THE MODERN STOCK PICKER

The latest missive from the Old Man of Nebraska talks about how the stock markets are becoming more and more like a casino.

Link: 

https://finance.yahoo.com/news/warren-buffett-says-stock-market-212445057.html

Old Man, as always, is right. It pays to listen to Old Man Buffett. 

My thoughts on why this is happening: 

If you apply the logical  DCF methodology to stock picking - pick any Nifty or Sensex stock - you will most likely end up concluding that the stock is overpriced, however optimistic your assumptions. 

At the core, investment is all about buying assets at lower than their "intrinsic" value. 

Intrinsic value is the discounted value of expected future cash flows, discounted at a rate appropriate to the risk profile of the particular stock. On which value you give a margin of safety. That, in summary, is the Benjamin Graham approach. Benjamin Graham was Buffet's professor and teacher. 

Buffett and Munger added their own insights on what a "good company" looks like. Just a few parameters, which all investment gurus will agree to, are: 

 1. Adequate "moats " like brand strength, pricing power, independence from regulatory interference, patent protections, distribution strength... A moat is anything that enables the company to sustain its competitive advantage for the foreseeable future. 

2. Pricing power

3. A business that is not easily comoditisable or capable of being swamped by "china imports" 

4. Growth prospects of the industry in which the company operates. For example, with the rise of disintermediation and alternate financing options, pure play credit card companies may not be a good bet today 

5. Management with long term vision

6. Good ROE and ROCE

7. Low Capex needs

8. High replication possibility at close to zero cost 

9. Consistent sales and profit growth 

10.  Something in the DNA that will make the Company  extract a greater premium from its customers over a sustained period of time 

Etc etc 

But are the markets purely driven by fundamentals? The logical fundamental investor certainly hopes so, but that is less and less the case.

As more and more people enter the market, and as stock trading becomes easier than buying groceries with 15 minute deliveries, the market, to use the term introduced I think by Soros, becomes more and more "reflexive", finally adhering to the financial equivalent of the definition of a Socialite, a person who is famous because she is famous. The stock price goes up because it is going up and everyone expects it to go up, and the reverse on the way down.

Whatever the trendline may be, prices yo yo wildly around it. Computerised algorithmic trading, now aided by AI and machine learning algorithms, magnify this tendency a hundred fold. 

Add to this cross border money flows searching for cross country arbitrage, and the availability of easy money due to extreme monetary "easing" policies, and it becomes a perfect madhouse.

Sense and logic,  where art thou, cries the fundamental investor, as he looks on with bewilderment. Stock prices seem to have a mind of their own - and they do, it is an independent mind beyond human control driven by algorithms- and all ups and downs are much faster and extremely magnified. 

In such a situation, sticking to fundamentals alone may not be the right strategy. At the very least, for a long only investor, setting a strict stop loss when entering any stock is absolutely mandatory. 

And the old old adage of Buffett, I don't care if I don't see the market for a year, for I have picked fundamentally good stocks, may no longer hold true. If like Buffett, you decide to retire to the metaphorical hills of Omaha, Nebraska, and come down to the plains only once a year to check on your stocks, you are likely to find, like Rip Van Winkle did, that the world has left you behind and moved on in your absence, leaving you with nothing.

Can you catch the trend? 

Can you Intuit the future? 

Can you second guess the crowd? 

All while being dependent on them! 

Can you get in before them,

Can you bale out in time? 

Do you have balls of Steel,

And a heart that is as strong? 

For those are the qualities needed,

In today's crazy world,

To succeed in the markets,

Or for that matter,

In anything at all! 

( Posted to my blog 

https://www.dineshgopalan.com )

HOLISTIC EATING

When it comes to Food, *what* you eat is more important than the parts. 

When you eat organically grown whole foods, freshly cooked, without adding chemicals and preservatives, without a long shelf life, the effect on the body is on many dimensions, and the interrelationships between the parts is beyond "scientific" measurement. 

When it comes to food, in general : 

Avoid Grains,  or,  minimise them in your diet which is more practical; avoiding grains entirely in today's context of tough. Grains are a comparatively recent addition to the human diet. 

Use natural salt, not manufactured table salt. Manufactured table salt is a chemical called NaCl and it is not food. 

Use cold pressed oils, not refined oils. Til oil, coconut oil, groundnut oil, mustard oil, are all traditionally used in India and good for health, of course , when used in moderation. Palm oil is not good, period. Rice Bran oil is not even oil. I am not sure about Sunflower Oil and am still to form a view on it. 

Sweets should  be sparingly eaten, during festivals, etc, and make them using gud , not manufactured white sugar. There are many varieties of gud traditionally used in India.

