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…
- HBO documentary “Becoming Warren Buffett”…is a documentary about the world’s most famous investor. It was made with the cooperation of Buffett and his family, deals with Buffett the businessman and investor, but it’s Buffett the man and his complicated, and often difficult, relationships with the people he loved most that are the film’s real subject.
…what makes “Becoming Warren Buffett” far more interesting than a simple hagiography is the exploration of Buffett’s personal life, and, in particular, his relationship with his first wife, Susan, who died in 2004. Personal relationships were not something that Buffett navigated naturally. At one point in the movie, he says, “I don’t have a mind that relates to the physical universe very well,” and the same seems to have been true of the emotional universe. Buffett, by his own description, was socially awkward as a kid (he attributes much of his later success to taking a Dale Carnegie public-speaking course as a young man), and the film is a portrait of a person for whom financial questions “are easy,” as Buffett says. “It’s the human problems that are the tough ones.”
- Life is rife with risks. Misperceiving and underestimating these risks can lead to vital mistakes. Therefore, to make well-informed decisions, we need to become comfortable with uncertainty.
The world is complex, and uncertainty is guaranteed. However, multiple factors can make things seem more certain than they actually are. We need to identify and fight against these false markers, even when it makes us uncomfortable.
…Our experience teaches us how to live with the uncertainties of frequently occurring events such as daily variations in the weather or the stock market. But we get anxious about uncertainties when the events are rare and the stakes are high: That’s why most of us panic in the face of a medical mystery, environmental disaster, financial crisis, or a presidential election. It’s also why we prefer leaders and authority figures who pretend to know exactly what to do all the time instead of acknowledging ambiguity.
- When shareholders aren’t watching, what do managers do?
Corporate managements may feel besieged by the growing trend of institutional investors, but those powerful critics likely don’t have enough time to closely monitor all the companies they invest in, let alone every listed company. So while institutional investors are busy making demands on some companies’ management, what’s occurring at the neglected companies?
Chicago Booth’s Elisabeth Kempf, along with Bocconi University’s Alberto Manconi and Tilburg University’s Oliver G. Spalt, examines the economic impact of an environment in which shareholders are unable to actively monitor all the companies they invest in. Consistent with the standard principal-agent framework from economic theory, in which agents (managers) act on behalf of principals (shareholders), the researchers find that when shareholders are ”distracted,” executives have greater leeway to maximize private gains, to the detriment of shareholder value.
- 3G capital was brought into sudden limelight when Warren Buffett partnered with them to buy Heinz. Sean Iddings explores what makes 3G Capital thrive in the field of mergers and acquisitions that is marred with very poor outcomes.
More people are starting to talk about 3G Capital and their owned companies. Unfortunately, the press misses a few important parts of their system. There is more to their recipe than acquisitions and squeezing out bloated cost structures.”
Jim Collins might have said it best: “When fanatics come together with other fanatics, the multiplicative effect is unstoppable.”
- Mohnish Pabrai on the power of truth, compounding and “heads I win, tails I don’t lose” strategy.
The Power of Truth: Commit to candor, however painful or uncomfortable it may be. Being relentlessly truthful (and avoiding “white lies”) will strengthen your relationships with those around you in the long run.
Compounding is the 8th Wonder of the World: Resist the temptation to pull money out of compounding accounts like 401(k)s; instead, leave them and let them compound over the longest runways possible.
Dhandho Entrepreneurship: Take advantage of extracurricular time at your full-time job to first test your start-up ideas before quitting your day job to become the next Elon Musk. If you fail, you’ll still have a job. Heads you win, tails you don’t lose much!
- Written in Greek by an intellectual Roman emperor without any intention of publication, the Meditations of Marcus Aurelius offer a wide range of fascinating spiritual reflections and exercises developed as the leader struggled to understand himself and make sense of the universe. Spanning from doubt and despair to conviction and exaltation, they cover such diverse topics as the question of virtue, human rationality, the nature of the gods and the values of leadership. But while the Meditations were composed to provide personal consolation, in developing his beliefs Marcus also created one of the greatest of all works of philosophy: a series of wise and practical aphorisms that have been consulted and admired by statesmen, thinkers and ordinary readers for almost two thousand years. The book contains loads of thoughts and reflections for not just living our daily lives, but also how we conduct ourselves as business owners and investors…
It is probably fair to say that people have never faced more distraction than they do today, but Marcus found it difficult to focus and easy to procrastinate, and apparently this was a common enough problem at the time to warrant several observations:
“Do external things distract you? Then make time for yourself to learn something worthwhile; stop letting yourself be pulled in all directions. But make sure you guard against the other kind of confusion. People who labor all their lives but have no purpose to direct every thought and impulse toward are wasting their time — even when hard at work.” — Book 2, Section 7.
It is, of course, easy to relate to the first sentence. External factors distract us all the time, whether it involves coworkers, family members, television, the internet, or increasingly, the phone in our pocket. This could have been written by a self help author last week or discussed on a morning talk show today. As investors, we face distractions all the time. Many of us have televisions tuned to CNBC all day, every day. Marcus is encouraging us to turn off these distractions and focus on something “worthwhile”. However, we must be sure that what we are focusing on is actually worthwhile rather than busy work that serves no real purpose. We can feel busy all day but accomplish little, even when not distracted.
- The 10/10/10 rule for tough decisions…
…the folk wisdom advises that when we’ve got an important decision to make, we should sleep on it. It’s sound advice, and we should take it to heart. For many decisions, though, sleep isn’t enough. We need strategy.
To use 10/10/10, we think about our decisions on three different time frames:
1. How will we feel about it 10 minutes from now?
2. How about 10 months from now?
3. How about 10 years from now?
The three time frames provide an elegant way of forcing us to get some distance on our decisions.
- Between 1837 and 1860 Charles Darwin kept a diary of every book he read, including An Essay on the Principle of Population, Principles of Geology and Vestiges of the Natural History of Creation. There were many others: 687 English non-fiction titles alone, meaning that he averaged one book every ten days. After Darwin finished each one, how did he decide what to read next?
The researchers analysed digital versions of 665 of the books Darwin read, counting and categorising the topics mentioned within. From this, they calculated whether each successive book reflected a foray into surprising new territory or a deeper dig into a similar subject area. They found that Darwin began his note-keeping period with a greater emphasis on exploitation, largely tending to master one area at a time, rather than jumping sporadically from topic to topic. Over time, and as we get nearer to his writing of his masterpiece On The Origin of Species, he shifts to a greater emphasis on exploration: more sporadic and surprising jumps to new topics.
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