Book notes on Pratap Vardhan

Book Summary: Factfulness: Ten Reasons We're Wrong About the World – and Why Things Are Better Than You Think – Hans Rosling

Fri, 12 May 2023 00:00:00 +0000

Ten instincts distort our perspective of the world and prevent us from seeing how it actually is.

Think about the world. War, violence, natural disasters, man-made disasters, corruption. Things are bad, and it feels like they are getting worse, right? The rich are getting richer and the poor are getting poorer; and the number of poor just keeps increasing; and we will soon run out of resources unless we do something drastic. At least that’s the picture that most Westerners see in the media and carry around in their heads. I call it the overdramatic worldview. It’s stressful and misleading.

Book Summary: Fooled by Randomness - Nassim Nicholas Taleb

Sun, 25 Dec 2022 00:00:00 +0000

Randomness, (chance, luck) influences our lives and work more than we realize. Mild success can be explained by skills and labor. Wild success is attributable to variance. Because of hindsight bias, survivorship bias – we forget people who failed, remember only the few who succeed. And, make up reasons and patterns for their success even though it was largely random.

Prologue

At the cost of appearing biased, I have to say that the literary mind can be intentionally prone to the confusion between noise and meaning, that is, between a randomly constructed arrangement and a precisely intended message.

Book Summary: The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness - Morgan Housel

Mon, 04 Apr 2022 00:00:00 +0000

The premise of book – doing well with money has a little to do with how smart you are and a lot to do with how you behave. And behavior is hard to teach, even to really smart people.
One, financial outcomes are driven by luck, independent of intelligence and effort. Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know.

1. No One’s Crazy

Physics isn’t controversial. It’s guided by laws. Finance is different. It’s guided by people’s behaviors. And how I behave might make sense to me but look crazy to you.
People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons.
The challenge for us is that no amount of studying or open-mindedness can genuinely recreate the power of fear and uncertainty.
But every financial decision a person makes, makes sense to them in that moment and checks the boxes they need to check. They tell themselves a story about what they’re doing and why they’re doing it, and that story has been shaped by their own unique experiences.

2. Luck & Risk

The difficulty in identifying what is luck, what is skill, and what is risk is one of the biggest problems we face when trying to learn about the best way to manage money.
Focus less on specific individuals and case studies and more on broad patterns.
The more extreme the outcome, the less likely you can apply its lessons to your own life, because the more likely the outcome was influenced by extreme ends of luck or risk.

3. Never Enough

The hardest financial skill is getting the goalpost to stop moving.
Getting money requires taking risks, being optimistic, and putting yourself out there. But keeping money requires the opposite of taking risk. It requires humility, and fear that what you’ve made can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you’ve made is attributable to luck, so past success can’t be relied upon to repeat indefinitely.
Sensible optimism is a belief that the odds are in your favor, and over time things will balance out to a good outcome even if what happens in between is filled with misery. And in fact you know it will be filled with misery. You can be optimistic that the long-term growth trajectory is up and to the right, but equally sure that the road between now and then is filled with landmines, and always will be. Those two things are not mutually exclusive.
You need short-term paranoia to keep you alive long enough to exploit long-term optimism.

6. Tails, You Win

Anything that is huge, profitable, famous, or influential is the result of a tail event—an outlying one-in-thousands or millions event. And most of our attention goes to things that are huge, profitable, famous, or influential. When most of what we pay attention to is the result of a tail, it’s easy to underestimate how rare and powerful they are.
To give a more recent example: How you behaved as an investor during a few months in late 2008 and early 2009 will likely have more impact on your lifetime returns than everything you did from 2000 to 2008.
When you accept that tails drive everything in business, investing, and finance you realize that it’s normal for lots of things to go wrong, break, fail, and fall.

7. Freedom

The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.
Having a strong sense of controlling one’s life is a more dependable predictor of positive feelings of wellbeing than any of the objective conditions of life we have considered.
Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time. To obtain, bit by bit, a level of independence and autonomy that comes from unspent assets that give you greater control over what you can do and when you can do it.
What they did value were things like quality friendships, being part of something bigger than themselves, and spending quality, unstructured time with their children.

10. Save Money

When you don’t have control over your time, you’re forced to accept whatever bad luck is thrown your way. But if you have flexibility you have the time to wait for no-brainer opportunities to fall in your lap. This is a hidden return on your savings.
Intelligence is not a reliable advantage in a world that’s become as connected as ours has. But flexibility to learn new skills when necessary.

11. Reasonable > Rational

You’re not a spreadsheet. You’re a person. A screwed up, emotional person.
It may be rational to want a fever if you have an infection. But it’s not reasonable.
The historical odds of making money in U.S. markets are 50/50 over one-day periods, 68% in one-year periods, 88% in 10-year periods, and (so far) 100% in 20-year periods
Most forecasts about where the economy and the stock market are heading next are terrible, but making forecasts is reasonable. It’s hard to wake up in the morning telling yourself you have no clue what the future holds, even if it’s true. Acting on investment forecasts is dangerous.

