EDELWEISS

MUTUAL FUND

Financial & Business

Book Summaries

An Investor Education Initiative Volume II

 Books are a uniquely portable magic
- Stephen King

Many of us want to read books. We make a list of books to read. But

often, we are pressed for time.

We have made this simple for you. We started doing book summaries of
specially curated list of finance and investment books.

Engross yourself in the Volume II of these selected book summaries

created by Edelweiss Mutual Fund.

You can access the entire library of all book summaries anytime,
anywhere through our mobile app ‘eInvest’.

Connect with us on Twitter or Instagram to stay updated on new

releases.
 CONTENTS

1. Charlie Munger: The Complete Investor 3

2. Seeking Wisdom: From Darwin to Munger 6

3. Value Investing: Tools and Techniques for 9

Intelligent Investment

4. The Psychology of Money 12

5. Antifragile: Things that gain from disorder 14

6. Richer, Wiser, Happier: How the World's Greatest 17

Investors Win in Markets and Life

7. The Joys of Compounding 20

8. The Education of a Value Investor 23

9. Get Rich Carefully 26

10. Factfulness 29
 Charlie Munger: The Complete Investor
Author: Tren Griffin

If you are interested in the investing ecosystem, chances are high that you must have encountered Charlie Munger in some form
or the other. Almost a century old now, US based Munger is an American billionaire investor, businessman, and former real
estate attorney. Popular as the vice chairman of Berkshire Hathaway, Warren Buffett's investment conglomerate, Munger has
been Buffett's closest partner and right-hand man, creating an investment legacy like no other. Considered the complete
investor, Munger's entire life can be viewed as a series of lessons for investors and Charlie Munger: The Complete Investor is Tren
Griffin's ode to the legend.
Offering you a horde of Munger's quotes and anecdotes, the book is a treasure trove of insight into Munger's investing psyche.
In addition to the quotes and life stories from Munger, Griffin has weaved in anecdotes and lessons from other major investors,
including Warren Buffett and Seth Klarman, making the treatise a veritable handbook for any investor. Another factor
enhancing the readability of the book is that it is not solely based on investing. Yes, investing is the central focus of the book. But
it also offers vignettes on ethics and morality, rounding out the entire experience. For instance, being reliable is something the
book stresses on, and it is a life lesson for all of us, irrespective of our investment traits and ideologies.
Key Takeaways
· It is important to calculate, but do not only focus on calculating without putting in adequate thought.
· You need to be able to spend time with your thoughts if you are keen on becoming a successful value investor.
· You should be able to understand and explain your failures – only then can you succeed.
· Even if people are not smart or absolutely diligent, they can grow through consistent learning.
· A year in which you don't change your mind on some big or important idea, is a wasted year. Change should be an
active part of life.
· It is important to recognize reality, even when you may not like it.
· Value investing is built on choosing bets with huge upsides and limited downsides. This is called positive optionality.
· To be successful, you have to be very patient, along with being aggressive at the right time.
· Reading, without thinking and reflecting on what you have gone through, is a waste of time.
· If you wish to be a successful investor, you must avoid being dominated by emotion. Instead, respond rationally and
logically to market fluctuations.
Investing and living well can be quite similar at times. Many of the tenets that guide good investing are relevant in our daily lives
too, and lessons from Charlie Munger's life can guide you in both – leading a good and satisfactory life as well as becoming
successful investors.
Approach to value investing
If you do not sit with your own thoughts and understand the rationale behind the decisions you take, you cannot lead a
thoughtful life. The shortcut to being smart is to simply avoid being stupid, and this can only be accomplished by understanding
why you take stupid decisions. Further, it is imperative to know what you do not know, since that forms the base of your
decisions. If you are self-aware and realise that you do not know something, you can take proactive steps to correct this, putting
yourself on track to taking more informed decisions. This is true for investing too – it is better to stick to the aspects within your
circle of competence, instead of following trends blindly.
Ben Graham and the Principles of Investing
The father of value investing, Ben Graham, is someone highly respected in the investing landscape and both Munger and Buffett
consider themselves disciples of the Graham method. Accordingly, Munger follows four fundamental tenets of the investing
method. These include:
· When you buy shares you must understand that you have bought a piece of ownership in the company

3
 · You must buy only why there is significant margin of safety
· You must not become a slave to the market. Instead, you should assume that the market is there to serve you
· Finally, and most importantly, you must stay true to the above three tenets
Munger is also very conscious of his own biases – and his advice is that you should be aware of your psychological biases, to
avoid falling into consequent traps.
Importance of constant learning
If there is one thing every smart person swears by, it is the importance of reading and learning new things, at all times. Both
Munger and Buffett are proponents of constant learning. The value of their approach is evident in the success that they have
achieved – Berkshire Hathaway is one of the most successful investment companies in the world. Munger's success as an
investor has relied on his unwavering desire to learn new things through the years, turning him into an actual learning machine.
In fact, both the legendary investors dedicate 80% of their time to reading, thus gaining tremendous knowledge on a daily basis.
Focus on simplicity and build on pre-existing knowledge
Munger is of the opinion that it is best to stick to what you know, instead of venturing out into the unknown, armed with little or
no information. The actual Graham method of investing is based on simplicity, focusing on doing things or taking decisions
which are within your circle of competence. That does not mean that you should not develop new competencies or skills.
Instead, it means that you should take decisions only when you have enough knowledge and understanding of the different
aspects forming the decision. In Buffett's words, investing is simple, but that does not make it easy. Great investing comes from a
realistic approach, patience, and the courage to take informed risks.
Keep an eye on long-term opportunities
When buying the shares of a company, or making an investment, remember that you are taking part ownership of the business.
Do not follow trends and market cycles blindly. Instead undertake proper and efficient valuations to identify the underlying
facets and consider the core business metrics to assess profitability. For long-term opportunities and strong gains, look for
companies with good valuations and wait to buy these at a discount. If you pick a price too close to the actual value of the shares
you purchase, you will have limited scope when it comes to dealing with future volatility. Finally, maintain a level of rationality
when it comes to investing – giving in to emotions, in line with market volatility, can set you up for a loss. Do not be ruled by envy
or greed, focus on the opportunities and look at the market as an ally for long-term opportunities. To keep your rationality in
place, create a checklist and divide tasks into simple blocks. This prevents you from taking irrational and emotional decisions,
saving you from your own biases. Try to foster rationality in all your daily actions and decisions, thus turning into a fundamental
tenet of your life.
Life lessons are relevant to investing
Do not make the mistake of thinking that your life lessons are different from investing tenets. Good attributes like rationality,
courage, patience, reliability, among others, form the basis of both – a good life and a successful investing strategy. Learn to
apply wisdom from a variety of different disciplines to enhance your investing decisions. The principles of worldly wisdom can
come in very handy even in investing and Munger channels these principles into every investing choice he makes. Having an
understanding of different subjects like history, mathematics, physics, psychology, philosophy, and biology can help you
understand yourself and your biases better – making you, in turn, a better and more rounded investor. You can become a savvy
investor by studying your decisions and thought processes through the lens of these principles, helping you take better
decisions going ahead. While it is difficult to build inter-disciplinary expertise, you can focus on the core of the disciplines and,
with the accumulated knowledge, make better choices – both in life and in investment decisions.
If there is one clear thing to understand here, it is the fact that investors become successful because of the way they look at their
decisions and take conscious choices. Yes, Munger is an exceptional investor, but his excellence does not come naturally. It
comes through a recipe of stringent and conscious practices, from continuous learning to simplicity and patience. Munger has
not created a new way of investing or thinking, he has just cracked the code on successful investing by adhering to the guiding
principles of life. He has used all the knowledge garnered from years of learning and analysis to perfect a method which holds
him in good stead, through market ups and downs, and it is a method that all of us can imbibe, given adequate motivation and
dedication. Indeed, if you follow his tactics, and add dollops of courage and worldly wisdom to the mix, no one can prevent you
from becoming a successful investor and a successful human being. After all, the guiding principles are the same for both! In
Munger's own words – “To get what you want, you have to deserve what you want. That world is not yet a crazy enough place to
reward a whole bunch of people."
A key part of becoming a successful investor is the ability to make the right investment choices. From that perspective, mutual
fund investments can be an ideal choice for you, especially if you are keen on following the tenets shared by Charlie Munger.

4
Mutual funds are investment vehicles that pool investor money and then invest it across different investment instruments and
strategies based on the scheme mandate. Many mutual funds also follow the value investment strategy propagated by Charlie
Munger. Fund managers look to invest in quality stocks that are available at a deep discount and hold it for the long-term. While
you can definitely try to adopt the value investing approach in single stock selection, it might be easier for you to go through the
mutual fund route and let expert funds managers select the right investments for you and manage your money. By investing in
mutual funds, you can easily follow many of the tenets proposed by famous investors and get on the path to financial
independence.

5
 Seeking Wisdom: From Darwin to Munger
Author: Peter Bevelin

While all of us wish to do better and improve ourselves, it is hard to put in the effort and discipline required for this mammoth
task. Famous author Peter Bevelin also had the same idea – to improve his thinking and come up with ways to enhance logic and
reasoning. His treatise – Seeking Wisdom: From Darwin to Munger, is the result of his efforts towards enhancing his thought
process and consciousness. In his own words, he thought he was dumb and wanted to be less dumb and the book is a
compilation of everything he has learned on the rewarding journey towards being a more accomplished thinker. At 42, he
decided to take a year off and learn, reflect, and write on human behaviour and judgements, thus creating a veritable treatise
for all of us who wish to enhance our thoughts and ideas.

Peter Bevelin wrote this book with the idea that he could eventually transfer his learning to his children. 'Seeking Wisdom' can
help you become a little wiser each day while avoiding harmful mistakes. In Bevelin's words, optimal decision making involves
avoiding terrible ones, rather than fixating on taking only brilliant ones. The book begins with Confucius' unforgettable words -
"A man who has committed a mistake and doesn't correct it, is committing another mistake." It will go on to teach you exactly
how to learn from important lessons in your own life.

Key takeaways
Ÿ Identifying the things that influence you can help you avoid traps and understand the behavioural patterns of others.
Ÿ Finding a framework for reasoning can help you make better judgements.
Ÿ It is important to learn from the mistakes made by other people.
Ÿ While it is impossible to eliminate mistakes, it is possible to prevent really harmful errors.
Ÿ We are drawn to novel things and experiences, as these could be potentially rewarding, but your decisions should be based
on reasoning and logic.
Ÿ Reality consists of several underlying big ideas and learning these can help you develop good thinking habits like objectivity.

Human beings have spent a long time on earth, evolving from apes to becoming self-sufficient and capable. However, often, our
thought processes take us back to the original hunter gatherer ethos of the past. In fact, biology dictates that we have, actually,
spent 90% of our existence as a species in that state, making it difficult to let go of those mechanisms. To be more humane and
thoughtful, you need to practice regularly and consistently, learning from your own past mistakes as well as the mistakes of
others. This is a lesson essentially ingrained in 'Seeking Wisdom' and it has the power to stand us in good stead for the years and
decades to come.

