Time
and again it has been proved that majority of stock price changes are
nothing more than random jitters in the system for which no explanation
is ever required—yet you can find people obsessing over every minuscule
movement and explaining them like kids spotting animal shapes in the
clouds.
2. Beware the hot hand
Look at the long-term results of business while evaluating a stock. Last
few quarter results, even with a clear pattern, don’t reveal any useful
insights. Focusing on ten years of financial and business performance
lowers the odds of getting fooled by the
Hot Hand effect.
Market
extremes (bull and bear markets) is nothing but the result of a strong
belief in Hot Hand effect. When the broader market starts rising, which
could be a random fluctuation, it creates an illusion that something
must be good about the economy and business environment in general.
People start inventing reasons to explain the short-term patterns, which
strengthens their belief further and quickly market can get on a roll
for the reason that has nothing to do with the true valuation of the
underlying securities.
3. Don’t ignore that doubt
When you start with an investment hypothesis, the job is not to find
confirming evidence but to ensure that there’s no reasonable doubt left
in your mind before you pull the trigger.
Ignoring a reasonable doubt is being dishonest to a rational assessment.
4. Fish where the fish are
Charlie Munger says –
The two rules of fishing are to fish where the fish are, and don’t forget the first rule.
Investing is the same thing.
In some places, no matter how good a fisherman you are, you won’t do
well. Life is a long game. Take it as comes and do the best you can, and
if you live to an old age, you will get your full share of
opportunities, which will be two in total, maybe, but seize one of the
two, and you will be alright.
5. Subtract
Nassim Taleb has a chapter in his fascinating book
Antifragile
on this topic of Via Negativa. Therein, he argues that the solution to
many problems in life is by removing things, not adding things. Like,
avoiding the doctor for minor illnesses or removing certain food from
one’s diet to improve health. Taleb writes –
I
would add that, in my own experience, a considerable jump in my
personal health has been achieved by removing offensive irritants: the
morning newspapers, the boss, the daily commute, air-conditioning,
television, emails from documentary filmmakers, economic forecasts, news
about the stock market, gym “strength training” machines, and many
more.
He then adds –
If
true wealth consists in worriless sleeping, clear conscience,
reciprocal gratitude, absence of envy, good appetite, muscle strength,
physical energy, frequent laughs, no meals alone, no gym class, some
physical labor (or hobby), good bowel movements, no meeting rooms, and
periodic surprises, then it is largely subtractive.
Via
Negativa is one of the most critical lessons I have learned and
practiced, and that has helped me simplify my life considerably and
brought me tremendous peace.
Right
from subtracting the boss from my life, and the monthly paycheque, and
office politics, and blame game, and daily commute, and sugar, and
refined carbs, and news, and debt, and toxic people, and anxiety, and
worried sleeping, and fear of death, and self-doubt, and the need to be
liked, and victim’s mentality, and fear of failure, and perfectionism,
and multitasking, and the need to control everything, and saying yes
often…it seems this journey has brought me a really long way.
6. Learn from history
History serves as a valuable tool and a great friend of the intelligent
investor. You not only learn from the mistakes (like failed predictions)
that others who came before you made, but if you dig just a bit deeper,
you realize it’s a goldmine of ideas and insights that still work. The
players change, but
the music never stops.
7. Practice equanimity
Making money in stocks when everyone is making money in stocks isn’t a
big deal. Rather, it’s the ability to handle good and bad times with
equanimity, and stay true to your investment process that matters,
because you are looking at the long-term growth of businesses and not
short-term stock price fluctuations. And since you seem to be making
clear that you don’t know how to handle scary times, you should stay
away from, or reduce your exposure to direct stock picking.
8. Do the best you can
Charlie Munger says –
Approach
life like [Thomas] Carlyle, and get up every day doing the best you
can. Marry the right person. Everyone here who’s your age will do well.
You’re not that mad at the world; instead you’re trying to cope with how
to make it a little better. If you were here with placards shouting,
you wouldn’t have bright future. Avoid extremely intense ideology,
because it ruins your mind. The kids with the placards are pounding the
idiocy in instead of shouting it out.
