I developed the habit of reading when I was 20 years old. My habit of reading started out of necessity. At that time I was working as a central government clerk. I wanted to leave the government job and work as a software engineer in some private company. But who will give a job to a clerk without a college degree? The only way to fulfill my dream was to dare-to-be-different.
I became a member of the Eloor lending library which is very close to my office. For the next four years I read a lot of books related to computer science. What Louis Pasteur said, “Chance favors the prepared mind”, came true in my case. In 2000 I quit my government job and became a software engineer. That’s when I learnt that — “If you want to learn something, read about it.”
Almost three years back my wife asked me, “You are reading a lot. Why don’t you share your knowledge with others by writing”. That simple nudge from her made me to write my first post – The Joys Of Compounding. After 2.75 years I’m writing my 194th post. Writing helped me to rediscover myself. And I can vouch for the fact that — “If you want to understand something, write about it.”
Three months back I wrote, “The line – we learn 95 percent of what we teach to others – got seared into my brain. And I was reflecting on that line for almost a year. If writing for 2.5 years helped me to learn so much then what if I teach others for the rest of my life? After a lot of thought I have decided to teach to learn better.” Last week I successfully completed teaching the value investing course for the first batch. And I can vouch for the fact that — “If you want to master something, teach it.”
I had a ton of fun teaching value investing to ten wonderful people. Together we spent 30 hours learning the concepts of value investing. My original plan was to complete the course in 18 hours. Even though I overshot my original estimate by over 65 percent none of them dropped out of the course. I am thankful to them for keeping faith in me and hanging on till the very end. Also they provided me an opportunity for developing my teaching skills.
I spent 2.5 months writing the lecture notes for the course. Yesterday I went to FedEx and hard bounded my lecture notes into a book with 213 pages. You can download the book for free by clicking on the image given below. Don’t let your associative brain jump to conclusions that free book will be of very low quality. The book contains all the investing knowledge that I accumulated over a decade.
I don’t want to sound too pompous. But at the same I want to tell you the amount of effort that went into the preparation of each lecture note. It took almost 10 days to create the lecture note on the language-of-business. To prepare this lecture note, I did the following (1) spent 2 days taking notes by re-watching the financial accounting course video (2) spent 3 days to create the journal entries and financial statements for a real estate transaction (3) spent 4 days to compile the lecture note by weaving accounting concepts with big ideas from multiple disciplines.
From morning to night I was reading, rereading, reflecting, and writing the lecture notes. This is what I did for 2.5 months. If you really find the notes useful then share it with those who are entering the world of value investing. By sharing you’re following the footsteps of Charlie Munger, who said — “The best thing a human being can do is to help another human being know more.”
Apart from those who gave me an opportunity teach by attending my course, I wanted to thank three more people. Sometime in 2011 I read a blog post written by Prof. Sanjay Bakshi titled Vantage Point. I was blown away by his analysis and the way in which he connected big ideas from multiple disciplines. That post helped me to unlock a few channels in my brain. And his vantage point was my turning point to set me on the path of becoming a rational-and-a-worldly-wise person. For the last couple of years Chetan Parikh and Vinay Parikh spent a lot of time to educate me on the philosophies of value investing. The lecture notes wouldn’t have been possible without the knowledge I received for free from the trios. And it’s my duty to pass on this knowledge for free.
On the last day of the lecture here are few additional things that I told to the attendees.
(1) Over the very long term (20+ years) not many active investors would be able to beat the market indices like S&P 500. If you don’t enjoy reading annual reports and analyzing businesses, then the best route for you is to get the market returns by buying and holding low cost index funds like VTSMX over time. When dumb money acknowledges its limitation, it ceases to be dumb. By doing this you will be able to meet 80 – 90 percent of active investors over the very long term.
(2) Tom Gayner, CIO of Markel Corporation, once said that one has to survive for 30 long years to really know if he is a skillful investor. Active investing is very hard and you need to accumulate business knowledge over time. By attending the six week course you have learnt the alphabets of value investing. Now you need to learn how to form words, sentences, and paragraphs. The best way to do that is study businesses that are owned by smart value investors. Here are 25 businesses that you will be studying for the next one year from the vantage points of [Business, Moat, People, and Price]. By doing this your brain will develop the ability to notice patterns for identifying great businesses.
