A thread on "Alchemy: The Surprising Power of Ideas That Don't Make Sense" book by @rorysutherland
Challenging COCA COLA:

The book starts with an amazing example where it shows you that the opposite of a good idea is also a good idea.

Let's say you want to make a company which will be competing against Coca Cola, what qualities would you want in your product?
The common sense would say that, a product that is cheaper, tastier and comes in bigger bottle.

But there is a company out there which did just the opposite. It tastes disgusting, Comes in a ting can and,
its expensive.

The company is RED BULL.
The Case for Magic:
A spreadsheet leaves no room for miracles, same could be applied in Investing.

Engineering doesn't allow for magic. Psychology does.
Butterfly Effect does exist, its just we don't spend time hunting it.
Shares his experience:
 A website added a single extra option at checkout and sales increased by $300m per year
 A fast food outlet increases sales by increasing the price of the product.

Everybody is occupied in searching for logic, but there are many irrational solutions.
Cracking the (Human) Code
To reach intelligent answers, you often need to ask really dumb questions.

Likewise, I feel it can also be connected to any work you do. At the initial stage the work might suck but after crossing that stage only then one reaches the stage of great work
Introducing Psycho-Logic:
Psycho-logic [Psychology + Logic(Rationality)] term is used as an alternative to the term rationality in the book.

As for getting 'rational' decision (or, you could say more intelligent decision) one must also observe the psychology behind it.
Words like emotion are generally used to relate with irrational behavior.

Like saying, "You are being emotional.

Not everything that makes sense works, and not
everything that works makes sense.
Ex: Physicists still cannot fully understand how bicycles work.
Some Things are Dishwasher-Proof, Others are Reason-Proof:

More data leads to better decisions. Except when it

The need to reply on data can also blind you to important facts that lie outside your model

A single Black Swan even can put your model into a chaos.
In theory you can't be too logical, but in practice you can.

To solve logic proof problem it requires intelligence and
awareness/acceptance that you could be wrong.

Being logical is fine but one must be careful when there is logical overreach...
Which demands that every solution must have an logical rationale before it can even be considered or attempted.

Ex: Showing a duck in a commercial ad increases your chances of people remembering your ad.
On Nonsense and Non-Sense:
Be careful before calling something nonsense.

Religion feels incompatible to modern life as it was based on delusional belief but the many of the practices involved were beneficial, just that the logic used for performing such activity was irrational.
Like: Fasting, no Alcohol, etc.

Just because we don't know why it works, we should not be blind to the fact that it does.

Ex: Ad of an airline focusing on the quality of food is better than giving out specification of the aircraft, 90% of the people know nothing about it.
Logical ideas often fail because logic demands universally applicable laws but humans, unlike atoms, are not consistent in their behavior.

Like: Human relations have more obligation towards some people(Friends, family) than others (stranger).
The Opposite Of A Good Idea Can Be A Good Idea:

There are two contradictory ideas to sell a product:
 "Not many people own it, so it must be good"
 "lots of people already own it, so it must be good"
In physics opposite of a good idea is a bad idea the same is not true in psychology.

Author shares an experience of buying linen:
He decided that he would either spend zero or a lot of money.
Zero: This would help him save and spend money on things we like more
A lot: He would get excitement by the luxury that product offers.

Going by a middle choice would give him neither of these feelings.

For connecting this concept with investing see a webinar by @Sanjay__Bakshi :
Context is Everything:

Economic worldview has been dominated by decision making for far too long.

Natural human love for certainty also prevent businesses from making novel discoveries.

No big business idea makes sense at first.
"People will write the entire thing for free!" (Wikipedia)
"uncomfortable fabric which fades unpleasantly and which takes ages to dry and is very popular among labourers." (Jeans)
"People will be forced to choose between three or four items" (McDonald's)
"A drink has a taste which consumers hate." (Red Bull)
"$5 for a drink which they can make at home for a penny." (Starbucks)

You can never be fired for being logical, But then you will be placed at par with the competition.

Test counterintuitive things because no one else will.
Why We Should Ignore Our GPS:

It gives you the fastest way possible but ignores the psychological factors.

Like: If you are on a holiday you might want to take a longer route or a cleaner road.

They come with high optimality but low on optionality.
We do not know why we get take certain decisions and sometimes it is best that those feelings are left unthought.

