January 28, 2011

The most irrational activity

I think being rational – making decisions inspite of your emotions telling you otherwise, based on facts and data is very critical to successful investing. I try very hard to be rational in making my investing decisions (though I am not successful a lot of times). So if rationality is an important goal for me, what do you think would be one of my most irrational activities?

I would say without hesitation – writing this blog. I have written over 400 posts on this blog and have been writing for close to 6 years now. 90% of the content on the blog is original – I don’t cut paste someone else’s content. If I cannot write something interesting, then why bother?

Now each post takes me around 1-2 hours to write. So If you do the math, it means almost 800-900 hrs of effort till date. This would amount to almost 3-4 months of lost income, as this blog makes next to nothing. So the point is why am I doing it?

I can list quite a few reasons now, but when I started in 2005 I had none. I tried thinking of some rational ones then, but as I could not think of anything I realized that the only reason was that I loved doing it. Some people like to watch TV, some like to paint and I like to invest and write (talk of a boring interest !!)

The start of investing
If I dial back time a bit further, the same situation existed at the time I started learning about investing. The first 3-4 years in the late 90s were a complete wash in terms of income. I made quite a few mistakes, but still managed to do fine in terms of the returns.

However if I look at the absolute amount of money I made in those days, it was peanuts. The only reason I kept doing it was that I enjoyed the process a lot. The income is now meaningful, but I love the process even more.

Being better at it everyday
I personally look at investing as an intellectual activity, where my measure of progress is not the returns alone, but also if I am becoming a better investor over time. It is always difficult to be very objective about it, but I feel I am a much better investor now than I was in 2005 – though I have no quantitative measure to prove it.


I will make a bold claim now. If some of you like me are not professional investors and are into investing because you love the craft, then it is a given that you will improve year on year, inch by inch and will do well in the long run. How will it be otherwise?

What about the money?
By the way, in case you are thinking that I am being hypocritical and don’t care about the money, that’s not true. I do care about money – have a family to feed :). Its just that investing and blogging in my case is more than just about money. If it was only about money, I would have never started it.

A surprising conclusion
I have come to a very surprising conclusion due to the above experience and based on what I have read about others. If you love doing something and really don’t care what others think or whether you will succeed or not, paradoxically you will get better over time and actually be more successful at it than you originally imagined.

What makes me think I am now more successful at investing? My wife now thinks that this odd thing her husband does on the side may amount to something :)

31 comments:

Anonymous said...

"However if I look at the absolute amount of money I made in those days, it was peanuts."

The time itself is an investment. Personally, I made a lot of dumb mistakes starting out (still do!). It was probably better to make the obvious mistakes when there wasn't a lot of money on the line.

Lucky said...

Your blog has been quite an education. Continue writing.

anurag said...

Hi Rohit,

Its been a long time since Iam posting comments but I make sure to read all your excellent post.

all I can say is

Mirza Sauda:'Dilon mein Bahooton ko dhoond dhoond kar har Kahin jo paya bhi to bar zuban ikhlas':))


Happy Investing
Anurag

satish vijaykumar said...

Hey Rohit,

"It's not about the money, it's about the game."
Gordon Gekko - Wall St II

I'm a silent reader of your blog, really appreciate the effort and pain you put in each post.

Everyone person at times, specially after a few drinks asks this introspection question, Am I on the right track,have I got the multi-bagger right?
Well time will answer my experience is the gut feel is always right and if one has helped others the karma would surely bouce back.

All the best and more power to you, hope you make a few million dollars.

cheers
satish
P.s Am an annual investor I invest all my funds in one stock in a year :), Currently invested in BNK capital.

The maturing process said...

1stly nothing irrational about writing, i'll come to that later. But 1st your comment that people grow better by doing something more, Duh!! Thought that was obvious. Especially if you have an INTEREST and INCENTIVE in that thing. ENJOYING doing difficult thing which you have no aptitude for, helps. Hence I look only at interest rather than aptitude in a thing to predict if he'll succeed in it.

