Leadership · Self-Revelation · Why?

Beta and Super Friends

I started investing in the US stock market my second year of business school. I thought it was just part what you do in business school; drink coffee, read Financial Times and invest in stocks. I thought I’d try to apply what I learned in class to pay back some of those student loans a little quicker. Bad idea but that isn’t the point.

In order to improve your chances of a decent return when you invest in securities like stocks, there are certain technical analysis ratios that you’re supposed to use evaluate and predict returns. Beta is one of those magical ratios.

Beta ratio gauges the volatility of a security by comparing it to the performance of a related benchmark over a period of time. To keep it simple, investors use beta to see how downside capture they can expect from an investment.

From Investopedia

The baseline number for alpha is zero (investment performed exactly to market expectations), but the baseline number for beta is one. A beta of one is an indication that the security’s price moves exactly as the market moves. If the beta is less than one, the security experiences less severe price swings than the market. Conversely, a beta above one means that the security’s price has been more volatile than the market as a whole.

While a positive alpha is always more desirable than a negative one, evaluating beta is not so black and white. Many investors – being risk-averse – prefer to have a lower beta; however, some investors are willing to target a higher beta, hoping to capture higher returns and cash in on the higher volatility.

Most of these ratios are historically leaning. They use information from past to predict future results. It’s difficult and next to impossible to find a magical ratio that can give you vision into future performance.

Well this is true most of the time. The best investors will tell you to take a long term approach in building value. However, The upside in the public market will never match the multiples on an investment when the company is private. It’s way more risky, but at the end of the day, you get in on the ground floor and are compensated come IPO. (most of the time)

I’ve found investing in relationships to be very similar to investing in companies. There’s a ton of information out on how to do them, products and services around improving both processes, and risk with both investments. And the secret to success in both is pretty similar as well.

Creating a group of friends, associates, or colleagues that are super successful doesn’t happen overnight. Actually, its pretty close to impossible to create this type of super network without putting in a lot of work early on. Yes, the secret to it all is meeting people before they are successful and supporting them on their pathway to success. It starts with some self reflection.What value to you bring to the table? What is your unique advantage?  Understanding your strengths will help evaluate what your value add is to other people’s quest to success.

Second, you’ll need a good understanding of what potential for success looks like early on in the journey. Have you met someone that has more hustle than anyone you’ve ever met? Do you know someone that seems to have the Midas touch? People give hints of greatness and are just waiting for people to believe and support them.

Lastly, give. Once you’ve identified who and how you can support, give. Think about how you can build them up through relationships and the opportunities you have access to.

To be concise; Get in early, build value, reap the rewards.

#MentalNote · Current Events · Education · History · Self-Revelation · Why?

Sapiens and the Oscars

I have very few newsletters that I hold in such high esteem as Farnam Street. If you enjoy thinking about things in new ways and awesome book recommendations, I suggest you sign up here. It’s so good, I’m giving a free shout out. The newsletter will change your life, but I digress.

One of the most recent book recommendations from the Farnam Street is called Sapiens: A Brief History of Humankind.   I haven’t gotten a chance to read the book yet but I was totally enthralled with the descriptions in the newsletters. It’s definitely on my to read list.

One of the most important takeaways from the book is captured in this short quote below:

What was the Sapiens’ secret of success? How did we manage to settle so rapidly in so many distant and ecologically different habitats? How did we push all other human species into oblivion? Why couldn’t even the strong, brainy, cold-proof Neanderthals survive our onslaught? The debate continues to rage. The most likely answer is the very thing that makes the debate possible: Homo sapiens conquered the world thanks above all to its unique language.

Most people would agree that language was a huge game changer but not for the reason you’d think:

As far as we know, only Sapiens can talk about entire kinds of entities that they have never seen, touched, or smelled. Legends, myths, gods, and religions appeared for the first time with the Cognitive Revolution. Many animals and human species could previously say ‘Careful! A lion! Thanks to the Cognitive Revolution, Homo sapiens acquired the ability to say. ‘The lion is the guardian spirit of our tribe.’ This ability to speak about fictions is the most unique feature of Sapiens language…You could never convince a monkey to give you a banana by promising him limitless bananas after death in monkey heaven. 

To Harari, the most important function of language is we can describe things we cannot see or understand. “It is our collective fiction that defines us” By doing this, human beings are better suited to work in large groups effectively and flexibly than other animals. Real world applications of this is state, religious, fraternal, or basic assumptions we take as truth.

The collective myth and our ability to believe or not, is what differentiates us from other animals. To be clear, not all of these myths are lies but some of them are. We believe them because the opposite is too difficult to handle. For example, sapiens are horrible at evaluating talent or a subjective “best”. We’ve seen it in finance, education, entertainment, and other industries. We rely on human evaluations and get burnt. We consistently overvalue and undervalue, which leads to faulty and less than ideal outcomes. If we look at this from Harari’s perspective, we’ve bought into the myth that we can make objective evaluations.

