Via Kevin Depew in Minyanville:

Narratives are linear by design. Scenes are set, characters identified and defined, actions unfold over time in steps that lead toward a resolution. Unfortunately, while narrative is convenient in helping us understand things, it is useless in predicting how things unfold. Why? Because history does not unfold in a linear manner.

....Man, in retrospect, it all seems so clear. Have you ever thought that? .... But why? Why does everything seem so clear in retrospect? Because we are hardwired to recount events in linear narrative fashion… even events that do not unfold in a linear manner!

In other words, our need for linear narrative colors our perception of history. Linear narratives unfold in steps, the output proportionate to the input…. e.g. the Federal Reserve Chairman lowers interest rates, the first a surprise 50 basis point cut, the stock market rallies, credit becomes less expensive, so people borrow and put that money back into the stock market, or in houses. That’s the 2000-2005 period, right? It certainly seems that way.

However in reality, in non-linear systems, the output is not directly proportional to the input. So it’s not the case that, say, if the Fed does X, a proportional outcome will follow, or if the Fed and politicans implement Y and Z, a series of proportionate outcomes will follow

Sterling Hayden in Seafarer:

To be truly challenging, a voyage, like a life, must rest on a firm foundation of financial unrest. Otherwise you are doomed to a routine traverse, the kind known to yachtsmen, who play with their boats at sea—”cruising”, it is called. Voyaging belongs to seamen, and to the wanderers of the world who cannot, or will not, fit in. If you are contemplating a voyage and you have the means, abandon the venture until your fortunes change. Only then will you know what the sea is all about.

Little has been said or written about the ways a man may blast himself free. Why? I don’t know, unless the answer lies in our diseased values. A man seldom hesitates to describe his work; he gladly divulges the privacies of alleged sexual conquests. But ask him how much he has in the bank and he recoils into a shocked and stubborn silence.

“I’ve always wanted to sail to the South Seas, but I can’t afford it.” What these men can’t afford is not to go. They are enmeshed in the cancerous discipline of “security”. And in the worship of security we fling our lives beneath the wheels of routine—-and before we know it our lives are gone.

What does a man need—-really need? A few pounds of food each day, heat and shelter, six feet to lie down in—-and some form of working activity that will yield a sense of accomplishment. That’s all—-in the material sense. And we know it. But we are brainwashed by our economic system until we end up beneath a pyramid of time payments, mortgages, preposterous gadgetry, playthings that divert our attention from the sheer idiocy of the charade.

The years thunder by. The dreams of youth grow dim where they lie caked in dust on the shelves of patience. Before we know it, the tomb is sealed.

Where, then, lies the answer? In choice. Which shall it be: bankruptcy of purse or bankruptcy of life?

The Master in the art of living makes little distinction between his work and his play, his labor and his leisure, his mind and his body, his education and his recreation, his love and his religion. He simply pursues his vision of excellence in everything he does, leaving others to determine whether he is at work or at play. To him, he is always doing both.”

When thinking changes your mind, that’s philosophy.
When God changes your mind, that’s faith.
When facts change your mind, that’s science.

Money’s a horrid thing to follow, but a charming thing to meet.

EphBlog: Making Money for the Man

note that success in finance is not just a matter of brains. It also requires a certain megalomaniac ambition, a deep-in-your gut certitude that you are right and the rest of the market is wrong, a competitive spirit that yearns for an honest accounting of the winners and losers in the game of (business) life, a comfort with wagering millions of dollars on your vision of the future.

Alea | Secrets of Success : James Simons Edition

But perhaps the most interesting observation came in response to a question posed by the moderator, Nobel Prize-winner Robert Engle: “Why don’t you publish your research, the theory behind your trading methods? If not while you are active in the markets, perhaps later on.”

Simons’ reply – there is nothing to publish. Quantitative investment is not physics. The markets have no fundamental, set-in-stone truths, no immutable laws. Financial “truth” changes constantly, so that a new paper would be needed almost every week.

The implication is that there is no eternal theorem of finance that could serve as an infallible guide through all the ages. Indeed, there can be no Einstein or Newton of finance. Even the math genius raking in $1 billion and consistently generating 30%-plus annual returns wouldn’t qualify. The terrain is just too lawless.

Maxim #1: Reality sucks sometimes.
Maxim #2: Deal with it.

Brace yourself, Gekko is back – Telegraph

and as Bud Fox’s boss, Lou Mannheim, says in the original: “The main thing about money, Bud, is that it makes you do things you don’t want to do.”

Too true. And it keeps you awake at night.

Darrin McMahon has a nice article
on ‘Happiness’ in the Cato Institute website. It distills centuries of
wisdom and insight about happiness.  The following is  an excerpt.

In the first place, we would probably do well to remind ourselves that
worrying about happiness is a luxury — the privilege of peoples whose
more pressing needs have been satisfied already. With longer lifespans
and more abundant food supplies, greater security and more creature
comforts than ever before, we are free to contemplate what those
exposed to the miseries of famine, chaos, and disease can only dream.

Evolutionary
psychologists, for example, extrapolating from the theories of Darwin,
point out that human beings have a tendency to adapt quickly to
pleasures at hand. To be too happy for too long, apparently, is not an
effective adaptive trait. Better to be a little bit anxious — a little
bit unhappy — much of the time, so that we are motivated to continue
our pursuits. The point being that it is by no means clear that humans
as a species have a natural capacity for ever-rising levels of
happiness. Might there not be a limit to how happy human beings can
reasonably become?

John Stuart Mill, realized, “Ask yourself whether you are happy, and
you cease to be so. The only chance is to treat, not happiness, but
some end external to it, as the purpose of life.”

