Mike's notes.
“The day-trippers wear gangster suits and outlandish patterns and hats inappropriate to the latitude, temperature, or setting. It’s amateur hour. They hold liquor like ninth graders. The homogenization of America has left people wandering the land in search of a place to belong. We are a tribeless nation hungry for tribes. That longing and loneliness are especially on display in early May in Kentucky.”
From Pappyland.
Personal finance is tricky.
One aspect is that precise but not accurate plans feel right. Running a Monte Carlo portfolio analysis on a low-beta trend-following model to prove the robustness feels “more right” than buying Vanguard Target Date Funds. We feel agency, authority, and accuracy through action (even though it may be more wrong).
A second aspect is framing the choices rather than making the choices. Choosing from good options, 30 or 15 Year Mortgages?, takes less time and works just as fine. A list of pros and cons doesn’t make a lick of difference when it’s just bad options.
I forgot these things.
Talking to a friend about how to estimate income from CDs vs. other instruments (when rates were 5%), he advised assuming a 50% tax rate.
What?!?! I thought. With an effective income rate of around twenty-five, some capital gains, some sales tax, and miscellaneous fees that sounded way too high. It certainly wasn’t the assumption in my spreadsheet. Plus the friend lives in a high cost-of-living area.
His number will be “more wrong” but in some ways, it was “more right”.
–
I’ve grown to see the world as less good and bad and more a series of tradeoffs. There are Good and Bad, but much is a bunch of tradeoffs. Myopia isn’t good or bad. It’s a tradeoff between now and later.
Behavioral psychology unearthed different biases, but how the field did that is a tradeoff too. Knowing about different biases is helpful (opportunity cost neglect, base rates, etc.), but just because one is “discovered” doesn’t make it a big deal. We can’t consider every other available option, something will be neglected.
Every choice is a tradeoff, like personal finance plans. My 25%+, like Price is Right, will be closer to the true amount without going over. But my friend’s 50% has a greater confidence interval. We know something is always happening and assuming you get half your money rather than 3/4ths means a lot less somethings can happen to you.
–
There’s a book series called The Five Love Languages.
I like the books even though they may be completely wrong.
Author Gary Chapman proposes that each of us likes to be communicated to in some ways more than others. The love languages: acts of service, touch, quality time, gifts, and words of affirmation describe different ways our partners, teens, and children prefer communication.
Personal finance plans work the same way.
Some people prefer accurate plans while others prefer ones with a margin of safety. Some people can stomach volatility. Some people want to invest like their friends.
Preferences drive choices, choices illuminate trade-offs.
And I listened to my friend and changed my spreadsheet to 50%.
And, finally, in what was easily the most emotional aspect of the trans-formation, Rickover made it clear that most of the officers who had previously served in diesel submarines (the same officers who had just popularly “won the war in the Pacific” were not welcome in nuclear submarines.
David Oliver, Against the Tide
Our this time is different series builds on the idea that system changes dictate when things are different.
Ask, Have the rules changed?
Nuclear submarines were different from their diesel counterparts, writes Oliver. In the Pacific theater, during WWII, the diesel submarines got “within rock throwing range”. That strategy and “the stress of war distinguished the ducks from the drakes in the submarine officer corps”.
Those captains were cowboys.
Which is what Hyman Rickover did not need.
Nuclear submarine captains needed to be smart and prudent. They had to be wise and calculating. They needed less gung-ho and more ho-hum.
This time was different because the system of war had changed.
It’s odd to take photos in public bathrooms. But the example was too good.
Whenever there’s an additional sign, or instructions, or FAQ it means there’s design and jobs-theory work to do.
One part of Jobs theory, according to Bob and Greg, is the distinction between shopping and restocking.
shopping – evaluating choices
restocking – finding an item
Organizations must understand this because when market incumbents, (if this sounds related to disruption theory it’s because Bob was a colleague of Clayton Christensen), serve restockers they change nothing. If it’s not broke don’t fix it.
Whereas challengers need to break into the restocking mindset. They might articulate novel criteria: Our dips have no added sugar.
The incumbent’s dips may also be sugar-free, but the challenger creates the question and the incumbent responds.
