Some nice stuff I am reading, watching, and observing at the start of this weekend…

Of Greater Fools and Bubbles

How many greater fools does it take to make a bubble? An old but highly relevant post from Jason Zweig…

Economists have struggled and failed to explain why markets turn into manias. Some have denied bubbles exist; others have argued bubbles must somehow be “rational.” Often, the argument is that bubbles are caused by “uninformed” traders, or “dumb money,” while the “smart money” sits on the sidelines.

The latest findings suggest, however, that bubbles might be caused not by traders who lack information but by those who have too much.

Pessimism is Seductive

Morgan Housel of Collaborative Fund hits it again with his post on how pessimism is intellectually seductive in a way optimism only wishes it could be…

Tell someone that everything will be great and they’re likely to either shrug you off or offer a skeptical eye. Tell someone they’re in danger and you have their undivided attention.

Hearing that the world is going to hell is more interesting than forecasting that things will gradually get better over time, even if the latter is accurate for most people most of the time. Pessimism can be hard to distinguish from critical thinking and is often taken more seriously than optimism, which can be hard to distinguish from salesmanship and aloofness.

…On one hand it makes sense. Daniel Kahneman once wrote: “Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce.”

But on the other hand, it’s crazy. We don’t just respond faster to pessimism. We coddle it for longer than is necessary. Optimism demands facts and is ditched at the first sign of trouble. Pessimism can be grown from a crazy thought and clutched indefinitely.

How to Fill Your Years with Life

If you haven’t picked Ryan wonderful book – Ego is the Enemy – do that now. In this book, he shows how ego – irrational or delusional self-belief – has long been linked with success and striving for goals yet this same drive has a dark side. Anyways, Ryan just wrote a wonderful post on things to do to live a full life and leave nothing on the table by 30. Among others, here are two of my favourites from his list…

7. Keep a Journal — Not for looking backward, but to force you to think about what you’re doing now. I should have done this earlier.

10. The Quiet Moments Are The Best — There is a line from Lao Tzu. “Peace is in the emptiness. Emptiness is in the fast of the mind.” It’s in the quiet, still moments that we feel what matters in life. Standing on the shore of a lake. Looking out over a canyon. Resting your head against someone else’s. It’s a shortage of these moments that give rise to the feeling that we haven’t lived enough, that we have to keep going. Seeking them out, encouraging them is what makes you feel like you’ve done plenty.

Ryan ends his post with a paragraph from Mozart, who lived to be 35 but filled those years with many, many decades of life and work…

I have now made a habit of being prepared in all affairs of life for the worst. As death, when we come to consider it closely, is the true goal of our existence, I have formed during the last few years such close relationships with this best and truest friend of mankind that his image is not only no longer terrifying to me but is indeed very soothing and consoling, and I thank my God for graciously granting me the opportunity of learning that death is the key which unlocks the door to our true happiness. I never lie down at night without reflecting that—young as I am—I may not live to see another day. Yet not one of all my acquaintances could say that in my company I am morose or disgruntled. For this blessing, I daily thank my creator.

Howard Marks on Market Excesses

Like Warren Buffett’s shareholder letters, Howard Marks’ memos are a must-read. In one he wrote in 2005, Marks discussed market trends being taken to excess – and the painful consequences that become clear in hindsight. Here’s an excerpt from that memo of Marks, which is highly relevant in today’s today environment…

I often cite John Kenneth Galbraith’s observation that one of the outstanding hallmarks of the financial world is “the extreme brevity of the financial memory.” Investors lose money over and over because they simply forget that cycles are inevitable and there’s no such thing as a free lunch. Now I’ve found a great quotation from Churchill, also reminding us that foresight comes largely from awareness of history.

Along similar lines, I’m struck by the extent to which a related factor, inadequate skepticism, also contributes to investment losses. Getting the most out of a book, play or movie usually requires “willing suspension of disbelief.” We’re glad to overlook the occasional plot glitch, historical inaccuracy or physical impossibility because it increases our enjoyment. When we watch Peter Pan, we don’t want to hear the person sitting next to us say, “I can see the wires” (even though we know they’re there). While we know boys can’t fly, we don’t care; we’re just there for fun.

But our purpose in investing is serious, not fun, and we must constantly be on the lookout for things that can’t work in real life. In short, the process of investing requires a strong dose of disbelief. Time and time again, the post-mortems of financial debacles include two classic phrases: “It was too good to be true” and “What were they thinking?” I’m writing to explore why these observations are so often invoked in the past tense.

