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Friday, 23 April 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. If you like this collection, consider forwarding it to someone who you think will appreciate it.


1. Trying hard not to be stupid
It is not enough to think about difficult problems one way. You need to think about them forwards and backward. Inversion often forces you to uncover hidden beliefs about the problem you are trying to solve. “Indeed,” says Munger, “many problems can’t be solved forward.”

Inverting the problem won’t always solve it, but it will help you avoid trouble. You can think of it as the avoiding stupidity filter. It’s not sexy but it’s a very easy way to improve.

Inversion helps improve understanding of the problem. By forcing you to do the work necessary to have an opinion you’re forced to consider different perspectives.

If you’re to take anything away from inversion let it be this: Spend less time trying to be brilliant and more time trying to avoid obvious stupidity.
https://fs.blog/2013/10/inversion/


2. The North Korean cyber criminals
Foreigners find it profoundly difficult to understand what is happening inside North Korea, but it is even harder for ordinary North Korean citizens to learn about the outside world. A tiny fraction of one per cent of North Koreans has access to the Internet. Yet, paradoxically, the North Korean government has produced some of the world’s most proficient hackers.

North Korea, moreover, is the only nation in the world whose government is known to conduct nakedly criminal hacking for monetary gain. Units of its military intelligence division, the Reconnaissance General Bureau, are trained specifically for this purpose. In 2013, Kim Jong Un described the men who worked in the “brave R.G.B.” as his “warriors . . . for the construction of a strong and prosperous nation.”

North Korea’s cybercrime program is hydra-headed, with tactics ranging from bank heists to the deployment of ransomware and the theft of cryptocurrency from online exchanges. It is difficult to quantify how successful Pyongyang’s hackers have been. Unlike terrorist groups, North Korea’s cybercriminals do not claim responsibility when they strike, and the government issues reflexive denials. Nevertheless, in 2019, a United Nations panel of experts on sanctions against North Korea issued a report estimating that the country had raised two billion dollars through cybercrime. Since the report was written, there has been bountiful evidence to indicate that the pace and the ingenuity of North Korea’s online threat have accelerated.
https://www.newyorker.com/magazine/2021/04/26/the-incredible-rise-of-north-koreas-hacking-army


3. Active vs Passive reading
Passive readers forget things almost as quickly as they read them. Active readers, on the other hand, retain the bulk of what they read. Another difference between these two types of readers is how the quantity of reading affects them differently. Passive readers who read a lot are not much further ahead than passive readers who read a little.

The more that active readers read, the better they get. They develop a latticework of mental models to hang ideas on, further increasing retention. Active readers learn to differentiate good arguments and structures from bad ones. Active readers make better decisions because they know how to get the world to do the bulk of the work for them. Active readers avoid problems. Active readers have another advantage: The more they read the faster they read.
https://fs.blog/2017/10/how-to-remember-what-you-read/


4. Is fund management a business or a practice?
"The distinction between an investment practice and investment business. A business gives to the customer what they want. The manager creates a product to fill a need. A practice, like a medical or law practice, is there to give a client what they need." - Anthony Deden.

The business solves the customer’s problem and maximizes wealth creation for the owner. The practice serves the customer in a way that reflects the uniqueness of the practitioner, their process and personality. The business’s natural drive is to grow and generate cash. For the practice, it is to allow the owners to practice their craft in service of the client.
https://neckar.substack.com/p/attempting-the-impossible


5. It is going to get dumber
I also worry 2020 and 2021 may have broken the brains of a large number of young investors. Once you associate degenerate gambling with actual investing in the markets it’s going to be difficult to turn that part of your brain off to invest in a reasonable manner.

You could make the case this is the dot-com bubble all over again. And there are some similarities.

But I think the main driver here is something completely different. The internet has changed the game forever and we’re finally seeing a generation of people who grew up online come into the markets. I don’t think the internet has fundamentally changed human nature but it sure does amplify it.

Everything is now gamified. Money doesn’t seem real when transactions occur with the push of a button on your phone. Memes are now a form of currency in 2021. What you invest in has always been about status in many ways but now people are trying to prove a point with their trades. Crypto wealth was essentially created from out of thin air (and coding).

My biggest worry is the number of young people who are witnessing meme stock gains and joke crypto currencies going to the moon are going to develop bad habits and attitudes about the markets that will be impossible to fix.

I also don’t think we’ve seen the end of this. It’s probably only going to get dumber.
https://awealthofcommonsense.com/2021/04/the-most-annoying-bull-market-of-all-time/


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