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Safal Niveshak Stream – November 9, 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 during the middle of this week…

Investing/Stock Market

  • (1700 words/7 minutes read): It’s said that there’s very little we can learn from successes for studying successful people is fraught with survivorship bias. However, one shouldn’t outrightly reject the idea of looking at methods of successful because it does have some value. John Huber in his latest post on the competitive advantage of an owner-operator writes –

    …the risk of succumbing to survivorship bias is a risk worth taking. I’d rather risk that bias in exchange for the reward of potentially learning something useful from these success stories…They key is trying to reverse engineer their success while simultaneously being aware of the inherent bias can occur when analyzing these situations…. So it’s good to be aware of bias (hindsight, survivorship, etc…), but it’s not worth letting those biases restrict you from trying to learn why something or someone became so successful.

  • (3 minutes watch): Here’s the next episode of Latticework Video Series. In this video we explain a very important mental model from the field of Statistics, called Mean Reversion, and what investing lessons one can draw from this big idea. Click here to watch the video.

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Reading/Thinking

  • (800 words/3 minutes read): Shradha Sharma, of YourStory, recently penned a very relevant and timely article about how we shouldn’t be in a hurry to form an opinion.

    …we are turning into a generation of people with an opinion on just about anything and everything. Social media has given us a voice. And yet, as millions of voices speak out, staying neutral, let alone silent and reflecting, no longer seems to be an option. The lack of a stand that is one of two (or multiple) options is construed as lack of courage, and in some cases, lack of strength of character!…is it important to pick a side instantly? Why can’t we sit back, relax, think, reflect and sometimes just not take a side? And feel comfortable with it.

  • (900 words/4 minutes read): There’s bad news everywhere, or so it seems. Pick up a newspaper, watch a news channel, or just talk to your neighbour, and you would find it everywhere. Read what all this bad news is doing to us

    …it’s important to state what a steady diet of bad news won’t do. It won’t give you PTSD, anxiety, or depression if you weren’t predisposed toward those conditions, McNaughton-Cassill said. Causation is tricky here: It may simply be that depressed or anxious people are more likely to seek out bad news, and bad news could in turn worsen the effects of these conditions in certain ways.

    But those of us without mental illness could be affected in different, subtler ways that could have a major long-term impact. “When I’ve done studies and people watch coverage of, say, 9/11, they don’t then meet criteria for depression in the DSM,” she said. “But if you ask them how they feel about the world, what they end up with is this malaise: ‘Everything’s kinda bad’ and ‘Why should I vote? It’s not gonna help’ and ‘I could donate money, but there’s just gonna be another kid who’s starving next week.’”

Business

  • (137 words/1 minute read): Many insights from the field of Biology, especially the Theory of Evolution, have direct implications in business and investing. Here’s one such mental model that Yuval Harari discusses in his book Sapiens

    Biologists classify organisms into species. Animals are said to belong to the same species if they tend to mate with each other, giving birth to fertile offspring. Horses and donkeys have a recent common ancestor and share many physical traits. But they show little sexual interest in one another. They will mate if induced to do so – but their offspring, called mules, are sterile. Mutations in donkey DNA can therefore never cross over to horses, or vice versa. The two types of animals are consequently considered two distinct species, moving along separate evolutionary paths. By contrast, a bulldog and a spaniel may look very different, but they are members of same species, sharing the same DNA pool. They will happily mate and their puppies will grow up to pair off with other dogs and produce more puppies.

    There is a great analogy between this idea from evolutionary biology and business world. When two companies with different culture and values merge, they end up creating a sterile offspring i.e. an entity which fails to create value for the shareholder.

    Warren Buffett’s Berkshire Hathaway is brilliant example of how this evolutionary insight can be exploited to create a stronger business. Buffett chooses only those companies which meet his criteria of business quality and management culture. He knows that the future prospects (offspring) of the merged entity will solely depend on the DNA match between Berkshire’s culture and the culture of the company being acquired.

  • (10 minutes watch): Jeff Bezos shares his management style and philosophy. One of the things that caught my attention was Bezos principle of “Being Right”. He says, great leaders are right about their decision very often. And the key to being right is – listening a lot, being ready to change your mind, and actively seeking disconfirming evidence for your strongly held beliefs. He says –

    Anyone who isn’t changing his mind a lot is dramatically underestimating the complexity of the world we live in.

    Click here to watch the video.

Life/Learning

  • (2200 words/10 minutes read): Research now shows that the lack of natural talent is irrelevant to great success. The secret? Painful and demanding practice and hard work. Geoffrey Colvin’s decade old article, What it takes to be great, is still relevant and holds the key to become master in any skill.

    Through the whole process, one of your goals is to build what the researchers call “mental models of your business” – pictures of how the elements fit together and influence one another. The more you work on it, the larger your mental models will become and the better your performance will grow.

    Andy Grove could keep a model of a whole world-changing technology industry in his head and adapt Intel (Charts) as needed. Bill Gates, Microsoft’s (Charts) founder, had the same knack: He could see at the dawn of the PC that his goal of a computer on every desk was realistic and would create an unimaginably large market. John D. Rockefeller, too, saw ahead when the world-changing new industry was oil. Napoleon was perhaps the greatest ever. He could not only hold all the elements of a vast battle in his mind but, more important, could also respond quickly when they shifted in unexpected ways.

    That’s a lot to focus on for the benefits of deliberate practice – and worthless without one more requirement: Do it regularly, not sporadically.

  • (1000 words/4 minutes read): “I read, because there’s so much more to the world than my corner of it,” writes Jon Westenberg, “If I never tried to find it, I’d be limiting myself.” If you are going through a low motivation phase and don’t feel like reading anything, then this article will give you the much needed boost to get back on track with your reading habit. Jon’s honesty is quite remarkable –

    …here’s my advice. If you want to accomplish anything of value, challenge yourself to read. And I don’t mean just read my blog posts — if you have the choice between reading something by me and reading a good book like Life After God, by Douglas Coupland, go for the book.

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About the Author

Anshul Khare worked for 12+ years as a Software Architect. He is an avid learner in various disciplines like psychology, philosophy, and spirituality with special interests in human behaviour and value investing. You can connect with Anshul on Twitter.

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