Russel Napier's Anatomy of the Bear
Back cover, quoting Marc Faber, "I am constantly asked about the best investment opportunities. The acquisition of knowledge and a broad understanding of historical price trends may be one of the best personal investments one can make at this time."
(Page 6)
While any historian is liable to hindsight bias, a focus on contemporary comments and reactions at least reduces the risks of projecting one's own order on things. As a historical source, newspapers offer an efficient daily collation of events...
(Benjamin Graham, The Intelligent Investor, 4th ed., 1973)
In forty-four years of Wall Street experience and study I have never seen dependable calculations made about common-stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience, and usually also to give to speculation the deceptive guise of investment.
Appleyard speaking with Taleb: 'Don’t be tempted to play the stock market – "If people knew the risks they'd never invest."' Are these risks obvious only if one considers the many failed markets, such as the Russian stock market that went to zero after the Bolshevik takeover (a great essay from the obscure economymodels.com)?
All sorts of analyses have such strong priors built into them... it's a very strongly-biased analysis, the long-term return on the US stock market since the 1880s (all my Shiller S&P500 analysis).
(Duncan Watts, Six Degrees: the Science of a Connected Age, 2003, page 240, on the distinctions between social and biologic contagion)
The more people whose actions or opinions you take into account before making a decision, the less influence any one of them will have over you. So when everyone is paying attention to many others, no single innovator, acting alone, can activate any one of them.
(Watts, 2003, page 242-243)
Most innovations that occur in networks near the upper boundary (high average number of neighbors; low threshold resistance/high appeal) die out before spreading very far at all, suppressed by the local stability of individual nodes. This state of affairs can continue almost indefinitely, leading an observer to conclude that the system is, in fact, stable [or history over, or physics completed, or innovation halted). And then, out of the blue, a single influence that initially seems no different from any other can overwhelm the netire network. There needn't be anything auspicious about the particular innovator who triggers such a cascade either. ... When cascade propagation is dominated more by local stability than connectivity, being simply well connected is less important than being connected to individuals who can be influenced easily [lax way of saying, individuals with low thresholds].
These features of the cascade window suggest some unexpected lessons for the diffusion of innovations, perhaps the most surprising of which is that a successful cascade has far less to o with the actual characteristics of the innovation, or even the innovator, than we tend to think. ...
All this is not to say that factors like quality, price, and presentation are unimportant. By altering the adoption thresholds of indivudal in the population, the innate properties of an innovation cas still affect its success or failure. The point is that because thresholds do not alone determine the outcome, quality, price, and presentation can't either. ... In other words, the structure of the network can have as great an influence on the success or failure of an innovation as the inherent appeal of the innovation itself.
On the surprising link between books and wisdom
Some read history books to understand how events transpire. They will obtain only deadly illusions. Others read history books to understand the writer's thinking. These will obtain some bit of timeless wisdom.
A note on historicist narrative bias degenerating into a note on counterfactual history
Who was it that said, was Napoleon a military genius, or did he just happen to win a lot? This is a more interesting to me than counterfactual history because to me, the answer to a "what if" question would need to specify how the alternate outcome being considered came to pass through a chain of events going back to a truly random outcome.
(By way of example, Wikipedia asks the counterfactual, what if Hitler had died in the 1944 assasination attempt? To me, the answer would be incomplete without a detailed description of how the assasination had come to pass, and therefore how the evolution of the universe up to that point would have to be restructured to have brought it about. This description may have to go out to some purely random outcome; the limiting case being point-mutation in someone's genetics during conception, and barring that, thermal noise causing the solar system to form differently...)
On short-termism
Maybe the willingness to accept short-term goodies without regard to long-term negative consequences comes from a lack of understanding of probability and stochastic processes.
In good times, the future is very much better for very little invested, and this makes people assume that very few of their short-term desires need be weighed against long-term consequences.
Then, this attitude, which may have been a reason for good times to depart, remains in place as the bad times come. With any understanding of randomness, people would know that unwillingness to forego short-term gains for long-terms benefits is dangerous and wouldn't do it.
On the impossible?
A commentator on Bessler notes, "Until 1908, scientists routinely used the laws of physics to rule out the possibility that man would ever fly. Five years after their first successful flight, and in spite of many public demonstrations, the Wright Brothers' invention was still being ridiculed as a hoax in the press and scientific community. It was not until President Theodore Roosevelt ordered public trials that the Wrights were finally vindicated."
Similarly, Cohen reflects on Roger Bannister, the first to run a mile in less than 4 minutes in his A Class with Drucker, and recalls that before the event, a docter of kinesiology "stated that the human body just wasn't built to run this fast and that it couldn't be done. He predicted that Bannister would never succeed."
Arthur C. Clarke also has said, when a respectable scientist says something is impossible or will not be achieved for millions of years, it will probably occur in his own lifetime.
I was going to read Jared Diamond for some geography-oriented historiography but it appears that Collapse focuses on societal collapses that coincided with environmental abuse. Recently I have been spending some effort in using conditional and total independence to reach operational conclusions about our world, versus using emotionally-satisfying unlogic, and so I decided against reading it and picked up Felipe Fernandez-Armesto's Civilizations.
