Welcome to issue #9 of Curated by Kalani! Same spiel, different week. Keen to share what I’ve been reading, learning, and compressing. But a quick quote from Richard Feynman:
I'm smart enough to know that I'm dumb.
My only addition, I’m not smart enough to realise just how dumb I am.
Here’s the format of today’s email:
Part 1: Contrarians
Part 2: To be a Specialist or Generalist?
Part 3: Under the Spotlight: John Buchanan
Part 4: Bonus Quirky Content - Something to Read, Watch, and Listen.
Contrarians
Why Investors Must Be Contrarians to Outperform The Market [Link]
GOAT article on contrarian thoughts from some of the best. Covers Bill Gurley, Jeff Bezos, Howard Marks, Andy Rachleff, and Marc Andreessen’s.
Michael Mauboussin’s summary is my favourite:
The goal is not to be a contrarian just to be a contrarian, but rather to feel comfortable betting against the crowd when the gap between fundamentals and expectations warrants it. This independence is difficult because the widest gap often coincides with the strongest urge to be part of the group. Independence also incorporates the notion of objectivity—an ability to assess the odds without being swayed by outside factors. After all, prices not only inform investors, they also influence investors.
[Bonus if you want a great compilation resource on Michael Mauboussin, my good mate Erick Mokaya (@ekmokaya) has a great compilation]
Howard Marks thoughts on being a contrarian in his book The Most Important Thing:
It’s not enough to bet against the crowd. Given the difficulties associated with contrarianism just mentioned, the potentially profitable recognition of divergences from consensus thinking must be based on reason and analysis. You must do things not just because they’re the opposite of what the crowd is doing, but because you know why the crowd is wrong. Only then will you be able to hold firmly to your views and perhaps buy more as your positions take on the appearance of mistakes and as losses accrue rather than gains.
Seth Klarman in his book Margin of Safety echoes similar thoughts:
Investors may find it difficult to act as contrarians for they can never be certain whether or when they will be proven correct. Since they are acting against the crowd, contrarians are almost always initially wrong and likely for a time to suffer paper losses. By contrast, members of the herd are nearly always right for a period. Not only are contrarians initially wrong, they may be wrong more often and for longer periods than others because market trends can continue long past any limits warranted by underlying value
Dare I mention Bitcoin seems to relate to the above quote?
I’ll just leave you with some more Howard Marks goodness:
Accepting the broad concept of contrarianism is one thing; putting it into
practice is another.
To be a Specialist or Generalist?
I have no super-strong feelings either way. Although I do prefer the life of a generalist (it’s more fun). But I’ll acknowledge that there are plenty of situations where being a specialist is much more beneficial.
A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.
- Robert A. Heinlein
Orit Gadiesh, Chairman of Bain & Company, gives an argument and explanation for the expert-generalist approach [Source]:
Someone who has the ability and curiosity to master and collect expertise in many different disciplines, industries, skills, capabilities, countries, and topics., etc. He or she can then, without necessarily even realizing it, but often by design:
Draw on that palette of diverse knowledge to recognize patterns and connect the dots across multiple areas.
Drill deep to focus and perfect the thinking.
Benjamin Jones and Brian Uzzi found that [Source]: “Regardless of whether papers were authored by a sole scientist or a team of them, this “virtuous mix”—plenty of conventionality and a dash of originality—was most likely to produce high-impact papers.”
But why? What makes a combination of conventionality and originality so successful?
You want to be grounded in something that’s well understood and yet be adding in the piece that’s truly unusual. And if you do those two things [and] stretch yourself in both directions, then you radically increase your probability of hitting a homerun.
Many of these novel combinations are really two conventional ideas in their own domains. You’re taking established, well-accepted ideas, which is a wonderful foundation—you need that in science. But when you put them together: wow. That’s suddenly something really different.
Let me try provide some examples (I may be totally missing the mark here but):
You combine rigorous statistical analysis and baseball and you get Billy Beane and Moneyball.
3M developed a breakthrough concept for preventing infections associated with surgery after getting input from a theatrical-makeup specialist who was knowledgeable about preventing facial skin infections. [Source]
And hows this one, medical and military fields combining to kill a patient’s stomach tumour [Source]:
The problem reads as such: Imagine that we need to kill a patient’s stomach tumor by radiating it. However, any radiation of sufficient strength will also kill the healthy tissue that it will cross. How can we use radiation to destroy a patient’s stomach tumor without harming the neighboring healthy tissues?
One solution is to use multiple low-intensity rays from different sources around the patient that converge on the tumor. As it happens, students who read a military analogy (attacking a fortress in a countryside protected by minefields that let small groups of men through but not an entire army) are significantly better at identifying that solution.
There’s great value in going deep. Don’t get me wrong. No point in being ok at everything and good at nothing. But I’m having way too much fun as a generalist.
