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.
Some nice stuff we are reading, listening, and observing at the start of this weekend…
Investing
- (1700 words / 7 minutes read) Could one person’s speculation be another person’s investment? The case study presented in this article titled The Risk of Backing into a Speculative Position illustrates the idea that investment and speculation are linked to an investor’s intent rather than the characteristic of stock he or she is buying.
Let’s assume that the investor and the speculator purchased the exact same security at the same time and then subsequently sold at the same time. Obviously, the returns that both of them will experience are identical, but it is still useful to differentiate between investment and speculation. This is because over long periods of time, process is important and will eventually dominate results. The effect of a good process on any individual investment may not be clear but, over time, a good investment process should generate good long term results.
It is important to make a clear distinction between investing and speculating and to classify one’s activities appropriately. The possibility of major losses exists when someone who believes that he is investing is actually speculating instead. There is nothing illegal or immoral about speculating but such activities really do need to be segregated from investing in our minds to avoid trouble.
- (5100 words / 22 minutes read) Bad side of a good idea is brilliantly insightful and very thought provoking report from Morgan Housel. He observes that a new trend is beginning to emerge where perverse incentives of current financial system are driving the entrepreneurs to stay away from public equity and keep their ventures private. If you take this trend to its logical conclusion, it’s not a good news for small investors. Housel explores why fewer companies are going public, why it’s a problem, and what we can do about it. It’s a long 18-page article but worth your time.
Business
- (840 words / 3 minutes read) Since the advent of Internet, the value is steadily moving away from the creators of content and towards the platforms that facilitate the content, i.e. Google and Facebook. The NYT article argues that the traditional monopolies of AT&T and Time Warners of the world are fading. It’s the monopoly of Google, Apple, Facebook, and Amazon (The GAFA) that one needs to worry about.
Every pirated music video or song posted on YouTube or Facebook robs the creators of income, and YouTube in particular is dominated by unlicensed content. Google’s YouTube has an over 55 percent market share in the streaming audio business and yet provides less than 11 percent of the streaming audio revenues to the content owners and creators. But Facebook, which refuses to enter into any licensing agreement on music or video, is challenging YouTube in the free online video and music world.
- (1850 words / 8 minutes read) Simon Marks, of Marks & Spencer, and Sam Walton, of Walmart, built their businesses in an extremely competitive industry i.e. retail. The most important trait behind their successes was a fanatic importance to customer service. They were intelligent fanatics who turned a commoditized industry into profitable businesses with strong moats. Sean Iddings, in his latest post on Intelligent Fanatic project, profiles Waldbaum’s stores which clearly underscores the importance of an intelligent fanatic in a competitive industry.
The business skill of both Ira and Julia Waldbaum created a consumer franchise in the minds of NYC and New England customers. The trust those intelligent fanatics built with consumers dissolved as A&P took over Waldbaum’s. Had the Waldbaum family kept control of the business or sold to a long-term owner like Berkshire Hathaway, Waldbaum’s stores might still be in existence operating well today. We will never know. But it is for certain that poor leadership can lead to a brand’s demise.
The wrong type of owners and leaders can destroy a business. The great organizations can sustain success. It makes sense why quality, successful private businesses are adamant about selling or going public. Their business is likely to suffer.
Learning/ Life 2.0
- (148 words / 30 seconds read) Marcus Aurelius said, “And how trivial the things we want so passionately are.” In fact, getting everything you ever wanted may actually become the biggest curse. Aurelius, Seneca and Epictetus are known as the founding fathers of Stoicism. Much of Stoicism has to do with reacting to what comes at us with equanimity and poise. Dailystoic is a wonderful place to start learning about stoicism and how to use it practically in life to overcome challenges. Here’s an excerpt from the latest note –
There’s an old joke: When the Gods wish to punish us, they give us exactly what we’ve always wanted. Ask yourself what you’re after: Fame? Wealth? The perfect man or woman? Now imagine yourself when you get it. What comes next? The problem, for most of us, lies in the belief that what we want will fill the void. It won’t. There are plenty of miserable rich people, sad and lonely models, self-pitying celebrities and bored titans of industry. They wanted trivial things—and they got them. Now all they can ask is, “Now what?” and “This is it? …this is important: Quelling and quieting that voice in your head that becomes seduced by the latest fashions or fads or must-have riches. You don’t need them. More than that, you don’t actually want them. And if you need a reminder of that—just look at the people who have them.