How Big Oil Will Die

Electric cars with lives 3x longer than those run on the internal combustion engine are being bought in droves in the Western world. But this is just one of the factor that may spell doom for oil and the businesses that survive by producing and selling it…

Big Oil is perhaps the most feared and respected industry in history. Oil is warming the planet — cars and trucks contribute about 15% of global fossil fuels emissions — yet this fact barely dents its use. Oil fuels the most politically volatile regions in the world, yet we’ve decided to send military aid to unstable and untrustworthy dictators because their oil is critical to our own security. For the last century, oil has dominated our economics and our politics. Oil is power.

Yet I argue here that technology is about to undo a century of political and economic dominance by oil. Big Oil will be cut down in the next decade by a combination of smartphone apps, long-life batteries, and simpler gearing. And as is always the case with new technology, the undoing will occur far faster than anyone thought possible.

A Dozen Ideas from Charlie Munger

Tren Griffin of 25iq has done another wonderful post, this time on compiling a dozen thoughts from Charlie Munger from the 2017 Berkshire AGM, including this one…

“A life properly lived is just learn, learn, learn all the time.” “If we had stopped learning, you [Berkshire shareholders] wouldn’t be here – you’d be alive, probably, but you wouldn’t be here.” “There’s nothing like a personal, painful experience if we want to learn, and we certainly have had our share of it.” “There’s nothing like the pain of getting into a lousy business to find a good one.” “We were young and ignorant then; Now we’re old and ignorant.” “Experience is like eating cockleburs – it really gets your attention.” “It is a good idea to not play where the other people are better.”

Genius of Jeff Bezos

Sean Iddings has written a nice post tracking the genius of Amazon’s founder Jeff Bezos…

Jeff Bezos was able to see differently than nearly everybody else in the early 2000’s, and continues today, largely in part to his fanatical preparation.

In Jeff Bezos’ biography The Everything Store: Jeff Bezos and the Age of Amazon, childhood friend Joshua Weinstein recalled, “He was excruciatingly focused. Not like mad-scientist focused, but he was capable of really focusing, in a crazy way, on certain things. He was extremely disciplined, which is how he is able to do all these things.” Part of that focus and discipline was vacuuming up details from history. This vast storehouse of details has given Bezos the ability to frame his present situation with the best historical examples. In other words, by looking at the past he has been able to throw out all of the useless noise and draw accurate conclusions to how the future might unfold based on the past.

This phenomenon is perfectly observed in 2003 and is repeating again today.

Keep in Touch with People

Be the butterfly whose wings can create a positive hurricane in someone’s life. A lovely post from my friend Vishal Kataria…

Don’t just keep in touch with people who matter because they can give something. Keep in touch because sometimes, you will give something… something that nobody else can offer. Be there for them. Your friends will thank life for sending a friend like you. Your butterfly wings can create a positive hurricane in their lives.

I’m guilty of not keeping in touch with people who care. Just because. It took a memory to make me realize how selfish I am. It’s not always about me. In fact, it almost never should be about me. I will step out of my comfort zone. I will keep in touch. I will ask people if I can do something for them. Will you?

Compounding Goodwill

Einstein said, “Compound interest is the eighth wonder.” If you understand the basics of compounding, you would tend to agree with Einstein’s statement. There is immense power in compounding. A small amount of money left for compounding for a very long time, even at a modest rate, can turn into a staggering sum.

But what most people miss is that the real beauty of compounding lies not in wealth creation, but in another, more important, area of life too. It’s called goodwill that you create in this world.

In his book, Education of a Value Investor, Guy Spier writes about Mohnish Pabrai …

…over the past ten years, I’ve repeatedly observed how he looks to see what he can do for others, not the other way round…By acting this way, I could see that Mohnish created an incredible network of people who wish him well and would love to find ways to help him and thank him for his kindness. This is the extraordinarily powerful effect of compounding goodwill by being a giver, not a taker. And as he has taught me, the paradox is that you end up receiving infinitely more in life by giving than by taking.

True gifts bring people closer together. An unconditional gift, one given with nothing expected in return, can change everything. It creates conversations and spread ideas. It opens doors and creates forward motion.

So, what value are you adding to the world? What is it that you’re giving out without any expectation of returns?

As with all matters of compounding, the sooner you start the longer runway you’ll get.

Start today!