[The Weekend Bulletin] #109: Catching A Falling Knife, Identifying Compounders, Subtracting,...
...Power of The Subconscious Mind, Surviving The Dip, 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
The Quest for Holy Compounders: This is an interesting conversation that explains compounders in the tech world. It explains the difference between organic compounders and M&A compounders, and then lays down a systematic framework to identify technology companies that have the compounding characteristics. Given how tech is dominating the world, its important to develop this understanding early-on.
“What do you call a stock that was down 90%? A stock that was down 80% and then got cut in half.”
- David Einhorn
When stocks, especially growth stocks, fall - like they did recently (or in 2020) - it can be extremely difficult to figure the right time to move in to them, especially if you don't already own them. This article lists a couple of frameworks that you can use to buy such crashing stocks.
We've met him twice already in the not so distant past (#91 and #94). His story, however, is so inspiring that is worth listening to again. And so for the third time, please listen to Arnold Van Den Berg narrating his story and more on The One Percent Show
Section 2: Mental Models & Behavioral Biases
This is such an important mental model that we had dedicated an entire issue to it. Here's what we said in that issue:
We are programmed to generally revere the positive and despise the negative. Add, don’t take away; unite, don’t divide; more, not less, and so on. While positivity is progressive, negativity also holds a considerable place in progress. For instance, we may have combined a stick, a rope, and a stone to make a hammer. At the same time, we would also have shaved off the sides from a stone to make an axe/knife. You get the drift.
Like most things in life, investing requires us to find a good balance between the additive and the subtractive
Taking this thought forward, this article suggests that to make big gains, avoid tiny losses. The gains and losses spoken here are not about investing but pertain to everything in life. A short but educative read.
[In case you are looking to subtract a few things from your life/routine, this article can help you figure what].
Section 3: Personal Development
They say in investing that you should buy the dip. Dips, however, occur not just in markets but also in life. No matter what activity we undertake, we all experience a dip. This article explains these dips, how to survive them, and why surviving them is important.
[Also do read the follow-up article linked at the end of the article].
"Anything substantial that’s worth doing will have the dip. If it did not have a dip, everyone would be doing it easily and we wouldn’t call it a substantial achievement. A different way of saying it is that far too many people give up when they reach the dip and those who can cross the dip are the ones who taste success."
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 #35:
A window in to the mindset of a true long-term investor - that's what I would call this quarterly letter from Arisaig Partners (AP). One of the key highlights of a long-term thought process is the focus on growth potential, rather than valuation multiple. With a long enough time horizon, seemingly high multiples can also lead to a reasonable rate of returns. While everyone enters a position with a 3-5 year 'long term' view, not many can hold onto for that long. Contrast that with AP, that just sold an investment that they held for over a decade! (reminds me of this quote from last week: "We like investments where the risk is time, not price."). Also for those interested in understanding Indian companies, the letter carries a two page brief on Avenue Supermart (D-mart)
Imagine what would happen if you would change the rules of the game as it progresses, making it extremely difficult to end? Such games are called 'infinite games', and that is an interesting mental model to understand. Why would understanding some silly game be important, you may wonder. Well, that is because understanding the difference between finite and infinite games has implications for how we lead our lives. I suggest reading the following articles to get a better understanding:
The following is such an incredible story with so much to get inspired from:The lessons transcend business, leadership, personal development, motivation, and then a few more. Which is why, instead of fitting it into one of the sections, I chose to open this issue with the story. It's 1.5 hours long, but it left me wanting for more. I hope you like it too.
Her mother divorced her father when she was 9 and raised three daughters (9,6,3 at the time of divorce) on a very small budget
She took up odd jobs at malls etc while studying and at 16 got a chance to work as a hostess at Hooters. (If you have never heard of Hooters, then I suggest you look up on google before going ahead)
She dropped out of college to focus on her career at Hooters, where she became the Vice President at age 26. She oversaw the growth of Hooters from a 100 outlets to over 500
And from there began her journey of leading businesses, which led her to become the president of Focus Brands at age 37, overseeing seven large brands of quick service restaurants!! She talks about her journey, success, and hardships in detail in the interview. Please watch it.
Section 5: Readworthy Passage
Let's read together a random, but read-worthy, passage from a randomly picked book.
(The following is not really a passage from a book, but from an article)
Years ago, the anthropologist Margaret Mead was asked by a student what she considered to be the first sign of civilization in a culture. The student expected Mead to talk about clay pots, tools for hunting, grinding-stones, or religious artifacts.
But no. Mead said that the first evidence of civilization was a 15,000 years old fractured femur found in an archaeological site. A femur is the longest bone in the body, linking hip to knee. In societies without the benefits of modern medicine, it takes about six weeks of rest for a fractured femur to heal. This particular bone had been broken and had healed.
Mead explained that in the animal kingdom, if you break your leg, you die. You cannot run from danger, you cannot drink or hunt for food. Wounded in this way, you are meat for your predators. No creature survives a broken leg long enough for the bone to heal. You are eaten first.
A broken femur that has healed is evidence that another person has taken time to stay with the fallen, has bound up the wound, has carried the person to safety and has tended them through recovery. A healed femur indicates that someone has helped a fellow human, rather than abandoning them to save their own life.
- From How A 15,000-Year-Old Human Bone Could Help You Through The Coronacrisis by Remy Blumenfeld
[Reminds me of Thomas Fitzgerald (Tom Hardy) leaving behind a wounded Hugh Glass (Leonardo DiCaprio) in the inspired-by-true-events movie The Revenant]
Quotable Quotes
#JustForFun
This guy in incredibly gifted. What a talent!!
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Feb 05, 2022]