Saturday, January 08, 2011
A wife is waiting for her husband to return home and she turns on the television to pass the time. The news comes up that shows a man driving the wrong-way down the freeway. Startled that this is the same freeway her husband comes home on, she calls her husband to tell him:
"Husband, be careful - someone's on the freeway driving the wrong direction."
"One?" The husband responds, "there's hundreds of them."
Another from Dr. Marc Faber's January 2011 Gloom Doom and Boom reports:
The mating rites of mantises are well known: a chemical produced in the head of the male insect says, in effect, “No, don’t go near her, you fool, she’ll eat you alive.” At the same time a chemical in his abdomen says, “Yes, by all means, now and forever yes.”
While the male is making up what passes for his mind, the female tips the balance in her favor by eating his head. The male, absorbed in the performance of his vital functions, holds the female in a tight embrace. But the wretch has no head – he has hardly a body. And, all that time, that masculine stump, holding on firmly, goes on with the business! - Annie Dillard, Pilgrim at Tinker Creek (from Bill Gross's recent investment outlook from January 2011 comparing recent policy stimulus focused on maintaining consumption to the mantis matting rituals)
"One of the annoying things about believing in free will and individual responsibility is the difficulty of finding somebody to blame your problems on. And when you find somebody, it's remarkable how often his picture turns up on your driver's license." - PJ O'Rourke
Howard Marks, also wrote about his take on gold in a memo title "All that Glitters". He compares it to Noah S. “Soggy” Sweat, Jr., a member of the Texas House of Representatives in 1952, about his position on whiskey:
If you mean whiskey, the devil’s brew, the poison scourge, the bloody monster that defiles innocence, dethrones reason, destroys the home, creates misery and poverty, yea, literally takes the bread from the mouths of little children; if you mean that evil drink that topples Christian men and women from the pinnacles of righteous and gracious living into the bottomless pit of degradation, shame, despair, helplessness, and hopelessness, then, my friend, I am opposed to it with every fiber of my being.
However, if by whiskey you mean the oil of conversation, the philosophic wine, the elixir of life, the ale that is consumed when good fellows get together, that puts a song in their hearts and the warm glow of contentment in their eyes; if you mean Christmas cheer, the stimulating sip that puts a little spring in the step of an elderly gentleman on a frosty morning; if you mean that drink that enables man to magnify his joy, and to forget life’s great tragedies and heartbreaks and sorrow; if you mean that drink the sale of which pours into Texas treasuries untold millions of dollars each year, that provides tender care for our little crippled children, our blind, our deaf, our dumb, our pitifully aged and infirm, to build the finest highways, hospitals, universities, and community colleges in this nation, then my friend, I am absolutely, unequivocally in favor of it. This is my position, and as always, I refuse to compromise on matters of principle.
I recently watched an hour-long video of Hans Rosling a great Statistics teacher (non-finance), that was eye-opening. The beginning was kind of neat but got progressively more interesting throughout the hour. There was one quote from a Stanford professor tracking Tweets to measure emotions and some stuff which I can't remember, and I can't remember exactly what he said but it went something like this:
It's interesting how when you're younger happiness is frequently tied to something new and exciting, whereas when you're older happiness it's tied to peace. (I couldn't agree more.)
Link to the video below:
Recently I was talking with Steve, my psychologist /trader friend who had an epiphany when seeing one of his teenage clients. He wrote the following:
"I was working hard yesterday to solve a clinical puzzle...redoing the data, my conclusions and then, after much discussion and thought, I came to the conclusion that, differences aside, your whole generation is very vulnerable / at risk... [where we'll] probably get more leadership positions going to Indian's and Chinese (which I think is a good thing)....I realized that without an individual assessment, each child/teen I saw wasn't so much suffering from neurosis as needing to be rescued from going over the falls. And they don't know it. They think they're doing great, which makes treatment a tough sell, because the parents believe it too! Then I realized, "hey wait, didn't Charlie repeatedly tell me this is the 'loser generation.' Why keep doing psych analysis when I should just accept the sociological perception Charlie has already done and stop suffering over each situation. Also, as one of my patients hauls-ass, I realize that more than solving neurosis, she/he is being saved from the Loser Generation."