Not making fools of ourselves

Many of us end up making a fool of ourselves because of a number of reasons such as bias from association, not recognizing the
bias from self-interest, and wishful thinking leading to self-deception and denial. The first thing that you need to do is not to
work towards avoiding these mistakes. Rather, it is to understand them better. This is because only when you understand the
root causes of your mistakes can you improve yourself. There is an important checklist that you can follow to avoid such traps,
and these include avoiding pointers such as consistency tendency, status quo and do-nothing syndrome, impatience, envy,
comparison, over-influence, constructing logic and explanation to fit outcomes, and a lack of doubt. Further, you should also
stay away from mental confusion arising out of emotions, the need to always say something, stress, and pain. Often, our lives
and livelihoods may depend on a factor or ideal which might be incorrect but we stick to the path because we are afraid of what
might happen if we change our path. However, to be wise and to develop good thinking habits, it is essential that you remain
strong in the face of the pointers mentioned and work towards creating a framework which is more holistic and devoid of
judgements. Every great man, from Seneca to Buffet, has questioned the folly of fooling oneself and you must never fall prey to
this aspect. As Huxley famously said – Facts do not cease to exist because they are ignored. Never accept things on their face
value – only accept things when you are convinced without any bias.

Fallacies of memory

Through your lifetime, you depend on your memory for a variety of reasons – from remembering the past to taking future
decisions, your memory is called into use on a daily and regular basis. However, it is important to understand that memories are
6
subjective and they may lead you to make incorrect decisions. Firstly, you must realize that memory weakens and deteriorates
over time. Something you remembered in detail a few years ago may end up being foggy when you try to recollect the intricate
nuances later one. You might also forget or miss the important parts of a memory and end up fixating on distracting issues.
Conversely, you may assign a memory to the wrong sources, thus putting a question mark on the entire element. Sometimes, it
can also happen that your present knowledge impacts your memories and can influence the way you might remember a certain
incident or development. This is why it is really important that when you are looking to make wise decisions you must avoid
depending on your memories or the actions that you took in the past. The best way to move forward is to accept your failings
and work towards improving yourself.

Munger's advice on avoiding folly

Considered wise beyond words and experience, Charlie Munger has been a famous investment guru since decades. He has
influenced countless individuals with his focus on rational and good thinking and, according to him, there are some lessons you
can follow if you wish to “not be dumb”. First of all, Munger believes and states that you can actually learn how to make fewer
errors. He further goes on to say that even when you end up making mistakes, you should become powerful enough to fix them
quickly as long as you can learn how to handle them in a better and more objective manner. To reach a place from where you can
work towards a less mistake-laden future, you can follow the two-track analysis – consider the factors which govern your
interests and then look at the subconscious influences which prompt your brain to take automatic actions. Once you
understand these two aspects, you can take an informed guess about what causes psychological misjudgments in your life.
Finally, study all the main models in psychology and understand what works best for you. Use these models as checklists when
reviewing the results of your actions and pay attention to combinatorial lollapalooza effects or the phenomenon wherein your
many biases and tendencies act in tandem to drive you towards a particular action, usually erroneous.

The science behind misjudgments

One way to get better at logic and objectivity is to stop looking at isolated events and start considering your actions as a whole. It
is important to take into account how your seemingly minor actions may affect the whole system. Also, as humans, we need to
stop looking at just the symptoms and start looking at the root cause. For instance, if you have a fever, you should not just take an
antibiotic to relieve the issue. You should take a closer look and identify the underlying cause of the fever, which is the only way
to actually get rid of the ailment. Einstein once said that not everything that counts can be counted, and not everything that can
be counted, counts. Understand that there are many different variables, even in simple equations, and take decisions only after
counting all the variables that actually matter in the long run. Finally, if you do end up making a misjudgment, never let it go
without a post-mortem and always treat it as an opportunity to learn. Work out the original reasons and assumptions which led
you to making a mistake and analyse exactly how your judgment turned out. This can help you avoid such actions in the future.

Learning to think better

Just like any other individual, you are equipped with a mind and knowledge, but it is up to you to use this knowledge to think
wisely and improve your life. You can consider 'autocatalysis' as the first step to thinking better – by creating a model wherein
doing A will ensure that you can reach points B and C through an automated process that lessens your burden. What works in
science can work in real life too! Arm yourself with sound reasoning tools and go through the checklist before coming up with a
decision. Do not complicate your thinking with big ideas which cannot be understood in one sentence. Simplifying your thought
process can help you simplify your lifestyle. Maintain a questioning attitude and try to analyze and understand why things
happen the way they do. Look around yourself, be conscious, and ask questions to stimulate your reasoning powers. While
taking good decisions may be tough, it is easier to avoid bad decisions. Look at what can cause you to stray from your chosen
path and take efforts to avoid it. Always try to live in the present, neither your past nor your future are as important as the
current moment.

Wisdom comes with conscious practice and concerted efforts and the only way to attain it is to never give up. You need wisdom
in every aspect of your life, whether at work or your investment portfolio. Many of the learnings from this book can help you
enhance your financial and investing journey. For example, just like the author highlights how traps such as status quo and do-
nothing syndrome, impatience, envy, comparison, over-influence, and constructing logic and explanation to fit outcomes can
lead to mistakes, similarly behavioural biases like status-quo bias, loss aversion bias, etc., can influence you to make bad
investment decisions. According to the author, a great way to deal with these biases can be to automate processes. In the case
of your financial planning journey, this means that you need to automate your investments. The best part is that if you are
investing in mutual funds then automating investments has never been easier. All you have to do is start a Systematic
Investment Plan (SIP) in a mutual fund scheme of your choice. SIPs allow you to automate your investments and ensure that you
continue investing in a disciplined and consistent manner. When you start a SIP, you invest a fixed amount of money on a

7
periodic basis or at fixed intervals. The fixed intervals can be chosen by you and can be fortnightly, monthly, or even quarterly.
SIPs have multiple benefits including the power of compounding, rupee cost averaging, no need to time the markets, avoiding
behavioural traps, and investment discipline. This means that by automating investments, i.e., point A, you can reach multiple
points. Such is the power of mutual fund SIPs.

8
 Value Investing - Tools and Techniques
for Intelligent Investment
Author: James Montier

Value inves ng is an investment strategy that appeals to an array of investors, but requires years of prac ce and behavioural
tac cs to understand. In his book, 'Value Inves ng - Tools and Techniques for Intelligent Investment', James Mon er walks
readers through the li le known aspects of value inves ng and provides a good set of insights on those who aspire to become
value investors. The book also elaborates on behavioural finance and its importance in investment while poin ng out the
differences between investment process and the consequent outcome. Wri en along the lines of his popular weekly column,
Mon er's book is an important trea se for anyone interested in the financial segment and keen on securing and growing their
capital.

Key takeaways
· Of all investment strategies, value inves ng is the only tried and tested method capable of offering you sustainable and
long-term returns.
· In today's evolving world, value inves ng requires you to think in a different fashion and use the latest and cu ng-edge
tools and techniques to make the most of your investment, while also applying tried and tested methods.
· Through behavioural finance, you can find ways to override the emo onal distrac ons which are capable of crea ng
fault-lines in the value approach.
· Thinking and ac ng differently from the herd is important to building and sustaining long-term wealth.
· When considering risk in investment, there are three major types – valua on risk, balance sheet or financial risk and
earnings or business risk.
· Studying behavioural finance will help you realise that stumbling blocks such as herding, excessive confidence, loss
aversion, and availability bias could hinder your value investment process.
· Good decision making does not require humongous amounts of data. It depends on aptly applying value investment
principles and ac ng on good informa on.

Value inves ng is a field that you must have definitely heard about from various sources. You may even have applied it in your
investment journeys. However, were you able to actually harness the power of value inves ng? Probably or probably not. One
of the major factors to consider in value inves ng is behavioural finance and, within this aspect, a chief component is risk.

Assessing risk in value inves ng

When considering risk, you must realize that it is possibly the most important and a highly misunderstood concept in finance
and inves ng. What most investors do is simply break up risk into a number of sta s cal figures. However, risk is much more
than that. It is a concept and a no on that needs to be thoroughly assessed and controlled. When it comes to value investment,
risk is not created by market vola lity. Instead, in value inves ng, risk refers to the possibility of a permanent loss of capital. In
inves ng, the trinity of risk includes the following aspects:

1. Risk of valua on: As an investor, if you purchase an investment at a price which is unfairly high, you stand the risk of
diminished margin of safety. Such a purchase puts in your possession an investment which is extremely dependent on good
news and strong analy cal value. In such a scenario, even the smallest of setbacks could cause the investment to fall in value,
especially since it is overpriced at the me of purchase. To avoid valua on risk, investors must take efforts to calculate the
underlying value of the investment and only invest in it when the investment is available at a discount in comparison to the
es mated value. This will keep you in a good posi on even when the markets witness a downfall as your investment will
maintain its intrinsic value and fair price.

2. Risk of business or earnings risk: When you consider purchasing an investment, you need to analyse the possibility of the
quality of the investment falling in the near future. If it is a company's stocks, look at its earning and business poten al, over the
longer-term, before deciding to buy. It is true that no business or company is risk-free. However, you must ascertain whether the
poten al changes in business quality or earnings are temporary or permanent. If you are planning to buy the stock of a company
which is going through a temporary bad patch, then you are looking at an opportunity. However, if you fail to realise that the
nega ve movements or loss of earnings could be permanent, you would be entering into a value trap which could put your
investment at risk.
9
3. Risk in financials or balance sheet risk: Before buying the shares of a company, you must take a look at the company's balance
sheet and other financial informa on to ensure that your capital is being put to good use. You can consider the Price to Book
Value (P/BV) ra o, which is calculated as the market price per share divided by the book value per share. It is o en used to assess
the price of a company in rela on to its book value and can help ascertain whether or not to invest. While a P/BV ra o of 1 is
considered safe, you can also pay a premium to build posi ons in value stocks. Remember, the higher the ra o, the more
expensive the stock is, in comparison to its book value. Look at balance sheets to ensure that you are not missing out on any
financial weaknesses which the company may be hiding from poten al investors.

Risk is inherent in the stock market and you can never avoid it completely. However, you can evaluate risk by looking at the
above-men oned aspects and invest in a company which is most in line with your risk profile and appe te.

Behavioural blocks impac ng value inves ng

As you know, money is an aspect which makes most people emo onal. It is difficult to act with logic and reason when faced with
the poten al loss of wealth and this is where the behavioural blocks to value inves ng make their presence felt. Major blocks
impac ng the process include availability bias, loss aversion, excessive confidence, and herding. Loss aversion is easy to
understand and refers to your fear of losing hard-earned wealth. This inherent behavioural trait could force you to sell off your
shares at the worst mes, making you fall prey to unnecessary losses. On the contrary, if you don't witness loss aversion, then
you might end up holding on to your investments for the long-term and poten ally crea ng great wealth. It is, therefore, a
vicious cycle which affects the savviest of investors. In addi on, loss aversion could also stop you from inves ng in an a rac ve
market and earning strong returns.

