CFA Level 3 Exam

I just finished taking the CFA Level 3 exam yesterday. It was better than I expected.

I plan to continue regular blogging starting the next month.

Berkshire Hathaway Meeting 2006

Last Saturday I attended the Berkshire Hathaway Meeting. Here is a good note in pdf format by Whitney Tilson on the meeting and here or here is another one.
Personally, it was a pleasure to be at the meeting. I have never spent a whole day listening to someone talk without getting bored, is to say the least. The icing on the cake was the opportunity for international shareholders to meet Warren, Charlie and Bill Gates (who is also a director). It was definitely the event of my lifetime.

Performance of Indian Portfolio

I am posting the performance of my Indian Stock Portfolio here in the pdf file link. I have shown the total return, capital gain (realised and unrealised) Vs. Sensex Return. (inserted later) and Nifty return.

The monthly returns are rupee-weighted linked geometrically i.e. monthly compounded. The green % is overperformance over Sensex till date and red underperformance.

Total return is the best way to measure portfolio performance. The Capital gain is displayed for fair comparison since Sensex values (inserted later) and Nifty returns (inserted later)are not inclusive of dividends.

Modified July 21, 2007

Books I read recently - 2

The former is an interesting read on chance and randomness with its applications in investing and touches upon some common fallacies in decision making process like -
Post hoc ergo propter hoc - it is the reason because it came after
Felix qui potuit cognoscere causas - happy is he who understands what is behind things

Here are a few quotes from Fooled by Randomness:-

"The observation of the numerous misfortunes that attend all conditions forbids us to grow insolent upon our present enjoyments, or to admire a man's happiness that may yet, in course of time, suffer change. For the uncertain future has yet to come, with all variety of future; and him only to whom the divinity has (guaranteed) continued happiness until the end we may call happy." - Solon to Croesus
For the gods perceive things in the future, ordinary people things in the present, but the wise perceive things about to happen. - Philostratus' adage
"..in their intense meditation the hidden sound of things approaching reaches them and they listen reverently while in the street outside the people hear nothing at all" - C.P. Cavafy, Greek Poet
Scots Philosopher David Hume - No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion - Treatise on Human Nature - "The Black Swan Problem"

Books I read recently - 1

I read two very good books on Investing and Investor Psychology recently. One was Nicholas Nassim Taleb's Fooled By Randomness ; second was Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay (originally published 1841).

The second talks about "crowdthink" or crowd madness. Though written 164 years ago first, it is as relevant as it was then. It touches upon non-financial pursuits like witch hunts and also the financial follies of The Mississippi Scheme, The Tulip Mania, The South Sea Bubble etc. A few quotes from it:-

Some in clandestine companies combine;
Erect new stocks to trade beyond the line;
With air and empty names beguile the town,
And raise new credits first, then cry 'em down;
Divide the empty nothing into shares,
And set the crowd together by the ears - Defoe

Then stars and garters did appear
Among the meaner rabble;
To buy and sell, to see and hear
The Jews and Gentiles squabble

The greatest ladies thither came,
And plied in chariots daily,
Or pawned their jewels for a sum
To venture in the Alley.
- A South-Sea Ballad, or, Merry Remarks upon Exchange-Alley Bubbles

"But, the most absurd and preposterous of all, and which shewed, more completely than any other, the utter madness of the people was one started by an unknown adventurer, entitled, "A company for carrying on an undertaking of great advantage, but nobody to know what it is."

"Subscribers here by thousands float,
And jostle one another down,
Each paddling in his leaky boat,
And here they fish for gold and drown.

Now buried in the depths below,
Now mounted up to heaven again,
They reel and stagger to and fro
And their wits' end, like drunken men.

Meantime, secure on Garraway cliffs,
A savage race, by shipwrecks fed,
Lie waiting for the foundered skiffs,
And strip the bodies of the dead" - Swift

"Three causes especially have excited the discontent of mankind; and, by impelling us to seek for remedies for the irremediable, have bewildered us in a maze of madness and error. These are death, toil and ignorance of the future - the doom of man upon this sphere, and for which he shews his antipathy by his love of life, his longing for abudnance, and his craving curiosity to pierce the secrets of the days to come."

"Let us not, in the pride of our superior knowledge turn with contempt from the follies of our predecessors. The study of the errors into which great minds have fallen in the pursuit of truth can never be uninstructive. As the man looks back to the days of his childhood and his youth, and recalls to his mind the strange notions and false opinions that swayed his actions at that time, that he may wonder at them; so should society, for its edification, look back to the opinions which governed the ages fled. He is but a superficial thinker who would despise and refuse to hear of them merely because they are absurd. No man is so wise but that he may learn some wisdom from his past errors, either of thought or action, and no society has made such advances as to be capable of no improvement from the retrospect of its past folly and credulity. And not only is such a study instructive: he who reads for amusement only will find no chapter in the annals of the human mind more amusing than this. It opens out the whole realm of fiction - the wild, the fantastic, and the wonderful, and all the immense variety of things "that are not, and cannot be; but that have been imagined and believed."

