Deep Work says that the ability to concentrate is becoming rarer, just as it is becoming more valuable. The book gives lots of good suggestions for how to cultivate this ability in your life.

Book notes

Deep work is distraction-free concentration

Schedule long, consecutive, uninterrupted chunks of time for deep work

Live near your office, so that you can get to work early

“Master the art of quickly learning complicated things”

Produce the best stuff you are capable of producing, at speed

Minimise time spent on email

The ability to work deeply is becoming increasingly valuable

“The key to developing a deep work habit is to move beyond good intentions and add routines and rituals to your working life designed to minimize the amount of your limited willpower necessary to transition into and maintain a state of unbroken concentration.”

Maintain a tally of hours or days spent in deep concentration

Focus on what is wildly important

Schedule internet usage in advance

Resist the temptation to switch tasks

Put thought into your leisure time – avoid bad habits that undermine those you are trying to cultivate

Continually take a moment throughout the day to ask: “What makes sense for me to do with the time that remains?”

Shallow work is work that someone else could easily do for you

Aim to spend no more than 30 to 50 percent of your time on shallow work

Raise the bar for access to your time and attention

“Develop the habit of letting small bad things happen. If you don’t, you’ll never find time for the life-changing big things.”

“Confront the possibility that your best is not (yet) that good”

Buy Deep Work on Amazon (affiliate link)

Invest With The House gives a fascinating insight into top investors, as seen through their holdings. The profiles and linked articles provide a good overview of each investor’s strategy, but you also get a glimpse of the enthusiasm they have for their work.

Book notes

“A patient and disciplined approach to investing and being cautious are the cornerstones of any successful investor”

Klarman was tutored by Max Heine and Michael Price at Mutual Shares Corporation where he worked for two years

One of Baupost’s investments was $230 million worth of claims from Madoff investors bought for $74 million. The investment more than doubled after a favorable court ruling.

Glenn Greenberg had roughly 70% of his invested total tied up in his top five holdings

“[Tom] Russo searches for well-run, family controlled companies that he can buy for as little as half of what he feels they are actually worth based on their future prospects.”
“Companies have to have the capacity to suffer when they want to expand”

“What I like is solving the puzzles. I think that what you are dealing with here is incomplete information. You’ve got little bits of things. You have facts. You have analysis. You have numbers. You have people’s motivations. And you try to put this together into a puzzle or decode the puzzle in a way that allows you to have a way better than average opportunity to do well if you solve the puzzle correctly, and that’s the best part of the business.” —David Einhorn

“Beware of crowded trades in hot companies”

Look for areas of fear and panic

Seek out asymmetric investments where the potential return is three times the risk of loss

Investors worth following:

• David Tepper
• Charles Mackall Jr
• Seth Klarman
• Glenn Greenberg
• Ravenel Boykin Curry
• Tom Russo
• Daivid Einhorn
• Robert Raiff
• Christopher Hohn
• Eddie Lampert
• Bruce Berkowitz

Buy Invest With The House on Amazon (affiliate link)

A friend recommended this book to me and it did not disappoint. The Lean Startup provides a set of principles for how to achieve successful innovation.

Book notes

The function of entrepreneurship is to learn what customers want

Learn by running experiments to see how customers behave

Knowledge gained will suggest new experiments to run

Don’t just take what customers say they want at face value – customers may not know what they want or be able to imagine the solution.

Anything not providing benefit to the customer is waste. Systematically eliminate it.

“If you cannot fail, you cannot learn.”

Break down a plan into assumptions and then work out how to test them

Although we write the feedback loop as Build-Measure-Learn because the activities happen in that order, our planning really works in the reverse order: we figure out what we need to learn, use innovation accounting to figure out what we need to measure to know if we are gaining validated learning, and then figure out what product we need to build to run that experiment and get that measurement.

Minimise the time taken to get through the Build-Measure-Learn feedback loop

Genchi gembutsu – “go and see for yourself”

Get a good understanding of what customers want

First, sell to one person

Minimum Viable Products (MVPs) work well when they are designed to test specific questions

Reprioritise what to do next, but don’t stop doing tasks that you’ve started

Use actionable metrics that establish cause-and-effect relationships. Analyse cohorts of customers and conduct split-tests.

