[The Weekend Bulletin] #106: Spiritual Leanings, Growth Traps, Well Behaved Bubbles,...
...Decision Making, Misery, Errors, 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
Investing is as much about hard facts as it is about soft skills. Your analytical skills help you sail forward, while your behavioural skills keep you anchored in rough waters. Below are two conversations that talk about such anchors and how to develop them. Both these conversations are rare spiritual discourses that you hear from the investment community; absolute goldmines.
William Green (author of RICHER, WISER, HAPPIER) talks to Frederik Gieschen (of the Neckar fame) about his own journey and setbacks, his search for worldly wisdom in everything from Zen Buddhism to Stoicism to the Kabbalah, and the many lessons he learned from great investors.
“When I study things like Tibetan Buddhism, which I also find exquisitely beautiful or stoicism, which I found very helpful, I see this tremendous overlap. It's really all about consciousness. It's about how do you gain control of your inner landscape? How do you gain control of your mind? And, and so I think in the epilogue, I quote this great line from the poet Milton, who was blind, who was saying that the mind can make a hell of heaven or heaven of hell.”
…
“The inner game of writing or investing is dealing with these fears, your anxiety, your desire to be respected, to have honor all of this stuff. It's your ability to deal with setbacks, your sense that however hard you work, sometimes it just doesn't work out.”
Samit Vartak (Founding Partner and Chief Investment Officer of SageOne Investment Managers) talks about his humble beginnings, success vs happiness, Vedanta philosophy, living through the stress of a down year, and the joy and pain of managing other people’s money, on The One Percent Show (the most that any podcast has made an appearance on this bulletin)
We've all heard of value traps - a seemingly cheap stock that isn't. This short article draws a parallel to introduce us to 'Growth Traps' - when growth and disruption narratives falter. And if you want to dismiss growth traps as one offs, the article has some interesting data for you.
When Value disappoints, markets are mad. When Growth disappoints, they are merciless.
While the above article demonstrates the painful after-effects of value and growth bubbles, this article posits that not all bubbles are bad. It claims that even though the term “bubble” is usually pejorative, the right kind of bubble, at the right time, can exert a powerful positive effect on the world. A well-timed read in this fast changing, disruptive world.
In his latest memo, Howard Marks meditates on the subject of Selling. He explains that it’s foolish to sell because prices are up, and because they’re down. Not one of his bests, but still makes a pertinent point.
Section 2: Mental Models & Behavioral Biases
All the analytical rigour and the emotional stability in investing is towards one end: making good decisions. Every time you look at your portfolio, you make a decision to buy/sell/hold. Doing nothing is also a decision in itself. Given how integral decision making is to investing, it is imperative that we develop some models and checklists to make it more effective:
Here are five models to think about when making decisions, from Annie Duke's book Thinking In Bets
If the above five models don't help enough, then this article provides a nifty process that you can use to make tough decisions.
Section 3: Personal Development
Which of these two will trouble you more: losing out on a multi-bagger, or accidentally dropping 10,000 bucks on the street? For most it would be the latter, even though the former is a bigger potential loss. The idea is not to regret losing out on a multi-bagger, but focusing on the right problem. This article provides some perspective.
"The roads not seen almost always matter more than the potholes we hit along the way."
Misery is universal, while happiness is a niche. It's hard to define what makes us happy, but easy to figure what makes us sad. Using the power of inversion, this article lists some miseries to avoid in order to live a more happy life.
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 #32:
Some moats are easy to identify, like brand, cost advantage, network effects etc. But what about softer aspects that lead to better return ratios, like culture, efficiency etc? Can these even be classified as a moat? This article debates that there are invisible moats that are worth looking out for.
For instance consider this narrative on the intensive training that new joinees at Toyota used to undergo once. While Toyota was always known for small improvements in operating processes, this detail provides a completely different perspective. The success was not in small improvements, but in the way that those improvements came about. A long but highly recommended read.
Last week we learnt how daydreaming, or letting our minds wander, is important for ideation. Taking this thought forward, here's a ted talk about how boredom can help us improve focus and creativity. I loved this quote from the video:
"If you look at what allows traffic to move down a highway, isn't how fast cars are moving. It's how much space exists between the cars".
Our fast paced lives have often been compared to the hedonic treadmill: the faster we run to move forward, the more we stay in the same place (also referred to as The Red Queen Effect). In the quest for a better tomorrow we often forget to live for the today. We often look forward to have so much that we forget that the things that we have are the things that we looked forward to having in the past. A pause may be worthwhile, suggests this nicely illustrated article: Life is a picture, but you live in a pixel.
Section 5: Readworthy Passage
Let's read together a random, but read-worthy, passage from a randomly picked book.
In investing, as in life, there are very few sure things. Values can evaporate, estimates can be wrong, circumstances can change and “sure things” can fail. However, there are two concepts we can hold to with confidence:
Rule number one: most things will prove to be cyclical.
Rule number two: some of the greatest opportunities for gain and loss
come when other people forget rule number one.
Very few things move in a straight line. There’s progress and then there’s deterioration. Things go well for a while and then poorly. Progress may be swift and then slow down. Deterioration may creep up gradually and then turn climactic. But the underlying principle is that things will wax and wane, grow and decline. The same is true for economies, markets and companies: they rise and fall.
The basic reason for the cyclicality in our world is the involvement of humans. Mechanical things can go in a straight line. Time moves ahead continuously. So can a machine when it’s adequately powered. But processes in fields like history and economics involve people, and when people are involved, the results are variable and cyclical. The main reason for this, I think, is that people are emotional and inconsistent, not steady and clinical.
Objective factors do play a large part in cycles, of course—factors such as quantitative relationships, world events, environmental changes, technological developments and corporate decisions. But it’s the application of psychology to these things that causes investors to overreact or underreact, and thus determines the amplitude of the cyclical fluctuations.
When people feel good about the way things are going and optimistic about the future, their behavior is strongly impacted. They spend more and save less. They borrow to increase their enjoyment or their profit potential, even though doing so makes their financial position more precarious (of course, concepts like precariousness are forgotten in optimistic times). And they become willing to pay more for current value or a piece of the future.
All of these things are capable of reversing in a second; one of my favorite cartoons features a TV commentator saying, “Everything that was good for the market yesterday is no good for it today.” The extremes of cycles result largely from people’s emotions and foibles, nonobjectivity and inconsistency.
Cycles are self-correcting, and their reversal is not necessarily dependent on exogenous events. They reverse (rather than going on forever) because trends create the reasons for their own reversal. Thus, I like to say success carries within itself the seeds of failure, and failure the seeds of success.
“You Can’t Predict. You Can Prepare,” November 20, 2001
- From THE MOST IMPORTANT THING by Howard Marks
Quotable Quotes
"Not every problem needs to be overcome, just the ones stopping you from getting where you want to be."
- Ann Hill
"You don’t need to catch every break if you’re willing to keep trying. Every winner has an archive of losses, but each attempt creates the chance for a victory. You need to be patient, but not passive. Active patience."
- James Clear
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Jan 15, 2021]