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Chapter-1

How my passion became my profession?

My personal and professional lives are so highly intertwined, it is impossible to discuss one without the other. My unconventional upbringing and eclectic work experiences have shaped my investment philosophy in so many subtle and significant ways that it seemed appropriate to share the personal journey with you before I describe my philosophy.  In this opening chapter, I tell the story of where my fascination with equity markets began, and how my passion went on to become my profession. 

Chapter-2

“And” not “Or”

In investing, conventional wisdom dictates that you can have either high returns or low risk but not both. You can have either capital appreciation or capital preservation but not both. I disagree. I custom designed non-consensus investing to do both: maximize returns and minimize risks. It uses the same unconventional thinking and counterintuitive concepts that have resulted in groundbreaking discoveries and outsized success in science, society, sports, and Silicon Valley. People, products, and companies who deliver the “and” proposition are game changers and become the benchmark to beat.  Those who settle for delivering “or” are soon left in the dust. 

Chapter-3

Stocks or Bonds?

This chapter addresses the investor’s common question in an uncommon way: How do I weigh the risks and rewards of investing in equities (stocks) versus fixed income (bonds)? It also addresses other questions that are not on everyone’s mind but should be. How is risk different from volatility? Can volatility can be an opportunity instead of a threat? Spooked by the financial crisis of 2008, many investors have decided to shun the volatility of equities and instead embrace the stability of bonds.  My contrarian point of view is that not only could this bring disappointing returns, it may actually prove riskier.

Chapter-4

To Stand Apart, You Must Stand Alone

In most things in life, if your answer is correct, you score points or win the prize. Not in investing, where not only must you be correct, your correct call must also be non-consensus.  That is, you must be right and prove others wrong. To achieve exceptional results, you must do something that makes you stand apart from the rest.  Standing apart means you opt for the lonely trade, not the crowded trade. Markets do not reward copycat research that leads to consensus conclusions that are already built into the current stock price, they reward differentiated research that results in the discovery of a new and correct fair price which restores market efficiency.  This chapter also describes how going passive is not a panacea and in fact may prove to be a problem. It includes an exposé on gimmicky marketing strategies masquerading as genuine investment strategies and how you can distinguish between the two.

Chapter-5

Score Upset Victories

Investing is a pari-mutuel sport where you are betting against other people, since every share you buy is being sold to you by someone else. If you place the same bet on that share as everyone else, you may not win money even if you backed the right outcome because the price you must pay to engage in that trade already reflects the prevailing odds. Only the bookie makes money, not the bettor. 

In investing, it is not enough to be correct. Your correct call must also be unexpected and not built into the prevailing stock price. Correct, non-consensus calls yield upset victories so you can hit the proverbial jackpot and earn outsized returns.  In this chapter, stories of real-life upset victories show the process in action. 

h between the two.

Chapter-6

Do No Harm

In investing, you win more by losing less. Since you always lose money from a higher number but make money on a lower number, avoiding losers and losses is more important than picking the winners. This chapter explains why you should pay at least as much attention, if not more, to risk management (how much you will lose) instead of just thinking about return management (how much you will make). Repackaging risk, swapping one kind for another, is not reducing risk. Failure to think about the various types of risks is the bigger challenge, not failure to find. 

Chapter-7

False Positives and Negatives

The cardinal mistake in investing is to lose a lot of money. Obviously, nobody loses money willingly, so what is the X factor that trips them up? Quality. More specifically, misunderstanding quality. This chapter outlines the counterintuitive framework you need to assess it correctly. The contrarian pays more attention to researching what can go wrong than what can go right. This chapter shows how to look out for fads and frauds, which are nothing other than failures masquerading as successes.  BlackBerry is presented as a case study of a fad masquerading as a franchise. Could Apple be next?

Chapter-8

Ditch the Database, Embrace the Search Engine

Everyone wants to own a quality business but if everyone is after the same quality, chances are it is already bid up, which means it represents an overpriced booby trap, not a lucrative buy.  Investment success accrues to those who identify and own that which is missed, misunderstood, misjudged, and mispriced while avoiding the crowded craze to own that which is well understood, well-loved and well-priced.  Insist on quality but look for it in a way or in a place or at a time that few others are. For investors, the puck has moved from the database to the search engine. Collecting information is of no value but connecting information is. In a world where any public information can be googled or binged, looking for answers is a fool’s errand because information (answers) that everyone has is not worth having. However, few have access to the right questions, which is why that effort has more payoff.  This chapter provides the litmus test questions investors should ask to identify non-consensus winners (and losers). Various examples, ranging from Toyota to Tapestry, illustrate how to figure out what, if anything, is misunderstood and mispriced.

Chapter-9

From Victim to Victor

Behavioral biases introduce subjectivity and limit objectivity. Be aware of them and overcome them.  Failure is not a failing, but an opportunity for learning.  Avoid bias in research; seek to invalidate, not validate. Question what does not add up, not what does. We confuse correlations and causation because we are wired for pattern recognition and neat explanations, even if they are misguided. These human instincts are great for survival but not for investing. These default factory settings need to be reset.

