A couple of months ago I finished reading a book called Richer, Wiser, Happier by William Green! The book presents brilliant insights drawn from interviews with some of the world’s most successful investors around the world.
A similar book for the Indian diaspora which I read a few years back is Masterclass with Super Investors, another excellent book with interviews of legendary Indian investors.
As I was reading the book I came across multiple prominent fund managers and individual investors but was intrigued by an individual named Ken Shubin Stein from Stein Capital Management!
Shubin Stein qualified as a doctor before becoming a hedge fund manager and taught the Advanced Investment Research course at Columbia Business School. Shubin spent two decades as a fund manager at Stein Capital Management, his holding company; which had 400 employees. He is also steeped in science, having done research in molecular genetics, trained as a surgeon and founded the International Concussion Society.
What I found particularly fascinating was that in the service of his professional work, Stein makes a concerted effort to improve the most important area of his life: his health and wellness to hone his investment management skills. This ties in perfectly with my own beliefs – which I have consistently canvassed in these posts – that the benefits of good health and fitness percolate into all areas of our lives: professional work, relationships, and self-confidence.
As taken from the book:
“There are 4 things that we know improve brain health and function- meditation, exercise, sleep and nutrition” Determined to use every tool at his disposal, he exercised strenuously, which also helped him to sleep better. He ate more fish, vegetables and fruit. He renounced his “worst tendencies, including a habit of handling stress by gorging on vanilla ice cream with mashed up chocolate chip cookies and he developed a regular meditation practice- a mission-critical habit for many successful investors”
Mr Stein states how these habits have a compounding effect over the longer term by stating a few examples:
“The reason you meditate is not because it is important on a specific day, regular practice will help you handle the hard setbacks and will keep you constantly prepared for them. Having that practice in place prepares you well. It’s a lot like preventive medicine”
When we think of exercise, we tend to only look at the physical benefits but science has proven time and again as to how exercise has powerful brain changing effects and impacts the way we think and feel:
Improved concentration
Sharper memory
Faster learning
Prolonged mental stamina
Enhanced creativity
Lower stress
Instead of viewing exercise as something we do for ourselves—it’s time we started considering physical activity as part of the work itself. You’re not abandoning work. On the contrary: You’re ensuring that the hours you put in have value.
So is the case with sleep.
A few basic benefits of sleep:
Improved Memory
Stronger Immune System
Higher Energy Levels= Better Productivity
Better Mood
Data from the RAND Corporation on sleep loss and GDP states that the U.S. sustains by far the highest economic losses (up to $411 billion a year, which is 2.28 percent of its GDP) due to the size of its economy, followed by Japan (up to $138 billion a year, which is 2.92 per cent of its GDP). Germany (up to $60 billion, 1.56 percent of its GDP) and the UK (up to $50 billion, 1.86 percent of its GDP) have similar losses. Canada has the lowest financial losses due to lack of sleep (up to $21.4 billion, which is 1.35 percent of its GDP).
Small changes in sleep duration could have a big impact on the economy. For example, if individuals who slept under six hours started sleeping six to seven hours, this could add $226.4 billion to the U.S. economy. It could also add $75.7 billion to the Japanese economy, $34.1 billion to the German economy, $29.9 billion to the UK economy, and $12 billion to the Canadian economy.
A better solution to the money printing fiasco that is ensuing in the global economy- go to sleep earlier.
(I have done an entire piece of sleep and economic loss through sleep)
On a lighter note, investment managers are always on the hunt for companies that are compounding their earnings, why not add sleep as a filter when screening for companies based on the above statistics.
Stein wrote an interesting concept of doing pre-mortems- He teaches his students to imagine themselves in three year’s time, when an investment of theirs has failed, and to write a newspaper article explaining the cause of death! The process involves asking yourself: “Why did this decision prove to be such a disaster”, this notion was developed by an applied psychologist, Gary Klein.
What I found particularly illuminating is the importance that Stein attaches to cognitive biases and the need to guard against them. Cognitive biases are connected with mental and emotional health. They are often caused and influenced by negative emotional states. Mental and emotional health, in turn, have a symbiotic relationship with physical health. And they are all extremely important not merely for our overall well-being but also for effective work performance.
An outstanding explanation of cognitive biases is contained in The Art of Thinking Clearly by Rolf Dobelli.
Stein explains how he is susceptible to “authority bias” as are a lot of us as individuals. This is a cognitive bias which forces us to follow popular investors and replicate their investments. This is a recipe for disaster that many retail investors fall for! To help counter this bias there are 2 questions to ask:
“Have I done the work?”