9. Focus on the process
With respect to the investment process, Michael Mauboussin writes in
The Success Equation –
…in
activities where luck plays a strong role, the focus must be on
process. Where skill dominates, performance is a dependable barometer of
progress. But where luck is a stronger force, the link between process
and outcome is broken. A good process can lead to a bad outcome some
percentage of the time, and a bad process can lead to a good outcome.
Since a good process offers the highest probability of a good outcome
over time, the emphasis has to be on process.
10. Give yourself plenty of time
Without doubt, time is the most important element in the
compounding formula. If all you have is 7 years to grow your money 10x,
you would need a 40% annual return to achieve that. If you have 9 years,
you’d still need a 30% annual return. But if you have 17 years, just a
15% rate would be enough. In short, if you really have a 20-year horizon
by when you need to meet your major financial goals, why hurry? And why
take undue risks in pursuit of unreasonable returns?
11. Never bet the farm
Legendary investor, Howard Marks relates a funny story his father told
him about a gambler who bet everything on a race with only one horse in
it. How could he lose? “Halfway around the track, the horse jumped over
the fence and ran away. Invariably things can get worse than people
expect.”
This story has a valuable lesson for investors.
Never bet the farm
on a single stock no matter how certain you are about the outcome. You
never know when the luck hands you the equivalent of a crazy horse or a
supercentenarian.
12. Go against the crowd
Most of sensible investing is about going against the crowd. Often, it
also requires you to face constant criticism and ridicule. You also need
to stay away from the noise to be able to think rationally. You may
also have to bear being called a loner. In such times, you must have the
stomach to keep playing the game without getting perturbed by what
others are wanting and asking you to do. You may have the brain to know
what’s right and not right for you. But it’s your stomach that leads you
to act on your conviction.
13. Zoom out
Much of the time, in life and in investing, we would be better off
zooming out than zooming in. Rather than being ticker watchers of our
own lives, and rather than zooming in and magnifying and thus worrying
about the daily volatility in our stocks, we would be better off
thinking about our lives and investments as pale dots that are just
specks on the canvas of eternity.
Within this, if we keep doing our work well, the daily motions and volatility that we pass by must not worry us therefore.
14. Look at things in the aspect of eternity
Marshall Weinberg, one of Ben Graham’s students, said that the biggest
lesson he drew out of his class was on long-term thinking –
One
sentence changed my life…Ben Graham opened the course by saying: ‘If
you want to make money in Wall Street you must have the proper
psychological attitude. No one expresses it better than Spinoza the
philosopher.’
When
he said that, I nearly jumped out of my course. What? I suddenly look
up, and he said, and I remember exactly what he said: ‘Spinoza said you
must look at things in the aspect of eternity.’ And that’s what suddenly
hooked me on Ben Graham.
Here
was the father of value investing teaching his students about the value
of long-term thinking, and that too in terms of eternity. Now, almost
seven decades later, we would be paying true homage to Graham if we
could view investing through a wide-angle lens,
taking a long-term perspective,
and striving for a long, sustained upward trend in our stocks instead
of getting worried about the short-term volatility in their prices.
This
may not help us eliminate all mistakes we may make as investors, but it
can give us the tool to treat our investments and portfolios just a
little bit better.
15. Know what you (don’t) control
Consider the formula of compounding, where –
Future Value = Present Value x (1 + Rate of Return) ^ Time
What
excites most of us in this formula and where we wish to exert the
maximum control and expect the greatest certainty is the ‘rate of
return’. This is despite that it is the only variable in this formula
that is tentative and most uncertain, and beyond our control.
The
two variables that are under our maximum control are ‘present value’,
or the initial investment and ‘time’, or the amount of time the money is
allowed to compound. And these are the two variables, especially
‘time’, most of us choose to ignore in our
race to earn the maximum return.
16. Investing’s success secrets
When it comes to investing in the stock market, it is often going to be
scary, and there will always be something to worry about. But if you
have a strong stomach, which will happen if you invest your own money,
invest for the long run, invest in high-quality businesses, and always expect the unexpected, you will most likely do well.
