51 Ideas from 2020

Dear Tribe Member,

Despite the despair all around, I trust 2020 treated you well and that you and everyone around you are keeping safe and healthy.

Right before the year ends, I thought I’d share a handful of ideas I’ve learned, re-learned, and wrote about in the past twelve months. Here are 51 of them categorized under the subjects of investing and life. I hope you find these useful, as much as I did.

Investing
1. Losing Money on Stocks is NOT a Shame
People talk about regret aversion and how we make decisions to avoid regretting an alternative decision in the future. But I would rather call it ‘shame aversion,’ because most of the time most if you see guilt or shame as a more powerful emotion than plain regret.

So, we feel guilty for not investing in rising stocks when we see our friends making money on them. We feel guilty of not having invested in stocks when the prices were down, and we knew (now, in hindsight) that we should have sold our houses then to invest.

We feel bad accepting we made a mistake that causes us to hold on to our losing stocks (bad businesses) because the shame of such acceptance would be too heavy to bear on our already frail hearts. So, not only would people bet heavily on hot stocks in frothy markets, but they would also double-down when these stocks fall to avoid the shame of turning their paper losses into real ones.

My dear friend, there is no shame in losing money on a stock or any investment. Everyone loses at some point in time, and there is not a single investor who has never made a mistake.

Of course, that does not mean you bet your house on stocks – even the best ones. Losing ₹ 1 crore on a ₹ 100 crore net worth is not the same as losing ₹ 1 crore on a ₹ 2 crore net worth. So, you should always be worried about losing big money permanently. But that worry should show up in the kind of work you do on your process to pick stocks, not after you have already lost money.

Investing or money are such insignificant parts of this beautiful thing called life that you must not lose sleep over them, forget losing your life.

Markets change, cycles turn, everything passes, and there are numerous opportunities one gets to rise after a fall, clean the dust, give up any guilt or shame of falling, and start walking again.

The noted British writer and speaker Alan Watts said –

Man suffers only because he takes seriously what the Gods made for fun.

Russian philosopher and novelist Fyodor Dostoevsky agreed in a way when he said –

The cleverest of all, in my opinion, is the man who calls himself a fool at least once a month.

Learn from your mistakes, but stop taking them, or yourself, so seriously.

2. When Not to Sell Your Stocks
My biggest lesson in compounding is that saving more, thinking long-term, and allowing compound interest to work in your favour act as accelerators for wealth creation. There is nothing complex about this.

You can even be the world’s worst market timer and still build great wealth over 3-4 decades only if you do one thing – keep buying quality investments, and never sell.

Of course, the idea of buy and hold is simple, but not easy to practice.

The act of ‘not acting’ on a longer timeframe is made up of hundreds of small decisions that lead to the ultimate decision to ‘not act.’ Also, businesses change from time to time, and so do emotions, and so do the behaviours of other investors around us, and so do conditions in the stock market and of our portfolios. And that’s why sitting on stocks – the ones that remain high quality – is not as simple as it sounds. And that’s why patience is one of the most important yet difficult skills one must cultivate while investing in the stock market.

George Baker made a powerful remark which Thomas Phelps quoted in his book 100 to 1 in the Stock Market –

To make money in stocks you must have “the vision to see them, the courage to buy them, and the patience to hold them.”

Patience is the rarest of the three and is not an easy skill to develop however easy experienced investors or advisors may make it sound. But if developed and practiced well, it pays off handsomely in the long run.

That’s how fortunes are made in the stock market.

3. Catch the Compounding Train, Even If You’re Late
When you look at the compounding graph it gives an impression that getting an early entry is the only way to benefit from it. But even if you catch the compounding train late, it can still get you to your destination –

A prospective Berkshire Hathaway shareholder in 1992 had no way of knowing the specific actions Warren Buffett and Charlie Munger would take to build value over the next quarter century…[In spite of that] The search for the “next Berkshire” is a near obsession for many value investors. We all want to get in on the ground floor of something great and compound wealth at 20 percent over a half century or more. However, for the vast majority of us, that dream is pretty much impossible to achieve and there is a risk that costly mistakes might be made in the process of pursuing it…However, what can be known, and likely has predictive value, is how management views capital allocation, the quality of a company’s culture, and the general capabilities of the managers involved…In 2016, there is no doubt that there are companies one could invest in on the ground floor that will become phenomenal success stories in the decades to come. There is substantial doubt that investors will be able to identify those companies. However, today there are many candidates for investment where the companies are already well under construction and we can get in on a higher floor.

4. Investing Math is the Simple Part
“Investing is simple, but not easy,” said Charlie Munger.

Why? Because…

Understanding that sensible investing is about buying a thing worth Rs 100 at Rs 50 is simple, but actually buying something worth Rs 100 that falls to Rs 50 is not easy.

Working on spreadsheets is simple, but not twisting spreadsheets to fit your version of reality is not easy.

Calculating past growth and profitability numbers for a business and understanding whether those are good or bad is simple, but actually trying to understand a business deeply enough to visualize how it will look like in the future is not easy.

Knowing that a business has moat as seen from its superior profitability and clean balance sheet is simple, but understanding whether this moat is sustainable or fleeting is not easy.

Calculating book value of a company is simple, but understanding whether that book really has value, and roughly how much, is not easy.

Knowing the results that numbers shout out of financial statements is simple, but knowing which of those results are signal and which are noise is not easy.

Knowing how DCF works is simple, but looking at businesses with a DCF frame of mind is not easy.

Calculating precise intrinsic values for businesses is simple, but trusting approximations that really work is not easy. (Keynes said – “It’s better to be approximately right than precisely wrong.”)

Knowing beta is a measure of volatility is simple, but appreciating that volatility isn’t the real risk you face in investing is not easy.

Earning alpha from an investment for a year or two is simple, but appreciating with complete humility that it is next to impossible to sustain it over a long period of time is not easy.

Understanding that money can multiply 100x in 25 years when you compound at 20% annually is simple, but sitting through these 25 years patiently when others are cashing in after having made 5-10x is not easy.

The celebrated American physicist and a great teacher Richard Feynman said that there’s a big difference between ‘knowing the name of something’ and ‘knowing something’.

