But What For Newsletter - No. 020

Welcome to all our new subscribers! I write a weekly newsletter, sent out every Sunday, with curated quotes and one-line takeaways from material that I think is worth reading. Occasionally, I share my own thoughts, inspired by others’ writings, on Tuesdays. If you enjoy the newsletter, please share it with a few friends/colleagues.

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Latest from But What For?

I was lazy this week and did not get out a full article on the main website, but I did want to share something that I stumbled across.

As almost none of you are aware, I play the banjo. Or, more accurately, used to play the banjo a long time ago. I actually found a recording online from back then - nothing beautiful, but something fun - a song I wrote and uploaded when I was 15/16. It’s always nice to remember that pre-adult you could kick your adult butt in most things. Since then, it has been an endless game of trying to get back into it playing more while life seems intent on making that increasingly difficult.

But, what I did retain from all my time spent on that banjo was an appreciation for a few bluegrass & folk artists. One of them, Doc Watson, is an American treasure. He was born in the 1920s, blinded before the age of two, developed the bluegrass flat-picking style of guitar that you hear in music still today, and went on to become one of the most important influences on American bluegrass / folk music by popularizing traditional songs that may have been forgotten or stuck in only Appalachia otherwise.

He covered less-traditional songs as well, and I had forgotten about his cover of Ready for the Times to Get Better until earlier this week - thank you, Amazon Wire Tap (…I mean, Alexa) for your algorithm-based playlists.

I have not commented on the pandemic so far because, well, everyone else is and it’s not fun talking about how depressing everything is still a year into things - but I will be honest, it is finally starting to wear on even introverted me.

At the same time, things seem to be (starting to be) making a turn for the better, however slowly. As Doc covers through his lyrics, sometimes we just have to hold on and wait until the “changes are comin’, no doubt.”

In the meantime, we can work on learning new things, appreciating the time we do have with loved ones, and remember to pick up that phone to give our parents / grandparents a call as the modern world can be a very lonely place during a pandemic for those not fully plugged-in through technology.

Doc fingerpicks and sings this one - so not much of the flashy flat-picking we talked about - and I have to agree with him - I am ready for the times to get better.

Elsewhere

(Underlined titles are links to sources)

About Face: The Odyssey of an American Warrior, by David Hackworth & Julie Sherman [Book]

• Takeaway: Discipline equals freedom

Infantrymen were fighters, not writers. In one way, we prided ourselves on it; we didn't have time for such "pussy" stuff. But the act was that infantrymen in Korea came, as a rule, from the bottom rung of the social and economic ladder. The squads were mainly made up of poor whites, blacks, and yellows—a dispensable rainbow—uneducated, with nothing to keep us a step ahead of the point of a bayonet. And if a doughfoot got killed, his parents generally didn't have the education to write and ask why. They'd silently, stoically wear their loss like a sad badge of honor. In Korea, a heroic, dead comrade-in-arms; at home, a gold star in a cracked window in a little house on the wrong side of the tracks.

…

Upon volunteering to go on line as an FO, he was told his life expectancy would be only twenty-one days. Why is it twenty-one days? he asked himself, assuming that if he could figure it out, he could beat the odds. His conclusions were simple battlefield common sense that apparently too many FOs never lived long enough to learn. The first was "he who hesitates pretty quickly gets blasted away." The other was that the minute you get to a lay-up point you have to look around for an extra bit of good cover in case things don't go according to plan, because, in Bell's words, "Once the unexpected occurs it's too late to start looking around to see where you're going to go."

…

In that poker is very much science, you can read as much as you like about it, but you really can’t be good at it without playing a hell of a lot.

…

There were rumors of peace talks, though, which was good news for everyone; we all shared the hope that we would soon see a cease-fire. All things considered, it was probably best that our youthful naivete prevented us from recognizing the enemy’s real intention: to fuel the peace flame only to gain time to rebuild its gutted forces.

