INVESTING

Confirmation bias is the most dangerous trap for stock pickers — but you can learn to minimise it. Link

The opportunity cost of anxiety. Link

Predicting the crash by Robert Shiller, the father of CAPE:

“In short, the US stock market today looks a lot like it did at the peaks before most of the country’s 13 previous bear markets. This is not to say that a bear market is guaranteed: such episodes are difficult to anticipate, and the next one may still be a long way off. And even if a bear market does arrive, for anyone who does not buy at the market’s peak and sell at the trough, losses tend to be less than 20%.” Link

BITCOIN AND BLOCKCHAIN

Trying to make sense of cryptocurrency? I am too, but the links below might help. I’m wondering what happens when Quantum Computers render the current blockchain encryption useless.

Howard Marks is an old school value investor, and he has some very interesting insights into what makes a currency (about a third of the way down the page)

“What are the characteristics of a currency?

1. Most importantly, it’s something that people agree can be used as legal tender (to buy things and pay debts), used as a store of value, and exchanged for other currencies.

2. Currencies generally are created by governments. However, there have been exceptions: banks issued their own currencies in our nation’s first century, and it can be argued that the “Green Stamps” of my childhood, and airline miles today, have a lot in common with currencies.

3. For a long time currencies were backed by (and exchangeable for) gold or silver, but that’s no longer the case. The truth is, there’s nothing behind currencies these days other than their issuing governments’ “full faith and credit.” But what do they promise? New currencies are sometimes created out of thin air (like the euro, which wasn’t legal tender sixteen years ago), and sometimes they’re devalued.

4. Currencies change in value relative to each other, in theory based on differential purchasing power, and in practice based on changes in supply and demand (which can stem, among other things, from changes in purchasing power).” Link

Blockchain is the internet of money: Silicon Valley visionary Balaji Srinivasan explains how bitcoin works and why he regards it as revolutionary. Link

ICOs are in the new IPOs — quicker faster and potentially full of scams. Link

Read a balanced view on blockchains from the FT. Link (paywall)

Dubai has plans to launch a state-issued blockchain-based digital currency. Link

What powers Bitcoin? Take a look at life inside a Bitcoin mine in Inner Mongolia. Link

BOOKS AND READING

Talent Code by Daniel Coyle

This book is about how world-class talent is developed and the surprising thing Coyle discovers is that a few ingredients mean that ordinary people can become exceptionally talented. Link

Try the Blinkist app — It’s great for reading or listening to 15-minute summaries of non-fiction books. Link

QUANTUM COMPUTING

Want to know more about quantum computing? Read this introduction. Link

The ability of quantum machines to outperform classical computers is called quantum supremacy. Now Google says it has this goal firmly in its sights. Link

BLOG POSTS

Astronomers scanning ripples in space-time have detected the collision of two neutron stars for the first time—and, by analysing the flare from the cataclysmic crush, discovered that such stellar smash-ups are the source of gold, platinum, uranium and other heavy elements found throughout the universe. Link

Want to get smarter? Keep away from your phone (seriously). Link

ARTIFICIAL INTELLIGENCE

How safe are self-driving cars? Link

Self-driving cars are go! Autonomous cars without human drivers will be allowed on California roads starting next year. Link

Who decides the moral questions in Artificial Intelligence, and can we teach robots ethics? Link

Artificial intelligence research has made rapid progress in a wide variety of domains, from speech recognition and image classification to genomics and drug discovery. In many cases, these are specialist systems that leverage enormous amounts of human expertise and data.

However, for some problems this human knowledge may be too expensive, too unreliable or simply unavailable. As a result, a long-standing ambition of AI research is to bypass this step, creating algorithms that achieve superhuman performance in the most challenging domains with no human input. Google’s Deepmind demonstrate a significant step towards this goal.  Link

The post Tim’s Newsletter, November 2017 appeared first on Tim O'Shea.

Asymmetric Return Profile 

An asymmetric return profile is what we look for as value investors. This means a small downside for a potential much larger upside — this could be 20% down for 100% up. In a traditional value investment, in the style of Buffett or Ben Graham, the downside is protected by an asset base and the upside is a revaluing of the company to a more sensible valuation.

In tech we have also have an asymmetric return profile, but the potential downside is greater due to higher valuations but the upside is also greater: for example, a 50% downside and a 300% upside so the return profile is again asymmetrical.

Why Valuing Tech Companies Is Different

With classic industrial companies or asset-based business we try and calculate the owners earning which I have written about before. This is the difference between the accounting rules and what, as owners of the business, it is actually making.

