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“What color is a chameleon placed on a mirror?…..
The chameleon responding to its own shifting image is an apt analog of the human world of fashion. Taken as a whole, what are fads but the response of a hive mind to its own reflection?
In a 21st-century society wired into instantaneous networks, marketing is the mirror; the collective consumer is the chameleon.”
~ Kevin Kelly, Out of Control: The New Biology of Machines, Social Systems, and the Economic World
I was reflecting on the memes, trends, bubbles that develop in markets. Right now it’s all about recessionary concerns, interest rates falling and bonds rising.
One of the reasons I think we see and will continue to see more bubbles form is Rene Girard’s concept of Memetic Desire discussed in his book: Things Hidden Since the Foundation of the World (recommended by Peter Thiel). This was actually a reason why Peter Thiel was so eager to invest in Facebook (Facebook was a company that had fully harnessed and weaponized Memetic Desire). You can see him discuss it here.
The key idea being that man doesn’t know what to want or desire, so he desires what others desire. We learn what to do and desire from those around us - we want what others want, we want what others have.
This is what leads to competition, because we are the same and desire the same things. This leads to Memetic Rivalry. We are competing for the same thing. We are in fact defined by who we choose to compete with. This is true as much of for as individuals as it is for companies and start-ups. Because in fact there are few differences, is why we compete so fiercely. Which leads to another Thiel idea: Of competition being bad, and the goal being a monopolistic Zero to One business, more on that another time.
This Memetic Rivalry can be seen across societies and can lead to trends, bubbles and even physical conflict. We copy each other, while also competing against each other.
But eventually, we wake up, a scapegoat is found. Someone to blame our rivalry on so society can survive and heal itself.
Once the scapegoat is found, peace is restored.
A simple example would be:
You go to a restaurant, because it’s popular with your friends. When it comes time to order, you overhear your neighboring table ordering the dish of the day, and decide to get it too. But when it’s your turn to order, the waiter tells you that dish is sold out because the table next door ordered the last one. Now you find yourself unhappy with those people and resentful - you are in conflict. You look for a scape goat - you might resent your partner for delaying you (if you were a little earlier you could have gotten that last dish) or maybe even resenting the person who recommended the restaurant. Once you decide the scapegoat, peace is restored.
This leads to me to ask a few questions whenever I’m considering a decision or action.
Am I being memetic - are my desires my own or others ?
Am I competing with others because I am competing for the same thing - the same totem ?
How do I escape from this and think for myself?
1. Seek innovation not competition.
2. Do what others aren’t doing and think long term.
3. Believe in a bigger vision, take risks by really committing.
4. Build a differentiated skill set and pursue timeless wisdom
Coming back to the markets today, what or who will be the scapegoat we will find for the insanity in interest rates and short term thinking ?
This discussion of Memetic Behavior reminded me of a quote from David Abrams (manager of $9bn Abrams Capital) in the Introduction to Part VII of Security Analysis, sixth Edition:
I am optimistic about the future of value investing. To be sure, there are many bright and savvy people in the financial markets employing Graham and Dodd’s techniques, but the markets themselves have grown exponentially. The chunk of capital being invested by the value-investing crowd is a small percentage of the overall capitalization of global financial markets. Having observed the markets for more than two decades, my sense is that, rather than a glut of Graham and Dodd acolytes picking through scarce opportunities to find a place for their cash, money is ever more prone to sloshing around in giant waves, flowing from one fad to the next. If anything, it seems that the people controlling these megasums have become less intelligent and less sophisticated over time. The last decade alone has brought incredible extremes in valuation, starting in 1999 and 2000 with the high-altitude Internet bubble that was followed in short order by the utter collapse of the tech market. In the summer of 2002, we witnessed a tremendous corporate debt meltdown. But soon, these excessively low valuations were pushed off the front pages by the most generous and lax lending standards of all time. Now, as I write this introduction, the mortgage market is imploding, creating perhaps yet another new set of opportunities. That we’ve seen the last of these extreme swings seems doubtful.
What is driving this manic phenomenon? The explanation is something I call the “Great Illusion of the Stock Market.” Investing looks easy, particularly in a world of inexpensive software and online trading. Buying a stock is no more difficult than buying a book on Amazon.com. And because a great many people have gotten wealthy in the stock market, lots of others have come to believe that anyone can get rich with very little effort. They are wrong. All the people I know who’ve built wealth in the stock market have worked very hard at it. Graham and Dodd understood the effort it took to be successful in the market. They wrote:
Since we have emphasized that analysis will lead to a positive conclusion only in the exceptional case, it follows that many securities must be examined before one is found that has real possibilities for the analyst. By what practical means does he proceed to make his discoveries? Mainly by hard and systematic work. (p. 669)
So, yes, you can get rich buying and selling stocks, but, as the authors well knew, it takes hard work and patience. Nevertheless, the Great Illusion persists, maybe because, like Woody Allen’s film character Zelig, the market is a chameleon that changes its appearance to suit the times. Sometimes, it shows up as a tech stock bubble. Other times, it manifests itself as a ludicrously overvalued stock market as seen in the late 1980s in Japan. In a current incarnation, a raft of financial institutions across America are trying to emulate the success of David Swensen and his colleagues who manage Yale University’s endowment by allocating large percentages of the capital to “alternative investment managers.”
But the Great Illusion is just that—an illusion. If you want to get wealthy in the financial markets, you’ll need to engage in “hard and systematic work.”
Are you doing the hard and systematic work ?
A few things worth reading or listening to:
1. The Singularity University just held it’s annual summit, here are the videos.
2. We have all heard about the Butterfly effect, but do you know the Gorilla effect by Niall Ferguson (thank you David G).
3. Should the Rich be allowed to buy the best genes by Walter Isaacson (thank you Plamen). If you are interested in CRISPR, highly recommend reading Crack in the Creation by Jennifer Doudna.
4. The Happy Secret to Better Work - We believe we should work hard in order to be happy, but could we be thinking about things backwards? Great TED talk by Shawn Achor (thank you Anthony R), where he argues that happiness inspires us to be more productive.
5. Which Categories of Start-ups are thriving and which aren’t according to Tom Tenguz at Redpoint.
Quotes I’ve been thinking about:
I judge you unfortunate because you have never lived through misfortune. You have passed through life without an opponent—no one can ever know what you are capable of, not even you.”
- Seneca
“There are some things you can’t learn from others. You have to pass through the fire.”
- Norman Douglas