Quotable Quotes : Lessons for Life

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Various one liners , those which I remember back of my head, have helped me a lot in decision making and leading a simpler life. Most of them are basic, but it is good to remind ourselves once in a while. 
  1. Life isn't fair, but it's still good. This would make you stop gossiping, comparing with others etc.  Don't compare your life to others. You have no idea what their journey is all about. There are people better than us , also worse than us.  Envy is a waste of time. You already have all you need.
  2. Pay off your credit cards every month. I had a life lesson on this topic from my father- who showed me how not to use a credit card. He did all of them – Carrying credit card interest, balance transfers across credit cards, withdrawing from cash from credit card, and allowing your debt compound at a high rate.
  3. Save for retirement starting with your first paycheck.  I did not get this in my first paycheck, but definitely got hang of this when I took my first job after MBA. It’s a work in progress till I get financial freedom.
  4. You don't have to win every argument. Agree to disagree. Its OK to say sorry, Choosing the right battles is the wisest thing
  5. No one is in charge of your happiness but you. 90% of the pain is self inflicted and starts with our own mind
  6. Forgive everyone everything. In the last 30 years, the number of people I came across have been lot, many I don’t see again. Why to carry the grudges ?
  7. What other people think of you is none of your business. Very tough one for me, and I struggle hard at this.
  8. Growing old beats the alternative -- dying young. I totally love this, youth is wasted when we are young.  Wisdom acquisition is a moral duty as Munger calls out and the older I get, the more I read. The more I read, the more I  know how much I don’t know in Life.
  9. Yield or Help others.  Because someone yielded  (not one, many actually), I am here where I am . I should continue to make a lifelong commitment to help others.
  10. No matter how you feel, get up, dress up and show up. This was forced early in my life out of necessity, where I had to show up whatever shit happens in life be there and show up at school to ensure  I move out of the rut my family was stuck
  11. Stick to your circle of competence : I have been running here and there trying to do multiple things and  only last couple of years have tried to cut down many things which does not fit my bill. An example could be, on my hobbies. I am good with cycling and swimming, and just sticking to that instead of trying to play some game where it needs a lot of hand eye coordination , which I suck it. Trying to focus on few things where I can do the best job.
  12. Life long learning & passionately learn multiple areas. Having fallen in love with Munger’s  mental models - how to build a lattice work of them helps in decision making, I am pushing every day to be at least  a little  wiser than the previous day before I go to sleep. And reading is on thing that will help me, and have been on and off many times – but would continue reading.
12 is a good number to begin, will update If I remember more . 

