Tongue in Socket

Recently my brain has felt like I put my tongue in an power socket but instead of getting a shock and going bald, I have several high-voltage ideas zipping around my head and thankfully still seem pretty hairy. Yeah I'm a sucker for corny metaphors (until you realize that my mom actually persuaded my uncle to do this when he young, which may help explain why he's the only bald male on my mom's side of the family) but cheesy analogies help convey the recent experiences.

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.

After the high from reading Lehrer's book (coupled with the high in the market) I decided to start Seeking Wisdom: From Darwin to Munger. This book is blowing me away. I'm not finished yet, and it's poorly edited, but the content is invaluable (its filled with mind-tricks). Maybe I'll write more about it when I'm finished. What's funny is my Dad-in-law asked if he could borrow one of my copies as he heard about it from another book he was reading!

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.