17. Deal well with adversity
William Hazlitt wrote – “Prosperity is a great teacher; adversity a
greater.” In fact, a large part of a person’s character is built through
adversity.
The
world is not a bed of roses for one to think he can be out of wood all
his life. Life has its ups and downs, its peaks and valleys. Though it
will be great if all our days on earth are on the up-and-up, and
completely sunny. Unfortunately, they are not. This is also true of the
stock market where people who have created the maximum wealth have done
it through the most trying of times.
In
fact, Buffett’s advice of being fearful when others are greedy and
being greedy when others are fearful is all about dealing well with
adversity.
18. Be the real ‘you’
Authenticity is something no investing book can ever teach you. It’s a
daily practice. Now, while it’s difficult to be authentic in a world
that discourages imperfection and where everyone else is thinking and
acting like others, authenticity can be a great asset for a value
investor.
Honestly
accepting mistakes and learning from them is one of the ways to
cultivate authenticity as an investor. Creating an investment process
that suits your temperament – and not one that blindly copies other
investors – is another.
The
simple idea is that – to succeed in life and in investing, you have to
be the real ‘you’. As Oscar Wilde said, “Be yourself; everyone else is
already taken.”
19. No stock is safe
The bulls may want you to believe this, but no stock is safe. There are
businesses that may remain good for some time, maybe long time, but you
must not attach infinite values to them. Everything in this world is
momentary. So, your best bet is to just stick with quality (even that is
momentary, just for longer moments). The good thing about quality
stocks is that you can pay up for them (not overpay), expensive looking
prices, and still do well till the underlying businesses remain good.
With poor quality, most probably, you have no hope.
20. Don’t look at stocks to make you rich
Blindly banking on the market to make you rich is a dangerous belief. In
fact, looking at stocks to make you rich may be a path to financial
hell. I had a few friends who quit their high paying jobs as analysts to
become full-time investors in 2006-07. Some of them even started
managing other people’s money. Some leveraged to buy more of the stocks
that were surging in prices. Most of these “risk-takers” were destroyed
in 2008, and a few had to wind up their affairs and go back to their
home-towns and to their family business. Getting full-time into
investing, especially because you start believing you have the skill
because you’ve done well in the recent past, can be dangerous. Investing
is done best when it’s done part-time. And then you need to see it as a
way to keep you rich, not make you rich.
21. First calm, then complacency, then crisis
That’s the way the system works. You must not be complacent when it
seems calm, like it did in the period prior to 2008. A long period of
growth, with only a minor interruption in 2001, had led to complacency
then. Economy looked stronger with each passing year, banks were willing
to lend to everyone willing to borrow, and asset prices were rising
across the board. It continued for some time, and then, hell broke
loose. Seeds of future prosperity are sown in times of despair. Seeds of
future despair are sown in times of prosperity. We must remember this.
22. Appreciate the role of luck
Peter Bernstein said – “The riskiest moment is when you are right.” This
is because the streak of being right can make you forget how important
luck is in determining the outcome. If you realize that you have been
right quite a few times in the recent past, you must bear in mind the
risk this entails. Most investors forgot this in 2008, and then again
recently.
23. Invest right, sleep tight
Always invest to the level of a peaceful night’s sleep. Investing that
causes you sleepless nights – for some people, their lives – isn’t worth
doing. It’s like the game of Russian Roulette, where you put a gun with
one bullet and five empty chambers on your head and shoot. The
probability that you may survive is a huge 5/6, or 83%, but the
consequence of failure is death. You become a statistic.
24. Respect risk
Keep a healthy sense of respect for the
stock market’s inherent risk.
As Ben Graham said, Mr. Market has incurable emotional problems. But he
often shows us the mirror that contains a clear reflection of the true
investors we are. Never disrespect that for a fact.
“His success…is a lollapalooza,” Munger replied – a confluence of factors moving in the same direction.
