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

Investing/Stock Market

• If I could reveal just one secret of sensible, successful investing (which isn’t a secret, by the way), it would be…

   

  

   

• Buying stocks when the market collapses is far harder to do than to imagine. But the great economist — and equally great investor — John Maynard Keynes waded into the wake of the Great Crash of 1929, when US stocks fell by more than 80% from peak to trough. His experience should teach all investors the importance of preparation, courage and patience…
  

   

  Keynes understood, as did his contemporary, the American value investor Benjamin Graham, that bear markets are so unpredictable that reliably sidestepping them is nearly impossible — and that the pain of losing money is nearly unbearable.

  Still, Keynes knew, barging into bear markets to buy, rather than trying to sidestep them, is the way to prevail. Since, over the long run, stocks tend to go up more than they go down, one of the greatest advantages an investor can have is the gumption to buy stocks aggressively in falling markets.

   

• And here’s more from Keynes, from Chapter 12 of his book “The General Theory of Employment, Interest and Money” (1936). Here is talked about the courage and independence that are the hallmark of the true investor…
  

   

  [Most professional investors] are concerned, not with what an investment is really worth to a man who buys it “for keeps,” but with what the market will value it at, under the influence of mass psychology, three months or a year hence.

   

  Moreover, this behavior is not the outcome of a wrong-headed propensity…. For it is not sensible to pay 25 for an investment of which you believe the prospective yield to justify a value of 30, if you also believe that the market will value it at 20 three months hence.

  …The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is “to beat the gun,” as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.

• Li Lu is the founder and chairman of Himalayan Capital Management. His clientele includes Charlie Munger himself. I came across this note reflecting on his life that he wrote in April 2016 when he completed 50 years…
  

   

  Now that I have compiled a record of my own for over twenty years, still enjoy the game even better than when I started, I think I will simply continue. I’m curious to see how long I can follow the great record set by my teachers, Warren and Charlie, that is by now well over fifty years. Not for the size of asset under management, not for the fees, just keep a scorecard the way a golfer would after each round and after a life-long career. So value investing is likely a lifelong pursuit for me.

  There are some highly complicated simple problems in investing. And here is one of those…

  It’s hard to know the difference between “I was wrong” and “The odds were in my favor but it just didn’t work out.” You can’t learn from a mistake unless you can accurate identify a mistake. But doing so is easier said than done. An investment that soured could have been a mistake, or it could have had a 90% chance of success with great return prospects, but unfortunately stumbled upon the 10% chance of things going wrong. The problem is we rarely know the exact odds of success of our decisions; we can only make educated guesses, and those guesses are influenced by how we want the event to turn out. This creates two challenges: Sometimes we make terrible bets and think we just got unlucky, and sometimes we make excellent bets whose unfortunate outcomes discourage us from pursuing them again.

   

  [Download PDF of this Issue of Stream]

   

• I have been there, seen that i.e., the occupational hazards of working in a stock market job. Michael Lewis captures it brilliantly here…
  

   

  The question I’ve always had about this army of young people with seemingly endless career options who wind up in finance is: What happens next to them? People like to think they have a “character,” and that this character of theirs will endure, no matter the situation. It’s not really so. People are vulnerable to the incentives of their environment, and often the best a person can do, if he wants to behave in a certain manner, is to choose carefully the environment that will go to work on his character.

Business

• In Silicon Valley, Elon Musk is admired, beloved, and idolized. But people are starting to wonder whether he’s finally taken on too much. If that’s the case, there’s a disaster scenario coming: Musk has never had more to lose. His biographer Ashlee Vance examines the troubles brewing at his various ventures…
  

   

  By any measure, his companies are in trouble. In the spring, a driver of a Tesla Motors car engaged in autopilot mode crashed and died, prompting a forensic examination of the technology by both regulators and consumers. At a more basic level, the automaker quite often struggles to manufacture cars at expected rates, and Tesla’s proposed acquisition of SolarCity, Musk’s solar panel company, has been bedeviled by shareholder lawsuits. Key engineers at Tesla, along with two top public-relations people, have left. SpaceX just suffered another rocket explosion that puts the company’s future in a precarious position. Instead of hunkering down, Musk has (almost impossibly) become more vocal, taking to Twitter and Tesla’s blog, going after critics with fingers of fury.

