What's normal for the Spider is chaos for the Fly
Normal is an illusion.
The title of the blog are the words from Morticia Addams, of the iconic Addams Family. I came across it on a podcast and the reference is being made to flies getting caught in the web and frantically trying to escape, while the spider coolly moves toward its prey for a sumptuous meal for the taking.
This statement, though analogically simple, got me thinking far and wide.
Let’s look at Investing #
What do you think would happen to an investor who loses USD 5+ billion on an investment? Would he go bankrupt, would he lose his mind, would he damage his reputation? These would be the most likely outcomes in most cases.
But not in the case of Warren Buffet.
And the reason for his tenacity to digest his losses and move on comes from his ability to invest handsomely over 6 decades, while also having lost on many deals e.g. Dexter Shoes, IBM, and TESCO. His ability isn’t a gift he was born with, but something he has honed over many years of application. And it’s that application, that brings with it the knowledge of likely payoffs, along with a probability of loss too.
And understanding the game is what makes him accept his losses and move on, instead of getting seduced into the chaotic downward spiral, emotionally and mentally.
Everything is a game - it has its set of written and unwritten rules, it has risks and rewards, it has players and props, and it has uncertain and unpredictable elements thrown in from time to time. There is no way anyone gets to win every game one plays.
Lack of this understanding is what creates chaos, from which bouncing back can get really difficult. Getting to accept one’s own loss/failure as a normal feature while in pursuit of success, is a trump card you could carry, if applied in all cases.
I invested in $BABA immediately after Charlie Munger and Mohnish Pabrai bought their stakes. I hadn’t done in-depth research on the company, but I wanted to make a directional bet on China’s drive for common prosperity and was willing to bet my money on its biggest Tech companies i.e. $BABA & 0700:HK (Tencent). And I bet on both, more in $BABA. This was hero-worship at its best 🤦🏼
Since my investment, the stock has corrected more than 50%, even touching lows of USD 76 on 15th March. Wow, that’s a 61% drop since purchase. But 3 things helped me out in holding my nerves, while I had creeping doubts too -
The company has grown its revenues, operating cash flows, operating profits - barring the last 12 months where it’s facing strong headwinds
Almost all good companies have corrected between 50 - 90% many times in their lifetime e.g. Berkshire Hathaway, Amazon, Intel, and many others. So why would $BABA be spared from that fate?
My position in $BABA makes for 4% of my entire portfolio. It’s a decent-sized position, but not significant in any way. The same was the case with Buffet where his USD 10 billion bet on 4 airline stocks made up less than 1% of Berkshire’s overall networth.
It was these 3 pointers that still make me hold my position in $BABA. It’s awareness of the game and the size of the bet that makes it normal to deal with the losses. But ignorance about the risks inherent in decisions made and the arrogance of betting it all is what creates chaos, and that’s avoidable, and should be avoided at all costs.
I’d like to emphasize the importance of position sizing on bets you will make. It seems like a small component of your decision-making toolkit, but it has a huge impact on increasing your odds of successful bets. It’s like the propeller in a ship that isn’t seen but gives the direction to the ship, in spite of its small size compared to the vessel.
In contrast to Buffet, there is an investor who loses big by betting everything on a trade e.g. Bill Hwang had USD 20 billion and lost it all on levered bets made on ViacomCBS, GSX Techedu, and Shopify. His position size was 5 times the size of his networth, and it blew in his face when the call went wrong.
Both lost billions, but one survived and is the poster boy for investors globally, whereas the other will take the top spot on the walls of history’s biggest blow-ups on Wall Street.
Normal for the spider, chaos for the fly.
Let’s look at Building Trust -
When you read a research report, annual letter, advisory email, or you get in a conversation with people - you will have to take a call on trusting what you read/heard from them. This can be a difficult choice since the right decision could be a profitable bet for you, whereas a wrong one could cost you lots of money.
So how do you make a call?
You will have to look into the past of this very person and check for consistency in their execution of the promises/suggestions/comments made earlier. If it’s consistent, you have a higher odds of your bet paying off. But if there is no history of a consistent execution or no history at all, then your odds are lower.
Just this understanding is enough for you to realize that getting references from the right sources, digging up history on people, reading about their past accomplishments - all put together can provide you a wholesome perspective on whether you would bet with the guy or not.
Not willing to dig deep about people could be a careless choice, as you would be going solely by your gut feel, and it ain’t the best choice most of the time.
It’s always about the odds, and that’s the game you need to get good at. No wonder many legendary investors recommend playing poker, bridge, chess, or other games that require loads of strategic thinking. “If this, then what… if that, then what” - that’s how a thinking game plays out. It’s about making the move with the highest odds in your favor.
I’m hoping Snooker qualifies for that list too. It’s my favorite sport and I have a match tomorrow at 10 am which I am keenly looking forward to. I go all-in when the shot is unmissable, and I play safe when the odds are not in my favor. It’s 100s of a decision over a 2-hour match. It’s exciting, challenging, and uses up a lot of grey matter too, and that’s the whole point.
It’s always about the odds !!!
40% of my international portfolio is in one stock i.e. Berkshire Hathaway. I have read all the annual letters since 1965, attended live zoom sessions of their annual shareholder's meet, read Warren Buffet’s autobiography, and I understand enough about the culture of the company and its many moving parts to have made this an outsized bet for me.
In the last 12 months, while the markets have been extremely volatile, my position in Berkshire stands as a ballast for my portfolio’s performance relative to the index. It was a huge bet but it’s taken almost 1000 hours of reading material on the Chairman and the company, which made it a comfortable bet to make, with high odds of a handsome payoff, while it had low odds of capital destruction.