Math helps you know the name of a lot of things, which is simple. But it’s your mindset that helps you really know things, which is not easy.

Of course, understanding basic math is a prerequisite for becoming a smarter investor. But if you need math to tell you whether you are doing right in investing or not, you are doing something seriously wrong.

5. The Math of Debt
Alcohol math. Wine multiplies itself by itself. The more you have, the more you are likely to have. And if it’s hard to stop at one glass, it will be impossible at three. Addition is multiplication. ~ Matt Haig, Reasons to Stay Alive

Debt math is exactly like that. The more you have, the more you are likely to have. And if it’s hard to stop early, it will be impossible later.

Economics has a term for this – debt spiral, which is a situation where an individual, or a business, or a country sees ever-increasing levels of debt. This increasing levels of debt and debt interest becomes unsustainable, eventually leading to debt default.

See this chart.

In 2004, at the Berkshire Hathaway AGM, a 14-year old shareholder asked Warren Buffett to share his top finance tips for young people.

Buffett replied –

If I had one piece of advice to give to young people, it would be just to don’t get in debt. It’s very tempting to spend more than you earn, it’s very understandable. But it’s not a good idea.

6. The Getting Rich Quadrant

Just to explain a bit about the illustration in case you have any doubts reading it –

1. High income-low cost is the best combination that can take you to self-created riches, but only if you are able to invest the surplus so created sensibly, and for the long run
2. High income-high cost is the life a lot of people working in white-collar jobs live. We enhance our lifestyle with every increase in income, without much consideration to calling it ‘enough’ and creating greater surpluses as incomes rise. It’s like running on a hedonic treadmill (Wikipedia explains hedonic treadmill as an observed tendency of humans to quickly return to a relatively stable level of happiness despite major positive or negative events or life changes). This is a must-avoid situation when you start earning good income.
3. Low income-high cost is a disastrous situation if not corrected early in time. In such cases, people borrow from the future to live in the present, and the situation can get really painful and unmanageable with time. If you find yourself in such a situation, the first thing to do is to move to the low income-low cost quadrant, by spending as less money as you can. Moving straight to a high income-high cost quadrant could be difficult as incomes could be decided by various external factors. However, first moving to the low income-low cost quadrant before finally shifting to a high income-low cost quadrant is relatively easier.
4. If you are in a low income-low cost situation, congratulations! Now you just need to find ways to move to a high income situation. This is easier said than done but you may search for ideas around you to grow your income. Maybe, start a side business, work on additional jobs, or ask your boss for a raise. However, if you are stuck in this situation for long, and only have a tiny surplus available, the only way to get rich is to invest so well that you can compound even this small sum greatly. This, in most cases, is hope against hope and impossible unless the investment Gods have destined for you multi-baggers after multi-baggers.

Someone wise said –

Save part of your income and begin now, for the man with a surplus controls circumstances and the man without a surplus is controlled by circumstances.

I hope you are already doing this in your pursuit of financial freedom.

If not, I hope the above quadrant guides you, even if in a little way.

7. Financial Freedom
At the start of 2020, I spoke at the Value Investing Summit in Kuala Lumpur, on the subject of ‘financial freedom.’

Click here to watch the video of my talk, or watch below.

There are intermittent audio issues due to a problem with the microphone. But I know you are wise enough to not complain about the same and instead able to connect those dots looking at my slides and your own wisdom. 🙂

8. Notes from Warren Buffett’s Latest Letter
Click here to download the notes.

9. Virus is NOT risk
Virus is NOT risk. It is an uncertainty. Learn to differentiate between the two please.

Risk is measurable, like the odds of winning on any roll of a fair dice. Uncertainty is not measurable. It is and unknown unknown.

Risk comes from not knowing what you are doing. Risk comes from looking to Mr. Market for advice instead of opportunities. Risk comes from focusing on the outcome (what will happen in the future) and not the process (what can I do now). Risk comes from acting like others are acting, and mindlessly. Risk comes from investing in fundamentally bad businesses when their stocks have fallen, especially when you start to believe their cheapness provides you value. Risk, ultimately, comes from focusing on return and not risk.

In short, YOU are the biggest risk to your investments, not COVID.

Human nature has not changed between these two times –

Image Source
…so just manage the risk called YOU…like the virus that knows how to manage itself well.

10. Becoming An Investing Buddha
When it comes to investing, making money in stocks when everyone is making money in stocks isn’t a big deal. Rather, it’s the ability to handle good and bad times with equanimity, combined with courage and decisiveness, that really matters in the long run. Of course, most of us simply aren’t wired to be equanimous at most of the times, and it’s terribly difficult to rid ourselves of the emotions of ecstasy (when things are looking up) and misery (when things are looking down). And that’s why ensuring that we avoid all of those ways that can cause us wealth destruction – trading, timing, high fee, inadequate diversification, and leverage – is paramount. Everything, including our triumphs and disasters, anyways shall pass. But the equanimity with which we allow them to pass will keep us sane always.

Anyways, considering the rough waters that we have sailed through in the markets this year, I made this illustration that contains the iron rules of becoming an investing Buddha, or the one who invests in such a manner that allows him to be at peace at all times.

As Lord Krishna taught Arjuna, as we wade through the ocean of life, it throws up all kinds of waves that are beyond our control. If we keep struggling to eliminate negative situations, we will be unable to avoid unhappiness. But if we live a life of sanity and learn to accept everything that comes our way, with equanimity and without sacrificing our best efforts, that will be true Nirvāṇa.

11. Owning Stocks is a Long-Term Project
In the long journey of the stock of a high-quality business, the daily short-term jumps – or volatility as they call it in business news – that makes people nervous are “non-events.” Annie Duke writes in her brilliant book Thinking in Bets –

In our decision-making lives, we aren’t that good at taking this kind of perspective – at accessing the past and future to get a better view of how any given moment might fit into the scope of time. It just feels how it feels in the moment and we react to it.…We make a long-term stock investment because we want it to appreciate over years or decades. Yet there we are, watching a downward tick over a few minutes, consumed by imagining the worst. What’s the volume? Is it heavier than usual? Better check the news stories. Better check the message boards to find out what rumors are circulating.