Munger outlined the following seven key factors which combined together to cause Buffett’s success –
- Mental aptitude (Being seriously smart)
- Having great interest in the subject (“It’s very hard to succeed in
something unless you take the first step – which is to become very
interested in it.” ~ Sir William Osler)
- Early start (If something takes a long time to achieve, you better start early)
- Being a learning machine (Keep learning and learning)
- Reinforcement (Human beings work well if they get reinforcement –
constant rewards for doing well, which drives you to do more of the
same)
- Being correctly trusted by people
- Avoiding envy, jealousy, self-pity, vengeance, and extreme ideology
26. Value investing is a good idea
Jack Schwager, author of
Market Wizards series, who invokes the wisdom of Joel Greenblatt, one of the foremost experts on value investing, writes –
Value
investing doesn’t always work. The market doesn’t always agree with
you. Over time, value is roughly the way the market prices stocks, but
over the short term, which sometimes can be as long as two or three
years, there are periods when it doesn’t work. And that is a very good
thing. The fact that our value approach doesn’t work over periods of
time is precisely the reason why it continues to work over the long
term.
27. Change your mind
Jason Fried, CEO at Basecamp and the author of
Rework, recounts a crucial lesson Amazon’s founder Jeff Bezos shared with the former’s team a few years ago –
During one of his answers, he shared an enlightened observation about people who are “right a lot”.
He
said people who were right a lot of the time were people who often
changed their minds. He doesn’t think consistency of thought is a
particularly positive trait. It’s perfectly healthy — encouraged, even —
to have an idea tomorrow that contradicted your idea today.
He’s
observed that the smartest people are constantly revising their
understanding, reconsidering a problem they thought they’d already
solved. They’re open to new points of view, new information, new ideas,
contradictions, and challenges to their own way of thinking.
This
doesn’t mean you shouldn’t have a well-formed point of view, but it
means you should consider your point of view as temporary.
28. Volatility is a non-event
In the long journey of the stock of a high-quality business, the daily
short-term jumps – or volatility as they call it in business news – that
makes people nervous are non-events. As Annie Duke writes in her book
Thinking in Bets –
In
our decision-making lives, we aren’t that good at taking this kind of
perspective – at accessing the past and future to get a better view of
how any given moment might fit into the scope of time. It just feels how
it feels in the moment and we react to it.…We make a long-term stock
investment because we want it to appreciate over years or decades. Yet
there we are, watching a downward tick over a few minutes, consumed by
imagining the worst. What’s the volume? Is it heavier than usual? Better
check the news stories. Better check the message boards to find out
what rumors are circulating.
Even
noted psychologist Daniel Kahneman agrees, “If owning stocks is a
long-term project for you, following their changes constantly is a very,
very bad idea. It’s the worst possible thing you can do, because people
are so sensitive to short-term losses. If you count your money every
day, you’ll be miserable.”
29. Reduce wastefulness
Most of our lives are highlighted by tremendous amounts of wastefulness.
But since we don’t pause to think about it, because we often don’t
learn to see the harsh truth, we are not able to start on the path to
freedom from our financial worries.
30. Get comfortable with uncertainty
Annie Duke shares insights on how we can get comfortable with uncertainty and make better decisions as a result –
Life,
like poker, is one long game, and there are going to be a lot of
losses, even after making the best possible bets. We are going to do
better, and be happier, if we start by recognizing that we’ll never be
sure of the future. That changes our task from trying to right every
time, and impossible job, to navigating our way through the uncertainty
by calibrating our beliefs to move toward, little by little, a more
accurate and objective representation of the world.
31. You are your own worst enemy
In an interview with NY Times, Howard Marks, when asked if investors
have become smarter in the 50 years he has been investing himself,
replies –
They’ve
gotten more information. They know more about more asset classes. There
are fewer secrets in the world today. On the other hand, I think they
are more shortsighted, moreshort term oriented than they used to be.
And
while people now understand more about contrarianism and
counterintuitiveness, I don’t think the human race has become less
emotional.
32. Three powerful rules
Most good decisions in life are marked by
peace, detachment, and acceptance.
Rising markets may lead us to ignore this. Most investors like to
believe they can enjoy stock market gains without losses. And that
denial is what causes them stress and conflict. They feel disappointed
when the harsh reality doesn’t align with their rosy expectations. And
then, such investors feel helpless, which further magnifies their
disappointment. After all, most of what happens in the stock market are
outside of our control. We can’t stop the market from falling and
crashing, nor can we call up companies or the stock market regulator or
the central bank when our stocks tumble. Making and losing money is just
the nature of investing, and often outside your control. So just do
your work well, and then let it go. Yes, let it go.
