Multiple Canvases

Life is random, ambiguous, and complex. Sometimes things can be interpreted in multiple different ways. That’s okay. 

We interpret the world through our own controlled hallucinations. We take in information. We process it. We create a picture of what is happening. 

We ignore a whole bunch of stuff that we don’t think is relevant, don’t understand, or just don’t have the capacity to absorb. If something happens in an order that we recognize, then we expect the thing that normally follows. Sometimes even if that event doesn’t happen, we will still experience it because our created reality fills the gaps. When we don’t pay attention because we have “seen it all before”. 

This is helpful. The power of biodiversity is we can try different things. Respond in different ways. Fail creatively. 

The “Curse of Knowledge” is that once you understand something, it is hard to imagine not understanding it. If you can read music, you can’t look at a page of music and not imagine the sounds. 

If you can understand Hebrew, Arabic, or Russian... you will unavoidably experience looking at a page where I see squiggles differently to me. Once you understand a language, you no longer hear just a string of sound. It is no longer just noise with no emotional connection. 

Our collective ability to experience differently creates multiple canvases for understanding.

Big Picture

No one has a view of the whole picture, or the ability to process it. We do not know in advance what the correct destination is, or what our future choices will be. We make our choices based on what we already know, with a limited glimpse forward of the possible consequences of our actions. There are individuals whose choices go against the grain, but if you look at a big enough picture, prejudices and bias starts to show. Daniel Kahneman and Amos Tversky opened up the field of Behavioural Finance and the study of cognitive biases. When you look at groups and group decisions, you can get a sense of how our processes work. This doesn’t mean we aren’t individuals. But we are individuals who don’t live in isolation. Our choices are affected by the choices of those around us. They are affected by the constraints of physics, time, and our very human limits. Context is everything when grasping at the randomness, ambiguity, and complexity of wrestling with personal choices and understanding. 

Big Picture

 

Turning on the Tom Tom

Autonomy suggests individual decision making. If it is abstract (controlled and theoretical), it works very well. In reality, our decisions impact each other in complex, ambiguous, and random ways. How do you handle joint decisions when a path is shared? Tom-Toms are one form of GPS. My wife’s name is Gemma John. We were once driving through an area in Fulham across the river from where I lived in Putney. The GPS was telling us to go one way but Gem was pretty sure we should go another way. So I turned off the Tom-Tom and listened to the Gemma John. Even in an area I knew reasonably well, I had got to the point where I had to decide whether the GPS was doing a better job than me (when in doubt), and whether to trust it or not. At what point do you delegate your decision making when you are in an area you do not understand? Or when someone (or something) can make better decisions than you, even if you believe you have a decent understanding? 

 

Risk Tolerance

Financial Planning starts with a conversation about you and your relationship with money. The goal being to understand your risk tolerance. If you want to still the waves of money anxiety, you are building your capacity to deal with complexity, randomness, and ambiguity. We do not, and cannot, have a complete understanding of cause and effect. We cannot know in advance what the result will be for each path we pick. If we did, we would all just pick the one that took us to our intended destination. The rules are always changing. You cannot just do exactly what has been done in the past, and expect the same result. A good conversation about financial planning starts with understanding you as a person, how you see money, what your goals are, and what you value. You do not get paid for taking risk. You get paid for adding value in monetizable areas others have signaled is in short supply. Risk tolerance is mainly your ability to adapt, adjust, and accommodate. Like physical strength and flexibility, risk tolerance is something you can build through exercise. Then you make money, or your money makes money, by solving problems for decision makers with money.

Point of Focus

Some of our waves of money anxiety are memories. Both of our own experiences and those of the bubble we are born into and raised in. These thoughts that push our decisions in various directions may not even be things we are aware of. The Yoga Sutras call memory waves Smriti, and they can be mighty obstacles. Smriti are not all negative. Some generational strengths get hidden beneath dirt, waiting to be rediscovered and polished. Beneath both the positive and negative lies the permanent. The point of focus that lets us unravel all the randomness, complexity, and ambiguity. Becoming aware of our subconscious, conscious and dreams and building a daily practice around that point.

