Short notes from the book 'Dead Companies Walking' by Scott Fearon.

I think this is a must read book for all investors to understand when to stay away from a company even if you don't want to short it. Image
2/n Things go wrong more often than they go right. Failure is actually a natural - even crucial - element of a healthy economy. And the people who are willing to acknowledge that fact can make a hell of a lot of money.
3/n One of the most enduring & important business traditions is failure
4/n Failure arises from one or more of these 6 common mistakes
1. Learnt ONLY from recent past
2. Relying on ONLY formulas
3. Didn't understand customers
4. Victim to a mania
5. Failed to adapt
6. Emotionally or physically removed from company
5/n If your data predicts something hasn't happened before does not mean it cannot happen in the future. Call this historical myopia.
6/n It's ok to be wrong; it's not ok to stay wrong.
7/n Failure *terrifies* people. They'll do whatever they have to do to downplay it, wish it away, and just plain pretend it doesn't exist.
8/n The idea of quitting or giving up is almost unpatriotic. But when it comes to business and also investing, this kind of excessive optimism can do more harm than good.
9/n Management instead of adjusting their strategies chose to believe things would naturally work out for the best and they make up all sorts of comforting rationalisations to prove their rosy predictions.
10/n Self delusion is a powerfully democratic force. It cuts across all social classes. You can be richer, smarter and more successful than anyone else. But if you're not brutally honest with yourself about your own potential for failure then you might lose a lot of money.
11/n People in business and investments overvalue competitiveness. It's actually one of the worst qualities to have because it puts too much faith in one's abilities. Competitive types think they can will their way to success no matter what.
12/n Investors perform in irrational ways sometimes and even junk stocks can live on well past their expiration dates.
13/n The average analyst or institutional salesperson is three things: young, affluent and hyper-competitive.
14/n Most important advice in investing: Quitting is very important when you're buying and selling stocks. Be a good quitter.
15/n Effective money managers do not go with the flow.
16/n Businesses need to accept that sometimes their industry fundamentally or permanently changes. This is crucial for survival.
17/n People don't like to face bad news, especially when it means admitting they've made stupid decisions. They invent all kinds of rationalisations to keep from owning up to their culpability. Worst of all they tend to blame anything & everyone but themselves for their failures.
18/n Intelligence doesn't guarantee success. Peter Lynch's success rate was 6 out of 10.
19/n You can't have friends on Wall Street
20/n The misplaced faith in the investment world is the cult of the Guru. Someone who projects to know the hidden formula. The people who actually possess these kinds of insights almost never share them.
21/n The financial world suffers from an inherent flaw: the people who work in it, by and large, are terrible investors.
22/n The people in the financial world have spent their whole lives going to get along. They are hyper-competitive. They worship rich and powerful people.
23/n If you're an individual investor, you should not under any circumstance trust your money to a Wall Street brokerage or investment management company.
24/n There are countless tricks that brokers and money managers have mastered to pad their stats and separate their clients from their money. New ones get invented all the time.
25/n Conclusion: If you want to be a good investor, learn to be a good quitter. Quit early and quit often.

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More from @deepakvenkatesh

10 Jun

Very Critical

1/ Adding somethings which I have done in this thread. Maybe not the perfect thing but helps.
2/ Get your nominees set up. Super important.

And let those nominees know. How?

Make a consolidated mail for them. And tag that mail in their inbox. For instance my wife has a tab "DV" & color code it. Do this for your sibling & parents if possible
3/ MY NSDL CAS statements get forwarded to my wife and her statement to mine. I have maintained sporadically though CAS statements in a google drive folder to which both of us have access. As investors your close ones should know every single investment you have.
Read 7 tweets
4 Oct 20

A short thread on Indian Household Finance

Percentage of Households having exposure to equity

Direct stock
60s 40%
80s 25%
90s 17%

80s 70%
90s 43%

One of the lowest in the world at ~14% as per MOSL vs 45% of US.

Whereas RBI quotes <10% in Jun 20.

We are close to 80% invested in Real Estate and drowning in unsecured debt.

Only 13% save for retirement

And over 50% think their children will help in retirement
Read 12 tweets
25 Sep 20
1/n My investing process which is quite manual & achingly slow given that I get only a few hours a day & weekends

Rule1: Handwritten & filed in folders like below

Always have most of the documentation printed & filed. Ignore the stocks please.

Rule 2: An Investment checklist. Printed & filed in hand (snapshot below)

For the company in question as well as appropriate competitors

Rule 3: Have a Page 0. This I have learnt at work. I keep updating it if I come back to the company. Screenshot below.

Everything is given objectively as trend except the reason to reject the idea
Read 10 tweets
15 Sep 20
1/n A look at the oldest companies & earliest traded stocks
The 1st stock exchange was established in 1602 in Amsterdam. It was made by the Dutch East India Company, chart below
The south sea bubble of 1720 can be seen. The company lasted under 2 centuries & finally went bankrupt Image
2/n Another company traded in Amsterdam was The Dutch West India Company which also went into bankruptcy in late 1700s. In the chart below we can see both the Tulip mania & the South Sea Bubble. Image
3/n But these two companies are no match for the oldest companies which exist till today. They could have merged. Some are listed via the new parent too. The types are:
Read 8 tweets
10 Jul 20
1/n The term Coffee Can is being used to market funds these days. Professional fund management is more about selling & less about returns today

Some learnings from my father who has held stocks since the 80s & 90s and is the person who got me interested in this investing project
2/n Being a govt doctor working on the field most of the time he rarely put in effort to do any detailed analysis. He tried his hand at a business & failed miserably. Went back to job.

His learning - give money to people who can run businesses efficiently.
3/n You can never create a business in 1-2 years. It takes decades. So why do you think you will make returns in a few months? He bought stocks with the expectation that for 5+ year nothing would happen.

This is what the world's richest man says & does.
Read 14 tweets
5 Apr 20
1/n How painful is the current drawdown investors are seeing. A small thread on the topic

My objective was to look at 3 things essentially

How far does the portfolio fall?
How long does it stay in the dumps?
How fast does it fall?

Taken Nifty50 as the portfolio since 1 Jan 99
2/n There are only 3 blocks of period in which Nifty has gone below a drawdown on maximum terms of below 30% since 1 Jan 1999

Dotcom - Period roughly from Feb 2000 to Dec 2003
GFC - Period roughly from Jan 2008 to Oct 2010
Covid - Period roughly from Mid Jan 2020 to present Image
3/n Dotcom period

How far does the portfolio fall
Max DD was 51% Image
Read 11 tweets

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