How to develop a habit

A good habit is an amazing thing. It can enable a person to change their life without really even trying. Taking up exercise is a good example. But people find it tremendously difficult to start a good habit. I will start with general principles of successfully developing a habit and then I will translate this into practical suggestions.

Principles

Focus on Consistency

The most important principle of developing any habit is that consistency should be your number one goal. The number one enemy of consistency is AMBITION. The more ambitious you are with any habit, the greater your chance of failure. Don’t worry about how much you do. Don’t worry about the quality of what you do. Once a habit is developed those things will almost automatically improve.

Make it easy to Succeed

The reason you fail is because you set yourself up for failure. You made it too difficult. Do less not more.

Start Smaller and Grow very slowly

Whatever you had in mind its too much. Start smaller. Make your habit initially as small as possible. If you feel like its too easy…that’s a good sign. Only very very slowly grow your habit into something bigger. Be very comfortable with the feeling that you are essentially doing nothing.

Stop Before it Gets Hard

Lets say you are exercising as part of your daily habit. And it starts feeling hard. You start feeling pain where you don’t normally or you are tired or it feels like a long time. If you are beyond your minimum for the day, Stop!! Habits should never be hard. You should stop well before it even gets hard. Your minimum should be such that you should rarely feel an difficulty.

Eliminate Decisions and Options

Your habit should involve few decisions or options.  A choice of time…that’s an option. A choice of what to do…that’s an option. A choice of where to do it…that’s an option. Make your habit as structured and familiar as possible. Eliminate as many of these things as you can but not so many that you feel too constrained. Remember principle number one: Focus on consistency.

Use Social

Use people to help you with your habit. There are all sorts of ways of doing this but generally speaking people can be the most powerful means of ensuring you stick to a habit.

Use Environment

A change of environment and being consistent with this is powerful. If you always know you have to do X when you enter environment Y then you will have no difficulty.

Basically the whole idea of habits is to make things automatic. To exploit the fact that when it comes to certain things humans are like click…whirr machines. When they encounter a particular stimulus (click) they generate an automatic response (whirrr…or in our case a good habit).

Techniques

The following is the set of techniques that are based on the above principles:

The Seinfeld calendar

A good way to optimize for consistency is the suggestion of Seinfeld. You setup a year long calendar and every time you do your habit you make a red X for that day. Pretty soon you have a chain of red X’s and your objective is to not break the chain. Again this is principle number 1: focus on consistency.

Minimum habits and the 15 minute rule

The consistency principle implies that when you start off your habit it should be as easy as possible. Because the easier it is the higher the likelihood you will do it. One way to do that is to start off by doing your habit for a very small amount of time. Even better make your habit a minimum one…meaning that you commit to do your habit for at least X minutes everyday. When I was learning to invest I made my minimum time 15 minutes. This had three advantages

  1. it was just enough time to get something meaningful done
  2. it was small enough that I could do even on my worst days
  3. it was just large enough that once I started doing it, it was easy for me to keep going. I would often spend more than 1 hour because once I got mentally involved I didn’t want to stop

I call this the 15 minute rule but really 15 minutes is arbitrary. In exercise I actually made it 7 minutes of running. The goal here is to create a minimum that you can commit to doing for the rest of your life…on your wedding day, when your depressed, when your girlfriend breaks up with you, when you are on vacation. Something like brushing your teeth.

Get a Partner

When I was forming my exercise habit I did it with my friend. This helps enormously. Its much much easier to do anything if you do it with a partner

Make a Bet or Other Social Commitment

Even with the 15 minute rule and Seinfeld Calendar I still repeatedly failed in my investing habit. The thing that worked for me was to make a $100 bet with by friend. If I didn’t invest for 1 day, I would pay him $100. This worked beautifully. I paid out once for New Years Eve.

