[The Weekend Bulletin] #107: Being Different & Disciplined, Identifying Super-bubbles, Structuring Serendipity,...
...Seth Klarman's wisdom, Our World, Chasing Lower Returns, 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
Michael Porter recommended three business strategies for success: be better than competition, be cheaper than competition, or be different (operate in a niche). Which amongst these three do you think would be consistently better than the other two? This article tells you which one and why. It also suggests that investors adopt one of these strategies for successful wealth creation.
In addition to the above, what other things help achieve success in investing? Curiosity - definitely. Analytical skills - maybe. What's needed the most, in addition to all of these, is the ability to handle the surprises that the market consistently throws at you. This article explains what that is and why its important.
“The markets will always do whatever they have to do to screw over as many people as possible.”
The following are two investor letters that have a rather cautious (or bearish) tone. The idea behind reading them is not to get their market views but to distill that wisdom behind such views.
Seth Klarman's letter are Keyzer Soze of financial media. You get to hear a lot about them, but can seldom see them. Here are some snippets from his latest, in which he talks about the markets, investor behaviour, ideation, as well as democracy.
Jeremy Grantham has been famously calling a bubble in the markets for a long time. This time, he goes a step further and calls it a Supper-Bubble - a 3-sigma event. (One) That would occur in a world of tossing fair coins about once in every 100 events, but in real life appears to occur two or three times more frequently than that. The idea behind reading this note is not to firm up our view on the market, but to learn the frameworks that a man who has been around for over five decades uses to identify extremes in the market (In case you are looking for more, issue 30 links to a conversation where he talks about past bubbles).
"In the meantime, we are in what I think of as the vampire phase of the bull market, where you throw everything you have at it: you stab it with Covid, you shoot it with the end of QE and the promise of higher rates, and you poison it with unexpected inflation – which has always killed P/E ratios before, but quite uniquely, not this time yet – and still the creature flies."
Section 2: Mental Models & Behavioral Biases
There are so many models/lessons here that I would just have you read it rather than try to summarise it.
Here is a light read on the follies that draw investors towards assets with lower expected returns. Pertinent to read this in a bull market.
“Much of our investment activity involves doing things that make us feel good in the moment. We can then repent at leisure.”
Section 3: Personal Development
Doesn't it often happen that you are thinking about a problem and cant seem to find a solution. Then, at a seemingly random moment, Eureka strikes!! Archimedes found it in the bathtub, many find it on long walks, some find it in their sleep. There are many way that Serendipity strikes us. But is that a way to make this deliberate rather than random? This article provides one way to do, somewhat on the lines of what Charlie Munger prescribes.
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 #33:
This is a crash course in mental models, or more appropriately, first principles. Peter Kauffman, author of the book 'Poor Charlie's Almanack', talks about the multidisciplinary approach to thinking - a very insightful yet simple talk. What makes this even more special is that there is not a lot of material that you'll find on Kauffman (link has the transcript, and below is the audio recording of the talk).
Let's say that you were given 100 bucks each day. You were free to spend those in any manner that you deemed fit, although you are told that you need to invest some of these 100 bucks to earn them back in the future. You have two implicit choices - either spend minimum on investing for the future, or save a lot for the future so as to get to a point that you wouldn't have to invest any. Most of us would, to a varying degree, choose the latter. After all, we chase financial independence. But why don't we think of of time as we think of money? Isn't our life bound by time, more than it is bound by money? What choice would you make if someone swapped the 100 bucks with 100 blocks of ten minutes each?
Section 5: Readworthy Passage
Let's read together a random, but read-worthy, passage from a randomly picked book.
Lou Simpson's Investment Philosophy:
- From CONCENTRATED INVESTING: STRATEGIES OF THE WORLD'S GREATEST CONCENTRATED VALUE INVESTORS by Allen C Benello, Michael van Biema, Tobias E. Carlise. (h/t to Cundhill Capital for sharing this)
Quotable Quotes
"People often think it's weird to get hyped about reading one page or meditating for one minute or making one sales call. But the point is not to do one thing. The point is to master the habit of showing up. The truth is, a habit must be established before it can be improved. If you can't learn the basic skill of showing up, then you have little hope of mastering the finer details. Instead of trying to engineer a perfect habit from the start, do the easy thing on a more consistent basis. You have to standardize before you can optimize."
- James Clear (Atomic Habits)
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Jan 22, 2022]