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Steve Jobs. Life lessons. Commencement.

November 1, 2017 Ben Yeoh
design-steve.png

Steve Jobs commencement address to Stanford in 2005 is considered a classic. Perhaps, it is partly because he gave it while already having lived with cancer. Perhaps, partly as it reveals a very human side to Jobs, when a lot of what we publically knew about him was his dedication to perfection and his intolerance of sub-standard work.

He gives us three stories:  connecting the dots,  love and loss; and death. 

"Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

Video below and transcript.

I am honored to be with you today at your commencement from one of the finest universities in the world. I never graduated from college. Truth be told, this is the closest I’ve ever gotten to a college graduation. Today I want to tell you three stories from my life. That’s it. No big deal. Just three stories. The first story is about connecting the dots.

I dropped out of Reed College after the first 6 months, but then stayed around as a drop-in for another 18 months or so before I really quit. So why did I drop out?

It started before I was born. My biological mother was a young, unwed college graduate student, and she decided to put me up for adoption. She felt very strongly that I should be adopted by college graduates, so everything was all set for me to be adopted at birth by a lawyer and his wife. Except that when I popped out they decided at the last minute that they really wanted a girl. So my parents, who were on a waiting list, got a call in the middle of the night asking: “We have an unexpected baby boy; do you want him?” They said: “Of course.” My biological mother later found out that my mother had never graduated from college and that my father had never graduated from high school. She refused to sign the final adoption papers. She only relented a few months later when my parents promised that I would someday go to college.

And 17 years later I did go to college. But I naively chose a college that was almost as expensive as Stanford, and all of my working-class parents’ savings were being spent on my college tuition. After six months, I couldn’t see the value in it. I had no idea what I wanted to do with my life and no idea how college was going to help me figure it out. And here I was spending all of the money my parents had saved their entire life. So I decided to drop out and trust that it would all work out OK. It was pretty scary at the time, but looking back it was one of the best decisions I ever made. The minute I dropped out I could stop taking the required classes that didn’t interest me, and begin dropping in on the ones that looked interesting.

“Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become.”

It wasn’t all romantic. I didn’t have a dorm room, so I slept on the floor in friends’ rooms, I returned coke bottles for the 5¢ deposits to buy food with, and I would walk the 7 miles across town every Sunday night to get one good meal a week at the Hare Krishna temple. I loved it. And much of what I stumbled into by following my curiosity and intuition turned out to be priceless later on. Let me give you one example:

Reed College at that time offered perhaps the best calligraphy instruction in the country. Throughout the campus every poster, every label on every drawer, was beautifully hand calligraphed. Because I had dropped out and didn’t have to take the normal classes, I decided to take a calligraphy class to learn how to do this. I learned about serif and san serif typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can’t capture, and I found it fascinating.

None of this had even a hope of any practical application in my life. But ten years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography. If I had never dropped in on that single course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts. And since Windows just copied the Mac, its likely that no personal computer would have them. If I had never dropped out, I would have never dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do. Of course it was impossible to connect the dots looking forward when I was in college. But it was very, very clear looking backwards ten years later.

Again, you can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

My second story is about love and loss.

I was lucky — I found what I loved to do early in life. Woz and I started Apple in my parents garage when I was 20. We worked hard, and in 10 years Apple had grown from just the two of us in a garage into a $2 billion company with over 4000 employees. We had just released our finest creation — the Macintosh — a year earlier, and I had just turned 30. And then I got fired. How can you get fired from a company you started? Well, as Apple grew we hired someone who I thought was very talented to run the company with me, and for the first year or so things went well. But then our visions of the future began to diverge and eventually we had a falling out. When we did, our Board of Directors sided with him. So at 30 I was out. And very publicly out. What had been the focus of my entire adult life was gone, and it was devastating.

I really didn’t know what to do for a few months. I felt that I had let the previous generation of entrepreneurs down - that I had dropped the baton as it was being passed to me. I met with David Packard and Bob Noyce and tried to apologize for screwing up so badly. I was a very public failure, and I even thought about running away from the valley. But something slowly began to dawn on me — I still loved what I did. The turn of events at Apple had not changed that one bit. I had been rejected, but I was still in love. And so I decided to start over.

I didn’t see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.