Relative Size of Sun, Earth and Moon

Creating Calm

“Past performance is used as a guide only. It is no guarantee of future returns. Your investment can go up and down and you may not get back the full amount invested.” This is the standard disclaimer that all asset managers are obliged to make part of the conversation. Investments can, and do, double, triple, quadruple, or go to zero. There is so much noise, and difference between daily, monthly, and annual returns that it bears little resemblance to a salary. Even though your money is working. A salary is more analogous to a dividend. A dividend gets declared. Management aim to smoothly pay for the use of Capital. Aim to increase it each year. To pay it sustainably. They consider the strength of the capital to endure, and the ability of the business to adjust. The challenge is looking for the signal in the noise. Creating the ability to cope with the noise. Creating calm in a continuous storm.

Securing your Basket

Choices are made in baskets. Once one is made, the set of options changes. There are both intended and unintended consequences. To explore, Economists simplify this pesky problem with an assumption. “Ceteris Paribus” meaning with other conditions remaining the same. All else equal. The world is complicated, ambiguous, and random. We see only a slice of it, and we see based on how we have seen before. We see only what is meaningful to us. We see only when we notice the change/contrast. We have limits. Our worlds bump into each other, and in the past we lived in bubbles with shared baskets and constraints. Now it is difficult to navigate the lack of shared context that stands in the way of staying in touch with other worlds. Our messages to each other arrive as foreigners. We are constantly unpacking and unpicking. Through the chaos, a foundation becomes more essential. A base. Secure space to retreat to and to advance from. Where conditions remain the same.

Endless Knot

Actions have consequences. Some are intended. Intention and incentives matter, but the world is so complicated (and getting more so) that we don’t, and can’t, have a strong grasp on cause and effect. The stories we layer on the world are glitchy and built on our own personal faulty understanding. Then thrown into the mix is a double helping of randomness that tends to swamp our efforts. The only thing you can truly plan for is that things won’t go according to plan. Build in a feedback loop. A little lesson from each step. Realise that each step taken changes the world. The lesson you learnt applies to a world that no longer exist. And is only relevant to one of the ways that world could have played out. Complicated. Ambiguous. Random. In a way that is empowering. No one understands. Don’t expect yourself to. The main goal is to create an environment that gives you time. Then the ability to adapt, adjust, and accommodate. Then create. Do something meaningful to you. Build. Learn. Rebuild. Every day.

Build to Build

I don’t agree that there is a trade-off between risk and return. You don’t make money by taking risks (unless you are an Insurance Company). Risk management is simply an acknowledgement that the world is complicated, ambiguous, and random. The future is surprising. Investment Returns come, not from being able to predict the future, but from creating value over long periods of time. You create value through the application of skills and knowledge. Uncertainty means it isn’t 100% clear what skills and knowledge you need to develop, and what problems will need to be solved. I like knowing my effort won’t go to waste. I don’t mind working hard. I do mind working pointlessly. I prefer evidence to faith, unless the process itself is something I am okay with. If the value is the process. Otherwise, I want to see the value first. Understand what needs doing. Why it works. What I need to learn to do it. The world changes, but there is a lot of evidence of skills and knowledge that add value. Build those for yourself, so you can build for others.

"The Sower" Vincent Van Gogh

Revert to Mean

Reversion to Mean is the reliable default assumption that you should take “this changes everything” with a pinch of salt. Habits run deep. Normal changes slowly. Normally. The hardest part of a fast is breaking the fast, gradually returning to more sustainable behaviour while maintaining the essence of the changes you took to an extreme. The danger is that big changes lie in the tails. The Fat Tails. Thinking the world can be neatly summarised into Risk and Return numbers that drive your decisions is like learning to drive on a farm, or learning to shoot fish in a barrel. Reversion to Mean works well enough that it is a Hubris factory. It can build track records of success that turn men into demi-gods. Till the day you realise the world is too complicated, ambiguous, and random to control. Till you realise you are not a God, and the best everyone can do is do their best. Till you personally, revert to mean.

