How would Sherlock Holmes invest?

Would he subtract the noise or would he need more information 🤔

Apr 24, 2021

In Maria Konikova’s Mastermind: How to Think Like Sherlock Holmes, she writes of Holmes’s pursuit of solitude as follows “A hunter knows when to quiet his mind. If he allows himself to always take in everything that there is for the taking, his senses will become overwhelmed. They will lose their sharpness. They will lose their ability to focus on the important signs and to filter out the less so. For that kind of vigilance, moments of solitude are essential.”

In one of the detective novels, Watson describes Holmes as follows “his ignorance was as remarkable as his knowledge”. According to Watson, Holmes knew next to nothing about literature, philosophy, and politics. He was also ignorant of the Copernican theory and the composition of the solar system. In other words, Holmes was unaware that the Earth traveled around the sun. And while Watson was trying to get a handle on such ignorance of his otherwise genius friend, Holmes replied “Now that I do it, I shall do my best to forget it.” - The Sketchbook of Wisdom by Vishal Khandelwal

Now think about the tasks at hand and the goals you desire to achieve, is that easy in itself? Of course not; it takes work, perseverance, and patience but one could still make it. What makes it difficult and insurmountable is the other stuff, the unimportant and the trivial, that fills up your mind and your time - that takes you away from the original task at hand or the goal being pursued.

When you are reading, the flashing pop-up ads or hyperlinks dent the focus away from the article. When you are working, Social Media & Youtube may creep into your productivity. When you are studying investments, the ease of following someone else’s tip may make you buy/sell. When you are Saving, an exciting activity today may land up postponing the saving decision to tomorrow and the same thing repeats tomorrow, and then it repeats the day after.

If you get to the core of what I’m saying, it refers to one’s inability to flesh out the unnecessary, the unimportant, and the trivial things and letting them crowd out the things that actually are important. This has repercussions on your ability to save, maintaining focus, building relationships, investing wisely, learning, and being productive. And if these activities are affected, it will further impact your future, career, or business too.

Let me give you a simple example i.e. reading from a website -

You might have gone onto the Economic Times (India’s biggest business news publication) website to read about the current events in India. While this page provides you 7 articles that could click on and read, you also have on the same page - price drop announcement on 6 products, one Ramadan discount offer, and an advertisement of an e-commerce company. Plus 24 links to click on for newer rabbit holes and one bigger link to follow elections in Chennai.

You may be used to this noise and nuisance around the news you’d like to consume, but if you allow your attention to be overwhelmed with so many choices, it is highly probable that you won’t be able to focus on what you are reading and you will certainly struggle to absorb and retain what you read.

If you could never study in a crowded and noisy room, how do you expect that your brain will be able to absorb and learn with so much noise and nuisance around? Hence the saying from Mike Ditka, “In Life, you get what you tolerate.”

If your standards are set higher and you are keen on keeping the nonsense away from your reading experience, then you will try finding ways to cut out the inessential and go directly at the core news or article. You will be keen to set up your reading process in a way that allows you to focus 100% of your attention on the article in front of you. You might even set up your environment to allow for no disturbance, by keeping your mobile on DND (Do Not Disturb) or Silent Mode.

But it comes down to what is your threshold for nonsense. If you have a zero-tolerance policy, like Sherlock Holmes, you could derive a lot out of your reading experience alone. If your standards are lower, then you will allow others to invade your space with their agenda.

“You teach people how to treat you by what you allow, what you stop, and what you reinforce.” - Tony Gaskins

If I have increased your curiosity over tools that allow a better reading experience, please do try using Instapaper. Let me show you how an article will look like in Instapaper and if you’d like a detailed orientation of this fantastic tool online, then it’s available on Youtube too.

No nonsense, no fluff, no ads, no distractions - Just the material you want to read and absorb with 100% attention. This tool alone could make your reading experience 10 times better and your learning curve way faster than most. Now that compounds your knowledge and applied knowledge compounds your capital and invested capital compounds your returns. You want to be on this perpetuating cycle instead of the one that overwhelms you with inessentials.

If you have got a sense of how beneficial reading could be if you could cut off the noise, then you would also realize how much better any activity could be if you could just cut out the inessential, the unimportant, and the trivial.

