Quote of the week:

“Another idea that I got, and this may remind you of Confucius too, is that wisdom acquisition is a moral duty. It’s not something you do just to advance in life. Wisdom acquisition is a moral duty.” (Source)

Lessons from Warren Buffett’s 10-year bet

During periods of heightened uncertainty, time horizons compress, and many investors become overly focused on the short-term. This is basic human nature. To counterbalance this sort of thinking, I find great value in returning to the fundamentals that matter to investors over the long-term—business analysis, research, understanding market patterns, and so on. This week, I happened to re-read Warren Buffett’s 2017 shareholder letter, which is a masterclass example of the type of big-picture thinking that’s required to compound over the long-term.  

In it, Buffett writes: “Stocks surge and swoon, seemingly untethered to any year-to-year buildup in their underlying value… Though markets are generally rational, they occasionally do crazy things.” He continues:

“Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential.”


What investors can learn from billiards: Probability theory

Joe Wiggins, CIO of investment advisor Fundhouse UK, wrote a smart essay reflecting on why most investors typically don’t think in terms of odds and probabilities (though they absolutely should). Wiggins uses the analogy of billiards to think about how to win in the stock market: Some players simply try to win the game outright, while others look for specific games where they can get an edge, and thus have a higher probability of winning.

I’m not an avid pool player but the analogy struck as particularly insightful: “Thinking about odds and probabilities is not intuitive and often uncomfortable, but it should be essential for all investors,” Joe writes. “It is far better to be an average investor with the odds on our side, than a good investor with the odds stacked against us.”

“Although Goodman was a pool player, this wasn’t his primary skill: ‘Goodman has a knack for figuring out complex odds and probabilities.’ His main enjoyment from pool was not the game itself, but in attempting to secure an advantage in agreeing the terms of the game. His edge was not in shooting pool but setting the odds in his favour. ‘That’s my favourite part, the negotiating…This is where you win.'”

A few more links I enjoyed: 

“I try to think about the things that we can actually control. Is this going to be a big thing? I’m highly confident it will be a big thing. Timing I think is harder to predict but the thing that I feel pretty confident about is that if you look at the other big tech companies, they typically have decades of building out their own operating systems and this kind of computing platform infrastructure, they just have a lot of other technology to bring to bear. Which I think means that if we develop this at the same time as an Apple or a Google or an Amazon, then there are a lot of advantages that they might have. So on timing what that suggests to me is we need to be on the early edge of this, not the late edge or showing up at the same time if we want to help push this forward and really help to shape what the standards are.”
“Gustav Söderström is Spotify’s Chief Research & Development Officer. He has the CPO & CTO responsibility, overseeing the product, design, data, and engineering teams at Spotify and is responsible for Spotify’s product strategy. Gustav is also an entrepreneur and investor who has founded and sold startups that he co-founded to Meta’s Oculus in 2014 and then also his first startup which he co-founded and led as CEO, up until their acquisition by Yahoo! Gustav is also the host of the podcast mini-series — Spotify: A product story — which offers a glimpse into the decisions that have guided Spotify’s product evolution.”

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