Poor Ash's Almanack - A Learning Journey
Here is the Q2 2018 letter , formally announcing the launch of Poor Ash’s Almanack – a website with ~half a million words of content that is the best free mental models resource on the internet by a wide margin. I’ve been working on it in one manner or another since the launch of ACM, and work accelerated through Q1 and Q2.
The letter discusses the rationale behind taking the time to build such a resource; in short, I’m following the playbook that Charlie Munger – Warren Buffett’s billionaire business partner – has laid out for improving judgment and cognition.
2018
-
07
-
02
–
Askeladden
Q2
’
18:
Poor Ash
’
s Almanack:
A Learning Journey
askeladdencapital.com
1
Dear Partners,
We have continued to post strong performance and remain extremely excited about
our prospects
,
as
fundamental
res
ults at our portfolio companies bode well for future total shareholder return.
Below are our
current unaudited, estimated perform
ance numbers; please check your individual statements for exact figures.
As always, please remember that we do not use leverage and typically maintain a double
-
digit cash balance.
Announcing Poor Ash’s Almanack: The Best Free Mental Models Resource
So as not to bury the lede, I built a
latticework of mental models
,
book reviews
+ analysis
, and
guided
learning journeys
that
is the
best free mental models resource on the web by a wide margin.
There’s
roughly
half a million words of content.
One beta reader
–
a paying subscriber to the most widely read mental
models site, nonetheless
–
said
“Poor Ash’s Almanack seems like the
website I’ve been trying to find for a long time.”
Go
check it out:
askeladdencapital.com
.
Below is the story of why I created it.
“I’ve long believed that a certain system
–
which almost any intelligent person can learn
–
works way better than the
systems that most people use.
What you need is a la
tticework of mental models in your head.
And, with that system, things gradually get to fit
together in a way that enhances cognition.
However, my particular approach seldom seems to get through, even to people of immense ability.
Things usually die
afte
r going to the ‘Too
-
Hard’ pile.”
-
Charlie Munger
T
he first and last question most investors get asked is:
“what’s your edge?”
It’s a hard question to answer, because often
it doesn’t boil down to a pithy soundbite
–
and if it does, it may
just be
overconfidence
.
It’s a question that I personally found easier to answer via
inversion
. Back when I was a hedge fund analyst,
it became clear to me
–
almost immediately
–
that on
any given investment thesis at scale, I wouldn’t have an
analytical edge. There would be people who were smarter than me, with more industry experience than me,
with more resources and information than me, with a closer relationship with the management te
am.
2018
-
07
-
02
–
Askeladden
Q2
’
18:
Poor Ash
’
s Almanack:
A Learning Journey
askeladdencapital.com
2
It seemed like there were two options. One was to try to gear up and play in the
arms race
of finding the
incremental data point. The other was to give up completely on ever winning that game.
Let me make an analogy: how do you beat LeBron James or S
teph Curry 1x1?
I don’t know. But you sure
ain’t gonna do it playing basketball.
I figured out pretty quickly that I wasn’t going to beat the investment industry at its own game. I could,
however, beat it at a game that had clearly been around for decade
s, that very few people choose to play.
That game is focusing on
judgment
, not analysis.
It’s a game that Charlie Munger and Warren Buffett came up
with a long, long time ago
.
They do their analysis on paper napkins.
As Munger puts it:
“
Some of the wors
t business decisions I’ve ever seen are those with future projections and discounts back. It seems like
the higher mathematics with more false precision should help you but it doesn’t. They teach that in business schools
because, well, they’ve got to do so
mething.
”
T
hey get to play their game
because they’re already billionaires, and people idolize them.
(As my dad says:
what’s the difference between crazy and eccentric? The zeroes
on your bank balance
. My dad
notes, sadly,
he’s just crazy. Given
that
mo
st of his money is in ACM,
I hope
to make him eccentric.)
Unfortunately, as we’ll explore, Buffett/Munger’s game isn’t
very marketable for the rest of us. Analysis is
easy to showcase. Judgment, not so much. McKinsey can hand you a beautiful report,
circa 1980, telling you
that there will never be a market for cell phones in the United States. And you will be impressed, because it’s
a very detailed report, delivered by a sharply
-
dressed man, with a fancy college degree or three to his name.
