[The Weekend Bulletin] #96: Wisdom of the Crowd, Game Within The Game,
...Luck, Experience, Prestige, Second Order Thinking, and more.
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Section 1: Investing Wisdom
There are a multitude of investment strategies, and most of them work. In other words, investing is a game that has many games within it. Your success, or lack of it, then depends on the game that you choose. In this talk, Yen Liow of Aravat Global ((whom we’ve met in multiple issues starting with #43) talks about a game that his firm has chosen. In doing so, he explains a nifty little framework to marry the volatility in share price with the volatility in intrinsic value to find investment winners.
Compliment the above talk with this very fine article about finding a game you can win in investing.
This article explains why beating the market currently could be a dangerous outcome for your future self. The concept discussed in the article applies to investing always, but more so today than usual. Dont skip this short note.
It very well known that our experiences shape our perceptions. In fact, experiences make up a lot of our mental framework. But did you know that your experiences also influence how you think about money? And if that is true (which it is), then it is pertinent to understand that personal finance is truly personal. You cannot borrow your portfolio from someone else.
Life is difficult. Money is hard. You have a lifetime of experiences pushing and pulling you different directions. Don’t fool yourself thinking you have it all figured out.
These four images shared by Oaklane Capital's Kuntal Shah carry the weight of at least half a book. They serve as a good reminder that an opinion being popular does not necessarily mean it is correct - what is popular may not be investible.
Section 2: Mental Models & Behavioral Biases
One of the ways that you can avoid falling for the popular opinion like in the four images above is to inculcate the habit of Second Order Thinking. Here are two articles that explain how:
Shane Parish of Farnam Street explains the concept of Second Order Thinking and provides four ways in which you can practise it.
Vishal Khandelwal of The Safal Niveshak narrates an interesting incident from China to help us understand the importance of asking 'and then what?', and also highlights the importance of second order thinking in the current market conditions. Interesting and Educative.
The importance of working within one's Circle of Competence is well known and well accepting in investing. However, there is a particular case in which working within one's circle of competence may not be all that profitable. In other words, sometimes working in the Circle of Incompetence may be more profitable that in the circle of competence. This article explains why strong convictions should be loosely held.
This twitter thread is a slightly dark and a mildly depressing window in to the behaviour of large groups. We are not there yet, and I hope we don't ever get there. I am also thankful that we all can find a purpose in our lives.
Section 3: Personal Development
The following is a very short but powerful message: Beware of chasing prestige. This is akin to being beware of blindly chasing the crowd in investing (which is the central theme of few of the articles above).
Should you have difficulty in letting go off the prestige, or taming your ego, or should you feel that life is being unfair, then the following should set you straight:
Section 4: 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 #24:
This hilarious narration by a father, an economist, about...umm....potty training his three children(!!)...is the simplest lesson in behavioural finance ever. Such good lessons on the power of incentives and unintended consequences.
There are two challenges that most of us face all the time, paraphrased below:
If time is the currency of achievement, why are some able to cash in their allocation for more chips than others? And in a world of rapid fire Slack messages, daily episodes of The Daily and Zoom calls up the wazoo - who on earth has the right to not feel rushed?
Productivity is fueled by raising attentional filters to keep unrelated or distracting thoughts out. But creativity is fueled by lowering attentional filters to let those thoughts in. How do you get the best of both worlds?
This well articulated article has the answers.
Section 5: Readworthy Passage
Let's read together a random, but read-worthy, passage from a randomly picked book.
- From The Pleasantries of the Incredible Mulla Nasrudin by Idries Shah (h/t ot Anshul Khare for sharing this)
"Knowledge is simple, wisdom is complex. Knowledge is abundant, wisdom is scarce. Knowledge is easy, wisdom is difficult. It is better to deeply understand a little knowledge, than to know much more than we understand, for understanding, not knowledge is the path to wisdom."
- Dee Hock (founder of Visa)
“Investing is the only field where consistently doing nothing is a competitive advantage.”
"Nearly everything in life is unfavorable once it grows to a certain size.
It is entirely possible to have too many clients, too much work, too much fame, too much free time, and so on.
Pay attention to when the thing you're chasing exceeds its usefulness."
"The strategies that made you successful in the past will, at some point, reach their limit.
Don't let your previous choices set your future ceiling. The willingness to try new ideas allows you to keep advancing."
- James Clear (both the above)
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Oct 23, 2021]