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Thursday 16 June 2022

Weekend Reading


Sit tight, fasten your seat belts and enjoy the bumpy ride :-)
Once in a lifetime can be a frequent occurrence
There are about eight billion people on this planet. So if an event has a 1-in-a-million chance of occurring every day, it should happen to 8,000 people a day, or 2.9 million times a year, and maybe a quarter of a billion times during your lifetime. Even a 1-in-a-billion event will become the fate of hundreds of thousands of people during your lifetime. And given the media’s desire to promote shocking headlines, you will hear their names and see their faces.
The idea that incredible things happen because of boring statistics is important, because it’s true for terrible things too.
Think about 100-year events. One-hundred-year floods, hurricanes, earthquakes, financial crises, frauds, pandemics, political meltdowns, economic recessions, and so on endlessly. Lots of terrible things can be called “100-year events”.
A 100-year event doesn’t mean it happens every 100 years. It means there’s about a 1% chance of it occurring on any given year. That seems low. But when there are hundreds of different independent 100-year events, what are the odds that one of them will occur in a given year?
Pretty good.
Why eating at your desk is banned in France
The French labor code prohibits workers from eating lunch in the workplace. The solo work lunch is also shunned in a culture that prizes a change of pace — and scenery — during the midday meal.
As cities grew and more workers had to travel to factories on the other side of town, their eating habits changed. The midday meal, traditionally made to be eaten at home, entered a new carryout phase.
Picture workers picking at their food with their fingers in matchbook factories, seamstress sweatshops and warehouses full of heavy machinery. From airborne tuberculosis to phosphorus fumes, these work sites were far from sanitary. “Even in department stores, there were more microbes and germs per cubic feet than outside.” As diseases spread, doctors discussed how to clean the air in dirty workspaces.
First, you had to get the people out. “The saying was that we have to flush the work sites as we flush toilets,” Bruegel says. “What is the best time to do that? It’s usually when people eat!”
The government’s answer: ban lunch in the workplace. Get the people outside and then open the windows to clear out the germs. That was the idea behind the 1894 decree that banned lunch at the workplace.
Lower risk stocks give better returns
Academics define risk, denoted by the Greek letter beta, as how much a stock moves relative to changes in the stock market. A stock with a beta of one will move in line with the market on average, while below one suggests smaller changes and above one bigger changes than the market. The reward is the expected total return of a stock.
The theory is beautiful in principle but doesn’t work in practice. Researchers who put it to the test found that the average returns for low-risk stocks were higher, and those for high-risk stocks lower, than they were supposed to be.
To succeed, do it for two weeks
Pick a goal. Pick something you feel you want to achieve. Create a daily process or routine you will follow. (Better yet, ask someone who has done what you want to do to create a routine for you.)
Then commit to following that routine for two weeks. For each of the next 14 days, keep your head down and focus solely on what you need to do that day. Not next week. Not next month. Not next year.
Just today.
At the end of two weeks, you’ll know whether you want to keep going. You’ll know whether the goal you chose means something to you or was just a whim. (Either outcome is fine; “wasting” two weeks only to find out you don’t want to run a marathon is better than spending the next 20 years feeling like a failure because you think you want to, but haven’t.)
If you want to keep going, the tough two weeks you just put in will make it much more likely that you’ll stay the course over the long term. Partly because of the improvement you’ve made – improving is always fun, and we all like to do things we’re good at – and because your emotions will start to work for you, not against you.
Position size your bets for survival
Bill Miller lost $300 million on Enron. It was roughly an 89% loss and the most money he had ever lost in a single position (at that point in his career). It also turned out to be the quickest. It only took 60 days.
One of the biggest mistakes investors make is they fail to consider the downside. They get caught up in how much they can make and size the position accordingly. But if things go south, that oversized position severely handicaps their portfolio. The lesson from the Enron scandal is the risk of having too much money in a single stock.
The important question to ask is: how much can I lose and how might that loss impact my overall portfolio?
For Miller, the loss might have been the biggest but the damage was small. He still beat the market that year because he sized the position based on how a total loss would impact his portfolio.

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