Working Out

It is tempting to judge decisions based on what did happen. If you accept that the world isn’t on a set path that just has to reveal itself, then what could have happened is just as important. 

A bad decision that worked out, is still a bad decision. Especially if that decision-making process gets used repeatedly. Act with what Warren Buffett, Benjamin Graham, Seth Klarman, and other decision-makers call a margin of safety. An acknowledgment that being wrong is a part of engaging with the world meaningfully. 

Don’t just assume what you think is going to happen will happen. What if something else happens? Get out of the mindset of thinking you are rewarded for prediction rather than tangible value creation. A track record of building rather than of being right or wrong. 

Uncertainty is a part of decision-making. Of course you want to plan, but in a way that realises you have limits and constraints. 

A margin of safety is like a buffer when you are streaming a show with slow download speeds. Enough of a buffer means it can be slow, but it doesn’t stop you from watching, because you started with patience. 

A margin of safety means your plans don’t get disrupted by whether you are right or wrong, because they allow for change. Where wrong is something you embrace as a part of the learning process, rather than something that ends your creativity.

The Gods Envy Us

One of the challenges with investing is when to admit you were wrong. If your goal as a stock picker is to do better than just investing blindly in everything on offer (an index). History is, at least, compelling enough to know that outperforming in 60% of your decisions will raise you to the status of demigod if people give you the credit. But if you underperform more than 50% of the time? If you underperform the benchmark over an extended period? How long is long enough to take the blame? Performance is noisy, which gives lots of space to hide. Going to Zero ends the discussion, but lots of companies stutter along. Max Plank reminds us that Science progresses one funeral at a time. Death is a feature, not a glitch. So how do we know when it is time to let go of beliefs? How do we ensure that we are not so tied to our stories, that we serve them, rather than them serving us? How do you maintain a sell discipline?

"They envy us because we're mortal, because any moment may be our last. Everything is more beautiful because we're doomed."

A Grave Man

“Science progresses one funeral at a time,” pointed out Max Planck. One way of looking at science is formalised trial and error. Bold statements followed by rigorous testing. Knowledge progresses not by confirming what we thought we knew, but by finding out ways we were wrong. Through surprising results. Death of an idea becomes a feature rather than something to overcome. Our bodies largely replace themselves every 7-10 years. We quite literally, are what we eat. The way we interpret the world depends on what we know, and that changes as we learn. We are what we think. But even these “are”s are temporary. If we eat tomorrow. If we think tomorrow. The reason I think of Finance in Yogic terms is money is not about you. You are something deeper. You cannot base your identity on temporary things. Money is about problem solving, and if you are genuinely interested in actually solving the problem rather than making yourself irreplaceable… then you don’t want to define yourself by your job. You are not your job.

Max Planck's Grave

Building a Practice

“Restraining of thought waves means analysing your thoughts constantly, it does not mean suppression of thoughts.” Swami Durgananda (commentary on “Yoga Sutras of Patanjali”). Financial Waves can’t simply be ignored. If you don’t learn to control money, it can control you. Through study and patient reflection, you can develop a system that works for you. Letting go of distortions, delusions, and obstacles. Finding a way to go deeper into problems and resolving them. Rather than letting unhelpful money anxiety become the driving force in our lives. Whether the problem is misunderstanding, accepting false perceptions of others, or deep soaked prejudice from the way the world is temporarily (but doesn’t need to be). Build a practice to concentrate on what matters.

Step by Step

Slow Down

I am a slow learner. Always have been. I started walking late. My Mother says that is because my older brothers carried me everywhere. I started talking late. Maybe I can blame my brothers for that too. It’s nice having someone to blame. When I was 7 years old, I was put in a Speech & Drama class for people who were struggling with school. When I was 9, I got a teacher who suddenly got me. Mrs Rae changed my course. As the foundations set in, things started making sense. I have never been afraid of looking like a Moron. Of asking the dumb questions. Of appearing to try too hard. I regularly get lost in the grass of things I don’t understand, think aloud, and make mistakes in public. We live in a world that rewards false confidence. That thinks those who understand cause and effect are worth putting in charge. The truth, I think, is that no one knows. We are all lost in the grass. The world changes too fast to understand. There is too much noise, and we see whatever we are looking for. The best we can do is choose what we pay attention to. What we give relevance to. What we build meaning from. Slowly.

