Links

Farnam Street - Remembering More of Everything: The Memory Palace (LINK)

Related previous post: Memortation, or One Way to Put What You Learn to Practical Use [There was also a nice sentence in The Daily Stoic that describes how I essentially use "Memortation" as a form of preparation for the day: "The Stoics were pioneers of the morning and nightly rituals: preparation in the morning, reflection in the evening."]

You might not like the TPP. You are going to like the alternative less. - by John Hempton (LINK)

Fairfax Financial Holdings Limited: Reduction in Defensive Equity Hedges (LINK)

How T. Boone Pickens Sits Tight in the Riskiest of Businesses [H/T @iancassel] (LINK)

50 Things That Made the Modern Economy podcast: The Haber-Bosch Process (LINK)

It has been called the greatest invention of the 20th Century – and without it almost half the world’s population would not be alive today. A 100 years ago two German chemists, Fritz Haber and Carl Bosch, figured out a way (worked out how) to use nitrogen from the air to make ammonia, which makes fertiliser. It was like alchemy; “Brot aus Luft”, as Germans put it. “Bread from air.”

Tim Harford on EconTalk (podcast) (LINK)

Related book: Messy: The Power of Disorder to Transform Our Lives

Why Facebook Rules the World - by Jonah Lehrer (LINK)

Investing book of the day: Frontier Investor: How to Prosper in the Next Emerging Markets

Investing thought of the day, via Seth Klarman in Margin of Safety:

The single most crucial factor in trading is developing the appropriate reaction to price fluctuations. Investors must learn to resist fear, the tendency to panic when prices are falling, and greed, the tendency to become overly enthusiastic when prices are rising. One half of trading involves learning how to buy. In my view, investors should usually refrain from purchasing a “full position” (the maximum dollar commitment they intend to make) in a given security all at once. Those who fail to heed this advice may be compelled to watch a subsequent price decline helplessly, with no buying power in reserve. Buying a partial position leaves reserves that permit investors to “average down”, lowering their average cost per share, if prices decline.   

Evaluating your own willingness to average down can help you distinguish prospective investments from speculations. If the security you are considering is truly a good investment, not a speculation, you would certainly want to own more at lower prices. If, prior to purchase, you realize that you are unwilling to average down, then you probably should not make the purchase in the first place. Potential investments in companies that are poorly managed, highly leveraged, in unattractive businesses, or beyond understanding may be identified and rejected.

Links

Greek stocks close with record drop of 16.23% (LINK)

Greece's stock exchange closed Monday with a record drop of 16.23 percent on reopening after a five-week shutdown caused by capital controls.... The banking index on Monday lost nearly 30 percent, with the top four Greek lenders shedding the same amount, the maximum daily loss allowed.

5 Things Learned from Jeff Bezos on Business and Investing (LINK)

Third Point's Q2 Letter (LINK)

Hussman Weekly Market Comment: A Bad Equilibrium & How Speculative Distortion Ends (LINK)

From our perspective, the fundamental reason for economic stagnation and growing income disparity is straightforward: Our current set of economic policies supports and encourages a low level equilibrium by encouraging debt-financed consumption and discouraging saving and productive investment. We permit an insular group of professors and bankers to fling trillions of dollars about like Frisbees in the simplistic, misguided, and repeatedly destructive attempt to buy prosperity by maximally distorting the financial markets. We offer cheap capital and safety nets to too-big-to-fail banks by allowing them to speculate with the same balance sheets that we protect with deposit insurance. We pursue easy monetary fixes aimed at making people “feel” wealthier on paper, far beyond the fundamental value that has historically backed up that wealth. We view saving as dangerous and consumption as desirable, failing to recognize a basic accounting identity: there can only be a "savings glut" in countries that fail to stimulate investment. We leave central bankers in charge of our economic future because we're too timid to directly initiate or encourage productive investment through fiscal policy. When zero interest rates don't do the trick, we begin to imagine that maybe negative interest rates and penalties on saving might coerce people to spend now. Look around the world, and that same basic policy set is the hallmark of economic failure on every continent. 

You'll have to go through the Agora marketing machine and cancel a newsletter subscription if you don't want to keep it, but Chris Mayer, inspired by Thomas Phelps' 100 to 1 in the Stock Market, has updated some of Phelps' work and data (Phelps wrote the book in the early 1970s) with his own book on 100-baggers (LINK)

Book of the day (released tomorrow): Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence

Quote of the day, via Shane at Farnam Street:

"Whatever is good for us should be discussed often and frequently brought to mind, so that it may be not Just familiar to us, but also ready for use. Remember also that in this way what is clear often, becomes clearer." -Seneca

That quote summarizes my reasons for continuing on the Memortation path.