I hope it will give a more uniform sampling of anthrosocietal geography, after which I can perhaps read Diamond without fear of falling for his potentially statistically-unfounded and emotionally-driven thesis that societies collapse because of environemntal abuse. By way of explaining what I fear, I quote an editorial review on Amazon: "Not every collapse has an environmental origin, but an eco-meltdown is often the main catalyst, he argues, particularly when combined with society's response to (or disregard for) the coming disaster. ... Diamond provides fine and well-reasoned historical examples, making the case that many times, economic and environmental concerns are one and the same." To prove this hypothesis, Diamond shows N cases of collapses and accompanying eco-failures, but this neither proves that Pr(eco-failure | collapse) is high (a historiographical question), nor the more useful probability of Pr(collapse | eco-failure).
I have some hopes of using joint independence to cut through a lot of false theories. The most tantalizing possibility came surprisingly after I was reading Drucker's epilogue in Innovation and Entrepreneurship, and involves disproving the cliche that "if history doesn't repeat, it often rhymes," or "the more things change, the more they stay the same." Recurring themes in history simply mean that they share underlying characteristics---that certain categorial variables were the same and certain incremental variables were in the same region. Simply observing that something happened in the past and positing that it may happen again without a tractable way of establishing how similar the underlying conditions were is a useless pasttime.
This idea actually may have come when I was reading Hussman's essay (weekly newsletter actually), "A Fine Line," on overfitting data. That is essentially what happens when you simplemindedly use the past the predict the future---it might most often involve emotional unlogic: Hussman states, "The refusal to follow indicators blindly is the difference between analysis and superstition." Eco-failure may be one such indicator for Diamond.
Anyway, I hope to pursue this idea in order to predict the true importance of the entrepreneurial society, as compared to a society of conquerers, or of subsistence.
From Philip Fisher's Paths to Wealth Through Common Stock, on inflation (written in 1959):
Whatever each of us as individuals may think of this matter, it has already been decided for us by the overwhelming weight of public conviction. One hundred and fifty years ago [from 1959] public opinion would have no more held it was the business of our government to assure constantly prosperous economic conditions than ... they would have thought it was the business of government to guarantee everyone a happy marriage. Fifty years ago public opinion would have thought it necessary to do such relatively inexpensive things as to establish bread lines and soup kitchens so no one actually starved.
Where does all this leave us? The historically recent but now almost unanimous opinion of both our public officials and their constituents that it is the duty of government to maintain endless prosperity is not likely to change.
This is a key insight. A triumph of liberal economics of Smith & co. was that the governmental control of productivity was harmful to the people's standard of living. This is now somewhat widely accepted after the experiences of the USSR, PRC, etc... But it is up to some future leader of men to convince us that governments cannot even reliably provide a "cushion" or "safety net" without it being abused or backfiring in totally unexpected ways, and that democracy can mask this danger through the medium of politicians inflating the currency to buy lollipops for their constituents to guarantee a win.
(From Bastiat's "The Law", circa mid-1800s)
Property and Plunder
Man can live and satisfy his wants only by ceaseless labor; by the ceaseless application of his faculties to natural resources. This process is the origin of property.
But it is also true that a man may live and satisfy his wants by seizing and consuming the products of the labor of others. This process is the origin of plunder.
Now since man is naturally inclined to avoid pain — and since labor is pain in itself — it follows that men will resort to plunder whenever plunder is easier than work. History shows this quite clearly. And under these conditions, neither religion nor morality can stop it.
When, then, does plunder stop? It stops when it becomes more painful and more dangerous than labor.
It is evident, then, that the proper purpose of law is to use the power of its collective force to stop this fatal tendency to plunder instead of to work. All the measures of the law should protect property and punish plunder.
But, generally, the law is made by one man or one class of men. And since law cannot operate without the sanction and support of a dominating force, this force must be entrusted to those who make the laws.
This fact, combined with the fatal tendency that exists in the heart of man to satisfy his wants with the least possible effort, explains the almost universal perversion of the law. Thus it is easy to understand how law, instead of checking injustice, becomes the invincible weapon of injustice. It is easy to understand why the law is used by the legislator to destroy in varying degrees among the rest of the people, their personal independence by slavery, their liberty by oppression, and their property by plunder. This is done for the benefit of the person who makes the law, and in proportion to the power that he holds.
Victims of Lawful Plunder
Men naturally rebel against the injustice of which they are victims. Thus, when plunder is organized by law for the profit of those who make the law, all the plundered classes try somehow to enter — by peaceful or revolutionary means — into the making of laws. According to their degree of enlightenment, these plundered classes may propose one of two entirely different purposes when they attempt to attain political power: Either they may wish to stop lawful plunder, or they may wish to share in it.
Woe to the nation when this latter purpose prevails among the mass victims of lawful plunder when they, in turn, seize the power to make laws! Until that happens, the few practice lawful plunder upon the many, a common practice where the right to participate in the making of law is limited to a few persons. But then, participation in the making of law becomes universal. And then, men seek to balance their conflicting interests by universal plunder. Instead of rooting out the injustices found in society, they make these injustices general. As soon as the plundered classes gain political power, they establish a system of reprisals against other classes. They do not abolish legal plunder. (This objective would demand more enlightenment than they possess.) Instead, they emulate their evil predecessors by participating in this legal plunder, even though it is against their own interests.
It is as if it were necessary, before a reign of justice appears, for everyone to suffer a cruel retribution — some for their evilness, and some for their lack of understanding.