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Friday, 5 March 2021

Weekend Reading

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week.
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Slow down to make better decisions

When the product of your job is your decisions, you might find yourself wanting to be able to make more decisions more quickly so you can be more productive overall. Chasing speed is a flawed approach. Because decisions—at least good ones—don’t come out of thin air. They’re supported by a lot of thinking.

You’re still going to need to schedule time to do nothing but think. You can’t force yourself to think faster. Our brains just don’t work that way. The rate at which you make mental discernments is fixed. Speeding up often results in poor decisions that create future problems. The reason more pressure doesn’t mean better productivity is that the rate at which we think is fixed. We can’t force ourselves to start making faster decisions right now just because we’re faced with an unrealistic deadline.



The dilemma of CRISPR

The Berkeley biochemist had helped to invent a powerful new technology that made it possible to edit the human genome—an achievement that made her the recipient of a

Nobel Prize in 2020. The innovation was based on a trick that bacteria have used for more than a billion years to fight off viruses, a talent very relevant to us humans these days. In their DNA, bacteria develop clustered, repeated sequences (what scientists call CRISPRs) that can recognize and then chop up viruses that attack them. Dr. Doudna and others adapted the system to create a tool that can edit DNA—opening up the potential for  curing genetic diseases, creating healthier babies, inventing new vaccines, and helping humans to fight their own wars against viruses.

The supposed promise of CRISPR is that we may someday pick which of these traits we want in our children and all our descendants. It took nature millions of years to weave together three billion base pairs of DNA into a complex—and often imperfect—way to permit all the wondrous diversity within our species. Are we right to think that we should now edit that genome to eliminate what we see as imperfections? Will we lose our diversity? Our humility and empathy? Will we become less flavorful, like our tomatoes?



Lower your expectations for a happier life

In the book Engineering Happiness, economists Manel Baucells and Rakesh Sarin cite the fundamental equation of wellbeing: happiness equals reality minus expectations. I'm sure you've all heard this notion before.

  • If you expect more from life than you currently have, you'll be unhappy.
  • Conversely, if your current experience exceeds your expectations, you'll be happy.

So, just as you can increase your saving rate by improving income and/or lowering expenses, you can deliberately increase your happiness by improving your circumstances and/or lowering your expectations. But it's usually easier to lower your expectations.



And maybe, just maybe, interest rates don’t matter as much as we all think

It may come as a shock to investors in the day-and-age of low and even negative interest rates that this growth stock orgy of Nifty Fifty blue-chip stocks in the early-1970s took place in an environment of high and rising interest rates. The 10-year yield was moving higher for much of the Go-Go Years in the 1960s and averaged more than 5% from 1962-1972. And it’s worth noting, inflation was moving ever-higher during this period as well. Interest rates were even higher during the dot-com bubble of the mid-to-late 1990s.

There are so many other factors at play that determine why investors do what they do with their money — demographics, demand, risk appetite, past experiences and a whole host of psychological and market-related dynamics.

Sure, it’s certainly possible investors could freak out because interest rates have been so low for so long.

Just because stocks have done fine when rates have risen in the past doesn’t mean it will happen in the future. But interest rate levels, in and of themselves, aren’t the sole cause of every market movement. They are just one factor among many that impact how people allocate their assets.



You have to be on your toes, even if you are a very long term investor

Good businesses by definition earned good returns on capital, but the names of those businesses change over time. So when I look back and think about a company that actually fits the test of being a good business today, with the way that the world is changing and the way that the pace of change is accelerated and the forces unleashed by technological change, there are businesses that were fine businesses five, 10, 20, 30 years ago that aren’t anymore.

So you always need to be on your toes and you always need to be thoughtful about what businesses are in fact fit that definition of good businesses or not, because returns on capital typically don't go straight line. They’re either getting better or they’re getting worse.



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