Thoughts on Better by Atul Gawande

Recently I have begun to engage with a broad range of New Yorker writers to further stimulate my pursuit of knowledge (of self and of the world). Atul Gawande has been one of those writers who has really pushed me in my thinking and reflection.

As I think about what it means to be “Better”, I am struck by the constant pursuit that is built into the word. Becoming better in our personal interactions with people, with our professional ability, and even in our thought life is something that can never simply cease to change. We are either getting better or we are getting worse, we do not stay the same. Our choice as to which one of those pursuits we follow is entirely up to us. Existential philosophers have told us that we should chase after the purposeful life. Gawande sees that life as one that is improving in order that we may improve the world around us.

Following that through a little more, the essence of betterment is that of daily choices. Gawande refers to it as pursuing diligence. Diligence is certainly at the heart of the matter, but I think there is something more to that. Diligence to become better requires a greater sense of purpose within the world. A purpose that acknowledges our every choice has an impact, whether that is seen or unseen. Choices and the thumbprint of those choices are what shape a world.

In assessing the choices we make, understanding that we can always think about choices from the perspective of a “good, better, best” mentality impacts how we spend our time. Something as misunderstood as your personal thought life. It always has an impact on your greater life purpose. Daily, what you think about is what you become. What you read about is what you think about and become. There has never been a more important time in history to be more purposeful with how to spend time. Internet and immediate accessibility to unlimited information has created minds that are incapable of focusing without medication, minds that discount the value of reading books over watching a movie, minds that dismiss having a phone conversation at the benefit of sending a text message.

Perhaps the thought of being average makes you shudder. But this kind of contemplation is most definitely necessary. How or why could you be average? What is it that you do on a daily basis that sets you apart from others in a better way? Because ultimately it doesn’t help to be different than people if you are doing something in a worse way. Especially in a performance oriented business like investing. Institutions hop in and out of funds chasing performance. They want to be better, but they don’t want to actually improve. Improvement in bettering oneself means reflecting on your own process and reordering that process so that your results in the future can exceed your previous results. It is a process-orientation that allows this to happen, not hindsight bias in specific outcomes. The outcome follows the process. The process is the thing that is naturally misunderstood.

In thinking about process and improving oneself to become the best you can be, Gawande posits five methods for improving, what he calls “positive-deviant” behavior. Behavior that allows you learn and become a better version of who you are called to be.

1) Ask unscripted questions.  We do not become better versions of ourselves if we are unwilling to learn. That is without question (see what I did there). A willingness to learn and more importantly a desire to learn fuels the fire for future growth. The willingness to engage with someone who you wouldn’t normally talk to. The willingness to go off script with someone who you talk to every day in order to learn a little something new will go a long way in developing a human connection with them.

2) Don’t Complain. Everyday we are faced with a plethora of reasons for negativity and complaints. There is a time and place, but there rarely good accomplished through these things. It is very easy to pick out the person in a group who is the most unhappy/dissatisfied and it is usually the perpetual complainer. Complaining does not push one to be better or to go a step further and change things for the better. It creates a self-fulfilling cycle of dissatisfaction and unhappiness. Focus on things you appreciate and look for ways to improve things.

3) Count Something. Be aware of what is going on around you. Knowledge is the way you transform the things around you. Knowledge comes from observation and the collection of data. In the investment business, data is the essential component to getting better. One who learns more through observation and testing is going to be the one who improves himself and others.

4) Write Something. I have recently, through the recommendation and pushing of a good friend, started to journal frequently. Whether these are simple thoughts throughout the day, calls to action for my thought life and behavior or trying to think through business models, I have written them. I have not become a good writer by any means. But it forces me to think through my logic and evaluate my choices differently. This blog, although for the most part poorly utilized, has also been a medium to think through things. We cannot become better if we are unwilling to think deeply through things. Our thought life, as previously discussed, guides our actions.

5) ChangeFinally, we are called upon to change. Gawande tells us to look for the opportunity to change. It is all too easy to attempt to remain the same. People, naturally, distrust something they are not used to. But in order to become better, we must change. As Blackberry saw, their refusal to become early adopters in the mobile phone industry eroded what was previously dominance. Change is the lifeblood of getting better. Someone who is unwilling to change is eventually going to fail. Creating a better world is brought through change. But don’t forget, it must be change for the better.

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Pat Dorsey – Competitive Advantages

Dorsey’s ability as a fund manager has yet to be seen, but found his talks very interesting and worth watching.

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Great Videos to watch

This first one is Paulson at the Delivering Alpha conference: http://video.cnbc.com/gallery/?video=3000306454#.

