What Are You Looking For?

As we get into the new year and a new decade, it is as good a time as any to sit back and think on our goals and aspirations. What are we looking for? How are we going about to get it? How will we feel once we get there? What will we do once we get what we are looking for, as it is a journey and not a destination? We can be looking for status, wealth, happiness, power, creating a social impact, meaning, bliss, social circle, knowledge, health, our definition of a perfect life and what not - there is no judgement here. Anything that makes us happy and gives us energy to go after it will do.  

People who are looking for meaning in their lives eventually get it. People who are looking for purpose conduct their lives accordingly, it is perfectly ok to have different purpose to suit the stages of our lives and where we currently are in the journey. Only thing we need to look out for is that over the medium term, we should be moving forward. Setbacks are a part of the package, testing us for how strong is our will and commitment. People who are looking for trouble get into it, too often. People who are looking to get outraged find their community in twitter 😊

All of us are smart with lots of drive and we will ultimately get what we are looking for. We will also ultimately keep only as much as we deserve. So plan well, execute well, be prepared for both headwinds and tailwinds and along the way, get capable to retain what you get.

Wishing you a very happy, prosperous, meaningful and healthy decade ahead.

The Many Paths To Wealth

My profession gives me an opportunity to meet wealthy people and get a ring side view of their journey. Reading about the life stories of these people also gives good insights. Its fascinating to see that each individual’s relationship with their wealth is unique and they use it in the way they best see fit. Understanding how wealth gets created is equally interesting. Some of the many ways are -  

Building and scaling the business

Investing – value, growth, seed and venture

ESOP – stock options of management teams which reward them for the growth of the business

Real Estate

Commodities

Managing other people’s money

Marrying into money

Inheritance

Sale of business

Being at the pinnacle of your profession or unbeatable in your craft

Speculation and Leverage

While building and scaling business is the most common theme, speculation and leverage is extremely rare. Businesses are as varied as they come, some supply to the government and some stay away from them, some are necessities and some luxuries, some are basic and some complicated, some are mature and some evolving, some professionally run and some by families and extended families, most domestic some multinational. Some cyclical and some secular. Some capital intensive and some capital light. Some sell to businesses and some to consumers. Some can’t run without machines and some without people. 

Wealth can also be spiritual, once you have it ,material wealth does not matter so much. There are many ways to material wealth and some rules to stay wealthy – following asset allocation as per your profile, respecting risk and staying within your means. Similarly, there are many ways to heaven but only one way of staying there. Doing good and being good which also happens to be the basic tenet of humanity.

Stay blessed and since the festive season is here, do spread the cheer around :-)

The Legend Of Elon Musk

I think it is possible for ordinary people to choose to be extraordinary – Elon Musk

Musk was in the news recently as he became the second richest man on the planet with a net worth of 128 bn USD. 70% of the gains in his net worth came in 2020. Its cool to be the in striking distance of the title of the richest man in the world. It’s even cooler to be the only second entrepreneur in silicon valley to create three companies with a market cap of $1 billion or more with PayPal, Tesla and SpaceX. But for me it is coolest to have the character of Iron Man partially modeled on you. All this while you are still below 50 years of age. Let’s take a better look at this real life iron man.  

Musk was born on June 28, 1971, in Pretoria, South Africa. The eldest of 3 children, Musk was so lost in his daydreams about inventions that his parents and doctors ordered a test to check his hearing. He was introduced to computers when he was 10 with the Commodore VIC-20. His parents also separated around the same time. He quickly learned how to program and at the age of 12 sold a game called Blastar to Spectravideo for $500. In 1989 he moved to Canada to attend Queen’s University and obtained his Canadian citizenship that year. In 1992 he moved to USA to study business and physics at the University of Pennsylvania. He graduated with an undergraduate degree in economics and stayed for a second bachelor’s degree in physics. After leaving Penn, Musk headed to Stanford University in California to pursue a PhD in energy physics. However he dropped out after just two days to launch his first company, Zip2 Corporation in 1995. Musk became a U.S. citizen in 2002

Grand visions are common but execution is where the good gets separated from great. This is where Musk excels. He has been able to create fabulous companies in totally different areas. What he has achieved involves dedicated teams of extremely talented people working in harmony to execute his vision. This is his edge. The sheer range of the areas which he has disrupted is mind boggling – finance, mobility, energy, space travel and AI. Let’s look at the history of the various companies he started -    

Zip2 Corporation – 1995 sold to Compaq in 1999 for $307 million in cash and $34 million in stock

PayPal – 1999 sold to EBAY in 2001 for $1.5 billion in cash

SpaceX – 2002 – Lower the price of space launches by reusing rockets, Offer satellite internet for sparsely populated regions. Only private company to have taken astronauts to the International Space Station for NASA

Tesla – 2003 – Build the coolest and lowest cost electric vehicle, Autonomous Cars, More efficient batteries. Highest valued car company in the world.

