decision journal because it forces you to calibrate your
confidence level over time

If you allow me, can I make this email exchange pubic because there may be others who might benefit from it?

Thanks,

Sanjay Bakshi

On 20-May-2015, at 03:04, Matt Joass <mjoass@gmail.com> wrote:

Mr. Bakshi,

I am a fan of your work and I follow you on twitter. I am based in Sydney, Australia, and became a full time research analyst last year, after being
an independent value investor for many years. Your thoughts on the markets and competitive advantages really resonate with me.

The reason for my writing is that you recently tweeted about a book by Daniel Coyle that I also love. I used the lessons of this book to help me
through to passing the level 3 CFA examination. I have thought about the lessons of this book many, many times, and considered how I could apply
them to long term investing.

The challenge is, Mr. Coyle talks about the need for instant and continuous feedback. If I were shooting hoops I would get this feedback from my
shot missing the basket. If I were bowling a cricket ball I might get it from missing the stumps, or from the batter hitting me for 6. However with
investment analysis I would typically need to wait many years to determine if I performed my analysis correctly. There is none of the instant
feedback which is required for deliberate practice.

My question is, what activity or activities do you think an investor should practice to build skill in the way that Mr. Coyle talks about, which would
enable the kind of direct feedback loop that is required for your neural circuits to myelinate?

Many thanks,
Matt Joass