Always Invert To Get It Straight

Fill up your emergency bucket, house your interests in the investment bucket, and save in your dream bucket

- Ajay Bagga

The life-changing pandemic has altered our daily routine as social distancing guidelines have led to a more virtual existence. My usual meetings with The Sage have turned into video calls. We have both learnt to adapt to this new normal. Last week as we sat for our usual discussion, he threw his usual gambit at me, “My grandnephew John’s employee stock options are vesting. What would you advise him? Give me an assessment.”

I knew this was just a test, he knows more about all asset classes, their correlations and market cycles than most experts in the world.

The grandnephew John, based in the US, was working at a new economy company that had listed its shares last year. I had the data on the company on Bloomberg. Share price $209, 52 week high low $68-219, PE not relevant as it is still a loss-making company, Price to Book 45 times. As I rattled off the numbers, The Sage smiled and said, “What is the operating cash flow? Scrambling to get that number I realised it was negative for the latest quarter.”

Bringing me back to the opening gambit, The Sage remarked, “He has a ton of stock options that have vested. What should he do?”

Like Charlie Monger, The Sage has followed the motto of “invert, always invert”. Thinking backwards, looking at each problem from many dimensions. Over the years I have benefitted from his insights and ability to foresee disasters in the making. As he says over and over again, “Avoiding stupidity is much easier than seeking brilliance.”

I had noted a recent quote of Nazism Nicholas Tale to impress The Sage. “People focus on role models; it is more effective to find antimodels, i.e. people you do not want to resemble when you grow up.”