  Is Musk trying to distract us from the troubling aspects of his companies, or are the doubters just the shortsighted, risk-averse people holding us all back from a fantastic future? Only time will tell.

• Self-driving cars will be the best thing to happen to motorcycles. The future may turn out to be very different but thinking about ‘second order effects’ of driverless cars nevertheless could be an interesting thought experiment…
  

   

  The trade-off for cars getting safer is that it may make riding in them dull. But biking will be safer while remaining fun. Driving a motorcycle will be, well, driving. Riding in a car will largely be about checking email and catching up on Game of Thrones.

  However, more motorcycles on the road would mean more humans on the road which may eventually make the bike riding pretty unsafe again. Just a speculation!

Reading/Thinking

• One of a half dozen things you can learn from Robert Cialdini’s book Influence…
  

   

  First, we seem to assume that if a lot of people are doing the same thing, they must know something we don’t. Especially when we are uncertain, we are willing to place an enormous amount of trust in the collective knowledge of the crowd. Second, quite frequently the crowd is mistaken because they are not acting on the basis of any superior information.

  We will use the actions of others to decide on proper behavior for ourselves, especially when we view those others as similar to ourselves.

  But why is this so? Why do we follow the herd? Here is a post from our Latticework of Mental Models series that may answer these, and other related, questions.

• Here are nine books that will make you a better person. And here’s about the one from the list that I have read…
  

   

  The Road Less Traveled is a truly profound book. The author, M. Scott Peck, opens with the line, “Life is difficult.” This read is the ultimate roadmap to dealing with some of life’s greatest challenges with grace and love. Topics include: how to problem solve; dealing with pain; delaying gratification; being open to challenge; and developing a dedication to reality and personal growth. More than anything, these 315 pages will leave you feeling more in touch with the greatest truths in the universe—and how they can guide you to greater heights of self-understanding and love.

Life/Learning

• Tim Harford, author of The Undercover Economist, argues that sometimes the best way to deal with status quo bias is to roll a dice. In his recent essay titled Big decision ahead? Just roll the dice, Harford wrote…
  

   

  …most of us could do with a little more randomness in our lives. The roll of a die or the toss of a coin can actually help us make better decisions…Randomness can prod us into taking actions that we fear. But it can also divert us into taking actions that we might not have imagined at all…. Stuck in a job that we dislike, or with a romantic partner who is anything but romantic, all too often we stick with the devil we know. Deciding that “if the coin comes up heads, I’ll leave my boyfriend” may be the only way that some of us have to break through the inertia and make tough decisions.

  Heard of Buridan’s donkey paradox? It is named after the 14th century French philosopher Jean Buridan. It refers to a hypothetical situation wherein a donkey that is equally hungry and thirsty is placed precisely midway between a stack of hay and a pail of water. Since the paradox assumes the donkey will always go to whichever is closer, it will die of both hunger and thirst since it cannot make any rational decision to choose one over the other. Harford’s idea of introducing randomness is to get ourselves out from the clutches of such indecision. Moreover, occasional randomness brings the element of serendipity too.

• How I wish I could show this to my wife, but science says silence is much more important to our brains than we think…
  

   

  A 2013 study on mice published in the journal Brain, Structure and Function used differed types of noise and silence and monitored the effect the sound and silence had on the brains of the mice. The silence was intended to be the control in the study but what they found was surprising. The scientists discovered that when the mice were exposed to two hours of silence per day they developed new cells in the hippocampus. The hippocampus is a region of the brain associated with memory, emotion and learning.

  Spend few minutes every day in complete silence and see what it does to your mental state.

• Each habit compounds over time. Each habit is a super power. And well, here are 20 habits of eventual millionaires, including this one…
  

   

  Every day, be around people who are kind to you and love you.

  This is a difficult habit. So don’t sweat it. Just improve a little bit each day. A bonsai tree grows every day. But the bonsai master knows where to prune to create a work of art over years.

  

   

• Sun Tzu, a legendary military strategist in ancient China, was the author of the famous book, The Art of War. He was a master of “soft power” and the father of “agile warfare.” Whenever possible, he preferred to win without fighting or, at the very least, to win the easiest battles first. His lessons apply to everyday life, argues James Clear…
  

   

  Becoming better is not simply a matter of willpower or work ethic. It’s also a matter of strategy. What people assume is a lack of willpower or an unwillingness to change is often a consequence of trying to build good habits in bad environments…Fight battles you are destined to win.

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