Summary of today’s issue

🔑 #1 - Nobody wants to change their mind

🔑 #2 - Why investors ignore the truth

🔑#3 - Don’t play in the mud with the pigs

🔑 #1 - Nobody wants to change their mind

Forget what you learned in speech and debate class. It doesn’t apply in real life.

I spent my early twenties being a young whipper snapper.

I’ve always wondered what that term meant and its origin:

‘Whipper Snapper’ Definition: an inexperienced person considered to be overconfident

Origin: a 17th-century term for a man w/ nothing better to do than to hang around idly snapping a whip.

In my early 20s argued with people for fun.

I’d use my recently acquired knowledge to attempt to convince my peers of my point of view.

That never worked. Not once.

I realized a few things:

First, while you’re desperately trying to drive your point home, your opponent is digging their heels in. Second, if you disagree with them long enough, they’re going to think you’re an a**hole.

My personal takeaways:

1- you can’t change anyone’s mind

2- find a way to be an ally instead of an a**hole

🔑 #2 - Why investors ignore the truth

I ask myself often: why do investors make bad decisions?

There is a limited data set of information in the world available to us. This means often investors are ingesting similar information but making different conclusions.

My job as an investor is to 1) get all the information I can 2) use it to make a good decision.

But humans are imperfect at best.

The reason the capital markets work is that 50% of investors are making a bad decision based on available information, and 50% are making a better decision.

Here are some ways investors (including myself) make mistakes with information.

a- you react incorrectly to the information you got

b- you pay attention to the wrong information

c- you don’t get the right information

I’d argue (c) is the least likely.

During diligence, we come across most of the information we need. But our human biases lead us to misinterpret that information.

I read a fascinating article this week. It gave examples from World War 2 history where simple human biases could have led to a different historical outcome.

Here are a few of them…

Pearl Harbor - Japanese planes detected

Two junior radar observers noticed a large number of planes heading toward Hawaii (the Japanese planes). They reported this to higher-ups, but those officials assumed they were American B17s.

We all know what happened next…

France ignores the German Blitz

Early in WWII, the German army surprised the french by crossing the Ardennes mountains and flanking their army.

For hours the Germans were stuck in a traffic jam leading into France, which exposed them to aerial attack.

French reconnaissance aircraft reported the traffic jam in the Ardennes region to the French High Command. The French High Command rejected the report and claimed it to be false as they still believed that tanks can’t cross the Ardennes region.”

How different history may have been if the French High Commander acted properly on his intel.

The decoy dummies of D-Day

On June 5th, 1944 the allied forces prepared to carry out D-Day. In preparation, they ran “operation Titanic”, a distraction campaign.

They dropped “para-dummies” made of sandbags across Normandy which served to move the German army and expose a weakness in their formation (pic below).

Not only did they successfully move the german army, but when the Germans discovered the paratroopers were fake they ignored them the next day when the allies dropped real paratroopers into the same location.

There are some good investor lessons here…

Some observations of our investor biases…

We explain away bad data - we may get negative feedback from an ex-employee, or customer we want to invest in. Yet we find a way to explain it away.

We forgive - when someone tells you who they are or were, believe them.

We get distracted - executives are not malicious, but you need to be careful. This includes public companies and private companies too. Make sure they aren’t throwing sandbag para-dummies out of a plane.

Don’t forget history. I write down all the mistakes we’ve made in past deals.

That means I have 10 pages of mistakes and learnings from deals we’ve done and it’s constantly growing. The longer you survive in the investing game, the more information you have and the better you get.

We ignore gut - gut is not technically an investor instrument.

But gut feeling is an animal instinct that is built up over time with millions of micro-learnings. This is something I’m working on trusting more.

If something feels off, write it on top of your diligence sheet, as well as some ideas on how to further explore this.

Good systems create good habits. The more you remove the need to think of the process during the diligence, the better your decision-making gets.

You free your mind to think of the findings of diligence, as opposed to the process.

For example, I now have a checklist that needs to be initialed by two separate people to say “we received this information, and we approve it” before we close a deal.

🔑 #3 - Don’t play in the mud with the pigs

I have painstakingly removed people in my life who gossip or speak ill of other people.

You should too.

It saps your energy and clouds your mind with harmful thoughts.

The truth is that all people are made up of mistakes.

You will encounter thousands of people in your life. If you spend time thinking of every mistake they make on a daily basis…that’s all you would ever think about.

Don’t do it. Don’t engage in drama. Don’t engage in gossip.

Do it for selfish reasons.

Hanging out with people who gossip makes me think of the following quote:

Never wrestle with a pig. The pig will enjoy it, and you will end up covered in mud.

So you won’t find me in the mud, or near a pig pen for that matter.

Which 🔑 did you enjoy most this week? 1, 2 or 3?

Thanks for reading and have a great week,

Sieva

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