Authenticity

Hi Friend,

Here is what Mr.Vinod Khosla is urging us to be, when he asked us 'Do you have a belief system?' i.e. to be Authentic (of undisputed origin and not a copy; genuine)

• Researchers from Harvard, Columbia, and Northwestern joined forces to measure this phenomenon scientifically. They found that when people failed to behave authentically, they experienced a heightened state of discomfort that’s usually associated with immorality. 
• People who weren’t true to themselves were so distraught that they felt a strong desire to cleanse themselves physically.
• It’s clear that our brains know when we’re living a lie, and like all lies, being inauthentic causes nothing but harm. 

Traits of Authentic people:

• They help others to be their authentic selves. 
• Authentic people don’t expect others to play a role either.
• They let go of negative people. Authentic people have too much self-respect to put up with people who treat them badly or have ill will toward them, and they have too much respect for other people to try to change them. So they let go—not out of anger, but out of their need to be true to themselves. 
• They express their true feelings and opinions, even when they’re not popular. Authentic people don’t live a go-along-to-get-along lifestyle. They’re simply not capable of acting in a way that’s contrary to what their principles dictate, even if there are repercussions. 
• They prefer not to lie to other people, and they especially can’t lie to themselves. This means that they’re willing to live with the repercussions of staying true to themselves.
• They are confident. Much social anxiety stems from the fear we have of being “found out.” We’re afraid that somebody is going to discover that we’re not as smart, experienced, or well-connected as we pretend to be. Authentic people don’t have that fear. Their confidence comes from the fact that they have nothing to hide. Who they appear to be is who they really are.
• They prefer deep conversations to meaningless chatter. Eleanor Roosevelt nailed this one. She once said, “Great minds discuss ideas; average minds discuss events; small minds discuss people.” 
• They don’t complain about their problems. Complaining is what you do when you think that the situation you’re in is someone else’s fault or that it’s someone else’s job to fix it. Authentic people, on the other hand, are accountable. They understand that they—and no one else—are responsible for their own lives, so there’s no point in complaining.
• They don’t get stressed or upset when someone doesn’t like them.
• “I had no idea that being your authentic self could make me as rich as I’ve become. If I had, I’d have done it a lot earlier.” – Oprah Winfrey

Thank you.

source:

https://www.weforum.org/agenda/2016/08/10-habits-of-utterly-authentic-people?

Do you have a belief system?

Hi Friend,

Here is a wonderful interview of Mr. Vinod Khosla, the founder and the first CEO at Sun Microsystems, by Stanford Graduate School of Business, on the importance of honesty and having a belief system in life.

Q: I have a few questions here, focusing on three things. Your leadership and management journey, your thoughts of investing and​ entrepreneurship​. Where does this perseverance and conviction come from ?

• Well so, I have a philosophy in life. Whatever I believe, I should make happen.​ ​It's that simple.
• And if a customer's making a mistake, [LAUGH] the customer isn't always right. Trust me. And if you want to do great products, don't listen to your customers, by the way. Lots of bad lessons in business school I used to give a talk in the 80s on why not to listen to your customers and may be somebody will ask me a question that story is in fact true.
• The point is if you actually believe something, you try your best to make it happen. It doesn't always happen, but it happens most of the time. But things do workout if you persist. 
• Not always, but I like to say, failure does not matter, it's success that matters. And nobody remembers what you failed at. So, everybody remembers Sun. Does anybody know a company I started before Sun that McNealy and I started together? My point is people don't remember your failures. 
• And I like to say my willingness to fail is what gives me the ability to succeed.
• I find most people are so afraid of failing, they don't try and do the things that would be important enough to do. Anything worth doing is hard.
• I am amazed at how few people have a belief system.What do they actually believe in?
• 90% of you will do what's expected of you as opposed to what you wanna do.
• Why am I here? Why would I even bother to take an hour of my valuable time? I have to have a purpose. My goal is very simple. If I can convert one of you to follow your belief and have the guts to follow your belief, I'll have, I'll think of the hour as well spent. Right?
• I don't speak, because somebody you know, will write nice things about it. I always sort of have a purpose, but I have a belief system. 
• But my point again is, have a belief system. Follow that compass.
• Let me go back to this issue of Fortune 500 CEOs. I've talked to many over the years. If a New York Times writer writes an article, they want to change their strategy, they wanna respond. How silly is that, that some English major (a news reporter) who's never had a business job can determine the strategy of a Fortune 500 company? Why? Because they care about what's written, not what their belief system is.Do you know what Elon Musk would say to that writer? ‘Go get a real job’.
• Having a belief system, Knowing what's driving you to do what you do, Not you're fitting in to do career enhancement, Or, making it look good to somebody else, Whether it's to your friends, or to your boss, or to shareholders. 