Milk is not strictly necessary for the human body and can be easily avoided. BUT Ghee is extremely healthy. So is butter. Even vegans would be well advised to not skip ghee. So is buttermilk. 

So that takes care of salt, sugar and fat, which are the primary building blocks. 

What about protein? Dals and light protein are good if you also have grains in your diet. Grains are carbohydrates and the laws of food combination state that carbs and heavy protein don't go together. If you have meat, can you make sure they are freshly killed, not heavily processed, and come from free range animals fed on a natural diet? If you can, go ahead and eat meat, but in moderation. As affordability increases, the quantity of meat in the diet goes up, which is a mistake. If you can't ensure this kind of meat, and buy meat from animals raised and fed on industrial farms, then it is better to avoid meat entirely. 

Within foods itself, you have "super foods" , like spices; spices are a store house of micro nutrients. 

The food industry does not like this simple, common sense approach. None of their products are even edible, or in other words, food, if we follow the above approach. 

So what do they do? They divide food into various nutrients, and minerals, and vitamins, and give labels on all their processed foods listing all that. Their manufacturing process does the following: 

It strips the food of all that is good,

It adds chemicals and preservatives, 

It uses all the wrong ingredients that are bad for health in the first place,

It makes things that don't spoil with a long shelf life. Anything that does not spoil, is by definition, not food. 

It diverts us into the useless exercise of "label reading", and debates on the "nutrient profile" of foods, which is among the most useless exercises you can ever indulge in.

Then it adds the template called "hygiene". And "good manufacturing practice". And converts us into a bundle of nerves afraid of the very food we eat. 

And introduces abominations like milk powder into the culture itself. The office coffee machine of course has only milk powder, and so does the tray that is kept in your five star hotel for the morning chai. A dip dip tea bag with dairy whitener is the most pathetic way to start the day.

Slowly, we are converted into a bunch of people who believe in "science" , read nutritional labels on packaged foods; a walking talking abomination of inedible chemicals we shove into ourselves in the name of Food, all the time wondering where is that vitality, where is that positive health, where is that well being that we lost somewhere along the way. 

The medical industry then steps in to address our woes. The medical industry calls itself the health industry, but they have nothing to do with health, the apt description would be "disease industry". But more about the medical industry in another post.

And thus the system traps us. A bunch of people with more and more knowledge but less and less wisdom who are insistent on harming themselves... 

On Mc Donald's and Fake Food

Maharashtra FDA cracks down on McDonald's because none of their cheese items are made of cheese. 

This is food we are talking about. It is considered acceptable to replace food items with a chemical cocktail and call it "analogue", in this case "cheese analogue". 

Not surprising at all. The moment food gets into industrial production mode, this is bound to happen. 

Trace all your food to the source. Buy only what grows, and cook at home. 

The more the layers between you the consumer and the producer, the more the profit motive as opposed to genuine love at any part of the chain,  the more the food becomes just another commodity - the less it remains food. 

Our ancients treated the cooking process at home itself as something sacred. There are prescriptions for how the lady of the house should approach cooking, including the mental attitude while doing it. Any mental disturbance while cooking gets transmitted to the food as bad vibrations and thereon to the family members who are eating the food. Food is called "Prasad" and treated as such. 

At the other extreme you have chains like McDonald's, and you have Cloud Kitchens. You can be sure that anything coming from these places will not be fit for human consumption. 

Humans have a capacity for debasing the sacred to the profane in no time at all. And what are profane, like Swiggy, Zomato, and industrial  fast food chains, are glorified by popular culture. 

Things have reached such a state now that anyone who says that one should eat only freshly cooked food made at home, is viewed at best as a quaint anachronism, and at worst as a disruptor of the social order! 

THE RIVER OF TIME

The thing that strikes you  today, 

That monument that is grand,

Is here for a moment's stay,

Then Time swallows it and it's gone! 

The thing that you just achieved,

When you thought you bested the world,

Is even more short lived,

For such are the memories of men! 

The recognition for which you crave,

That fleeting validation - 

Who is it saying you are great?

For their sojourn is just as brief! 

We hurtle from the day we are born,

Caught as if in a strong current;

The river of Time sweeps us all,

Inexorably to our deaths!

AT IKEA

Thoughts while walking through  Bengaluru's IKEA store 

Lovely design,

Lovely finish,

Flimsy material,

Make today's things! 

All things ersatz,

All things compact,

Not made to last, 

Are today's things! 

Movable stackable,

Assemble it yourself,

How weak and flaky,

Are today's things! 

Good to see, nice to hold,

Nothing is permanent,

Who wants things to last,

In today's world!