During the next five years, I started a company named NeXT, another company named Pixar, and fell in love with an amazing woman who would become my wife. Pixar went on to create the worlds first computer animated feature film, Toy Story, and is now the most successful animation studio in the world. In a remarkable turn of events, Apple bought NeXT, I retuned to Apple, and the technology we developed at NeXT is at the heart of Apple’s current renaissance. And Laurene and I have a wonderful family together.

I’m pretty sure none of this would have happened if I hadn’t been fired from Apple. It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don’t lose faith. I’m convinced that the only thing that kept me going was that I loved what I did. You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don’t settle.

My third story is about death.

When I was 17, I read a quote that went something like: “If you live each day as if it was your last, someday you’ll most certainly be right.” It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: “If today were the last day of my life, would I want to do what I am about to do today?” And whenever the answer has been “No” for too many days in a row, I know I need to change something.

Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

About a year ago I was diagnosed with cancer. I had a scan at 7:30 in the morning, and it clearly showed a tumor on my pancreas. I didn’t even know what a pancreas was. The doctors told me this was almost certainly a type of cancer that is incurable, and that I should expect to live no longer than three to six months. My doctor advised me to go home and get my affairs in order, which is doctor’s code for prepare to die. It means to try to tell your kids everything you thought you’d have the next 10 years to tell them in just a few months. It means to make sure everything is buttoned up so that it will be as easy as possible for your family. It means to say your goodbyes.

I lived with that diagnosis all day. Later that evening I had a biopsy, where they stuck an endoscope down my throat, through my stomach and into my intestines, put a needle into my pancreas and got a few cells from the tumor. I was sedated, but my wife, who was there, told me that when they viewed the cells under a microscope the doctors started crying because it turned out to be a very rare form of pancreatic cancer that is curable with surgery. I had the surgery and I’m fine now.

This was the closest I’ve been to facing death, and I hope its the closest I get for a few more decades. Having lived through it, I can now say this to you with a bit more certainty than when death was a useful but purely intellectual concept:

No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life’s change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.

Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

When I was young, there was an amazing publication called The Whole Earth Catalog, which was one of the bibles of my generation. It was created by a fellow named Stewart Brand not far from here in Menlo Park, and he brought it to life with his poetic touch. This was in the late 1960’s, before personal computers and desktop publishing, so it was all made with typewriters, scissors, and polaroid cameras. It was sort of like Google in paperback form, 35 years before Google came along: it was idealistic, and overflowing with neat tools and great notions.

Stewart and his team put out several issues of The Whole Earth Catalog, and then when it had run its course, they put out a final issue. It was the mid-1970s, and I was your age. On the back cover of their final issue was a photograph of an early morning country road, the kind you might find yourself hitchhiking on if you were so adventurous. Beneath it were the words: “Stay Hungry. Stay Foolish.” It was their farewell message as they signed off. Stay Hungry. Stay Foolish. And I have always wished that for myself. And now, as you graduate to begin anew, I wish that for you.

Stay Hungry. Stay Foolish.

Thank you all very much.


If you'd like to feel inspired by commencement addresses and life lessons try:

Ursula K Le Guin on literature as an operating manual for life;  

Neil Gaiman on making wonderful, fabulous, brilliant mistakes;

Nassim Taleb's commencement address;  

Charlie Munger on always inverting;   JK Rowling on the benefits of failure.   

There is also Anne Lamott on writing and truth as paradox.    And Oprah on gratitude and service.

Plus Sheryl Sandberg on grief, gratitude and resilience.

In Leadership Tags Life, Commencement, Steve Jobs

CFA ESG Survey. 27% ignore ESG.

October 26, 2017 Ben Yeoh
Source: CFA institute  

Source: CFA institute  

27% of investment professionals ignore ESG.  Who are these crazy people? Don’t they know they are leaving return/alpha on the table? Breaking fiduciary duty law and giving active managers a bad name? Hush, Ben, hush hush.

Ben, if everyone looked at ESG information and properly assessed it, you’d have no competitive advantage. If everyone does something it becomes baked into consensus, right? But, it’s the right thing to do.  Well, good job no one listens to you, eh?

What about all these academic papers suggesting ESG adds value, that active ownership and stewardship also increases stock returns and company fundamentals?

Ben, Ben, Ben… when was the last time anyone you knew actually read an academic paper outside the world of School? Read the whole paper, considered the evidence and then formed an opinion?

Oh good point.  

Here’s the recent (July 2017) CFA survey (n=1,588) on ESG and here is the CFA ESG resource page.  So who are these crazy 27% who do not consider ESG?

