Investing

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Safal Niveshak Stream – September 27, 2016

Some interesting stuff we read this morning…

Investing/Stock Market

John Huber’s comments on value investing are very useful for every investor. In his recent blog post he writes about two important items that every investor should have in his checklist. One of them being the risk of getting tempted to low probability events…

I read investment pitches all the time that discuss the probability of various outcomes. This makes sense—Buffett himself has talked about assigning probabilities to various outcomes of an investment. And certain odds might tell you that even a low probability event can be a very good bet to take. For example, a bet that has a 25% chance of winning and pays out 10 to 1 is a very good bet. It is a low probability bet that has positive expectancy, and it’s a bet you should take every time…In my experience, it’s better to forego the low-probability investment ideas. They are too difficult to accurately judge, and they usually involve bad (or highly leveraged) businesses.
Phoney Buffett-style value-investing is dangerous, warns John Hempton in his recent blog post. He writes –

I still admire Buffett’s portfolio management more than I can say. He really is astonishingly good at what I have chosen to do for a living.

But I can’t emulate Buffett and nor can anyone else I know. And if someone uses his name to describe their investment philosophy my (likely accurate) presumption is that they are a phoney.

When the money is gone – After a stock analyst lost $1 million on one penny stock, he set off to find out how — and soon discovered signs of a far bigger scheme than he had ever imagined…

…it left DiIorio helpless when the stock plummeted from $3.50 to $0.06 a share within two months.

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Safal Niveshak Stream – September 26, 2016

Some nice stuff we read at the start of this new week…

Investing/Stock Market

Stop craving excitement in the stock market! Jason Zweig writes in WSJ how a bored investor is a dangerous thing…

…this is a good time for investors to remind themselves that an idle mind is the devil’s workshop.

Scientifically speaking, boredom is a mildly unpleasant state of mind usually triggered by a monotonous environment. Experiments have shown that it can increase your heart rate and raise your levels of cortisol, a hormone associated with stress…

Fixating on a dull market can leave you restlessly craving excitement that just isn’t there. A bored investor is probably more likely to succumb to the whims of other bored investors moving in a herd…All of this is true for professional as well as individual investors.

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Mental Models, Investing, and You (Special E-Book)

The world around us is changing pretty fast. Modern computers are becoming cheaper, faster and more intelligent than ever, which means they are ready to replace a large part of human workforce.

The day is not far when your work and skills will be threatened by artificial intelligence. To stay relevant, you need to ensure that you remain valuable to the society in a way which can’t be substituted by a robot.

And your only chance to remain valuable is by being a constant learner…a learning machine, as Charlie Munger says. In fact, he has been saying this for years –

I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.

The question is where do you begin? There is so much to learn all around, and so little time.

Avoid Newspapers, Read Safal Niveshak’s Stream

“I do not take a single newspaper, nor read one a month, and I feel myself infinitely happier for it. The man who reads nothing at all is better informed than the man who reads nothing but newspapers.” ~ Thomas Jefferson

Long time readers of Safal Niveshak and attendees to my investing workshops know my dislike for reading newspapers. The dislike is so deep that I’ve not had a newspaper subscription at my home for the past six years now, and neither do I consume news via electronic media (till something really important comes to me). This also holds true of business television which I watch very occasionally and only when I want to get a hearty laugh and there’s nothing else that’s as funny on television at that time.

Now, one big reason I do not read newspapers is because I have a big problem with the fact that they decide for us what we should pay attention to and what we should ignore. It isn’t just the text of a news story that can mislead us; it’s also the choice of which stories get covered at all, and where they’re placed in the paper.

Safal Niveshak Stream – September 24, 2016

Some great stuff we read at the start of this weekend…

Reading/Thinking

What books would you recommend someone reads to improve his/her general knowledge of the world? Well, here’s a list in case you are searching for one.
A glance at the library of Marc Andreessen, where some of Silicon Valley’s secrets are hiding…

I finally talked to Andreessen, and I asked him about the book collection. He said he didn’t like the lobbies at other VC firms. They looked like “monuments to themselves” filled with “tombstones”—framed IPO prospectus covers and Lucite statues that investment bankers give out when you sell a startup. “It felt like visiting the lobby of an insurance company—instead of somebody you would presumably really want to talk to,” he says. So he filled his own lobby with books. He spent three nights sorting the titles for maximum effect. Programming books on one set of shelves, Hollywood books on another, business books on a third, and so on.
A nice infographic on learning how to learn.
Why one should read history. Excerpt from Yuval Harari’s Homo Deus…

Business

Avoid that white poison! How the sugar industry shifted blame to fat, and how it has distorted health science for more than 50 years…

…Big Sugar may have done more than just advocate for favorable policies. Going back more than 50 years, the industry has been distorting scientific research by dictating what questions get asked about sugar, particularly questions around sugar’s role in promoting heart disease.
The rise of the superstars: A small group of giant companies are once again dominating the global economy. Is that a good or a bad thing?
Your job may be at risk in the next Industrial Revolution. An interview with Ryan Avent about how technology will change the labor force.

Life

A wonderful TED video on how to raise successful kids, without over-parenting…

I guess what I’m saying is, we spend a lot of time being very concerned about parents who aren’t involved enough in the lives of their kids and their education or their upbringing, and rightly so. But at the other end of the spectrum, there’s a lot of harm going on there as well, where parents feel a kid can’t be successful unless the parent is protecting and preventing at every turn and hovering over every happening, and micromanaging every moment, and steering their kid towards some small subset of colleges and careers.