Under the Spotlight: John Buchanan
Each week I provide a little spotlight on an investor or operator I admire.
John Buchanan is this weeks focus, in a nutshell:
In 1994, appointed head coach of the Queensland Bulls, having only played 7 games for the Bulls 15 years prior. Seen as a gamble at the time choosing someone with little playing experience.
In 1999 after continued success with Queensland, is chosen as the Australian Cricket Team coach. Pretty wild considering he only started coaching cricket in 1990. So 9 years later was coaching Australia.
As coach of Australia from 1999 to 2007, Australia won 26 Tests series, drew two and lost two, winning three consecutive World Cups in the process. Overall achieving a winning record of 70%.
Buchanan reminds me of a lot of Gregg Popovich and Phil Jackson. Why? Buchanan cares about the individual and developing them overall. Not just as athletes.
A coach’s role is to expand the horizons of the team. And that means trying to develop the whole person, not just the cricketer. The same applies in any arena, be it sport, corporate, or life generally.
- Source
This quote highlights his brilliance and quirkiness:
Coaching to Buchanan meant more than batting, bowling and fielding; it meant broadening the horizons of his players and developing them as human beings. He encouraged his players to deliver lectures and recite poetry in the dressing room to build self-confidence, with subjects ranging from Hulk Hogan to the Bee Gees. The English press dubbed Buchanan the ‘Wacky Professor’ after a team-briefing document was leaked during the 2001 Ashes that drew on the teachings of fifth Century Chinese warlord Sun Tzu.
- Source
Buchanan and one of Australia’s greatest cricketers, Shane Warne, had an often conflicting relationship. Phil Jackson and Dennis Rodman. Except in this case, Dennis Rodman was as good as Michael Jordan. How do you manage that? How can you get them to buy in, without pissing them off beyond usefulness?
Mike Hussey floated an intriguing theory about the Warne-Buchanan relationship:
I think the way John spoke to and treated and tried to motivate Shane was genius. He almost tried to get into an argument with him or challenge him with things that were a little bit leftfield. So Shane would say, ‘John, you’re dribbling rubbish. I’ll show you how to do it’, and he’d go out there and do it. In my mind that’s absolutely genius coaching.
- Source
John Buchanan on Sports Geek [Link] [Apple Link]
The audio quality is (excuse my french) pretty dogshit if I’m honest. But some great lessons. Best part is at about [38:00] where John discusses sport vs business.
In business, you’re always in competition. Not many budget time and effort to practice or study in business. The main focus is playing the game.
Sports players have the luxury of adequate practice and preparation before a game. Then they compete. And win, lose, or draw, they review what went wrong and where to improve. Preparing and reviewing is where the business world should be improving.
Bonus Quirky Content
Something to read: The Practice Of Value Investing by Li Lu [Link]
Graham Rhodes (@longriver_hk) posts some bloody interesting stuff which I highly recommend checking out. This translation he’s provided on one of Li Lu’s speeches is no different.
Warren (Buffett) and Charlie (Munger) have always said, what makes a value investor successful isn’t IQ nor his experience; it’s his temperament. What does this mean? I will now share my understanding. [..]
First, this person must be relatively independent. He should judge himself by his own yardstick, and not others’. […] Independent people aren’t influenced by others. This is an innate characteristic. Independence is especially important for investors because they will face temptation every minute of the day. Comparisons also create jealousy.
Second, this person should be relatively objective and unemotional. Of course, we are all emotional beings and so cannot completely escape our emotions. However, some people make the search for objectivity and rationality into a value and a moral pursuit. These people are better suited to value investing. […] It is therefore vital for you to maintain an extremely objective stance and be willing to learn continuously.
The next attribute is relatively special. You must be both extremely patient and extremely decisive, even though they are in contradiction. When there are no opportunities, you might go for years without taking any action. But as soon as an opportunity arrives, you must be able to become extremely decisive and act without hesitation. […]
Fourth, how could Charlie persist in this for 40 or 50 years? It’s because he is intensely interested in business. Warren and Charlie always talk about having money sense – that is, an intense interest in business and a natural predisposition to mulling over questions like, how does this business earn money? Why does it earn money? What will competition be like in the future? Can it still make money in the future? These people always want to get to the bottom of these questions, and their passion is their main motivation.
Something to watch: Carl Sagan's Pale Blue Dot [3 mins]
The earth is a very small stage in vast, cosmic arena
Just when I feel life gets a little too intense, this helps bring me back to earth ;)
Something to listen to: Semisonic on Song Exploder [Link] [Apple Link]
Just an interesting back story to a song that means a lot to me. Not much more to it!
Until next Wednesday, have a good one!
- Kalani
You can find previous issues of Curated by Kalani here. I’m on the web at kscarrott.com and on Twitter @scarrottkalani.
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