[The Weekend Bulletin] #185: 7 Powers, Persistence of Growth, Profitability and Valuations, ...
... Thoughts About Money, Illusion of Choice, Fear - Friend or Foe?, and more.
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Investing Wisdom
In his book '7 Powers', author Hamilton Helmer outlines the importance of strategy in creating an enduring competitive advantage. He lists seven strategic choices (powers) that business operators can choose from in order to improve cash flows (a benefit) as well as sustain them for longer by keeping competition at bay (a barrier). He talks about why the combination of benefit and barrier is important in defining a power, as well as explains each of the seven powers with real like examples in this podcast. While some of the powers like cornered resources, network effects, and economies of scale may sound cliched, he adds interesting nuances for each of them.
Competitive advantage gains importance as it helps sustain higher growth/profitability for longer. This has important bearing for valuation multiples. However, there are some interesting nuances here, which a combination of three short research notes explain (some of which we have read in the past, but there is more value in reading them together):
Growth mean reverts: Current high growth rates have no bearing on future growth. In fact, over the long term, high growth rates do not persist.
So do valuation multiples: While growth does not persist at all, the other factors seem to persist at a much higher rate than chance and so should logically be predictive of future multiples. However, growth is the most important variable and dominates other factors that determine multiples. Thus, multiples mean revert, but not as much as growth.
But not completely: As growth mean reverts, long term multiple should move closer to the market, although not completely as explained above. This note combines the previous two notes into an equation that helps determine the extent of mean reversion of terminal multiples.
The author of this article lists 17 thought about money, some of which are quite quirky, like:
The best perspective about money comes from past versions of yourself.
Enjoying your job is a form of wealth.
Pick up the check when you’re with a group of friends just because.
Everyone needs a get-out-of-jail-free card for spending.
Mental Models & Behavioral Biases
This article talks about a mental model called the 'illusion of choice' which is the tendency of humans being happy in believing that they have control over their own actions and can exercise free will. The author refers to the architecture used in The Matrix Trilogy to explains this concept, and also provides a few ways in which we can combat this fallacy.
Personal Development
What is the biggest obstacle that comes in the way of most people doing what they wish to do? It is neither ability not circumstances, but a simple feeling called fear. The following two articles explain the different types of fears that we face, why we should not fight them, instead embrace them, and how can we overcome them.
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 108:
We all know that the pendulum of investor sentiment, and market valuations, swings in both directions. And while we enjoy when it swings towards optimism, we generally fear the other way. When excesses are corrected, they make for quite a graveyard. And nobody likes to dig (for ideas) in a graveyard. However, sometimes, the best long term investments come out of such graveyards, as this thread explains.
We've always thought of and looked at compounding from the perspective of investing and habits - small incremental changes over a long period of time can lead to outsized results. Interesting, this article presents the idea from a skills perspective. It agues that sometimes a combination of seemingly mediocre and disjoint skills can create great outcomes - just as when you mix two metals to create an alloy. The article then goes on to list some skills/behaviours that can work wonders when combined together.
Why is it that a lot of successful people and business find it difficult to succeed further? Why is it that most achievers hit a glass ceiling? Greg McKeown, author of the book Essentialism: The Disciplined Pursuit of Less, claims that this happens as success is a poor teacher, and it leads to chaos. He explains further in this wide ranging talk by stitching together trade-offs, FOMO, JOMO, Gandhi, and Salt March (Dandi March). In case you are wondering that this is a problem for highly successful people and not for me, then maybe you want to consider the idea that the lack of success is probably due to an undisciplined pursuit of more. This talk is as much for those who don't think they are successful as much as it is for someone successful.
Quotable Quotes
"I think about decisions in three ways: hats, haircuts, and tattoos.
Most decisions are like hats. Try one and if you don’t like it, put it back and try another. The cost of a mistake is low, so move quickly and try a bunch of hats.
Some decisions are like haircuts. You can fix a bad one, but it won’t be quick and you might feel foolish for awhile. That said, don't be scared of a bad haircut. Trying something new is usually a risk worth taking. If it doesn't work out, by this time next year you will have moved on and so will everyone else.
A few decisions are like tattoos. Once you make them, you have to live with them. Some mistakes are irreversible. Maybe you'll move on for a moment, but then you'll glance in the mirror and be reminded of that choice all over again. Even years later, the decision leaves a mark. When you're dealing with an irreversible choice, move slowly and think carefully."
- James Clear
"We live about 30,000 productive days and our life divides naturally into 10,000 day increments. ...
The first 10,000 days is about going wide, experimenting, trying new things, new places, new professions, new people, new towns. It’s a time of exploration.
The next 10,000 days are about going deep, just the depth of relationships, marriage, through family, through your vocation, your profession, your colleagues. You sort of have 10,000 days to execute. 10,000 days to accomplish and build what in many ways will be the sort of monuments of your life, your family, your kids, your profession.
...
Then, in the last 10,000 days, ... it becomes a time where you think a lot about taking care of yourself. You think about investing in relationships. When you’re raising a family, when you’re in the office every day, your social life is structured for you. As you get to the next 10,000 days, people can lose touch. So it’s been a time when I’ve really invested in maintaining, invigorating, revisiting relationships."
- Chris Davis on William Green's podcast (heavily edited for brevity)
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Feb 03, 2024]