Ex: Hare jumps in random pattern when chased by predator and it itself is not aware of what pattern the hare jumps in.
But if the hare becomes aware of its jumps then it could leave clues/pattern for its predator.

People give more credit to success by superior technology or better supply chain management compared with unconscious, unspoken human desire.
Ancillary details have a far greater effect on our emotional response.

For a business to be truly customer-focused, it needs to
ignore what people say. Instead it needs to concentrate
on what people feel.

Ask basic question and check emotional needs behind it.
On The Uses And Abuses Of Reason:
If you look at having food the reason behind it might seem that we do it for getting nutrition. Yes, that is one of the reasons and the most important one.

But if, you think you can replace it with a pill just on that reason there is a...
...high probability that would fail.

But do check out @soylent. They are trying to replace your meal.

Having food is also associated with social gathering and the experience you get by consuming the food.
Once we are honest about the existence of unconscious
motivations, we can broaden our possible solution.

The Broken Binoculars:

Providing people the information which can help them take action plays a huge role in one success in conveying the message.
Ex: Flight is delayed or Flight is delayed by 30 mins.
The loss of power and control can far stronger feelings of annoyance than the loss of punctuality.

I Know It Works In Practice, But Does It Work In Theory?:

All too often, what matters is not whether an idea is true or...
...effective, but whether it fits with the preconceptions of a dominant cabal.

If your solution does not fit in the logically or rational framework then it has very low probability of getting acceptance from people.
Its difficult to get a man to understand something, when
his salary depends on his not understanding it. - Upton

Psychological Moonshots:

A moonshot means an innovation which would change the status quo by a factor of ten.
It is easy to achieve massive improvements...
...in perception at a fraction of the cost of equivalent improvements in reality.

Like Uber's Map which makes the waiting time less frustrating I feel similarly just making an app for any task which we do in our day to day life will help you out perform other.
Another example: Licious, FreshToHome, CountryDelight, etc. they are just making an app to connect with sellers and delivery it for whatever things we used to do in our daily lives. Like buying milk, meat, etc.
In Search Of The 'Real Why?' Uncovering Our Unconscious Motivations:

You will never know your Unconscious Motivations unless you are in an environment where people can point to you without any fear.

Just because there is a rational answer to something it
does not mean...
...there isn't a more interesting, irrational answer to be found.

 Why do people buy ice cream in summer?
To cool down on a hot day?

The three countries with highest per-capita ice cream sales are in Europe (Finland, Norway, and Sweden)
Sweden is a country with big differences in daylight. In the far north the sun does not set at all in June and there is darkness around the clock in January. However, in January in Stockholm the sun rises at 8:47 am and sets at 2:55 pm, while in July the sun rises at 3:40 am...
...and sets 10:00 pm.

Sunshine is a better indicator for ice cream sales than the

Another Question: Why do people go to the doctor? What people is mostly seeking is not treatment, but reassurance.
The Real Reason We Clean Our Teeth:
Obvious it is to prevent cavity and maintain good dental health but the consumption behavior tells us a different story

If we really cared about that then we would have brushed after every meal.
The times when people are most likely to clean their teeth are before special moments to prevent bad breath or a ugly look. Ex: Before meeting someone, party, etc.

Ask yourself: why is almost every toothpaste mint flavored?
He mentions that there is no medical evidence...
...that Mint flavored is healthy, instead its just minted for the feel.

Ask yourself: Why do we have striped toothpaste when inside everything is going to mix?

It is due to psycho-logic. psychological the stipes gives us a signal that the toothpaste performed more than...
...one function.

When you see visual signal then the product becomes more convincing.

The Right Thing For The Wrong Reason:
We adopted behavior many years ago even before we knew the right reasons for it.

Instincts are inheritable, whereas reasons have to be taught.
Quotes Nassim Nicholas Taleb, "There is no such thing as rational or irrational belief, there is only rational or irrational behavior"

To encourage any behavior in the society just attach an emotion to it.

As far as a behavior is beneficial, one can attach any reason to it.
You Don't Need Reasons To Be Rational.

If you look at history a lot of beneficial behavior is driven through religious beliefs.
Ex: Strict dietary law in Islam and Judaism, it has another benefit of socializing as people sit together to eat.
In trying to encourage rational behavior don't confine
yourself to rational arguments.

If you do that, you would be using only a tiny sets of tools available with you.
How You Ask The Question Affects The Answer:

Waiter asking "Still or sparkling water?" makes it difficult to stay tap water.

