Quote for the Week

Behavioral advantages arise out of the manifest tendencies of large numbers of people to react in predictable ways to certain kinds of situations. So we know that people are risk averse. We know that their coefficient of loss is about two to one – which means that they feel the pain of losing a dollar twice as intensely as they feel the pleasure of gaining a dollar.

People overweight the most recent information. They overreact to dramatic information, or dramatic circumstances. They tend to have what’s called outcome bias, which is they judge things on their outcome, and not on their process. So a lot of these behavioral elements are things that you can actually identify and exploit to your advantage if you are aware of them – and aware also that no matter how much you’re aware of them, you’re not immune to them yourself. You really have to have a sense of discipline and patience, and understanding in that. — Bill Miller (source)

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Quote for the Week

Investors are right and wrong all the time for the wrong reasons. We all know people who got famous in our business for being right once in row. The correctness of a decision cannot be judged merely from the outcome. Good decisions fail all the time. Bad decisions work all the time. Randomness alone can produce just about any outcome in the short run. It is for reasons like these that we must be leery about attaching great importance to short-term performance.

Instead you must appreciate what Taleb in his book calls alternative histories — the other things that reasonably, probably could have happened. The difficulty of seeing events as nothing more than part of a range of possibilities must be dealt with, and if we can understand that, then we reduce the significance we attach to the events that actually happened. If short-term outperformance or underperformance is of limited relevance, what matters? Long term, it is not who can only do it once or who can do it for a year. It is who can do it for 10 years or maybe 20. These are the people who are worth our attention. — Howard Marks (source)

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Quote for the Week

What the economists call fabrication or demand in use is inversely correlated with price. Or, more simply, you know, if gasoline prices go up, other things equal, you’re going to drive less. So price and demand are inversely correlated: basic economics. And that’s the way it is for things that are used. But in financial markets, it isn’t the case. That actually, demand is positively correlated with price. More people buy things when they go up; if stocks start to go up, more people want them than if they’re going down. The higher they go up, the greater the demand for them. That’s why you see people chasing mutual fund performance; it’s why you see the bubbles that you saw in technology and Internet stocks where all the money flowed in after they’d gone up a lot… It’s been very well established that demand follows price. — Bill Miller (source)

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Here’s what I’ve been reading for the past three months:

• The Victorian Internet: The Remarkable Story of the Telegraph — Tom Standage tells the history of the invention of the telegraph. The story covers the early use of the optical telegraph, the creation of the electric telegraph, and how the new technology reshaped society and industry. (notes)
• Ubiquity: Why Catastrophes Happen — Mark Buchanan, through numerous examples, explains why complex dynamic systems become unbalanced and slip into chaos. Systems that sit on the edge of instability, ensure change while being impossible to predict. (notes)
• Buying Disney’s World — Aaron Goldberg tells the story of how Walt Disney World came to be: why Walt wanted a second park, how massive land purchases went almost unnoticed, how engineers tamed the swampland, and how they designed, funded, and built the park. It’s a testament to what makes Disney different from other companies. Notes to come.
• The Endurance: Shackleton’s Legendary Antarctic Expedition — Earnest Shackleton’s harrowing attempt to be the first to cross the Antarctic continent on foot met disaster days before reaching their initial destination. Stranded, trapped on an ice pack, the ordeal lasted twenty months. It’s a story of leadership and survival. Notes to come.
• Invention and Innovation: A Brief History of Hype and Failure — A new read I just started that combines technology and history. Vaclav Smil looks at innovations throughout history that fell far short of the hopes and promises that surround each one or outright failed.

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