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.