Short, simple piece today. But hopefully useful.
It is often said, by wise people, that you should listen to all available viewpoints, especially viewpoints that oppose your own, before making your own judgments. I agree with this. As I’ve written before, a key component of thinking is being able to construct and deconstruct not only your own arguments but also those of your opponents or counterparties. You can’t get anywhere until you deeply understand what you’re saying and why you’re saying it - and the same goes for the arguments you’re trying to counter. Charlie Munger once said “I never allow myself to hold an opinion on anything where I don’t know the other side’s argument better than they do.”
So I think we should read books, watch lectures, and absorb articles and interviews when we’re trying to learn about something. From multiple sources and with multiple contributors.
However, I think it is often counterproductive, when deeply exploring a topic, to take in all of those viewpoints at once.
Firstly, people are susceptible to analysis paralysis. You cannot make decisions properly when too much information is presented at once. I see this all the time in trading - newbies and silly folks like to fill up their screen with loads of indicators and signals and patterns that are designed to “give you an edge” in the market. When, really, all they’re doing is confusing themselves and giving themselves too many conflicting pieces of information. The best traders I know operate with very simple screen layouts. Simple, effective layouts are designed to let you focus on what you’re actually supposed to be focused on: the price action of the market. And so it is with information and learning. Pay attention to details, but always be looking for ways to simplify and refocus on what matters.
Furthermore, we have limited mental real estate. There's basically a zero percent chance that you'll remember everything that was presented to you when you are hit from multiple angles at once. Unless you’re Balaji Srinivasan, and your mind is a supercomputer. Each perspective has nuance of its own, as well as its own underlying assumptions and values. It’s not possible to take them all in at once. In order to really learn something, you have to give your brain time to organize it into filing cabinets and build out new mental infrastructure. You have to digest what you’ve learned and incorporate it into your thinking.
An outstanding example of these troubles, for me, has been reading about cryptocurrency. On Twitter there are countless arguments for and against cryptocurrency thrown around all day every day. You don’t even have to go looking for them. They’re everywhere. And, especially given that some of the brightest minds on the planet are focused on the topic, there are some really fantastic arguments on both sides. Academic arguments that are rooted in logic and economics. Pessimistic arguments rooted in realistic assumptions about people and government. Optimistic arguments rooted in the celebration of individualism and the trust that financial incentives will make it all work as time goes on.
And there have been times when I took in multiple of these perspectives in a single day. Or even in a single sitting. And it’s nauseating. It’s like willingly giving myself whiplash. It’s impossible to form an opinion this way. I could go from “crypto is the dumbest thing I’ve ever heard of” to “crypto is the future” in 30 minutes. Because there are so many (excellent) arguments on all sides. The problem, for me, has been information overload.
And this could also apply to the war in Ukraine, or the Biden presidency, or healthcare, or higher education, or anything else. Everything is just really complicated.
Well instead of all this, what if we slowed down. What if we became really engrossed in each perspective. Truly, madly, deeply engrossed. What if we spent days, even weeks of our life engrossed in the “for” culture, and then weeks more engrossed in the “against” culture. Or the “this” or “that” culture. And spent extended time listening to the smartest and most pragmatic people on both sides. The most creative thinkers and the best storytellers and academics on both sides.
What if we allowed all of the optimism and creativity to actually touch us and move us. To actually shape our thinking for a while. And we allow the models, concepts, and underlying assumptions to solidify in our minds and become usable. And then we go to the other camp and do the same thing - where, for example, discipline and realism and practicality might temper our thinking. And we could spend some time grounded in different assumptions. Different values, different arguments.
What if we spent weeks reading about a topic, and learning everything we could, before ever even considering making a judgment. This would make us not only valuable as people, with balanced perspectives, but it would also give us calmer and more objective decision making capabilities. And it would also give us a hell of a lot more self respect. Because, instead of being the fool who speaks when he has nothing valuable to say, we become the wise man who speaks only because he has something useful worth saying.
