SHUT UP

AND WAIT
AND OTHER TIMELESS PRINCIPLES TO WIN

AT INVESTING AND IN LIFE

VISHAL KHANDELWAL
 Shut Up and Wait
And Other Timeless Principles to Win at
Investing and in Life

Copyright (c) 2022 Vishal Khandelwal

vishalkhandelwal.com

All rights reserved. No part of this book may be

reproduced, stored in a retrieval system, or
transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording,
or otherwise, without prior permission

 “It’s not supposed to be easy.

Anyone who finds it easy is stupid.”

~ Charlie Munger

“If you don’t know who you are,

[the stock market] is an expensive place
to find out.”

~ George J.W. Goodman

 INTRODUCTION

Most investing books give you the same old advice: how to pick stocks
and mutual funds, how to plan your finances, how to read financial
statements, etc. Shut Up and Wait* is different. I will tell you why.

First, this book is a collection of notes I have written to myself over

the past 20 years in my pursuit of becoming a better person and
investor. Two, this book is not about any secrets or techniques that
can help you become a better investor. Instead, it contains the most
important time-tested ‘principles’ on investing well while managing
yourself in your pursuit of wealth creation and financial freedom. So,
it is sort of a book of ‘principles.’ Three, this book goes beyond
financial investing. The notes contained in it have helped me in my
journey of personal transformation. It contains the larger lessons that I
have distilled from my life and investing experiences — lessons that I
think everyone young and old will, in some ways, find useful.

Shut Up and Wait contains the most important principles around

money, investing, and the follies of our minds that act as speed-
breakers in our journey towards wealth creation and financial freedom.
These are the ideas that have been my guideposts for the last 20 years
as an investor, which I have compacted into something you can read in
less than 2 hours, though that is not how I would like you to read this
book (better, just one page a day).

I hope you find these ideas useful in your own journey of wealth
creation, financial freedom, and personal transformation.

With respect,
Vishal

* The idea of this title – Shut Up and Wait – came from a tweet from
Morgan Housel of Collaborative Fund. I checked with Morgan if he
would like to ever author a book with this title. He had no plans of doing
this and so I sought his permission to use it for this book.
 1. SHUT UP AND WAIT

Dheere dheere re mana, dheere sab kuch hoye

Mali seenche sau ghada, ritu aaye phal hoye

(Slow and mellow, O heart! Things take their time.

Gardener pours in gallons. Fruits to seasons rhyme)

~ Kabir Das, 15th-century Indian mystic poet and saint

Anthony Deden is the Chairman of Edelweiss Holdings (not related to

India's Edelweiss Financial Services), a Bermuda-based investment
holding company that he launched as a fund in 2002. In an interview
with Grant Williams of Real Vision in 2018, Tony shared how his
thoughtful, patient approach to the allocation of his investors’ capital
has yielded exceptional returns over a period of time.

In the interview, Tony shared the story of an Arabic date farmer he

met who had inherited an orchard that had about a thousand trees. As
the farmer was showing Tony around his orchard, and took him to
something like a hundred trees that were recently planted, Tony asked
him out of curiosity, “How long will it take this tree to bear fruit?”

The farmer replied, “Well this particular variety will bear fruit in
about 20 years. But that is not good enough for the market. It may be
about 40 years before we can actually sell it.”

Tony replied, “I have never heard this. I did not know this. Are there
other date trees that would produce faster?” Meanwhile, he looked at
all those trees that were being harvested and realized that this farmer
could not have possibly planted them.

The farmer tells Tony, “Okay. Here’s my grandfather and my father,

great grandfather.”

“It was fascinating,” Tony says in the interview -

"Why would a man do something today for which he would receive no
reward in his lifetime? And the only reason he would do this if his time
preference is solo. That he is concerned about his family’s wealth a
generation or two from now because he received no reward by planting a
tree that will have no …

"In your world they would call it an economic loss. A loss of opportunity
or God knows what they would call it, but he saw the world differently.
And in the supermarket, I see dates. I think about the story now. And I
am sure there are other similar kinds of situations."

Warren Buffett, one of the most successful investors the world has ever
seen, has famously said, “Someone's sitting in the shade today because
someone planted a tree a long time ago.”

I would change this a bit thus, "Someone's sitting in the shade today
because someone planted a tree a long time ago, and then waited for it
to grow.”

