Saturday Serendipity
Quote, Mental Model, Twitter Thread, Idea.
Hi there!
Today is a long one:
Reading time: About 6 minutes
Quote
“We are getting worse at making forecasts because the world is getting more complicated.” ~ Mark Pearson
Mental Model
Matthew Effect
Ever heard the saying the rich get richer and the poor get poorer? Well that is Matthew effect for you. Matthew effect can be applied to general success in anything. The successful people tend to get more successful. It isn’t rocket science to figure out that they have an advantage.
Let’s take a simple example of a professional cricketer. If a cricketer is selected in the early stages of his cricketing career in the young age group at U-14 he has an enormous advantage over other players. A cricketer selected in the U-14 team gets to play more matches gets access to the best coaches possible and also has the possibility of building connections with the coaches in the future as well. Now if another player who is extremely talented or as talented as the person who got selected in the U-14 is to be compared with that person when they are 19 or 23 he will most likely not be as good.
The person who got selected earlier just has an advantage.
Success helps you get more successful.
Malcolm Gladwell writes in his book Outliers:
It is those who are successful who are most likely to be given the kinds of special opportunities that lead to further success. It’s the rich who get the biggest tax breaks. It’s the best students who get the best teaching and most attention..Success is the result of what sociologists like to call “accumulated advantage.”
In Investing
Even in investing we try to find companies which have the Matthew effect. If you have a company like Wal-Mart which is a successful company with healthy money in the balance sheet it can take advantage of a new invention like TV by advertising there because they can afford it. A small player will lose out potential customers. For example in India the Tata’s and Reliance group are so big that they can easily become bigger and better because of the capital they have lying around. Why do they have capital lying around? For opportunities to allocate them well.
Even in gaining knowledge it works the same way. The smart get smarter. Mohnish Pabrai also wrote about how his knowledge of the oil shipping industry helped him pick a stock later on but the company that got him interested in the industry was a no go for him.
“I knew nothing about the oil shipping business, but was curious to find out more about the industry and why these businesses had such high dividend yields. I spent a few days studying Knightsbridge and the oil shipping business…Knightsbridge was making astronomical profits at the time, and the dividend yield went through the roof. But, of course, it was not durable or sustainable. At the time I studied Knightsbridge, I also took a look at half a dozen other publicly traded pure plays in oil shipping. Since the dividend could go to zero, Knightsbridge was an easy pass.
In investing, all knowledge is cumulative. I didn’t invest in Knightsbridge, but I did get a decent handle on the crude oil shipping business. In 2001, we had an interesting situation take place with one of these oil shipping companies called Frontline. Pabrai Funds had a 55 percent return on the Frontline investment and an annualized rate of return of 273 percent. Not bad for a near risk-free bet based on boning up on the nuances of oil shipping by reading a few documents.” Pabrai
Conclusion
The Matthew Effect is a simple mental model to remember. The initial success helps you get more successful later on. Remember there are always exceptions. So even the Matthew Effect has exceptions. Also make sure that when you look for explanations don’t only look for one. There are always multiple reasons for a thing to go right or wrong. Try to look for alternate reasons/hypothesis.
Twitter Thread
Idea
We are Average
There’s this guy. World-renowned billionaire. Tech genius. Inventor and entrepreneur. Athletic and talented and handsome with a jaw so chiseled it looks like Zeus came down from Olympus and carved the fucker himself. (Mark Manson)
Can you guess who it is?
Yep, it is Bruce Wayne or Batman. We all aspire to be like him. We all think we are Batman (me too). We aspire to be extraordinary like him. What is the reality though? Most of us are average. We do wishful thinking and end up doing nothing but being disappointed.
Mark Manson wrote an amazing piece on why it is okay to be average. I agree with the fact that most of us are going to be average in some way or another. It is not possible to be extraordinary in everything. If you think someone is extraordinary in everything then they are simply deceiving you. The fact that you are average is no problem at all. It is not bad. In fact to be content in life you have to be accepting of the fact that being extraordinary is a far stretch considering there are 8 billion people in the world and around 20% of them are actually extraordinary. All I think we need in life is the constant aim of improvement with no problem in being average. Even if you turn out to be extraordinary the sad thing is there will always be someone better than you and if you want to be the best at everything you are never going to have mental peace. Accepting the fact that you are average is not going to curb your ambition, if you have a constant need of improvement. As an investor especially to think that you are extraordinary is going to cause you problems. I am average and I have no problem in that.
The ticket to emotional health, like physical health, comes from eating your veggies — that is, through accepting the bland and mundane truths of life: a light salad of “you’re actually pretty average in the grand scheme of things” and some steamed broccoli of “the vast majority of your life will be mediocre.” This will taste bad at first. Very bad. You will avoid eating it. But once ingested, your body will wake up feeling more potent and more alive. After all, that constant pressure to always be something amazing, to be the next big thing, will be lifted off your back. The stress and anxiety of feeling inadequate will dissipate. And the knowledge and acceptance of your own mundane existence will actually free you to accomplish what you truly wish to accomplish with no judgments and no lofty expectations.”
~ Mark Manson
That’s it for this week!
Enjoy your weekend! Happy learning!