Even noted psychologist Daniel Kahneman agrees –

If owning stocks is a long-term project for you, following their changes constantly is a very, very bad idea. It’s the worst possible thing you can do, because people are so sensitive to short-term losses. If you count your money every day, you’ll be miserable.

12. Why Value Investing Works
I read a post some time back wherein Jack Schwager, the author of Market Wizards series, when answering a question on whether value investing works, turned to the wisdom of Joel Greenblatt, one of the foremost experts on the subject. Schwager quoted this from his interview with Greenblatt – “Value investing doesn’t always work. The market doesn’t always agree with you. Over time, value is roughly the way the market prices stocks, but over the short term, which sometimes can be as long as two or three years, there are periods when it doesn’t work. And that is a very good thing. The fact that the value approach doesn’t work over periods of time is precisely the reason why it continues to work over the long term.”

13. Oh, EBITDAC!
“Always laugh when you can. It is cheap medicine,” so said Lord Byron. Well, laughter is great. A meme circulated on Twitter some time back suggested that companies suffering from the global pandemic will trot out a new performance metric: EBITDAC, for earnings before interest, tax, depreciation, amortisation and coronavirus. It’s apparently not a joke.
 
Some companies are actually tweaking their figures to avoid triggering defaults on loans, like this German firm that has added back €5.4 million profits to its first quarter that it said it would have made were it not for the hit caused by lockdowns!
 

In simple terms, EBITDA, the elder brother of EBITDAC, is a measure of a company’s overall financial performance and is used as an alternative to simple earnings or net income. EBITDA, however, can be misleading because it strips out the cost of capital (debt) and essential investments like property, plant, and equipment (because it is prior to depreciation).

By the way, Charlie Munger has said this about EBITDA —

…every time you see the word EBITDA, you should substitute the words bullshit earnings.

Not sure what he has to say on EBITDAC! 😉

14. How to Get Rich
Bloomberg carried this nice piece from Nir Kaissar and Barry Ritholtz, where the authors write to answer this question – How do you get rich? By earning a lot or saving a lot?
 
Here is Barry’s point of view on the subject of “frugality” –

I am not, nor have I ever been, a fan of “sustained and disciplined frugality.” With that said, here’s what to keep in mind:

1. Focus on the big things; the little things will take care of themselves
2. We all only have so much internal discipline, a consequence of limited mental bandwidth. Don’t fritter it away on things that don’t matter very much.
3. Spending should always be a function of what you can afford, not a slavish devotion to some puritan ideal.
4. Money can bring security, comfort and happiness, but beyond a certain point returns on having more of it diminish rapidly.
5. Experiences tend to beat material goods in terms of money well spent.

First, the big things: Your education, your career choice, your work ethic, who you marry, who you work with, your skill set, your compensation, your health, your outlook, how you think about the world and the commitment you make to yourself about continually learning and improving. Get those right, and those $5 lattes become pretty irrelevant.

Basically, the advice is this – avoid the hedonic treadmill and you will be much better off in your financial life. “Hedonic treadmill” is basically a theory positing that people repeatedly return to their baseline level of happiness, regardless of what happens to them. It is an important concept to grasp when it comes to understanding happiness, which we often lose in forever chasing rainbows.

15. The 60/40 Solution
While searching through my collection of resources on Peter Bernstein, the author of “Capital Ideas” and “Against the Gods,” I came across this brilliant article he wrote for Bloomberg many years back, titled The 60/40 Solution, wherein he talked about the lessons from history (emphasis mine) –

The constant lesson of history is the dominant role played by surprise. Just when we are most comfortable with an environment and come to believe we finally understand it, the ground shifts under our feet. Surprise is the rule, not the exception. That’s a fancy way of saying we don’t know what the future holds. Even the most serious efforts to make predictions can end up so far from the mark as to be more dangerous than useless.

All of history and all of life is stuffed full of the unexpected and the unthinkable. Survival as an investor over that famous long course depends from the very first on recognition that we do not know what is going to happen. We can speculate or calculate or estimate, but we can never be certain. Something very simple but very penetrating stems from this observation. If we never know what the future holds, we can never be right all the time. Being wrong on occasion is inescapable. As the great English economist John Maynard Keynes expressed it some 80 years ago, “A proposition is not probable because we think it so.” The most important lesson an investor can learn is to be dispassionate when confronted by unexpected and unfavorable outcomes.

16. Make-Lose Vs Lose-Make
Nassim Taleb, out of my journal, explains the concept of path dependence, which is the dependence of outcomes on the path of previous outcomes, rather than simply on current conditions –

Ironing your shirts then putting them in the washing machine produces a different outcome from washing your shirts first, then ironing them.

The reader can either trust me on this, or try the experiment with both sequences on the next Sunday afternoon. Now, assume that your capital is around one million dollars and you are involved in speculation. Apply path dependence to the reasoning.

Making a million dollars first, then losing it, is markedly different from losing a million dollars first then making it.

The first path (make-lose) leaves you intact; the second (lose) makes you bankrupt, insolvent, maimed, traumatized and more generally unable to stay in the game, thus unable to benefit from the second part of the sequence. There is no make after the lose.

Reminds me of Warren Buffett’s “Rule No. 1 – Never LOSE money.”

Consider a weak, fragile business. It is path-dependent. With stretched balance sheet, large capital requirement, and inadequate capacity to suffer, a prolonged weakness in the economy can destroy it. It is then difficult for it to rise from that ruin. When you own such a business, you have to do a lot of praying to the economics gods. Such a business starts from a “lose” and now it’s difficult, almost impossible, for it to “make” back what it lost.

On the other hand, a robust and anti-fragile business, with clean balance sheet and low capital requirement, which has built a capacity to suffer over years, is not path dependent. It can survive a weak economy. Even if the weakness persists, at worst, it may lose what it has already made, which is better than starting with losing it all.

So, check out what you already own in your portfolio. Is it in the “make, then lose” category, or “lose, then lose everything” one?

Stick with the former. Discard the latter.

17. The Dunning-Kruger Effect

18. Chance Has No Memory
In activities largely involving luck (like fair coin toss, gambling, investing), past outcomes have no effect on the current outcome. Chance occurrences do not have any relationship to things that happened before.

