Forced distraction

http://peterbregman.com/articles/how-to-teach-yourself-restraint/#.VWMLhfmqqko

The screaming started a few minutes before breakfast. As far as I could tell, our 2-year-old son Daniel took our seven-year-old daughter Isabelle’s markers from her while she was drawing. And if you don’t think that’s a big deal you don’t have kids.

I tried my typical parenting monologue: “I can see you’re very upset; he’s two years old sweetie, he doesn’t know any better; the picture is beautiful just as it is; you needed to stop drawing anyway, it was time for breakfast; you have lots of other markers; OK it’s enough — stop crying.” Nothing worked.

And then I recalled some research I had read.

“Isabelle,” I asked, “is that a new t-shirt you’re wearing?”

“Yes,” she said, still crying.

“Who’s that on the front?”

She looked at her shirt. “Obama.” She wasn’t crying now.

“What? No way. It’s a woman! Does Obama wear a pearl necklace?” I asked.

She laughed.

***

The research I recalled was the famous marshmallow experiment conducted on four-year-old children in the 1960s by Walter Mischel, a professor of psychology at Stanford University. He put a marshmallow on a table in front of a child and said he needed to leave the room for a few minutes. She was welcome to eat the one marshmallow while he was gone but, if she could wait until he returned, he would give her two marshmallows. Then he left and the hidden video camera captured the rest.

He was interested in what enabled some children to delay gratification while others surrendered to it. Most kids succumbed in under three minutes. Some, however, made it the full 20 minutes until the researcher returned. And, as it turns out, they were rewarded with more than just an extra marshmallow. As follow up research later discovered, these kids had better relationships, were more dependable, and even scored an average of 210 points higher on their SATs than the children who couldn’t resist the marshmallow.

***

So what’s the secret of the ones who held out? Did they have more willpower? Better discipline? Maybe they didn’t like candy as much? Perhaps they were afraid of authority?

It turns out it was none of these things. It was a technique. The same technique I used with Isabelle.

Distraction.

Rather than focusing on not eating the marshmallow, they covered their eyes, sat under the table, or sang a song. They didn’t resist the urge. They simply avoided it.

***

We face two challenges as we try to manage our behavior: the challenge of initiative (exercise, make one more sales phone call, work another hour on that presentation, write that proposal) and the challenge of restraint (don’t eat that cookie, don’t speak so much in that meeting, don’t yell back, don’t solve your employee’s problem for him).

If we’re good at the challenge of initiative it means we’re good at applying ourselves, at focusing, at breaking through resistance using sheer willpower. In other words, we’re good at avoiding distraction.

Which, as the experiments show, is exactly what leads us to fail in the challenge of restraint. Focusing on resisting the temptation only makes it harder to resist. In the case of not eating the cookie, using willpower only makes it more likely that we’ll eat the cookie. Or speak too much in the meeting. Or yell back.

Try this experiment: for the next ten seconds, don’t think about a big white elephant. Impossible, right? The trick is to distract yourself by focusing on something else entirely.

The rule is simple: when you want to do something, focus. When you don’t want to do something, distract.

***

Distraction has a bad rap. It’s seen as something that prevents you from achieving your goals. We get distracted. Focus, on the other hand, is seen as positive and active — something you do to achieve your goals.

But the skill of distraction is important now more than ever. We are living in an age of fear — swine flu, terrorism, global warming, child kidnappings, the economy — that reduces our productivity at best and destroys our health, relationships, and happiness at worst.

Unfortunately, the more we feel afraid, the more we read about the source of our fear as we try to protect ourselves. Afraid of losing your job or your nest egg? Chances are you’re following the market closely and reading more articles about the economy than ever before. According to a recent poll released by the National Sleep Foundation, one third of Americans are losing sleep over personal financial concerns and the poor condition of the US economy.

The solution? Distraction. Read a great book. Watch a movie. Play with a 4 year old. Cook and eat a meal with good friends. Go for a walk. Throw yourself into work.

Distraction is, in fact, the same thing as focus. To distract yourself from X you need to focus on Y.

***

Recently the CEO of a midsized company complained to me about one of his direct reports, a senior leader we’ll call John who was micromanaging his team.

“Does John have any particular passions you know about?” I asked.

“The environment,” he responded.

I asked him if that issue was also important to the company and he said it was.

“Great,” I said. “Start a task force to address environmental issues and opportunities at the company and ask John to lead the effort.”

He looked worried. “Won’t that distract him from his day-to-day responsibilities?”

I smiled. “I hope so.”

