[The Weekend Bulletin] #201: Lessons from the Go-Go Years and The Internet Boom, The Blank Sheet Method, ...
... Overcoming Over-Confidence, Mean Reversion, 99% of performance improvement, and more.
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Investing Wisdom
The law of mean reversion is a fact in the markets. High returns periods are usually followed by lower returns one. However, if this is the case, why is managing the portfolio through these above and below average cycles difficult? Here is a short meditation on this subject.
Following are two interesting articles that look at some stock market history:
This one looks at the market dynamics around the 1960s, also known as the 'Go-Go Years'. It highlights the risks of blindly following trends and narratives in investing, emphasizing the importance of staying grounded in fundamentals.
This one looks at a 1990s internet boom and the following dot-com burst. It narrates the story of Sun Microsystems, one of the of early successes of the internet boom, and draws some parallels to today's AI boom.
Both the articles present some frameworks to think about boom-bust cycles which are particularly interesting.
Mental Models & Behavioral Biases
This short article lists three ways in which investors can overcome their over-confidence bias which usually leads to excessive trading and lower returns.
Personal Development
Doesnt it often happen that you read a well-written and useful book, but fail to recollect most of your learnings from the book as time passes? This is a problem that we all struggle with. Here is a simple strategy developed by Shane Parish of Farnam Street Blog called The Blank Sheet Method. Coming from someone who reads a lot of books every year, this definitely seems to be a useful strategy.
Things like the pillow and mattress you sleep on, whether you should drink coffee first up in the morning or not, what kind of smoothie should you have, how much time should you wait in between meals etc are gaining a lot of prominence these days. While important, the author of this article - a performance coach himself - argues that these things have a smaller impact on performance. 99% of performance improvement happens from the few big thingsthat we should all rather focus on.
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 124:
With the following description, could you guess what business is this:
"Researchers were allowed to spend 15% of their time investigating whatever they chose. Further, ...employees could push a suggestion past their direct report in the event they were getting pushed back on an idea....Once a researcher had proved him or herself to be an innovator (through new patents and products), their name was published in the * Innovators Hall of Fame, next to their patent, and was then allowed to spend up to half their time on projects they choose."
If you thought the above described Google or 3M, you were wrong. It is, in fact, the description of a textile company that this article talks about to highlight the importance of people in business.
"Interestingly, Milliken bet in completely the opposite direction to Buffett. As Buffett exited the textile business Milliken set about investing heavily in research and development to become the only remaining textile business in the US."
We are all aware of how the subconscious solves some of the tougher problems - the shower thoughts, or the famous Eureka moment. Given this knowledge, it is imperative that we create empty spaces for the subconscious mind to work, and ensure that it works on the right problems. While a lot has been written on the former (long walks, writing etc), not much has been written on the latter. This article tells you how and why the top idea in your mind matters.
In this recent interview, famed investor Stanley Druckenmiller talks about - among other things - what makes a good investor, when to sell, why managing emotions is tough, his biggest mistake, and more.
Quotable Quotes
“I count him braver who overcomes his desires than him who conquers his enemies; for the hardest victory is the victory over self.”
- Aristotle
"Risk has two stages: First, when it actually hits. Then, when its scars influence our subsequent decisions. The recession, and the lingering pessimism that does as much damage.”
- Morgan Housel
“Over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.”
- Hyman Minsky
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Jun 29, 2024]