Multi-Disciplinary Reading - Book Reviews

[Malhar_Manek]

How To Decide by Annie Duke

Few takeaways from the book:

• Gut instinct and intuition are seldom reliable decision-making tools (this point is also made in the book 'Thinking, Fast and Slow'- one of my all-time favourite books). This is why most (if not all) successful traders follow a 'system' defined by rules.
• There are two determinants of an outcome- decision quality and luck. The former is in our control, while the latter is not. Hence, it is important to articulate a rational decision-making process.
• Resulting (outcome bias): we often determine the quality of a decision based on the outcome. A good outcome leads us to believe we made a good decision, and vice-versa. While there must be a strong correlation between decision quality and outcome quality, this is true only in the long term, in the same way as the correlation between business performance and stock price performance. For example, consider this: someone offers you $2 if a coin lands heads, while you will lose $1 if the coin lands tails (the coin is fair). You take this bet thrice, and the coin lands tails all three times. You end up $3 poorer. Did you make a bad decision?
• Decision quality determines the range of possible outcomes, whereas luck determines which one of the possible outcomes will materialize. You can think of this as a Punnett square in biology, where parental genotypes determine the possible genotypes for offspring, but luck determines which of the possible outcomes will occur.
• Counterfactual thinking, i.e., thinking about the other possible outcomes which did not occur, is crucial for making better decisions (this point is also made in the book 'The Psychology of Money'- one of my all-time favourite books).
• A pros and cons list is a decent starting point for evaluating choices. However, it does not consider probabilities of outcomes and the magnitude of payoffs, thus making it an inefficient tool.
• There is tremendous ambiguity involved in probabilistic terms like 'probably', 'real possibility', 'good chance' etc. It is a good idea to put a number to such terms, to avoid misinterpretations. Similarly, when someone tells you they are 'super bullish' on a stock, ask them how much of their portfolio they have invested in that stock. This will help you clarify exactly how bullish is 'super bullish'.
• Always think in terms of ranges- upper bound, lower bound and bulls-eye estimate. As the saying goes, it is better to be approximately right than to be precisely wrong.
• For making quick decisions, use two tests- a) is the outcome likely to have a large impact on my happiness in the short and long term? For example, what you eat for dinner today is unlikely to materially impact your happiness in the next week or month. In such cases, you can take quick decisions. b) is this a repeating choice? Sticking with the same example, you eat dinner every day, so this is a decision you make every day- in such a case, a bad outcome will not hurt much.
• Identify freerolls, i.e., a material asymmetry between probability-weighted upside and downside and bet big and quick on those rare opportunities. The keyword here is 'probability-weighted': a lottery ticket (with a $1M upside and $1 downside) is not a freeroll, although it may optically look like one.
• Conduct a premortem on your decisions, i.e., try to forecast yourself a year down the line and imagine that the outcome was adverse. What could be the possible reasons for the same? For example, imagine that one year from now, the Nifty 50 has delivered a positive 20% return* whereas your portfolio is down 10%. What could be the possible reasons for this to occur? Perhaps your investee companies are overvalued? Perhaps they have corporate governance issues? Thinking this way forces you to identify potential weaknesses and make appropriate changes to your portfolio, as and when required.

The book also has several exercises, which I would recommend a reader to attempt, either by writing down your answers or even mentally. Further, the book has notes and a checklist at the end of each chapter, making it easy to re-read the key concepts of the book.

Overall, it was a wonderful read! Anyone who liked 'Thinking, Fast and Slow' is likely to enjoy this book too. 'How To Decide' has secured a place for itself among my all-time favourite books!

10/10

*This is NOT a prediction.

[phreakv6]

Good Economics for Hard Times, Abhijit Banerjee, Esther Duflo, 2019 - Was a bit skeptical picking this up. It is an excellent book of economics, tinged here and there with possible bias (or maybe the bias is all mine). It would be a shame to completely ignore it for that because there is a lot of research and thought that has gone into this and they perhaps deservedly got the Nobel for the same.

My notes -

• Trust in weather forecasters is twice as high as economists

• Economists are of several kinds - self-proclaimed economists that appear on TV, chief economists at banks & other corp. firms, academic economists - author believes the latter stay away from futurology (predicting)

• Most valuable thing is path to conclusion than conclusion itself (in economics)

• Fraction of international migrants in the world population is 3% - same as it was in 60s (except perception) - In EU, it is 0.5%

• People don’t move purely to pursue better economic opportunities elsewhere - unless they are running from the mouth of a shark (civil unrest, war) - Only 3% Greeks moved outside though unemployment was 27% in Greece and they could work anywhere in EU

• Natural experiments (counterfactuals) - like houses destroyed for one half of a fishing village - the half that lost houses earned higher than ones that didn’t - having to move made it likely they found better job than staying fishing

• Usually an extra push (incentive) and information on job is required to get people to try new things, go new places to find a job - even if its better than what they currently do. Supply-demand model does not directly apply to immigration

• Immigration produces growth if money earned is spent there - if its repatriated, the benefits are lost to host community

• Low skill immigration delays mechanization - and may indirectly benefit host community in rising wages (albeit temporarily)

• Host community takes up jobs up the value chain when immigrants take up low-skill jobs

• 43% of top 500 US companies by revenue were founded by immigrants or children of theirs

• Efficiency wage - A wage big enough to incentivize workers to actually work with the fear of losing their job - (else “they pretend to pay us, we pretend to work” - soviet joke will apply)

• When link between pay and productivity is not transparent - workers hate inequality in pay

• Low skill labor generally helps host population but high-skill labor though it lowers costs for general population, can directly impact host populace with similar skills

• Network effect helps immigration - if someone from same village has immigrated - social proof helps - and preferential attachment helps when there’s a large migrant population from same community

• If people only sell their worst cars, the market for used cars will be filled with bad cars, making people want to pay less and less for them, leading people to hold on to their good cars for longer (feedback loop), selling only their worst - market is filled with lemons (adverse selection)

• India needs $4.5 trillion USD in infra spends between 2016-2040

• Parents who worry about being abandoned in their old age may strategically underinvest in children’s higher education

• Most people don’t like dealing with unknown unknowns and may completely avoid decisions that involve them as outcome (avoiding possible mistakes of commission by making possible mistakes of omission)

• Trade allows each country to do what it does relatively best (as against absolute advantage - as in wine from france, scotch from scotland)

• Free trade raises GNP - there’s more to go around for everybody - so losers from free trade (say towns that lost jobs to China) can theoretically be compensated by taxing the winners (consumers who got cheaper goods from China) (Samuelson)

• First Gulf war - led to skyrocketing oil prices, leading to bigger import bill for India - at the same time Indian emigres from ME had to flee and couldn’t send money back- double whammy led to massive foreign exchange shortage and balance of payments crisis - IMF bailout insisted that India open upon economy and destroy license raj - import duties came down from 90% to 35%

• Socialism to Capitalism led to change from 4% to 8% growth (India)

• Inequality should reduce as trade liberalization goes underway - stolper-samuelson theorem - In reality though, inequality has increased in several countries that liberalized between '85-'00 (Brazil, India, Mexico, Colombia etc.). The reason probably is the rise of China at the same time (efficient player took unskilled jobs away). (Academic theorems that solve for two variables and two countries work differently, even conversely as variables and countries increase). Trade actually increased poverty in affected districts (Because labor was reluctant to move from dead villages and towns to where better jobs were) - left-behind people live in left-behind places

• Trade liberalization made poverty worse especially in districts with strict labor laws where workers could not be fired (poor performing firms couldn’t shrink and let better industries take their place)

• In developing countries land doesn’t change hands easily and capital is sticky

• Stricter labor laws, land laws, and bankers who are afraid to cut credit to ailing industries and in fact evergreen old loans - delay the inevitable - as a result new industries struggle to raise capital (no creative destruction). at firm level, obsolete product liens and tech are clung onto because price of transition is high

• US industries lobby with regulators to keep imports out on several basis (food-safety, keeping pests out).

• Industries stick together in a area, or country to lobby effectively, get cheaper labor, build credibility etc. (Eg. Tirupur). To compete, others have to lower prices where expectations are also lowered (until credibility is built) - This depends on cost structure as well (If cost is low as % of sale price, why stake reputation with new supplier?)

• Fixed-price contracts to cost-plus contracts happen when an industry matures (happened with Indian IT when reliability and reputation increased)

• Outsized role of reputation means international trade isn’t just about good prices, good ideas, low tariffs and cheap transportation (Hard for new players starting without rep.)

• To protect reputation of an industrial cluster (socks city, footwear capital etc. in China for eg.) or even a country, poor quality producers may be penalized

• Tirupur export volumes grew from $1.5m in 1985 to $142 million in 1990 and to $1.3 billion by 2016 - whole industry is organized around jobbers and sub-contractors with few names dealing in exports. Trade shock sent Tirupur’s exports on a downward spiral in 2017 (41% drop)

• When India liberalized, openness ratio (sum of all imports and exports to GDP) increased only a little bit (15.7% to 18.6% between 1990-1992) - but eventually both imports and exports went up and India is now more open than both China and US (sign of a processing than a producing economy?)

• China manipulated renminbi by selling it and buying foreign currencies to keep in competitive - else by exporting more than it imported, it would have made renminbi stronger, making economy uncompetitive but govt. actively manipulated currency until 2010 (it remained competitive even after stopping manipulation). Only 20% of China’s GDP is exported now (mind-blowing considering the sheer growth of its exports)

• Smoot-Hawley bill precipitated the Great Depression (tariffs on trade)

• If US were the become an autarky (no trade with anyone), it would be poorer but not that much poorer (Intl. trade is more important for poorer countries)

• When imports are sensitive to price increases, there might be local substitutes and it may not be valuable to trade with others (cross-price elasticity)

• Nearly a billion people worldwide live more than mile away from paved road (1/3rd in India). Bumpy rides prevent gains from trade from reaching last mile. (This could dramatically increase trade when fixed)

• Until GST came in, states in India used to prefer local producers. With GST, similar winners and losers as in intl. trade will emerge

• Preferences and beliefs - people can have wrong beliefs but not wrong preferences

• It is patronizing and wrong-headed to think people screwed up just because we would have behaved differently (when poor people spend money on TV instead of food)

• Conformity in a herd might be rational decision-making when they believe others have better information than they

• Herd behavior generates information cascades and random first moves can cause it (seen all the time in equities) - on the internet posts with upvotes/likes garner more of the same (32% inc. prob.)

