Safal Niveshak Stream – January 7, 2017

Note to Readers: In Stream, we suggest worthwhile reading material on a variety of topics, not all of which are directly related to investing. Some of the articles require you to be paid subscriber of those sites. However, it is often possible to read such articles by going to Google News and searching for the article’s title.

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

Life/Learning

• (930 words / 4 minutes read) Meet the ‘James Bond of Philanthropy’ who has given away the last of his fortune…
  

  Nearly five years ago, Charles F. Feeney sat in a cushy armchair in an apartment on the east side of Manhattan, grandchildren’s artwork taped to the walls, and said that by the end of 2016, he was going to hand out the last of a great fortune that he had made.

  Altogether, he had contributed $8 billion to his philanthropies, which have supported higher education, public health, human rights and scientific research … His remaining personal net worth is slightly more than $2 million. That’s not quite broke, by any standard, but it is a modest amount for a man who controlled thousands of times as much wealth. He and his wife, Helga, now live in a rented apartment in San Francisco. “You can only wear one pair of pants at a time,” Mr. Feeney has said.

• Yanan Ma Bledsoe published 350 pages of Charlie Munger’s speeches and articles in 2012. You won’t find better and more wisdom on business and life than here. For more such great, timeless reading material, visit here.

Reading/Thinking

• (2500 words/ 11 minutes read) Reading and thinking are two of the most important activities for an investor. But what facilitates these two activities seamlessly is writing. Writing down your thoughts while you’re thinking and writing down what you’ve read is a great way to internalize what you’ve read and to generate fresh insights. That way, everyone who is a reader and thinker, is a writer too. Ryan Holiday compiles 44 hacks for improving your writing skills.
  

  In Tobias Wolff’s autobiographical novel Old School, the character types the passages from his favorite books just to know what it feels like to have those words flow through his fingertips. Hunter S. Thompson often did the same thing. This is another reason why technologies like ebooks and Evernote are inferior to physical interaction. Just highlighting something and saving it to a computer? There’s no tactile memory there.

• Roger von Oech’s Creative Whack Pack is a great tool for stimulating thinking. Similarly, his book A Whack on the Side of the Head is a great resource to learn creativity. Here’s a fascinating insight about tactile intelligence from the book –
  

  Working with our hands stimulates the brain. Some recent studies have shown that activating our basic motor functions can improve mental performance.

  A considerable portion of the brain is dedicated to hand-related functions. Indeed, it could be argued that it was hand’s development that led our species’ increased brain size. From approximately 4,000,000 years ago to about 100,000 years ago, the hand underwent a series of significant changes that gave it more power and versatility…As the hand gained these new powers, the human brain, in turn, developed new ways of making sense of what the hand was doing. .During this period, the brain grew in size (from 400 cc to its present 1350 cc) and processing power. In other words, as the hand became “handier”, the brain became “brainier.”

  As novelist Robertson Davies put it, “The hand speaks to the brain as surely as the brain speaks to the hand.” And this is true whether we’re carving wood, peeling fruit, sewing pieces of cloth together, playing the piano, performing surgery, shuffling cards, throwing a baseball, making gestures, or massaging a muscle.

  One of my favorite ways to relax my mind is to take an object about the size of an apple and then play with it. I’ll flip it back and forth from hand to hand. I’ll toss it in the air. I’ll try grasping it in various ways, or let it roll from finger to finger. Doing this stimulates a different part of my brain, and gets my creative juices.

Investing/Stock Market

• (3 minutes watch) Redundancy is having more than one means of completing a given task. In other words, redundancy refers to the process of adding ‘extra’ copies of critical components of a system so that you can use the copy if the original one fails or it’s lost. It’s a very important mental model from the field of software engineering and has strong implications in investing. Having a diversified investment portfolio is way of practicing redundancy. Here’s the next episode of Mental Models video series –
  
  
  If you can’t see the video above, click here.

• (2700 words / 11 minutes read) One of the most important quality of a successful investor is the willingness to rub the nose in their failures. For Guy Spier, Horsehead holdings turned out to be the most difficult and expensive mistake of his investing career. In his recent note to clients, he explained what went wrong with Horsehead and the lessons learnt –
  

  Horsehead has certainly been my most painful and expensive investing experience to date. But it has also been an extraordinarily rich learning experience which could be the subject of a book or a monograph…My experience with Horsehead has caused me to re-evaluate my thinking on contact with management teams. It now strikes me as asinine not to speak with management. The key to good investing is not whether one speaks to management but when one does it. Armed with plenty of insight into the company and its environment, I have no doubt that speaking to the management is helpful.

Business

• (2100 words / 9 minutes read) How Amazon innovates in ways that Google and Apple can’t…
  

  Amazon has shown a remarkable ability to succeed in a wide variety of different product categories. That’s a contrast to most other high-profile tech companies that are really good in one area — Google’s dominant online services or Apple’s extraordinarily profitable hardware — but struggle when the quest for growth pushes them outside their zone of core competency.

  “There’s an opportunity to do innovation in big companies,” says author and startup guru Eric Ries. “But very few big companies have done this really well. Amazon is one of them.”

  Amazon has figured out how to combine the entrepreneurial culture of a small company with the financial resources of a large one. And that allows it tackle problems most other companies can’t.

• Warren Buffett is heavily into insurance business. And a large chunk of Berkshire Hathaway is into reinsurance business. One of the primary reason for Buffett’s special interest in insurance is float. But is there any other structural advantage that makes reinsurance so attractive? I found a fascinating insight about reinsurance business in an unlikely place i.e., Antifragile, a book by Nassim Taleb. He writes –
  

  Some businesses love their own mistakes. Reinsurance companies, who focus on insuring catastrophic risks (and are used by insurance companies to “re-insure” such non-diversifiable risks), manage to do well after a calamity or tail event that causes them to take a hit. If they are still in business and “have their powder dry” (few manage to have plans for such contingency [Berkshire being one of them]), they make it up by disproportionately raising premia -customers overreact and pay up for insurance. They claim to have no idea about fair value, that is, proper pricing, for reinsurance, but they certainly know that it is overpriced at time of stress, which is sufficient to them to make a long-term shekel. All they need is to keep their mistakes small enough so they can survive them.

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