And this is why we should be choosy with the topics on which we spend attention. If you want to have an opinion on a topic, you ought to study it thoroughly. If you don't want to study a topic thoroughly, you ought not to have an opinion on it. What if we all lived by this code? The world would be a much wiser, less angry place. There would be more intelligent discussion and less noise. There would be more truth and fewer lies.
Democracy would be a little less full of “voters”, and more full of “citizens.” A little less full of Republicans and Democrats, and a little more full of people who actually have opinions worth listening to.
The world of money and business would be a little less full of “economists” and “finance experts,” and a little more full of people who understand both sides. (Funny note: Finance and Economics are often thought to look at each other as “secondary” or “less important” studies as part of their own field. “Well sure, economics is useful but only within the scope of modern finance” and vice-versa. That’s a pretty perfect illustration of my point.)
I just finished a class on coursera.org called The Economics of Money and Banking. (It’s free - take it. Do it.) In this class, Professor Perry Mehrling makes an important point about perspective.
He notes how there are essentially three conflicting fundamental views on modern money that he names as follows:
The economics view (“the past determines the present”): The past outlay of investment by people and institutions determines the cash flows and possibilities of the present. Past decisions have salient and predictable effects in the present. This view focuses on models, principles, theory, and logic. It assumes rationality, it assumes consistency… it assumes a lot of things. It’s probably the most idealistic discipline in the world.
The finance view (“the future determines the present”): The future value of cash flows, discounted back to the present, determines how money should be outlaid and used today. This school would argue that economics and the history of investments don’t really matter if there can’t be any cash flows produced today that are worth anything. This view focuses on risk, asset prices, expectations, and fundamental valuation.
The money view (“the present determines the present”): Here we ask, “how do banks and financial institutions actually operate?” After all, theory does no good if it doesn’t account for what actually happens in the real world. The money view looks at the actual tendencies of institutions and how they move money around, and says that our regulations and principles should mostly follow from these intuitions. This view looks back on the Global Financial Crisis and says “well, we very clearly were not prepared for that. We didn’t understand what the banks were doing - even the banks didn’t understand what the banks were doing.” (And of course, if you’re like me, it’s hard not to be angry about that. But that’s not the point.) The point here is, money moves in the way that makes the most of our modern financial infrastructure and provides the most liquidity - plain and simple. To ignore that is to ignore reality.
So, what’s the truth? Which of these views is correct?
Well, they all are. That’s what I’m trying to say. There is no single fundamental view on money (or anything, really) that accounts for everything. Nuance is required, and multiple models are required.
Without an understanding of the hyper-liquidity of the modern financial world, or of the not-so-infrequent inefficiency of markets, economics is worthless. All theory, no practice. Without an understanding of the role of dealers in the capital markets and the money market, finance is unable to explain what’s going on in the world. It’s all asset prices and no understanding of how they got there. And without both economics and finance, the money view has no story to tell. It’s just liquidity without a goal.
So these schools feed off of each other. They are different sets of pieces to one big puzzle. The mental models that can be used from each of these perspectives have a time and place, and more often than not must cooperate. It depends on what time frame you’re working in. It depends on what problem you’re trying to solve. It depends on what level of analysis you’re at, and how big a scale you’re operating on.
To say that one view in life has all the answers you need is silly. There is nothing you can learn that is a panacea against the need for further thinking. Or against being wrong. Being wrong is always an option. And it tends to sneak up on you just when you’re most confident.
It’s really funny to watch economists and finance guys argue with each other. Sometimes they can’t agree on anything. They don’t even live in the same world.
What they both fail to realize is that both of them should just come to the baseball field with all of their gear - and we’ll figure out once we’re there what we need out of each of their bags. Each of them has something we need to play the game.
Cooperative thinking is the only kind of thinking there is. Argumentative, polarizing thinking most often solves nothing. “The truth lies somewhere in the middle” is something I try to remind people in my own life all the time.
Assume your adversary knows something you don’t know, and has good intentions. And then, find out what those are. That’s the only way to make progress.
Start with what you have in common.
And drink water.
JDR
“In my whole life, I have known no wise people who didn't read all the time - none, zero.” - Charlie Munger