And it wi
ll be completely and totally wrong.
That’s not to say that analysis isn’t important. Analysis
is
important
–
whether you’re an investor, a manager,
a doctor, a scientist, a lawyer, or any other professional. All I’m arguing here is that most of us alread
y do
plenty of analysis. The analysis isn’t the problem. The
bottleneck
is the judgments we make
on
the analysis
we do. Trying to improve our success by
collecting more data
misses the point. Data isn’t the Herbie.
In fact, there
are, as best I can tel
l, very few mistakes in any field that actually derive from a lack of sufficient
data.
Some examples:
A lack of data is not
why the
Challenger
shuttle
crashed, as Richard Feynman explains in
“
The Pleasure of Finding
Things Out
”
(
PFTO review + notes
).
A
lack of data is not
why Moody’s couldn’t properly assess the ris
k in mortgage
-
backed securities prior to the
financial crisis,
as Nate Silver explains in
“
The Signal and the Noise
”
(
SigN review + notes
).
A lack of data is not why doctors fail to wash the
ir hands and thereby cause fatal infections, as Megan
McArdle explores in
“
The Up Side of Down
”
(
UpD review + notes
).
A lack of data is not why some
parents
make the
brutally misguided decision to
forego vaccinations,
jeopardizing their kids
–
and
ours
–
as
Dr. Paul Offit explores in
“
Deadly Choices
”
(
VAX review + notes
).
A lack of data is not why critical infrastructure is often designed in a completely unusable and nonsensical
way, as Don Nor
man explores in
“
The Design of Everyday Things
”
(
DOET review + notes
).
A lack of data is not why classical economics became
completely
divorced from reality, as Richard Thaler
explores in
“
Misbehaving
”
(
M review + notes
).
And a lack of data is not
why most people die during
outdoor
recreation, as Laurence Gonzales explains in
“
Deep Surviva
l
”
(
DpSv review + notes
).
2018
-
07
-
02
–
Askeladden
Q2
’
18:
Poor Ash
’
s Almanack:
A Learning Journey
askeladdencapital.com
3
No. In all of these cases, the necessary data was readily available
–
and, in fact, the people who made critical
mistakes used that data.
In all of these cases, it was
a lack of judgment
that led to disaster.
The people looked a
t the data. They just
didn’t make the right call.
What’s the use of gathering extra data if we can’t deal with the data we’ve got? More data does not always
lead to better decisions, as Dr. Jerome Groopman explores in
“
How Doctors Think
”
(
HDT review + no
t
es
)
.
So w
hat are things that can promote better judgment? Well,
it’s absolutely gotta start with
avoiding alcohol,
for one.
And getting
sleep
at the proper time in alignment with our
chronotype
, for two
. Dr. Matthew Walker’s
“
Why We Sleep
”
(
Sleep review + notes
)
–
my candidate for most important book of the c
entury, no hyperbole,
and a copy of which has been delivered by Amazon to all ACM clients
–
provides compelling evidence of
how, when we’re sleep deprived, our prefrontal cortex is less able to exert rational control over our amygdala
(the emotional, “figh
t or flight” part of our brain).
In fact,
Walker points out that
if we routinely wake up with an alarm clock,
earlier than our bodies tell us to,
we might spend
a significant portion
of our
day with our prefrontal cortex
–
the center of rationality
–
i
n
an
“
offline, disabled state.”
Eek.
I get eight and a half to nine hours
of sleep per
night
and use an alarm clock maybe once a month
, so
tick
that
checkbox there. What’s next?
Well, first of all, before information from the world hits our brain to be jud
ged, it has to pass through a
dozen
-
and
-
one cognitive biases, as well as our existing worldview
–
our
schema
.
