Book Summary (2/31) : The Joys of Compounding

Chapter 2 - Becoming a learning machine.

The reading of all good books is like a conversation with the finest minds of the past centuries. - Rene Descartes

• Reading keeps our mind alive & growing. That's why we should inculcate a healthy reading habit. Reading is also meditative & calming.
• The dead outnumber the living 14 to 1, and we ignore the accumulated experience of such a huge majority of mankind at our peril - Historian Niall Ferguson.
• Everything has been done before. The scenes change but the behaviors and outcomes do not.

Knowledge comes from experience but it does not have to be your experience.

• Reading the right books, even if it's a few pages a day, is one of the best ways to ensure that you go to bed a little smarter than you woke up.

You got to keep control of your time, and you cant unless you say no. You cannot let people set your agenda in life - Warren Buffet.

• Reading alone, however isn't enough to improve your knowledge. Learning something insightful requires work. You have to read something above your current level. You need to find writers who are more knowledgeable on a particular subject than you are. This is how you become more intelligent.

The true scare commodity of the near future will be human attention. - Satya Nadella

• The key lesson is that, in the pursuit of wisdom, we must read much more of what was endured over time (such as history or biographies) than what is ephemeral ( such as daily news, social media, etc.)

Adler & Charles Van Doren have written a a book called - "How to read a Book".

Key points from it :

• Always keep a pencil in hand & mark while reading.
• Nothing so much assist learning as writing down what we wish to remember.
• Read several good books on the same topic. This is where a real value of reading is actualized.
• You may be reading one book on economics, one on business strategy and another one of physics. Then suddenly something pops up that represents a common thread among those themes.
• None of us can know everything, but we can work to understand the big important models at a basic level across a broad range of disciplines so they can collectively add value in decision making.
• Deep reading of the fundamentals enable us to understand the world for what it is. This is how we learn to reason from first principles.

The best way to achieve wisdom is to learn the big ideas that underline reality. Even people who are not geniuses can outthink the rest of the mankind if they develop certain thinking habits.

Five words separate the good from the great: flawless execution of the fundamentals.

By focusing on the fundamental questions and then , while answering these questions, going two or three levels deeper by asking at every step "and then what?" we can arrive at the truth. This is the art of "reductionism."

The Feynman Technique :

1. Study and pick a topic.

2. Take a piece of paper and write it down and teach to someone who is 10-year old.

3. When you use simple language that a child can understand, you force yourself to understand the concept at a deeper level and to simply relationship.

4. Return to the source material and then re-read and re-learn it.

The first principles of value investing :

1. Look at the stocks as part ownership of the business.

2. Volatility - your friend rather than enemy. Risk - possibility of permanent loss of purchasing power & uncertainty - degree of variability in possible range of outcomes.

3. Three most important terms in investing - Margin of Safety.

4. Evaluate any news item or event only in terms of it's impact on (a) future interest rates & (b) intrinsic value of business (DCF) adjusted for uncertainty.

5. Think in terms of opportunity cost when evaluating new ideas & keep a very high hurdle rate for incoming investments. Be unreasonable. A great investment idea does not need hours to analyze, More often than not, it is love at first sight.

6. Think probalilistically rather than deterministically, because the future is never certain. Some risks are just not worth taking, whatever the potential upside may?be.

7. Never underestimate the power of incentives in any given situation.

8. When making decisions involve both left side of your brain ( logic, analysis & math) and right side ( intuition, creativity and emotions).

9. Engage in visual thinking.

10. Invert, always invert. If the visuals unnerve you, do not do anything that could get you remotely close to reaching such a situation.

11. Vicariously learn from others throughout life. Embrace everlasting humility to succeed in this endeavor.

12. Embrace the power of long term compounding. All great things in life come from compound interest.