Julian Robertson — Looking for Competitive Spirit

http://www8.gsb.columbia.edu/rtfiles/Heilbrunn/Graham%20%26%20Doddsville%20-%20Issue%2015%20-%20Spring%202012.pdf

Spring 2012

Mr. Robertson founded the legendary investment firm Tiger Management,one of the first hedge funds. Mr. Robertson has trained and supported some of the best hedge fund managers in the world collectively known as “Tiger Cubs”). He graduated from UNC Chapel Hill and also served in the US Navy.

G&D: How did you get your start in investing and what has shaped your investment philosophy?

JR: Well it started with my father, who was an interesting guy. He was a very authoritarian figure, but he wanted me to learn a number of different things. He showed me how the stock tables worked in the paper, and I got interested in an early age and we worked on a few stocks together. He was in the textile business but he was a really good investor. I joined the Navy  after college, as I had been in the ROTC in college.

Prior to the Navy, I never really had any sort of responsibility. But upon joining the Navy, I literally had 700 million pounds of TNT and an atomic bomb under my command. I enjoyed the responsibility. After the Navy, my father wanted me to get some training in New York before I went to a brokerage firm down south. That was 55 years ago, and I’m still here. I’ve adored New York, and if I could force everybody to do it, I’d force them to grow up in a small town in North Carolina and then eventually come to New York.

G&D: What do you think explains your incredible success?

JR: Well I started at the right age, certainly. But what really made me was the realization that I could hire really good young people. When we started Tiger Management, I did that. One of them, John Griffin, used to teach a security analysis course at Columbia Business School and now guest-lectures there. John and I are still great friends. There was a big age difference between us but we’re still close. When he left to go on his own, I didn’t handle it particularly well. If I had been smart I would have taken a piece of his action. We’re probably better friends now though than we’ve ever been. He’s going to host my 80th birthday  day in June. His son and my grandson are great friends. I was talking to John the other day about how we’ve never really given anyone too much too soon that they couldn’t handle. But I said, the trouble was, I tried to rehabilitate a lot of people who, for one reason or another, didn’t have it. So I’ve made some mistakes on that. But our young people were really great. And good ones begat even better ones – even today, we still do! So I’d say the success really belongs to the young people who worked here. John Griffin, Andreas Halvorson, Lee Ainslie, and probably the greatest analyst of all time, Steve Mandel.

G&D: So many of the people that worked at Tiger Management have gone on to be extremely successful investors in their own right. What was the process and the training like here for young analysts?

JR: It was sort of a melting pot. I was so much older than they were, so they had to have a father-like opinion of me. They thought I had a unique touch or something, so they would put me on a plane with one of them, who would act like a camp counselor to keep me from getting in trouble and we’d go to Japan and see what we could learn. We were buying a stock in Korea, and things were so new about it that the paper called the broker and asked who was buying that stock. And the broker told them about us and said that since Tiger was buying so much that he was too. So they didn’t really know what was going on over there either! It was just a gold mine.

G&D: If someone brings an idea to you, what are the first few things you want to know?

JR: The first thing is, is the management decent and honest? A lot of people don’t really care about that. The way to look into that is to do some diligence. Are they actively involved in their community? You should try and find folks who know them and see what they think. Of course, you also want to investigate the growth possibilities. We had fantastic analysts and I found I could count on their earnings projections. So I sort of turned from a cheap skate investor, one who was focused on low multiple stocks, to one interested in real growth stocks. 

Today, in my opinion, the world’s cheapest stock is Apple (editors note: the interview was conducted when Apple traded at $450). If that company had existed in the 1970s, it would be trading at 5x what it currently is. For years I’ve had a fund that I’ve put money into in case of a real crisis. I’ve put TIPS into that portfolio and I’m convinced now that they’re a disaster. There’s just no yield at all. You’re taxed on the yield. So I’m thinking very seriously of shifting all of my TIPS into something like Apple or Google. Apple is just an extraordinary company. They just have ideas. They don’t have any factories. They just have great ideas and then outsource all their manufacturing so that they really don’t take too much operating risk.

G&D: When would you sell Apple?

JR: Well, there will be a time to sell the stock, of course. But right now, they’re trading at 12x earnings for a company with amazing products. This year will see the Apple television set. I’m almost sure of that. But when the stock skids, it likely won’t be a massacre because they have so much cash. 

G&D: Could you give us a general sense of what you think an analyst should look at first and what should get one most excited about a particular stock?

JR: I’d say if you have an idea that company management is comprised of really great people, you should look hard at that stock. But keep in mind that people can change too. For example, Steve Jobs was not a great person in many respects before he was fired, according to his biography. 

G&D: Aside from honesty and other important core analytical attributes, what do you look for in an analyst when you decide to seed their fund?