I see Buffett's as one of the most important advice one can ever receive
when one is trying to build a business or wealth from investing or
anything that has a lasting effect on people's lives, including that of
the builder. This is especially relevant in today's world where no-fee
discount brokers, real-time alerts, and the 24/7 news cycle causes
investors to get lost, confused, and emotional. Worst, the financial
media encourages investors to take excess action, which is actually one
of the worst things one can do in investing.

Amidst this, one of the sanest advices you will ever receive, and must
follow, for wealth creation is - shut up and wait. Just that doing this is
not that easy. But who said anything in life worth doing, like creating
wealth, is easy?
As an investor, the idea of buying and owing high-quality businesses
over a long period of time is simple. Everyone knows that, and even
those who don’t practice it appreciate that this works with most high-
quality businesses as history has proven time and again. But then, it’s
important to understand that the action of 'not' doing anything over
such a long period of time involves hundreds of decisions over months
and years that lead to such inaction.

Like this –

Now, one way is to buy high-quality businesses and forget for 20 years
and hope to end up with a fortune. There are quite a few such fairy
tales you may have heard of. But the other side of the picture is that
countless people have also ended with duds in their portfolios, or
vanished companies, when they realized their parent or grandparent
had bought some stocks and forgot about them for 20 or more years.
So, overall, it’s not easy. And it’s not supposed to be easy. But after
you have done your homework well, and keep your eyes and ears open,
‘shut up and wait’ remains the best bet in your pursuit of wealth
creation from stocks.

Here, I would like to bring in Jeff Bezos, the iconic founder of

Amazon, who said this in an interview in 2011 -
"If everything you do needs to work on a three-year time horizon, then
you’re competing against a lot of people. But if you’re willing to invest on
a seven-year time horizon, you’re now competing against a fraction of
those people, because very few companies are willing to do that. Just by
lengthening the time horizon, you can engage in endeavors that you
could never otherwise pursue. At Amazon we like things to work in five
to seven years. We’re willing to plant seeds, let them grow — and we’re
very stubborn. We say we’re stubborn on vision and flexible on details.

"In some cases, things are inevitable. The hard part is that you don’t
know how long it might take, but you know it will happen if you’re
patient enough."

We know Bezos is one of the best and most successful business owners
the world has ever seen. Now we also know that his willingness to
plant seeds and let them grow has been one of the most powerful
mantras for his wild success over the years.

Frank Partnoy, Professor of Law at the University of California

Berkeley School of Law and author of Wait: The Art and Science of
Delay, wrote this in a brilliant article –

"If we are limited to just one word of wisdom about decision-making for
children born a hundred years from now, people who will have all our
advantages and limitations as human beings but will need to navigate
an unimaginably faster-paced world than the one we confront now, there
is no doubt what that word should be.

"Wait."

Better, to quieten the constant chatter in your mind that may lead you
to act all the time, do your work and then, please shut up and wait.

***
 2. SURVIVAL IS THE ONLY ROAD TO RICHES

“The first rule of investment is don’t lose money.

And the second rule of investment is don’t forget the first rule.
And that’s all the rules there are.”

~ Warren Buffett

In his book, Skin in the Game, Nassim Taleb runs an interesting

thought experiment where he talks about two cases of playing the
casino. Equate the first case with ‘stock market trading’ in general –

"…one hundred people go to a casino to gamble a certain set amount each

over a set period of time, and have complimentary gin and tonic. Some
may lose, some may win, and we can infer at the end of the day what the
“edge” is, that is, calculate the returns simply by counting the money left
in the wallets of the people who return. We can thus figure out if the
casino is properly pricing the odds.

"Now assume that gambler number 28 goes bust. Will gambler number
29 be affected? No.

"You can safely calculate, from your sample, that about 1 percent of the
gamblers will go bust. And if you keep playing and playing, you will be
expected to have about the same ratio, 1 percent of gamblers going bust,
on average, over that same time window."

Now consider the second case in the thought experiment. Equate this
with an ‘individual’ trading the stock market –

"One person, your cousin…goes to the casino a hundred days in a row,

starting with a set amount. On day 28, your cousin is bust. Will there be
day 29? No…there is ‘no game no more.’
"No matter how good or alert your cousin is, you can safely calculate that
he has a 100 percent probability of eventually going bust. The
probabilities of success from a collection of people do not apply to your
cousin."

Now, you may blame the disastrous outcome of your cousin on, well,
your cousin. He may have been foolish, you may think, who did not
understand that the longer you play in a casino the more you stand to
lose (the house always wins).

But what Taleb writes about is a nice mental model to remember when
you are reading finance books or are being recommended stocks based
on the long-term returns of the market. How your cousin behaved in
the above thought experiment is how most people, old or new, behave
in the stock market when they play the game as if it were a casino
(trading, speculating, etc.).