• Wage gap in SC/ST community improved from 35% in '83 to 29% in 2004 (doesn’t look good but its better than improvement of wage gap between blacks and whites in the US for same period)

• Self-discrimination is often self-reinforcing (when people doubt their capabilities, they perform poorer). Works in reverse too - random students believed to be smart performed better (self-fulfilling prophecy). Violence becomes the norm in a neighborhood where its expected. (Bankers who were reminded of their profession cheated more on tests than when they were not - 16% vs 3% :-)). When kids are told they are nice, they behave nice easily than when told they should be nice

• In India 74% of families say they believe marriages should be made within castes

• Echo chambers - when like-minded people whip themselves into a frenzy listening only to each other (never exposed to another point of view)

• Contact hypothesis - reduction in prejudice as a consequence of spending time with others

• Tipping point - When minorities remained minority in a neighborhood, there was stability but when it passed a critical threshold, the majority starts leaving, triggering a cascading effect

• TFP - Total Factor Productivity is what is left after we have accounted for all other causes for increase in productivity (after accounting for rising education improving labor prod., better investments etc.) - its a measure of our ignorance - usually its better tech (faster chips, newer alloys, better seeds etc.) and production methods (assembly line, lean manufacturing)

• TFP growth has reduced since 1970s - at a 3rd of how it was between 1920-1970 (Oil embargo in 1973 and quadrupling of oil lead to high inflation and lower growth since with stagflation has become the norm)

• GDP values only those things priced and marketed

• Capital scarce economies grow faster because new investment is highly productive (hear, hear) - especially when these economies use day-before-yesterday’s technology from richer economies

• Solow growth model - GDP would grow roughly at the same rate as balanced growth rate of labor and capital (and human capital which impacts labor productivity). There’s a tendency for growth to slow down if labor doesn’t keep up or capital doesn’t keep up (and neither does for long periods)

• Since 1973, TFP growth slowed down, labor productivity has fallen while capital has grown and interest rates have fallen (as predicted by Solow)

• When investment returns go down, capital accumulation goes down as well (as can be seen in fragmented industries with fierce external competition - when govt. supports a sector with duties - it allows that sector to improve its returns and allows capital formation and ability of few firms to grow much larger to have economies of scale to compete globally)

• Capital returns should be higher in India where its scarce but this is not always the case as ideas flow much faster in richer countries

• Spillovers - putting skilled people together lets skill build on each other

• There’s no correlation between tax cuts and growth rates (nuance - tax cuts to top 10% produce no significant growth while cuts to bottom 90% does - trickle-down economics doesn’t work)

• Invention doesn’t come out of nowhere - it needs financial incentive. Monopolies don’t invent - when a large M&A fails, competition keeps sector competitive for years1

• Absolute poverty rates have halved since 1990 (< $1.90 a day)

• Part of reason poor countries stay poor is they are poor at resource allocation

• Indian economy is exceedingly sticky - good firms do not grow and bad firms do not die

• Indian banks are overstaffed which affects profitability of banks - this gets priced into the NIM

• In 2010 - 26% of all Indian males between the ages 20-30 with 10 years of education were not working. There were plenty of jobs but not jobs these men wanted

• In SA with 54% between 15-54 unemployed, companies complain they cannot get the workers they want (skill gap)

• Middle-income trap - an intermediate GDP level where countries get stuck

• GDP growth is not the only way to lift the population up - For eg. Sri Lanka as same GDP per capita as Guatemala but maternal, infant and child mortality is much lower in SL (comparable to those in US)

• When your income increases by 10%, your CO2 emissions rise by 9% (avg)

• 50-10 rule - 10% population produces 50% CO2 and bottom 50% makes 10%

• Between 1957-2000 India had avg. 5 days/year above 35 deg. With a climate change policy, it could experience 75 such by end of century

• Over 38 deg. C, labor supply in outdoor jobs drops by 1 hr per day, children have lower test scores and in factories efficiency went down 2% for every 1 deg rise in ambient temp.

• Between 1995-2009 - a/c in China went from 8% to over 100%!

• Carbon tax - tries to set a market rate for warming the planet - allowing firms to buy the right to pollute from other firms that are actively reducing pollution

• Energy consumption in houses reduced when households got to know of energy consumption of their neighbors (we in India have ads for appliances capitalizing on same concept)

• Last two decades, coal consumption has tripled in India and quadrupled in China (Energy in any form for rapid growth)

• Player Piano - Vonnegut’s book set in a dystopian world where most jobs have disappeared - player piano is a piano that plays itself.

• People without jobs but well-provided for but with nothing meaningful to do will end up hating themselves

• The period of intense technological progress was also the period of intense deprivation in UK (The Dickensian world)

• Fired workers without a job (lost to automation) are a liability to society

• Trickle-down theory of reaganomics - rich would benefit first and then the poor - is a rehash of hose and sparrow theory of the 1890s (If you feed the horse enough oats, some will pass through to the road for the sparrows)

• Avg. real wage in 2014 was no higher than in 1979 (unskilled workers actually fell). Labor share of revenues has continuous declined from 50% to about 10% - As a consequence wealth inequality has been rising along with income inequality

• avg. rise in wages between $100-200k/yr range pay is still moderate but above $500k its much higher - higher productive workers are working with others of their kin at superstar firms attracting both capital and workers

• Unlimited money creates too much inequality (as seen in major league soccer in Europe vs Major league baseball in US)

• Men spent 5.5 hours in a day in leisure activities (2017) and women 5. TV took up 2.8 hours in that

• Economics is too important to be left to economists

If the subject matter interests you, its an enjoyable read filled with a lot of stats from around the world, especially developing countries. There are a lot of ideas towards the end of the book exploring cash doles, UBI and some ideological bias but that’s only towards the very end and it isn’t much. 9/10

[Malhar_Manek]

@phreakv6 Sir, your notes and summaries of books are wonderfully detailed (firstly, thank you for that). My question is that with the level of detailed notes you write here, is there much incremental value to be derived from actually reading the book? As I am guessing that reading your notes on a book would be more or less equivalent to reading the book itself. In other words, if I have read your notes on say ‘Algorithms To Live By’, can I learn something new by reading the book?

[phreakv6]

@imnishantg - Sorry for the delay in replying. I dont read quickly, I am a very slow reader. I pause and ruminate a lot. Things I read occupy my thoughts after I put the book down (for days). I have no tools other than a highlighter. I spend a lot of time to come up with the notes from the highlights - I revisit all the highlights after a few weeks so its a nice way of recollecting all the thoughts I had while reading. I don’t consider it a waste of time. It helps solidify things. It might work differently for others but I am generally slow and don’t like re-reading books - spending few hours summarizing I feel is an investment to avoid future time re-reading.

@Malhar_Manek - Thank you. I think you should still read the book if you like the notes. You may get the information in short but there’s no way that’s going to stick. People think they are learning from twitter or such sources where there are short summaries of things. Those are good to pique interest but for it to stick and develop, you must read (preferably from a real book and not electronic source but that might be my bias - the weight, fragrance, feel, color of pulp adds some sort of markers for easy retrieval of knowledge - its just what works for me so don’t go by it).

[sagar_amula]

There is no short cut to hard work, I have been reading from last 2 years and the way I look at things has completely changed. Books capture the learnings of experts in 200 to 500 pages a lifetime of learning goes into it. Reducing it more to bullet point will not serve the purpose.

Summaries helps the one who is writing it or the ones who has already read the book. Reading is identifying the dots writing helps it connect it. So I suggest not only read the complete book but do jot down and make your own notes.

My books in kindle is full of markings and I pull it as notes and re read it many times, reminding me the core concepts of the entire book

[Vadivel]

Thanks to all avid readers of books of various interest and to their valuable notes, especially to @phreakv6 it creates/stimulates a person like me who likes to postpone reading for want of time, other pressing daily routine. I really doubt myself reading these many books but you guys are really great to take the learning to next level and sharing the Knowledge.

[phreakv6]

Physics and Philosophy, Werner Heisenberg, 1962 - Loved this book that exposits physics and philosophy (what used to be called natural science), from one of the leading theoretical physicists of the last century. We may have made a mistake in our materialistic view of the world, our apparent sense of rationality driven by subject-object boundaries that have taken place in the last 4 centuries since Newton. This has been a subject of intense interest to me last few years and this book was like having a conversation with a friend with similar interests. There are no pretensions, no hiding behind abstractions - just simple, plain speak from the scientist who formulated the uncertainty principle.

My notes -

• Strange ideas in relativity - time dilation and length contraction, curved spaces and black holes. There is no absolute universal time and no concept of simultaneity in the universe

• The deepest philosophical problem with theory of relativity is the possibility that the universe came into existence at a finite moment in the past and with it were born not just matter and energy but also space and time (Time may not stretch back to all eternity)

• Its easy to see what the theory predicts (quantum mechanics) but hard to understand what it “means”

• Heisenberg’s uncertainty principle - all physical quantities observed are subject to unpredictable fluctuations, their values are not precisely defined. Uncertainty in position x Uncertainty in momentum = Planck’s constant (So there’s a trade-off in precision when measuring one over the other). The particle simply does not posses simultaneously precise values of position and momentum (with respect to us, the observers - akin to ‘if a tree falls in a forest…’ problem)

• Uncertainty in physical processes (markets/thermodynamics) is due to missing information rather than a fundamental limitation as in quantum particles

• The popular model of atom with electrons circling the nucleus is badly misleading as its impossible to know precise trajectory of electron from point A to point B

• Two quantum systems initially identical may go on and do different things (all else remaining equal) - its still not complete anarchy as these different things can be defined by probabilities

• quantum mechanics is a statistical theory - definite predictions about ensembles but not of individual systems

• weather prediction is also statistical mechanics - but chance element is “inherent” in quantum systems, rather than our limited grasp of information of variables

• Einstein hoped that beneath the quantum chaos might lie a familiar deterministic dynamic (hence “god does not play dice”). Heisenberg and Bohr strongly opposed Einstein on this

• EPR paradox - A system of two particles that interact and fly apart that carry information of the other - by measuring one particle, it would be then possible to know either position of momentum of the other - speed of light prohibits such measurement as information cannot carry faster than “c”- heart of the conflict between Einstein’s classical worldview (dogmatic realism) and Heisenberg and Bohr’s uncertain one

• In classical world, our observations do not “create” reality - merely “uncovers” reality. According to Copenhagen interpretation of quantum mechanics, there’s no objective reality in the quantum world - nothing is well-defined. It is our observations that create the reality we perceive (An electron is not a “thing”, as a billiard ball may be)

• Bohr’s principle of complementarity - same system can display apparently contradictory properties - like electron behaving as both a wave and a particle - this ambiguity is not contradictory but is complementary faces of a single reality - its up to the experimenter to expose the aspect he so chooses to (position vs momentum, wave vs particle) - so observation/experiment is a crucial part of the observation - the transition from the possible to the actual happens in the act of observation

• Our language is limited by our real-world and limits our imagination. any attempt to explain what really happens in the quantum world is thus limited by our limits of imagination based on the real-world we observe (hence intuition doesn’t work!)

• Blackbody radiation, photoelectric effect, electromagnetic waves - were some of the earliest precursors that led to definition of quantum theory

• Asking the right question is frequently more than halfway to the solution of the problem (well stated is half solved)

• Quantum properties arise due to our deficiency in knowledge of the electron, than as an inherent property of the electron (same as in weather systems - epistemology vs ontology)

• Thales of Miletus in 6th Century BC thought Water was the fundamental material. Anaximander, pupil of Thales denied it could be water or any known substance. He taught the primary substance was infinite, eternal and ageless - Being and Becoming - the primary substance infinite and ageless was “Being” and it degenerates into various forms (“Becoming”) leading to endless struggles and returns back into that which is shapeless and characterless (Sort of Hindu philosophy, sort of pre-empted big bang)

• Throughout history we have had an obsession to find the fundamental particle - we thought it was water (Thales), then air (Anaximenes), then fire (Heraclitus), pluralism from monism (earth, water, air and fire) of Empedocles, an infinitely small seed from which everything was made of (Anaxigoras) - sort of precursor to atom, and so on

• Modern physics is closer to Heraclitus - replace “fire” with “energy” - that which makes all elementary particles, that which moves - causes all change in the world

• Plato - prisoners in a cave thought experiment - men bound in a cave looking in only one direction with fire behind them see objects behind them and themselves only as shadows on the wall

• Descartes - in “Discourse on method” - not believing senses, driven by doubt and thus thought - the famous “cogito ergo sum” - he thus made the triangle of “God-World-I” - separating and elevating God from the world - here on philosophy and natural science separated ‘res cogitans’ and ‘res extensa’ - me and my world - subject and object - cartesian division between self and the world - the world was then described by physics and chemistry and same applied to the mind led to concept of “free will” and that one can speak about the world without speaking about God or ourselves (God here in my opinion is nothing but probability) - we need to get back to “practical realism” of natural science from the “dogmatic realism” of modern physics concerning the material world.