33. Be vulnerable
In his Feb. 2016 memo, Howard Marks wrote this –
My
buddy Sandy was an airline pilot. When asked to describe his job, he
always answers, “hours of boredom punctuated by moments of terror.”
Investing
follows a similar pattern – hours of boredom punctuated by moments of
terror. Now, both these situations make us vulnerable. In the former,
we are vulnerable to losing money.
In the latter, we are vulnerable to missing opportunities. But it’s
upon us how we deal with such vulnerability. Do we buckle under the fear
of the unknown or have the courage to face up to it? And if we decide
to face up to our fears, all we must do is to play our parts well and
let go of what we don’t control.
Nature
will take its course then, and a few years later, we may be surprised
at what we were able to achieve just because we allowed ourselves to be
vulnerable.
34. Be water
Bruce Lee said –
Empty
your mind. Be formless, shapeless, like water. Put water into a cup, it
becomes the cup. Put water into a teapot, it becomes the teapot. Water
can flow or creep or drip or crash. Be water, my friend.
Problems
arise all the time in life and in investing, and you can try to keep
your rigid shape, smashing into the problems until you break. Or you can
be like water and slip through the cracks.
Charlie Munger says, “The game of life is the game of everlasting learning. At least it is if you want to win.”
In
fact, a few of life’s great pleasures are to keep learning, letting go
of previously cherished ideas, and emptying your mind for new ideas to
come in. Then you’re free to look for new ones.
Be formless. Be adaptable. Be open to new ideas. Like water.
35. Work with imperfect information
Trying to increase your confidence by gathering information that is
supposedly unknown to most others really only makes you more comfortable
with your investment decisions, not better at them, and is generally an
unproductive use of your limited time. Seth Klarman wrote in Margin of
Safety…
Some
investors insist on trying to obtain perfect knowledge about their
impending investments, researching companies until they think they know
everything there is to know about them.
They
study the industry and the competition, contact former employees,
industry consultants, and analysts, and become personally acquainted
with top management. They analyze financial statements for the past
decade and stock price trends for even longer.
This
diligence is admirable, but it has two shortcomings. First, no matter
how much research is performed, some information always remains elusive;
investors have to learn to live with less than complete information.
Second,
even if an investor could know all the facts about an investment, he or
she would not necessarily profit. This is not to say that fundamental
analysis is not useful. It certainly is. But information generally
follows the well-known 80/20 rule: the first 80 percent of the available
information is gathered in the first 20 percent of the time spent.
Moreover,
business information is highly perishable. Economic conditions change,
industries are transformed, and business results are volatile. The
effort to acquire current, let alone complete information is
never-ending. Meanwhile, other market participants are also gathering
and updating information, thereby diminishing any investor’s
informational advantage.
…Investors
frequently benefit from making investment decisions with less than
perfect knowledge and are well rewarded for bearing the risk of
uncertainty.
The
time other investors spend delving into the last unanswered detail may
cost them the chance to buy in at prices so low that they offer a margin
of safety despite the incomplete information.
36. Recognize your losses
Doing this is hard because it’s also an acknowledgment of your mistake. But it’s important to
recognize your losses sooner than later. Don’t be afraid to swallow your pride and move on before your losses become even greater.
37. Quality businesses, not cheap stocks
Avoid having an investment process that starts with looking for cheap stocks. Instead, have one that starts with
looking for high-quality businesses
that benefit from established competitive advantages and business
models that produce large and growing distributable cash flows. And when
you find some such businesses, wait for the right valuations (which
won’t be cheap but at a premium to their peers) for them, even if you
must wait for a long time.
Charlie Munger said –
It’s
waiting that helps you as an investor, and a lot of people just can’t
stand to wait. If you didn’t get the deferred-gratification gene, you’ve
got to work very hard to overcome that.
