[The Weekend Bulletin] #49: A few real-life lessons
Investment lessons from Utpal Sheth and others, what sharks can teach us about survivorship bias, 14/8 life lessons, email vs gmail: network vs viral effects, and more...
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
"Reading can teach you the best of what others already know.
Reflection can teach you the best of what only you can know."
It's been a rather disappointing week of reading. It seems that the US elections drew a lot of investor attention, as most things that I came across through the week were somehow linked to the event. As a principle, I avoid topical reads, since they add very little to the long term view, IMHO.
On the other hand, I love reading about the lessons that people have learnt from experience - for I believe that these lessons usually bring in a fresh perspective on a known issue. Obviously, one must bear in mind the biases that can creep in when you read narrowly about the experience of a single individual (or that of a group); however, I think the perspectives more than make up for the biases. Moreover, not just me, but even Charlie Munger is a proponent of vicarious learning, and I am sure if he thinks its important, it really must be good ;).
This week is thus short on the number of links, however, that shortness is made up by the depth of the lessons that they carry. So let’s dive straight in.
Section 1: Investing Wisdom
Four short lessons from over a decade of investing by a self-taught investor. Not only are the lessons interesting, and relatable, but the author also goes on to talk about ten themes designed from his mistakes that he believes should be taught to CFA candidates. I believe that not just CFA aspirants, but many seasoned investors would also benefit if there ever was a classroom where these were taught.
He is the CEO of RARE enterprises, and a complete opposite of the investor who lends his name to that firm. Over his long career, he has worked was marquee investment houses like ENAM, ASK, RARE and the likes. He is credited with bringing to the big bull’s focus a private equity style of long term investing. He has many a multi-baggers under his belt. Yet, he lives a low profile life and his wisdom is rarely found on the web. Thus, you wouldn’t want to miss Utpal Sheth recounting his investing lessons from a career that has spanned nearly three decades.
(In Issue#2, we looked at a presentation by Mr Sheth detailing the megatrends philosophy that he talks about in this video)
Section 2: Mental Models & Behavioral Biases
We usually associate Survivorship Bias with attributing more to success than is deserved. For instance, when looking at attributes of businesses that have survived over long periods, we forget to account for businesses that had similar characteristics but that did not survive the long term. Therefore, we place a higher emphasis on such attributes in helping a business survive than is usually due.
But Survivorship bias has another effect that is not talked about as much - survivorship bias can make us overestimate the risk of an event happening. For example, we overestimate the threat that Great White Sharks pose to us (on an absolute basis as well as compared to how deadly we perceive them against other Sharks), as this article explains. (Pair it with this article about how survivorship bias leads to overestimation of the factors leading to success for a well-rounded understanding of this bias).
I hope that you have given a good thought to last week’s question on the difference between email and gmail. So what really is the difference? Email is a service, gmail is a product, you may say. Yup, but doesn’t matter for our purposes. For the purpose of our learning, the following is the difference:
Email is a network effect; the more the number of users, the more the value of the service.
Gmail is a viral product; the more the users, the lower the customer acquisition costs (word of mouth publicity), but increasing number of users has not impact on the value obtained by them.
That is the key difference that investors need to understand when analysing technology business: viral effects vs network effects. Not all tech businesses have network effects, and many (think Facebook) have both. While this may be less relevant for investors in India, it is not irrelevant given the few internet businesses already listed (and hopefully few more will emerge in the future).
Section 3: Personal Development
"Feel the sorrow, take the action, but keep pressing the weight of joy against it all, until it becomes mindless, automated, like gravity pulling the stream down its course; until it becomes an inner law of nature."
Each passing year, Maria Popova of Brain Pickings muses on her learnings from running the website. On its 14th anniversary, she puts together a deeply philosophical 'Essential Life-Learnings from 14 Years of Brain Pickings'.
"The solution to imposter syndrome is to see that you are one;
Selflessness is overrated;
The capacity to tolerate minor discomfort is a superpower”,
these are among the eight lessons that Oliver Burkeman - column for the Guardian’s Weekend magazine - draws on the last day of his decade long stint.
Quotable Quote
"The math of success...
Results = (Hard Work*Time)^Strategy
Working hard is important, but working on the right thing is more important. A great strategy can deliver exponential results.
Of course, the best strategy is worth nothing if you never get to work. Zero to the millionth power is still zero."
Both, the above quote, and the one at the beginning of this issue, were courtesy of James Clear’s phenomenal weekly: 3 ideas, 2 quotes, 1 question
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That's it for this weekend folks. I hope that you enjoyed this issue; let me know your thoughts/feedbacks by leaving a comment below or simply hitting the reply button.
Have a wonderful week ahead!!
- Tejas Gutka
[Oct 31, 2020]
P.S.
If you come across an interesting article that you feel is insightful and worth sharing with the community of readers of The Weekend Bulletin, please email a link of the article along with a short summary/note on why you like the article to: share2TWB[at]gmail[dot]com.