Principles for surviving & thriving at home, school & work : Brain Rules

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Last week I attended a talk by Professor John Medina from University of Washington. This talk was part of a summit, which focused on creating better learning experiences in our Training and Development programs. Though we covered a lot of areas in the summit like Micro learning, Gamification , Virtual learning , MOOCs etc. The most fascinating part of the day was Learning Sciences talk by Professor John Medina which focused on areas like cognitive science, educational psychology, the genetics of human brain development and psychiatric disorders, how the mind reacts to and organizes information, and how brain science influences the way we teach. He mostly covered these topics from his book Brain Rules . Over the weekend I spent a good time reading his book Brain Rules  that covers 12 Brain rules which he has identified through research. These rules  potentially could improve the learning outcomes for the kids at school or home, or even employees in a corporate settings.
Among the 12 Brain rules called out , 3 of them were well known fact and we know the importance of Exercise, Sleep & Stress avoidance.
Rule 1, 7, 8 : Exercise boosts brain power, Sleep helps in thinking well & Stress reduces our effectiveness and curtails our learning.  Regular and moderate level of exercise  has ton of benefits to health, and we can add now - it improves our thinking and brain power. Sleep is a must, but from the book, I came to know, during sleep we are consolidating the learning we had during waking time. A moderate level of Stress is always good but chronic stress make brain don’t learn the same way.
Rule 2, 3: Survival & Wiring – This was a fascinating part, where he delved on the concept – Theory of Mind. Human beings have great capability of understanding other peoples emotions / mental states and adapting according which has helped in co-existing together as a community. In-fact he calls one of the key reason for our survival in the evolution is this capability.  Also every human brain is wired differently. in the multiple cases he has quoted, the fMRI scans shows clearly that every brain is uniquely wired and they are not wired the same way. So in a learning environment, the more individual connection we have with the teacher/facilitator and the learner creates a better learning outcome.
Rule 4: Attention : This had some very key ideas for teaching. The best thing that gets our attention is Emotions. Our brain has two forms of memory – Declarative memory which focuses on storing facts etc, and episodic memory which focuses on events. The episodic memory stays longer and gets the declarative information stay longer if both are combined.  In a class room we often lose attention after a certain span of time – and our brain needs a emotionally competent stimulus (ECS) regularly to grab attention back, (He called this a Dopamine lollypop during the talk). So adding some very emotionally connecting stories / cases which is coherent to the subject covered could grab attention again for certain amount of time. This reminds me of our Finance professor, he keeps quoting about some real world cases in regular intervals before or after sharing concepts which made us very attentive and improved our learning.  The other concept covered in this area is – our Brain processes meaning before details. This goes back to the evolution, our Brain looks for these 3 top questions first – Will this eat me / Can I eat this, Can I mate / will it mate, Have I seen this earlier?.  We can use these 3 questions to create the ECS and grab attention.   The well known and other important key aspect he calls out is the inability of the brain to multitask , and it can only sequentially process, and cost of switching to brain reduces our learning ability. Giving sufficient break is also must to improve learning outcomes.
Rule 5, 6 : Short Term & Long Term Memory : Almost 90% of the things we read , are forgotten over a period of time. So repetition is key to remember things. But our current classroom setting is an overload of information for a continuous 6-8 hours which has a very low learning.  One of the key counter intuitive fact to know were – The more the information and meaning the better the learning. The more details should ideally be resulting in a lot of effort to the brain to remember, but if the more details are around a central fact or core idea, the core idea stays longer in our memory. Incorporate new information to learners gradually and repeat them at regular intervals. This reminds me my teacher in K-12, who used to make us do repeated oral tests to ensure we remember and also created fascinating stories and funny acts for us to remember the core concepts. I still remember the concepts which he taught in Physics and chemistry well, because of the vivid images and stories he created in our mind. Environment and context helps us to remember something easily on reproducing the same environment. I remember doing my mathematics practice test in school classroom similar to the board exam timed and with similar sheets. When I went to the exam it did not look like I could remember pretty much most of them I read.
Rule 9, 10 : Sensory Information & Vision : This is another counter intuitive fact about brain – the more information about a fact makes it easier to remember than lesser information – same way if you create more sensory data for a core concept, it is easy to remember and recollect for the brain. The senses could be vision, auditory or olfactory. So in learning environment we should use all forms of learning and not just dry text books with only passages. A picture is worth more than 1000 words, and our Vision trumps all other senses. If we make the information visually appealing it is easier to remember and recollect for the brain.
Rule 11: Gender Male and Female brains are different , structurally and biochemically. So they do respond to situations differently as well. In an acute stress, women remember the emotional details and react differently, and men only get the gist and react differently. This is an interesting fact, as we have never explored how learning is impacted because of this difference when men and women are together in the classroom. Of course in work setting we know the problems of inclusion very well and every company has understood the importance and working on it, and it makes sense we should focus the gender diversity and how do we handle this in learning environment that leads to better learning outcomes for both men and women.
Rule 12 : Exploration  We learn by observation, hypothesis, experiment and conclusion right from our childhood. Specific parts of the brain allow this approach, where we keep revising our hypothesis. Our exploration and learning does not support, the brain supports lifelong learning and adult brains do create neurons and learn new things throughout if we really focus our efforts to it.
The last line is key for me, and I would want to be a life long learner and it was reassuring for me. Seeking wisdom and life long learning are something which I enjoy the most. Overall this a good read for people who are in the learning and development space as it talks about how we can use the brain rules to change our pedagogy and improve learning outcomes.

Understanding Moats : The Little Book that builds Wealth

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Couple of months back I saw one of the talks by Pat Dorsey in Talks at Google. Where he talks about Competitive advantages of companies, which is the key for shareholder wealth maximization.  Being a student of Charlie Munger, I have always been fascinated by the concept of Moats and Floats. So his talk really grabbed by attention and made me read his book Little Book that Builds Wealth, where he talks about the concept of economic moats and how to identify them. Identifying the moat is a key for us in investing, which was made popular by Warren Buffet.  In this book he gives a simple framework on how to indentify the moats, and in most cases what have been the source of this sustainable competitive advantages.

Not every industry and every business can have a sustained competitive advantage or moats.

Reminds me of my finance professor who said – Life is not Fair. Airline industry is the best example for this. I would take the Indian Airline industry as a good example, we have repeated cases now – Kingfisher, Jet Airways, Sahara and now the latest Spice Jet Fiasco. None of these companies helped with share holder value maximization but I did enjoy some good trips in each of these airlines. I also do not have any loyalty when I fly and focus only on cost and who is ready to give me low cost. An Economic moats provide the company an undue advantage to generate more than reasonable profits by way of pricing power over customers.  What contributes to these economic moats for these companies, can be broadly put, as per Dorsey, into these 4 categories.