I would like to share a few lessons shared by Tony Deden, Chairman of Edelweiss Holdings, a Bermuda-based investment holding company that he first launched as a fund in 2002. After building a remarkable track record, Tony converted Edelweiss into a holding company with over $300 million in assets and holdings that range from branded dairy products to a fragrance company and a salmon farm. Tony prizes the safety of capital above all else and has structured Edelweiss to survive any type of economic situation.

Lesson # 1

As a wealth manager, you are the captain of a ship and you have passengers on board who wish to go to a destination you all had decided upon before setting sail. They will judge you eventually by having gotten there rather than how long it took as you had to avoid certain weather. Then again, if you had set sail with preservation of capital as the core principle, more often then not you would have a group of satisfied passengers on reaching the promised land.

It doesn’t matter if you took time to reach your destination, it doesn’t matter if you were slower than others, it doesn’t matter if your approach wasn’t as exciting as others, it doesn’t matter if you were not invested in the fanciest technology that will change the world, it doesn’t matter if you were diversified in your approach instead of being concentrated or highly leveraged.

What Matters is Only One Thing - You Reached Your Destination !!!

Trying to reach your destination faster will require you to take risks, over-leverage, invest in the fanciest stuff or the latest breakthrough technology, over trade, bet heavily on few things, invest in what others are doing, and everything else where the risk of ruin could blow your chances to reach your goals permanently.

Now some do this and succeed and get termed as superstar investors and uber-smart individuals. But what gets missed out is that they took very huge risks to reach their goals and could have lost it all. It’s like taking a bet with a loaded gun i.e. 1 bullet in one of the 6 slots. If someone would give you a USD 1 million to play Russian Roulette, will you take this bet? I won’t as the risk of ruin means death and that risk isn’t worth it. But some do, you just don’t know about it.

Lesson # 2

There is no value in reading the financial press.
The news is not news, it’s fake and it always has been.
A lot of reports for news are poorly disguised promotions or written by people who have no clue.
People who are involved in real economic endeavor don’t have the time to indulge in meaningless activities.
The reason why people are looking at the press constantly and seeing, what do other people do is because their investment decisions are largely based on other people’s decisions. Instead, you should figure out what’s right for you by yourself because you don’t know what is the real motivation of the person behind the news.

The only reason you feed off the news daily is that you may not have dug deep enough to access sources of information where the opinions are not biased, where it is from the source or an industry expert instead of an armchair journalist, where the news is timely and not stale, where the news/update is important and not noise.

It’s like munching on chips and croissants because you haven’t had a wholesome meal in the first place. If you had one, you wouldn't feel hungry and restless to pounce on anything in your sight. Just the way Junk food manufacturers prey on people who haven’t understood ways to eat healthily and benefits therein. Similarly, many media companies/personalities prey on Investors who haven’t done the work to get good at distinguishing the noise from the stuff that actually matters.

When was the last time you heard about a News Anchor or a Journalist being regarded as a Savant in the Investment field or a credible figure to look up to for Investing perspectives? If not, then why feed off them.

And how do you get to the source? Simple, go where the experts are. Ray Dalio has an active Youtube channel, Patrick O’Shaughnessy has a fantastic podcast, Warren Buffet has his annual letters, Beth Kindig has her newsletters, Cathie Wood has her monthly webinars, Paul Graham has profound blog posts from time to time, Joel Greenblatt has many books written on Investing and many others have found their own medium of expression.

You could take 30 mins out every day to go through the source material for the stock/ETF/Fund you are considering, just 30 mins a day, 3.5 hrs a week, 182 hours a year, 1820 hours in a decade. Now that’s a lot of research gone into making yourself independent instead of relying on people who prey on your ignorance instead of actually bringing you quality research/perspective/opinion.

Not their fault, it’s the incentive that makes them dish out stuff since it is easily bought by the masses. As Charlie Munger always states “Never, ever, think about something else when you should be thinking about the power of incentives.”

Just ask yourself if you would be more productive with 67 notifications to go through on your mobile? Or would you be more productive and focused with 0 notifications?