38. It’s the journey, not the destination
The
pleasure of travel is in the journey
and not so much in reaching one’s destination. Like, you will never
know how much money is enough, or how much you will need (destination)
to be happy and your financial life to be fulfilling. So, there’s no
point fretting about it. Rather, focus on building the right process
(journey) that you’ll work on the way.
Destinations
rarely live up to the traveller’s expectations. By the time you are
close to your goal of making your first ten-bagger, it won’t seem like
the ambitious goal it once was. It will seem like a boring inevitability
of the right process.
39. Enjoy the experience
Stop worrying about future market crashes and stop getting surprised
when these actually happen. Because they will. That’s the nature of the
market. Simply enjoy the experience and be grateful for it.
II. Learning
40. Write It Down
Writing down your thoughts is the most powerful tool for crystallizing
thinking and decision making. People who don’t have a habit of writing
down their questions are usually sloppy thinkers. Expressing your
question clearly and well is important. If you can’t be bothered to do
that, you don’t deserve an answer. The question doesn’t have to be in
flawless, stiff and formal language but it has to be precise. There has
to be some indication that you’re thinking and paying attention.
Consider,
then, the sum total of our accumulated knowledge as constituting an
island, which I call the Island of Knowledge. A vast ocean surrounds the
Island of Knowledge, the unexplored ocean of the unknown, hiding
countless tantalizing mysteries. As the Island of Knowledge grows, so do
the shores of our ignorance—the boundary between the known and unknown.
Learning more about the world doesn’t lead to a point closer to a final
destination — whose existence is nothing but a hopeful assumption
anyways — but to more questions and mysteries. The more we know, the
more exposed we are to our ignorance, and the more we know to ask.
42. Wisdom requires humility
In The Apology, Plato wrote that the oracle at Delphi had pronounced
Socrates the wisest man in Athens. No one was more astonished and
disbelieving than Socrates himself. So, he immediately set out to
disprove the oracle by finding a wiser man. Here is what Socrates found
as he met a few supposedly wise men…
I
went to one who had the reputation of wisdom, and observed to him – his
name I need not mention; he was a politician whom I selected for
examination – and the result was as follows: When I began to talk with
him, I could not help thinking that he was not really wise, although he
was thought wise by many, and wiser still by himself; and I went and
tried to explain to him that he thought himself wise, but was not really
wise; and the consequence was that he hated me, and his enmity was
shared by several who were present and heard me.
So
I left him, saying to myself, as I went away: Well, although I do not
suppose that either of us knows anything really beautiful and good, I am
better off than he is – for he knows nothing, and thinks that he knows.
I neither know nor think that I know. In this latter particular, then, I
seem to have slightly the advantage of him.
Then
I went to another, who had still higher philosophical pretensions, and
my conclusion was exactly the same. I made another enemy of him, and of
many others besides him.
In
the end, Socrates discovered he was indeed the wisest man in Athens.
Not because of how much he knew, but because he was the only one who
understood how much he did not know.
Knowing
that you don’t know is the dawning of wisdom. Knowing that you don’t
know, accepting it and not being ashamed about it is the start of a
continuing journey of wisdom. Recognizing the darkness is the
prerequisite for bringing on the light. Only when the darkness is
brought out of hiding does the light have the opportunity to illuminate
it.
III. Life
43. Skip the rush lane
Rushing is rarely worth it. Life is too short to be wasted in the fast
lane and is better enjoyed at a leisurely pace. I can vouch for that,
from the experience of running in the fast lane during the first eight
years of my career and the slow lane during the next seven.
Seneca,
the Roman Stoic philosopher, has listed the trappings of a lot of
wealth, stuff like “a golden roof, purple clothes, marble floors.” He
has described the life of someone who has been blessed mightily by fate
and fortune as having imposing statues, the most brilliant art, teams of
servants.
“What does having all these things teach?” Seneca asks. “All you learn from this is how to desire more stuff.”
44. It’s the war within
A brilliant book I re-read this year was Eknath Easwaran’s
The Bhagavad Gita. Here is an excerpt from the book I found super insightful –
The
battlefield is a perfect backdrop, but the Gita’s subject is the war
within, the struggle for self-mastery that every human being must wage
if he or she is to emerge from life victorious.