Make data from experiments easily available to everyone in an organisation

When experiments start to become less effective, and product development slows, consider a pivot. “A pivot is a special kind of change designed to test a new fundamental hypothesis about the product, business model, and engine of growth.”

When releasing new products, “check for defects immediately”

Our hypothesis about the customer governs how the product is developed

If revenue from a customer exceeds the cost of acquiring them, the business can grow

Make proportional investments to resolve problems

“Never allow the same mistake to be made twice.”

Working on the wrong things – being ineffective – is wasteful

Buy The Lean Startup on Amazon (affiliate link)

Unlike any other business book, Different explores what it means for a brand to truly stand out, and why competition is not always a good idea.

Book notes

Rather than attempting to distil everything, some things are better understood by adding richness and context. This is what Feynman did.

Competition makes things more similar

Differentiation (excellence in anything) comes at a cost

Play to your strengths

Would companies produce better products if they didn’t know what the competition was doing?

When companies are running to stand still, it is “a sign that a category has achieved hyper-maturity”

“The paradox of progress is that it makes things better, until it makes things worse.”

Pay attention to brands that are able to entice customers from their existing buying habits

Look for brands that offer a true alternative

Subtract when people expect augmentation, but then give something else that others don’t. “Say no where others say yes, but also say yes where others say no.”

“It is only when we are drowning in choices that we are going to feel liberated when someone takes them.”

Hostile brands “refuse to play the game of persuasion in its old-school form. They say the things that other brands won’t say, the things that risk chasing us away.”

Don’t try to compete – stand out

“There are two kinds of difference. There is a kind of difference that says nothing, and there is a kind of difference that speaks volumes.”

Don’t worry about being 100 percent right all the time

Don’t focus exclusively on what the competition is doing

Resist the urge to play catch-up

Suspend scepticism for a while when exploring unconventional ideas

Not everything is measurable. Something is lost when everything is reduced to numbers.

Personally speaking, I know that whenever I find myself soaked in an abundance of something—of anything, really—the overkill stokes a deep hunger for relief. What this means is that when I am surrounded by clamor and excitement and activity and commotion, what becomes scarce for me is … quiet.

Buy Different on Amazon (affiliate link)

Essential makes you question the value you place on the objects in your life.

Book notes

“Minimalists don’t focus on having less, less, less. Rather, we focus on making room for more, more, more: more time, more passion, more experiences, more growth, more contribution, more contentment—and more freedom.”

Having more stuff brings us stress and anxiety, and can trap us in a job we don’t like

It’s not enough just to organise – “organizing is well-planned hoarding”

Getting rid of things creates physical space and frees up ‘head space’

“The things you own end up owning you.”

Be more intentional in how you check your smartphone

Schedule responding to emails for a specific time

Be yourself online

Be proactive and deliberate, rather than reactive and passive

Invest in experiences over possessions

Take control of your expenses by dividing them into three categories: Needs, Wants and Likes. Start by getting rid of everything except Wants, and reduce the Wants by half.

Improve your mind by eating healthily, sleeping and exercising

Give experiences instead of material gifts

“The best, most loving gift you can give someone is your time and undivided attention. Presence is the best present.”

Your true priorities are how you spend your time now.

Avoid ‘busy’ things: meetings, conference calls, updating social media, multitasking etc.

Reduce the number of tasks you do, but increase their significance

Work towards ideals in key areas of your life: body, diet, relationships, work environment

Radical growth happens when you feel vulnerable

Aspire to be someone only if they are happy

“You can’t change the people around you, but you can change the people around you.”

A more intentional life is more rewarding

Treat uncertainty as variety

“Success is a simple equation: Happiness + Constant Improvement + Contribution = Success”

Buy Essential on Amazon (affiliate link)

The Art of Execution looks at the decisions investors make after taking a position in a stock. Whether you are up or down on your original investment, it’s easy for different behavioural biases to affect your judgement.

Book notes

Don’t get into a position that is too illiquid to sell on public markets

Ensure your views reflect reality

Don’t be slow to change your mind

Get comfortable with crystallising losses

Big positions can make you indecisive

Have a plan before making an investment about what you will do if it doesn’t work out

Ask yourself: “would I buy into that stock [today] given what I now know?”