Its best to make these bets unilateral. It should never be, I will bet $100 I will invest but only if you are willing to bet $100 you will quit smoking. This never works since you are let off the hook if your friend fails. Your bet is meant to make your habit stick…potentially paying your friend money is a small price to pay. 

Betting is one very strong form of social commitment. There are others: you can make a contract and sign it with friends as witnesses. You can make a public announcement. The whole idea generally is to make a social commitment. Bets work best since they are simultaneously a social commitment and a monetary penalty.

Social commitments aren’t rational but they work extremely well. Often the bet is never paid out but just the idea of the bet itself is often enough to spur one into action.

Jamelle Bouie’s Liberal Pathology

Slate just keeps getting dumber. Here is a fantastic example for Jamelle Bouie, Slate’s resident insane black liberal.

According to liberal religion any difference between races must be caused by racism: I will call this, “THE MAN DID IT” TMDI. But of course how to explain asian over-achievement. Or for that matter Jewish over-achievement? Liberals have tried various explanations. All of them are crap. I’ll destroy the standard ones later.

Jamelle Bouie’s article comments on this observation by Andrew Sullivan:

Asian-Americans, like Jews, are indeed a problem for the “social-justice” brigade. I mean, how on earth have both ethnic groups done so well in such a profoundly racist society? How have bigoted white people allowed these minorities to do so well — even to the point of earning more, on average, than whites? Asian-Americans, for example, have been subject to some of the most brutal oppression, racial hatred, and open discrimination over the years … Yet, today, Asian-Americans are among the most prosperous, well-educated, and successful ethnic groups in America.

What gives? It couldn’t possibly be that they maintained solid two-parent family structures, had social networks that looked after one another, placed enormous emphasis on education and hard work, and thereby turned false, negative stereotypes into true, positive ones, could it? It couldn’t be that all whites are not racists or that the American dream still lives?

Andrew Sullivan is basically right. His point is right. Racism is insufficient to explain differences in performance between different cultures. Asians and Jews are both examples. They have done tremendously well despite facing tremendous obstacles.

But Jamelle Bouie reached a new level of stupidity. He presents the explanation of a new liberal children’s story titled: “The Color of Success: Asian Americans and the Origins of the Model Minority”. According to this story,

The United States’ battles against fascism and then Communism meant that Asiatic Exclusion, like Jim Crow, was no longer tenable.

So basically America ended racism against Asians because they couldn’t afford the image problem. This has got to be the dumbest explanation I have ever heard. I have read about fascists criticizing the US. I have read about communists criticizing the US. Unfailingly they bring up the treatment of Black people. Occassionally they will talk about Native Indians…and even more occasionally Jews. The reason for this is straightforward, it was enormously well known that black people were treated like shit in America. So improving the situation for Asians would not help the US in the least…no one in the world gave a shit about how Asians in America were treated. They still don’t to this day. In fact I would say Asians themselves barely care either world wide or in America itself. For instance, Asians have done little to nothing to combat the tremendous discrimination they face in the Ivey League university system.

But there are still other problems with this moronic theory. Consider for instance the Chinese. Chinese don’t just do well in the US, they also do well as immigrants to other countries within Asia itself. For example, they do well in Thailand, Philippines, and Malaysia. I believe in all three, ethnic Chinese, most having immigrated to these countries within the last 150 years, control over 50% of the wealth despite being around 10% of the general population. So what happened then? Did not all the American but also the Filipino, Thai and Malaysian societies simultaneously make a decision that Chinese were to be successful? Is there a meeting where they all agreed to this? Are there meeting minutes? Can liberals provide us with any evidence of this meeting? If there wasn’t how did they co-ordinate among themselves to ensure Chinese success.

Does this make any sense. Why  would the Chinese succeed in 4 different countries in hugely different circumstances. And why would the formula for Chinese success be the same everywhere…basically study engineering. medicine or some lucrative profession.

