Point of Focus

There are consequences to the numbers we use. Yogis will argue it is only possible to think of one thing at a time. Multi-tasking is what the body does. The mind can only hold one idea. Then embody it through repetition. 

Our attention might jump around a lot, but it can’t be focused on more than one point. Which is why meditation is often the practice of thinking about your breathing. Breathing is a safe anchor to refocus on. 

In stark contrast, if you simplify everything down to a single number for return, and a single number for risk, dividing the one by the other to be your point of focus, you are going to make some poor decisions that ignore long-term consequences. 

If you make the underlying assumption that opportunities to recycle your high return decisions into high returning alternatives is going to remain a possibility. If what you are consuming is less than what you are creating, then that is sustainable. Then you can do it forever. 

If you aren’t considering the unintended consequences of your choices, and what lies outside the numbers, and outside your plan, then you are going to run out of breath when the air disappears.

Trataka - Meditation on a flame

Twenty Twenty

A lot of maths used for the management of risk is problematic. There is a desire to make it look pretty, and come up with models and numbers to give the illusion of understanding. If you can measure it, you can manage it, the theory goes. The real value in models is simply a device for thinking through something. A tool to help us compare and communicate. The danger is that when things are complicated, you often see whatever it is you are looking for. If a bunch of investors are looking for the best companies, and they define that as something that gives a return of 15-20%, you can be sure most of their models will spit out 15-20%. You don’t really understand risk if you then use that to rank various different analysts’ work. Your 20% is not my 20%. My 20% is not even my 20%. Add a couple of decimal places, and you realise that 36.79% of numbers are made up. Having a summary number doesn’t give you a full understanding of risk. Doing the work gives you a clue. Getting things wrong gives you a clue. 

your Twenty my Twenty

 

Double Standards

Consistency is a great thinking tool. If you believe “A” and “not A”, you can’t believe them in the same room. I used to think you can’t be intelligent and racist. But then I read about Dr.Death. The cardiologist and former head of Apartheid South Africa’s chemical and biological warfare project. You can believe contradictory things if you switch off part of your brain. That is why Double Standards grate me so much. Business can encourage a brutal offswitch for seeing people as people. It can encourage “tough decisions” that impact people more than the business. Often those standards don’t work both ways. You don’t see people higher up the chain of command falling on their swords. When the numbers support the argument, they are used. When the numbers don’t support their argument, the Defence Attorney and Public Relations Officer replace the Scientist at the Q&A session. The business becomes a church. The danger with numbers, is there are always other numbers.

Space and Time

Be super careful what you count. Not everything can be reduced to numbers. It is essential to be able to jump to an alternative reality free from the constraints of space and time. A reality that is still. Where you can breathe. Financial Mathematics is built around reducing decisions to Risk and Return. Around concepts like Time Value of Money and Opportunity Cost. “Net Present Value” is meant to be a framework for decision making. You set up the inflows and outflows into the future and discount them back at a required rate of return. Then you choose. The fundamental flaw in all of this is that neither Risk nor Return can be reduced to numbers. We see what we want to see, and models will show us whatever we most want to see. The world is complex, ambiguous, and random. By the time the numbers are out, it will be too late. Even then, there is so much noise our choices still boil down to judgment calls. Numbers give the illusion of control. Confidence gives the illusion of understanding. No one can, or does, know. What we can do, is build the ability to cope. We can value every moment without discounting it, and connect what comes before to what comes next. Not making anything so important that we lose everything. Making space and time.

Productive Performance

The deal most of us have is that we work to survive. Some of us get to do work that fulfils a deeper purpose than that, and some of us enjoy the benefits of paid work we really connect with. Most of us have to deal with being productive assets. Life as a job description. The first insurance I bought when I started working (my first post studies job was in Risk Product Development) was Disability Cover, Severe Illness Cover, and Future Cover (the ability to get cover I hadn’t thought of without medical tests). All these protected my ability to earn an income. If I was still alive, but was no longer “a productive asset”. I kept this cover until my Engine was bigger than the amount I would get if something went wrong. Part of my decision to stop working for money in 2014 was a distaste at being a productive asset. At being weighed, measured, and paid. Capital is far better suited to paid work than people. Not everything that counts can be counted. The biggest strength of Capital is empowering people to choose the nature of work that they do. Perhaps work that can’t be simplified into performance measures.