“Forecasts are the real fluff and history is where the meat is.”

Morgan Housel, via Collaborative Fund:

Studying history can feel like intellectual candy that offers no practical use to investors who are paid to foresee the future. But once you accept how fragile our assumptions of the future are, you realize that forecasts are the real fluff and history is where the meat is.

Accepting that forecasts have little use doesn’t mean you become a blind fatalist. When you pay more attention to history than forecasts you pick up on the patterns that guide how people respond to unforeseen events, which – given how stable behavior is over time – is the next best thing to knowing what will happen next.

Forecasts rely on knowing when something will occur. Expectations are an acknowledgment of what’s likely to occur without professing insight into when it will happen.

Expectations are healthier than forecasts because they provide a vision of the future stripped of all false precision. If you know a recession will occur at some point, you won’t be that surprised whenever it arrives – which is a huge benefit. But if you assume you know exactly when it will occur you’ll be tempted into all kinds of dangerous behavior, leveraged with overconfidence. And you’ll be shocked when time passes and what you thought would occur hasn’t happened (yet).

“There are times in all of our lives when a reliance on gut or intuition just seems more appropriate–when a particular course of action just feels right.”

Tim Cook, in his Auburn University class of 2010 commencement speech:

In making the decision to come to Apple, I had to think beyond my training as an engineer. Engineers are taught to make decisions analytically and largely without emotion. When it comes to a decision between alternatives we enumerate the cost and benefits and decide which one is better. But there are times in our lives when the careful consideration of cost and benefits just doesn’t seem like the right way to make a decision. There are times in all of our lives when a reliance on gut or intuition just seems more appropriate–when a particular course of action just feels right. And interestingly I’ve discovered it’s in facing life’s most important decisions that intuition seems the most indispensable to getting it right.

In turning important decisions over to intuition one has to give up on the idea of developing a life plan that will bear any resemblance to what ultimately unfolds. Intuition is something that occurs in the moment, and if you are open to it. If you listen to it it has the potential to direct or redirect you in a way that is best for you. On that day in early 1998 I listened to my intuition, not the left side of my brain or for that matter even the people who knew me best. It’s hard to know why I listened, I’m not even sure I know today, but no more than five minutes into my initial interview with Steve, I wanted to throw caution and logic to the wind and join Apple. My intuition already knew that joining Apple was a once in a lifetime opportunity to work for the creative genius, and to be on the executive team that could resurrect a great American company. If my intuition had lost the struggle with my left brain, I’m not sure where I would be today, but I’m certain I would not be standing in front of you.

“Since 1929, the S&P 500 has suffered 14 bear markets.”

Jason Zweig, via WSJ:

Since 1929, the S&P 500 has suffered 14 bear markets, defined by S&P Dow Jones Indices as losses of at least 20%. The shortest and shallowest was the 20% drop that lasted less than three months in late 1990. The deepest was the 86.2% collapse from September 1929 to June 1932; the longest, the 60% plunge from March 1937 to April 1942. On average, bear markets lasted 19 months and dealt a 39% loss.

“Mr. Market is there to serve you, not to guide you.”

Warren Buffett, writing in his 1987 letter to Berkshire Hathaway shareholders

Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.

Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

Ben’s Mr. Market allegory may seem out-of-date in today’s investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins?”

The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben’s Mr. Market concept firmly in mind.

“If you adopt an eating pattern that has stood the test of generations, you are almost certain to be better off than with a diet introduced as breaking news.”

Mark Bittman & David L. Katz, writing for The Wall Street Journal:

The now-constant barrage of headlines about nutrition science can make us feel like we’re doing everything wrong. Some people respond by tuning out and continuing to eat what’s familiar. Others jump on the bandwagon of each thrilling new diet that promises everything. Most of these deliver temporary results from severe restrictions that no one can maintain. Rapid weight loss is followed by rapid regain, creating a desperation that makes people eager for the next promise of magic.

There is no one best diet. Good diets can be low or high in fat or carbohydrates, as long as they are made up of wholesome foods, and mostly plants. The quintessentially healthy Mediterranean diet is high in fat, most of it unsaturated, much of it from olive oil, nuts, seeds and avocado. But the famous diet of long-lived residents of Okinawa is low in fat because it is centered around diverse vegetables, grains and soybeans, with very limited meat, poultry and fish. If you adopt an eating pattern that has stood the test of generations, you are almost certain to be better off than with a diet introduced as breaking news.

Published
Categorized as Random Tagged

“The labor market doesn’t pay you for the useless subjects you master; it pays you for the preexisting traits you signal by mastering them.”

