Sunday, 31 January, 2010

Alternative Investment Ideas - Learning from the ants

Alternative Investment Ideas - Learning from the ants 

Here's a story about the ants. If you put a food source some distance from the nest and offer the ants paths of various lengths to the source, they are highly efficient at identifying the shortest path. In other words, they are really good at exploiting resources efficiently.

But when the researchers studied the ants, they realised that some of them wandered off the trail from time to time. That didn't seem to make sense, especially if there was a good food source. As they studied it in greater depth, they realised there was a mathematical probability an ant would leave the trail, and that the probability was somewhat related to how likely it was that another food source would appear. So the colonies were adept at exploiting and exploring.

And the point of exploring is that it might be where the next great idea comes from. It's like corporate research and development.

In a similar manner, we must periodically allocate a small portion of our investible surplus for investing in completely offbeat ideas - Look around for investment opportunities based on ideas that emanate from the innards of your own mind which are entirely different from ideas that originate from:
  • Blogs
  • Websites
  • Annual Reports
  • Newspapers, magazines, books
  • Interviews
  • TV
  • Friends
  • Brokers
  • Mutual Funds, Portfolio Managers, Investment Experts
  • Telemarketing Calls
Some examples of the thinking process involved:
  • You / your family & friends are consuming some product / service that is "New" (New restaurant chain, new super-hit movie, new type of food/clothing/shelter, temptation to go back to your old PSU bank for the benefit of their "Familiar services", etc.)
  • Dramatic / drastic changes in the social / political environment that trigger new investment ideas (Increasing social unrest, thefts, etc.? Look for security companies.)
  • Unexpected natural / man-made disasters that trigger new investment ideas (Earthquake in Gujarat? Sell holdings in Gujarat based companies with an intention of buying them back at lower levels. Swine flu? Look around for pharma companies with the right vaccine in their portfolio.)
Obviously, a couple of riders would be apt at this moment:
  • Often, these investment ideas should be made for the really long term (5-10 years and beyond)
  • Be aware that these are high-risk investments
  • Put in money in a staggered manner
  • While you must put in small amounts, it should be material in nature (While you should not put 90% of your portfolio in these investments, you must not put in 0.001% of your portfolio in these investments either.) Essentially, if the capital erodes by 95%, you must not suffer a heart attack. On the other hand, if it turns into a 100-bagger, it should make you richer in a materially siginificant manner.
Think about it. Enjoy safe & profitable investing!



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