Hard Questions

You can’t expect someone to change their mind if their core belief is what sustains their livelihood and community. Max Planck said, “Science advances one funeral at a time”. Not just science. We live in a world where we define ourselves by our jobs and our incomes. We spend so much time with the people we work with, they become our community. Can you really expect someone to ask the really tough, existential questions, if the true answer would tear down the whole illusion? If the hard questions will point out the little fellow behind the green curtain, the emperor waving his bits in the wind, and the man in the high castle fretting over alternate realities? Our lives, and particularly our working lives, are too short to wait till the evidence is in. The evidence may never be in. So we commit. Then we die. It may be up to the next generation to ask the really hard questions. Which may include creating new communities. Communities built to ask hard questions.

Can you ask the hard questions?

Think Smaller

Diversification is a recognition that there is both a good chance you are wrong about any decision, and a good chance that there is so much noise that whether or not you were right will never truly be known. There are Economies of Scale and Diseconomies of Scale. There are costs and benefits of Globalisation, and of Localisation. Advantages to detachment and broad framing, and details that are missed without focus and true commitment. No decision comes without unintended consequences. Micro-ambition is the idea of having small, achievable goals, that add up. Wu-Wei is the idea of action through inaction. That the true starting point is acceptance, and understanding, of how things are rather than how we want them to be. Nudging from there. Rather than arguing with people about finding one solution, in a theoretical imagined world, maybe we should start by finding the 5% of what they care about that we can support. Finding 5% of a potential solution ourselves, while allowing for a 95% chance that other people’s reality is not the same as ours. Creativity within substantial buffers, and with a foundation in the way the world is now.

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!

Rabbit Hunting

Rabbit Hunting in Poker is when you fold, then ask the dealer to deal the next card anyway to see “what would have happened”. Serious Poker Players don’t hunt rabbits. Because it isn’t relevant. Hindsight doesn’t give you any information at all, because the deck is always reshuffled before you play for real. Insurance is often treated as a Grudge Purchase. You don’t “get” anything if things go well. We are a little too obsessed with the conspicuous and the version of reality that plays out. Obsessed with predictive power. Obsessed with results. The world is complex, ambiguous, and random. We learn more from people who get it wrong, than people who get it right. If we thought the person was going to be right, and then they were wrong. The best we can do is build endurance and resilience to handle whatever cards we are dealt. Then do something we value whatever the outcome.

Mapping Ignorance

When I think of ignorance, I think of Columbus. The celebrated slave trader died thinking he had discovered a route to the East. It is important to develop techniques to map your ignorance. Even if we realise the vast quantity of stuff that is impossible to know and understand, we still need to navigate our way through life. Like a vast black sky with spider webs spun across it, we shoot best guesses until we develop a net that can hold us. We don’t know all the options available to us. We don’t know the steps required. The best we can do is build the capacity to endure for a long enough time to create meaning. The resilience to adapt and adjust as things go, and don’t go, our way. Creativity doesn’t come in the knowing, but it does come from developing the resources to know. Then take a deep breath, and just keep moving.

What you don't know

Non-Contributory Zero

A Contrarian is not someone who is contrary. If you are contrary, then all the “wisdom” is held in the view of the opposite position. You are a non-contributory zero. A Contrarian must balance the existential crisis between seeming stubborn, and constantly seeking the most visceral feedback they can. The best Contrarians I have met spend a lot more time asking questions than dispensing information. What we have to contribute to the world is our unique perspective. An awareness that that perspective cuts you off from seeing other angles, seeks out the truth in what others are saying. It doesn’t simply seek to prove that other people are morons. The value of being Contrarian is making a contribution, not in simply tearing things down.

