The Weekend Bulletin (V.1 | I.15)
A digest of some interesting stuff from around the world-wide-web for the discerning investor. Your weekly dose of multi-disciplinary reading.
Volume 1 | Issue 15 | February 29, 2020
It's merely a coincidence, but a good one, that most articles of this issue revolve around 'uncertainty' - of life, future events, stock price movements, success, and failure. I don't know if it's a reflection of what people in general are thinking about currently, or if it is something that is playing on my mind. Either ways, I believe that this subject doesn't get as much attention as it should. And so I am glad to have found these articles for you, and I hope you find them worth your time too.
Enough of the small talk. Let's get on with the issue.
Section 1: Investing Wisdom
Warren Buffett's annual letter to Berkshire Hathaway shareholders was released last weekend. You must have received it from at least a dozen different sources; hard to miss that one. I will therefore refrain from forwarding the letter or notes from it to you, although I will persuade you to read it, if you haven't already. Other than that, allow me to also persuade you to read the following interpretation from the said letter:
We all know that it is difficult to hold on to a stock that is very volatile or one that sees sharp price corrections. However, can stocks that run up too much too soon also be bad for investors in the long run? Read on to find out.
If the above caught your attention, may I indulge you in something that I had written on similar lines, titled 'The Painful Multibagger'.
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 on their way to obscurity (two wheelers in India??). One way to avoid this trap is to understand the difference between recognizability and relevance. This article explains how.
I usually do not like to share articles that are current in nature so as to avoid myopia. However, every once in a while one does come across an article that takes a current issue and draws some long term lessons from it. This is one of those articles; it looks at the Corona Virus issue from the lens of a long term investor.
Section 2: Mental Models & Behavioral Biases
"There are more ways things can go wrong than right. The difficulties of life do not occur because the planets are misaligned or because some cosmic force is conspiring against you. It is simply entropy at work....Given the odds against us, what is remarkable is not that life has problems, but that we can solve them at all." Our mental model of the week is Entropy - the lack of order or predictability of a system. It is the default mode of any system, from the universe, to life, to the stock markets.
Fun fact: Entropy is the second law of thermodynamics.
Even more fun fact: Humpty Dumpty has been used to demonstrate the second law of thermodynamics. After his fall and subsequent shattering, the inability to put him together again is representative of this principle.
Section 3: Personal Development
When beaten by external circumstances, we often freeze into inaction. We lament upon how things could have been different had circumstances not been so hard. Instead of fighting our way out, we get busy blaming these circumstances. However, your best reason for failures does no good to your customers/audience/employees. Instead follow the advice that the author of this note received to find your way out of misery.
Section 4: Trivia
Today is an intercalary day - an extra day inserted in the calendar to harmonize it with the solar year. A leap day, in simpler words. Here are some interesting tidbits about the leap day/year:
It takes the earth 365.2422 days (365 days + 5 hours, 48 minutes, and 46 seconds to be precise) to revolve around the Sun. So one extra day is added every four years to harmonize the calendar with the solar year.
The extra day was added in 46BC by Julius Caeser. Prior to that, the Roman calendar used to have 355 days with an extra 22-day month every two years.
This system was tweaked 500 years later by Pope Gregory XIII whose astronomers decided to lose three days every 400 years to make up for the rounding up of 365.2422 into 365.25. Thus was introduced the Gregorian calendar in 1582 (we use it till date).
As per the above system, there are no leap days in the years 1900, 2100, 2200 and 2300 (years that cannot be divided by 400), even though they are divisible by 4.
If two John Hopkins University professors are to be believed, this leap year would be the last of it's kind. They propose a calendar that is 364 days long with each year always beginning on a Monday. Your birthday would thus be the same day of the week each year!!
If you think that the above is too much fuss over 5 hours and 48 minutes, then consider this: A leap SECOND has been added to clocks worldwide since 1972, the last being on December 31, 2016. On such days, the clocks actually read 23:59:60 (UTC).
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Have a wonderful weekend!! Enjoy the leap year while it lasts.
- Tejas Gutka.