Happy Sunday!
The road ahead is a bit uncertain. As I had mentioned earlier, preparation is going to be the key. A popular adage of all athletes is, “You earn your medals and win your races in the practice. You go to the event only to collect it.” Right now, you’ve got a lot of time to practice. This is the worst time to slack off and let go of your skills.
This is the most crucial time in all of our lifetime, a truly once in a lifetime opportunity. Let’s make the best of it. Everyday lost in upgrading your skills would eventually require double the time to get back to your original efficiency. As I’ve mentioned before, this is the perfect time to pickup a hobby, build a side-business, or start a podcast or a YouTube channel. Don’t let this opportunity go.
For a lot of us, the last few days have been “different” and for many, it has been “unsettling.” A lot of us are working from home, and I think that we should be thankful and grateful for it. WFH is a privilege for us. We got lucky. For millions of others, the lockdown has resulted in loss of work and income. They are most likely staring at a prolonged period of inadequacy in terms of livelihood. At the very least, let’s look at the lockdown as a sort of community service—not a mandate. We shall overcome! Here’s a piece of art to motivate you.
That said, now is the time for your weekly dose of multidisciplinary reading to upgrade your thinking and decision making. And if you’re seeing this newsletter for the first time, you can subscribe here.
Q: Why only few know how to make good decisions?
It’s frightening to think that you might not know something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what’s going on.
— Amos Tversky
Awareness of the limited extent of your knowledge is an essential component in decision making, yet it’s easily missed. Black Swans like the 2008 housing market crash and the Coronavirus pandemic have made it even more obvious just how little we know about the future.
Not only is it hard to know what the future holds most of the time, it is also true that very few people posses superior knowledge on these matters that can be regularly turned into a business advantage. Instead what we get are a lot of cocksure analysts, journalists, pundits, and forecasters who claim to know more than they really know.
Truth is, they don’t know what they don’t know.
While, it’s possible to have better know-how than the next person about a particular technology, trend, domain, or company with enough hard work and focus, it’s very less likely to be the same in case of the market or the economy.
If I ask you, of all the economists, strategists, journalists, and professional analysts that you see on the news or follow on Twitter, if there’s anyone who consistently predicts what lies ahead, you would most likely say no. Irregular forecasters are unreliable.
A prediction of global crisis in 2007– 2008 would have had great potential value. But if you saw that it came from someone who wasn’t right consistently—and someone with a visible negative bias—would you have acted? That’s the trouble with inconsistent forecasters: not that they’re never right, but that the record isn’t positive enough to inspire action on their occasional brainstorms.
— Howard Marks, The Most Important Thing
Forecasters aren’t doers. They are entertainers whose job is to keep the viewers engaged, and give us a false sense of command over our future. It’s sad that a lot of us are gullible enough to take investment advice from them.
There’s a difference between a charlatan and a doer. Unlike entertainers, you won’t see someone like Warren Buffett or Rakesh Jhunjhunwala sitting and predicting the market. They neither have the time nor the intention. They are just too busy doing instead of, what Nassim Taleb calls, “tawking”.
It is highly doubtful if the forecasters bet on their own forecasts ever. Words and forecasts come cheap. Unless somebody is ready to put their neck on the line, you should not take their advice, no matter how “helpful” they sound. As Nassim Nicholas Taleb remarks:
There is a difference between a charlatan and a genuinely skilled member of society, say that between a macrobull***ter political “scientist” and a plumber, or between a journalist and a mafia made man. The doer wins by doing, not convincing. Entire fields (say economics and other social sciences) become themselves charlatanic because of the absence of skin in the game connecting them back to earth (while the participants argue about “science”).
All “expert” forecasts are extrapolations of past experience. They are of little value even when they are correct, because just like expert forecasters, the market also assumes the price to be a continuation of recent history. If the future turns out to be exactly like the past, it doesn’t make any difference.
What really matters isn’t being right all the time, but how much you make when you are right.
The outcome is more important that the forecast itself.