Bob tells the story of shopping of needing a new shampoo and conditioner and making his choice because it was 2-in-1. It wasn’t the natural oils (or lack of). Nor was it how charitable the company was or the number of additives. It was convenience.
His original choice (the restocking) was unavailable and like the sugar-free hypothetical, Bob had to ask himself: What’s important?
Well, there’s this.
Take from July 2023, the shortage has proved to be a shopping “opportunity”.
We’ve settled on Tapatio (side-note: weird keychains, like this, are always a hit as gifts) and depending on how long the outages last, may switch from Tapatio shoppers to restockers
…
Related: hair care competes with haircuts. As Clayton Christensen wrote, your competition may not be in the same grocery aisle.
From an August 2023 interview between Tyler Cowen an Paul Graham.
We think of the market mechanism as an information network: What information is considered important? In the world of business, profits are the important information and alpha erodes. To be successful then, your important information should be secret from someone else. This can be done by obscuring your information or by elevating something else for the competition. In Graham’s case the elevated information is “fashionable contemporary crap”.
GRAHAM: It sounds weird, but if you look at where the money’s spent at auction, it’s almost all fashionable contemporary crap because if you think about how prices in very high-end art are set, they’re auction prices. How many people does it take to generate an auction price? Two. Just two. So, you have boneheaded Russianswho want to have a Picasso on their wall so people will think they’re legit, or hedge fund managers’ wives who’ve been told to buy impressive art to hang in their loft so when people come over, they’ll say, “Oh, look, they’ve got a Damien Hirst.”
The way art prices at the very high end are set is almost entirely by deeply bogus people, [laughs] which is great, actually. When I was an artist, I used to be annoyed by this. Now that I buy a lot of art at auction, I’m delighted because it means there’s all this money. You see Andy Warhol’s screen prints selling for $90 million.
COWEN: Yes. Old masters can be, I wouldn’t say cheap, but I would say radically underpriced.
GRAHAM: A couple hundred thousand.
COWEN: Or even less for some good ones.
GRAHAM: Yes, I know because I buy them. [laughs] I used to be annoyed by this, and now I think it’s the most delightful thing in the world because there’s all this loose money sloshing around, and so-called contemporary art is like this sponge that just absorbs all of it. There’s none left. Some of the things I buy, I am the only bidder. I get it for the reserve price. No one else in the world wants it, or even knows that it’s being sold, so I am delighted about this.
The answer to your question, which artists are undervalued? Essentially, all good artists. The very, very, very famous artists, artists famous enough for Saudis to have heard of them — Leonardo, I would say, is probably not undervalued. But except for the artists who are household names — every elementary school student knows their names — they’re all undervalued.
If you can fail on purpose Michael Mauboussin writes in The Success Equation, then the endeavor is skillful. It’s easy to purposefully lose a game of h-o-r-s-e.
Noam Dworman expands this idea some. Talking about comedians who come through his Comedy Cellar he told Tyler Cowen:
Now, there’s a lot of overachievers in this profession. It’s not like the NBA. If you want to be in the NBA, you’ve got to be in the top one-tenth of basketball players in the country, or it’s immediately obvious.
You can scratch out and work hard and put together a good 15 minutes, so there are a lot of overachievers working in comedy. The real super talent, the real gems, like the Chappelles, like the Louis C.K.s — they really are on another level, and the world sees that.
https://conversationswithtyler.com/episodes/noam-dworman/
What makes a great comedian, Noam expanded, was someone who was funny but also needed to be on stage. They were compelled. Drew Carey simply got a book from the library and then wrote a joke a day. It had to be clean, original, and no knock-knock-jokes. Carey could – and did – write those jokes they just didn’t count. And he assembled fifteen minutes, then a set, then a career.
Mauboussin mostly writes about sports and investing because those domains are measured.
But it’s helpful to color in some other areas of the system. To think about what’s luck, what’s skill, and how they matter.
The Psychology of Money by Morgan Housel is a book of twenty money lessons but really it’s about two things.
Thing 1: How the world works.