Next up is herding, wherein you follow the crowd mentality and avoid making decisions on your own. It makes sense that if you
follow the crowd, your results will also be only in line with the returns accumulated by the crowd. Suppose you sell a good stock
to put your funds in a stock which is trending, but the trend only lasts for a li le while. You would end up losing money on the
purchase while also losing out on the profits being made by the value stock you sold off. In John Templeton's insigh ul words,
“To buy when others are despondently selling and sell when others are greedily buying requires the greatest for tude and pays
the greatest reward.”

The third block to value inves ng is excessive confidence which is as dangerous as loss aversion. Value inves ng is a field which
requires temperance and self-control. Do not take risky decisions just because you have money for, as they say, a fool and his
money are soon parted. Also, do not buy stocks just because they are available. First ascertain why they are available and how
they can enhance your por olio and only then invest to follow the value inves ng style.

Simplify the process

As an investor, you may believe, faul ly, that value investment needs complex strategies and thought processes but, as with
everything else in life, it is best to keep it as simple as possible. Many mes, you might have failed to act on your ideas. You might
spend a tremendous amount of me in planning and considering the poten als of the stock but eventually may fail to act.
Overcomplica ng the investment process puts you at risk of failing to strike the iron when it's hot, which means take advantage
of opportuni es that come your way. We always spend me amassing informa on, without ques oning how much we actually
need to know. This common fallacy can put any value investor at risk of not inves ng when the me is right. As an investor, you
must always keep an eye on what is important and not fall prey to massive loads of informa on which may end up unnecessarily
confusing you.

Finally, it is important to remember that value investment is not for the short-term investor. The tac c is only effec ve if you are
in it for the long-term. It is only in the longer term that the underlying strategies come into effect. And, it is also impera ve to
remember that investment, as a whole, should be boring. The more boring it is, the less stressful and worrisome will be your
returns. As said by inves ng greats, investment is effec ve when it is as boring and uneven ul as watching paint dry or grass
grow. The less you stress, the more your money will grow when you subscribe to the value inves ng strategy followed and
popularized by inves ng giants.

As men oned in the book, inves ng should be easy and not a source of stress. However, we all know that managing emo ons,
especially when the equity market is moving up and down, can be very challenging. At such mes, it really does not ma er
whether you are a long-term investor or a trader. Greed and fear will definitely get the be er of you. In such a scenario, what can
you do? You can choose to invest in mutual funds via the Systema c Investment Plan (SIP) route. This approach will cover many
of the tenets men oned in this book. Firstly, mutual funds are investment vehicles that invest across equity, debt, and other
instruments or according to certain strategies and styles. So, if you want to reap the long-term benefits of equity inves ng by

10
following the value inves ng style, you have the op on of inves ng in an equity mutual fund that follows the value inves ng
approach. Secondly, when you start an SIP, you invest a fixed amount of money in a mutual fund scheme of your choice and at
me intervals that suit you best. You can decide to invest as low as Rs. 500 in an equity mutual fund on a fortnightly, monthly, or
quarterly basis. Now, let's understand how this will help you overcome your emo onal biases.

You have made a commitment to invest a fixed amount of money. As long as you con nue with your SIP, market ups and downs
will not impact your investment journey. On the contrary, when you invest consistently through market cycles, you will be able
to take advantage of the lower prices during market falls and reduce the average cost of your investment over a period of me.
Thus, there is no need to me the market and worry about sharp market movements in the short-term. Over the long-term, you
can benefit from both the gains generated from value inves ng and compounding. A win-win situa on for any investor.

11
 The Psychology of Money
Author: Morgan Housel

Morgan Housel's 'The Psychology of Money' forces you to take another look at personal finance, inves ng, and business success
through the lens of psychology and behaviour. Generally, all these fields of study have their roots in math, data, and calcula ons.
However, in this book, Housel highlights how everything, from your personal history and experience to your unique world view,
ego, pride, marke ng, and odd incen ves work together to help you finally form a financial decision.

Key Takeaways

· When it comes to earning money and building wealth, it really doesn't ma er how smart you are. Instead, what really
ma ers is how you behave.
· Even the smartest people can lose control of their emo ons and plunge into financial disasters while ordinary people
with no financial educa on, but robust behavioural skills, can become wealthy.
· It is not enough just to know how to do something. You must be able to fight with internal emo onal and mental
turmoil in order to make the best financial decisions.
· Considering the lack of accumulated wisdom in terms of modern finance, many of the poor financial decisions that you
end up making arise from peoples' collec ve inexperience.
· You must not risk what you already have and require for things which you do not have and do not actually need.
· Crea ng wealth and maintaining wealth are two different things. Crea ng wealth is easy, but keeping it is very difficult.
· While there are many ways to accumulate wealth, there is only one way to maintain it, and that involves being frugal
and paranoid of poten al losses.

Experience can be a boon and a bane

Your rela onship with money is influenced by all your past experiences and the insights that you have gathered over the years.
Just like every other person, you too will have a unique idea of how the world works. The way you see the world and react to
different situa ons is influenced by your own unique set of circumstances, values, and experiences.

“Your personal experiences with money make up maybe 0.00000000001% of what's happened in the world, but maybe 80% of
how you think the world works.”

Take the example of two individuals, one born in America in the 1950s and the other born in the 1970s. Now, the individual who
was born in the 1950s would have experienced a flat stock market during his teens and 20s. On the other hand, the one born in
the 1970s would have witnessed an upward moving stock market that generated stupendous returns, during his teens and 20s.
Clearly, these two individuals have had a very different experience with the stock markets and are likely to view stock markets
through their own unique lens. Inevitably, the one born in the 1950s would be very cau ous of the stock market and would not
have much faith in its ability to generate wealth. On the other hand, the one born in the 1970s, would have a highly bullish view
on the stock market and would be more inclined to invest in equi es. For each individual, the decision they make would at one
point in me or another be incorrect since it would be coloured by their past experiences and not necessarily based on the
merits of the prevailing investment climate.

Two important factors to consider while inves ng are luck and risk. We have li le control over either, however, both have a great
deal of control on how we behave and on our investment outcomes. Take for example, Bill Gates, who is not only one of the
wealthiest men in the world but also one of the most talented and hardworking individuals. However, he was also lucky enough
to have a ended one of the only high schools in the world that had a computer in 1968. This shaped his thinking and inclina on
early on. It is important to accept that due to luck and risk, 100% of your ac ons do not necessarily dictate 100% of your
outcomes. You must make room for other elements over which you probably have li le control. However, it is important to
understand that extreme outcomes, whether posi ve or nega ve, are generally low probability outcomes. Thus, instead of
focusing on specific individuals and case studies, it is be er to evaluate broad pa erns and then arrive at your own conclusion.

12
Stop the goalpost from moving

You should know when you have enough wealth and then stop wan ng more. Throughout history, greed or a craving for 'more'
has been the downfall of many of the rich and famous. When you keep running a er more, you inevitably start taking more risk
than you should. Know when to stop. Good inves ng is not about earning the highest returns. Instead, it is about making good
enough returns for the longest period of me. Compounding is the way to create long-term wealth. In that regard, it is also
important to remember that while there are many ways to get wealthy, there is only one way to stay wealthy, and that is through
a combina on of frugality and paranoia.

Good investments, which offer secure and steady returns, involve survival as the richest people are the ones who have been
able to remain rich for the longest period of me. Avoid risking your money on ludicrous schemes which promise stupendous
returns and s ck to proven investment methods with good returns on an averaged basis. Aspects such as a frugal budget,
flexible thinking, and loose melines can help build a strong investment por olio. Also, remember that acquiring wealth is not
the end goal and will not make others like you or admire you more. This should not be the psychology behind wan ng to get rich.
Conversely, avoid judging people based on their visible wealth or lack of it.

Savings is the dealmaker

The rate at which you save is far more important than your income or your investment returns. Generally, beyond a certain
income level, you will find three types of people. First are the people who save. Second are the people who don't think that they
earn enough to save. And, third are the people who think that they don't need to save. However, over a longer period of me, it
will be the people belonging to the first category who will end up successfully crea ng and maintaining their wealth. It is
important to remember that while you can build wealth without a high income, there is no way that you can create and maintain
wealth without a high savings rate. So, if you are really serious about wealth crea on then avoid spending on unnecessary and
lavish items because, in reality, your savings is the gap between your ego and the income you earn. The lower your needs and
expenses, the higher will be your savings, as well as the value of your savings. In addi on to having a high savings rate, it is
equally important to be realis c and reasonable with your financial decisions. A good way to achieve this is to create a financial
plan that captures your unique circumstances and requirements and s ck with it for the long run.

Leave a room for error

When you are inves ng, always remember that you are dealing with probabili es and not certain es. Thus, you should always
leave a room for error, i.e., always ensure that your investments have an adequate margin of safety. It is o en said that this is the
only effec ve way to safely navigate a world of uncertain es. While it is impossible to overcome all uncertain es, it is possible to
prepare for them. The best way of doing this is by avoiding single points of failure and spreading your investments. It is also a
great idea to always have a good emergency fund.

Clearly, the only thing that stands in the way of crea ng and maintaining great wealth is our own behaviour and how we make
investment decisions. As highlighted in the book, our experiences impact our ability to make astute investment decisions. If we
have had a bad experience in the stock markets then we end up holding on to the losers in our por olio for too long and selling
the winners too early. A great way of overcoming this bias is to invest in Balanced Advantage mutual funds. Before we tell you
how Balanced Advantage Funds can help you reduce the impact of your behaviour on investment decision making, let us first
walk you through the meaning of mutual funds. These are investment vehicles that pool investor money and invest it across
mul ple asset classes such as equity, debt, gold, etc. They are managed by expert fund managers who invest as per a pre-
determined investment strategy. Within mutual funds, there are several categories, and one of them is hybrid mutual funds.
Balanced Advantage funds are a type of hybrid mutual fund. They invest in a mix of equity, debt, and deriva ves instruments
and shi the por olio exposure from one investment type to another based on the how well the investment is doing. The key
here is that the shi in por olio exposure from one investment type to another, for example, from debt to equi es, is done
based on a pre-determined investment strategy and triggers. This significantly reduces the impact of even the fund managers'
biases in investment decision making. This way, in an upward moving market, the Balanced Advantage Fund will increase its
exposure to equi es while in a falling market, it will gradually decrease equity exposure and increase debt exposure. For you as
an investor, this automa c movement between debt and equity is great as it takes away the burden of deciding how to invest
and when to invest. Another interes ng thing men oned in the book was about the types of savers or non-savers. There are a
large majority of people who do not save as they believe that they do not earn enough to save. For such investors, inves ng in
mutual funds through the Systema c Investment Plan (SIP) route can be ideal. When you invest in a mutual fund scheme
through an SIP, you invest a fixed amount of money at me intervals that suit you. However, the best part is that you can start an
SIP with as low as Rs. 500. So, if you are a regular saver then you can con nue inves ng via SIPs and enjoy the long-term benefits
of compounding and rupee-cost averaging. And, even if you have low income levels, you can s ll start your savings journey with
low value SIPs and increase your investments as your income increases.
13
 Antifragile: Things that gain from disorder
Author: Nassim Nicholas Taleb

Nassim Taleb's book 'An fragile: Things That Gain from Disorder' talks about a concept that is very relevant today as organisa ons and
people are struggling to maintain agility and resilience. In the book, Taleb talks about systems that improve or become stronger in the
face of calamity. He calls this the An fragile system. The differen a on goes thus – fragile systems are exposed and vulnerable to
vola lity, robust things are capable of resis ng vola lity, and an fragile systems benefit from vola lity. Therefore, the an fragile,
which is the opposite of the fragile, is that system which would be unharmed even in the worst possible situa ons and unprecedented
scenarios. An fragility refers to a system which has more to gain than to lose, offering greater upside and possessing favourable
asymmetry.

