Tagged: Strategy

Practical Philosophy: Finding Time for Deep Work


Deep Work: Rules for Focused Success in a Distracted World

Rapt: Attention and the Focused Life

The Intellectual Life: Its Spirit, Conditions, Methods


Cal Newport defines Deep Work as activities performed in a state of distraction-free concentration that push cognitive capabilities to the limit. Deep Work is essential in order to quickly master new things quickly, and to produce at an elite level in terms of both quality and speed.

Cal Newport quotes A.G. Sertillanges, a Dominican friar and professor of moral philosophy who wrote in The Intellectual Life

Men of genius themselves were great only by bringing all their power to bear on the point on which they had decided to show their full measure.

Winifred Gallagher concludes in the book Rapt: Attention and the Focused Life that management of attention is the key to improving nearly every aspect of existence. Realizing this is the easy part. The hard part is figuring out how to fit Deep Work into a busy schedule. Newport outlines 4 applicable philosophies for fitting deep work into the demands of a modern schedule.

1) The Monastic Philosophy
This is available to a limited pool of people, mainly tenured professors, and successful authors. Examples include computer scientist Donald Knuth and science fiction writer Neal Stephenson, who both go to extreme lengths to eliminate shallow tasks and communication.
2) The Bimodal Philosophy
Practically speaking, this is about taking a proper holiday, or carefully blocking off certain days for different kinds of work. It need not be long. Carl Jung, on several key occasions in the 1920s retreated to a house in the woods in order to work on writing, but spent most of his time to living a very active social life in Zurich. Adam Grant, a famous business school professor is, is very active with university responsibilities most of the time, but when working on a book, he’ll cut himself off from most office communication for 2-4 day periods.
3) The Rhythmic Philosophy
This is perhaps the most practical method for most people. Basically, it means creating a simple regular habit of deep work. Combine a simple scheduling heuristic, and an easy way to keep track.
One suggested method is to get up 90 minutes earlier and spend the extra time on deep work(this happens to be the method used by yours truly to get more reading/writing/coding done )
4) The Journalistic Philosophy
This seems like it could be combined with the rhythmic philosophy. In essence it means getting deep work in whenever you can fit it. It does require strong attention discipline(but like muscles, this can be trained). Walter Isaacson managed to write his first 800+ page book while working full time as a journalist using this method.  (us mere mortal can use noise cancelling headphones as an aid in applying the journalistic philosophy of deep work)

Newport also offers two suggestions for ramping up the amount of deep work one does.

  • Beware of distractions and looping. This is when the brain wanders into unrelated issues when it should be focused on a critical task. Newport used the example of when his brain would rehash preliminary results over and over again when he was trying to work on a proof.
  • Structure deep thinking. Identify relevant variables, define the specific next step questions, and once it is solved , consolidate the gains by reviewing the identified answer. Approach problem solving methodically.

Cialdini’s Law of Data Smog

In the classic book Influence, Robert Cialdini outlines six principles(reciprocation, liking, social proof, authority, scarcity and consistency) that represent psychological universals in persuasion. In general, all these persuasive techniques exploit people’s heuristics. The proliferation of information in this digital age means people need to rely more on heuristics than ever before. This has broad and deep consequences.

Because technology can evolve much faster than we can, our natural capacity to process information is likely to be increasingly inadequate to handle the surfeit of change, choice, and challenge that is characteristic of modern life. More and more frequently we will find ourselves in the position of the lower animals, – with a mental apparatus that is unequipped to deal thoroughly with the intricacy and richness of the outside environment. “ ­ Influence

One of the thirteen laws of Data Smog outlined by David Shena is Cialdini’s Law: Though culture moves much more swiftly than evolution, it cannot change the pace of evolution. This of course leads to a dangerous situation, where the unwary can be tricked into making dumb decisions. Worse yet are the broader societal consequences.

In the electronic age, a good lie well-told can zip around th world and back in a matter of seconds while the truth is trapped, buried under a filing cabinet full of statistics.”Data Smog

Cialdini’s follow up book, Pre-Suasion discusses how persuasiveness can be enhanced by carefully crafting what is done and said before making a request. Information overload also makes people more susceptible to the “presuasive“ techniques:

“…(1)what is more accessible in the mind becomes more probable in action, and (2)accessibility is influenced by the informational cues around us, and our raw associations to them….

In addition to its time-challenged character, other aspects of modern life undermine our ability (and motivation) to think in a fully reasoned way about even important decisions. The sheer amount of information today can be overwhelming- its complexity befuddling, its relentlessness depleting, its range distracting, and its prospects agitating. Couple those culprits with with the concentration-disrupting alerts of devices nearly everyone now carries to deliver that input, and careful assessments role as a ready decision-making corrective becomes sorely diminished. Thus a communicator who channels attention to a particular concept in order to heighten audience receptivity to a forthcoming message- via the focus-based, automatic, crudely associative mechanisms of pre-suasion- won’t have to worry much about the tactics being defeated by deliberation. The calvary of deep analysis will rarely arrive to reverse the outcome because it will rarely be summoned.”Pre-Suasion

Summon the calvalry of deep analysis

What can one do about this?” Hueristics are necessary to function in the modern world, but they must be examined from time to time. The calvary of deep analysis must be summoned for big decisions. Cialdini also recommends forceful counters assault. Recognize the tricks being employed are often enough to blunt their force, but in other cases it may be necessary to aggressively fight against the tricks. These books are a great place to start.


Using Old Books to Exploit New Media

Trust Me, I’m Lying: Confessions of a Media Manipulator exposes the twisted incentive system that makes the media susceptible to manipulation, and the boiler room environment in which much of the “news” is manufactured. The book outlines tricks used to steal people’s time and attention. while serving some other agenda.  By understanding the logic behind business choices that the media makes, readers can better predict and anticipate actions(some might even be able to use the book to redirect, accelerate and control stories). It was written back in 2012,  but after reading, it makes sense that clickbait could help swing an election.

