1.
Finding asymmetric opportunities
This article is an absolute must-read. It is one of the best articles I have read so far this year.
I learned that, yes, it is possible to reduce one’s downside, but it is not possible to eliminate it. The better strategy is to seek opportunities where the possibility of gains wildly outweighs what you can lose, which is typically capped at 1x your investment.
Further, there are criteria, which, when you stack them on top of each other, don’t stack linearly; they become logarithmic — or asymmetric. For example, if you have an incredible management team who builds a great team to support them, moves at a fast pace, operates in a large industry, can redeploy large amounts of capital at high returns, and is willing to do so over a long time – then you’re not playing for a 1.5x or 2.0x outcome, you could be playing for a 10x, 20x, or even 100x outcome.
Investing is about finding those asymmetric opportunities.
2.
Look to the future
Stan Druckenmiller is one of my favourite investors. In this interview, he discusses many things worth reading, so I would urge you to read the whole piece, but the part which stuck with me was the quote below.
Never, ever invest in the present. It doesn’t matter what a company’s earning, what they have earned. He taught me that you have to visualize the situation 18
months from now, and whatever that is, that’s where the price will be, not where it is today. And too many people tend to look at the present, oh this is a great company, they’ve done this or this central bank is doing all the right things. But you have to look to the future. If you invest in the present, you’re going to get run over!
3.
Idiots are everywhere. How to spot them from afar?
With the advent of social media, local idiots have now graduated to become global idiots :-)
In this article, the author talks about how to spot idiots from a distance (and hopefully maintain that distance!!!)
1. Beware of anyone who describes themselves as a “proud non-reader of books”
2. Similarly, avoid anyone who thinks that every book should have been a six-paragraph blog post
3. Remember that wealth isn’t directly linked to intelligence
4. Dropping “AI” or “ChatGPT” into every second sentence is a major idiot red flag
5. Keep a wide berth from people who obsess about their IQs
Thought of the Week
Some investors buy and hold for the long term, stashing their securities in the proverbial vault for years. While such a strategy may have made sense at some time in the past, it seems misguided today. This is because the financial markets are prolific creators of investment opportunities.
Investors who are out of touch with the markets will find it difficult to be in touch with buying and selling opportunities regularly created by the markets. Being in touch with markets does pose dangers, however. Investors can become obsessed, for example, with every market uptick and downtick and eventually succumb to short-term oriented trading. There is a tendency to be swayed by recent market action, going with the herd rather than against it.
~ Seth Klarman, Margin of Safety
Video of the Week
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Hello Mr Abhishek, it a pleasure reading you newsletters which are crafted with perfection in terms of content and grammar (especially punctuations). Keep it coming. Cheers!