Some nice stuff we are reading, watching, and observing at the start of this weekend…

Investing/Stock Market

• Jason Zweig, The Wall Street Journal’s investing columnist, in an interview with Philip Tetlock, the co-author of “Superforecasting: The Art and Science of Prediction,” explore why amateurs can actually be better than experts at predicting the future, and what the experts can learn from it…
  

   

  One reason is that experts sometimes know too much. I was talking once to John McLaughlin, former director of the CIA, about the end of the Cold War period, and he was remarking that the analysts who were slowest to recognize that East Germany was disintegrating were the people who had been on the case for 20 years.

  It was the newbies coming in who got it pretty quickly. And there’s a lot of psychological evidence that attests to the power of preconceptions to grip us and make it hard for us to be timely belief updaters. So sometimes knowledge is actually an impediment. Another big factor is that there is a large amount of uncertainty in the world. So no matter how smart you are, it isn’t going to give you a lot of traction.

   

• From the Tulip bubble to the financial meltdown of 2008, the theme has been the same. The masses never learn, they always cry foul on the way down but gurgle with joy on the way up. In other words, when they are making money, they are okay with the risk, but when they start to lose, they scream bloody murder.
  

   

  Nature created the masses to serve as cannon fodder, and no matter what is done, nothing will change this. History is replete with examples of individuals who tried to help the masses; their only reward, in general, was the gallows or the bullet, depending on the era. It comes down to perception; you cannot force someone to latch on to yours and vice versa.

• Warren Buffett wrote in his 2007 letter – “A truly great business must have an enduring “moat” that protects excellent returns on invested capital.” In the same letter, he grouped businesses into three general categories based on their ROIC profile, and explained the differences between those three categories. It pays to read his thoughts time and again…
  

   

  Long-term competitive advantage in a stable industry is what we seek in a business. If that comes with rapid organic growth, great. But even without organic growth, such a business is rewarding. We will simply take the lush earnings of the business and use them to buy similar businesses elsewhere. There’s no rule that you have to invest money where you’ve earned it. Indeed, it’s often a mistake to do so: Truly great businesses, earning huge returns on tangible assets, can’t for any extended period reinvest a large portion of their earnings internally at high rates of return.

   

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• Michael Mauboussin’s latest report on capital allocation…
  

   

  Capital allocation is the most fundamental responsibility of a senior management team of a public corporation. The problem is that many CEOs, while almost universally well intentioned, don’t know how to allocate capital effectively. The proper goal of capital allocation is to build long-term value per share. The emphasis is on building value and letting the stock market reflect that value. Companies that dwell on boosting their short-term stock price frequently make decisions that are at odds with building value.

• If you go looking for financial advice, you’ll find tons of it. Heck, we’ve even got our own blog devoted to it. However, if you’re looking to make a change to your financial life, you probably already know where to start…
  

   

  “Hearing “spend less than you earn” a hundred different ways doesn’t change the fact that you kind of already knew that. If you were never taught about money growing up, you should learn a few basics, but after that your budget is determined by what you do…Of course, that doesn’t mean that you should stop reading financial advice (or that we’ll stop writing it). In large part, financial advice exists to help keep it in the forefront of your mind. If you don’t pay attention to what you’re doing with your money, you’re more likely to mess it up.

• What does a fund manager who manages US$ 35 billion do all day? Well, nothing!
  

   

  Steve Edmundson has no co-workers, rarely takes meetings and often eats leftovers at his desk. With that dynamic workday, the investment chief for the Nevada Public Employees’ Retirement System is out-earning pension funds that have hundreds on staff.

  His daily trading strategy: Do as little as possible, usually nothing.

  Mr. Edmundson has until recently been a pension-world outlier. Other state retirement systems turned to complicated investments and costly money managers to try to outperform markets with algorithms and smarts. His strategy is to keep costs low and not try beating markets, he says. “We’re bare bones.”

Business

• Tesla is not as disruptive as you might think…
  

   

  …Tesla is not a disrupter. It’s a classic “sustaining innovation”—a product that, according to Christensen’s definition, offers incrementally better performance at a higher price. There’s nothing rudimentary about Teslas, which compete on price against cars by BMW and Mercedes.

