[The Weekend Bulletin] #102: Learning from Miller, Kidd, Buffett, and Davis; The Long Game;...
...The Lies We Tell Ourselves; Being a Dumbass; and more.
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Section 1: Investing Wisdom
"Miller’s journey shows us the need to become resilient. Structural weaknesses silently compound and become exposed in times of stress. Miller faced redemptions due to the mutual fund’s daily liquidity provision. He also dealt with divorce, a hostile market, margin debt in his personal account, and public humiliation. I can’t imagine the amount of stress that weighed on him. If the ability to make good decisions and take risk is impaired by poor health, a lack of sleep, anxiety, and depression, how does one make the bets necessary to emerge from the depth of crisis?
In the end, Miller’s journey shows us that comebacks are possible. That there is a life after failure and humiliation. Though that’s a small consolation for investors who piled into his fund at the top only to redeem at the bottom."
In #100 we looked at the first of the two part series on famed investor Bill Miller. Here is the second and concluding part. While the first part traced his investment journey and the evolution of his thought process, this second part draws lessons from Miller's mistakes among other things.
"Over the past 20 years, Mr. Kidd’s Central Securities Corp., a closed-end fund, has outperformed Warren Buffett’s Berkshire Hathaway Inc. Over the past 25, 30, 40 and even nearly 50 years under Mr. Kidd, Central Securities has resoundingly beaten the S&P 500...
...He has often held stocks for longer than many other portfolio managers have been alive. Central has owned Analog Devices Inc., its second-largest position, for 34 years. Mr. Kidd held Murphy Oil Corp. for more than four decades....
...Over the past 15 years, Central’s annualized portfolio turnover rate has averaged 11%. That means it holds its typical stock for nearly a decade—roughly six times longer than the average active mutual or closed-end fund, according to Morningstar."
This article, based on probably the fifth interview he has given in his half-century-long career, provides a glimpse into Wilmot Kidd's investment process and results.
This article asks an interesting question: Why aren’t there more Warren Buffetts out there? The answer is drawn from the mental model called 'Paradox of Skill' (which we looked at in detail in #90). In trying to answer the question, the article also looks at the story of Shelby Davis (Subject of the book:The Davis Dynasty) and highlights some interesting parallels and contrasts between Buffett and Davis.
This three part series by Sequoia India explores the need and power of playing long games (long investment horizon) for investors. The following are the three parts:
Part I: Why play the long game?
Part III: How to play the long game
A stock doing well in the past does not necessarily mean that it will do well in the future. What is needed for performance to sustain is:
Section 2: Mental Models & Behavioral Biases
"One takeaway from this is that no age has a monopoly on insight, and different levels of experience offer different kinds of lessons. ... everyone has something to teach."
Of the many opposing forces in investing (and in life in general), the most difficult to deal with is: holding on to old ideas and being open new ideas. Most things evolve, while a few things remain the same over long periods of time. Therefore, finding a balance between the two forces is important. However, years of experience makes us stubborn enough to not see an underlying change. And therein lies the problem, says Morgan Housel in this piece.
There are times when we have all the information needed to make a decision and there are times when some details are missing. Not liking ambiguity, our brains try to fill the gap of these missing details by defaulting to our prejudices. Thus we create stories in our heads. This article is an interesting window into such stories (often lies we tell ourselves) and how to avoid them.
Section 3: Personal Development
"When people shower praise on you, are they unwittingly pouring poison into your soul?"
That is the question raised in this post which argues that being called a dumbass is better than being called wise.
We are getting to that time of the year when it will be trendy to set new goals. However, as modern theory argues, creating systems is better than setting goals. Here is a thread by Patrick O'Shaughnessy on why doing something daily is better than setting targets in a distant future, and what kind of habits are the best to work on.
(For those that don't know Patrick, he has been building publicly for a very long time in the form of book summaries earlier and now through two famous podcasts - Invest Like the Best and Founder’s Field Guide. All of this is outside of work and other projects that he is involved in. Always good to learn a theory from a practitioner of it).
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 #30:
‘Extending the Trend’ is a sin that most investors commit. We create a compelling narrative to justify why past performance has been particularly strong or weak. We then use that same narrative to predict its continuation, and therein lies a trap. This article looks at the mental model of Extrapolation, and why it is a dangerous tool in the hands of investors.
“Building wealth is a skill. A skill anyone can master given enough time and a relentless desire to learn and work hard.”
This (slightly elaborate) article is the most comprehensive meditation on building wealth that I have come across, outside of a book. It’s a great article to be read slowly, and repeatedly. If you are pressed for time, start from the section titled “8 principles to grow your wealth and income over time”, although I would urge you to persist through the entire article at least once.
Section 5: Readworthy Passage
Let's read together a random, but read-worthy, passage from a randomly picked book.
To do what we do today demands the proper anatomical foundation. To fly we need wings. To walk we need legs, to see we need eyes, and to think we need a brain. Our anatomy, physiology and biochemistry are the fundamental bases for our behavior.
If we change anatomy, we change behavior. Birds can't fly if their wings are located in an area where no bones are present to anchor them. Apes can't talk because they need speech organs and these must be positioned in a certain way. For example, a small change in how our speech organs are positioned could make speech impossible.
Another example on how a change in anatomy changes behavior comes from the Neurosciences Institute in California. In one experiment, scientists took a small portion of developing brain tissue from a quail and put it into the same spot of a chicken embryo. When the chick hatched, it had both quail and chicken nerve cells. Depending on what cells were transplanted, the results were either a chicken that crowed like a quail or a chicken that bobbed its head like a quail.
Studies have also shown that damage to a part of the brain, the prefrontal cortex (lying behind the forehead and eyes), results in a tendency to show a high degree of disrespect for social norms, including violent behavior. A classic example is that of railway construction foreman Phineas Gage. In 1848, he was victim of an explosion that drove an iron rod through the frontal region of his brain, damaging his prefrontal cortex. Before the accident he was considered stable, dependable, industrious, and friendly. Phineas survived the accident, but his personality changed. He became a drifter who was unreliable, arrogant, impulsive and inconsiderate.
Other studies show that damage to the amygdala - a region of the brain, linked with emotional states and social behavior - reduces the tendency to feel and respond to fear. Stimulating the amygdala can elicit intense emotional reactions. In 1966, Charles Whitman killed 14 people and wounded 38 from the clock tower at the University ofTexas, Austin. An autopsy revealed he had a tumor pressing against his amygdala.
It is our brain, its anatomy, physiology and biochemistry and how these parts function that set the limits for how we think. But since our brain's parts also interact with our body's anatomy, physiology and biochemistry, we must see brain and body together. They are part of the same system - us.
- From SEEKING WISDOM by Peter Bevelin.
Quotable Quotes
Whatever you do, be measured:
Go the extra mile, alone:
Every idea is just a cog in a wheel:
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Dec 11, 2021]