Lyft stock down by 12% and some thoughts on investing

After popping up 8% on the first day of its IPO last Friday, Lyft’s stock dropped by almost 12% today. That’s what I find baffling about the stock market. How much of the business could change in the span of 4 days? I haven’t encountered news that could justify the drop of that size. What changed? Will it go further down tomorrow? Or will it shoot back up again? And by how much? I literally have zero idea.

Charlie Munger once said that if you want to make money by buying low, you have to know when to sell high and it’s hard. Given what I have seen so hard, he is right. You don’t know when it is “high” enough to satisfy your own greed. Some may say that determining an intrinsic value of business by discounted cash flow (DCF) will be helpful in knowing when to buy and when to sell. That’s true, but DCF itself isn’t an easy and straightforward practice. It’s really hard. Here in this clip (around 6:50), Charle (not sure if he was 100% serious) mentioned that he never once saw Warren Buffett do a DCF. Plus, a renowned expert in valuation, Aswath Damodaran, admitted that he missed the mark way off when he tried to value Uber in 2014. I once participated in an M&A competition with three of my close friends. In the course leading up to the contest and the contest itself, we had to do quite a few valuation with DCFs. The method involves a lot of assumptions and it’s more art than science. Each company requires a different approach and almost no valuation is the same. If an expert such as Professor Damodaran struggled to get it right, what are the odds of ordinary folks nailing it? My money is on the “not very high” bet.

I don’t know a perfect method in investing, but I agree with Warren Buffett that buying or selling on prices is not investing. I’d recommend these two books if you are interested in life advice and investing. Poor Charlie’s Almanack and The Most Important Thing: Uncommon Sense for The Thoughtful Investor. If you have time, read more from Charlie Munger. He is really a wealth of wisdom. Plus, you can read financial reports (SEC filings of the companies) or S-1 if companies are filing to go public and subscribe to Seekingalpha.com or Yahoo.com to read the transcript of their earning calls. Plenty of useful information can be had from such sources.

I have my own reasons to invest in the companies in my small portfolio and if I go bust, at least I will learn a ton about business and go out on my own terms.

Video: Howard Marks interview with Tim Ferriss

The stock markets are crashing now. For quite obvious reasons. Tariffs, trade wars, the government shutdown that has no signs of being abated soon. Markets don’t like uncertainty, chaos or unpredictability.

The S&P500 has gone down by 15% since October. Apple has lost 38% of its market capitalization in the same time frame. My phone has repeatedly received notifications on the 52-week lows of the stocks in my portfolio for the past few weeks.

The knives have started falling. Should you stand still and try to catch the falling knives?

I listened to the interview between Tim Ferriss and Howard Marks, the author of the book: The Most Important Thing: Uncommon Sense for The Thoughtful Investor; which I highly recommend.

Howard argued that it is only when the knives are falling are people terrified and do the bargains show up. If we wait till the dust settles, the bargain will be gone. But when should one start buying to take advantage of the downturn? It’s up to one’s skills. Howard also cautioned that buying during the downturn isn’t enough to guarantee returns. Investors have to be right first and if investors want to outperform the markets and everyone else, they must have insights that no one has or the 2nd layer of thoughts.

If you are interested in investing and business, it is a great interview with a lot of insights. Have a listen while driving or working out or cleaning your place. It’s worth your time.

Book: The Most Important Thing: Uncommon Sense for The Thoughtful Investor

I am in the middle of the book: The Most Important Thing: Uncommon Sense for The Thoughtful Investor by Howard Marks. It looks to be a short book, but 40% in the book, I have been delighted by the concise and thoughtful insights the author shares in his words. If you are a fan of value investing or the investing philosophy made famous by Ben Graham, Warren Buffett or Charlie Munger, this book should not surprise you as many topics touched upon by Howard Marks follow the same philosophy.

One of the best lessons I have learned so far from the book is the difference between first-level thinking and second-level thinking. The goal of investing is to outperform the market and other investors. It’s not easy as information is widely accessible now, making it highly challenging to gain some insights that few others know. Nonetheless, if gained, the contrarian thinking or unpopular but correct insights will enable superior returns compared to the returns of market or other investors.

First-level thinking can be done by almost everyone. It’s “simplistic and superficial”. First-level thinkers have an opinion about the future as in “the outlook for the company is favorable, meaning the stock will go up”. Second-level thinking is deep, convoluted and complex. Second-level thinkers arrive at conclusions and forecasts that are both correct and not thought of by the consensus. But it’s hard to do so.

There are many other lessons offered in the book. I highly recommend it if you are interested in investing. After all, we can’t get rich without making money while we are sleeping, can we?

 

Two legitimate ways to save tons of money on books

This piece can be helpful to everyone, but it will be more to college students who have to pay hundreds of dollars every year for books that are useful for only 8 or 16 weeks. Understanding that finding digital version of books on the Internet is a controversial issue, I’d like to stay away from that and focus on two tactics that have helped me tremendously and hopefully will do the same for others.

Buy International/Global version of books

In case you have a burning desire to own physical books for future references or a dominant preference for ink and paper, this tactic is for you.

In my experience, books share essentially the same content across versions. The biggest difference perhaps is examples and redistribution rights. Despite sharing the same content, International or Global version is much cheaper than the North America version. Take the book below for example. Same edition. Same authors. Same content. The price difference is a staggering 100 dollars

This is a book I had at school. I have nothing against it or no relation with the author or the publisher. This is just to give an example

As a student, I can speak from first-hand experience that students don’t find much motivation to actively resell books. Even if one manages to resell a book, it will be at a significant discount. Given that much knowledge nowadays is accessible thanks to the Internet and people’s willingness to share via blogs and social media, I don’t think it’s worth it to make a sizeable investment upfront in books and likely a loss eventually.

With International/Global version, there will still be expenses involved. However, the damage is much smaller and if you don’t have the time or will to find a buyer for your books, you probably won’t have to lose much sleep over it.

Public libraries

I have borrowed many books from the public library and saved hundreds of dollars in the process. Books, even some latest releases, are available for free for a few weeks. Renewals are possible, depending on the availability of the books and how coveted they are. At some libraries such as the public one in Omaha, you can even suggest titles for the library to purchase. Of course, the library’s management retains the discretion to approve or decline such suggestions. As part of your taxes goes to funding for public libraries and you can save a lot of money, there is no reason not to take advantage of that.

As students in the US are saddled with a lot of student debt/loans, every dollar saved on books can count tremendously in the future due to a little thing called “compound interest”. Do yourself a favor and find a way to save as much as possible!