Risk [Article, 2006]

• Takeaway: You’ve got to go out on a limb sometimes because that is where the fruit is, but take a hard look at that limb first

We’re all preoccupied with the quest for excellent investment returns, and most of us understand that risk management has a lot to do with achieving them. From there, investment orthodoxy often takes over, with the discussion turning to the relationship between return and volatility. But I think that tells so little of the story that I’ve decided to devote an entire memo to the subject of risk…

In my opinion, especially in good times, far too many people can be overheard saying, “Riskier investments provide higher returns. If you want to make more money, the answer is to take more risk.” But riskier investments absolutely cannot be counted on to deliver higher returns. Why not? It’s simple: if riskier investments reliably produced higher returns, they wouldn’t be riskier!

The correct formulation is that in order to attract capital, riskier investments have to offer the prospect of higher returns, or higher promised returns, or higher expected returns. But there’s absolutely nothing to say those higher prospective returns have to materialize…

Let’s say someone makes an investment that works out as expected (or better). Does that mean it wasn’t risky? Or let’s say the investment produces a loss. Does that mean it was risky? Or that it should have been perceived as risky at the time it was analyzed and entered into?

If you think about it, the response to these questions is simple: The fact that something happened doesn’t mean it was likely, and the fact that something didn’t happen doesn’t mean it was improbable. Improbable things happen all the time, just as likely things often fail to occur…

Rick Funston performs a service by organizing risks into two categories: those that are suitable for probabilistic modeling and those that aren’t. He includes among the elements that render a risk suitable for modeling (1) recurring situations, (2) processes that are subject to known rules, (3) conditions that can be counted on to remain stable, (4) controllable environments, (5) a limited range of outcomes, and (6) certainty that combinations of things will lead to known results.

What could be less descriptive of investing? Given the non-recurring situations we face, the fact that many of the rules are unknown, and the largely unlimited range of outcomes (among other things), I would argue strongly that models and modelers are of very limited utility in measuring investment risk at the extremes, where it really matters.

Why It’s Usually Crazier Than You Expect [Article, 2021]

• Takeaway: Feedback loops can both hurt and help

Forecasting when a species might go extinct is hard because whatever is causing a species to die off rarely progresses at the same rate. It can speed up in the blink of an eye in ways that surprise people.

Say an elephant is being hunted for its tusk. The rate of hunting often massively speeds up over time, cascading into a frenzy that pushes a mildly at-risk species into quick extinction.

It’s simple: As the number of elephants declines, tusks become rare. Rarity pushes prices up. High prices make hunters excited about how much money they can make if they find an elephant. So they work overtime. Then fewer elephants remain, tusk prices rise even more, more hunters catch on, they work triple-time, on and on until the number of hunters explodes as everyone chases the last herd of elephants whose super-rare tusks are suddenly worth a fortune…

Feedback loops – where one event fuels the next – often lead to that kind of bewilderment.

Find a feedback loop and you will find people who underestimate how crazy prices can get, how famous a person can become, how hard it can be to change people’s minds, how irreparable a reputation can be, and how tiny events can compound into something huge…

GameStop – whose stock is up 100-fold in the last year as a Reddit message board coordinates a buying spree to hurt short-sellers – is experiencing a similar thing.

Philosophical Landmines [Article, 2013]

• Takeaway: Don’t let terminology prevent you from having a conversation

I went away and formulated the concept of a "Philosophical Landmine"…

In the course of normal conversation, you passed through an ordinary spot that happened to conceal the dangerous leftovers of past memetic wars. As a result, an intelligent and reasonable human was reduced to a mindless zombie chanting prerecorded slogans. If you're lucky, that's all. If not, you start chanting counter-slogans and the whole thing goes supercritical.

It's usually not so bad, and no one is literally "chanting slogans". There may even be some original phrasings involved. But the conversation has been derailed.

So how do these "philosophical landmine" things work?

It looks like when a lot has been said on a confusing topic, usually something in philosophy, there is a large complex of slogans and counter-slogans installed as cached thoughts around it. Certain words or concepts will trigger these cached thoughts, and any attempt to mitigate the damage will trigger more of them. Of course they will also trigger cached thoughts in other people, which in turn... The result being that the conversation rapidly diverges from the original point to some useless yet heavily discussed attractor.

Notice that whether a particular concept will cause trouble depends on the person as well as the concept. Notice further that this implies that the probability of hitting a landmine scales with the number of people involved and the topic-breadth of the conversation.

Take care and have a great week,

— EJ

But What For? For a break from the urgent: Ideas that matter. Insights that don’t get old.