Hey friends - greetings from Austin! For those of who you celebrated Thanksgiving, I hope you had a very enjoyable Turkey Day. I'm still stuffed from Thursday.
Also, does anyone actually like Turkey?
On to the newsletter! Here's what I got for you this week:
The Big Lessons From History
The Questions That Matter
The Big Lessons From History
How can we learn from our mistakes? Morgan Housel’s article I read this week says there’s two different ways to approach this.
The first way is the most common. We look at a specific event and then think through how to avoid that event affecting us again. Here's just a few notable examples from my lifetime:
After 9/11, there were measures put in place to prevent another terrorist attack occurring with the use of airplanes
After the Financial Crisis, there were increased liquidity requirements, stress testing, and lending standards put in place for banks to provide mortgages
And now after COVID, there are already discussions happening about how to make your business "pandemic proof"
Unfortunately, the majority of the specific lessons we learn from these events are useless. This is because future society-changing events usually do not follow the same exact pattern as things that happened in the past. The next financial crisis is most likely not going to be driven by Mortgage-backed securities.
The second way to learn from our mistakes is to take a higher-level approach to thinking about an event. It's a more useful mental model to avoid failures in the future because the lessons you learn by thinking in this way are more broadly applicable. You can look at any event and ask questions like:
How do people react in times of uncertainty?
How do they think about risk?
How do their actions change?
By thinking in this manner, we learn broadly applicable lessons for the next time we have an event that affects our world in such a large way.
You can find Morgan’s full article here. He talks about broadly applicable lessons to be learned from COVID and other notable events in history.
The Questions That Matter
This was a great article I read this week from Tim Hanson about how people ask really terrible questions. This is something I was doing for years early in my career.
When I started working, I had the benefit of learning skills from mentors and the companies I worked for. Particularly, the education on soft skills training I received was the best. These things included:
How to distill complex info
How to prioritize and execute
How to think clearly and critically
How to communicate with executives
How to understand risks and controls
How to determine root causes of problems
How to send effective emails (Yes, this is actually a skill most people don't have)
However, one of the most destructive habits I learned was how to ask "appropriate" questions to Executives.
At one company, I had the chance to meet with the CEO in small group settings up to 3 times per year. However, I was cautioned to never ask about the struggling stock price or I’d never be invited back to meet with him. How crazy is that?! Instead, we were told to prepare for days in advance of our meeting to understand every single number and metric in our business just in case he happened to ask a question about that. Instead of trying to ask valuable questions, we were trained to signal how much we understand the minutiae of our business so our organization could signal to the CEO that we had talented people. However, outside of the 4 walls of our company, my friends and family always asked me about the company’s stock price.
In Tim’s article he has one great example of this with Steve Wynn, the Casino mogul, answering an analyst question on a quarterly earnings call:
" ... Wynn was asked by an analyst to expound on how stable the economic situation in Macau would be over the next few months. His response was that he didn’t know because “that’s not a question we ever deal with except during a call like this.”
The reason we are taught to ask questions like this as young & ambitious people is that it shows we know what's going on the world. We can tell people we read the WSJ, FT, and The Economist. When we preface our questions with nuanced details, we signal that we did the "homework" of understanding the details before we ask our question.
Now compare this with a question asked from a 15-year old Bank of America shareholder at a shareholders meeting. Yes, this is a true story:
This girl is a remarkable investor. What sets her apart from most of the rest of us is that she attends the bank’s annual meetings and votes her proxies. What’s more, she asks questions of management. Good questions. Tough questions. Short questions.
For example, at the last go round The WSJ reported that given the mic she asked simply, “What is the bank doing to raise the share price?”
Look at how simple, straightforward, and not filled with BS that question is.
Now look, I get it. The trained analyst is signaling that she’s done our homework, but we're also trying to impress the person that we're asking a question towards. Unfortunately, this gets us nowhere if we truly want to understand something valuable.
If we want better answers, we have to ask better questions.
Until Next Sunday
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And if you come across anything interesting this week, send it my way! I love finding new things to read through readers of our community.
Have a great Sunday,
Rohun