I made a post on a new blogging platform steemit. You can read the post here 2017 was indeed a bullish year in hindsight.
Steemit is a blogging and social networking website on top of the Steem blockchain database. The Steem blockchain produces Steem and Steem Dollars which are tradeable tokens users obtain for posting, discovering, and commenting on interesting content.
Low hanging fruit is tasty. It is actually tastier than the one hanging higher on the same tree.
Fruits can grow on any branch of a tree. Usually, the fruit quality is distributed evenly all over a tree (e.g.: rambutan). However, based on the position or altitude of the fruits, some are easier to reach than others. This is because fruit tree can sometimes grow really tall like a skyscraper.
Those within arm reach are easier to harvest than those hanging high at the top of the tree. Therefore, the cost of harvesting is higher for the higher hanging fruits. Not to mention that the risk of injury is also higher if there were accident when climbing the tree.
When the fruit quality is about the same, I prefer the low hanging fruit over high hanging fruit. It is tastier because the effort spent in harvesting is lesser. When there are enough low hanging fruits, I can safely ignore the high hanging ones.
Life is uncertain because it is complicated and governed by randomness. I spent a lot of time thinking about luck and randomness in life. And I find two factors that have great influence on luck:
Where you started matters. Some places will have more resources than others. For instance, some places have gold mines and some others have oil. Some are deserts.
Initial condition even determines how successful a person can be. I read the following example from an article.
Imagine two equally capable graduates looking to become a professor at a highly reputable university. However, the university only has one spot available. Since both graduates are equally qualified, one of them will be chosen while the other need to look else where for work (e.g.: at a lower rank university).
The graduate who becomes a professor at the highly reputable university has greater access to resources: better students therefore lesser work at teaching, better tools and equipments for research therefore more productive and more academic papers are published and becomes more well-known in the academic circle.
The other graduate who becomes a professor at a lower rank university need to work and teach harder since the university has looser criteria for selecting students. The professor is also less productive due to lack of resources and time for research.
In the end, one professor is judged as extremely successful while the other not so due to the initial distribution.
In a poker game, just like in the game of life, people are being dealt with different cards. Those cards determine the initial condition.
Where the fruits are being distributed over a tree is the initial condition. Where you are located is also the initial condition.
Different initial conditions put different people into power. CEO has great access to company’s resources and therefore power to change the environment the way she likes.
No matter where you started, you can accumulate resources that are available to you by focusing on the low hanging fruits. You can collect as much low hanging fruits as possible that are accessible to you. By the time you accumulated enough resources, you can create your own luck.
Having resources allows you to change your environment. In other words, the more resources you have, the luckier you get. I can even go as far as claiming that how much resources you have is a measure of how much luck you get.
Luck is proportional to the amount of resources that you have.
Low hanging fruit is luck in disguise.
Something that you had tried very hard to obtain can cost a lot. Trying too hard is not the right thing to do given that you have limited resources.
The point of low hanging fruit strategy is not to try too hard but to identify your low hanging fruit as not to waste it: the low hanging fruit that is available uniquely to you given your initial condition.
Low hanging fruit is available for you and is what you can easily reach for. It is your advantage. It is what money cannot buy. It is your edge.
Everyone is in his/her own unique position in space and time to exploit his/her low hanging fruit available to him/her.
Harvesting low hanging fruits significantly reduces risk of failure. It is robust. It gives margin of safety as in providing high return with low risk.
In computer science’s term, low hanging fruit has low computational cost. It is something that is easy to do.
When there is too much to do, pick the easiest tasks with the highest payoff. Over time, you will accumulate much more resources this way.
Overall, we have done better by avoiding dragons than by slaying them. – Warren Buffett
I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over. – Warren Buffett
When you are a giant, you can easily walk over a 1-foot bar. You can even help others to cross the 1-foot bar. It is harder when you encounter a 7-foot bar. In this case, you need other giants to help.
Everyone is unique and has different strength. Some might be a giant in one domain but weak in others as illustrated in table below.
| Person/Domain | Domain A | Domain B |
|---|---|---|
| Person 1 | Giant | Dwarf |
| Person 2 | Dwarf | Giant |
If I have seen further than others, it is by standing upon the shoulders of giants. – Isaac Newton
Do what you do best as you are already a giant in your domain. You can easily cross as many 1-foot bars as possible in your domains.
The 1-foot bars are your low hanging fruits.
Over time, you have gone a long way and collected more resources and you might be able to grow and become a giant in other domains. The condition will change, just as the initial condition changes at different point in time and space.
Look for the obvious things. Things that are obvious to you may not be obvious to others. You can see opportunities where others don’t.
Be the best in your domain is rewarding.
In the stock market, whenever there is someone saying the market is overvalued, other will point out that he/she is still able to find undervalued stocks and profit from them.
Exceptions are everywhere. Exceptions are part of our life. It is part of the rule. There will always be exceptions as there are outliers in a normal distribution.
Outlier
The market is big. You will get different conclusion based on how you approach your search and also based on your initial condition.
Peter Lynch’s famous advice is to buy what you know. This can be translated into grab your low hanging fruit relative to you.
Warren Buffett has been harvesting low hanging fruits for his lifetime with unbreakable investment record.
Exceptions are low hanging fruits in disguise. Find your exceptions. Your initial condition may put you at exceptions.
There will not be many exceptions. They will not be available all the time. But it is better to have one exceptionally good idea from time to time than to have 100 average ideas all at the same time. The former is much more enjoyable while the latter is overwhelming.
That is the beauty of exceptions. That is why low hanging fruit is tastier.