Remember that you or I are not the market. Earning the long-term
returns of the market, of the past or the future, is not in our control.
Managing our risks and avoiding ruin, mostly is.

“Rationality is avoidance of systemic ruin,” Taleb writes.

Trying to avoid the ruin the stock market system enforces upon people
who disregard its workings is rational. Believing that you can beat the
system at it, by playing the game mindlessly, isn’t.

Someone wise once said –

"People destroy themselves in unique interesting ways. Systems destroy

people in uniform boring ways."

Now the problem with beating the system for some time is that we get
a swelled head. We start believing that if the stock we have invested in
has earned us magnificent returns over the past 2-3 months or years, it
was entirely an element of our skill and no luck. Yes, that’s how the
mind behaves and makes us believe.
But then, as Jesse Livermore, one of the world’s best-known stock
market speculators, who committed suicide after going bankrupt the
fourth time, reminds us –

"A great many smashes by brilliant men can be traced directly to the
swelled head — an expensive disease everywhere to everybody, but
particularly…to a speculator."

Now, if that’s not all, consider path dependence that in simple terms
explains how history really matters – where we have been in the past
determines where we currently are and where we can go in future.

As Taleb writes in Skin in the Game –

"Assume that your capital is around one million dollars and you are
involved in speculation. Apply path dependence to the reasoning.

"Making a million dollars first, then losing it, is markedly different

from losing a million dollars first then making it.

"The first path (make-lose) leaves you intact; the second (lose) makes you
bankrupt, insolvent, maimed, traumatized and more generally unable
to stay in the game, thus unable to benefit from the second part of the
sequence. There is no ‘make’ after the ‘lose.’"

Anyways, ultimately, the lessons?

First, you are not the market. So, stop looking at market returns. Don’t
yield into the false promise that “in the long term, you will earn a
minimum of 15% because that’s what the market has earned in the
past.”

Second, don’t speculate, again because you are not the market made up
of people who may seem to be doing well (for some time) speculating.
Also, stocks are pieces of underlying businesses. Respect that and you
have a great chance of doing well over the long run.
Remember Warren Buffett who said – “If you’re even a slightly above
average investor who spends less than you earn, over a lifetime you
cannot help but get very wealthy – if you’re patient.”

Third, if you really wish to speculate (but never with other people’s
money), first earn at least a million (through hard work at your place
of work, and investing) and then speculate with a small part of it so
that you don’t end up in total ruin. Call this money you use for
speculation as ‘sin money,’ so that mentally prohibits you from
committing a lot of sins. Remember that smoking a single cigarette,
like speculating just once and with a small amount of money, is
benign. But their constant repetition (“just one more time”) takes you
closer towards ruin.

Fourth, the only way to do well in investing is to survive. As Peter

Bernstein writes in his brilliant book Against the Gods – “Survival is
the only road to riches. Let me say that again: Survival is the only road
to riches.”

In life and investing, I wish you survival.

Because if you survive, you will be rich, my friend.

***
 3. BECOME AN INVESTING BUDDHA

When it comes to investing, making money in stocks when everyone is

making money in stocks isn’t a big deal. Rather, it’s the ability to
handle good and bad times with equanimity, combined with courage
and decisiveness, that really matters in the long run.

Of course, most of us simply aren’t wired to be equanimous at most of

the times, and it’s terribly difficult to rid ourselves of the emotions of
ecstasy (when things are looking up) and misery (when things are
looking down). And that’s why ensuring that we avoid all of those
ways that can cause us wealth destruction – trading, timing, high fee,
inadequate diversification, and leverage – is paramount. Everything,
including our triumphs and disasters, anyways shall pass. But the
equanimity with which we allow them to pass will keep us sane always.

As Lord Krishna taught Arjuna on the battlefield of Kurukshetra, as

we wade through the ocean of life, it throws up all kinds of waves that
are beyond our control. If we keep struggling to eliminate negative
situations, we will be unable to avoid unhappiness. But if we live a life
of sanity and learn to accept everything that comes our way, with
equanimity and without sacrificing our best efforts, that will be true
Nirvāṇa.
***
 4. THINK IN ASPECT OF ETERNITY

The Heilbrunn Center for Graham and Dodd Investing created a

wonderful video in 2013 titled ‘Legacy of Ben Graham,’ which
contains bytes from some of his students on how Graham’s teachings
changed their lives. Marshall Weinberg, one of those students from
Graham’s class said that the biggest lesson he drew out of that class was
on long-term thinking –

"One sentence changed my life…Ben Graham opened the course by

saying: ‘If you want to make money in Wall Street you must have the
proper psychological attitude. No one expresses it better than Spinoza the
philosopher.’