My explanation is a single, simple one. Chinese are successful because they have a culture and values that enable them to be successful in the modern world. The liberal explanation is much more complicated one since it should be based on how the dominant society treats Chinese. But this requires 4 different explanations for 4 different countries and somehow magically all 4 different explanations must result in exactly same outcome in every country: Chinese economic success. As I said liberals are morons.

All liberal explanations must inevitably be convoluted because truth favors simple explanations. For liberals to get around the truth the have to invent increasingly ridiculous explanations.

An example is the proposed liberal explanation for the incredibly success of Russian Jews in America as being due to the fact that their entry into the United States coincided magically with a massive boom in the textile industry which they just so happened to enter at exactly the same time. This liberal theologian, Stephen Steinberg,  goes on to additionally credit Jewish success to multiple inventions the Jewish textile manufacturers just happened to stumble upon. And the entrepreneurial structure of the industry which Jews just happened to occupy. You see in liberal land, absolutely nothing you do can be credited to you…it all just a series of fortune coincidences. Its not based on choice you made, values you had, ideas you developed, work you did…no its all just accidental.

Self-selection effect

A typical liberal explanation is that immigrants are basically self-selected supermen who are better than people who don’t immigrate. Liberals propose this explanation all the time yet provide little to no evidence its true. I have met a lot of immigrants and I can tell you one thing about them… they are mostly losers. Not all. But many of them. They don’t leave their country because they were successful. They leave their country because it was shit and they were not successful when they lived there. I’ve met many immigrants and I have never said to myself..wow these guys are amazing. The strike me as pretty ordinary people who were doing so badly in their own country that the left it. There are few superstars.

And of course the selection effect ignores the tremendous obstacles immigrants face that the native born don’t. IMMIGRANTS DON’T SPEAK THE FUCKING LANGUAGE. Not all but most. This is a huge fucking disadvantage. 

And almost as bad as this is the fact that immigrants don’t have a social network. Not having a social network: friends you knew since university or high school, relatives, its fucking death if your trying to get a job. In North America all jobs are through connections. Not having those….shit I don’t know what I would do in that situation.

There are many additional points I could make like the fact that African immigrants are hugely successful. So successful in fact that a particular group, Nigerian Igbos, even outscores other ethnic model minorities such as Chinese and Indians. Interestingly the liberals typically say that Blacks failure on the SATs is due to the SATs being culturally biased. But biased against whose culture exactly? Black culture I guess.  I wonder then how children of African immigrants outscore whites on the SATs or white British on the GSCE. I guess African culture is not black culture.

Was Edmund Burke really just Hitler in disguise

Edmund Burke is the liberal that liberals love to hate because they associate him with modern conservatism. Burke also committed the incredible sin of opposing the French Revolution. And this is a big problem because of the tremendous influence of Marxism over modern liberals. Marx had a hard on for the French Revolution since Marx was basically a psychopath. Modern liberalism is really based on the idea that all means are fully justified…including beheading women as long as it leads to politically correct ends. And it got this evil idea from Marx.

Liberals have no problem with the French Revolution and the beheading of Marie Antoinette. The reason is that the whole French Revolution was supposed to be on behalf of the poor. The ends (helping the poor) justify the beheading of a young mother. Anybody who disagrees is a fascist.

Reading Burke its pretty clear that his opposition to the French Revolution was because he was disgusted by it. They beheaded Marie Antoinette. Now for any man there is this natural biological impulse to protect women. Its not rational, it can’t be justified intellectually. But its present. So naturally when Marie Antoinette was beheaded…it was something that Burke really didn’t like. It was something he didn’t like so much that he wrote a screed attacking the Enlightenment values in his pamphlet: Reflections on the Revolution in France.

Not liking a movement that cuts young women’s heads off. Does that make you Hitler? Well according to Martin Pugh it very much does. In fact Pugh thinks Burke is so bad for believing that being civilized should mean that you don’t cut a young mothers head off that he basically says Burke was Hitler. I am exaggerating a bit but really a lot less than Martin Pugh. I am also playing fast and loose with facts:  Burke wrote his Reflection on the Revolution in France BEFORE Maria Antoinette was beheaded. But why let facts, history and context get in the way of a good argument…it certainly never stopped Martin Pugh.