George Orwell, essentially agreed. “Men can only be happy when they do
not assume that the object of life is happiness,” he cautioned in 1944.

Cato Unbound » Blog Archive » The Pursuit of Happiness in Perspective

If you have it,you don’t need it. If you need it,you don’t have it. If you have it,you need more of it. If you have more of it,you don’t need less of it. You need it to get it. And you certainly need it to get more of it. But if you don’t already have any of it to begin with,you can’t get any of it to get started,which means you really have no idea how to get it in the first place,do you?...Wanting it,needing it,wishing for it…The point is,if you’ve never had any of it…people just seem to know

When someone with experience proposes a deal to
someone with money, too often the fellow with money ends up with the experience, and the fellow with experience ends up with the money.

• old adage

“It struck me that perhaps a lot of the people you see walking about are dead. We say that a man’s dead when his heart stops and not before. It seems a bit arbitrary. After all, parts of your body don’t stop working — hair goes on growing for years, for instance. Perhaps a man really dies when his brain stops, when he loses the power to take in a new idea. Old Porteous is like that. Wonderfully learned, wonderfully good taste– but he’s not capable of change. Just says the same things and thinks the same thoughts over and over again. There are a lot of people like that. Dead minds, stopped inside. Just keep moving backwards and forwards on the same little track, getting fainter all the time, like ghosts.”

– Coming Up for Air, by George Orwell

Via QuantLogic:

People always ask me why I read so much. Other than the fact that I enjoy reading, the following quote by Charlie Munger (hat tip to Quant Logic) sums it up. Investment and finance is a game for generalists.

I have said that in my whole life, I’ve known no wise person over a broad subject matter area who didn’t read all the time—none, zero. Now I know all kinds of shrewd people who by staying within a narrow area can do very well without reading. But investment is a broad area. So if you think you’re going to be good at it and not read all the time, you have a different idea than I do…. You’d be amazed at how much Warren [Buffet] reads. You’d be amazed at how much I read.

Just another Groundhog Day.

Phil: What would you do if you were stuck in one place and every day was exactly the same, and nothing that you did mattered?

Ralph: That about sums it up for me.

Via The New Yorker:

People are generally bad at accepting the importance of context and chance. We fall prey to what the social psychologist Lee Ross called “the fundamental attribution error”—the tendency to ascribe success or failure to innate characteristics, even when context is overwhelmingly important. In one classic demonstration, people shown a person shooting a basketball in a gym with poor lighting and another person shooting a basketball in a gym with excellent lighting assume that the second person hit more shots because he was a better player. This problem is compounded by the tendency to extrapolate big conclusions from small samples, something that behavioral economists call “the law of small numbers.”

Sports fans assume that a few excellent performances are proof of a player’s underlying ability, while investors assume that a mutual fund’s record over one year is a reliable indicator of the manager’s skill.

Because we underestimate how much variation can be caused simply by luck, we see patterns where none exist. It’s no wonder that management theory is dominated by fads: every few years, new companies succeed, and they are scrutinized for the underlying truths that they might reveal. But often there is no underlying truth; the companies just happened to be in the right place at the right time. In 1999, after all, it was hard to find a business book that didn’t hold up Enron as the embodiment of one important principle or other. Of course, some strategies and structures work better than others, but real meaning emerges only over the long term.

I am a great fan of David Attenborough. I’ve watched each of his nature and wildlife documentaries with much joy. Here is a very insightful comment by him.

David Attenborough: When asked whether his observation of the natural world has given him faith in a creator, he generally responds with some version of this story:

“My response is that when Creationists talk about God creating every individual species as a separate act, they always instance hummingbirds, or orchids, sunflowers and beautiful things. But I tend to think instead of a parasitic worm that is boring through the eye of a boy sitting on the bank of a river in West Africa, [a worm] that’s going to make him blind. And [I ask them], ‘Are you telling me that the God you believe in, who you also say is an all-merciful God, who cares for each one of us individually, are you saying that God created this worm that can live in no other way than in an innocent child’s eyeball? Because that doesn’t seem to me to coincide with a God who’s full of mercy.”

He has explained that he feels the evidence all over the planet clearly shows evolution to be the best way to explain the diversity of life, and that “as far as I’m concerned, if there is a supreme being then He chose organic evolution as a way of bringing into existence the natural world.”

I met Philip way back in the year 2000 when he gave a talk in India. I remember conversing with him later. Here is a insightful post by him on Early Retirement!

Ask a wage slave what he’d like to accomplish. Chances are the response will be something like “I’d start every day at the gym and work out for two hours until I was as buff as Brad Pitt. Then I’d practice the piano for three hours. I’d become fluent in Mandarin so that I could be prepared to understand the largest transformation of our time. I’d really learn how to handle a polo pony. I’d learn to fly a helicopter. I’d finish the screenplay that I’ve been writing and direct a production of it in HDTV.”

Why hasn’t he accomplished all of those things? “Because I’m chained to this desk 50 hours per week at this horrible [insurance|programming|government|administrative|whatever] job.

So he has no doubt that he would get all these things done if he didn’t have to work? “Absolutely none. If I didn’t have the job, I would be out there living the dream.”

Human Intelligence:

Play your own game

“Every individual maximizes his subjective status according to the resources available to him and to his rivals”. And since these resources – whether prestige, power, or resources (including the size of our office, whether we drive an S-Class or an Accord, and what grade of hotel we get to stay in) – are limited, we’re prepared to fight for them with violent coercion always a possibility.

Alternatively, you may suspect that the game itself is at fault and that even to win is to lose, particularly when you find yourself locked within the nonsensical defensive routines where anything different (better is necessarily different) is undiscussable and the very undiscussability is undiscussable.