Sunday 14 December 2014

Some great links

"122 Things Everyone Should Know About Investing and the Economy"

Written by Morgan Housel, a treasure trove full with wisdom about investing. A few of my favourites, which are probably also relevant in the Malaysian share market:

  • Saying "I'll be greedy when others are fearful" is easier than actually doing it.
  • When most people say they want to be a millionaire, what they really mean is "I want to spend $1 million," which is literally the opposite of being a millionaire.
  • My main life lesson from investing: self-interest is the most powerful force on earth, and can get people to embrace and defend almost anything.
  • Buy and hold only works if you do both when markets crash. It's much easier to both buy and hold when markets are rising.
  • 72% of mutual funds benchmarked to the S&P 500 underperformed the index over a 20-year period ending in 2010.
  • The phrase "double-dip recession" was mentioned 10.8 million times in 2010 and 2011, according to Google. It never came. There were virtually no mentions of "financial collapse" in 2006 and 2007. It did come.
  • Our memories of financial history seem to extend about a decade back. "Time heals all wounds," the saying goes. It also erases many important lessons.
  • The most boring companies -- toothpaste, food, bolts -- can make some of the best long-term investments. The most innovative, some of the worst.
  • There were 272 automobile companies in 1909. Through consolidation and failure, three emerged on top, two of which went bankrupt. Spotting a promising trend and a winning investment are two different things.
  • Try to learn as many investing mistakes as possible vicariously through others. Other people have made every mistake in the book. You can learn more from studying the investing failures than the investing greats.
  • If you roll dice, you know that the odds are one in six that the dice will come up on a particular side. So you can calculate the risk. But, in the stock market, such computations are bull -- you don't even know how many sides the dice have!
  • Most people still haven't figured out that brokers don't have their best interest at heart.
  • Twenty-five hedge fund managers took home $21.2 billion in 2013 for delivering an average performance of 9.1%, versus the 32.4% you could have made in an index fund. It's a great business to work in -- not so much to invest in.
  • You can control your portfolio allocation, your own education, who you listen to, what you read, what evidence you pay attention to, and how you respond to certain events. You cannot control what the Fed does, laws Congress sets, the next jobs report, or whether a company will beat earnings estimates. Focus on the former; try to ignore the latter.
  • Companies that focus on their stock price will eventually lose their customers. Companies that focus on their customers will eventually boost their stock price. This is simple, but forgotten by countless managers.
  • Several academic studies have shown that those who trade the most earn the lowest returns. Remember Pascal's wisdom: "All man's miseries derive from not being able to sit in a quiet room alone."
  • The best company in the world run by the smartest management can be a terrible investment if purchased at the wrong price.
  • No investment points are awarded for difficulty or complexity. Simple strategies can lead to outstanding returns.
  • No investment points are awarded for difficulty or complexity. Simple strategies can lead to outstanding returns.

"The PMARCA Guide to Startups"

A series of articles about starting a tech start-up. My guess is that most readers of this blog are more interested in general investing. Start-up tech companies are special, in that they are supposed to scale very quickly, enabled by new technology, which also serves as a barrier to entry to (future) competitors.

There are many gems of wisdom which are also relevant for normal business. For instance a list of the risks involved:
  • Founder risk -- does the startup have the right founding team? A common founding team might include a great technologist, plus someone who can run the company, at least to start. Is the technologist really all that? Is the business person capable of running the company? Is the business person missing from the team altogether? Is it a business person or business people with no technologist, and therefore virtually unfundable?
  • Market risk -- is there a market for the product (using the term product and service interchangeably)? Will anyone want it? Will they pay for it? How much will they pay? How do we know?
  • Competition risk -- are there too many other startups already doing this? Is this startup sufficiently differentiated from the other startups, and also differentiated from any large incumbents?
  • Timing risk -- is it too early? Is it too late?
  • Financing risk -- after we invest in this round, how many additional rounds of financing will be required for the company to become profitable, and what will the dollar total be? How certain are we about these estimates? How do we know?
  • Marketing risk -- will this startup be able to cut through the noise? How much will marketing cost? Do the economics of customer acquisition -- the cost to acquire a customer, and the revenue that customer will generate -- work?
  • Distribution risk -- does this startup need certain distribution partners to succeed? Will it be able to get them? How? (For example, this is a common problem with mobile startups that need deals with major mobile carriers to succeed.)
  • Technology risk -- can the product be built? Does it involve rocket science -- or an equivalent, like artificial intelligence or natural language processing? Are there fundamental breakthroughs that need to happen? If so, how certain are we that they will happen, or that this team will be able to make them?
  • Product risk -- even assuming the product can in theory be built, can this team build it?
  • Hiring risk -- what positions does the startup need to hire for in order to execute its plan? E.g. a startup planning to build a high-scale web service will need a VP of Operations -- will the founding team be able to hire a good one?
  • Location risk -- where is the startup located? Can it hire the right talent in that location? And will I as the VC need to drive more than 20 minutes in my Mercedes SLR McLaren to get there?

"Zero to One: Notes on Startups, or How to Build the Future"

Peter Thiel is a intelligent and outspoken (sometimes controversial) person. A very clear book full with interesting theories, many of them quite general and not only relevant for start-ups. One of the best business books I have ever read.

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