• Locke, Berkeley, Hume - empiristic philosophy - All knowledge is ultimately founded in experience (Locke). If all knowledge is founded in experience, there’s no meaning to the statement that things really exist (Berkeley). Hume denied induction and causation which when taken seriously would destroy the basis of all empirical science

• If we attach symbols to phenomena, the symbols can then be combined by certain rules (as in math) and statements about the phenomena can be represented as combinations of symbols. Now, a combination of symbols that doesn’t comply with rules is not wrong but conveys no meaning (like complex numbers)

• Kant - ‘Critique of pure reason’ - Our knowledge is in part ‘a priori’ and not inferred inductivity from experience - he also distinguished analytic (what follows from logic) and synthetic propositions (empirical knowledge)

• It will never be possible by pure reason to arrive at some absolute truth

• Space and time belonged both to newtonian mechanics and theory of relativity - in the former they were independent and in the latter, they were connected by Lorentz transofmration

• Newtonian mechanics, theory of heat, electricity and magnetism, quantum theory - all arose as closed system of concepts with their own axioms - there may arise a 5th set in the future with theory of elementary particles

• While chemistry can be understood as a limiting case of physics, biology and living organisms display a degree of stability that cannot be explained by physical and chemical laws alone - its the stability of process or function, rather than stability of form (as in atoms/crystals)

• Some scientists were inclined to think psychology could be explained by physical and chemical phenomena - from quantum-theoretical standpoint, there’s no reason for such an assumption. Quantum theory does not allow a completely objective description of nature.

• Every energy carries some mass with it but it is miniscule and that’s why it was not observed before *(E = mc^2 for intuition). The binding energy of particles in the nucleus of an atom is what shows up in their masses (and in the atomic bomb)

• The concepts of space and time belong to our relation to nature, not to nature itself (Kant)

• Every act of observation is by its very nature, an irreversible process

• Matter in itself is not a reality but only a possibility (potentia) - Aristotle. The statue is potentially in the marble, before it is cut out by the sculptor

• Our natural language and concepts of classical physics can only apply to phenomena for which velocity of light can be considered infinite - a mathematical language is necessary for everything else in the universe. With expansion of scientific knowledge, our language also expands and with it the word’s applicability in a wider sense (Eg. energy, electricity, entropy are widely used in different contexts in natural language)

• Most fruitful developments frequently take place when two different lines of thought meet

It is always lovely when a scientist tries to unify disparate modes of thought, history, philosophy and is so open to ideas from different disciplines. This is like reading the diary of such a great scientist and if the topic of uncertainty/probability, subject-object boundaries, what makes up the fabric of reality and who we are, interests you, then this book is a must read. 11/10

[Malhar_Manek]

Few takeaways from the book:

• Sometimes, being illogical can be rewarding. Inverting a logical idea (‘Invert, Always Invert’) can often produce creative ideas. For example, if someone had to compete with Coca Cola, the logical idea would be to launch a drink which is better tasting and cheaper in price. Yet, one product did the exact opposite- horrible taste and very expensive- and still succeeded. That product is Red Bull.
• ‘Cannot be explained’ ≠ ‘Does not work/exist’
• Unlike physics or mathematics, in psychology, the opposite of a good idea can also be a good idea. For instance, Mr Benjamin Graham advocated the ‘cigar butt’ approach of buying not-necessarily-good businesses at cheap prices. The exact opposite- buying great quality businesses at slightly higher prices- also works well. Likewise with venture capital and stock markets; and technical analysis and fundamental analysis.
• Think laterally, not literally. This is extremely useful for analysing customer complaints- the customer can share his/her emotions (e.g., frustration), but he/she may not know the true reason for that emotion themselves! In such a case, taking their reason at face value can be harmful, as you may try to solve the wrong problem. For example, if you are running an online bookstore, a customer may complain that they are irritated because the book arrived late, whereas the true reason may be excessive packaging which took time to unpack? Similarly, passengers on a train may be frustrated, citing the reason as the train’s slow speed, while the true reason may be the absence of WiFi.
• We generally do not mind waiting for 10 minutes if we know we will have to wait for 10 minutes, but we get restless waiting for 5 minutes when we do not know how long we will have to wait. This may explain why several amusement parks display ‘expected waiting time’ on screens; this also explains why there are time countdowns for the red signal at traffic lights. This could also possibly be a hidden layer of test in the marshmallow test- it obviously checks the ability of the child to delay gratification (eat two marshmallows later instead of one marshmallow now), but it also checks the child’s patience. The child is told “I will be back soon”, but neither are they told how long they must wait, nor are they shown a screen with a time countdown.
• Psycho-logical solutions are an arbitrage between (low) cost and (high) effectiveness. For example, if you are afraid of robbers/thieves in your neighbourhood, the conventional high cost-high effectiveness idea would be to install a CCTV camera, or hire a watchman. The psycho-logical idea would be to display a large poster showing young children staring towards the viewer.
• Answering “three or four?” with “one” is not instinctive.
• In psychology, 100 people buying 1 unit each of a product ≠ 1 person buying 100 units of a product (although they optically look the same). This could explain why investors prefer banks with a ‘granular’ deposit base and loan book.
• When we have a larger number of options, we believe we can afford to be wrong and hence are willing to take larger risks. Consider the following: if I asked you to share your single-best stock idea, you would probably mention a large-cap blue chip. On the other hand, if I asked you for 10 stocks, you wouldn’t hesitate in including some small caps. This probably explains Mr Buffett’s ‘card with 20 punches’ rule (one for each investment you can make in a lifetime); with only 20 investments, you are less likely to take risks.
• We subconsciously apply a jack-of-all-trade heuristic, where any product (with the notable exception of the mobile phone) which offers multiple uses is treated with suspicion. This is also known as ‘goal dilution’.
• Signalling is a powerful mental model; it is a way of indicating/conveying delayed gratification. This can be done through broadly two ways- through effort (e.g., a student studying rigorously for a CA/CFA, to obtain his/her dream job) or through expense (e.g., Amazon’s no questions asked return policy). In the context of businesses, a company expensing out its R&D as a debit to the P&L is a classic example of signalling.
• Often, we decide our desired output, and alter the inputs so that they culminate in our chosen result. An excel DCF model is the first thing that comes to my mind when I hear this :). A more subtle example may be selective breeding.
• Products often have an ‘official’ purpose and a name-sake purpose. Consider this: is the purpose of a dishwasher to clean dirty dishes? Or to act as a place to hide them?
• While the medicinal placebo is well-known, there are hidden placebos all around us. Did you know: the door close button (that looks like ><) is non-functional in many lifts?
• To make a placebo effective, it must be expensive, weird (people wouldn’t believe Diet Coke is diet if it didn’t taste a bit bitter), and restricted (e.g. do not consume more than once a day).
• We are willing to pay a disproportionately high premium to eliminate even a small risk.
• A simple trick like adding the day of the week (e.g., Monday) alongside the best before date (e.g., 30th August 2021) can deliver amazing results. Similarly, consider a company making a square-shaped cereal; a change was made to the packaging, such that the square was now tilted to look like a diamond (although the shape remained same), and sales skyrocketed!

It is worth noting that the author is a working at an advertisement firm, and his ideas are wonderfully applicable to several aspects of business. The book also connects ideas from other fields, such as biology (e.g., why are bees attracted to flowers, and what implications does it have on business?) I would recommend readers to watch a Ted Talk given by the author (preferably before reading the book), here.

Those who liked ‘Thinking, Fast and Slow’, ‘Influence’, ‘The Art of Thinking Clearly’ or ‘How to Decide’ are likely to thoroughly enjoy this book.

11/10

[CA_Sujith_Kumar]

@imnishantg

you

Very Interesting Read Sir

[Deven]

Book: The Culture Code by Daniel Coyle
Culture word came from Latin word cultus which means care.

The book seeks answers of
Why do certain groups of people are highly successful?

Two + Two = Ten
It starts with spaghetti challenges – in which kinder garden kids won vs highly educative groups of MBA and Lawyers etc.

It attributes 3 skills as
A. Build Safety
B. Share vulnerability
C. Establish purpose

A. Build Safety:
The Good and bad apples: Single bad person creates a bad group outcome and similarly if that bad person is countered by a single positive person then the group thrives.

The billion-dollar day – google employee cracks ad code and that helped google to generate the right results.
The Christmas Truce – where event after event leads to peace between England & French vs Germans
How to build belonging – coach greets team even after a horrible loss.
How to design belonging – Fascinating example of Zappos founder Tony Hsieh – Successful team has more to do with desks (Belongings) than intelligence and experience. As ex Zeppos offer $ 2000 if a person leaves the company after training.
The call centre executive’s performance improved as they shared 15 minutes coffee break together.
McDonald’s CEO Fred Turner used to clean tables, trashes etc.
Avoid giving sandwich feedback: Positive-negative and positive. The successful group don’t mix negative and positive feedback.

B. Share vulnerability
Tell me what you want and I help you. Instead of fake confidence share your weakness and requirements with the team. They will assist. Combining skills leads to greater intelligence.

Create vulnerability loop – Create confession, discomfort and authenticity. Vulnerability tends to spark cooperation and trust.
Experiment to find ten large red balloons at secrete locations in the US. – MIT won the challenges via the co-operation method.

Super cooperations: Harold nights at UCB’s where actors are seen as supporting actors.
Story of Pink panther Jewel robbers – their coordination lead them to success on high-value robberies.
Dave Cooper: Navy seal trainer’s story of creating seal team.
Cooperation with individuals – Harry Nyquist – an engineer at bell labs. He is fatherly and draws people to thinking. Interested in other people and ask questions with their point of view.
Ideas for action: The leader must be vulnerable often. Use practice like
AAR: After Action Review – that helps navigate future problems
Brain Trusts: No formal authority. Let a group of giving frank and open reviews.
Red Teaming: Create team B to come with an alternate plan via thinking new ways

C. Establish purpose
Story of Johnson & Johnson – how management uses 1943’s credo documents created for the purpose of J&J.
Story of Harvard test where students IQ improves just faking and showing them genius to teachers.
Hooligans: How by not showing prepared police stopped football riots by English spectators
Surgeon: MICS Minimal Invasive Cardiac Surgery – second-best performed team is least experienced and most experienced team got 10 numbers out of 16 teams.
How to lead for proficiency: How Danny Meyer created a chain of successful restaurants – One of the most competitive businesses. If you ask Danny the best hamburger in NY – he will ask you a question – it has nothing to do with him, everything is to do with you and your tests. What kind of Hamburger you like to suggest to me something.

Slime moulds amoebae experiments: When food becomes scarce, amoebae begin to work together.
How to lead for creativity: Pixer story of Catmull.

