The Weekend Bulletin (Vol. 1 | Iss. 27)
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Volume 1 | Issue 27 | May 23, 2020
I hope you are holding up well amidst the virus induced gloom. To lighten the mood, here are a few things that fascinated me during the week:
Back to the agenda for the week:
Section 1: Investing Wisdom
Given the recent IPO of a credit card company in India, our first, I thought this was a timely read on how credit cards work.
Bill Nygren (Oakmark Funds), in his latest interview, reminds us why history may not have all the correct answers, why EV is a better valuation metric than market cap, and what we should not forget during times like current.
I keep coming back to my favorite quote: 'investing is simple but not easy'. Its simple because there are a few basic tenets - first principles - upon which the entire discipline is built. Its not easy, as you will know whether these tenets are still working or not only over a long period of time. For instance, buying a good quality business at a reasonable price is a safe and easy way to make money. But will that investment multiply mani-fold over time? You can never be sure at the time of investing. You'll only know in hindsight, as Peter Lynch explains here.
Section 2: Mental Models & Behavioral Biases
“A mental model is simply a representation of how something works. We cannot keep all of the details of the world in our brains, so we use models to simplify the complex into understandable and organizable chunks...The quality of our thinking is proportional to the models in our head and their usefulness in the situation at hand. The more models you have—the bigger your toolbox—the more likely you are to have the right models to see reality.” This article is a nice round up of all the mental models that we can use during a pandemic (and otherwise).
Section 3: Lessons From History
One could draw a few similarities in where the US was during the 60's-80's and where India is currently. While a lot of it is good, some are frightening. Take for example the comparison of the structure of the stock markets in the US in the late 60's/early 70's.
A key feature of the 1960s was the increasing number of investors in the US stock market. Seven times as many Americans held shares by the end of the 1960s than during the height of the 1929 bubble.
The decade saw the rise of a new breed of investor - the professional fund manager. It was a period of significant mutual fund creation and large fund inflows.
The Nifty Fifty was a group of 50 stocks identified by market commentators, although it was never an official benchmark index. The companies shared similar characteristics: high quality franchises benefitting from surging economic growth and strong balance sheets.
The PEs of some of the Nifty Fifty moved into stratospheric territory as the 1960s progressed (60-90x)
It was said by many investors at the time that Nifty Fifty stocks should be bought and never sold. By the early 1970s they had become the darlings of many institutional investors and staples of their portfolios.
Sounds eerily familiar, doesn't it? Here is a look at how this came to be and what transpired next. They say history does not repeat, but it rhymes. Scary, either ways.
Section 4: Personal Development
If last week’s share about the importance of writing, specifically writing online, struck a cord, then here is how you can get started and sustain writing online. In this video, David Perell (a prolific writer @ www.perell.com and writing instructor @ https://www.perell.com/write-of-passage) and Nick Magguilli (the guy behind the widely read https://ofdollarsanddata.com) each instruct you to do that.
Section 5: Trivia
Remember the BP Oil spill? If you thought that it was a catastrophic accident, then it wasn't the only one.
In 1971, a Soviet drilling rig accidentally punched into a massive underground natural gas cavern, causing the ground to collapse and the entire drilling rig to fall in. Having punctured a pocket of gas, poisonous fumes began leaking at an alarming rate. To head off a potential environmental catastrophe, the Soviets set the hole alight, figuring it would stop burning within a few weeks. Decades later, and the fiery pit is still going strong - a hole 230 feet wide that has been on fire for over 40 years!! The Soviet drilling rig is believed to still be down there somewhere, on the other side of the “Gates of Hell.”
There are at least 8 other places on our planet that have been on fire for a very long time:
Azerbaijan: A 10m long wall of fire, that never extinguishes, is burning continuously alongside the edge of the hill, first discovered in the 13th Century. These natural fires are considered to have played a crucial part in the creation of Zoroastrianism.
Australia: Just below the surface of the earth in New South Wales, a coal seam has been burning for 6000 years without stop, making it the oldest continuous coal fire in the world.
Turkey: Flames flicker from gaps in the side of a mountain that have been burning for at least 2,500 years, fueled by methane seeping through the vents.
Colorado, USA: The Colorado River Valley has at least 25 burning within 10 miles of the small town of New Castle, Colorado. One has been burning since February 18, 1896, when the Vulcan Mine exploded, killing 49 men.
Pennsylvania, USA: Though its exact cause has been disputed, the fire underneath Centralia, Pennsylvania ignited sometime in 1962 and has been burning ever since. The town sits on top of a rich vein of coal, and the fire has defied every attempt to extinguish it.
Iraq: Just outside the town of Chamchamal, a water well flowing with methane gas has been continually ablaze, the fire burning for more than four years now. The well was dug in 2015 to irrigate a nearby farm. Since then, the fire has been consuming about 2,200 liters of gas per day, causing health and environmental concerns in the area.
Canada: Located on the Arctic Ocean in Canada’s Northwest Territories, these barren red-striped rocks have been burning continuously for centuries. The first recorded sighting of the burning hills was by the Irish explorer Captain Robert McClure in the early 1800s. The explorers believed volcanic activity was causing the hills to burn, but in fact there is another explanation. The underground oil shales in the area are rich in sulfur and brown coal, causing the rock to spontaneously ignite when the hills erode and expose the combustible gases to oxygen.
India: Jharia (Jharkhand) is famous for a coal field fire that has burned underground for nearly a century. The first fire was detected in 1916. The fire never stopped despite sincere efforts by mines department and railway authorities and in 1933 flaming crevasses lead to exodus of many residents. The 1934 Nepal–Bihar earthquake led to further spread of fire and by 1938 the authorities had declared that there is raging fire beneath the town with 42 collieries out of 133 on fire. In 1972, more than 70 mine fires were reported in this region.
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Have a safe & secluded weekend!!
- Tejas Gutka.
P.S. It seems a lot of people did not receive last week’s issue. My sincere apologies, seems to be a tech glitch. Hopefully this one goes through to all. You can catch up with last week’s issue here.