“Confidence in a forecast rises with the amount of information that goes into it.”

Dean Williams, 1981:

One of the most consuming uses of our time, in fact, has been accumulating information to help us make forecasts of all those things we think we have to predict. Where’s the evidenced that it works? I’ve been looking for it. Really. Here are my conclusions: Confidence in a forecast rises with the amount of information that goes into it. But the accuracy of the forecast stays the same. And when it comes to forecasting—as opposed to doing something—a lot of expertise is no better than a little expertise. And may even be worse. The consolation prize is pretty consoling, actually. It’s that you can be a successful investor without being a perpetual forecaster.

We have security analysts. We get research reports from brokers. We get forecasts about the economy, interest rates, the stock market. We process that information and act on the basis of it. For all of that to make any sense, we all have to believe we can generate information which is unknown to the market as a whole.

There is an approach which is simpler and probably stands a better chance of working. Spend your time measuring value instead of generating information. Don’t forecast. Buy what is cheap today. Let other people deal with the odds against predicting the future.

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The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War

Notes from The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War (2016), by Robert J. Gordon:

* Advertising developed in part as a result of mass production; likewise, it was said that advertising made mass production possible. Firms decided that there was a limit to attracting customers through lower prices, and they tried the alternative strategy of increasing volume by brand-centric advertising. Although advertising began in the late nineteenth century with the development of the first branded products, its true explosion came in the 1920s, when it became increasingly tied to the newly invented radio.

* Electric lights are an example of a technology that had a great burst of innovation early, in this case 1880–1920, and then stood still afterwards. Although the fluorescent bulb had come to dominate lighting in commercial and industrial settings by 1950, virtually nothing changed in home illumination from 1920 until the development of the compact fluorescent bulb after 1990.

* The current system of airport security all over the world represents an overreaction to the September 11, 2001, hijackings. There was only one weakness in the U.S. airline security system on September 11, and this was that the cockpit doors were flimsy. Within days, they were replaced by completely secure doors that nobody could break through. Although the security issue was completely solved within a week, fourteen years later billions of dollars per year of passenger time continues to be wasted in unnecessary additional security precautions. The pre-2001 security system, based on a quick walk through an X-ray machine to check for guns and metal weapons, would be enough.

* If any year can be anointed as the beginning of the Internet revolution, it is 1995. The introduction of Windows 95 was a sensation, creating long lines of eager buyers waiting for hours in front of stores that would sell it before the doors opened on August 24, 1995. This version of Windows represented the transitional moment in the history of the Internet in that Microsoft’s Internet Explorer, a web browser derived from Mosaic, was available as an add-on to Windows 95.

* The unrivaled autonomy of the medical profession began to erode after the 1950s. As hospitals became larger and more complex, administrative control fell increasingly into the hands of professional administrators. Patients also began to challenge the authority of the medical profession. While “for the most part, the authority of the doctor was unquestioned” in 1960, with the surgical profession even earning such high praise as being called a “religion of competence,” by the early 1970s patients were demanding greater say in how they were treated. What had always been a tradition of “doctors know best” changed in 1972 when a federal appeals court in Washington, D.C., for the first time established a legal requirement for informed consent. “According to the new standard, the physician had to tell the patient whatever ‘a reasonable person’ would want to know in order to decide whether to accept the treatment.” In 1973, responding to increasing pressure from healthcare consumers, the American Hospital Association came out with a Patients’ Bill of Rights.

* One of the most important improvements in American industrial efficiency was the establishment by Herbert Hoover of the National Bureau of Standards. Its aim was to create a system of uniformly sized parts, down to screws and bolts, aimed at “simplification of practice, elimination of waste, conservation of materials, minimum training of workers, reduction and savings in supply purchasing and unwieldy inventories, defeat of confusion, and speed in production.”

“The problem of political irrationality is the greatest social problem humanity faces.”

