The Weekend Bulletin (Vol. 1 | Iss. 21)
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Volume 1 | Issue 21 | April 11, 2020
Section 1: Investing Wisdom
This is the 'fifth best opportunity to invest' in his lifetime, claims famed investor Bill Miller who is best known for beating the S&P 500 for 15 years, until 2005. You can listen to his thoughts about the current market conditions and his lessons from past crises here.
A global pandemic, a looming economic crisis, and a highly volatile stock market - this is a perfect recipe for chaos. And amidst this chaos, we can often lose our ability to differentiate between what matters and what doesn't. In effect we end up focusing not on what matters the most, but on what is visible the most. The following articles attempt to guide us in the right direction:
Everybody seems to be worried about how deep can this crisis go - what is the extent of job losses, earnings cut, economic loss etc. However, it is not about the depth, but about the breadth, claims this author. Here is the author's theory and here is his followup with statistics.
Fear induces myopia. Falling portfolio values and negative investment returns can have us believe in our ability to time the market or increase the attractiveness of other asset classes. At such times, an article like this serves as a well timed reminder against such fallacies: Five Things Every Investor Must Remember. Pair this with last week's The Seven Immutable Laws of Investing.
Section 2: Mental Models & Behavioral Biases
There is a well-known acronym used in data-science called 'GIGO', expanding to 'Garbage In and Garbage Out', which means that the quality of output is determined by the quality of the input. An analogy to this for the world of investing would be that a good process should always lead to a good outcome. However, we know that this is not always true. It not always true due to the influence of a number of forces acting in different directions. One such force is randomness, or luck. Here is how luck plays a role in investing, and in life in general, from the foremost authority on the subject - Michael Mauboussin's book, The Success Equation.
Section 3: Lessons From History
My current organisation, Tata Asset Management, hosted the famed writer and speaker Morgan Housel last week. Morgan combines history and behavioral science into a story-like narrative to make it easy to understand. He did the same this time as well, as he presented on 'The History of Volatility' and then patiently answered questions on a wide range of topics.
Section 4: Personal Development
If, like me, you are somehow struggling to make the most of the time on hand currently (due to savings on travel, meetings, water-cooler conversation etc) then the following may provide some motivation: Imagine that a deposit of 86,400 is made into your account each day, with the entire amount disappearing at the end of the day. You are free to do whatever you wish with this amount and the prior knowledge that this deposit can stop at any time without advance notice. What would do? I would say spend some of it, but invest most of it so that you can have more than 86,400 per day in the future. Now replace the 86,400 as a currency with time, and this fable will come to life. The rendition below is a nice representation of the concept (source):
Worried that the stock market crash will delay your retirement and wondering how to deal with it? Best to take advice from those who have been through this. If you've heard of the FIRE movement (Financial Independence, Retire Early), then here is how the millennials retirees (under forty) are dealing with this set-back.
Lastly, if the current times (financial losses, social immobility) are making you anxious, then here are excerpts from a letter written 1000s of years earlier by the great thinker Seneca, that can soothe your nerves.
Bonus Section
Have a lot of free time on hand and don't know what to do? The following are some high time-involvement activities that you can take up to fill the void. Under normal circumstances, you'd always find the 'too busy' excuse to take these up.
Decision making is an integral part of our lives, covering mundane activities like to dressing up, to high impact choices like whom to marry, how and where to invest etc. Therefore, few things will change your trajectory in life or business as much as learning to make effective decisions. This page serves as a repository of articles, mental models, as well as book recommendations that will help you improve your decision making skills. This is a wonderland worth getting lost into!
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Have a safe and secluded weekend!!
- Tejas Gutka.