[The Weekend Bulletin] #103: Markets, Fund Managers, Fastest Animal, History,...

...Anti-aging, Anti-mimetic, and more.

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

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Hi There!!

Just a little house-keeping before we get to business.

This is the penultimate issue of this year (I'll be taking the last week of December off). The final issue of 2021 (next weekend) will be a recap of some of the most interesting (IMHO) links shared during the year.

Starting next year, I am thinking of releasing the newsletter on Sundays, rather than Saturdays (so the first issue of 2022 will be released on Jan 09 2022 instead of Jan 08 2022). I am also thinking of doing away with Section 5: Readworthy Passage.

If enough people feel strongly against any of the above, I am happy to reconsider these decisions. So, if you have strong views about either of the above, just hit reply to this email and let me know your thoughts. Either ways, I'll update you in subsequent issues.

Now, on to business.

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Section 1: Investing Wisdom

• What's the fastest animal you know of? Most people (me included) would say the cheetah. Indeed the Cheetah can touch very high speeds, however it cannot sustain it beyond half a minute. On the other hard, an Antelope can run almost as fast as a Cheetah but for much longer (whatsapp University: one is running for food and the other for life). However, most of us know of the animal which can run very fast for a short period but are not aware of something that can cover a long distance at a similar speed. Its the same in investing, as this article explains (this is probably one of the most important as well as most ignored lessons in investing).

• There was a concept that I had learnt at my first job in a rating agency that has stayed with me till date - point in time vs through the cycle (I wrote about this concept in an article here). The concept pertained to how we evaluated the credit-worthiness of businesses, and why most industries had a cap beyond which a rating wouldn't usually be assigned. The idea behind the concept was that most businesses experience up and down cycles and therefore it was important to not access the business based on its current performance, but to account for the cyclicality that its industry usually experienced. Markets, like business, are also cyclical (most things over a long enough time are cyclical). Here are two lessons worth learning about the stock market's cyclicality:

  • The first one talks about how returns of different sections of the markets cycle differently through time, making us believe in the wrong thing at an inappropriate time.

  • The next one talks about how investors of funds with very good track record end up with much lower returns. The author also claims that “Fund managers in the rear-view mirror are dumber and luckier than they appear”.

• The following two examples from the tech world are further proof that most things are cyclical. Outside of this point, they provide some good investing lessons as well:

  • While everything is cyclical, no two cycles are the same (history repeats, but does not rhyme)

  • The more things change, the more they remain the same (and some good insights on the fin tech landscape)

• Following up on last week's article on Wlimot Kidd, this interview of his goes into the details of his investment philosophy and process (page 44 onwards; we had referenced this magazine in #67 as well).

• Lastly, below is a short but meaningful excerpt from Ted Weschler’s final letter to Peninsula Capital investors 10 years ago, before he moved to Berkshire Hathaway.

  

  Source: Twitter

Section 2: Mental Models & Behavioral Biases

• This twitter thread walks us through some key concepts related to Survival, Resilience, and Aging, to explain Conditional Lifetime Probabilities, The Force of Mortality, The Lindy Effect, and Taleb's Turkey. A very interesting short read.

Section 3: Personal Development

• This is as important in life as it is in investing: the ability to think different from the crowd. We have a tendency to mimic those around us; and this gets accentuated in the modern world thanks to social media. Here are 25 ways in which you can try to become anti-mimetic, or independent thinker.

  (This could have very well been a much shorter article. Nevertheless, it makes for an interesting read despite being a little too verbose. The introductory portion is really skippable, and so are some of the descriptions later in the article).

• We have a tendency to easily get on to a treadmill thanks to our always increasing desires, envy, as well as our tendency to mimic as discussed above. Thus, not matter how much we have, we also feel like it's not enough. To help you break out of this misery, here are 3 financial red-flags that actually prove that you are far wealthier than you think.

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 #31:

• A new study looked at an old problem - while talent and efforts (inputs) follow normal distribution, why does wealth (output) follow power law (80:20 principle)? The answer is a catalyst that we all know, but do not acknowledge enough - Luck. It is the reason that the richest are not necessarily the most talented, and the most talented are not necessarily the richest.

• We somehow learn our lessons better when they are conveyed through stories. More so, when these stories are real rather than fables. Amongst the writers that I follow, no one does this better than Morgan Housel. In his latest piece, he looks at four stories from history to teach us that the more things change, the more they remain same. He says,

"Predicting the future is hard. Few can do it. Understanding what’s going through people’s heads is easier, and almost as useful...If, rather than trying to predict the future, you put all your weight into the handful of behaviors that show up constantly in history and played a role in all the big moments, you get about as close as you can come to seeing the future."

Section 5: Readworthy Passage

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

On April 16, 2000, the New England Patriots drafted an extra quarterback out of the University of Michigan. They’d scouted him thoroughly and had their eye on him for some time. Seeing that he was still available, they took him. It was the 6th round and the 199th pick of the draft.

The young quarterback’s name was Tom Brady.

He was fourth string at the beginning of his rookie season. By his second season, he was a starter. New England won the Super Bowl that year. Brady was named MVP. In terms of return on investment, it’s probably the single greatest draft pick in the history of football: four Super Bowl rings (out of 6 appearances), 14 starting seasons, 172 wins, 428 touchdowns, 3 Super Bowl MVPs, 58,000 yards, 10 Pro Bowls, and more division titles than any quarterback in history. It’s not even finished paying dividends. Brady may still have many more seasons left in him.

So you’d think that the Patriots’ front office would be ecstatic with how it turned out, and indeed, they were. They were also disappointed—deeply so—in themselves. Brady’s surprising abilities meant that the Patriots’ scouting reports were way off. For all their evaluations of players, they’d somehow missed or miscalculated all of his intangible attributes. They’d let this gem wait until the sixth round. Someone else could have drafted him. More than that, they didn’t even know they were right about Brady until injuries knocked out Drew Bledsoe, their prized starter, and forced them to realize his potential.

So, even though their bet paid off, the Patriots honed in on the specific intelligence failure that could have prevented the pick from happening in the first place. Not that they were nit-picking. Or indulging in perfectionism. They had higher standards of performance to adhere to.

For years, Scott Pioli, director of personnel for the Patriots, kept a photo on his desk of Dave Stachelski, a player the team had drafted in the 5th round, but who never made it through training camp. It was a reminder: You’re not as good as you think. You don’t have it all figured out. Stay focused. Do better.

Coach John Wooden was very clear about this too. The scoreboard was not the judge of whether he or the team had achieved success—that wasn’t what constituted “winning.” Bo Jackson wouldn’t get impressed when he hit a home run or ran for a touchdown because he knew “he hadn’t done it perfect.” (In fact, he didn’t ask for the ball after his first hit in major-league baseball for that reason—to him it was “just a ground ball up the middle.”)

This is characteristic of how great people think. It’s not that they find failure in every success. They just hold themselves to a standard that exceeds what society might consider to be objective success.

- From EGO IS THE ENEMY by Ryan Holiday

Quotable Quotes

InvestBooks 📚🚀 @InvestBooks

A technique that works repeatedly is to wait until the prevailing opinion about a certain industry is that things have gone from bad to worse, and then buy shares in the strongest companies in the group. - Peter Lynch

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That's it for this weekend folks.

Have a wonderful week ahead!!

- Tejas Gutka

[Dec 18, 2021]