Author: shyam

I was watching Salman Khan’s interview in Koffee With Karan and had an aaha moment that I would like to share with you. When Karan asked Salman about the earlier part of his career, Salman admitted that he used to do movies just because his friends would ask him to. He used to act in movies where knew the script was bad but he figured “banthe banthe ban jayeegi” and did it anyways. What resulted was a string of disastrous movies and Bollywood basically wrote him off.

And then there is Aamir Khan. Does at most one movie a year. Pours his heart and soul into it. The general impression is that he wouldn’t take up a role in a movie that has a bad script.

Salman plays Salman in all his (recent) movies. Aamir basically tears himself apart and puts back the pieces to fit the character he is playing.

Salman does the same movie every year, Aamir apparently rejects 200 scripts in a year.

There a number of lessons we can draw about the seemingly different approaches that these successful actors have.

Know what you want

It is very important to know what you want… out of life, out of investing, out of a career. Once you know what you want, the rest of the decisions fall in place. For example, Aamir wants to make movies that wins awards and makes decent money at the box-office. Salman is happy if his movies are a box-office hit, he hasn’t really won any awards, and doesn’t care.

Salman runs a diversified high-beta portfolio, Aamir runs a concentrated value portfolio.

Know that it always involves a lot of work

Irrespective of what your end-goal is, be prepared to put in the work for it. Aamir might focus on the script and making sure that he plays the part. While Salman is obsessing over making sure his movies live up to the expectations of his fan base. They both know their audience and work to keep them happy.

Salman sticks to a model that has been back-tested. Aamir tries to ferret out opportunities that other participants may have overlooked.

The work has to follow a process

Both of Aamir’s search for the perfect script and Salman’s search for the smash-hit are all supported by a process that is largely invisible (and boring) to the public eye. Aamir’s production house has a three stage evaluation process for each of the 10-15 scripts that they receive each month. Salman rejects anything that even has a hint of being “non-commercial.”

Salman would probably like our momentum/velocity themes – bet on stocks that are already working. Aamir might like our value themes – bet on stocks that are fundamentally good, yet under-priced.

Salman, pre-pyaar kiya to darna kya, is how most new investors approach the market. AKA, the Friends, Family and CNBC approach to investing. But it is only after a string of failures do they realize that they need to take a step back and figure things out.

So the key takeaways are: know what you want, work for it and have a repeatable process.

So… which Khan are you?

We have been discussing Behavioral Investing on our blog for a while now and whats fascinating is that study-after-study shows that humans are the worst decision makers out there. We have the mind of a Lemming, we over trade, and we fall for stories.

Entrepreneurs are often advised to write their business plan on pen and paper. They may not have a profitable plan, but the very act of writing something down clarifies thoughts. To act clearly and rationally, it seems, we need to write a program. The very act of programming an investment strategy leads to a deeper thinking and clarifies risk, uncertainty and reward.

In fact, 2 out of the top 5 performing Investment Themes have been quantitative portfolios.

Investors should focus on writing a better model and developing the courage to allow it to do its job. If it fails on pre-defined statistical measures, debug the model and try again.