How Does It End?, 12 Rules For Life, Public To Private Equity

September 3, 2020

“I recognize that I may be wrong...I am a very critical person who looks for defects in myself as well as in others. But, being so critical, I am also quite forgiving. I couldn't recognize my mistakes if I couldn't forgive myself. To others, being wrong is a source of shame; to me, recognizing my mistakes is a source of pride. Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes.”

- George Soros

"Start where you are. Use what you have. Do what you can."

- Arthur Ashe

"The reward of our work is not what we get, but what we become."

- Paolo Coelho

A. How Does It End?

One of the ideas we have discussed is the Financialization of the Economy.

The idea is: Every time there is a dislocation, the state has grown larger and more intrusive. Whether it is the Federal Reserve or Fiscal Stimulus. This has had the impact of making the US dependent and reliant on asset price appreciation to drive household net worth. This was the financialization of the US economy.

Over the last few weeks, the FED is making it clear that it is in fact a slave to the system. The game is to bring future consumption to the present and using asset prices and leveraging. The objective of the modern monetary policy is to engineer controlled defaults at a pace slower than rise in asset prices and accumulation of new debt. This requires ever lower volatility and constant prices, with central banks controlling both quantity and prices, eliminating most free market signals.

This is where we are now.

The idea of central banks and the FED running the biggest carry book on the planet is well covered in the book - The Rise of Carry, that we covered here.

How it does end?

In a fiat money system, the central banks never run-out of bullets. They will just move to different tools if current policies become too toxic and need to replaced.

For investors, then this probably means more toxic outcomes - rising inequality, narrower growth….

How do you think it ends?

I get to speak to some of the largest & most sophisticated Family Offices, here is what I'm hearing from them.

1. Are we too exposed to the US economy?

US assets combined with the USD have been a great bet for the last 10 years. Massively outperforming everything else. This has led to an over concentration in to US assets and USD, at potentially the wrong time. They are looking to make their incremental investments elsewhere and holding $Gold instead of $USD. Some even $BTC.

2. What do growth and defaults look like coming out of 2020?

Does the economy continue on fiscal & monetary support and for how long? Does this actually favour the US because it has more room to stimulate. Answering these questions determines the strategies you use. 

If defaults go up then distressed or special situations would be useful but if stimulus will continue limiting losses & buoying growth then maybe it’s TINA to Equities or Private Debt.

3. Is the change in human behaviour & technology usage a one time shift or an inflection in a trend that will continue/accelerate? 

Has this been a catalyst for e-commerce, fintech, and payments? Are you meant to overweight tech in your portfolio?

How would you answer these questions?

B. 12 Rules For Life

The kids went back to school today, so last weekend I reminded them of a few rules from Jordan Peterson 12 Rules for Life.

The question the book sets out to answer is what are the most valuable things that everyone should know?

Here is what we discussed:

RULE 1: Stand up straight with your shoulders back Social hierarchy & structure is a million yr old idea - heck even lobsters have it. Our brains are designed for social structure, don't try to fight it, instead signal that you are high status. Be bold, be loud, be different.

RULE 2: Treat yourself like someone you are responsible for helping We have a tendency to believe that we aren't good enough. That leads us to not take care of ourselves. Take the other side - I'm good, I can make good happen. What would life look like if you cared about you?

RULE 3: Make friends with people who want the best for you. We often choose friends who are below us. We want to rescue & redeem others to show how good we are. But is that good for us or them? Seek people who want what is good for you.

RULE 4: Compare yourself to who you were yesterday not someone else today. What can I do to be better today rather than how can I beat that other person. Ask how can I set my life in order today? Focus on the right things - making your own life better. Best way to counter chaos.

RULE 5: Do not let your children do anything that makes you dislike them. Kids need discipling and being told right from wrong. They are not born with this knowledge. Either you take responsibility or the world will do it with less care and it will be worse for them.

RULE 6: Set your house in perfect order before you criticise the world. Identify and fix what is broken in your life rather than trying to first fix what you think is wrong with the world. The work begins at home today.

RULE 7: Pursue what is meaningful (not what is expedient). Invest and work for the future. Sacrifice today. Meaning comes from doing the right thing. Doing what is expedient and meaningful, reduces chaos and creates order in the world.

RULE 8: Tell the truth - or, at least, don't lie. Being truthful and honest is critical. Be careful of who you become otherwise. Your character is being defined by what you say and how you act. Focus on strengthening your character and resolve.

RULE 9: Assume that the person you are listening to might know something you don't Seek opinions and views opposite from your own. It is easy to fall into post facto rationalisation.

RULE 10: Be precise in your speech Be precise in your beliefs & opinions. Observe clearly what your reality looks like. Sometimes we don't notice because we don't want to know. Seeking truth, being precise & truthful means going through chaos. What truth are you not seeing?

RULE 11: Do not bother children when they are skateboarding Danger & risk is an important socialising force. The world is conflict, power & strife. We can't protect & coddle our kids from it. Let them build a better understanding of the world by slipping and falling.

RULE 12: Pet a cat when you encounter one on the street. Pain is constant. Suffering is a part of life. Things do break. Things do fall apart. Acknowledge the bad stuff, it's part of the journey. There is all sorts of suffering in life.

C. A Few Things Worth Checking Out

A. Michael Mauboussin was on the Invest Like the Best Podcast discussing his work on the Great Migration Public to Private Equity. We discussed his paper a few weeks back.

B. Matthew Walker (author of one my favourite books: Why We Sleep) was on The Peter Attia Drive Podcast discussing sleep and immune function, chronotypes, hygiene tips, and addressing questions about his book.

C. Ryan Holiday and Mark Manson (author of The Subtle Art of Not Giving a F@ck) discussed What You Should Actually Give a F*** About.

Author Toni Morrison shares a lesson from her father:

" day, alone in the kitchen with my father, I let drop a few whines about the job. I gave him details, examples of what troubled me, yet although he listened intently, I saw no sympathy in his eyes. No “Oh, you poor little thing.”

Perhaps he understood that what I wanted was a solution to the job, not an escape from it. In any case, he put down his cup of coffee and said, “Listen. You don’t live there. You live here. With your people. Go to work. Get your money. And come on home.”

That was what he said. This was what I heard:

1. Whatever the work is, do it well—not for the boss but for yourself.

2. You make the job; it doesn’t make you.

3. Your real life is with us, your family.

4. You are not the work you do; you are the person you are.

I have worked for all sorts of people since then, geniuses and morons, quick-witted and dull, bighearted and narrow. I’ve had many kinds of jobs, but since that conversation with my father I have never considered the level of labor to be the measure of myself, and I have never placed the security of a job above the value of home."

Source: The Work You Do, The Person You Are