The difference between Danny and Catmull – Danny needs people to know and feel exactly what to do whereas Catmull needs people to discover that for themselves. Difference between Skills of proficiency and Skills for creativity. Proficiency is about doing the task the same way and creative skills are empowering the group to build something new which never existed before.

Ideas for action:
Measure what really matters: Zeppos is not measuring the number of call centre executives who handle calls per hour. Co encourages call centre person to spend more time. Their record is 10 hours and 29 mins.

Focus on a single task and do it repetitively with more efficiency.

Note: You may not like it if you are not interested in behaviour psychology.

[Apurva_Dubey]

The Emperor of All Maladies: A Biography of Cancer (2010) by Siddharth Mukherjee

This book is a masterpiece – it can be read for its literary value, it can read to develop a good understanding of different forms of cancer, it can read to understand the massive progress made in curing cancer in the 20th century.

Dr. Mukherjee was born and brought and India. Later he did his BS and MD from Stanford and Harvard Medical School, respectively.

Below are my notes –

Breast cancer – surgical interventions and innovative drugs

• Breast cancer is the most common form of cancer. It’s also the oldest documented form of cancer. It’s first mention appears in a 4500 years’ old Egyptian hieroglyph. In 500 BC Persian Queen Atossa was first person to be treated with a rudimentary form of mastectomy.
• In mid-1800s surgery as a practice got a big boost because of to two innovations (1) discovery of modern anesthetic by a Boston dentist named William Morton (2) discovery of carbolic acid (phenol) as an antiseptic agent by Scottish surgeon Joseph Lister
• In 1890s William Halstead (aka father of modern surgery) devised a new surgical procedure called “radical mastectomy” – radical because it purportedly removed cancer from its “root” (these were days before the concept of metastasis was understood). This surgery was brutal and left patients terribly disfigured for life. From 1890s to 1960s “radical mastectomy” ruled the roost till it was challenged by some renegade surgeons – these surgeons contested that “radical mastectomy” is not more effective than a combination “simple mastectomy” and adjuvant (light) chemotherapy…and they were proven right.
• In late 1960s chemist at ICI (Imperial Chemical Industries) accidentally discovered a new drug later called Tamoxifen. It was found Tamoxifen was able to produce good level of remissions in women who are ER+ (Estrogen Receptor Positive). Tamoxifen became a blockbuster drug.
• In early 1990s Dennis Slamon discovered a new drug called trastuzumab – this was a targeted drug based on monoclonal anti-bodies. Trastuzumab (Herceptin being popular brand name) become a wonder drug for treating breast cancer – developing deep remissions but it worked on women who were HER-2 positive (Human EGF {epidermal growth factor} Receptor 2 positive) which is usually 20-30% of breast cancer patients.
• In mid-1990s researchers isolated two genes BRCA1 and BRCA2 that (if mutated) vastly increased the risk of breast cancer. BRCA1 mutation implies a 50-80% chance of breast cancer. Nowadays a diagnostic test is available to check for BRCA1/BRCA2 mutation. Sidebar: BRCA test is expensive – in India Medgenome seems to be the only ones doing it at 50K per test.

Leukemia

• First documented evidence of Leukemia was made by Scottish physician named John Bennett in 1854. Bennett believed that the condition was caused by “spontaneous suppuration of blood”
• German researcher Rudolf Virchow (Bennett’s contemporary) came across a similar case and called this condition weisses Blut (German for “white blood”) and later renamed it to more academic sounding Leukemia (leukos is Greek for white)
• Since days of Hippocrates (~300 BCE) through 1840s every disease was believed to be caused due to excess in one of the four body humors: blood, phlegm, yellow bile and black bile. Rudolf Virchow (also known as the father of modern pathology) challenged this idea and proposed the “cellular theory” of human biology with two fundamental tenets that (1) human body is made of cells (2) cells give birth to other cells. Later, Virchow proposed that cancer is caused due to pathological hyperplasia (uncontrolled growth of cells)

ALL (Acute Lymphoblastic Leukemia or childhood cancer) and birth of chemotherapy

• Inspiration for chemotherapy originated in cloth mills of Bombay where wages had been driven to such low levels by ruthless English traders that the mill workers (particularly women after childbirth) developed severe anemia. It was discovered that severe anemia was caused due to lack of folic acid which is a necessary chemical for cell division.
• Sidney Farber (father of chemotherapy) – a pathologist at Children’s Hospital – thought that if he could inject an anti-folate in the bloodstream of ALL patients then it could potentially reverse the effect of pathological cell division.
• Farber collaborated with Yella Subbarao to synthesize the first anti-folate –pteroylaspartic acid or PAA. Later Subbarao developed other advanced chemotherapeutic drugs – aminopterin and methotrexate --which are in wide use even today. Subbarao also isolated ATP (adenosine triphosphate) and yet denied a tenure at Harvard despite all his achievements.
• In 1947, two-year old Robert Sandler became the first patient to be treated with chemotherapy. He went into long enough remission to kindle hope in this new form of treatment.
• Mustard gas which was used as a chemical weapon in WW2 became another source of inspiration for chemo drugs. It was found that soldiers exposed to mustard gas were almost devoid of white blood cells.
• Between 1954 and 1964, Cancer Chemotherapy National Service Center (CCNSC) tested 82,700 synthetic chemicals, 115,000 fermentation products,
• and 17,200 plant derivatives with various chemicals to find an ideal drug.
• Other key chemo drugs that were discovered in later years were: vincristine, 6-mercaptopurine (6-MP), cis-platin
• Researchers working at NCI found that a combination of chemo drugs produced deeper remissions versus using a single drug. One of the first and most successful regimen for ALL was called VAMP as it consisted of: vincristine, amethopterin, mercaptopurine, and prednisone.
• Once chemo cocktail proved its efficacy on ALL, researchers started using it for other forms of cancer (esp. tumor-based cancers)

HDC/BMT (High Dose Chemotherapy + Bone Marrow Transplant)

• Late 1980s and early 1990s saw a boom in HDC/BMT. The idea here was to take out the bone marrow (and put it in the freezer) then do a very high dose chemo (almost 10x in dose compared to normal chemo) taking the patient to the brink of death and then put the bone marrow back in.
• There are two types of BMTs: (1) Allogeneic i.e., transplanting foreign bone marrow into a patient (2) Autologous i.e., using patient’s own bone marrow
• One of the reasons for popularity of HDC/BMT was a South African doctor named Werner Bezwoda – he quickly rose of fame in early 90s by publishing astonishingly good results. It was later found that he was fudging his results…which came as a big below to HDC/BMT.
• Nowadays HDC/BMT is done only in extreme cases…when there is no other option left

Hodgkin ’ s lymphoma (HL)

• It’s cancer of lymph nodes. Lymph nodes produce a special type of white blood cells called lymphocytes which form the basis of our immune system.
• Hodgkin’s lymphoma metastasizes (spreads) in a very predictable fashion which makes it very treatable. Along with ALL, HL became one of the highly treatable forms of cancer.

CML (Chronic Myelogenous Leukemia) and birth of targeted cancer drugs

• CML used to be a death sentence before 2000 but with advent of Novartis’ Gleevec (Imatinib) it has become a manageable chronic condition like diabetes or hypertension.
• Gleevec was the first drug that had almost 100% specificity i.e. it targeted and killed cancerous cells but left normal cells untouched (as opposed to chemo drugs which kill all cells indiscriminately)
• Development of Gleevec required a rigorous understanding of the biology of cancer cells – researchers were able to locate the specific oncogene that would go berserk in case of CML and then formulated a targeted drug that would switch “off” this specific gene. The “ -nib ” in Imatinib is for “inhibitor” – Imatinib inhibits an enzyme called tyrosine kinase (TK).
• A kinase is an enzyme that catalyzes the transfer of phosphate groups from high-energy, phosphate-donating molecules to specific substrates. This process is known as phosphorylation. The human genome has about five hundred kinases. Every kinase attaches phosphate tags to a unique set of proteins in the cell. Kinases thus act as molecular master-switches in cells—turning “on” some pathways and turning “off” others—thus providing the cell a coordinated set of internal signals to grow, shrink, move, stop, or die. Recognizing the pivotal role of kinases in cellular physiology was key to developing targeted cancer drugs.
• After Gleevec lot of targeted drugs have been developed. You can find the latest list here: Targeted Cancer Therapies Fact Sheet - NCI
• Initially Novartis didn’t want to fund the clinical trial for Gleevec because they thought they will burn through $200 million and not get anything but eventually on insistence of researchers they agreed to do just Phase 1 trial. The Phase 1 results were magical and rest is history.

There is a lot more material in this book esp. on history of carcinogenesis – it was a bit technical (parts of which I could not follow completely) so I’ve left out those notes.

[phreakv6]

How to change your mind, Michael Pollan, 2018 - There is so much misinformation on the subject of psychedelics and the word itself has a very strong negative connotation attached to it, thanks to the way things went down in the 60s.

Author covers a lot in this book in terms of history of psychedelics from the use of psilocybin mushrooms ritually for thousands of years, the discovery of LSD by Hoffman in 1938 (Sandoz), the research that happened in the 50s and 60s and the several personalities involved in it before it got completely derailed by a few megalomaniacs like Timothy Leary, how we may have thrown the baby with the bathwater and what has changed in the last 15 odd years and the cautiously optimistic moves made to further the usage of psychedelics as medicine to treat depression, addiction, schizophrenia, PTSD, terminal illness and palliative care and also in micro-doses to improve creativity and change perspectives (like observing earth as a pale blue dot changes our perspective). This time tremendous care appears to have been taken to minimize associations with recreational use.

The most interesting parts of the book were the author’s own trips under holotropic breathwork, LSD, psilocybin mushrooms and 5-MeO-DMT (Toad) and his evocative descriptions of the same. Most appear to offer an out-of-body experience, along with ego-disintegration, suppression of the brain’s default mode network, flooding of the brain with triptamines that bind with serotonin receptors where the unconscious brain is fired up and new neurological pathways established that make us see sound as colors and so on. These trips also appears to reset brain’s neuroplasticity, or the habit formation in the brain albeit temporarily, hence being very useful to treat addiction.

Some useful bits of knowledge I found in the book

• Set and Setting are very important concepts in a psychedelic journey i.e one’s mindset and environment because what manifests in the trip is a byproduct of these

• Our brain takes a lot of shortcuts in prediction, so a leaf appears as a leaf without us taking in all the details of the leaf. psychedelics make people rediscover familiar objects because brain’s jumping-to-conclusion pattern-recognition part is suspended and we see the world as babies do (babies apparently are tripping all the time)

• Mystical experience - dissolution of one’s ego and the subsequent feeling of oneness with nature and universe

• A large number of participants in psychedelic studies (2/3rds) put their LSD trips as the most profound, meaningful experiences in their life along with the birth of their child or death of their parent (There’s a lot of self-selection bias in these studies and also the important of set/setting makes it hard to do controlled trials and a placebo vs psychedelic offers poor control)

• Psychedelics are far more frightening to people than they are dangerous

• We suspend habits when in unfamiliar territory, say when visiting a foreign country - same happens in a psychedelic trip as the default mode network is suspended and pattern recognition switches off. Hence the metaphor of “trip”

• Aldous Huxley may have single-handedly influenced how all human-beings trip with his descriptive book “doors of perception” of his trip with mescaline. In a way this information in the unconscious brain might be influencing the “Set”

• Consciousness is primary to the universe and it precedes it - (some cultures like our own believes this). Psychedelics cast a doubt on the certainty that consciousness arises from grey matter - while it is possible to see the neuroscience aspect of it, it is hard to explain away the experience from a philosophical standpoint

• Science has little tolerance for testimony of an individual. In the case of psychedelics, the dissolution of subject-object duality makes it hard to even consider this testimony (where there’s no individual)

• People find it hard to explain their trips as they do not have vocabulary for it - like a caveman on times square may have struggled to explain it back

• Negative capability (Keats) - ability to exist amid uncertainties, doubts, mysteries without reaching for absolutes, whether those of science of spirituality

• Paul Stamets has done astounding work with Fungi (watch fantastic fungi on netflix if lazy) - fungi are the earth’s massive recyclers of organic matter, the mycelium connects the entire forest and acts as a neural network for the forest, allowing trees to communicate and allocate resources within the ecosystem. Evolutionarily, what sense does it make for a mushroom to change the mind of its eater?