The classic adjustment is the capital expenditure. In the accounts, capital expenditure is often high as the company grows and it pays for new factories or opens up new territories. The growth part of this capital expenditure is often large and would only exist for growth. So to calculate the owners’ earnings we add this back to the P&L.

In a tech company, the capital expenditure is much smaller — to scale, a tech company may need an additional office and more servers but it doesn’t need huge spend on factories or infrastructure. However, in certain tech companies other lines of the profit and loss need to be considered differently. In Software-as-a-Service (SaaS) businesses, there are huge expenses for sales and marketing. This sales and marketing spend is normally charged to the profit and loss account in the year it occurs, even if the customer may last 10 years. The smart SaaS companies that can profitably acquire more customers will spend as much as possible on sales and marketing, as it is investing in the future and is short term tax efficient. Generally accepted accounting principles don’t really account for this, and great tech companies tend to be conservative in their earnings reporting.

In Google’s case, the spend that has to be adjusted is Research and Development (R&D). This is always where things can get tricky. Tech companies have to spend on R&D to keep their products current and competitive. Google’s underlying margins from its Search business are huge, and it has to spend some money on R&D to stay competitive.

But much of Google’s R&D spend is to improve the monetisation of its core products and to build new ones. For example, an R&D project to improve the value per search on Google has a lasting profit-increasing impact, but it is expensed in the year of research only.

Another example is Google Maps. Over the years Google has invested heavily in its Maps product which, to date, has only been a small revenue generator for them. Now Google Maps is the leading mapping application globally but Google still have yet to monetise it. They invested in R&D to take the mapping market before thinking about monetising it. Sergey and Larry have always preferred to give the product away, get the whole market share, and work out how to monetise it afterwards.

So to value tech companies through the value-investor’s lens, you need to understand the business model and be prepared to adjust other parts of the cost base like sales & marketing and R&D, not just capital expenditure.

The post Can tech be a value investment? appeared first on Tim O'Shea.

Einstein described compounding as,

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

Warren Buffett also has this to say about compounding,

“My wealth has come from a combination of living in America, some lucky genes, and compound interest.”

If is is good enough for Einstein and Buffett then it is worth spending 10 minutes reading this then using a calculator or spreadsheet to understand how it works.

What is Compounding?

Compounding is what happens when something grows at a given rate over a period of time. For example, an investment pot of $50,000 growing or compounding at 10% over 40 years will end up worth $2.3m.

It is magic because despite the steady rate of % growth the last few periods growth is huge in absolute terms. Hence why time is so important in compounding. This is a hard concept for humans to grasp as growth does not appear that way in the natural world, things around us don’t grow a constant rates, they slow down as they get big (like trees, plants people etc!)

Grab a Calculator and Try This, It is How I Teach My Kids About Compounding

Key in 1.2 and press the times key twice (the X key twice) and then equals, you’ll see the answer is 1.44. This is the calculation of 20% compounded for 2 periods (which could be 2 years) giving 1.44 or 44%.

Now press the equals key again, this takes the answer and times it by 1.2 again, in effect adding another compounding period. The answer now is 1.728 or 72% growth.

Every time you now press the equals key adds another compounding period. So if you press is 19 times you will be compounding over 20 years. This works out to be 38.33 times or 3833%!

You can change the percentage by changing 1.2 to 1.1 for 10%, 1.05 for 5% and so on.

Play around with the number of periods and you will find that the % rate is important and so is the number of periods.

Compounding: Works Both Ways

It means that if you can grow a business or an investment at a steady sensible rate over a long period of time then it will get big.

It also means if you get into debt and it starts building up due to unpaid interest payments, it also gets big very quickly.

Compounding Your Knowledge

Imagine if you could learn at steady 10% per year, that means each year you learn way more in real terms and you get exponentially smarter!

View my original answer on Quora

The post What is some money advice I can learn in less than 10 minutes, which will help me become rich? appeared first on Tim O'Shea.

BUSINESS

United States Government Annual Report produced by Steve Balmer. Link

What sets successful CEOs apart from the rest? Learn the four behaviours of an exceptional CEO — they’re probably not what you think. Link

Learn why it’s nice to compete against a large, profitable company. Link

INVESTING

Watch a rare interview with Warren Buffett and his two investment managers, Todd Combs and Ted Weschler. Link

Why some digital companies should resist profitability for as long as they can. Link

SALES AND MARKETING

Discover the most important think you need to know about marketing, with Bill Macaitis (ex Slack, Zendesk and Salesforce) Link

Price Intelligently — get a free eBook on developing your SaaS pricing strategy here: Link

Take a 1% improvement versus a 1% decline. 365 days later, the contrasting result is staggering.