Michael Huemer, professor of philosophy at the University of Colorado:

The problem of political irrationality is the greatest social problem humanity faces. It is a greater problem than crime, drug addiction, or even world poverty, because it is a problem that prevents us from solving other problems. Before we can solve the problem of poverty, we must first have correct beliefs about poverty, about what causes it, what reduces it, and what the side effects of alternative policies are. If our beliefs about those things are guided by the social group we want to fit into, the self-image we want to maintain, the desire to avoid admitting to having been wrong in the past, and so on, then it would be pure accident if enough of us were to actually form correct beliefs to solve the problem.

Based on the level of disagreement, human beings are highly unreliable at identifying correct political claims. This is extremely unfortunate, since it means that we have little chance of solving social problems and a good chance of creating or exacerbating them. The best explanation lies in the theory of Rational Irrationality: individuals derive psychological rewards from holding certain political beliefs, and since each individual suffers almost none of the harm caused by his own false political beliefs, it often makes sense (it gives him what he wants) to adopt those beliefs regardless of whether they are true or well-supported.

The beliefs that people want to hold are often determined by their self-interest, the social group they want to fit into, the self-image they want to maintain, and the desire to remain coherent with their past beliefs. People can deploy various mechanisms to enable them to adopt and maintain their preferred beliefs, including giving a biased weighting of evidence; focusing their attention and energy on the arguments supporting their favored beliefs; collecting evidence only from sources they already agree with; and relying on subjective, speculative, and anecdotal claims as evidence for political theories.

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“You’ve got to find what you love.”

Steve Jobs, 2005:

You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don’t settle.

The Little Book of Common Sense Investing

Notes from The Little Book of Common Sense Investing (2007), by John C. Bogle:

* Successful investing is about owning businesses and reaping the huge rewards provided by the dividends and earnings growth of our nation’s—and, for that matter, the world’s—corporations. The higher the level of their investment activity, the greater the cost of financial intermediation and taxes, the less the net return that shareholders—as a group, the owners of our businesses—receive. The lower the costs that investors as a group incur, the higher the rewards that they reap. So to enjoy the winning returns generated by businesses over the long term, the intelligent investor will reduce to the bare-bones minimum the costs of financial intermediation.

* Our system of financial intermediation has created enormous fortunes for those who manage other people’s money. Their self-interest will not soon change. But as an investor, you must look after your self-interest. Only by facing the obvious realities of investing can an intelligent investor succeed.

* With each passing year, the reality is increasingly clear: relative returns of mutual funds are random. Yes, there are rare cases where skill seems to be involved, but it would require decades to determine how much of a fund’s success can be attributed to luck, and how much attributed to skill.

* While I can’t assure you that traditional index investing is the best strategy ever devised, I can assure you that the number of strategies that are worse is infinite.

* I urge you not to be tempted by the siren song of paradigms that promise the accumulation of wealth that are far beyond the rewards of the traditional index fund. Don’t forget the prophetic warning of Carl von Clausewitz, military theorist and Prussian general of the early nineteenth century: “The greatest enemy of a good plan is the dream of a perfect plan.”

* Whatever asset allocation strategy you decide is best for you, you absolutely must take into account the role of Social Security—a major source of income for most retirees—as you age. When determining their asset allocations, most investors need to take Social Security into consideration as a bond-like asset.

* The way to wealth, I repeat one final time, is not only to capitalize on the magic of long-term compounding of returns, but to avoid the tyranny of long-term compounding of costs. Avoid the high-cost, high-turnover, opportunistic marketing modalities that characterize today’s financial services system. While the interests of Wall Street’s businesses are well served by the aphorism “Don’t just stand there—do something!,” the interests of Main Street’s investors are well served by an approach that is its diametrical opposite: “Don’t do something—just stand there!”

“You never want to compete with somebody who’s obsessed.”

Adam Karr:

Try to think about your obsessions. You never want to compete with somebody who’s obsessed. Kobe Bryant. He would say, “What’s your 4:00 AM?” He’s at the gym at 4:00 AM shooting baskets. Are you at the gym at 4:00 AM? Because if you’re not, you’re competing against that guy who is. He took up tap dancing because he wanted to strengthen his ankles so he could be a better basketball player. Are you obsessed to that degree that you’re going to undertake those kinds of actions? If you consistently do that over time and that compounds, you set yourself up to play to your obsessions.