Q: But I want to ask you about this, you are known for being for the lack of a better word somewhat blunt. But your website says we prefer brutal honesty to hypocritical politeness. What are the tradeoffs in doing this ?

• Well there's lots of tradeoffs but. I'm again very clear. You know it started off earlier in my life.I was very successful, even before I started Sun, I started a company like Daisy that made me more money, which was only a million dollars back then, or little more than that than my dad had made in the, in his career cumulatively, so I was in a whole different place. 
• And I said, the one thing I'll do is not do what others want me do, or be polite, which generally means dishonest. There's a great book by Sam Harris, about lying, I recommend everybody read Sam Harris' book on lying, and why we all lie too much and too often?
• We put this sort of slogan, I prefer brutal honesty to hypocritical politeness, on our website, because it's a real disservice to people.
• But generally you can be constructive and very honest. And I prefer that brutal honesty, because it serves a purpose. 
• The receiver can do something about it, if it's a constructive criticism.
• If you get, hypocritical politeness, you might lose a lot. So, again, it's about having enough confidence to say the other person will eventually appreciate it.
• I was working on a company with another major rental firm, and I didn't believe their plan would work. They had $45, $50 million in their bank account, so everybody was comfortable, too comfortable, in my view. I talk to the founders why it wouldn't work, What my concerns were. The other VCs agreed with me in the board meeting, said all these polite things. You know, so 40 engineers wasted three or four years of their life because nobody was willing to tell them the honest truth about what they really thought. 
• Right and I swore I would never let anybody waste their life. At least give them the best advice I had to give and tell them I may be wrong, but I'm not gonna say something I don't believe in, I just won’t. In, and that's extremely valuable to the other thing.
• But to be honest, look, there are situations you, it offends people, and I offend people often, but it helps them if they're really introspective. Right?
• Once I was in a position that I didn't need a job, nobody could fire me. I've actually never worked for anybody, so it's actually sort of nice. I felt it was a indulgence or a luxury I could enjoy. 
• Some people, who get that financial freedom might buy a yacht. I bought myself the freedom of brutal honesty, and it's an indulgence. I get to do things others may not be in a position to do. 
• There is a downside for others, but I think generally constructive honesty and constructive criticism than hypocritical politeness will serve other people well. 
• That founder, by the way, in that company called me four years later after, after this company, this company got sold for $3 million four, three and a half, four years later. Sad story. And he called me a year after that. He said, I only wanna work for you on my next venture because I wish somebody had told me.
• About venture capital:  It's a lot more popular now. It wasn't back then, so the risk of going the entrepreneurial route was much higher. If you went entrepreneurial and it didn't work out you couldn't get a job at GE, right? Much harder. Today, if you've done a startup, GE would love to have you, even if it failed. In fact, would prefer you over somebody who spent two years at GE. Not 100% true. But generally, it's the learning experience of a startup,whether it's successful or unsuccessful, is recognized as extremely valuable.
• Now, I'm not a big fan of planning careers. I'm much more about driving for the things you wanna do and go do them. You take any of the big successes. Google, Facebook, Twitter. You can't predict them.
• On Business Plans: We don't allow any IRR calculations in our firm. In making investments, we never calculate an IRR. Because calculating an IRR, in my view, is creating the illusion of knowing, which big companies are very good at. You tweak some assumption. I did enough business plans to know I can make the business plan do whatever I want on the spreadsheet. You know, reality is different. I don't even think you can plan startups, so business plans are largely irrelevant other than in surfacing the key issues the entrepreneur is thinking about.How thorough is their thinking? What's the quality of their thinking? That's the only thing I use a business plan for.
• Ours is different. It's about taking higher risks and higher upside. 90% chance of failure is not a problem. If there's a ten percent chance of 100 times your money, if it's the only thing that worked, then you're in pretty good shape. 

Q: How do you get others to buy into your convictions ?