On the 1st thing about writing; its a record, thing you can check long after for comparison, mistakes and right choices. Also a teaching tool, teaching being something men are evolutionary programmed to do.

So nothing irrational or illogical about writing.

PS: This may seem like a harsh comment. . . . . . But i've nothing better to do. And i'd really wanna be like a Hemingway or Premchand.

seshu said...

seshu

Rohit,
Writing always makes a person think more and better. It is always difficult to write as compared to verbally expressing.
I am sure this process had helped you in making your investment decisions more and more thought through and rational.

By the by, why did you invest in asian paints? Was it a trading decision or thoroughly analysed like the others?

Avadhut said...

Rohit,
This was introspection. I agree with your "surprising conclusion".

Ninad Kunder said...

Rohit

The wife is making a smart trade. She has figured out that by being interested in investing, the amount you could blow on stocks will be lower than what you could blow off if u divert your interest to the proverbial other woman :-).

Hence the occassional grunts of acknowledgement might be coming from her end.

Rohit Chauhan said...

Hi anon
agree with your comment. ofcourse losing when i had little money only ensures that i dont lose money the same way. i have found newer ways to lose money since then.
but then that is the part and parcel of investing

rgds
rohit

Rohit Chauhan said...

Hi lucky
i also benefit by sharing the learning. it drives the learning deeper

rgds
rohit

Rohit Chauhan said...

Hi anurag
thanks for the comment and the poetry :) ..though i am artistically challenged in that area

rgds
rohit

Rohit Chauhan said...

Hi satish
you really have some courage ..one stock !! i can never do that.

you are right about the game part ...most of us can earn a living in multiple ways ..choosing to invest actively is definitely more than the money bit alone

rgds
rohit

Rohit Chauhan said...

Mr maturing process
some people take longer to learn the obvious ..some of those people are me :)

on writing and record keeping ..one can do it in multiple ways which are less time consuming than blogging. so there is a level of wishful thinking or irrationality involved in writing a blog especially when you are starting new and no one reads it

its a funny feeling to write posts in the begining with no one reading expect yourself ..its like like talking to yourself. you think you are insane :)

rgds
rohit

Rohit Chauhan said...

Hi seshu
fully agree ...witing makes one think more logically and explicity. makes one rational. so definitely agree with it

i worked in asian paints for 4 yrs. it was 50% analysis and 50% emotional. its a well managed company and i knew it from the inside ..so made sense to invest

rgds
rohit

Rohit Chauhan said...

Hi avadhut
true ..i took time for this conclusion. always thought becoming good in investing required from special talent. i think its more a factor of hard work. ofcourse becoming a great investor is special talent

rgds
rohit

Rohit Chauhan said...

Hi ninad
:) oh she is smart ..knows how to prepare me for the impending mid life crisis.

i think women are definitely smarter ..they allow guys to think they are smart and live in their fantasy :)

rgds
rohit

Smart Singh said...

I'm going through that phase when it feels like talking to a post. That said, blogging is becoming an addiction for me. It is wishful thinking + a need to document my thoughts + kicks I get when I see a comment on my blog.

Keep it up Rohit.

KD said...

Hi Rohit,
Its always nice to read your blog, which compels me to think harder on many things over and above investing :)
I fully agree with your comments and believe myself that sure path to succeed in anything, is to LOVE it, or vice versa :-)
All the very best.
KD

rayhaan said...

hi rohit,
just wondering
q1.any thoughts on evaluating companies in turnaround/restructuring situations?
( interesting possibilities include indage vintners and dhandapani finance)
q2.any ideas on how to evaluate financial companies ?(like nbfcs and banks)
eagerly awaiting ur thoughts

Anuj Joshi said...

Hi Rohit
I have recently started following your blog, value investing and fundamental analysis.I follow short term technicals mostly.

I am tracking cement sector in general.Mangalam cement(my pick) and as you mentioned about Hyderabad Industries some time back, have reported a huge drop in OPM specially past two quarters.Any particular reason for that?.How long do you see margins under pressure?
Thanks

Rohit Chauhan said...