Being Wrong

In “Being Wrong”, Kathryn Schulz makes the point that we don’t know what it feels like to be wrong. Once we gain the information that makes us genuinely realise we were wrong, we are instantly in a different state. Resilience requires allowing for our perpetual ignorance. Daniel Kahneman highlights the challenge we face because of our desire to seek out patterns, “the idea that the future is unpredictable is undermined every day by the ease with which the past is explained.” We think that once we have information, we could have done better if we rewound, and play was pressed again. The world is random. Just pressing play again would change the result. Like throwing a dice again armed with a time machine, knowing a dice was a four last time still wouldn’t be helpful. Each mistake arms us to avoid that mistake in the future, only if the future plays out in exactly the same way. According to a fixed script. What Kahneman highlights is that the correct lesson when you make a mistake because you didn’t anticipate something is that “the world is difficult to anticipate”. You will be wrong. You will make mistakes. Resilience is about building the capacity to survive and thrive despite the certainty of uncertainty.

I Don't Know

'I don't know' should be the three most common words in the English language. The problem is most people sell certainty. The world is complicated, ambiguous, and uncertain. No one knows. But we fly towards the light like Mosquitoes. Knowing is less powerful than resilience, endurance, and the ability to respond to whatever life throws at you constructively. We are powerful storytellers. We can connect the dots in a way that makes us think we understand the cause and effect of everything. It makes us feel powerful. Where we don't understand, we fly towards wherever the light radiates strongest. Not knowing is fine. Nothing is a bigger danger than someone who always gets it right, and always has the answer.

Straight Lines

Nature doesn't do straight lines. Life is incredibly noisy, and we don't know what we don't know. So how can we possibly plan? Plans are often way too specific. Life explodes out on multiple paths as plans crash into reality.

I like the idea of separating the Fixed and the Flexible. The Basic and the Bonus. Nature doesn't do straight lines because they aren't fun. They also aren't resilient. Strength comes from regular small mistakes that adjust to the new learnings. Weakness comes from the apparent strength that "always" copes, then snaps dramatically. But we need those straight lines for our own inner strength. Our grounding. Our roots. Our place of calm to run to when things are overwhelming.

So plan for the Fixed. Plan for the Basic. But, then build a buffer between the underlying certainty and the fun. Take Financial Security as an example. If you can build an Engine that pays you a secure Basic Income... then you have your underlying straight line from with which to play. Financial Security then allows you to play in your new found space of freedom. To create time and opportunity. If you are uncertain about meeting your basic needs, then there is no space for mistakes. With no space for mistakes, there is no space for learning. With no learning, there is no progress.

Freedom and Fulfilment come in the space of play. In the flexible. In the bonuses. Plan, but plan small, plan basic. Then play.

Pattern Seekers

Human Brilliance is partly over-confidence, the ability to make and tolerate mistakes, and the ability to believe things the evidence doesn't support. Computers still just crunch the numbers, and are just starting to learn to learn. For the first few years of our lives, we are thrown into a confusing world that just carries on regardless. Without us knowing the rules. We just have to catch up. 

Our magic is Self-Hypnosis. We all live in constructed realities based partly on the genuine rules of the universe, but mostly on our interpretation of those rules and how they have worked out for us. Repeated trial and error until our self-delusion that we understand kicks in. Till we 'crack the code' and see the underlying pattern.

Patterns are simplifications. There are patterns in everything. We attribute meaning to those patterns. Cause and Effect. If we get the pattern and know what reliably follows an action, we don't need to know anything more. Even if the story we tell ourselves about it is 'wrong'. Even if there are lots of unnecessary bits to our story.

Our leaders are typically the best at pretending they understand. The best at falsely projecting confidence. Through trial and error, we have learnt to follow those who appear to know what they are doing. The strongest. The loudest. The fastest.

