There are two ways to be right in life: get the story right, or get the math right. Obviously, it works to your advantage if you can get both. And, in fact, in a lot of areas of life, you’ll get nowhere if you only get one right. Sometimes you have to get both right or you’ll still be wrong.
Two very interesting books have ended up on my plate, by accident, at the same time.
I’ve just finished John Eldredge’s Epic, which is the best defense of Christianity-as-a-Story that I’ve read. Outstanding (and very short) book.
And at the same time I’m reading David Deutsch’s The Fabric of Reality. Which is an exploration of what it might be like if we could come up with a Theory of Everything. In other words, if life was just a big mathematical formula with readily identifiable patterns and parts. Something to be calculated and solved. Something to be fully understood at all levels.
On one hand, you have the ultimate story. On the other, you have the ultimate math. Or science, or order, or organization — however you choose to think about it. On one hand, ultimate truth outside of us — on the other, ultimate truth inside of us. Are these two things diametrically opposed? Well, so it would seem. But no. I think we can have both.
Stories and math both have their place in the big picture, and that’s okay. I think we can live with that.
And they also both have their place in the smaller picture, which is very tactically useful.
After spending years of my life now reading (and doing my own) investing research, and watching how others do their investing research, I’ve noticed something. Most people only get one or the other right. Or they only think they’ve gotten one right, but they really haven’t even done that. And it leads to some pretty bad choices, and it leads most people to end up being the fool that the stock market takes money from. Almost all of us are that fool, including me. Because we don’t get the math and the story right — like, ever. Because it’s hard. And because we always seem to convince ourselves that it isn’t.
Imagine you’re researching some company that is currently trading at a pretty low price on the New York Stock Exchange. Low compared to its historical trajectory. You think to yourself, it’s a bargain right now. I should jump on this while I can.
So you do some number crunching, put together a discounted cash flow model (in other words, a bunch of lies), and type in your sales projections. As of right now, the stock looks like it could triple to your projected fair value in 5 years. So you want to buy the stock.
But now imagine that you haven’t done your research on the CEO’s personality. And he’s a loose cannon with a spotty history. Or you haven’t noticed how, over the last 3 years, this company has gotten pretty liberal with its accounting practices and it’s reporting bullshit earnings under the catchy code name EBITDA. Or you didn’t notice that this company’s largest competitor has recently applied for 7 new patents that will make its own products more or less obsolete in the marketplace. (I have personally researched companies that fit each of these three scenarios.)
Or you haven’t given enough weight to incentives: perhaps most of the recent turnover in this company has actually been the sales force, because they’ve stopped giving raises to their best sellers. No one worthwhile is sticking around to sell this company’s product anymore.
If you consider these variables, it starts looking less and less likely that this company’s stock is going to triple anytime soon. Because the story behind the numbers indicates that this company is heading nowhere good, fast. In this case, the math is terribly misleading.
But then you look at a company like Uber, which focused so hard on becoming a conglomerate that it never learned how to be a company first. And therefore it is (and has been) a horrible investment. And yet people still swore for years that it was the future of everything. Because that story makes us feel warm and fuzzy. And it also makes us feel like we’re good at predicting things and being on top of interesting trends.
Or you look at a company like Tesla, one of the most highly-valued companies in the world — which makes almost no money but has a great story. It makes no sense, but the stock has done incredibly well. Because narratives are powerful. They have more influence on how people think and act than anything else.
I saw a Reddit post one time from someone who bought $10,000 worth of TSLA calls in 2011 or something. By buying call options, he was betting on the stock going up. And by the time he wrote this post, his calls were worth, if I remember correctly, 2.1 million dollars. And I don’t even think this person cared about TSLA the company. He just knew that TSLA’s entire value in the market was because of the story it was selling.
He was not betting on a company; he wasn’t even betting on Elon Musk. He was betting on public perception. He was making a bet on human behavior and the interplay between tech and culture. And he was right.
I would never recommend anyone trade or invest in this manner. Obviously. Because longshots are not things to be betting on, as much as we adore them. The point is, this person got the story right in a situation where the math didn’t matter. And, longshot bets aside, that’s a viable strategy sometimes.
David Deutsch, in The Fabric of Reality, opens with an explanation of scientific theories. What they are and how they’re used and how they get replaced over time. He explains how some people (known as “instrumentalists”) look at scientific theories as nothing more than ways of predicting experimental outcomes. No explanations, no stories, necessary — just predictions.