But you don’t have enough material on all investors/entrepreneurs and hence this process cannot be duplicated in all cases. So the other option would be to buy into a person’s suggestion with a very small position size and give him time to deliver on his execution. If he delivers, you’ve got a handsome payoff and it’s a start of a profitable partnership. If he doesn’t, you can walk away with a small loss, nothing significant.
This works in investing, in relationships, in reading books, following youtube channels, and in building partnerships.
I started reading Dave Asprey’s Bulletproof Diet in 2015 and I enjoyed the read. I started following his podcasts and blogs, and even switched from vegetarian to eating organic meat, fish, eggs, along with supplementation and fasting protocols. It began one chapter at a time, one podcast at a time, one meal at a time.
It took a few weeks post the switch in my food intake to feel more energetic, and it took 4 months odd to reverse my hyperthyroid symptoms completely. It took a year or so of consuming his podcasts and blogs to completely change my consumption habits and its been 7 years since my transformation of sorts. I feel younger, happier, and livelier, and I have huge gratitude for coming across this book and all the others that he wrote later.
But there was no trust, to begin with, he was purely a stranger, one in a line of many whose books I had consumed in search for finding a natural cure for my hyperthyroid issues. I liked his writing style, I felt that he was being authentic and I chose to follow him while taking baby steps. Building trust in him was like manufacturing a rope, one thread at a time.
Today, I have huge respect for Dave Asprey, and it feels good to have a guidepost, that I can count on for honest directions for health and nutrition-related choices. He doesn’t even know me, but he still guides my choices and influences my decisions. That’s the power of relationships in the digital age.
The story repeats with Ishmohit Arora from SOIC, whose youtube videos have been a consistent expression of his value system behind building resilient portfolios with Indian Stocks. Or Michael Mathews through his books and podcasts on fitness.
If you were to indulge in this process of assessing a person’s character via his execution, while you keep your initial judgments aside, you could just land up building an ability to partner with the right people and avoid the ones that could get you in trouble.
The reason I am focussing this post on trusting people is that you do not have the capacity to do everything on your own, nor do you have the time. Hence you will have to make a call on trusted advisors to manage your money, doctors to take care of your health, your cook to make good food, your spouse to carry out the tasks assigned to her, your colleague to deliver on the timeline, and your friends to provide you authentic feedback.
But if you don’t have the ability to assess people, you are in for a rude shock. And that’s when you will trust the wrong people, let the wrong ones surround you, make bad calls, lose money, lose reputation, lose peace of mind and it doesn’t stop there.
That’s chaos waiting to happen.
But if your position sizing on people was small, even if the person disappointed you, you still could walk away with less damage, in search of someone who you can count on, a partnership you could build upon.
Loss/Failure/Bottlenecks become normal when audacious goals are being pursued. These don’t create chaos when you are prepared for the battle and have guidance all along from the masters of their respective craft. You will go through bumps in the road, but that’s way less intense than chaos which spins everything out of control.
In absence of preparation and guidance, it would be a nightmare to deal with hyperthyroid, muscle building, or alpha generation in these crazy markets, or any other goal for that matter.
Normal for the spider, chaos for the fly.
So get on with the game, and get going with being the spider. Spread your web of connections far and wide, to play the bigger game, and get better at it, one day at a time.
And one of the best ways to get better is to do one difficult thing on a daily basis. Just One !!! And next day, just one more. And next day, just one more.
I will let Ryan Holiday end this piece with his own words from his recent newsletter -
It’s hokey but it’s actually not bad advice! How do you expect to do the big things that scare you—that scare others—if you haven’t practiced them? Why do you think you can endure the cold reception of a bold idea if you can’t even endure cold water? How can you trust that you’ll step forward when the stakes are high when you regularly don’t do that when the stakes are low? What gives you any confidence you’ll do the hard thing when people are watching if you can’t do that even when no one is watching?
The person who does something scary every day is less fearful than someone who can’t. The person who does something difficult every day is tougher than someone who doesn’t. And life? Well life is scary and it is tough. There is nothing worth doing that isn’t. You need those traits…unless you plan to cower and hide or get really lucky.
We treat the body rigorously to remind it who is in charge. We push ourselves in little ways so the big ways stop seeming quite so big, quite so out of character. We minimize fear by making the act of overcoming it routine. We test ourselves to prepare for the tests of life.
Always remember -
Normal for the spider, chaos for the fly.
Recommendations for the week #
Ryan Holiday’s recent piece “You Actually Should Do Something That Scares You Every Day” is a brilliant read. It would urge you to take on difficult choices in the simplest of ways e.g. cold shower, fasting, resisting sugar, etc. only to establish the fact that you are in control of yourself and not your body or its biological urges. Self Mastery is the key and this post is just about that.
Value Investing from the perspective of Sanjay Bakshi - This is a transcript from an interview conducted by Vishal Khandelwal. Both of these are from my list of favorite Investors in the Indian landscape. It’s a treat to read this one as it covers the art of value investing from the perspective of 4 legendary investors. It’s like having an HD pic of a subject from 4 different angles.
I completed 3 episodes of the 6 part series on Apple TV’s latest show - ‘The Last Days of Ptolemy Grey’. It’s a delightful watch and Samuel L Jackson’s acting is top-notch, and so is the plot. It’s a glimpse into what could happen when a man lives to his best potential, even though it’s for a fleeting moment only. As it’s often said, “It’s not about the no. of years in your life, it’s rather about the intensity of life in your no. of years.”
Happy Holi to all of you & wish you a fantastic weekend ahead.
Stay Safe 🤝