Vishal Khandelwal on playing the Infinite Game

Nov 16, 2023

Vishal Khandelwal is a gentle soul. Be it his demeanour or attitude, everything about him is just so very pleasant. One who is passionate about helping others grow - either in their mindset or as investors. I honestly believe that those whom he considers to be friends are extremely fortunate. I ended this conversation, eager to catch up with him once again.

This is part of a series where I attempt to understand the behavioural traits and mindset of money managers and investors. At the end of this (slightly edited) transcript, I have listed the 20 individuals interviewed for this series.

VISHAL KHANDELWAL is the founder of Safal Niveshak.

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My very first question to you is based on a quote of Richard Feynman: The first principle is that you must not fool yourself because you're the easiest person to fool. Has there been any bias which got the better of you? Which fooled you, so to speak?

A very apt quotation to start this conversation.

I honestly would consider myself a big fool if I start believing that I've gotten over my biases or overcome all my biases. As long as the brain is functioning, it is very difficult for us humans to get over what we have been believing all our lives.

One bias that gets the better of me almost all the time, which I am trying to overcome, but find difficult, is the Confirmation Bias. This is when we seek evidence or information to validate or confirm a preexisting belief. When we are reluctant to change our mind.

As Salman Khan said in Wanted, "ek baar jo maine commitment kardi toh phir mein apne aap ki bhi nahi sunta."

Once our mind has committed to something, we are unwilling to listen even to ourselves or disconfirming evidence telling us that we are wrong or have made a mistake. It's like that internal “Yes Man” shouting inside our head, always echoing what we already believe in. The more you feed it with information that you already believe in, the stronger that voice becomes.

Why is it so difficult to change our mind? Probably because we are mentally lazy. It's much easier to seek evidence or information to confirm what we already believe, than actually work hard to get evidence or information that disconfirms what we already believe in.

It's so difficult to change our minds about most things, investing or otherwise in life as well. It is a bias which is very difficult to get over. I'm trying my best; 20 years down the line I still am.

How? How are you trying to get over it?

After understanding and learning about the biases, I realise that you can only expect to minimize the mistakes made or the harm from the mistakes being made. You cannot eliminate them. So now that I understand what the Confirmation Bias is all about, I try to minimize it.

When I once I go through my investing journal or through my checklist, I can track how often I fell prey to this bias. When I look back in hindsight and I show myself the mirror, I realize that the mistakes or the quantum and magnitude of mistakes, that caused me huge problems in the early part of my career as an investor, have reduced. This is because I'm aware of what's causing the problem.

It's all about awareness and minimization, NOT elimination.

We are always evolving, always learning. It could be our experiences, the experiences of others, the books we read, the information we consume, the podcast you do. How have you evolved as an investor? What is it that you once believed that you no longer believe, or vice versa?

I've not really changed my views 180 degrees, but there has been a gradual and subtle shift on those ideas over a period of time. It's a constant evolution. I cannot say that I have evolved; evolving on a daily basis would be more apt.

One of the foremost is on the understanding of risk.

I started my career as an investment analyst 20 years back, and worked in that role for almost 8 years. My idea of risk was stock prices jumping up and down. That typically is the case for most investors starting out who monitor the stock market on a daily basis and witness stock price volatility. They think that it is the biggest investing risk.

Over a period of time, as I learnt from Warren Buffett and Charlie Munger and others like them, I've come to realize that risk is permanent loss of capital. I also evolved from that understanding. That risk is not just permanent loss of capital but also missed opportunities.

So risk for me is now two-pronged. When it comes to permanent loss of capital, I try to avoid those businesses or those investments that can that lose me money permanently. And I also always on the lookout for opportunities where I can create wealth without losing a good night’s sleep.

Another evolution on the risk front for me has been qualitative. We tend to equate risk with wealth creation and losing money. But I think losing your peace of mind is also a huge risk that you take when you come to the stock market. The stock market is the greatest humiliator out there. The smarter you think you are, the deeper you fall into that hole of mistakes.

How do you describe yourself as an investor? And I ask you this because you're a great believer in first principles. So do you go by the conventional and growth and GARP, or have you evolved your own strategy?

I think I have evolved on that front too.

When I started out 20 years ago, I was more a growth investor. When I say growth, I mean looking at or buying businesses that are that in a growth phase, and willing to pay a higher price for such stocks. In the interim, after burning my hands, I would also be an extreme value kind of investor, buying only cheap stocks, in a pure Benjamin Graham sense. Not extremely cheap stocks, because those are not available anywhere in today's world. But somewhere down the line it became a mix of growth versus value.

In the last 10 years, that extreme differentiation of growth versus value has diluted for me. There's no extremities that I am thinking about anymore.

I am a GARP kind of investor. While it is Growth at a Reasonable Price, it also means Growth at Reasonable Peace for me.

I want to invest in those businesses which are growing at the right valuation. I want to partner with those businesses whose managements give me ample peace. I know that they are managing the business well, and my job as an investor is just to allocate my capital sensibly, and let them build the business.

That would be my investing philosophy or strategy.

My idea is to buy and never sell. That does not mean that I will not sell if the businesses are doing badly, or something has gone wrong, or I made a mistake. Where I am coming from is to work so hard when making that decision of buying the stock in the first place, that the probability of having to sell is greatly diminished. That's the idea.

You meet so many people, whether it's online or in real life. What is one behavioural bias that really irks you, that really irritates the hell out of you?

Without doubt that's Overconfidence.

Since I have mostly been under confident in my life, it probably magnifies the Overconfidence bias. Especially the new and young investors who are overconfident. Apna time aa gaya. This time is different. Sir John Templeton said that “this time is different” are the four most dangerous words in investing.

