Losing Focus

There is a conflict between the idea of “leave your ego at the door” and meritocracy. If we believe in a world where the quality of life you can live is determined by your “underlying permanent” skill and knowledge, then constant evaluation of an individual’s fundamental intrinsic worth makes sense. If you believe in Elite teams, then you need to be regularly dividing people into groups that are good enough, and not good enough. The justification for meritocracy is that all boats rise if resources are pushed to those who are the best. Not for spending. For reinvestment. Politics is bound to be brutal and closeted if you pretend to be gods. Ego gets left at the door when it is all hands on deck to find solutions. When someone is confident enough about their place that the focus is on the problems, not the person. If you are surrounded by naked emperors, the focus is likely to be on, smaller things.

Graffiti in Tartu

Hubris Factory

“The real secret to investing is that there is no secret to investing. Every important element of value investing has been made available to the public many times over, beginning in 1934 with the first edition of Security Analysis.” Investing is enticingly easy to monetise. You get cost centres (need money) and profit centres (make money). A good business is one where you have something that is easy to count and communicate. “I’ll grow your money” fits the bill. Pricing is also easy with, “I’ll take a percentage”. The two key elements are good capital allocation (what work the money does) and reversion to mean (prices typically overreact and true normal is less noisy). The downside of all this simplicity is that investing is a hubris factory. The real work gets done by the underlying businesses, but investors often think it is an extension of classroom exam results (which also oversimplify the process of ranking people). An Investor’s entire career of being a rock star can come tumbling down with factual evidence that they have done no better than average. They’ internalise the good times and excuse the bad. The real secret of investing and good businesses is that it is not about you. It is about putting money to work, and reinvesting. Custodianship, not proof of worth.

Wealth Creation is not Betting

“The markets can stay irrational longer than you can stay solvent” was a warning given by John Maynard Keynes. The reason the “Martingale Strategy” does not work in betting is eventually reality kicks in. The idea (popular in 18^th century France) is that in a Head/Tales style win/lose game, you double the bet every time you lose. So, the first win will cover all the previous losses. The false idea being that the gambler with infinite wealth will eventually win. Reality is not infinite, so the gambler will one day experience catastrophe if they continue playing in this way. Truth catching out a strategy with no value. Unable to place another bet. With the house’s edge, the gambler remains a mathematical loser every time they bet. I believe this is the reason those who see investment simply as a game of betting against others are existentially doomed. It is not merely a case of buying things for less than they are worth from the irrational. Waiting for normal to return. What the thing you buy does, matters. What you do, matters. Fundamentally. You need to build enough capital to survive whether the market is rational or not. Then carry on doing things that matter. Win/lose is wealth extraction. Win/win is wealth creation.

Investing is not Gambling

Thriving Too

I view investing as getting my money a job. When things are complicated, we simplify them into stories (based on what we already understand) to make sense of it all. To provide a way to make decisions. I started by investing in the funds that I was studying. Which, unsurprisingly, were the funds of the companies I worked at. Which, unsurprisingly, were companies that recognised the qualifications and studies I had done. Then I got an Interactive Brokers account, and started by getting my money four jobs. Gradually over a couple of years, I got my money more jobs until I had a portfolio of 20. Unlike my current personal job hunt, my money did not get interviewed. It did not have to find vacancies in roles that fit my profile. Money does not specialise. Money does not make decisions that limit its world view. Money does not have confirmation bias that looks to explain away its inadequacies in comfortable, but false, fairy tales. Money does not define itself by the work it does. It works, and either it grows or shrinks. The secret of nature, David Attenborough says, is that “a species can only thrive when everything around it thrives too”. Making money is not a win-lose ego competition. It is win-win capital allocation.

Rain Forest

Full of  Sustainable Growth