Beware the Extremes

NeverEnding Story

Bottom-up Stock Picking is equivalent to seeing people as individuals and communities rather than abstract prejudices. It’s easier to simplify people and businesses into races, nations, and asset classes. It’s lazy. A bottom-up stock picker has a universe of thousands of public businesses from around the world to choose from. For most, you can afford to put them in the “Too Hard Pile”. You don’t have to have an opinion on everything, and you can admit ignorance on the vast majority of hard questions. You can gradually build an opinion on the endurance, resilience, and creativity of enough businesses to allow a margin of error. The first question is always, “what if I am wrong?”. Fundamental Investing isn’t about predicting the future. It is about creating an environment for sustainable growth in a world that is complex, ambiguous, and random. The key is time. You buy yourself time through consistent investing in strength, flexibility, and control. The peaks and troughs become the inevitable and predictable chapters in a much longer story of staying alive, and making a contribution to the conversation.

Yeeeaaah!

Drawing Breath

You don’t learn much about whether a process works, when it is working. The most powerful creative forces are time and consistency. But for the long term to be long term, the process needs to be able to adapt, adjust, and accommodate. Strength, flexibility, and control in the face of randomness, complexity, and ambiguity. Like gaps in music, real mastery lies in the ability to draw breath and gain perspective. To step back and gain a broader view of how everything is connected. To use disruption as a learning opportunity. 5Rhythms is a movement meditation developed by Gabrielle Roth in the 1970s. It takes you through Waves to release obstructions and inspire creativity. You move through flow, staccato, chaos, lyrical, and stillness. The key is movement, and being still is part of that. This too will pass.

5Rhythms

Delegate Power

Delegating responsibility without authority is dangerous. I have always had a lot of respect for leaders who remain involved in the task. Rolling their sleeves up and leading by conscious example. Unless you are digging holes in the ground or following an algorithmic set of clearly defined steps, there is always judgment required in a world that is complex, ambiguous, and random. Delegation without involvement in these murky situations is the kind of hierarchy to which I am violently allergic. If you constantly second guess someone, they will wait until they are crystal clear on what you want. They will wait until they believe they have the skills to do the task in the way you want it done. Not all knowledge can be communicated up the chain. I am a firm believer in empowering people to make decisions where the decisions need to be made. Then backing them up. Or doing it yourself.

Athlone Power Station - Cape Town

Holy Cow

Milk doesn’t come from the shops. It comes from Cows. Most of the products we now end up using are assembled from bits that come from all over the world. The words we use have danced off the tongues of hundreds of thousands of people as they criss-cross the globe. Sharing flavours. Bending structure. Breaking rules. What you see isn’t all there is. The problem with bowing down at the alter of the obvious, the conspicuous, and the evident, is it cuts us off from the stuff you can’t count. Quantitative Finance likes to boil decisions down to two numbers. Return and Risk. The problem is, you don’t actually get paid for taking risk. In the long run, you get paid for adding value. Value is a deeply complicated, often abstract, internal, personal, and relational story. It is important to regularly remind yourself where your milk comes from. To look for, and retain awareness of, the source.

A calf and a Sadhu

Wafer Thin

“The market can stay irrational longer than you can stay solvent” warned John Maynard Keynes. “When there is nothing particularly clever to do, the potential pitfall lies in insisting on being clever” adds Howard Marks. I am a big believer that the Emperor is wearing no clothes in many parts of the investment industry. The world is ambiguous, complex, and random. We seek out heroes who ooze confidence that is unwarranted. Many investors names are made or destroyed on a handful of decisions. Either these buy a decade or two (a career) because of something going well, or they have a failure carved into their souls. Extreme success may mean 60% of their decisions are right. A coin gets 50%. The margins are wafer thin. So regularly remembering that investing is more like dieting and exercising than a “how smart are you” contest is important. Everyone eats. Everyone moves. Make sure you are one of the people building towards something, rather than against someone.

Red Queen

“Survival of the Fittest” suggests a level of knowledge in advance. This is hindsight bias. Normally there is a base level of fitness, and then it is just those who have the specific survival skill required for the randomly selected sorting event. The world is complex, ambiguous, and random. We can work on our base fitness. We can be prepared for a variety of sorting events. If something happens that 95% wipes you out, you want to be in a position to rebuild from that 5%. “The Red Queen” principle in Biology is that evolution is more about running just to stay in the same place, “organisms must constantly adapt, evolve, and proliferate in order to survive while pitted against ever-evolving opposing organisms in a constantly changing environment.”

