[The Weekend Bulletin] #114: Gratitude, Investment Philosophy, Due Diligence,...
...Margin of Safety, Lessons from Greats, Better Perspective, Seneca, and more.
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Some house-keeping we get to business
By the time this hits your inbox, we’ll be on our way to the airport. We are taking the next ten days off to explore the North Indian state of Sikkim.
Sikkim is a state in northeast India, bordered by Bhutan, Tibet and Nepal. Part of the Himalayas, the area has a dramatic landscape that includes India’s highest mountain, 8,586m Kangchenjunga. Sikkim is also home to glaciers, alpine meadows, and thousands of varieties of wildflowers. Steep paths lead to hilltop Buddhist monasteries such as Pemayangtse, which dates to the early 1700s.
It is also the least populous and second smallest among the Indian states. Trivia aside, the reason I am telling you this is because I will not be able to send out the newsletter next weekend.
If you know of a must-visit place in Sikkim, please drop me a DM on twitter (I will not be checking emails for sure).
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🙏🏼 A Short Note of Gratitude 🙏🏼:
This past Sunday, the wife and I went for a walk to the beach. At the end of our walk, we stopped to have coconut water. There was a Dosa stall next to the coconut stall. A young couple with a kid walked up to the Dosa vendor and asked for the price of a Masala Dosa. The vendor quoted 50 bucks, to which the lady exclaimed, ‘50 bucks!’. She then asked for the price of a Saada (plain) Dosa, which being quoted at 35 bucks, the husband ordered for one.
Most likely, the Dosa was being ordered for the kid. Imagine a life where you have to hesitate to spend an incremental 15 bucks to feed your child. To put the 15 bucks in perspective: The fact that you are reading this means that you probably spend that much or more a day for your mobile / internet connection.
And so I hope that you will take a moment to reflect upon all the good that this life accords us. I also hope that someone of us will gain the strength from this gratitude to be able to make better the lives of those that are lesser privileged than ours, in whatever way we can.
*All amounts quoted above are in INR.
Section 1: Investing Wisdom
Investment Philosophy is a fancy term in the world of finance. Everybody has one. However, not everyone uses it effectively. Most times, it serves as a good marketing tool. Some, however, know its real power, like the author of this article who breaks down the philosophy in to a few basic questions.
On a related note, about a year ago, I had penned an article on the subject for a magazine here.
This article narrates a very interesting story concerning the US's efforts in Afghanistan and draws some investing lessons on due diligence - another subject that everyone talks about, but very few follow. A very interesting read.
Some quick lessons from the greats:
Section 2: Mental Models & Behavioral Biases
Margin of Safety has traditionally been understood as the gap between price and intrinsic value estimate. However, given the inaccuracies that can creep into the an intrinsic value estimate, this article looks at margin of safety from a very different and interesting perspective. It also provides an interesting argument towards investing in slow growth businesses. This one is guaranteed to give you some fresh perspectives.
Section 3: Personal Development
Often, the smallest changes can make the biggest difference. Like how a small change in perspective can redefine a problem in to an opportunity. Here are 10 visuals that will help you rethink the problems that are struggling with.
And if you would like to put them on your desk, then here are all the ten stitched into one.
If you enjoyed last week's compendium on personal growth, then here are 8 Tips For Mastering Yourself by Seneca
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 #40:
This is a crash course on understanding moat-based investing. While moats in investing may have been conceptualized by Warren Buffet, they were definitely popularized by Pat Dorsey. In this 22 page interview (treat this as a primer to his little book), he goes on to explain the different types of moats, how growth is not a moat, and how some moats can be mirage. For instance:
"A brand has to change consumer behavior, that's the key point. We can think of Sony as having a great brand, but really, the Sony brand name doesn't influence your decision to pay more for a DVD player because the DVD player at this point is truly a commodity product. That wasn't the case 20 years ago, but it's certainly the case today. A brand has to change consumer behavior and it typically does that by doing one of two things. One is it could reduce your search cost, so when you want to go out and buy Heinz Ketchup you say, “Oh, Heinz, I like that. I'm going to buy that,” because it gives you a consistent experience and you don't have to sit there sorting through the ketchup shelf all the time, which is not really worth your time.
The other advantage a brand can give is typically when you're selling what's called a Veblen good where basically demand increases with the increase in price and so it increases your willingness to pay. That would be an example with an LVMH or a Tiffany or a Coca-Cola, one could imagine. You pay more for Coke relative to President's Choice cola or an off-brand cola, but the key nugget here is in both cases, whether it's decreasing your search costs or increasing your willingness to pay, it changes your behavior. If the brand doesn't change your behavior, frankly, it doesn't add a lot of value to the company as a moat."
One of the best investment use-cases of Jacobi's famous maxim (thanks to Charlie Munger) - invert, always invert - is a Reverse DCF. While investors often boast of using a reverse DCF to understand what's baked in the price, not many understand the nuances behind this simplicity. This twitter thread explains how to use a reverse DCF to find out the implied reinvestment rate, or ROIC, or the discount rate. It also explains how to find an appropriate investment multiple for a business using a DCF. Grab a coffee and a notepad before you read this one.
Last weekend's story on chef René demonstrated something that you will observe in most great leaders - an ability of convert to constraints in to opportunities. This attitude of finding a way to get what you want without waiting for the conditions to be perfect or otherwise blaming circumstances is called 'High Agency'. While some are born with it, some develop it later in life. One way or other, it is a prerequisite for making a profound impact in one's life and work. Here is all you need to know about High Agency.
Section 5: Readworthy Passage
Let's read together a random, but read-worthy, passage from a randomly picked book.
[From here onwards, all the links will take you to the original source of the content]
- From Asking the Right Questions: A Guide to Critical Thinking by M. Neil Browne & Stuart M. Keeley
Quotable Quotes
"You look in the mirror and sometimes see a mess of a human being. But you don't see the lives you've touched, or the people you've saved. You don't see all the love you've given freely, or the extraordinary memories you've made. You are a book of beautiful moments and feelings."
" Life appears to be a multi-player game of you against the environment & other players.
In reality life is a single-player game of you against your biological reward functions."
"The secret to effective results is turning acquired knowledge into default behavior.
Habits, routines, and rules all turn knowledge into sustained action."
"Movement and rest are like rhythm and melody.
When we move during the day and rest at night, our bodies stay well-tuned and in harmony."
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That's it for this weekend folks.
Have a wonderful fortnight ahead!!
- Tejas Gutka
[Mar 12, 2022]
Beautiful as always.