NEWS

Join 1500 Founders, VCs and Execs in Dublin for SaaStock 2017, the conference to learn how to build a category leading B2B SaaS business. Get your discounted tickets here: Link

Read the key findings from Mary Meeker’s internet trends report. The section on mobile ad revenue is particularly interesting: mobile doesn’t have its fair market share of ad spend yet, as compared to time spent (see the slides below) and that has started to change. It looks like the bulk of that ad spend will go to Facebook, Google, and Snap who are cracking mobile ad formats. Link

QUOTE THAT MADE ME THINK

Warren Buffett: “I did mention one thing at the meeting which I don’t think people appreciated at all: today’s great businesses don’t require capital.” See the full interview here. Link

The post Tim’s Newsletter July 2017 appeared first on Tim O'Shea.

BUSINESS

In a keynote at SaaStock 2016, Patrick Campbell, CEO at Price Intelligently, spoke about the danger of focusing on acquisition at all costs. Retention and monetisation can lose out to acquisition, but is that the way to go, and how will you know if it is?

Patrick’s scary talk looks at how software is going to zero; at the normalised value of features over time; how cost of acquisition is going up; and, how companies who say they are doing customer development aren’t really doing it at all. This talk will really get you thinking. Link

In other news, Amazon has launched a self-service digital subscription marketplace with launch partners including the newsstand Texture, and publications The Wall Street Journal and The New Yorker. Link

INVESTING

“Investing in a low return world, the last man standing is going to be time arbitrage.” In other words, human emotion can cloud smart investment decisions. Link

Retail property landlords take note: e-commerce is affecting the rental of retail space in New York. Link

SALES & MARKETING

Email is one of the most powerful retention tools — but how can you use it effectively? These retention email examples should give you some inspiration. Link

We know that conversion rates differ by industry and by country, but guess who has the best closers? Link

Products do jobs — so make the product fit the job. Research from McDonalds found that the main buyers of milkshakes were men who drove in the mornings and used milkshakes to pass the time. This discovery lead them to make their milkshakes thicker so they lasted longer, which fitted the job of passing time better. Guess what? Sales of milkshakes increased dramatically. Link

LIFESTYLE & LIVING

“Overall happiness is the degree to which an individual judges the overall quality of his/her own life-as-a-whole favourably. In other words: how much one likes the life one leads.” Link

Make of this story what you will. Surely, if you think that 1% of your net worth should be dedicated to doomsday prep, then 1% should be dedicated to addressing social imbalance to decrease the chance of social breakdown, too. Link

In other news, this map shows the average price per m² of houses in each postcode district of England & Wales. No surprise: the top 100 were all in Greater London. Link

NEWS

In an effort to promote digital privacy, Germany issues a kill order for Kayla the toy doll — with a €25,000 fine for parents who fail to destroy it. Link

In more global news, the world’s eight richest men now have as much wealth as the poorest 50% of people in the world. Link

VIDEO

TED2017: coming to a cinema near you. Watch the live event with the TED Cinema Experience. Link

In one man’s journey to discover the bitter truth about sugar, actor Damon Gameau embarks on a unique experiment to document the effects of a high sugar diet on a healthy body, consuming only foods that are commonly perceived as ‘healthy’ but which are in fact laden with hidden sugars. A must-see for anybody who consumes a lot of low-fat yoghurt, muesli bars, juices and cereals. Link

Tony Robbins reveals the secrets of rapid learning. Link

QUOTE THAT MADE ME THINK

“Negotiation in binary-outcome decisions is usually worthless.” – Sam Altman. Link

The post Tim’s Newsletter May 2017 appeared first on Tim O'Shea.

The example I will use is a cable bracket broadband telephone company that provides internet telephone and TV services via cable. We call these ‘cable companies’. As they grow, cable companies spend a huge amount on capital expenditure; for example, putting cables on the ground connecting companies and houses to the network, and spending money to acquire new customers. This expense is often put through the profit and loss in one year only, while the customer retention may last for years or decades. So we have to adjust spending on capital to life for spending that is to grow the business, i.e. growth capital expenditure; and capital that is required to maintain the existing business, i.e. maintenance capital expenditure.

