We list below some of the aphorisms/thoughts/views - from the above named and some other leading thinkers, that we like and try to incorporate in our thinking and action.At the same time, as one of the quotes below suggests we do not take any rule – with the exception of some like those relating to integrity and values- as sacrosanct in every circumstance.
On long term perspective in investing
Investing should be more like watching paint dry or watching grass grow. If you want excitement go to Las Vegas – Samuelson
Our View: Patience and discipline are fundamental requisites of Magadh’s investment process.
In the short run market is a voting machine but in the long run it is a weighing machine – Benjamin Graham
Be patient. Watched stock never boils - Peter Lynch
In and out may be out of money - Philip Fisher
If you aren't prepared to own a stock for ten years don't even think of owning it for ten minutes –Warren Buffet
In short term you may experience good or bad luck and that may overwhelm skill but in the long term luck tends to even out and skill determines the result – Michael Mauboussin
Our View: All of the above reinforce our belief that long term investing has higher probability of delivering attractive returns in equity markets.
On fundamental research
Real knowledge is knowing the extent of one’s ignorance – Confucius
Our View: Accordingly we do not invest in stocks whose business we do not understand. This also helps us in our pursuit of keeping things simple.
Investment in knowledge pays the best interest – Benjamin Graham
Know what you own and know why you own it – Peter Lynch
It amazes me how often people are more willing to act based on little or no data rather than to use data that is a challenge to assemble - Robert Schiller
Our View: These reinforce Magadh’s belief in fundamental research based approach. At the same time this necessitates a relatively concentrated portfolio.
I'd be a bum on the street with a tin cup if the markets were always efficient –Warren Buffet
Our View: The fund’s belief in inefficiency of the markets is the reason for its confidence in its long term, bottom up fundamental research process.
Investors should be wary of history based models. Constructed by a nerdy sounding priesthood using esoteric sounding terms these models tend to look impressive. Too often though the investors forget to examine the assumptions behind the models - Warren Buffet
Our View: In the fund managers’ experience in the investment industry they have seen on many occasions that a strictly model based approach often delivers poor forecasts. Too much complication in the models, insufficient emphasis on qualitative aspects required to nail down the assumptions, and a lack of a bridge between past and future in the model at times are the culprits.
An investor should have an adequate idea of stock market history particularly of the major fluctuations –Benjamin Graham
The four most expensive words in English language are ' this time it's different ' - John Templeton
Our View: Magadh aims to be aware of possibilities in various outcomes and continuously tries to seek parallels and ideas from the past. We like reading about history, economics, politics, sociology, psychology etc to draw mental patterns applicable in current context.
On behavior and biases
To every rule there are exceptions ...but not many – Philip Fisher
Our View: We do work with values and boundary conditions but also values the importance of flexibility.
All men's miseries derive from not being able to sit in a quiet room alone - Blaise pascal
Our View: This is the inspiration for the fund’s ability to remain inactive during periods of extreme volatility. Its principle of not being tempted to buy some stock just because it has fallen a lot is rooted in this sentence largely. In addition this is the inspiration to delve deeper as a part of Magadh’s process of fundamental research.
Art of being wise is the art of knowing what to overlook – William James
Our View: Magadh Capital looks at investment more as a process of rejection. Accordingly our stock selection process is driven by sceptical optimism.
We don’t see things as they are but as we are – Anais Nin
Our View: The fund consciously strives, at every stage, to avoid this behavioural pitfall so that facts are not distorted
We have a passion for keeping things simple – Charlie Munger
Our View: This is how Magadh’s fund managers try to run the portfolio and this is what they look for in a stock. Indeed, simplicity is one of the basic principles in everything we do.
Stock price is the least useful information you can track and it's the most widely tracked - Peter Lynch
Games are won by players who focus on the playing field and not by those whose eyes are glued to the scoreboard – Warren Buffet
Our View: We believe that fixation with the price of a stock is one of the key reasons for irrational behaviour by stock investors. The key is the inherent value of the stock rather than the stock price movement.