The probability of a child being a boy or girl is, theoretically 0.5. Since chance has no memory, that’s the same probability EVERY time. Even in a family of 10 daughters, the probability of the eleventh child being a son is, theoretically, 0.5. In a country like India, that’s an important thing to remember for parents with first 2-3 daughters but still wanting another child believing that would be a son.

Now, it may sound simple but a lot of us struggle with this idea.

People have a hard time remembering this when they invest in stocks. For example, when I see that my past 3-4 stocks have not earned me quick returns like what other stocks have earned for my friends, I am more inclined to bet on the next stock thinking, “It hasn’t happened in a while, so it’s bound to happen soon.”

It’s like Ranveer Singh singing in the movie Gully Boy, “Apna time aayega…” (my time will come).

19. Formula for Survival in Life and Investing
While reading notes from the 1989 AGM of Berkshire Hathaway, I came across this passage where Warren Buffett was asked about his approach to risk and investment decision making, and he replied –

Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we’re trying to do. It’s imperfect, but that’s what it’s all about.

As an equation, it reads thus –

Success in investing = (Probability of gain X Amount of possible gain) – (Probability of loss X Amount of possible loss) = A positive number

Michael Mauboussin describes this concept as expected value. It’s actually a very simple concept.

In essence, you don’t have to be right a lot, you just have to be right about your big bets at the right time. Here, while the probabilities matter a lot, so do the consequences i.e., amount of possible gain/loss.

It’s important to get that equation right.

If you are willing to buy a stock, say, priced at 60-70x P/E or more, thinking the probability of it going higher is good, also remember the consequence of a period of weakness/slowdown in business. Such expensively priced stocks ride on high expectations, and the consequences of a small slip could be really bad.

Given that we often tell ourselves false stories to avoid the truth, with our minds clouded by denial, optimism and negative decision-making tendencies, the expected value idea can help us avoid the landmine of expensive, hot and bad stocks that cover a large ground in stock investing.

Buffett says, “In order to succeed you must first survive.”

So here’s the mantra.

In life, to live, simply avoid dying (till you can).

In investing, to succeed, simply avoid ruin (till you can).

20. Why We Make Bad Decisions
Short answer – We have design flaws. We are fairly sure we are way above average, and we are also sure we see everything perfectly.

Long answer – Ray Dalio wrote in his book Principles –

The two biggest barriers to good decision making are your ego and your blind spots. Together, they make it difficult for you to objectively see what is true about you and your circumstances and to make the best possible decisions by getting the most out of others. If you can understand how the machine that is the human brain works, you can understand why these barriers exist and how to adjust your behavior to make yourself happier, more effective, and better at interacting with others.

21. Not Everyone Should Pick Stocks
Despite the growing popularity of investing, not everyone is suited to manage his or her own stock market investments, it is not a matter of pride if you are able to do it or a matter of shame if you are not able to do it well.

The idea is to just let your savings compound at rates that help you maintain your purchasing power over years. Whether you do it through your own stock picking skills, or hire a fund manager, does not make a difference. The only condition is that your money must be handled well.

Seeking help is always a good idea. And accepting that you may not be capable enough to manage things on your own is even better.

Your stocks don’t know you own them. And, whatever those people who entice you to get rich through investing may promise you, please don’t see investing in stocks as a way to get rich. Such ideas are often masked by survivorship bias, which is a logical error of concentrating only on people or things that “survived” some process and inadvertently overlooking those that did not. So, taking inspiration from other investors who have made good money from “100-to-1 stocks” and ignoring others who followed similar processes but ended up with disasters can lead you to false conclusions about your own potential as an investor and stock picker.

Look at investing as a way to keep you rich i.e., help you grow your purchasing power. Look at your work – job / profession / business – to make you rich and thus focus more energy and focus there than on the stock market.

22. Stock Prices: Information or Influence?
In one of his papers on qualities of great investors, Michael Mauboussin writes that investing is an inherently social exercise. Stock prices often go from being a source of information to a source of influence.
 
Consider the history of stock market bubbles. As stocks surge, people who own them get rich on paper. This causes envy among people who do not own the surging shares. Their mind shuts down and they end up buying stocks at extremely high prices (even Newton did that!). This feeds the process. Everyone wants to get on board the stock’s gravy train because everyone else is.
 
Wise investors do not get drawn into such whirlpool of influence. They ignore the views of others and use their own minds. This is difficult, though, as it requires the trait of not caring what others think of you, which does not come naturally to humans.
 
Mauboussin writes that the crowd is often right, but when it is wrong you need the psychological courage to go against the grain.

23. Beware the Excel Spreadsheet
Here is how we twist spreadsheets to fit our versions of reality when it comes to investing in stocks –

24. The Only Way to Win in Investing
Here is a story I read recently –

A giant ship engine failed. The ship’s owners tried one expert after another, but none of them could figure but how to fix the engine.

Then they brought in an old man who had been fixing ships since he was a young boy. He carried a large bag of tools with him, and when he arrived, he immediately went to work. He inspected the engine very carefully, top to bottom.

Two of the ship’s owners were there, watching this man, hoping he would know what to do. After looking things over, the old man reached into his bag and pulled out a small hammer. He gently tapped something. Instantly, the engine lurched into life. He carefully put his hammer away. The engine was fixed!

A week later, the owners received a bill from the old man for ten thousand dollars.

“What?!” the owners exclaimed. “He hardly did anything!” So they wrote the old man a note saying, “Please send us an itemized bill.”

The man sent a bill that read:

Tapping with a hammer………………….. $ 2.00
Knowing where to tap…………………….. $ 9,998.00

Knowing where to tap – the process – makes all the difference, whether you are working with a hammer or with your money.

25. When Long-Term Investing is a Bad Idea
Long term investing is a good idea. Forced long term investing is not. When your premise does not work out, or you no longer believe in a stock, you must sell, even if it means a loss. A lot of investors hold on to bad stocks just to get their “money back.” This, I believe, is one of the biggest reasons to lose money in stocks. Remember that the deeper you fall with bad stocks, the more you must gain back to get your money back. And it is often a bad idea to try to get your money back the exact way you lost it.

When it comes to losing stocks in your portfolio, always remember the first law of holes – If you find yourself in a hole, stop digging.