  1. Intangibles Assets: These could be a Brand (Eg: Audi, McDonalds, Coke, etc.)  Patents (Pharma companies play this game) or Licenses / Regulatory approvals to operate in a regulated industry where there is no regulation on pricing power (Eg.: Moodys). In all these cases, Intangible assets become a moat if a brand could help the company charge a premium price, or a company has a history of filing Patents and coming up with innovations or price like a monopoly with a set of regulatory approvals.
  2. Customer Switching Costs : This would be an economic moat if the cost of switching outweigh benefits or there is a tight integration with the business.  Banks are the best example for this. I have not moved away from my ICICI account, since the time I opened my Savings account back in 2006 because of the integration it has with so many other transactions in my life. Even Once I had tried moving to Kotak Bank, but I just could not change. So once the customer is locked, they do not want to change the product, and ok to forgo a little additional cost to overcome this pain of switching. Enterprise software companies like Adobe, Microsoft etc. and  Asset & Tax management companies Vanguard, Intuit. are best example. Event if there is a significant retraining cost involved customer would stick to the same product, and that serves a moat.
  3. Network Effect :  This is my favorite and fascinating form of moat which can exist only on non-rival goods. A non-rival goods may be consumed by one consumer without preventing simultaneous consumption by others. This mostly exist in information technology industry. Some example are Microsoft, Ebay, Visa , Facebook etc. Facebook for example has more users because already more users are there. Once it has gained a critical mass it builds because of the existing mass. Microsoft office is used by many , because lots of others are already using office. Ebay – more  sellers bring more buyers, and more buyers bring more sellers. Lets take the case of App development in a platform like Windows, Android or iOS. More Apps gets more users to the platform, and more users make the developers build more Apps. There is a virtuous cycle existing here leading to a positive feedback and that serves as a strong economic moat for the company to price the product strongly and fend competition to enter into their space.
  4. Cost & Size Advantages : Companies that are able to manage low cost because of the unique asset they own (like a mine), or process or manufacturing technology that is an advantage over competitors to generate a higher profit margin. Process based cost advantage are tough to survive over longer tenure like the Southwest or Dell example. But the location (where proximity to need and cost of transportation of the product is key) and unique asset based cost advantage can sustain longer. Similar cost advantage could come from the economies of scale, where the bigger volumes can pull down the cost and often tough for new competitors to get to the scale that existing companies operate. It would need large capital and time to replicate which could serve as economic moats.

When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.  - Warren Buffet

So to identify the best bets to invest as a long term  shareholder it is important to invest based on the underlying business and what is the economic moat it has. The 3 steps that is called out are - look for the demonstrated profitable history of the company, and identify the reason for their sustained profitability over years also discounting for risks associated with their moats eroding or profits shrinking and finally value that firm based on their intrinsic valuation like a DCF or by relative price multiple valuation (P/S, P/BV  or P/E).  When we read things look easy, only when we actually dirty our hands by doing , things get hard.  A quick and crisp read if you are interested in understanding competitive advantages and how to understand these moats.

How to Lie with Statistics : Book Review

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Recently I read a book - “How to Lie with Statistics” . I stumbled on this jewel from Bill Gates Recommended reading for Ted 2015. Though this book was published in the 1950s I found this book is more relevant now with the amount of statistical data we see every day in our life and work. A small book with very simple explanation of powerful concepts. 
Statistics tell us nothing until we understand what is being counted in the first place- Tim Harford
I will try to summarize the crux of the book in few points.   So the book is divided into these broad areas, and we can use this as a lens to view the any statistical data we see in media, or news or any company’s annual reports etc.
Sampling Bias : In real world problems and scenarios we handle it is really hard to generate a random sample that is representative of the population. Always question weather the sample representative of the population or biased / not representing the actual population. When magazines share the findings, first go and look how the sampling of the population was done.
Averages - Mean, Median & Mode:  Business School Salaries reported out In India is one of the good example.( I have been on both sides, reading the figures as an outsider was astonished, and later as insider when I was also part of a business school placement process). When the report calls out the average salary of the placement offers is say 20 Lakhs INR. They mostly refer the Mean, which hides the reality of what the salaries were for the majority of the population. Suppose if 4 people out of 60 people get an international offer at 40 Lakhs INR, you know how the data would skew to show a high number. Median & Mode are extremely good statistic which reveal more information.  Suppose they say Median Salary was 10Lakhs INR , this would imply half of the population is getting a salary at or below 10Lakhs. Pretty interesting to know right :).  There are other statistic as well like the Standard deviation which was not covered in the book, but important to know if you are into investing in stock markets. Suppose the statement made is - the average annual return of the stock market for the last 5 years is 12%, then don’t think the returns were like 12% every year. It could be like this 75%, –10%, 10%,-20%, 5%. The mean hear is actually 12% but how does this help. If you have one leg in a hot stove and other leg in a cold stove with the mean at room temperature does it help you in any way? It would actually result in burning or having a frost bite but the mean statistic looked very normal. The median in the above stock market example was 5%, and the standard deviation for the above case was 37%, which shows high volatility.  This was one of my favorite chapter and fun reading.
Statistics with missing / Manipulated pieces of information:  When there is statistical data shown, there are very key information missing like statistical significance or error rate. Where the data could be +/- some range and still valid for the interpretation. There is an error rate of +/- some percentages that is allowable.  Missing / manipulation of statistics with Graphs could be scary. By changing the scale of the abscissa or ordinate, or by not mentioning what the axis represent , or the units you can manipulate the reader to infer totally opposite thing in the graph. By scaling the graph, and cutting down the axis points, I can show a marginal 5% increase as some great increase in revenues for the company pictorially. So watch out for those.
Measuring something and reporting the something close to that: Asking doctors what is their preferred brand of cigarettes and reporting to public as even doctors use this brand of cigarettes so this is a healthier option. Though while measuring all that was asked to the doctor was what is their preferred brand, and creating an assumption that doctors only choose healthy option.
Correlation does not mean Causality  : No need to say this more – if I can create data points saying that whenever I eat vegetarian food, it rains in the city. Wow, so eating vegetarian food leads to rain? Applying context and common sense is very important and correlation does not imply to causality.
The key take away were these questions that we need to ask when we see a statistical information.
  1. Who said it – Who was the person that measured this statistic, credible person and what are the incentives. Or a credible name could be used to deceive as well
  2. How he knows and What info is  missing  ( Look for some information that is hidden or not removed)
  3. Did somebody changed subject – This is to check any semi attachment or representing something totally different to what was measured
  4. Does it make sense Common sense – Apply common sense test – remember if I eat vegetarian food it rains example :)
A short 140 page quick read and a must read for all.