Of course, I was flattered, which is why I'm also sharing it. In response I opened up a little bit about myself:
"I think on a subconscious level it helps explain my general antisocial tendencies. Spend 3 years at my middle school, 4 years at my high school, spending most lunches trying to figure out why I prefer eating by myself and I've had enough of my generation (obviously with a few exceptions). After a few years you reach the conclusion either I'm the loser or everyone else is.
This also helps explain my attraction to value investing at an early age. As a kid I said, wow these Buffett and Munger guys sure don't seem like losers. Not only that, but I can get rich betting against the crowd!
It was a perfect fit for an insecure Jewish boy who didn't fit in and desperately didn't want to be a loser.
It's not that I've been living my life that much differently, but the reading material, ideas and conversations have been exceptional. Recently, for example, I finished reading How We Decide which was chalk-full of ideas. A few that spoke to me were:
- One of the worst possible ways to die is to get a brain tumor that fundamentally alters your personality. You effectively live in a shell where your behavior is driven by an overgrowth that's pushing on sensitive spots in your brain. The whole concept of Timshel is meaningless. Steve, my psychologist friend uses the term "psychic death" to describe it, however he uses it not just for tumors but when you stop the ability to learn, or improve your behavior.
- Humans have trouble processing multi-variable problems. Jonah Lehrer, the author, details several situations ranging from picking strawberry jams to choosing different cars, where an overload of data can skew our preferences resulting in illogical choices (I think this was Chapter 8). His end conclusion also seems to suggest that if you try to rationalize or explain your preferences you'll actually make worse decisions than if you trust your instincts. It's an interesting idea, and there are many problems where it is better to trust your instincts, or restrict your data, but I think there's a simple mental model he completely missed that's a better answer.
- I would suggest using a checklist. Everyone makes complex judgments and many aren't prepared or have the instincts to do the right thing. A checklist is an easy way to take a multi-variable problem and break it into bite size pieces. For example when I buy a stock, the first thing I look at is the valuation. If it's too expensive I don't bother to consider to consider all the other variables (if it trades at 100x FCF who cares where they're headquartered?). If the valuation checks off, however, I move to safety of the balance sheet, business sustainability and consistency and further down the list. Ultimately this yields a portfolio of companies that meets my value system that I can articulate.
- The obvious rebuttal to the checklist is that it assumes that you know yourself well-enough to figure out what you should prefer. This may have been the point after all that we don't consciously know ourselves. But I would argue that if we don't know ourselves, instead of trusting our instincts, we should first think and develop a value system. Then we should consider a checklist, and then trust your instincts. It's like a Jedi knight-thing, you can't do mind tricks until you can move rocks with the force, and you don't move rocks until you can hit the flying zapping ball with your visor down.
Another over-arching theme I've been thinking about the last few years is the current generation. I call it the "loser generation." I've noticed that the people I've mentioned this to can have a strong adverse reaction when I say it, but the funny thing is that they usually have kids themselves that have graduated college, are unemployed, directionless and living at home or are getting subsidies in one form or another. While its mostly an anecdote that lacks in data, the "loser generation" is the phrase I use to help explain the behaviors I've seen in my colleagues since middle school and it helps me understand what we're currently living through. This loser generation has been coddled and doesn't think 2-steps ahead, as it'll "somehow work out."
This loser generation is over-sexed, over-medicated, lacks in work ethic, thinks they're entitled and lost any desire to improve oneself. The American dream is no longer about buying a home from the money saved from a career in a job that you've done well, but about buying shit you can't afford with someone else's money. A friend of mine recently went to a restaurant who had a waiter in his mid-20's, who had graduated college and who was very grateful to have a job. He competed with 70 other candidates for the position. I respect this story as it's very telling for the trouble our generation is in. It's great that this kid is working as I respect industriousness over laziness and entitlement any day, but it reflects the declining value of our education and repercussions of a weak economy.
As long as the economy's chugging along, jobs are being created in innovative sectors such that the kids with no plans but college degrees can land into whatever happens to be growing. But when the economy shudders, the loser generation, who assumed it'll somehow work out, no longer as job offers from whatever's growing, because nothing is growing, and after spending 4.5 years draining their parents funds for college, end up back home . 1-step forward, 3-steps back. This also explains why unemployment for the young is something like ~20%+. I think this a good segway into why I turned to value investing in the next post.