26. A Pocket Guide for Wealthier Life
I recently made a pocket-zine for my kids that contained some lessons on living a good life.

They loved holding and reading it as much as I loved creating it.

Well, call it a positive feedback loop, that zine has led me to create one more. This time on the most important things in personal finance.

I call it – Personal Finance for Smart People: A Pocket Guide for Wealthier Life.

Click here to download the PDF version.

Please note that personal finance is, well, personal. So, it is OK if you reject all the ideas in this zine. See these ideas in context of your own financial goals and circumstances.

27. Investing’s Five Most Irrelevant Facts

* * *
Life
28. Imagine!
Here’s a note from Ashlee Vance’s biography of Elon Musk –

Visual thinking is a great way to understand complex or potentially confusing information, and also a way to organize your thoughts and improve your ability to think and communicate.

Imagine someone talking to you, and starting with the word – “Imagine…”

You are completely hooked, isn’t it?

Consider this excerpt from Richard Feynman’s The Pleasure of Finding Things Out, where his father helps him visualize about dinosaurs –

We had the Encyclopedia Britannica at home and even when I was a small boy my father used to sit me on his lap and read to me from the Encyclopedia Britannica, and we would read, say, about dinosaurs and maybe it would be talking about the brontosaurus or something, or tyrannosaurus rex, and it would say something like, ‘This thing is twenty-five feet high and the head is six feet across,’ you see, and so he’d stop and say, ‘let’s see what that means. That would mean that if he stood in our front yard he would be high enough to put his head through the window but not quite because the head is a little bit too wide and it would break the window as it came by.’ Everything we’d read would be translated as best as we could into some reality and so I learned to do that – everything that I read I try to figure out what it really means, what it’s really saying by translating.

Then consider how Warren Buffett visually convinced me why gold was a bad investment…

I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side… Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion dollars – that’s probably about a third of the value of all the stocks in the United States… For $7 trillion dollars… you could have all the farmland in the United States, you could have about seven Exxon Mobils, and you could have a trillion dollars of walking-around money… And if you offered me the choice of looking at some 67-foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.

I’ve tried my hands at visual thinking this way –

You may want to check out my Wall of Ideas for more such examples of visual thinking.

Now, visual thinking is not a new lesson that I would attribute to Elon Musk. But imagine the kind of businesses he is building, to save the world, which he had originally visualized when he was under ten years of age.

When it comes to investing, you can avoid yourself a lot of pain by just visualizing your life after you’ve lost a lot of money trading and speculating in the stock market. If the visuals unnerve you, don’t do anything that would get you into such a situation. That’s also the concept of inversion.

I personally used visual thinking when I was deciding about quitting my job to start Safal Niveshak to help small investors become better at their investment decision making. Of course, when I had started planning my future after a job, the first visual was that of – not being successful in my future work, getting over my savings, and having to return to a job.

But another visual I saw was of helping people, enjoying the freedom of doing things my way, and spending a lot of time with my family. And I thank my stars that this was more powerful than the visual of losing everything.

29. Chop Wood, Carry Water
Many of us get caught up in the end results of what we’re working toward or the way things will be when we finally achieve something.

I lived the same way till a few years back.

I thought that once I achieved some future state – promotion, financial independence, enlightenment, the top of the mountain, etc. – I will finally be content. I lived in the future or the past … in my head.

But the truth is that none of these destinations brought me any lasting contentment. Further, getting to where I wanted to go or being “successful” never meant that the work that led me there went away. Instead, I realized that contentment can only be found in every ‘now,’ in being fully present with ordinary daily activities – with chopping wood and carrying water.

It’s only when I was able to find fulfillment in life’s ordinary activities – like eating, walking, writing, cleaning the floor, or washing dishes – I could finally be at peace. It was just me, and my doing. And I realized, this is all that mattered. In this, there was everything.

You see, once you finally achieve “enlightenment,” you must still chop wood and carry water. You must still do your work, do it well, and when you find success, do it again.

Tom Barrett explained on his blog Interlude Retreat –

We travel to the ocean or to mountains, rivers and canyons, in part to escape the mundane world of work, but also to experience the awe that arises more spontaneously in nature’s magnificence. We give ourselves an incredible gift when we can experience some of the same awe in the mundane world of our daily lives. The weed that grows in the crack of a sidewalk is a phenomenon as miraculous as the redwood tree that towers into the sky. The raindrops that streak the window are no less an occasion for awe than the spray that dampens our face at the waterfall. The fingers that tap a keyboard are as worthy of praise as the feet of a ballet dancer.

When we open awareness to the tasks in our lives they become lighter. When we are able to be in the moment, we no longer feel compelled to watch the clock. Whatever your work might be, bring all of yourself to it. When you are fully present, you may find that your labor is no longer a burden.

Wood is chopped. Water is carried. Life happens.

30. Have courage
Life is not always easy. But you get through it with courage. There will be times in your life where you’d rather hide or run or bury your head in the sand than face whatever challenge is in your way. In those times, I want you to remember to be brave and show courage. Also, do not be afraid to take risks. You can accomplish great things by taking the right kind of risks. Do not also be afraid to make mistakes, but make sure you learn from them. There are, after all, no mistakes…only lessons. Most importantly, when you fail, get back up, dust yourself off, and try again.

31. Be kind, always
Put kindness first. Kindness is when you empathise with others in their troubles, when you treat others the way they want to be treated, when you think and act selflessly without expecting anything in return, when you appreciate others for their work, when you forgive others for their mistakes, and when you carefully listen to someone sharing their problems. “Everyone you meet is fighting a battle, everyone’s lonesome,” said Marion Parker. Given this, learn to deal kindly and compassionately with others. That is your only hope to happily live yourself and leave this world a better place than you found it.

32. Seize each day
Steve Jobs, as he shared in his commencement speech at Stanford University in 2005, read a quote early in his life that went something like: ‘If you live each day as if it was your last, someday you’ll most certainly be right.’ This is what Jobs told the students – “It made an impression on me, and since then, for the past thirty-three years, I have looked in the mirror every morning and asked myself: ‘If today were the last day of my life, would I want to do what I am about to do today?’ And whenever the answer has been ‘No’ for too many days in a row, I know I need to change something.” Keep this perspective that you don’t live forever and should focus on doing what really matters, today. This moment, this day, is all you have. Seize it.

