[The Weekend Bulletin] #151: Valuing the Unknowable, Getting Rich While Sleeping, Inflation and Multiples,...
Forgotten Lesson From Graham, Universal Investing Truths, Zhang Lei, and more.
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Investing Wisdom
We are well aware of the multiple unknowns in decision making. We also know that these unknowns can create significant variance in outcomes, both, positive and negative. This is especially true in investing where a large part of value is derived from the far away future, and some businesses/managements have the shown the ability to outperform long term expectations. How do investors account for such outcomes? This article has some suggestions.
Some simple yet profound investing truths reiterated in this well written piece by a practitioner as he looks back at investing through the pandemic. Current market conditions may be a good time to be reminded of these tenets.
This article traces a very interesting journey of a lesser known Chinese investor who runs a $60bn fund. Interestingly, the fund counts the Yale endowment as his first investors, and Tencent amongst its early investment.
This short thread dispels the widely held belief that low rates always means high multiples and vice versa. It posits that equity valuations during most of the QE era were below the long-term average. Read on to find out why.
Personal Development
The health benefits of getting good sleep are well documented, but it seems that being well-rested is also good for your finances and your career. This short note explains.
This article draws an interesting leaf from Ben Graham’s life to impart a very valuable life lesson.
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 #76:
The latest quarterly commentary of Miller Opportunity Equity strategy makes a couple of interesting points. First, it talks about increasing volatility in the markets and how investors can benefit from it (rather than treating it as a risk). Second, is the following quote on survival being the ultimate measure of success for investment managers(emphasis added):
"As a young analyst, I remember being shocked when I first heard my boss, Bill Miller’s response to the question, “what is investment success?” and he replied that over the long term it was simply “survival.” Isn’t that the lowest possible bar, I wondered, full of youthful ambition and naivety. As Bill explained and I’ve come to know firsthand: not at all! Investment management is exceedingly competitive. To survive, one must perform well in a variety of environments. Outperforming the market net of fees is extremely difficult. Doing so through various market environments is almost impossible."
While the above article talks about volatility and benefiting from it, the general perception in the market is that too much activity in the portfolio is not a good sign. How should investors then think of benefiting from volatility and portfolio activity? This slightly dated article provides a good perspective, breaking down returns into profit margins and turnover, just as we breakdown ROCE into profit margins and asset turnovers.
All of investing is about finding the balance between two opposites like conviction and agility, concentration and diversification etc. This concept is not just useful in investing, but in life, in general. Termed 'Polarity', this mental model is useful tool in dealing with most situations in life. This article provides a good introduction to the concept of Polarity and provides a practical framework for adopting it in everyday decisions. This one is meant to be consumed slowly and repeatedly over time.
Readworthy Passage
Let's read together a random, but read-worthy, passage from a randomly picked book.
In any game, there are always two currencies required to play—will and resources. Resources are tangible and easily measured. When we talk about resources, we’re usually talking about money. And depending on an organization’s preferences or the standards of the day, those resources can be counted in multiple ways— revenues, profit, EBITDA, EPS, cash flow, venture capital, private equity, stock price and so on. Resources generally come from outside sources, like customers or investors, and represent the sum of all the financial metrics that contribute to the health of the organization.
Will, in contrast, is intangible and harder to measure. When we talk about will, we’re talking about the feelings people have when they come to work. Will encompasses morale, motivation, inspiration, commitment, desire to engage, desire to offer discretionary effort and so on. Will generally comes from inside sources like the quality of leadership and the clarity and strength of the Just Cause. Will represents the sum of all the human elements that contribute to the health of the organization.
All leaders, whether operating with a finite or infinite mindset, know resources are essential. And both finite- and infinite-minded leaders agree that will is also essential. I have yet to meet any CEO who thinks their people are unimportant. The problem is, will and resources can never be equally prioritized. There are always circumstances in which one is pitted against the other, times in which a leader must choose which one they are willing to sacrifice. The question is, which one will they choose? Every leader has a bias.
- From THE INFINITE GAME by Simon Sinek
Quotable Quotes
"Nothing ever goes away until it has taught us what we need to know."
"It's so damned elementary that even bright people are going to have limited, really valuable insights in a very competitive world when they're fighting against other very bright, hardworking people.
And it makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times.
How many of you have fifty-six brilliant insights in which you have equal confidence? Raise your hands, please. How many of you have two or three insights that you have some confidence in? I rest my case."
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Mar 11, 2023]
Glad you enjoyed the Zhang Lei post Tejas !