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Archives for September 2016

My Lecture on Mental Models

I recently delivered a lecture on Mental Models and how financial advisors and other business owners can use them to grow their businesses. It was to a group of 200+ advisors at a session organized by my friend Sadique Neelgund of NetworkFP.


Talking to advisors always makes me nervous (as you can see in the picture above), largely because my work at Safal Niveshak is all about helping people learn to manage money on their own, thus avoiding the need of advisors. 😉

By the way, in case you haven’t checked out our latest ebook – Mental Models, Investing, and You (2,000+ people have already got their hands to it) please click here to get it now.

Safal Niveshak Stream – September 28, 2016

Some interesting stuff that would be worth your time today …

Investing/Stock Market

  • Shareholder value can’t be pursued. Like happiness, it must ensue, argues Roger L. Martin in his article in HBR

    …pursuit of shareholder value maximization does a crummy job of maximizing shareholder value. The reason is that it cannot be pursued directly. Shareholder value only grows when other things – like making customers happy, creating a create environment for employees, being a great corporate citizen – happen. As Aristotle once opined: if you seek happiness, you probably won’t end up happy; but if you seek to lead a worthy life, you are likely to end up happy. Shareholder value and happiness are counterproductive to pursue directly; rather they will happen when other things are pursued.

  • When to fire your financial adviser

    ..unlike the pizza with everything on it, a portfolio with everything on it is just expensive without giving you a return kicker…Ask for the details of what is sold and what is bought from your adviser. If you see funds being recommended for a ‘sell’ within 2 years of being put on the buy list, ask why. There could be a genuine reason—such as a fund house sale or the exit of a star fund manager —but it could be that the guy is churning you; maybe to win a junket his fund house is offering.

Reading/Thinking

  • John Medina’s Brain Rules for Baby is a must read for every parent. And even if you aren’t a parent, you’ll find quite a few remarkable insights in it. John uses Evolution, the big idea from the field of Biology, to explain why human beings have relatively shorter gestation period for their unborn offspring and a pretty long period of dependent childhood. He writes –

    It’s a question that bothers many evolutionary scientists: How come it takes so long to raise a human child? Aside from perhaps a whale or two, we have the longest childhood on the planet. Where did this decades-long sojourn come from, and why don’t other animals have to endure what we go through?

    Blame our big, fat, overweight, gold-plated, nothing-else-like-it brains. We evolved to have larger brains with higher IQs, which allowed us to move from leopard food to Masters of the Universe in 10 million very short years. We gained those brains through the energy savings of walking on two legs instead of four. But attaining the balance necessary to walk upright required the narrowing of the Homo sapiens pelvic canal. For females, that meant one thing: excruciatingly painful, often fatal births. An arms race quickly developed, evolutionary biologists theorized, between the width of the birth canal and the size of the brain. If the baby’s head were too small, the baby would die (without extraordinary and immediate medical intervention, premature infants won’t last five minutes). If the baby’s head were too big, the mother would die. The solution? Give birth to babies before their skulls become too big to kill mom. The consequence? Bringing kids into the world before their brains are fully developed. The result? Parenthood.

    Because the bun is forced to come out of the oven before it is done, the child needs instruction from veteran brains for years. Clearly, childhood is a vulnerable time. More than a decade passes between the birth of a baby and its ability to reproduce—an eternity compared with other species. This gap shows not only the depth of the brain’s developmental immaturity but also the evolutionary need for unflinchingly attentive parenting.

Business

  • India’s most important business group is socially responsible but financially disappointing

    Tata remains active in 100 different business lines, many of which are themselves diversified. Far from slimming down, Tata is eyeing still further expansion: defence, infrastructure and financial services are the latest targets…One former adviser to several Tata CEOs says that “the risk is that Tata uses its long-term emphasis and ethical way of doing business as an excuse to tolerate underperformance.”…Mr Mistry has shown some signs that he knows what needs to be done. For the moment, however, he appears dangerously content just to sit atop what has grown into an impressive but lumbering pachyderm.

  • Trying to predict the future is futile. However, imagining future as a spectrum of probabilistic outcomes can turn out to be an interesting thought experiment. Today India is leaning on the edge of massive technological disruption. Here’s a stimulating discussion on what could unfold, not as a prophecy but as an alternative view of the future, over next few decades in Indian economy as a result of this disruption.

