The Digest #21

Published on May 13, 2020

In Today’s Issue:

  • Farnam Street’s Great Mental Models – Volume 2
  • Will People Return to Gyms? 
  • Peter Buffett Has No Regrets
  • The Architecture of Music

To read last week’s newsletter please click here.

Farnam Street’s Great Mental Models – Volume 2

Shane Parrish, Founder of the Farnam Street website, is on a mission to help people “master the best of what other people have already figured out”. Farnam Street, which is named after the street where Berkshire’s Hathaway’s Omaha headquarters is located, has been a favorite resource for the investing community. But rather than providing stock write-ups and commentary, Parrish has focused on helping readers increase their “worldly wisdom”.

At first glance, the idea of devoting scarce time to an exploration of fields as diverse as chemistry, physics, and biology in search of mental models might seem like an indulgence that few can afford. However, trying to navigate a complex world without a multi-disciplinary foundation is very difficult and can create blind spots. In our modern economy, there is a tendency to over-specialize in very specific areas but doing so without a broader array of knowledge can make us more exposed to unexpected shocks. I reviewed Volume 1 of Farnam Street’s Great Mental Models series in January and mentioned in in the newsletter at that time. Volume 1 covered various “general thinking concepts” and provided an introduction to the mental model concept.  Volume 2 of the series, which I reviewed this week, delves into the models from physics, chemistry, and biology.  

The books in this series are not “textbooks” and readers who are hoping for an in-depth scientific explanation of topics such as thermodynamics will be disappointed. What Parrish does provide is enough context and background for any intelligent and curious reader to grasp the basic concepts and to see how they may be applied more broadly. For example, the concept of inertia comes from physics but can be applied in numerous business contexts as well. Readers who are curious about the science behind the models are given numerous references where they can obtain further information. 

Click here to read The Rational Walk’s review of Volume 2

Will People Return to Gyms?

The closures put in place due to the COVID-19 pandemic have impacted countless industries over the past several weeks. As state and local governments slowly reopen over the coming weeks, we will begin to see whether changes in consumer habits and behavior during the lockdowns will be temporary or permanent. 

Going to the gym is a ritual that many people enjoy, especially the higher end establishments that cater to affluent customers in major cities. Going for a workout can be motivated by more than just exercise. It can also be a social experience for many people. However, the fact is that it has long been possible to get a good workout at home, as a recent Wall Street Journal article pointed out. And the type of home workout involved isn’t necessarily working with dusty weights or an ancient stationary bike in the basement. It is now possible to participate in live-streamed workout sessions with others, replicating certain aspects of the in-person experience that traditionally draws people to the gym:

ClassPass, a subscription service that originally focused on providing physical access to a variety of fitness centers, began selling live-streamed barre, Pilates, aerobics and other classes in March, and now offers more than 50,000 on-demand workouts a week, some free and some up to $20 a class. Before the coronavirus outbreak, the majority of ClassPass subscribers attended workouts in studios near where they work or live. Now, more than 50% of ClassPass’s digital customers have joined virtual classes hosted by studios in another city.

A catalyst is often the cause for sudden shifts in an industry that otherwise might have taken a long time to develop. There are many activities that have traditionally taken place in person that could technically be done remotely. COVID-19 has forced many of us to substitute remote solutions and, perhaps surprisingly, some people have found that they prefer the convenience offered by technology. When these alternatives are also cheaper, the value proposition may be too enticing for a significant percentage of consumers to resist.

Peter Buffett Has No Regrets

In 1977, Peter Buffett received his share of an inheritance from the sale of his grandfather’s farm. Warren Buffett had reinvested the $90,000 proceeds in Berkshire Hathaway stock which Peter received at the age of 19. Peter sold the stock which would be worth $200 million today but he has no regrets whatsoever.

Perhaps he would have had regrets if the sale of the stock was used to purchase a car or some other depreciating asset that would be long gone over four decades later. However, Peter used the $90,000 to pursue his dream of becoming a musician. His story was told in a recent article published by CNBC but the story is not new. Back in 2010, a very similar article appeared pointing out that the $90,000 would have become $72 million if it had not been sold.

Apparently, Warren Buffett supported his son’s decision, as this excerpt from the 2010 article indicates:

With help from my father, I worked out a budget that would allow me to conserve my capital as long as possible. I moved to San Francisco, where I lived very frugally—small apartment, funky car. My sole extravagance was in expanding my recording equipment. I played the piano, wrote tunes, experimented with electronic sounds. Then I put a classified ad in the San Francisco Chronicle, offering to record all comers in my studio.

Peter got his break in music and has released over a dozen studio albums. Does he have regrets? After all, he could have left the money invested and pursued a higher paying career. According to the article, he has no regrets: 

“I used my nest egg to buy something infinitely more valuable than money: I used it to buy time.”

The Architecture of Music

Almost everyone enjoys music but in most cases, our relationship with music is fairly casual. We know what sounds good to our ears, set up our streaming account accordingly, and technology takes it from there. However, understanding the basics of how music is constructed reveals an “architecture” that may be surprising. Like peeling an onion, we may discover layers of complexity in our favorite music that we never consciously realized was there.

In a 2016 podcast interview, Shane Parrish interviews Alexander Shelley, chief conductor of the Nuremberg Symphony Orchestra and music director of the National Arts Centre Orchestra in Ottawa. They discuss the power of live performances, the manner in which members of an orchestra interact in extremely complex ways, how the structure of music has changed over the years, and why Beethoven’s 5th Symphony is perennially popular. 

Anyone interested in music will find this interview fascinating.

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Copyright and Disclosures

Nothing in this newsletter constitutes investment advice and all content is subject to the copyright and disclaimer policy of The Rational Walk LLC. 

The Digest #21