“Taking temporarily high rates of annual exponential growth as indicators of future long-term developments is a fundamental mistake.”

Vaclav Smil, writing in Growth: From Microorganisms to Megacities (2019):

Taking temporarily high rates of annual exponential growth as indicators of future long-term developments is a fundamental mistake—but also an enduring habit that is especially favored by uncritical promoters of new devices, designs, or practices: they take early-stage growth rates, often impressively exponential, and use them to forecast an imminent dominance of emerging phenomena. Many recent examples can illustrate this error, and I have chosen the capacity growth of Vestas wind turbines, machines leading the shift toward the decarbonization of global electricity generation. This Danish maker began its sales with a 55 kW machine in 1981; by 1989 it had a turbine capable of 225 kW; a 600 kW machine was introduced in 1995; and a 2 MW unit followed in 1999. The best-fit curve for this rapid growth trajectory of the last two decades of the 20th century (five-parameter logistic fit with R2 of 0.978) would have predicted designs with capacity of nearly 10 MW in 2005 and in excess of 100 MW by 2015. But in 2018 the largest Vestas unit available for onshore installations was 4.2 MW and the largest unit suitable for offshore wind farms was 8 MW that could be upgraded to 9 MW (Vestas 2017a), and it is most unlikely that a 100 MW machine will be ever built. This example of a sobering contrast between early rapid advances of a technical innovation followed by inevitable formation of sigmoid curves should be recalled whenever you see news reports about all cars becoming electric by 2025 or new batteries having impressively higher energy densities by 2030.

“You don’t need more time; you need more focus.”

Shane Parrish:

As the adage goes, if you do what everyone else does, you’ll get the same results everyone else gets. Extraordinary success requires misunderstood choices. Bill Gates once had the radio removed from his car. When asked why, he said he didn’t want any distractions from thinking about Microsoft. This level of single-minded focus is what builds empires. Distractions are the assassins of great work. You don’t need more time; you need more focus. Time expands when we eliminate interruptions – our attention, not the clock, ultimately limits what we can achieve.

“The kindest person in the room is often the smartest.”

JB Pritzker, speaking at Northwestern University, 2023:

The best way to spot an idiot? Look for the person who is cruel. Let me explain.

When we see someone who doesn’t look like us, or sound like us, or act like us, or love like us, or live like us — the first thought that crosses almost everyone’s brain is rooted in either fear or judgment or both. That’s evolution. We survived as a species by being suspicious of things we aren’t familiar with. In order to be kind, we have to shut down that animal instinct and force our brain to travel a different pathway. Empathy and compassion are evolved states of being. They require the mental capacity to step past our most primal urges.

I’m here to tell you that when someone’s path through this world is marked with acts of cruelty, they have failed the first test of an advanced society. They never forced their animal brain to evolve past its first instinct. They never forged new mental pathways to overcome their own instinctual fears. And so, their thinking and problem-solving will lack the imagination and creativity that the kindest people have in spades.

Over my many years in politics and business, I have found one thing to be universally true: the kindest person in the room is often the smartest.

“Forecasts are the real fluff and history is where the meat is.”

Morgan Housel:

Studying history can feel like intellectual candy that offers no practical use to investors who are paid to foresee the future. But once you accept how fragile our assumptions of the future are, you realize that forecasts are the real fluff and history is where the meat is.

Accepting that forecasts have little use doesn’t mean you become a blind fatalist. When you pay more attention to history than forecasts you pick up on the patterns that guide how people respond to unforeseen events, which – given how stable behavior is over time – is the next best thing to knowing what will happen next.

Forecasts rely on knowing when something will occur. Expectations are an acknowledgment of what’s likely to occur without professing insight into when it will happen.

Expectations are healthier than forecasts because they provide a vision of the future stripped of all false precision. If you know a recession will occur at some point, you won’t be that surprised whenever it arrives – which is a huge benefit. But if you assume you know exactly when it will occur you’ll be tempted into all kinds of dangerous behavior, leveraged with overconfidence. And you’ll be shocked when time passes and what you thought would occur hasn’t happened (yet).