- (226 words / 1 minute read) Whatever you do in the morning sets the tone of the day. So why not begin the day with a win, even if it’s a small one? Tim Ferriss, in his recent book Tools of Titans, suggests one deceivingly simple trick to register your first win for the day. Make your bed! Ferries writes –
If you make your bed every morning, you will have accomplished the first task of the day. It will give you a small sense of pride, and it will encourage you to do another task and another and another. By the end of the day, that one task completed will have turned into many tasks completed. Making your bed will also reinforce the fact that little things in life matter.
I don’t tuck in the sheets. I have a large blanket or duvet, and I’ll use that to cover the sheets, smoothing it out. Then, I place the pillows symmetrically underneath or on top of the blanket, and I’m done. That’s it. It’s very simple.”
No matter how shitty your day is, no matter how catastrophic it might become, you can make your bed. And that gives you the feeling, at least it gives me the feeling, even in a disastrous day, that I’ve held on to the cliff ledge by a fingernail and I haven’t fallen. There is at least one thing I’ve controlled, there is something that has maintained one hand on the driver’s wheel of life. At the end of the day, the last experience you have is coming back to something that you’ve accomplished. It’s hard for me to overstate how important this ritual has become, but number one: Make your bed.
Reading/Thinking
- (980 words / 4 minutes read) In most books, the important ideas and insights are usually unevenly distributed across the whole book. Which means, if your intention behind reading books is just to gain knowledge (and not care about its entertainment value) then there’s always some part of the book which doesn’t add as much value. Does it mean one should read just the book summaries? Scott Young, makes a case in favour of reading the whole book instead of books summaries. And his argument is quite convincing.
…the value of books comes not only from their ideas, which of course can often be gleaned from a summary, but from being a difficult mental task that requires focus and simultaneously guides deeper thinking…reading a hard book is more than just the ideas you obtain from it. Thinking about the book’s content while you read it is what matters. So a really long, good book on a topic will provoke much longer reflection and therefore have a much larger impact than a short summary or perhaps even many short summaries.
- (560 words / 2 minutes read) Should people have more than two kids? That’s an awkward question, isn’t it? Kevin Kelly, co-founder of Wired magazine, also known as the most interesting man in the world, in his interview with Tim Ferriss, presented very thought provoking arguments about why people should have more children.
…we’re going to have a population implosion globally. That the global population will drastically reduce in 100 years from now we’ll have population, far, far less than we have right now. If you look at the current trends in fertility rates in all the developed countries everywhere, except for the US, they are already either below replacement level. Replacement level means that you are just sustaining the population just replaces itself. If it’s below it means that there is getting less and less so Japan, Europe, they’re all below replacement… people would point to developing world, but Mexico is now aging faster than the US. China is aging faster because of their one child policy. Of course, Japan is completely…They are way under water completely. Even the one exception is Sub-Saharan Africa and there’s debate right now about how fast or whether they’re slowing down, but generally around the world, South America, the rest of Asia, the rate of fertility continues to drop…Even in places like Singapore or other places where they have taken very, very active countermeasures of cash for having kids, day care forever, bonuses, none of these work in terms of actually trying to raise fertility levels.
You have to understand that to go above replacement level the average woman has to have 2.1 kids. Well, that means there has to be tons and tons of women who have three or four kids to make up for those. How many people do you know with that many kids living in cities? There’s not enough of them. This is a projection. Some of these are UN projections. They have three. They have a low, high and medium. The low one is not good news because there’s not a large cultural counterforce for women to have three. A lot, a very high percentage of the population to have three or four kids in a modern world and that’s why the population continues to decrease every year.
I think people who are privileged of which you are, should have children because you can bestow so many privileges and opportunities to your children and if the world is to be populated, why not populate it with children who have as many opportunities as possible? Well, I have three kids. One of my other regrets in life is not having a fourth..I would say that it’s a gift to your kids to have more than one. I know that from hanging out in China where so many kids grew up only children and really, really missed that. There is a total gift of the siblings, the brothers to each other, that is really very profound.
There is also I know from my friends who have had lots of kids that there is a fair amount of teaching from the older to the younger and that’s a lot of what they learn and that the curve of the amount of energy that you have to expend actually after three doesn’t really matter in terms of the parents. I have one friend who has nine kids and I have another friend who has seven and basically, how do they do that? The older kids were helping to parent the younger kids. That’s the only way that it really works, but that is actually, basically they have five parents instead of having two parents.
The podcast interview is a long one (1 hour 47 minutes), but it’s well worth your time. Maybe you could listen to it while commuting to office. I can’t think of a better way to spend the traffic hour.
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