    Fortunately, I was in the audience when the talk was being delivered. It was a pleasant surprise to find this on youtube and I just couldn’t help sharing it.

Life/Learning

  • William Zinsser, in his book On Writing Well, sites the World War II incident when the government drafted the order for blackout. The 1942 memo read –

    Such preparations shall be made as will completely obscure all Federal buildings and non-Federal buildings occupied by the Federal government during an air raid for any period of time from visibility by reason of internal or external illumination.

    President Franklin Roosevelt saw the memo and said, “Tell them that in buildings where they have to keep the work going to put something across the windows.”

    “Simplify, simplify.” Thoreau said it and Roosevelt practiced it. Clear thinking becomes clear writing. Journaling is an effective way to crystallize thinking but it too demands simplicity.

  • A science-backed guide to taking truly restful breaks.

    Psychologists and business scholars have recently started studying the most effective ways to relax during a workday – they call them “micro breaks”…[But] Cognitive activities during work breaks actually made fatigue worse, likely because reading websites or checking emails taxes many of the same mental processes that we use when we’re working.

    Pomodoro technique is very effective in this context. It essentially allows you to work in bursts of 25-30 minutes followed by 5 minutes of break.

    There’s a work zeitgeist today that says you have to be constantly busy to succeed. If you’ve got time to go for a short walk, you’re obviously not consumed by drive and ambition, so the mistaken ethos goes. The psychological reality is that your mental and physical reserves are limited and it is only by taking frequent short breaks of a truly restful nature that you will fulfil your true potential.

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Safal Niveshak Stream – September 27, 2016

Some interesting stuff we read this morning…

Investing/Stock Market

  • John Huber’s comments on value investing are very useful for every investor. In his recent blog post he writes about two important items that every investor should have in his checklist. One of them being the risk of getting tempted to low probability events…

    I read investment pitches all the time that discuss the probability of various outcomes. This makes sense—Buffett himself has talked about assigning probabilities to various outcomes of an investment. And certain odds might tell you that even a low probability event can be a very good bet to take. For example, a bet that has a 25% chance of winning and pays out 10 to 1 is a very good bet. It is a low probability bet that has positive expectancy, and it’s a bet you should take every time…In my experience, it’s better to forego the low-probability investment ideas. They are too difficult to accurately judge, and they usually involve bad (or highly leveraged) businesses.

  • Phoney Buffett-style value-investing is dangerous, warns John Hempton in his recent blog post. He writes –

I still admire Buffett’s portfolio management more than I can say. He really is astonishingly good at what I have chosen to do for a living.

But I can’t emulate Buffett and nor can anyone else I know. And if someone uses his name to describe their investment philosophy my (likely accurate) presumption is that they are a phoney.

  • When the money is gone – After a stock analyst lost $1 million on one penny stock, he set off to find out how — and soon discovered signs of a far bigger scheme than he had ever imagined…

    …it left DiIorio helpless when the stock plummeted from $3.50 to $0.06 a share within two months.

    [Read more…]

Safal Niveshak Stream – September 26, 2016

Some nice stuff we read at the start of this new week…

Investing/Stock Market

  • Stop craving excitement in the stock market! Jason Zweig writes in WSJ how a bored investor is a dangerous thing

    …this is a good time for investors to remind themselves that an idle mind is the devil’s workshop.

    Scientifically speaking, boredom is a mildly unpleasant state of mind usually triggered by a monotonous environment. Experiments have shown that it can increase your heart rate and raise your levels of cortisol, a hormone associated with stress…

    Fixating on a dull market can leave you restlessly craving excitement that just isn’t there. A bored investor is probably more likely to succumb to the whims of other bored investors moving in a herd…All of this is true for professional as well as individual investors.

    [Read more…]

Mental Models, Investing, and You (Special E-Book)

The world around us is changing pretty fast. Modern computers are becoming cheaper, faster and more intelligent than ever, which means they are ready to replace a large part of human workforce.

The day is not far when your work and skills will be threatened by artificial intelligence. To stay relevant, you need to ensure that you remain valuable to the society in a way which can’t be substituted by a robot.

And your only chance to remain valuable is by being a constant learner…a learning machine, as Charlie Munger says. In fact, he has been saying this for years –

I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.

The question is where do you begin? There is so much to learn all around, and so little time.