Even worse, of c. 70% who do consider ESG only 50% do it systematically.  So really only 35% of investment professionals are examining ESG all the time, systematically.

Source: CFA Institute

Source: CFA Institute

The US number is 32% of investment professionals who ignore ESG.

Source: CFA institute

Source: CFA institute

OK, so this is only one survey. But, it has strong agreement with this large academic survey from Amir Amel-Zadeh and  George Serafeim  (2017, Why and How Investors Use ESG Information: Evidence from a Global Survey).  These authors write:

“Recent studies have documented that ESG information is associated with numerous economically meaningful effects. Specifically, ESG disclosures are associated with lower capital constraints (Cheng, Ioannou and Serafeim 2014), cost of capital (Dhaliwal et. al 2011), analyst forecast errors (Dhaliwal et. al 2012), and stock price movements around mandatory ESG disclosure regulations (Grewal, Riedl and Serafeim 2017). Moreover, industry-specific classifications of financial materiality of ESG information identify ESG information that is value relevant and predictive of firms’ future financial performance (Khan, Yoon and Serafeim 2016).”  

The n=416 for the Amel-Zadeh paper.

The US = No ESG = 25% and the overall total = 18% so a little lower than the CFA, although the US number is close.  So it does still suggest somewhere between 20% to 30% might be the right ball park.

Amir Amel-Zadeh and  George Serafeim  (2017)

Amir Amel-Zadeh and  George Serafeim  (2017)

I will leave you with this from Amel-Zadeh:

“The majority of the respondents suggests that ESG information is material to investment performance. However, which information is material likely varies systematically across countries (e.g. a country where water pollution is a more serious issue versus a country where corruption is a more serious issues), industries (e.g. an industry affected dramatically by climate change versus an industry affected by violations of human rights in the supply chain) and even firm strategies (e.g. firms that follow differentiation versus low price). For example, Khan et al. (2016) show that the vast majority of ESG data for any given industry is immaterial to investment performance and that the material information varies across industries within a sample of US stocks. Understanding how the materiality of ESG information varies across countries, industries and firm strategies therefore is of primary importance.”

This to my mind along with this study on the benefits of Active Ownership and ESG engagement and If one puts this work together with the work on the outperformance of Global Equity managers described here, one can start to build a defense of Active Management for global managers; where John Kay would argue Active Managers should compete on style and philosophy in any case.

If you'd like to feel inspired by commencement addresses and life lessons try:  Neil Gaiman on making wonderful, fabulous, brilliant mistakes; or Nassim Taleb's commencement address; or JK Rowling on the benefits of failure.  Or Charlie Munger on always inverting;  Sheryl Sandberg on grief, resilience and gratitude or investor Ray Dalio on  on Principles.

Cross fertilise. Read about the autistic mind here. On investing try a thought on stock valuations. 

In ESG, Investing Tags investing, Investing, ESG

Organising email. My system.

October 25, 2017 Ben Yeoh
IMG_4520.PNG

68,392 unread emails. That’s my inbox. How do your organise your email? Is a great interview question that gives insight into how someone organises their time. If I spent 30 seconds on all those emails, it would cost me >566 hours or 56 working days assuming I did nothing else.  Not feasible.

I take 30 to 60 minutes in my day, semi-scheduled to go through emails.  I read all headlines. If I think I can deal with in a minute or so, I answer immediately. If it’s of no value I move on. If I need to consider it, I click it open / mark it. If I think I might forget, I note it down physically.

Some peeps file and delete. But, I think there’s agreement that a set time to do it, is better than allowing it to pop up during your whole day as it saps attention and disturbs psychological flow.

My 2nd tip here, is to NOT make email the first thing you do when you sit at your desk in the morning. Make it anything else, preferably real world eg read a piece of research, a physical journal or assess your list of things to do; consider spending 10 to 20  minutes journaling thoughts, ideas, things to do. Then you can switch on your computer if you need to.
 

My 3rd tip:  for most meetings, lunches, dinners and dates leave your phone at your desk, or at least switched off and in your bag. Not visible or tempting on the table.  