You will find something as long as you are searching. Low hanging fruits are everywhere.
Exception is part of the rule. Whenever other says there is no hope, you know better.
Explore and exploit low hanging fruits. It is your best bet. It provides a framework for optimal decision making for maximising the use of resources.
The best thing in life is free. The second best thing is cheap. The worst thing is expensive. Low hanging fruit is cheap and sometimes it is free. Look for free things.
Hunt for low hanging fruits. The world is your playground.
Behavioural finance is a relatively new field in the financial world that explains why people make irrational financial decisions. It is mostly influenced by Daniel Kahneman, the author of the best selling Thinking, Fast and Slow and a Nobel prize winner for his contribution in this area.
Daniel Kahneman, together with Amos Tversky, developed prospect theory that describes how people make decisions under risk and uncertainty.
Prospect theory provides insight on the phenomena where people consistently make irrational decisions under uncertainty where they are expected to maximise their wealth which is typical in economics model. Their behavioural biases often lead them to make irrational decisions that make them worse off.
It is a breakthrough discovery. However, the theory does not explain how people behave when there is too much “certainty” (when there is nothing new happening in their everyday life).
I would like to know how people behave when there is too much certainty (where they think they know what is going to happen)?
What would happen when people eat the same food over and over everyday for their life? They would get bored even if the food involved is their favourite food.
Theory of Boredom is a complementary theory to prospect theory. It explains how people behave under too much certainty. It explains why people do things they do when they are bored.
Theory of Boredom suggests that under situation where there is too little change, people make dumb (wealth destroying) decisions on purpose just to see some action.
Boredom kills (literally) certain people. They make decision because they want something to happen. People act irrationally because of boredom.
In the case of stock investing, they sell good stocks simply because the prices don’t move. They act on impulse.
The impact of boredom in human’s life is huge. Life is a long journey which is filled mostly with mundane activities.
Combining theory of boredom with the prospect theory, it seems that human behaves irrationally most of the time under both high certainty and low certainly situations. Situation where there is high certainty is now. Situation where the is low certainty is in future.
We need to protect ourselves due to our limited rationality. We are sane only up to a point. We are not sane all the time.
Having the capability to endure boredom is key to extraordinary achievement.
There is scientific evidence for this. Remember the marshmallow experiment that studied delayed-gratification? Kids were given a treat (marshmallow), they could eat it immediately. However, if they could wait for 15 minutes, they would get another treat. There are correlations between the results of the experiments and the success of the children many years later. Those who got the second treat “were described more than 10 years later by their parents as adolescents who were significantly more competent.”
People who can endure boredom have higher chance to succeed. They practise more when learning a new instrument. They can do the repetitive task to perfection. They don’t make stupid decisions just to see ACTION.
People give up because they are bored.
In another words, people who can endure boredom have grit. There is a best seller book Grit: The Power of Passion and Perseverance by Angela Duckworth which talks about the merit of grit.
Once being asked how he makes money, he answered “By snoring.”
Most of the money Warren Buffett earned is in the waiting. Indeed, according to report, in 2013 alone, Buffett made $37 millions every single day by doing nothing. For us, it is like hitting jackpot every day.
He earns more in one day than the majority earn for their whole life (or even multiple life times).
If Buffett was bored of seeing the same thing happening everyday, he might decide to make changes to get excited even to the detriment of his portfolio. However, he didn’t.
The ability to conquer boredom is one of the most underrated skills.
Good things take time to develop. This is especially true in stock investing. A 100-bagger takes an average of 25 years to deliver as documented in 100 Baggers: Stocks That Return 100-To-1 and How to Find Them.
Imagine waiting for 25 years doing nothing for your investment portfolio. Most people would go insane. They would give up as predicted by the theory of boredom. Therefore they won’t live to see the result of 100-baggers.
As Charlie Munger points out, human achieves great things by avoiding BIG mistakes. It is less about making wise decisions. “It is just avoiding stupidity.”
What Charlie said has deep implication: it means that anyone with common sense can be successful as long as the big mistakes are avoided.
Some people are able to conquer boredom because they are not bored in the first place. They allocate their attention to the right place. Attention allocating skill is an important concept. People who have a better control of their mind have a better attention allocating skill.
Research (as documented in The Organized Mind: Thinking Straight in the Age of Information Overload) shows that by simply focusing on object A makes you ignore object B.
How not to think about a polar bear? By thinking of an elephant!
These people have a goal. Their goal is a story that they belief in. They have a “belief” system.
For instance, if you believe in education and its grading system, your grade is a mere reflection of how much you believe in the system. People who believe in the system will get a better grade than those who do not believe in it.
The same goes for wealth building, your wealth is a mere reflection of how much you believe in the economic system.
The more you believe in something, the more you invest your TEA (time, energy and attention) in it.
Different belief leads to different decisions and thus behaviour. Different behaviour leads to different outcome.
Having a belief system is useful because the system rarely change but our emotion is. Our emotion tricks us into irrational decision of abandoning the system.
Theory of boredom describes the behaviour of people who don’t have a belief system. These people will get bored easily and commit stupid mistakes.
However, it is not enough to have any belief system. Having the wrong belief system is more damaging than having none at all.
A belief system must be based on value with solid reasons behind.
Here are two example mindsets that I find useful as a guide to create a belief system:
Having a belief system makes the world a meaningful place. It is no longer boring at all.
It is the mindset that we have that matters in the end. The world outcome depends on how we see thing. It is all in our mind.
Remember how Buffett makes money? By snoring. There is so much to learn from one of the world greatest investors.