There is the world and there is how we think about the world. The more these ideas overlap the happier more calibrated the person. People follow stories (chapter 18), pessimisms sells (17), and tails drive everything (6) are all explanations about the world.
It’s through a combination of evolution, social pressure, and a history of this-worked-for-me that we drift. Sure, we think, Tom lost so money in crypto but he didn’t listen and get in when I told him the candlestick fed cycle jump was coming (luck, chapter 2). When something bad happens to us we’re unlucky. When something bad happens to them they’re idiots (1).
Things 2: How you work.
So it’s not just outside that we misunderstand. It’s inside too. We move the goalposts (3), confuse consumption (8), and aim for the rational rather than reasonable (11).
Asking what do I really want out of this big trip is not easy.
So we don’t.
Thankfully Housel is here to help. Think of time as freedom (7), just save (10), and don’t confuse consumption for wealth (9).
–
The Psychology of Money is a difficult book to review because it’s personal. It’s how you see the world and understand yourself. Oof.
While the chapters are short, don’t spend little time on them. Read them. Stop. Think. Reflect. Note. The book is a refreshing break from the digital cycle. You’ll read this and think: Oh yes, this is a breath of fresh air and one I needed.
“If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon. Time is the most powerful force in investing. It makes little things grow big and big mistakes fade away.”
Start investing young was the advice I got. At 22 I opened a Roth IRA.
But there was a nuance I failed to note. It’s not just about time horizons but also how to get there.
Young Mike opened a Roth knowing it should compound for a long time. But he didn’t think about how that might happen.
Save 3-6 months of living expenses was another piece of advice. This is an average lie. It’s not enough or too much. We should call them “repair funds” because emergencies are not covered.
Emergencies need a year or more.
–
In Nomadland, Jessica Bruder writes about “house-less” Americans. With RVs and campers, these ‘nomads’ travel the country for work. Do you know how busy Amazon gets at the holidays? It’s these people working there. Seasonal National Parks? That’s them too.
Generally, four events precede someone becoming nomadic: health, house, job, spouse. Mary Smith or her significant other lost their _____ and now she’s nomadic. Three months of savings for that? Get out.
But that’s tough. So much time horizon is eaten up by savings accumulation – which an individual may never need! In hindsight I see all of Young Mike’s mistakes. But he didn’t think they were mistakes at the time.
This balance is what makes Morgan’s book so good. It’s not black and white numbers. It’s messy. It’s color. It’s holistic, it’s an ecosystem. You never do just one thing.
I didn’t read The Psychology of Money when it came out because I’ve read a lot of Morgan’s memos, followed him online, and written about personal finance. But the book is good. It’s not about money as much as it’s about morals.
What’s the point of reading this book?
Peter Attia’s Outlive starts with the medicine: biology, physiology, chemistry and so on. There’s an excellent explanation on arterial plaque. I did not know that cardiovascular diseases were caused by the body trying to heal itself from within, dealing with LDL cholesterol as best it can. There’s also good explanations about our synapses and cancers.
But what’s the point?
Information does not change action.
–
Attia’s book is about the four modern horsemen of human mortality: cancer, heart disease, type two diabetes, and neurodegenerative diseases.
Like other areas of discovery, medicine follows the pattern: identification, react, ‘proact’. The Ghost Map tells the story of choleras identification in 1854. Covid-19’s cadence meanwhile was within a year: sequence, treatment, and bundled with the flu shot.
According to Attia, there is a lot more room to proactively address the four horsemen.
Channeling Michael Pollan, switching from hundreds of pages to a few words that address the action, the advice might be:
Get stronger. Eat your best foods. Sleep well.–
The book is thick. Parts are dense. Even now, days later, I can’t explain parts.
But that’s okay.
The main point of the book is to be intentional. Like the vegetarian experiment and as good bayesians we should tinker. Attia is rarely absolute: Do this but not that! Instead it’s about you getting to this point of heart rate or insulin sensitivity or sleep.
One takeaway from Covid-19 was our heterogeneity (see: The End of Average). Outlive fits in this line of thinking. It’s your healthspan, it’s your lifespan, it’s your choice.
So get stronger, eat your best foods, and sleep well.
The Waiter's Pad 