• For some people, the privilege of having a spiritual trip appears to inflate the ego, creating a messiah complex (they want to be gurus). Ironic, since the trips are themselves ego-destroying

• “I” now turned into a sheaf of little papers, no bigger than Post-its, and they were being scattered to the wind. But the “I” taking in this seeming catastrophe had no desire to chase after the slips and pile my old self back together. But who was this “I” taking in this scene of my own dissolution? It wasn’t me exactly. Here the limits of language become a problem - to explain I would need a new first-person pronoun. It was different from my usual first-person. It seemed unbounded from any body though I now had access to its (the cosmic consciousness as people call it) perspective (Author’s description of his trip, paraphrased)

• What had been a thinking, feeling, perceiving subject in the here and now was an object out there, I was paint! (Another)

• Can a recognition of one’s shallowness qualify as profound insight (loved these lines)

• What is it like to be a bat? This paper was referred to in Philosophy and Physice by Heisenberg and also here. Strange coincidence. https://warwick.ac.uk/fac/cross_fac/iatl/study/ugmodules/humananimalstudies/lectures/32/nagel_bat.pdf

• DMN consumes a disproportionate amount of brain’s energy - for self-reflection, metacognition, mental time travel (wandering mind), mental construction (such as self or ego), moral reasoning, attributing mental states to others (thinking from others’ perspective) - this is most evolved and more recent part of the brain in the cortex, it suppresses the older parts (limbic brain) responsible for memory and emotion and functions as a orchestra conductor holding the system together - without DMN’s ability to filter out most information and take short-cuts, it would be impossible for us to survive

• When ego vanishes, either by meditation or under psychedics, fMRI scans show decreased activity and oxygen consumption in the brain’s DMN (default mode network). Subjects don’t know/can’t tell where they end and where their environment begins. The entire neuroscience chapter is mind-bending on the topic of science/philosophy.

• Consciousness survives the disappearance of the self, strange as it may seem

• What we see and consider as reality is just a seamless illusion woven from our priors (data in our senses) and the models in our memories, a kind of controlled hallucination (hence reality is not the same for everyone even within the same species, let alone another species like a bat)

• An infant’s brain is one of high-entropy. The DMN forms into adolescence and our brains become low-entropy maximisers with priors. It updates priors with reluctance as the brain ages and patterns of thought are fixed (wisdom).

• Posterior Cingulate Cortex (PCC) part of DMN is the part of brain involved in self-referential processing (origin of self/ego).

• Spotlight consciousness vs lantern consciousness - adults have the former and children the latter - the latter is much wider, allowing child to take in information from wider range of sources. High-temp vs Low-temp search - former is creative, varied, connects several dots yielding more magical answers but requires more effort - children do this effortlessly while adults are mostly dialing it in with their priors and low-temp searches. (Einstein around 1905 vs later in life). Nonobvious solutions arise from high-temp searches (Children excel at this)

The author may have a pro-psychedelic bias and approaches the subject from that standpoint but the book is not sloppy in its research so is absolutely worth reading if you, like me have no clue on this subject. 10/10

[SDutta]

Contrarian Investing in India

The book was an enjoyable read. Takes examples from the current stock market conditions and puts across a valid set of ideas.

Key Takeaways:

Moat/Qualitative Investing is more hype than substance

The book highlights how Buffett’s best returns were made during his days as a small fund manager where he hardly looked at quality/moats. Most of us cannot really identify moats, let alone the strength and maturity stage of the moat. Hence, buying quality companies at a fair price might not be the best strategy. Even high ROCE comapnies can become “Quality Traps” if bought at high prices or if they offer low growth prospects.

Valuations of Tech Platforms and PSUs

According to the book, PSUs are undervalued because they’re commodity businesses in a down cycle, and not because they’re owned by the government. The author also says that Coal India is undervalued because the market is down, rather tahnsimoly because of its bloated structure. And that coal is here to stay.
The book also says that tech platforms’ growth is based on heavy expenditure and that they don’t have any of the qualities that make a platform business attractive.

Narratives/rationalisations follow Price Movements:

The media and investors keep rationalising the markets movements even if the movements don’t have any real fundamental base. The author even recommends visiting the Valuepickr forum to understand how narratives/rationalisations follow stock price price, and how anecdotal evidence is used to fit narratives.

Overall, it’s a book worth reading at least once in today’s markets.

[Deven]

Book Misbehaving – The making of behavioural economics
By Richard H Thaler

Misbehaving is everywhere. E.g. Author’s (Professor) students were not happy to get average of 72 marks (From 100) so he designed his marks out of 137. Students got 96 (Which is 70% less than 72%) though they were happy.
Why 137? It makes it difficult to calculate %.

Endowment effects: People valued things that were already part of their endowment more highly than things that could be part of their endowment, that were available but not yet owned.

Opportunity cost is the cost of the same activity that you give up by doing it.
Like Hiking, vs stay home and watch a football match. All economic decisions are made through the lens of opportunity cost.

Hindsight bias: finding is that, after the fact, we think that we always knew the outcome was likely.

Heuristic: is a fancy word for a rule of thumb. Humans have limited power and time hence we form rules of thumb – heuristics – to make quick judgments.

Just noticeable difference: Adults gain 50 gm is not noticeable however important herbs is easily noticeable from 50 to 100 gm. E.g. most will travel 500 mts more if you get one thigh for $ 10 cheaper than $ 45; however same people won’t travel the same distance for $ 495 to get at $ 485.

Loss aversion: Losses hurt about twice as much as gains make you feel good.

Bargains: We expect good looking resorts to charge more for says beer. If your friend purchases beer from the store for $ 4 and says to you that he brought it from resorts @ $ 5, you will be happy as you expected the resort price maybe $ 7.

Many retailers failed “everyday low price” vs coupons as a consumer is missing out on transaction utility. There is the pleasure in paying $ 9.99 instead of $ 10.

Sunk Cost: The amount of money that can’t be retrieved. Not going or going to the gym as you have taken the membership.

Breakeven efforts: MF portfolio managers take more risks in the last qtr if they found that they have underperformed index – to breakeven.

Discounting: That starts out high and then declines hyperbolic (suddenly).

Wages and salaries are more sticky. They don’t fall much even if we are hit with the recession. Hence it was easy to lay off people instead of reducing their salaries.

Our minds don’t think much about inflation. Like with zero inflation if co decreases salary by 7% its seems unfair however with 12% inflation if the company increase salary by 5% it seems fair.

Confirmation biases: People has a natural tendency to search for confirming rather than disconfirming evidence.

Great example: a group of 24 managers of company and CEO.
Situation: opportunity to make a profit of 2 Million and loss of 1 Million is 50%-50%.
Only 3 agreed for such opportunity whereas CEO said he will take all as simple maths will earn company 11 Million. As per the manager if they fail there is a great chance of they got fired from the company. Hence such offers can’t be taken in 1 or 2 but should be taken in great number. If so chances of final outcome are good. Like the flip of a coin if done 100 times the outcome will be as expected vs done once.

Like beauty contest (same as the stock market) there is an advertisement to win prices of choosing 6 faces out of 100. One should choose faces which majority will like not as per individuals preference.

Does the Stock market overreact or it’s efficient?
The stock market works as one party thinks they are smarter than the other. Seller thinks taking adv by selling and the buyer thinks same for seller.
Many times market is not efficient, author gives an example of the spin of palm plus from 3com. Though share prices are never negative (as a shareholder has limited liability) 3com which was having 1.5 times the share of plam plus; 3com Mkt cap was lower than plam plus. Dupont holds a large amount of GM shares, though its market cap was lower than shares its hold of GM.

Ratings: 8.5 vs 10 for think fast and slow.

[Surender]

For anyone aspiring for multi-baggers (100x) , the book provides a thinking framework, which stresses to focus on earning power & patience to hold till the trend of rising earnings is intact .

Trend of the fundamental indicators - buildup of BVPS, ROE, ROIC, sales per unit of invested capital, sales and NPM- spanning over last 5~10 yrs. shall be used to identify the right stock. Technical analysis can be leveraged to gauge the psychology of market participants & relative strength of the stock’s earning/price/PE w.r.t a benchmark such as ‘say Nifty 50’.

The company should be small, unknown, make essential product/service - saves time/money or provides peace of mind and has no growth ceiling in the near future, and excellent management - visionary, progressive, research minded. If found, one must have the vision to see the future, courage to buy, and patience to hold. Buying such a stock at low PE is very important to benefit from the multiplier effect of both rising PE and earnings while it ages. Although, author provides multiple examples from US equity to substantiate the approach, SRF Ltd. is an example that I looked at in the Indian context. From FY-12 till now, stock is up 60x. However, earnings increased by only 4x whereas PE increased by 15x.

Before following this approach, one must weed out companies whose management is driven by one man, lacks integrity, and shows symptoms of egonomics. Else, the stock will never be cheap at any price.

Overall, a practical book and must read for anyone who suffers from the lack of inertia and wants to develop the habit of mindful actions in matters of stocks.

P.S: In nutshell, valuations in short run can go out of earth’s atmosphere for the companies that address big opportunity-size and run by honest & motivated management!!!

[Apurva_Dubey]

The Code Breaker: Jennifer Doudna, Gene Editing and the Future of the Human Race (2021) by Walter Isaacson

In 2018 the world’s first designer babies (twin girls) were born in China. The DNA of these babies were edited in such a way that they would never contract HIV. He Jiankui – the scientist behind this – was first hailed as a national hero but was later imprisoned by Chinese authorities after backlash from international community for violating (loosely defined) gene-editing norms.

A tsunami of a ground-breaking technology is about to hit the shores of humanity – this is one of the greatest discoveries of all time (in my view). It gives us humans the ability to rewrite our own source code (DNA) and that of other living things (anything that has DNA). It has the potential to make humans disease free, tackle climate change and solve world hunger among other things.

This wonderful book by Walter Isaacson is about CRISPR and one of its chief architects – Jennifer Doudna. Doudna – a biochemist and a world-renowned expert in RNA – received the 2020 Nobel Prize (along with her collaborator Emmanuelle Charpentier) in chemistry for their work on CRISPR. Though Doudna and Charpentier did not discover CRISPR but they figured out how it really works (the biochemistry behind it)…which empowered other researchers to turn it into a ground-breaking technology it has become.

To quote Isaacson:

“The invention of CRISPR and the plague of COVID will hasten our transition to the third great revolution of modern times. These revolutions arose from the discovery, beginning just over a century ago, of the three fundamental kernels of our existence: the atom, the bit, and the gene.”