Speak to people with opposing views

“A loss of 33% requires a 50% subsequent return to break even.”

Don’t let the original rationale for investing cloud your later judgement

Beware of the “break-even effect” – risk-seeking behaviour after suffering a loss

And beware of the opposite effect – risk aversion when you are ahead

Peter Lynch: “I’m accustomed to hanging around with a stock when the price is going nowhere. Most of the money I make is in the third or fourth year that I’ve owned something.”

Target long holding periods of ten years or more

Buy The Art of Execution on Amazon (affiliate link)

Essentialism tells you to apply the principles of opportunity cost, sunk cost and endowment bias to the decisions and commitments in your life. And a helpful reminder to declutter!

Book notes

Aim for less but better.

Ask yourself “Is this the very most important thing I should be doing with my time and resources right now?”

Effectiveness is more important than efficiency.

Make lots of progress in a single direction, rather that little progress in lots of directions.

Be prepared to make tough decisions.

Understand the trade-offs you are making.

“If you don’t prioritise your life, someone else will.”

Reduce and simplify.

Ask tough questions: “Do I love this?”

Ask the “killer” question “If I already own this, how much would I spend to buy it?”

Ask “If I didn’t have this opportunity, what would I be willing to do to acquire it?”

Explore more options initially, without committing much to any.  Then pick one and “go big” on it.

Busyness should not be a goal.

“To discern what is truly essential we need space to think, time to look and listen, permission to play, wisdom to sleep, and the discipline to apply highly selective criteria to the choices we make.”

Read classic literature for the first twenty minutes of the day. It grounds you.

Sleep for eight hours a day. Take naps in the afternoon.

Accept only the top 10% of opportunities.

When accepting a commitment to someone, think about what you are giving up.

Be prepared to uncommit to a decision, “no matter the sunk costs.”

Get over the fear of waste.

Prepare for different possible outcomes or scenarios.

Build in a buffer.

Ask which obstacles need to be removed.

Start small and celebrate progress.

Track progress visibly.

“Simplicity is extremely important for happiness.”

Buy Essentialism on Amazon (affiliate link)

The Dhandho Investor is an absolute feast for value investors! Mohnish Pabrai sets out an atypical approach for low risk, high return investing. Warren Buffett said to be greedy when others are fearful, but for the Dahando investor, the motto should be: Be very greedy when others are fearful!

Book notes

Dhandho investing

Dhandho investments are “endeavors that create wealth while taking virtually no risk.”

“Heads, I win; tails, I don’t lose much!”

Make “Few Bets, Big Bets, Infrequent Bets.”

Keep costs low.

Lowball offers may be accepted: Branson first offered £150,000 for Necker island, and he bought it a few weeks later for £180,000. The asking price was £3m.

Dhandho returns

Investments should return all of your invested capital within three years.

“Getting dollar bills at 10 cents—or less—is Dhandho on steroids.”

“Buy distressed businesses in distressed industries.”

“Bet heavily when the odds are overwhelmingly in your favor.”

Risk and uncertainty

Target investments with low risk but high uncertainty.

Minimise your downside.

Be conservative when assessing the impact of different possible outcomes.

“Only invest in businesses that are simple”

Avoid making cash flow forecasts more than 10 years out.

Avoid the endowment effect. Understand that it is harder to be objective once a stock is purchased.

Be prepared to accept large downside. Buffett saw a 50% decline in the stock price of the Washington Post after he bought a large stake. He took his stake in American Express up to 40% after the share had fallen by a half.

Portfolio construction

Use the Kelly formula to guide portfolio weights. With a 50% chance each of either a 200% return or a 100% loss, Kelly bet is 25% of the bankroll.

Only take a big position when “the chance of serious permanent loss is minimal”

Joel Greenblatt and Eddie Lampert run concentrated portfolios. Greenblatt’s top five ideas typically make up 80% of his portfoli0.

Pabrai initiates positions at 10% of his portfolio.

Timing

Most gaps to intrinsic value close in under 18 months, although it may take three years or longer. But don’t wait forever.