Easwaran adds –
Scholars
can debate the point forever, but when the Gita is practiced, I think,
it becomes clear that the struggle the Gita is concerned with is the
struggle for self-mastery. It was Vyasa’s genius to take the whole great
Mahabharata epic and see it as metaphor for the perennial war between
the forces of light and the forces of darkness in every human heart.
Arjuna and Krishna are then no longer merely characters in a literary
masterpiece. Arjuna becomes Everyman, asking the Lord himself, Sri
Krishna, the perennial questions about life and death – not as a
philosopher, but as the quintessential man of action. Thus read, the
Gita is not an external dialogue but an internal one: between the
ordinary human personality, full of questions about the meaning of life,
and our deepest Self, which is divine.
There
is, in fact, no other way to read the Gita and grasp it as spiritual
instruction. If I could offer only one key to understanding this divine
dialogue, it would be to remember that it takes place in the depths of
consciousness and that Krishna is not some external being, human or
superhuman, but the spark of divinity that lies at the core of the human
personality.
If you have an interest in reading the Gita, I suggest you pick up this book.
When
you get to my age, you’ll really measure your success in life by how
many of the people you want to have love you actually love you. I know
people who have a lot of money, and they get testimonial dinners and
they get hospital wings named after them. But the truth is that nobody
in the world loves them. If you get to my age in life and nobody thinks
well of you, I don’t care how big your bank account is, your life is a
disaster. That’s the ultimate test of how you have lived your life.
He continues –
The
trouble with love is that you can’t buy it. You can buy sex. You can
buy testimonial dinners. You can buy pamphlets that say how wonderful
you are. But the only way to get love is to be lovable. It’s very
irritating if you have a lot of money. You’d like to think you could
write a check: I’ll buy a million dollars’ worth of love. But it doesn’t
work that way. The more you give love away, the more you get.” Of all
the lessons that Warren has taught me, perhaps this is the most
important.
46. Become antifragile
Life is uncertain, and often random. Things that we think should happen,
often don’t. And things we think should not happen, often do. Most of
it makes sense after the fact. But when we are facing life’s randomness,
we curse it. We think we’ve been dealt an unfair hand, except when
things are going our way.
However,
the good thing about the randomness of life is that it provides us with
the ability to become better at dealing with, well, randomness. Again,
in Taleb lingo, randomness provides us with the opportunity to become
antifragile – things that get better when exposed to shocks, volatility,
randomness, disorders, stressors, risk, and uncertainty.
Taleb writes in Antifragile –
This
is the central illusion in life: that randomness is risky, that it is a
bad thing—and that eliminating randomness is done by eliminating
randomness.
Artisans,
say, taxi drivers, prostitutes (a very, very old profession),
carpenters, plumbers, tailors, and dentists, have some volatility in
their income but they are rather robust to a minor professional Black
Swan, one that would bring their income to a complete halt. Their risks
are visible. Not so with employees, who have no volatility, but can be
surprised to see their income going to zero after a phone call from the
personnel department. Employees’ risks are hidden.
47. Life is a single-player game
In his podcast session with Farnam Street, Naval Ravikant talks about the idea of being happy –
When
it comes to learn to be happy, train yourself to be happy, completely
internal, no external progress, no external validation, 100% you’re
competing against yourself, single-player game. We are such social
creatures, we’re more like bees or ants, that we’re externally
programmed and driven, that we just don’t know how to play and win at
these single-player games anymore.
We
compete purely on multi-player games. The reality is life is a
single-player game. You’re born alone. You’re going to die alone. All
your interpretations are alone. All your memories are alone. You’re gone
in three generations and nobody cares. Before you showed up, nobody
cared. It’s all single-player.
48. What to teach kids
Naval also tells this during his session with Farnam Street –
I
think learning should be about learning the basics in all the fields
and learning them really well over and over. Life is mostly about
applying the basics and only doing the advanced stuff in the things that
you truly love and where you understand the basics inside out. That’s
not how our system is built.
We
teach all these kids calculus and they walk out not understanding
calculus at all. Really they would have been better off served doing
arithmetic and basic computer programming the entire time. I think
there’s a pace of learning issue.