Understanding those unconscious distortions and adjusting for them helps us
to
process information more
accurately. Then, actively replacing mala
daptive beliefs, or “filters,” in our schema, with more
adaptive
ones
such as
multicausality
,
Bayesian reasoning
,
nonlinearity
,
and
structural problem solving
–
that align
with the nature of reality, as explored in a
multidisciplinary
and
utility
focused w
ay
–
can turbocharge our
analytical ca
pabilities by transmuting, via
habit /
conditionin
g
,
active
, slow
cognition
into
much faster,
energetically cheaper
intuition
–
which has the double
-
whammy of speeding up accurate judgments, and
leaving more cognitive resources for accelerating the process.
After all that, we realize how awfully flawed
memory
is, and how we can use techniques like
decision
journaling
to make sur
e that we’re making
feedback
from the world
salient
, allowing us to really improve
our
process
via
probabilistic thinking
rather
than succumbing to
overconfidence
by mistaking skill for
luck
.
I could go on all day. I won’t, though.
The point is that the
relevant information to build better judgment is out there.
Charlie Munger handed us
the template.
Why do comparatively so few people
in the investment industry
pursue it?
I’m glad you asked. It’s a
product vs. packaging
issue. We’re
humans, not econs
, so we’re not
omniscient. We often respond too much to irrelevant “packaging” that has nothing to do with the
“product.”
Books ranging from
Goldratt’s
decades
-
old
“
The Goal
”
(
Goal review + notes
) to
Newport’s
contemporary
“
Deep Work
”
(
DpWk review + not
es
) observe a time
-
tested reality: managers, and clients, want to
see
tangible
evidence that their hard
-
earned dollars are
being spent productively.
2018
-
07
-
02
–
Askeladden
Q2
’
18:
Poor Ash
’
s Almanack:
A Learning Journey
askeladdencapital.com
4
A
vailability and visibility
–
i.e., butts in chairs, or voices
on phones, or emails in inboxes, or cover sheets on
TPS reports
–
is thus
a proxy for productivity. It’s hard to tell, in many white
-
collar industries, whether
anything of value has actually been created today.
So, we demand the trappings of what we
think
will bring productivity
–
what looks like
should lead
to
productivity
–
as mistakenly as
Pacific
Islanders
making control towers out of coconuts hoping the loot
-
filled
American
planes will come back
just
like they did in the war
.
In fact, one author points out that Charles Darwin
–
you know, the guy who
revolutionized biology
by
figuring
out evolution
, widely hailed as one of the greatest thinkers of all time
–
would’ve been fired from any
corporate job in, like, five minutes. Because Darwin was not a butt
-
in
-
chair kinda guy, not whatsoever.
He
spent most of his time
wanderi
ng around and thinking. He did about as much “work” in an average day as
Peter Gibbons of Office Space fame.
In other words, I, Samir Patel, am telling you, my clients, that I spend about half of my
working hours
not
actually doing anything related to
stocks whatsoever.
(In the other half of my time, by the way, I still manage to
produce more investment research than many 3
-
person teams
, or so I
’
ve been told
. So don’t worry.)
But what do I spend half of my time doing? With all the time I save by focusing on
utility
and no
t
consuming low
-
value information
–
like news,
daily stock price
movements, or social media
–
I’m reading
books
. S
ometimes books about what makes some birds
smart.
(“
The Genius of Birds
”
–
Bird review +
notes
).
Sometimes books about how top
-
tier negotia
tors come to win
-
win solutions
.
(“
Getting to Yes
”
–
GTY review + notes
)
. And sometimes books abou
t why middle
-
aged women feel d
eep shame
about many
aspects of their lives
.
(“
Daring Greatly
”
–
DG review + notes
).
What does Munger say on the topic of reading
?
In my whole life, I have known no
wise
people (over a broad subject matter area) who didn't
read
all the time
–
none,
zero....
But that’s not enough: You h
ave to have a temperament to grab ideas and do sensible things.
Most people don’t grab
the right ideas or don’t know what to do with them....
Warren and I do more reading and thinking and less doing than most people in business. We do that because we like
that kind of a life. But we’ve turned that quirk into a positive outcome for ourselves. We both insist on a lot of time
being available almost every day to just sit and think.
That is very uncommon in American business. We read and think.