Similarly, noise could fill your day, week, years, and whole life without you getting deeply knowledgeable and insightful in any endeavor or skill. Or you could get better at cutting out the noise and pursuing a path where you could become the authority in your interested field or endeavor.

“In this age of information abundance and overload, those who get ahead will be the folks who figure out what to leave out, so they can concentrate on what’s really important to them. Nothing is more paralyzing than the idea of limitless possibilities. The idea that you can do anything is absolutely terrifying.”- Austin Kleon, Steal Like an Artist

Lesson # 3

What about the idea of earnings estimate, forecasts and forward guidance?
That’s all nonsense. No CEO has a clue as to what is going to happen in future let alone give any precise numbers.
Secondly, even if a CEO has some idea, the only reason he would share it with you is if he has stock options. The only purpose of asking or giving forward guidance is the stock price. This leads to the price of stock becoming a product and the whole thing turns into a game.
Know What Can Go Wrong
Try to learn about businesses rather than stocks. When you read about varied industries and the businesses operating in them, you will have a better understanding of what can go wrong. Over time, even a marginally good business will do well if nothing goes wrong.
To base an investment decision barely on available financial information is a superficial way of investing. But if you are buying simply for the purpose of selling then you don’t need to understand what can go wrong as you are seeing everything in terms of price.
Knowing what can go wrong is more important than what can go right. You can never really know what anything is worth until you understand what can go wrong.

This is a loaded lesson. It in a way sums up the very requirement of having an acute sense of all the bs around you, of all the noise around you, of all the fakeness and flattery around you, and of all the overexuberance and overconfidence around you.

And to be able to do that you will need to start small.

You will need to have standards for reading news with no bs
You will need to get to the core of a meeting/discussion with no bs
You will need to write down your reasons to buy/sell so that you are sure it is not emotions driven or FOMO driven
You will need to eat healthy instead of fake/lazy foods
You will need to work out when you have kept the time for work out
You will need to take time to read when you have allocated a certain time in the day/of the day for this activity

These are small acts from your side, but they have a loaded impact on your life’s trajectory. More than the money you’ll make or the physique you will build, you will become a person who packs a punch in his 24 hour day. You may run your own professional career successfully, manage your money wisely, run your own social media handle with thousands of followers, you could become a brand on your own and indulge in endeavors that could open multiple revenue streams.

But it ain’t happening if you're going to tax your brain with the fluff around.

Aaron Aalto @aaraalto

Your most valuable asset.

There are many more teachings of Tony Deden and I urge you to read them all if you are managing an Equity portfolio for yourself or your clients.

Subtraction is an elegant value system and has allowed individuals and corporations to monetize this need in the most profitable manner possible. In the world of consumer goods, the example of Bose stands out for me from Joshua Kennon’s Blog -

A brilliant example of addition through subtraction leading to success is the Bose corporation. The flagship product of Bose is the Bose Lifestyle home theater system, which introduces surround sound into a family’s television area.
Starting at a couple thousand dollars for the simplest systems, the Bose Lifestyle product line consists of one giant box. You open the box, hook it up, turn on your television, have it automatically adjust for the room environment through a ten minute test, and you’re ready to go. Instant, on-demand, near perfect surround sound.
Some audiophiles complain that it is possible to build a system just as good as a Bose Lifestyle setup for far less money, you just have to educate yourself on the minutia of setting up, running, and maintaining a good surround sound environment. These critics are ignorant of the fact that the very thing they are complaining about is the very reason Bose is successful. The company is not just selling an audio product. It is selling simplicity, functionality, and quality. They have reduced the process of installing surround sound to such an art that even your grandmother could set it up using the on-screen instructions.
By subtracting all of the complexity, Bose won. When my parents put in their Bose system, and my family put in our Bose system, it didn’t matter that there was better value in terms of the same quality for less money because we weren’t just buying surround sound; we were buying no-stress setup and maintenance.

If Bose can allow you to enjoy music in the most graceful and effortless manner, this hints at the umpteen habits and tools one has at his disposal to make any activity more joyful and impactful. The only questions to ask are - What Standards do you set for yourself? How much bs are you willing to tolerate?

Drops of Wisdom

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