Quotes Nassim Nicholas Taleb, "The way a question is phrased is itself information.'
A Change in Perspective is Worth 80 IQ Points:

The inability to change perspective is equivalent to a loss of intelligence.

Logic should be a tool, not a rule Remember making ten people pay $10 dollars is not same as one person
paying $100.
Each person in the 10 group would not consider paying $10 a big decision but paying $100 dollar would be a huge decision for a single person.

Be Careful With Maths: Or Why The Need To Look Rational Can Make You Act Dumb:

Every time you average, add or multiply something...
...you are losing information.

Just as if Bill gates enters a football stadium, the average level of wealth increases by $1 million.

In Maths, 10 x 1 is same as 1 x 10 but not in life.
In reality you can trick 10 people once but to trick one person 10 times is hard.
Online shopping is also a good example:
It is a good way for 10 people ordering one thing but if one person orders 10 things the delivery of these items is going to be chaotic.

Sometimes a problem can be solved by just solving it for the people who are getting affected the worst
Recruitment and Bad Maths:

Now apply the same thing mentioned above (10 x1 or 1 x 10) to investing.

Rory gives a scenario of recruitment, says that when we look for only one person to hire you look for conformity but for ten people you look for
When you select 10 people even if 2 leave after some years you won't mind it but when you select only one person and they turn out to be rogue then it could be a huge problem.

Same applies to investing in the way of concentration and diversification of portfolio.
Remember diversify only if you think there is opportunity don't just do it for complementarity.

Complementarity vs Conformity (Towards one skill) debt is also useful for finding jobs.

Like in Naval's podcast, How to get Rich, he mentions that if one could be good at...
...3 skills then you can be far ahead of competition and be unique.

Therefore, Rory shares a tip: Find one or two things in which your boss sucks and become quite good at it!
Beware of Averages:
Rory points out that average in a range of dimensions is surprisingly rare.

Shares example of a high-speed aircraft's cockpit designed for average measurements but soon they realized building it on such dimensions led to plane being useful for none.
"Don't Design For Average"

Innovation happens at the extremes.

Sandwich was invented not by a average eater but a person who was a obsessive gamer and wanted to eat food while not leaving the table.
We Don't Make Choices As Rationally As We Think

😖 Decoy Effect: Consumers tend to have a specific change in preference between two options when also presented with a third option that is more desirable than one, but less desirable than the other.
When you are presented with a "No-Brainer" option you are likely to select a option of higher value.
 Online subscription: Rs 500
 Print Subscription: Rs 1000
 Print + Online Subscription: Rs1000

Most would go with third option.
Same Facts, Different Context:
Rory says that the hack to buy a cheap house is through valuing things which other people don't value. Ex: Far from city?, No lift?, etc.

Same applies for investing.
If one can develop a mindset which is different from the herd mentality then...
one can earn good returns in the market.

Ex: Read @Sanjay__Bakshi Relaxo lecture and see how he see Branding expenditure as.

This would perfectly fit in this example.
But Rory warns that it is not always logically to be different.

Things which are massed produced it is better to be with the crowd but when they are scare be unique.
Success is Rarely Scientific - Even In Science:

Cool Fact: Steve jobs had koumpounophobia (Fear of buttons) which could be perhaps the reason behind the button less iPhone.

We should test counterintuitive things - because no one
else will.

Most valuable things won't make...
...sense at the beginning, if they did somebody might have discovered it already.

Ideas which people hate may be more worth trying as most popular and obvious ones might have been already taken away.
Random stuff.

We don't value things. We value the meaning of it.
Like: Market share vs Mind share?

One can create or destroy value in ways, either by changing the thing or by changing the minds about what it is.
Mental Model: 'The Elixir of Scarcity': If you declare something highly exclusive and out of reach, it makes us all want it much more.

Why is marble considered as sensible flooring material for hotel bathrooms, even when they are very slippery? Scarcity of material.
Psycho-Logical Design: Why Less Is Sometimes More:

Story of Sony Walkman-

In the initial stage of market research of Walkman, the public opinion was not in favor.

"Why would I want to walk about with music playing in my head?" was question asked.
During the making engineers were proud that they had come up with an extra feature that is the ability to record.

But Akio Morita Co-founder of Sony) denied that idea.
He thought that adding an extra feature would confuse people about was the device actually for.
Adding more things makes a thing more versatile more reduces clarity, which leads to difficulty in making the decision to buy the product.

