[The Weekend Bulletin] #152: Half a book long investor letter, living a long life,...

Creating Luck, and more.

A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.

Investing Wisdom

• At a 140 pages, this investor letter by Christopher Bloomstran (Semper Augustus) is the equivalent of half a book. But unlike a book that usually circles around a singular subject, this letter takes you on a few different journeys, like:

  • Looking at current market through the lens of an expected returns model;

  • Investing through inflation in the 70's;

  • Correlation of price to sales ratio with returns over history;

  • The Nifty Fifty Bubble;

  • Book Recommendations; and

  • A 70 page update on Berkshire (capital allocation, returns expectations, holdings etc).

  [Took me a couple of weeks to get through this one. Will definitely take more than a weekend for you; therefore keeping the other material short this weekend]

Mental Models & Behavioral Biases

• We've often read on the big role that luck plays in most outcomes in life. While we cannot change our luck completely, we can surely improve the chances in our favor - on the lines of opportunity meets preparation. Here are a few ways in which you can do that.

  [Regular readers will be reminded of the long thread, and subsequent expansion into blogs, of Naval Ravikant's meditation on this subject that we have looked at in the past.

  While you are at it, also read this post from where all the above originated]

Personal Development

• Most of us have the capacity to make it well into our early 90’s and largely without chronic disease. This article lists some research backed activites/lifestyle adjustments that can help increase average life expectancy by 10-12 years. Resonates closely with the book Ikigai.

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 #77:

• We all know diversification and understand its benefits. However, one factor of diversification that is under-appreciated is that of correlation (or the lack of it). This very short note provides a very interesting anecdote to explain this concept.

• In his latest, Morgan Housel talks about some of challenges in trying to be a long term investor. My favourite line from this post:

  Patience is often stubbornness in disguise.

• In issue 74, we discussed the contrast between efficiency and effectiveness - being efficient does not necessarily make us effective; when it comes to choosing between efficiency and effectiveness, we should always vote for effectiveness. However, effectiveness has its own downside as well, as this article explains. Sometimes, the choice of being not-so-effective can also turn out to be a good one. A very interesting perspective.

Readworthy Passage

Let's read together a random, but read-worthy, passage from a randomly picked book.

Here are the six tendencies—reciprocation, consistency, social validation, liking, authority, and scarcity—along with brief descriptions. While Cialdini does not strongly stress the point, I believe these tendencies are deeply rooted in evolutionary psychology. Each behavior likely contributed to the reproductive success of our forebears.

• Reciprocation. Research shows that there is no human society that does not feel the obligation to reciprocate.2 Companies make ample use of this tendency, from charitable organizations sending free address labels to real estate firms offering free house appraisals.

• Commitment and consistency. Once we have made a decision, and especially if we’ve validated that decision through public affirmation, we’re loath to change our view. Cialdini offers two deep-seated reasons for this. First, consistency allows us to stop thinking about the issue—it gives us a mental break. And second, consistency allows us to avoid the consequence of reason—namely, that we have to change. The first allows us to avoid thinking; the second allows us to avoid acting.

• Social validation. One of the main ways we make decisions is by observing the decisions of others.3 In a famous illustration of this point, psychologist Solomon Asch put a group of eight subjects in a room and showed them a series of slides with vertical lines of various lengths. He asked the group to identify which line on the right matched the length of the one on the left (see exhibit 9.1). The answer was obvious, but Asch instructed every member of the group, save one, to give the same, wrong answer.

  The subjects, bright college students, were clearly confused, and one-third of them went with the majority view even though it was obviously incorrect. While extreme, Asch’s experiment shows how we all rely to some degree on what others do.4

• Liking. We all prefer to say yes to people we like. We tend to like people who are similar to us, who compliment us, cooperate with us, and who are attractive.

• Authority. In one of the most enlightening and unsettling human experiments ever, social psychologist Stanley Milgram (of “six degrees of separation” fame) had subjects come in and play the role of “teacher” for a “learner.” The subjects asked the learner questions, and were told by a stern, lab-coated supervisor to administer progressively stronger electric shocks in return for incorrect answers. The learners would scream in pain and beg for mercy to avoid the increasingly painful shocks. Even though they were never forced to do any- thing, nor were they subject to reprisal, many of the subjects ended up doling out lethal shocks.

  The learners in this experiment were actors and the shocks fake, but Mil- gram’s findings were real and chilling: People obey authority figures against their better judgment. Here again, the behavior generally makes sense— authorities often know more than others about their field—but such obedience can lead to inappropriate responses.5

• Scarcity. Evidence shows humans find items and information more attrac- tive if they are either scarce or perceived to be scarce. Companies routinely leverage this tendency by offering products or services for a limited time only.

These tendencies are singularly powerful. But when they are invoked in combinations, they are even more potent and create what Charlie Munger calls lollapalooza effects (yes, lollapalooza is in the dictionary).

- From MORE THAN YOU KNOW by Michael Mauboussin

Quotable Quotes

"You can borrow ideas but not conviction. Two investors can buy the same stock at the same time (same price) but have surprisingly different outcomes depending on position size and when it’s sold (or if sized up or down along the way)."

- Ho Nam

"It is not hard to make money in the market. What is hard to avoid is the alluring temptation to throw your money away on short, get-rich-quick speculative binges. It is an obvious lesson, but one frequently ignored.”

- Burton G. Malkiel; A Random Walk Down Wall Street

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That's it for this weekend folks.

Have a wonderful week ahead!!

- Tejas Gutka

[Mar 18, 2023]