I’m asking you to
invest your hard
-
earned money with me on the premise tha
t Charlie Munger is right. That
the half of my time not spent on investment research cumulatively adds more value to the Askeladden
process than any amount of conventional stuff that “looks like” in
vestment work.
And it’s working, isn’t it?
Yes, yes, I know: two and a half years doesn’t prove anything.
Luck vs. skill.
Sample sizes.
But all of you invested with me because you wanted something
different
from the rest of the industry. Let’s
face it: I’m not going to beat anyone on pedigree (I went to UTD; they went to HBS.) I’m not going to beat
anyone on fancy clothes (I wear Levi’s; they wear Hermes.) I’m not going to beat anyone on fancy office
spac
e ($0/sqft childhood bedroom in the suburbs vs. infinitely more expensive Midtown office space.)
I’m
not selling anyone on anything. In fact, if anything, I do the opposite of selling: I routinely downplay our
skill, our results, and our potential.
2018
-
07
-
02
–
Askeladden
Q2
’
18:
Poor Ash
’
s Almanack:
A Learning Journey
askeladdencapital.com
5
It’s
time I stopped doing that. Because as best I can tell, there really aren’t a whole lot of people playing this
game I’m playing
–
the one Charlie Munger laid out the template for.
So let’s sell
that.
There aren’t, as far as I can tell, many people in the
investment industry who’ve taken the time to actually
understand all these timeless principles of reality.
There are a select few. I know
and talk to
many of them. I hope to meet many more.
I’m not Charlie Munger. Nobody is. Nobody can be. I’m not
trying
to be Charlie Munger.
I’m trying to be
the intellectual
heir
to Charlie Munger.
I’m
just trying to use all of Charlie Munger’s wisdom to make myself
the best Sammy I can be.
That’s why I’m opening up The Process, Sam Hinkie style.
I’ve been hin
ting at this for a real long while now.
And it’s finally here.
Poor Ash’s Almanack represents much of the judgment I’ve built over the past three years, translated into a
format that readers with any level of background (ranging from none to advanced) can
derive value from. It’s
a free resource for ACM clients, other investors, college students, and hopefully people from all walks of life.
It’s not complete. It’s just getting started. It is, as the title of this letter implies, a learning journey
–
for
me
,
most of all
. There is so much left to learn. Creating this resources was humbling, because it made me realize
how much there is that I don’t know, even on the topics I know
about
(to say nothing of the ones I don’t,
yet.) So westward on I go.
I’m no
t concerned
from a competitive
-
advantage standpoint
about sharing it
with the world
, because,
A, it would take anyone
a couple years to fully in
ternalize all of it, even if they
m
ade it their
first
priority.
Much smarter people than me have put much more
thought
-
provoking material into the
world that’s still barely understood.
B, I post full
-
fledged investment theses and it doesn’t diminish our competitive advantage.
C, the number of people who would actually take this knowledge and apply it, in the s
pecific way I
do, to the specific investment process that I do
(small/micro
-
cap concentrated)
, is so small that
there’s room for all of us
–
and if there are other people like me out there, I’m better off knowing
them and collaboratin
g with them than I am
on my own, because I can only cover so much ground.
And I’m capping FPAUM at $50MM anyway, mostly thanks to all the mental models work
–
which teaches,
above all, the importance of not being overconfident, and separating the favorability of your environm
ent
from the strength of your traits. A lack of investment opportunities will never be a (long
-
term) problem.
So. Poor Ash’s Almanack.
It’s comprised of book reviews + analysis, mental models, and guided learning
journeys.
At a zeroth
-
order approximati
on, PAA has roughly ~half a million words, equivalent to ~1,700
standard paperback pages, or about 6 standard
-
length paperbacks. It directly cites over 70
books totaling
over 25K pages. And it covers over 70 mental models, condensed into 37 pages by inte
rweaving closely
-
related models to enrich your understanding and enhance your memory.
PAA combines the communication style that the head of research at a well
-
known multi
-
billion
-
AUM shop
describes as “a joy to read” with the caliber of logic, deep thinkin
g, and pattern recognition that a small
-
cap
fund manager with a stellar 25
-
plus year track record calls “extremely unusual” among the many investors he
talks to
.
