“Buggy means that our brains aren’t optimized for all settings. While we’re capable of figuring out most things, we’re too capacity-constrained to do so all the time. We’d starve to death if we adopted first principles to decide which toothpaste to buy each morning. Some of the attributes that are great for survival in a real jungle (e.g. herding, overconfidence, pattern-seeking, panic) can be disadvantageous in a modern figurative jungle. Buggy implies that we are prone to certain patterns of mistakes in certain settings. We’re smart and self-correcting, but far from omniscient. Unfortunately, markets constitute a setting where external pressures, social interactions and human frailty get exaggerated, bringing our bugginess to the fore. It takes deliberate effort and some ‘unnatural’ behavior to survive and thrive here. Others being buggy is why markets perennially offer good opportunities. My being buggy is why it’s so hard to take advantage of them.
…In technical terms, messy refers to complex, adaptive (social) systems. Markets, investing, business, government, social media and societies are all messy worlds. Messy means absence of natural law and neat causality. Unintended consequences, if not randomness, makes outcomes path dependent (a fancy way of saying that if you replay the movie, it’s a different movie). Unseen feedback loops exaggerate the consequences of any particular action, in a dynamic way. We can’t control or forecast what will happen. Messy world makes all of us seriously clueless.
However, messy doesn’t mean random. Messy doesn’t mean that we’re helpless slaves of destiny. It doesn’t mean world is totally undecipherable. Messy world still offers patterns that can be exploited. However, patterns are fuzzy. They tend to show up only over long timeframes, at a high level of abstraction. They don’t repeat perfectly, even though they help guide future odds. Messy implies a probabilistic world where we can’t actually calculate probabilities. Messy means broad history is useful but precise back-tests aren’t. Most importantly, messy world throws up a few patterns reliable enough to guide action (or inaction), especially at the extremes.”
He then helps us with a few tenets to base our approach to deal with all the bugs and mess. Some of them are:
“At best, we can each find our tiny corner of messy world that’s less inscrutable, based on
- Patterns from long history suggesting that this holds true.
- Fit with our own strengths, preferences & constraints.
- Depth of understanding based on decades of focused effort
- Patience, as odds play out only over super long timeframes, that too on average.
- Great humility, we’re still likely to be wrong (even if less wrong than others)
- Keep cushion at every level.
- Especially on knowing your own limitations (e.g. no forecasts).
As messy world messes up scorecards, track only meaningful ones.
- Process and outcomes aren’t correlated over short run.
- Easy to look smart while being stupid.
- Focus on right scorecard (e.g. business progress, not price action).
- Delink activity from progress.
- Stay paranoid about not missing anything, even when not doing anything.
- Holding course is conditional on starting assumptions holding true.
- Investing history suggests that most are good at zero things.
- If you’ve found one corner you’re good at, you’re way ahead already.
- It’s near impossible that you’re good in two different corners.
- If you try to be good at two things, you’ll be good at zero things.
- Envy and FOMO are ruinous.
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