Earlier last week, the Academy released their nominees for the Oscars. There were complaints about the lack of diversity in the nominees. I agree, there should be more representation, especially from a 2015 that saw quality movies from minority leads. However, its a symptom of a larger myth; A group of industry leaders can make an objective evaluation on what are some of the best performances the year prior. I say this as a huge Will Smith, Leonardo DiCaprio and Christopher Nolan fan. (None of them have won Oscars)

I’ve started to take human informed decisions with a grain of salt. I can’t afford to buy into the idea that a group of us can make the best decision. Now, believing that is difficult to handle because it has implications larger than the Academy Awards. I’ll just let your mind wander…

#MentalNote · Random · Self-Revelation · Why?

2016 New Years Revelations

A couple of things to note:

  1. These are very random
  2. They are a mix of inference, prophecy, facts, and hunches.
  3. We’re just trying to have fun out here. I welcome other less serious revelations.

 

Kanye West will own 2016

After the birth of his second child, Kanye is grounded and ready to give the world some fire. He was supposed to have a CD in 2015 but that didn’t work out…. Too busy making clothes I guess. He’s going to get back to the music with a vengeance in 2016 and I’m here for it.  I see a game changing album along with great features from Kanye in 2016. He will also establish the ground game for his 2020 presidential campaign.

The Irrational shall inherit the Earth (Just the US)

I watch politics like my brother watches NBA Basketball. I’m not watching to see who wins but the process by which they beat their opponent. The Presidential elections have been more entertaining than season 3 of The Real Housewives of Atlanta. (I personally think that was the best season but I digress) I thought I had a handle on this election but current events created a new set of variables that have the potential to change the outcome of the primary and general election. The electorate have a dangerous level of fear that I haven’t seen since the early cold war. As a result, you can count on citizens to make irrational decisions on who would be best to deal with their fears. Pre San Bernadino, I thought this would be an easy Democratic victory, but now, Republicans are in their element and I see a Republican pathway to the white house.

3D printing will go Mainstream

Based on Product lifecycle (if you believe in that stuff) 3D printing will move from Early Adopters to the early majority. I see a lot of potential especially as the technology goes down in cost.

If you’re African and interested in Business, learn Mandarin next year

On a serious note…. Zimbabwe adopts the Yuan as legal tender and China commits 600 billion to development around Africa? No matter what the west says, China is in Africa to stay. I got to the Enugu Airport in Nigeria, only to see a new terminal being built by Chinese contractors. China may have been around but next year will be something to watch with so much capital, people and other recourses flowing into Africa.

Reemergence of Boy Bands

I just have a gut feeling on this one, Boy Bands are coming back.

I’ll be adding more as I think of them but that’s all for now…. What are some of your new years revelations/ prophecies?

Why?

On Decision Making

Life is full of important decisions. We often have the luxury to think through our decisions ahead of time but that doesn’t equate to making the right or best decisions. After speaking with friends and mentors, one of the best ways to make sound decisions is to use a decision making model. I’ve studied these models before but I figured I’d run through a couple to refresh and provide you with some of the best models for decision making.

Pros Vs. Cons aka Rational Decision Making

Probably made famous by Plato or someone along that line, pros vs cons is as simple as a decision model can be. Nothing really to explain here… What are the pros and the cons of each potential outcome of your decision?

In this decision making process, its easy to assume that pros and cons hold equal weight which is not always true.

Satisficing

“Don’t let the perfect be the enemy of the good.” Sometimes we don’t have access to all the information necessary to make the optimal decision and/or the “okay” decision will do. I find most people never want to “satisfice” when it comes to big decisions but in the long term, sometimes its the best strategy.

Opportunity Cost

In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources.

So, what is the cost of missing out on other outcomes? Can you live with the cost of missing out on that opportunity?

Garbage Can Theory

In the garbage-can theory (Cohen, March, and Olsen 1972) an organization “is a collection of choices looking for problems, issues and feelings looking for decision situations in which they might be aired, solutions looking for issues to which they might be the answer, and decision makers looking for work”. Problems, solutions, participants, and choice opportunities flow in and out of a garbage can, and which problems get attached to solutions is largely due to chance.

This doesn’t make much sense to me but I guess the garbage can theory is more of a meta critique on how organizations make decisions.

Sources:

Opportunity Cost

Garbage can Theory

Why?

Making Your Bed in The Morning

My mother always emphasized how significant creating morning routine was as a child: Wake up, fix my bed, take a shower, brush my teeth, get dressed, eat breakfast, watch Pokémon and then head off to school. That was standard procedure for my childhood (tv show changed depending on age) and gave me my first opportunity to create structure for my day.

As an adult, I can say that my habits from childhood have stuck.I go through the same routine my mother put me through back in the day.

Many of these tasks decrease in priority when I’m running late,(Mostly tv time and breakfast…hygiene…ehhh sometimes) but I never forget to make my bed before I leave for the day.

I’ve come up with three reasons why I make my bed in the morning:

1. #Winning strategy. If you start with small victories (brushing your teeth, taking a shower, making your bed) you feel more confident about the day. Think about all the times you’ve had a difficult or rough day. It normally starts with a deviation your morning routine. If you can win the morning routine, you’re on your way to winning the day.

2. Investing in my day. The time I take to make my bed in the morning is going to make sure I feel better when I get home and need to sleep. A made bed makes me feel better and after a rough day, it feels great to come back to a made bed.

3. Creature of Habit. I’ve made my bed as part of my morning routine for so long that not having it done is wrong. I wouldn’t want to start the day off on the wrong foot!

What are some routines you continue from your childhood?