A Few Things....

October 2, 2019

A. I was thinking about markets this week when I had lunch with a friend, we discussed collecting data, forecasting and the ability to predict where we are headed.

That made me recall three great books: The Signal & The Noise by Nate Silver, SuperForecasting by Philip Tetlock and AntiFragile by Nassim Taleb.

Here’s how I’m thinking about it:

The big lessons from both Nate Silver’s and Philip Tetlock’s books are similar: Think probabilistically and don’t claim to know something with certainty. Understand that you come to the world with real biases and that those biases cloud your judgement. You must protect against those.

And then as you go through life have a thesis, ask questions, test that thesis and then change your thesis. Keep adjusting your views in a bayesian fashion. Do not believe in false certainty. Most things are largely unknowable.

How to do better forecasting: Write down your forecasts and observe them. Focus on narrower and specific things that can be right or wrong. Judge based on probabilities not on yes or no. Use outside view, what's the base rate here. Forget the specifics, that's the inside view. The specifics will mislead you. Too much noise. Have the outsiders perspective.

Plan for massive randomness in life. Can you handle the uncertainty? The future is uncertain, containing a range of possible outcomes. 

That last part takes us to Nassim Taleb’s book Anti-fragile, an idea that carries a lot of weight for planning your portfolio and your life.

The big idea is: think of the world as consisting of three types of people, investments, structures….Fragile, Resilient and Anti-fragile.

Fragile: Suffers from volatility, more downside than upside from volatility, mistakes are rare and large.

Resilient: Stays the same in volatility, indifferent to tranquility and volatility.

Anti-fragile: Grows and gets stronger from volatility, more upside than downside from volatility, seeks disorder, mistakes small and benign.

What sort of person do you want to be and what sort of life do you want to construct?

And then the next question, how do you construct an Anti-Fragile life, company, portfolio, so forecasting doesn’t matter? You almost want bad things to happen.


B. In a few weeks, we will be getting everyone’s forecasts and predictions for 2020. What are your predictions and how are you preparing for next year and the next decade ?

I think there are three sources of investing edge: data, analytical and behavioral.

Today the world is awash in data and I cannot possibly process it all. I scan the numbers and try to remember my two decades of markets experience to understand how they fit and then I try to do little unless there is something important to do.

Right now I am seeing multiple events that remind me of that period right before the crashes of 2000 and 2008.

What are those events?

  • There’s been a massive VAR unwind where “momentum” gets sold and “value” gets bought—yet there aren’t actual flows into value. Rather, funds are pulling in exposure and reducing “value” shorts. While it looks like a sector rotation—I see it as a massive “risk-off” event.

  • There are funding stresses in obscure places like the repo market. In both prior crashes, there were odd pockets of funding stress before it all blew apart, including plenty of funds with redemption issues.

  • Thousands of unprofitable companies are suddenly caught in an existential vise. If you grow revenues but can’t raise money in 6 months, you die. If you cut spending to reduce losses, you don’t grow and no one funds you. I remember this happening in both crises.

Does this make you concerned, or am I stressing out over nothing ? I’d love your thoughts.


C. A few things worth checking out:

1. Harry Stebbings @ Twenty Minute VC (Disclaimer: I’m an LP in his fund) had the legendary Brad Feld on his podcast this week. Brad literally wrote the book on Venture - Venture Deals (every investor and entrepreneur should read). Great discussion on “don’t have fake CEO or fake VC days”.

2. Global payment companies are a beautiful business - take the likes of MasterCard, Visa, PayPal, AliPay, Stripe. The future will have a lot more digital payments than today, and I learnt a lot from this session at Stripe’s conference on the Future of Payments.

3. If you are in an intimate physical relationship or intend to be, then you should definitely listen to the Knowledge Project podcast with Dr. Emily Nagoski. So much good stuff that I’m going to listen to it again and I just ordered the book.


Quotes I’ve been thinking about:

Author and journalist Anna Quindlen on being original:

“...nothing important, or meaningful, or beautiful, or interesting, or great ever came out of imitations. The thing that is really hard, and really amazing, is giving up on being perfect [in the way people expect] and beginning the work of becoming yourself.

"This is more difficult, because there is no zeitgeist to read, no template to follow, no mask to wear. Set aside what your friends expect, what your parents demand, what your acquaintances require. Set aside the messages this culture sends, through its advertising, its entertainment, its disdain and its disapproval, about how you should behave.

"Set aside the old traditional notion of female as nurturer and male as leader; set aside, too, the new traditional notions of female as superwoman and male as oppressor. Begin with that most terrifying of all things, a clean slate. Then look, every day, at the choices you are making, and when you ask yourself why you are making them, find this answer: for me, for me. Because they are who and what I am, and mean to be.

...

"This will always be your struggle whether you are twenty-one or fifty-one. I know this from experience. When I quit the New York Times to be a full-time mother, the voices of the world said that I was nuts. When I quit it again to be a full-time novelist, they said I was nuts again. But I am not nuts. I am happy. I am successful on my own terms. Because if your success is not on your own terms, if it looks good to the world but does not feel good in your heart, it is not success at all.”

Source: 1999 Mount Holyoke Commencement Speech

And a great way to be original is to:

In all affairs it’s a healthy thing now and then to hang a question mark on the things you have long taken for granted.

- Bertrand Russell