Americans should do well to remember Wimpy, the hamburger scarfing cadge from the Popeye cartoon. No matter what day it was, Wimpy would always be asking for money for a hamburger for which he would gladly repay you on next Tuesday. Except that he never did. Something Popeye did would always come up distracting him from the collection, and Wimpy would grow fatter and wiser. No matter how much spinach he ate, Popeye never got his money back from Wimpy.
It turns out that Popeye is like most human beings when it comes to envisioning next Tuesday. According to the Long Now Blog a neuroscientist has shown that we don't pay much attention to consequences of the far future.
..the further an event lies in the future, the less people care about it. So if offered $100 now or $500 18 months from now, many people still take the $100. The consequence is that there’s little difference between President Obama promising 18 months from now versus 18 years from now. In the human ken, both are obscured in the mists of the distant future.
Maybe this is why it pays to punish your kids now instead of, 'next time for sure'. But it also reminded me of what I just read in Gladwell's new collection of old essays. It might be that Gladwell was the one who introduced us to Taleb. I never heard about him much before he published his Black Swan book when I started listening to Bloomberg about 18 months ago. But Gladwell wrote about his contrarianess in 2002.
Taleb's 'Emperica' investment strategy is brilliant by my reckoning, primarily because it so much resembles gambling. I hate gambling but I am illogical about it. I love investing but I'm illogical about it. Investing, according to popular wisdom means collecting interest on capital, and this is how fund managers present their products to the investing public. How do you make a small fortune? Start off with a large one. Let your money work for you by parking it away and letting it gain interest. All passive voice kind of stuff organized around a mental model in our minds that's very comforting. So we expect that a successful portfolio (but let's not deconstruct 'balanced portfolio' just yet) will give us some reasonable return in steady increments over time. That's what we grok to be a 'sound investment'. That a stock investment should produce 'revenues' like a growing business, in even predictable measures along a fairly narrow confidence interval. We like the sound of stuff like 2% per year.
Empirica turns that on its head by using hedges that normally lose money during normal times but pay off wildly during unpredictably chaotic times. In other words, Empirica plays longshots. Not just longshot winners but longshot events. Except it does so without doubling down. So you just pay to play what amounts to something that pays off like a life insurance policy on somebody else's life.
You just might have to wait until next Tuesday to get your moola. We don't like the sound of that.. Maybe you get 300% in four to seven years, but on average you lose money every day.
I like that kind of investment vehicle. Especially when I hear people who sound like they get paid to sound like they know what they're talking about tell audiences that recovery is just around the corner.
What I've just discovered is that Taleb digs Oakeshott. Actually, the way Taleb put it, Oakeshott is an intellectual hero of his. That's what kind of Conservative I am people. Just in case you missed it. Epistemological Modesty.
BTW: Here is Taleb's Paper Bleed or Blow Up. (h/t The Maanga)