Investing Lessons from Hunger Games
As investors we always try to look for ideas that can be applied to investing, sometimes drawing from real life and at other times from movies.
Recently while watching Hunger games with my friend I asked him why the protagonist kept running without fighting the opponent.
To this my friend said It is like investing , staying alive matters more than killing the opponent.
After he said that I put on my investor glasses and watched the movie by drawing paralles to investing.
Here are some investing lessons reiterated from the movie.
1. Not losing is more important than winning.
“Make sure the downside is protected and then the upside will take care of itself.” – Seth Klarman (Jae Jun a value investor and gurufocus contributor believes immensely in this quote)
In the movie Hunger Games the lone survivor becomes the winner at the end of the game. In investing we win when we don't lose capital.
The protagonist's aim in Hunger Games is to stay alive by escaping death rather than killing the opponent.
'All I want to know is where I'll die and I won't go there' -Charlie Munger
Charlie Munger sums it up well. In order to win in investing we need to know which investments will lose us money and avoid them.
How does an investor know which investments will lose him money and how to avoid them?
-As mohnish pabrai says we need to create a checklist by looking at our past mistakes and also the mistakes of great investors and learn not to repeat them.
Set of checks before making a investment will make sure we don't lose capital.
Applying Charlie Munger's Advise of inversion before each investment, we would ask ourselves the question 'How will this investment lose me money?'
will help us make the right investment decision.
2. We need Allies to win:
In Hunger Games the winner cannot win without the support of her friends. In investing an investor also needs allies.
'Everybody engaged in complex work needs colleagues. Just the discipline of having to put your thoughts in order with somebody else is a very useful thing.'
- Charlie Munger
'Carefully watch what other investors are doing'-Charlie Munger
Megh Manseta an Indian Value investor who has a compounded return of 25% from 2004-present has this to say.
“I have run screens occasionally years ago, but that is not a method I prefer. When you possess curiosity and also have some friends interested in the markets, you hear and read about some good names over time. That’s the starting point. It is then a matter of reading the annual reports and working to understand the business itself. Over time, you come to appreciate some good businesses and companies out there and you constantly seek new ones.”
Warrent Buffett has Charlie Munger, Mohnish Pabrai has Guy spier.
3. Future is unknown :
The protagonist doesn't know what game or challenge will happen next in Hunger Games. But the protagonist faces each challenge as it comes without losing her cool.
In investing too we don't know what Mr Market will do tomorrow. Irrespective of all the knowledge and research put into identifying good companies the behavior of the stock will at times be surprising. We just need to remain sane and stick with our investments and not behave irrationally.
“Absent a lot of surprises, stocks are relatively predictable over twenty years. As to whether they’re going to be higher or lower in two to three years, you might as well flip a coin to decide.” -Peter Lynch
“If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.”- Peter Lynch
If we want to create wealth in stock market we need to buy good companies ,stick with them and wait. We have to ignore the noise and predictions of future.
The smartest investor on the earth Warren Buffett says he does not know what will happen tomorrow or a year from now. But he does know that over the longterm like 5 years the companies will do good.
We would do well by following the advise of Peter Lynch & Warren Buffett
4. We need to let go of losers :
In Hunger Games the protagonist and her allies let go off some of the team members when they realize that they cannot make it to the end.
In investing we need to regularly look at our losers and double check to make sure the original argument for their purchase still exists. If things have changed at the company and the original reasoning does not hold true we need to get rid of the investment asap.
Most investors sell their winners and stick to their losers in the hope to recover their invested capital.
Peter Lynch says investors should not sell their winners in a short span of time. He says – “It’s sort of like watering the weeds and cutting out the flowers”.
5. We don't need to be good at everything to win:
'I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times '- Bruce Lee
In the movie Hunger Games the protagonist is good at hunting and Archery , those are her core competencies.
She uses those two to win the game. In investing too we just need to know few things well to make big returns.
Here is what Warren Buffett had to say about core competency in a recent forbes interview
Question: But what was that extra thing? So many will acknowledge that, and yet, as we saw in the current crisis, they panicked while you went into seemingly potential disasters like GE and Goldman Sachs.
WB: I can’t really tell you. I didn’t learn it in school or anything. It never bothered me if people disagreed with what I thought, as long as I felt I knew the facts. There’s a whole bunch of things I don’t know a thing about. I just stay away from those. I stay within what I call my circle of competence. Tom Watson [IBM founder] said it best. He said, “I’m no genius, but I’m smart in spots, and I stay around those spots.