Bryan Kaplan, writing for The Atlantic:

Suppose your law firm wants a summer associate. A law student with a doctorate in philosophy from Stanford applies. What do you infer? The applicant is probably brilliant, diligent, and willing to tolerate serious boredom. If you’re looking for that kind of worker—and what employer isn’t? – you’ll make an offer, knowing full well that nothing the philosopher learned at Stanford will be relevant to this job.

The labor market doesn’t pay you for the useless subjects you master; it pays you for the preexisting traits you signal by mastering them. This is not a fringe idea. Michael Spence, Kenneth Arrow, and Joseph Stiglitz – all Nobel laureates in economics – made seminal contributions to the theory of educational signaling. Every college student who does the least work required to get good grades silently endorses the theory. But signaling plays almost no role in public discourse or policy making. As a society, we continue to push ever larger numbers of students into ever higher levels of education. The main effect is not better jobs or greater skill levels, but a credentialist arms race.

Lest I be misinterpreted, I emphatically affirm that education confers some marketable skills, namely literacy and numeracy. Nonetheless, I believe that signaling accounts for at least half of college’s financial reward, and probably more.

“3 million U.S. homes and 13 million apartment units are owned by LLC, LLP, LP or shell companies.”

Aaron Glantz, reporting for Reveal:

The Census Bureau reports that nearly 3 million U.S. homes and 13 million apartment units are owned by LLC, LLP, LP or shell companies – levels of anonymous ownership not seen in American history. The proportion of residential rental properties owned by individuals and families has fallen from 92% in 1991 to 74% in 2015.

The lack of transparency not only represents an opportunity for money laundering, but it also has more prosaic implications. First-time homebuyers are denied the opportunity to buy affordable homes with bank loans because those properties already have been scooped up by shell companies. Tenants can’t figure out to whom to complain when something goes wrong. Local officials don’t know whom to hold responsible for code violations and neighborhood blight.

Energy and Civilization: A History

Notes from Energy and Civilization: A History by Vaclav Smil:

* From a fundamental biophysical perspective, both prehistoric human evolution and the course of history can be seen as the quest for controlling greater stores and flows of more concentrated and more versatile forms of energy and converting them, in more affordable ways at lower costs and with higher efficiencies, into heat, light, and motion.

* Every form of energy can be turned into heat, or thermal energy. No energy is ever lost in any of these conversions. Conservation of energy, the first law of thermodynamics, is one of the most fundamental universal realities. But as we move along conversion chains, the potential for useful work steadily diminishes. This inexorable reality defines the second law of thermodynamics, and entropy is the measure associated with this loss of useful energy. While the energy content of the universe is constant, conversions of energies increase its entropy (decrease its utility).

* A great deal of traditional farming required heavy work, but such spells were often followed by extended periods of less demanding activities or seasonal rest, an existential pattern quite different from the nearly constant high mobility of foraging. The shift from foraging to farming left a clear physical record in our bones. Examination of skeletal remains from nearly 2,000 individuals in Europe whose lives spanned 33,000 years, from the Upper Paleolithic to the twentieth century, revealed a decrease in the bending strength of leg bones as the population shifted to an increasingly sedentary lifestyle. This process was complete by about two millennia ago, and there has been no further decline in leg bone strength since then, even as food production has become more mechanized, an observation confirming that the shift from foraging to farming, from mobility to sedentism, was a truly epochal divide in human evolution.

* The organic fertilizer with the highest nitrogen content (around 15% for the best deposits) is guano, droppings of seabirds preserved in the dry climate of islands along the Peruvian coast.

* Until the early 1980s there were no private cars in China, and until the late 1990s most commuters rode bicycles even in the country’s large cities.

* Electricity is the most convenient, most versatile, and, at the point of its use, the cleanest form of modern energy.

* Infant mortality is an excellent proxy for conditions ranging from disposable income and quality of housing to the adequacy of nutrition, level of education, and a state’s investment in health care: very few babies die in countries where families live in good housing and where well-educated parents (themselves well nourished) feed them properly and have access to medical care. And, naturally, life expectancy quantifies the long-term effects of these critical factors.

* That fossil fuel resources are finite does not imply any fixed dates for the physical exhaustion of coals or hydrocarbons, nor does it mean the early onset of unbearably rising real costs of recovering these resources and hence the necessity of a rapid transition to a post-fossil fuel era. […] Consequently, it is not worries about an early exhaustion of fossil fuels – most prominently expressed by the advocates of imminent peak oil – but rather the impact on the habitability of the biosphere (above all through global climate change) that is the most important near-and long-term concern resulting from the world’s dependence on coals and hydrocarbons.