33. Embrace your imperfections
As we wade through life’s muddled waters, especially as young adults, we tend deep down to be hopeful that we will eventually manage to settle down well and find perfection in a number of areas. We dream of one day securing healthy relationships, deeply fulfilling work, happy family life, and the respect of others. But life, as it is, has a habit of springing surprises, and rushing us in its overwhelming tide. It sometimes deals us a range of blows, leaving our dreams shattered. And like a favorite cup or plate, we sometimes crack. We may even break.

Obviously, you must not throw yourself away when this happens. Instead, you can relish the blemishes and learn to turn these scars into art – like ‘kintsugi,’ an ancient Japanese practice that beautifies broken pottery. In Zen aesthetics, the broken pieces of a ceramic pot should be carefully picked up, reassembled, and then glued together with lacquer inflected with gold powder. The Japanese believe the golden cracks make the pieces even more valuable. It embraces the breakage as part of the object’s history, instead of something unacceptable to be hidden or thrown away.

It is beautiful to think of kintsugi as a metaphor for your life, to see the broken, difficult, or painful parts of you as radiating light, gold, and beauty. It teaches that your broken places make you stronger and better than ever before. The times when you get hurt and broken, you can feel totally rotten. But there can also be a strange beauty in the way you process the cracks in your life and the lessons you take from them afterward. You can decide to cover up, or you can decide to walk out into the world as yourself, with your cracks shining gold.

34. Find your true desire, then live it
In a thought-provoking lecture many years ago, British philosopher and writer Alan Watts told the audience this –

Students…come to me and say, ‘We’re getting out of college and we have the faintest idea of what we want to do.’ I always ask the question, what would you like to do if money were no object? How would you really enjoy spending your life? …Students say, we’d like to be painters, we’d like to be poets, we’d like to be writers, but as everybody knows, you can’t earn any money that way. Let’s go through with it, what do you want to do? When we finally got down to something which the individual says he really wants to do, I will say to him: you do that and forget the money. Because if you say that getting the money is the most important thing you will spend your life completely wasting your time. You’ll be doing things you don’t like doing in order to go on living that is to go on doing things you don’t like doing, which is stupid. Better to have a short life full of what you like doing, than a long life, spent in a miserable way. After all if you really like what you’re doing, it doesn’t matter what it is, you can eventually become a master of it. The only way to become a master of something is to be really with it. And then you’ll be able to get a good fee for whatever it is…Therefore, it’s so important to consider this question: What do I desire?

What you desire is the reason for which you get up in the morning. Go, search for it. And till you find it, keep looking and do not settle.

35. Live like a verb, not a noun
I recently came across this thought-provoking paragraph from the English actor, comedian, and writer Stephen Fry, while browsing a notebook I had scribbled thoughts in some years ago – “Oscar Wilde said that if you know what you want to be, then you inevitably become it. That is your punishment. But if you never know, then you can be anything. There is a truth to that. We are not nouns, we are verbs. I am not a thing — an actor, a writer — I am a person who does things — I write, I act — and I never know what I am going to do next. I think you can be imprisoned if you think of yourself as a noun.”
Learn to give yourself permission to ‘do’ what brings you the greatest joy – except, say, getting involved in drugs etc. That’s the way you will find satisfaction in life. What will lead you to a fulfilling life isn’t the nouns you may use for yourself – dancer, writer, investor, teacher – but the verbs you will be – the growing, learning, and pursuing that will happen in the process.

36. Forgive over and over and over
You are going to have your heartbroken. Whether it’s a fall out with a friend you thought you were close with, or that career that you wish you got. It’s life, it’s going to happen. Take it for the lesson it was and move on. And never hold on to grudges against others and yourself. When we harbor unforgiveness and blame others for all our misery, it slowly eats us away, breeding hatred, and destroying our relationship with that other person, and also with our inner self. But when you decide to forgive, it is like an instant miraculous healing process. It is the key to moving on.

When people do not act as you would wish them to, exercise the muscles of your good nature by shrugging your shoulders and saying to yourself “Oh well.” Then let the incident go. Also, try to be as kind to yourself as possible, by forgiving yourself for mistakes made. The Greek philosopher Epictetus advised, “Do not measure yourself against others or even against your ideal self. Human betterment is a gradual, two-steps-forward, one-step-back effort. When you learn to forgive, others and yourself, and let go, you will be surprised to discover the lightness and freedom that unfold thereafter from within you. Forgiveness won’t necessarily erase all your pain. But it does mean that the hurt is no longer center stage.

37. Do not take life so seriously
Our DNA is 96% chimpanzee, so what’s the point of taking life any seriously than a chimp does? Laugh at yourself when you make mistakes. Do not worry about things you cannot control.

You get around 80-90 trips around the sun. Embrace them and enjoy your ride to the fullest. 99% of what you will think as problems won’t even be real problems anyway, just situations your mind would make into some big and unnecessary drama. So, remember to relax. Do not live in your head so much.

38. Value People
In his book, The Education of a Value Investor, Guy Spier writes about a story of one Ian Jacobs, a Columbia Business School graduate who successfully applied for a job with Warren Buffett. Along with his cover letter, Jacobs enclosed a cheque to compensate Buffett for his time in evaluating this job application. Jacobs’s cheque showed how much he respected the value of Buffett’s time. Guy writes –

The key, in my experience, is to value people as an end in themselves, not as a means to our own ends. Mohnish (Pabrai) often quotes a beautiful line from the Bible, “I am but dust and ashes.”

Thanks in large part to Mohnish and Warren, I began to realize that I ought to focus more on what others need from me instead of constantly trying to get them to fulfill my own needs. This might sound obvious, but it’s been a huge psychological shift for me, and it’s really changed the way that I live my life.

This is so unlike what happens in the financial services industry where people selfishly work for their own incentives, others be damned! And this is one of the key reasons for my disgust with this industry.

It is important to see and treat people not as ladders on which one must climb to achieve one’s personal success, but as part of a wonderful ecosystem where one can survive and prosper only when others survive and prosper.