"When he said that, I nearly jumped out of my course. What? I

suddenly look up, and he said, and I remember exactly what he said:
‘Spinoza said you must look at things in the aspect of eternity.’ And
that’s what suddenly hooked me on Ben Graham."

Spinoza actually said, “Sub specie aeternitatis,” which translates to

“under the aspect of eternity,” or “from the perspective of the eternal.”

Critics of this idea may believe that with such thinking, there is no
reason to believe that anything matters. But where Spinoza may be
coming from is the idea that, in the larger scheme of things, nothing
matters, which leads us to put our pains and struggles – including, as
investors – into perspective.

Much of the time, in life and in investing, we would be better off

zooming out than zooming in. Rather than being ticker watchers of
our own lives, and rather than zooming in and magnifying and thus
worrying about the daily volatility in our stocks, we would be better
off thinking about our lives and investments as pale dots that are just
specks on the canvas of eternity.

Within this, if we keep doing our work well, the daily motions and
volatility that we pass by must not worry us, therefore.
Like what Weinberg said about Graham, here was the father of value
investing teaching his students about the value of long-term thinking,
and that too in terms of eternity.

Almost seven decades later, we would be paying true homage to

Graham if we could view investing through a wide-angle lens, taking a
long-term perspective, and striving for a long, sustained upward trend
in our well-chosen stocks instead of getting worried about the short-
term volatility in their prices.

This may not help us eliminate all mistakes we may make as investors,
but it can give us the tool to treat our investments and portfolios just a
little bit better.

***
 5. WHAT WE CONTROL, AND WHAT WE DON’T

The one year period between Feb. 2015 and Feb. 2016 was a
particularly bad one for the markets. The broader markets fell around
20% during this period, and there were multitude of stocks that
crashed 30-40%.

Howard Marks, the legendary investor and Chairman of Oaktree

Capital Management, described the situation in the stock market in his
Feb. 2016 memo to clients thus –

"My buddy Sandy was an airline pilot. When asked to describe his job,
he always answers, “hours of boredom punctuated by moments of terror.”
The same can be true for investment managers, for whom the last few
weeks have been an example of the latter. We’ve seen bad news and
prices cascading downward. Investors who thought stocks were priced
right 20% ago and oil $70 ago now wonder if they aren’t risky at their
new reduced prices."

In the rest of the memo, he went on to explain why Mr. Market –

representative of the stock prices – has nothing valuable to offer to
investors through his daily mood swings –

"Especially during downdrafts, many investors impute intelligence to the

market and look to it to tell them what’s going on and what to do about
it. This is one of the biggest mistakes you can make. As Ben Graham
pointed out, the day-to-day market isn’t a fundamental analyst; it’s a
barometer of investor sentiment. You just can’t take it too seriously.
Market participants have limited insight into what’s really happening
in terms of fundamentals, and any intelligence that could be behind
their buys and sells is obscured by their emotional swings. It would be
wrong to interpret the recent worldwide drop as meaning the market
“knows” tough times lay ahead."

Predicting the subsequent movement of stock prices, or the next mood

swing of Mr. Market, whether he will be in the best of his spirits or
worst – is a loser’s game.
Focusing on where the earnings and cash flows of the underlying
businesses you own, or want to own, are going to go long term is what
you must focus on.

Your behaviour and expectations are under your control, and so is the
amount of risk you wish to take and the time you have in hand. Stock
prices and future returns aren’t under your control and thus you must
leave them at what they do best, that is, fluctuate.

“If owning stocks is a long-term project for you,” warns psychologist

Daniel Kahneman, “following their changes constantly is a very, very
bad idea. It’s the worst possible thing you can do, because people are
so sensitive to short-term losses. If you count your money every day,
you’ll be miserable.”

***
 Vishal Khandelwal teaches, writes, and
illustrates. He is the founder of
SafalNiveshak.com, where he helps people
learn to make better investment decisions. He
is also the author of The Sketchbook of
Wisdom, which has sold more than four-
thousand copies across forty-five countries.
You can read more about the Sketchbook and
order your copy at - book.safalniveshak.com.

Vishal tweets at @safalniveshak.

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 This is a masterpiece.
Morgan Housel, Author, The Psychology of Money

Template on how to lead a happier and fuller life.

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With straightforward prose and delightful

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