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Seth Klarman on Idea Generation and Buying/Selling

Klarman talking to Jason Zweig

On Buying and Selling: We enter every trade with the idea that we are going to hold to maturity in the case of a bond and for a really long time, potentially forever, in the case of a stock. Again, if you don’t do that, you are speculating and not investing. We may, however, turn over positions more often. If we buy a bond at 50 and think it’s worth par in three years but it goes to 90 the year we bought it, we will sell it because the upside/downside has totally changed. The remaining return is not attractive compared with the risk of continuing to hold.
In our view, there is no such thing as a value company. Price is the essential determinant in ever investment equation. At some price, every company is a buy; at some price, every company is a hold; and at a still higher price, every company is a sell. We do not really recognize the concept of a value company.

On Idea Generation: We are highly opportunistic, and I will be buying what other people are selling, what is out of favor, what is loathed and despised, where there is financial distress, litigation – basically, where there is trouble. That is how we direct our search. We don’t have a crystal ball, and so we don’t know what those asset classes will be.

Here is the link to the interview

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When to buy? When to sell? Peter Lynch Explains

From a PBS Interview with Peter Lynch:
“Well, I remember in my career you’d say to somebody you worked in the investment business. They’d say, “That’s interesting. Do you sail? What do you think of the Celtics?” I mean it would just go right to the next subject. If you told them you were a prison guard, they would have been interested. They would have had some interest in that subject, but if you said you were in the investment business, they said, “Oh, terrific. Do your children go to school?” It just went right to the next subject. You could have been a leper, you know, and been much more interesting. So that was sort of the attitude in the ’60s and ’70s.

As the market started to heat up, you’d say you were an investor, “Oh, that’s interesting. Are there any stocks you’re buying?” And then people would listen not avidly. They’d think about it. But then as the ’80s piled on, they started writing things down. So I remember people would really take an interest if you were in the investment business, saying “What do you like?” And then it turned and I remember the final page of the chapter would be you’d be at a party and everybody would be talking about stocks. And then people would recommend stocks to me. And then I remember not only that, but the stocks would go up. I’d look in the paper and I’d notice they’d go up in the next three months. And then you’ve done the full cycle of the speculative cycle that people hate stocks, they despised, they don’t want to hear anything about ’em, now they’re buying everything and cab drivers are recommending stocks. So that was sort of the cycle I remember going through from the ’60s and early ’70s all the way to ’87.”

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How to Learn About Business – The Warren Buffett Edition

Audience: If you were 23 years old, in what non-tech industry would you start a business today and why?

Buffett: I would probably do what I did when I was 23 years old. I would look at a lot of companies and talk to many people, and learn about lots of industries. I would see CEO’s of 8 or 10 coal companies. I frequently did not make appointments, but they would always see me. I would ask them if they had to put all of their money in any coal company except their own, and go away for 10 years, which one would it be? Also, I would ask which would they short over 10 years and why? If I did that I would know more about the coal companies than any manager would. But you wouldn’t learn about how to start Google or Facebook that way. You might find an industry that particularly interested you and you can start or go to work for someone good.

Munger: There was a trick Larry Bird used. He asked every agent why he should be selected to represent him, and which agent to use if Larry didn’t pick him as his agent. Everyone listed the same guy as #2, so he went with everyone’s #2 and he negotiated the best deal in history.

Buffett: I did the same thing at Salomon. On the weekend when Tokyo was opening Sunday at 6 p.m., I called in 8 people and I asked them who besides you would be the best person to run Salomon. You really learn a lot by asking. If you talk to enough people about something they know a lot about, you will learn a lot.

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Reflection On My Framework

Yesterday, I had the fortune of being on the negative end of a price movement in one of my positions after an earnings call. It was only about a 10% swing after hours, but it was enough to make me question my conviction. As an inexperienced personal investor, it is very easy to look back on history and assume that if put in the shoes of a superinvestor, you would be unaffected by major price movements in their portfolio. However, it is only when you put your money where your mouth is that you are able to understand the pressure of maintaining composure under conflict.
Needless to say, even if I had wanted to cut down my position by about 50% before the earnings were released, I am unable to do so due to compliance issues with the mutual fund/hedge fund shop I’m working for this summer.

