Books & Money (10 Dec 2023)
Are you patient like Vito Carleone or impulsive like Sonny | 20 companies make 80% of India's profits
"I THINK A LIFE PROPERLY LIVED IS JUST LEARN, LEARN, LEARN ALL THE TIME." - CHARLIE MUNGER
I bought 6 books in the last week. When I get bored or tired of reading one, I try to jump on to another. I am trying to do this to read more and learn more. It's also a healthy way of staying away from random scrolling on YouTube or social media.
In the book Clear Thinking: Turning Ordinary Moments into Extraordinary Results, Shane Parrish talks about putting yourself in a position that allows you to outperform. He says: "In order to get the results we desire, we must do two things. We must first create the space to reason in our thoughts, feelings, and actions; and second, we must deliberately use that space to think clearly. Once you have mastered this skill, you will find you have an unstoppable advantage.
A good position allows you to think clearly rather than be forced by circumstances into a decision. One reason the best in the world make consistently good decisions is they rarely find themselves forced into a decision by circumstances.
Anyone looks like a genius when they’re in a good position, and even the smartest person looks like an idiot when they’re in a bad one.
Time is the friend of someone who is properly positioned and the enemy of someone poorly positioned. Master your circumstances rather than be mastered by them. It doesn’t matter what position you find yourself in right now. What matters is whether you improve your position today."
Shane then goes on to explain the 4 enemies of clear thinking which are hard wired into us.
(1) THE EMOTIONAL DEFAULT: we tend to respond to feelings rather than reasons and facts.
To make his point clear he compares the emotional defaults of the heads of Corleone family in the movie The Godfather. Vito Corleone "is a master of patience and discipline. With his defaults under control, he never reacts without reasoning, and when he does react, it’s ruthlessly effective."
Compared to his father, Santino always reacted based on his emotions. "Vito’s oldest son, Santino, a.k.a. Sonny, is Vito’s heir apparent. Unlike his father, however, Sonny is vengeful, impulsive, and hotheaded." It was this impulsiveness which made him undermine his father, causing an assassination attempt on Vito and the eventual death of Sonny by his brother in law.
"When we respond without reasoning, we’re more likely to make mistakes that seem obvious in hindsight. When you are possessed by the moment, all the reasoning tools in the world won’t help you."
Emotions can multiply all of your progress by zero.
"Sleep deprivation, hunger, fatigue, emotion, distraction, stress from feeling rushed, and being in an unfamiliar environment. If you find yourself in any of these conditions, be on your guard!"
(2) THE EGO DEFAULT: we tend to react to anything that threatens our sense of self-worth or our position in a group hierarchy.
Appearing Successful vs. Being Successful: The person who wants to be seen as great shows the world how to manipulate them. We’re prone to being less concerned with actual greatness than with exuding the appearance of greatness.
When someone steps on how we see ourselves (or how we want to be seen), the ego leaps into action, and we often react without reasoning.
Feeling Right over Being Right: Our desire to feel right overpowers our desire to be right.
"If you find yourself expending tremendous energy on how you are seen, if you often feel your pride being wounded, if you find yourself reading an article or two on a subject and thinking you’re an expert, if you always try to prove you’re right and have difficulty admitting mistakes, if you have a hard time saying “I don’t know,” or if you’re frequently envious of others or feel as though you’re never given the recognition you deserve—be on guard! Your ego is in charge."
(3) THE SOCIAL DEFAULT: we tend to conform to the norms of our larger social group.
"Doing something different means you might underperform, but it also means you might change the game entirely. If you do what everyone else does, you’ll get the same results that everyone else gets."
Warren Buffett pointed out, though, “The fact that other people agree or disagree with you makes you neither right nor wrong. You will be right if your facts and reasoning are correct.”
Lou Brock might have put it best when he said, “Show me a guy who’s afraid to look bad, and I’ll show you a guy you can beat every time.” In other words, someone who’s possessed by the social default is easy to defeat.
"If you find yourself exerting energy to fit in with a crowd, if you’re frequently fearful of disappointing other people, if you’re afraid of being an outsider, or if the threat of scorn fills you with dread, then beware! The social default is in charge."
(4) THE INERTIA DEFAULT: we’re habit forming and comfort seeking. We tend to resist change, and to prefer ideas, processes, and environments that are familiar.
"One reason we resist change is that keeping things the way they are requires almost no effort.
Another reason we tend to push back against change is that doing something different might lead to worse results. There is an asymmetry to change—we take negative results to heart more than positive ones.
Why risk looking like an idiot when you can remain average? We’d rather be average than risk the possibility of landing somewhere below average.
The “zone of average” is a dangerous place when it comes to inertia. It’s the point where things are working well enough that we don’t feel the need to make any changes.
“It’s not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”
When circumstances change, we need to adapt.
Public statements can create inertia. Putting something on the record establishes expectations along with social pressure to meet those expectations. We want to be consistent with what we said. Changing our minds becomes increasingly difficult. Groups create inertia of their own. They tend to value consistency over effectiveness, and reward people for maintaining the status quo.
*All the text in between "quotes" are from the book Clear Thinking: Turning Ordinary Moments into Extraordinary Results by Shane Parrish.
COMPOUNDING IS THE SECRET SAUCE, THE ROCKET FUEL, THAT CREATES FORTUNES
"A handful of Indian companies – no more than 20 – are taking home ~80% of the profits generated by the Indian economy. Simultaneously, a mere 20 companies account for 80% of the $1.4 trillion of wealth created by the Nifty over the past decade…
In the decade ending 31st March 2012, the Nifty added around $440 bn in market cap. In these ten years, ~80% of the value generated came from 17 companies and the median Total Shareholder Return (TSR) CAGR was 26% for these 17 companies. Moving forward by a decade, in the decade ending March 31st, 2022, the Nifty added ~$1.4 trillion in market cap. And 80% of the value generated in these ten years came from just 20 companies whose median TSR CAGR was 18%.”
To give you a perspective, if you'd invested rupees 1 crore ($200,000) in 2002, it would have become rupees 9.17 crores ($1.1 million) by 2012. And that money would have become 44 crores ($5.3 million) by 2022. This is post-tax!
Here is a Compounding Calculator so that you can see the numbers for yourself.
*The above text is "quotes" are from Marcellus Blogs: From Konappana Agrahara to Electronic City - A Village as a Microcosm of India
Harsh Batra
I build businesses, help people 5x-100x their money via 6 unique funds, and share lessons from books I read. Over 7000 people read this free Sunday email. Subscribe here.