Tuning Fork

Ruin is the thing that we fear most. Being able to confront waves of anxiety is important. When you make a decision, you know there are a variety of possible outcomes. What is hard to identify is the risk of ruin. That means that there is not going to be a next day. Sometimes that risk is hidden. Lying in the invisible tail of alternative possibilities that have never happened. Unlikely events with significant impacts. The building pressure of bad choices with delayed consequences. We cannot live in paralysed fear, because of these unknowns. We can build buffers to survive the unknown. Reflect. Unpack. Interrogate.

For most of our decisions, we are not unique snowflakes. Other people have made similar choices in resonating forks scattered liberally around the world. You can do the due diligence. You can research how other people have handled reflections of your situation. Their perspective will not be identical, but there can be similar flavour. The same ingredients in infinite combinations. You can put in the work to make better decisions. Reflect, decide, and put into practice.

Listen

Asymmetry

The key to investing in things over which you have no control, is understanding the asymmetry. Not getting obsessed with precision in predicting things that are unpredictable. Trying to understand the key drivers and the fat tails. What would make the investment go to Zero? What would make the investment double? Is the business built to last over time, and through the bumps and dips? Is the problem the business solves of genuine value? Does the business have a track record of open-minded, honest, and meaningful, listening and learning? If the upsides outweigh the downsides, then with some diversification, it is worth investing. Investors in funds are a degree removed. Their Capital is at risk. Managers attempt to align interests, but it is not completely possible because risk is holistic. It isn’t just the income (return) line that matters. A Managers track record can be wiped out. They would have been drawing fees over the long term for that, but the facts will show zero value added. Spin how you like, but that is the asymmetry for the manager. Fees get paid. Value added is always at existential risk. Some part of what you are building needs to be built to last. Even if the manager “Co-Invests”, they will have other assets that are built up. Asymmetrically.

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