Chapter-10

Value Investing = Margin of Safety

This chapter exposes the biggest sin in value investing — confusing price (or valuation) with value. This is the crime for which value investors are now doing time. Value is not relative, not to sector, market, or history, but absolute and intrinsic. Markets do not reward nostalgia. Hope is not an investment strategy. Headline cheap stocks may prove Faustian bargains – seductive initially but a bad trade eventually. Prices and valuation multiples are red herrings, not metrics that denote value. To determine value, you must know what you are getting, not just what you are paying, because the most important thing is the spread between the two. This explains why valuation multiples should not be used as a screen (before you know what you are getting) but as a sanity check (after you know what you are getting). The same applies to growth rates. There is nothing wrong with growth, but it is not the growth rate that matters but what that growth rate is worth. Since markets readily tell you what you must pay, in the form of the stock price, you should focus your research efforts on figuring out what you are getting for that price – the quality of the business.

Chapter-11

Sizzle fizzles, patience prospers

Investing is about making correct and prudent decisions. The process and principles by which those decisions are made matter more than the decisions themselves. Similarly, understanding what drives out-performance matters more than the performance itself. Confusing luck versus skill is endemic in investing because the short-term and the long-term often diverges and investors tend to confuse frequency and severity. Short-term performance provides instant gratification and (false) validation while under-performance even for good reason (such as a manager being prudent) puts one of the defensive. Investors want to avoid pain at all cost, but successful investing often entails taking short-term pain for long-term gain. Human beings have evolved to prioritize the short term over the long term; it is an issue of survival. But this instinct does not work well in investing, where the fight-or-flight response proves counterproductive. With practice and persistence, these factory settings can be reset. The patient, contrarian investor prefers to lose the battle & win the war while the short-term investor focuses on winning the battle even if it means losing the war. 

Chapter-12

North Star

This chapter brings together all the principles presented previously, to explain how non-consensus investing works to maximize returns while minimizing risk. It is the investment equivalent of having your cake and eating it too. This chapter lays out my non-consensus view on the epic battle between active and passive investing – which is none other than being a contrarian. Non-consensus Investing is just another way of saying active investing.  By being correct, contrarian and courageous as well as holistic, prudent and patient in your investment decisions, you can buy what you wanted to all along, on sale instead of paying full price, thereby improving the odds of making money instead of losing it. Despite such desirable outcomes, few practice non-consensus investing because going against the grain is extremely uncomfortable. Few have the stamina for it, even when there is a big prize to win. But when you do, you will have cracked open the final secret code of investing. 

PREVIEW OF BOOK

Chapter 01

How my passion
became my profession

My personal and professional lives are so highly intertwined, it is impossible to discuss one without the other. My unconventional upbringing and eclectic work experiences have shaped my investment philosophy in so many subtle and significant ways that it seemed appropriate to share the personal journey with you before I describe my philosophy. In this opening chapter, I tell the story of where my fascination with equity markets began, and how my passion went on to become my profession.

Chapter 02

"And" not "Or"

In investing, conventional wisdom dictates that you can have either high returns or low risk but not both. You can have either capital appreciation or capital preservation but not both. I disagree. I custom designed non-consensus investing to do both: maximize returns and minimize risks. It uses the same unconventional thinking and counterintuitive concepts that have resulted in groundbreaking discoveries and outsized success in science, society, sports, and Silicon Valley. People, products, and companies who deliver the “and” proposition are game changers and become the benchmark to beat. Those who settle for delivering “or” are soon left in the dust.

Chapter 03

Stocks or Bonds

This chapter addresses the investor’s common question in an uncommon way: How do I weigh the risks and rewards of investing in equities (stocks) versus fixed income (bonds)? It also addresses other questions that are not on everyone’s mind but should be. How is risk different from volatility? Can volatility can be an opportunity instead of a threat? Spooked by the financial crisis of 2008, many investors have decided to shun the volatility of equities and instead embrace the stability of bonds. My contrarian point of view is that not only could this bring disappointing returns, it may actually prove riskier.

Chapter 04

To Stand Apart,
You Must Stand Alone

In most things in life, if your answer is correct, you score points or win the prize. Not in investing, where not only must you be correct, your correct call must also be non-consensus. That is, you must be right and prove others wrong. To achieve exceptional results, you must do something that makes you stand apart from the rest. Standing apart means you opt for the lonely trade, not the crowded trade. Markets do not reward copycat research that leads to consensus conclusions that are already built into the current stock price, they reward differentiated research that results in the discovery of a new and correct fair price which restores market efficiency. This chapter also describes how going passive is not a panacea and in fact may prove to be a problem. It includes an exposé on gimmicky marketing strategies masquerading as genuine investment strategies and how you can distinguish between the two.

Chapter 05

Score Upset Victories

Investing is a pari-mutuel sport where you are betting against other people, since every share you buy is being sold to you by someone else. If you place the same bet on that share as everyone else, you may not win money even if you backed the right outcome because the price you must pay to engage in that trade already reflects the prevailing odds. Only the bookie makes money, not the bettor. In investing, it is not enough to be correct. Your correct call must also be unexpected and not built into the prevailing stock price. Correct, non-consensus calls yield upset victories so you can hit the proverbial jackpot and earn outsized returns. In this chapter, stories of real-life upset victories show the process in action. h between the two.

