Sure, it's far different doing daily training to get those concepts ingrained in your mind so you don't have to actively think about them, but it's nice to see them listed like this.
Here are a couple more:
- Overconfidence bias: we usually think we're better than the average on something we know how to do (driving) and worse than the average in something we don't (juggling), even if almost nobody knows juggling and everyone knows how to drive
- No alpha (aka can't beat the market): you can only consistently beat the market if you're far better at financial analysis than a lot of people who do it every day all day. So don't bother trying.
- Value chain vs. profits: you'll find that most of the excess profits in the value chain of a product will be concentrated in the link that has the least competition
- Non-linearity of utility functions: the utility of item n of something is smaller than item n-1. Also, the utility of losing $1 is smaller than (1/1000) utility of losing 1000. This explains insurance and lotteries: using linear utility function, both have a negative payout, but they make sense when the utility function isn't linear
- Bullwhip effect in supply chain: a small variation in one link of the supply chain can cause massive impacts further up or down as those responsible for each link overreact to the variation (also explains a lot of traffic jams)
- Little's law: in supply chain (and a lot of other fields): number of units in a system = arrival rate * time in the system
- No alpha (aka can't beat the market): you can only consistently beat the market if you're far better at financial analysis than a lot of people who do it every day all day. So don't bother trying.
I'd argue that you can have alpha if you are better informed than everybody else. Financial analysis is the craft that comes after that. So yes, if all you have is financial analysis don't bother trying to beat the market. But if you have some unique insight, some information that the market doesn't have or doesn't see, then with some added financial analysis on top you do have an advantage that you can use to generate alpha.
You only have to be better informed on a specific subject too. If for example your job involves buying large quantities of two brands of bananas, and you notice that one brand is consistently worse than the other. You now have some unique insight that you could use to speculate on the banana market.
Sure, but insider trading is illegal. So let's say you can only rely on publicly available info, which everyone else has.
Then "unique insight" is financial analysis, plus macroeconomic analysis, etc.
In other words, if everyone have access to the same info, you can only consistently do better than the market by consistently having better analysis than the market. Everyone is seeing the same info, so you don't do better by seeing some piece of info others are not seeing, but by using different weights in your analysis than the market is using.
And even in those cases, the market might stay irrational longer than you can stay solvent.
You work with an oversimplifying model of reality.
Say you've worked in a specific industry for a long time and you know all the players. You know where the technology is, what the challenges are and where the tech is going. You know how key companies are managed, you have an idea about their goals and strategies. You know who's best positioned for what's coming. This is just general knowledge that you've acquired through your job over the years.
Now say you've made enough money and retire. Because you know a thing or two about your industry you decide to buy or sell some stock. Can this be called insider trading? Perhaps. Is it illegal? Most likely not. Can you derive alpha from it? Hell yea.
And how many others have done exactly the same and are writing stock picks or selling industry consulting?
Again, unless you are confident that you're a better expert then everyone else, you shouldn't think you will beat the market with just public info.
Now if you're saying that you keep getting updates insider information from the entire industry WHILE you're trading, well, then you're back to the "insider info" part.
I found it interesting that he didn't outline any models for resolving internal, emotional issues (e.g. relating to spouses, dissolving internal fears/debates, finding the root of personal issues).
I've summaries some of these strategies on my Github account; I call it an "emotional framework".
My only nitpick is on No Alpha, you can't beat the market on securities that everyone is tracking (mid to large caps). Companies with low institutional ownership (usually small or micro cap) are not well-researched so there is still money to be made, provided you obviously do the rigorous work to analyze them. It's the basis for how Warren Buffett got his initial capital before he turned to GEICO and created the megacorp Berkshire Hathaway.
The value/supply chain aphorisms are pretty interesting. Do you know of any books you could recommend to learn more about what can happen in supply chains/logistics and how to accommodate them?
Porter's Competitive advantage is generally considered the bible in this area (value chain and competition).
On supply chain, just look for operations research, a lot of it came from the military and industrial research, but can be applied everywhere, say, dimensioning servers for concurrent users.
Also, keep in mind that supply and value chains are very different. Let's take online mobile ads:
- Value chain: website -> ad platform -> hosting service -> internet connection -> device -> OS -> browser -> viewer -> advertiser
If someone controls the entirety of any of the links, they will hold an excessive market power, and will be able to extract excess profits. Let's say for example iPhones were the only smartphones in existence, Apple would be able to control what through them (unless the government took action in some way), extracting disproportionate profits.
Now if there are 1000 smartphone manufacturers, competition between them would lower prices, pretty much killing excess profits from that link, which could be captured by other links in the chain.
I can't answer the supply chain stuff specifically but if you pick up a book on Queuing Theory and skim the results and theorems for simple queues and queueing networks, you'll make these conclusions yourself.
I'd recommend one but it's been ages since I was an undergrad and I no longer remember specifics.
Sure, it's far different doing daily training to get those concepts ingrained in your mind so you don't have to actively think about them, but it's nice to see them listed like this.
Here are a couple more:
- Overconfidence bias: we usually think we're better than the average on something we know how to do (driving) and worse than the average in something we don't (juggling), even if almost nobody knows juggling and everyone knows how to drive
- No alpha (aka can't beat the market): you can only consistently beat the market if you're far better at financial analysis than a lot of people who do it every day all day. So don't bother trying.
- Value chain vs. profits: you'll find that most of the excess profits in the value chain of a product will be concentrated in the link that has the least competition
- Non-linearity of utility functions: the utility of item n of something is smaller than item n-1. Also, the utility of losing $1 is smaller than (1/1000) utility of losing 1000. This explains insurance and lotteries: using linear utility function, both have a negative payout, but they make sense when the utility function isn't linear
- Bullwhip effect in supply chain: a small variation in one link of the supply chain can cause massive impacts further up or down as those responsible for each link overreact to the variation (also explains a lot of traffic jams)
- Little's law: in supply chain (and a lot of other fields): number of units in a system = arrival rate * time in the system
I'll add more as I think about them.