[The Weekend Bulletin] #192: Quality Traps, Investing and Buying Used Cars, Turtle Traders, ...
... A Tribute to Danniel Kahneman, Post Earnings Announcement Drift, Own Your Future Self, Scientific Benefits of Reading Regularly, 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 this short video presentation, the speaker talks about quality traps, and how to avoid them. He defines quality traps as high quality businesses where moats are eroding. Given that these are regarded as high quality businesses, they usually tend to trade at rich multiples. And therefore, as the moat erodes, the share price damage is quite meaningful. The speaker presents some research to show the extent of performance damage that such situations can lead to. He then goes on to talk about how investors can identify such situations early so as avoid meaningful losses.
This article draws an intersting analogy between investing and driving a used car. All used cars come with some issues, like all companies faces challenges. However, that is why used cars are cheaper, and so are companies going through troubles. But just as you would not buy a used car simply because it is cheap, you wouldn't buy in to a problematic company because it is quoting low. The author tells you some ways in which to buy in to companies facing troubles.
This trader believed that good traders are not necessarily born that way, but can be made. So he recruited a few and started a program called Turtle Traders. This twitter thread narrates the story as well as explains the Turtle strategy.
This article explores a momentum concept called 'post earnings announcement drift' through some research on investor behaviour. Post earnings drift is the observation that companies with positive earnings surprises see their share prices move higher weeks and months after the announcement, and vice versa.
Mental Models & Behavioral Biases
Noble price winner and the co-founder of the world of behavioural finance Daniel Kahneman passed away this week. Here are a few articles celebrating some of his work along with his partner:
Personal Development
This article explains some surprising scientific benefits of reading everyday, and also lists three simple tip to build a reading habit.
While we recognise that our current self is different and evolved from our past self, we often fail to extrapolate this to the future. We often imagine our future self to be an extension of our current self, which is not usually how we grow. We change or evolve with the passage of time. If we accept this fact, then we can be strategic in planning our future self, and implement changes that will benefit us; in other words be deliberate about our future selves. This article lists some ways in which we can take ownership of our future selves, and change for the better.
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 115:
Jason Zweig lists seven cardinal virtues that great investors possess (Look for the section titled 'The Seven Virtues of Great Investors' in the below links):
We often complain when things don't work out the way we like. We detest pain and suffering, not realising that this pain and suffering is what shapes us. As Victor Hugo said, 'Adversity makes men, and prosperity makes monsters'. Let this article explain: What is Chasing You?
The above article reminded me of this story shared by Morgan Housel:
"Gabby Gingras was born unable to feel pain. She has a full sense of touch. But a rare genetic condition left her completely unable to sense physical pain.
She can fall off her bike and get up like nothing happened.
Stub her toe and not even notice.
You might think this is a superpower, or an incredible gift. But her life – profiled several times in the last decade – is dreadful.
The inability to feel pain left Gabby unable to distinguish right from wrong in the physical world. It’s one of those things that’s easy to take for granted until you see what happens when it’s gone. One profile summarized a fraction of it:
As Gabby’s baby teeth came in, she mutilated the inside of her mouth. Gabby was unaware of the damage she was causing because she didn’t feel the pain that would tell her to stop. Her parents watch helplessly.
“She would chew her fingers bloody, she would chew on her tongue like it was bubble gum,” Steve Gingras, Gabby’s father, explained. “She ended up in the hospital for 10 days because her tongue was so swelled up she couldn’t drink.”
Pain also keeps babies from putting their fingers in their eyes. Without pain to stop her, Gabby scratched her eyes so badly doctors temporarily sewed them shut. Today she is legally blind because of self-inflicted childhood injuries.
Pain is miserable. Life without pain is a disaster."
Among the many pursuits of a professional, an important one is having a good mentor. Having a sounding board and receiving good advice can not only advance a career, but also help avoid pitfalls. Here is one way in which you can have a meaningful relationship with a mentor.
Quotable Quotes
"It is good for a professional to be reminded that his professionalism is only a husk, that the real person must remain an amateur, a lover of the work."
- May Sarton
“The world contains far more information than any single person can learn in their lifetime.
The question is not whether you are ignorant, but what you choose to be ignorant about.
Few topics are worth your precious time. Choose what you pay attention to with great care.”
- James Clear
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Apr 06, 2024]