Unknown, Uncertain, Unpredictable, Unexpected Part 4 of 10

The Either/Or Investor is a very nice book: readable but quite insightful. Read about the author Clark Winter.

1. To grow really rich, don't fetch water from a pond. Put your bucket under any one water fall.
   This is attributed to George Soros. Compare this with what Andrew Carnegie says about putting all of your eggs in one basket and watching that basket really closely.
   
2. The author suggests keeping 4-5 thematic buckets as a tool for reducing ricks.
   e.g. demographics, economy, energy, emerging markets
   
3. The author discussed two "civilized approach to fear" as
   1. engineering : divide and conquer
   2. insurance : aggregate many small probabilities/risks
   
4. When things don't make sense to you:
   1. Short the market = Buy the options on the expectation that the markets or your stocks will go down.
   2. Get out altogether (Compare this with how Konosuke Matsushita decided to exit the PC industry)
   
5. Alternatively, when things don't make sense to you:
   1. Find something simpler e.g. If China as a whole is too complex, can you just focus on Macao opportunities?
   2. How much information do you need to make a correct decision?
   1. Organize information more deliberately
   2. Synthesize outside information with your own experience.
   3. Make and test your own hypotheses. Dry-run your betting.
   Compare this with what Drucker says about tracking your own decisions.

Unknown, Uncertain, Unpredictable, Unexpected Part 3 of 10

I'm refering to The Black Swan, 2nd edition. This book has become quite famous. Yes, it is great.

Key Ideas

1. Go hyperconservative in some investment and go hyperaggressive in some other investments. (page. 205)
   e.g. Keep 85-90% of your investments very safe, while puting 10-15% of your assets in very speculative bets.
   He calls this the Barbell strategy.
2. We don't need to know the probability of an event.
   We just need to base our decisions around how it might affect us. (page. 210-211)
   Compare this with Marine Corps's planning that focuses on high-probability scenarios and high-impact scenarios.
3. 80/20
4. Stand above the rat race ... by choice. e.g. "I don't run for trains."
   Just ignore certain circumstances, just stay out of certain competitions, just forgo certain opportunities.
5. Compensate complexity with simplicity. e.g. Given complex networks, you may introduce simple products.

Robustness

1. "An idea of his final destination" gives hims some robustness. (page. 377).That is, you can be more robust if you have a clear idea about your aims and objectives.
2. Learn from Mother Nature.
   1. Redundancy. First, defensive redundancies e.g. two eyes, two hands etc. Next, functional redundancies e.g. brain cells taking over some functions of the dead brain cells. And third, extra-duty redundancies.
   2. Nature doesn't like any structures that become too big.
   3. Nature doesn't like too much connectivity.
   He is deriving inspiration from biology and evolution. A better read for such inspiration is Accidental Mind.
3. Avoid the 4th Quadrant : where black swans land with complex payoffs.
   ( Compare this with how Konosuke Matsushita decided to exit the PC industry, a better example. )
   1. Cut exposure = Buy insurance or do Barbell strategy( which is explained above)
   2. Redundancy = Save a lot, keep a lot of reserves.
   (Compare this with the idea of playing tight in poker, a better example. e.g. Poker MBA)
   

Unknown, Uncertain, Unpredictable, Unexpected Part 2 of 10

I am interested in the unknown, the unknown unknown, the uncertain, the unpredictable, the surprises, the black swans, the unexpected, the blindsides, the blinders etc. I'm writing a series on this topic where this post is the second part. All these are related to personal effectiveness.

Now let me discuss a book that I read a few days ago : Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life by Nassim Nicholas Taleb. Though my summary is going to be very short, it is a marvellous book, I admire his insight, research, data and his prose too.

1. Life is random. We need proof. When collecting proofs, our biases will orient us to the existence of what we expect to exist and to the absence of what we expect to be absent. I believe that Professor Taleb is free from such biases, and that when he did look for non-randomness, he could find only randomness in Life.
2. Life is unpredictable. Does "unpredictable" necessarily means "random." And do we need to bother about unpredictability? 
3. His solution : Retain your/human dignity at all times. Like Hemmingway's "code hero" who lives by a code of conduct. I agree, but the code should and can go beyond just dignity and cool.