Solar City – Aug 2016 - Solar Roof, more efficient solar panels. Now a part of Tesla.

The Boring Company, Hyperloop – Jan 2017 – reduce tunneling costs, build alternate transportation infrastructure, Increase the range of people staying away from work places, reduce freight costs. Working on projects for a couple of US cities.

AI and Neuralink – Creating the best AI system in the world, reducing the cost of effective prosthesis, allow enhancement of human capabilities, better modelling of brain – machine interaction   

Musk has had his fair share of challenges. A difficult childhood, being fired as a CEO of his own company (PayPal). His personal life has been in the news with 3 divorces. The biggest test came in 2008 when a struggling Tesla nearly collapsed during the financial crisis. When Tesla needed cash to fund the Model S, Musk chose to bankrupt himself — giving up the all money he had rather than let it die. Tesla had multiple problems of scaling up production (demand for Tesla cars was never an issue). SpaceX had multiple problems starting with Russia refusing to sell rockets to Musk and multiple rocket launch failures each costing millions of dollars. His tweets also got him into trouble with the US regulators. However he persisted and seems to have learnt from his mistakes.   

Musk has a relentless work ethic (100 hour work weeks are common) and a single minded vision. He is also self-taught, reading up on the various projects he is working on to develop a deep understanding of the subject. “(Physics is) a good framework for thinking,” he says “Boil things down to their fundamental truths and reason up from there.” He is also a difficult boss.

The legend of Musk is in tackling giant problems and solving them, again and again. The legend of Musk is not retiring on his pile of cash but being true to his core where he is an entrepreneur who is always creating companies and scaling them up. The legend of musk is in 100% skin in the game. The legend of Musk is in the big impact he is having in inspiring fellow billionaires and ordinary folk to dream of audacious things. So the next time someone tells you “its not rocket science” be aware that even if it was rocket science smart people with dedication will figure it out.

For those still wondering, the first silicon valley entrepreneur to start 3 billion dollar companies was Jim Clark. There is a brilliant book by Michael Lewis on the man – The New New Thing. Do check it out.

Source –

https://www.biography.com/business-figure/elon-musk

The (Anti) Social Media?

Crazy people don’t know they are crazy. I know I am crazy therefore I am not crazy. Isn’t that crazy – Captain Jack Sparrow

Last week brought good news on the breakthrough on the Covid vaccine and the concern that a part of the western world may choose not to get vaccinated. Turns out that there is a segment of the population that believes that all kinds of vaccination is bad and have even chosen not to get their kids vaccinated, with bad outcomes. There is an audience for all kinds of conspiracy theories out there. The world is flat. Corporates are run by pedophiles. Climate change is a hoax. Moon landing never happened. Society always had people who were at the extremes but now every view gets expressed and finds an audience in this strange yet wonderful place called the social media.

Depending on your views and preferences, your media feeds will show you more and more links of what you have previously liked. Let’s say I am a Trump supporter and I like pages that glorify him. I will start seeing more and more pages that say good things about Trump. So when I come across people who don’t share the same views on Trump, I can’t believe how can they be so stupid. Turns out the other camp, because they believe otherwise, only see links that reinforces their belief of how bad Trump is, thanks to the same algorithms. That is how algorithms work and that is why they are so dangerous. The supporters of Trump feel he is god like. Those who don’t like him see the devil in him. Both these camps can’t believe that the other side is no naïve and end up thinking that they have an ulterior motive. The middle ground gets lost and people move towards extremes. Thank (blame?) the social media.

This trend is also getting accelerated due to multiple factors. Most of us find it very difficult to listen to an opposite view, hence avoid it. Social media allows one to find like minded people across the world to create large communities. Large communities lead to feedback loops and mob psychology if the belief is that you are in danger or under attack (think hyper nationalism, anti immigration). Social media leads to amplification of these fringe views leading to concern in the majority about the proliferation of the fringes. Sensationalism by Media also does not help – many times the headlines are totally different from the spirit of the article – radical headlines make for more clicks and viral stories.

Thankfully democracies have woken up to the manipulation of voters and the power that these platforms exert over their users. Social media allows each individual to view the world through their own lens. This leads to distortion as everyone is viewing the same thing differently and amplifies our own thoughts. The system of auto feeds reinforces our biases. If we let someone else make the choices for us, when the someone else is a programme, the end result can be dangerous. While I am totally for auto recommendations of which series or movies we should watch next (although recommendation of friends are better) auto feeds on social media is something that we need to be wary of. These programmes also get coloured by the biases of their creators. Some biases we are aware of, most biases we are not.

