Wisdom of a great master Mr.

Charlie Munger
MANISH BANSAL Jeetay Investments Email: manish.bansal@jeetay.com Phone: +91 98924 86751 Website www.jeetay.com
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If I have seen further . It is by standing upon the shoulders of GIANTS.

Sir Isaac Newton

Brain
I think it is undeniably true that the human brain must work in models. Understand the most fundamental models - ones that will do most work per unit.
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Money
There are a lot of things in life way more important than money. All that said, some people do get confused. I play golf with a man who says, What good is health? You can t buy money with it. He that is of the opinion that money will do everything may well be suspected to doing everything for money. Ben Franklin
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Money and Value

Observe your behavior in following situations:
Spending your money on yourself Spending your money on some one else Spending some one else s money on you
Result is: 1. Focus is on both value and price 2. Price (budget) is the focus; Relevance/utility (value) of the product to the person is of least importance Gifting is an example 3. Value is the focus; Price is of least botheration Going out on official lunch with customer is a testimony
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Money and Value

Observe your behavior on cancellation of movie show in following situations (intimated in advance):
You bought the ticket You were gifted the ticket

First situation how do I claim my money back? Second situation that is fine.. Good I got the intimation, otherwise, I would have wasted my time.
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Money and Value

Observe your behavior on spending following money:
You hard earned You were gifted the money You found the money on the road (some lottery)

 Different mental accounting for money based on sources (most careful in first situation to most casual in last situation)
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Money and Value

Observe your behavior on reaction to your baby s cry in following situations:
Baby is crying for 100 cents item Baby is crying for $100 item

First situation, let us give baby what he wants. This is anyway a small request. Second situation, analyze closely. If doesn t make sense, let the baby cry for some time.
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Efficient Market Theory

Markets prices reflect/discount every bit of relevant information. Questions are:
Is every bit of information available to the market place. If yes, whether it is reflected appropriately on the prices. Rationality of human being is a big question mark here.

Man is not a rational animal, he is a rationalizing one. Robert A. Heinlein

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Efficient Market Theory

Read the book influence by psychology professor Robert Cialdini:

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Efficient Market Theory

Let us play a game
Bid for this Rs. 500 note. Winner takes it for the bid amount. Second last bidder pays penalty of double the bid amount. All other bidders stay put anyway out of the game.

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Efficient Market Theory

What do you note from this exercise
Bids started inefficient Bids ended inefficient First, economics drove the prices Then, psychology drove the prices Economic models are incapable enough to define the psychological models

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Are markets efficient?

Market is less logical and more psychological Human beings decide price of assets in the market and they are subject to greed and fear At times, they price assets away from their intrinsic value Market is a pendulum that forever swings between unsustainable optimism and unjustified pessimism In short term, market is a voting machine and in long term, it is a weighing machine
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Benjamin Graham

Are markets efficient?

I could calculate the motions of the heavenly bodies, but not the madness of the people - Sir Isaac Newton (loss on South Sea Company stock in the 1720s)

Psychology is probably the most important factor in the market and one that is least understood - David Dreman
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Are markets efficient?

Read this book on madness of crowd and irrationality by Charles Mackey

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Are markets efficient?

Mr. Market hates uncertainty During uncertain times, it gets nervous and is in hurry to liquidate everything Fear of uncertainty presides over rationality

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Are markets efficient?

Human beings are not just irrational, they are predictably irrational Dan Ariely, Behavioral Economist

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Efficient Market Theory

I think it is roughly right that the market is efficient, which makes it very hard to beat merely by being an intelligent investor. But I don t think it s totally efficient at all. And the difference between being totally efficient and somewhat efficient leaves an enormous opportunity for people like us to get these unusual records.
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Efficient Market Theory

The possibility that stock value in aggregate can become irrationally high is contrary to the hard-form efficient market theory that many of you once learned as gospel from your mistaken professors. Your mistaken professors were too much influenced by rational man models of human behavior from economics and too little by foolish man models from psychology and real-world experience.
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Efficient Market Theory

Efficient market theory is a wonderful economic doctrine that had a long vogue in spite of the experience of Berkshire Hathaway. In fact, one of the economists, who won (he shared) a Nobel Prize and as he looked at Berkshire Hathaway year after year (which people would throw on his face as saying maybe the market isn t quite as efficient as you think), he said, Well, it s a two-sigma event. And then he said we were a three-sigma event. And then he said we were a foursigma event. And he finally got up to six sigmas - better to add a sigma than change a theory, just because the evidence comes in differently. And, of course, when this share of a Nobel Prize went into money management himself, he sank like a stone.
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Efficient Market Theory

Efficient market theory is taught at 99% of the B-Schools Students are made to believe . It works.. I would not like to conclude but, encourage you to discover yourself whether world is really rational! And, So, whether efficient market doctrine really works!!
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