“Investing is simple , but not easy ,” said Charlie Munger.
Understanding that sensible investing is about buying a thing worth Rs 100 at Rs 50 is simple , but actually buying something worth Rs 100 that falls to Rs 50 is not easy .
Working on spreadsheets is
, but not twisting spreadsheets to fit your version of reality is
Calculating past growth and profitability numbers for a business and understanding whether those are good or bad is simple , but actually trying to understand a business deeply enough to visualize how it will look like in the future is not easy .
Knowing that a business has moat as seen from its superior profitability and clean balance sheet is simple , but understanding whether this moat is sustainable or fleeting is not easy .
Calculating book value of a company is simple , but understanding whether that book really has value, and roughly how much, is not easy .
Knowing the results that numbers shout out of financial statements is simple , but knowing which of those results are signal and which are noise is not easy .
Knowing how DCF works is simple , but looking at businesses with a DCF frame of mind is not easy .
Calculating precise intrinsic values for businesses is simple , but trusting approximations that really work is not easy . (Keynes said – “It’s better to be approximately right than precisely wrong.” )
Knowing beta is a measure of volatility is simple , but appreciating that volatility isn’t the real risk you face in investing is not easy .
Earning alpha from an investment for a year or two is simple , but appreciating with complete humility that it is next to impossible to sustain it over a long period of time is not easy .
Understanding that money can multiply 100x in 25 years when you compound at 20% annually is simple , but sitting through these 25 years patiently when others are cashing in after having made 5-10x is not easy .
The celebrated American physicist and a great teacher Richard Feynman said that there’s a big difference between ‘knowing the name of something’ and ‘knowing something’.
Math helps you know the name of a lot of things, which is simple . But it’s your mindset that helps you really know things, which is not easy .
Of course, understanding basic math is a prerequisite for becoming a smarter investor. But if you need math to tell you whether you are doing right in investing or not, you are doing something seriously wrong.