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Latticework Of Mental Models: Lucretius Problem

It was a Friday on March 11, 2011 when a massive earthquake with an intensity of 9 on Richter scale hit off the coast of Japan at 2:26 pm local time. The epicenter of the quake was 70 kilometer east of the Oshika Peninsula of Tōhoku.

The earthquake triggered powerful tsunami waves that reached heights of up to 40 meters. It took 50 minutes for the largest wave in the tsunami to arrive at the shores of Fukushima. What followed was something totally unimaginable and unexpected for those who take pride in taming the mother nature.

The Fukushima Daiichi nuclear power plant had six separate boiling water reactors, protected by a 10-meter-high seawall to prevent sea waves from entering the plant.

When the tsunami struck the Fukushima coastline, the gigantic waves easily overtopped the plant’s seawall. It took seconds to flood the basements of the turbine buildings and disabling the emergency diesel generators. Soon the backup generator building was also flooded. This resulted in an explosion and leakage of radioactive material to the sea water and created a huge nuclear hazard.

Why would the engineers and designers of Fukushima nuclear power plant build a wall only 10-meter high? What made them believe that the waves can’t breach the 10-meter height? [Read more…]

Safal Niveshak Stream – December 17, 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 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.

    [Read more…]

Latticework Of Mental Models: Chauffeur knowledge

Charlie Munger, in one of his talks, tells the story of famous scientist Max Planck –

I frequently tell the apocryphal story about how Max Planck, after he won the Nobel Prize, went around Germany giving a same standard lecture on the new quantum mechanics. Over time, his chauffeur memorized the lecture and said, “Would you mind, Professor Planck, because it’s so boring to stay in our routine, if I gave the lecture in Munich and you just sat in front wearing my chauffeur’s hat?” Planck said, “Why not?” And the chauffeur got up and gave this long lecture on quantum mechanics. After which a physics professor stood up and asked a perfectly ghastly question. The speaker said, “Well, I’m surprised that in an advanced city like Munich I get such an elementary question. I’m going to ask my chauffeur to reply.

Well, the reason I tell that story is not to celebrate the quick wittedness of the protagonist. In this world I think we have two kinds of knowledge: One is Planck knowledge, that of the people who really know. They’ve paid the dues, they have the aptitude. Then we’ve got chauffeur knowledge. They have learned to prattle the talk. They may have a big head of hair. They often have fine timbre in their voices. They make a big impression. But in the end what they’ve got is chauffeur knowledge masquerading as real knowledge. I think I’ve just described practically every politician in the United States. You’re going to have the problem in your life of getting as much responsibility as you can into the people with the Planck knowledge and away from the people who have the chauffeur knowledge.

On a lighter note the chauffeur had some Planck knowledge of his own, being clever enough to turn that question around!

But in the real world, it is critical to distinguish when someone is “Max Planck,” and when he’s just the “Chauffeur.”

Building Planck knowledge takes deep commitment and large amount of time and effort. Chauffeur knowledge comes from people who have learned to put on a show. Their talks sound impressive and entertaining, they have good voice and may even ooze great charisma but their knowledge is not their own.

[Read more…]

Investing and the Power of Serendipity

In July 2003 I was fresh out of college and was waiting to join my first job. I was excited but a little anxious too. The thought of transitioning from a laid back college life to a hectic corporate job was giving me jitters.

The life in college was quite predictable. The syllabus was fixed. If I studied the textbooks diligently and attended all the classes, I was supposed to graduate in four years with predictable grades.

But in the job, I had no clue what to expect. I didn’t know how my first boss would behave. Although there weren’t going to be any exams or pop quizzes in the job, there was no set curriculum either. It was a different flavour of uncertainty out there which I hadn’t tasted before.

So, to make the best use of my vacation before the corporate grill started, I thought of meeting someone who was successful in this field. I decided to meet the president of small scale industries association in my hometown.

“Uncle, I am about to join my first job in a chemical industry. What should I do to make the best use of my time in my job?” I asked him.

“Always keep your eyes and ears open. Opportunity can come from any direction. Be ready to grab it and work hard to capitalize on it,” he said. We spoke for about half an hour but these are the only three sentences that I still remember.

At that time, those words didn’t make much sense to me. However, after spending 10 years working in different jobs, I began to realize the importance of uncle’s advice.

[Read more…]

Safal Niveshak Stream – December 10, 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 article’s title.



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

Life/Learning

  • (740 words / 3 minutes read) Perseverance and determination are good qualities when the objective you’re working so hard to achieve is actually attainable. But there is a lot in life you just can’t change, like trying to change the world, so you must quit wasting your time trying…

    It’s nice and inspirational and all to think one person could actually change the world, but some things are just bigger than all of us. You can definitely make a difference in the world around you — that’s not a problem. Just watch that you’re keeping your expectations of the impact you can actually have in check.

    [Read more…]