In the company accounts, capital expenditure is one line item, while the maintenance part of the expenditure may only be say 25% of the total capital expenditure. So if the company is growing aggressively and using most of its Free Cash Flow to grow and acquire new users, this cost of capital expenditure appears to take away the bulk of the profit. It is good to imagine the company without taking into account this money spent on growth, and if you restate the accounts in this instance you can see the companies making fantastic profit and great returns on capital.

If a company makes great returns on its capital and it can continue to invest in growth at a high rate of return, then it is best to invest all it’s Free Cash Flow in this growth. This is fantastic for the shareholders and is also very tax efficient.

To help understand this further it is helpful to share a question asked by one of my clients about a news report on Chicago Bridge and Iron (CBI):

“Given that EPS (earnings per share) is so important… What is the difference between all the EPS values in this post?! And should I even be bothered?”

http://www.equitiesfocus.com/chicago-bridge-iron-company-n-v-nysecbi-basic- net-eps-stands-at-4-72/1145836/

(The link he posted contains reports on EPS and if you read it makes little sense and seems negative and confusing – hence the question)

My answer: Sometimes the Google alerts pull up websites like this one that auto- create stories using data. This is content spam. The site above, Equitiesfocus, gets the EPS (earnings per share) from databases, and in this case it is last year’s data, when CBI wrote down a failed acquisition. You can see how websites like this one just help push the price down as most investors don’t have the time or inclination to work out what is really going on. Good news for us!

The golden rule is don’t believe anything you read anywhere. Only trust the companies’ official reports, e.g. the 10k and 10Q, (SEC annual and quarterly reports respectively) and do your own research. I will explain more later.

You need to understand the business to restate the accounts and work out what I call the ‘owner’s earnings’.

A made-up example to demonstrate: CBI buys the IP of a new gas processing technology which they can immediately plug into their current clients. This costs them $1bn but they know it will make them $150m per year. CBI thinks the IP will last at least 20 years but the Generally Accepted Accounting Principles (GAAP) mean this asset has to be written down over 5 years.

The official (GAAP) profit and loss accounts for this project in the next year look like this:

• Write down of IP purchase (amortization): -$200m
• Operating profit from IP purchase: $150m
• Net Profit: -$50m

Looks bad, hey?

However, as business owners we know that something else is going on, so we calculate our restated owner’s earnings:

• Write down of IP purchase over 20 years (amortisation):-$50m
• Operating profit from IP purchase: $150m
• Owner’s earnings: $100mNow that’s better!

If the company had 1 million shares, then the EPS looks like either -$50 or $100 — an enormous difference.

To understand the EPS we need to understand the company and how the CEO works things. That is where our research work comes in. In the public markets, we have different research tools: Company reports, company presentations, earnings call transcripts, AGMs, industry press, and books that all allow us to understand really how the company works. With this information we work out the ‘owner’s earnings’.

Right, let’s look at CBI again through our owner’s earnings lens, this time using its actual reported data in this example. Our data source for this example is direct from the company using their quarterly 10Q statement.

Checking the cash flow statement in the 10Q we adjust for non-cash items like depreciation, allow some capital expenditure and make a few other non-cash adjustments to give a profit of approx. $300m for the last six months. It doesn’t matter if we get this 100% exact, but it really matters that we get it 100% right within a range, so let’s say $250m-$350m.

We can also find the number of out standard shares in this 10Q report:

“The number of shares outstanding of the registrant’s common stock as of July 18, 2016 – 103,157,837”

So we have profit of $300m divided between 103,157,837 giving an EPS (with our “owner’s earning” hat on) of $2.91 for the last six months, taking the assumption that trading is steady then we expect annual EPS of $5.81.

CBI is trading at $33.36.

$5.81 divided by $28.90 = 17.4% return. Not bad for a company that over decades has consistently grown its EPS.

But it gets better as they report in a recent news item! The good news is they are buying shares back and in fact CBI recently bought back 3.6m shares — 3% of the company! So with your share of the profit that they don’t pay out as dividends, they are reinvesting at the rate of return of 17% through the buyback. The low share price is excellent for those of us that want to hold it for the long term.

So CBI is good. Clearly, there is negative sentiment in the energy industry but it seems sensible to assume there will be a demand for energy and natural gas processing for a long period of time.

The post Why do certain companies’ accounts show losses when in fact the company is doing extremely well? appeared first on Tim O'Shea.

BLOGS & NEWS

Tobias van Schneider shares 10 takeaways about life and success from Tim Ferris’ book, The Tool of Titans.

In China, once poverty-stricken villages have found a lifeline making trinkets for the internet.

Movies, net style: how digital disrupters are closing in on the Oscars (if you don’t have a FT subscription, Google “Disrupting Hollywood: Amazon goes to the Oscars” and follow the link to read it.)

