My musings on the economy, life, technology, business and things I find interesting.

Friday, May 23, 2008


Intimidation is the war between confidences. Charlie Munger once said that him and Warren spend a lot of time reading and thinking so that when it's time to make a decision they can do so quickly. They make these decisions with confidence, which is to say the world around them does little to intimidate them in acting in a framework they feel to be correct.

Wouldn't we all be so lucky to have such confidence. Such confidence in our marriages, our businesses, our friends, our families, our money, our future and ourselves.

There is a whole lot of intimidation going on in this world: people, groups, books, videos, reports and studies all which confidently and conflictingly state their case. High oil prices are the responsibility of speculation, or is it peak oil, or maybe the lack of drilling allowances in no-no zones, no it's China and India's ravenous growth, actually it's the Enron loop-hole, well maybe its the fighting in Iraq and other geopolitical tensions. Oil's going to $200 say the smartest guys in the room, or maybe back to $80 say various bank economists. After such intimidation most of us throw our hands in the air and say F___ it. Some then proceed to buy jet skis while others hand it over to the guy in the nice suit and pray to God he's as smart as he looks. Either way we want nothing to do with the complexity of it all.

Strong confidence, prevents intimidation, it doesn't make you right, but it definitely makes you feel better. Being right is difficult, feeling good is much easier. Being right is a game that we all fail at throughout life. I don't think the point is to be right more then you're wrong and it's definitely not to feel good regardless of what happens. I think the point is to be right where you've been wrong before, and to pursue and enjoy the process of growth with those around you.

This is the battle we face from the earliest of ages to death, our confidence always being challenged. For the teenager it might be their grades, popularity, appearance, perhaps performance on a team, or belief in themselves. Not surprisingly each of our intimidation's is both different and the same to our peers, and this both binds and separates us. In the investment world, the value tent holds the contrarians, but even that tent is too large to contain just one group. We splinter out like tribes, finding comfort and confidence in a shared collective.

As members we stand confident and proud in our membership. We point out across the valley and snicker with indignation at the other tribes all the while questioning our own conviction. Funny though that we pack up our bags from time to time to walk over to a new perch, with new thoughts and new confidences.

We like things deterministic, black or white, grey is too confusing for us simple folk, grey is tiring, it requires thought and introspection. That isn't even to say that we like things simple, all though we do, ultimately we just want an answer to the intimidation of the world around us, we want confidence. The worlds bankers, rating agencies and primary dealers all cheered as they rode a massive housing bubble built on a deterministic model of housing prices and credit risk. This new confidence ignored long established and proven lending practices and created horrifically wide spread problems. Irrespective though, before the crash it felt good, it felt Reeeal good if you were speculating, cheered on by HGTV and a re-born real estate industry.

It's the reach of the stupidity that is so incredible not the stupidity itself, as people will often act stupidly. With the infection so deep and wide into business, government and families it's incredible how little we care or cared. A billion is the new million, debt is the new black (pun intended).

In Malcolm Gladwell's new book he talks about the mismatch problem which he effectively argues stems from our need to know things. He presents a case that our desire for certainty in the allocation of human capital in businesses has created bizarre ineffective systems that produce the opposite result from what we intend. You can hear him at the 2008 New Yorker Conference,
video here. It's a good watch.

If I haven't been thoroughly depressing enough, you should know that things aren't as bad or as good as you might think, they're somewhere in the middle depending on your time frame and personal actions in the future.

So after all that you probably want to throw your hands in the air once again and yell expletives. Here I am talking in circles we've landed back exactly where we began: curious and looking for answers.

I suppose this would be a awful post if I didn't try to come to some semblance of a conclusion, after all that's what we want right? Certainty?

If you've ever taken a look at a high end black and white art photography book you've seen some stunning photos in all shades of grey. The interesting thing is if you look at those photos with a loupe you'll see that it's not grey at all but just a collection of very very small black dots on a white page. The analogy here is that black and white does exist. The problem is often that the black and white rules either serve no useful purpose day to day or are so incredibly simple and boring that ambition is always looking to circumvent them. For instance gravity is black and white, but your knowledge of that won't help you raise your kids. We also know that business's need to make money, but that didn't stop us from running up online grocery stores to ridiculous levels in 90s. What we need to do is develop frameworks for decision making that are built on durable principles. As you build your framework you need to be very careful and you need to have a long term vision about it.

I'll leave you with one piece to add to your framework that I think will provide you with a durable advantage. Invest in yourself, your mind, your body and your relationships. You are your biggest asset, if you invest in yourself you will be able to command more money, happiness, significant experiences and great friendships than you would otherwise be able to.

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