[The Weekend Bulletin] #117: Li Lu, Bill Miller, Ben Graham, Joel Greenblatt,...
Thinking, Habits, Expectations, Special Situations, 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 Legend of Li Lu - this biographical article traces the early life and journey of famed investor Li Lu towards investing. Not a lot of material is available on Li and that makes this well researched article even more prized. In case you didnt know, Li Lu's fund is one of the only three investments that Charlie Munger holds.
Ben Graham was a great investor, a good teacher, and a very talented writer. Amongst all investors, he is probably the most published. Here are some impressive snippets from Ben's varied writings (I really enjoyed reading these).
If you heard last week’s podcast of Joel Greenblatt, you would have heard him saying that he sizes his position not based on the upside potential but on the downside risk. This article elaborates on that using one of Bill Miller’s biggest losing trades.
Another thing that would have picked up from the said podcast would be Greenblatt's focus on special situations. Here are some notes on how to invest in special situations from his book “You can be a Stock Market Genius”.
Lastly, here is a nifty life of 5 things that investors must not ignore as narrated by famed investor Manish Chokhani (we heard him in Issue #.
The long term is a series of things that you do right in the short run. Like it's said in the Upanishads that you are your deep driving desire. Your desire shall shape your will, your will shall shape your habits, and your habits shall shape your destiny.
Section 2: Mental Models & Behavioral Biases
This long article is a masterclass in some of the biases that we all collectively exhibit. Fluidly written, supported by anecdotes, make this a very interesting read. Below are some of my favorite passages from the article:
When alcohol from fermentation reaches a certain point it kills the yeast that made it in the first place. Most powerful trends end the same way.
Sherlock Holmes put it: “What you do in this world is a matter of no consequence. The question is what can you make people believe you have done.”
That’s the real lesson from evolution: If you have a big number in the exponent slot you do not need extraordinary change to deliver extraordinary results.
Howard Marks once talked about an investor whose annual results were never ranked in the top quartile, but over a 14-year period he was in the top 4% of all investors. If he keeps those mediocre returns up for another 10 years he may be in the top 1% of his peers – one of the greatest of his generation despite being unmentionable in any given year.
She explained that becoming a better doctor meant spending more time managing her patients rather than managing those patients’ illnesses. There is a huge difference, she said, between an expert in medicine and an expert in healthcare.
Here's an interesting mental model that we looked at back in Issue #29:
Source: Sketchplanations
You can read more about it here.
Section 3: Personal Development
Most of us consume a lot of literature on personal development and productivity. While there is no harm in wanting to improve oneself, the problem with this approach is that you end with a lot of advice and trying to do too many things at the same time. The end result is that we usually fall back to where we started. That’s where this article helps.
Firstly, it suggests that instead of working on multiple habits, we should focus on one, and incrementally improve on it. Small changes can go long. Secondly, and more importantly, it lists three major habits and the ideal order that most of us should focus on. Mastering these three habits will make it easy to work on the others in the future.
One of the primary root causes of misery in our lives is desire. Having high hopes can lead to suffering when such hopes are not met. This gains pertinence as life is random and there is no way to predict any outcome with certainty. Therefore, this article suggests that we should default to low expectations in life - just as Charlie Munger and Elon Musk have.
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 #43:
“From a given “expensive” starting point, there was a 56% probability that the market had a 10% correction within three years, waiting for which would result in about a 10% return benefit versus having invested right away.”
Conventional wisdom would say that it probably makes sense to wait for a correction because history is on your side. Unconventional wisdom says that you would be wrong to assume that. Read on to find out why.
Over the last couple of issues we have established that 'The modern worker's biggest strength is knowledge, unlike his ancestors that needed physical strength.’ Consequently, we have been trying to answer the questions: "How does a modern worker ensure that he keeps his mental muscles exercised? How can he learn and understand more?” And while we have looked at some conventional methods so far, here is an unconventional advice: take breaks, and capitalise on distractions.
Lastly, here is an interesting way of learning new concepts: The ADEPT method.
Section 5: Readworthy Passage
Let's read together a random, but read-worthy, passage from a randomly picked book.
Michael Moritz, the billionaire head of Sequoia Capital, was asked by Charlie Rose why Sequoia was so successful. Moritz mentioned longevity, noting that some VC firms succeed for five or ten years, but Sequoia has prospered for four decades. Rose asked why that was:
Moritz: I think we’ve always been afraid of going out of business.
Rose: Really? So it’s fear? Only the paranoid survive?
Moritz: There’s a lot of truth to that ... We assume that tomorrow won’t be like yesterday. We can’t afford to rest on our laurels. We can’t be complacent. We can’t assume that yesterday’s success translates into tomorrow’s good fortune.
Here again, survival.
Not “growth” or “brains” or “insight.” The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference. This should be the cornerstone of your strategy, whether it’s in investing or your career or a business you own.
There are two reasons why a survival mentality is so key with money.
One is the obvious: few gains are so great that they’re worth wiping yourself out over. The other, as we saw in chapter 4, is the counterintuitive math of compounding.
Compounding only works if you can give an asset years and years to grow. It’s like planting oak trees: A year of growth will never show much progress, 10 years can make a meaningful difference, and 50 years can create something absolutely extraordinary.
- From The Psychology Of Money by Morgan Housel
Quotable Quotes
“The ocean moves when the pebble is cast. The weather changes with every breath. The intelligence of the universe alters with every thought. We are, at one and the same time, both creator, and created.”
(There was an interesting fictional story on similar lines by the writer of The Martian that we had looked at in #115)
“Success is more of a function of consistent common sense than it is of genius.”
"Powerful combination = Hate being bad at stuff + Willing to look like a beginner.
People who hate being bad at stuff are driven to improve. However, if they are unwilling to look like a beginner from time to time, they will avoid new challenges and struggle to reinvent themselves.
Meanwhile, people who are willing to try new things, but lack a thirst to improve will settle for mediocre results.
It's the willingness to look foolish for a short time—but not for a long time—that leads to jumps in performance."
"Everyone writes in a way; that is, each person has a "story," a personal narrative which is constantly being replayed, revised, taken apart, and put together again. The significant points in this narrative change as a person ages—what may have been tragedy at twenty is seen as comedy or nostalgia at forty. All children write. (And paint, and sing.) I suppose the real question is why do so many people give it up?"
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[April 09, 2022]
Super as always is.
Thanks !
Thanks for the mention Tejas! First mention in your newsletter too! I can retire happy now haha