This book is published by Templeton Foundation.

Charlie Munger

I came across an interesting story about 2005 Berkshire Hathaway meeting. There was a book sale - of "Poor Charlie's Almanac". I had heard of "Poor Richard's Almanac" with wit and wisdom of Ben Franklin, whose philosophy strikes a chord with me. But Poor Charlie? I hadn't heard of Charlie Munger before, other than a casual mention as the Vice Chairman of Berkshire. I read some excerpts (thanks to Amazon!!) and was immediately impressed (which is saying much for me). I promptly placed an order on Poor Charlie's Almanack.

The coffee table book is a cornucopia of investment wisdom, is to say the least. It is a lattice work of investment thought process, to borrow a term from the book a "lollapalooza". I have read it once, back to back during Summer and would like to go back and read it again this Summer to capture a few ideas that I may have missed. Watch this space for more, soon.

The Accumulation Phase

During the first couple of weeks, I had accumulated stocks costing Rs.20k - twice my monthly salary. The shares ranged from ABB, BPCL, Glaxo, HLL, HPCL, Tata Power besides the first two purchases. Most of these were based on recommendations and research from sharekhan. I was good at fundamental analysis by this time and I was working on my tech. analysis.
Another good thing happened within a month. I was sent to the US by my employer. The advantage was that I got a salary from India (which went directly into stocks for 6 months); I also got a per-diem allowance in the US. This meant more savings.
During my stay in the US, 9/11 happened and all hell broke loose in the markets. Like Buffett would say, I was happier in the market because Mr.Market just put up a big "ON SALE" sign. By the end of October, the portfolio had balooned to a little over 100k including my prior investments. Even though the market was hitting the nadir, my portfolio looked strong with only about 10% under at worst days. I took (rightly) as the sign of the strength of my portfolio. By the end of November, I was 5% above. By now, when I returned to India, the portfolio had 16 scrips. I continued my accumulation over the next year or so to reach 195k cost by the end of 2002. By then, the market had slowly started picking up. My portfolio had never looked better with 50% overall return by the middle of 2003 and 115% by the end of the year, after booking some profits. This is all I intend to write about my portfolio and performance, just to give a background. I intend to add a few comments during my monthly discussion. Before I begin that, I am going to discuss the rationale behind each of my scrip selections in the initial period, complete with data.

Tribute to Graham and Dodsville

The Humble Beginnings:-

It is only apt that I should begin this blog with a tribute to the prodigal student of the authors of the book, from the title of which I derive the name of this blog. The student is none other than Warren Buffett, www.berkshirehathaway.com. I discovered him much later in my pursuit of knowledge.

The world didn't begin in such an organised fashion; nor did it begin with the words 'Let there be light'. It was built one step at a time. It probably started way back circa 1991-92, when I bought my first shares. I became the owner of 10 shares of Dhanalakshmi Bank Ltd. - then the brahmin's bank - after my father decided the time was ripe for me to become the proud owner of Rs.1,000 worth of shares. It led to me opening a bank account, even as a minor. Well, the habit of saving had been inculcated into me from the day my father's cousins decided to gift me a post-box shaped piggy bank. It was blue in color with black top and in plastic. The coins went in through the slot and there was a key to open the box too. I don't think I ever thought much of money, back then. The opening of the bank account and my choice of commerce stream for pre-degree introduced me to the world of banks, savings, stocks etc. My active interest in stocks picked up much later. In college, I ended up learning the various basics of commerce and by the time it was over, it was time for me to join CA in 1994. In the meanwhile, a good thing happened. There was a quiz competition based on stock markets conducted by the PRO of Cochin SE at the Kochi AIR. Of course, I won the first prize - it was a Stock Market kit from Dalal Street Journal. That probably sowed the seeds. After Inter CA I tried to dabble in stocks after an audit with a stock broker. It ended in a disaster. I never saw the transferred certificate from one of the companies I bought - Good Earth Organics and I still have the second one - G.R.Magnets - not traded after being Z listed in BSE. I didn't look that way for another 3 years. In the meanwhile, I was reading all I could find about stock markets and stocks in ET www.economictimes.com and I had joined ICFAI's CFA course. (It's another story I had to drop it).

In the meantime, lot of good things were happening in the Indian stock market. The days of bad delivery seemed to be over with the arrival of NSDL and online stock brokers. The market was experiencing another down-turn. This site www.sharekhan.com caught my eye. (This is why I refer to myself as a serendipitious individual. Things just start coming together when I am ready. This is a post-facto observation.) I executed my first trade on April 12th, buying Godrej Soaps Ltd (which later split into Godrej Industries and Godrej Consumer Products) and Reliance Industries. It was on the same day that a stock-broker in Delhi committed suicide. Despite the usual caveats from the home front, I was more convinced that I was on the right track.