The Weekend Bulletin (#35)
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Hola!!
I hope you folks had a good week; mine was pretty hectic. But I came across some very interesting content that I am really excited to share. I hope you take the time to go through most of it.
The following is such an incredible story with so much to get inspired from:
The lessons transcend business, leadership, personal development, motivation, and then a few more. Which is why, instead of fitting it into one of the sections, I chose to open this issue with the story. It's 1.5 hours long, but it left me wanting for more. I hope you like it too.
Her mother divorced her father when she was 9 and raised three daughters (9,6,3 at the time of divorce) on a very small budget
She took up odd jobs at malls etc while studying and at 16 got a chance to work as a hostess at Hooters. (If you have never heard of Hooters, then I suggest you look up on google before going ahead)
She dropped out of college to focus on her career at Hooters, where she became the Vice President at age 26. She oversaw the growth of Hooters from a 100 outlets to over 500
And from there began her journey of leading businesses, which led her to become the president of Focus Brands at age 37, overseeing seven large brands of quick service restaurants!! She talks about her journey, success, and hardships in detail in the interview. Please watch it.
I am cognizant of the length of this issue and some of the content. I have therefore trimmed it down to just three sections instead of the usual 4-5 sections.
Let's get on with it now.
Section 1: Investing Wisdom
A window in to the mindset of a true long-term investor - that's what I would call this quarterly letter from Arisaig Partners (AP). One of the key highlights of a long-term thought process is the focus on growth potential, rather than valuation multiple. With a long enough time horizon, seemingly high multiples can also lead to a reasonable rate of returns. While everyone enters a position with a 3-5 year 'long term' view, not many can hold onto for that long. Contrast that with AP, that just sold an investment that they held for over a decade! (reminds me of this quote from last week: "We like investments where the risk is time, not price."). Also for those interested in understanding Indian companies, the letter carries a two page brief on Avenue Supermart (D-mart).
An underappreciated relationship in investing is that of ROIC and valuations. Investors focus excessively on growth of earnings while paying little attention to cash flows and RolCs. Another important relationship that is misunderstood is current expectations and future returns (or the impact of starting valuations - I was surprised by how little was the article on this topic read last week. I would urge you to go back and read it; it was under the section 'lessons from history'). Borrowing from the book Valuations by Mckinsey (a great read), this article explains why the direction of ROICs and expectations embedded in current valuations matter for future returns.
While on the topic of current expectations and future returns, allow me to remind you about a note that I had written recently on this topic (issue #32).
Section 2: Mental Models & Behavioral Biases
Apologies, this section is a little verbose than usual.
“In life the challenge is not so much to figure out how best to play the game; the challenge is to figure out what game you’re playing.”
- Kwame Anthony Appiah
Most successful chess players are said to have very good memories. For they have studied tens of thousands of board set-ups played over hundreds of years. One of the champions - Bobby Fischer - popularized a version called random chess - where, as you would have guessed, the pieces are placed randomly (It is the same as the traditional game, except that the standard opening arrangement of kings, queens, bishops, knights, and rooks, is randomly reshuffled every game, symmetrically for white and black). This makes the memorization of opening moves completely useless.
The above is an example of a game where only one rule was changed, and only at the beginning of the game. Imagine what would happen if you would change the rules of the game as it progresses, making it extremely difficult to end? Such games are called 'infinite games', and that is an interesting mental model to understand. Why would understanding some silly game be important, you may wonder. Well, that is because understanding the difference between finite and infinite games has implications for how we lead our lives. I suggest reading the following articles to get a better understanding:
an easy introduction to finite and infinite games using investing as an example
a little more detailed reflection on infinite games and how it applies to business
a summary of the book 'Finite and Infinite Games' by James Carse
Lastly, here is my own summary from reading all of the above:
Section 3: Personal Development
Compounding applied to personal development is to get a little better each day. But how does one do that? This article has some research-backed strategies along with some homework.
There are usually two things that come in the way of getting a little better everyday: intention and effort. Intention comes from within and hence I don't have a nudge for you at this moment. Effort, on the other hand, is more outward dependent. Effort falls short because you are usually distracted by something else to do, or simply don't have the time to make the effort. For this, I have two prescriptions:
* * *
That's it for this weekend folks. I hope you enjoyed this issue; let me know your thoughts/feedbacks by leaving a comment.
Have a wonderful week ahead!!
- Tejas Gutka
[July 18, 2020]
P.S.
If you would like to contribute to a future issue of The Weekend Bulletin, please email a link to the article along with a short summary/note on why you like the article to: share2TWB[at]gmail[dot]com.