Organizing Your Thoughts Via Book Summaries

 A simple way to organize your thoughts is to summarize. Summarizing forces us to sieve through the noise and pick out the nuggets of gold. It is a good discipline and a very direct way to bring out the salient points to the forefront of your consciousness/attention. Better yet, let's write them down.

Lately I have been reading much on decision-making, finance, effectiveness and biases. When I encounter so much a lot of information too fast, important insights inevitably tend to get lost. So, I decided to go back and re-visit what I have read, noting for myself, what I consider to be key points. So, here we go!

Nassim Taleb. Antifragile.

Everything in the world either profits (anti-fragile) or loses (fragile) from volatility. Since the world (and time itself) is inherently volatile ("long gamma") -  it behooves one to position oneself in order to be anti-fragile rather than fragile or even simply robust (relatively impervious to randomness).

In finance terms it translates into holding portfolios that profit from volatility up or down (long OTM puts and long OTM calls) - losses are known and capped, profits are unknown and uncapped. Moreover, the payoffs of a anti-fragile position are asymmetric (non-linear) - you gain much more than you lose from equivalent move in the opposite direction.

Barbell strategy - combination of playing it extremely safe AND extremely risky.

Human body and human mind benefits from a measure of volatility - randomness, uncertainty, entropy. One should thus welcome ups and downs of various food intake, self-education, flaneur-style travel.

Iatrogenics (harm that comes from cure) of attempts at removing  volatility (the Procrustean bed that cuts off the extremes) results in decreased anti-fragility and increased unpreparedness - resulting in even greater shocks (kind of like the absence of small fires in the forest leads to scorching giant forest fires).

Anything that is based on prediction is necessarily fragile. Theories and ideologies are fragile. Inductive inference is fragile - it does not benefit from supporting evidence, but is disproved by a single instance of counter evidence (black swan). Big and fast are short volatility - small and slow is anti-fragile.

Ad hoc heuristics ("tinkering"), especially accumulated over time - such as wisdom of proverbs, grandmothers' "common sense" is extremely robust to change, while "novel and popular theories"  tend to have an extremely short lifespan before they are debunked and retired to the dung heap of history .

Via Negativa - what doesn't work is more robust knowledge than what supposedly does work. Thus not doing is often a superior strategy to doing (iatrogenics). This is also related to the menace of "noise" - when one is constantly bombarded by the latest "do this to succeed", the result is that in the search for the esoteric "new thing" one misses the obvious.

Miscalculation of risks and absence of "skin in the game" by the self-appointed top-down "economy managers" guarantees increased financial volatility. Forewarned is forearmed.

Mark Spitznagel. The Dao of Capital

There are basically two types of strategies for achieving an objective - a direct ("li" in Sun Tzu's "Art of War") and a round-about, indirect ("shi"). The indirect approach wait for or builds up the means ("zeal" in von Clausevitz "On War") for achieving the final objective ("zweck", ibid.). Sometimes the waiting is part of achieving a positional advantage - because of temporal changes. Sometimes, it is an active patient build up of strategic advantage or resources - building means of production, before embarking on production itself.

Spitznagel references the Chinese thinkers (inluding Sun Tzu), German military strategist von Clausewitz, Austrian economists (Bastiat, Mises) and American financial journalist Henry Hazlitt to drive home a single point (epitomized in Hazlitt's book "Economics in One Lesson") - look for long term effects of your actions/policies - look beyond the immediate, both in terms of time and in terms of immediate recipients/beneficiaries of your actions.

A successful entrepreneur does not look at the short-term advantages or profits, he looks for long-term, positional and enduring advantage - just like the conifers that forego fast growth in the beginning in order to dominate in the later stages.

Spitznagel also argues for rolling short-term OTM puts as a strategy warranted by the Austrian business cycle theory that stipulates eventual stampede to correct market imbalances forced by top-down over-management of QE and artificial interest rates.

