Saturday, January 07, 2006


I was watching the teleserial "Numb3ers" on AXN. It comes every Saturday between 7pm and 8pm. In today's episode a very interesting point emerged when a fellow detective (sniper) asked the mathematician if he had factored in the pulse of the gunner, the adrenalin rush he would have, the sweat on his forehead, the fact that he would measure the cover to avoid being sighted. The mathematician had made no such factorization - his theory was in anything, theoretical.

We can make a similar note in what Benjamin Graham told years before about Mr. Market (read from "Here's how Buffett describes it.... " in the link). Graham made evaluations on the scrip based on two numbers - his intrinsic price and the current price. In the process, he would also readily buy obscure companies which may be shams - just because the 'numbers added up'. This is where I feel Warren Buffett turned out to be one up on his master because he checked the adrenalin, sweat, pulse and factors of the scrip he was gunning after. Indeed a very important quality in stock investing which should not be left aside.

I have made a similar change in my stock pick research which has now moved from examining NCA to CMP to the use of debt-recapitalisations methods and price-earning ratios. A strong filter is put keeping atleast two of the three factors in mind. The second set of filter is on the management of the company and the industry per se. So we are now evolving our value investing practices.

Another very interesting observation in the episode was on "gaining expertise". In the episode, the mathematician illustrates by throwing a ball of paper in a waste basket bin. Shot 1 - he misses, Shot 2 - scores, Shot 3 - misses. Thats 1 out of 3 (33%). Then another three balls - 2 in and 1 out. Thats 3 out of 6 now (50%). Again 2 out of 3. Result - 5/9 (55%) and finally 3 out of 3 in which takes his tally to 8/12 (66%) success. There is a learning here ...

Often a greater jump is observed in stock prices of companies which do something new for the first time rather than for companies which have been doing it all the time. These jumps are associated with words (and not numbers :-)) like "restructuring", "alignment", "power brands" etc. More often, there is a chance of 1 out of 3 rather than 8 out of 12.

Think about it


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