Saturday 26 February 2022

Weekend Reading: 26-Feb-22

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. If you like this collection, consider sharing it with someone who you think will appreciate it.


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Sustainability is not as new an idea as you might think—It’s more than 300 years old

Although it may not have been called sustainability until Carlowitz, societies had practised it for a long time as a vital part of cultural or religious practices.

Ancient Egypt pursued sustainable systems for more than 3,000 years. The Maya, according to anthropologist Lisa Lucero, practised a “cosmology of conservation.” The literature of ancient India is brimful with references to the preservation of the environment.

Without scientific forestry, people across Europe and around the world would have faced far more severe economic and social disasters than the ones witnessed in the last few centuries.


During the summer of 2021 in the United States, firefighters wrapped aluminium foil around the trunk of a giant old sequoia, hoping to save the world’s largest tree from “a raging wildfire” in California. Sequoias, which can live for up to 3,400 years, have coexisted with occasional forest fires for millennia.


Perhaps it is helpful to acknowledge that the world was in trouble before, and that, driven by necessity 300 years ago, it found solutions. The challenges being faced by people across the globe are far bigger today, but the tools available to them are better too. The world has added much science, and people should have a better understanding of how nature and societies work. 


Why kids hesitate to ask for help?

New research suggests young children don’t seek help in school, even when they need it. Until relatively recently, psychologists assumed that children did not start to care about their reputation and peer’s perceptions until around age nine. But a wave of findings in the past few years has pushed back against that assumption. This research has revealed that children as young as age five care deeply about the way others think about them. In fact, kids sometimes go so far as to cheat at simple games in order to look smart.


Research suggests that, as early as age seven, children begin to connect asking for help with looking incompetent in front of others. Their concern about reputation may have significant consequences, particularly when it comes to education. At some point, every child struggles in the classroom. If they are afraid to ask for help because their classmates are watching, learning will suffer. With this knowledge, teachers and caregivers should evaluate their practices and consider how they might make children more comfortable with seeking aid.


Seeking help could even be framed as socially desirable. Parents could point out how a child’s question kicked off a valuable conversation in which the whole family got to talk and learn together. After all, asking for help often benefits not just the help seeker but also others listening in who have similar questions or struggles. Moreover, adults could praise kids for seeking assistance. That response signals that they value a willingness to ask for help and not just effortless success.



We write notes to forget

We don’t write things down to remember them. We write them down to forget.


Like a hunter/gatherer stashing their prey, the ideas and the links we stumble upon feel valuable, rare, something worth saving. We ascribe value to the time we spend discovering things online. Surely that time wasn’t in vain.


Then we’re burdened with our findings. It’s tough to focus on something new when you’re still holding the old in your mind. So we write things down. Bookmark them. Add them to our reading list. Highlight our findings. Make long lists and check them twice. We need a cave, a storehouse, somewhere to stash our findings.


By letting go, you’ve cleared up space for new quests. No more dozens of tabs open forever; you saved them, then let them go back into the ether. No perpetual thinking on an idea; you wrote it down, let your second brain remember for you. Then we’re free. We’ve stalked the prey, secured it for later nourishment. We can safely forget. We’ve insured against faulty memories. Now on to the next quest, finding something new to stash.


That's the true value of notebooks, notes apps, bookmarking tools, and everything else built to help us remember. They’re insurance for ideas. They let us forget.


Understanding and differentiating between uncertainty and risk

Economist Frank Knight pointed out many years ago that uncertainty is when we can’t assign probabilities to events in advance. This seems like a simple and obvious statement. It cuts through the very foundation of economics and finance. Both of these disciplines assume away uncertainty. They are built on the bedrock that, as rational actors, we know the probabilities and payoffs of everything that may happen in the future. “Risk” is when one of the lower-probability outcomes occurs.


Complexity is like a novelty engine. It is constantly “inventing” new outcomes. We cannot know the probabilities of these outcomes in advance. Uncertainty, therefore, is born of complexity.


The key, though, is to understand the role of uncertainty. Complexity means that systems do not necessarily behave in a stable manner. Their underlying patterns can shift, sometimes abruptly.


Why reading books or watching videos cannot fully prepare you as an investor

Most actions have two sides: skill and behavior. What’s true in theory vs. how it feels in the moment. The gap between the two can be a mile wide. No amount of empathy and open-mindedness can recreate emotions. Textbooks and classrooms can’t teach what genuine fear, adrenaline, and uncertainty feel like. So you think you understand how a field works until you experience a new part of it firsthand. Then you see it through a completely different lens.


Can you survive your assets declining by 30%? On a spreadsheet, maybe yes – in terms of actually paying your bills and staying solvent. But what about mentally? It’s easy to underestimate what a big decline does to your psyche. You might realize your confidence is more fragile than you assumed. You – or your spouse – may decide it’s time for a new plan. I know several investors who quit after losses because they were exhausted. Physically exhausted. Spreadsheets can model the historic frequency of big declines. But they can’t convey the feeling of coming home, looking at your kids, and wondering if you’ve made a huge mistake that will impact their lives.


I don’t think there’s any way to understand what a bear market feels like until you’ve lived through one.

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