From The Horse’s Mouth: Passive Fool

Seriously, who is The Passive Fool?

“What’s in the name?” As he rightly told me when I first asked him for an interview.

He is but a humble investor who was actively scammed. He became a meek passive meek rat, riding the coattails of the active smarty-pants and savouring that sweet, tender, seductive, delectable and luscious BETA!

Given the sheer number of investors who actively get scammed and sold daydreams every single day, his posts on both his blogs The Naked Beta and Indexheads are a naked attempt to make people see SOME version of naked truth.

I for one am honoured to have him as a guest on my blog.

So, without further ado,

Tell us a little bit about yourself.
Just another loudmouth in the world of investing. Finished my MBA, wandered here and there doing this and that and finally landed in the financial services world after having a late realization that I was fascinated by the markets. 

How did you start your investing journey? What got you to the markets?
I’ve always been interested in finance and markets. I was one of those weird kids who used to take Economic Times paper to school instead of a debonair magazine. But somehow my educational choices were the opposite, not that it mattered ultimately. 

The first stock you bought, first loss and what did you learn from it?  
I might be wrong but I think it was KEI industries. But ironically, when I was in my 9th or 10th grade, my brother used to trade. I remember asking him to buy RNRL if you remember that useless company from my pocket money, I think he might have bought it, though I don’t remember. 

What are the basic metrics you look at a business when you are valuing or looking at it to invest?
I’ve given up investing in direct equities after a revelation that I’m not a great stock picker. Picking good stocks is an incredibly hard thing to do and very very few people are actually good at it. In investing, it is very important to quickly figure out what you can and cannot do and stick to your strengths. Fortunately for me, I realized very early own, picking stocks is a mug’s game for the most part. It’s not just individual investors, even the smartest fund managers with boatloads of money and humongous research budgets, and an army of analysts of PHDs have a tough time beating their benchmarks. What chances do I have as a dumb lay investor? 

In your investing journey – one thing you did which you think you did great and one thing you regret doing?
Discovering the indexing philosophy is one of the best things I’ve done. But one of my biggest regrets to this day is not starting investing early. 

Any example where patience has paid off for you?
I think it’s not just one thing. Patience and perseverance are needed in all things in life. It can be with learning about investing, or a hobby or a skill. 

Can you please tell us some of your favourite books?
I loved reading pretty much all of Mari Puzo’s and Dan Brown’s novels – I know it’s a bit lame and mainstream. In finance I haven’t read all that many books yet, another regret I have in life. But I am currently reading Freakonomics, it’s a brilliant book. Then I have An Economist Walks into a Brothel: And Other Unexpected Places to Understand Risk, Your Complete Guide to Factor‑Based Investing, Nudge, Range, The Behavioral Investor in my reading list. 

What are your hobbies?
I love writing and I am a big movie buff. 

How do you increase your market knowledge?
Just read as much as you can from good sources. Just read and read, and read until you drop dead. 

Who is your role model in investing?
Jack Bogle

Disruptions – What do you think of them and how do you evaluate if a business you are looking at as a prospective investment won’t get disrupted easily?
That’s the beauty of Indexing. An index fund reflects the collective wisdom of the markets. Winners get bigger and losers are kicked out. For example, in 1990, industrials were the biggest part of the Sensex, today it’s financials. In 1990, financials were a tiny portion of Sensex. So, I don’t have to worry about disruption, the Index will take care of it for me. Take the example of the S&P 500 index in the US. The average lifespan of a company in the index is 20 years down from 60 years. Meaning as more disruptors take centre stage, they will automatically become part of the index by the virtue of them becoming bigger.  

One advice you would like to give to younger people who have just started earning/saving/investing in the financial freedom journey?
Save as much as possible, don’t do dumb things, and stay the course. 

What is naked beta? Tell us about it.
It’s just a simple blog where I write about things I find interesting in the markets. I’ve found that writing is one of the best ways to think about things. I remember Barry Ritholtz saying, “I write for an audience of one” and this blog is similar. But I’ve been very lazy and haven’t done much writing. 

What is Indexheads India? Tell us about it.
Indexheads is a fortnightly newsletter inspired by Bogleheads dedicated to spreading the message of low-cost index investing in India. It all started with a tweet and then Anish Teli and a few other really really generous patrons liked the idea and helped to make the newsletter a reality. The response has been nothing short of stupendous. I expected 8 people to read it but the average open rates on the newsletter are well north of 40-50%. We write about all thing low-cost indexing and investing. We are also trying to get other people to write on the newsletter. Recently, Avinash, a fee-only RIA penned a really thought-provoking piece. We are just 5 issues old and still early days but the idea is to eventually turn this into Bogleheads for India. 

Why should one prefer index investing?

Index funds give you low-cost, diversified exposure to the markets. The added bonus is some of the smartest people in the world of investing won’t be able to beat them.  In investing, costs are one of the biggest factors affecting performance but most people don’t realize this. By keeping your costs low, you automatically end up better than at least 50% of the other investors. Index funds give you low-cost diversified exposure to the equity markets. For example, UTI Nifty 50 Index fund costs 10bps, while a large-cap actively managed mutual fund charges 2%. Ironically, 80-90% of all large-cap funds fail to beat the Nifty 50. 

The above is for educational and informational purposes only. It is not an endorsement or a stock recommendation. The author may be holding the securities mentioned above. Do your independent and thorough research before investing.

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