• Sometimes they do after the fact, sometimes they don’t. 
• Capital preservation is important in other segments it's just boring to me, it's much more exciting to be on a roller coaster where the highs are high and lows are low. So risk taking is absolutely essential now.
• There's very little really interesting stuff you can do in big companies.
• It comes shockingly, it's shocking to people, but who invented, reinvented retail? It wasn't Wal-Mart. It was Amazon. Who reinvented media it wasn't NBC. It was YouTube. Who reinvented space it wasn't Lockheed. It was Space X.
• I was hard pressed to think of one thing that had come out of a large company in the last 20, 30 years. That was materially changing the landscape. And the reason's very simple, and this is all interesting things have, eh, happened at the edges of the system.They don't happen in the solid core. And, all that you have to do where things are fuzzy, unclear, uncertain. 
• If there's a market forecast, it's not at the edge of the system.
• If some analyst has a report, it’s not worth going into that area, right?
• In the edges where things are uncertain is they're old evolutionists and there interesting changes in business or society happen. 
• And unless you're there and learning fast from being there and not being too out of it to believe you know what's going to happen you're not gonna be in that learning edge of the wave, where new things are happening. And that's where failure happens often.
• You want failure to be small, and success to be very large, which is the characteristic of option value. That all happens at the edge.
• You can join Medtronic, or DE Medical, and do incremental things, or you can try to learn that the edges, where your probability of failure is much high. But the consequences of success are really consequential, and most people in their life, in their business, reduce risk to the point where the probability of success goes higher, but the consequences of success are inconsequential, as opposed to reducing the probability of success and increasing the consequences of success which is sort of my life to start with. Trust me, it's a lot more fun than spending 30 years at Goldman. 
• On experts and their Predictions: Professor Tetlock when he was at Berkley did research on ‘expert opinion’. All the analysts you read all the Mackenzie reports, and by the way, Bain and PCG no different. And he followed all of their forecasts for 20 years, 28,000 individual forecasts from 250 experts. Where when the forecast was made, he classified what would be a success, what would be a failure, And the book is called "Expert Political Judgement." So, all these great studies, the 10-year studies McKenzie did for millions of dollars for AT&T on what would happen to the cell phone business, that's a fun story. Across 28,000 individual forecast in 84,000 possible scenarios. The average accuracy of the best experts, whether it was Henry Kissinger, Tom Friedman, McKenzie, your favourite economic forecaster, the average accuracy, was about the same, to use his words, ‘as dart throwing monkeys’.
• So if you want to run your life on these forecasts and create an illusion of knowing, Great, go do it.You will follow a path that others will reinforce because you can give them a data quest study or a Bain forecast. 
• Or you can discover the edges where things are happening and changing, know that you don't know, and really change the world.
• Now, again bringing back to leadership, it's about having a point of view. It's about having an internal compass. This is a great point in your life, to actually decide which one of those do you have a belief system? Or you gonna do what others tell you to do?
• Whether it's written up in the New York Times, which somebody wrote up who doesn't understand the context, Whether it's the McKenzie report or a G-Forecast, or a Goldman analyst, or you gonna do what you believe in? And unfortunately, very few of you will do that. I hope I can work some of you to believing in yourself. 
• And the good news is, I actually believe five percent of the people is all that's needed to be even remotely innovative to change society.
• I'd like to say you should try and be one of those people, and none of those people will follow any analyst's forecast. They will have an internal compass, they'll have self-confidence in a belief system, and they'll make change happen.
• I'm very passionate about this, cuz frankly, it only takes a few people to change the direction of any industry or social trend. 
• my email address is vk@coastalventures.com if we don't get to your question, please feel free to send it. And I'll spend as much time answering it as, as much time as you spent thoughtfully asking the question. That, that's my rule on email. I try and judge how much, how thoughtful was somebody in sending the email.

Q: Can you talk about what exactly is your core belief system, and how do you foster that in your team and your company ?

