Owing to the potential danger of spreading COVID – 19 and as directed by AMFI, to ensure safety of our investors, partners and employees, all our AMC branches are temporarily closed until further notice. However, we will be working from home and will be at your service. We urge our investors and partners to make use of various other digital modes available for making transactions. For any queries, please write to us at crmf@canararobeco.com. You may also call us at 1800-209-2726 during working hours.
We will be continuously monitoring the situation and shall update the status once the normal operations are resumed. We would like to reiterate that serving you well is our top priority and shall attempt to make your investment journey a memorable one with Canara Robeco.
With effect from December 9, 2013, U.S. Persons and Residents of Canada are not permitted to invest in any of the Schemes of Canara Robeco Mutual Fund. Read the issued notice cum addendum in this reference.
‘The STOIC Investor’ is a series of uncommon yet thought provoking insights which will help investors in their journey from being a ‘Common Investor’ to an ‘Ideal Investor’. Today the word ‘Stoic’ is used to describe someone who remains calm under pressure and avoids emotional extremes. For the purpose of this newsletter, we refer to ‘The STOIC Investor’ as an investor who is Realist (avoiding extreme optimism and extreme pessimism), Resilient (withstand difficult conditions) and Rational (who acts with logic and reason). This series curated and penned by Mr. Nimesh Chandan, Head - Investments Equities at Canara Robeco, provides a fresh perspective to look at things which we may already be aware of.
Issue No. | Title | Description | Download Link |
May 13, 2021, Issue #49 | Theories on Momentum | “A trend is a spread of an idea” Contrarian and Value investing take advantage of this overreaction by the crowd to generate superior returns. However, the EMH retort was, such outperformance was just compensation for higher risk. For the positive returns generated by momentum investing, there is no strong argument from the risk side. The only good explanation is behavioral! | |
March 06, 2021, Issue #48 | Fear and the Perception of Risk | “The real key to make money in stocks is not to get scared out of them” Fear has a strong effect on the body and the mind. It generates quick responses within us that help us when we are in danger. In investment decision making however, fear can lead us to mistakes. You cannot avoid this emotion, however you can try to put roadblocks in the decision-making path that stops you from taking decisions when overrun by fear. A good investment process can ‘nudge’ you to check your emotions and also put ‘pre-commitments’ to stop you from acting emotionally. | |
January 23, 2021, Issue #47 | Long ‘Run’ Investing | “Luck is what happens when preparation meets opportunity” Investing is often said to be like running a Marathon. It involves committing significant time and energy. It involves striving for steady consistent progress rather than trying for one big spurt of performance. | |
December 22, 2020, Issue #46 | Misconception of Chance | “Statistics produce many observations that beg for causal explanations but do not lend themselves to such explanations. Many facts of the world are due to chance, including accidents of
sampling. Causal explanations of chance events are inevitably wrong.” We are all pattern seekers who seek to explain everything in a cause and effect manner. Every occurrence of a certain regularity is analyzed as a pattern. We forget that randomness or chance can also show regularity, streak or clustering especially in small samples. | |
December 14, 2020, Issue #45 | Subtly influencing your free choice | “All my important decisions are made by my subconscious. My frontal lobes are just kidding themselves that they decide anything at all. All they do is think up reasons for the decisions
that are already made” Anchoring is a bias in which people, consciously or subconsciously, get locked on to a reference point, a psychological benchmark, which carries a disproportionately high weightage in their decision making. It occurs even when people price or value different products and services. Being anchored to irrelevant information can lead to mistakes in investment decision making. Once the mind is anchored on something, it actively searches for confirming information (confirmation bias) and rejecting important counter arguments (cognitive dissonance). Hence, a stoic investor needs to address anchoring at an early stage in the investment process. | |
December 08, 2020, Issue #44 | Looking back from an imagined future!! | “Several things go together for those who view the world as an uncertain place: Healthy respect for risk; awareness that we don’t know what the future holds; an understanding that the best we can do is view the future as a probability distribution and invest accordingly; insistence on defensive investing; and emphasis on avoiding pitfalls. To me, that is what thoughtful investing is all about” – Howard Marks Investors have to deal with an uncertain future and have a healthy respect for risk. The analysis of possible future scenarios can give the investors, a range of intrinsic values for a security or an asset. These can be summarized into three values: a bull case value, a bear case value and a base case value. By understanding the drivers and assumptions behind these scenarios, one can even assign a probability distribution to them. It is important to conduct the scenario analysis before the investment is made. Once the allocation is committed, the investors may suffer from endowment effect and may dilute the bear case scenario or strengthen the bull case. | |