12. Surprise!

A trap many investors fall into is what I call “historians as prophets” fallacy: An overreliance on past data as a signal to future conditions in a field where innovation and change are the lifeblood of progress.
Richard Feynman, the great physicist, once said, “Imagine how much harder physics would be if electrons had feelings.” Well, investors have feelings. Quite a few of them. That’s why it’s hard to predict what they’ll do next based solely on what they did in the past.
You’ll likely miss the outlier events that move the needle the most.
The majority of what’s happening at any given moment in the global economy can be tied back to a handful of past events that were nearly impossible to predict.
It comes from investor John Templeton’s view that “The four most dangerous words in investing are, ‘it’s different this time.’”

13. Room for Error

Margin of safety—you can also call it room for error or redundancy—is the only effective way to safely navigate a world that is governed by odds, not certainties.
Nassim Taleb says, “You can be risk loving and yet completely averse to ruin.” And indeed, you should. The idea is that you have to take risk to get ahead, but no risk that can wipe you out is ever worth taking.
But these kinds of things happen all the time. You can plan for every risk except the things that are too crazy to cross your mind. And those crazy things can do the most harm, because they happen more often than you think and you have no plan for how to deal with them.
A good rule of thumb for a lot of things in life is that everything that can break will eventually break. So if many things rely on one thing working, and that thing breaks, you are counting the days to catastrophe. That’s a single point of failure.

14. You’ll Change

An underpinning of psychology is that people are poor forecasters of their future selves. Imagining a goal is easy and fun. Imagining a goal in the context of the realistic life stresses that grow with competitive pursuits is something entirely different.
We should avoid the extreme ends of financial planning. Regrets are especially painful when you abandon a previous plan and feel like you have to run in the other direction twice as fast to make up for lost time.
Sunk costs—anchoring decisions to past efforts that can’t be refunded—are a devil in a world where people change over time. They make our future selves prisoners to our past, different, selves. It’s the equivalent of a stranger making major life decisions for you.

15. Nothing’s Free

Every job looks easy when you’re not the one doing it because the challenges faced by someone in the arena are often invisible to those in the crowd.

16. You & Me

The implosion of the dot-com bubble in the early 2000s reduced household wealth by $6.2 trillion. The end of the housing bubble cut away more than $8 trillion. Why can’t we learn our lessons? The common answer here is that people are greedy, and greed is an indelible feature of human nature.
Bubbles aren’t so much about valuations rising. That’s just a symptom of something else: time horizons shrinking as more short-term traders enter the playing field.
Data shows the number of houses in America that sold more than once in a 12-month period—they were flipped—rose fivefold during the bubble, from 20,000 in the first quarter of 2000 to over 100,000 in the first quarter of 2004.
What do you expect people to do when momentum creates a big short-term return potential? Sit and watch patiently? Never. That’s not how the world works. Profits will always be chased. And short-term traders operate in an area where the rules governing long-term investing—particularly around valuation—are ignored, because they’re irrelevant to the game being played.

17. The Seduction of Pessimism

Pessimism isn’t just more common than optimism. It also sounds smarter. It’s intellectually captivating, and it’s paid more attention than optimism, which is often viewed as being oblivious to risk.
Part of it is instinctual and unavoidable. Kahneman says the asymmetric aversion to loss is an evolutionary shield.
Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce.
One is that money is ubiquitous, so something bad happening tends to affect everyone and captures everyone’s attention.
There are two topics that will affect your life whether you are interested in them or not: money and health. While health issues tend to be individual, money issues are more systemic. In a connected system where one person’s decisions can affect everyone else, it’s understandable why financial risks gain a spotlight and capture attention in a way few other topics can.
Another is that pessimists often extrapolate present trends without accounting for how markets adapt.
Assuming that something ugly will stay ugly is an easy forecast to make. And it’s persuasive, because it doesn’t require imagining the world changing. But problems correct and people adapt. Threats incentivize solutions in equal magnitude. That’s a common plot of economic history that is too easily forgotten by pessimists who forecast in straight lines.
A third is that progress happens too slowly to notice, but setbacks happen too quickly to ignore.
There are lots of overnight tragedies. There are rarely overnight miracles.
In investing you must identify the price of success—volatility and loss amid the long backdrop of growth—and be willing to pay it.

