[The Weekend Bulletin] #100: Lessons from Nicholas Sleep, Bill Miller, Mark Sellers, Charlies Ellis;...

...Avoiding Stupidity, Defining Success, Reflective Journalling, and more.

Nov 20, 2021

A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.

Section 1: Investing Wisdom

This article draws some helpful lessons from Nomad Investment Partner's (Nicholas Sleep and Qais Zakaria) letters (we discovered them in Issue 58) that surfaced some time back. Most material on them focuses on their model of Scale Economies Shared; this one, however, looks beyond it as well.
This first part of an ongoing series on famed investor Bill Miller traces his investment journey and the evolution of his thought process. A very interesting read, not to be missed.
- On a related note, the following excerpt from the last quarterly letter by Bill Miller reiterates some common investing wisdom:

"...since no one has privileged access to the future, forecasting the market is a waste of time. It is more useful to try and understand what is happening now and give up trying to predict what is going to happen. In the post-war period the US stock market has gone up in around 70% of the years because the US economy grows most of the time. Odds much less favorable than that have made casino owners very rich, yet most investors try to guess the 30% of the time stocks decline, or even worse spend time trying to surf, to no avail, the quarterly up and down waves in the market. Most of the returns in stocks are concentrated in sharp bursts beginning in periods of great pessimism or fear, as we saw most recently in the 2020 pandemic decline. We believe time, not timing, is key to building wealth in the stock market.
When I am asked what I worry about in the market, the answer usually is “nothing,” because everyone else in the market seems to spend an inordinate amount of time worrying, and so all of the relevant worries seem to be covered. My worries won’t have any impact except to detract from something much more useful, which is trying to make good long-term investment decisions."

Just as I was finishing this issue, I was reminded of an old article that I had read a few years back. In this article, hedge fund manager Mark Sellers lists seven traits that he believes all great investors share (making them great). A revealing and hard-hitting read. We observed a similar list in Issue 67.
The concept of Margin of Safety as it applies to investing is widely known. However, often margin of safety is misconstrued as a low earnings multiple. In a similar vein, lack of profits is also considered as a lack of any margin of safety. This article clarifies that margin of safety is not necessarily in low multiple or in profits.

Section 2: Mental Models & Behavioral Biases

Since the pandemic began, this well known bias has been identified by financial advisers as the second most prevalent investor bias and one that has increased by 25% within two years. This is one of those biases that can seriously hurt portfolio returns.
Discussing the fate of a batsman who couldn't find his favorite bat during the Indian Premier League, this article reveals a bias which makes us believe in our abilities more than we should.
In Issue 55 we came across Charles Ellis' theory of 'The Loser's Game' and how it applies to investing. (To recap: There are two levels of game play - amateur and expert. At an amateur level, winning is a function of losing less, while at en expert level, winning is a function of gaining more). Taking the idea forward, this article discusses how we can apply this model to investing, and to life in general by seeking to be less stupid than brilliant.

Section 3: Personal Development

A modern day Indian actor who is worth learning from (IMHO) is Akshay Kumar. Its not as much about his acting skills as much as his journey (and his healthy habits) that impress me. He has not only survived a long career but also is amongst the richest; all this without a Godfather, family name, super-stardom or block-busters (until a few years back), or lots of awards. In most walks of life, we'll find such people who are not the best in what they do, and yet are quite successful (and rich!). How do these people manage to do this? As per this article, success is not about being the best or the most well known, but about a combination of three things. These principles apply to investing too.
The philosopher George Santayana famously said that “those who cannot remember the past are condemned to repeat it.” This is especially true in investing where there are so many decisions being taken regularly. With the benefit of hindsight and some good luck, we can easily look back at a below-average decision as a successful one. This sets us up for a big failure in the future. This article provides that antidote (its something that a few well-known investors practise, but doesn't get as much attention from the investing community as it should). The benefit of this practice is not just better hindsight, but also clearer thinking. The three stage process defined here is worth adopting in every decision.
- While on this topic, do check this interesting framework to overcome anxiety.

Section 4: Blast From The Past

Revisiting articles from a past issue for the benefits of refreshing memory and spaced repetition, as well as for a fresh perspective. Below are articles from #28:

What do PE multiples convey? Does a PE multiple of 10 imply cheapness over a PE multiple of 30? What conclusion should one draw by comparing historical average PE to current PE? More importantly, should two companies with the same earnings per share and similar growth rates be ascribed the same PE? While we widely use the PE multiple to value companies, our understanding of it is incomplete. This article serves as a primer on valuations and explains why different companies trade at different PEs.
Most of us grew up playing video games and quite enjoyed it, even to the annoyance of our parents. Little did our parents (or we) know that playing video games could make you a better business leader!! If studying business strategy interest you, then this interestingly-written analysis of the video game inspired strategy of Shopify and its CEO Tobi Lutke will serve as a very good read.
We make decisions all the time. And all our decisions have a meaningful impact on our lives. Decisions, then, are the most important activity that we undertake in life. Thus, it is very important that we make good decisions. Good decision making, however, is not a trait (that always there), rather a quality that fluctuates over the course of the day, claims this long article. It decodes why sometimes with the exact same information, we take completely opposite decisions. Read it to understand:
- What decision fatigue is, and how to reduce it
- How salesperson use decision fatigue to make us spend more
- Why the poor tend to make more bad choices than the rich
- How sugar impacts our decisions, and how proteins can improve them
- Why we should make decisions post meals, but avoid them after evenings

Section 5: Readworthy Passage

Let's read together a random, but read-worthy, passage from a randomly picked book.

h/t to Larry Tentarelli for sharing this

Quotable Quotes

"Most lucky events in life are opportunities, not outcomes.
The value of an opportunity changes depending on how it is treated. Without effort, good luck becomes a missed opportunity. With effort, good luck can become a life-changing event.
You need luck and hard work. It's not either/or. It's both/and. The result will not walk through the door on its own.‬‬‬‬‬‬‬‬‬"

"How much could I lose?" is not merely a financial question.
If I make this choice:
- How much time could I lose?
- How much sanity could I lose?
- How much reputation could I lose?
- How much happiness could I lose?
Opportunity cost is about a lot more than money."

Both the above quotes by James Clear.