Highlights from The Obesity Code

Highlighting a few lessons from The Obesity Code

Published on:
September 28, 2019
Written on:

About The Author

Noam Ganel, CFA is the founder of Pen&Paper, a value-oriented, contrary-minded journal of the financial markets. Noam worked as a Vice President in Capital Markets at Silvergate (publicly traded on NYSE under SI since Nov-2019.) At SI, which he joined in 2010, Noam was responsible for advisory services to family offices,  private companies, and financial advisors.

Jason Fung's book about what causes obesity has valuable lessons for students of financial markets. The first lesson is that investing requires a lattice work of mental models [1]. The second lesson is that investors should be wary of the brokerage industry's agenda. The third lesson is that we tend to reduce our knowledge to sound bites, but we should carefully examine our choices. This article is about my favorite highlights from the Obesity Code.

1. Life is multifactorial

Just as there is no single factor that causes obesity, there is no single formula for identifying value. There are multifactorial reasons which, when put together, bring the analyst closer to the economic truth. Some of the common multifactorial reasons include: industry, competitive landscape, management, brand awareness, franchise value, the company's relative and absolute valuation [1] and financial information, such as valuation and leverage ratios.

"The multifactorial nature of obesity is the crucial missing link. There is no one single cause of obesity. Do calories cause obesity? yes, partially. Do carbohydrates cause obesity? Yes, partially. Does fiber protect us from obesity? Yes, partially. Does insulin resistance cause obesity? Yes, partially. Does sugar cause obesity? Yes, partially." [page 216]

Investing is more art than math. Investors should read about management; decipher its character and integrity as those qualities are more important than any price to earnings or price to book value ratios. While it is fairly easy to arrive at the return on invested capital ratios or trends in net profit margin, investors should use the bulk of their understanding on whether the company's product or service will be in demand a decade from today. And numbers won't always answer this question.

The relationship among the factors is important, too [2]. Consider the following example of how various factors are related: home prices rise, lenders are loaded with capital to deploy, middleman (such as brokers) are hungry for deals and you get the 2007 real estate debacle.  

2. Everyone has an agenda

How to market services and products is now studied as an academic degree. It is little surprise that with growing research into how our minds work, marketing's influence on us is growing each year. (Almost all MBA programs now require candidates to read Robert Cialdini’s Influence: The Psychology of Persuasion as part of their required reading list).

"In 1988, the American Heart Association decided that it would be a good idea to start accepting cash to put its Heart Check symbol on foods of otherwise dubious nutritional quality."[page 110]

Brokerage firms, not unlike health companies, may not have your wellbeing in mind. Brokerage firms earn more money the more you execute trades. They also earn money by lending the capital they hold (similar to the banking business model.) So, the industry welcomes frenzy stock trading activity.

The brokerage industry will also sell practically any investment product, be it an ETF, option or cryptocurrency, as long as there are investors willing to buy it.  

The brokerage industry has an agenda. And it may not coincide with yours.

Yet the brokerage industry often gets it wrong. For instance, it took over 30 years for the industry to embrace index-fund trading. In an interview with CNBC, the late John Bogle said he was accused of being "un-American." In short, the brokerage industry has an agenda. And it may not coincide with yours.

Jason Fung's book about obesity
Jason Fung's Title

3. Reductionism

Nassim Taleb called the phenomenon of taking complex issues and simplifying them to the point they become meaningless as soundbite culture. He was describing Wall Street culture: where stock commentators are bullish on stocks because of rumors; because management is buying back the stock; or because of the industry's tailwinds. Stock commentators break apart a business into its individual parts. But to make a sensible investment, investors need to put the parts back together.  

"An avocado, for instance, is not simply 88 percent fat, 16 percent carbohydrate and 5 percent protein with 4.9 grams of fiber. This sort of nutritional reductionism is how avocados became classified for decades as "bad" food due to their high fat content, only to be reclassified today as a "super food." [page 205]  

Reductionism does not work in business analysis because business fundamentals change over time. When the price of crude oil was about $100 in 2014, investors valued gas and oil companies at 15 to 20 times the earnings multiple. As crude oil prices halved to $54 by 2018, valuations of gas and oil companies dropped to the single digits.

Stock commentators break apart a business into individual parts. But to make a sensible investment, investors need to put the parts back together.

4. Building resistance

In The Obesity Code, Fung demystifies type two diabetes. When we eat food - be it carbs, fats or protein - insulin kicks in. Insulin, in return, regulates how much sugar is in our blood. If we eat all the time, insulin is constantly working and its effect on the body eventually wears off.

"The human body is characterized by the fundamental biological principle homeostasis. If things change in one direction, the body reacts by changing in the opposite direction to return closer to its original status. For instance, if we become very cold, the body adapts by increasing body-heat generation. If we become very hot, the body sweats to try to cool itself."

While reading about insulin resistance, I thought about my ill-habit of daily checking the price of stocks in my portfolio. Colleagues of mine even get notified when a stock price jumps or declines in value every hour; it is a subtle, subconscious trigger to act [3].

Doctor fung's answer to type two diabetes is intermittent fasting. I plan to use the technique for stock investing.

Fung's answer to reduce the probability of type two diabetes is intermittent fasting [4], which focuses on the time between meals. I am taking that advice to stock investing. To reduce fatigue, I intend to delete the five stock trading apps on my iPhone and to monitor business actions (8-k filings) from now on, and not price movements.


"My number one priority in life, above my happiness, above my family, above my work, is my own health," said Naval Ravikant, AngelList founder, on a Farnam Street Podcast. "Because my physical health became my number one priority, then I could never say I don't have time...I do not start my day, and I don't care if the world is imploding and melting down, it can wait another 30 minutes until I'm done working out."  

Both physical exercise and nutrition are important for us. The two constitute a large part of our wellbeing. Visit Doctor Fung's website for details.

[1] Visit Farnam street for a discussion on mental models. Or read Bevlin's book about the subject.  
[2] Charlie Munger refers to this relationship as the lollapalooza effect.
[3] If the price of the stock dropped, it triggers a sell sign.
[4] Healthline.com has warning cautions about intermittent diet.
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