In the the book Ryan Holiday also hints at what gives him an intellectual edge:

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The Hard Thing About Finding Easy Things

 In the The Art of War, Sun Tzu wrote that those who excel in warfare do so because they seek out battles that are easy to win. Similarly, Warren Buffett wrote that he likes to look for one foot hurdles to step over, rather than trying to jump over seven  hurdles.  Of course actually finding  easy battles, and one foot hurdles is itself quite challenging.   If it was easy market forces would ensure that it quickly becomes hard. With so much brain and computer power dedicated to financial markets, there are few areas of opportunity left worth exploiting.     However,  by developing a behavioral and structural edge,  one can act on the rare opportunities, and  perform better than those that theoretically have an analytical and informational edge.

How can one develop a behavioral edge? Cultivating the right habits in order to be physically and mentally healthy goes a long way.  Considering carefully what media to read is important to avoid being overwhelmed by noise. Finding time to think requires excellent resource management. It requires discipline to be willing to work on a name for months, only to pass on it, or to wait for months or even years for the right business to become cheap enough.  Some might not enjoy spending hours reading about obscure nanocaps or corporate transactions, while ignoring popular stocks in the news.  Some people seem naturally more willing to be contrarian, but I doubt anyone finds it easy all the time, especially during drawdowns.  Being fearful when others are greedy, and greedy when others are fearful is harder than it sounds.  Checking oneself for cognitive biases before any major financial decision is important.  This is not an easy process, since cognitive biases have biological roots.  I like to take a “red cell” approach, and try to understand potential short arguments for any stock I own.      The connection between action and consequence is usually delayed in markets.     It requires a lot of discipline, double checking and introspection to  make your way through the vicissitudes of investing.

The cultivation of a structural edge is also nuanced.  If you have developed a behavioral edge, then you can probably manage your personal finances in a way that allows your personal accounts to be invested for the long term. This requires maintaining excess liquidity at most times.  If you manage money for other people, you have to be really careful who you take on as a client. If a client has a shorter time horizon than you, or are likely to need to pull money suddenly, the impact can be devastating.  This is a difficult tradeoff, especially for small funds, since more AUM means more fees right away. With the right clients a capital markets disruption is a major opportunity, with the wrong clients it is a disaster.  Whether in a personal account or a fund, simply having a long time horizon  and a liquidity cushion can be a major source of long term alpha.

If one chooses to look at what other’s don’t  one may actually end up with an analytical and informational edge in areas with less competition. I like to invest in things that are uninvestable for most investors with better resources, whether due to “headline” risk, illiquidity, or other institutional constraints.   For example liquidations, delistings, and anything nanocap  are fertile grounds  for bargains. There are also interesting opportunities in distressed debt, and bankruptcies.  I also  like to look for situations where statistical services(Bloomberg, YCharts, Yahoo Finance, etc) are likely to have misleading or incomplete data, and companies that don’t  fit in a comfortable category.   Sometimes consolidated financials can be deceptive because of accounting rules, especially if a company has made acquisitions, holds real estate and/or holds a portfolio of securities.  I also always make sure to adjust for material events that occurred after the 10-Q or 10-K date in determining a valuation.   Judging by occasional market behavior I don’t think everyone does this.  In any case there is always a gap between accounting reality and economic reality.   The financial statements are just a starting point.

An ideal long term holding is a business that has a major competitive advantage and can easily earn a high return on capital over the long term, even if management screws up.   These businesses are hard to find, and they’re sometimes hidden in a group of weak businesses that screened poorly, or attached to an old business that didn’t work.    Thrift conversions are ignored by many, and easy to understand.  Although the upside for thrift conversions is rarely large, the risk/reward tradeoff is phenomenal.  Key information is often found on the OCC and FDIC websites, rather than in Edgar.   Most OTC securities are ignored by sophisticated and large investors(plus the messiness of sorting through hundreds means  you aren’t competing as much against computers). Sometimes I can get an informational edge by actually bothering to go to the company’s website and/or  buying a token share and calling the company to ask for financials, which one has a legal right to access as a shareholder.

Whatever the investment, I’m only interested in buying if a lot can go wrong before I lose, and just a little going right provides a nice gain.  Finding the right security is hard, but it should be easy to win once its in the portfolio.   “Sifting through the debris of financial wreckage, out-of-favor securities and asset classes in which there is limited competition”,  as Seth Klarman has called it does requires intense discipline and dedication, but provides ample rewards.

The extraordinary delusions and madness of crowds also serves up huge bargains from time to time, but the analysis is much harder.      In all transactions, one must ask,  why is someone willing to take the other side?   I suspect there is more benefit to carefully analyzing my own psychology than to trying to outsmart others.  I’d rather buy from a “non-economic” seller, when possible.   Funds with industry or market cap mandates sell spinoffs indiscriminately.  Funds that manage to an index dump companies kicked out indiscriminately.  Delistings and liquidations are also sometimes forbidden by investment mandates regardless of the actual condition of the business or quality of the assets. I like to look at the portfolios of large concentrated funds that are facing massive redemption or shutting down, or from investors otherwise desperate for liquidity(oops did I say that out loud?).   Sometimes people sell securities for reasons that make sense from the perspective of their job security, but are actually unrelated to the merits of the security being sold.   Of course it takes a lot of searching to find where the right sellers are.

Charlie Munger told Howard Marks: “its not supposed to be easy, anyone who thinks its easy is stupid.”  Indeed, finding easy things is hard.