The benefits of my system:

-super time efficient

-set time to deal with emails means workflow not interrupted

-not starting day with emails activates my Work thinking differently (might be different for you)

-avoids huge drain of time when time is one of my top assets

-never deleting means whole archive always there for retrieval

-can be semi-flex abou checking emails eg using downtime while waiting for a train

 

Disadvantages:

-quick reading of headlines can mean occasionally missing an email of value especially if headline is worded poorly (people used to be better at headlines)

-leaving emails for later runs risk of tardy execution (risk minimised by physical noting of important but not urgent emails, actually the most high value)

-not filing or deleting means finding old emails can take a few minutes longer (but I’m good at remembering key words for searches)

 

As a side observation, there is no “correct” way of organising time.  But to enable a team of diverse strengths you don’t want all the team to organise like me - that’s why it’s a useful interview question.

 

Other viable systems can rely on:

-having a personal assistant to organise your emails

-having 2 or 3 email addresses so that personal, Work and bulk emails are already presorted and separated.

-finding a set time to zero in and delete/file emails

-a filter/file macro set up

 

I’m co-responsible for $7 billion in people’s retirement savings as well as a Chair of a nationally funded innovative theatre company and a parent of an autistic spectrum child.  

 

I’m unlikely to go backwards and receive fewer than 100 to 200 emails a day.  I have no ambition to be a CEO who would likely receive more.

 

200 emails at 3 seconds a headline is a manegable 10 minutes, leaving me 50 minutes to respond to emails. A time efficient balance for me.

If you'd like to feel inspired by commencement addresses and life lessons try: Ursula K Le Guin on literature as an operating manual for life;  Neil Gaiman on making wonderful, fabulous, brilliant mistakes; or Nassim Taleb's commencement address;  Charlie Munger on always inverting;   JK Rowling on the benefits of failure.   There is also Anne Lamott on writing and truth as paradox.    And Oprah on gratitude and service.

Cross fertilise. Read about the autistic mind here.

In Investing, Leadership Tags Email, Tips

Active Ownership. Academic Study.

October 16, 2017 Ben Yeoh
From Active Ownership, by Dimson et al. (see end for notes)

From Active Ownership, by Dimson et al. (see end for notes)

“Active Ownership” by Elroy Dimson , Oğuzhan Karakaş  and Xi Li - this paper, in my view, suggests that successful active engagement in a collaborative and constructive manner on material ESG concerns improves the fundamentals of a company and also increases stock returns.

I differentiate this type of engagement with what one typical sees from “hedge-fund activists” or where board proxy fights occur; and where media engagements and open letters are used (although that type of activism has also seen positive returns see Klein and Zur, 2009).

Starting with the conclusions: “How does the market react to ESG activism? We find that ESG engagements generate a cumulative size-adjusted abnormal return of +2.3% over the year following the initial engagement. Cumulative abnormal returns are much higher for successful engagements (+7.1%) and gradually flatten out after a year, when the objective is accomplished for the median firm in our sample. We do not find any market reaction to unsuccessful engagements. The abnormal return patterns and magnitudes are similar for the subsamples of CG and ES engagements.4 This suggests the existence of a threshold for success to be pursued and achieved for both types of engagements. We then examine the cross-section of abnormal returns (controlling for industry and year fixed effects) and find that the positive market reaction to successful engagements is most pronounced for the themes of corporate governance and climate change. For these themes, the cumulative abnormal return of an additional successful engagement over a year after the initial engagement averages +8.6% and +10.3%, respectively.”

Then:

“To investigate the sources of the positive market reaction to successful engagements, we take a difference-in-differences approach and examine the subsequent changes in target firms’ operating performance, profitability, efficiency, institutional ownership, stock volatility, and governance after successful engagements relative to after unsuccessful engagements. We observe significant improvements in all these measures (i.e., an increase in firm performance, investor base, and governance, and a decrease in stock return volatility) following successful engagements, as compared to the unsuccessful ones.

engagement-themes.png

Particularly focusing on the ES and CG subsamples, we first find that the return on assets and the ratio of sales to the number of employees improve significantly one year after successful ES engagements, as compared to the unsuccessful ones; but such improvements are less pronounced for successful CG engagements. These findings support the view that successful ES initiatives enhance customer and employee loyalty. Second, we observe an increase in shareholdings by the asset manager, pension activists, and SRI funds one year after successful ES engagements; but such an increase is not apparent for successful CG engagements. These results support the view that ES initiatives generate a clientele effect among shareholders. Third, we find improvements in the corporate governance structure of targeted firms, as measured by the Bebchuk, Cohen, and Ferrell (2009) entrenchment index, two years after successful engagements on all ESG issues. This suggests that good ESG practices signal improving governance quality.

