pharma 1

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Best regards,

Chaitanya

Modified Bronte - Risk management

We have a default at Bronte - and the default at Bronte is that we have a maximum percentage for a stock (typically say 9 percent but often as low as 3 percent depending on how we assess the risk of the stock) and as the fund manager I am allowed to spend that whenever I want but I am not allowed to overspend it. If we have a 6 percent position with a 9 percent loss limit and it halves I am allowed to add three percentage points more to the exposure. But that is it. Simon, being the risk manager, isn't particularly fussed if add the extra when the stock is down 30 percent of 50 percent, but I can't add it twice. If it is a position on which we agree we are allowed to risk 9 percent then I am allowed to risk 9 percent.

Very interesting insight - My only addition here would be have these limits for a losing position and for a winning position, be flexible in adding assuming you are already up 1.5 x and the valuations are still reasonable.

i.e. Maruti bought orginally at 15 x Year 1

Earnings grows by 50% and stock runs up 50% by year 2

Implies multiple remaining the same - Add more, assuming you added only 5% in the first place and you still think that it is a multi year compounder

Position sizing should be in broad limits without too much fixation

Whereas for the losing position I agree, get rid of them or average down only once - No point trying to protect the thesis when it has actually fallen apart!

Leadership at large organizations

Q: How are you different form him? A: As far as ITC is concerned we should look at it from the perspective that ITC is an institution and ITC works with certain processes and a DNA that has evolved over the years. The DNA of the organisation is one off distributed leadership where we have each business, which has a management committee and has a chief executive and we have a centre that in a way is place the role of venture capitalist and a mentor and we have very clearly a DNA which says that we will do things that will make us perform in 3 dimensions – financials, environmental and social. Now this process actually drives the whole management process in the organisation. Now what I would like to certainly continue doing is to continue what I have learned and what has worked well is to enable and empower, at the same time provide sufficient input and guidance so that each of the businesses can succeed. I am a hands on person, so I have to remain hands on, but at the same time not get into the day to day operations or any backseat driving. The trick really is to be able to remain hands on, give input, give guidance but in a whole ethos of enabling and empowerment so that each business can takes it own decision and succeed in it on right.

Utility of money

Scott Adams in failure

Charlie Munger

Kaufman also summarizes Munger’s approach into a ten-point value investing principles checklist. Here it is:

1. MEASURE RISK

All investment evaluations should begin by measuring risk, especially reputational.

• Incorporate an appropriate margin of safety
• Avoid dealing with people of questionable character
• Insist upon proper compensation for risk assumed
• Always beware of inflation and interest rate exposures
• Avoid big mistakes; shun permanent capital loss

2. BE INDEPENDENT

Only in fairy tales are emperors told they’re naked.

• Objectivity and rationality require independence of thought
• Remember that just because other people agree or disagree with you doesn’t make you right or wrong – the only thing that matters is the correctness of your analysis and judgment
• Mimicking the herd invites regression to the mean (merely average performance)

3. PREPARE AHEAD

The only way to win is to work, work, work, and hope to have a few insights.

• Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day
• More important than the will to win is the will to prepare
• Develop fluency in mental models from the major academic disciplines
• If you want to get smart, the question you have to keep asking is “why, why, why?”

4. HAVE INTELLECTUAL HUMILITY

Acknowledging what you don’t know is the dawning of wisdom.

• Stay within a well-defined circle of competence
• Identify and reconcile disconfirming evidence
• Resist the craving for false precision, false certainties, etc.
• Above all, never fool yourself, and remember that you are the easiest person to fool

“Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.”

5. ANALYZE RIGOROUSLY

Use effective checklists to minimize errors and omissions.

• Determine value apart from price; progress apart from activity; wealth apart from size
• It is better to remember the obvious than to grasp the esoteric
• Be a business analyst, not a market, macroeconomic, or security analyst
• Consider totality of risk and effect; look always at potential second order and higher level impacts
• Think forwards and backwards – Invert, always invert

6. ALLOCATE ASSETS WISELY

Proper allocation of capital is an investor’s No. 1 job.

• Remember that highest and best use is always measured by the next best use (opportunity cost)
• Good ideas are rare – when the odds are greatly in your favor, bet (allocate) heavily
• Don’t “fall in love” with an investment – be situation-dependent and opportunity-driven

7. HAVE PATIENCE

Resist the natural human bias to act.

• “Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily
• Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake
• Be alert for the arrival of luck
• Enjoy the process along with the proceeds, because the process is where you live

8. BE DECISIVE

When proper circumstances present themselves, act with decisiveness and conviction.

• Be fearful when others are greedy, and greedy when others are fearful
• Opportunity doesn’t come often, so seize it when it comes
• Opportunity meeting the prepared mind; that’s the game

9. BE READY FOR CHANGE

Live with change and accept unremovable complexity.

• Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you
• Continually challenge and willingly amend your “best-loved ideas”
• Recognize reality even when you don’t like it – especially when you don’t like it

10. STAY FOCUSED

Keep it simple and remember what you set out to do.

• Remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat
• Guard against the effects of hubris and boredom
• Don’t overlook the obvious by drowning in minutiae
• Be careful to exclude unneeded information or slop: “A small leak can sink a great ship”

Mindfulness

Mindfulness practice is the practice of being 100 percent honest with ourselves. When we watch our own mind and body, we notice certain things that are unpleasant to realize. Since we do not like them, we try to reject them. What are the things we do not like? We do not like to detach ourselves from loved ones or to live with unloved ones. We include not only people, places, and material things into our likes and dislikes, but opinions, ideas, beliefs, and decisions as well. We do not like what naturally happens to us. We do not like, for instance, growing old, becoming sick, becoming weak, or showing our age, for we have a great desire to preserve our appearance. We do not like it when someone points out our faults, for we take great pride in ourselves. We do not like someone to be wiser than we are, for we are deluded about ourselves. These are but a few examples of our personal experience of greed, hatred, and ignorance.

As your mindfulness develops, your resentment for the change, your dislike for the unpleasant experiences, your greed for the pleasant experiences, and the notion of selfhood will be replaced by the deeper awareness of impermanence, unsatisfactoriness, and selflessness. This knowledge of reality in your experience helps you to foster a more calm, peaceful, and mature attitude toward your life. You will see what you thought in the past to be permanent is changing with such inconceivable rapidity that even your mind cannot keep up with these changes. Somehow you will be able to notice many of the changes. You will see the subtlety of impermanence and the subtlety of selflessness. This insight will show you the way to peace and happiness, and will give you the wisdom to handle your daily problems in life

Skin in the game matters!

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Best regards,

Chaitanya

Key is to create the freedom to choose

Example where there was no FCF generation yet companies did well evwntually

Good read on Japanese bubble

http://awealthofcommonsense.com/2016/09/the-greatest-bubble-of-all-time/

60 p/e