How Karl Popper's Philosophy Transformed My Investing Mindset
What if I told you the key to investing lies not in what we know but in embracing what we don't know and can never know with certainty? This paradoxical understanding is at the heart of Karl Popper's philosophy and has shaped my thinking about investing.
Mythology: What Icarus Can Teach Us About Investing in Soaring Markets
In Greek mythology, Icarus and his inventive father, Daedalus, attempted to escape from captivity on Crete by constructing wings of feathers and wax. Daedalus warned Icarus not to fly too close to the sun, as the heat would melt the wax. But Icarus, swept up in the rush of flight, disregarded his father's warning. Higher and higher, he soared, drunk on daring, until the sun melted the wax, and the wings disintegrated.
Time Arbitrage: Fractal Markets and Financial Chaos
I like to periodically reset my thinking and get back to basics — whether simplifying my exercise regimen or rehashing philosophical principles. Recently, I felt the call to strip down investing and revisit fundamentals — to forget about valuation metrics, alpha, beta, and Monte Carlo simulations and think about investing from the ground up. What is investing? Why has it worked for so long? Will it continue to work in the future?
Seeds of Bad Times: Ford’s Insights into Prosperity Traps
During the Great Depression, as the nation grappled with economic despair and uncertainty, Henry Ford stood at odds with President Roosevelt's New Deal, opposing initiatives like the 'Blue Eagle' campaign. His words prompt us to examine the mindset governing our investment decisions. It compels us to ask: How does prosperity cultivate the very conditions that precipitate future losses and crises?
Retirement Reality Check: From Identity Death to Rebirth
Retirement is a flawed goal - or at least an incomplete one, often romanticized yet misunderstood in its complexity. Let's look at retirement not through statistics or theories but through the experience of a fictional retiree from Creative Edge Marketing Firm. These diary entries, a mix of imagination and real insights, reveal the surprising emotional landscape of post-work life.
The Art of Economics: The Limits of Models in Human Market Dynamic
During a recent visit to Paris, I decided to bypass the mobbed halls of the Louve, where the Mona Lisa resides, and head instead to the Rodin Museum. My visit was inspired by my desire to see Rodin's iconic sculpture - The Thinker. This masterpiece symbolizes the deep, often conflicting emotions of intense thought, embodying both the struggle and the bliss of contemplation.
Change vs. Status Quo: Are We Hardwired for Caution?
We face major crossroads throughout our lives that shape our well-being and satisfaction - whether to quit a job, pursue more education, end a relationship, or change health habits like smoking or dieting. Yet, assessing whether we make optimal choices at these junctures is remarkably difficult.
The Facebook Phenomenon: Fueled By Network Effects
In 2004 a website emerged that would change the fabric of online interaction. It was called "TheFacebook."
But the real growth began when Facebook opened its virtual doors to high school students. This move propelled Facebook's user base to new heights, unleashing a phenomenon known as "network effects."
Occam’s Razor: Cutting Through Complexity in Finance
We overcomplicate things. Even simple concepts are twisted and tangled into complicated webs of ideas. This is not simply a matter of personal observation; it is a cognitive bias known as complexity bias. My favorite tool to combat our tendency to overcomplicate matters is Occam’s Razor.
From Carriage to Car: The Transformative Power of Creative Destruction
The term “creative destruction” was coined by economist Joseph Schumpeter (1883–1950), capturing the seemingly paradoxical nature of progress. It encapsulates the chaotic and unpredictable essence of the free market, where established industries crumble, fresh ones emerge, and agile startups seize opportunities while established giants falter.
The Map is Not the Territory: Understanding the Model to Reality Gap
Maps are abstractions of reality - a reduction of what they represent. This reduction is necessary but inherently flawed. Even the most precise maps do not fully and accurately depict the territory they represent. This is true, too, of the mental maps we've charted through our experiences and beliefs that help us simplify an intricate reality into something comprehensible.
Can a Flutter Spark a Storm? The Butterfly Effect and Financial Markets
Can a butterfly flapping its wings in Brazil trigger a tornado in Texas?
In 1961, Edward Lorenz, an American mathematician and meteorologist, studied weather patterns and developed computer models to forecast weather conditions. During his research, he made a remarkable discovery. He observed that even the slightest changes in the input parameters of his model resulted in significantly different outcomes. He coined this phenomenon “sensitive dependence on initial conditions," meaning that minor variations in the initial conditions could lead to significant differences in forecasted weather patterns.
Beyond the Bell Curve: The Black Swan's Impact on Investing
During the 17th century, courageous adventurers set sail across uncharted waters in pursuit of the unknown. Among these daring souls was Willem de Vlamingh, a Dutch explorer whose remarkable journey took an unexpected turn upon reaching the distant shores of present-day Western Australia.
On the 10th of January in 1697, de Vlamingh and his crew found themselves captivated by a scene that defied everything they thought they knew. As they embarked on an excursion up a mysterious river, little did they know that what awaited them would shatter their preconceived notions and send shockwaves through the annals of natural history.
Second-Order Thinking: The Path To Better Investing Decisions
The process of thinking is often equated to a reflex. Just as our hearts beat without our direction, we shiver uncontrollably when our body temperature drops and our eyes blink 15–20 times per minute to lubricate our eyeballs and keep debris at bay, so too does our mind seem to operate on its own accord. We may not be aware of the specific neural pathways activated when we think, but we experience the thoughts as if they were happening to us. This seemingly effortless mental operation corresponds to what is termed first-order thinking.
From SpaceX to Portfolios: Harnessing First-Principles Thinking for Investment Success
The intricacies of the human mind, coupled with the complexities of our surroundings, present difficulties in making sense of the world around us. As a result, we have devised mental frameworks that serve as invaluable tools for enhancing decision-making in investing and the broader scope of life. One of these frameworks is first-principles thinking.
Coins to Crypto: A Journey Through the History and Future of Money
Every so often, new technologies emerge that force us to reconsider our assumptions about the world. Cryptocurrencies and digital assets have sparked a renewed interest in the concept of money and have challenged our traditional understanding of how money works.
The Trappings of Prosperity: Escaping the Misappropriation of Resources
Prosperity-blinded indifference is a term that Charlie Munger uses to describe companies that, when they are doing well, start to misallocate resources to areas that are unimportant to adding value. Individuals do this, too, as they move up the socioeconomic ladder. By understanding prosperity blindness, we can be more mindful of our desires and make choices that are aligned with our values.
The Handicapper's Fallacy: Unraveling the Myth of More Data, More Success
This past weekend marked the conclusion of the 149th Kentucky Derby, a renowned event called the "Run for the Roses" and the "Most Exciting Two Minutes in Sports." During this time of year, I am reminded of a 1973 study by Paul Slovic - coincidentally, that's the same year Secretariat won the derby in a still-standing record-setting fashion. The important study showcased the influence of information on horse bettors, which is also relevant to investors.
From Cinderella Stories to Bank Runs: Understanding the Recent Financial Shake-up
We looked forward to Cinderella stories, buzzer beaters, and "one shining moment." Instead, we got bank collapses, government backstops, and fear. I'm talking about the banks (Silicon Valley Bank and Signature Bank) that have dramatically exited the financial system - raising concerns over the financial system and economy.
Beyond Certainty: Embracing the Unpredictable Universe of Financial Planning
Dune author Frank Herbert wrote, "Deep in the human unconscious is a pervasive need for a logical universe that makes sense. But the real universe is always one step beyond logic."
I don't sell certainty, and no one else should either. Unfortunately, in many cases, that's what financial service providers peddle. Like television pundits, many advisors make a living by being opinionated and selling a view of the future based on an illusion of expertise.