Key takeaways
· An fragile systems benefit from shocks. Increasingly complex socie es are, at present, fragile, but they do not have to
remain fragile.
· Humans can be an fragile in trauma c situa ons, when they undergo post-trauma c growth and become be er and
“more” efficient.
· An fragility indicates the ability to bounce back from failures and grow out of frustra ons and hardships.
· Nature and human bodies are examples of an fragile systems.
· Work and industry sectors can also be divided into fragile, robust and an fragile. People who are mid-level execu ves at
large firms are extremely fragile as their work depends on their reputa on.
· Building an fragility is a necessity in today's mes, with uncertain es abounding at every stage.
· When there is a black swan event, the fragile will perish under the pressure. But, the an fragile, which is capable of
bearing stress and shocks, will thrive in such an ecosystem.

The an fragile

When a person or an organiza on is an fragile, they become stronger when a acked. Having various op ons and the possibility
of collabora on with other elements in the ecosystem enhances an fragility. As the opposite of fragile, an fragile ecosystems
get stronger the more they are under duress. In order to thrive in the uncertain mes ahead, it is impera ve to build an fragile
systems.

Modern society has become increasingly complex and thus, more fragile. For example, the phoenix, a mythical bird that rises
from its own ashes, is robust as it does not die during duress. Then there is the hydra, a mul -headed creature, that is an -fragile
as it prospers under duress. When a hydra's head is cut, it grows two new heads in the place of the first one, showing its agility
and resilience. Similarly, when an organiza on or a person bounces back from failures or trauma, they become an fragile.
Inven ons are an fragile, they are born out of necessity and the human body is similar in the fact that it prepares for such
unprecedented situa ons and, many mes, manages to emerge stronger from shocking situa ons.

Modernity and the denial of an fragility

An ecosystem needs all types of players. This is because the fragility exhibited by one stakeholder could help make another
an fragile. This is also called crea ve destruc on of capitalism. Some failures can be the catalysts for an fragility. For example,
it is well known that the Titanic sank under duress. However, the sinking of the Titanic offered a roadmap for the development of
the ship cruising industry. An fragile systems are formed when a single en ty can go down without pulling the en re ecosystem
down with them. When it comes to professions, occupa ons which do not en rely depend on reputa on are more an fragile.
For instance, ar sts and taxi drivers can get away with much more when compared to well paid employees in a firm. While the
ar st or driver has many customers and sources of income, the employee only has one means.

A non-predic ve view of the world

While it is difficult to make money by a emp ng to predict the future, people can profit by be ng that the predictors will get
their assump ons wrong. Accordingly, the barbell strategy is a proven way of becoming more an fragile. The strategy suggests
inves ng in two extremes of high-risk and no-risk assets while avoiding choices that fall in between. This way, it covers
14
downsides while raising the upsides, meaning systems play safe on one side while taking greater risks on the other side. Such a
strategy works extremely well during black swan events and can boost industries including finance and avia on.

Op onality, technology, and an fragility

Systems which have more viable op ons are more capable of withstanding black swan events and shocks. Adaptable systems
which incorporate inven ons, are be er suited to be an fragile. To enhance systems, theory should be differen ated from
prac ce and it is possible that an experienced man's advice could be more beneficial than a ending classes at a business school.
Indeed, inven ons and discoveries do not come from theore cal knowledge. They come from people trying things out and
nkering around with different elements. Theory catches up a er the inven on, to explain it to society. Therefore, it is
important to invest in innova ve people rather than spending money on improbable business plans.

To succeed in the workplace and be an fragile, people should look for different work op ons, open-ended payrolls, limited
downsides, and agility. Many mes, things learnt in school do not help people in real life as bookish knowledge cannot help
navigate real- me work crises. An apt example of this is the fact that a person who works out at the gym regularly might not be
able to take on a street fighter who has real figh ng experience.

The non-linear

Several of today's systems are based on fragility and not probability. People are afraid of the unknown and take stringent efforts
to ensure nothing untoward occurs. This makes exis ng systems more fragile and prone to failure. Here, the non-linear theory
comes into effect. While one element might damage a system in a certain quan ty, in lesser quan es it will not be as damaging.
For instance, if a person consumes five bo les of wine in one day, it will damage their body much more than the consump on of
five bo les spread out over five days.

An fragility can also be achieved through collabora on. Just as adding units in non-linear systems leads to non-linear
increments, adding more and varied people to well-func oning groups makes the group more an fragile. Inversely, while taking
a business decision, there should not be too many reasons. Only one good reason is required to jus fy a decision – too many
reasons may be considered as an a empt at pu ng up a smokescreen.

Via nega va

When considering an fragile systems, it might be be er to focus on 'what not to do' rather than focus on 'what to do'. This is
known as 'via nega va'.Our knowledge and understanding of downsides is far more robust than our ability to understand
upsides. Thus, correct method of ge ng a good idea is by elimina ng a lot of bad idea. Similarly, reading about things that
create nega vity leads to nega vity in life, and avoiding such things can help a person be more posi ve and an fragile.
An fragile systems have another thing in common – as men oned earlier, they do not require great interven on. In fact,
systems which are allowed to re-adjust and recalibrate without outside interven on are the systems which manage to remain
an fragile over a longer period of me. Further, lives can be be er if people remove unnecessary clu er. For instance, things
such as televisions and air condi oners are not strict necessi es when it comes to living a fulfilling life. Dependence on
materialis c elements makes a person more fragile and, conversely, giving up such luxuries makes them an fragile.

The ethics of fragility and an fragility

In today's society, a system may be an fragile because of the sum of its parts, but the parts may not be an fragile. Further, there
may be some people who have their skin in the game, or benefit from the system, but do not face any difficul es when the
system fails. In ancient mes, leaders and ar sans put their own lives on the line when they set out on a mission or constructed
something. However, today, the person leading the charge or construc ng a road is not the one facing the blowback from a
failure. While previously Roman leaders would march at the front of their armies, and have the biggest downsides when it came
to their own decisions, people nowadays sit back and take ac on without facing the consequences. For instance, overpaid
bankers who sit behind desks can make wrong decisions and bankrupt a bank along with all the people who saved their assets
there, without losing their own money in the process. Such an ac on is similar to transferring fragility from one party to the
other. This leads to one party becoming an fragile at the expense of the other, more vulnerable, and innocent players.

The materialis c world today has made slaves out of people. Everyone wishes for more and more luxury and they end up selling
their souls to make that happen. While they purchase luxurious items and populate their surroundings with beau ful things,
their lifestyle does not afford them the me or energy to enjoy the fruits of their hard work. Such a phenomenon is called the
hedonis c treadmill wherein people have the tendency to desire more and more materialis c stuff, even when they do not

15
really need or enjoy it. The hedonis c treadmill is fueled by peer pressure and the inherent compe on in human beings and
ends up being the reason for their fragility.

Clearly, we should all work towards crea ng an an fragile system where we can benefit from chaos. From an investor's
perspec ve, crea ng an an fragile por olio could be highly valuable. The ques on is, 'how do investors create an fragile
por olios?” The answer lies in the book itself. An fragile systems are those that are agile, collabora ve, and declu ered.
Investors can also create an fragile por olios by building diversified por olios that can be easily rebalanced in response to
changes in market or personal circumstances, and comprise investments that are well-aligned with their asset alloca on
strategy. If crea ng such a por olio seems like a challenging task, then one can consider inves ng in mutual funds. These
investment vehicles give investors an opportunity to diversify as per their risk-return profile. For example, investors who are
highly risk averse can invest a large por on of the por olio in debt mutual funds while those who are risk seeking can invest in
equity mutual funds. This allows investors to adopt the collabora ve approach which is important while crea ng an fragile
systems. At the same me, mutual fund investments are also highly liquid which allows investors to build agile por olios that
can easily be rebalanced.

16
 Richer, Wiser, Happier: How the World's
Greatest Investors Win in Markets and Life
Author: William Green

In the book, “Richer, Wiser, Happier: How the World's Greatest Investors Win in Markets and Life,” William Green skillfully
highlights the investment commandments of some of the greatest investors of our mes. Through his interviews with these
inves ng greats, we learn not just how to become rich but also how to improve the way we think and reach decisions.

Key Takeaways

· In inves ng, pa ence is your biggest virtue. You can be a successful investor only if you are pa ent with your
investments.
· Sen ment and behaviour are your biggest enemies. In order to succeed at inves ng, you must be able to control your
emo ons and make ra onal decisions.
· Trying to predict the future is redundant. Instead, you should focus on trying to learn from the past.
· A successful investment mantra is to buy cheap. A be er mantra is to buy quality at cheap prices.
· Always ques on whether the price that you are paying for an investment is reasonable.
· Whether in life or in inves ng, there is no subs tute for hard work and discipline.

Lessons from Monish Pabrai

When it comes to inves ng, the ques on to ask is not, “how to make money”, but “how to compound money”. Pabrai's
approach to the challenge of becoming a billionaire holds important lessons for us all, not just as investors but in every area of
life. He didn't a empt to reinvent the wheel by, say, devising a new algorithm to exploit subtle pricing anomalies in the markets.
Instead, he iden fied the most skillful player of this par cular game, analyzed why he was so successful, then copied his
approach with scrupulous a en on to detail. Pabrai's term for this process is cloning. We could also call it modeling, mimicry, or
replica on. His core commandments include:

· You should invest your money in a company only if it falls within your “circle of competence.” This means that you
should make an investment only when you truly understand the business.
· The company has to trade at a large enough discount to its underlying value to provide a significant margin of safety.
· It is more important to buy quality businesses than to simply buy cheap businesses.
· The company's financial statements should be clear and simple.

Lessons from John Templeton

The only way you can make money is if you buy at a me when other people are desperately trying to sell. This means buying at
the “point of maximum pessimism.” Like Buffe and Munger, he had an unemo onal apprecia on for a mispriced bet that
offered an asymmetry between risk and reward. His core commandments include:

· Do not let your emo ons get the be er of you. Emo ons can make you become excessively careless and op mis c
when you make big profits and get excessively pessimis c and too cau ous when you make big losses.
· Beware of your own ignorance. Many people buy something with only the niest amount of informa on. They just
don't understand what it is that they are buying. This is a big mistake.
· Always diversify your por olio. It is the best kind of protec on that you can give your por olio.
· Successful inves ng requires pa ence.
· The best way to find bargains is to study whichever assets have performed very badly in the past five years. Once you
iden fy these assets, then you need to assess whether the cause of those woes is temporary or permanent.
· One of the most important things you need to do as an investor is not to chase fads.

