This is the 100th blog and this blog is extra special because it written by my friend Ankit Kanodia. And he shares some important aspects of his investing philosophy.

I have known Ankit for 5 years now and in this time I have learnt a lot from him. For example, Ankit is almost always punctual. If there is an important event or meeting, he is present way before the scheduled time. Why? Because the meeting is important to him and he wants to make sure traffic, weather or other externalities don’t hold him back. The second thing I learnt from Ankit is persistence. The story behind it, as he has told me, is that he was deeply moved by the movie: Shawshank Redemption, especially the part where the hero sends letter after letter after letter to get books for the jail library. In other words, you may say No to Ankit today and he will persist again tomorrow. He emailed a professor 50 times before he got a response from him. It’s a good thing that the professor responded because if he hadn’t, Ankit would have simply emailed him a 51st time.

Ankit runs Mission Smile, a platform for investment related learning and Smart Sync Services for investment related services. If you are looking for a trusted investment advisor, do check out his website for more details.

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Stories and patterns teach me a lot about investing. Let me share a few of them. In doing so, I will attempt to explain my investing philosophy.

In his 1998 book The Fortune Sellers, the business writer William A. Sherden says this about forecasting: 

Each year the prediction industry showers us with $200 billion in (mostly erroneous) information. The forecasting track records for all types of experts are universally poor, whether we consider scientifically oriented professionals, such as economists, demographers, meteorologists, and seismologists, or psychic and astrological forecasters whose names are household words.

From tarot cards to tea leaves, palmistry to pyromancy, clear visions of cloudy futures have always been sold to susceptible audiences. Investing is no different. While you like to claim that you have a good predictive capability, your predictive performance is abysmally poor. Here is a list of 10 big predictions made in the past that turned out to be big blunders. 

Time and again the investing world reminds you that you cannot predict the start or the end of a bull market or a bear market. The irony is that you soon forget it. Just look at the last three years from the time the Covid pandemic hit us in March 2020. How many would have predicted it to be the start of a new bull market? 

At the time when the pandemic hit us, the prediction or discussion was never centered around the question of when the bull market would start. Instead, it was always about how long the pandemic can continue and what kind of devastating effect it can have on the economy, stock markets, and life in general. That is why MIT Professor Paul Samuelson’s famous quote, “the stock market has predicted nine out of the last five recessions”, is timeless.

The takeaway from this and many other similar events (investing or non-investing) around me makes me strongly feel this: the future is uncertain. You cannot predict it. But you can prepare for it. Hence, you can also create it. 

That brings me to my first principle: Don’t Predict, Prepare.

Let’s switch gears and hop on to a story of a cat and a fox that I found here.

Once upon a time lived a fox and a cat near a forest. Both were very close friends. They occasionally met each other and discussed their life and activities.

One day both were sitting together and were talking about the art of self-preservation. The fox asked the cat “My friend! How many techniques have you mastered to save yourself in the time of danger?“

The cat answered “My brother! I know only one technique—the art of climbing up a tree when I sense some approaching danger.“

The fox said in a deprecating manner “Ah! You know only one technique. Your life is miserable. You do not know any other technique besides climbing up a tree?“

The cat asked “My friend! How many techniques, really, do you know?“

The fox replied “It is a long story. Please wait. I will bring my notebook, in which I have written down all the techniques that I learned from different teachers at different times, to save myself in different situations.” The fox brought a big thick notebook and opened it with a lot of pride. It said, “I can run when the problem comes.” Opening another page, “I can hide myself in a bush.” he continued, “I can enter into a hole and protect myself.” Opening every page, the fox narrates different techniques with vanity and pride.

While both were talking, a dog came running towards them from a little distance. The cat exclaimed “My brother! Be careful; a dog is coming!” Warned by the cat, our poor fox kept turning the pages of his notebook while thinking what would be the best technique to save his life. The cat called out “Brother! I do not know many techniques. I only know one technique, and that is to climb up the tree. The dog cannot come there.“

The cat dashed up the tree. Despite his so-called intelligence, the foolish fox was not able to decide what to do. The dog was getting very near and the fox was in trouble, while the cat was saying “mew! mew!” from the tree top.

Investors like you and me can learn a lot from this short story. While you can make thousands of notes and permutations and combinations in your investing journal, when a deep market crash is playing out, most of us cling to businesses we know well and end up selling the ones we don’t know much about. In those dire times, you do not have the mental aptitude to carefully go through all the notes. Too many ideas in your notes will only confuse you. You seek a clear path like the cat to save you from the dog (read market crash).

This brings me to the second principle: Know Few Things, Know Them Well.

Now I will move to something more familiar. Stories from the investing world.

If you are an investor, the odds are high that you would know this fact. For 13 years, the star investor, Peter Lynch, successfully managed the Magellan Fund, which generated returns of approximately 29% annually.

Do you know why he stopped after 13 years?

“I have a very small transmission,” Lynch once admitted. “My gearbox has two speeds — off and overdrive.” 

Even though he did exceedingly well for 13 years, he could not carry on. 

Contrast this with another gentleman who writes this in his nineties:

“I have been investing for 80 years – more than one-third of our country’s lifetime. Despite our citizens’ penchant – almost enthusiasm – for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America.”

I want you to focus only on this phrase. Investing for 80 years. That’s it.

He compounded his money at a rate of 19.8% CAGR for the last 57 years. Before that, probably at a much higher rate. 

Peter Lynch beat him in CAGR for those 13 years Lynch worked. He beat Lynch hands down in terms of years of work.

That brings me to my third and most important principle. Consistency> Intensity.

I do not aim for the intensity of Lynch, I aim for the consistency of Buffett.

That summarizes my investing philosophy. Just 3 simple principles.

I will now leave you with this short conversation I had with my mentor recently.

Ankit:  I wish to meet you when I am in your city.

Mentor: Last meeting, you came running and went flying. Let’s have a quality meeting. सुकून और इत्मिनान के साथ मिलते हैं

सुकून और इत्मिनान  Those are Hindi words for peaceful and enjoyable. 

That’s how I want my investing journey to be as well. Of course, the destination also matters. But for me, the journey should be like this.

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Hope you enjoyed this as much as I did.