My relatives there are reasonably well to do in a general sense. They have good land holdings.
But, I didn't find them as happy as they were may be 3 years ago.
I enquired for the reason and found that there was no farming that was going on for the past 1-2 years in their fields due to scarcity of water.
Farming was the only source of income for most of them (like salary was the only source of income for most employees) .
Whatever they saved until now was almost always invested in land as land prices were increasing.
They never assumed a situation where in there may be no water for farming ( i.e. assuming good times to continue forever ! like most employees who take loans to buy houses, things etc., that are out of their reach, ignoring the fact that their jobs may not be guaranteed)
My relatives are slowly eating in to whatever little cash that they have and know that it is not going to last for too long if the bad times persist .
Given the government's squeeze on black money and consequent lack of liquidity, they may not be in a position to sell part of their land either even if needed.
Now the question is how many of us are in a position to handle such a situation wherein most of our net worth is in land & buildings (illiquid and may not be useful when needed) if we lose our job , without much stress ?
Mutual funds may be volatile in their returns but their liquidity comes really handy in handling life's volatilities.
“If past history was all there was to the game, the richest people would be librarians” - Mr. Warren Buffett, Chairman, Berkshire Hathaway
“It's not supposed to be easy. Anyone who finds it easy is stupid”- Mr. Charlie Munger, Vice Chairman, Berkshire Hathaway
What the best investing minds in the world say from the above is that ‘just bookish knowledge’ may not be sufficient and investment may involve other complex skills (like mastering one’s own psychology so that one can execute what one learns etc.,)
Sure Mutual Funds are a great way to buy part ownership of businesses, to participate in 'India growth story' , to reduce glaring disparities in wealth distribution in the country. It is a ‘Great Idea’.
Is it sufficient to have just a ‘Great Idea’ to get the desired results ?
After all mutual funds are in existence for more than 25 years now! Did that change how people invest ? What percent of people's net worth goes in to Mutual Funds (Equity) even today ?
A 5% net worth in Mutual Funds or in Equity may satisfy the gambling tendencies of a person and may be useful in boasting to his friends that he too is savvy.
But, 5% net worth in Mutual Funds, does it make any material difference to the life of an investor when a overwhelming part of one’s portfolio is invested in instruments like FDs, Real Estate etc., ?
Getting more than 50% of net worth in to equity through mutual funds, might change an investor’s life to the better. But, is that easy ?
If that is easy how many people are doing it ?
Here is what one of the greatest entrepreneurs of all time and the creator of the ‘Apple inc’ , Mr. Steve Jobs, has to say about the complexity of getting a job done and what goes in to the ‘execution’ of an idea ‘however good’ the idea may be.
Here is the Source video :
And the edited transcript,
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One of the things that really hurt 'Apple' was, after I left, John Scully got a very serious disease.
And that disease - I’ve seen other people get it too -it’s the disease of thinking that really great idea is 90% of the work.
And that if you just tell all these other people, you know, “here’s is this great idea,” then of course they can go off and make it happen.
And the problem with that is, there is just a tremendous amount of craftsmanship in between a great idea and a great product.
And as you evolve that great idea, it changes and grows.
It never comes out like it starts, because you learn a lot more as you get into subtleties of it and you also find there are tremendous trade-offs that you have to make.
I mean, there are certain things you can’t make electrons do. There are certain things you can’t make plastics do or glass do or factories do or robots do.
And as you get into all these things, designing a product is keeping 5000 things in your brain and fitting them all together and kind of continuing to push to fit them together in new and different ways to get what you want.
And every day you discover something new that is a new problem or a new opportunity to fit these things together a little differently.
A few days ago I read this interesting story about books and reading.
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What you were reading was the lees and scum of bygone men:
Duke Huan of Ch’i was reading a book at the upper end of the hall; the wheelwright (a person who makes or repairs wooden wheels) was making a wheel at the lower end.
Putting aside his mallet and chisel, he called to the Duke and asked him what book he was reading. “One that records the words of the Sages,” answered the Duke.
“Are those Sages alive?” asked the wheelwright. “Oh, no,” said the Duke, “they are dead.”
“In that case,” said the wheelwright, “what you are reading can be nothing but the lees and scum of bygone men.”
“How dare you, a wheelwright, find fault with the book I am reading. If you can explain your statement, I will let it pass. If not, you shall die.”
“Speaking as a wheelwright,” he replied, “I look at the matter in this way; when I am making a wheel, if my stroke is too slow, then it bites deep but is not steady; if my stroke is too fast, then it is steady, but it does not go deep.
The right pace, neither slow nor fast, cannot get into the hand unless it comes from the heart. It is a thing that cannot be put into words [rules]; there is an art in it that I cannot explain to my son.