[Read more…]

Avoid Newspapers, Read Safal Niveshak’s Stream

“I do not take a single newspaper, nor read one a month, and I feel myself infinitely happier for it. The man who reads nothing at all is better informed than the man who reads nothing but newspapers.” ~ Thomas Jefferson

Long time readers of Safal Niveshak and attendees to my investing workshops know my dislike for reading newspapers. The dislike is so deep that I’ve not had a newspaper subscription at my home for the past six years now, and neither do I consume news via electronic media (till something really important comes to me). This also holds true of business television which I watch very occasionally and only when I want to get a hearty laugh and there’s nothing else that’s as funny on television at that time.

Now, one big reason I do not read newspapers is because I have a big problem with the fact that they decide for us what we should pay attention to and what we should ignore. It isn’t just the text of a news story that can mislead us; it’s also the choice of which stories get covered at all, and where they’re placed in the paper.

[Read more…]

Safal Niveshak Stream – September 24, 2016

Some great stuff we read at the start of this weekend…

Reading/Thinking

  • What books would you recommend someone reads to improve his/her general knowledge of the world? Well, here’s a list in case you are searching for one.
  • A glance at the library of Marc Andreessen, where some of Silicon Valley’s secrets are hiding…

    I finally talked to Andreessen, and I asked him about the book collection. He said he didn’t like the lobbies at other VC firms. They looked like “monuments to themselves” filled with “tombstones”—framed IPO prospectus covers and Lucite statues that investment bankers give out when you sell a startup. “It felt like visiting the lobby of an insurance company—instead of somebody you would presumably really want to talk to,” he says. So he filled his own lobby with books. He spent three nights sorting the titles for maximum effect. Programming books on one set of shelves, Hollywood books on another, business books on a third, and so on.

  • A nice infographic on learning how to learn.
  • Why one should read history. Excerpt from Yuval Harari’s Homo Deus

Business

  • Avoid that white poison! How the sugar industry shifted blame to fat, and how it has distorted health science for more than 50 years…

    …Big Sugar may have done more than just advocate for favorable policies. Going back more than 50 years, the industry has been distorting scientific research by dictating what questions get asked about sugar, particularly questions around sugar’s role in promoting heart disease.

  • The rise of the superstars: A small group of giant companies are once again dominating the global economy. Is that a good or a bad thing?
  • Your job may be at risk in the next Industrial Revolution. An interview with Ryan Avent about how technology will change the labor force.

Life

  • A wonderful TED video on how to raise successful kids, without over-parenting

    I guess what I’m saying is, we spend a lot of time being very concerned about parents who aren’t involved enough in the lives of their kids and their education or their upbringing, and rightly so. But at the other end of the spectrum, there’s a lot of harm going on there as well, where parents feel a kid can’t be successful unless the parent is protecting and preventing at every turn and hovering over every happening, and micromanaging every moment, and steering their kid towards some small subset of colleges and careers.

    When we raise kids this way, and I’ll say we, because Lord knows, in raising my two teenagers, I’ve had these tendencies myself, our kids end up leading a kind of checklisted childhood.

  • The Paralympic Games silver medal winner Deepa Malik’s 12-point life strategy can change your life too…

    “Your lows should be a jumpstart,” she says. A way to prepare for the highs. She says she uses the lows as a way to understand her shortcomings. “The purpose of sadness is not to demoralize yourself but to evaluate where you are lacking so you can bounce back,” she says.

Miscellaneous

  • A conversation with Shel Kaphan, Amazon’s first employee

    One thing that the Amazon experience taught me is try to imagine what a project or company would be like if it was more successful than you could ever possibly imagine. It’s very unlikely but it’s possible. You have to think about what the environment will be like if that happens, and how the people involved in it might change. When I was joining Jeff to form Amazon in the beginning, I didn’t even allow myself to go there. I’d worked for a lot of startups so it almost felt like a jinx to think too much about what might happen if it really succeeded in a big way. That was my mentality. I was like, I hope this makes it and is a moderate success. Maybe it even generates enough cash to let us retire at some point. You don’t really want to think about massive success beyond what you can imagine. Then, if it is successful, you have to start thinking, what’s my role in enabling this? Is that something I really want to be doing?

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Safal Niveshak Stream – September 23, 2016

Some nice stuff we read this morning…

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