Become A Learning Machine

Mr. Gautam Baid discusses the significance of lifelong learning. We can become better investors and, more importantly, better thinkers by reading and developing a mental models framework.

Everything in life can be a teacher if you have the right mindset.

“The best investment you can make is in yourself.” - Warrren Buffet

The author gives some principles to understand and practice the following if one wants to become a good investor:

Look at stocks as part ownership of a business.
Look at Mr. Market—volatile stock price fluctuations—as your friend rather than your enemy. View risk as to the possibility of permanent loss of purchasing power and uncertainty as to the unpredictability regarding the degree of variability in the possible range of outcomes.
Remember the three most important words in investing: “margin of safety.”
Evaluate any news item or event only in terms of its impact on (a) future interest rates and (b) the intrinsic value of the business, which is the discounted value of the cash that can be taken out during its remaining life, adjusted for the uncertainty around receiving those cash flows.
When evaluating new ideas, consider opportunity costs and keep a very high hurdle rate for incoming investments. Be unreasonable. When you look at a business and get a strong desire from within, saying, “I wish I owned this business,” that is the kind of business you should be investing in. An excellent investment idea doesn’t need hours to analyze. More often than not, it is love at first sight.
Think probabilistically rather than deterministically because the future is never certain, and it is a set of branching probability streams. At the same time, avoid the risk of ruin when making decisions by focusing on consequences rather than just on raw probabilities in isolation. Some risks are just not worth taking, whatever the potential upside may be.
Never underestimate the power of incentives in any given situation.
When making decisions, involve the left side of your brain (logic, analysis, and math) and the right side (intuition, creativity, and emotions).
Engage in visual thinking, which helps us better understand complex information, organize our thoughts, and improve our ability to think and communicate.
Invert, always invert. You can avoid a lot of pain by visualizing your life after losing a lot of money trading or speculating using derivatives or leverage. If the visuals unnerve you, don’t do anything that could get you remotely close to reaching such a situation.
Vicariously learn from others throughout life. Embrace everlasting humility to succeed in this endeavor.
Embrace the power of long-term compounding. All the great things in life come from compound interest.