And
one beta reader
–
a paying subscriber to the most widely read mental models site, nonetheless
–
said
“Poor Ash’s Almanack seems like the website I’ve been trying to find for a long time
.”
Here’s what makes Poor Ash’s Almanack
the best free mental models
resource
by a wide margin.
2018
-
07
-
02
–
Askeladden
Q2
’
18:
Poor Ash
’
s Almanack:
A Learning Journey
askeladdencapital.com
6
For one, it’s
utility
-
focused.
As Sum 41 might put it, “All Killer, No Filler.” Every page
is designed to help
you
figure out what
you
should learn next. Nothin
g on the site encourages you to waste your precious time on
stuff that isn’t interesting or useful to you. I hunt for high return
-
on
-
time
-
invested books and ideas; I don’t
mindlessly idol
-
worship authors and concepts that contribute no value.
For two, it’
s
highly interlinked
and synthesized
–
latticeworked, you might say. Every page links to
dozens of other pages, allowing you to immediately dive down any rabbit hole of interest and contextualize
what you’re learning with additional perspectives and resou
rces. I synthesize a lot of different ideas and
sources in unusual ways that you won’t find anywhere else.
For
three
, it’s
fun and
approachable.
I don’t pretend to be some guru on a mountain, gracing y’all with my
presence. I don’t pretend that I’m part
of some enlightened elite.
I am just a guy with an Amazon Prime
subscription, a
keyboard
, and an abnormally high tolerance for using all of my
floor
space
(some
days literally
all of it)
as book storage.
I read stuff and
takes notes on it and
think about it, and when those thoughts are
useful, I write them down in a for
m you can hopefully understand.
Where should you start? Oh c’mon, don’t ask me to pick my favorite child.
You see, it’s
especially hard for
me because I don’t even have a girlfriend yet, let alone any kids. By
inversion
, I suppose we can safely
eliminate the red
-
headed kiddo as a candidate for “favorite” status, but it’s an open question from there...
As a writer and former high school debater, I think the
culture / status quo bias
model is executed best,
or
maybe the
zero
-
sum vs. win
-
win games (arms races, relative vs. absolute skill)
model,
and I even
managed to tie in one of my favorite topics and perhaps the most important mental model on the site. It’s
not,
like,
Jonathan Waldman level writing
. I’ll never be that good. But it’s some of my best.
As a thinker, I’m most proud of my synthesis in the
cognition / intuition / habit / stress
mental model
.
It took a deceptively extensive amount of reading, thinking, and synthesizing to create that.
As a human being, I think the
structural
proble
m
solving
/
choice
architecture
mental model is the most
important model that nobody ever talks about (except Richard Thaler and Don Norman, which is why the
alternate working title for PAA was “
Official
RichardThalerAndDonNormanFanClubDotCom.”
)
Runners
-
up
would be the
multicausality
/
disaggregation
mental model, the
human
memory
mental
model, the
luck vs. skill / path
-
dependenc
y / process vs outcome
mental model, and the dose
-
dependency section in the
nonlinearity
mental model
, both because dose
-
dependency is important to
understand, and because
it doesn’t take a whole lot of
Tylenol (acetaminophen / paracetamol)
to
kill you and
surprisingly few people know that
.
And of course, as a value investor, I’d be remiss if I didn’t tell you that there’s a very comprehensive, 5,000+
word
margin of safety
model.
That o
ne
even includes throwaway jokes about what value investors and
management consultants would get
a tattoo of after a drunken night
–
and where. (Salacious!)
But really, you can’t go wrong with any of them. Especially the ones that have Office Space or So
uth Park
references
, or even
both
at one time
.
So what are you waiting for? Go find something to read on Poor Ash’s
Almanack.
(And please do read
“Why We Sleep.”
)
My next step
is taking
the lessons from PAA and using them to
i
mprove our
already
-
robust research
process
to maximize our chances of identifying more ideas like the wonderful ones we o
wn today.
Stay tuned for
more on that
...
hopefully by the year
-
end letter.
Westward on,
Samir
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