Selling Discontent

Negativity sells. We have a bias toward drama and extremes. Talking about slow, long-term, progress doesn't lead to the sense of urgency normally required to spark action. Marvelling at our creativity, resilience and improving ability to cooperate seems to belittle all the areas we know this isn't true.

That is why Bosses have to create fake deadlines to get us to do stuff. 'I need this on Monday morning' gets followed by two weeks till they read it. That is why opposition politicians need to convince us that the current Government is destroying our mortal souls. Until it is their turn to do stuff.  Discontent is our biggest selling product. 

I am not buying. I far prefer doing a little bit every day, and starting really early, to a mad panic near a deadline. It is almost never worth rushing. It is almost never worth being forced to make a decision. I far prefer us learning to talk to each other, to seeing which ideological stone throwing team has the biggest biceps.

This may appear like weakness. We love Strong Men who can be decisive in the face of uncertainty. We love Confidence in a world of ambiguity, uncertainty, and complexity. We define leadership by people taking confident strides so we can follow in their footsteps.

No.

What if what we have now is the best it will ever be? Tomorrow isn't better. It is just different. This doesn't mean inaction. It just means that perhaps we are already living in Utopia. Utopia isn't a world with no imperfections or challenges. All the horrible things in life provide us with opportunities to learn and grow. Perhaps the goal is the daily growth, not the destination.

From here. From now. From as things are.

'it takes all the running you can do,

to keep in the same place' The Red Queen

Push and Pull

I don't believe everything happens for a reason (pulled). I don't believe everything happens because of something (pushed). I believe the majority of things happen because things happen. I find that comforting. There is no ill-will involved. We are the positive-will involved. The 'push and pull' of it gets added afterwards by us. We create the meaning. The story. We connect the dots in a way that makes us feel empowered. We cope. We make the best of situations. Even successes close doors. When something goes well, it means there are other things you can't do. The beauty of our imaginations and resilience is we get to decide our story. We get to choose what matters to us, and what doesn't. Then take the next step.

Because & For a Reason

Shared Hallucination

Reality is a shared hallucination. Through trial and error, it is real if we agree that it is... and if that agreement has meaning and power. The same way words have meaning only if the speaker and the hearer agree. Otherwise they are just noise. Those words are then connected to other words. The actions they lead to are connected to other actions. Words and actions spiral outwards. At the very centre of everything that means anything to us, is the connection of hearts and minds. Multiple centres connected in different ways joining us all in a fuzzy world that is random, complicated, and ambiguous. Have fun. Together.

Meaning Spirals

Uncertainty, Complexity and Ambiguity

I managed to catch up with a friend yesterday who is a big fan of the writing of David Foster Wallace. I had watched most of (the plane landed) 'The End of the Tour' recently and asked him what he thought. Movies have to create a story. One of the themes of Wallace's thinking was the 'Double Bind' that some writers have. They want to write about normal things and not appear to pretend to have things sorted out, or to be putting themselves on a pedestal, and yet to say something helpful or useful or meaningful, you have to put yourself out there. Put views out that may be a solution. The spinning wheel of self-reflection will mean you always think you are wrong, but have to carry on. 

My friend spoke of life being a combination of uncertainty, complexity, and ambiguity. We need to accept that we simply aren't capable of understanding everything. Of finding an answer. We can't always know in advance what 'the right thing to do is'. There aren't simple links of cause and effect. Things are never clear. There are always tradeoffs, advantages, disadvantages, costs, benefits, doubts, hopes, fears, opportunity costs and difficulties. 

I like that way of describing it and would add the idea of noise. There are lots of things that happen for no reason. That happen simply because they can. That aren't part of a narrative. Often those things are wonderful moments that come and go. That can be savoured and released. Often they are painful. They happen parallel to the story. They bump the story off course.

Patterns are fun. Patterns create stories and I think they are the only way we can view the world. It is how we are wired. Life is a combination of fact and fiction. We can join the dots in the way that we find most amusing. Most meaningful. We can create the life we want through our stories with occasional reality checks.

We will never understand. That doesn't really matter. No one will. Just keep on keeping on.