We had a very interesting conversation with a very accomplished industrialist. He is an existing investor into our Global funds and India PMS, and therefore very familiar with our approach to investing.
At the end of half an hour, spent discussing the entire Investment landscape, he said: "It's clear that you own some remarkable companies in your Funds, across the world. But one thing intrigues me: almost all fund managers I meet, can speak for hours about each of their holdings, in an almost poetical manner. How come I have not heard anything of that sort from you? Why the clinical, non starry-eyed view of things?"
That was a very insightful observation, we thought.
Indeed, why is it that almost all fund managers are more lyricist, less the Intelligent Investor?
"Human beings aren't rational animals; we're rationalizing animals who want to appear reasonable to ourselves", said the famous social scientist, Elliot Aronson, author of 'The Social Animal'.
The word around us is a bewildering medley of pure noise.
In such a chaotic daily environment, the brain's protective mechanisms kick in. And that is to batten down the hatches.
And resort to underanalysed, oversimplified, lazy opinions.
In other words, the brain takes refuge in easy stories.
Remember a famous election?
That was little or no hard evidence, or any cogent articulated strategy about how a country's problems of declining growth and capital Investments would be solved.
But logic didn't matter. What material was the "Story".
It was a simple story, well told, well sold, that captured the imagination.
Data and facts were given the short shrift, because most humans are simply incapable of acting on these.
The world is about tons of data which at times can take random directions. The world is about future probabilities, not certainties...yet the human mind wants a clear cause-effect-future path.
In other words, the world always wants a "Story".
Professional investment managers aren't robots (yet). They are human and love stories. And stories sell.
The interesting thing is that with greater amounts of data being available, the need to "Storify" has increased even more.
This is because human beings are now deluged with tons of data which is impossible to handle.
When a fund manager paints a superficial, yet, magnificent vision of why a particular management has a Midas touch, it is almost always a Story, that has been airbrushed so perfectly that no other room for interpretation, or no other future trajectory can even be mentioned, for fear of attracting contempt. Remember how one could never question IBM, as a stock, at a distant point in history?
So why is a strategy based on 'storification' so risky for investors?
Because when a fund manager gives their holdings a golden future, they ignore discordant, inconvenient, conflicting elements (industry cycle, favorable policy, plain luck).
In other words, they ignore the risks inherent in every single company or industry on this planet.
Storification is dangerous because it paints a Risk-free world, if you invest in a certain group of companies.
Unfortunately, there is no such thing as a Risk Free world.
True Investment Greatness is knowing deeply, all the Risks present in a given Investment, and then deciding what is acceptable risk and what is unacceptable risk.
Storification, instead, increases attachment to that story. Once an investor or fund manager has become this emotionally invested to a particular stock (eg, ARK Investment to Tesla), they find it impossible to detach themselves from their attachment, even when the facts change.
Love in Investing is dangerous.
This is exactly what happened with Warren Buffett and his Coca-Cola Investment. He should have sold this stock several years before he actually did.
The data is brutal.
Coke has been a rabid underperformer since 1993.
In fact, Buffett should have bought Pepsi Instead of Coke.
From Jan, 1992 to July, 2020
Why couldn't he sell?
Because he had storified this stock and its management massively and publicly.
In India, you would have heard the talk that you cannot go wrong buying 'blue chips' or consumer stocks with strong brands, moats & cash flows that are predictable for decades?
This Story is seductive.
Ever heard of Gillette India, ITC and Colgate?
They used to be part of this list of storied, branded consumer companies.
Till their stories went sour.
And very quietly, they went out of the list of these so-called Compounders.
This is what is called building a Story around the Survivors, or Survivorship Bias.
As Bill Gates said when Steve Jobs died, "Steve and I will always get more credit than we deserve, because otherwise the story gets too complicated.”
Which brings us to the next point.
Should you dismiss a story only when it is based on no facts at all? Actually the really dangerous stories are the ones that are true in one tiny part, where there is a small bit of truth but that is used to build a whole edifice which is floating in ether - exemplifying oversimplified, lazy opinions.
As Morgan Housel writes "...something that’s true but incomplete might be more dangerous than something that’s wrong, because a little truth is fuel for a lot of overconfidence."
In the real world, particularly, in markets, things ARE complicated.
But the human mind cannot handle very complicated narratives.
In investing there are always known unknowns. Fashion changes, health trends (eg) against sugary drinks, new product disruptions, policy. The list is endless.
Things are rarely linear in real life for a large basket of companies. But they will always appear to be linear for company selected with complete hindsight or a selection of the survivors.
And based on these survivors, a vision of the future is painted in which absolutely everything is perfect, and as clear as a covid-period sky.
Reality is that, beyond a point nobody knows anything about anything.
Neither company management, nor fund managers, have any clue about what happens a few months down, let alone years.
All this means that the key to being a good investor is being alert and flexible, rather than being married to a story you have built up in your mind.
Always follow the data. Never the fallible Human.
(A version of this article first appeared in Khaleej Times)
From the desk of
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Economists Think Dollar's Fall May Explain the Recent ‘Rally’ by Steve Liesman
Einstein taught us about relativity in nature. Now come Devina Mehra and Shankar Sharma of First Global to teach us about relativity in financial markets -- and raise some serious questions about just what is driving stock prices.