That is why it is impossible for me to let him take over my work, and here I am at the age of seventy, still making wheels.
In my opinion it must have been the same with the men of old.
All that was worth handing on, died with them; the rest, they put into their books. That is why I said that what you were reading was the lees and scum of bygone men.”
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Natural tendency of the mind ‘to avoid the hard work of reading and thinking’ , makes it ask the question ‘ if all that is important can’t be conveyed through books, what’s the point in reading books’ ?
The counsel of Wise men on reading,
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“The man who does not read has no advantage over the man who cannot read”-- Mr. Mark Twain
“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time –none, zero” -- Mr. Charlie Munger
“I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading. I don’t think any one book will do it for you” --Mr. Charlie Munger
“If you would tell me the heart of a man, tell me not what he reads, but what he rereads” -- Mr. Francois Mauriac
“A reader lives a thousand lives before he dies, said Jojen. The man who never reads lives only one” -- Mr.George R. R. Martin
“No one ever reads a book. He reads himself through books, either to discover or to control himself ” -- Mr. Romain Rolland
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Overwhelmingly the wise recommend reading books.
Then what could be the answer to this puzzle that all of that that is important can’t be conveyed through books vs reading books is very important ?
Probably both of them are correct.
Writing a book may be best possible way for the masters to convey what they want to, even if they knew that they may not be able to convey all that they have.
And reading books is the best possible way to reach near perfection in ‘Seasoning the mind’.
‘Seasoning of the mind’ happens best when a ‘great amount of reading’ is interspersed with good amount of ‘practice’ of what one learns.
The question that we should ask ourselves is whether we are focussing on things that are really important or are we trying to pretend that we are busy?
Here is a wonderful extract on the importance of time management.
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On one such occasion we talked about the difference between wasting time and spending time.
Bruce (Mr. Bruce Lee - the martial artist) was the first to speak.
To spend time is to pass it in a specific manner he said. We are spending it during lessons just as we are spending it now in conversation.
To waste time is to expend it thoughtlessly or carelessly.
We all have time to either spend or waste and it is our decision what to do with it.
But once passed, it is gone forever.
Anyone who steals my time is stealing my life because they are taking my existence from me.
As I get older, I realize that time is the only thing I have left.
So when someone comes to me with a project, I estimate the time it will take me to do it and then ask myself, Do I want to spend weeks or months of what little time I have on this project? Is it worth it or is it wasting my time? If I consider the project time-worthy I do it.
I apply this same yardstick to my social relations. I will not permit people to steal my time.
I have limited my friends to those people with whom time passes happily.
There are moments in my life - necessary moments - when I don't do anything but what is my choice.
The choice of how I spend my time is mine, and it is not dictated by social convention.
As he left us, Bruce turned to stirling and said, “Today you were the teacher. I realised for the first time how much time I had been wasting with certain people. I never before considered that they were taking my existence from me, but they were.”
At that point in my life, I had many friends who were in the habit of dropping by to visit or telephoning me at whim.
Because I am a writer and my office is in my house, they assumed I was available for talk or advice on any subject.
But after that conversation with Stirling and Bruce, I realised that instead of spending time with them I had been wasting it.
I bought a large “Do Not Disturb” sign that I hung outside my office door and I installed a telephone answering machine.
Mr. Jason Zweig, Investing columnist for the Wall Street Journal, calls the following 'A much better way to think and live' .
People with high and well-grounded (well balanced and sensible) self-esteem, from social psychologist Prof. Elliot Aronson,
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Are not invested in winning arguments for winning’s sake.
Do not need to believe they are always right.
Do not need to explain away failures and mistakes and
Do not need to engage in the almost frantic (conducted in a hurried, excited, and disorganised way) self-justification in which high and fragile (easily broken or damaged) self-esteem people constantly engage.
Instead, when they fail or make mistakes, people with high and well-grounded self-esteem can look at their failures and mistakes and learn from them.
For example, a person with high, well-grounded self-esteem can look at his or her errors and say, in effect, “ I screwed up. I did a stupid ( or hurtful or immoral) thing this time, this doesn’t make me a stupid (or hurtful or immoral) person.
Let me look at it. How did it come about ? How can I make it better ? What can I learn from this situation, so that I might decrease the possibility that I will screw up in a similar way again?”
Here is a wonderful treatise on ‘Risk Control’ from Mr. Howard Marks.
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Investors can calculate risk metrics like VaR and Sharpe ratios (we use them at Oaktree; they’re the best tools we have), but they shouldn’t put too much faith in them.
The bottom line for me is that risk management should be the responsibility of every participant in the investment process, applying experience, judgment and knowledge of the underlying investments.
While risk should be dealt with constantly, investors are often tempted to do so only sporadically.
Since risk only turns into loss when bad things happen, this can cause investors to apply risk control only when the future seems ominous.
