The One Percent Almanack

Wit and Wisdom on Investing, Business, and Life

Vishal Khandelwal

BookWorm: Hackers & Painters

Silicon Valley is replete with hundreds of successful and thousands of unsuccessful entrepreneurs who have one thing in common. They all take pride in their “dropped out from college” status. Of course, the cohort is led by people like Bill Gates, Mark Zuckerberg and Larry Page, who are still enjoying their “indefinite leave of absence” from their respective colleges (Harvard and Stanford). But among them there are few who did complete their degrees. Paul Graham is one of them who not only finished his PhD in Computer Science from Harvard but went on to study painting at RISD and the Accademia di Belle Arti in Florence. Surprising that someone interested in computers would also be interested in painting. Isn’t it?

So who is Paul Graham? In short, he is a programmer, writer, and investor. He was the co-founder of Viaweb which was acquired by Yahoo in 1998, where it became Yahoo Store. In 2005, he, along with few others, started Y Combinator, the first of a new type of startup incubator. Since 2005, Y Combinator has funded over 1000 startups, including Dropbox, Airbnb, Stripe, and Reddit.

He’s a nerd but a with a deep aesthetic sense and empathy for people who are outsiders to the subject of computer science. How do I know that? Well I have read his essays. Although most of them are centred around computers, he does cover topics such as wealth creation and unequal income distribution.

Apart from Hackers and Painters, Graham has authored two other books on a programming language called Lisp. Hackers and Painters is based on the essays that Graham published on his blog between 2001 and 2004. He continues to write on fairly diverse topics on his blog, which is a treasure trove of wisdom.

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InvestorInsights: Anonymous Value Investor

This month, we’ve interviewed one of the leading value investors in India who describes himself as an “old fashioned Graham style value investor who has taken a lot of knocks in his 30+ years investment experience.” He has requested anonymity – and thus we have named him Anonymous Value Investor or AVI – but we are sure you would realize after reading this interview how his amazing insights fit his above-mentioned description. Let’s start right away.

SN: What are the key factors that shaped your life as a value investor? What inspired you because I believe there would not be many value investors in India when you started, no Internet, no people to guide, not much research etc.?

AVI: I didn’t start out as a value investor. I started out analyzing bonds and businesses. And that continues to have a huge imprint on all my investment behaviour and thinking. As I see it, there’s absolutely no difference between a bond and an equity. The only difference is that in one there is no maturity and second the coupon rate has growth. Whereas in bond the coupon rate is fixed. But the method of looking at either a bond or an equity share is absolutely identical. There’s no difference. This is what John Burr Williams said way back in 1930s. And I think it’s incredibly relevant today.
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BookWorm: Rework

Today, anyone can be in business. You can do it without working miserable 80-hour weeks or depleting your life savings. That’s because tools that used to be out of reach are now easily accessible. Rework is about a new paradigm for anyone who’s ever dreamed of building something.

This is one book which can prove to be risky for you especially if you’re into a job and contemplating doing something of your own. I personally know few people who got so inspired from the book Rework by Jason Fried and David Hansson, that they actually quit their job. So before saying anything, let me issue this warning – read this book at your own risk. And let me also tell you this – ignore the book at your peril. 

The authors are people who run one of the most unconventional software company in the world – 37signals – known for their innovative products. It’s a company which has only sixteen employees who almost never see each other and are spread across 8 cities on two continents. And for the information of techies who are reading this, David Hansson is the creator of Ruby on Rails, an open-source web framework on which hundreds of thousands of web applications have been built – including Twitter.
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Behaviouronomics: Impact Bias

Human beings are generally terrible at predicting their own future emotional states which leads them to overestimate how extreme positive or negative events would affect their long term happiness.

Let’s say there was a way to quantify the mental state of a human being in terms of how happy and content he is feeling at certain moment. Now I invite you to contemplate following two different futures for two persons, given that their present mental state measures 1,000 units each.

The first person has just won US$ 10 million lottery. The second person had a terrible accident and both his legs had to amputated. Can you make a guess about each person’s mental state 1 year down the line after the above two events have happened? In first case would his mental state be less than or more than 1,000? Of course, it would be more than 1,000. Isn’t it? After all he’s a very rich man now.

What about the second case? In fact, most people talk about how devastating it would be. Some people even say they would rather be dead than never be able to walk again. And what would be your prediction about the reading on victim’s mental-state-meter? Isn’t it obvious it would be far less than 1,000? May be even less than zero.

Before we start discussing the answer to this question, take a moment and think about what your brain is doing to generate an answer for above question. You brain is imagining the state of mind of each person i.e. it’s simulating each scenario by putting itself in the situation and doing a rough evaluation about how it will feel. Right?
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Spotlight: Don’t Just Look for Moat, Look for Antifragility

A strong moat is about being resilient to competition. But antifragility is beyond resilience. Using the example of Berkshire’s insurance operations, we explore the characteristics of an antifragile business.

Wind extinguishes a candle and energizes a fire. Likewise with randomness, uncertainty, chaos: you want to use them, not hide from them. You want to be the fire and wish for the wind. ~ Nassim Nicholas Taleb

If you threaten a lizard, it may sometimes run away leaving its tail behind. As a kid it was the most fascinating thing I ever witnessed while conducting my own zoology experiments. It’s common in many lizard species to shed a part of their tails and this trick is employed by these reptiles to allow them to escape when captured by the tail by a predator. The detached tail writhes and wiggles, creating a deceptive sense of continued struggle, distracting the predator’s attention from the fleeing prey animal. That’s a fascinating self-preservation mechanism that evolution has given to lizards. And what’s more fascinating is that these lizards can grow that tail back in a matter of few weeks. What a robust way to deal with loss! If that sounds cool, then you must also know about Hydra. It is a serpent-like creature from Greek mythology. Hydra grows two new heads every time you cut one off. In Indian mythology, there is a similar character called Raktabija. A demon (asura) who has the magic boon that every drop of blood shed from his body give rise to another Raktabija (literally the blood borne).
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