Howard Marks

In a world where nothing is stable or dependable and almost anything can happen, the first rule of the road is to be honest with
yourself and about your limita ons and vulnerabili es. Marks believed that if you want to add value as an investor, you should
17
avoid the most efficient markets and focus exclusively on less efficient ones.
The single most reliable route to investment riches is to 'buy cheap' and the greatest risk is to overpay for an investment. Thus,
the essen al ques on to ask about any poten al investment should be “is it cheap?” Some of his core commandments include:

· It is almost impossible to predict the future. However, you can always learn from the past.
· We can't change the market environment. But we can control our response, turning more defensive or aggressive
depending on the climate.
· Markets move in cycles and thus, cycles will always reverse. By studying pa erns of the past, you can take advantage of
the cyclicality by behaving countercyclically.
· Both in markets and life, the goal isn't to embrace risk or eschew it, but to bear it intelligently while never forge ng the
possibility of an unpleasant outcome.

Five Rules of resilience as exemplified by Graham, Jean-Marie Eveillard, Warren Buffet, Irving Kahn, and Ma hew McLennan

· First, you need to respect uncertainty.

· Second, to achieve resilience, it's impera ve to reduce or eliminate debt, avoid leverage, and beware of excessive
expenses.
· Third, instead of fixa ng on short-term gains or bea ng benchmarks, you should place greater emphasis on becoming
shock resistant, avoiding ruin, and staying in the game.
· Fourth, beware of overconfidence and complacency.
· Fi h, as informed realists, you should be keenly aware of your exposure to risk and should always require a margin of
safety.

Lessons from Joel Greenbla

When it comes to inves ng, the number of choices available can make your head spin. Thus, in prac cal terms, the ability to
reduce complexity is immensely valuable. This means that simplifica on is a very important strategy. It is best to have a simple
way of looking at things – this will help you s ck to your strategy during market ups and downs.

The most important thing that you as an investor can do is to value businesses and then pay much less for them than they're
worth. Always remember that while buying cheap is great, buying good businesses cheap is even be er. Further, it is not enough
to find a smart strategy that stacks the odds in your favor over the long-term. You also need the discipline and tenacity to apply
that strategy consistently, especially when it's most uncomfortable.

Lessons from Will Danoff

The bo omline is that “stocks follow earnings.” With that principle in mind, you should relentlessly search for the “best-of-
breed businesses” that are expected to “grow to be bigger in five years.” The principle behind this is simple. If a company can
double its earnings per share in the next five years, then the stock price is also likely to more or less double.
In their own way, Greenbla , Buffe , Bogle, Danoff, and Miller have all been seekers of simplicity. They believe that all you need
is a simple and consistent investment strategy that works well over me—one that you understand and believe in strongly
enough that you will adhere to it faithfully through good mes and bad.

Lessons from Nick Sleep and Qais “Zak” Zakaria

Quality trumps everything. To become a successful investor all you need to do is deep research and create a concentrated
por olio of really high-quality companies. Some of their core commandments include:

· Extraordinary advantages can accrue to investors with the discipline and pa ence to resist the tempta ons of instant
gra fica on. In a high-speed era dominated by short-term thinking, this capacity to defer rewards is one of the most
powerful contributors to success, not only in markets, but in business and life.
· It is not necessary to behave unethically or unscrupulously to achieve spectacular success.
· In a world that's increasingly geared toward short-termism and instant gra fica on, a tremendous advantage can be
gained by those who move consistently in the opposite direc on.

Lessons from Tom Gayner

Great success tends to come from small, incremental advances and improvements sustained over long stretches of me. It is

18
important to accept that you cannot control the outcome. However, you can control the effort and the dedica on and the giving
of one hundred percent of yourself to the task at hand. Some of his core commandments include:

· You do not need a secret sauce or a super high IQ to become a success. What you need is a selec on of sensible habits
that are direc onally correct and sustainable—habits that give you a marginal advantage that will compound over me.
· Always look for profitable businesses with good returns on capital and not too much leverage.
· The management team of a company must have “equal measures of talent and integrity.”
· The company should have ample opportunity to reinvest its profits at handsome rates of return.
· The stock must be available at a reasonable price.

Lessons from Jeff Vinik, Paul Lountzis, and Laura Geritz

Vink has used the same consistent approach to inves ng throughout his career, which is to focus on individual companies with
good earnings outlooks that are selling at very reasonable valua ons. He also believes that there is no subs tute for hard work.
Paul Lountzis too, is a consummate prac oner of con nuous learning. Lountzis is a ravenous consumer of insights from the
tans of business and inves ng. He adores books about entrepreneurs. As he listens, he keeps pondering the same underlying
ques ons: “What am I missing? Who's doing something that no one else is doing? How can I get be er?” His aim is never to
replicate other investors' behavior. “You can't mimic them because you're not them,” he says. “Learn it and adapt it and modify
it into your own process.” Similarly, Laura Geritz also believes that it is important to build an informa onal advantage. The gap
between reality and percep on offers an ideal opportunity to invest for the long haul.

Lessons from Charlie Munger

He strives consistently to reduce his capacity for “foolish thinking,” “idio c behavior,” “unoriginal error,” and “standard
stupidi es.” This can be achieved by looking at a problem backwards. Iden fy the disaster areas and then try to figure out what
went wrong. Once you know what went wrong you can ac vely take steps to avoid the same errors.

Lessons from Ed Thorp, Jason Karp, Bill Miller, and Arnold Van Den Berg

Ed Thorps believes that beyond inves ng, it is important to realise that problems tend to arise when you become so consumed
by the pursuit of money and possessions that you lose sight of what ma ers more. Thus, you should always behave decently and
avoid harming others. Both Jason Karp and Bill Miller are of the opinion that resilience is a prerequisite for success in markets
and life. Thus, it is important to focus on what you can control and try to let go of the rest. Arnold Van Den Berg sums it perfectly
well with his philosophy - if your life is more important than your principles, you sacrifice your principles. If your principles are
more important than your life, you sacrifice your life. Van Den Berg developed a consistent investment methodology that was
infused with common sense. Among other things, he analyzed hundreds of acquisi ons to construct a record of what
sophis cated private buyers would pay for various types of business. He then formulated a few prac cal rules of thumb that he
refused to violate. For example, he wouldn't invest in any stock unless it traded for at least 50 percent less than its private market
value. And whenever a stock rose to 80 percent of its private market value, he insisted on selling. His unswerving discipline and
rigorous focus on valua ons kept him on the right track.

The book undoubtedly packs endless investment wisdom and tells us how to become be er investors. Many of the prac ces
highlighted can be easily followed by individual investors. On the other hand, there are many which would simply prove to be
challenging to follow. The good thing is that in addi on to prac cing the principles highlighted in the book you can also choose
to invest via vehicles that prac ce these principles. An ideal investment vehicle would be mutual funds. These funds pool
investor money and invest it in different asset classes based on a pre-determined investment criteria. Since they follow a certain
investment strategy, they are less prone to behavioural biases. Further, there are certain long-term mutual fund schemes that
invest in quality companies at cheap valua ons and then stay invested pa ently to reap the benefits of the investment. So,
through a mutual fund investment, you get to minimise behavioural biases, you get pa ent and disciplined long-term inves ng,
and you get to buy investments at a reasonable price. In that regard, mutual fund investments can help you follow most of the
principles highlighted in the book.

19
 The Joys of Compounding: The Passionate
Pursuit of Lifelong Learning
Author: Gautam Baid

In his book, 'The Joys of Compounding: The Passionate Pursuit of Lifelong Learning', Gautam Baid not only sheds light on the
superiority of the value inves ng approach but also provides an intellectual toolkit for achieving an in-depth understanding of
the world around us, including ourselves. He shares a holis c approach to inves ng that combines self-improvement,
knowledge building, and inves ng wisdom. This is what makes the book markedly different from many other books wri en on
investments.

Key takeaways

· Investment in self-improvement can help you improve your life and bring you success in your investments.
· In order to become a successful investor, you need to first understand human beings and human emo ons.
· If you are humble about your knowledge, you will be be er posi oned to accept that you don't know everything. This
will improve your learning journey.
· Basic arithme c is enough to understand inves ng.
· You can improve your inves ng journey by maintaining an investment journal, crea ng a checklist, and inves ng for the
long-term.
· By learning a li le bit every day, you are compounding your knowledge. Similarly, by inves ng a li le on a periodic basis,
you will be able to compound your wealth.
· Time is your most important commodity. You must use it produc vely.

Self-Improvement and Worldly Wisdom

The best investment that you as an individual can make is an investment in self-improvement. This means that you need to focus
on inves ng in your own intellectual and emo onal development. An investment in self-improvement will not only make you a
be er investor and help you achieve your financial goals; it will also help you live a complete and full life. From that perspec ve,
the first thing to do is to understand the high cost of was ng even a single hour. The opportunity cost of was ng even an hour
can be exorbitant. On one hand, you can choose to be super ac ve and mul -task by constantly addressing your emails and
upda ng your social media feeds. On the other hand, you can dedicate your me to doing deep work and self-improvement.
Spending even an hour each day in acquiring in-depth knowledge about an important principle can pay-off substan ally in the
long-run. This daily investment of an hour is minuscule compared to the significant net present value that results over a life me.
It is the same thing as buying one dollar for less than one cent. This is why good books are the most undervalued asset class: the
right knowledge and the right ideas can be worth millions, if not billions, over me.

If you adopt a purely quan ta ve approach and ignore human nature, then it is highly unlikely that you will succeed as an
investor. This is because financial markets are like social constructs that are driven by human beings and as such, are subject to
the en re range of human emo ons. To a empt to understand financial markets without understanding human psychology
and the fundamentals of mental models would be like trying to understand a hard science such as physics without first
comprehending the underlying mathema cs. Financial markets are more than numbers and equa ons. In order to truly
understand the financial markets, you must first understand how human beings think and behave.

Humility and Good Karma

Do you need to be a good person with a sense of humility to succeed in business and inves ng? Honestly, there are so many
examples of people with poor ethics who seem to do quite well in terms of building their net worth. Most of you probably know
at least a few people in this category. If your only goal in life is to accumulate wealth, it would be naive to suggest that the only
way you can improve your bank balance is by becoming a good human being. However, the value inves ng community at large
seems to broadly reject the no on of pursuing wealth as the sole objec ve in life. Obviously, this does not mean that value
investors do not pursue wealth crea on. They most certainly do. However, they prefer to take a more enlightened approach
when it comes to how wealth fits into a broader no on of a life well lived.

Efforts towards self-improvement and building a sustained good character can be highly worthwhile. Further, by observing the
20
traits of people who constantly strive to improve, you can gather insights that can compound into great wealth. For example, the
ability to be humble is a mindset that can allow you to be open to new ideas and opinions. Arrogance, on the other hand, can
close your minds to alternate ways of seeing the world and can blind you to views that are divergent from your own best-loved
ideas.