Conclusion: Real Issuses Left Unanswered

We cannot predict Life. This inability can have many causes e.g.

1. Life is really random. 
2. It is not random, but we lack capacity to understand its Rule Book.

Should we try to predict?

If we should, how do we increase our ability to predict?

If we should not, how do we go on living with joy de vivre, confidence, courage and meaning?

I'm posting on Black Swans, 2nd edition, very soon. It is also a seminal, great book.

Unknown, Uncertain, Unpredictable, Unexpected Part 1 of 10

I am interested in the unknown, the unknown unknown, the uncertain, the unpredictable, the surprises, the black swans, the unexpected, the blindsides, the blinders etc. I'm writing a series on this topic starting with this post. All these are related to personal effectiveness.

I'm referring to "Tracking Asia's Black Swans" by James Shinn, in The Impenetrable Fog of War edited by Patrick M. Cronin. The book is great and this article is full of great stuffs: facts, ideas, and insights. The article is a fantastic review of the author's wide-ranging experience.

The Article Summary

1. Black swans give no warning, come in flocks, and even stock market traders cannot predict them satisfactorily.
2. But, fast reaction is at a premium.
3. Checklists, "break glass" plans must stand by ready on the shelf. br Plans to act fast when caught 100% off guard? Planning for the un-plannable? I keep wondering how the author would propose to tackle this paradoxical dilemma. 
4. "Think strategically, up front." That is, be clear about your own long-term objectives.

To echo Musashi's refrains, we need to ponder and research well this, last point.

Psychology of Mis-Judgement

Charlie Munger,Vice-Chairman of Berkshire Hathaway Corporation, has discussed how our mind plays tricks on our decision-making in his book "Poor Charlie's Almanac." That chapter is also available on line at Psychology of Mis-Judgement.

Uncertainty, Chaos, Complex confusing circumstances, Friction and fog of war, turbulence, unpredictability, and similar topics kept me spell-bound during past few months. And thus, when I have time, I would like to share my understandings of famous books like Judgement Under Uncertainty by Amos Tversky and Daniel Kahneman, and many such books.

Munger turned out to be sort of a kindred spirit to me. Even before I read his "Almanac," I read such books in minutes, zeroing in on what Munger calls "really big ideas." You must have noticed that here in my posts, I share such juicy, hand-picked "really big ideas."

Munger lists 25 factors that can skew our judgement and then urges the readers or future scholars to tidy up his list. Here is my attempt to do so:

1. Greed, Liking, Envy/jealousy, Social Proof, Over-Respect, Over Optimism, Curiosity(Seeking Fun, Variety, Adventure, Thrill etc)
   
2. Fear, Dislike, 
     Avoiding pain, doubt, inconsistency, discomfort etc
     Seeking confirmation, seeking meaning
     Loss aversion
     Over-reaction to deprival
   
3. Association, Pavlovian conditioned reflexes
     Anchoring
     Oversight of convergence of many factors 
     Availability-Misweighing
     Pride, arrogance, over-confidence
     Excessive self-regard 
   
4. Stress
   
5. ?
   

People familiar with Buddhist literature will notice that these are what Buddha calls defilements or hindrances as explained by Venerable Nyanaponika, and by Wiki teams.

Kamachanda(Sensual desire, lust, craving, grasping)

Here, you want something very badly. This is what can happen:

1. You lose sight of other relevant factors. e.g. In a Taoist tale, a thief grabbed and ran away with a gold piece in a crowded marketplace because he "saw only the gold", not other humans who would catch him.
2. Numerous Chines kings and princes who believed that soldiers from the enemy army were deserting in droves simply because they desired such an outcome whereas in truth, those soldiers just went into hiding to lay ambush.

Vyapada (Ill-will, hatred, anger, fear)

Here, you hate someting so much that you refuse to believe it.
e.g. Hitler would not accept that Soviet factories were producing more tanks etc than his own factories.

Thina-middha (Sloth and torpor)

Here. you are not awake.

Uddhacca-kukkucca (Restlessness,worry, agitation)

This is what we today call stress and anxiety.

Vicikiccha (Doubts or hesitation)

This is plain confusion, contradiction, paradoxes, and lack of faith.