Ray Dalio. Principles: Life and Work

Dalio shares some of what he considers to be his most valuable lessons for life and for investing. What resonated with me were two things - 1) radical self-assessment - transparency, honesty and 2) not letting what you think "should be" overshadow "what is". Stated another way - there is a reason why the world behaves like it does - one should not try to fight it before understanding the reasons for it.

James Davidson and William Rees-Mogg. The Sovereign Individual

This is a far-reaching and amazingly prescient (published in 1998) work forecasting both events that happened  decades after it saw the light of day as well as long-term trends that are just starting to come into full force.

Most futurists focus on technology but omit the social implications of the changes before our eyes. Mogg and Davidson fill in the missing pieces. The use a historically proven method of looking at the balance of rewards for violence vs. rewards of production and show that this balance is shifting - away from the national governments and towards smaller autonomous groups, finally and logically ending up with an autonomous sovereign individual re-asserting himself like he did during the hunter-gatherer period.

Basically, the trend of individual autonomy through different eras can be summarized as follows:

Hunter-gatherers:    High
Agricultural society:  Low
Medieval/feudal society:  Medium to High
Industrial society:     Low
Information society:  High

What we see today, with the rise of computers, global (internet) connectivity, digital currency and miniaturization is the trend away from concentration of power and to greater dissipation of control. A single person (a hacker) or a small decentralized collective (Anonymous) can potentially bring down an entire company (Equifax?) or even governments (Wikileaks).

Mogg and Davidson predict the derailment of large paternalistic welfare states that still try to live according to the old rules of the Industrial Era. The changes are happening too fast and the bureaucracies cannot keep up. Eventually states with near-market dominance will attract autonomous individuals (entrepreneurial and independent-minded) who will dominate in the new communication- and information- based economy.

Mogg and Davidson predict further crackdown of the governments upon the freedoms and privacy of individuals - a futile but concerted effort to control the fleeing capital and citizens. They also predict rising violent crime - thus advocating for emphasis on physical and asset security, dual citizenship, distributed capital allocation in non-domestic banks.

George Gilder. A New Information Theory of Money

This is not so much a book as a booklet, but it packs a lot of punch. Gilder builds on Shannon's seminal thesis about Information Theory and the relationship between signal and noise, and essentially equivalizes "information" in the context of a communication system with "money" in the context of an economic system.

Thus, money becomes the "signal" amidst the sea of noise of economic (and more specifically, entrepreneurial) activity.  Money tends to flow to entrepreneurial experiments that provide some informational value - a "surprise" that is beneficial to everyone. Thus, one can think of an iPhone as a discovery - a valuable insight that has been valued by the players within the economy enough to warrant an exchange of $500-$600 for a wallet-sized gadget.

Gilder argues that in order to serve as "signal" money itself cannot be too "noisy" - it needs to have low volatility of exchange value relative to goods and services. The more distorted money becomes the more it loses its informational quality and only contributes to the noise. With this in mid, Gilder argues that both gold and Bitcoin can serve as a monetary measuring stick in the times when fiat money is progressively losing its value (inflation, QE, etc.).

As a unit of value money must have a quality of representing some "frozen time" - utility that could be materialized via expenditure of work (human effort or time-saving capital). Gold as a physically mined commodity is a classical representation of required effort for finding, extracting, purifying, etc. However, Bitcoin is also a "mined" asset - the mining process requiring expenditure of computational energy to solve a puzzle (viz. mining a block) in order to gain a reward. Thus, both possess the necessary rarity and inherent value that went into creating them.

George Clason. The Richest Man in Babylon

This one is easy to distill, because the author does it for the reader at the start of the book by summarizing the key principles and then expounding on them. There is nothing new here - just reminders of what we know tends to result in financial stability and even prosperity:

1. Start thy purse to fattening (save!)
2. Control thy expenditures (know your expenses!)
3. Make thy gold multiply (make sure your money is earning some compounded return!)
4. Guard thy treasures from loss (risk management!!)
5. Make of thy dwelling a profitable investment (own rather than rent - probably does not apply to everyone)
6. Insure a future income (viz. income planning for old age)
7. Increase thy ability to earn  (investing in or starting a business)

Easy-peasy.