18. When You’ll Believe Anything

The more you want something to be true, the more likely you are to believe a story that overestimates the odds of it being true.
Everyone has an incomplete view of the world. But we form a complete narrative to fill in the gaps.
B. H. Liddell Hart writes in the book Why Don’t We Learn From History?: History cannot be interpreted without the aid of imagination and intuition. The sheer quantity of evidence is so overwhelming that selection is inevitable. Those who read history tend to look for what proves them right and confirms their personal opinions. They defend loyalties. They read with a purpose to affirm or to attack. They resist inconvenient truth since everyone wants to be on the side of the angels. Just as we start wars to end all wars.
Hindsight, the ability to explain the past, gives us the illusion that the world is understandable. It gives us the illusion that the world makes sense, even when it doesn’t make sense. That’s a big deal in producing mistakes in many fields.
We all want the complicated world we live in to make sense. So we tell ourselves stories to fill in the gaps of what are effectively blind spots.
Coming to terms with how much you don’t know means coming to terms with how much of what happens in the world is out of your control. And that can be hard to accept.

19. All Together Now

Go out of your way to find humility when things are going right and forgiveness/compassion when they go wrong. Because it’s never as good or as bad as it looks. Luck and risk are both real and hard to identify. Respect the power of luck and risk and you’ll have a better chance of focusing on things you can actually control.
If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon.
Use money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness.
Define the cost of success and be ready to pay it. Because nothing worthwhile is free.
You should like risk because it pays off over time. But you should be paranoid of ruinous risk because it prevents you from taking future risks that will pay off over time.
Define the game you’re playing, and make sure your actions are not being influenced by people playing a different game.

20. Confessions

Independence, to me, doesn’t mean you’ll stop working. It means you only do the work you like with people you like at the times you want for as long as you want
Postscript: A Brief History of Why the U.S. Consumer Thinks the Way They Do
- The more the Internet exposes people to new points of view, the angrier people get that different views exist.
- But a central theme of this story is that expectations move slower than reality on the ground

Book Summary: One Up On Wall Street: How to Use What You Already Know to Make Money in the Market by Peter Lynch

Sun, 13 Feb 2022 00:00:00 +0000

PART I: PREPARING TO INVEST

Introduction: The Advantages of Dumb Money

The nice thing about investing in familiar companies such as L’eggs or Dunkin’ Donuts is that when you try on the stockings or sip the coffee, you’re already doing the kind of fundamental analysis that they pay Wall Street analysts to do. Visiting stores and testing products is one of the critical elements of the analyst’s job
There seems to be an unwritten rule on Wall Street: If you don’t understand it, then put your life savings into it.

Book Summary: Digital Minimalism: Choosing a Focused Life in a Noisy World - Cal Newport

Sat, 13 Feb 2021 00:00:00 +0000

Digital Minimalism A philosophy of technology use in which you focus your online time on a small number of carefully selected and optimized activities that strongly support things you value, and then happily miss out on everything else.
Define your technology values: Is this technology the best way to support this value? How am I going to use this technology going forward to maximize its value and minimize its harms?
Spend Time Alone
- Solitude is about what’s happening in your brain, not the environment around you.
- Why is solitude valuable? Kethledge and Erwin detail many benefits, most of which concern the insight and emotional balance that comes from unhurried self-reflection.
- All of humanity’s problems stem from man’s inability to sit quietly in a room alone
- Seemingly overnight the number of students seeking mental health counseling massively expanded, and the standard mix of teenage issues was dominated by something that used to be relatively rare: anxiety.
- PRACTICE: LEAVE YOUR PHONE AT HOME, TAKE LONG WALKS, WRITE LETTERS TO YOURSELF
- Writing a letter to yourself is an excellent mechanism for generating exactly this type of solitude.
- This practice asks you to embrace this well-validated strategy by making time to write a letter to yourself when faced with demanding or uncertain circumstances.
Reclaim Leisure
- We live in a world that is working to eliminate touch as one of our senses, to minimize the use of our hands to do things except poke at a screen.
- In a culture where screens replace craft, Crawford argues, people lose the outlet for self-worth established through unambiguous demonstrations of skill.
- If you want to fully extract the benefits of this craft in your free time, in other words, seek it in its analog forms, and while doing so, fully embrace Rogowski’s closing advice: “Leave good evidence of yourself. Do good work.”
Practice: Hold conversation office hours
- Put aside set times on set days during which you’re always available for conversation. Promote these times to the people you care about
The Digital Declutter
- Your monthlong break from optional technologies resets your digital life. You can now rebuild it from scratch in a much more intentional and minimalist manner. To do so, apply a three-step technology screen to each optional technology you’re thinking about reintroducing.

Book Summary: Influence: The Psychology of Persuasion Robert B. Cialdini

Sat, 13 Jun 2020 00:00:00 +0000

The book is organized around these six principles, one to a chapter. The principles—consistency, reciprocation, social proof, authority, liking, and scarcity—are each discussed in terms of their function in the society and in terms of how their enormous force can be commissioned by a compliance professional who deftly incorporates them into requests for purchases, donations, concessions, votes, assent, etc.

The evidence suggests that the ever-accelerating pace and informational crush of modern life will make this particular form of unthinking compliance more and more prevalent in the future. It will be increasingly important for the society, therefore, to understand the how and why of automatic influence.