The deeper you dive into a field, the humbler you are likely to become. This is also known as the Dunning-Kruger effect. If you
show intellectual humility and acknowledge that there are things you don't know then you put yourself in a be er posi on to
learn more. It is important to understand that true expert knowledge, whether in life or in inves ng, does not exist. The only
thing that exists is varying degrees of ignorance. As an individual, and an investor, it is impossible for you to know everything.
However, you can learn every day and work hard to become just about smart enough to make above-average decisions over
me. That is the key to successful compounding.

People who approach life with a sense of humility and constantly seek to improve themselves through knowledge, are likely to
find more opportuni es for growth and success. Inarguably, there is no direct or tangible benefit of being generous with your
me and insights. However, over a long life me, you have a much greater chance of good things happening to you through
“luck” that really had less to do with luck than with good karma built up by being a decent human being.

Nuts and Bolts

At the end of the day, you cannot hope to succeed as an investor without understanding the field of inves ng. However, it is not
sufficient just to understand the discipline. You also need to adopt a solid process and develop competence in several areas that
are related to inves ng. These are the nuts and bolts of inves ng. The main thing to remember is that every investor is different.
Every investor's investment journey is different as each individual brings to the game of inves ng a set of interests, varying
backgrounds, and our unique temperament.

A successful approach to inves ng can be to use checklists to improve decision making, keep a journal to enhance self-
reflec on, and invest for the long-term to harness the power of compounding.

1. Maintain a checklist or inves ng journal: Because people are not ra onal animals but rather ra onalizing animals,
journaling offers can become an essen al tool for self-awareness, self-reflec on, and successful inves ng. The vast
majority of investors do not keep a journal. It would be good to maintain a journal that contains the original investment
thesis at the me of the stock's purchase as well as the ra onale for the sale of the shares. A journal is the most
objec ve way to remain true to principles and avoid hindsight bias. It also help you con nuously learn from your
mistakes. The insights gathered from such reflec ons can become your greatest learnings in life, business, and
inves ng. These can benefit you throughout your lifespan.

2. Keep an eye on the past and invest for the long-term: Rather than reading forward looking statements by so-called
financial experts, it is be er to read more of financial history. Having a solid understanding of financial history is vital to
developing the “nerves of steel” and avoiding emo onal reac ons during the inevitable periods of vola lity and
disrup on. Studying history creates awareness of certain possibili es that would otherwise not be considered and
facilitates a medium- and long-term, rather than a short-term, approach. Adop ng a long-term perspec ve to inves ng
is an essen al element for becoming a successful investor. An example of maintaining a long-term perspec ve despite
poli cal noise is the strong performance of India's major stock market (Sensex) during 1984–2019, a period that
witnessed nine different prime ministers or forms of government (majority versus minority). In India, a significant
amount of uncertainty and apprehension surrounds government forma on during elec on years. Throughout an
electoral campaign, investors fear the market will drop precipitously if a coali on government comes to power. During
the nine episodes examined between 1984-2019, the Sensex's compound annual growth rate (CAGR) was nega ve in
only one case (–5.3% in 1996–1998). The other eight periods' posi ve CAGRs ranged from 4.0% in 1999–2004 to 48.6%
in 1989–1991. The substan al interim stock price vola lity had no material impact on either country's long-term equity
market performance.

The Essence of Compounding

Different types of compounding exist in life. Understanding the exponen al func on that is at the heart of compound is
absolutely essen al. However, it is equally important to acknowledge that similar func ons exist in many other areas of life. If
you compound posi ve thoughts, good health, good habits, knowledge, and goodwill, you will have enormous benefits in life
that will go well beyond money. Addi onally, the other effect of compounding in these areas can also lead to compounding
wealth. Value inves ng, if viewed in this way, is more than an inves ng approach. It cons tutes a lifestyle, a way of living that

21
puts the odds in your favor and is also worth pursuing for non-monetary reasons. Compound knowledge building, just like
compound interest, grows exponen ally over me. It will allow you to draw on your own and others' ins ncts, judgments, and
experiences. For example, reading just 25 pages per day equates to 9,000 pages per year, which would enable one to read
Robert Caro's 1,336-page book The Power Broker nearly seven mes in one year. Time, the currency of life, is a non-renewable
resource that becomes increasingly scarce for everyone as each day passes.

Gautam Baid's book is a refreshing change from the usual inves ng books. It teaches us how to holis cally embrace a lifestyle of
self-improvement and knowledge enhancement. Two ac vi es that will not only improve your health and life, but also your
inves ng journey. Mutual funds can be an ideal companion for those who are looking to adopt a disciplined and long-term
approach to inves ng. Mutual funds are basically an investment vehicle that allow you to invest in mul ple investment
instruments like debt, equity, and gold. Further, there are several mutual fund schemes that follow the value approach to
inves ng, i.e., they buy stocks that can poten ally generate strong future growth and are available at compelling valua ons.
Most of these are long-term in nature and can help you benefit from the power of compounding.

22
 The Education of a Value Investor
Author: Guy Spier

The Educa on of a Value Investor follows Guy Spier's journey from an investment banker to a true value investor who models his
life and ideals a er the iconic Warren Buffet and his value inves ng approach. Value inves ng has been exemplified by Warren
Buffet and several other eminent investors. However, it is impera ve to choose a prac cal approach to value inves ng with
some proven ps and techniques. This will help investors grow their wealth in an ethical and assured manner while ensuring
that the investment style remains true to a person's core beliefs. The Educa on of a Value Investor isn't a 'how to value invest'
book. Instead, it is a book with real and tangible lessons. These lessons can be leveraged by investors to improve their inves ng
journey in an honest and authen c manner.

Key takeaways

Ÿ Value inves ng is simply about exercising pa ence and imbibing a process of con nuous learning
Ÿ For any value investor, the ability to do fundamental research and understand valua ons is of utmost importance
Ÿ It is important for investors to create their own investment strategy instead of copying the strategies of famous investors.
However, it is equally important to take inspira on from them and learn from their successes and mistakes
Ÿ Inac on and pa ence are almost always the wisest op ons for investors in the stock market
Ÿ The biggest source of learning is through mistakes. Thus, investors should allow themselves to make mistakes and learn from
them

Ego is the biggest enemy of an investor

Value investment is a term that sounds simple but requires extensive prac ce to master. This makes it important to gain an
understanding of the concept through your own experience and through the learnings and experiences of experts. The most
important message, when it comes to value inves ng, is: Nothing ma ers as much as bringing the right people into your life.
They will teach you everything you need to know. It is true that we must learn from the mistakes and accomplishments of people
we look up to as that is the path to true glory and success. Indeed, the journey of prominent value investors can change people's
opinion on inves ng as they traverse through the vola le land of investments. The en re pursuit of value inves ng requires you
to see where the crowd is wrong so that you can profit from their mispercep ons. This requires you to shi to measuring
yourself by an inner scorecard. The real goal is not acceptance by others, but acceptance of oneself.

The bo om line is that if you keep learning all of the me, you will have a wonderful advantage.

There are three lessons on what really makes a great investor, imbibed from Warren Buffet.

1. If a business forces you to throw your morals out of the window, leave it
2. Inves ng doesn't stop at money, so invest in people too
3. Financial crises are great opportuni es for value investors

Authen city

It is important to be extremely authen c in all financial transac ons. You have to be the best possible version of yourself. While
many investors might believe that following a proven path can lead to proven results, you must avoid a empts at imita ng top
value investors like Warren Buffet. Rather, you should work towards knowing your own self and being extremely self-aware.
While you can and should look up to top value investors and learn from great names like Warren Buffet, Peter Lynch, and
Benjamin Graham, you should not e yourself to their formulae or try to repeat their success. It is impera ve that you
remember that you are an individual with your own unique personality.

Thus, you are likely to have your own investment style. Discover this style and stay true to it. Thus, it is always be er to create
your own path and investment strategy instead of simply aping a winning formula. Always remember that advantages are o en
created impercep bly, step by step. Most people succeed because they get a lot of small things right. You should learn to take
more and more intelligent but prac cal ac ons on a micro-level. Over a life me, a mul tude of these simple ac ons can
23
accumulate to create big reputa onal and rela onal advantages.

Personal Scorecard

The second important lesson is that you must learn to live by your own internal scorecard or personal standards and morals. You
should judge yourself by your own personal standards and proac vely work towards self-improvement rather than indulging in
comparisons with the standards and accomplishments set by other investors – also termed as an outer scorecard. The process
of self-correc on begins with self-knowledge. Inves ng has a way of exposing our psychological fault lines. However, you have
to live your own life rather than follow the dictum put forth by famous names. The key here is to measure your own personal
growth as an investor by studying your own investment style and individual investments to ensure that you embark on a route
towards true value investment. Crea ng the right environment and network helps to pave the way towards a comfortable value
inves ng journey.

Self-improvement

An essen al component of being a good investor is to learn from your mistakes. Your mistakes and failures offer you a priceless
opportunity to learn more about yourself and iden fy areas of improvement. Therefore, in order to achieve sustainable
success, you need to confront your vulnerabili es whatever they may be. Otherwise, you are building your success on a fragile
structure. Further, you should also adopt an open mind and learn from others. It is necessary that you decipher the inves ng
mistakes made by great minds and how they managed to learn from them. You can also refer to Benjamin Graham and Warren
Buffet to pick up learnings from their investment styles. Poten al value investors can follow their lead in learning from mistakes
and studying accomplishments to become proven legends in the investment world. You should study proven investment
strategies and the way successful investors apply value investment in their funds. You can also refer to several anecdotes about
successful and less successful investments made by famous investors, which will take you on a personal journey filled with
learning and insight. This can be extremely beneficial to you if you are an aspiring value investor. Indeed, you should look at such
anecdotes as less of an inves ng manual and more a memoir of investors who have undergone tremendous personal
transforma on and wish to share the lessons they have learned to propel us towards a fulfilling journey of value investment.

Adopt a structured approach to inves ng

It will help you enormously if you start thinking about your own investment processes in a structured and systema c way. Here
are some of the rules, rou nes, and habits that you should consider pu ng in place:

1. Stock prices are in a constant state of flux. However, you should check stock prices as infrequently as possible.

2. Before buying something, always make sure that the seller has no self-interest in selling the investment to you.

3. Avoid talking to CEOs and other management. The excep on to the rule: Warren Buffe and some other managers who have
a reputa on for sharing what they would like to know, if they were in their shareholder's shoes.