• You know, so I decided very early I wanted to work on interesting things. Is not well known but I started the first program, programming class at any IIT. In 1971, we formed a hobby club of four people to learn programming, and that was the first instance I know of a programming class at any IIT. 
• A few years later, I got interested in biomedical engineering, and I was 16 when I started the programming club at IIT Delhi, a few years later we started the biomedical engineering program, which was, we just convinced one professor to work with us, and there was three or four of us, and so I had this habit of saying, what do I want to do and how to make it happen.
• But the core belief system I have is, I wanna work on interesting things. I don't wanna get bored. And it applies to what I'm doing today. 
• What I've learned since is, it's nice to do that, but it's even more rewarding to do interesting things that have a great impact. And so I measure impact a lot.
• And, I've told my LPs if you get a lower rate of return but higher impact, we'll probably pick that, because I'm much more interested in that than feeding some pension fund a slightly higher rate of return as long as I cross a bar. It's very clear to me. So, it was cool stuff and interesting stuff, early I didn't have perspective when I was in 20s.
• And over time I said, it's much more fun to work on things that make a difference. And so I only do that.
• I also never cared what people thought, so I had that luxury very early on in my life. Mostly through my attitude, which was much more belligerent when I was young. 
• But then also, anytime you make a difference, you make money and I think when you make money as a consequence of trying to do really interesting companies, you make much more of an impact then if you do it as a transaction, buy/sell kind of thing.
• In fact, if I get a plan, business plan that talks about exit in the first couple of pages, I almost never read the rest of it.

Q: I have a pointed question about you. I'm very impressed by the confidence you exhibit and obviously you have reasons to be that confident. Some people call it arrogance.My question is did you, when you were a kid, did you get support from your family that made you as confident as you are right now ? 

• You know, it's hard to remember. I always did my thing. I always did things most kids didn't do. And my parents always sort of, I guess support is probably the right word. Indian families are very different, you never did things your parents really oppose, but, I tended to do some of that but I always had great dialog with my parents, and they actually sort of, accepted me very early doing, going out of the bounds. 
• For those of you interested in my attitude and those of you who may have kids, I was asked to give a talk at Harker School and I did a presentation. 
• My first slide was something like why you should only color outside the lines.
• My second slide was about why you should disregard your teachers. 
• My third one was why you should disobey parents.
• Eh, and, and yeah, it was sort of funny and the kids loved it, but I'm dead serious about it.
• I actually think, inculcating an attitude of exploration,not confirmation to a bound set, a bound set by others, is what creates this internal compass and belief system and confidence in yourself.
• Again I say, 90% of you will do what's expected. 
• You know, after this you'll be motivated and then go back and say, oh, that Goldman job, it pays more. Okay.

Q: In your opinion, are we in the middle of a bubble?And if so, when do you foresee it bursting ?

• I don't, I know that I don't know the answer. I also know anybody who tells you they know the answer is probably stupid. 

Q: So I think your brand of swashbuckling is particularly effective if you show some vulnerability. So I'm gonna be your buddy and allow you to tell us a story about a time when you got crushed by somebody's brutal honesty and what you did with that ?

• look it would take an hour to talk about all my mistakes. let me put it this way. What I would say is I'm never embarrassed about my failures. And so if you search in the web for my failures, you'll find lots of them and you'll find me talking about them. And it's important because, given my philosophy, where I screw up doesn't matter, because it's a long list. In fact, it's a longer list than my successes. But like I started with, nobody remembers the data dump here, everybody remembers Sun. Right?
• And Cisco was born as an application on Sun, and we didn't see it. And I said to myself, duh, how stupid was I not to see it when it was happening? Even when I saw the application! A router was an application on a sun machine, we missed the largest opportunity Sun put out. I can find 100 such examples, the point is, try and fail but don't fail to try.
• My, a couple of other favorite quotes along those lines, since we're coming to the end of our time. Robert F. Kennedy said, ‘only those who fail greatly can succeed greatly’. The classic example of that is Elon Musk. He said forget this bullshit about supplying batteries to GM. They're just too slow to make change happen. GM spent way more money than Tesla did. 
• Space, NASA and Lockheed spent way more money than SpaceX did. 
• I can go on and on, every major change.
• So failure, try and fail, but don't fail to try.
• I'm just not embarrassed about my stupid mistakes. I mean, I think that's the difference.
• When did I get crushed? By brutal honesty. I mean, I've offended plenty of people. And that, so I won't go into the details because the public company, two public companies involved but, I was on a, on a panel with the CEO of this public company and I basically told them how stupid they were and then there was payback in a indirect way and that really hurt this other company and it you know, literally killed, almost killed the company. So that's an example where brutal honesty really hurt me.
• There are plenty of people in the VC business that don't like me because I tell them they, they, they're sort of worthless. Eh, eh, I do! But again it's an indulgence on my part. The really good people I don't say that to. If I don't know somebody enough I won't say to that to them. But if I do know for sure I do make sure I tell them.But it's part of life.

Q: What matters most to you and why ? 

