But What For Newsletter - No. 019

Speech at the Stadium, About Face, Berkshire Hathaway in 2004, Pushing Yourself, the Road Not Taken, and the Brooklyn Investor

Welcome to all our new subscribers! I write a weekly newsletter, sent out every Sunday, with curated quotes and one-line takeaways from material that I think is worth reading. Occasionally, I share my own thoughts, inspired by others’ writings, on Tuesdays. If you enjoy the newsletter, please share it with a few friends/colleagues.

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Latest from But What For?

(Underlined titles are links to full articles)

I regard you as a bunch of young, reasonably egotistical souls on the eve of a very long journey. I shudder to contemplate its length, and I ask myself in what way I could possibly be of use to you. Do I know something about life that could be of help or consequence to you, and if I do, is there a way to pass this information on to you?

The answer to the first question is, I suppose, yes — not so much because a person of my age is entitled to out-fox any of you at existential chess as because he is, in all probability, tired of quite a lot of the stuff you are still aspiring to. (This fatigue alone is something the young should be advised on as an attendant feature of both their eventual success and their failure; this sort of knowledge may enhance their savoring of the former as well as a better weathering of the latter.) As for the second question, I truly wonder…

Now and in the time to be, I think it will pay for you to zero in on being precise with your language. Try to build and treat your vocabulary the way you are to treat your checking account. Pay every attention to it and try to increase your earnings. The purpose here is not to boost your bedroom eloquence or your professional success — although those, too, can be consequences — nor is it to turn you into parlor sophisticates. The purpose is to enable you to articulate yourselves as fully and precisely as possible; in a word, the purpose is your balance. For the accumulation of things not spelled out, not properly articulated, may result in neurosis. On a daily basis, a lot is happening to one’s psyche; the mode of one’s expression, however, often remains the same…

At all costs try to avoid granting yourself the status of the victim. Of all the parts of your body, be most vigilant over your index finger, for it is blame-thirsty. A pointed finger is a victim’s logo — the opposite of the V-sign and a synonym for surrender. No matter how abominable your condition may be, try not to blame anything or anybody: history, the state, superiors, race, parents, the phase of the moon, childhood, toilet training, etc. The menu is vast and tedious, and this vastness and tedium alone should be offensive enough to set one’s intelligence against choosing from it. The moment that you place blame somewhere, you undermine your resolve to change anything; it could be argued even that that blame-thirsty finger oscillates as wildly as it does because the resolve was never great enough in the first place. After all, a victim status is not without its sweetness. It commands compassion, confers distinction, and whole nations and continents bask in the murk of mental discounts advertised as the victim’s conscience.


(Underlined titles are links to sources)

About Face: The Odyssey of an American Warrior, by David Hackworth & Julie Sherman [Book]

  • Takeaway: Discipline equals freedom

When I first met "The Hack," he was a fine soldier, fresh from service with TRUST—possibly our sharpest military formation, then occupying Trieste in Italy. He was the epitome of a TRUST trooper—sharp, dedicated, eager to learn, proud of the Army. Usually, these young soldiers die right away. "The Hack" was a volunteer for infantry service in Korea. The rest that follows, of course, is his punishment for such stupidity.

In Korea, the Wolfhounds were known as the “Fire Brigade,” because whenever there was trouble they were sent in to save the day. They weren’t a special unit - just a group of guys that thought they were good, so they were good.

So much for no more retreats. I began to think about all the generals' proclamations concerning this war: that we'd be home before Christmas, that the Chinese would not intervene, that we'd hold here or hold there. All of it was bullshit, and I started to wonder how they could possibly make so many dumb statements when each, invariably, fell apart when put to the test.

Then I thought, Well, maybe they just don't know—we never saw a general on the front. We seldom saw a colonel, a lieutenant colonel, or a major either. And at squad level, we only on the rarest occasion saw a captain. So how could the brass know how defeated its army was if they weren't there to see an exhausted guy lie down on the road and just give up? How could they know how cold and ill-equipped we were if they weren't there to see blue, gloveless hands stick to the frozen metal of capons? How could they know how steep and rugged the terrain was if they never climbed a hill?