JR: Competitiveness. Is he a competitor? Does he get into the batter’s box and crowd the plate to intimidate the pitcher? I use that as an analogy but I believe that athletics actually do  mean a lot. For instance, Mandel is a fabulous athlete and particularly strong in tennis and squash. He picked up golf and now he’s good at that too. Griffin plays everything. Really all of those analysts I mentioned earlier have been good athletes during their lives. But there are certainly exceptions to that too. 

A whole bunch of funds have been successful with no jocks involved. I should also mention that all of those guys have a real interest in making this world a better place. Mandel is on the National Board of Directors for Teach For America. Griffin is a founder and Board Chairman for something called iMentor, which is a huge  entoring organization here in New York. Lee Ainslie has done a lot and Andreas is getting into it in a big way. That’s another interesting aspect to those who have been successful investors. Look at George Soros. He’s quite a philanthropist. 

G&D: In addition to a competitive spirit, how do you decide which analysts are good enough for backing from your fund?

JR: Well it’s based on who has given you the good ideas and you have to keep track of that. We’re going to back a new fund and I think you’ll hear about it in two or three months. This fund will be managed by a team of people who we’ve vetted and who we think are very good. We’ve had some losers along the way. Something else we do, by and large, is that we test most of the people who come to work here. This is a psychological test that lasts for about three hours. If the results of that test aren’t consistent with how successful managers would think about and respond to the questions asked, then we feel we’re doing a bad job with those people who have come to work for us. 

We’ve had flops take it and great managers take it, so we’ve been able to extract a lot of useful information about our people from that test. It’s something that helps prevent us from seeding a fund run by someone who wouldn’t be all that good. The test tries to assess whether a person is thoroughly honest or if they’re trying to game the test. The questions are worded in such a way that they help us do that. 

G&D: Of the “Tiger Cubs” that you’ve mentioned, is there one that you feel is  most similar to you in terms of investment style? 

JR: I think a lot of those guys gravitated toward Tiger Management because they had similar investment philosophies. I would say that there are many more similarities than there are differences between all of us. I would say, though, that some writers out there will try to determine a correlation between the portfolios of the various “Tiger Cubs” or Tiger Seeds. We can show you figures that just  blow that right out of the water. On the other hand, I think almost all “Tigers” had sensational 2007s and reasonably good 2008s but not very good 2009s and 2010s. You could say there’s obviously some correlation but it’s not that. It’s just that our fundamental risk parameters were similar.

G&D: Analysts are bombarded with so much information today, what do you think they should focus on to most effectively allocate their time?

JR: I would say that hedge fund investing is, in another sense, the antithesis of baseball. You can hit .400 and not make much money if you’re not playing in the big leagues. But if you play in the big leagues and you hit .400, you’re going to make big money. With hedge fund investing, you get paid on your batting average irrespective of the “league” in which you’re playing. So go where the pitching is the worst. Go to the minor leagues; go to Korea and China now. There are 1,000 fraudulent companies and 1,000 fabulous stocks! I once found somebody to whom I gave this pitch who said, “Gosh, I should go to China!” Then I reminded him about his family. He replied that he was about to get married to a Vietnamese woman who would love to live in China. So we backed his fund in China. I think our Chinese fund, which should officially launch in May will be a good one because we have a manager on the ground there who’s talented and loves the business.

G&D: What is your view of the current macro situation and how is it shaping your investment strategies today?

JR: I’m the only person in America, outside of Stan Druckenmiller, who has some worries about the US printing money. Europe also scares me. The printing of money is scary, but that is what they are doing to get out of it.

G&D: Besides Apple and perhaps Google, are there any other stocks or industries that you find particularly appealing today?

JR: I love WuXi (pronounced WOO-shee; ticker: WX) which is a Chinese-based employment agency for PhDs, primarily in the drug industry. Pharmaceutical companies can

employ a Chinese PhD living in China for about one fifth of what a US PhD would cost. So I think its business of somewhat disintermediating the pharmaceutical focused PhD market is a  good one. The company’s earnings are certainly increasing beautifully at about 20% a year and it still sells at 10x earnings. It was ushered to the IPO phase by probably the best venture capital firm in the world, General Atlantic.

G&D: Can you talk a little about your investment philosophy?

JR: I believe that the best way to manage money is to go long and short stocks. My theory is that if the 50 best stocks you can come up with don’t outperform the 50 worst stocks you can come up with, you should be in another business. That being said, there are long periods of times where the 50 worst companies will outperform the 50 best. Always of particular importance to me at any company is the quality of people at the company. Still, this is not an infallible way of looking at companies. I am reading the Steve Jobs biography right now and am at the point where he got fired from Apple. One take away I have is what a difficult person Steve Jobs was when he was a young guy. He seemed to have changed dramatically as he got older. 

G&D: What advice do you have for young analysts and business school students?