• I just find it's cool to disrupt things for the better. And so when I say impact, I sort of feel like I'm being a troll on various industries. It's a luxury I've earned to, because I don't need to pay my mortgage and so, I like taking on new things.
• And let me end on the note that I actually like working on things that my four kids would be proud of me working on, right. 
• And there's this question that all of you will face of work, life balance so let me end on that note. Working on cool things excites me, keeps me motivated, I like to say, you grow old when you retire, you don't retire when you grow old. 
• And as long as you are stimulated and excited and whatever your passion is, and it can be what I do
• So I like hard challenges, I like difficult things, I like working against the odds and that brings out my competitive spirit and now I happen to constrain it to areas where I think I can have a positive impact. 
• Through all of the 90s when my kids were young, I had one rule. This 15 minute thing, managing my time came from the following. 
• I realized it was easy for all of us to say things and then, and mean them and not stay true to them. 
• The most important? Family. 
• Everybody says the right words, they don't live by them. So, what I decided I would do is get a monthly report of every category of time I spent time on. It could be working with entrepreneurs, evaluating new companies, being polite talking to journalists, being polite because somebody said, here my son wants to talk, have a conversation. I classified my time into 20 categories, one of the most critical lines from that was the number of times I had dinner with my kids at home.
• I set an impossible goal of 25 times, a month and it took me a year or so, but eventually I met it.
• But more importantly, every month I had to report on whether I did or didn’t. 
• I do believe work, life balance is possible. You just have to be extremely disciplined about it. 
• I no longer went to the pub, right, or the. I no longer did baseball games with friends, I only did it with my kids. I decided what my priorities were explicitly and then measured it to meet the requirements.
• I highly recommend you come up with your own priorities and measure them.

Source:

https://www.youtube.com/watch?v=HZcXup7p5-8&feature=youtu.be

Thank you.

Summary of Stupidities 'to get rid of' to be Financially Safe

Hi Friend,

Here is a wonderful list of Stupidities 'to get rid of' from Mr.Morgan Housel, titled '77 Reasons You're Awful at Managing Money'.

Please note italicised matter in braces is my comment.

==========================================

• You aced your SATs and went to an Ivy League school. You think this qualifies you to be a financial genius without realizing that the single most important skill in finance is control over your emotions, not control over a Greek formula.

• The single largest expense you'll pay in life is interest. You'll spend more money on interest than food, vacations, cars, school, clothes, dinners out, and all forms of entertainment. You do this because you don't save enough and demand a lifestyle you can't actually afford. The future owns your income.

• You think renting a home is throwing money away when for many it's one of the smartest financial decisions they can make.

• You hate finance, think it's confusing, and don't want anything to do with it. You do, however, love money. You see no irony in this.

• You think the stock market is too risky because it's volatile, without realizing that the biggest risk you face isn't volatility; It's not growing your assets by enough over the next several decades.

• You're unable to realize that a 10% return for 20 years generates more money than a 20% return for 10 years. Time can be a more important factor than return when building wealth -- and it's the one thing you have control over.

• You can't acknowledge the role luck plays when making the occasional successful investment. (Also true when worshiping investors who made one big call that happened to be right.) (Most real estate investments of ‘investing geniuses’  that we keep hearing about, fall in this category).

• You suffer from the Dunnig-Kruger effect, lacking enough basic financial knowledge to even realize that you're making mistakes. People's lack of understanding about things like compound interest and inflation can lead them to believe they're making good financial decisions when in reality they're tripping over themselves with failure.

• You seek advice from a doctor to manage your health, an accountant to do your taxes, a lawyer to manage your legal problems, a plumber to fix your plumbing, a contractor to build your house, a trainer to help you exercise, a dentist to fix your teeth, and a pilot to fly when you travel. You wouldn't consider doing it differently. Then, with no experience, you go about investing willy nilly, all by yourself.

• To paraphrase Carl Richards, you ignore history, basing your actions on your own very limited experience.

• You think financial news is published because it has useful information you need to know. In reality, it's published only because the publisher knows you'll read it.

• You don't realize that the guy giving advice on TV doesn't know you, your circumstances, your goals, or your risk tolerance. He doesn't really care about you, either. He just wants to be seen on TV.

• You work so hard trying to make money that you don't have time to think about, or plan, your finances. This is the equivalent to spending so much time buying exercise equipment that you have no time to exercise.

• You spend lots of money on material stuff to impress other people without realizing those other people couldn't care less about you(which includes a house as well).