(3) Using your own words, do a one or two page write up on each business. Then do a back of the envelope intrinsic value calculation. When the price is below the intrinsic value, then go ahead and buy the business. In the table given below I have done the intrinsic value for 3 businesses that I already own. This is not a buy recommendation and I am doing this for educational purposes only.
(4) Study the businesses as a group. For example, when you read about the business of MasterCard make sure to read about Visa and American Express. This way you need to study and remember one chunk instead of three separate businesses. This is what expert chess players do. And this is the reason why I separated the class into three groups. In the picture given below, we studied the business models of [Amazon, Costco, and Walmart] by contrasting them with one another. This helped us to study all three businesses as a single chunk.
When top-level chess players look at a board, they see words, not letters. Instead of seeing twenty-five pieces, they may see just five or six groups of pieces. That’s why it’s easy for them to remember where all the pieces are. The analogy can be carried further. You’ll recall from our previous discussion of knowledge that the very best players know ten to a hundred times more than good club players. These chunks are the units of knowledge. Researchers estimate that good club players have a “vocabulary” of about 1,000 chunks, while the highest-ranked players have a vocabulary of 10,000 to 100,000. – Talent Is Overrated
(5) Steps 2, 3, and 4 takes time to develop. Until then dollar cost average and keep buying low cost index funds like VTSMX. This way you can let the power of compounding work for you immediately. Once you are confident about your stock picking abilities, then start picking individual stocks. To get a 100 bagger you have two choices. Compound at 12 percent for 40 years. Or compound at 58 percent for 10 years. Let’s first make sure that we get the former (12 percent) before venturing into the latter (58 percent). Remember that the golden rule of investing is to not lose money.
(6) I gifted all the attendees with Peter Bevelin’s fantastic book and asked them to read it before buying any stock. And the attendees in turn gifted me coupons using which I am planning to buy 50 books.
All the attendees gave me feedback about the course. Given below are some of the feedback.
I have known Jana since my school days and I consider myself to be lucky. In September, Jana when called me and asked if I wanted to attend a course on Investing. I told him that I knew nothing about investments, accounting or for that matter anything to do with money and he assured me that things will be ok. I quickly jumped on the offer and signed up for the classes.
After 3 months of meeting every weekend, today was the last lecture. Although I feel a bit sad and relieved at the same time 😉 , I can say with absolute certainty that it was a time well spent. The classes were splendid and I only can appreciate Jana for the time and effort that he put into this course. The lecture notes were just awesome. In addition, I now have got a group of like minded individuals with whom I will be friends with forever and continue to work with them as a team towards the path of making well informed investments. I know that it the beginning of a long marathon, but with this foundation, I am sure that it will turn out to be a great! Thanks Jana for all the hard work. Its now its time for the group to do some heavy lifting.
“Jana’s lectures were so powerful that the concepts kept resonating in my mind for several days after the class. And the best part was the course was full of practicals and I was able to apply the teachings in understanding business models, financials, moats, management & valuations for few good companies. Jana’s interactive teachings made the course very engaging and I thoroughly enjoyed it. Indeed a well thought through and superbly organized course on Value Investing. I was lucky to be part of this class and got the essence of value investing in short duration which Jana has painstakingly acquired for several years. Thanks a billion Jana!”
Click here to read all the feedback.
The iron law of life is that everything, including good things, comes to an end. We ended the course with an Indian lunch and a glass of Kingfisher beer. The team has promised me to meet every month to study the list of 25 businesses. Only time will tell if the team is going to keep up with their promise.
I am teaching the same course early next year for the Sunnyvale-Cupertino community as an Adult and Community Education teacher. You can register for the course by clicking here. There is a nominal fee of $100 and this is charged by the state of California to cover their operational expenses. I am not teaching for money, but as a pro bono. Let your friends know about the course.