November 28, 2020, Issue #43 | Learning to avoid a crash!! | “True Ignorance is not the absence of knowledge, but the refusal to acquire it.” When Nobel laureate, Daniel Kahneman was asked, how can one improve the quality of decisions? He said, “Go to the drug store, buy a notebook”. He advised having a book to record all the important decisions taken and then compare the outcomes with the expectations noted in the book | |
November 21, 2020, Issue #42 | Underperformers outperform! Why and when!! | “The market is fond of making mountains out of molehills and exaggerating ordinary vicissitudes into major setbacks”
Most of the investors want to buy the stocks which are popular and glamorous. They are easy and comfortable to pick as everyone is owning them. There is a warmth being in the middle of the crowd. Unfortunately, this same comfort may be the reason for the stock to be at least fairly priced and most likely overpriced. | |
November 14, 2020, Issue #41 | Achilles Heel and Investors’ Ears | “Based on my own personal experience – both as an investor in recent years and an expert witness in years past – rarely do more than three or four variables really count. Everything
else is noise.” All good investment ideas and plans are vulnerable to investment noise. Noise can be simply viewed as data or information flow that does not help in good decision-making process, infact deters us from it. It is the opposite of ‘useful information’ or a signal. Noise is to an investor what kryptonite is to Superman! It drains their powers (intellect) and makes them vulnerable. | |
October 31, 2020, Issue #40 | Buy the Rumors; Sell the News | I believe that market prices are always wrong in the sense that they present a biased view of the future. But distortion works in both directions: not only do market participants operate with
a bias, but their bias can also influence the course of events.” The expectation of an event creates a much deeper impression upon the exchange than the event itself. When large dividends or rich imports are expected, shares will rise in price; but if the expectation becomes a reality, the shares often fall. | |
October 24, 2020, Issue #39 | How you count your money, counts! | “You've got to know when to hold 'em; Know when to fold 'em - Song ‘The Gambler’, performed by Kenny Rogers, written by David Shlitz (1978) Economic theory says the value of money doesn’t change just because one labels it differently. Yet, we come across so many decisions people make about money which shows that labels do matter. The label on the source of money and the label we allocate it to (our various budgets) drives our decisions regarding how we save, spend or even invest it. | |
October 17, 2020, Issue #38 | Mars Loves Trading and Venus Hates Losses | “Being a good investor may have a bit to do with Nature, more to do with Nurture, but a whole lot more to do with choice.” There are many studies conducted to understand the behavioral differences between women and men in the context of investments. Some of the important research findings have shown the women have an edge over the men in investing. However there some important ideas they can borrow from each other that can help them be better investors. | |
October 10, 2020, Issue #37 | Possessed by your Possessions | “Once you make an investment, you can’t help regarding it as yours. You have invested part of yourself in it. The word ‘Invest’ literally means to ‘to clothe’ yourself in something (from Latin). When you buy a stock, you wrap it around yourself, and it becomes a part of you.” - Jason Zweig, Your Money and Your Brain Behavioural researchers have found that most people quote two different prices for the same object; one, that they are willing to pay to acquire it in case they don’t have it and the other, much higher price that they demand to give it up once it is in their possession. Richard thaler coined the term ‘Endowment Effect’ for this bias. | |
October 03, 2020, Issue #36 | The Impact of Regret | “A lifetime of making choices brings with it the knowledge that at least some actions were ill-considered, some failures to act, unwise. For most of us, it also brings with it the realization
that some of these unfortunate outcomes could have been avoided. To live, it seems, is to accumulate at least some regrets.” When we take a decision and it does not lead to a good outcome, we go into self-recrimination. We think about all the options that we should have chosen or ideas that had prompted us to avoid the option we chose. This emotion is Regret and it is almost like inflicting punishment on ourselves. Clearly, we go to great lengths to counter this emotion as well as avoid it. Regret and regret aversion both impact our decision making in personal life and in investing. | |
September 26, 2020, Issue #35 | The Value of Discipline | “We don’t have to be smarter than the rest; we have to be more disciplined than the rest.” - Warren Buffett Success in investing is like going on a diet plan: one can learn and draw up a fantastic, high return, proven strategy on paper; but it means nothing unless followed with discipline. | |
September 19, 2020, Issue #34 | Thinking Process versus Outcome | “In this business, if you're good, you're right six times out of ten. You're never going to be right nine times out of ten.” - Peter Lynch A lot of us tend to focus on the outcome to judge whether the decision was right or wrong. Not that outcomes are not important. However, when we consider decision-making in the context of uncertainty, outcomes are not the most important. The decision-making process becomes more important. | |