JR: Peter Lynch’s books have some great insights would be great for anyone to read. Here’s a ‘smallworld’ story for you. My neighbor who lived across the street from me in Salisbury, North Carolina went to Columbia Business School. He roomed with Warren Buffett when he was there. The reason I bring this up is that Warren is just so disciplined, smart, and sound – these factors are really what makes him great. People should look at some of the things he’s done in his career and try to emulate him. I’m actually going to the Berkshire Hathaway annual meeting for the first time this year.

G&D: What do you look for in your shorts?

JR: For my shorts, I look for a bad management team, and a wildly overvalued company in an industry that is declining or misunderstood. For instance I think REITs are jokes. People look at them for yield, which in a sense they provide. But, I think about this like I think about printing money. As long as people keep printing, things go alright until something blows up. The REITs are the worst because they pay high dividends and when they don’t earn enough to cover the dividend they issue stock.

G&D: Many think that the hedge fund industry is changed dramatically over the last few years in terms of the difficulty in raising money now, as compared to five to ten years ago, as the  industry has become more institutionalized. What are your thoughts?

JR: I think this is true, but it is nonsense on the part of the buyers. They act as if you have to have $100 million in assets under management to be brilliant. The truth of the matter is that if you did your work you would be better off investing in a $25 million hedge fund. It’s much easier to turn $25 million into $100 million than it is $100 million into $400 million, and it’s a lot easier to turn $100 million into $400 million than it is to turn $1 billion into $4 billion. I think the focus on large, institutionalized funds is a temporary phenomenon. The good people will be looking for smaller funds.

When I was managing money I felt that if we could keep enough people, and that the caliber of our people was good, then it didn’t matter how much money we managed. But the truth of the matter was, when we were finishing, we had nearly $40 billion ($20 billion in assets under management levered 2-for-1) to invest. Even if we had 400 positions, we would have had to put $100 million in each position. It’s hard to find that many $100 million positions that you really want to invest in and that you can get into and out of. It’s tougher the bigger you get. 

G&D: Thank you very much Mr. Robertson.

KDDL, PC Jewellers among listed companies making it big online

http://economictimes.indiatimes.com/markets/stocks/news/kddl-pc-jewellers-among-listed-companies-making-it-big-online/articleshow/47335657.cms

By Jwalit Vyas, ET Bureau | 19 May, 2015, 04.01AM IST

Several retailers have been trying their luck with the online space given the kind of growth opportunities and the valuations that e-commerce companies are enjoying at present. Unfortunately, for the investors, there are hardly any listed companies with significant online presence. However, some of the smart retailers in the listed space such as luxury watch retailer and manufacturer KDDL, and a leading jewellery company, PC Jewellers have managed to get it right. 

These two companies have launched their own websites and have been seeing huge traffic and decent conversion rates. 

KDDL 

Ethos, the watch retail arm of KDDL, derived 23% of its total sales from the online space in FY15 as compared to 16% in FY14 and less than 10% in FY13. Online sales are expected to exceed 30% of the total sales in this fiscal. "It is our best kept secret. Because of this, we don't have to increase the number of stores. A presence in e-retail is helping us grow faster without an increase in overheads such as rents, employee expense and costs associated with inventory storage. 

The saved amount helps us to spend on our marketing activities," says Yashovardhan Saboo, CEO, KDDL. "We have developed such useful customer database which is helping us to identify other lucrative product categories. Once we reach a particular size, we would use this platform for introducing other luxury products." 

The website ethoswatches.com had 6.2 million visitors last year, resulting in 26,400 leads and 5% conversion. Average selling price per item for KDDL is Rs 97,000 as against less than Rs 5,000 for other e-retailers such as Flipkart and Amazon. Analysts expect the online visitors to almost double in FY16 and online sales to more than double in the next two fiscal years. It grew by 90% in FY15. 

Although the company's stock has given a return of over 300% in the last one year, its stock still seems fairly valued. The stock is trading at FY15 P/E multiple of 15 and less than one time sales, which is attractive if one has to compare it with the valuations of other ecommerce companies. 

PC JEWELLERS 

PC Jewellers, which has positioned itself as a wedding jeweller and primarily in diamonds, has entered into the work jewellery segment through its online venture last year. The company at present gets close to 15,000 visitors per day and around 35-40 orders of Rs 15,000 each a day. "This is to acquire future customers. Going by our previous experience, if the customer is happy, she will at least visit our showroom and the conversion ratio in our business is very high, around 70%-80%," said Nitin Jain, head of online business, PC Jewellers.

"Also, by being present online, we are able to tap young customers early on," he added. Its online business is growing over 40% month-on-month, a part of which can also be attributed to the lower base effect. 

Although, at present the online business is less than 5% of total sales for PC Jewellers, one cannot rule out the potential of this business. 

