Vishal Khandelwal

BookWorm: Seeing What Others Don’t

January 10, 2016

An effective decision making process needs two things. Reducing errors and gaining insights. What if you could find a way to gain more insights than most people.

Two cops were stuck in traffic. They were on a routine patrol. As they waited for the light to change, the younger cop glanced at the fancy new BMW in front of them. The driver took a long drag on his cigarette, took it out of his mouth and flicked the ashes onto the upholstery.

The younger cop couldn’t believe it. He exclaimed, “That’s a new car and he just ashed his cigarette in that car. Who would ash his cigarette in a brand new car? Not the owner of the car. Not a friend who borrowed the car. Possibly a guy who had just stolen the car.”

Upon quizzing the driver, it did turn out to be a stolen car. The cop noticed something which wasn’t obvious to others. He had a brilliant Insight.

The example comes from the book Seeing What Others Don’t by Gary Klein, a renowned cognitive psychologist.

Charlie Munger, the inimitable partner of Warren Buffett, likes to quote,

A lot of success in life and success in business comes from knowing what you really want to avoid.” He favours the attitude where one is consistently trying to avoid stupidity instead of running after brilliance.

On other hand, the key to success, according to Munger, is “Work, work, work and hope to have a few insights.”

What I infer from above two statements is that, in life and in business, reducing errors is good strategy but one shouldn’t forget about generating new insights too. The following illustration from the book captures the idea very well.
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Behaviouronomics: Planning Fallacy

January 8, 2016

Plans are useful in the sense that they are proof that planning has taken place. The planning process forces people to think through the right issues. But then, everybody has a plan until they get punched on the face.

When I planned my first road trip from Bangalore to Goa, I calculated that the distance, about 560 km, should take little more than 9 hours. Factoring in stopovers and few unexpected events like a flat tyre or traffic, I assumed that 12-15 hours should be sufficient for the road trip. It turned out that I did managed to Goa in 15 hours.

Now based on this, if I had to forecast the time it would take to cover a distance of say 5,000 km, a road trip to cover major cities in India, I might be tempted to extrapolate the Bangalore-Goa trip time. I’ll probably calculate that 560 km took one day so 5,000 km should take 10 days plus 2-3 more days.

Am I being reasonable in my estimation?

What I am forgetting here is that the second road trip is not only longer but more complex and subject to many more unforeseen and unexpected events. My estimation is fraught with over-optimism bias. And I am not alone in making this kind of mistake.

There are many ways a plan can fail and most of those things are too improbable to be anticipated. The likelihood that something will go wrong especially in a big project is high. Overly optimistic forecasts of the outcome of projects are found everywhere.

In fact, how often are you able to complete everything on your to-do list at the end of the day? This shows how absurdly ambitious we’re in planning.

This bias, a phenomenon in which predictions about how much time will be needed to complete a future task display an optimism bias (underestimate the time needed), is called Planning Fallacy.
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Spotlight: Making Mistakes in Investing

January 5, 2016

When it comes to investing in the stock market, making mistakes is business as usual. But what hurts investors is either trying to avoid all mistakes, or not learn from the past ones.

A life spent making mistakes is not only more honorable but more useful than a life spent doing nothing.~ George Bernard Shaw

IBM and Coke represent two of Berkshire Hathaway’s three biggest investments (the biggest being Wells Fargo). However, disappointing earnings announcements at these companies cost Warren Buffett a few billions last year.

These losses added to a recent rough patch for Buffett, who slashed Berkshire Hathaway’s stake in British retailer Tesco, also last year. He described buying into the stock as a “huge mistake” after the company announced another earnings disappointment and, over that, a £ 250 million accounting scandal.

The media was rife with these big “mistakes”, especially Tesco, and was surprised how the world’s best investor could commit them. But then, Tesco isn’t Buffett first mistake and it won’t be his last mistake either.

He started making mistakes with Berkshire Hathaway, the textile company he bought in the 1960s, and has built up a list over the years. So Buffett has…

• Bought a lousy business (Berkshire’s textile business)
• Bought a stock at the wrong price (ConocoPhillips)
• Confused revenue growth with a successful business (US Air)
• Invested in a company without a sustainable competitive advantage (Dexter Shoes)
• Misjudged the company’s prospects (Energy Future Holdings)
• Trusted the wrong people (Salomon Brothers)

It is easy to get carried away counting the mistakes, questionable decisions and blunders Buffett has made over the decades.
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BookWorm: Made to Stick

December 30, 2015

The speaker had a charisma. He was smooth, articulate and delivered a very entertaining speech. The audience were spell bound while he was speaking. A perfect ten on ten.

Here’s the rub. When the audience were surveyed about how much they remembered from our star speaker’s speech, most of them couldn’t recall much. All they remembered that the guy was good.

What a waste of time and effort for both speaker and audience, unless it was a stand-up comedy show where the audience just wanted pure entertainment and then forget everything the next day.

In today’s knowledge economy, what’s more important than ideas? It’s an ability to execute those ideas. But there is another critical piece of puzzle, especially when you are working with a team, which is how sticky your idea is in other’s minds.

“Sticky” is a metaphor to emphasize that your ideas are understood and remembered, and have a lasting impact. A sticky idea changes your audience’s opinions and behaviour. Your ability to add value or bring any meaningful change is determined by your ability to make your ideas stick.

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Life 2.0: Join the 5 A.M. Club

December 28, 2015

If you want to make your dreams come true, the first thing to do is wake up. Why not wake up early and realize your dreams earlier.

When I was a kid my father used to tell me – “Early bird gets the worm.

I am no bird and I don’t like worms,” I would tell him and never really took his advice seriously.

Early to bed and early to rise, makes a man healthy, wealthy, and wise, was my mother’s version of motivating me to get up early in the morning. Although the quote originally came from Benjamin Franklin, I was least bothered about who said it. Getting up early was nothing less than a torture and was never in my top ten priorities for most of my childhood and teenage years.

In fact, for the first 25 years of my life, I never really understood the importance of being an early riser. But slowly as I was exposed to the writings and works of great leaders, creative artists, thinkers, authors and business leaders I started observing the pattern. Most of these people were early risers. They used each morning to write, read, ponder, and plan for their day.

Ernest Hemingway felt he did his best writing in the morning. He wrote, “There is no one to disturb you and it is cool or cold and you come to your work and warm as you write.” He’d get started at 6 A.M. and write non-stop until noon.

Benjamin Franklin would wake every day at 5 A.M. and would use the time to wash, dress, and plan his day’s work. He has in fact written a whole book on the benefits of rising early.