Thanks to the lock down we have moved to online consumption of daily news. One way to break this echo chamber could be to read whatever you find interesting across varies subjects instead of letting the news agency show you news according to your “preferences”. Other way could be to follow/interact with people who have a different view and being tolerant of those views. I am sure we will find a way to deal with this. Being aware of a problem is the first step in solving it.

Ask The Expert?

The trouble with the world is that the stupid are cocksure and the intelligent full of doubt – Bertrand Russell

The last month was full of noise around the US elections. The expectation was a clean Biden win. The final result seems much closer. This was not the only major event that has not gone as per expectations. Some more to consider –

Trump got elected

Brexit happened

Covid predictions and their flip flops

World oil demand was supposed to outstrip oil supply in 2000’s

War ravaged Japan and Germany were not supposed to come back from ruins so soon

World was also supposed to run out of food in 1960’s

The most widely held and tracked large stocks see wild swings on result days

You see the world of making predictions is full of pitfalls. Experts are supposed to know. We depend on their knowledge and feedback. Maths and Physics are comparatively straightforward – the equations produce the same results every time. However in most other fields the outcome is based on everything else being the same. The problem is that everything else is never the same. It may be similar but not the same and there is a big difference between the two. That why history rhymes and does not repeat.

Very often the outcomes are a range of probabilities. Probabilities are never 0 or 100 and the range between those numbers is wide enough to have a huge impact on the end result. Behavioral science is not an exact science. Behaviours change. Sentiments change. Breakthroughs happen to solve impossible looking problems.

The noise around events will only increase with each passing day so how can one be better prepared? Part of the solution is having an open mind and a flexible approach, helps in re-calibrating our views when required. Part is acknowledging that one will never fully know. Part is assigning realistic probabilities. With experience one starts planning for a range of outcomes so that even the worst case is not unexpected or ruinous.

In reality, no one knows, for sure. Keeps things interesting 😊

How Is Your Relationship With Money?

Things that have never happened before happen all the time – Scott Sagan

A book review this time – The Psychology Of Money by Morgan Housel. It is the only book I have read twice, just because I enjoyed it so much and there was so much wisdom in it. Must read for everyone. Let’s look at three stories from the book (out of many) that really appealed to me and I hope will be of interest to you as well.

Story 1 -

Ronald James Read was an American philanthropist, investor, janitor and a gas station attendant. He fixed cars at a gas station for 25 years and swept floors at JC Penny for 17 years. He died in 2014, aged 92 with a net worth of more than $8 million leaving $2 mn for his stepkids and $6 mn for charity. A fortune made with meagre savings put into blue chip stocks and being patient.

Richard Fuscone was a Haward educated MBA at Merrill Lynch and was so successful that he retired at 40 to become a philanthropist and was on the “40 under 40” list. In the 2008 crisis high personal debt and illiquid assets made him bankrupt.

Ronald Read was patient, Richard Fuscone was in a hurry. That is all it took to eclipse the massive education and experience gap between the two. Only in investing outcomes can a janitor beat the most qualified people. Financial success is not an outcome of hard science but a soft skill, where how you behave is more important that what you know. Luck plays a large part in the final outcome as well.

When things are going well, realise it is not as good as you think. You are not invincible and if you acknowledge that luck brought you success then you also have to believe that lucks’s cousin risk is around the corner and can turn your story around as quickly.

Failure is a lousy teacher too as it seduces smart people into thinking their decisions were terrible when sometimes they just reflect the unforgiving realities of risk. The trick when dealing with failure is arranging your financial life in a way that a bad investment here and a missed goal there won’t wipe you out and you can keep playing the game until the odds fall in your favor.

The correct lesson to learn from surprises is that the world is full of surprises – Daniel Kahneman

Story 2 -

Investment duo of Warren Buffett and Charlie Munger was actually a trio 40 years ago – Rick Guerin was the third partner. In words of Warren what happened to Rick “Charlie and I always knew that we would become incredibly wealthy. We were not in a hurry to get wealthy, we knew it would happen. Rick was just as smart as us, but he was in a hurry.” What happened was that in the 1973-74 downturn Rick was levered with margin loans. And the stock market went down almost 70% in those two years so he got margin calls. He sold his Berkshire stock to Warren at under $40 a share. Rick was forced to sell as he was levered. Taleb puts it brilliantly. Having an edge and surviving are two different things – the first requires the second. You need to avoid ruin. At all costs.  

