Prime Membership

Investing, like running a business, requires one to be on his toes all the time. And just like a business operation can’t be reduced to a template, the art of investing can’t be boiled down to a static step-by-step process.

Sachin Tendulkar, in his 22-year long career, never opted for a runner. He was the first batsman to score a double century in one-day cricket history. During the tail end of this special inning, it looked like he badly needed a runner but he continued to run on his own.

Amazon Web Services (AWS) is the Titanic of cloud hosting. It provides on-demand cloud computing platforms to both individuals, companies, and governments, on a paid subscription basis. The platform is designed as a backup to the backups’ backups that prevents hosted websites – including some of the largest in the world – and applications from failing.

Yet, like the Titanic, AWS crashed in April 2011, taking with it popular websites like Reddit, Quora, FourSquare, HootSuite, and New York Times, among many others, for four days.

My friend Ravi was home for lunch on weekend. After food, as we went out for a stroll, he told me a story of a famous motivational speaker.

At a huge gathering once, the speaker proclaimed, “The best years of my life were spent in the arms of a woman, who wasn’t my wife.”

The audience was in a state of shock and silence at thus revelation, especially because it was coming from someone they looked up to.

The speaker than added, “She was my mother.”

What followed then was a huge round of applause and laughter.

Ravi then told me the story of a male participant at this event who was his friend from school. This gentleman tried to trick his wife with a similar joke.

When a satisfactory answer to a hard question is not found quickly, our mind tends to imagine a related question that is easier and constructs an answer for it. This processes, answering one question in place of another, is mostly involuntary and known as substitution principle. It’s better to stay mired in a genuine confusion than to bask in the comfort of a false conclusion.

Let me ask you a simple question – How happy are you these days?

Most of us invest in the first place is to attain financial freedom so that we do not have to worry about money. But most of us become slaves of the short term stock price movements. And that creates stress. And stress is bad, very bad.

One of Warren Buffett’s all-time great investments is Coca-Cola, and it just happens to be the stock Berkshire Hathaway has held the longest. There is no other holding that better exemplifies his investing skill, patience, and temperament than this one.

Buffett first started buying shares of Coca-Cola in 1988, and seemingly paid around $2.5 per share (adjusted) for his purchase. In 2019, the company paid a dividend of $1.6 per share, thus taking Buffett’s dividend yield from the stock to 64%!

“See, when you want to reverse the car to left, you have to turn the steering wheel to the left,” I told my wife while I was trying to teach her reverse parking.

“But when I turn left, the car is going towards right!” she exclaimed.

“No! The car is going towards left. See, the left tail lamp is going left,” I showed her in the side view mirror.

“Yeah but the right headlamp is going towards the right,” she pointed towards the right headlamp which appeared to be moving towards right from driving seat. Of course, it had to. If you are focusing on the front, the nose of the car will seem to go towards the right.

“But why are you focusing on the front head lamp? When you’re reversing your point of reference should be the tail lamp,” I explained.

“Then why didn’t you explicitly tell me that before?” she asked almost in complete frustration.

“I thought you would…” I started mumbling but before I could complete that sentence, a light bulb went off in my head. Eureka!

In 2014, JPMorgan Asset Management did a study and discovered that the 40 best days accounted for more than the entire S&P 500 return from 1993–2013. In other words, if someone traded only on these specific 40 days, i.e., invested his money in S&P 500 in the morning and sold in the evening then he would have the same returns as someone who stayed invested for 20 years.

Investing is simple, but not easy. Still there are a few eternal rules that, if you can tie them well with your investment process, should make the journey profitable.

The Wizard: Do not arouse the wrath of the great and powerful Oz! I said come back tomorrow!

Dorothy: If you were really Great and Powerful, you’d keep your promises!

The Wizard: [As Toto reveals him behind a curtain] You presume to criticize the Great Oz? You ungrateful creatures! You’re lucky that I’m only holding this till tomorrow, instead of the next twenty years from now!

Dorothy: [Pulling aside the curtain] Who are you?

The Wizard: I am the great and powerful…Wizard…of Oz.

Dorothy: You are? I don’t believe you.

The Wizard: I’m afraid it’s true. There’s no other Wizard except me.

Dorothy: Oh, you’re a very bad man!

The Wizard: Oh, no, my dear, I… I’m a very good man – I’m just a very bad Wizard.

In the noted 1939 American musical comedy-drama fantasy film The Wizard of Oz, one of the lead characters Dorothy, along with her dog Toto, is swept away by a tornado to the Land of Oz. It is ruled by a tyrant in whom people had vested extraordinary powers, but who was later exposed as vulnerable as the spell surrounding Oz is broken.

In the controversial movie, The Social Network, which supposedly portrayed Mark Zuckerberg’s Facebook journey, Sean Parker’s character famously quipped –

“A million dollars isn’t cool. You know what’s cool? A billion dollars.”

It’s probably the most favourite problem that majority of the individuals in the world are trying to figure out i.e., how to get rich?

So let’s investigate this problem by using Charlie Munger’s most cherished mental model i.e., inverting the problems to solve them.