Mental Model: 'The Jack Of All Trades Heuristic' would play, where we naturally assume something that only does one thing is better...
...than something that claims to do many things.

Few Notes on Game Theory:
The Prisoner's dilemma, Ultimatum Game, etc appear without context.

Many thing which don't make sense in logical context would suddenly make sense when you understand the meaning of it.
Ex: Engagement Ring serves no practical purpose but giving a expensive ring shows a man's expensive bet on his belief of marrying that person.
Signalling Has To Be Costly:

"Cost Signalling Theory': The fact that the meaning and significance attached to a something is directly propositional to the expense with which it is communicated.

Imagine getting a wedding invitation from an email compared to a beautiful card.
Creativity As Costly Signalling:

Making a birthday card by hand is cheaper but much more effective in signalling your emotions.

Effective communication will always require some degree of irrationality in its creation.
Hoverboards and Chocolate: Why Distinctiveness Matters
Shares an example of Hoverboard:

It is a interesting product but not many bought it.

First: Too much confusing. Some had lights, some with speakers, some with larger wheels, etc.
Second: No recognizable name. When we buy something expensive we need a brand.

Because someone with a brand has a reputation on stake and has incentive to protect that name.

Without enough assurance of quality there won't be trust in the product from market.
Branding isn't just something to add to great products -
it's essential to their existence.

The Placebo Effect:
Placebo have no direct medical efficacy, but their effect on psychology is significant.

Remember, the fact that something does not work through a known and...
...logical mechanism should not make us unwilling to adopt it.

Why Aspirin Should Be Reassuringly Expensive:

Story: A case was filed against Reckitt Benckiser for charging different price for same medicine just by labeling them differently. Like: Nurofen Migraine Pian,...
...Nurofen Back Pain, Nurofen Headache, etc. But in reality all were same.

But people actually felt better when they bought medicines named for specific pain.

There are things/feels within us which subconsciously influence our decisions.
Like: Steve Jobs used to surfer from koumpounophobia, the fear of buttons. Which as theorists suggest could be the reason for the founding of a button-less keyboard phone.
How We Can 'Hack' What We Can't Control:

Even though we can't control our body's automated system, we can still hack it.

Like: We can't deliberately increase our heart beat but we can go for quick run to increase it, or Make the environment around you dark and cool to sleep.
I feel same can be said for stock market.

One can never predict the Black Swan but can also prepare themselves against it.

Staying with quality companies or not taking leverage to buy stocks are some ways to hack what you can't control.
The Hidden Purposes Behind Our Behaviour: Why We Buy Clothes, Flowers Or Yachts:

Never denigrate a behaviour as irrational until you have considered what purpose it really serves.

 'Pepsi - For when you don't have coke
 Dishwar which main purpose is not washing dish rather providing you a place to put your dishes.

 Close button in an elevator most of the times has no connection to it. Its just there for psychological effect.
Why It's Better To Be Vaguely Right Than Precisely Wrong:

Here is a typical textbook type question:

Two buses leave the same bus station at noon. One travels west at a constant 30mph while the other travels at 40mph towards north.
At what time will the buses be 100 miles apart?
Here is practical question:

I need to catch a plane leaving Gatwick at 8am. Should I get there by train, taxi or car? At what time should I leave?
First question is tailor made for computation, also called 'narrow context' problem. It assumes an artificially world with no ambiguity and variables.

Second question is a 'wide context' problem with has a lot of vagueness and allows multiple right answers.
So, for reaching the airport one has to be vaguely right and apply margin of safety for unseen events.

Same applies for investing.

RT if you enjoyed reading the thread. Cheers!

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23 Dec 20
Here are my notes on @Sanjay__Bakshi podcast, "The Art Of Value Investing".
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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.

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
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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.

Part A: The World of Investing

The Business Of Investing:

An investor has to be lazy in taking profits and agile in
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The process of getting rich for a big everlasting smile
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22 Oct 20
Here is thread of my notes/takeaways from Warren Buffett's Partnership letters.

(I have not included the letter where there was repetition of content)
Before you start reading incase you want my full notes in a pdf format then join my email list and get the pdf instantly.

(1/n) 1957:

1. Warren Buffett(WB) emphasizes on the importance of luck for short term gains for his partnership in 1957.
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