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[VIC - 159] Naked and afraid

December 1 · Issue #159 · View online
Jeremy Hurst
I hope everyone had a wonderful Thanksgiving! No doubt that life will throw curve balls at times, but we all have things to be thankful for! Onward…

Business & Money
Is it important to understand a thing, or simply to know how it behaves?
Concerning physical phenomena, understanding behavior is often sufficient. Take gravity; if an egg accidentally slides off the counter, it will break on the floor. It’s unimportant to know that the egg will accelerate toward the floor at 9.8 m/s squared, or that the egg exerts a gravitational pull on the earth just like the earth does on the egg.
In financial markets, technical analysis is akin to knowing that the egg will break on the floor. It involves looking at price trends and chart patterns to identify investment opportunities. Contrast that to fundamental analysis which looks at the fundamental attributes (financial statements and economic factors) of a business.
You might say gold is another example, at least as far as I’m concerned. I started adding gold to my portfolio in January. A few friends were surprised by this given how much I love the investing philosophy of Warren Buffet. Buffet often describes gold as an unproductive asset in that it produces no cashflows. But I didn’t add it to the portfolio in search of cashflow. I added it to my portfolio because gold generally rises in times of economic uncertainty. With negative interest rates, unprecedented debt levels, on-again/off-again trade wars, slowing growth, and the like, uncertainty seems rather high from where I’m sitting.
So you might say I’m buying gold, not because I really understand much about it, but rather because the egg seems dangerously close to the edge of the counter.
Human Progress
Gold, or more broadly money, is an interesting example of this notion of understanding a thing vs understanding how it behaves.
If you’ve read anything from Yuval Noah Harari, you’ll be familiar with the idea that money is a collective myth or a story. Its value lies in the fact that everyone agrees that it’s valuable. If you go to a store, the shopkeeper will trade you his latest styles for your money because he can use that money to in turn trade for more inventory or to open a new location.
Other examples of this collective myth-making or storytelling can be found in the form of political and religious ideologies. I am not interested in discussing the validity or benefits of any one ideology over the other, but rather in the recognition of the fact that all are stories.
You might say that the trajectory of human development since our earliest days on this planet have wrested on the success of these myths and stories. Individual and/or collective survival has often depended on which stories you subscribe to.
When enough people believe in a story for a long enough time period, sometimes that story starts being called a truth.
A religious fundamentalist might call their religion a truth. A citizen of a western democracy might call individual liberty and freedom a truth, or rather a truism. An entrepreneur might put capitalism and free markets in this same category.
But in reality, these are all stories (again, staying away from the validity or value of said stories). Myths. It can be really hard to remember that truths are just stories in disguise.
The problem with truths is that, once a story enters this category, it becomes less important to understand the true nature of the thing. If something is simply true, there’s less need for critical analysis (or so it might seem).
As we move through the world, we all adopt stories and myths that suit us. Some of these are adopted by choice, and others by mere circumstance.
Then, every so often, the rug is pulled out from under us. Suddenly you see a story standing naked and afraid where a truth had been only a moment ago.
While jarring, these moments stand as poignant reminders that our species are prolific storytellers and that we must remain critical and curious as stories come into contact with our sense-making apparatus.
My Latest Discovery
I’ve recently started a book that touches on these ideas called The End of History and The Last Man. I’m really enjoying it so far, and perhaps you will too.
It's A Wrap!
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