Book Review: The joy of compounding

The joy of compounding: the passionate pursuit of lifelong learning. 2020. Gautam Baid, CFA. Columbia Business School Publications.

Inside The joy of compounding: the passionate pursuit of lifelong learning, Gautam Baid, CFA, a valued investor and portfolio manager at Summit Global Investments, offers new opportunities to learn and re-learn critical lessons that will make us better investors and individuals. The author’s lifelong pursuit of learning through continuous reading, reflection and reflection will inspire investors to enhance their skills.

For Baid, value investing not only provides an investment strategy but also provides an intellectual toolkit for gaining a deeper understanding of the world around us, including ourselves. He presents an holistic approach to valuing investment and philosophy from his extensive lessons, combining practical approaches, self-cultivation and business knowledge. He integrates the strategies and wisdom of renowned investors whose education has stood the test of time, such as Ben Graham and Charlie Munger, dividing investment and life lessons into a comprehensive guide. Bade successfully demonstrates the practical application of their ideas in business, investment, and decision-making, as well as shows that these ideas can be applied to one’s personal life as efficiently as possible.

The author reminds us of the importance of being a learning tool and the best investment we can make is investing in ourselves. He firmly believes that being a lifelong student has made him a better investor. Self-improvement is the best way to spend some time each day, Bade says, and digging just an hour to read each day is easier than people think. Instead of engaging in the adrenaline-laden rush of emails and social posts while multitasking, one can give time Intentional practice, Which focuses on a specific goal of improving performance.

My own experience has taught me that studying and passing for financial and real estate degrees is an effective form of intentional practice and Deep work, Which consists of a non-distracting focus on a cognitively claimed task. The exam preparation process provides critical feedback just like a trainer or instructors, an important component of intentional practice.

Compound knowledge building will create a repository of knowledge or “fake work of mental models” that will allow individuals to draw on their own and others ’instincts, judgments, and experiences. Baid noted that reading just 25 pages a day is equivalent to 9,000 pages per year, which would enable one to read Robert Carro’s 1,336 pages. Power Broker About seven times a year. Time, the currency of life, is a non-renewable asset that is becoming increasingly scarce for everyone as it goes on every day.

The author provides practical examples of keeping high standards on time, such as avoiding long daily commutes to work and outsourcing all non-original, time-consuming manual tasks. Although Byd does not present personal return data to show improved performance from the market, he feels he has achieved financial independence through a lifelong pursuit of learning. This allowed him to do what he wanted to do for self-fulfillment rather than necessity.

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Baid provides strategies for successful general stock investing, including using checklists to improve decision making and keep a journal to increase self-reflection. Checklists are a systematic means of attaching rational brains, protecting investors from the “cocaine brains” that can push them into greed mode. It feels better to take action based on pre-established rules and checklists instead of pure emotion. A good checklist, according to Baid, is short, precise, efficient and easy to use even in difficult situations. They don’t try to spell everything out, instead just provide reminders of critical action.

Since humans rationalize animals rather than rational animals, journaling provides us with an essential tool for self-awareness, self-reflection and successful investing. Most investors do not keep a journal. Baid recommends maintaining a journal that contains the original investment thesis when buying the stock, as well as the rationale for selling the shares.

A journal is the most objective way to stay true to the policy and avoid insightful bias. It helps investors to constantly learn from their mistakes. The resulting insights are some of the best teachers in life, business and investment. Learning from your own mistakes, as well as learning from the horrible lessons about the mistakes of others, provides significant benefits in an investment life, which is usually a long one.

As for the strategy of improving investment decision making, I more sincerely agree with the author’s advice on reading more financial history and less “expert” financial forecasts. Having a firm understanding of financial history is essential for the development of “steel nerves” and stability during inevitable periodic disruptions in financial markets. The study of history creates awareness of some possibilities that would not otherwise be considered and provides a medium and long-term benefit rather than a short-term approach.

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As an example of the value of maintaining a long-term outlook despite political turmoil, Byrd cites the strong performance of India’s main stock market (Sensex) during 1984-2019, a time that saw nine different prime ministers or governments (majority versus minorities). In India, there is a significant amount of uncertainty and apprehension about government formation in election years. During an election campaign, investors feared that the market would decline rapidly if a coalition government came to power.

During the nine episodes examined by Byd, however, the compound annual growth rate (CAGR) of the Sensex was negative in only one case (–5.3% in 1996-1998). The positive CAGR for the other eight periods ranged from 4.0% in 1999-2004 to 48.6% in 1989-1991. The author also details the largest withdrawal of the Nifty 50 Index in India since 1991 and the S&P 500 Index in the United States under various political regimes since the late political decade. Significant interim stock price volatility has not had any impact on the country’s long-term equity market performance.

Finally, highlighting the popular characteristics of compound interest as the most powerful force in the universe, this book forces readers to think in terms of human characteristics such as positive thinking, good health, good habits, wealth, knowledge, and goodwill. . Like the financial benefits of rising interest rates over decades, individuals should focus on these features at a young age. Doing so enables the strong energy of the compound energy to work its magic for a very long time.

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All posts are the author’s opinion. As such, they should not be construed as investment advice, or the opinions expressed must not reflect the views of the CFA Institute or the author’s employer.

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Mark K. Vasin, CFA

Mark K. Vasin, Senior Vice President of CFA, BASIS Investment Group, LLC, and Assistant Associate Professor at the NYU Stern School of Business in New York City.

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