Memortation, or One Way to Put What You Learn to Practical Use

This is a post I’ve been meaning to do for a while. After seeing that my friend Miguel is bringing back Simoleon Sense and listening to an interview my friend Shane over at Farnam Street recently did, I was inspired to quit procrastinating and put up a few thoughts on what I call memortation, or the practice of using a memory palace to make practical use to recall some of the things one learns.

I first learned about the concept of a memory palace (aka the Method of loci) in depth from the book Moonwalking with Einstein: The Art and Science of Remembering Everything by Joshua Foer. As described on Wikipedia:

The Method of loci (plural of Latin locus for place or location), also called the memory palace, is a mnemonic device introduced in ancient Roman and Greek rhetorical treatises (in the anonymous Rhetorica ad Herennium, Cicero's De Oratore, and Quintilian's Institutio Oratoria). In basic terms, it is a method of memory enhancement which uses visualization to organize and recall information. Many memory contest champions claim to use this technique to recall faces, digits, and lists of words. These champions’ successes have little to do with brain structure or intelligence, but more to do with their technique of using regions of their brain that have to do with spatial learning.

The basic idea is that the human brain is better at remembering images and spatial information than it is words or numbers. If you want to remember someone’s name, for example, it is easier to remember it if you associate it with an image, and the more vivid the image, the easier it will be to remember. The memory palace is a familiar place to you (such as: a house you know well) that you can walk through in your mind, and place vivid images (such as: moonwalking with Albert Einstein) at certain points in that place (such as: at the top of the stairs) to help you remember things. As Joshua Foer described the “art” of memory:

The "art of memory" refers to a set of techniques that were invented in ancient Greece. These are the same techniques that Cicero used to memorize his speeches, and that medieval scholars used to memorize entire books. The "art" is in creating imagery in your mind that is so unusual, so colorful, so unlike anything you've ever seen before that it's unlikely to be forgotten. That's why mnemonists like to say that their skills are as much about creativity as memory.

As I was going through Foer’s book, I started to think of ways I could use the concept of a memory palace in a practical way in life and how I could incorporate it into my investing process. I was then inspired by a few quotes from Warren Buffett: 1) "We don't have to be smarter than the rest. We have to be more disciplined than the rest."; 2) "Charlie and I have a number of filters that things have to get through before we'll think about them."; and 3) "Yeah, we don't consider many stupid things. I mean, we get rid of 'em fast...Just getting rid of the nonsense -- just figuring out that if people call you and say, 'I've got this great, wonderful idea', you don't spend 10 minutes once you know in the first sentence that it isn't a great, wonderful idea...Don't be polite and go through the whole process."

What I thought I could do was create a process using a memory palace to make it both easy for me to filter things, and easy for me to always keep the most fundamental ideas at the top of my mind, both as it relates to an investing philosophy and a philosophy of life in general. I had experimented with meditation a bit, but sitting for 15-20 minutes just focusing on my breath didn't seem like something I really wanted to do every day, though I think it is useful and I may get there one day. But when the memory palace idea came along, I realized I could take the most important things I wanted to remember, create a memory palace, and use that to replace daily meditation or incorporate in addition to a daily meditation.

So that's what I did. I created a memory palace for the main investing filters I wanted to remember, such as filters for management, circle of competence, balance sheets, the intersection of business quality and price, etc. I also incorporated a number of mistakes and examples into it to help me see a real world application or lesson from those things. I then created reminders for life lessons as well, just to make sure I always had the most important things on my mind, and so that I would routinely reflect on them.

Initially, I would go through the whole memory palace just about every day, but as it got longer and as I was able to practice and improve the vividness of the images, I’ve found I only need to go through the whole thing in one sitting every week or two. And I can then just memortate on an abridged version on a daily basis of the things that I think are most important.

Recently, I’ve also begun to create a memory palace for all of Charlie Munger’s misjudgments in his speech “The Psychology of Human Misjudgment” from Poor Charlie’s Almanack. Given the importance of psychology to investing and to life, and given the effort Munger took to rewrite that speech for the book from when he initially gave it to make it really showcase how he views the important models from psychology, it seemed to be a useful undertaking, and one I’m enjoying as I’m going through it.

I’m still early in the process of all of this and I as I get further and further along, I hope to share more thoughts along the way. But as I think some of the above might be useful to others, I felt it was a good idea to share some initial experiences now.