And to conclude:

“We conclude that environmental, social, and governance activism of the type that we study

improves social welfare to the extent that it increases stakeholder value when engagements are successful and does not destroy firm value even when engagements are unsuccessful. We note that, after successful engagements (particularly on ES issues), firms with inferior governance subsequently improve their governance and performance. Our interpretation is that active ownership attenuates managerial myopia and hence helps to minimize intertemporal losses of profits and negative externalities (see Benabou and Tirole 2010). This approach is differentiated from other styles of shareholder action, particularly hedge fund activism. Responsible investment initiatives are less confrontational, more collaborative, and more sensitive to public perceptions; yet they achieve success.”

The full methodology and discussion is in the link SSRN here (further bibliography in that paper to studies on the full range of stewardship to activism) .

An overview of several Active Ownership studies is given by Share Action here.

Summary slides given by Dimson on this paper are here.

If one puts this work together with the work on the outperformance of Global Equity managers described here, one can start to build a defense of Active Management; where John Kay would argue Active Managers should compete on style and philosophy in any case.


If you'd like to feel inspired by commencement addresses and life lessons try: Ursula K Le Guin on literature as an operating manual for life;  Neil Gaiman on making wonderful, fabulous, brilliant mistakes; or Nassim Taleb's commencement address; or JK Rowling on the benefits of failure.  Or Charlie Munger on always inverting.


The chart above figure plots the cumulative monthly abnormal returns (CARs) around the initial engagements from one month prior to the engagement month to 18 months afterward. The chart examines the entire sample Each CAR is decomposed into the CAR for successful engagements (i.e., those that achieved milestones) and the CAR for unsuccessful engagements. For each event month, authors calculate the average abnormal return from holding an equally weighted portfolio of all target firms that initiated engagements in month 0. The stock returns are adjusted for Fama-French decile size-matched returns. The stock returns are winsorized at the 1st and 99th percentile levels before calculating the average CARs.

In Investing, ESG, Economics Tags ESG, Governance

Richard Thaler. Nobel Prize.

October 11, 2017 Ben Yeoh
(CC) Via wiki

(CC) Via wiki

Richard Thaler has won a Nobel prize. Perhaps most famous for his book Nudge and the behavioural policy units spawned in the UK and US. This has led to the default on option on UK pensions as being enrolled, with an opt-out option given. This has “nudged” participation in UK private-sector pension schemes from 42 per cent to 73 per cent between 2012 and 2016.  That’s quite an impact from “libertarian paternalism”. Video of Thaler at Google Talk below.

His observations on the “irrational” behaviour of man can be neatly seen in this New York Times column.

“This illustrates an important problem with traditional economic theory. Economists discount any factors that would not influence the thinking of a rational person. These things are supposedly irrelevant. But unfortunately for the theory, many supposedly irrelevant factors do matter.

Economists create this problem with their insistence on studying mythical creatures often known as Homo economicus. I prefer to call them “Econs”— highly intelligent beings that are capable of making the most complex of calculations but are totally lacking in emotions. Think of Mr. Spock in “Star Trek.” In a world of Econs, many things would in fact be irrelevant.”

Later in the article he mentioned how cash is the perfect econ gift.

I once gave one of my best friends cash for his birthday. He was in debt, and I was much better paid. I had thought about it long and hard, and decided cash was the most optimal solution.

It wasn’t particularly well received. In fact, I recall he tried to return it almost immediately,  something the most ugly jumper from a grand-aunt would not trigger.

I now tend to make a card and sometimes a drawing or poem. Perhaps, much more valuable a higher return on investment for sure.

Still, my friend is now out of debt. Perhaps not wanting to be embarrassed by his friend giving him money ever again.

(In my defence, it’s fairly traditional in Chinese culture to give money on various occasions perhaps that rooted me in this one rational strategy)

(Today, I’d suggest as a gift   i.  Some  shared experience  (there’s evidence that experiences → postivity/happiness over objects)  ii.  Hand made some thing  and then iii. Cash  only leaving a physical retail object as a distant iv.    Sadly, this would likely lead to a global recession if people stopped buying things, so perhaps good that not everyone thinks like this.)

If you'd like to feel inspired by commencement addresses and life lessons try: Ursula K Le Guin on literature as an operating manual for life;  Neil Gaiman on making wonderful, fabulous, brilliant mistakes; or Nassim Taleb's commencement address; or JK Rowling on the benefits of failure.  Or Charlie Munger on always inverting.  Or Ray Dalio on Principles.

