Weekly Summary
A quote, A mental model, A lecture review, Sports Update
Quick disclaimer this time it is going to be long.
A quote
“I don’t know anyone who’s wise who doesn’t read a lot. But that’s not enough. You have to have the temperament to grab ideas and do sensible things. Most people don’t grab the right ideas or don’t know what to do with them…. Get into the mental habit of relating what you’re reading to the basic underlying ideas being demonstrated, you gradually accumulate some wisdom.” ~ Munger
A Mental Model
Critical Mass: This is one of the big ideas taken from physics. So to simplify this I am going to use Peter Bevelin’s help from his book Seeking Wisdom
“At a certain scale, a system reaches a critical mass or a limit where the behaviour of the system may change dramatically. It may work better, worse, cease to work or change properties.
Small interactions over time slowly accumulate into a critical state – where the degree of instability increases. A small event may then trigger a dramatic change like an earthquake.
A small change may have no effect on a system until a critical threshold is reached.”
Let’s say you want to grow a bamboo tree. You water it for a year but you see no growth. You do the same for another year but still, there is no growth you see absolutely no results. Even in the third year, you continue to water it and fertilize it but you still do not see any growth. After four years you want to give up badly you lose hope but you stay the course and then in the 5th, you see a bamboo tree sprout. Then within a few weeks, you see that the tree shoots up to the sky and your perseverance paid off. This is a prime example of critical mass.
Even compounding is similar you do not see a lot of results in the short term but then the returns shoot up after the tipping point in years 8,10. See the picture above. There are not a lot of returns till year 6 but then it shoots up.
If you wanna read more read here.
Lecture Review Pt1.
This Friday I was lucky enough to attend a lecture by Durgesh Sir in the Flame Investment Lab workshop. Here are the things that I learnt from the lecture.
Commitment bias: You have to look at your decision rationally. “ You are the easiest person to fool”. When you look at your own decision you are always biased.
Four things that matter in investing: a) Security, b) Appreciation, c)Liquidity, d)yield. For everyone all four things are different and they mean different things. Keep in mind everyone’s appetite is different. A young person may not care a lot about security.
The differentiator of the Stock Market: When there is a sale in a normal market people run towards the sale but in the stock market people run away when there is a sale. This is one of the biggest reasons to be in the stock market.
Investing is 20% knowledge, 30% thinking (ignored by most), and 50% behaviour.
Mistakes: “The worst mistakes happen during the best of times.” Everyone does this including governments, society, businesses, individuals, etc. Most of your mistakes are mistakes of omission so don’t neglect them.
Luck and Skill: Knowing if your success is based on luck or skill is important. A good way to determine the difference is “ If you can lose on purpose it is a skill.” When we are successful we think it is a skill but when we fail we think it is bad luck and most of the time it is the other way around.
Concentration or Diversification: Both done in extremes are going to be bad for you. This is different for everyone so the only way to go about this is to diversify enough so that you can sleep at night peacefully. Again it could be 6-10 or 10-20 but more than that is over-diversification and under 5 is under-diversification.
Risk: You should never risk something that you need for something that you do not need.
I don’t want to make this post too long so I will write about the lecture in the next week’s newsletter as well.
Sports Update
The World Cup has finally started and the games so far have not disappointed. There has been a major upset with Argentina losing to Saudi Arabia and then a lot of entertaining games in Japan vs Germany, Spain vs Costa Rica, Portugal vs Ghana, etc. I think the biggest shock is still how Saudi Arabia beat Argentina who is the favourite for the World Cup. Germany could very well be out of the world cup after losing to Japan. Spain has already won 7-0 against Costa Rica and if Spain beats or draws against Germany it is highly likely that Germany is out. Even though Germany was not expected to win the whole thing they were expected to qualify from the group they have so it would be an upset. Portugal vs Ghana was an interesting game. Ronaldo scored a penalty after his contract was terminated with Manchester United. Ghana gave a good fight and could have made it 3-3 but the game ended 3-2 with a win for Portugal. A hard-fought one, not an easy one. Another great game was Brazil vs Serbia. The first half was very boring but in the second half Brazil turned up. Richarlison scored a brace and nobody expected him to score the banger that he scored in the second half. England played really well but it was an expected victory against Iran. USA vs Wales was a draw where Gareth Bale as he always does with Wales turned up. Mexico’s goalie Ochoa also is going to go down in the hall of fame for turning up in every single World Cup. USA vs England was a letdown of a game. Iran beat wales 2-0 which was a shock. Netherlands also drew to Ecuador.
That’s it for this week!! Sorry for making it this long but hope it is worth it I learnt a lot in writing this post and I hope you learnt a lot as well.