ESSAYS


From Stocks, to Real Estate, and back to Stocks

Benjamin Bakhshi
Updated August 25, 2021

I first started investing in the stock market with my bar mitzvah money, back in 1998, which was also right in the middle of the dot com boom. I ended up losing about half of my money. My parents lost even more because they had used margin to increase their returns, and increase their losses. We learned only a few key lessons, primarily to avoid getting caught up in speculative manias, but I didn’t learn about business valuation and intelligent investing until I read Benjamin Graham’s Security Analysis textbook 19 years later in 2017, the year before I started managing stock portfolios again.

In 2009 I moved to Israel by myself in order to join the army. I served two years in the Israeli Air Force in air defense.

Between 2009 - 2017, I helped my partners acquire deeply discounted real estate (commercial and residential), where we would benefit primarily from a heavily discounted price relative to value, and additional profits would come from a value-add component such as remodeling, leasing, etc.. The heavily discounted price would usually be due to some misstep, distress, or miscalculation on the part of the seller. I nearly exclusively participated in auctions. There are two types of auction sellers, those that want to get the maximum price, and those that are willing to sell at any price, no matter how low. Ultimately, success was had by scrutinizing the entire playing field of auctions, by creating a valuation range for each asset, and then waiting patiently during a live auction to find situations of combined weakness; the lowest priced auctions happen when a seller must sell, and too few buyers are interested in the property at that time. I eventually got my Masters in Real Estate at the Technion in Israel, and it was then that I decided to compare the actual and future potential returns of my real estate activity, to the potential rewards in the stock market. 

It was in August 2017 that I bought Benjamin Graham’s book Security Analysis. This textbook gave me a framework for investing in stocks that, in some ways, was indistinguishable from my method of investing.  Emphasis on using conservative methods of appraisal for estimating present and future cash flows, using a range of values rather than a single point, participating in auctions, bidding up to a price that left a margin of safety to protect capital and profits, and more.

I learned that long term capital compounding was very difficult with single family homes, less difficult with commercial real estate, and least difficult with publicly traded securities of businesses.

 

Benjamin Bakhshi

Rules of Compounding

Benjamin Bakhshi
Updated August 25, 2021

I am grateful for individuals like Benjamin Graham, Warren Buffett, and Charlie Munger for being teachers of compounding money and knowledge to a large number of investors who want to be more intelligent in their approach to investing.

  1. Be concerned with compounding your total portfolio value over a long period of time. Be aware that the investment universe changes depending on how much money is being compounded. 
  2. The investment market is like a pari-mutuel system, your upside and downside are impacted as much by investor psychology as by fundamentals of the business. Seek opportunities of maximum pessimism in relation to underlying value.
  3. Overly concentrate on investment opportunities where the odds are greatly in your favor. 
  4. Keep in mind the non-investment factors, typically based on misjudgments of human psychology, that go into investment decision making. 
  5. Have patience to discover lollapalooza situations, the lollapalooza effect is when multiple factors coincide on a stock that increases its returns. 
  6. Investing with a margin of safety not only protects you from capital loss, but provides you with an opportunity for outsized returns.
  7. If you buy something for cheap, and it gets cheaper, and you are not fooling yourself, then you are getting a bigger discount for the same investment.
  8. Invest within your circle of competence. Putting investment opportunities in the “too hard” pile is essential to avoiding folly. 
  9. Utilize multiple mental models to gain a broad based view on subjects. To the man with a hammer, every problem looks like a nail.
  10. Knowledge compounds much the same way that money compounds. Be a learner and reader throughout life.
  11. Sometimes the tide is with us, and sometimes against. But we keep swimming either way.
  12. Never unnecessarily impede on the process of compounding.
 

Benjamin Bakhshi


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