Then
there’s finally a what to learn. There’s a whole set of things we don’t
even bother trying to teach. We don’t teach nutrition. We don’t teach
cooking. We don’t teach how to be in happy, positive relationships. We
don’t teach how to keep your body healthy and fit. We just say sports.
We don’t teach happiness. We don’t teach meditation. Maybe we shouldn’t
teach some of these things because different kids will have different
aptitudes, but maybe we should. Maybe we should teach practical
construction of technology. Maybe everyone in their science project,
instead of building a little chemistry volcano, maybe you should be
building a smartphone.
49. Time + Health > Wealth
Ben Carlson, author of the blog and a nice book by the same name –
A Wealth of Common Sense
– wrote about few financial advices he thinks are not talked about much
but offer big financial payoffs. One such advice, and that I believe
makes great sense, is about why time and health matter more than wealth.
Ben wrote –
Cornelius
Vanderbilt’s son William was far and away the richest person in the
world after doubling the inheritance given to him by his late father in
just 6 years. But the burden of wealth brought him nothing but anxiety.
He spent all of his time managing his substantial wealth through the
family’s businesses, which meant he had no time to enjoy his money or
take care of his body.
He
once said of a neighbor who didn’t have as much money, “He isn’t worth a
hundredth part as much as I am, but he has more of the real pleasures
of life than I have. His house is as comfortable as mine, even if it
didn’t cost so much; his team is about as good as mine; his opera box is
next to mine; his health is better than mine, and he will probably
outlive me. And he can trust his friends.”
William
also told his nephew, “What’s the use, Sam, of having all this money if
you cannot enjoy it? My wealth is no comfort to me if I have not good
health behind it.”
All the money in the world doesn’t matter if you don’t have the time or the health to enjoy it.
50. Remind yourself of your mortality
Citizens of one of the happiest countries in the world, Bhutan, meditate
on their mortality five times a day. “It cures you,” the Bhutanese say.
Not just the Hindu and Buddhist scriptures, even Stoicism talks about
memento mori that is the practice of reflection on mortality, especially
as a means of considering the vanity of earthly life and the transient
nature of all earthly goods and pursuits.
Now,
the thing about meditating on your own mortality is that it doesn’t
make life pointless. Instead, knowing that you will die one day creates
priority and thinking about it helps you live with a more positive
perspective. So you can focus on what’s important.
Like Seneca reminds us to be spendthrifts of time given so little time we have on our hand –
Were
all the geniuses of history to focus on this single theme, they could
never fully express their bafflement at the darkness of the human mind.
No person would give up even an inch of their estate, and the slightest
dispute with a neighbor can mean hell to pay; yet we easily let others
encroach on our lives — worse, we often pave the way for those who will
take it over. No person hands out their money to passersby, but to how
many do each of us hand out our lives! We’re tight-fisted with property
and money, yet think too little of wasting time, the one thing about
which we should all be the toughest misers.
He then advises –
Let
us prepare our minds as if we’d come to the very end of life. Let us
postpone nothing. Let us balance life’s books each day … The one who
puts the finishing touches on their life each day is never short of
time.
51. Be humble
You are just a tiny cog in a massive machine. You may want to board the
lift to the top floor, but you have no control over someone pressing the
wrong button, or the lift crashing down. So, be humble.
Thank You
Before I close, let me share with you the Serenity Prayer that has
helped me a lot in facing my personal, professional, and investing
turmoils. I am sure if you keep this prayer close to your mind and
heart, it will help you face your own turmoils well, including those
related to your investing.
The Serenity Prayer
God, grant me the serenity to accept the things I cannot change,
Courage to change the things I can,
And wisdom to know the difference.
~ Reinhold Niebuhr
I wish you a happy, healthy, and peaceful 2019.
I am lucky to have you as a tribe member.
With respect,
Vishal
PS: Best Books I Read in 2018 – Here
is a list of the best books I read in 2018. This is apart from the
usual supertexts I re-read during the year – stuff like Poor Charlie’s
Almanack, and Warren Buffett’s letters.