Like here is what Buffett has a key part of his Owner’s Manual –

We will be candid in our reporting to you, emphasizing the pluses and minuses important in appraising business value. Our guideline is to tell you the business facts that we would want to know if our positions were reversed. We owe you no less.

In other words, Buffett treats shareholders and managers in his acquired businesses as he would wish to be treated if the positions were reversed.

This is in fact the Golden Rule or ethic of reciprocity – One should treat others as one would like others to treat oneself.

39. Don’t worry too much about making money
It won’t change the way you live. Time spent earning enough money is time reasonably well spent. Time earning an excess of money far beyond that required to meet one’s needs, however, is time wasted. So, know how much is enough.

As far as saving money is concerned, take it seriously but not too much that you compromise your and your family’s present. Especially when you are making a reasonable income and are already saving enough, remember what Warren Buffett says –

…who is to say whether it is better to defer a dollar of expenditure on your family – on a trip to Disneyland or something that they’ll get enormous enjoyment out of – so that when you are 75, you can have a 30-feet boat instead of a 20-feet boat. There are advantages to spending money on your family when it is young – giving them various forms of enjoyment, education, or whatever it may be. But it’s crazy to be spending 105% of your income.

40. Don’t put off “living happily ever after” for another year.
Don’t assume you’ll have another year. You won’t get this life again. No one will bring back the years; no one will restore you to yourself. Life will follow the path it began to take, and will neither reverse nor check its course. Life will not lengthen at your command. As it started out on its first day, so it will run on, nowhere pausing or turning aside. Stop being busy. Tell the ones you love how much you love them often enough. You could be very happy with almost nothing if you had a loving family, and you weren’t competing with a lot of other people who had more than you did.

41. How to Get Rich Quick
Get rich quick by doing these five simple things –

• Create value for others;
• Contribute to someone, without keeping score;
• Say what needs to be said;
• Learn something new, something scary; and
• Reject false shortcuts.

42. Deal well with your fears.
We’re all fearful…of some things…and many things. I’ve never seen any person who has no fear. However, in dealing with fear several times over the past few years, I have realized one very important thing.

It is that, in our life, the issue is not really ‘fear’ but rather, what we do despite it. We can either get managed by fear, or manage it. We can either acknowledge fear or fall into an emotional whirlpool. We can either accept fear or pretend that it doesn’t exist at all. We can either give up or get up in the face of fear.

In fact, fear is what keeps us safe at most times in our lives. Fear keeps us out of harm’s way. All we need to have is the courage to manage it. Now, nobody can give us the courage. Even if Buddha were sitting right here next to you, he couldn’t give it to you. You have to practice it and realize it yourself. You have to make a habit of mindfulness practice to get over your fears. Then, when fear strikes you, you will already know what to do.

43. Life is Short

Most of what happens to us in life is anyways beyond our control, and we must learn to let it go.

But I firmly believe in what Mark Twain said –

Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.

Now is the time, my dear friend, to explore, dream, discover. Because life, as we may live it, is really short.

44. You Are A Black Swan
Black swan is a Latin expression, which was commonly used as a metaphor to describe something impossible or something non-existent. It came from the old-world belief that all swans are white since no one had seen a black swan before. Every time someone spotted a white swan, it was confirmation of their belief i.e., “all swans are white.” But this long held notion was invalidated the day first black swan was spotted.

A black swan event has following three attributes, writes Taleb in his book –

First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact (unlike the bird). Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

Apart from the central theme of black swan, Taleb’s book is choc-full of mind stretching ideas. I’ll leave you with the very last passage from The Black Swan which I found remarkably comforting. Taleb writes –

I am sometimes taken aback by how people can have a miserable day or get angry because they feel cheated by a bad meal, cold coffee, a social rebuff or a rude reception…We are quick to forget that just being alive is an extraordinary piece of good luck, a remote event, a chance occurrence of monstrous proportions.

Imagine a speck of dust next to a planet a billion times the size of the earth. The speck of dust represents the odds in favour of your being born; the huge planet would be the odds against it. So stop sweating the small stuff. Don’t be like the ingrate who got a castle as a present and worried about the mildew in the bathroom. Stop looking the gift horse in the mouth – remember that you are a Black Swan.

45. Enjoy the Journey
Zen and the Art of Motorcycle Maintenance (ZAMM) is the autobiography of American writer and philosopher Robert Pirsig, wherein he chronicles his motorcycle journey across the country with his son. It is however much more than just an adventure tale. Through his journey, Pirsig explains his philosophy on life, creating a manifesto through motorcycle maintenance.

There are many lessons to be learned from this book, but a handful of persist throughout the story that can help reshape your perspective. Like, here is what Pirsig writes on how we lose so much time on unnecessary affairs that we move swiftly past what is really important –

We’re in such a hurry most of the time we never get much chance to talk. The result is a kind of endless day-to-day shallowness, a monotony that leaves a person wondering years later where all the time went and sorry that it’s all gone.

Then, here is Pirsig’s idea of how to fix the world –

The place to improve the world is first in one’s own heart and head and hands, and then work outward from there. Other people can talk about how to expand the destiny of mankind. I just want to talk about how to fix a motorcycle.

One of the most beautiful lessons I take from the books is the idea of enjoying the journey instead of just waiting for the destination. As Pirsig writes –

Mountains should be climbed with as little effort as possible and without desire. The reality of your own nature should determine the speed. If you become restless, speed up. If you become winded, slow down. You climb the mountain in an equilibrium between restlessness and exhaustion. Then, when you are no longer thinking ahead, each footstep isn’t just a means to an an end but a unique event in itself. This leaf has jagged edges. This rock looks loose. From this place the snow is less visible, even though closer. These are things you should notice anyway. To live only for some future goal is shallow. It’s the sides of the mountain that sustain life, not the top. Here’s where things grow.

46. What We Leave Behind
I read a beautiful, new post from Prof. Scott Galloway titled What We Leave Behind, wherein he writes how the fastest path to a better life is regularly assessing what we leave behind, and that money or wealth are not as important parts of the equation of what we leave behind as we usually think about. Spending time with our children is.

Prof. Galloway writes –

Money is a vehicle for the transfer of time and work from one entity to another. So, if we spend less money on one thing, we can invest more time on another. Could we invest less in stuff, less in commuting, and more in relationships? I’ve been howling in the money storm for so long. Believing my worth to others was a function of the stuff I had, or didn’t have.