PC Jewellers has been the fastest growing jewellery company in the listed space over the last four years, while most others including Titan Industries have struggled.

Adidas bets on India for turnaround

http://timesofindia.indiatimes.com/business/india-business/Adidas-bets-on-India-for-turnaround/articleshow/47274416.cms

NEW DELHI: As it battles investor criticism and poor sales performance across the world, Adidas, the world's second largest sports-goods maker after Nike, is betting on India for a turnaround. 

Roland Auschel, head of global sales and member of executive board at Adidas, said India could be among the German company's top five markets by 2020, up from number eight at present. "India and China are our two biggest growth markets," said Auschel. "A large chunk of 1.5 billion euros marketing investment may flow into India." 

And, Adidas is depending heavily on its performance in key growth markets like India and China, as its position has been slipping for some time in the developed markets. In the US, which accounts for nearly half of global sportswear sales, the company was uprooted from the second spot last year by Under Armour, a sportswear brand from Maryland. 

TaylorMade, Adidas's golf division, and Reebok, the British sports brand acquired by it in 2006 for around $3.4 billion, have also proven to be burdens. While investors have been baying for his resignation, Adidas's long-serving CEO Herbert Hainer announced a five-year strategy in March to bring the company back on track by raising net profit by 15% each year till 2020. And Auschel, who is tipped to pick up the reins after Hainer, thinks India could play a big role in the company's growth in the next five years. 

"The corruption that happened in Reebok India is unfortunate. It cost us a lot of money. But, we are setting things right," said Auschel, who removed Reebok's then India MD Subhinder Singh Prem in 2012 on alleged charges of commercial irregularities. There are 140 Reebok stores in India, which is 20% of the brand's global fleet. 

Auschel wants to move fast. "I am here before China. It shows the faith we have in this market." Adidas will increase the number of its stores from 750 to 1,000 in the next two years (including Reebok stores). It is rolling out its omni-channel strategy in 200 cities. "We are repositioning Reebok as a fitness brand and fine-tuning Adidas's image as a sports brand. Top cities in India, including Mumbai, Bangalore, Chennai and Hyderabad, will be our focus. This is part of our strategy to invest in marketing in metropolitan areas across the world, such as Shanghai, Paris, London and Tokyo. That's where key creators (trend-setters) live," he said. 

However, Adidas fans here may have to wait for its high-impact flagship stores that measure around 5,000 square metres. For India, smaller stores of 100-500 square metres are on the cards.

Auschel is bullish on India's scorching e-commerce growth. "Around 4% of our global sales occur online and it will increase to 10% by 2020. But here, online sales growth will happen faster — from 10% at present to 20% in a shorter time period. Globally, India can show the way to the world in e-commerce."

http://basehitinvesting.com/michael-burry-focus-on-bargains-and-not-stock-market-valuations/

Michael Burry: Focus on Bargains and not Stock Market Valuations

By John Huber On May 11, 2015 

Michael Burry’s story is captivating. And in fact so good of a story that excellent financial storytellers like Michael Lewis and Greg Zuckerman turned it into main portions of best-selling books on the financial crisis.

The story goes something like this: Burry was just a guy writing a blog (before people knew what a blog was). He was discussing his ideas in early internet chat rooms. He picked stocks. He was a value stock picker at a time when value investing couldn’t have been less popular—the late 1990’s. But Burry did well investing his own account, and he got a small following on these early message boards. One day, he posted that he had decided to leave medicine, and he was starting his own fund. Joel Greenblatt—who had been reading, and profiting, from Burry’s posts—promptly contacted Burry, offered him a million bucks for an equity stake in his new business, and help seed Burry’s tiny fund.

Burry gained success as a stock picker who preferred bargains over market darlings, but he became famous when Michael Lewis wrote a book about the famous subprime trade. Burry went from a complete unknown (but very successful) stock picker to a fund manager who brilliantly predicted and profited from the biggest bubble in decades. His trade became the focal point of the financial crisis books, and his name became known by the heaviest of hitters such as Warren Buffett and Alan Greenspan.

Burry’s story is often told as a Cinderella type story about “just a guy” who was a good stock picker, got discovered, and then made it big in a Soros-esque trade of a lifetime.

Not exactly… That is how the sequence of events unfolded, but I think the story of Burry’s success in the subprime trade actually downplays how talented a stock picker the guy really is. He deservedly gets attention for his investment in the credit default swaps that soared when housing crashed. But as he himself states in his investor letters, he’s a stock picker at the core. He is classic value investor, hunting for bargains in the nooks and crannies of the market. As he said of his own philosophy in an early post:

“My strategy isn’t very complex. I try to buy shares of unpopular companies when they look like road kill, and sell them when they’ve been polished up a bit.”