Cross fertilise. Read about the autistic mind here. On investing try a thought on stock valuations. 

In Investing, Economics Tags Richard Thaler, Nobel, Economics

Principles. Ray Dalio.

October 10, 2017 Ben Yeoh
FullSizeRender.jpg

Ray Dalio - Principles:“...you, like me, probably don’t know everything you need to know and would be wise to embrace that fact. If you can think for yourself while being open-minded in a clearheaded way to find out what is best for you to do, and if you can summon up the courage to do it, you will make the most of your life. If you can’t do that, you should reflect on why that is, because that’s most likely your greatest impediment to getting more of what you want out of life. That brings me to my first principle:

• Think for yourself to decide

1) what you want,

2) what is true, and

3) what you should do to achieve #1 in light of #2 . . . . . .

and do that with humility and open-mindedness so that you consider the best thinking available to you.

The principles you choose can be anything you want them to be as long as they are authentic—i.e., as long as they reflect your true character and values.

Think for yourself!

1) What do you want?

2) What is true?

3) What are you going to do about it?

Ray Dalio (wiki) should be listened to, in my view, whether you agree with him or not. He is in the top 100 richest people in world. Dalio has pledged half that wealth to the Bill Gates foundation. He has a coherent and thought provoking personal philosophy  that Dalio also applies to his hedge fund, Bridgewater, one of the largest and most successful in the world (which works under this culture: “an idea meritocracy that strives to achieve meaningful work and meaningful relationships through radical transparency.”) He uses these principles in life and in his business. Originally available in short form on the Bwater website, it is now out in longer book form.  (part 2 on investing and economics out some time in the future).

Dalio himself advocates developing your own principles rather than absorbing another’s completely whole. Thus this provides a fascinating take in the mould of “investor-philosopher” (thus joining Warren Buffet, Charlie Munger, Howard Marks, Peter Lynch, perhaps Seth Klarman, perhaps Nassim Taleb in this mould).

I noticed Dalio on mistakes sounds like Neil Gaiman's view on mistakes, one written by a story teller (I take a look at Gaiman's commencement address extolling mistakes in an earlier post) and the other written by an "investor-philosopher"; and also chimes with JK Rowling on the benefits of failure.

It also offers interesting reflections on his “mistakes” and experiences.

I highlight a few that struck me:

On consensus thinking “...everybody thinks the same thing—such as what a sure bet the Nifty 50 is—it is almost certainly reflected in the price, and betting on it is probably going to be a mistake.”

On losing money on a pork belly trade “It was a very tactile experience . . . [and] it taught me the importance of risk controls, because I never wanted to experience that pain again. It enhanced my fear of being wrong and taught me to make sure that no single bet, or even multiple bets, could cause me to lose more than an acceptable amount. In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money. I believe that anyone who has made money in trading has had to experience horrendous pain at some point. Trading is like working with electricity; you can get an electric shock. With that pork belly trade and other trades, I felt the electric shock and the fear that comes with it.”

On expectations “I lost money until I figured out what was going wrong and how to deal with it. I gradually learned that prices reflect people’s expectations, so they go up when actual results are better than expected and they go down when they are worse than expected. And most people tend to be biased by their recent experiences.”

On learning from history “I learned that everything that was going on—the currency breaking its link to gold and devaluing, the stock market soaring in response—had happened before, and that logical cause-effect relationships made those developments inevitable. My failure to anticipate this, I realized, was due to my being surprised by something that hadn’t happened in my lifetime, though it had happened many times before. The message that reality was conveying to me was “You better make sense of what happened to other people in other times and other places because if you don’t you won’t know if these things can happen to you and, if they do, you won’t know how to deal with them.” “

On learning that there is always risk and uncertainty: “I vividly remember one “can’t lose” bet that personally cost me about $ 100,000. That was most of my net worth at the time. More painful still, it hurt my clients too. The most painful lesson that was repeatedly hammered home is that you can never be sure of anything”

If you’d like a provocative read of an investment philosophy of our times check out his book - UK link to amazon kindle version here  http://amzn.to/2wN4Oy4

A previous post on Dalio and risk and populism here. Video interview post book launch (Sep 2017) below.

Cross fertilise. Read about the autistic mind here and ideas on the arts here. On investing try a thought on stock valuations.