• You have never been able to predict what the market will do next. This doesn't deter you from trying to predict what the market will do next.

• You don't learn vicariously from other people's financial problems. By the time you get the hang of making smart money decisions, your life expectancy rounds to zero.

• Your definition of "long term" is the time between now and the next bear market, whenever that is.

• You're investing for the next 50 years but get stressed when the market has a bad day.

• You think $1 million is a glamorously large amount money when it's what most people will need to cover their definition of a pretty mediocre retirement.

• You associate all of your financial successes with skill and all of your financial failures with bad luck.

• Rather than admitting and learning from your mistakes, you ignore them, bury them, make excuses for them, and blame them on others.

• You are unshakably certain about things you know very little about

• You think you're young, invincible, and don't need health insurance.

• You're part of the roughly half of Americans who can't come up with $2,000 in 30 days for an emergency, even though you're also part of the roughly 100% of Americans who will need to come up with $2,000 in 30 days for an emergency at some point in your life.

• You spent the last five years arguing why Keynesian/Austrian economists were all wrong (basically discussing rubbish, posing as if we are geniuses - all talk no investment). The S&P 500 (SNPINDEX:^GSPC) spent the last five years rallying 177%

• You think dollar-cost averaging is boring (Investing even when the market goes down) without realizing that the purpose of investing isn't to minimize boredom; it's to maximize returns.

• You work in a stressful job in order to make enough money to have a stress-free life. You see no irony in this.

• You let confirmation bias take control of your mind by only seeking out information from sources that agree with your pre-existing beliefs.

• You take something as mind-numbingly complex as the global economy and try to distill it down into small, elegant sound bites.

• You have a financial plan without realizing that life neither knows nor cares about your plan. Whatever your plan is today, reality will surely look far different tomorrow(be flexible in your planning as reality forces us to change often).

• You think that not changing your opinion about markets, the economy, and your investments is somehow noble, when it's really just shutting your brain off to the reality that things are always changing.

• You're unaware that the business models of the vast majority of financial companies rely on exploiting the fears, emotions, and lack of intelligence of its customers.

=========================================

Thank you.

Source:

http://www.fool.com/investing/general/2014/02/10/77-reasons-youre-awful-at-managing-money.aspx

The Three Kinds of Clients in Advisory

Hi Friend,

Investors can be broadly classified into 3 different categories.

1. Those who need the Ego Pampering:

• Though this category of clients say they need an advisor, what they really need is a marketing guy (a sales man) who is good at pampering their Ego. 

• They expect a Sales man to second what they think is right. The Sales man who can do this 'the best' gets maximum business. 

• Social proof (also known as informational social influence, is a psychological phenomenon where people assume the actions of others in an attempt to reflect correct behavior for a given situation and is driven by the assumption that surrounding people possess more knowledge about the situation) is a common trait in this category. 

• So, logic has little impact on this category of investors unless they see social proof for the same, which is unlikely in most cases. 

• A genuine advisor, whose duty is to point out our 'thought flaws' and correct them with our help, is at a dis-advantage with this group.

• Unfortunately most prospective investors fall in this category (of course to different degrees). 

• The 'agent culture or the Wall Street Culture' - of keeping an investor always in control, even when he/she is wrong, for the fear of losing business - is prevalent due to this group.

2. Truth Seekers - Those who accept the truth and change accordingly:

• Humility (the quality of having a modest or low view of one's importance) is a basic trait of this group.

• Because they know what they don't know or because they accept the possibility that they may not be good in a particular field, they look for an advisor who compensates for this.

• They appreciate hard work and honesty.

• This is the category a genuine advisor looks forward to working with as this is the best category to add value with minimal friction.

• Obviously, this category of clients is a minority. 

• Given the limited supply of 'truth seekers', a genuine advisor hopes that some from the first category of clients can be turned in to this second category with patient effort, but the hope often proves futile.

3. Super-Egoists:

• No genuine advisor would likes to take 'Panga'(trouble) with this kind, but as you know accidents happen. 

• If anybody ever says to a client of this category that 'he/she is wrong' or 'not so wise in his thinking', one can be sure that the days are counted in the relationship.

The most important traits of a Great investor:

Here is what Mr.Michael J. Mauboussin, Wall Street Investment Strategist, Author, Professor has to say (please note Emphasising and comments in braces are mine)

• Great investors don’t get sucked into the vortex of influence. 