Is Deep Value really about Intrinsic Value

The basic idea of value investing is to determine the intrinsic value of something and then invest when the stock trades at less than intrinsic value. I have strong doubts the deep value investing has much to do with intrinsic value.

Maybe value investing is really just a way of finding dogs…stocks where the expectations are really low. And you make money when expectations normalize to something more reasonable. Consider Buffett’s description of cigar butt investing:

If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long- term performance of the business may be terrible. I call this the “cigar butt” approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the “bargain purchase” will make that puff all profit.

All Buffett appears to be saying is that you unload the stock as soon as it appears to be doing better in the short term. But he makes it pretty clear that he doesn’t expect the business to do well over the long term. So what is the IV here? I would hazard that the IV for a lot of  shitty businesses is zero. And that all that really happens is that the business turns around for a little while and you sell it before it has a chance to go to zero. I think this aspect of value investing is why a lot of value investors have trouble swallowing deep value. Because fundamentally deep value is about taking advantage of changes in market expectations…not the intrinsic value of businesses.

Fuck Passion!

I know a few people who are depressed about not being passionate about their jobs. The funny thing here is not that they feel bad. Its that they feel bad about feeling bad. I think its bad enough to feel bad. Do you really also now have to feel bad about feeling bad.

Well in this society you do. Its pretty fucked up. You have a small number of people who managed to find things they love that they are also very successful at and make them a tonne of money. And the message that goes out to everyone is: you should be passionate about your work just like us. Well fuck that!

If you hate your job. Go ahead and Hate it. Really hate it. But don’t feel like you need to feel even worse because your not passionate about it. Its a fucking job. Your not supposed to like it.

Now I am not saying don’t have goals. I am not saying don’t be determined. All I am saying is that you have the right to not be particularly interested in whatever boring shit some asshole is paying you money to do. Because he is an asshole and the shit is really boring.

Scientific textbooks suck

Well maybe not suck but I have to get your attention somehow.

Today I was reading Maxell’s Treatise on Electricity and Magnetism. There are many things that are different in the older literature and book compared to the new ones. The first is that the older books display much less of a sense of science being a finished product. There is an immense amount of empirical information contained in Maxwell’s book even though its supposed to be a mathematical work. He discusses all kinds of electrical and magnetic phenemonon. The only modern equivalent I can think of is the Feynman lectures. And many of these phenomenon did not have complete theoretical explanations.

In addition there is an interesting way of talking about scientific discoveries by naming the actual person. So Maxwell might say “Messrs. Bright and Clark have found that the following formula gives results agreeing with their experiments”. In addition to this there is the verbose and crappy notation. Maxwell did not use vector notation and most of the book is done using components all of which are given separate letters. I am not sure why Maxwell does this. Why would you say, the vector H, having components A, B, C when you could say the vector H having components Hx, Hy, Hz.

The contrast with today’s scientific books is that most are much more technical. Their notation is more concise. The presentation is more logical and clear. The thinking is also more symbolic and less visual. Maxwell tends to think with pictures. His math represents his pictures. Today’s text books think in symbols and logic and rarely visually. Again the conspicuous exemption to this modern trend is Feynman.

To a certain extent the reason for this is that we are living in an age when most of the science we spend our time studying is dead. Its old old science for us. And so we have had decades to clean in up, polish it, present only those topics most important to know, eliminate useless details etc. The result is a concise logical very mathematical presentation that fairly quickly provides students with the mathematical account of the subject and the ability to solve mathematical problems on tests and exams. Today a good physicist is one that good at math. Indeed this is the way I learned it and it helped when reading Maxwell’s books. Part of the reason I could understand him is that I already had the full account in my head.

