Wit and Wisdom on Value Investing
Have you ever wondered where did the idea of “40-hour work with 2-day weekend” begin? Many believe that it was Henry Ford who started this practice of 5-day work week. Ford is considered one of the greatest capitalists of the last century.
In an apocryphal account, a journalist asked Ford the secret behind his massive success.
“Two words,” replied Ford, “Good decisions.”
[Read more…] about Bookworm: Thinking in Bets
Aldous Huxley an English philosopher once said-
Experience is not what happens to a man; it is what a man does with what happens to him.
In isolation, experience and knowledge are useless. It’s the symbiotic relationship between these two that makes them valuable. Knowledge which doesn’t inspire action has a shelf life of a banana, i.e., it doesn’t last long. When actions don’t refine back the knowledge that initiated them, it’s like throwing darts in the dark.
Stories lie but numbers don’t, goes the adage. However, evolution has wired the human brain in such a way that our neural machinery isn’t optimized to have an intuitive feeling for numbers. As a result, numbers mislead us. Sometimes in shocking ways.
Lives have been destroyed because of wrong interpretation of numbers.
In the early days of HIV testing, twenty-two blood donors in Florida (USA) were notified that they had tested HIV-positive on the ELISA (a preliminary test); seven of them committed suicide. Unfortunately, they were unaware of the frequency of false positives in ELISA. The Internet is brimming with stories of people who were unnecessarily subjected to extreme stress and misery because they were not aware of the false positive HIV tests.
Derek Sivers was a full-time musician in 1998 making a comfortable living. One day he decided to sell his music CDs online and found that there was no way for a small time musician to sell online. So he learnt to program and built a website to sell his CDs. Very soon his friends started requesting him to list their CDs on the website. That’s how CD Baby was born and 10 years later it was doing $100 million in sales. In 2008 Sivers sold CDBaby.com and gave away the proceeds ($22 million) to a charitable trust.
Sivers never wanted to start a business and when he was running CD Baby, he intentionally wanted to restrict the growth so that he could run it the way he wanted. Ironically, those self-imposed constraints became the trigger for CD Baby’s growth.
If you are familiar with the terms ‘value investing’ and ‘behavioural biases’ then chances are that you have heard about ‘checklists’ too. The idea of checklist has been made popular in recent times by Dr. Atul Gawande.
A surgeon by profession, Dr. Gawande is also a prolific writer and deep thinker. He is a staff writer at ‘The New Yorker’. Charlie Munger was so impressed with one of his article that he mailed him a $20,000 cheque as a thank you.
[Update: Dr. Gawande was recently appointed as the CEO of a healthcare venture formed by Amazon, J.P. Morgan and Berkshire Hathaway.]
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