Saturday, November 11, 2023

Why distilling common sense is not enough for investors

You might be wondering why I am reading so quickly. Sometime in September 2023, Amazon stopped selling The Economist on the Kindle and I've stopped my subscription to clear all the books I bought over the past few years. As The Economist is a hard read, I've released a lot of energy to read all the books on my KIV list.

I've decided to go easy on myself because lately, I've gotten into the "Adult Education industry" and have a small new gig that gives me extra pocket change, as I needed to come up with slides in a different field and maintain my investment training business at the same time, I decided to read books which are more inspirational and less heavy.

But years of reading the heavy has made it really hard for me to enjoy reading the lighter stuff. 

I think the essence of writing a best seller these days is to write fluff to appeal to the feeling and non-conscientious masses and just enjoy the stream of revenue that comes from folks who really can't give a damn about the internal contradictions in your work. In this case, The One Thing by Gary Keller is laughably absurd as it is actually a book about many things. You obviously need to be in good health with a supportive environment before you can focus on that One Thing that can improve your business or change your life!

My learning journey on how to write things that sell like hotcakes continued with Morgan Housel's Same as Ever.

As a book for investors, Same as Ever clearly disappoints. Morgan Housel has adopted the same formula as Yuval Harari. Say stuff that is uncontroversial and commonsensical, but back it up with a series of wonderful stories and memorable illustrations. In this sense, the book was good, I was emotionally affected by the opening chapter about a ski accident that caused the death of the author's friends.

Same as Ever will be an instant hit with folks in this finance blogosphere because, ultimately, you cannot disagree with anything Morgan says. Examples such as the idea that wounds can heal, but scars remain forever. People will be emotionally scarred by their economic experiences. Like folks who went through the Great Depression put a ridiculously high premium on security and may avoid equity investment. 

The book will not help you grow if you are already an investor. If anything, the book can only reinforce your confirmation bias. 

But, is it possible to deeply enjoy an author's work without having one's investment thesis fundamentally challenged? The answer is yes. 

I can even put in a suggestion on how the book can be improved. 

Morgan Housel needs to take greater risks. He needs to see if some of his ideas can be used to predict the future. A fundamental part of being an investor is to predict the future and monetise uncertainty. 

He did not do it, so I will do it for him.

For the folks who lived through the pandemic, I expect that they will not consume as much as earlier generations who partied when they were younger so I expect the younger Gen Z folks to be more frugal. This may create second-order effects which may impact brand loyalty negatively and even alcohol sales. A frugal generation can trigger deflation and lower interest rates on fixed deposits. 

The next group who will be disrupted are those hit by AI. So far we are only seeing this affect creatives in Singapore who developed a more aggressive hustle culture and fully intend to use AI to become even more productive. However, families and professionals experiencing AI disruption will scale back on equity investments as their own human capital becomes more volatile. This will be universally bad for equity markets.  Will local creatives mirror victims of the Great Depression given that they were labelled non-essential and then slammed by MidJouney and Dall-E? I think highly likely.   

Of course, there is a probability that Iwill be wrong, but what is the point of specifying common sense, and backing it up with beautiful illustrations without using it to predict the future? 

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