Beautiful messy creatures. Full of emotion, frustration, desires, dreams, and alternative realities. Bumping into a world that just carries on regardless.

umBubble Wam

Ndiyathemba ukuba, ngokwandisa umBubble wam, nokwenza iimpazamo ezininzi, ndinokususa ezinye izithintelo ezithintele ukuba ndibone. Ukhuphiswano luyanyanzeleka njengabantu abadala. Siva ngathi kufuneka siqinisekise ukuba sifanele sihlale esihlalweni. I-Hereditary Status sasimisa abantu ukuzama kwiindawo abazikhethileyo. I-Meritocracy yayifanele iwanike umntu ithuba. Esikhundleni saloo ndawo, ithatha indawo yokuba 'wazi indawo yakho' 'ngokufumana indawo yakho'. Impumelelo. Zombini zimbi. Sinika abantwana ithuba. Siyabathanda nantoni na eyenzayo. Ngokukhawuleza, xa siba ngabantu abadala, uthando kunye nentlonipho ziyaxhomekeka. Ubudlelwane buvakalelwa ngathi bahlala besengozini yokuwahlukana. Ndifuna ukukhululeka ngakumbi ngokungakhathaleli loo mngcipheko. Ukuvulela iimpazamo kunye nokungakwazi. Ngenxa yokuba sifunda apho.

Klink Goed

Ek is altyd baie impressed by mense wat meer as een taal kan praat. ‘n Groot part van my identitie kom van my liefde van woorde. Ek weet dat ek kan dikwels te veel praat, maar die mees van die tyd kan ek my punt duur kry. In Engels. Die laaste keer wat ek moet in Afrikaans skryf of praat was by skool. Ek weet dat ek nie so slim in Afrikaans klink. Ek kry ‘n bietjie kwaad wanneer ek sien mense wat grappe maak oor iemand’s sleg Engels. Die kans dat Engels die persoon’s derde of vierde taal is, is hoog. Dit is ook miskien hoekom Engels mense probeer nie om in ander taale te praat. Ons maak baie foute. Miskien is dit a goeie ding om gewoon te kry met nie so slim te klink.

Velvet Problems

The truth is that it has been very easy for me to sit back an wax eloquent for the last two and a half years about how to try approach the good life. I hope I haven't been one of those annoying people who pretend they know the answer. I don't. I am very confused. Every time I think I 'see the matrix' and have figured things out, life giggles. I have the gift of the gab, and so can fit a story to any set of facts. Mostly I am just responding as best I can, often making mistakes, and often leaning on people to pick me back up. Tweaking my story to make the next step easier. I regularly find life difficult, but am acutely aware that I am incredibly lucky. My problems genuinely are velvet problems. That doesn't make them not problems. That's the crack in the matrix... problems never disappear. Coping is all we can do.

The Velvet Problems of the Red Pill

If Wrong?

Heath Ledger's Joker in 'The Dark Knight' challenges the idea of the villain. His justifications aren't what would be expected. Like greed. Instead he burns the money. Morality isn't as clear as we would like to think. 'Batman v Superman' also shows the unintended consequences, even with the best intentions, of someone being an effective benevolent dictator. Giving the person you like power, means a person you don't like could have that power. Starting with protection against the possibility that you wrong, in a world where very smart, good, and hard working people see things very differently is a good base.

Science and Truth

The Science I was trained to believe in has a clear concept of truth. Scientific Truth is not something you invent. It is something you discover. If you don't discover it, someone else will. While believing in truth, Karl Popper argued that it is impossible to prove something is true. Instead, science progresses by proving things false. The most important thing is to make it very easy to detect if something we believe to be true, is false. Another white swan doesn't prove that all swans are white. One black swan proves that not all swans are white. The things you believe to be true should be made easy to attack if they are false. If there is lots of wiggle room, then it is your truth, not the truth.