[The Weekend Bulletin] #200: Capital Allocation, John Neff, Phil Fisher, Morgan Housel, ...
... Expert vs Imitator, Entropy, Learning Effectively, and more.
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Investing Wisdom
Investment manager T. Rowe Price advocates the importance of capital allocation in creating shareholder value in a recent white paper. The author argues that even slow growing companies can create value through effective capital allocation (something that we learnt in #155: 'Lessons from the Titans'). The paper throws light on how effective capital allocation can lead to either improved earnings growth or better shareholder value (or both). The author also contests that most companies as well as market participants do not pay enough attention to this aspect of management responsibility.
'During the thirty years that John Neff ran the 'Windsor Fund', he increased the initial stake an incredible fifty-seven times. In the process the Windsor Fund became the largest mutual fund in the United States, and John Neff became an investing legend.'
Drawing notes from the biography of the legendary John Neff (whom we've read about in: #119, #149, #150) this article explains how he achieved this rare and incredible feat.
Another legendary investor Phil Fisher reiterates some of his investing tenets as he turns 89, in this 1996 interview. He shares his views on management quality, valuations, sell vs hold decisions, investing in past or current great businesses vs future great business, and more. It's interesting to contrast the views of Fisher and Neff on holding highly valued companies.
Shane Parrish of Farnam Street interviews financial writer Morgan Housel in this podcast. The conversation revolves around the many concepts of personal finance that Morgan has written about over the years in his blogs and books. It also pivots in to Morgan's writing process, as well as parenting. Some interesting tid-bits from the conversation are reproduced below:
- the skills it takes to get rich are drastically different from the skills it takes to stay rich.
- not having FOMO (fear of missing out) is the single most important financial skill
- Investing is one of the very few endeavors in life where the harder you try, the worse you’re probably going to do
- What’s important is that your net worth is growing faster than your aspirations.
Mental Models & Behavioral Biases
This short extract from Shane Parrish' recent book 'Clear Thinking: Turning Ordinary Moments into Extraordinary Results' (highly recommended read) talks about a specific application of the signal vs noise mental model. It explains how to differentiate experts (people with deep domain expertise) from imitators (people who simply spread other people's ideas). This idea has wide application is real life as we all seek expert advice in multiple areas from learning to health to investing.
If there is one phenomena that is widely observed across fields, it is Entropy. Originally a thermodynamic law, entropy is a measure of disorder. This mental model explains why life gets more complicated with time, why states and organisations fail, and why energy flows efficiently one way. This article explains this mental model and also tells you how you can use it to your advantage.
Personal Development
This was Cal Newport's early works, and probably lesser known. The tittle also makes you think that this is book for teenagers. However, I recently stumbled upon a presentation on this book and found it quite interesting. If you have an inclination towards learning anything (why otherwise would you be reading this), then this book should help you. The video has a fairly detailed summary to give you an idea about the key concepts covered in the book.
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 123:
Are past mistakes good teachers for future actions, or do they act as an anchor holding us back, or both? That is the question that this post is attempting to answer. It contemplates whether we are better off forgetting our past or not.
Another episode from The One Percent Show that I really enjoyed. In this one, Vishal Khandelwal interviews Ian Cassel of the 'microcapclub' and 'intelligent fanatics' fame. Some of favourite snippets:
This fantastic long-form article talks about an interesting mental model called The Hummingbird Effect, and it's opposite called The Poison Tree Effect. If you want to understand how the invention of the printing press led to the development of micro-biology, or how some of the great economic collapses came to be (and how some then led to rise of tyrants like Hitler) then you must definitely read this article. The authors ability to connect ideas across domains and time horizons is truly commendable.
Quotable Quotes
"A gem cannot be polished without friction, nor a man perfected without trials.”
- Seneca
"You have to do your homework and kick the tires. It’s not the answers that make you good in this business, it’s the questions you ask. If you ask the right questions you will always find out more than the next guy.”
- Michael Price
“Few things sap the paranoiac drive to do better than stable cash flow and high profit margins. Michael Moritz of Sequoia was once asked why his firm had thrived for 40 years. “We’ve always been afraid of going out of business,” was his answer. That is an exceedingly rare response in a world where most people step back, see all they’ve achieved, and assume they can breathe a sigh of relief.”
- Morgan Housel
“Whenever a theory appears to you as the only possible one, take this as a sign that you have neither understood the theory nor the problem which it was intended to solve.”
- Karl Popper
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Jun 15, 2024]
The Hummingbird and the Poison Tree
Most appropriate at today's circumstances. An eye opener.
Thanks !