Tuesday, January 18, 2011

Insider vs Outsider - My journey to wealth

My entree into the world of investing happened by chance. I started learning how to read an annual report. What started as time-pass slowly grew into an obsessive hunt for ideas and perspectives. I was guided in this process by my neighbor and mentor Pyu.Having a Mentor who is ethical and value-based was more than a divine blessing.

My curiosity led me into the big bad world of stockbroking . Then , stock brokers were actually cheating their clients everyday and making a living out of it. They never reported your Purchases and Sales to you at the actual rates and almost always took more money from you than just plain brokerage. Transparency was virtually non-existent in stock broking. The lack of regulation of the stock markets also permitted blatant rigging of stocks by the stock brokers . Penny stocks were rigged and sold to hapless and unsuspecting investors .

In the eighties and nineties , insider trading was so rampant that India's largest company was its most glowing example . This company actually did every possible wrongdoing to further its objective of growing its market capitalization. They printed duplicate share certificates, fudged earnings , traded in their own shares , diverted money from the company to buy its own stocks and more. In that environment , being dishonest was not just fashionable . It was the only way to be successful. But, i avoided formally joining that big bad world of financial services and stayed at the periphery throughout. i merely used their services to invest in companies that i believed in.

It was in this environment that i was mentored and taught the merit of trudging the path of ethical investing.The ethical anchoring that i got from Pyu right through my growing years ensured that i stayed the course laid by him after his demise. I understood over the years that being an insider was the worst curse for an investor. Knowing what a company will disclose beforehand and taking financial bets on that basis is what an Insider normally does. An outsider like me would always guess and calculate what a company's performance would look like and use my intuitive skills and computing methods to forecast performance of companies.

My investment approach evolved over the years into a process. Every learning would be incorporated into the process and the investment methodology would be honed up periodically . An important aspect of my investing is the belief in freely sharing knowledge. By sharing our knowledge freely, we learn more and our knowledge only grows. This is contrary to the belief of the insiders. Insiders are basically closet thieves who work by colluding with companies and gaining at the expense of society. Those who commit crime will obviously not discuss their work openly and they will need to avoid discussing their thoughts freely. Being an independent investment thinker made it possible to be free spirited and enjoy every moment of my work. The learnings grew and we grew with our learnings.

Ideation was central to my investment approach and remains so after two decades of investing. i visualized how things would pan out and did my math. What can go wrong with the ideation is one can end up making assumptions which are wishful and not likely to be right. Another risk is that we could be far ahead of time and our thoughts will not actualize for extended periods of time. If you are wrong in your thinking , you need to course correct quickly. If you are right in your thinking and ahead of time, you need to have people around you who support you through the excruciating wait for your thinking to actualize. The way to test ones ideas is to have a closely knit group on investors with whom we freely discuss our thoughts. By sharing our thoughts freely , we ensure that we get to hear the other viewpoint and correct our thinking wherever necessary. Sharing knowledge freely with a group of peers also fulfils the need for a support system that will keep you going.

Sharing knowledge only grows it. This has been central to my investing. I only see it remain for as long as i can foresee.

Happy investing.

1 comment:

Khambatta said...

Hi Shyam. These are great thoughts. How can I contact you?