The thing I admire most about Burry is his ability to think independently. He studied Buffett, but realized Buffett couldn’t be cloned. His style was originally much closer to Ben Graham’s—he was a bargain hunter. But he didn’t clone Graham either. From what I can tell, he simply looked for bargain-priced stocks by turning over a lot of rocks. Many of his early investments were sort of special situation type bargains—some with catalysts that played out fairly quickly, others just unloved and neglected bargains selling for less than a private buyer would be willing to pay for the business.

This weekend, I happened across a link to a very nice write-up and summary of Burry’s original posts on the message board I referenced above. It prompted me to re-read the compilation of Burry’s original articles he wrote for MSN Money, as well as review a couple old letters that I printed off. Unfortunately, I don’t know if Burry’s original Scion Capital letters are still in the public domain, but if anyone would be willing to share them with me, I’d love to read them. I only have a few of them. As for the MSN articles, they were written for the lay-person investor, but they provide a glimpse into how Burry thought about his investments.

I thought I’d highlight just a few clips from the investor letters and the MSN letters. The first thing I thought was remarkable was the fact that Burry was very bearish on the stock market in 2001, yet he remained fully invested and produced incredible results from buying bargains: +36% annually for the first 2+ years of his fund, even as stocks were in an extreme bear market, with the S&P dropping 50% and the Nasdaq falling 80% from their 2000 highs.

He describes his pessimism on the overall stock market in an early investor letter:

He describes a situation that could easily describe 2015. Established companies with durable products, competitive advantages, and stable long term prospects (but with no real hope of growing much faster than 7 or 8% annually) are priced at 20 to 30 times earnings in many cases (I’m referring to large, high quality stalwarts at these valuations. This isn’t to mention the ridiculous valuations of some of the more recent IPO’s). The popular argument for this seemingly pricy valuation among high quality companies rests on the fact that interest rates are so low—a dubious justification in my view.

But back to 2001… Despite Burry’s lack of enthusiasm for the overall stock market and general valuations, and despite his bearishness on the economy, he remained fully invested in stocks he thought were undervalued. This is a good lesson—his bearish assumptions were correct, but he still preserved capital and made remarkable returns by staying focused on identifying undervalued securities and not worrying about where the market will go next:

“So, I will go on record right now as saying that this is a time of tremendous uncertainty about market direction—but no more so than at any time in the past. I continue to believe the prudent view is no market view. Rather, I will remain content in the certainty that popular predictions are less likely to come to pass than is believed and the absurd individual stock values will come along every once in a while regardless of what the market does.”

Burry turned out to be correct in his assessment that the market was overvalued, even after a significant drop. But what’s interesting to me is that he still maintained a fully invested portfolio filled with bargain securities.

In his early letters he describes how he maintained his portfolio filled with cheap stocks, and despite his bearishness, was long bargain stocks that did extraordinarily well as the overall market dropped 50% from 2000-2002. Here are his early results (Burry started his fund in November 2000):

• 2000: +8.2% (vs -7.5% S&P 500)
• 2001: +55.4% (vs. -11.9% S&P 500)
• 2002: +16.1% (vs. -22.0% S&P 500)

So for the first 2 years and 2 months of his fund, he had compounded at a rate of 36.1% per year vs. a CAGR of -18.8% for the S&P 500.

And it’s remarkable that this was done primarily being long stocks with basically no shorting. Burry said in his 2006 investor letter that:

“A Scion portfolio will be a concentrated portfolio, though, and I have generally thought that in any market environment I should be able to spot the handful of investments that will make all the difference.”

So I think it’s notable that although Burry was extremely bearish (as described in his letters and the MSN articles), but he still stuck to his knitting—looking for low risk bargains.

Buffett and Munger said something similar at the recent meeting about just looking for undervalued companies and let the macroeconomic tide take care of itself.

Burry eventually got much more interested in the macro tides, and profited from it, but I think his early results as a stock picker are a good reminder that regardless of how overvalued we think the market is, there are always opportunities to invest in low risk, high probability bargain situations.

As for the MSN articles, Burry’s value stock picks there also did very well, even as the broad stock market indexes got crushed. His picks returned +23% while the S&P 500 dropped 22% and the Nasdaq plummeted 58%—a testament that in most markets, good old fashioned value can in fact protect capital from permanent capital loss.

One other comment from Burry on why it’s more important to focus on bottom-up stock picking than to try and predict stock market movements:

“Regardless of what the future holds, intelligent investment in common stocks offer a solid route for a reasonable return on investment going forward. When I say this, I do not mean that the S&P 500, the Nasdaq Composite or the market broadly defined will necessarily do well. In fact, I leave the dogma on market direction to others. What I rather expect is that the out-of-favor and sometimes obscure common stock situations in which I choose to invest ought to do well. They will not generally track the market, but I view this as a favorable characteristic.”

