I chose to become an investor primarily for my love for reading. Reading across disciplines and masking that as work (along with making money, ofcourse) has been a big motivator. It is therefore only right (and now a tradition!) for me to reflect upon the books I have read this past year and ponder over the lessons learnt from them. Extending that tradition to our investors, I will put across thoughts on the best books I have read in 2021 and what they taught me.
I Love Capitalism: An American Story by Ken Langone
Langone is a wall street banker, investor and the co-founder of Home Depot, USA’s largest home improvement retail store. His biography is an ode to capitalism like none other. In a refreshingly direct manner, his story illustrates that a willingness to take risks, stepping out of one’s comfort zone coupled with sheer hard work and a capitalist society will find a way to reward you. The two largest consumer markets with a resemblance of a free market system today are the USA and India. Take the calculated risks and marry them with diligence and grit, unlikely that you will go unrewarded in our society.
The stronger message was however, in the tone of the narrative itself – direct, unapologetic and simple. Langone came across as someone who called a spade a spade and didn’t hesitate while doing it. For a banker, he never burdened his deals with jargon. His story flows effortlessly, almost in a non-dramatic boring manner. This tone itself was instructive; the biggest successes can come from not overcomplicating things- but doing the few simple things, right and consistently. This is thumpingly true in investing as well.
The one common flaw I have noticed in our breed investors- is we tend to want to predict and model everything on an excel sheet. GDP in 2025, Omicron cases in 3rd week of January, water shortage in Chennai in November 2022, and the outcome of UP elections in 2022: we over complicate our thought process by increasing the noise and the number of variables we focus on. In this, the investor’s mind loses its effectiveness.
Bomber Mafia by Malcolm Gladwell
Malcolm Gladwell’s exposition on the potential use of airborne precision bombing in the second world war was massively interesting. Airplanes in the 1930s were an afterthought from a point of view of fighting a war. There were some mavericks though, who thought otherwise. Their hypothesis was- if they used radar tech to enable devastating but precision bombing to select enemy targets, wars could actually be less lethal for the masses, shorter and far more decisive. Effectively positing that having better weapons and guiding systems would in fact lead to swift decisive wars with far lesser casualties.
Having a few variables to figure out- akin to the few enemy targets that would cripple their forces such as a bearings factory without which no tanks can be manufactured; can give you a bigger bang for the buck. As an investor, we might want to don the hats of microbiologist, political consultant and economist together- however it delivers very little value. Simplifying an idea and understanding a few variables that are precise and specific to the business delivers far greater value to long term investors. As Munger would say, “Take a simple idea, take it seriously.”
Defining these variables is a process that helps overcome the astounding number of human biases that come into play while making an investing decision. One prevalent bias in 2021 was – FOMO (fear of missing out).
Billion Dollar Loser by Reeves Wiedman
In a world that loves to follow the recently minted ‘stars’, 2020 was a year that saw a cult-like status around Softbank and it’s favorite prodigy, Adam Neuman of WeWork. There was a time when the valuation for WeWork rose by billion dollars every week; the halo around its founder shone so bright that it made the best of us wonder if we are doing something wrong in not understanding the proposition here; what does Softbank know that we don’t? Turns out not much. Mayoshi Son, the founder of Softbank, countered by Neumann’s charm offensive, decided to give over a billion dollars from the vision fund to WeWork in less than 30 minutes.
It is easy to get tempted to sway from your process and follow so-called ‘star’ investors; they would have obviously done their due diligence! How can they miss the obvious red flags? Don’t. The due diligence (or rather the lack of it) by an investor as savvy as Softbank is shocking. Sticking to your first principles no matter how tempting things may seem seeing your neighbor get rich faster than you, always goes a long way.
One of the factors we always put high credence on is the integrity of the management. Related party transactions are a great window to the same. The blithering arrogance of Neumann was showcased in the shady related party transactions of WeWork. A simple due diligence would have revealed the same. Choosing to sidestep the process to simply give into the powerful narrative woven would have proven catastrophic. The $47bn valuation peak in 2020 is now settled at a $6bn valuation for WeWork.
Yet a word of caution, do not bet against the narrative. Sit out if your process dictates so but don’t underestimate the power of a good narrative.
After the Prophet by Lesley Hazleton
Nothing showcases the power of narratives better than the permeation of religious beliefs through centuries. ‘After the Prophet’ narrates the story of how the Shia Sunni split, that plays a defining role in Middle East politics till date, came about. Friction in family dymanics within the Prophet Muhammad’s family; between his youngest wife and his son-in-law (husband to his eldest daughter from his first marriage) persisted for generations leading to two varying interpretations of the same events appearing. The narrative of the conflict far outlived its meek origins, becoming a force so powerful that it created a permanent fracture within the Islamic community.
The adage, “markets can remain irrational for longer than you can remain solvent” rests on the power of a good story. Thankfully in investing one can always rely on their guiding first principles, their process to break down the mythical narrative. It would however be foolhardy to bet against a prevalent narrative. The appendages of data help us sit out of ones we do not understand, but a good story delivered by a great storyteller and 14 centuries later we are still struggling with different views on the same events.
Most of these lessons are re-iterations, but reiterations are necessary especially after a heady year like the one we have just had.
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