I would highly recommend reading this book to peek into the future of our species.

Below are notes from the book (most of these are quoted verbatim from the book – I am happy to remove this post if the admins feel this infringes copyright in any way):

CRISPR 101

• CRISPR was discovered (and named) by a Spanish molecular biologist Francisco Mojica. CRISPR expands to “clustered regularly interspaced short palindromic repeats.”
• The longest-running and most vicious war on this planet is that between bacteria and the viruses, known as “bacteriophages”. Phages are the largest category of virus in nature. While humans struggle to fight off novel strains of viruses, however bacteria have been doing this for about three billion years. Bacteria have developed elaborate methods of defending against viruses.
• CRISPR is essentially bacteria’s immune system that gets adapted whenever they get attacked by a new type of virus. In their DNA, bacteria develop clustered repeated sequences, known as CRISPRs, that can remember and then destroy viruses that attack them. In other words, it’s an immune system that can adapt itself to fight each new wave of viruses.
• There are three main components of the CRISPR system (1) CAS enzymes – the “scissor” (2) crRNA – the guide (3) tracrRNA – for binding
• CAS (CRISPR-associated sequences) enzymes: By 2008, scientists had discovered a handful of enzymes produced by genes that are adjacent to the CRISPR sequences in a bacteria’s DNA. These CRISPR-associated (Cas) enzymes enable cutting and pasting of new memories of viruses that attack the bacteria.
• crRNA: CAS also create short segments of RNA, known as CRISPR RNA (crRNA), that can guide a scissors-like enzyme to a dangerous virus and cut up its genetic material. This crRNA guides the Cas enzymes to attack that virus when it tries to invade again. crRNA and Cas enzyme are the core of the CRISPR system: a small snippet of RNA that acts as a guide and an enzyme that acts as scissors. The notation system for these enzymes was still in flux in 2009, largely because they were being discovered in different labs. Eventually they were standardized into names such as Cas1, Cas9, Cas12, and Cas13.
• tracrRNA : Performs two important tasks. First, it facilitates the making of the crRNA. Then it serves as a handle to latch on to the invading virus so that the crRNA can target the right spot for the Cas9 enzyme to chop.
• The crRNA guide can be modified to target any DNA sequence you might wish to cut. It is programmable and can be used as a gene editing tool.

CRISPR for gene editing

• Harvard professor Jack Szostak discovered in the 1980s one of the keys to editing a gene: causing a break in both strands of the DNA double helix, known as a double-strand break. When this happens, neither strand can serve as a template to repair the other. So the genome repairs itself in one of two ways. The first is called “nonhomologous end-joining. In such cases, the DNA is repaired by simply stitching two ends together without trying to find a matching sequence. This can be a sloppy process resulting in unwanted inserts and deletions of genetic material. A more precise process, “homology-directed repair,” occurs when the cut DNA finds a suitable replacement template nearby. The cell will usually copy and insert the available homologous sequence where the double-strand breaks occurred.
• The invention of gene editing required two steps. First, researchers had to find the right enzyme that could cut a double-strand break in DNA. Then they had to find a guide that would navigate the enzyme to the precise target in the cell’s DNA where they wanted to make the cut.
• The enzymes that can cut DNA or RNA are called “nucleases.” In order to build a system for gene editing, researchers needed a nuclease that could be instructed to cut any sequence that the researchers chose to target. By 2000, they had found a tool to do this. The FokI enzyme, which is found in some soil and pond bacteria, has two domains: one that serves as scissors that can cut DNA and another that serves as a guide telling it where to go. These domains can be separated, and the first can be reprogrammed to go anywhere the researchers want.
• Researchers observed that if the CRISPR system was aimed at the DNA of viruses, then it could possibly be turned into a gene-editing tool. That seminal discovery sparked a new level of interest in CRISPR around the world. It led to the idea that CRISPR could be fundamentally transformative — if it could target and cut DNA, it would allow you to fix the cause of a genetic problem.
• CRISPR isn’t the first gene editing tech. Before CRISPR researchers were able to devise proteins that could serve as a guide to get the cutting domain to a targeted DNA sequence. One system, zinc-finger nucleases (ZFNs), came from fusing the cutting domain with a protein that has little fingers shaped by the presence of a zinc ion, which allow it to grasp on to a specified DNA sequence. A similar but even more reliable method, known as TALENs (transcription activator–like effector nucleases), came from fusing the cutting domain with a protein that could guide it to longer DNA sequences.
• Just when TALENs were being perfected, CRISPR came along. It was somewhat similar: it had a cutting enzyme, which was Cas9, and a guide that led the enzyme to cut a targeted spot on a DNA strand. But in the CRISPR system, the guide was not a protein but a snippet of RNA. This had a big advantage. With ZFNs and TALENs, you had to construct a new protein guide every time you wanted to target a different genetic sequence to cut; it was difficult and time consuming. But with CRISPR you merely had to fiddle with the genetic sequence of the RNA guide.

CRIPR Cures : there are some diseases that are caused by simple (single gene) mutation and can be easily through gene editing.

• Sickle cell anemia : In 2020, Victoria Gray became the first person to be treated with CRISPR based gene editing. Right now, the cost for this treatment is upward of $1 million
  • 1st Patients To Get CRISPR Gene-Editing Treatment Continue To Thrive : Shots - Health News : NPR
• AIDs : In 2018 He Jiankui used CRISPR to edit embryos and remove a gene called CCR5 that produces a receptor for HIV (the virus that causes AIDS). It led to the birth of twin girls, the world’s first “designer babies”.
• Cancer : China has been the pioneer in this field, and it is two or three years ahead of the United States in devising treatments and getting them into clinical trials. The first person to be treated was a lung-cancer patient in Chengdu. In October 2016, a team removed from the patient’s blood some of his T-cells, which are the white blood cells that help fight off diseases and confer immunity. The doctors then used CRISPR-Cas9 to disable a gene that produces a protein, known as PD-1, which stops the cell’s immune response. Cancer cells sometimes trigger the PD-1 response, thus protecting themselves from the immune system. By using CRISPR to edit the gene, the patient’s T-cells become more effective in killing the cancer cells. Within a year, China had seven clinical trials using this technique. Although the patients were not cured, the trials showed that the technique was safe. The findings represent an important advance in the therapeutic application of gene editing.
• Congenital blindness: Leber congenital amaurosis is a common cause of childhood blindness. Those with the condition have a mutation in the gene that makes light-receptor cells in their eye. It causes a critical protein to be shortened, so that the light that hits the cells is not converted into nerve signals. The first use of the treatment occurred in March 2020. In the hour-long procedure, doctors used a tiny hair-width tube to inject three drops of fluid containing CRISPR-Cas9 into the lining that contains light-sensing cells directly beneath the retina of the patient’s eyes. A tailored virus was used as the delivery vehicle to transport the CRISPR-Cas9 into the targeted cells. If the cells are edited as planned, the fix will be permanent, because unlike blood cells, the cells of the eye do not divide and replenish themselves.
• Coming soon
  • Work is also underway on some more ambitious uses of CRISPR gene editing that could make us less vulnerable to pandemics, cancers, Alzheimer’s, and other diseases. For example, a gene known as P53 encodes for a protein that suppresses the growth of cancerous tumors. It helps the body respond to damaged DNA and prevents cancerous cells from dividing. Humans tend to have one copy of this gene, and cancers proliferate if something goes wrong with it.
  • Likewise, the gene APOE4 raises the risk of the devastating disease of Alzheimer’s. Researchers are looking for ways to convert it into a benign version of the gene.
  • Another gene, PCSK9, encodes for an enzyme that facilitates the creation of LDL, the “bad” cholesterol. Some people have a mutated copy of the gene that leads to very low levels of this cholesterol, which results in an 88 percent reduction in risk for coronary heart disease.
  • At the beginning of 2020, there were two dozen clinical trials for various uses of CRISPR-Cas9 in the pipeline. They included potential treatments for angioedema (a hereditary disease that causes severe swelling), acute myeloid leukemia, super-high cholesterol, and male pattern baldness

CRISPR for genetic enhancements:

• The MSTN gene produces a protein that curtails the growth of muscles when they reach a normal level. Suppressing the gene takes off the brakes. Researchers have already done this to produce “mighty mice” and cattle with “double muscling.”
• R allele of the ACTN3 gene produces a protein that builds fast-twitch muscle fibers, and it is also associated with improving strength and recovery from muscle injury.
• A condition called IMAGe syndrome severely curtails stature – it is caused by a mutation in the CDKN1C gene. Editing CDKN1C can increase height of a person.
• A single gene, SLC24A5, has a major influence on determining skin color.
• Memory may be the first mental improvement we will be able to engineer. It has already been improved in mice, such as by enhancing the genes for NMDA receptors in nerve cells. In humans, enhancing those genes could help prevent memory loss in old age, but it could also enhance memory in younger people as well.
• DARPA already has a project going, in conjunction with Doudna’s lab, to study how to create genetically enhanced soldiers.

Ethical/moral issues around gene editing

• There are two type of cells in the human body (1) Germline which are sperm cells, egg cells and early-stage embryo (2) all other cells are called Somatic cells. If gene edit is made in the germline then future generations will carry those changes however somatic cell changes will not be passed on to the offspring.
• Somatic editing can be used on certain types of cells, such as those of the blood, muscles, and eyes. But it is expensive, doesn’t work on all cells, and may not be permanent. Germline edits could make a fix in all cells in the body. Thus, it holds a lot more promise, and a lot more peril.
• Scientists have been careful to not call for a moratorium on germline editing because it can potentially stymie the progress in gene editing space.
• But a heated debate is on with respect to ethical and moral issues around gene editing.

CRISPR for diagnostic testing

• Feng Zhang and his colleagues at the Broad Institute were able to create a detection tool in April 2017, which they named SHERLOCK {specific high sensitivity enzymatic reporter unlocking}. They showed that could detect specific strains of Zika and Dengue viruses.
• The beauty of CRISPR baes diagnostic testing is that once you have the platform, then it’s just a matter of reconfiguring your chemistry to detect a different virus. It can be used for the next pandemic or any virus. It can also be used against any bacteria or anything that has a genetic sequence, even cancer.
• COVID testing: The CRISPR-based tests are cheaper, faster and more accurate than conventional PCR tests. They also have an advantage over antigen tests, such as the one developed by Abbott Labs that was approved in August 2020. The CRISPR-based tests can detect the presence of the RNA of a virus as soon as a person has been infected. But the antigen tests, which detect the presence of proteins that exist on the surface of the virus, are most accurate only after a patient has become highly infectious to others.
• Mammoth Biosciences unveiled their concept for a CRISPR-based diagnostic device in May 2020 that can be used for testing Corona virus. They announced a partnership with GlaxoSmithKline to develop this further.

