Friday, July 11, 2014

There's No Free Rides

In the copy of Benjamin Graham's 'The Intelligent Investor' that I have somewhere, there's a bunch of useful commentaries that helped me understand the somewhat dry writing style of Benjamin, something I struggle to hold my attention to.

One of the commentaries quoted some guy (specific I know) whose top advice for building wealth was 'don't lose'

It had a profound and demonstrable point - market slides tend to be quick and steep, a literal race to the bottom. So your portfolio could conceivably lose 50% of it's value in one day. By contrast if you manage consistent double digit growth on your portfolio, year after year you'd be considered a genius. But if you lose once, 50% of your portfolio even if you follow it up with year after year of 10% growth, it takes you longer than 5 years to get back to where you started from. And the kicker is, that getting double digit returns on your portfolio year after year is pretty fucken hard to do.

So in summary, with respect to your wealth, putting energy into not experiencing a sudden significant decline in wealth is energy better spent than chasing an extra 1 or 2% returns.

I don't write to give you a finance lecture, I just believe that the principles involved in investment hold true of life.

For example, assume you are a 'dude' or a 'bro' and according to my watch it's the 11th of July in my timezone. Leaving 20 more evenings in the month. You can set yourself the objective of getting laid every evening for the rest of July and that might seem a worthy pursuit.

And while sex is nice and important, (it's one of the few forms of play most adults engage in) the overall impact of how much sex you have this month is going to be negligible (probably) to your quality of life over your life span.

A much better activity to get devoted to for your long term physical, mental and emotional well being is to identify a partner that is unlikely to leave you in 25 years time, somebody who will stick it out for the long haul. Because getting divorced past your physical and sexual prime is going to be devastating, whereas the outcome between having sex with somebody or having sex alone tomorrow night is not devastating. (note: if you find the prospect of jacking yourself off tomorrow night devastating, you probably have bigger emotional problems to tackle.)

Now, get serious, not too serious, but Gabor Mate serious. You have some issues. Depression or Anxiety probably to a greater or lesser extent. But there's others as well. Some debilitating condition of some kind. One thing Gabor Mate said of medicine that blew my mind open was about diabetes. Somebody has diabetes they inject themselves with insulin. It treats the symptoms of diabetes but insulin doesn't cure the diabetes. That's what most of modern medicine is about - the treatment of symptoms not the curing of disease. I'm not sure where and if I went from paraphrasing to embellishing with my own imagined views, but here's the crotch of the paragraph for you, you can treat symptoms for a long time, but issues need ultimately to be dealt with.

Thus if you get double digit growth year on year in your investment portfolio for all your working life then have your portfolio lose 80% of it's value in one massive market crash, you've just been chasing short term psychological payoffs. Same same, you get laid a lot for 20 years then find yourself holding a note from your former spouse explaining why she left and took the children, you've just been chasing short term sexual release rather. If you take a double of scotch at the end of every day, you are just suppressing your anxiety for an evening, until your liver fails in your late 30's.

I'll stick this part in bold so your eyes do that ping thing the cruelest mistakes in life are the ones that have a long lead time between the decisive moment and consequence. These tend to also have the greatest consequences in magnitude. The cruelest and the biggest.

I'm talking bankruptcy, divorce, mental breakdowns, chronic illness, terminal illness, structural unemployment, retrenchment, estrangement etc.

One of the more brutal truths spoken by Gordon Livingston went something like this: "In my experience life makes us pay for our mistakes... what you are experiencing now is that payment" directed at the emotionally devastated patients undergoing a divorce or something.

I feel I'm experiencing a coming of age, where I've lived just long enough to start seeing these long-run cause-effect patterns come through. I am gaining confidence in the heuristics of predicting disaster, without needing to know the specifics. 'Heuristics' is a fancy word for 'rule of thumb' that I learned from reading Nassim Nicholas Taleb's book 'Antifragile' and I think in this case I can start to see decisions that are fragile when applied to time.

What I notice too is the longer it takes for a fragile thing to break, the worse the break.

Back to Gabor Mate though - I feel that bio-psycho-social model has to be understood as the one system, and thus understood all at once - not so much an orwellian double-think (because the ideas aren't contradictory) but a triple-think. Let's put anxiety through the bio-psycho-social window.