First Global reports are quite credible and, on occasion, more than that.
What prompts this mention is Intel's earnings report and the fact that First Global has had a pretty good bead on the company and its stock.
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Baidu Climbs on First Global’s ‘Outperform’ Outlook
Baidu Inc., the operator of China’s most-used Internet search engine, rose to the highest price in two weeks after First Global rated the shares “outperform? in new coverage.
Personality counts: Walmart's frugal, but Target charms
"It's better to take a slight hit on [profit] margins and keep on moving and inventing," says First Global Securities. And at least for now, Target is inventing in a way that appeals to consumers with money to spend.
At 11 times trailing earnings, Energizer is cheaper; Gillette's multiple is 25. But cheaper doesn't mean better, says First Global.
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by far you are the best, I have not come across transparency, acumen, global expertise, exposure, protection of capital, delivering return from any fund/ fund managers. Invested very small size in 3 products will keep on increasing it over the period
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Thanks you team FG specially Devina, my investment doubled in less than 3 years in SDPB As a investors & PMS distributor of your product looking to have a long-term relationship with the company. @KarmathNaveen the person with whom I always interact
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Very happy & relaxed to be invested with first global pms
Congratulations on super performance, above all transparency and systematic process are unmatchable. One must opt this, if person consider him/her self as an investor. Very happy to be part of this since invested. FG has managed worst year (ie 2022) so efficiently and skillfully.
With so much of volatility in the market, risk management is very important part & considering that FG is doing awesome work!!! Kudos to you Chief
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Truly outstanding. As a retail subscriber to #fghum #smallcase, I can vouch for the Nifty beating returns (8% vs 3%) in last 1 year. Keep up the awesome work @firstglobalsec
We can load above testimonials on site as a scroller, and just below that we can add a section for compliments . Below tweets are comments and praises are related to our content, performance and some our direct compliments to you.
ADIT PATEL @ADITPAT11226924
Good team... Special mention @KarmathNaveen .. he is soo helpful anytime of the day or night..
Bought Peace with FG-Hum.Moving all funds from DIY investing to well managed and diversified PF at low cost.
It has doubled almost, excellent pick.Every small investor must invest in her FG-HUM Smallcase.
Suresh Nair @Suresh_Nair_23
I have 8 small cases and your has been the most rewarding ones .. thank you Devina.
Sayed Masood @SayedM375
There is absolutely no doubt that she is one of the best investors of India in modern times but more importantly, she shares the most sincere and sane advice with retail investors.
Wow Superb Returns🔥 Congratulations Chief for being Number 1 among all PMS!!!
You are one of the sharpest mind in Global Stock Market
Congratulations Devina, results talk in itself!
Congratulations ma’am @devinamehra ! The consistency you have in maintaining the top rank position is outstanding! 👏
Mihir Shah @Mihir41Shah
We are learning More about markets (& Life ) thanks to U than we learnt in our Professional courses.A BIg Thank You, Wish all get Teachers Like You!!
Sumit Sharma @MediaSumit
"The ability to be comfortable with being outside consensus is a superpower in investing...and in life." Devina ji hits the nail on its head!
Majid Ahamed @MajidAhamed1
Congratulations @devinamehra mam! All the best for long term returns as well.
Vinay Kumar @VinayKu05949123
This is the wonderful session I have ever attended till date. One of the most fruitful hour of my life. Devina madam, ur clarity on financial mkts is simply superb.The way u portray the facts supported by "data" about stock mkts is really astonishing.I will listen again.Thanks.
I loved to read your journey, insight and philosophy. It's a pleasure to read and know of your takes on market and life.
Check & follow @devinamehra's timeline for lots of post debunking such rosy stories. Also, she gives amazing 🤩 sector directions/hints.
KLN Murthy @KLNMurthy2016
Good actionable insights, great article!
Suresh Nair @gkumarsuresh
Devina Madam is simply terrific... good knowledge, straight and simple thinking.
Very difficult to emulate such traits. I listen her past interviews from youtube.
One of the brightest minds in the world of finance :)
Radhakrishnan Chonat @RCxNair
📣 Calling all investors! Just had an incredible interview with @devinamehra, Chairperson and MD of First Global. We discussed the importance of global diversification, effective asset allocation, and the risks of sitting on the sidelines. Trust me, you don't want to miss this!
Excellent performance. Flexibility is the key as you have mentioned it earlier also. Cannot have finite rules for infinite mkt opportunities.
To be honest, the insights which Devina madam brings in is very enriching..have learnt a lot from them...
Himanssh Kukreja @Himansh02428907
One of the most accurate analysts :) I always look forward to you interviews mam
Abhijeet Deshpande @AbhijeetD2018
Madam, It is always a treat to read your insight, not only on business but on other topics also!!
Thanks for this wisdom ma'am. Always love hearing your thoughts on everything equity. :-)
Excellent points! Can clearly feel this thread is a product of marination of many books and years of experience. 👍
Kamal thakur @Kamalgt10
Superb !! Your knowledge, analysis & articulation is simply great 👍
Follower on Twitter and Subsciber on YouTube of First Global, really helping me in my investment desicion. Thanks
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