4. Gather investment research in a systema c manner. Rule: pay a en on to the order in which you consume informa on
because this ma ers greatly.
Ÿ Start with the least biased and most objec ve sources: typically, the corporate public filings including the annual report, and
proxy statement
Ÿ Next move to earnings announcements, press releases, transcripts of conference calls
Ÿ Books about the company or its founder
Ÿ Equity reports by brokerage firms

5. Discuss your investment ideas only with people who have no vested interests and are not biased against you. Rule: pool your
knowledge with other investors but s ck with people who can keep their ego in check. Ground rules for investment discussions:
Ÿ The conversa on must be strictly confiden al
Ÿ Neither person can tell the other what to do
Ÿ Don’t have any business rela onship

6. Never buy or sell stocks at market open. Let stock prices se le down before you enter the market

7. If a stock falls immediately a er you buy it, resist the urge to sell it. Instead, be prepared to hold the stock at least for a period
of 2 years

24
8. Your investments are your business. Don't talk endlessly about them and make them a public ma er.
9. Instead of asking what a company will earn next year, it is more useful to ask, “what needs to happen for this company to
generate a lot of cash next year?

These rules are not fixed and non-agile. Their main purpose is to guide you in your investment journey and in general lead you
towards a healthier direc on.

An Investor's Checklist, Survival Strategies from a Surgeon

Inves ng requires the same kind of me culous and studied approach as surgery. Thus, the best way is to be er your investment
Checklist Manifesto. This can help you avoid obvious and predictable errors. Some of the ideas that must form a part of the
checklist include:

Ÿ Is there some way in which this investment idea is being sold to me?
Ÿ Does someone in this situa on have an axe to grind?
Ÿ Who benefits if I make this investment?
Ÿ Does this investment appeal to any personal biases of mine that should be re-examined?
Ÿ Are any of the key members of the company's management team going through a difficult personal experience that might
radically impact their ability to act for the benefit of their shareholders?
Ÿ Has this management previously done anything self-serving that appears dumb?
Ÿ Does this product offer good value for money?
Ÿ Is this company providing a win-win for its en re ecosystem?
Ÿ How does this company sit within the value chain? What parts of this business could be impacted by other changes in the
value chain that this company has very li le influence over? (he wants to invest in companies that have control of their own
des ny)
Ÿ Is this investment cheap enough, not just in rela ve terms?
Ÿ Am I sure that I am paying for the business as it is today, not for an excessively rosy expecta on of where it might be in the
future
Ÿ Does this investment sa sfy me psychologically by mee ng some unmet personal need? For example, am I keen to buy it
because it makes me feel smart?

The lessons learned along the journey as a value investor can come in handy to all prospec ve investors who wish to create
value from their por olios. Indeed, prac cal advice on how to chart a path to true value investment while holding on to their
morals and ethics is necessary for those of us who wish to develop a value investor profile.

Value inves ng, as exemplified by the likes of Warren Buffet and Guy Pierce, can poten ally help individuals on their path to
long-term wealth genera on. However, direct stock inves ng by adop ng the value approach can be highly challenging for an
investor. Fortunately, there are other ways of reaping the benefits of value inves ng. Investors can consider inves ng in mutual
fund schemes that adopt the value approach to inves ng. Mutual funds are managed by professional fund managers and
supported by an extensive research team that is well posi oned to do the relevant research and make op mal investment
decisions. Mutual fund schemes that follow the value investment approach invest in stocks of companies that have high future
growth poten al and are available at compelling valua ons. By inves ng through such schemes, you can not only reap the
benefit of value inves ng but also have the advantage of professionally managed funds where investment decisions are taken
by experts in the best interest of the investor.

25
 Get Rich Carefully
Author: James J. Cramer

Stock inves ng is synonymous with greed and fear. These two emo ons strongly influence investors' percep on of stock
inves ng and have an impact on their ability to make astute investment decisions. In 'Get Rich Carefully', Wall Street veteran
and the host of CNBC's Mad Money, Jim Cramer, creates a simple and quick guide to high-yield, low-risk stock inves ng. Drawing
on his unparalleled knowledge of the stock market and on the lessons that he has learnt over the years, he explains in a simple
and engaging way how every investor can get rich with a prudent and methodical approach. The key is to start now.

Key takeaways

Ÿ Inves ng in stock markets need not always be a high-risk, high-return phenomenon

Ÿ Stock market inves ng can also be high-return and low-risk as long as investors follow a disciplined and prudent approach to
inves ng.
Ÿ Every kind of investor, whether conserva ve or aggressive, can invest in the stock markets. The key is to understand stock
markets.
Ÿ There are certain themes that are now going to remain evergreen and can poten ally generate high returns for investors.
These include, 1) new technology, 2) the beneficiaries of the desire of all Americans to look good and healthy, 3) the
newfound virtue of value, 4) companies that buy other companies to take advantage of scale and synergy, 5) companies that
innovate where you didn't think there was any possibility of innova on, 6) the new pharmaceu cal companies, the biotechs,
and 7) the renaissance in oil and gas that's happening in America
Ÿ Companies that are about to break-up can be good candidates for four-fold returns. However, they need to be captured at
the beginning of the break-up journey.
Ÿ When you invest in a company you also invest in its people. Thus, it is important to determine whether the management of
the company is 'bankable'.
Ÿ Macro-economic trends play an important role in shaping the future of a company. These need to be followed closely.
Ÿ There is no subs tute for research. The only way stock investors can make op mal decisions is if they make an effort to learn
and understand about stocks.
Ÿ To op mise returns, investors should adopt a long-term view to inves ng.
Ÿ Innumerable books and research papers have been wri en on mastering the art and the science of stock inves ng. Some of
these have been highly value accre ve while several others have failed to deliver. Here are top five lessons that investors can
learn and adopt to chalk out a frui ul stock inves ng journey.

Lesson 1: Conserva ve investors need not shy away from stocks

Most people view stock markets with a lens of cau on and o en avoid inves ng in stock markets due to the perceived levels of
risk. Due to this, it can be said that many people are actually afraid to invest in stocks. However, that need not be the case.
Whether you are a conserva ve investor or an aggressive investor, it does not ma er. All you need to do is understand the stock
markets, do some research, and accept that the daily stock gyra ons o en don't have much to do with the day-to-day success or
failure of the individual companies that they are meant to track. Thus, it is important to focus on the long-term.

To create a successful stock inves ng experience, investors can reflect on the following seven major themes which are made to
last. These are the themes that investors can count on no ma er what happens in the market. Themes that have tremendous
staying power and can be considered as mul -year investment opportuni es.

Ÿ The first is new technology, the companies that have embraced the holy trinity of mobile, social, and cloud
Ÿ Second, the beneficiaries of the desire of all Americans to look good and healthy
Ÿ Third, the newfound virtue of value, as consumers demand bargain
Ÿ Fourth, companies that buy other companies to take advantage of scale and synergy
Ÿ Fi h is what I call 'stealth tech,' companies that innovate where you didn't think there was an opportunity for innova on
Ÿ Sixth, the new pharmaceu cal companies, the biotechs
Ÿ And seventh, the renaissance in oil and gas that's happening in America

26
Further, investors should also look for companies that can be considered as 'break-up' candidates. When a company separates
into two or even mul ple companies, the results over me can be staggeringly posi ve. If investors can spot these breakup
candidates before they occur, then they stand to make at least four-fold returns. The first victory comes when the market
speculates the possibility of a breakup. The second fillip comes when the actual breakup is announced. The third increase comes
as the soon-to-be-split-up stock creeps towards the dissolu on. And the fourth boost happens when they actually separate into
different, publicly traded stocks. Investors who can embark on this journey from the first phase stand to make significant gains.

Lesson 2: Invest in 'bankable' management

The people at the helm, the CEOs and senior management steering the company, ma er the most. This gives rise to the concept
of 'bankable' management. While inves ng in a company, it is very important to evaluate the senior management. Knowing the
record and character of the CEO, how he has previously contributed to this firm or other firms that he might have worked at, and
what he can bring to the future of the organisa on will determine, more than any other factor, whether you will be able to get
rich inves ng with that leader. The future of the firm, the strategic decisions, important policy decisions, etc., are all guided by
the CEO along with the senior management. Thus, it is integral that the management is credible, experienced, and can be
trusted to make op mal decisions. A firm that has 'bankable' management is likely to make its investors good money over the
long-term.

Lesson 3: Macro trends and policies are highly relevant in stock inves ng

Another important lesson to learn is that we can't just put our blinkers on and look at only a few factors while considering stock
inves ng. The world is becoming increasingly globalised with the boundaries between countries dropping. This means that
there are a host of factors, both micro and macro, that impact the fundamental value of a stock. Thus, it is important to first
es mate the world' growth, then es mate the sector's growth within the world's prospects, and then focus on figuring out how
a given company is performing in that sector and what management is doing to exceed the average performance of companies
in that sector. Measure your company's growth rate against both the rate of growth in its own sector and the rate of world [or
domes c] growth. If you can approximate all three–the macro or world economic growth, the sector growth, and the micro
achievements, including sales and earnings of the companies themselves, then you are going to be successful at growing your
wealth carefully through superb stock picking. Macro trends and policies can affect the immediate course and the velocity of a
stock, impac ng how fast it moves up or down. For example, interest rate decisions by the Central Bank can temporarily affect a
stock that would have otherwise been considered as solid. If the interest rates go up it will become more expensive to borrow
and for companies to finance their expansion plans. If interest rates go down, excess liquidity could inflate prices. Either way,
stock prices are going to react. The important thing is to be cognisant of these movements and to s ck with a company that you
have invested in a er doing the required macro and micro research.

Lesson 4: There is no subs tute for doing your own research

Research is one of the main building blocks of stock inves ng. When you put money into stocks it is important for you to
understand the core essence of stocks and also of the companies that you are inves ng in. Make an effort to understand
important terminology related to stocks. What stocks mean, what is price, what is market capitalisa on? Once this is done,
make an effort to understand research terminology. What are earnings, what is growth, what is a P/E ra o? Knowing these can
help you make be er stock investment decisions. Do not look at factors in isola on. Instead, make a note of all the factors that
can impact a company's stock price, take advice from trusted experts, and then weave all these inputs together to create a
holis c picture. Also, do not just focus on fundamental research. Leverage technical analysis to determine key entry and exit
points once you have iden fied a fundamentally strong company. There will be mul ple signals that can tell you when to exit; if
you are si ng around wai ng for a top, you are going to end up losing a lot of money. Thus, make an effort to understand your
investments. Ignorance is never a good strategy.

Lesson 5: Keep a long-term view on inves ng

To successfully avoid market pi alls and mi gate the vola lity that is accompanied with stock inves ng, it is important to adopt
a long-term approach to inves ng. When you invest in good companies, you need to keep holding them to reap their true
benefits. This can only happen over the long-term. Further, by keeping a long-term view, you can also avoid behavioural biases
that can o en get in the way of op mal investment decision making. If you want to become a good investor, then you have to
learn to tame your worries and yet be scep cal enough to judiciously examine each and every stock investment decision. A
scared investor is a terrible investor. However, euphoria is no panacea either. The best way to strike a balance between greed
and fear is to invest for the long-term.

27
Inves ng in stocks needs to be done judiciously and requires a considerable commitment of me and resources. Many
individuals might not be able to do their own research or simply might not be inclined to inves ng on their own. Yet, as the book
says, every investor, including conserva ve investors should consider including stocks in their por olio. A viable way to gain
exposure to equi es is through equity mutual funds. These funds are professionally managed where the fund managers invest
in the stock market based on a specific investment mandate and pre-determined risk levels. Further, investors can choose from
various equity schemes to suit their risk-return requirements. This can help investors get the desired equity exposure. The main
thing is that investors must start their investment journey 'now'.