So if you have anxiety, I'm told (I've never really had it, perhaps empathically) you feel it, it is a sense of foreboding and dread, not necessarily an intelligible thought. But this feeling will effect your thoughts. It is I am convinced to assume, an unpleasant state of being.

Here you can drink alcohol, a form of sedative that slows down your thinking and induces a kind of calm and confidence. Anxiety symptoms solved. You can also meditate, or practice drumming or something else that intervenes between your feelings of anxiety and unpleasant thoughts that follow on.

To my limited understanding though, you then get up the next day and you still have anxiety (or are prone to anxiety attacks). So:

bio - anxiety effects your biology, you have a physiological response to it - your stress hormone levels, your breathing etc.

psycho - anxiety effects your psychology, your cognitive brain will go into loops of worry beyond anything productive, it will worry about shit beyond your control, it will worry vicariously on behalf of other people, deeper down the emotional and reptillian brain will go into fight or flight response etc.

social - your anxiety will effect your social environment. You will attract people who reflect and accept your anxiety and you will repulse people who reject and don't understand your anxiety.

And here you start to see the feedback once you have all the three corners spelled out. Your physical state effects your thoughts, and your thoughts in turn (like worry) effect your physical state, it's a pretty tight feedback loop. The social one is perhaps trickier to see and appreciate.

But basically, your bio-psycho part is going to feed out into your social environment and vice-versa. Your friends are going to be made up of people who wittingly/unwittingly find your anxiety reasonable or acceptable or 'normal' and people who wittingly/unwittingly find your anxiety useful to them. Those two dispositions among your friends and going to exacerbate your anxiety.

You can sub out anxiety with anything else, and it's worth thinking through the exercise, particularly social filters, how your mindset dictates who your friends are and how your friends in turn dictate your mindset, I highly recommend it.

It is my belief that the most changeable element of the three is the social - who you hang around. Once you change that up you can start expecting different results biologically and psychologically. It's your best bet.

This is to the nearest I have discovered, the best way of actually sorting your shit out. It's to actually re-engineer your whole life. The alternative is to medicate, to treat the symptom rather than cure the condition.

Last year I went to a birthday party of somebody very dear to me, but I could no longer claim to be close. At one point in my life, they were the most important person in the world to me, which is a strange thought to have. Anyway, I knew this person suffered from depression, back when we were close. I also knew through face book they had become a pretty phenomenal long distance runner. At the birthday party I got a slice of information about their life, and discovered that they still suffered from chronic depression, and I inferred that their running was actually an addiction.

And what is an addiction? It's self-medication. These inferences I made from one conversation.

Today that friend wrote a blog post about having to dial back their running. I can't be sure as to why my friend would run up to 100km a day, I haven't yet contacted them about what they shared. For the record here I'm glad they shared it, inspired by them and their act of courage and their speaking up for the sake of others. They are yet another hero. What I don't know, and only infer and suspect that the running at the very least was very good at treating the symptoms of the ongoing depression. And this friend suffers a brand of depression that is pretty divorced from environmental factors (the very very scary kind of depression).

So what I definitely can't say, and don't have any advice is how this friend could have dealt (let alone should have dealt) with the underlying issue of depression. I don't even know what was tried (and not). What I'm confident in saying, is that this friend couldn't and can't and won't in the long run, beat their depression through running. It could work for a long time, a longer time for perhaps a different person, but eventually the costs of the treatment will stop them.

And that's running. Something people readily admire you for. You get medals for it. People will donate to fundraising affiliated with running events. You can form clubs with like minded people to encourage your habit.

By contrast to medicating on alcohol, you get medals for not drinking, people will donate money to you not drinking for a month, people form clubs to stop drinking.

I recall my mother remarking on an article she read that inspired the title of this post. She was recounting an opinion (a medical, professional opinion) that there were 'no free rides' if you take pain killers for every headache, it kills your liver over time. You can't just not experience head aches, and expect that there's no physical cost to doing that. In ten years time your liver will be shut down.

In the same way I hold, you can't just drink your anxiety away. You can't buy your meaningless job away. You can't make up in the bedroom for fights you constantly start out of it with your partner. These are the stop gap solutions that lead to those catastrophic losses. Perhaps of more concern to everyone though, is that they block us from the real investment opportunities.

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