Here are Scion’s returns over the life of his fund until he liquidated the partnership:

The 80/20 Principle

The 80/20 Principle: The Secret to Achieving More with Less

by Richard Koch

The 80/20 Principles

• A few things are always much more important than most things
• Progress means moving resources from low-value to high-value uses
• A few people add most of the value
• Margins vary wildly
• Resources are always misallocated
• Success is underrated and underfeted
• Equilibrium is illusory
• The biggest wins all start small

A primer for time revolutionaries

• Make the difficult mental leap of dissociating effort and reward
• Give up guilt
• Free yourself from obligations imposed by others
• Be unconventional and eccentric in your use of time
• Identify the 20% that gives you 80%
• Multiply the 20% of your time that gives you 80%
• Eliminate or reduct the low-value activities

“There are only four types of officer. First there the lazy, stupid ones. Leave them alone, they do no harm. Second, there are the hard working intelligent ones. They make excellent staff officers, ensuring that every detail is properly considered. Third, there are the hard working stupid ones. These people are a menace and must be fired at once. They create irrelevant work for everybody. Finally, there are the intelligent lazy ones. They are suited for the highest office.”

 Erich Von Manstein on the German Officer Corps

 Rules for success in the 80/20 world

 1. Specialize in a very small niche

 2. Choose a niche that you enjoy and in which you can excel

 3. Realize that knowledge is power

 4. Identify your market and your core customers and serve them best

 5. Identify where 20% of effort gives 80% of returns

 6. Learn from the best

 7. Become self-employed early in your career

 8. Employ as many net value creators as possible

 9. Use outside contractors for everything but your core skill

 10. Exploit capital leverage

 80/20 Insights  into making money

 1. Make your investment philosophy

 2. Be proactive and unbalanced 

 3. Invest mainly in the stock market

 4. Invest for the long term

 5. Invest most when the market is low

 6. If you can't beat the market, track it (Indexing)

 7. Build the investments on your expertise

 8. Consider the merits of emerging markets

 9. Cull your loss makers

 10. Run your gains

 Daily happiness habits

•  Exercise 
•  Mental simulation
•  Spiritual/artistic simulation/mediation
•  Doing a good turn
•  Taking a pleasure break with a friend
•  Giving yourselves a treat
•  Congratulating yourself

  Medium term stratagems for happiness

•  Maximize your control
•  Set attainable goals
•  Be flexible
•  Have a close relationship with your partner
•  Have a few happy friends
•  Have a few close professional alliances
•  Evolve your ideal lifestyle

A Landmark for success

http://epaperbeta.timesofindia.com/Article.aspx?eid=31818&articlexml=A-LANDMARK-FOR-SUCCESS-02052015009005#

May 02 2015 : The Economic Times (Mumbai)

A LANDMARK FOR SUCCESS

KETAN THAKKAR & ARIJIT BARMAN MUMBAI

Sanjay Thakker broke free from legacies of the trade to create one of the largest networks of profitable auto dealerships nationally with 36 outlets across five states. Now, he has bagged the first private equity investment the country has seen in this space Over a family dinner at home with his wife and kids Aparajita and Aryaman, Sanjay Thakker finally made up his mind. Always an out lier in business, he was again ready to step into something that none of his peers ever dreamed of. He was set to rope in a foreign investor ­ that too a marque private equity player -into his family jewel.

Over 17 years, Thakker's auto dealership chain Landmark has become one of the largest networks nationally with 36 outlets in five states. More importantly , unlike most of his peers who are married to a single brand, he partners four. Three of them Honda, Volkswagen and Mercedes-Benz ­ also happen to be the biggest brands in the trade around the world. And if that were not enough ­ it's a debt-free operation that he runs. Each of his franchisees makes money , and together they clocked Rs 1,500 crore in sales in FY15.

“I am generally a dissatisfied man. Every day I believe we need improvement,“ says Thakker, 49, the unassuming chairman of Landmark Group sitting in his basement office in Mumbai's midtown Worli. “In my office there is a poster of a man running and it says there is no finish line... That's my mantra in life,“ he says.

And so it was decided. Landmark will rope in TPG ­ one of the world's biggest private equity investors ­ for a $25 million investment and a minority stake in his company .Manish Chokhani, chairman of TPG Growth in India and a batchmate at Sydenham College, has been pursuing Thakker and after almost a year of discussions, it was time to sign on the dotted line for the next phase of growth.

TPG Growth is the middle market and growth equity investment platform of TPG, with more than $7 billion in assets under management and committed capital. It has offices in the US, China, India and Singapore. TPG Growth's current and past investments include Uber, Airbnb, Box and SurveyMonkey , among others.

