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4 | Punch Card Investing, Newton's Pi, + New Twitter CEO?
The juiciest turkey breast I’ve ever had. The skin was also perfectly crispy. Regardless if you celebrated, hope everyone had a great time with friends and family this past weekend!
Punch Card Investing
Charlie Munger discusses how he and Warren Buffett thinks about long-term investing and diversification.
I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches—representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all.”
“Under those rules, you’d really think carefully about what you did and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”
We didn’t evolve to sit on our hands all day, especially in this era of information. If you limit the eggs in your basket, you’re going to do everything you can to make sure those eggs are safe and the best. Sometimes inaction is action, just watch your eggs.
In their eyes, most diversification is di-worse-ification as you should only invest in a company if you have tremendous conviction in it doing well. If it’s such a great company, why bother diluting its performance with the 2nd or 3rd best? If it’s not, keeping looking for the best, why settle for anything less?
Again, this is a concept that seems perfectly obvious to me. And to Warren it seems perfectly obvious. But this is one of the very few business classes in the U.S. where anybody will be saying so. It just isn’t the conventional wisdom.
To me, it’s obvious that the winner has to bet very selectively. It’s been obvious to me since very early in life. I don’t know why it’s not obvious to very many other people.
Business classes teach you about modern portfolio theory and how diversification is the closest thing to a free lunch. This reduces volatility, but volatility isn’t risk. Risk is the chance you face permanent capital loss. Volatility is how much the stock moves up and down, which can be a lot for companies Mr. Market isn’t too sure about. There’s opportunity in volatility.
Yet volatility and drawdowns can derail careers. Most institutions will stick to diversified portfolios that may or may not outperform the market, and that’s fine. They’re managing to their own goals.
However, there is a firm that really takes this to heart, so much so it was named after this belief: Norbert Lou’s Punch Card Capital.
What sets Norbert apart is he is incredibly disciplined so he has a very high mark for what he’ll invest in and he has incredible patience.
True to the punch card philosophy, Norbert has made fewer investments in his entire career than most managers make in a year.
There’s a great writeup on him from a few years back here.
Newton’s Approximation of Pi
Really interesting video on how the decimal places of pi are calculated. Newton found a way to approximate pi using mathematical concepts that were widely understood across civilizations for over a thousand years. Seems like Newton approached it by connecting ideas in ways that weren’t previously thought.
These days we keep diving deeper into our areas of expertise. As we learn more about the world, the more niches get created. As we rise in layers of abstraction, will there be a day where we forget all the fundamentals? I imagine very few people in the world truly know how the internet as a whole operates. What happens if they all disappear?
Along that line, what if our foremost experts are busy pushing the envelope in new areas, but can discover new things by taking a couple steps back to the basics?
New Twitter CEO?
Well we finally have it, Jack Dorsey has stepped down as part-time CEO for Twitter.
I don’t really follow Twitter as a company, but I see enough complaints on FinTwit to know a lot of people were really unhappy with Jack as CEO. Now he’s stepped down, what’s next? Will the culture carry over as CTO transitions over to CEO? At the end of the day, it’s still an internal hire. Was it even cultural issues in the first place?
I’ve only really started using Twitter during the lockdown and it’s provided me a pretty great experience for the low price of free. Sure the feature set isn’t the best, but given time and proper curation, it serves as a powerful discovery tool for new ideas.
Twitter is a unique platform, I hope they don’t just copy what other social media platforms push and can create something unique. Seems like people have a lot of opinions, but I just look forward to the next chapter and seeing what Parag has to offer.
TwoSet Violin is a duo who use to be professional violinists, but quit to pursue comedy via YouTube. In this video, they’re taking a lesson with a 14 year old violin prodigy. It’s amazing to see the difference even at the highest levels of playing.
I’ve been watching TwoSet Violin all weekend and it’s inspired me to pick up the violin again!