28
 Factfulness: Ten reasons we’re wrong about the
world and why things are better then you think
Author: James J. Cramer

The fact is that most people tend to have highly inaccurate views of the world we live in. As humans, we tend to have a proclivity
towards the nega ve and bad things. As a result, when asked simple ques ons about global trends, we systema cally get the
answers wrong and view the world to be a much worse place than it actually is. In the brilliantly wri en Fac ulness, the authors
present 10 drama c ins ncts that distort our percep ons, as well as detailed facts and sta s cs about the real state of our world
today.

Key Takeaways: The 10 Drama c Ins ncts in a nutshell

Ÿ The Gap Ins nct: We tend to divide things into 2 dis nct groups and imagine a gap between them.
Ÿ The Nega vity Ins nct: We tend to ins nc vely no ce the bad more than the good.
Ÿ The Straight Line Ins nct: When we see a line going up steadily, we tend to assume the line will con nue to go up in the
foreseeable future.
Ÿ The Fear Ins nct: We tend to perceive the world to be scarier than it really is.
Ÿ The Size Ins nct: We tend to see things out of propor on, over-es ma ng (a) the importance of a single event/person that's
visible to us, and (b) the scale of an issue based on a standalone number.
Ÿ The Generaliza on Ins nct: We tend to wrongly assume that everything or everyone in a category is similar.
Ÿ The Des ny Ins nct: We tend to assume that (a) the des nies of people, cultures, countries etc., are predetermined by
certain factors, and (b) such factors are fixed and unchanging, i.e. their des nies are fixed.
Ÿ The Single Perspec ve Ins nct: We tend to focus on single causes or solu ons, which are easier to grasp and make our
problems seem easier to solve.
Ÿ The Blame Ins nct: When something goes wrong, we ins nc vely blame it on someone or something.
Ÿ The Urgency Ins nct: We tend to rush into a problem or opportunity for fear that there's no me and we may be too late.

The Gap Ins nct

The gap ins nct basically highlights the tendency of an individual to divide things into two dis nct and o en conflic ng groups
with an imagined gap in between them. Due to this imagined gap, things tend to look far more dissimilar than they might
actually be. However, it is important to understand that while gaps do exist, they are seldom as wide as they are perceived to be.
On the contrary, the reality is o en not polarized at all. The majority usually occupies the middle space, between two extremes,
right where the perceived gap lies. From that perspec ve, it is important to avoid relying too much on averages. More o en than
not, averages do not paint an accurate picture. On the other hand, it is also dangerous to compare two extremes. In all groups, of
countries or people, there are some at the top and some at the bo om. The difference is some mes extremely unfair. However,
even in this case, the majority is usually somewhere in between, right where the gap is supposed to be.

The Nega vity Ins nct

As human beings, we usually have a tendency to no ce the bad things more than we no ce the good things. For example, most
of us believe that things around us are ge ng worse when actually there is ample evidence to support that things are ge ng
be er. Thus, we seem to get nega ve news and informa on about bad events more o en than we seem to get any updates on
good events. When things are ge ng be er, we simply don't hear about them. This gives us an impression that systema cally
things are ge ng worse which makes us very stressful. To control the nega vity ins nct, it is smart to simply expect the bad
news. Convince yourself that things can get be er and things can get worse. We simply need to take the bad with the good.
However, it is important to understand that the news that is reported is almost always bad. More bad news is some mes due to
be er surveillance of suffering, not a worsening world. Remember, the glass is always half full.

The Straight Line Ins nct

We assume that status quo will always be maintained. We tend to assume that a straight line will con nue in perpetuity or
ignore that such lines are infact rare in reality. Thus, it is important to understand that the assump on that a line will just
con nue straight is a flawed one. To control the straight line ins nct one must always remember that there can be curves as
29
well. It is foolish to simply assume that a line will be straight. Most trends are not straight. Many trends can be S-bends, slides,
humps, or doubling lines. For example, no child ever kept up the rate of growth it achieved in its first six months, and no parents
would expect it to.

The Fear Ins nct

Coupled with the nega vity ins nct, we also have a tendency to pay more a en on to frightening things and then blow them
out of propor on. One must become aware when frightening things come within the purview of our a en on and remember
that these things that frighten us are not necessarily risky or harmful. Our natural fears of violence, cap vity, and contamina on
make us systema cally overes mate these risks. To control the fear ins nct, calculate the risks.

Fundamentally, risk is a product of danger and exposure. So, every me you recognise that a par cular event or development
can be risky, don't just automa cally fear it. Instead, use your own filter, analyse the danger from the risk and understand how
much you are exposed to it. Also remember that the world seems scarier than it actually is because what you hear about it has
been selected, either by your own a en on filter or by the media—precisely because it is scary. Thus, the best way to overcome
the fear ins nct is to calm yourself down, urge yourself to see the world differently and make as few decisions as possible un l
the panic has subsided.

The Size Ins nct

This ins nct focuses on our tendency to get things out of propor on, or misjudge the size of things (e.g. we systema cally
overes mate the propor ons of immigrants). Thus, it is important to recognise that a lonely number can some mes seem very
impressive (small or large). However, if the same number was to be compared with or divided by some other relevant number, it
might give you a diametrically opposite impression. The bo om-line is that to control the size ins nct, you must see them as
rela ve or in propor on. Comparison is integral to controlling this ins nct. Big numbers always look big. Single numbers on their
own are misleading and should make you suspicious. Always look for comparisons. Ideally, divide by something. For example,
amounts and rates can tell very different stories. Rates are more meaningful, especially when comparing between different-
sized groups. In par cular, look for rates per person when comparing between countries or regions.

The Generaliza on Ins nct

This ins nct describes our tendency to paint everyone and everything with the same paint brush. We all make the mistake of
assuming homogeneity ie. grouping together things or people, or countries that are actually starkly different from each other.
Thus, it is important to be aware that categories are not always accurate and that the components of a par cular category can
actually be very different. Unfortunately, it is very difficult if not impossible for us to stop generalising. Thus, instead of trying to
control generalisa on, we must try to avoid generalising incorrectly. To control the generalisa on ins nct, ques on your
categories. Look for differences within groups. Especially when the groups are large, look for ways to split them into smaller,
more precise categories. Also, look for differences across groups and always be watchful of 'the majority'. When someone uses
'majority' it seems like a big deal. However, majority simple means 'more than half'. So, you need to look closer.

The Des ny Ins nct

This is a very unique ins nct. It propounds the idea that the natural characteris cs of people determine their des nies,
countries, religions, or cultures. The assump on here is that the things are as they are because of inescapable reasons. It would
be wise to recognise that many things (including people, countries, religions, and cultures) appear to be constant just because
the change is happening slowly, and remember that even small, slow changes gradually add up to big changes. To control the
des ny ins nct, remember that slow change is s ll change. Thus, it is important to keep track of gradual movements and
understand that even small changes can lead to a big change over a period of me. The best way to combat this ins nct is to
update yourself with new learnings and knowledge. The thing about knowledge is that it tends to get obsolete very quickly.
Considering that technology, countries, socie es, cultures and even religion are constantly changing, it is important to keep
yourself updated with these changes. Addi onally, try to understand culture and values to recognise cultural change.

The Single Perspec ve

Most of us tend to focus only on a single cause or perspec ve (especially one that supports an exis ng belief) when it comes to
understanding the world (e.g. forming your worldview by relying on the media alone). However, it is important to understand
that a single perspec ve can limit your imagina on and give you only a myopic view. It is always be er to look at problem from
mul ple angles to get a be er understanding of the issues at hand and to find prac cal solu ons. To control the single

30
perspec ve ins nct, get a toolbox, not a hammer. While numbers are important, it is wise to avoid relying only on numbers.
Everything in this world cannot be narrowed down to numbers alone. Be brave enough to think out of the box, to test your ideas,
to fail and to rise again.

The Blame Ins nct

Without doubt, most of us have a tendency to a ribute a bad event or a nega ve development to some reason or another. The
reason, however, might be completely accurate and have no bearing on the event. This is what is called scapegoa ng – finding
someone or something to blame for something bad. Thus, to control the blame ins nct, resist finding a scapegoat. Instead of
looking for villains, start looking for causes. When something goes wrong don't look for an individual or a group to blame. Accept
that bad things can happen without anyone intending them to. Instead spend your energy on understanding the mul ple
interac ng causes, or system, that created the situa on. Similarly, when something good happens, instead of a ribu ng it to a
single hero, give the system some credit. If you dig deeper, you will probably discover that the good outcome might have
happened anyway, even if that individual had done nothing.

The Urgency Ins nct

Simply put, this is the knee-jerk reac on that most of us tend to have in extenua ng circumstances. This ins nct describes our
tendency to react immediately in the face of perceived imminent danger. Inadvertently, in doing so, we amplify our other
ins ncts. Thus, it is important to understand that every me when a decision feels urgent, it might not necessarily be that me
sensi ve. To control the urgency ins nct, take small steps. When your urgency ins nct is triggered, your other ins ncts kick in
and your analysis shuts down. In such a situa on, take a deep breath and ask yourself to take more me and look for more
informa on. Data gives confidence. Thus, look for more data. However, beware that data can be relevant but inaccurate,
accurate but irrelevant. Only focus on relevant and accurate data.

The book is like a life lesson for all of us. However, for those who read it closely, it is also an inves ng lesson. Many of the ins ncts
men oned in the book mirror behavioural and other biases that investors o en succumb to while making investment decisions.
These ins ncts or biases can impact an investor's ability to make op mal por olio decisions. For example, the blame ins nct is
evident in many investors who tend to blame others for bad investment decisions instead of acknowledging their own mistakes
and learning from them. Similarly, the single perspec ve can impact an investor's ability to look at an investment op on
holis cally, weighing the pros and cons. It tells us that it is important to analyze an investment from all angles before making an
investment decision. Mutual fund investments can help investors overcome many of these ins ncts and behavioural biases and
assist them in crea ng robust investment por olios. Since mutual funds are professionally and systema cally managed with
clear rules and mechanisms, they can effec vely mi gate the impact of such nega ve ins ncts and behavioural biases.

31
 (An investor education initiative)

Listen on

Download Edelweiss MF ‘eInvest’ Mobile App & listen to interesting podcasts

App Available on

All Mutual Fund Investors have to go through a one me KYC process. Investor should deal only with Registered Mutual Fund (RMF).
For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - h ps://www.edelweissmf.com/kyc-norms
 EDELWEISS
MUTUAL FUND

Write to : EMFHelp@edelweissmf.com | Read more on : www.edelweissmf.com

An investor educa on ini a ve by Edelweiss Mutual Fund

All Mutual Fund Investors have to go through a one me KYC process. Investor should deal only with
Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints –
please visit on h ps://www.edelweissmf.com/kyc-norms

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.