When we raise kids this way, and I’ll say we, because Lord knows, in raising my two teenagers, I’ve had these tendencies myself, our kids end up leading a kind of checklisted childhood.
The Paralympic Games silver medal winner Deepa Malik’s 12-point life strategy can change your life too…

“Your lows should be a jumpstart,” she says. A way to prepare for the highs. She says she uses the lows as a way to understand her shortcomings. “The purpose of sadness is not to demoralize yourself but to evaluate where you are lacking so you can bounce back,” she says.

Miscellaneous

A conversation with Shel Kaphan, Amazon’s first employee…

One thing that the Amazon experience taught me is try to imagine what a project or company would be like if it was more successful than you could ever possibly imagine. It’s very unlikely but it’s possible. You have to think about what the environment will be like if that happens, and how the people involved in it might change. When I was joining Jeff to form Amazon in the beginning, I didn’t even allow myself to go there. I’d worked for a lot of startups so it almost felt like a jinx to think too much about what might happen if it really succeeded in a big way. That was my mentality. I was like, I hope this makes it and is a moderate success. Maybe it even generates enough cash to let us retire at some point. You don’t really want to think about massive success beyond what you can imagine. Then, if it is successful, you have to start thinking, what’s my role in enabling this? Is that something I really want to be doing?

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Safal Niveshak Stream – September 23, 2016

Some nice stuff we read this morning…

A bored investor is a dangerous thing. Boring market can prod investors into trying to do exciting things, according to Jason Zweig.
Elon Musk has revolutionized four different industries – Automobile, Finance, Energy and Space. What makes him such a brilliant thinker? Find out how Musk learns faster and better than everyone else.
How should we read investor letters? A very useful New Yorker article.
Temperament matters, writes Seth Godin, “And it can be developed like any other skill.”
You can never be sure what the future will look like, but one thing is for sure that it will be very little like we expect.
remember that a management that steals FOR you, will one day steal FROM you.
Bull(S**t) Alert – Loan against shares is back again. Please be safe!

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Latticework of Mental Models: Scarcity Bias

In 1999, on being introduced to the Internet for the very first time, do you know what I did? Like many others, I created a dozen new email accounts. But once I realised the futility of having so many email addresses I discarded almost all of them and stuck to my Yahoo mail. It stayed that way until Gmail arrived.

Some of the Gmail features were quite attractive as compared to Yahoo but what made the former very tempting was its policy of invite-only registrations. You couldn’t get a Gmail account unless someone with Gmail invited you. This made me want it even more. But why?

Folks at Google certainly understood human behaviour better than anyone else. They used the principle of Scarcity Bias to make their product more appealing.

Scarcity principle states that people assign more value to opportunities when they are less available. In other words, things seem more valuable to us when their availability is limited. This bias stems from the basic human tendency to shun losses.

Daniel Kahneman, who is known for his pioneering work in the field of behavioural economics, came up with the Loss Aversion theory, which explains the root of many of the human psychological biases. The theory says that human beings are motivated more by the thought of losing something than by the thought of gaining something of equal value. This is especially true under conditions of risk and uncertainty.

Put simply, the threat of potential loss plays a powerful role in human decision making.

Safal Niveshak Stream – September 22, 2016

Some great stuff we read this morning…

The big fight is on – interesting perspectives on Flipkart vs Amazon.
Benjamin Franklin did this one hour a day, five hours a week. Read what it is and why you should do it too.
10 things found in Warren Buffett’s office.
Stunning videos of evolution in action. Harvard scientists designed a fascinating experiment that enabled them to watch bacteria adapting to antibiotics before their eyes.
If you can recreate the material that you’ve digested then you truly understand it. A wonderful read on power of writing what you read.
Collection of words of wisdom to aspiring value investors from some of the more experienced value investing practitioners.
Bruce Lee on willpower, emotion, reason, memory, imagination, and confidence.
Michael Mauboussin reflects on ten attributes of great investors.
Insight from Howard Schultz’s book Pour Your Heart Into It. Schultz is the creator of the super brand Starbucks…

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Safal Niveshak Stream – September 21, 2016

Some nice stuff we read this morning…

What a time to be alive!
Ways to apply the lessons from Howard Marks’ “The Most Important Thing.”
Does Uber’s US$ 69 billion valuation makes sense only in a world where it’s the only player in town? Some nice insights here.
22 lessons from Stephen King on how to be a great writer.
Where creativity comes from: Studies of humans and other animals indicate that inventiveness often stems from factors other than need.
Rule No. 1 – Never LOSE money. (Image Source – Nassim Taleb’s Logic of Risk Taking)

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Investing and the Paradox of Perfection

A lot of people I meet in the startup world and in investing are aiming for that perfect start when all their stars will align to take them off to the moon.

So, some keep waiting for their “best product” or “best design” before starting up their businesses, and others wait for the “perfect business to invest in” or “perfect price to invest at” before starting to invest their money.

The reason? They don’t want to be criticized for any mistake – like not getting business, or temporarily losing money in the stock market – they may make due to not being perfect at the start.

If you think about why we feel the need to be perfect in the first place, it all goes back to how we think about ourselves and our self-worth. If we have a strong desire to be perfect, then we may use the idea of perfection as a way to validate ourselves as worthy and valuable human beings.