• Bet on the jockey, not the horse…
  

   

  Decades ago, Harvard University’s William Sahlman wrote about this issue, emphasizing that the entrepreneur and the start-up team is more relevant than the business idea. “When I receive a business plan, I always read the résumé section first,” he said. According to him, without the right team, none of the other elements of the start-up matter. Famed venture capitalist Arthur Rock, whose investments include Apple and Intel, had similar sentiments: “I invest in people, not ideas”. He further explained: “If you can find good people, if they are wrong about the product, they’ll make a switch, so what good is it to understand the product that they are making in the first place?”

Reading/Thinking

• As the Island of Knowledge grows, so do the shores of our ignorance — the boundary between the known and unknown. Learning more about the world doesn’t lead to a point closer to a final destination—whose existence is nothing but a hopeful assumption anyways—but to more questions and mysteries. The more we know, the more exposed we are to our ignorance, and the more we know to ask…
  
  

   

• Are the challenges of life overwhelming you? Well, here’s a powerful thought from Epictetus to bring the right perspective to look at the trials and tribulations of life…
  
  

   

  Life/Learning

  • Given the fact that the mere mention of philosophy makes most nervous or bored, Stoic philosophy on the surface sounds like the last thing anyone would want to learn about, let alone urgently need in the course of daily life. But in reality, in Stoicism we have a tool to help us in our pursuit of self-mastery, perseverance, and wisdom: something one uses to live a great life, rather than some esoteric field of academic inquiry. In it we find some of the greatest wisdom in the history of the world, like this…
    

     

    “You aren’t bothered, are you, because you weigh a certain amount and not twice as much? So why get worked up that you’ve been given a certain lifespan and not more? Just as you are satisfied with your normal weight, so you should be with the time you’ve been given.” ~ Marcus Aurelius, Meditations

    Or this…

    “This is the mark of perfection of character — to spend each day as if it were your last, without frenzy, laziness, or any pretending.” ~ Marcus Aurelius, Meditations

  • What if I told you there was a man who had unlocked the secret to human joy? That despite all the pain and suffering and bad news out there, a monk on a mountaintop in Nepal has discovered a kind of template for How to Be Happy. In fact, so wise and ebullient is Matthieu Ricard that he’s been celebrated as “The Happiest Man in the World.” (Please don’t call him that.) You need to meet this guy, and learn how we all might make our lives a bit happier…
    

     

    “Comparison is the killer of happiness,” said Matthieu. “We don’t compare ourselves with Bill Gates but with our neighbors.” True, subtly—or not-so-subtly—we were always tallying the cars in the neighbor’s driveway, the latest renovation, this neighbor’s trip to Yellowstone or that friend’s Mediterranean jaunt. And that exercise was one of futility, lifting us from the moment in which we were living, and forcing us to covet a moment in which we weren’t. Which raised another digital dilemma: the constant intrusion/onslaught of delectable images of consumption and their celebration by friends and neighbors.

  • The Crossroads of Should and Must is one article that had a deep impact on how I view the world and make decisions. Only an artist can write such a beautiful piece. I go back to this every few months…
    

     

    Should is how others want us to show up in the world — how we’re supposed to think, what we ought to say, what we should or shouldn’t do. It’s the vast array of expectations that others layer upon us. When we choose Should the journey is smooth, the risk is small…

    Must is who we are, what we believe, and what we do when we are alone with our truest, most authentic self. It’s our instincts, our cravings and longings, the things and places and ideas we burn for, the intuition that swells up from somewhere deep inside of us. Must is what happens when we stop conforming to other people’s ideals and start connecting to our own. Because when we choose Must, we are no longer looking for inspiration out there. Instead, we are listening to our calling from within, from some luminous, mysterious place.

  • When it comes to actually getting things done and making progress in the areas that are important to you, there is a much better way to do things. It all comes down to the difference between goals and systems…
    

     

    When you’re working toward a goal, you are essentially saying, “I’m not good enough yet, but I will be when I reach my goal.” The problem with this mindset is that you’re teaching yourself to always put happiness and success off until the next milestone is achieved. “Once I reach my goal, then I’ll be happy. Once I achieve my goal, then I’ll be successful.”

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