In life and as in Investments, we do think we are a result of what we do. We are also a result of what we choose not to do. Eating daal chawal is a choice I made. I choose not to eat puri bhaji, or a chicken sandwich, or an paneer butter masala. Assuming of course that I made a choice that I am eating to live, and not wanting to taste something new. So I am what I eat – and daal chawal works for me. The simpler the task, the less the rigor that you must need to apply.
Take a typical housewife she spends so much time in ‘thinking’ what to make on a particular day. She will play around the idea a million times in her head….and then choose daal chawal. Now daal chawal is boring, but mighty efficient most of the times. It reduces your need to break your head about what to eat. Of course, if your head says “we need to try something new” – this could be less efficient, cause an upset stomach, could be enjoyable – at the start you have no clue.
Now come to investing. Daal chawal is like indexing. It is not easy to index when you have about 400 salaried fund managers and about 21000 unpaid fund managers ‘helping’ you. They are running up and down telling you how to evaluate a fund, how to calculate alpha, beta, gamma, standard deviation….This is like you eating daal chawal – and there are people running around you trying to sell you chicken sandwich, rajma, bread, biscuit, rosogolla, chocolate….the cacophony is too much, right? The main reason this decision is efficient is because I’ve determined my goal (I want to live), determined my strategy for achieving that goal (eat food), determined what is the easiest and healthiest option that I won’t vomit. This process was established not by deciding that I love d c (I like rosogolla much more, for instance), but because I simplified the process of determining all the things I won’t do.
So just like eating, investing too is a dull boring job – and you have to determine a LOT OF THINGS that you will NOT DO. The art of sitting tight on a good portfolio that you have painstakingly built – or a simple index fund. An index fund disciplines your mind – and tells you not to seek action on a daily basis. More than buying and selling on a regular basis, we should master the art of deciding not buy things. For example whatever stories are told to me regularly about banking my core ‘bank’ portfolio is Hdfc Ltd, Hdfc bank, Cholamandalam Investment, Kotak bank and now Equitas. My trading portfolio includes Icici bank, Sbi, and a few of the private sector banks where I could go short and cover or go long and then sell. Whatever stories that are sold to me about new banks, I just keep asking myself one question “if there is an opportunity in banking – and it is safe – will not Hdfc bank and Kotak bank do it themselves?”. So my portfolio is CONSTANTLY DOING NOTHING.
NOT JUST DOING nothing, but ACTIVELY doing nothing. Saying no to people who come up with many ideas. Pair trades, shorting a bank dependent on car financing, saying no to a company which is over leveraged or not as well managed. THIS IS ACTIVE DOING NOTHING.
I can take this to my whole portfolio of Colgate, Infosys, Biocon, Cummins, Siemens, Tata Motors, TCS, – sure I have suffered in the past, but not much. I had to throw away shares like Patheja Forging, Shaan Interval, Indiana Dairy, Crest animation. I have tried to see ‘what I missed’ in these shares, yes there have been learning experiences – but I also realize that what looks so obvious, were not so obvious. Once you have the answers (given by somebody else) the questions look so simple AND OBVIOUS. So I do not kill myself for ‘not having seen the obvious’. Simplicity gives more clarity, and simplicity comes from a calm mind.
PS: I do not index because I am not investing fresh – as a big percentage, so the need for new ‘shares’ is not imperative. If I had to invest a regular amount I would index instead of chasing alpha.
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