Amazon finds the cause of its AWS outage: how a typo lost them $100m and highlighted the dangers of the cloud

Uber hires veteran NASA engineer to develop flying cars: the man who inspired Google’s co-founder will join the ride-hailing company’s new project.

Read this excellent FT piece on the alleged Russian hacking group, ATP 28. Again, if you don’t have an FT subscription, you can Google “Russia mobilises an elite band of cyber warriors” to read this article).

10 effortless ways to cut calories from your diet without missing them at all

Tired of “just checking in” or “circling back”? Take a look at these killer follow-up email templates for every situation.

BUSINESS & INVESTING

First, ten: Seth Godin explains “the secret of new marketing”.

Product market fit. Do you feel it? Here are 12 things you need to know.

The latest Berkshire Annual Report by Buffett has been published. There’s a great bit on choosing an investment manager, and why most people actually shouldn’t have one at all. This is covered in pages 21-25 – “The Bet” (or how your money finds its way to Wall Street).

Whitney Tilson reports in his email newsletter about his trip to Tesla:

“I think Elon Musk is the real deal. […] Given his penchant for self-promotion, wild dreams, and consistent overpromising, I initially thought he was little more than a shyster who got lucky with PayPal, but over time my view on him has changed: I now think he’s cut from the same cloth as Steve Jobs and Jeff Bezos […] I like how he thinks. For example, last Wed. he said they built their factories and cars pretty much from scratch (95% original), rather than buying off-the-shelf components, which (if they do it well) can yield enormous competitive advantages. Later, he noted that the fastest auto manufacturing lines move at 0.2 meters/second, whereas a human walks 1 meter/second (5x faster), and said he saw no reason it couldn’t be 2-3 meters/second. If one company (Tesla) can speed up its output by 5x, whereas another has to build five factories, who’s going to win, he asked?

[…]

Tesla is operating in enormous markets: there are ~75 million passenger cars sold worldwide in 2016, plus battery storage is big and likely to get much, much bigger.

The growth of electric cars will likely provide a huge tailwind: I don’t doubt Musk when he said on Wed. that “all transport with the exception of rockets – how ironic – will be electric – it’s just a question of how long it takes.” Only ~1% of cars sold last year were electric – and I think that number will be MUCH larger pretty soon – I’d guess 20-30% of all passenger cars will be 100% electric within 10 years.

I’m well aware that pretty much every major auto manufacturer in the world is rolling out/will soon roll out electric cars, many of which look very promising in terms of styling, price, features (especially range), etc., which could severely impact Tesla. That said, for well over a decade, everyone predicted that Wal-Mart and others would crush Amazon, and Blockbuster, Amazon, Verizon, Hulu, etc. would crush Netflix. In terms of CEOs and ability to attract talent, Tesla reminds me of Amazon and Netflix…

I think Musk and Tesla have enough of a following among very-deep-pocketed institutional investors that they’ll be able to continue raising as much capital as they need on very attractive terms – if so, this removes one of the best catalysts for shorting cash-burning, hope-and-a-dream companies.

I much prefer to short companies that are bad for the world and/or hurt people: Herbalife, World Acceptance, etc. In contrast, I think Tesla has been very good for the world, forcing a sclerotic industry to invest heavily in EV. Every major auto company is now investing billions in this area – and I doubt even a fraction of this would be happening if Tesla hadn’t come along. Skeptics may be right that this tsunami of competition from companies with vastly more resources may crush Tesla – but irrespective of my view on the stock, I’m rooting for the company.

Kindly published with permission of Whitney Wilson of Tilson Funds 

Then, there’s this 30-minute Q&A session with Musk and Straubel.

ECONOMICS & POLITICS

Germany has the strongest budget surplus since 1990: its budget surplus hit a post-reunification high of nearly 24bn euros (£20bn) in 2016, boosted by a higher tax take and increased employment.

The extent of the shutdown on US banks since the financial crisis is demonstrated by the number of banks. There were 8,534 banks reporting to the FDIC at the end of 2007; by the third quarter last year the total was 5,980.

LEADERSHIP

“Leaders are right a lot. They have strong judgement and good instincts.  They seek diverse perspectives and work to disconfirm their beliefs.”

Read the rest of Amazon’s leadership principles.

What I’m watching

Buffett and Gates at Columbia 

Charlie Munger at the Daily Journal AGM, transcript here

LEARNING

Why can’t we sit on the fence rather than having to take a side? It seems crazy…here’s an extract from Krista Tippett’s Becoming Wise.