Corona virus and CRISPR based genetic vaccines

• Traditional vaccine (including mRNA vaccines) work by activating body’s immune system. Body’s immune system is complex and a bit erratic: in some cases, either the immune system doesn’t respond and in other cases there is an extreme and fatal response.
• A CRISPR-based vaccine will not work through the immune system rather it will directly find and destroy the pathogen and therefore be more reliable and effective.
• A UC Berkeley based group has created a system called PAC-MAN {prophylactic antiviral CRISPR in human cells}. It uses Cas 13 enzyme to target the coronavirus in human lung cells. In mid-Feb (2021), that PAC-MAN team showed (in a lab setting) that their method can reduce the coronavirus load by 90 percent. PAC-MAN is a promising strategy to combat not only coronaviruses, including that causing COVID-19, but also a broad range of other viruses.
• A difficult part of the CRISPR vaccine development is creating the delivery mechanism into the cell. Moderna had been working for ten years to perfect lipid nanoparticles, the tiny synthetic capsules that can carry molecules into a human cell. This gave it one advantage over BioNTech/Pfizer: its particles were more stable and did not have to be stored at extremely low temperatures. Moderna is also using this technology to deliver CRISPR into human cells.
• Researchers believe that CRISPR-based vaccines can be deployed in the next few years. Once the delivery mechanisms are worked out, CRISPR-based systems such as PAC-MAN will be able to treat and protect people without having to activate the body’s own immune system, which can be quirky and delicate. They can also be programmed to target essential sequences in the virus’s genetic code so they cannot be easily evaded by the virus mutating. And they are simple to reprogram when a new virus emerges.

CRISPR start-ups:

• Mammoth Biosciences: started by Doudna and her colleagues, focused on using CRISPR for clinical diagnostics
• Caribou Biosciences: started by Doudna and her colleagues, focused on finding industrial applications of CRISPR
• Editas Medicine: started by Feng Zhang (Broad Institute), focused on targeting point mutations in serious genetics disorders
• There are many more CRISPR start-ups (doing very interesting work) that you can read about here**: Synthego | Full Stack Genome Engineering

Other notes from the book:

• Contrary to popular opinion Watson and Crick did not discover DNA – they discovered the structure of the DNA. DNA itself was discovered by Avery Oswald. Nobel committee agrees that Oswald not getting the Nobel prize was one of their biggest mistakes.
• Linus Pauling rocked the scientific world, and paved the way for his first Nobel Prize, by figuring out the structure of proteins using a combination of X-ray crystallography, his understanding of the quantum mechanics of chemical. He was very close to figuring out the structure of DNA however Watson and Crick beat him in that race. Pauling’s son was working in Cavendish lab with Watson and Crick and they are able to extract some useful information from him about what wasn’t working for Pauling so they could avoid those lines of investigation.
• There are seven types of proteins: antibodies, contractile proteins, enzymes, hormonal proteins, structural proteins, storage proteins, and transport proteins. The most fascinating type of proteins are enzymes. They serve as catalysts. They spark and accelerate and modulate the chemical reactions in all living things. Almost every action that takes place in a cell needs to be catalyzed by an enzyme.
• Enzymes are a type of protein. Their main function is to act as a catalyst that sparks chemical reactions in the cells of living organisms, from bacteria to humans. There are more than five thousand biochemical reactions that are catalyzed by enzymes. These include breaking down starches and proteins in the digestive system, causing muscles to contract, sending signals between cells, regulating metabolism etc.
• Scientists initially assumed that genes are carried by proteins. After all, proteins do most of the important tasks in organisms. They eventually figured out, however, that it is another common substance in living cells, nucleic acids, that are the workhorses of heredity. These molecules are composed of a sugar, phosphates, and four substances called bases that are strung together in chains. They come in two varieties: ribonucleic acid (RNA) and a similar molecule that lacks one oxygen atom and thus is called deoxyribonucleic acid (DNA). From an evolutionary perspective, both the simplest coronavirus and the most complex human are essentially protein-wrapped packages that contain and seek to replicate the genetic material encoded by their nucleic acids.
• Francis Crick, five years after co-discovering the structure of DNA, came up with a name for this process of genetic information moving from DNA to RNA to the building of proteins. He dubbed it the “central dogma” of biology. Ribozymes: One of the first tweaks to the central dogma came when Thomas Cech and Sidney Altman independently discovered that proteins were not the only molecules in the cell that could be enzymes. In work done in the early 1980s that would win them the Nobel Prize, they made the surprising discovery that some forms of RNA could likewise be enzymes. Specifically, they found that some RNA molecules can split themselves by sparking a chemical reaction. They dubbed these catalytic RNAs “ribozymes,” a word conjured up by combining “ribonucleic acid” with “enzyme.”
• Olympic champion skier Eero Mäntyranta initially accused of doping, he was found to have a rare gene mutation that increased his number of red blood cells by more than 25 percent, which naturally improved his stamina and ability to use oxygen.
• There are two hotspots of CRISPR research right now: Institute of Innovative Genomics at UC Berkeley led by Doudna and Broad Institute of MIT and Harvard led by Eric Lander and Feng Zhang. Doudna and Zhang are bitter rivals and have found many patent battles related to CRISPR.
• Genetic engineering began in 1972 when Professor Paul Berg of Stanford discovered a way to take a bit of the DNA of a virus found in monkeys and splice it to the DNA of a totally different virus. He had manufactured what he dubbed “recombinant DNA.” Herbert Boyer and Stanley Cohen discovered ways to make these artificial genes more efficiently and then clone millions of copies of them. Later Boyer founded Genentech – arguably the most successful biotech company.
• The big challenge facing a DNA vaccine is delivery. It’s very difficult to get the little ring of engineered DNA into the nucleus of the cell. Some of the developers of DNA vaccines, including Inovio, tried to facilitate the delivery into human cells through a method called electroporation, which delivers electrical shock pulses to the patient at the site of the injection. That opens pores in the cell membranes and allows the DNA to get in. The electric pulse guns have lots of tiny needles and are unnerving to behold. It’s not hard to see why this technique is unpopular, especially with those on the receiving end.
• RNA vaccines deliver their payloads inside tiny oily capsules, known as lipid nanoparticles, that are injected by a long syringe into the muscles of the upper arm. An RNA vaccine has certain advantages over a DNA vaccine. Most notably, the RNA does not need to get into the nucleus of the cell, where DNA is headquartered. The RNA does its work in the outer region of cells, the cytoplasm, which is where proteins are constructed. So an RNA vaccine simply needs to deliver its payload into this outer region.
• Danisco, a Danish food ingredient company that makes starter cultures, which initiate and control the fermentation of dairy products. Starter cultures for yogurt and cheese are made from bacteria, and the greatest threats to the $40 billion global market are viruses that can destroy bacteria. Danisco’s research scientists developed genetically modified bacteria using CRISR tech that are immune to virus attacks. In August 2005 Danisco was granted one of the first patents for CRISPR-Cas systems. That year Danisco started using CRISPR to vaccinate its bacterial strains.
• Biohacking has come of age – renegade biochemists and citizen biochemists are now able to buy biohacking toolkits online. IDT is one such place where you can buy such things: https://sg.idtdna.com/pages .The IDT website advertises “all of the reagents needed for successful genome editing, with kits designed for delivery into human cells beginning at $95”. https://www.genecopoeia.com/ is another popular resource.

---

P.S.: the parts from book I did not capture in the notes above:

1. Biographical notes on Jennifer Doudna
2. Patent battles between various research groups esp. between UC Berkeley and MIT/Harvard
3. Notes on Jim Watson’s fall from grace due to his openly racist and sexist views
4. Debates on moral and ethical issues around CRISPR

[phreakv6]

Thinking in Systems, Donella Meadows, 2008 - I should have found this book long ago. I have learnt these concepts from a diverse of disciplines from control systems, economics, game theory and so on. It was a thoroughly enjoyable read as I have always been curious about large systems and the way they behave.

My notes -

• A system is a set of things - people, cells, molecules that produces own behavior over time

• Most problems aren’t independent of each other but inter-dependent and interacting with each other in complex systems

• To change results produced by systems, its important to understand and change the structure and the behavior

• Our linear thinking minds are always looking for cause-and-effect and simplistic explanations to complex problems (News headlines)

• Feedback delays within complex systems - by the time the problem becomes apparent, it may be unnecessarily difficult to solve

• For he that hath, to him shall be given, and he that hath not, from him shall be taken even that which he hath (Mark 4:25) - The rich get richer and poor get poorer (Reinforcing feedback loops in money, confidence, capability)

• A diverse system is more stable and less vulnerable to external shock than uniform system with little diversity

• Psychologically and politically, its easy to assume problems are “out there” than “in here”. No one creates these problems deliberately, yet they persist. Only stopping blame and restructuring the system will fix it.

• We must hone our abilities to understand parts, see interconnections, ask what-if questions about future behaviors and be creative and courageous about system redesign

• While a system maybe made of elements, interconnectedness and function/purpose - it is more than sum of its parts. It may exhibit adaptive, dynamic, goal-seeking, self-preserving and even evolutionary behavior

• Elements can be intangibles (like “pride”)

• The best way to deduce purpose of a system is to observe its behavior (not its stated goals)

• Even if a system’s parts and interconnectedness are changed, it may not change the outcome unless its “purpose” is changed.

• Understanding behavior over time - a river meanders but leaves memory on the earth’s crust

• Stock changes over time through the actions of flow (Stock is memory of the history of changing flows within the system)

• Human mind finds it easy to focus on stocks than flows. Also within flows, we find it easy to focus on inflows than outflows (addition vs subtraction)

• A stock takes time to change because a flow (noun) takes time to flow (verb)

• Balancing feedback loops are goal/stability seeking keeping the stock within a range of values

• Reinforcing feedback loops are amplifying, reinforcing, self-multiplying, snowballing virtuous or vicious cycles (exponential as in the economy to runaway collapses as in ecology)

• A stock governed by linked reinforcing and balancing loops will grow exponentially if the reinforcing loop dominates the balancing one

• The greater the fraction of output a society invests, the faster its capital stock will grow. Systems that are similar to each other share same repertoire of behaviors

• Any long term model of a real economy should link together structures of population and capital to show how they affect each other

• Oscillations happen in systems that have delayed feedback (Eg. sales and inventory moving in tandem). Moving averages damp these oscillations - but what period to consider matters as well - a wrong choice here could make oscillations worse

• Economies are extremely complex systems filled with balancing loops and delays (inherently oscillatory, causing business cycles)

• Limits-to-growth architype - Any physical growing system will run into some kind of constraint, sooner or later - a balancing loop may kick in and reduce in-flows or increase outflows weakening a self-reinforcing loop. A new product, a virus or a nuclear reaction, will all eventually run out of resources

• The higher and faster you grow, the farther and faster you fall, when building up capital stock from a non-renewable resource. A quantity growing exponentially toward a limit reaches it in surprisingly short time. Reducing extraction rate will make you get rich slow but stay that way longer (only applicable for non-renewables)

• Renewable resource system - a virus that spares victims so it can persist or fish in the ocean that can renew when not over-fished. Higher extraction rate can potentially destroy the resource beyond repair as well leading to extinction - if higher capital is employed and better technology is found that improves extraction rate which regeneration rate is constant (fishing, logging)

• Resilience is a measure of system’s ability to persist and survive within a variable environment. Arises from several feedback loops working to restore system after a perturbation (human body). There are limits to resilience

• Just-in-time production system has made us vulnerable to changes in fuel supply, traffic flow, breakdowns, labor availability etc. (We are experiencing this right now with Covid disruption of supply-chains)

• Large organizations fail to be resilient because of the large number of layers of delay and distortion in the feedback process

• Systems need to be managed not just for stability and productivity but also for resilience (don’t focus just on the play but also the playing field)

• Self-organization - Capacity of a system to make its own structure more complex

• Like resilience, self-organization is also sacrificed for productivity and stability (Usual excuses for turning creative human beings into mechanical adjuncts to production processes. Always makes be uncomfortable when people are referred to as “resources” or “capacities”)

• koch snowflake - shapes formed by relatively simple rules of self-organization. (fractal geometry of the lung is what gives it same surface area of a tennis court)

• Hierarchy - self-organizing system often generate hierarchy. Simple forms give way to complex forms through stable intermediate forms. resilience, self-organization and hierarchy are the reasons why dynamic systems function so well

• Everything we think about the world is a “model”

• We often draw illogical conclusions from accurate assumptions or logical conclusions from inaccurate assumptions

• Our knowledge is amazing, our ignorance even more so

• Behavior of a system is its performance over time - its growth, stagnation, decline, oscillation, randomness or evolution

• Structure of a system is key to understanding not just what is happening, but the “why”

• Non-linearity - the act of playing the game has a way of changing the rules. When we know small push produces small response, a twice as big push may cause one-sixth or response-squared or no response at all in non-linear systems instead of twice as big as a linear system would.

