In recent times I have been getting a lot of requests from readers (willing to learn investing) to provide some kind of internship opportunity or teaching.
However, due to existing commitments to own investing and running a research firm, there is hardly any bandwidth left to undertake these requests.
Whatever I can share I am already sharing through these weekly newsletters.
But in order to address this area of learning more specifically, I am writing this two-part series wherein I’ll share some actionable insights & hacks that have helped me to learn & grow in investing.
In this first part, we will cover some boarder framework & starting points and in part two I’ll cover a lot of specific & finer aspects & hacks.
In any aspect of life, for one to be able to grow exponentially, the key requirement is presence of a POSITIVE FEEDBACK LOOP.
A positive feedback loop is a process or framework wherein outcomes of the process become better inputs for the next leg of process, creating an ever improving, growing & self-sufficient process or framework.
In investing & learning, the positive feedback loop needed for exponential growth is as follows-
Simply put, you need to read a lot, observe a lot, put into work what you read & observed and finally reflect on the outcomes to create actionable & refined insights that you can use for your next set of reading, observing & practicing.
Following are some important aspects of each part of this positive feedback loop-
You must read a lot, as an investor it is the primary activity for you on a daily basis.
Focus on the breadth of readings rather than depth of readings - Initially it is important to jump start and create a certain base. Only once you have a certain base is when you can focus on depth around things that works for you. - Basically, don’t go for creating a so called circle of competence in the initial period; have a mindset of explorer and once you have explored enough, only then you should go for depth.
Reading should not be limited to just about specific companies - You need to read about various other things like frameworks, behavioral aspects, what others in the field are doing, history etc. - These other readings will help you in two ways, first it will provide you with some insights readily without having to figure it out by yourself and secondly, it will help you connect a lot of dots while reading about specific companies.
Don’t worry about noise filters in the initial days, there is no clear method for cancelling/reducing noise. Overtime as you continue to read, you yourself with develop some filters based on what works for you.
If you are starting out, I’ll highly recommend the following three resources - On analytical side, Blogs of Dr. Vijay Malik, this will provide you with the initial base on everything you need to know on how to research a stock. My entire initial base was developed on the back his posts only. - On behavioral side, Blogs of Vishal Sir at Safal Niveshak; there are a lot of simple wisdom & behavioral insights that you can gather from his posts. A lot of behavioral aspects will seem stupid at first or you might not be able to grasp the importance of it, but trust me the wisdom in these simple stuff is something you will surely realize at a later stage. - On thinking side, Blogs at Farnam Street; I wished I would have discovered this when I was starting out. Reading their posts will change your entire way of thinking about a lot of things. It will help you immensely on how to go about thinking about multiple aspects and so much more, which will help you in the reflection part of the feedback loop.
Observing is the 2nd dimension of information & insights gathering over & above what reading will provide you.
Insights gathered through observations are unique to you and are more valuable as they are not available to all; and thus provide some level of information edge.
One of the areas wherein observation helps the most is in judging sentiments & cross linking trends around a stock or certain pockets of the market; which then helps quite a lot in buying & selling.
The value of observations was something I was not able to understand in my early days, even though I was made aware of the same by one of the most well-known investors in India Mr. Vijay Kedia. You can read about that lesson here- Two Important Investing Lessons Mr. Vijay Kedia Gave Me
One of the worst advice anyone can give you in markets is that of paper trading/investing; without practicing or putting your money behind your decision, everything else is useless.
This is more applicable in investing wherein the feedback loop from decision to final outcome is quite long. In trading you can take 100s of trades in a month and see their outcomes; wherein in investing the time-period required to take 100 investments and see their outcomes is like a 10-year period.
So, it is important to start early; don’t work with a thinking that you will learn everything first and then start investing. Get some basics right and start investing; because the idea is to grow exponentially.
Reflecting is the most important aspect and something that is least talked about & done; it is nothing but pure thinking about outcomes & information that you consume.
One needs to reflect on two areas; - The outcomes of your investments; reflect on what worked, why it worked or what did not work. And use those insights for better selection & decision making in your next set of investments. - Reflect on what you read & observe; reflecting on raw information will allow you to connect dots and figure out some patterns & frameworks which you can apply to the practice part of the loop.
Sometime back I found this very interesting chart; this journey of going from raw information to actionable insights and wisdom can never be achieved without reflecting.
The best way to reflect is to write - Cannot stress more the importance of writing. - It is very hard to collate, process and connect ideas purely in our minds. Writing helps you put your raw ideas in a single place and then work on them. - Further, writing makes you aware of missing or inconsistent aspects of your thoughts; one can never fool oneself while writing.
Do so by maintaining a simple dairy - Initially you might find it cumbersome or time consuming to write; but trust me, once you get a habit of writing, the amount of benefits that will accrue to you in terms of clarity of thoughts, recall etc would be huge. - It took me time to realize this, and over the years I have started writing more & more.
To put it all together; a good case study of the above process of reading-observing-practicing-reflecting would be our blog post on- Value Added Manufacturing
The understanding shared in that post is not something that we read somewhere; it was outcome of the following-
We had read about the success of Balkrishna Industries wherein they worked with low volume & high SKUs.
We had seen one of our family relatives run a Woven Sacks business. Even though the standard business practice is to manufacture some standard SKUs which it required by larger customers, they have instead focused on catering to smaller volume customers wherein the requirements are quite diverse and requires customization. This model of doing smaller volume and higher varieties has allowed them to generate higher conversion per Kg than what others in the industry generates and has allowed them to scale business quite well.
Had personally invested in Suven Lifesciences which itself was a business that worked on low volume, high value & high customization. And over the years of being invested & tracking the same was able to understand the underlying dynamics of such businesses.
And then after reflecting on all of these, we were able to figure out a framework that low volume + high value + high customization manufacturing businesses are some of the best business models.
And then on the back of this framework we were able to identify & invest in RACL Geartech.
Same has been the case with some other frameworks that we have shared overtime like;
I can personally guarantee you that if you create this positive feedback loop, you will grow exponentially. And if I reflect on my own investing journey, this is exactly what has worked for me & continues to work for me.
That’s it for this post. In the next week’s post, I will cover some of the specifics like what resources I read and how I split my day & week across all the four areas.
Feel free to ask any questions or queries that you might have. Also do share if you found this post of some value.
That’s it for this week, new insight coming up next week. So stayed tuned!
Surge Capital is a trade/brand name used by Ankush Agrawal (Individual SEBI Registered Research Analyst INH000008941) to provide equity research services in the Indian Equity Markets.
“Registration granted by SEBI, and certification from NISM in no way guarantee performance of the Research Analyst or provide any assurance of returns to investors”
“Investments in securities market are subject to market risks. Read all the related documents carefully before investing.”
“The securities quoted are for illustration only and are not recommendatory”
More details: https://www.surgecapital.in/disclosures
Stock specific investment disclosure:
Suven Life Sciences- Not Invested. Not Traded in last 30 days. Not an active recommendation in Research Service
RACL Geartech- Invested. Not Traded in last 30 days. Active recommendation in Research Service
Balkrishna Industries- Not Invested. Not Traded in last 30 days. Not an active recommendation in Research Service