“[M]any features of national public life are also better suited to adolescence than to adulthood. We don’t do things adults learn to do, like calm ourselves, and become less narcissistic. Much of politics and media sends us in the opposite, infantilizing direction. We reduce great questions of meaning and morality to “issues” and simplify them to two sides, allowing pundits and partisans to frame them in irreconcilable extremes. But most of us don’t see the world this way, and it’s not the way the world actually works. I’m not sure there’s such a thing as the cultural “center,” or that it’s very interesting if it exists. But left of center and right of center, in the expansive middle and heart of our life together, most of us have some questions left alongside our answers, some curiosity alongside our convictions.”

The post Tim’s Newsletter March 2017 appeared first on Tim O'Shea.

WHAT I’M READING

Winning with Data: Transform Your Culture, Empower Your People, and Shape the Future by Tomasz Tunguz, Frank Bien. This complex-titled book teaches how to make data-based decisions and disrupt your industry, using real stories from modern companies to demonstrate each point.

BLOGS & NEWS

Food for thought — from stress-testing the boundaries of the way you work to how AI could help us cope with grief.

Ask yourself these seventeen questions – they will change the way you work by Tim Ferriss

Putting a computer in your brain is no longer science fiction by Elizabeth Dwoskin

The merging worlds of technology and cars by Alex Webb and Chloe Whiteaker

When her best friend died, she rebuilt him using artificial intelligence by Casey Newton

BUSINESS & INVESTING

Not all Return on Capital is created equal. Read about Warren Buffett’s three categories of Return on Capital.

The inaugural SaaStock took place in Dublin earlier this year. Discover the ten key B2B/SaaS takeaways from the event.

Google has made the decision to pause its Google Fibre project, proving that even deep, deep pockets find it hard to compete with networks already built.

Hedge fund billionaire Leon Cooperman had an epiphany about the hedge fund business after hearing a futurist speak. Find out what he came to realise.

ECONOMICS & POLITICS

The £100bn Brexit budget hole (paywall)

Read Howard Marks’ latest memo, covering the impact of the US election on the markets.

HR & RECRUITMENT

Hiring is one of the biggest challenges for small businesses. Here’s why they must rethink their job postings to attract the right candidates.

Want top-performing hires? Learning ability may be the number one predictor.

WHAT I’M WATCHING

Jeff Bezos shares his management philosophy : “You don’t choose your passions, they choose you….[passions] give you energy. You can’t be proud of your gifts, because they are gifts after all, but you can be proud of your choices. How did you decide to use your gifts? Did you study hard, did you work hard, did you practice? The people that really excel combine their gifts and hard work, the hard work part, you can decide that — and that is something when you are looking back on your life that you will be very proud of.”

Paul Graham’s lecture on how to start a business: “Do things that don’t scale”. You can read the full transcript here.

Interview with John Malone – if you are in media or communications you need to watch it (plus I’m in the background at 7:04!)

LEARNING

Tim Ferriss’ Podcast Post on learning models

Shane Parrish explains how to learn faster by imagining you’re teaching a child

On cultivating learning agility, from the Harvard Business Review

QUOTE THAT MADE ME THINK

“You can’t be proud of your gifts, because they are gifts after all” – Jeff Bezos

The post Tim’s Newsletter December 2016 appeared first on Tim O'Shea.

Books

Deep Work by Cal Newport. One of the best books I have read. Get in the Deep Work zone to get amazing work done.

Deep Work: Professional activities performed in a state of distraction-free concentration that push your cognitive capabilities to their limit.

Shallow Work: Non-cognitively demanding, logistical-style tasks, often performed while distracted. These efforts tend to not create much new value in the world and are easy to replicate.

Deep Work is where we make bounds forward. To get there, simply turn off all your distractions (email, messages, Facebook etc.) and force yourself to do the hard work that makes the difference. Once you enter that Deep Work zone the creativity will flow and you’ll gain real satisfaction from producing the results you want.

Business & Investing

Should I be surprised that the best-paid CEOs run the worst-performing companies? MSCI found that $100 invested in the 20% of companies with the highest-paid CEOs would have grown to $265 over 10 years. The same amount invested in the companies with the lowest-paid CEOs would have grown to $367.

Leaders from the world of business and money management have been meeting secretly to develop what they are calling ‪ A Road Map For Fixing What’s Broken In The Boardrooms Of Corporate America through common sense principles.

‪Jeff Bezos’ letter may be even better than Buffett’s.