Overconfidence stems from incompetence. The Dunning Kruger effect implies that when we are less competent in something, we are more confident in it. And then, as we gain competence in life or investing or anything, we realise that we were wrong all the way. That there is so much to learn. That there is so much more to know. As you get more competent, you learn more.

Overconfidence is a great killer. I would rather be a person who, with complete humility, accept that I know that I know nothing. That is the reason I keep learning and keep making myself better. But the day I think that I have become overconfident or see others who are, my advice is “please tone down”.

I read somewhere your views on forgiveness, and I quite resonated with it. Can you extend it to investing? How forgiving would you be of bad management or a promoter who has messed up?

Forgiveness is a great idea. Forgiveness is a great virtue to possess. I am all for seeking forgiveness and granting forgiveness to those who have wronged me.

When it comes to investing, I prefer the idea of being firm instead of forgiving.

Empathizing, instead of taking everything into my stride and believing that whatever the management does is perfectly fine.

I stand firm in my belief that if I have allocated capital to a business because I trusted the management or the business owners to take care of my capital, they should. That's their primary responsibility.

So when I look at businesses and managers, apart from the financial performance - though everything is reflected in the long-term financial performance - I always look for people who are competent, with high integrity, who have not played the wrong hand with minority shareholders, who have not committed fraud or embroiled in a scam, however small.

This is what I look for when I want to partner with the management over the long run. When there is a lack of integrity or a very short-term focus, I stay away, even if the stocks are cheap, or everyone is making money on them. That keeps me sane. That gives me peace.

Firmness is very important.

Forgiveness. Maybe for some kind of capital misallocation over a short period of time. Because we are all humans, and we make mistakes. That comes from empathy. Once you start empathizing with managers, you are willing to forgive them for some kind of capital misallocation for a short period of time. But not when it comes to ethics and integrity. I will not be forgiving. I would rather sell the stock and move on.

Do you think meditation makes you a better investor?

I think so, though I have not been able to draw a direct cause and effect relationship.

Meditation for me is simply sitting at a quiet place, closing my eyes, trying to get over my thoughts by just focusing on my breath. It’s as simple as that. Whenever I practice it, I have observed that I am a more calm and thoughtful person. The more I repeat it, the more it impacts me in that way.

So that has probably helped me become much more mindful as far by as my investing and work goes.

Meditation is not the direct cause of how calm you are. I think once you start meditating, you actually become more mindful of whatever you are doing, whether you're washing dishes or investing in stocks or conducting a surgery. Once you're mindful, you're more thoughtful. You'll be taking that step, making that next decision, much more cautiously and in your complete senses. You end up with better outcomes over a long period of time.

I think meditation or mindfulness has helped me become a better investor over a period of time.

You get so many inputs from varied individuals. Has your podcast also helped you?

I started the podcast because I wanted to get over my shyness of talking. I am completely shy of talking. I don't know how I am talking to you so much. Generally, you will not find me talking. I'm much more comfortable sitting alone behind a computer and writing my thoughts out.

But it was also a way for me to start listening to people. One of the skills which I have developed over the past few years is one of patient listening. Most of the time we listen because we want to answer the next question. Because we want to add to the conversation.

There are so many subtle aspects of running a podcast. You end up learning so much about yourself, about the kind of person you are. A new way of looking at the same things that you never thought about.

I was talking to William Green in one of my episodes. He put forth an idea that he got from Charlie Munger. The way to win any game in life is to play the game that you can win. He said that he is not good at investing so would rather give his money to a better investor or money manager who can do that. He said that he is good at interviewing people, writing down thoughts, combine various thoughts, collating those ideas and creating based on wisdom received.

He is one of the wisest authors in the investing space out there. I can highly recommend his book Richer, Wiser, Happier.

Play the game that you can win. This was a revelation for me.

That's exactly what I'm doing with my work as well. I don't know how to manage money. I find that it too risky for myself or my expectations. I don't recommend stocks, because that is not the game that I want to play. I don't think I can win at the at that game.

But in terms of teaching people, educating them, writing blogs, doing podcasts… these are the games I enjoy a lot. I'm not looking at winning, but just playing the game.

There's so many other lessons that I can talk to you about, but maybe some other day.

What advice would you give your children, or any young person, about investing?

The games that we play in life are either finite or infinite.

Any sport is a game which is supposed to end.

Infinite games have no ending. Investing is an infinite game. You are not here to meet a target or a wealth accumulation markup cause. That is what people think about and believe in, and the reason they invest. But if you look at it as an infinite game, then it has no ending. There is neither a winner, nor a loser, just the player.

So if you look at life and investing as an infinite game, you're not going to concentrate on the scorecard to find out who's winning or how you stack up against them, or someone else’s ruling. The only thing that matters is that you are playing the game with complete fairness and honesty. If you can do that, it would be a life well lived. You don't expect to achieve the best returns out there or the best success out there. But you will be happier in life if you look at life as an infinite game.

Individuals interviewed by Larissa Fernand for this series:
  1. Prashant Jain
  2. Sankaran Naren
  3. Nilesh Shah
  4. Vetri Subramaniam
  5. Anand Radhakrishnan
  6. Devina Mehra
  7. Saurabh Mukherjea
  8. Raunak Onkar
  9. Samir Arora
  10. Kenneth Andrade
  11. Rajeev Thakkar
  12. Aswath Damodaran
  13. Ian Cassel
  14. Vishal Khandelwal
  15. Sanjay Bakshi
  16. Ramesh Damani
  17. Jim Rogers
  18. Ben Carlson
  19. Mohnish Pabrai
  20. Christine Benz
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