But of course the problem with this is that the student isn’t faced with a living breathing subject. He doesn’t really know where he can fit himself in. There is none of the excitement of a subject where new discoveries are being made and being described. I think the most damaging thing is that these books contain little to no empirical information. To the extent empirical information is given its almost always to illustrate a scientific concept or technical result to a student. Its rarely and almost never to expose the phenomenon as a subject of interest worthy of understanding in its own right. You never see the messiness of the real world…only the neat tidy mathematical model.

I have repeatedly brought up Feynman as an exception to this. He is. But of course the Feynman lectures will never be used as a textbook. The greatness of these lectures is precisely the fact that they present science as a living breathing subject. And they are filled with empirical information. I think this is largely because Feynman developed his interest in science when he read the Encyclopedia Britannica. His account is also enormously idiosyncratic. I am glad I didn’t learn vibrations and waves from Feynman. But I am also glad I have Feynman to read after having studied vibrations and waves.

I see the advantages of the older style but I also know the advantages of the newer one. The newer one is efficient and effective as a tool for training a large number of student quickly in a set of analytic techniques. But its very poor at getting students to think critically and inquisitively about the subject. You will get really great technicians out of the new textbooks but probably poor scientists.

The older books were better at teaching a living breathing subject but probably incomprehensible to most students and so useless the majority of the time. I suspect the few times they were useful though they were inspirational. I am not sure though how much I should be praising Maxwell’s books. After all Heaviside spent years trying to comprehend them and ultimately he only made progress when he started working things out using his own methods and notations.

Douglas Engelbart: My Hero

In nearly every place I have ever worked a common pattern emerges. I start by doing X and in nearly every case I try to create tools to automate X, to develop a deeper understanding of X and I attempt to train people to do X better. In other words my focus is never X….its always on making people more powerful and adept at doing X.

Sometimes this just involves tools but often it also involves training. Interestingly in this society I have found in nearly every case that my efforts though hugely successful were never ever recognized or rewarded. This merits a deeper discussion of the sociology of North American society and why no one cares about this sort of stuff. If I were to quickly sketch a possible argument, it would revolve around hierarchy and individualism. Achievements are measured on an individual basis and so anyone proposing to improve group abilities which is what I was trying to do is not considered important. Additionally more powerful tools generally lesson the power of management in hierarchies since you can often get smaller groups of people to do the jobs larger groups of people were doing. Generally speaking what bloated hierarchal organizations crave is the ability to justify large teams and big budgets. Powerful tools and training are counterproductive to this and so are usually not wanted and not rewarded.

This brings me to Douglas Engelbart, who is my hero. He is my hero because this thing which is a tendency in me…he made into a full blown career. He pursued it fearlessly to its logical end. Ultimately what Douglas Engelbart wanted to do was increase the collective intelligence of humanity and he was looking for ways to do that. The hilarious thing about this is that he considered his inventions of the mouse, bit-mapped displays, hypertext AS mere artifacts of this endeavour. He changed the world with his CASTOFFs!!

But if Douglas Engelbart represents the tremendous promise of this approach…he simultaneously represents its incredible social failure. I can think of few other people where the magnitude of what they accomplished was so incommensurate with the recognition and acceptance they received. Its an incredible thing to me that no one listened to his ideas, he had trouble getting funding and that absolutely no organization took his ideas up in later life. This happened to such an extent that he considered himself a complete failure. The full vision that Douglas Engelbart had in mind remains unexplored.

I have to find a way to make these ideas work. But I’m not really sure how. Douglas Engelbart was a spectacular failure. I think I’ll just be a mediocre one.

Amaya: my greatest mistake

One of the the things Charlie Munger frequently says is that you should rub your nose in your mistakes. That’s what I am going to do in this post.

Amaya is probably the worst one that I have made. There are a number of mistakes I made with this and I want to go over them. I based my decision mostly on this VIC posting. You can read my over-confident and tremendously embarrassing post here.