  • Takeaway: Invest in a skillset that creates value for others; don’t constantly need more than you have

The best thing is to have a lot of earning power of your own. If you’re the best brain surgeon in town, or even the best lawyer in town, you will retain purchasing power, in terms of your income, no matter what happens, you know, whether people are using seashells for money, or whatever as time goes by…

One of the great defenses to being worried about inflation is not having a lot of silly needs in your life. In other words, if you haven’t created a lot of artificial demand to drown in consumer goods, why, you have a considerable defense against the vicissitudes of life.

  • Takeaway: There is a reason for stress, but you are probably misapplying it

The stress response is built to get us out of danger. If you're an animal in the Serengeti and you're being chased by a lion you really, really want to have a stress response. Being stressed means you’re preparing your muscles to move—a lot. Your heart rate rises and pushes blood to your extremities. Glucose is released into your bloodstream to help run your muscles as fast as possible. 

What’s different about our stress response? Well, we have the ability to anticipate danger. Other animals have this ability too: it’s a good thing to get stressed seeing the lion all the way across the savannah, instead of only when it mauls your intestines out. But humans have evolved this anticipation ability to extend far beyond other animals. We anticipate bad things months, years, or even decades out. And when we do this, the very same stress response gets turned on—even though there is no immediate danger, and there is no immediate way to avoid it. 

Suddenly, you aren’t just activating the stress response for a few minutes when you’re running for your life. Instead, it’s activated all the time—chronically. And this is where the problems start. 

Rats that are exposed to repeated electric shocks are more likely to get ulcers. But if you ring a bell before you administer the shock—making the shock more predictable—the rats are less likely to get ulcers. [Man, are we mean to mice. Hopefully, they know they are appreciated… ]

The evolution of the financial systems in different geographies has taken some improbable twists. To illustrate why, let’s play a matching game:

Governments in the 1990s:

1) Democratic superpower at the forefront of innovation and the commercialization of the internet—championing privatization and liberal values across the globe

2) Communist government striving for a delicate balance between market reforms and single-party, technocratic political control

3) Messy, bureaucratic democracy—known for poor infrastructure investment, dysfunctional politics, and a challenging business environment


Financial systems today:

A) Private tech juggernauts capitalizing on the mobile revolution and (until-recently) light regulatory scrutiny to blitzscale closed-loop payment monopolies—largely outside the purview of the legacy system

B) State-of-the-art inter-bank transfer infrastructure produced by a government-led coalition to upgrade the legacy tech within the existing, regulated system

C) A hodgepodge of legacy infrastructure and regulation colliding with private company middleware to make 1960s technology (barely) usable for 21st-century commerce.

From the perspective of the 1990s, the logical matching exercise would have probably rendered: 1 -> A, 2 -> B, and 3 -> C. But clearly, history had other plans. The world’s three largest countries have diverged markedly in their financial architecture—in unexpected ways.

The evolution of payments is central. Evolution means adapting to fill a niche, so each payment system was built around the deficiencies of the environment in which it operated. 

  • Takeaway: Don’t make bets that take you out of the game if you are wrong

I saw record stores go away very quickly, even when people in the industry kept telling me that it won't go away so fast as people love physical CD's, liner notes, plus people hate waiting for their music to download. Apparently, some of these people didn't understand the exponential nature of technology. Book stores shouldn't exist either (and yes, book-lovers keep telling me that they can't read on their phones or Kindles; that they need real books to touch. This too will change. This is not to say that small, specialty bookstores can't survive and exist). 

If you look around, and especially in the Covid world, you realize how the world is built around old technologies and capabilities. As Buffett says, if you were to rebuild something today knowing what we know now, and having the technology that we do now, would you build it the same way? (He actually asked if you would create the same company today from scratch, but close enough) Of course not. Think about that for a second, and you will see how much of what is in this world is obsolete.

The fast models used by Medallion (of course, I have no idea what they do, but do guess they are very fast models) and others use a lot of data and only make trades where there is a statistically meaningful chance that it will be profitable. And they will make enough trades for that statistic to play out. For example, if you have a 60% chance of success, but you are going to die because there is a 40% chance of death, then that's not a good bet. But if you can roll a dice that is 60% in your favor and you are allowed to roll it 100 or 1000 times, then that's a good bet. Odds are in your favor and you have enough opportunities for that statistic to be meaningful.

Take care and have a great week,

— EJ

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