September 12, 2020, Issue #33 | The Temptation of Short-Term Returns | “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” - Paul Samuelson In investing, the strongest desire that we need to fight is the desire to make quick short-term returns. A lot of investors enter the equity markets with the hope of making a fast buck. Especially when the market returns look good in the rearview mirror (like they do today), investors come in, believing the future holds the same returns for them. | |
September 04, 2020, Issue #32 | Taking a decision with your eyes closed! | “The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition.” - Herbert Simon Psychologists say our thinking is divided into two levels - system 1 which is spontaneous and automatic; and system 2 which is slow and deliberate. When something is thrown at you, you duck – that’s system 1. When you are asked to multiply 19 and 27 – you are using system 2. Intuitive judgements are quick and almost effortless, and hence form a part of the system 1. | |
August 22, 2020, Issue #31 | Hyperopic Investor in a Myopic World! | The single greatest edge an investor can have is a long- term orientation.” There is less competition if you are looking to invest with a long-term horizon. Since a majority of investors are trying to outsmart each other in the near term, joining this herd is likely to generate only average results. Now, more than ever, investors need to have a long term view on their investments. And gain a behavioral edge over others. | |
August 15, 2020, Issue #30 | Antiquity rhymes with Opportunity | “Events of future history will be of the same nature - or nearly so - as the history of the past, so long as men are men.” - Thucydides, the father of ‘scientific history’ (460-400 BC) .... (yes, that far back) The financial market cycles are primarily investor behavior cycles. Human nature doesn’t change and causes the recurrence of past patterns. Understanding investor behavior and its divergences from rationality hence, become extremely important for success in investing. | |
August 01, 2020, Issue #29 | It’s not what you said, it’s how you said it! | Kahneman and Tversky approached decision- making from the descriptive (or observed) side rather than normative (or how it ought to be) side. They found many important deviations from the standard behavior prescribed in the economic theory. In this article I have discussed some of the most important ones and have tried to express their relevance to investment decision making | |
July 25, 2020, Issue #28 | What could possibly trouble a tiger? | “Learn every day, but especially from the experiences of others. It’s cheaper!” - John C Bogle A record number of new equity accounts have been opened within a short period of time. There is a sharp increase in retail trading volumes. Young investors are enthusiastic about investing in Equity. Indices are close to their all- time highs. Valuations are higher after considering the downgrades in GDP and earnings. People seem to have forgotten that just 4 months back, many stock markets across the world were hitting lower circuit filters. | |
July 17, 2020, Issue #27 | BE COOL! | “Only when you combine sound intellect with emotional discipline do you get rational behavior.” - Warren Buffett George Loewenstein says that our decisions are based on the state of our mind. There are two states, our mind can be in: The Cold state :This is the rational state of our mind/thinking wherein we are calm and comfortable. The Hot state :This is the state of mind when we are overrun with emotions. And we act with impulse. | |
Jul 11, 2020, Issue #26 | The Salmon Run | “Successful investing is about having people agree with you ... later.” - James Grant There is an old French adage about investing (which is also credited to Nathan Rothschild in some sources) - “Buy on the cannons and sell on the trumpets”. It suggests buying when, in a war like situation or crisis, people panic and overreact on the downside, and create good opportunities to invest. On the other hand, when wars end and peace times reign (Trumpets blowing marking the end of the war), people tend to display euphoria and enter a buying frenzy; those tend to be good opportunities to book profits. | |
Jul 04, 2020, Issue #25 | Libertarian Paternalism (or just ‘NUDGE’) | “When an economist says the evidence is ‘mixed’, he or she means that the theory says one thing and the data says the opposite” - Richard Thaler This is the 25th article of The Stoic Investor and marks the six months of writeups about behavioral finance, improving investment decision- making and implementing sound investment strategy and process. Excited about the silver jubilee edition, I decided to pick up a topic related to Richard Thaler, the founding father of behavioral economics (and a personal inspiration for me). | |
Jun 26, 2020, Issue #24 | The Exact Estimate! | "An unsophisticated forecaster uses statistics as a drunken man uses lamp-posts - for support rather than for illumination." - Andrew Lang In investing, we make a plethora of forecasts every day: about many different variables regarding companies, businesses, economy, consumer tastes, technology changes etc. We even make forecasts about what others will forecast (Keynesian beauty contest). Working with uncertainty requires us to work with subjective probabilities. Highly complex systems like financial markets add more challenges to this forecasting. And then the biases creep in increasing our chances of error. | |
