Contributed By : Sidhant Daga
The Kolkata Chapter of the CFA Society India hosted Mr. Saurabh Mukherjea, CFA – Founder of Marcellus Investment Managers on 29th November 2018.
- Mr. Mukherjea explained how the human mind is inherently flawed, while we like to think we are smart, our decisions are based on miscalculated probabilities.
- He spoke how in the time which he got, between leaving Ambit and founding Marcellus, he did a lot of study and research in the field of human psychology.
- Tools like MRI Scanning and Eyeball tracking, various new things about human psychology and brain functionality, have been revealed.
- The importance of the Johari window was discussed and how the 4th box is the largest and gaining lot of importance.
- With the help of various examples, the intricacies of decision making by the mind was explained. As to how various neurons fight to decide when a person is asked, which flavour of icecream he/she wants to have.
- Knowledge illusion can lead to the problem of delusional thinking. The speaker proved this via a live example of asking the audience a series of question on the number of stripes a tiger has, whether they are horizontal or vertical on the body/legs/neck. He explained how via eyeball scanners it has been proved that human eyes can focus only on 2 dots at at time, when we see a whole room, its actually an illusion based on memory, as in the case of the memory illusion when everyone in the audience knew they know about the appearance of the tiger well.(But actually didn’t and only had a memory illusion)
- Mr. Mukherjea humorously made the audience understand that how we humans don’t know simple things, like how a zipper works, and at the same time claim on having knowledge of how a company works and give buy or sell recommendations on it.
- Next, human tendency to attach emotions to decision making was discussed. He proved via data on how India’s GDP has been growing over the past few decades and shall continue the growth trajectory, but how we as investors believe that it’s the political leader which brings in the growth, which is simply not true.
- Simplicity is the key to success. The greatest companies in the world are the ones which have made complex things simple. Eg . Apple, Amazon, KFC.
- Simple models can beat the most complex models. The composition of a Bogle model ( which is a simple allocation model of 40% US stocks,20% international stocks, 40% US bond market) outperforms stellar returns from other active top investors endowments. Vanguard Investments have made enormous wealth by simple passive investing.
- Mr. Mukherjea explained how we love telling ourselves stories to suit our bias, this delusional thinking spreads into our investment decisions as well. He explains the importance of rule based frameworks to avoid such things. The book “ What works on Wall Street” is a good read to understand more on rule based trading.
- One should stay away from the social media ,use less judgment and more rules.
- Mr Mukherjea revealed how few simple rules mentioned in his book Coffee Can Investing and Unusual Billionaires has helped him to outperform the market. A simple framework has compounded wealth at 20%+ CAGR and a little more effort on the shortlisted stocks has helped to add another 6/7% to it.
- Moat is only with only maximum 12-13 companies in India. He gave example of Hero Motocorp, which the general people feel has a moat, but he denies it saying that if the company’s competitors reduces their product prices by 20%, won’t the company do it as well?
- Various books were mentioned during the session, few of them are – “The Brain”- David Eaglemen, “The Mind is Flat”, “Deep Work”, ”Competition Demystified”.
The event was quite insightful, showing the importance of- how clarity of mind and simplicity can lead to success. It was interesting to find how even without circle of competence, one can make a “Lakshman Rekha” ,the stocks which can help to grow wealth.
Link to the presentation used by the speaker – https://amc.ppfas.com/octoberquest/octoberquest-2018/why-simplicity-wins-abbreviated-saurabh-mukherjea.pdf