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Latticework Of Mental Models: Hyperbolic Discounting

Last year when I quit my job to join Vishal at Safal Niveshak, I had to surrender my laptop to my earlier employer, and buy a new one for myself. This got me started on the herculean task of selecting from thousands of choices available on numerous e-commerce websites.

After weeks of an excruciating process of comparing, shortlisting, and researching, I finally zeroed in on my final choice. Then started the wait for online discounts.

Very soon, the so-called online-sale-season arrived which offered a ‘whopping’ Rs. 100 discount on my selection. So much for the patience! But for a self-proclaimed prudent consumer, it still was a good deal.

What happened next is pretty much the story of every online shopper. Just when I was about to place the order, I saw the option of same-day delivery for an additional Rs 100. Guess what I did? Yours truly didn’t hesitate for a moment to take the offer.

Ironically, I waited for a week for a small discount but when the time came for buying I couldn’t wait another day and forked out extra money just to get my toy immediately. What happened to my admirable qualities of patience and prudence?

A little research on Google revealed that the introduction of get-it-now temptation in the deal caused me to behave irrationally. The symptom of this behavioural bias goes something like this.

When I have agreed to wait for six days, I don’t mind waiting for one more day. Well, if I can wait for six, goes the rationale, waiting for seven shouldn’t be a big deal!

But when I am told that I can get something today instead of tomorrow, my temptation refuses to wait for another day.

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The 38th Lesson

On a warm Sunday morning in early-April this year, I got up with some pain in the little finger of my left hand. It was a small bump. It wasn’t there when I slept the previous night, so it seemed to have appeared out of nowhere.

“You may have hurt your finger while sleeping,” said my wife.

“But there’s no sign of a cut or bleeding!” I told her. “What could be this?”

“It happens sometimes,” she tried to soothe my nerves.

Anyways, a week passed, and then two, and that bump got slightly bigger. It was a bit painful earlier, then more, and then the pain gradually reduced. But the redness and the bump remained.

Over the next two months, I saw around five different doctors, and all asked me to wait and watch and do nothing. I thought none of these doctors knew anything about this bump because each one had named it differently. And that is when I did something I now realize was one of the biggest mistakes I’ve ever made in my life.

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Short Investing Lesson from a Confused Donkey

Buridan's donkey

I was listening to Tim Ferriss’s recent podcast where he interviewed Derek Sivers. In a response to the question “What advice you would give to your 20-year-old self?”, Sivers told the story of Buridan’s donkey. It’s a tale about a donkey that’s standing exactly halfway between a bucket of water and a pile of hay. […]

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Safal Niveshak Stream – December 3, 2016

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 […]

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Latticework of Mental Models: Illusion Of Control

Illusion of Control

Every day, shortly before nine o’clock in the morning, a man with a red hat stands at a busy traffic light and begins to wave his cap frantically. After five minutes he disappears. One day, a policeman comes up to him and asks: “Sir! May I ask what you are doing?” “I’m keeping the giraffes […]

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Of Falling Stock Markets and Shutting Brains

In one of the old interviews of Mohnish Pabrai of Pabrai Funds, he described the root cause of a common, but difficult to overcome, inefficiency in share prices – Our brains are in sync with the speed at which the market is moving and totally out of sync with the speed at which a business […]

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Book Review: Investing Between The Lines

Investing between the lines

Note: This book review was originally published in the May 2016 edition of our premium newsletter Value Investing Almanack. To know more and subscribe, please click here. When an investor starts investigating a business, the first thing he wants to know is if the business is strong and profitable? And he can usually find the […]

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Safal Niveshak Stream – November 26, 2016

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 […]

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