On June 20 1975 Jaws was released in theaters. The iconic movie broke ground in a lot of ways. Most notably, it was the first summer blockbuster. After 1975, summers in America would never be the same.
And it almost never happened.
Jaws was a difficult movie to film, mostly thanks to the shark animatronic.
Some people know that Speilberg named the shark ‘Bruce’ after his lawyer – but that’s not what he called it on set. There it was known as “the great white turd”.
It didn’t work.
And when it did work it looked terrible.
It was a blessing in disguise.
Sitting in the editing bay with so little usable footage, Speilberg had to rely on mystery, ambiguity, and John Wiliams’s stunning soundtrack. Viewers were left to imagine the shark and in their imagination is where the danger lies.
Obstacles arise. Problems grow. Things are not the way we imagine.
That’s okay. It’s just another problem we can solve.
In the late 1990s, Porsche was a great brand. The 911 and Boxster were cool cars. They were movie stars, appearing in Risky Business, Top Gun, and Scarface.
One Porsche ad read, “it’s either an expensive sportscar or a very reasonable racecar.” Another said, “one ride and you’ll understand why most rocket scientists are German.”
But Porsche faced a common business dilemma: Sell the same thing to new people or sell new things to the same people. Porsche needed a new thing. Porsche needed an SUV.
The company built fast cars for sixty years. They knew what they were doing. So they didn’t let the “rocket scientists” design it.
Instead Porsche went on a road show. They spoke with 911 and Boxster owners. What do you like? Not like? Where do you need more room? Less?
They collected data, built prototypes, and took the prototypes back to those people to collect more data. Drive this, sit here, load that.
Porsche didn’t ask what do you want? Customers are too busy living to answer! Instead Porsche presented tradeoffs like more and larger cupholders. They ‘ruined’ the design but the Cayenne sold well, surpassing the 911 in sales in just five years.
No matter how good a business, how wise and leader, how innovative a product – it always comes back to the customer. If they want more cup holders, give it to them
One aspect of Jobs Theory is when producers focus on one aspect but consumers prefer another.
Often this is in terms of measurable features: size, speed, cost and so on. But consumers think about their tradeoffs in a different language. Here’s an example from November 2023.
Bill Simmons: “To me audiobooks don’t seem that much different than podcasts. My wife likes audiobooks more than podcasts but it’s not like ‘I’m an audiobook person and not a podcast person.’”
Malcolm Gladwell: “There’s been a real blurring of that line – but these distinctions don’t matter to listeners who just want to hear something interesting. It’s only insiders who obsess over the differences between podcasts and audiobooks. It’s just interesting stuff to listen to.”
You don’t teach them the history of baseball, give them the baseball encyclopedia, quiz them about Abner Doubleday, and if they do well on the test, let them go to a game. What you do is get them enrolled in the journey of being a baseball fan because five minutes of it was fun, and they want it again. The next thing you know, they’re learning statistics because they want to. They’re learning facts because they want to, not because there’s going to be a test.
Financial advice is tricky because it’s a bunch of priority influenced trade-offs. There are many ways to succeed financially, it’s just a question of how: What are the priorities and trade-offs?
Our previous personal finance MUSU was based on the Michael Douglas movie, The Game. In that thriller, Douglas is sent on an adrenaline adventure. We never know if what he lives through is real, or just the game.
That start up could imitate market crashes, pandemics, and stressful situation. Individual investors would never know if what they live through is real, or just the game.
Today is another personal finance idea.
A lot of advice starts with the idea of goals. What is your goal retirement age? What is your goal retirement income? What are your contribution goals for the kids’ education?
Share your goals, work backward in time, make assumptions, and then generate a plan.
But as humans, this is difficult to articulate. As we saw with opportunity, cost neglect, if it’s not an obvious choice in front of us, we don’t generate it. I want to retire at 65 and live on 80% of my current expenditures and pay for two college educations. Blah. Generic options like multiple-choice tests in school.
Thinking different – please read this book – is hard. So it’s logical to conclude that non-differentiated thinking means that it might not be what a person really wants.
The pitch: show us your portfolio, and we will tell you your goals.
For example, someone comes in with a limited portfolio in a bunch of individual stocks. The goals of this person is to rely on luck. Or, someone comes in with $X,000. This is the portfolio of someone who wants to work for twenty more years.
A lot of clients would come in and go oh hell no. That’s good! That reaction creates boundaries to what they truly do/don’t want out of their financial plan.
Additionally, this presentation could be presented using base rates: People with X at age Y work for Z more years – just like you will unless something changes.
This is a hard sell because finance is, like Rory Sutherland writes, a “name brand”. People buy financial advice for the same reason they buy name brand products, as downside protection. I don’t need it to be good, our subconscious reasons, I just need it to not be shit. Brands are undifferentiated on purpose!
The “white suv meme” circulates on the internet and we laugh. But new leads to unexpected factory recalls, disappointed customers, and other monkey wrenches. New/Unproven is not what the customer wants, though it’s better on some dimension. That goes for cars as much as it goes for financial advice. Even if, a little game or a backwards approach might lead to some good ideas.
“I think it’s the worst Boston sports trade in my lifetime. What’s amazing is they psyched themselves out with the long term. They just got scared. They overthought it.
They looked at all this data of offensive players in their 30’s tailing off. Maybe their power peaked? Maybe injuries? There’re a lot of examples , and I agree with this logic.
Where they whiffed, where if you watched Mookie Betts play, week after week, this guy was one of the most extraordinary athletes in the history of Boston sports.”
Bill Simmons, August 2023
I don’t follow baseball. I follow Simmons, and assume he’s right about all these things. And this is what makes base rates difficult. If it were obvious and easy we wouldn’t note it. If it were logical, we’d just call it normal.
But it’s not. It’s difficult. It’s confusing. How does a team pick the “once in a generation” talent when that proclamation rises so often? What’s the cost to miss one?
“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.”
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”.
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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.
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.
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.
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.
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