[The Weekend Bulletin] #161: Return on Capital and Total Shareholder Returns, Fear, Mistakes, Discipline,...

...Success Is A Lagging Indicator, Listening Is A SuperPower, and more.

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

Investing Wisdom

• Michael Mauboussin refreshes his earlier work on the relationship between return on invested capital and total shareholder returns in this paper. It starts by providing the latest ROIC figures, then examines the link between persistence or changes in ROICs and total shareholder returns (TSRs), and finishes by reviewing elements of competitive strategy as well as persistence of ROIC by sector.

Mental Models & Behavioral Biases

• Mistakes can hamper our risk taking ability. Fear of continued failure paralyses us into inaction. But these are the exact moments when we need to spring into action. (Think of a sports person going through a bad patch - should they just hang up their boots, or simply play more?) This article narrates a few ways in which living beings overcome fear - for good and bad outcomes - and ends with a framework that investors can use to overcome fear induced anxiety.

  • While on the topic of mistakes and fear, pair the above with this article which is a collection of thoughts of various investors on making mistakes and overcoming them.

Personal Development

• Everyone likes to set big goals, but very few are able to achieve them. Why does this happen? Outside of idiosyncratic factors like skill, talent, motivation, etc, there is a common reason for this gap between strategy and execution: the daily grind. More often than not, it is the day to day business that crowds out action on strategic initiatives. Author Chris McChesney, Sean Covey, and Jim Huling offered a framework in thier book "The Four Disciplines of Execution" to overcome this whirlwind of day to day work, and to create space from strategic initiatives. This article provides a good summary of the framework discussed in the book. 

• The second discipline in the above framework talks about leading and lagging measures. Taking this thought ahead is this article by Ryan Holiday which claims that success and failure are lagging indicators in most areas of life. So are inspiration, muses, writer's block, and the likes. In order to be achieve or overcome these, one needs to focus on the leading indicators, or the inputs.

• Using a number of interesting anecdotes, this article explains why listening is an essential skill that can be used to build and maintain meaningful relationships in business and life.

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 #86:

• Two interesting but opposing views on the use of DCF as a valuation tool (although you'll find some commonalities in both):

  • Michael Mauboussin and Dan Callahen argue in their latest paper that “everything is a DCF model”.

  • Anand Sridharan, on the other hand, argues that DCF is great in spirit, but not so much in practise.

• This article lists three interesting models that can help identify good businesses.

• How to learn stuff quickly - needs no explanation. 

  • On a related note:

    

Readworthy Passage

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

ON the first day of class, Jerry Uelsmann, a professor at the University of Florida, divided his film photography students into two groups.

Everyone on the left side of the classroom, he explained, would be in the "quantity" group. They would be graded solely on the amount of work they produced. On the final day of class, he would tally the number of photos submitted by each student. One hundred photos would rate an A, ninety photos a B, eighty photos a C, and so on.

Meanwhile, everyone on the right side of the room would be in the "quality" group. They would be graded only on the excellence of their work. They would only need to produce one photo during the semester, but to get an A, it had to be a nearly perfect image.

At the end of the term, he was surprised to find that all the best photos were produced by the quantity group. During the semester, these students were busy taking photos, experimenting with composition and lighting, testing out various methods in the darkroom, and learning from their mistakes. In the process of creating hundreds of photos, they honed their skills. Meanwhile, the quality group sat around speculating about perfection. In the end, they had little to show for their efforts other than unverified theories and one mediocre photo.

It is easy to get bogged down trying to find the optimal plan for change: the fastest way to lose weight, the best program to build muscle, the perfect idea for a side hustle. We are so focused on figuring out the best approach that we never get around to taking action. As Voltaire once wrote, "The best is the enemy of the good."

- From Atomic Habits by James Clear

Quotable Quotes

“One of the supposedly unique gifts of being human, our ability to contemplate how we will be in the future, may also be our greatest source of anguish.”

- Laurence Endersen (Pebbles of Perception)

"I am sometimes taken aback by how people can have a miserable day or get angry because they feel cheated by a bad meal, cold coffee, a social rebuff or a rude reception...We are quick to forget that just being alive is an extraordinary piece of good luck, a remote event, a chance occurrence of monstrous proportions.

Imagine a speck of dust next to a planet a billion times the size of the earth. The speck of dust represents the odds in favour of your being born; the huge planet would be the odds against it.

So stop sweating the small stuff. Don't be like the ingrate who got a castle as a present and worried about the mildew in the bathroom. Stop looking the gift horse in the mouth - remember that you are a Black Swan."

- Nassim Taleb

"The most invisible form of wasted time is doing a good job on an unimportant task."

- James Clear

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That's it for this weekend folks.

Have a wonderful week ahead!!

- Tejas Gutka

[Jun 10, 2023]