“They bring in credibility and we are getting exposed to global best practices...Already they are helping us to focus on efficiency of capital usage,“ Thakker adds. “We have national aspirations and the south is the obvious next market for us. With TPG on board, we can break into that market.“

TPG is investing in Landmark when more than half of the organised automotive dealerships in the country are bleeding due to sluggish sales. The sector remains largely unorganised, sub-scale and scattered. For most, it's a real estate play, not retail. “From builders to diamond merchants, people have entered this space for all the wrong reasons,“ quipped an industry executive.

It's starkly different elsewhere. Wall Street's blue-blooded investor gurus like George Soros, pin-striped global PE players and even tech trailblazers Bill Gates love to bankroll auto dealers, but in the US and China, standalone car dealership chains are multi-billion dollar, scaled operations.

Last October, billionaire Warren Buffet agreed to buy Van Tuyl Group, the largest privately held car dealership with 78 locations in 10 states and $9 billion in revenue and rename it Berkshire Hathaway Automotive, betting that the sector will consolidate. Berkshire was the largest privately held entity in the US. In China, TPG has invested in China Grand Auto -the largest automotive chain in the world with over 500 touch points and 5 lakh cars of annual sales.

The annual, 2.5 million car market in India was the logical next frontier, even though options were limited. Landmark, though among the largest, sold only 15,000 vehicles in the previous financial year. In a fragmented market with over 2,500 dealers, scale and a like-minded entrepreneur were difficult to come by .

“The macro factors were obviously attractive. With 25 million cars for 1.2 billion people, India is where China was a decade ago,“ says Vish Narain, TPG Growth's India country head. “We had looked at a few others in India but eventually settled for Landmark. He is very different from the others and has managed to build a set-up which retains the entrepreneurial DNA but is professionally managed.“

Besides being profitable, Thakker breaks the typecast in many ways.

His company is run professionally, with ownership and management kept separate, a rarity among Indian automotive dealerships, where it is common to see large families managing them. There are no family members among the executives, except his sister-in-law, an architect who leads the inhouse design team for new projects. “This was the only way I could have created a scalable business,“ reasons Thakker.

This single-handedly helped Thakker to scale up the Honda dealership that he started with a friend in 1998 and later bought out.He expanded to Surat, Rajkot, Mehsana and Jamnagar and is in talks with Honda to go beyond Gujarat.

The Honda case study was attractive enough for Volkswagen, which gave Thakker the entire responsibility of the state of Gujarat. Soon, Mercedes-Benz entrusted him with turning around some of its loss-making outlets. Today, with a team of 2,500 people, Landmark operates five Honda dealerships in Gujarat and seven each for Volkswagen, Mercedes-Benz and Ashok Leyland's commercial vehicles across Gujarat, Madhya Pradesh, Maharashtra and West Bengal. Since 2014, he has broken into Mumbai and Delhi. In the next phase, he is targeting strategic, cash-rich, tier-2 cities.

Landmark is totally decentralised. Sales consultants or managers on shop floors have gone on to lead brands or branches within the company and some have even become shareholders. Thakker is proud that there is an almost zero-attrition rate at the senior level. “When I started out in auto sales, I was 32. I made it a point to hire fresh talent and they were not older than me,“ recalls Thakker, who chose to break with his family's small textile, agri-commodity, real-estate and shipping businesses.

It's worked beyond a doubt. During the Gujarat riots in 2002, his Ahmedabad showroom and office were completely gutted by a mob. Yet, the very next day, Thakker found his team had installed a makeshift tent outside along with a `we are open' signboard.

“His decentralised business model works very well and unlike many in the automotive business, he is very dispassionate,“ says a senior executive of a car company who has worked with Thakker.

Landmark is asset light ­ it does not own the real estate but takes them on lease even if rentals keep rising. Most dealers today run their shops despite making losses, hoping that the appreciation in real estate will help in the long run. “We have structured this business as a retail operation and want to make money after paying market rent.Today, we are sitting on 6.5 lakh sq feet of space. Clearly , if I have to buy, it would come at a huge cost,“ says Thakker.

Landmark is also the fifth-largest insurance broking firm in the country , with over 2.5 lakh policy holders as customers. “There is not much money to be made by just selling a car. One has to offer the entire basket of products. From after-sales service to insurance and financing,“ says Narain.

“Today, we sell insurance to only 25% of our auto clients -75% are not our cars,“ adds Thakker. “We collected Rs 300 crore of premium last year.“ From auto, it has diversified into health and life insurance.

Thakker has had his own share of missteps as well, including his attempt at the used-car business and investing in a commercial vehicle business, which led his business to bleed. “I am not a person who wants glory ,I just want to see that hard business sense prevails,“ comes his parting shot.