Jun 19, 2020, Issue #23 | Often wrong, but rarely in doubt! | As lockdowns eased, analysts and investors seem to have entered into a race to collect more and more real-time information about what is happening ‘on the ground’ in various businesses. I haven’t seen a day when some research house hasn’t sent me takeaways from channel checks, excerpts from company interactions, management commentary, dealer survey or consumer survey. Add to that numerous anecdotes that start with “I know someone who...”. It feels good to have more and more information, but how good are we at making good decisions based on this information? Turns out not much! | |
Jun 12, 2020, Issue #22 | Overseeing Oversight! | “If making mistakes is the inevitable cost of striving, correcting mistakes – and learning how to avoid repeating them – is the best measure of a learning organization”. - Charles Ellis It is surprising that, despite having the potential to add immense value to the investment process, the checklist is rarely discussed in B-schools, investment firms, journals or forums. An Investment checklist is a set of questions or areas of enquiry that one has to complete before making an investing decision. | |
Jun 05, 2020, Issue #21 | If only Markets were like a Casino! | “In this world, nothing can be said to be certain, except death and taxes.” – Benjamin Franklin Extreme moves and one-time events have significant impact on the investment returns. Investors have to learn to manage uncertainties. And to manage them, they need to understand this distinction between Risk and uncertainty. | |
May 29, 2020, Issue #20 | THE LAST ITEM IN PANDORAS BOX! | Charlie: “Our investment strategy was simple. People hate to think about bad things happening, so they always underestimate their likelihood”. Jared (Narrator): “Their strategy was simple and brilliant. Jamie and Charlie found (that) markets will sell options very cheaply on things they think will never happen. When they were wrong, they were wrong small. But when they were right, they were right big. – From the Movie “The Big Short” (Scene introducing Brownfield Capital) | |
May 22, 2020, Issue #19 | Less in Hand Lingers more in Mind! | Elder Shafir and Sendhil Mullainathan conducted several experiments to study the effect of scarcity on decision making and published them in an amazing book by the title, “Scarcity”. Scarcity, in this context, is defined as having less than you feel you need. This concept is relevant for not only money, but also for things like time or affection. When we don’t have enough of something, the mind gets absorbed by it, we subconsciously think about it all the time and that affects our attention and decisions in other areas. | |
May 15, 2020, Issue #18 | Newton’s apple, Lorenz’s coffee and Complexity! | Max Plank, a Nobel Prize winner in Physics once told Economist John Maynard Keynes that he had once considered going into economics, but he decided against it because – it was too difficult. “Too Difficult” for a person who was responsible for the development of quantum physics! Most physicists were obviously referring to the difficulty of forecasting human behavior. Under this context, it seems surprising that Economics suffered what is called a “Physics Envy”. | |
May 08, 2020, Issue #17 | The Problem of Overconfidence | Terrence Odean (one of the leading researchers in behavioral finance) shows that overconfident investors—who believe that the precision of their knowledge about the value of a security is greater than it actually is— tend to trade more frequently. And furthermore, that investors who trade more frequently tend to have inferior outcomes on an average. Optimism, confidence and conviction are important in investment decision making, but in the right measure. An investor who is less accurate and overconfident will quickly lose money. | |
May 01, 2020, Issue #16 | An Investor learns from the Grand Master! | Although Chess and Investing are quite different, there are many lessons that investors can take from the game. I found areas where the chess champion’s thinking process had elements that investors can use in building a good investment process. A Stoic investor is a ‘consilient investor’ who derives knowledge from various fields to improve investment results. | |
April 24, 2020, Issue #15 | VALUE RE-SERVED! | Most of the time, when I talk to investors about value investing, they still picture buying a company with low price-to-book ratio or a low price-to-earnings ratio or (at the most) a company with good dividend yield. While these are short cuts to assess a relative value of a company, value investing in not about buying the cheapest companies on these parameters. Value Investing is a broader philosophy which involves buying companies at a price which is lower than their intrinsic value. For most people this is common sense. Why should one buy a company or an asset higher than its intrinsic value anyway? | |
April 17, 2020, Issue #14 | North by North West | ”I am not a professional security analyst. I would rather call myself an insecurity analyst.” – George Soros Recognizing that one can be wrong in decision making, and thereby being insecure about it, is actually a strength. Trying to falsify the investment hypothesis using mental models will highlight areas of risk. Identifying and measuring risks increases the strength of the investment case and helps improve investment decisions which lead to better outcomes over a longer term. | |
April 10, 2020, Issue #13 | Missing the Forest for the Trees | Attention is scarce and there is enough noise in the financial markets to keep investors distracted from their core investment process. Here I use ‘noise’ as representative of data / news flow / small events which ideally should not have a significant impact on the investor’s decision- making process (unlike information). However, noise does take focus away from long term investing and leads to shrinkage of investment horizons. Noise creates excitement and anxiety; and induces participants to trade more. Investors tend to fall into cognitive traps and swing with the crowd thereby compromising their investment returns. | |