• System rarely have real boundaries (What we think of as a system might have crucial missing pieces that affect it)

• A systems boundaries may not coincide with an academic discipline or a political boundary (man-made abstract boundaries)

• Limiting factor - rich countries may transfer capital and technology to a poor labour-rich nation and still not cause growth because they may not be the limiting factors. When an economy grows relative to an ecosystem, limiting factors might be clean air, water, energy, dump space and availability of raw materials (apart from capital, labour and technology)

• Bounded rationality - people make decisions based on the information they have/can process

• We don’t make decisions that even optimize our own good, much less the system as a whole

• System traps (and opportunities) - addiction, policy resistance, arms races, drift to low performance and the tragedy of the commons

• Policy resistance - fixes that fail - no amount of change brings a change to behavior of a system that appears intractably stuck. The alternative to policy resistance is counter-intuitive - let go

• If everyone can work harmoniously toward the same outcome (if all feedback loops serving same goal), the results can be amazing

• Tragedy of the commons - Every user benefits individual from use of resource but the costs are shared with everyone else (over grazing, over fishing). To fix, educate and exhort the users, privatize it, regulate the access

• Drift to low performance - We know what we ought to do, but for some reason, we don’t do it. Falling market share in a business, eroding quality of service, dirtier air and rivers etc. The actor tends to believe bad news more than good and thinks things are worse than they are and desired state is influence by perceived state (goal erosion) - lower expectations, lower effort, lower performance.

• Keep standard absolute, regardless of performance. Make goals sensitive to best performances of the past, instead of the worst (reinforcing loop upward)

• Escalation - arms races - exponential build-up of arms. only way out is to refuse getting into one. Or if already in one, refuse to compete, thereby interrupting the reinforcing loop

• Success to the successful - competitive exclusion - to him that hath, shall be given - redistribute wealth through potlatches, have antitrust laws that limit fraction of pie anyone may win

• Addiction - we understand addiction of alcohol or nicotine but same is seen in dependence of industry to govt. subsidy, reliance of farmers on fertilizers, addiction to cheap oil or weapons manufacturers to govt. contracts

• Seeking the wrong goal - confuse effort with result. Eg. GDP measures everything in short, except that which makes life worthwhile. It is a measure of throughput, flows of stuff made and purchased in a year - rather than capital stocks

• If a society chooses to maximize GDP, it will do so while not producing welfare, equity, justice or efficiency unless you define a goal and regularly measure and report these

• Stocks that are relatively big compared to their flows, (buffers) are very slow to react and inflexible

• Physical structure is rarely a leverage point because changing it is rarely quick or simple. Understanding limitations and bottlenecks can help maximize efficiency

• Short-delays in feedback can cause behaviors of “dog chasing its tail” while longer delays cause damped, sustained or explosive oscillations

• Incentives - Imagine if students graded teachers, or if tenure were awarded to professors based on ability to solve real problems, rather than publish papers, or suppose a class got graded as a group, instead of as individuals

• People who have intervened in systems at the paradigm level have hit a leverage point that totally transforms systems (Copernicus, Einstein, Adam Smith)

• Thomas Kuhn on how to change paradigms - you don’t waste time with reactionaries, you keep pointing anomalies and failures with the old paradigm, keep speaking and acting loudly and assuredly from the new one. Insert people in places of visibility and power, work with active change agents and a vast middle-ground of people who are open-minded

• Mastery of paradigms, let people throw off addictions, live in constant joy, bring down empires, get locked up or burned at the stake or crucified or shot, and have impacts that last for millennia

• The higher the leverage point, the more the system will resist changing it - thats why societies often rub out truly enlightened beings

• We have a distracting tendency to define a problem not by system’s actual behavior but by the lack of our favorite solution (the problem is we need to find more oil. The problem is we need more salesmen etc.)

• Our culture, obsessed with numbers has given us the idea that what we can measure is more important than what we can’t measure

• If something is ugly say so. If its tacky, inappropriate, out of proportion, unsustainable, morally degrading, ecologically impoverishing, or humanly demeaning, don’t let it pass (be a human geiger counter for quality. we are endowed not just with ability to count but also to register presence of absence of quality)

• We don’t talk about what we see but we see only what we can talk about

• Its one thing to understand how to fix a system but quite another to wade in and fix it

You must know by the exhaustiveness of my notes, the love I have for this book. 11/10.

[diffsoft]

Very enriched by your notes! Went ahead and bought the book!!

From your notes on feedback, it struck me that businesses have a balancing feedback loop that keeps it in a range of values. If someone is making too much returns, others will jump in at some time and bring that return at a lower level.

On the other hand, stock prices in auction driven mechanism like the stock exchange have a reinforcing loop, where higher prices are far more often than not beget higher prices, thus increasing amplification (reminded of my Control Systems course in Elec Engg) till such time that the system kaputs.

This is all very simplistic of course, but fascinating to see both a business and its stock price as two different systems with common legs but different feedback - leading to divergent outcomes!

[Deven]

Book: A shot at history
Abhinav Bindra Olympic gold medalist

Why did I select to read about the shooter?
The shooter is the quiet game (Not exiting) and you need body-mind balance like one to do in meditation. This is the story of dedication, it shows with dedication the ordinary man can achieve the highest honour.

The sport allowed a person to develop himself and stand out. Sport is a vehicle for recognition far beyond money.

I altered the thickness of my soles because the floors at ranges can be different. Such change has an effect that’s may not real but phycological like a placebo. It reassures.

Hungarian Karoly Takacs injured his shooting hand (Right) in a grenade accident, so he switched to his left hand and won 2 gold in Olympics. Is a fascinating story to read outside the book.

One day I refused to leave the range, 10 am till 10 pm. He was last to leave, every session – every day.

No waiting for surety, no waiting for a clearer picture, no giving in to hesitancy. Just believing it is the right time.

Bjorn Borg once was able to tell that his racket was 3 grams heavier than normal. Such was the fussiness athletics have.

Maybe everyone on the bus wears headphones. Abhinav used to wear it with no music. It’s a sign of DND. He carried around a book whose title he still don’t know.

One shoe is a millimetre higher than the other. Shooting jacket 5 mm off here, too tight by 3 mm here. Even have customized compression underwear.

Hired a marriage hall for one day for practice to feel; as the hall for the Olympic final in Beijing was unusually big. Created Rio range including Olympic logo and identical background colour.

Visited “Sports dentist”. Some believe that misalignment of the upper and lower jaw makes misalignment in the body.

Sometimes imp to break the monotony and play the mental games. He did Dry firing in a dark room, Samadhi tank, Climb pizza pole etc.

Breathing: My respiratory rate prior to the Olympics was 14-15 cycles per min. I learn to slow down and by the time of the Olympics, it was down to 4-5.

In Athens, my arms are crossed in a defensive stance. I need to be open. I also walk to the final in ankle-high boots. I practice tying my laces tighter so they stay snug. Nothing goes unnoticed.

In the Beijing world cup, I shot at 9, deliberately, just to miss the final. Am playing games with my ego, dangerous games.

Wining as a big crisis, a real disaster. Coach of Abhinav’s at least 4 Olympic champions suffered after winning with heart disease, diabetes and hormonal issues. He himself suffered seizure attacks.

Post winning Abhinav joined 10 days Vipassana course to get clarity going ahead.

The reason why we have fewer medals: Suresh Kalmadi boss of the Indian Olympic association referred to his name as Avinash even after winning gold. Indian officials sent him shoe sizes as left 11 and right 8 before Beijing Olympics.

Rio his last Olympic: Final range was different from the qualifying range, the background was dark. In qualifying, they measured that the longer he takes it lowers his heart rate. In the dark background, you lose balance so it might be better to shoot quicker.

[Deven]

Book Zero to One by Peter Thiel
(Co-founder Paypal and Palantir)

Zero to One is to create new things like creating a computer from Typewriter is 1 whereas creating a better typewriter is incremental progress but not 0 to 1.

Question: What important truth do very few people agree with you on?
How the answer to the above question is linked with the future?
The answer is contrarian truth.
The future is that has not happened yet. We know 2 things about the future that is going to be different and it must be rooted in today’s world.

Tech & Globalization Are 2 different modes of progress. Without technology, globalization means the use of the same resources affluent countries using it. New Tech is a positive-sum game.

Last Mover Advantage:
Twitter went public in 2013 with a $ 24 B valuation. 12x than times’s even though times earned $ 133 M in 2012 while Twitter lost money.
This is because investors thought twitter will be a monopoly and will generate FCF in future. While newspaper business days are over.

Tech Company follows opposite trajectory vs old age business.
Successful Restaurant earns healthy amount today however their cash goes bad customer finds trendier one. Whereas tech co lose money for the first few years.

Proprietary technology: Must be 10X better than its close substitute to get advantages of monopoly. 10X you escape competition.
Service businesses are difficult to make monopolies.

Power of money:
Andreessen H invested $250000 in Insta in 2010. FB acquired insta in 2012. Andreessen got $ 78 M – 312 x returns. Its wow but
Andreessen has $ 1.5 B funds, they need 19 insta to get breakeven. Position size is imp for investors.

Secret: For contrarian thinking, you need to believe that there is a secret left to be found.
How to find a secret?
Secret by nature; It exists around us, to find it study undiscovered aspects of the physical world
People secret: What they don’t tell us or they don’t know about themselves
e.g. monopoly companies are not speaking about it to avoid scrutiny.
Competition and capitalism are opposite.

Foundations:
Out of 6 founders of Paypal; 5 were below 23 yrs or younger.
4 Had built bomb in the school.
4 born outside the USA.

Paypal sold to ebay for 1.5 B.
What they are doing now
Elon M: Tesla and Spacex
Reid Hoffman: Linkedin
Steve Chen, Chad H and Jawed K: Youtube
Jeremy S and Russel S: Yelp
David S: Yammer
Peter T: Palantir

Sales in important: If you build it, will they come? No, you need to sell it.

Man & Machine:
A cheap computer beats the smartest mathematicians however at the same time supercomputer can’t beat a 4 yrs child (Computer recognize cat 75% times correctly vs 100% by 4 yrs child).
They are categorically different and hence not here to replace each other.

Seven Questions to ask for every startup:

1. Can you create breakthrough technology instead of incremental improvements?
2. Is now the right time to start?
3. Are you starting with a big share of a small market?
4. Do you have the right team?
5. Do you have the right way to deliver products?
6. Do you see the relevance in the next 10-20 years?
7. Secret Q: Have you identified a unique opportunity that others don’t see?

End…