Chapter 06

Do No Harm

In investing, you win more by losing less. Since you always lose money from a higher number but make money on a lower number, avoiding losers and losses is more important than picking the winners. This chapter explains why you should pay at least as much attention, if not more, to risk management (how much you will lose) instead of just thinking about return management (how much you will make). Repackaging risk, swapping one kind for another, is not reducing risk. Failure to think about the various types of risks is the bigger challenge, not failure to find.

Chapter 07

False Positives and Negatives

The cardinal mistake in investing is to lose a lot of money. Obviously, nobody loses money willingly, so what is the X factor that trips them up? Quality. More specifically, misunderstanding quality. This chapter outlines the counterintuitive framework you need to assess it correctly. The contrarian pays more attention to researching what can go wrong than what can go right. This chapter shows how to look out for fads and frauds, which are nothing other than failures masquerading as successes. BlackBerry is presented as a case study of a fad masquerading as a franchise. Could Apple be next?

Chapter 08

Ditch the Database,
Embrace the Search Engine

Everyone wants to own a quality business but if everyone is after the same quality, chances are it is already bid up, which means it represents an overpriced booby trap, not a lucrative buy. Investment success accrues to those who identify and own that which is missed, misunderstood, misjudged, and mispriced while avoiding the crowded craze to own that which is well understood, well-loved and well-priced. Insist on quality but look for it in a way or in a place or at a time that few others are. For investors, the puck has moved from the database to the search engine. Collecting information is of no value but connecting information is. In a world where any public information can be googled or binged, looking for answers is a fool’s errand because information (answers) that everyone has is not worth having. However, few have access to the right questions, which is why that effort has more payoff. This chapter provides the litmus test questions investors should ask to identify non-consensus winners (and losers). Various examples, ranging from Toyota to Tapestry, illustrate how to figure out what, if anything, is misunderstood and mispriced.

Chapter 09

From Victim to Victor

Behavioral biases introduce subjectivity and limit objectivity. Be aware of them and overcome them. Failure is not a failing, but an opportunity for learning. Avoid bias in research; seek to invalidate, not validate. Question what does not add up, not what does. We confuse correlations and causation because we are wired for pattern recognition and neat explanations, even if they are misguided. These human instincts are great for survival but not for investing. These default factory settings need to be reset.

Chapter 10

Value Investing = Margin of Safety

This chapter exposes the biggest sin in value investing -- confusing price (or valuation) with value. This is the crime for which value investors are now doing time. Value is not relative, not to sector, market or history, but absolute and intrinsic. Markets don’t reward nostalgia. Hope is not an investment strategy. Headline cheap stocks may prove Faustian bargains – seductive initially but a bad trade eventually. Prices and valuation multiples are red herrings, not metrics that denote value. To determine value you must know what you are getting, not just what you are paying, because the most important thing is the spread between the two. This explains why valuation multiples should not be used as a screen (before you know what you are getting) but as a sanity check (after you know what you are getting). The same applies to growth rates. There is nothing wrong with growth, but it is not the growth rate that matters but what that growth rate is worth. Since markets readily tell you what you must pay, in the form of the stock price, you should focus your research efforts on figuring out what you are getting for that price – the quality of the business.

Chapter 11

Sizzle fizzles,
patience prospers

Investing is about making correct and prudent decisions. The process and principles by which those decisions are made matter more than the decisions themselves. Similarly, understanding what drives out-performance matters more than the performance itself. Confusing luck versus skill is endemic in investing because the short-term and the long-term often diverges and investors tend to confuse frequency and severity. Short-term performance provides instant gratification and (false) validation while under-performance even for good reason (such as a manager being prudent) puts one of the defensive. Investors want to avoid pain at all cost, but successful investing often entails taking short-term pain for long-term gain. Human beings have evolved to prioritize the short term over the long term; it is an issue of survival. But this instinct does not work well in investing, where the fight-or-flight response proves counterproductive. With practice and persistence, these factory settings can be reset. The patient, contrarian investor prefers to lose the battle & win the war while the short-term investor focuses on winning the battle even if it means losing the war.

Chapter 12

North Star

This chapter brings together all the principles presented previously, to explain how non-consensus investing works to maximize returns while minimizing risk. It is the investment equivalent of having your cake and eating it too. This chapter lays out my non-consensus view on the epic battle between active and passive investing – which is none other than being a contrarian. Non-consensus Investing is just another way of saying active investing. By being correct, contrarian and courageous as well as holistic, prudent and patient in your investment decisions, you can buy what you wanted to all along, on sale instead of paying full price, thereby improving the odds of making money instead of losing it. Despite such desirable outcomes, few practice non-consensus investing because going against the grain is extremely uncomfortable. Few have the stamina for it, even when there is a big prize to win. But when you do, you will have cracked open the final secret code of investing.