April 03, 2020, Issue #12 | The Four Herbs | Investment is most intelligent when it is most business like – Benjamin Graham In a market fall, like the one we are currently experiencing, correlations between stocks shoot up. Companies with good businesses and competent management also fall along with bad ones. It is prudent for an investor to gradually accumulate these fallen angels rather than trying to predict market bottom. This requires a thorough analysis of business characteristics of a company rather than pure quantitative analysis. | |
March 27, 2020, Issue #11 | The Ways of a Swan | In this issue I talk about : | |
March 20, 2020, Issue #10 | Lighthouse | Traditionally, the investor has been the man with patience and the courage of his convictions who would buy when the harried or disheartened speculator was selling. If the investor is now to hold back until the market itself encourages him, how will he distinguish himself from the speculator, and wherein will he deserve any better than ordinary speculator’s fate? | |
March 13, 2020, Issue #9 | Experience, Memory and Markets | A lot of investors have experienced investing during crashes in the past. They carry a memory of how crises are an opportunity to increase allocation towards equity markets. And how ultimately, they make great returns when the markets bounce back. At the onset of every new crash, these investors recall those memories. The ‘remembering self’ recites to them the story of how profitable investing during bad times is. However, the ‘remembering self’ has not captured all the moments of the past. The ‘experiencing self’ went through every moment of fear, agony and anxiety that comes with contrarian investing during the previous crashes. But most of these moments are lost and only the happy endings dominate the story... | |
March 6, 2020, Issue #8 | Loss Aversion | Investors might choose to hold on to the losers and sell the winners believing that today’s losers will be tomorrow’s winners. If these assessments are based on thorough evaluations, then this is a right approach. Unfortunately, experiments have shown that many a times the only reason for such a behavior is irrational expectation about short term mean reversal. | |
February 27, 2020, Issue #7 | The Reflexive Relationship of Market Variables | At some point in time, the rising stock price and high expectations represented in the prevailing bias become vulnerable to disappointment. Eventually, the trend does not sustain and the correction sets in. If the fundamentals had become too dependent on the stock price, the correction would turn into total reversal. In that case, stock price falls, fundamentals trend is reversed, and expectations fall even further. A self-reinforcing trend begins on the downside. Eventually the downturn also reaches the climax and reverses itself. | |
February 20, 2020, Issue #6 | The Talk Market | … While disciplines like Anthropology, Political Science, History, Psychology and Sociology give adequate importance to the role of narratives; Economics and Finance have lagged far behind. Narratives influence our decisions on how and where to save, spend and invest. However, economic models have not acknowledged this important role of narratives. | |
February 13, 2020, Issue #5 | The Warmth of the Crowd | Neurologists have found that the parts of the brain that respond to exclusion, were the same parts that responded to physical pain. In other words, the feeling of being excluded or rejected provoked the same sort of reaction in the brain that physical pain might cause. Standing against the crowd is hence extremely painful. However, for successful investing, contrarian thinking is important... | |
February 6, 2020, Issue #4 | The Mind sees what it chooses to see… | This story of the Procrustean Bed is used to describe how people try to fit facts into a preconceived theory. Researchers have shown that we actively seek out only the information that supports our beliefs or actions and ignore or undermine the information that is contradictory. This tendency affects investment decisions too. It comes in the form of two characteristics of our behavior - Confirmation Bias and Cognitive Dissonance. | |
January 30, 2020, Issue #3 | The Two gatekeepers of a good portfolio | The parameters for screening should be economically sound after considering those investment principles which have historically delivered good returns for the investors. Nivesh may arrive at an investible universe by either a top-down approach or using a combination of qualitative and quantitative screeners based on some micro or firm-based parameters. Unlike Nivesh, Vinivesh doesn’t have to monitor too many companies. His area of work is only the invested set. If the buy discipline has been properly adhered to, then the sell discipline has clues of what to monitor and when to act. | |
January 23, 2020, Issue #2 | What is Risk? | “… But aren’t mid caps riskier than large caps?!” the correspondent interviewing me on the channel exclaimed. Her tone was of a person stating a fact rather than asking a question. I smiled. “Well, that depends on how you define risk” | |
January 16, 2020, Issue #1 | The Investing Edge | In the very beginning of the book, “Intelligent investor”, the legendary investor Benjamin Graham talks about the importance of psychology in investing. He says that the chief problem of the investor is likely to be himself. He also highlights the importance of temperament over knowledge. To understand the significance of this statement one needs to understand the sources of Alpha for an investor... |