If your forecast says nothing changes tomorrow, it has no value even if you are right. Your forecast is as good as the outcome. Nassim Taleb comes to rescue again:
I personally know rich horrible forecasters and poor “good” forecasters. Because what matters in life isn’t how frequently one is “right” about outcomes, but how much one makes when one is right. Being wrong, when it is not costly, doesn’t count—in a way that’s similar to trial-and-error mechanisms of research.
What I’m trying to say is that policymakers, journos, strategists rarely know what they are talking about. They don’t know the limits of their own knowledge, and perhaps have too much faith in their own predictions. It would be foolish if you listen to them blindly. It would also be foolish if you aren’t sceptical about your own predictions. Unless you can argue better than your opponents, you haven’t done the work required to have an opinion about the future.
No one likes to invest in a future that is largely unknowable. We all wish to have some command over it. But we often commit a cardinal sin in probabilistic decision-making when we forget about the difference between probability and outcome — when we assume that the most likely outcome is the one that will happen and that the expected result is the actual result.
Back in 2005-07, a lot of people overestimated the extent to which outcomes were knowable and controllable. They underestimated the risk present in the things they were doing. They ignored the limits of their knowledge, and we all know what followed.
Probability doesn’t come naturally to us. We chronically ignore the possibility of improbable outcomes. We are very less likely to learn from others’ mistakes and underestimate the limits of our own knowledge. Overconfidence often gives way to reason and healthy scepticism, and that’s precisely why very few among us can avoid wrong decisions consistently.
Having said that, whatever limitations we’ve got, it’s always better to acknowledge them and adjust, than to deny them.
Overestimating what you’re capable of knowing or doing can be extremely dangerous — in sports, business, or investing. Knowing and acknowledging the boundaries of what you can know, working within your circle of competence rather than venturing beyond, and always double checking your conclusions can give you a great advantage.
As Mark Twain (supposedly) said: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
💡 An Idea For You
Playing within your circle of competence is always a better strategy.
If you have domain knowledge, if you have strong rational behind your decisions, and if you can argue better then your opponents, you don’t need any validation from others.
📑 I Enjoyed Reading
Chandrakant Sampat: A Man of Value And Wit — “Shakespeare never had any heroes in his plays. Take the best ideas from all great thinkers, from great investment giants, from all the disciplines and then connect for yourself. Think for yourself and reach your own conclusions. And don’t just stop there, open up your mind and think further, think deeper.”
Five Techniques for Chasing Your Unanswered Callings — “I think of a calling as a topic or cause that I simply can’t get out of my brain. It’s something I feel so pulled towards that I can’t let it go and that I feel dissatisfied if I can’t find an outlet to exercise it.”
The Manipulation of The American Mind: Edward Bernays And The Birth of Public Relations — “Often referred to as the father of public relations, Bernays in 1928 published his seminal work, Propaganda, in which he argued that public relations is not a gimmick but a necessity.”
The list of all the articles I’ve written can be found here. And the past three editions of Sunday Wisdom are here: 32, 31, and 30.
📹 I Enjoyed Watching
Panchayat — Panchayat is a beautifully made series created by TVF for Amazon Prime. It’s one of those rare works that has relatable characters and a well-paced story. Panchayat captures the Indian village life and depicts its people very well. It’s mildly humorous which adds to the fun. I thoroughly enjoyed it. “Panchayat is a comedy-drama, which captures the journey of an engineering graduate Abhishek, who for lack of a better job option joins as secretary of a panchayat office in a remote village of Uttar Pradesh.”
Why Martin Scorsese Loves Improvising — “On a Saturday afternoon in 1974, Martin Scorsese payed a visit to his parents. And he took a film crew with him. The result is the absolutely wonderful documentary Italianamerican. During his visit to shoot the film, Scorsese learned something from his parents that would change his directing forever.”
The Dark Side of Baby Yoda — “The Mandalorian’s Baby Yoda is cute and there’s no denying it. But why do you want to bite his adorable little nose off?”
Why Blue Whales Don’t Get Cancer — “Cancer is a creepy and mysterious thing. While we tried to understand it, to get better at killing it, we discovered a biological paradox that remains unsolved to this day: large animals seem to be immune to cancer.”
🤔 Worth Thinking About
These pains you feel are messengers. Listen to them.
— Rumi
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Best,
Abhishek