“And I have independently verified everything”
Contrary to this there is a chapter in the book which mentions how Mohnish Pabrai replicates the investments of popular investors such as Munger and Buffet, however he goes into deep study as to why they would have made these investments and develops his own style of thinking!
There is also a superb talk by Charlie Munger, the legendary business partner of Warren Buffett, wherein he explains the 25 cognitive biases in human judgment. See:
The author mentions how Munger in one his talks (not the one above) states that emotions such as stress, depression, hatred and envy can cause “dysfunctional” thinking and accentuate our cognitive biases.
Shubin Stein uses an acronym, HALT-PS, as a reminder to pause when certain factors might be impairing his judgements and he postpones important decisions until his brain is in a position to more likely function better.
Green’s book refers to a paper published in the Annual Review of Psychology 2015 and its finding that “emotions, powerfully, predictably and pervasively influence decision making” The research focused on how sadness increased tendencies to favor high-risk, high-reward options, while anxiety increased tendencies to favor low-risk, low-reward options.
Apart from this one could say that hormones also reflect investment decisions in the markets, I covered it in detail in my separate piece.
Above all what was most inspiring to read was Mr Stein’s service as a volunteer doctor during the COVID-19 pandemic where he put his own life at risk and the health of his family at risk. What was notable was that in the midst of this nightmare, Stein drew on all the habits of handling emotions during his investment management career which included meditation, exercise, and small doses of meditation. Meditation meant simply “just breathing for ten seconds” in the bathroom before returning to the ICU, all this helped him to have a control on his internal state of mind so that he could overcome emotions such as fear, anxiety, sadness, anger and loneliness. This allowed him to better handle and communicate with his patients!
An important lesson that the author draws from Stein’s account is that we need to be self- aware and honest with ourselves in order to understand when our emotional state is likely to compromise our judgment and performance. This is a vital guiding principle, be it in investing or in life.
This is a very humble and straightforward interview with Mr Stein on his thoughts on business, investing, public health and philanthropy!
“I think that people underestimate- until they get older- they underestimate just how important habits are, and how difficult they are to change when you are forty-five or fifty, and how important it is that you form the right ones when you’re young.”- Warren Buffett
And what is most obvious but most ignored is that perfecting the personal regularly leads to success as a professional, but rarely the other way round. This is my belief, there could be numerous examples proving me wrong but hey I am not here to debate on the same but just penning my views.
Another masterly investor covered in Green’s book is Tom Gayner, the CEO of Markel Corporation. Gayner manages close to 20 Bn $ + of stocks and bonds, a collection of nineteen fully-owned companies and manages around 17,000 employees.
Gayner once weighed more than 200 pounds and proclaimed to his friends that he would lose one pound per year for 10 years. Yes I know that sounds like a ridiculously small number but that’s where the power of compounding comes into play.
Gayner, who is a successful investment manager, understood the power of compounding and used this to his advantage in adding up the loss of weight year over year!
As quoted by Tom:
“If you’re an executive or a money manager who has these kinds of responsibilities, you’re playing the game 24/7. There are no days off. As a consequence, I think it’s very important to be disciplined about paying attention to your wellness, your exercise, work-life balance- all these sorts of things. Such behavior “may not create the outcome that you want, but it improves your odds”
When Green visited him in New York, the lunches and dinners consisted of Caesar Salads, fish, brussel sprouts and a meal topped off with ice cream. Jokingly
Gayner states that the key is to be “radically moderate” and not be an extremist, if one wants to be consistent.
He applies the same principles to his exercise routine. He was someone who hated running but eventually signed up for a 28 day running programme which began with him running a maximum of five minutes per day. This grew to 10 minutes then 20 minutes and so on. He now runs 5 times a day, and has continued this habit for the last 5 years.
He is described as someone who likes to be “directionally correct”
The author had interviewed Gaynor in 2017, when Gaynor weighed 194 pounds. In 2020 Gaynor informed Green that he then weighed 189 pounds. By following his disciplined approach, Gayner was able to . The power of slow incremental compounding!
The conclusion drawn from Gaynor’s account is that “resounding victories tend to be the result of small, incremental advances and improvements sustained over long stretches of time”
A great example of lateral thinking, using the principles of one discipline and applying it in another.
Here is an interesting talk by Gayner on the education of a value investor:
Conclusion:
On a lighter note, I would like to copyright the following admonition to investment managers in my community:
“Investing in your health is an investment that will generate an ROIC of 100% and can be entered at any price multiple with zero downside risk and unlimited upside”
Why would you not make this investment?
As investment managers, we know that there is no fool-proof guarantee of always getting it right. But what we can do consistently is to work on improving our odds.