Seeking Wisdom call and questions
The second call of the Seeking Wisdom reading group that Phil is moderating is coming up March 25.
Tuesday, March 25
The Physics and Mathematics of Misjudgments
12 – 1pm NY time (9 – 10am California time)
1-800-615-2900
1-661-705-2005 itl
code: 11215
*This call will be recorded
This call will cover Part 3 of the book – “The Physics and Mathematics of Misjudgments”. The reading questions are listed below.
—————————-
Reading questions
1. Predictions.
Why are predictions difficult to make? Do you think history repeats itself or rhymes? Do you think it was possible to see that the current credit and housing crisis was coming? How? Four years ago I started warning council members about problems in consumer spending, housing, savings rates and so on. I also said that I could not predict what would happen. Was I right in not making a prediction? Was there something more I should have done to help members prepare for the current crisis and the impact it’s having on the overall economy not to mention their businesses? Side note: let me know if you want a great analysis on the mortgage meltdown that a good friend of mine and value investor recently created.
2. Scale of size and time
Understand the basics of size and time. Why if you double the size of a dinosaur does it weigh six times as much? What are the implications of this for businesses that we build? Why does Buffett call a $20,000 assistant a $3 million decision?
3. Numbers and their meaning
Money has a price? What does that mean? Make sure you understand the basics of the time value of money. Let me know if you don’t (no shame in that!) and we can review it.
4 & 5. Probabilities
Definition of probability by Feynman: “The theory of probability is a system for making better guesses.”
This may be one of the most important chapters. I spoke about probability in my fall lectures. Let’s review it here – we could run an entire reading group on this chapter.
Be familiar with the basics of this whole chapter – concepts like relative frequency, educated guesses, relevant comparison groups, independent outcomes and be prepared to explain why probability provides the foundation for critical insights like: “it’s easier to destroy a system than create one”; “most people think dramatically not qualitatively”; the problem with short-term thinking.
6. Scenarios
The scenario chapter provides an important insight as to why simplicity is so powerful. What is that insight? Be prepared to explain it – and talk about how that impacts your own evaluation of your business and it’s relative complexity or simplicity.
7. Coincidences and miracles
Explain why probability theory counter-intuitively supports Aristotle’s notion that “it is likely that unlikely events should happen.” What is required to make unlikely events happen? In my fall lecture I estimated that members of the Executive Councils have about a 3% chance in any year to realize their dreams of becoming senior management. I then showed how even a small change to that probability *over* time makes it almost a 50/50 proposition. Be prepared to explain my logic.