Don’t sell at a loss within three years, unless you are very sure that the intrinsic value is below the market price.

If the position has been profitable, “sell once the market price exceeds intrinsic value”.

Case studies

Motels case study: Buy a motel with a 10% cash deposit, 90% mortgage. Purchase price equals annual revenue. Net cash flow after expenses is 40% of revenue. Annual return on equity invested is 400%.

Best Western case study: Buy a motel at time of distress for $4.5m with a $1.4m deposit. Gross revenues are under $1.6m. Free cash flow is approximately $0.5m (36% of original equity investment). Four years later, the motel is worth $9m. Assuming $0.8m of the loan note has been repaid, the equity is worth $6.7m. Compound annual return is 48%.  Revenues are now $2.1m.  Assume free cash flow generated each year of $0.8m (57% of the initial equity investment).

Funeral homes case study: Consolidation of the funeral homes sector had left many companies with large debt burdens. When one went bankrupt, the sector sold off sharply.  Stewart had $930m of debt, with $500m due in two years. Stewart traded at around half book value that was probably understated due to land holdings. Stock traded below three times cash flow and at a quarter of revenue.

Level 3 convertible bonds case study: In 2001, Level 3 convertible bonds paying a 6 percent coupon were offered at 18 cents on the dollar. Company was expected to meet the interest payments over the next three years.

Buy The Dhandho Investor on Amazon (affiliate link)

I start with a book about one of my favourite investors: Charlie Munger. Charlie Munger: The Complete Investor is packed full of Munger quotes, cleverly weaved together by Tren Griffin. For anyone new to Charlie Munger, or for those who simply want a refresher in his unique brand of common sense, this book is well worth reading.

Book notes

Temperament

Munger is almost unshakeable:

Being a true contrarian takes supreme courage and implacable calm. Buffett talks constantly about the “emotional framework” Graham provides; […] I like to use a word from ancient Greek philosophy to describe this: ataraxia, or perfect imperturbability. You see it when Socrates goes on trial, when Nathan Hale is hanged, when Buffett invests in Goldman and when Charlie buys Wells Fargo the day before the bottom tick in March 2009.
—JASON ZWEIG, EMAIL TO AUTHOR, OCTOBER 2014

Be prepared to react to falling share prices with equanimity.

Be both patient and aggressive:

Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.
—CHARLIE MUNGER, WESCO ANNUAL MEETING, 1996

Be rational and objective.

Learning

Munger and Buffett deliberately spend much of their day reading and thinking.

Investors need to be “learning machines”, and should “go to bed every night a little wiser than they were when they got up”.

Munger’s children describe him as a “book with legs sticking out.”

“If you cannot write it down, you have not thought it through.”

Wisdom

Avoid stupidity:

It’s remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. There must be some wisdom in the folk saying, “It’s the strong swimmers who drown.”
—CHARLIE MUNGER, WESCO ANNUAL REPORT, 1989

If you cannot value a company, then move on.

Learn from the failures of others and from your own mistakes:

I like people admitting they were complete stupid horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.
—CHARLIE MUNGER, BERKSHIRE ANNUAL MEETING, 2011

Fix your own mistakes quickly.

“Seek out wise people who are not afraid to disagree with you.”

Making decisions

Don’t think all problems are solved in the same way:

You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.
—CHARLIE MUNGER, WESCO ANNUAL MEETING, 2000

The more models you understand, the better your decisions are likely to be.

Minimise the need to make difficult decisions. Stick to your circle of competence. “You have a limited amount of time and talent and you have to allocate it smartly.”

Think about opportunity costs.

To solve a problem, invert it. In order to achieve success, look at how others have failed.

Investing

Make a bipolar Mr. Market your servant rather than your master.”

Margin of safety is simply “the difference between the intrinsic value and the current market price.” Redundancy in engineering is an example of the margin of safety principle.

Risk to Munger and Buffett is: “1) the risk of permanent loss of capital, or 2) the risk of inadequate return.”

Having a concentrated portfolio or practising “focus investing” reduces the number of decisions to make.

Buy Charlie Munger: The Complete Investor on Amazon (affiliate link)