At other times they may opt to pile on risk in the expectation that good things lie ahead.
But since we can’t predict the future, we never really know when risk control will be needed.
Risk control is unnecessary in times when losses don’t occur, but that doesn’t mean it’s wrong to have it.
The best analogy is to fire insurance: do you consider it a mistake to have paid the premium in a year in which your house didn’t burn down?
Taken together these six observations convince me that Charlie Munger’s trenchant comment on investing in general – “It’s not supposed to be easy. Anyone who finds it easy is stupid.” – is profoundly applicable to risk management.
Effective risk management requires deep insight and a deft touch.
It has to be based on a superior understanding of the probability distributions that will govern future events. Those who would achieve it have to have a good sense for what the crucial moving parts are, what will influence them, what outcomes are possible, and how likely each one is.
Following on with Charlie’s idea, thinking risk control is easy is perhaps the greatest trap in investing, since excessive confidence that they have risk under control can make investors do very risky things.
Thus the key prerequisites for risk control also include humility, lack of hubris, and knowing what you don’t know.
No one ever got into trouble for confessing a lack of prescience, being highly risk- conscious, and even investing scared.
Risk control may restrain results during a rebound from crisis conditions or extreme under-valuations, when those who take the most risk generally make the most money. But it will also extend an investment career and increase the likelihood of long-term success. That’s why Oaktree was built on the belief that risk control is “the most important thing.”
Lastly while dealing in generalities, I want to point out that whereas risk control is indispensable, risk avoidance isn’t an appropriate goal.
The reason is simple: risk avoidance usually goes hand- in-hand with return avoidance.
While you shouldn’t expect to make money just for bearing risk, you also shouldn’t expect to make money without bearing risk.
“Intellectual humility” (an awareness that one’s beliefs may be wrong) may influence people’s decision-making abilities in politics, health and other arenas, says new research from Duke University.
As defined by the authors, intellectual humility is the opposite of intellectual arrogance or conceit (excessive pride in oneself or egomania).
In common parlance, intellectual humility resembles open-mindedness.
Intellectually humble people can have strong beliefs, but recognize their fallibility and are willing to be proven wrong on matters large and small, Leary said.
People who displayed intellectual humility also did a better job evaluating the quality of evidence (Example: When an advisor points out with data that it was not bad luck but poor financial choices taken with in-adequate knowledge that lead to poor results, an intellectually honest client may be more inclined to accept and implement. Consequently the relationship will have lower friction when compared to others).
“If you’re sitting around a table at a meeting and the boss is very low in intellectual humility, he or she isn’t going to listen to other people’s suggestions,” Leary said. “Yet we know that good leadership requires broadness of perspective and taking as many perspectives into account as possible.”
Leary and his co-authors suggest that intellectual humility is a quality that could be encouraged and taught.
“Not being afraid of being wrong – that’s a value, and I think it is a value we could promote,” he said. “I think if everyone was a bit more intellectually humble we’d all get along better, we’d be less frustrated with each other.”
The Primary reason for the resistance of people to change or correcting their own mistakes from 'The Zurich Axioms'.
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The third obstacle to the Third Axiom's implementation is the difficulty of admitting you were wrong.
People differ widely in the ways they react to this problem. Some find it only a minor nuisance. Some find it the biggest obstacle of all.
Let's leave it at this: It is a tall obstacle for many.
If you feel it will get in your way, you should explore yourself and seek ways to handle it.
You make an investment, it turns sour, you know you ought to get out. But in order to do that, you must admit you made a mistake.
You must admit it to your broker or banker or whomever you've been dealing with, maybe to your spouse and other family members -- and, usually worst of all, to yourself.
You've got to stand there in front of a mirror, look yourself in the eye, and say, "I was wrong." For some, that is impossibly painful.
The typical loser tries to avoid the pain and, as a result, repeatedly gets trapped in bad ventures.
If he buys something whose price begins to sag, he hangs on in the hope that future events will vindicate his judgment. "This price drop is just temporary," he tells himself and maybe even believes it. "I was right to get into this speculation. It would be foolish to sell out just because of some initial bad luck. I'll sit tight. Time will show how smart I am!" Thus does he protect his ego.
He has evaded the necessity of saying he was wrong. He can go on believing he is smart.
His bankbook will record the truth, however (Obviously, stupid choices lead to bad investment results and the consequent poor or middle class lives that most people end up with ).
Years from now, perhaps, that sagging investment will struggle back to the price at which he bought it or will even go higher, and then he will feel vindicated. "I was right all along!" he will exult. But was he?
During all those years while his money was stagnating, it could have been out working. He could have doubled it or better.
Instead, he stands just about where he stood at the beginning of this dismal episode.
Refusing to be wrong is the wrongest response of them all.
Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.
