[The Weekend Bulletin] #86: To DCF Or Not To DCF?
+ Conviction, Courage, 3 Potent Business Mental Models, Customer Delight over Moats, and more...
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Sorry I skipped an issue last weekend. Something untimely and unfortunate happened the week prior that held my attention captive.
This one's brief on comments. Hoping to resume normalcy from the next one - in the spirit of the show must go on.
Some of the reads are long, in some way compensating for last weekend.
Section 1: Investing Wisdom
Sometimes we read things not to gain insight, but to be reminded about things that we know, but have forgotten. It's good to go back to basics once in a while. Two articles that took me back:
How to build conviction to sleep well at night
What to do when your investment losses keep you up at night
Two interesting but opposing views on the use of DCF as a valuation tool (although you'll find some commonalities in both):
Michael Mauboussin and Dan Callahen argue in their latest paper that “everything is a DCF model”.
Anand Sridharan, on the other hand, argues that DCF is great in spirit, but not so much in practise.
This article lists three interesting models that can help identify good businesses.
An insightful short note on finding businesses that delight customers rather than looking for moats (ties-in with the article on stakeholder value in #85)
Section 2: Mental Models & Behavioral Biases
Cognitive Bias Handbook (Part 1) - A short - one paragraph - introduction to a number of behavioural biases. Quick read, and good to revisit from time to time.
Biases covered: Dunning-Kruger Effect, Fundamental Attribution Error, Bandwagon Effect, Egocentric Bias, Naïve Realism, Baader-Meinhof Phenomenon, Pygmalion Effect, Confirmation Bias, Backfire Effect, and Anchoring.
Section 3: Personal Development
Applying the principle of 'partnering with great managements' to personal life, your life partner can have a significant impact on your life outcomes. Therefore, it is important that we choose our live-partners carefully. This article provides a good framework:
[P.S. I was fortunate to have received similar advice before I got married from someone who has been friend, guide, and mentor. So important to find yourself in good company]
How to learn stuff quickly - needs no explanation.
On a related note:
Source: Sketchplanations
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 fourteenth issue of TWB:
Investing is a very interesting endeavour. There is not set formula to achieve success in investing - making it more art-like than science. Over the years, different people have adopted varied investment philosophies to achieve similar results. Below are the profile of three such unusual investors:
The first is someone who would probably be the world’s richest man in today’s dollars. Only the Rockefeller family would come close to the wealth that this man amassed through skilled trading for his family in the fifteenth century. Here’s a quick overview about this investor.
Our second investor is dyslexic, had an abusive father, would often run away from home, was sent to the navy, worked for nasa, and eventually started his own enterprise. His fortune, however, didn't come from some flash of entrepreneurial brilliance, but from a lifetime of buy-and-hold investing.
The most interesting was saved for the end. This is someone who probably holds the unofficial record of growing money faster and longer than anyone alive. Over three decades, he turned $11mn in $1bn - not for himself but for a college that boasts of the largest endowment per student in the whole of the US. The man's intelligence and humility is reflected in the fact that Warren Buffett considers him to be the only replacement for his father!!. Here is how the man did it all.
Quotable Quotes
Experiences drive perceptions:
"Your beliefs are the result of personal experience. Your enemy’s beliefs are the result of his.
War is the result of imposing your experiences onto your enemy's. Of conquering his narrative to make it resemble yours.
Peace is the result of understanding your enemy’s experiences. Of connecting your narratives to create a broader picture of the world."
Source: More To That
Ask the right questions:
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.
Source: Michael Price
A question worth pondering over:
Lastly, to close the loop on what I started the issue with:
We are born with no name, just our breath;
And we die with no breath left, whats left is just a name;
Life is a journey between our breath and our name;
Make sure that the journey is GREAT.
Source: Gaur Gopal Das
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Aug 07, 2021]
As much as I enjoy reading this newsletter, the three stories of great investors seldom heard off were awe-inspiring & thoroughly filled with nuggets of wisdom.