I saw this tweet from David:
Everyone understands this feeling.
I heard an interview recently that discussed the psychology behind this behavior.
I’ll cut to the link:
To the Founding Fathers it was free libraries. To the 19th century rationalist philosophers it was a system of public schools. Today it’s access to the internet. Since its beginnings, Americans have believed that if facts and information were available to all, a democratic utopia would prevail. But missing from these well-intentioned efforts, says author and journalist David McRaney, is the awareness that people’s opinions are unrelated to their knowledge and intelligence. In fact, he explains, the better educated we become, the better we are at rationalizing what we already believe. Listen as the author of How Minds Change speaks with EconTalk host Russ Roberts about why it’s so hard to change someone’s mind, the best way to make it happen (if you absolutely must), and why teens are hard-wired not to take good advice from older people even if they are actually wiser.
The best teaser for the interview comes directly from it when McRaney says:
The incepting point of this book was someone in a lecture came up to me and asked about their father who had slipped into a conspiracy theory and they said, ‘What can I do about that?’
And, I told them, ‘Nothing.’ They said, ‘How do I change his mind?’ I said, ‘You can’t.’ And, I really felt, the second I said it, that: I don’t know enough about this to say something like that. I don’t even know if I believe what I just said, but I know one thing I don’t like this attitude I have about this issue. I should at least learn more about it.
And, if I was in that same situation today, I would actually be able to say, ‘Oh, here’s what you should do. Here’s what you should say.’ I no longer believe anyone is unreachable. I no longer believe anyone is unpersuadable.
In conversations that don’t work out the way we think, we blame the other side. We say, ‘They’re dumb. They’re mean. They’re evil. They’re ignorant. They are unreachable, unchangeable, stuck in their ways.’ These are all things that we are using to forgive ourselves for failing.
Listen to the interview. My excerpts are just what I wanted to keepsake. My notes covered:
- motivated reasoning for social acceptance
- the process of radicalization
- reactance (or what I call “reflexive contrarianism”)
- specific approaches that work to unblock discussions
- “street epistemology”
- cognitive empathy
If you do nothing else, zoom in on the “reactance “section which I titled this post for — that feeling of “F you I won’t do what you tell me” is ingrained and worth understanding.
If you know the reference, you know RATM. And just in case you’ve never seen it — the video below is a recording of one of their first public concerts. It was filmed in 1991 at Cal State Northridge. It’s a bizarre scene juxtaposing a routine day on a sunny campus quad against the band’s angry energy. An ice cream social with an a cappella group like Chorus against The Chaos would have drawn a crowd faster.
Zach is unfazed. By the end of Bullet In Your Head, the audience starts noticing. If you consider the state of rock just coming out of the 80s (Nevermind was released only 3 months before this performance) and the relative infancy of hip-hop this performance must have been pretty alien.
They would go on to release their debut album a year later and play a side stage at the second Lollapalooza.
They’d play the main stage one year after that.
[Unclassified personal thought: I like watching old concert videos. I’d waste one of my 3 genie wishes to have the power to peer into the present of the audience members I see in these old clips. It’s an escapable thought every time I watch them. Like knowing that skinny, shirtless viper with the long hair slithering to the groove is now bitchin’ about Blackrock makin’ his truck expensive to fill up. Mind you he’s a landlord in Laguna where he bought his first bungalow in 1972. Discovered the town after catching the Dead at the Newport Pop Festival a couple miles down the road a few years before that. A show he hitchhiked to from Indiana while running from the life the ”squares” back home had envisioned for him.
The brightness of youth casts a shadow — the finer rays suggest their own sorrows]
Last Wednesday in Investing With Your Hands On The Wheel, I beat my old drum that trading isn’t really something one does “on the side”. Trading is a business. And I am quite skeptical about the reward per unit of effort for playing Nostradamus in your investing portfolio. I know there are people who disagree with me on this. I’ll happily grant them their track records at face value but wave the plane with zits at them:
I’m pretty much in the camp of “get a job where you can do this full-time if you really want to”. If you can’t do this but still want to explore strategies, then fence out some capital to play/learn/experiment…
For the rest of your assets stick with some kind of permanent portfolio implementation depending on your risk tolerance. You can follow folks like Corey Hoffstein, NomadicSamuel, Jason Buck, Lily for that stuff. InvestResolve guys too. All these tweet about it too and it’s all quite solid. I recommend this series by the InvestResolve team.
My gut feel is return-stacking/permanent portfolio for long-term DCA is probably the efficient frontier of work/return/risk triple axis.
If you insist on being active, there is a totally acceptable framing too:
But there’s no doubt that many people want to put their hands on the wheel and that has innate personal value (and that’s true whether it’s misguided or not). So in short I think it’s a tree:
- DCA permanent portfolio variant if you want autopilot
- If you want to put your hands on the wheel what does that efficient frontier of effort/return/risk look like where return also includes some illegible component of DIY satisfaction?
I should probably pull together a new Moontower wiki of permanent portfolio content that I like. It might be an insurance policy against me never writing the Implementation portion of moontowermoney.com
[I have all the material that goes into it collected and sorted but it’s a small book-level project that’s on the back burner]
In the meantime, I’ll dribble out some things that really resonated in this column. Today, I’ll point you more closely to the InvestResolve series I referenced in the above quote.
Adam Butler and his team at InvestResolve did a wonderful 12-episode Masterclass on the topic of portfolio construction.
- I took notes on the first 8 episodes. I didn’t take notes for episodes 9-12 as they get into the weeds of quant methods, backtesting, and ensembles. I was more interested in a conceptual primer to risk parity as a portfolio construction method for diversifying across unique edges.
- The notes include a link to the episode as well as a transcript
💡Most important ideas
- A more diverse portfolio has a higher expected risk-adjusted performance over time.
- Asset allocation is useful because it maximizes the number of independent bets in the portfolio.
- Those bets are independent are sustainable because they’re directly linked to fundamental economic properties.
- A risk parity portfolio is the most efficient portfolio if you believe major asset classes are fairly priced (ie their Sharpe or other measures of risk/reward are the same)
🔗InvestResolve Masterclass On Risk Parity (Link)
If you are short on time focus on the first 3:
- The First Question: Security Selection or Asset Allocation?
- What True Diversification Really Is And How To Maximize It
- The 2 Fundamental Drivers That Determine All Economic Regimes
Money Angle For Masochists
I saw a tweet:
Let’s set aside the obvious “just short bonds” response to a crystal ball that tells you mortgage rates are going to roof. While I’m not sure how volatile the 10-year note/MBS basis is, just shorting bonds would seem like the most direct and reliable trade.
The rest of the crystal ball portfolio underwhelms expectations. Ahh, a recurring parable in the “trading is hard” bible. Like if you knew what a stock’s earnings were going to be would you be able to make money? How do you know what the “whisper” number is or if the market is focused on guidance more than income for this quarter?
It also reminded me of 2 adjacent reads that cut to the heart of “how would you trade if you knew the future but not the path?”
- In Financial Hacking, a puzzle is presented:Assuming you could not trade options, how much would you pay to know the closing price of SP500 in one month?
- Even God Would Get Fired As An Active Investor (AlphaArchitect)
Alexis reminded me of cringe times from my NYC days. Almost as cringe as referring to probabilities as deltas. As in “I’m 75 delta to meet you for drinks after my work dinner” 🤮
Also, if you were never cringe about anything you have the heart of a dead fish and you should get that checked out.