Weekly Summary
A quote, A mental model, An investing explainer, A Twitter Thread
A quote
“There’s a big difference between probability and outcome. Probable things fail to happen and improbable things happen all the time” ~Bruce Newberg
A Mental Model
Occam’s Razor: Occam’s Razor states that the simplest solution is usually the correct one. If you are making a decision more often than not the option with fewer assumptions is better. This essentially tells us to avoid hard and complex things when we have a simpler alternative. It is also important to remember what Einstein said: “Everything should be kept as simple as possible, but not simpler.”
Importance of Moats
Warren Buffet preaches the importance of moats for companies. What are moats? Why is it important when you analyse a company? Moat essentially means the competitive advantage that a company has. For example, When you buy fevicol or want your house to be painted, you choose Pidilite and Asian Paints as these brands have built trust and even if it is priced a little higher you stick with the company that you trust. This is the power a moat has. It enables pricing power. Even if you price your product at a little bit of premium and people still buy your product then you have a moat. This competitive advantage means that the company is a) more sustainable b) has the trust of consumers c) has pricing power driving higher returns.
As Buffet wrote in his 1994 letter
“ Look for the durability of the franchise. The most important thing to me is figuring out how big a moat there is around the business. What I love, of course, is a big castle and a big moat with piranhas and crocodiles.”
A very good blog to read more about moats from Safal Niveshak can be found here.
A Twitter thread
This one is long but it is amazing. Charlie Munger is an amazing person to learn from and at the age of 98, he is fitter than ever.