One to bookmark: ‪‬‬‬A comprehensive investor’s reading list.

0 to $640M: Non-Obvious Lessons Learned at BrightRoll.

Some ideas on pricing models.

To all my friends running software companies, read this.

Economics and Politics

The 2016 Presidential election map.

What happened when Uber shared its surge-pricing data with Steve Levitt, an economist at the University of Chicago? It allowed Levitt to study an actual demand curve rather than a theoretical one. This story gives a view into Uber’s data-based decision making. Imagine, if you always accept higher surge price than other Uber users, then it makes sense that Uber will always aim to charge you more. We are only starting to see the consequences of shared real-time pricing data spreading into new markets.

There are so many good points in Howard Mark’s recent memo it is hard to know where to start. Perhaps the fact-checking of the presidential candidates — it is no surprise that Trump tells the most lies:

According to PolitiFact, an independent fact-checking outlet, 28% of Hillary Clinton statements that they’ve checked are “Mostly False” or worse. In Donald Trump’s case, it’s an astounding 70%.

But more interesting is Mark’s explains about trade barriers:

Think about two cities. City A has more jobs than people, and city B has more people than jobs. Initially, people in city A – where labor is relatively scarce – will be paid more for doing a given job than people in city B. The key to their continuing to earn more is the existence of barriers that prevent people from moving to city A. Otherwise, people will move from city B to city A until the ratio of people to jobs is the same in both cities and so are the wages. Among other things, geographic inequalities are dependent on the immobility of resources.

For much of the last century, barriers kept our pay high. Other countries’ output wasn’t as good as ours. Some lacked investment capital, and some were decimated by war from time to time. Perhaps they didn’t possess our ability to generate technological advancements or our managerial skills. High transportation costs, tariffs, prejudices (when I was a kid, “Japanese transistor radio” was considered synonymous with “low quality”) or legal restrictions (e.g., keeping foreign airlines from competing freely in our markets) may have protected American wages. International trade wasn’t what it is today. But all of these things can change over time, and it’s hard to see how the earnings supremacy of U.S. workers will be sustainable. (Emphasis added)

The economic reality is that these trends – international specialization, automation, rising productivity, job losses, the need for education, and a feeling of hopelessness among those affected negatively – are real and powerfully influential. Whether we like them or not, they’re here to stay. They’re economic reality, and they cannot be ignored or refuted.

The combination of productivity improvements and foreign competition has been very hard on unskilled and semi-skilled labor – what’s called “the working class.” People employed in uncompetitive industries at the time globalization takes place are particularly disadvantaged. Their incomes decline at a minimum, and they may lose their jobs and be unable to find new ones. Society should cushion the blow on these people.

After the summer of sadness it feels like the worst year ever, but is it? The annual data on war death figures have come out from the Uppsala Conflict Data Program, and it is down for 2015 compared to 2014. The same is true for killings of unarmed civilians. The rate is still higher than it was a decade ago — mostly due to the Syrian civil war — but still far lower than it was in the 1950s, 60s, 70s, and 80s. The reversal of the increase over the preceding three years is not quite good news, but not as bad news as one might have feared—namely that the world would see a continuing rise.

Video

Martin Sorrell tells his story of WPP at LBS.

This excellent video presentation from Columbia University on Negotiation vs. Persuasion Skills offers great insights. It begins by explaining the difference — negotiation has a deadline and an agreement is likely, while persuasion is changing the thinking of others over a much larger timescale and hence requires a different approach.

Negotiation and persuasion are opposite psychology processes and require different set of behaviours.

90% of all concession-making is made in the last 10% of time spent negotiating.

Deadlines determine your negotiation position. For example. car dealers that have end-of-month quotas are more likely to do a deal. In each negotiation the person with a deadline is in weaker position. Persuasion, change of opinion, does not happen in a flash of inspiration but in a series of incremental changes in thinking over time.

If you found the video above interesting learn more here:
Change the way you persuade.
Getting to Yes: Negotiating an agreement without giving in.

Quote that Made Me Smile

“I never allow myself to have an opinion on anything that I don’t know the other side’s argument better than they do.” — Charlie Munger.

The post Tim’s Newsletter October 2016 appeared first on Tim O'Shea.

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What I’m Reading

Traction: How Any Startup Can Achieve Explosive Customer Growth. Excellent ideas and a simple framework for choosing marketing strategies for optimal growth. A must read for anyone trying to grow their business.

Business and Investing

A complete list of the articles about Warren Buffett in Forbes over the years.

How to get free publicity by Richard Branson.