Hi kd
true ...if you love something...it is no longer work

rgds
rohit

Rohit Chauhan said...

hi rayhaan
generally avoid turn around companies. on banks - i have written on the blog. you can find the posts on it via the search option

rgds
rohit

Rohit Chauhan said...

hi anuj
hyd industries and mangalam do not have pricing power ..what that means is that the company can charge higher prices in times of high cost. they can only raise prices in supply tight situation. so if the supply is in excess- which is usually the case in cement companies, then rising costs hurt will hit the company

when will it turn ..i dont know. it will not correct till the demand starts exceeding supply

rgds
rohit

Anuj Joshi said...

Hi Rohit,
You said, "hyd industries and mangalam do not have pricing power"
That's because these command a relatively less market share of sales with respect to larger player like ACC,Ambuja and Ultratech Cement?

Jb said...

Hi Rohit,

Like one of the readers commented, I'm a silent reader of your blog too and must say if you've attracted so many eye-balls, you HAVE done a good job.

Just a small thought, which I thought I'll share. I'm like Rohit Chauhan 2-3 years into investing but still miles before I can become the present Rohit Chauhan. And a lot of the readers are on the same path, at various distances from each other.

I have this feeling that, if we can, in any way, contribute in a better way, to each others' learnings, we can add a lot more value to ourselves.

I see this being possible, if those of us who do intend to write about our investments and rationales (it sure helps as it as helped you, over the years) get a more integrated platform to share our views, have others point out any discrepancies in the approach, their suggestions, etc.

In its present form, its more of one way communication, which sure is good for each one of us, courtesy you, but doesnt allow us to add value to each other in any way. A comment, is after all, pretty short.

For example, I remember reading an article by a SmartMoney columnist recently on how he identified the multibaggers - Google, First Solar, Home Depot, etc - and wished I could share it with you and all the readers.

I visualized a site moderated by you wherein anyone of us could add posts too, before we could engage in a healthy discussion.

Any thoughts..?

siva said...

hi,

Can you pls let me know is hcc a value buy? considering lavasa ipo might hit in another 1-2yrs.

HCC market cap is 2000crs
Lavasa IPO was supposed to come for 2000crs in which HCC has 65% stake. total valuation was 20,000crs. but all the real estate stocks fell by 50%.. say 10,000crs out of which HCC stake is 6,500crs.

are we not getting HCC for free? I understand other issues like reality is very bad investment. but if we wait for 2yrs we will sure get at least 100rs when lavasa ipo hits.

Thanks
siva

Sachin Purohit said...

Rohit, I remember you having initiated research on Hawkins but before you could press the "Buy", it shot up like anything. How does Hawkins look now, since the sharp fall it is witnessing? Agreed that it has had 2-3 bad quarters. But based on its past record of coming back from red in a big way, I think this should be a small blip.

Rohit Chauhan said...

Hi anuj
it is not a question of mkt share alone. yes, mkt share helps as it provides economies of scale and helps in generating better returns.

however industry which have commodity type characterisitics ..where the only factor in a purchase is price, have poor pricing power

Rohit Chauhan said...

Hi jb
i agree a forum on valueinvesting would be a lot of help for a variety of investors.
I gave it a thought a few years back, but did not proceed with it. It is time consuming to manage a forum and personally with my day job, this blog and now a subscription service and also a family :) ...i just dont have the time for it.

a few years later, maybe.

at the same time, i think the comments can used to share thoughts..though i agree it is not as good as a forum

rgds
rohit

Rohit Chauhan said...

hi siva
i have not really looked at hcc. btw, isnt lvasa the project which got stuck in some environment clearance issues ?

rgds
rohit

Rohit Chauhan said...

Hi sachin
i am still following hawkins. its in tracking list ...but as always not cheap enough :) ...another 15% and i will get interested. till then there are other decent ideas

i personally want to avoid chasing any idea ...more like that pretty girl in college which everyone was after but could not get :)

you can guess my valueinvesting principles would have never got me any dates :)

rgds
rohit