I have been re-reading parts of Einhorn’s Fooling Some of the People All of the Time and what always stands out to me is his ability to maintain an unwavering conviction in his ideas for the long term. We all know that ‘markets can remain irrational longer than we can remain solvent.’
I am continuously impressed with the ability of the longer-term thinker to achieve great performance, and that respect grows as I continue to learn more about the hedge fund business and how extremely difficult it is to maintain a firm for an extended length of time. Working for a value shop has opened my eyes to how much goes into keeping the pistons of a firm firing. Last weekend I read Money Mavericks by Lars Kroijer on his hedge fund journey in founding and running Holte Capital–it was extremely eye opening for someone who continues to aspire to work in money management. Being an undergraduate student at a rather obscure liberal arts school, my chances to succeed in the hedge fund industry are not only very limited but also not promising at all if I want to be objective and honest with myself. Kroijer was a Harvard grad and he still had serious difficulties. It really puts things into perspective. I guess I have a certain advantage by being passionate and inquisitive, as well as relatively young in pursuing a specific career path, however this does not push me away from acknowledging the specific facts involved with my potential.
Getting a summer seat was very encouraging and motivating at the same time. The fact that I am in a place where I agree with the firm’s philosophy and approach is also very motivating for me. It does not keep me from the search in discovering who I am as an investor. I keep in constant contact with one of my best friends and we constantly discuss the philosophy behind being a great investor and what that means to us. He made an interesting comment today about the learning process. He said we should strive to “learn and extend” in everything we are doing. That struck me in an interesting way. It is very easy to be concerned with the learning process and acquiring a breadth of knowledge, but learning skills not be the end goal. This means different things to every individual, as methods of learning are varied across a broad spectrum, but what is consistent for everyone is how that learning is then “extended” into a working framework for active decision making. As all decisions in life stem from this working framework, we must strive to develop this in our every day lives. Especially when it concerns markets. I wrote a little bit about this in my paper on contrarian thinking.
It is also critical to highlight the importance of active decision making. I am amazed at the amount of people who are not necessarily concerned with an active life. What I mean is there is limited focus on contemplating every specific decision. Rather there is a passive movement towards a decision that simply reflects your specific time and place without thought to the future.
I really liked this quote by Dan Gilbert from Farnam Street today:

“The bottom line is, time is a powerful force. It transforms our preferences. It reshapes our values. It alters our personalities. We seem to appreciate this fact, but only in retrospect. Only when we look backwards do we realize how much change happens in a decade. It’s as if, for most of us, the present is a magic time. It’s a watershed on the timeline. It’s the moment at which we finally become ourselves. Human beings are works in progress that mistakenly think they’re finished. The person you are right now is as transient, as fleeting and as temporary as all the people you’ve ever been. The one constant in our life is change.”

People, to generalize (fallacy I know), want to think they have the capability to make good active decisions, in the moment, without understanding that decisions in the present no longer impact the past, rather they impact the future framework/outlook of their life. If this is rightly understood, it can provide a rare opportunity to start understanding how we approach decision making in our daily lives. Reflection provides an opportunity to scrutinize past behavioral processes, however it provides an even more important opportunity to understand the daily process and how that translates into the future process. I find myself wanting to jump straight into the big things without the desire to be excellent in the little baby steps. This really separates good from great, in the sense that so many people are willing to take the easy route, or the shortcut. Having an exhaustive and robust process can help to eliminate the grey area around shortcuts.

Going back to my original point, I believe this is important to understanding why we feel the urge to sell under drawdowns, or “bad news” even if this news does not affect the economics of the business. This is probably why I appreciate Jeff Ubben and ValueAct so much. Not only is he arguably one of the greatest investors out there, but he truly views an investment as the means to being a great business owner/manager. Einhorn is a little different in his approach, but he is extremely robust in his process and allows his analysis to confirm his thought process– being extremely invested in the long-term economics of the business and making decisions purely based off of that thinking. Why is their failure rate so much lower than your typical market participant? It is because they, through sound reasoning and intellectual curiosity, have implemented the “learn and extend” thinking into their investing framework and process. It has then flowed down into their firm and their long-term performance reflects that.

Intellectual curiosity must be one of the most important characteristics one can possess if he wants to remain in the investing business long term. Without the curiosity, burn-out or under-performance is eventually inevitable. Passion infuses the curiosity, and without that combination there will not be the will to achieve success. Creativity plays a significant roll in this–something that can’t necessarily be taught. Going back to the “learn and extend” thought, creativity really drives that. I found that when I was first learning about investing, I would read a book and it would unleash a whirlwind of questions in my mind. These questions could only be answered by my quest to find the information. I think this really helped me develop a solid foundation for analysis, as I had to teach myself something that was intellectually engaging and challenging. So I feel I have gotten lucky to a certain extent that my first bites into investing were stemmed by an intellectually curious approach, but what does that all really mean? I am still trying to conceptualize that whole idea for myself. Something that is not easy in the slightest. Even questions such as, “What does it mean to be an excellent analyst?” This sounds like such an easy question to answer, or understand, but if there is inquisitive analysis of the question and all the implications involved you come to realize that this question is something extremely challenging to get a grasp of. How can you possibly define what it means to be a good analyst in the hedge fund industry. And if it was so easy, why is there such a huge failure rate? I’m off on a tangent at this point. But I think it’s clear– I struggle to create a framework that can put me in the shoes of a great investor. That is my goal, of course, to be a great investor in the absolute sense. I have experienced many meaningful failures in my life thus far, and it has forced me to be extremely adaptive in my thinking. It has also forced me to really focus on trying to create a working framework for how I view the world and how that view of the world translates into investing. Something that is clearly a work in progress, yet something that gives me energy and excitement every day. This is very satisfying to know at least.

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