Alpha Ideas

The Book ‘Skin in the Game’ is written by Nassim Taleb,who is mainly responsible for explaining the concept of  ‘Black Swan’ to the world.

Taleb’s first book ‘Fooled by Randomness’ is one of my favourite books and it left an indelible impression on me .

As such, I was quite curious to read his latest book.

The Book can be summarised in just a few lines.

Most things in life can be explained by ‘Skin in the Game’ i.e. when a person has a stake in both the upsides of a decision outcome as well as the harm/downsides if the decision is a wrong one.

Any person who gives an opinion/view and is not held responsible for it, has no ‘skin in the game’ and is possibly a fraud or a charlatan.

Some experts who come on TV  fall in this category.They give advice/targets for stocks/markets etc and yet suffer no consequences if their call turns out to be wrong.Its only the viewers who suffer.

Similarly,in India, you find colossal mismanagement in Govt and PSU companies and banks,as their employees have no ‘skin in the game’.They get their salaries,pensions and benefits irrespective of outcomes.

The Book contains many anecdotes and examples from the Classics….this may be boring to a person who is not  a history buff.

The Book covers a wide ground of topics (the author seems to have an opinion on everything) from employment to incentives to education to war to policy making etc etc.

Some interesting insights from the Book are :

Don’t tell me what you “think”, just tell me whats in your portfolio

Bureaucracy is a construct in which a person is conveniently separated from the consequences of his actions.

You will never fully convince someone that he is wrong, only reality can

The market is like a large movie theater with a small door.And the best way to identify a sucker is to see if his focus is on the size of the theater rather than that of the door.

The author considers himself to be somewhat of a Renaissance man…so there are traces of arrogance and pomposity in his writings.He loves to shock as some of his topics indicate (for e.g Is the Pope an atheist?)

I found it to be an entertaining read but it might be difficult going if you are not a Taleb fan.

The Book ‘The Sleuth Investor’ is written by Avner Mandelman who is a fund manager based out of Canada.

The first line of the Book sets the tone for what is to follow:

“To make money in the stock market, it’s not enough to rely on public information.”

Then how to get non-public information in a legal way that doesn’t flout insider trading/compliance rules etc?

The Book sets out to explain how one can get information from the following sources:

• People
  • Employees
  • Customers
  • Suppliers
  • Competitors
• Product
• Place-Factory/Office etc

If the information has the “TIE” criteria, then you could have possibly hit the jackpot.

The “TIE” criteria is that information so obtained is:

• True
• Important
• Exclusive

This kind of approach to investing is what PE firms and large funds do on a routine basis and was popularised by Fischer as “Scuttlebutt”

But yet for an ordinary investor with limited funds, there are lots of lessons too.Many times we end up buying knowing very little of what we have bought…the Companies and the people behind the Stock Symbol.

For example,how many times have you bought a stock without using its products or even seeing it’s products?

The Book explains that Stock Investing goes beyond just arm chair analysis using annual reports,financial statements,exchange filings etc

One has to go beyond the Computer Screen and consider investing as an “investigatory field craft”

In the Indian context, this is very much true for small caps and SMEs.Many times they turn out as frauds which can only be detected by field work, not by financials.

While the Book gives North American examples, there are many examples in the India where a little bit of leg work have saved people bundles of money. Some instances being:

• Employees say that they don’t get salaries on time
• Customers say that the Co is willing to do business in cash
• The Promoter’s kid and heir apparent is a drug addict
• Distributor denies being associated with the Company
• Retailers don’t stock the Company’s Products
• You send a Sales Inquiry and nobody responds

and so on and on.

I would recommend this Book to get a different way to look at investing.