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The Law of Large Numbers: What Six Dice and Insurance Companies Teach Us About Reality
The world is full of uncertainty, yet we constantly make decisions based on small samples—short-term results, a few experiences, or limited data. This often leads us astray. The Law of Large Numbers (LLN) is the mathematical principle that pulls us back to reality. It tells us something simple but powerful: Small samples create noise. Large…
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Businesses – The Great, the Good and the Gruesome
When evaluating businesses, it’s essential to recognize which ones create lasting value and which ones struggle to stay afloat. Inspired by Warren Buffett’s insights, let’s break them down into three categories: The Great Business A great business has a strong competitive edge—what Buffett calls a “moat”—that protects its profits. This could be a globally trusted…
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What Is Your Free Cash Flow Per Month?
Introduction Have you ever wondered what the financial health of your personal life looks like? In the world of business, companies use a key metric called Free Cash Flow (FCF) to measure how much money is left after covering all necessary expenses. But what if we applied this idea to personal finance? Understanding your “free…
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What Is Your Moat?:
What Is Moat? “A truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business ‘castle’ that is earning high returns. Therefore, a formidable barrier such as a company’s being the low-cost producer (GEICO, Costco) or possessing a powerful…
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Margin of Safety: An Engineering Perspective
“The margin of safety is always dependent on the price paid. It is available for absorbing the effect of miscalculations or worse than average luck.” — Benjamin Graham, The Intelligent Investor Source: https://www.sciencedirect.com Introduction I recently attended a seminar on compressors, where we discussed anti-surge control and its implementation through control systems. Compressors are critical…
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Camel vs Elephant: A Comparison Through Capex:
I love elephants as animals because they are huge and look majestic. I’ve heard many good things about elephants, such as their ability to walk long distances daily and their exceptional memory. On the other hand, camels might not look as impressive, with their thin legs, uneven backs, and large lips. But camels are renowned…
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Pizza A vs. Pizza B: A Simple Way to Understand Outstanding Shares:
The picture above shows two pizzas, Pizza A and Pizza B. Both are the same size, but Pizza A has 8 slices, while Pizza B has 16 slices. Pizza A can be shared among 8 people, and Pizza B can serve 16 people, though with slightly smaller portions. Which would you prefer: Pizza A or…
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Striking Rate vs. Batting Average in Investing:
I was born in India in the 80s, so cricket has always been close to my heart. Like many, I grew up idolizing Sachin Tendulkar, praying he would stay on the pitch longer than anyone else. If Sachin got out, it often felt like India’s chances of winning were fading. He was a model of…
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