The One Percent Almanack

Wit and Wisdom on Investing, Business, and Life

Spotlight: Understanding the Risk-Taking Cycle

History has a way of repeating with greater shocks in the financial markets and it shows up in the risk-taking cycle that investors go through.

I tend to collect the best quotes I read on various subjects in print or on the Internet in a document. As I was glancing through that document a few days back, searching for inspiration for my future posts, I found a few on the subject of history and how it repeats itself so often, especially in the financial world.

The philosopher Santayana stressed the penalty for failing to attach sufficient importance to history –

Those who cannot remember the past are condemned to repeat it.

Then, humourist and author Mark Twain talked about the
relevance of the past thus –

History doesn’t repeat itself, but it does rhyme.

And then, economist John Kenneth Galbraith described the shabby way investors treat history and those who consider it important as –

Contributing to…euphoria are two further factors little noted in our time or in past times. The first is the extreme brevity of the financial memory. In consequence, financial disaster is quickly forgotten. In further consequence, when the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world. There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

Warren Buffett said –

What we learn from history is that people don’t learn from history.

And here’s Charlie Munger’s version –

There is no better teacher than history in determining the future…

String together these three pearls of wisdom and you get a pretty accurate picture of investment reality. Past patterns tend to recur. If you ignore that fact, you’re likely
to fall prey to those patterns rather than benefit from them. But when markets get euphoric, the lessons of the past are readily dismissed. Investors start to say and believe in the “this time it’s different” theory, and completely forget the pain that such theorizing and subsequent actions had caused people in the past.
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BookWorm: Deep Work

Everyone knows about the life of Bill Gates and the success story of Microsoft but very few know about Bill’s another trait that has played an important role in making Microsoft what it is today. Bill Gates used to work with so much intensity for such lengths during his initial years while building their first product that he would often collapse into sleep on his keyboard in the middle of writing a line of code. This is the trait, a unique tendency to focus deeply on his work, which differentiated Gates from his contemporaries. Gates is also known to go for retreats twice a year which he calls “Think Weeks”, during which he isolates himself to do nothing but read and think big thoughts.

It’s this ability to do Deep Work that Cal Newport’s book, with the same title, is all about. The two most voracious readers of our times, Ryan Holiday and Shane Parrish. The two most voracious readers of our times, Ryan Holiday and Shane Parrish, have both recommended this new book. So goes without saying that it’s a must read.
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Life 2.0: Sugar – The Sweet Killer

Sugar should be treated like an illicit drug, a kind of legal form of heroin, a dark force to be avoided, and a substance whose use leads to physical ruin.

“My God! It’s everywhere!” I almost blurted out while scanning the food section in a supermarket in an attempt to find at least one product which didn’t have sugar in it.

If you thought that sugar is mostly in candies and desserts, you are too naive. Tomato sauce, yogurt, dry fruits, corn flakes, and bread – sugar is added in all of these. I realized that it’s difficult to find any processed food item which doesn’t contain sugar.

I suspect that even the shampoos and the soaps have sugar in it. You know, just in case it goes in your mouth while bathing, they don’t want to miss that one chance to feed you sugar.

And do you know the biggest disguise used by processed food industry to hide sugar is the term – low fat. Products labelled “low-fat” could still contain, and usually do contain, a lot of sugar. And remember, it’s not just fat that makes your fat. Sugar is the biggest culprit in making obesity an epidemic.

Am I complaining too much? Let me change the mood for a bit. Time for some fun trivia.

Did you know that until few hundred year ago, sugar used to be a very expensive item? In fact, it was considered a fine spice and was only available to rich. But from about the year 1500, technological improvements turned sugar into a much cheaper bulk commodity.

Ironically, sugar was imported by Greeks and Romans for its medicinal properties. When it was scarce and expensive, it was a fine spice. Now when it is abundant and cheap, it has turned into a fine poison.

Sugar is slower to impact our health (as we don’t die from an overdose right away), and it’s that slow destructive process that is the most dangerous. Unfortunately, most people don’t know the damage until it has already been done (diabetes for example).
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InvestorInsights: Rajeev Thakkar

With a long experience in the capital market, and in working with few of the doyens of value investing in India, Rajeev Thakkar has come a long way. In this interview, he shares key insights about his investment strategy and the underlying thought process that has helped him keep his head while his fund management peers were losing theirs.

Rajeev Thakkar possesses over 15 years of experience in various segments of the Capital Markets such as investment banking, corporate finance, securities broking and managing clients’ investments in equities. He is currently the Director and Fund Manager at PPFAS Mutual Fund.

Rajeev’s tenure at PPFAS began in 2001. His passion for researching and analysing the fundamentals of companies was evident. from the very beginning and very soon he was heading the Research division at PPFAS. His responsibilities soon expanded as he was appointed the Fund Manager for the flagship scheme of the Portfolio Management Service, titled “Cognito” in 2003.

Rajeev is a strong believer in the school of “value-investing” and is heavily influenced by Warren Buffett and Charlie Munger’s approach. In his interview with Safal Niveshak, Rajeev shares his wide investment experience and how small investors can practice sensible investment decision making.
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BookWorm: Seeing What Others Don’t

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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