Instrumentalists are the opposite of our TSLA chicken-dinner winner. They believe that, as long as you get the math right, the story doesn’t matter. All that matters is where the particles will be at a specific point in time. How they got there is useless information.
But what Deutsch actually ends up giving is an explanation of explanations. And I think it applies to lots of little things in life, not just physics. Deutsch says it’s impossible for the utility of a theory, about anything, to be simply mathematical. Without the explanation, the prediction has no value. Why?
Well first of all, because there’s a roadblock: the interference of life in physics is important and, as yet, not amenable to modeling. Living beings, especially sentient ones, can do things to matter and particles that you just can’t model. If a person decides one day to burn his own house down, he displaces unknown quadrillions of atoms through spontaneous chemical change. I doubt there’s a scientific theory that predicted this and can now account for where those smoke molecules will have ended up. Because there isn’t (yet) an equation that can account for someone doing something like this. It’s not math, it’s wild behavior that falls outside of physics. Therefore, a basic story is needed to compare against this outcome — so we can see why “theory” didn’t help. We have to know why theory couldn’t predict this. We have to know the explanatory abilities and limitations of our current explanations.
But another reason is this: if we don’t equate scientific theories with the explanations married to them, how will we make scientific progress in the first place?
Imagine one day you throw a ball and it defies our current laws of physics. And then you go get your neighbor, and she does the same thing, and the same thing happens. Our balls are not flying straight anymore, they’re curving. For no apparent reason.
Well, what are scientists going to do about that? Are they just going to start randomly guessing equations to try to predict the trajectory of the next ball thrown? No. They’re going to start looking at the general theory of relativity and Newton’s laws, and wonder why their explanations are no longer applying, not just their math. Something about the story of the universe has changed. Something about our very understanding of reality is clearly not correct.
If you hope to make scientific progress, or progress in anything, you have to know why and how your new information is different from your old information. If you can’t explain it in words, you can’t come up with the right math in the first place. Because you don’t know what you’re trying to model, and you don’t know how to fix errors because you can’t even explain to yourself why you’re wrong.
Without explanations, science would be nothing but random guesswork.
Furthermore, updating theory in this case would be like constantly going back to the store without a shopping list — every single time, you’d forget what you needed, why you came, and what in your house needs replaced. So, in science, the stories and the math are mutually inclusive. They’re the same thing.
On the other hand, your mechanic is never going to demand an explanation for why 4 inches of your muffler have rusted away. Because he doesn’t care. He’s just going to patch it up and charge you 80 bucks. Because there is no theory here. There’s no information to update — just your muffler.
Look at the relationships in your life. Sometimes they are driven by a story: you are mentoring someone you care about. Sometimes they are driven by “math” or mutual benefit: you car pool with a co-worker simply because it’s advantageous for both of you. Or sometimes, they’re driven by both: you and your partner split the chores, while also randomly doing lovely things for each other… because not only do you want balance and “fairness,” you also want love and affection. You want a functional partnership and a romantic partnership.
If you are a small business owner and you can’t hang on to employees, you need to do one of two things: improve your culture, or pay more.
If you’re bringing a new product to the market, you can succeed by either making the price irresistible or the story irresistible. Maybe you can do both, but you definitely need to do one.
Life operates on fractals — from the biggest decisions you’ll ever make, all the way down to the trivial details of daily life. On each of these layers, you can get really good at identifying natural laws and patterns. You can also get really good with stories — both your own, and those of other people. It’s extremely useful to be good at both, and it’s extremely useful to be able to tell the difference.
Drink exactly 8 octillion molecules of water,
JDR
“We study science to learn how to get what we want. We study philosophy to know what to want in the first place.” - Naval Ravikant
Let me just say that I became a better mathematician by first becoming a better writer of mathematical 'stories' in the form of dissertations. I still struggle to calculate difficult equations to their end, but I am a lot more motivated to find the right answer; which outside an exam setting is really fun way to spend my time, I find. Especially nowadays with computers. I think growing up I developed the notion that mathematics was different from all other subjects. It wasn't until year 2 of a quantitative course in Uni that we started to use mathematics to tell stories and I came to really love it, stop fearing all the Greek symbols, and appreciate what it has accomplished for us so far.