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You are here: Home / 2020 / Archives for May 2020

Archives for May 2020

Why We’re Ignorant of Our Own Ignorance

Here is some stuff I am reading and thinking about this weekend…

Idea I’m Thinking – Dunning Kruger Effect
One day in 1995, a large, heavy middle-aged man robbed two banks in the American city of Pittsburgh. He did it in broad daylight, without wearing a mask or any sort of disguise. And he smiled at surveillance cameras before walking out of each bank. Later that night, police arrested a surprised McArthur Wheeler. When they showed him the surveillance tapes, Wheeler stared in disbelief. “But I wore the juice,” he mumbled. Apparently, Wheeler thought that rubbing lemon juice on his skin would render him invisible to videotape cameras. After all, lemon juice is used as invisible ink so, as long as he didn’t come near a heat source, he should have been completely invisible.

[Read more…] about Why We’re Ignorant of Our Own Ignorance

Give Your Investment Ideas Some Legs

Ever since I started writing for Safal Niveshak, I always wondered where does Vishal get his ideas for writing.

“Write more, write every day,” Vishal often recommends.

However, one of the most important (and often ignored) aspects of mastering any skill is tacit knowledge. Tacit knowledge is the knowledge that can’t properly be transmitted via verbal or written instruction.

In a master-apprentice relationship, more is caught than taught. This means a lot more can be learned by observing what good writers do because they may not explicitly verbalize when they’re asked to explain their craft.

[Read more…] about Give Your Investment Ideas Some Legs

Make-Lose Vs Lose-Make

Here are the best things I read and thought about today –

  • Nassim Taleb, out of my journal, explains the concept of path dependence, which is the dependence of outcomes on the path of previous outcomes, rather than simply on current conditions –

    Ironing your shirts then putting them in the washing machine produces a different outcome from washing your shirts first, then ironing them.

    The reader can either trust me on this, or try the experiment with both sequences on the next Sunday afternoon. Now, assume that your capital is around one million dollars and you are involved in speculation. Apply path dependence to the reasoning.

    Making a million dollars first, then losing it, is markedly different from losing a million dollars first then making it.

    [Read more…] about Make-Lose Vs Lose-Make

The Riskiest Moment in Investing

Here are the best things I read and thought about today –

  • Peter Bernstein is one of my favourite authors when it comes to the idea of ‘risk’. He was a financial historian and had been in the investment world since the 1950s. He is the author of “Capital Ideas” and “Against the Gods,” the second being a super-text that everyone wanting to understand about financial risk and its history must read.
     
    One of the best interviews I have read of him is the one with Jason Zweig that I came across recently (I first read it long time back), and read through it entirely. It contains some brilliant insights on investing, risk, and decision making. Here is the part I liked the best where Bernstein said that “the riskiest moment in investing is when you’re right.”

    [Read more…] about The Riskiest Moment in Investing

The Man in the Arena

Once upon a time, when I worked as an equity research analyst, I used to meet company managers as part of my research process.

I “grilled” them with my questions and cross-questions, doubted and criticized them, liked those performing well and condemned those that didn’t.

Looking back, I reflect on those times with some wisdom that comes with middle age, and I know that there were things I would have done a bit differently, knowing what I know now about the idea of…empathy.

Empathy is the ability to understand and share the feelings of another. It is the ability to put yourself in another person’s shoes and understand with depth the gravity of their situation.

In general, I believe the world and investors needs more empathy.

[Read more…] about The Man in the Arena

The Fastest Path to a Better Life

Here is some stuff I am reading and thinking about this weekend…

Book I’m Reading – On the Shortness of Life
This is one book that stays by my bedside. In this, Seneca, the Stoic philosopher and playwright, offers us an urgent reminder on the non-renewability of our most important resource: our time. It is a required reading for anyone who wishes to live to their full potential, and it is a manifesto on how to get back control of your life and live it to the fullest.

Here are a few passages from the book that serve as great reminders on, well, the shortness of life –

[Read more…] about The Fastest Path to a Better Life

The Hedonic Treadmill

Here are the best things I read and thought about today –

  • Bloomberg carries this nice piece (Tip: If your Bloomberg free articles limit is over, you may try opening this article in an incognito browser) from Nir Kaissar and Barry Ritholtz, where the authors write to answer this question – How do you get rich? By earning a lot or saving a lot?
     
    Here is Barry’s point of view on the subject of “frugality” –

    I am not, nor have I ever been, a fan of “sustained and disciplined frugality.” With that said, here’s what to keep in mind:

    1. Focus on the big things; the little things will take care of themselves
    2. We all only have so much internal discipline, a consequence of limited mental bandwidth. Don’t fritter it away on things that don’t matter very much.
    3. Spending should always be a function of what you can afford, not a slavish devotion to some puritan ideal.
    4. Money can bring security, comfort and happiness, but beyond a certain point returns on having more of it diminish rapidly.
    5. Experiences tend to beat material goods in terms of money well spent.

    First, the big things: Your education, your career choice, your work ethic, who you marry, who you work with, your skill set, your compensation, your health, your outlook, how you think about the world and the commitment you make to yourself about continually learning and improving. Get those right, and those $5 lattes become pretty irrelevant.

    [Read more…] about The Hedonic Treadmill

An Unexamined Life

Despite being imaginary, some stories shake you up. They are unsettling because you wonder — what if this story is about me?

This is one such story.

The local goons were causing a nuisance for a shopkeeper. They would spray-paint abusive and derogatory graffiti all over his store window.

So the shopkeeper hatched a plan. The next day, he waited until the goons finished their dirty work and then he paid them Rs 1000 to thank them for their effort. The following day, he thanked them again but only paid Rs 500 this time. He continued to pay them to deface his property but the amount kept decreasing. Soon they were getting only Rs 10.

They stopped coming. Why bother doing all that work to abuse the shopkeeper for so little money?

[Read more…] about An Unexamined Life

All That Matters

Here are the best things I read and thought about today –

  • Morgan Housel continues to amaze, and here is his latest post on the three sides of risk. In the post, Morgan takes us 20 years back to his late teens and shares a tragic skiing incident that took away the lives of two of his best friends and ski partners, and how he survived by way of a fluke decision he had put no thought into.
     
    Talking about how that incident changed Morgan’s life, he writes –

    My risk tolerance plunged after Brendan and Bryan died. I broke my back skiing (no nerve damage) a few months later, which crushed it even more. I haven’t skied much since. Maybe ten times in the last 19 years. If I’m honest, it scares me.

    [Read more…] about All That Matters

Are You Betting on a V-Shaped Recovery in Stock Market?

Here are the best things I read and thought about today –

  • “Have the record number of investors in the stock market lost their minds?” asks The New Yorker, given how investors appear persuaded that the markets are headed for a “V”-shaped recovery even as history suggests a more complicated story –

    Stocks don’t always rebound in a “V” shape. During the last lengthy bear market, which accompanied the Great Recession, stocks prices started falling in September, 2007, and didn’t bottom out until February, 2009, seventeen months later. During the Great Depression, in the nineteen-thirties, the bear market lasted even longer. It began with the Wall Street crash of October, 1929, and lasted until the middle of 1932; by then, the market was down about eighty per cent from its pre-crash peak. Stocks didn’t hit new highs until the nineteen-fifties.

    [Read more…] about Are You Betting on a V-Shaped Recovery in Stock Market?

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