We proffer admiration, affection, and a sense of awe on people who aggregate wealth. But that affection is often misplaced, as wealth can lead to greed and lack of empathy. This is an opportunity to spend less on stuff, spend less time commuting, and reallocate that capital and time to our partners and children.

On my podcast, the Prof G Show, I interviewed philosopher and neuroscientist Sam Harris. I asked him for one piece of advice on how to be a better man. He offered that rather than trying to parent, cajole, discipline, or guide your children, your real purpose is just…to love them. My nine-year-old has been having a hard time with corona. I’m spending less time correcting, explaining, arguing, and more just loving…sitting in his room when he’s doing homework, engaging in conversation, and watching The Simpsons together. We’re on season 5, there’s 31.

And…we’ll get there.

This is such a refreshing thought. It reminds us to examine our lives way more often and with deeper reflection. We are building a legacy every day, whether or not we are intentional about it. As we move forward through these challenging times, let’s keep our hearts and minds fastened on that we will leave behind.

47. Meditation
Meditation has been a great tool to help me learn to be mindful, which is to be present and aware, moment by moment, regardless of circumstances. And when it comes to investing, I find mindfulness to be one of our best defenses against behavioural biases. Why?

You see, the stock market is by definition, anxiety-inducing. Ben Graham called stock price fluctuations represented by Mr. Market as manic depressive. Look at people trading inside dealing rooms. Or just look at the talking heads on business television and you will know what I’m talking about. Amidst this chaos, a state of mindfulness can help you put your mind in a healthier, more balanced and unemotional state.

• You won’t be worried about short term fluctuations in stock prices.
• You won’t act in haste or on impulse.
• You won’t be distracted by regrets of your past performance or worries about your future returns.
• You would keep yourself immune to the news and noise all around.
• You would try to do your best work in the present, with utmost focus and discipline.

These are all necessary attributes you need to achieve success as an investor. As Charlie Munger says –

A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. And that is why we say that having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success.

This is all what meditation and mindfulness can teach you, and much more. Try it to see for yourself.

48. A Father’s Lessons for a Good Life
I made a pocket-zine for my kids that contained some lessons on living a good life. They loved the idea and the lessons. I loved their smiles. 🙂
 
Click here to download the PDF version.

49. Weathering Life’s Storms
In ancient Greece and Rome, many prominent thinkers subscribed to a philosophy called Stoicism. As part of this philosophy, they practiced a thought exercise called premeditatio malorum, which means premeditation of evils.

It simply means taking a moment to think through everything that could go wrong with a particular plan. It means visualizing a bad future.

The idea behind premeditatio malorum is that by contemplating calamity, we rob future hardships of their bite and appreciate what we have now. In other words, anticipating adversity is likely to diminish its power on us when it actually strikes.

Now, meditating on the worst that may happen to us seems like a negative way to live life. On the contrary, this exercise is calming, because it leads us to prepare ourselves mentally and otherwise to deal with an uncertain future. Also, if we take time to think through the bad things that may fall upon us, what Charlie Munger calls the places where we may die, we may find ways to not go there in the first place.

Imagine getting hit by the corona virus, or losing your job, or the stock market tanking and your investments getting wiped out. Then, while letting the future be because you anyways don’t control it, try doing things that may keep you at safe distance from these possibilities as much as possible.

In particular, while practicing premeditatio malorum, the Stoics frequently reminded themselves that both they and their loved ones were mortal, and bound to die one day, and that life was inevitably transient. This is one of the best ways we can indulge in this thought practice, by meditating on mortality.

As the Stoic philosopher Seneca advised –

Let us prepare our minds as if we’d come to the very end of life. Let us postpone nothing. Let us balance life’s books each day … The one who puts the finishing touches on their life each day is never short of time.

50. Start Preparing for Tomorrow
We often blame our past and worry about our future.

The fact is that – and you also know this – life is in living NOW. It’s all about the…

• Things we learn now;
• Choices we make now;
• Habits we form now;
• Actions we take now; and
• Enlightenment we receive now

Regretting about the past – “If only I could’ve started investing earlier!” or “If only I had not made that investing mistake!” – is like wasting time and energy on the impossible. And worrying about the future – the Tomorrow – is like having no belief in your capabilities.

If you can live in the present, connect with it, accept it, and experience the joy of flying in the NOW, you would surely head towards a brighter Tomorrow.

In fact, the best possible way to prepare for Tomorrow is to concentrate with all your intelligence, all your enthusiasm, on doing today’s work superbly today.

When I was ten years old, my grandfather would draw me a house with windows and doors. He would tell me how many brick lengths the bottom and sides needed, and how many brick lengths each window and door would take.

Then he asked me how many bricks it would take to build the whole house. If I had trouble answering, he wouldn’t get upset.

He would simply say: “This is how you build a house. One brick at a time.”

Well, this is also how you prepare for Tomorrow.

By seeing it now, and then, as Charlie Munger would have loved to see you do, working backward to achieve it.

As Stephen Covey writes as his second habit of highly effective people – Begin with the end in mind.

Well, that’s where you should also begin – End…Tomorrow. Then work backward.

51. Fear
Here is a beautiful poem from Khalil Gibran, the Lebanese poet well known for his book, The Prophet, that strikes a chord deep within.

FEAR (Khalil Gibran)

It is said that before entering the sea
a river trembles with fear.

She looks back at the path she has traveled,
from the peaks of the mountains,
the long winding road crossing forests and villages.

And in front of her,
she sees an ocean so vast,
that to enter
there seems nothing more than to disappear forever.

But there is no other way.
The river can not go back.

Nobody can go back.
To go back is impossible in existence.

The river needs to take the risk
of entering the ocean
because only then will fear disappear,
because that’s where the river will know
it’s not about disappearing into the ocean,
but of becoming the ocean.

* * *
Benjamin Franklin said, “Be at war with your vices, at peace with your neighbors, and let every new year find you a better man.

I’m so grateful to have you share this journey with me in 2020, and I look forward to continuing our connection in 2021, whatever it may bring.

Stay happy and healthy.

Happy 2021.

With respect,
Vishal