Retirement Accounts in India Vs US

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After moving to US, I have been researching on what are the best ways to invest in this country. Having spent a lot of time planning for my personal finance in India over the last decade, I had to re learn what are the options we have in the US. So here are some learning , where I create an analogy  of what option we have in India vs. what we have in US. Here are some very broad picture of the options and not an exhaustive list for your retirement planning.
  • 401(k) Account in US Vs. Employee Provident Fund Account (EPF) in India  (403b if you work for a nonprofit)
    • Similarities : There is a defined contribution from employee and a matching contribution to certain from the employer to accounts. It is ear marked for retirement hence there is a penalty when you withdraw early, you can definitely take a loan against this money, and not attachable during bankruptcy, you can withdraw the amount beyond certain age which is typically 59-60 years. They have the tax advantages like deferring income tax early or later to support retirement savings.
    • What is Not Similar :
      • EPF - There is a fixed interest decided by the GOI part of the budget every year.   Money is managed by EPFO or by the company trust. There is no control of the investment decisions, but the returns are assured and the interest is credited as per the rate decided every year by GOI.  No opt out options, mandatory most of the places.
      • 401K – Full control of the money the moment the money gets to the account. We can decide where to invest based on the options provided by the company’s summary plan description. Here the companies provide various options for the employees and this is different with each company. The summary plan description for 401K of each company provides the details of matching , investment options etc. Usually the account is with some brokerage firm like Fidelity , Vanguard etc. where the firm has a contract and you can login anytime to change the investment decisions among the options you have – bonds, stocks, mutual / index funds etc.  No fixed interest rate, your investment decisions decides your return. Choice of opting out, but one request, please never opt out. Take the matching contribution and save in 401K :)
  • Individual Retirement Account (IRA) ( Traditional IRA or Roth IRA )  Vs. Public Provident Fund ( PPF)
    • IRAs and PPFs  are not exactly same. Both are independent of the companies you work, and a separate savings cum tax advantaged accounts, with an annual cap of how much you can invest every year(PPF is 150K INR, IRA 5500 USD Every year). PPF has a fixed interest rate decided and regulated by government of India and purely a debt instrument. But IRA in US is also a savings cum tax advantaged account provides an option of investing in places of your choices like Debt or Equity. Similar to PPF, you can open the IRAs with any private provider. For PPFs it is the banks, for IRAs it is Brokerage firms like Fidelity or Vanguard.  PPF is EEE Tax exempt i.e ( contributions are Tax exempt under 80x, interest earned in the account is exempt, on withdrawal after 15 years it is exempt of taxes).  But IRAs has options of Traditional & Roth – where Traditional is EET and Roth is a TEE. In Traditional IRA, you can put pre tax money which is exempt from tax, and earn interest which is exempt , and when withdrawing the money you would be taxed. But in Roth IRA which is a TEE means, You would put a after tax amount to the account, and  interest earned, and withdrawal after the stipulated time period is tax exempt.