 

​

In Leadership, Investing Tags Life, Dalio, Investing

Kevin Warsh. Future Fed Chair?

October 3, 2017 Ben Yeoh
from predictit.org

from predictit.org

Kevin Warsh could be next Fed Chair. He’s currently favourite in betting markets. A recent meeting with Trump has been confirmed. So, who is he?

Albert Edwards is not known for his optimism (I've worked with him, I should know!) The macro strategist, currently at SocGen, has mostly been an Equity bear for the last decade or so, and has the Ice Age thesis (West would slowly replicate Japan’s experience of the 1990s by descending into outright deflation) on deflation.

But Edwards has written very positively about Warsh. Not something I’ve come to expect from Albert regarding policy makers. This from Edwards after hearing Warsh speak in a Oct 2016 meeting:

“[Warsh] explained  that the Fed has been “captured” by a  groupthink  of  academics led  by  the ‘Secular  Stagnation’ ideas  of  his  friend, Larry  Summers. Rather  than admitting they are  wrong,  this  group, who failed to predict the current economic malaise,have constructed this theory to explain why ever more  stimulus  is  required. In particular Warsh warned that the Fed  had  become  the slave  of the S&P.”  

For Fed watchers it’s worth looking at these articles. Warsh in WSJ in August 2016. He writes:

“The conduct of monetary policy in recent years has been deeply flawed. U.S. economic growth lags prior recoveries, falling short of forecasts and deteriorating in the most recent quarters.”

“Two major obstacles must be overcome: groupthink within the academic economics guild, and the reluctance of central bankers to cede their new power...

First, the economics guild pushed ill-considered new dogmas into the mainstream of monetary policy….

The second obstacle to real reform is no less challenging. Real reform should reverse the trend that makes the Fed a general purpose agency of government…

Warsh as Chair would be shaping a different kinds of Fed it would seem.

And interview with Warsh on CNBC below:

Read a thought on valuations here.  Cross fertilise. Read about the autistic mind here and ideas on the arts here. Ray Dalio on populism and also a thought on risk and valuations. Or Black Swan author, risk expert, on life lessons from his commencement address.

Fed policy running against capital investment: Kevin Warsh from CNBC.

In Investing Tags Fed, Investing

Nassim Taleb. Climate Change Risk.

September 18, 2017 Ben Yeoh
IMG_3709.JPG

On climate change… we should ask “what would the correct policy be if we had no reliable models”? writes Nassim Taleb and co-authors (see below).

We have only one planet.  This fact radically constrains the kinds of risks that are appropriate to take at a large scale. Even a risk with very low probability becomes unacceptable when it affects all of us - there is no reversing mistakes of that magnitude.

Without any precise models, we can still reason that polluting or altering our environment significantly could put us in uncharted territory, with no statistical track-record and potentially large consequences...

While some amount of pollution is inevitable, high quantities of any pollutant put us at a rapidly increasing risk of destabilising the climate, a system integral to the biosphere. Ergo, we should build down CO2 emissions, even regardless of what climate-models tell us.

Push a complex system too far and it will not come back. The popular belief that uncertainty undermines the case for taking seriously the “climate crisis” that scientists tell us we face is the opposite of the truth.

Properly understood, as driving the case for precaution, uncertainty radically underscores that case and may even constitute it. [My emphasis]

I think this case could be pushed more strongly given 3/10 Americans disbelieve manmade climate change. Even with this disbelief, most believe the climate is likely changing and an understanding of the risk framed in Taleb’s view should underscore the need for climate policy.

Source: Taleb's twitter feed

Source: Taleb's twitter feed

Nassim Taleb is not known for liberal left leaning views (although his politics are more complex to easily fit in the left-right axis; his local-global or libertarian axises are - in my view - more important) still this puts Nassim Taleb as a core anti-mainstream-left-thinker and Gregory Mankiw as an economist associated with the Republicans, strongly suggesting (1) Climate change should be taken seriously (in Taleb’s case) and (2) Carbon taxes or some form of Pigovian tax on carbon (in Mankiw’s case) should be enacted.


More from Nassim Taleb thinking on the ethics of stuffing.   or Nassim Taleb's commencement address.  

A post thinking about the pros/cons of a carbon tax (and dividend).

A long thought about various sustainability ideas.

 

In Investing, Carbon, ESG Tags Taleb, Sustainability, climate, Carbon
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