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Newsletter: Blinded by the past, Chasing perfection, Putting probabilities in perspective & More

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5×5: Five articles summarised in five lines 🌟

  • Psychology: Your memory may blind you from the future
  • Frameworks: When does value investing give value?
  • Psychology: Chasing perfection in investing is futile
  • Math: Putting probabilities in perspective
  • Framework: How do you define quality?
  • (Last one) Pop Quiz #10: Guess the brand and win a hamper!

Only remember the Future ☘️

  • The stock market is a place for kids with little baggage from the past because things are always different
  • A 50-year-old would smirk at computer leasing stocks in the 1960s while young investors bought them for “unlimited growth”
  • There is a danger of getting stuck in this failure-driven learning loop of contemplation that can leave us with self-doubt and hesitation.
  • Intuitively, we learn by studying history and our own mistakes and actions.
  • But if we hold on to our memories too tightly, we close ourselves off from the present.

Read More – The Market Has No Memory. Should We?


Finding value in value investing 🎯

  • The value factor generates positive returns when cheap stocks outperform expensive ones.
  • That means investors are most likely to risk buying questionable companies when they’re more confident about the economy and the stock markets.
  • Such an approach requires you to constantly buy stocks primarily based on the risk factor.
  • It’s great to know how to improve the odds of generating returns with cheap stocks, but it hardly makes value investing easy.
  • Understanding what drives value factor performance is immensely helpful, but implementing a framework around those drivers is challenging.

Read More – Improving the Odds of Value Investing


In markets, discipline beats perfection 😷

  • Missing out on investment fads is a feature, not a flaw, of diversification.
  • Instead of chasing short-term dopamine highs, build a portfolio around a short list of evidence-based rules.
  • Exercise the discipline to follow those rules.
  • Successful investors reduce fees and stick to something imperfect rather than endlessly pursue perfection.
  • Next time you stumble across an investment strategy that feels like a sure thing… remember it’s likely the dopamine talking.

Read More – Why Perfectionism Ruins Portfolios


Putting probabilities in perspective 😇

  • If one person plays the lottery, the odds of picking the winning numbers twice are indeed 1 in 17 trillion.
  • But if one hundred million people play the lottery week after week the odds that someone will win twice are 1 in 30.
  • A 100-year event doesn’t mean it happens every 100 years.
  • It means there’s about a 1% chance of it occurring in any given year.
  • When there are hundreds of different independent 100-year events, odds are pretty good that one of them will occur in a given year.

Read More – Once In A Lifetime


What’s your breaking point? 🛠

  • Rather than risk tolerance, you should ask: what’s your loss tolerance?
  • How much loss can you endure before you reach the point where emotions push you to change your mind and change your portfolio?
  • That breaking point is important because it’s usually where mistakes are made like buying high and selling low.
  • So how much of your net worth do you want to keep safe versus how much are you willing to lose outright?
  • The goal is to find that breaking point so you can build a portfolio that minimizes regret, limits how often you change your portfolio, and keeps you invested for the long run.

Read More – Daniel Kahneman: Loss Tolerance


Pop Quiz #10 ⚡️

Hit reply to this email and send in your answers. If you are not reading this in your mailbox, please subscribe to the newsletter to get next the one (with the next Pop Quiz) in your inbox!

Question:

In 1855, an entrepreneurial Scotsman named Edward Abraham Dyer set up a brewery in Kasauli, Himachal Pradesh to cater to the British requirement for cheap beer. It later merged with another British-run brewery, Meakin & Co, and focused its brewing operations in Solan, Himachal Pradesh. It is perhaps the most famous IMFL brand in the country.

Identify this iconic brand.


Last week’s quiz results💡

Answer: Shrinkflation!

Quiz Winner – Kunal Karmakar 🎉


⚡Join, probably, the best investment community in India⚡

Newsletter: Blinded by the past, Chasing perfection, Putting probabilities in perspective & More
Newsletter: Blinded by the past, Chasing perfection, Putting probabilities in perspective & More

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