[The Weekend Bulletin] #85: Moats vs Durability, Shareholder vs Stakeholder, Wealth vs Money.

+ Inattentional Bias, A Formula for Health, Wealth, and a Good Life, and more.

Jul 24, 2021

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

Section 1: Investing Wisdom

We all know and understand moats. There is a lot of literature on identifying and analysing moats. There's also some literature on the durability of moat (we've looked at it in issues #8, #23, and #50). However, even as we focus on the business and it's moat, we shouldn't forget about the durability of demand for it's products. This article explains further.
- Pair the above with the following from Issue 15:
  Most things about the future are uncertain, except for one thing - change. Change is unforeseeable, but inevitable. And from this universal truth rises a risk in investing that may lead to the creation of a value trap. Often, business managers and investors fail to notice a change in consumer trends, thereby both continuing to invest in well known brands that are well on their way to obscurity. One way to avoid this trap is to understand the difference between recognizability and relevance. This article explains how.
Traditionally, creating shareholder value has been considered as the most important task of a company. Investors have had a keen eye on a company’s bargaining power with its suppliers as well as pricing power over its customers. The modern view, while appreciating these aspects, takes a much broader approach. Value creation is no more about just the shareholder, but about all stakeholders. This paper provides a quick view of this concept.
Similar to the change in perspective about corporate value creation, there is a changing perspective about wealth. Traditionally, wealth has been equated with money (or vice versa). More recently, however, a much wider perspective is being adopted. The modern view of wealth encompasses a broad spectrum of things, some of which are highlighted in this article.
“Wealth is easy to measure but hard to value.”
"Money buys happiness in the same way drugs bring pleasure: Incredible if done right, dangerous if used to mask a weakness, and disastrous when no amount is enough."
- To date, one of the best meditations on this subject (IMHO) has been Naval Ravikant's podcast with Nivi, which was further elaborated here.

Section 2: Mental Models & Behavioral Biases

"Now, ya'll would guess that more often than not, the highest paid player on an NFL team is the quarterback. And you'd be right. But what you probably don't know is that more often than not, the second highest paid player is, thanks to Lawrence Taylor, a left tackle. Because, as every housewife knows, the first check you write is for the mortgage, but the second is for the insurance. The left tackle's job is to protect the quarterback from what he can't see comin'. To protect his blind side."

The above quote is from the movie The Blind Side (highly recommended) which is based on a 2006 book by the same name by Michael Lewis ( of The Big Short, The Undoing Project, and Moneyball fame). The blind side applies as much to sports, as it applies to life, and investing. Interestingly, the field of magic is based upon exploiting this blind side. This is an interesting mental model called Inattentional Bias, which is explained here.

Section 3: Personal Development

This article is a collection of the wisdom of Naval Ravikant on the subject of health, wealth, and life in general. Using equations, Naval explains the important areas that one should focus upon in order to lead a happy life. A formula for health, wealth, and a good life - you don't want to miss this one.

Section 4: Blast From The Past

We consume a lot interesting text in our quest for knowledge. However, with each new byte of data that we feed into our memory, we lose some bit of old information that was held. Even without the addition of new information, our memory regularly cleans our information that is held deep and not often retrieved. If is for this reason that re-reading old texts (books/articles/notes) is highly recommended.

There are other advantages to re-reading. Spaced repetition for one - when we revisit some old material, it is etched better into our long term memory. More importantly, as we gain more experiences in life, re-reading an old text can provide some fresh perspectives that we may have missed while reading earlier.

It is to reap these benefits that this section revisits article/s from an earlier issue. Below are articles that first appeared in the thirteenth issue of TWB:

The objective of investing is wealth creation. And the most fundamental rule of wealth creation is to create an investible surplus by spending less than what we earn. But that is just one way of looking at the equation. This article (and the one linked within) turns this equation on its head. Just as there is a limit to the cost saving that a company can undertake to boost profits, spending less will hit a wall sooner than we think. The solution? Read on to find out.
This is one of those meditations that I like to revisit and share with people the most. Written over 2000 years ago, it's as relevant today, as it was when written. Seneca, On the Shortness of Life. If you’ve been feeling a shortage of time, then you should definitely read this.
Men do not suffer anyone to seize their estates, and they rush to stones and arms if there is even the slightest dispute about the limit of their lands, yet they allow others to trespass upon their life—nay, they themselves even lead in those who will eventually possess it. No one is to be found who is willing to distribute his money, yet among how many does each one of us distribute his life! In guarding their fortune men are often closefisted, yet, when it comes to the matter of wasting time, in the case of the one thing in which it is right to be miserly, they show themselves most prodigal.