Iran Air Flight 655

Wikipedia:

Iran Air Flight 655 was a scheduled passenger flight from Tehran to Dubai via Bandar Abbas, that was shot down on 3 July 1988 by an SM-2MR surface-to-air missile fired from USS Vincennes, a guided missile cruiser of the United States Navy. The aircraft, an Airbus A300, was destroyed and all 290 people on board, including 66 children, were killed. The jet was hit while flying over Iran’s territorial waters in the Persian Gulf, along the flight’s usual route, shortly after departing Bandar Abbas International Airport, the flight’s stopover location. Vincennes had entered Iranian territory after one of its helicopters drew warning fire from Iranian speedboats operating within Iranian territorial limits.

The Washington Post, April 23, 1990:

The Navy has awarded special commendation medals for “meritorious service” to two of the top officers who were serving on the USS Vincennes at the time the cruiser shot down an Iranian airliner over the Persian Gulf with 290 people aboard.

The citations for the special commendations to former Vincennes skipper Capt. Will Rogers III and Lt. Cmdr. Scott E. Lustig, who was the ship’s weapons and combat systems officer, do not mention the downing of the aircraft on July 3, 1988, an error that took the lives of the plane’s passengers and crew.

The Washington Post, January 9, 2020:

On Saturday, President Trump invoked history when tweeting out a threat to destroy “52 Iranian sites … some at a very high level & important to Iran & the Iranian culture.” He said the potential targets represent the 52 Americans who were held hostage there for 444 days from 1979 to 1981.

Though the incident is nearly forgotten in the United States, it is etched deeply in memory in Iran, where the country is mourning the U.S. airstrike that killed Iranian military commander Qasem Soleimani.

So there’s that.

Titan: The Life of John D. Rockefeller, Sr.

Notes from Titan: The Life of John D. Rockefeller, Sr. by Ron Chernow:

* “It is very important to remember what other people tell you, not so much what you yourself already know.”

* “A man has no right to occupy another man’s time unnecessarily.”

* Rockefeller equated silence with strength: Weak men had loose tongues and blabbed to reporters, while prudent businessmen kept their own counsel. Two of his most cherished maxims were “Success comes from keeping the ears open and the mouth closed” and “A man of words and not of deeds is like a garden full of weeds.”

* Taking for granted the growth of his empire, he hired talented people as found, not as needed.

* Far more than a technocrat, Rockefeller was an inspirational leader who exerted a magnetic power over workers and especially prized executives with social skills. “The ability to deal with people is as purchasable a commodity as sugar or coffee,” he once said, “and I pay more for that ability than for any other under the sun.” Employees were invited to send complaints or suggestions directly to him, and he always took an interest in their affairs.

* At meetings, Rockefeller had a negative capability: The quieter he was, the more forceful his presence seemed, and he played on his mystique as the resident genius immune to petty concerns. As one director recalled, “I have seen board meetings, when excited men shouted profanity and made menacing gestures, but Mr. Rockefeller, maintaining the utmost courtesy, continued to dominate the room.”

* Rockefeller prevailed at Standard Oil because he had mastered a method for solving problems that carried him far beyond his native endowment. He believed there was a time to think and then a time to act. He brooded over problems and quietly matured plans over extended periods. Once he had made up his mind, however, he was no longer troubled by doubts and pursued his vision with undeviating faith. Unfortunately, once in that state of mind, he was all but deaf to criticism. He was like a projectile that, once launched, could never be stopped, never recalled, never diverted.

* Standard Oil had taught the American public an important but paradoxical lesson: Free markets, if left completely to their own devices, can wind up terribly unfree. Competitive capitalism did not exist in a state of nature but had to be defined or restrained by law. Unfettered markets tended frequently toward monopoly or, at least, toward unhealthy levels of concentration, and government sometimes needed to intervene to ensure the full benefits of competition.

* “Great wealth is a great burden, a great responsibility. It invariably proves to be one of two things—either a great blessing or a great curse.”

* To Rockefeller, the least imaginative use of money was to give it to people outright instead of delving into the causes of human misery. “That has been our guiding principle, to benefit as many people as possible,” he affirmed. “Instead of giving alms to beggars, if anything can be done to remove the causes which lead to the existence of beggars, then something deeper and broader and more worthwhile will have been accomplished.”

* Rockefeller reviewed every bill that arrived at home and often patrolled the hallways, turning off gaslights. Such habits were not simply reflexive stinginess but were rooted in bedrock beliefs about the value of money.

* “A man’s wealth must be determined by the relation of his desires and expenditures to his income. If he feels rich on ten dollars, and has everything else he desires, he really is rich.”