I avoided doing this for a while and to be honest I can’t help but cringe when I look at what I wrote. I was massively overconfident. My over-confidence was based on one thing…I was very sure they would be able to achieve their growth targets.

Amaya was originally a provider of B2B gambling services (basically gambling software/hardware for casinos). Then David Baazov organized a buyout of a Pokerstars/Full Tilt Poker. He was a minnow swallowing a whale and in order to do this he had to take on a lot of debt.

The basic growth story for Amaya was that they would diversify from Poker to other verticals in online gambling like online slots, table games, or sports betting. The reason I loved this story is that I thought it would be easy. It would not require advertising because they already had a massive customer base and they could leverage their existing websites for new software. I literally thought it would be like flipping a switch. In addition I was over-impressed by the CEO and what he was able to pull off with Pokerstars so I thought for sure he, would be able to execute. They had also already tried adding the new verticals in certain markets and it worked. Finally I thought online gambling was a great business because it costed very little to grow. In online gambling you have the phenomena of Negative net working capital. Essentially when you grow your customers give you money. So I thought: great business, easy to grow, already proven growth strategy, impressive management.

In retrospect I made a number of mistakes. The first is that I trusted the growth story way too much…which is ironic because its the classic mistake value investors are taught to avoid. I trusted management too much. Additionally I completely discounted negatives which would come back to bite me later like the massive debt the company had. Finally I compounded my mistakes by oversizing my positions. Of all my mistakes this was by far the biggest. My position size was 15% of my portfolio. I bought the stock at 30 and its now 18. Thus I took a 9% hit to my portfolio from this one position.

There were a number of criticisms of my thesis on Corner of Berkshire and Fairfax. I should have listened more carefully. One thing that was brought up was that the company had its debt in USD and its earnings where in EUR. This is one of the reasons they had an earnings miss and after that the stock tanked. My thesis was way too reliant on what I though would happen with near term earnings.

I was pretty stupid. Incidentally I have had this happen before in other areas of my life where I have been totally sure I wouldn’t make the same mistake as others and I ended up doing exactly that. I hope this is the biggest mistake I ever make because it was costly. But I doubt it.

Stop trying to make things work

I think a lot of investors try to be superior analysts. To find hidden value.

In some sense they get seduced by investors like Warren Buffett. You end up believing that to truly understand a company you have to read every footnote, every number, understand everything and find the value that others missed.

There is a danger in this though; the trap of trying to make things work. You end up trying to find a way that a company could have hidden value. You make projections, you forecast a future different than the past, you make optimistic assumptions. You try to find a way that your investment could double. The worst thing is that the more work you do the more you feel like you have to find a way that the company must make sense. In some sense this is a sunk cost fallacy…you end up believing that you have to find value in something to justify the time you wasted on it.

Investing in not unique in this regard. It happens everywhere. In relationships, in jobs, in education. People try to make things work.

So what should you do? Instead of putting your effort into analysis, put it into searching more broadly. Work hard searching for value…don’t work hard analyzing companies. The best investments are not hidden….they are in plain site.

And finally instead of trying to look for reasons why the thing works. Try to make things not work. Look for problems.

Trina Solar (TSL)

Interesting case written up on BofC. Its a going private transaction that will result in all ADR holders getting 11.55 per ADR. The current ADR price is 9.3. And the merger itself is expected to happen within Q1 of 2017. The merger has also received approval from shareholders. So now the real question is whether the terms of the merger will be altered or whether they will be able to raise the capital.

The market is assigning a implied probability of the merger going through of about (9.3-8.25)/(11.55-8.25)=32%. The formula I used is p=(S-L)/(U-D) where p is the probability of the merger, S is the current stock price, L is the stock price just prior to the merger announcement (I am assuming the stock returns to this value if the merger does not go through) and U is the merger stock price.

The IRR of the deal if it goes through is 1.25^4 – 1 = 144%.