Investment framework

 The recent fall in stock market due to corona virus shock (and it's recovery thereafter) gave me an opportunity to build a portfolio. And it seems to be working well as it has produced handsome returns and is giving me confidence to earn my financial independence through my investments. As my strike rate or success rate in picking the right stock at right price and also deciding when to exit seems to be high,  I thought of documenting my investment framework in an one pager. Here it is. I believe in life long learning and making corrections on the go but at this interval this is the process I follow. This is not an investment advice but for the purpose of documenting my investment milestones and also to aid discussion with like minded.

Let me take through the steps.

1. First create a four blocker. With one axis on Risk being High & Low and another axis on Reward being High & Low.

2. Understand that risk has a price. See if it is already priced into book value or not. Similarly look for what can be sustainable Return on Equity. Then place the stocks on one of these four blocks.

Now let us see what we can avoid.  

a. Low Risk and Low Reward: For the stocks falling in this zone, it would not make sense to invest as returns would be equivalent to fixed deposits or bonds. Most commodity or PSU industry would fall here.

b. High Risk and Low Reward: The companies or sectors which are in a long term downtrend (sunset industry) would be here. Many of the oil & gas sector companies are in the risk of phasing out in the coming decades as industry is shifting towards clean energy which is becoming price competitive too.

c. High Risk and High Reward: Though stocks in this zone might continue to make money, why take higher risks? If you have already owned these stocks at a lower price, may be you will let them run. But this is not a fresh entry zone.

That leaves us only one zone to invest.

d. Low Risk and High Reward: Since markets are efficient in the long run, any stock falling in this zone is an opportunity as long it stays there and as the markets discover them and they would get pricier. Or your anticipation of business transformation does not work out right, you need exit quickly to stop your losses. 

Remember that this is not a one time exercise, you need to reassess when there is a bigger price movement and after every quarterly result and if there are any major announcements or developments in-between.

Book Review: Lifespan by David Sinclair

This is a ground breaking research in the field of genetics by Harvard Scientist David Sinclair. I had first watched his hour long video and then was convinced to read this book. The book has an interesting sub title “why we age and why we don’t have to”. That would surely attract many readers not only those who want to live longer but also who have the scientific temper to understand the theory behind it.

He separates just a handful genes (of 20,000 + total) which govern aging mechanism in the living beings not just humans. He proves that triggering those genes (either on or off) can alter lifespan in rats. He takes twin rats who have similar sets of genes and shows that they age differently with his experiments in the lab.

These genes can be triggered naturally by making fewer adjustments in our lifestyles which are known to benefit from forgotten times but this research only enforces it. They are:

a. Regular Exercise and Intermittent fasting

b. Sweating out occasionally and also taking cold showers exposing our bodies to thermal shocks which it can bear without permanent damage

With intermittent fasting, idea is not to starve your body of nutrients but to trigger the internal repair mechanism which aids in expanding the lifespan. Skipping a meal a day or fasting couple of days every few months (whatever works for you) would reverse the aging process with biological functions getting triggered that may result in you looking younger than your age. Instead we supply meals to our bodies at such a regularity, our bodies become complacent and the repair mechanism at cellular level gets shutdown and we begin to age. Similar effects are produced by exposing ourselves to milder thermal shocks. Apart from this, author also suggests consuming fewer supplements to help reverse the aging process further.

The book is more of a scientific read and if the reader has good knowledge of cellular biology and a good knowledge of genetics, he or she would appreciate it more.

Remember this author will give more years to your life but adding life to those extra years is up to you.

Suspicious world

China was struggling with corona just a month ago. Now it is opening up the city of Wuhan. Wow, what gives the confidence to China for such a bold move? Has it learnt to tame the wildfire? Did it find a way to cure the patients? How come there is no spread in Shanghai or Beijing when rest of the world is in the middle of a storm? Rest of the World is watching China suspiciously.

What is happening in the stock market? Last week’s relief rally is real? Or is it a bull trap? Investors all over the world are watching equity markets suspiciously.

India has announced lots of measures and freebies to the poor. But the migrant poor are leaving the cities to their rural natives in whatever vehicle they could find. If they aren’t lucky, they have resumed the hundred miles walk in desperation. They are suspicious of what Govt can do for them.

My friends from my native place are posting on Facebook asking people from Bangalore not to return to native. They are suspicious that these people would bring the deadly virus along with them. Sons of the soil aren’t welcome in their homeland.

I go for walk just around my house. Though hardly people are there, the one or two I encounter have suspicious look on their faces. Maybe for right reason.

There is dust in the air. I sneeze. I suspect myself if I have become a fresh victim.

World after Corona

The way we live and work are being changed with the onslaught of corona virus. My attempt to see what’s ahead is here.

1. Bio-weapons: Covid-19 has successfully demonstrated what damages a bio-weapon can do. All the war weapons of the past like fighter aircraft’s and missiles seem less damaging and more expensive now. And the healthcare workers are the new age soldiers.

2. Rivalry between US and China: This has not remained just a trade war now with allegations of Trump that corona is a Chinese virus. Expect that their relationship get worse before getting any better.

3. Pandemic preparation become election issue: What do you think the voters in Italy and Spain would do in next elections? For that matter, citizens of any country would be worried if their Govt.’s are not capable of handling pandemic effectively.

4. End of Centralised manufacturing hubs: Will China remain a manufacturing factory for the world? I don’t think so as businesses would look at reducing supply chain risks for the right reasons in the changed world.

5. Social distancing to remain even after Corona: You would pack a sanitizer into your bag when you step out, say “Namaste” instead of an handshake and take care before eating out etc. as these precautionary measures would become part of your daily routine.

6. Work from home and reduced business travel: Whether companies like it or not, they will be forced to embrace work from home else they wouldn’t be able to attract right talent. And business travel would be limited to only essential and necessary cases.

7. Abroad shine is gone: Going abroad for education or vacation or such reasons would take a back step with getting visa’s becoming tougher and it is seen as a risky affair now.

8. Why spend a weekend at mall?: Go out, shop, watch a movie, eat out and return late in the night to home. If that was you were doing before during weekends, likely you would reduce doing some or all of this. Good for Netflix and Amazon and bad for mall keepers.

9. More gratitude than complaints: I assume people would become grateful for being alive and not killed by some tiny virus. We would understand the Nature as a force and it’s ability to rebalance things so we would become humble.

Every revolution has brought a societal change, killed few industries while giving raise to others, marking a permanent shift in our approach towards life. I consider the lessons from this pandemic are no less. Hope the humanity rekindles and steps up the challenge successfully.