The ex-CEO of Ticketmaster explains how the music concert ticket market works: Famous Artists know that the pricing of tickets is normally below the market value. The Artists don’t want to the seen to be unfairly pricing tickets to their fans, so sell tickets into agents and other channels that resell them on the market. These agents then kick back the increased resale price to the Artists.

How the West (and the Rest) Got Rich.

Great news for the cable industry and consumers with Coaxial cable into their house, Nokia is now getting 10 gbps of data each way. The old Coaxial networks continue to growth their bandwidth capability by increasing the technology at each end, and that trend looks set to continue.

The mobile phone industry has had two waves: voice and SMS, and then the smartphone. Since smartphones could be sold for higher average prices than feature phones, revenue grew even faster than unit sales. This was a great multiplier for the right companies – smartphones were a growing percentage of growing phone sales at growing prices. All of this is now reaching an end – the wave is almost over.

A Northwestern University study claims perovskite solar cells can recoup their energy (note: not financial) cost within three months, over 10 times faster than traditional silicon-based solar cells.

Economics and Politics

Howard Marks explains in economic terms why many of Trump’s policies designed to help voters will actually result in lower employment and reduced prosperity for the US. One example Marks shows is Trump’s proposed tariffs on Chinese imports, which Mark’s argues will simply make the cost of everyday goods more expensive and out of the reach of the lowest paid workers, the people Trump’s policy is designed to benefit. Marks uses the recent economic demise of Venezuela as a case study of populist economic policies having devastatingly opposite consequences to those intended.

Deep thoughts on Brexit Blues. This is the type of information we needed before the referendum:

“The white working class is correct to feel abandoned: it has been. No political party has anything to offer it except varying levels of benefits. The people in the rich parts of the country pay the taxes which support the poor parts. If I had to pick a single fact which has played no role in political discourse but which sums up the current position of the UK, it would be that most people in the UK receive more from the state, in direct cash transfers and in benefits such as health and education, than they contribute to it. The numbers are eerily similar to the referendum outcome: 48 per cent net contributors, 52 per cent net recipients. It’s a system bitterly resented both by the beneficiaries and by the suppliers of the largesse.”….

“A revealing, and sad, piece in the Economist in 2014 described Tilbury, forty minutes from London, where the white working class look on resentfully as immigrants get up early and get the train to jobs in the capital which, to them, seems impossibly distant. ‘Most residents of the town, one of England’s poorest places, are as likely to commute to the capital as fly to the moon.’”….

“The evidence on immigration is clear: EU immigrants are net contributors to the UK’s finances, and are less likely to claim benefits than the native British. The average immigrant is younger, better educated and healthier than the average British citizen. In other words, for every immigrant we let in, the country is richer, more able to pay for its health, education and welfare needs, and less dependent on benefits. They are exactly the demographic the UK needs. As for the much touted Australian ‘points system’, we have nothing to learn from it: immigrants to the UK are better educated and more skilled than immigrants to Australia. In addition, most of the people who appear as immigrants in the migration statistics are students, because the Home Office chooses to count students who come for the duration of degree courses as migrants. Of the 330,000 net arrivals in the latest numbers, 169,000 are students. Do you consider students to be migrants? Personally, I don’t”.

Inspiration

Get over being rejected, it even happened to JK Rowling. She kindly shared her rejections letters on Twitter.

Videos & TV

Gravity visualised. Now you can visually see why gravity bends and planets orbit. This clever Professor using marbles and a circular piece of latex to contructs a mock up solar system. As he throws the marbles into orbit they randomly hit each other and thus end up going the same direction, explaining why all orbits around the sun are in the same direction.

Only Google would promote a data lead approach to relationships analysis. The evidence in this video of the Google talk about relationships clear shows why it makes sense.

Every year Tony Robbins, one of the world’s leading self-help gurus, hosts packed seminars to help his delegates overcome their problems and find a way to move forward in the life they want. Normally conducted in private, Tony lets in the cameras for the first time and the result is a documentary well worth viewing. Both enlighting and emotional displaying this Netflix only product shows his extra ordinary skills at work.

Quotes That Made Me Smile

“We’re not anchoring what we are ignoring”, Charlie Munger on Anchoring Bias at this year’s Berkshire Hathaway AGM.

“What the pupil must learn, if he learns anything at all, is that the world will do most of the work for you, provided you cooperate with it by identifying how it really works and aligning with those realities. If we do not let the world teach us, it teaches us a lesson.” — Joseph Tussman

The post Tim’s Newsletter September 2016 appeared first on Tim O'Shea.