Spotlight

In his 2010 letter to shareholders, Warren Buffett tells a joke —

Customer: Thanks for putting me in XYZ stock at 5. I hear it’s up to 18.
Broker: Yes, and that’s just the beginning. In fact, the company is doing so well now, that it’s an even better buy at 18 than it was when you made your purchase.
Customer: Damn, I knew I should have waited.

Reading this joke the first time, I laughed at broker’s convoluted argument and the stupidity of the customer. How can a stock be better buy at 18 than it was at 5?
[Read more…] about Exploration Vs Exploitation

A few months back I had written a post on Benford’s Law. It’s a fraud detection method to estimate if a given financial statement could be fake. In other words, it tells you if the numbers in a document are cooked up or real. When I first learned about Benford’s Law, I was like a kid with a new toy. I wanted to play with it immediately. Being a programmer, I wrote a small piece of code to extract the numbers from an annual report and test those numbers against Benford’s rule.

The next logical thought was to use my code and run it on the annual reports of all the publicly listed companies. This way, I could immediately identify all the companies which could be faking numbers. Wouldn’t that be cool? For some time, I even dreamed of floating a startup with this killer fraud detection product. I was going to be rich.

Now, instead of building my million dollar startup, I am writing this post. That should already give you a hint how that story turned out.
[Read more…] about The Tyranny of Screening Tests: From Medicine to Investing

It took the world by surprise when Warren Buffett announced that he’d be donating all his personal wealth to Bill Gates foundation. Till then people imagined Buffett and Gates as two fierce businessmen trying to outdo each other for the top spot on the Forbes list of billionaires. Bill Gates has dominated that list for a good part of last 25 years. Buffett has also remained in top five for the same period.

So Buffett’s decision came out as a shocking announcement. However, very few people knew that Warren Buffett and Bill Gates had been very close friends since 1991. They watch movies, go on family vacations and play bridge together.

In 1996, Bill Gates wrote about an incidence when Buffett invited him to play a game of rolling dice. He showed a set of four dice to Gates and proposed that both of them choose once die each from the set and discard the remaining two. Then whoever rolls a higher number most often would be the winner. [Read more…] about An Early Bird Or The Second Mouse?

When it comes to thinking and decision making, Derek Sivers is one of my favourite contemporary philosophers. In 1998, Sivers was making a comfortable living as a full-time musician. He wanted to sell his music CDs online, but there was no way for a small time musician to sell online, so Sivers took matters into his hands 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. Ten years later when he sold the company, it was doing $100 million in revenues. Sivers gave away the proceeds from the sale ($22 million) to a charitable trust.

We had covered Sivers book – Anything You Want – in detail earlier. You can read that post here.

[Read more…] about It’s Either HELL YEAH! Or No

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