• This requires the trait of not caring what others think of you, which is not natural for humans (meaning we have to deliberately practice it).

• Indeed, many successful investors have a skill that is very valuable in investing but not so valuable in life: a blatant disregard for the views of others (which the first category of investors are not suitable for as they require 'social proof') 

• Success entails considering various points of view (which makes sure that the third category- the super-egoists, isn't suitable at all to be great investors) but ultimately shaping a thesis that is thoughtful and away from the consensus. 

• The crowd is often right, but when it is wrong you need the psychological fortitude to go against the grain. This is much easier said than done, especially if it entails career risk (which is often the case). 

Please remember, when one doesn't feel any friction at all in a relationship with an advisor, he/she probably is a 'Sales Person' or one 'may be a first category of investor'.

It is almost impossible that a genuine advisor doesn't have friction with an investor at all, as his basic work (pointing out our thought flaws) hurts our Ego, more often than not.

Productive friction/Thought friction is an indicator that an advisor is doing his job.

Thank you.

Sources:

https://en.wikipedia.org/wiki/Social_proof

https://doc.research-and-analytics.csfb.com/docView?format=PDF&source_id=em&document_id=1063945621&serialid=1wRGyN6EnJdsEAzicRfCQyDmuExS84d2HcYRBRMNZJ8%3D

Diversification : How many Mutual Funds should I own ?

Hi Friend,

How many Mutual Funds are required to adequately diversify one’s actively managed Equity portfolio is a question that is not easy to answer for both investors as well as for advisors.

At the beginning of a relationship, if an advisor makes a client invest in just one fund, the client may want to ‘diversify’ in to ‘more’ number of funds. 

But, even after investing in four funds, it generally happens that a client still would ask for ‘more’.

An advisor can not be sure of what this ‘more’ means in exact number and it happens that the investors who always ask for ‘more’ do not clarify it either.

Guess this ‘more’ arises out of ‘fear’ and the ‘confusion’ created by various sources of information.

Some of the sources of confusion are,

• Lack of clarity in most of the news articles , magazines etc., on whether they are talking about diversification in Stocks or Diversification in Mutual Funds.

• Forgetting the basic fact that an Equity based mutual fund is already a diversified vehicle of stocks. One shouldn’t forget that generally every mutual fund has around 30 to 40 stocks or even more.

Here is what Mr.Phil Fisher have to say on the pitfalls of wrong interpretation of diversification,

• Investors have been so oversold on diversification that fear of having too many eggs in one basket has caused them to put far too little into companies they thoroughly know and far too much in others about which they know nothing at all. 

• It never seems to occur to them, much less to their advisors, that buying a company without having sufficient knowledge of it may be even more dangerous than having inadequate diversification.

How much diversification is required ?

The best way to answer this question would be Mr. Charlie Munger’s Technique of “Inversion”. i.e. One can get the optimal number of funds by answering, “What can not be construed as diversification in ‘Active Fund Management’ ?” 

As the number of funds increase in a portfolio, we may be investing in almost all the companies of the index / market that matter i.e. we may be buying the entire market .

But, if we buy the entire market how can we beat the market ?

The basic purpose of active management will be lost as the number of funds in a portfolio increases beyond a point .

What Great Investors and Theories have to say about the number of stocks required for optimal diversification may give us some clues. 

============================================

“According to the modern portfolio theory, you'd come very close to achieving optimal diversity after adding about the 20th stock to your portfolio”.

“The number of securities that should be owned to reduce portfolio risk is not great; as few as ten to fifteen holdings usually suffice.” - Seth Klarman

“Adequate though not excessive diversification (which he defined as between 10 and about 30 securities)” - Benjamin Graham

============================================

Needless to say even just one “perfect” mutual fund would have more than the required amount of 10 to 30 stocks in an Ideal portfolio. 

As we can’t be sure of the the “perfectness” of a fund, having 3 to 4 funds in a portfolio, giving us the flexibility to invest across various market caps, to take advantage of tactical opportunities etc.,  should be a reasonable diversification. 

One should not forget that Three to Four funds would generally contain at least 60-100 unique companies.

To finish off,

“Wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results.” - Charlie Munger

Sources:

http://www.valueinvestingworld.com/2016/01/phil-fisher-on-diversification.html

http://www.investopedia.com/articles/01/051601.asp

https://25iq.com/2013/01/16/charlie-munger-on-investment-concentration-versus-diversification/

Thank you.