Thread by @badola_arjun

My notes on lecture given by Prof. Sanjay Bakshi, "The Opposite Of A Good Idea".

Before we get into it, if you want a pdf of this thread then please do join into my email list and receive the pdf instantly.

mailchi.mp/5addefdebc39/t…

First builds argument for having a focus approach towards everything.

Focus in life:

The power of extreme focus:
Swami Vivekana: take one idea and make it your life
Swami Sarvpriyanda: talk on concentration: Dhyana
relates it to lecture: vantage point, "Bhav Bhagwan Chee"

Recommends:
1. Flow by Mihaly Csikszentmihalyi
2. Solitude and leadership by William Deresiewiz
3.Deep Work by Cal Newport

Focus in business:

Some businesses have created niche for themselves and became great at it.

Diversification must have some synergy.

Ex: Low valuation in such businesses means Market is saying give us the money back and do not put money in unrelated business!

On Distraction:

Talks about term 'serendipity', accidentally discovery, which could only happen when one is distracted.

Recommends: Max Gunther three books: The Luck Factor, How to get lucky and The Zurich Axioms.

"The lucky are aware that life is always going to be turbulent sea of opportunity drifting randomly past in all direction" - Max Gunther

"Chances favors the prepared mind"- Louis Pasteur

Some accidental discoveries:
 Louis Pasteur agreed that he had discovered vaccines by an accident.
 A conversation with a vet led to founding of Serum Institute
 Penicillin discovered due to an accidental growth of a mold on another lab item.

 Lasers were first to be used as radar
 Internet was used as military network
 Chemo Therapy was for side effects of mustard gas
 Viagra was for treating heart disease and BP

Talks about Jeff Bezos:

Jeff says that "there there's always be serendipity involved in discovery."

Jeff writes to "invent, you have to experiment. And if, you know, in advance that it is going to work, it's not an experiment." {Risk aversion vs Loss aversion)

Jeff writes again, "failure comes part and parcel with invention. It's not optional. We understand that and believe in failing early and it rating until we get it right. When this process works, it means of a failure that relatively small in size. And when we hit on something...

...that is really working for customers, we double down on it with hopes to turn it into an even bigger success. However, it is not always as clean as that. Inventing is messy. And overtime, it's certain that we will fail at some big bets too."

Bezos understood experiments as the necessary evils for becoming successful. For him failure is not the opposite of success.

Failure is an ingredient of success.

Jeff says "Outsized returns come often from betting against conventional wisdom and conventional wisdom is...

...usually right, given a 10% chance of a hundred X payoff. You should try that bet every time, but you're still going to be wrong. Nine times out of 10. We all know that if you swing for the fences, you're going to strike out a lot, but you're also going to get some home runs."

Compares Baseball and business:
"The difference between baseball and business. However, is that baseball has a truncated outcome distribution when you swing, no matter how well you connect with the ball, the most runs you can get is for in business. Every once in a while, when...

...you step up to the plate, you can score a thousand runs."

Therefore it seems that distraction is also good.

Recommendation:
Book: Alchemy: The Surprising Power of Ideas That Don't Make Sense the opposite of a good idea can also be a good idea.

"Unlike in physics, when dealing with humans, the opposite of a good idea can also be a good idea" - Rory Sutherland

Rory Sutherland gives two example of contradictory ideas:

1."Not many people own one of these, so it must be good. (Scarcity) Case study: Ferrari: hbs.edu/faculty/Pages/…

2. "lots of people already own one of these, so it must be good." (Social proof) Ex: Amazon, nudges you into buying by showing how many people have bought
it.

Both the ideas work but not every time like for social proof model check Toyota which has not being a wealth creator, which went with the social proof idea.

Content matters:

Talks about the book written by Peter Theil.
It's just not possible to conduct such experiments in the realm of social science.
For example, we would have to rewind to 2004 create thousand copies of the world and start Facebook in each copy to see how many...

...times it would succeed.

Statistics doesn't work when the sample size is one.

Shares an example using this article as source:
Recommends reading:
nytimes.com/2007/04/15/mag…

The example goes like this: Imagine you are in an experiment and asked to rank music in order of likeness

But people who designed this has put you in a parallel world 7 and there are 8 of them. This happens to each participant and there are 14,000 of them.

80% end up in a parallel world and 20% in independent world

Independent world: No social proof as you can't see the other people's choice, which means no influence on your choice by others.

Parallel world: You have social proof which will affect your decision but you don't know that other parallel world exist.

Lessons from experiment:
1. Choices are all scattered in independent world
2. Most popular songs in any parallel world are more popular than in the independent world and the least popular song in parallel worlds are more popular in the independent world.

3. But the songs that became hits in each of the parallel social worlds were not the same as the most downloaded song. There was a role of luck involved too as if a song was popular when a lot of people were entering it then that song became more popular.

So, what works in one world may not work in the another world. There is a lot of randomness involved in success.
One would become aware of that when you deal with people who has opposite ideas which have worked.

Its like being in the right place at the right time.

Rory Sutherland urges to try things that look silly and go against conventional wisdom.

Here is an example of what he means:
Imagine you are given a task to build a cold non-alcoholic drink which will be a competitor to Coca-Cola.

The most common ideas who be:
 Building a taster product
 which costs less
 comes in big bottle
 hence provides great value

But there is a company which did the opposite thing:
 made a disgusting tasting drink
 which is expensive
 and is sold in ting can
...that drink is Red Bull

Therefore, opposite of a good idea is also a good idea.

Connects this concept to investing by sharing 6 idea pairs which work:
#1 Pair: Kelly vs Ergodicity
If you want a concentrated portfolio, use the Kelly formula and if you want a diversified portfolio, go to Graham who warns about the dangers of blowing up.

