[The Weekend Bulletin] #156: Value and Growth in Conjunction, Being Possessed by Your Possessions,...

...Doing Nothing, Working Hard, Childhood of Exception People, and more.

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

Investing Wisdom

• This two part series (we read part 1 in #149) is a refreshing read on the interplay of value and growth, and how each effects stock returns and the investor's time horizon.

  • In Part 1 of the series, the author reiterates Warren Buffet's remark that growth and value are two sides of the same coin, rather than two different strategies as investors usually perceive them. By understanding the interplay between these two factors, investors can make smart decisions that lead to long-term success. One way to think about this balance is through the lens of the Gordon growth model, as the article explains. 

  • In Part 2, the author goes on to show how an investor's time horizon is determined by the contribution of growth or valuation in the return equation. He uses Buffett's investment in the Coca Cola to explain this. The appendix to the post explains further how time works against a value investment, and in favour of a growth investment.

• This article presents the results of an interesting experiment: 'What if instead of owning a stock-market index that is periodically reconstituted, an investor simply bought and retained a basket of equities? No new position would be established. The portfolio would change only when its companies were acquired, but even that would not trigger a trade. The purchase price would remain as cash.' How much better/worse returns would this strategy have generated compared to an index that is rebalanced frequently? Bear in mind the in the last decade, a large part of the index returns were generated by a handful of stocks (FAAMG), which never made it to the buy and hold portfolio (since no new positions were added).

  • Long time readers of this bulletin would recollect reading about the Voya Corporate Leaders Trust in the seventh issue.

Mental Models & Behavioral Biases

• The hunter becomes the hunted, or so the old saying goes. Often, what we think we possess, in reality, possesses us. The things we value may not really be as valuable. For instance, what conventional wisdom considers as the agricultural 'revolution' - the domestication of wheat - may actually be the downfall of all of mankind. Let this post explain.

Personal Development

• I chanced upon this write-up courtesy of Sean Delaney. The author studied the childhood of many famous personalities to dig into some common traits in their upbringing. And indeed, he did find a few common patterns in the way that these exceptional people were raised. If you are a parent yourself, you shouldn't skip this one.

• How to Work Hard - If I told you that is the title of this essay, you'd dismiss it as another one of those phoney self-help kind of catchy titles. However, this essay is a deep meditation on the subject of working hard. It looks at the problem from multiple perspectives; the below extract from the essay provides a glimpse of the many perspectives that it touches upon:

  "Working hard is not just a dial you turn up to 11. It's a complicated, dynamic system that has to be tuned just right at each point. You have to understand the shape of real work, see clearly what kind you're best suited for, aim as close to the true core of it as you can, accurately judge at each moment both what you're capable of and how you're doing, and put in as many hours each day as you can without harming the quality of the result."

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 #81:

• This talk is a wonderful exploration of prosperity - not at an individual level but at a country and industry level. It draws interesting observations behind the success of some industries, regions, and nations over time. It provides an interesting framework with which investors can appreciate competitive landscapes, collaboration within an industry, as well as organisation structure.

• Complimenting the above long narrative that draws from history is this short thread of a person's journey to financial freedom (the ultimate measure of richness in my view). What's inspiring about this narrative is how little it relies on timing or fancy investment ideas, and how much it benefits from the ultimate leverages in investing - discipline and time. A simple read that demonstrates that a little bit of discipline and a decadal horizon are probably the only tools needed to achieve financial freedom.

  On a related note: 

  

• We all have someone that looks up to us - a partner, a subordinate, a child, a mentee, a student, etc. How do we ensure that we become the right role model for the person/s looking up to us? More broadly, what are the set of principles that make us a good person? This article provides a list of such principles drawn from the ancient Romans. These principles are not surface level advice like be kind, smile more often, pay a compliment, listen well. These are important things to bear in mind. However, the principles discussed in this article connect at a more deeper, philosophical level. They provide a set of guidelines for who to be, rather than how to be. What's most interesting is how little these principles have changed over time.

Readworthy Passage

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

Tony Dungy had waited an eternity for this job. For seventeen years, he prowled the sidelines as an assistant coach, first at the University of Minnesota, then with the Pittsburgh Steelers, then the Kansas City Chiefs, and then back to Minnesota with the Vikings. Four times in the past decade, he had been invited to interview for head coaching positions with NFL teams.

All four times, the interviews hadn’t gone well.

Part of the problem was Dungy’s coaching philosophy. In his job interviews, he would patiently explain his belief that the key to winning was changing players’ habits. He wanted to get players to stop making so many decisions during a game, he said. He wanted them to react automatically, habitually. If he could instill the right habits, his team would win. Period.

“Champions don’t do extraordinary things,” Dungy would explain. “They do ordinary things, but they do them without thinking, too fast for the other team to react. They follow the habits they’ve learned.”

How, the owners would ask, are you going to create those new habits?

Oh, no, he wasn’t going to create new habits, Dungy would answer. Players spent their lives building the habits that got them to the NFL. No athlete is going to abandon those patterns simply because some new coach says to.

So rather than creating new habits, Dungy was going to change players’ old ones. And the secret to changing old habits was using what was already inside players’ heads. Habits are a three-step loop—the cue, the routine, and the reward—but Dungy only wanted to attack the middle step, the routine. He knew from experience that it was easier to convince someone to adopt a new behavior if there was something familiar at the beginning and end.5

His coaching strategy embodied an axiom, a Golden Rule of habit change that study after study has shown is among the most powerful tools for creating change. Dungy recognized that you can never truly extinguish bad habits.

Rather, to change a habit, you must keep the old cue, and deliver the old reward, but insert a new routine.

That’s the rule: If you use the same cue, and provide the same reward, you can shift the routine and change the habit. Almost any behavior can be transformed if the cue and reward stay the same.

The Golden Rule has influenced treatments for alcoholism, obesity, obsessive-compulsive disorders, and hundreds of other destructive behaviors, and understanding it can help anyone change their own habits. (Attempts to give up snacking, for instance, will often fail unless there’s a new routine to satisfy old cues and reward urges. A smoker usually can’t quit unless she finds some activity to replace cigarettes when her nicotine craving is triggered.)

Four times Dungy explained his habit-based philosophy to team owners. Four times they listened politely, thanked him for his time, and then hired someone else.

Then, in 1996, the woeful Buccaneers called. Dungy flew to Tampa Bay and, once again, laid out his plan for how they could win. The day after the final interview, they offered him the job.

Dungy’s system would eventually turn the Bucs into one of the league’s winningest teams. He would become the only coach in NFL history to reach the play-offs in ten consecutive years, the first African American coach to win a Super Bowl, and one of the most respected figures in professional athletics. His coaching techniques would spread throughout the league and all of sports. His approach would help illuminate how to remake the habits in anyone’s life.

- From THE POWER OF HABIT by CHARLES DUHIGG

Quotable Quotes

"A big problem with bubbles is the reflexive association between wealth and wisdom, so a bunch of crazy ideas are taken seriously because a temporarily rich person said it."

- Morgan Housel

"It is nearly impossible to have your best idea the first time you think about something.

The most likely way to uncover important insights is to frequently revisit a problem. The longer you're in the game, the more ideas bubble up to the surface.

Time unlocks insights."

- James Clear

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That's it for this weekend folks.

Have a wonderful week ahead!!

- Tejas Gutka

[Apr 29, 2023]