2-3-4 Friday

‘Seeking to spark the most potential within you per word of any online newsletter’

1 thought

As a young 8 year old, I was introduced to the world of investing by my grandfather. My parents were working and they would leave us with our grandparents.

He would see the live prices on the television, in boring monochrome numbers, and then call his broker.

When he finally passed away, he left behind a big sum of money.

I never understood how he made it.

He only worked in a telephone company. And for years, all I saw him do was sit in his white singlet and shorts, lean back on his rocking chair, stare at the television, and make daily calls to his broker.

Occasionally, when my father came to pick us, he would talk about how a company had done badly in the day’s trading.

Whilst he never explained to me what he was doing, it was the first time I got an inkling that money could be made differently. Not by plugging away at my books, but simply sitting back, observing, and thinking.

Then came my turn.

When I was 20, I was given a sum of scholarship money to study abroad. I promptly started buying the index funds, which famed investor Warren Buffett told investors to buy. He argued that since we could hardly ever beat the market, we should buy the market. No need to think! No need to choose!

Just buy the whole damn thing!

And for years, I did it. Until I realised that all I achieved, was average results. Sure, a paltry 8% per year was nothing to sniff at. A $10,000 investment grew to $10,800, more than what you’d get in a bank account.

But then I decided that I wanted to understand how businesses were run, how they made money, and how they used the public markets to defray some of the risk they took on.

That’s when I started buying individual stocks.

And that’s when I realised that for a long time, the conventional media had taught us to be average, and to accept that average, was probably the best we would ever do.

It tells us that there’s no point thinking so much, because even if you do, you won’t win.

That, is dangerous.

Don’t get me wrong. Not all of us should and can study financial statements and understand businesses. That’s why we hand our money to insurance companies and financial advisors.

But doing that means that we accept average, as good enough.

We stop thinking that better is possible, and start accepting the curse of average. This may not be explicit. But implicit, subtle, and unconscious.

We see this in many other aspects of our lives. In our careers, we hear what our bosses say about our skills and weaknesses, and we accept that is the career we will have.

We hear what politicians say about the economy, and we don’t pause to think,

is this really true?

Does this really work?

In other words, in the words of investor Howard Marks, we fail to exhibit second-level thinking.

1 talk

In some pursuits, getting up to the front of the pack means more schooling, more time in the gym or the library, better nutrition, more perspiration, greater stamina or better equipment.

But in investing, where these things count for less, it calls for more perceptive thinking ...at what I call the second level.

- Howard Marks, I Beg to Differ

1 tip

Howard Marks continues,

In order to outperform, your thinking has to be different and better.

Different and better.

He offers a range of questions we can think through:

• What is the range of likely future outcomes?
• What outcome do I think will occur?
• What’s the probability I’m right?
• What does the consensus think?
• How does my expectation differ from the consensus?

I want to share what this looks like, especially if we are not investors like Howard Marks.

What’s helpful is to put your experiences through an added level of critical thinking. I find myself using this most when I:

1. Encounter what most hold to be true - for example, the Singapore narrative of home ownership. Not that this is a bad thing, but it may not always be the right thing to do, at every point in time.
2. Hear a consensus view in the team - for example the idea that year on year, we should always be earning more money, having more clients.

It’s not enough to just spot it. It’s more important to be willing to break away from the consensus view, and to do something about it.

Mind you, this is not going to be comfortable. But it’s going to be a better predictor of above-average outcomes - if that’s what you want.

Don’t just dare to think different. Dare to be different.

Not because average is bad. It’s because I fundamentally believe that each and every one of us has it within us to be better than average, if we dare to be uncomfortably idiosyncratic. (Hat tip to David Swensen, who ran Yale’s endowment fund).

John

Live Young, Live Well - Work Your Love

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