#2 Pair: Weak vs Strong Balance Sheets
Strong one saves your from surprises and weak one gives you a chance of gaining from a turnover.

#3 Pair: Momentum vs Mean Reversion
When you invest in fundamental momentum plays your ideological faith is in compounders, but you invest...

...in mean reversion place you love investing in
cyclicals, both ideologies work.

#4 Pair: High vs Low Cost Producers
When you invest in low cost producers in commodity businesses, you are seeking competitive advantage like Phillip Fisher did, but when you consciously invest...

in securities of the highest cost producers, you are betting on the rise of the price of a commodity and event that will lift the earnings and market value of the highest cost producers.

#5 Pair: Microcaps vs Largecaps
When you work in microcaps, you want to buy businesses...

...before they become large enough to be noticed by the big guys. And when you buy out of favor, large caps, you are exploiting Graham's team called relatively unpopular, large company.

#6 Pair: Commodity Businesses vs Moats
When you invest in moats, you are running towards...

...Phillip Fisher and when you invest in commodity businesses at bargain, you're running towards Graham.

---END OF PRESENTATION---

Now, Q&A Session:

Q1 Which investing process works for you?

He has tried a lot of style of investing and gone of many changes in his style. In the beginning there was a lot of outer scorecard but soon you develop and follow your inner scorecard which focuses more on peaceful investing. So you should just get better at your own...

...game and if you achieve your financial goal then that is it.

Q2 Do you think that there is any point where an investor say that, Yes I have discovered what works for me, Or do you think that an investor should continuously keep on looking out for a variety of approaches?

Both are good ideas as settling down with one approach gives you peace but continuous looking is a good idea too!

Recommends watching: Jiro dreams of sushi
Lesson: Nobody knows where the top is. Even the gurus make mistake.

Q3 How do you handle self-doubt with your performance? Like value investing not working for past years.

Prof. says that it is not that value investing has not worked the definition of it is very wider which covers a lot of investors in it.

People who used to buy net-net have not done well because the times have changed and there are a lot of
research that show us that best assets of the company are not in the books at all.

There will also be something which will do better than your approach, it would go for...

...very long too and which leads to becoming the new normal. Like the boiling frog syndrome where the changes happen slowly and you don't realize it.

Self doubt is a wonderful thing because the moment you don't have self doubt, then you are become arrogant. It makes you...

...wonder if you were at fault or, the times have changed.

But this is still difficult to answer as there is delay in feedback by the time you know whether your analysis was right or wrong it gets too late.

And to deal with years of underperformance is by knowing that...

...mistakes will happen. Then when it happens, you move on, you don't think too much about it because it's part and parcel of the game. but sometimes you will realize that this could have been avoided. You went completely wrong on either the valuation of the business...

...or the evaluation of the management, or you paid too much, you were over optimistic, etc.

Q4 What approach should the new investors follow?

It is important to have an open mind and know that there are a lot of approaches that work. I think Prof. has noticed that when...

...your system is working you start making fun of other people's approaches. But you don't realize that you were actually standing at the cliff about to fall. You don't
know, you don't know it.

You can learn from every approach like Prof.'s friend is a trader and he has...

...learned detachment from bad bets from him. Sometimes not acting itself can make you huge money. So one can learn a lot from cross-fertilization.

One must remember if your ideology is working it doesn't mean it will always work or other's approach is wrong.

Q5 Why you have not talked about valuations in your presentation? Can different ideologies bound together when you bring in the valuation aspect?

Valuations do matter according to him and No, different ideologies cannot be bound together even when you bring in the valuation.

If a company is sitting on cash but not paying on dividend then there is a clash between two approaches here. One which looks for cash bargains and one
which focuses on dividends.

You have to realize that what you think is a great business will not be a great business.

Recommends book: Dead Companies Walking

Just examine how many companies who were once great, do they exist today? There are really few of them. Many companies which seems to be dominant today will cease faster than they did in past 20-30 years.

Prof. prefers mean reversion over fundamental momentum.

Q6 how do you measure luck versus skill in your own case?

Investing is a field where feedback is delayed unlike sports. It is hard as you can't do controlled experiment, like he mentioned about Peter Theil.

So its very hard to isolate luck and skill in investing.

In social science we have sample size of one. We can't compare current pandemic with 1918 pandemic. The times have changed a lot. It not about you and one must understand in what environment you work. Shares example of what Warren Buffett calls 'Ovarian lottery'.

Deep down I must know what has worked and not get puffed up about it rather take a humble approach and keep learning from the environment around you.

If you think that a lot has got to do with luck that does not mean that, you can't attract luck.

You can attract luck by:
 Being open minded
 Experimentation
 Not rigid towards one idea

Nassim Nicholas Taleb says: There will be Black Swans, Negative and Positive, one will destroy you and another will create fortune for you.

Therefore, one must position themselves for luck.

Q7 How does one focus in an environment of distraction?
 Use DND on phone
 Freedom app
 Scrivener app
 Mind Mapping
 Dont watch TV

 Dont borrow money for stocks: Even if it makes you money because you will get hook to it
 Don't get over confident about your style of investing

---THE END--

Tagging some people I admire for higher reach :)
@Sanjay__Bakshi @contrarianEPS @dmuthuk @Vivek_Investor @VijayKedia1 @ms89_meet @Dinesh_Sairam @BMTheEquityDesk @FI_InvestIndia @AnyBodyCanFly @safiranand @unseenvalue @shyamsek @SmartSyncServ @Iamsamirarora @Gautam__Baid

moderated by @NeerajMarathe

(sorry forgot to add at the start😅)