The malady of commercial crisis is not a matter of the purse but of the mind - John Stuart Mill
Our View: All bubbles and manias in the past have been fuelled by human behaviour and passion. In our investment process study and practice of behavioural science plays a crucial role.
October – this is one of the peculiarly dangerous months to speculate in stocks. The others are July , January , September, April , November , May, March, June, December , August and February - Mark Twain
Avoid hot stocks in hot industries - Peter Lynch
Our View: We aim to create wealth on the basis of fundamental research and are fairly disciplined in our approach. Capital preservation is central to our investment strategy.Accordingly we stay away from sophisticated financial instruments or short term approach.
Don't quibble over eighths and quarters - Philip fisher
You don't need to know a person’s exact weight to know whether they are overweight or underweight - Benjamin Graham
I'd prefer to be approximately right than to be precisely wrong –John Maynard Keynes
Our View: Magadh believes in range based forecasting and attempts to analyze the drivers for various scenarios in as much detail as possible. As a corollary we do not try to time the market and its cycles.
There is always something to worry about. Keep an open mind to new ideas- Peter Lynch
Our View: Even as we are quite sceptical in our approach we also recognize that for creating wealth one needs to have some amount of optimism regarding the long term future.
Opportunities come infrequently. When it rains put out the bucket, not the thimble - Warren Buffet
Our View: This is in line with our perspective of running a concentrated fund.
You can't predict, you can prepare - Howard marks
Don't become so attached to a winner that complacency sets in and you stop monitoring the story - Peter Lynch
Our View: It is easier to come up with new ideas than it is to let go of old ones
The narrative fallacy is associated with our vulnerability to over interpretation and our predilection for compact stories over raw truths. - NassimTaleb
Chief losses to investors come from the purchase of low quality securities at times of favourable business conditions - Benjamin Graham
On contrarian investing
It is largely the fluctuations which throw up bargains and the uncertainty due to the fluctuations which prevent other people from taking advantage from them- John Maynard Keynes
The horse to bet on is the one more likely to win than most people expect - Will Bonner
Don't follow the crowd - Philip Fisher
Investors should put money to work amidst the throes of a bear market appreciating that things will likely get worse before they get better - Seth Klarman
The true contrarian is not one who shorts a stock that everyone else is buying but one who waits for things to cool down and buys stocks that nobody cares about, and especially those that Wall Street yawns at - Peter Lynch
Our View: Catching tops and bottoms of a stock price is ideal but extremely difficult to achieve. Hence if proper research is done and if the stock is sought to be bought for long term then it should be purchased in a bear market rather than attempting to time the market..
On portfolio construction
We try to buy businesses with good to superb underlying economics run by honest and able people and buy them at sensible prices -Warren Buffet
Our View: This essentially summarizesMagadh Capital’s philosophy.
Buying a company with mediocre prospects just because the stock is cheap is a losing prospect- Peter Lynch
Our View: Magadh looks for bargain stocks but in this pursuit does not compromise with the stock quality. Our strategy is a mix of value and growth philosophies.
Liking a store, a product, or a restaurant is a good reason to get interested in a company but it is not enough of a reason to own the stock - Peter Lynch
Don’t overstress diversification – Warren Buffet
All you need for successful investing is a few big winners and the pluses from those will overwhelm the minuses from the stocks that don't work out- Peter Lynch
Do you know the only thing that gives me pleasure? It's to see my dividends coming in- John D Rockefeller
You won't improve results by pulling out the flowers and watering the weeds- Peter Lynch
On bottom up investing
It's self-defeating to invest in good markets and get out in bad ones. It is difficult to predict markets. Also investors can become optimistic and pessimistic at precisely the wrong times - Peter Lynch
Our View: Invest in companies not in the stock market. Ignore short term fluctuations.
Predicting the economy is futile. Predicting the short term direction of the stock market is futile – Peter Lynch
Our View: While Magadh Capital is quite interested in trends in economy and markets it does not try to forecast them due to the multitude of driving factors and hence low probability of getting these forecasts right. Accordingly in Magadh’s investment process bottom up drivers take a much bigger role than the factors like macroeconomics, liquidity etc.