Success is a lousy teacher. It seduces smart people into thinking they can’t lose – Bill Gates

Story 3 -

December 29^th, 2008. Wall Street Journal front page. Russian professor Igor Panarin.

Around the end of June 2010 or early July the US will break into six pieces – with Alaska reverting to Russian control, California will revert back to form the nucleus of the “Californian Republic” and will be part of China or under Chinese influence. Texans will be a part of the “Texan Republic” a cluster of states that will go to Mexico or fall under Mexican influence. Washington DC and New York will be a part of the “Atlantic America” that may join the EU. Canada will grab a group of northern states.

This was at the height of the financial crisis and only in these times a story like this could appear at the front page of the most prestigious financial newspaper in the world. Pessimism just sounds smarter and more plausible than optimism. Tell someone that everything will be great and they will shrug you off or offer a skeptical eye. Tell someone they are in danger and you have their undivided attention. Assuming that something ugly will stay ugly is an easy forecast to make. And its persuasive since it does not require imagining the world changing. But problems correct and people adapt. Threats incentivise solutions in equal magnitude. That is a common plot of economic history that is too easily forgotten by pessimists who think in straight lines.

Progress happens too slowly to notice. Setbacks happen too quickly to ignore.

The psychology of money is actually our psychology, which is shaped by many things including our personalities, past experiences, relationships, outlook of the future and hence as unique as our fingerprints. Like our other important relationships, our relationship with money is never perfect and evolves with us and (hopefully) gets better with time.

The Powerful Banker

A light hearted satrical this time. A work of fiction. Any resemblance to a living person is purely coincidental. 

Pessimism is logical, cold and calculating. Optimism is warm and uplifting, a leap of faith. Pragmatism is nuanced. Choose well.

Now lets get to business. This powerful banker. Lets call him Mr U. You think of him when you think of investments. The complete man. The consummate relationship guy. Everyone who knows him knows that he knows everything. Even he knows that he knows everything. That has made him the richest banker not only in the milky way, but the entire universe.

Bankers are conservative. He is a super banker. So that makes him super conservative. We all know the story of the bunny that kept telling everyone that the sky is falling. Well Mr U can play that role very well, but he will be the lion in this story and not the bunny, as he is the king of this jungle. The lord of the rings.

He is called upon to fix broken things. He is tasked with fixing a big problem but has made little progress in over two years. Maybe there is too much on his plate. Maybe things are so broken that they cannot be fixed. Maybe the longer things remain broken the better for him. The one eyed king in the kingdom of the blind is still a king.

He can take on the regulator and emerge victorious. His investor calls start with a grim reminder of how bad the situation in his home country is and how his empire is the shining example of exemplary work. Either he believes only he has the foresight to see these things, or only he has the guts to say these things, or only he can say publicly what others say privately. Anyways he has been saying all this for so long that he is hoping all these come true. You see the longer you keep repeating yourself the more you reinforce your own beliefs.

The last time he was so confident was in 2008 after the Lehman collapse. All his PMS were on record cash and did magnificently while the markets melted. The strategies remained liquid (reference stock market meltdown) and missed the big rally of 2009 so badly that the schemes had to be wound down. In 2008 you were driving a car. Now you are driving a bus. Your organisation size and stature have changed and you need to change as well.

In Dangal before the final bout the encouraging words of Mr Phogat to his daughter were “if you win tomorrow, you will become an example (misaal). And examples are never forgotten, they are always given as a reference”

JP Morgan became JP Morgan when he displayed his grit and character in tough times, standing up to deliver when times were the toughest. That is why he is still considered the greatest. Otherwise all bankers think they are the centre of the universe and are forgotten as soon as they retire. Hope is a good thing. Don’t take it away from people, if you can’t give it to them. You are in a country which is marching towards its “tryst with destiny.” Do not make fools of people who have taken risks by starting a business or taking a mortgage or any other loan. Everyone does well if the country prospers. We should keep our worst fears to ourselves and not make grand business plans around the possibilities of the nightmares coming true. Maybe the sky will fall. Maybe the world will come to an end. After all, we are all dead in the long run. But when that time comes, you may not be happy to say “I told you so”.

Mr U is also a gifted cricketer. When destiny gave him a full toss, he ducked as if it was a hand grenade. Not everyone is lucky to have a second chance. There are still some balls to go and the innings are in your hands. So play well. And if you can’t let others come and steady the innings.

There is still time to become a misaal. Grab it with both hands, while destiny is still kind. There is a big difference between intelligence and wisdom. Choose well.