Shades of grey

“You think darkness is your ally. But you merely adopted the dark; I was born in it, moulded by it.” – Bane to Batman, The Dark Knight Rises

Buggy humans are imperfect, not stupid. Messy world is complex, not random. Markets are neither efficient nor inefficient. They’re batshit crazy, yet (retirement) life changing. They have momentum, but turn on a dime. Forecasts fail but patterns repeat. Kids in basements (sometimes) whup Ivy leaguers in suits. Both Keynes and Hayek are right.

Why this stream of consciousness? And a weird Batman reference? Not because it’s fashionable to equate hedgies with comic book villains. In investing’s Gotham City, I’d replace ‘darkness’ with ‘greyness’. Messy world is all grey. Everything we encounter is incomplete, ambiguous, contradictory, subjective, unrepresentative, uncertain, maybe all of the above. While our final decisions are black and white (buy vs avoid, hold vs sell), nothing else is. We somehow have to go from all-pervasive fuzziness to consequential actions. An innate comfort with greyness is a key determinant of success in messy world.

This isn’t an investing problem. It’s a buggy human problem. Business leaders and public administrators face more extreme forms of it. They have no easy answers or perfect choices, unlike glib economists. All of us deal with it daily. Take the question of when physical schooling should reopen. I have a definitive view (yesterday), but realize that ‘it’s complicated’ is also a reasonable answer. We disagree sharply about politics because all options are uncomfortably grey. Silly topics of the day, like whether statues are racist, trace back to an inability to handle greyness. Ditto for ‘intellectuals’ reversing support for sensible policy, because someone they hate is championing it. Ability to handle grey has little to do with IQ. In my experience, plebs beat profs, as forcing fake precision on a made-up world isn’t good training for handling real ambiguity in a messy world. Regular jobs with skin-in-the-game are better at fostering a pragmatic, all-things-considered, more-good-than-bad way of thinking. Many universal traits – hypocrisy, double-standards, inconsistency – are inevitable when greyness abounds.

So, I thought I’d make my next essay-series about the glorious greyness of our messy world. I’ll adopt an indirect approach, to make my ramblings more specific. I’ll write about an extreme consequence of greyness, namely contradictions. Anything grey can be interpreted differently by various people, or even by same person in different contexts. Everything is a subjective judgment call. Reasonable people can disagree. It’s impossible for anyone to be 100% consistent over time or across contexts. This leads to contradictions, apparent and real. As dissonance is one of the most powerful psychological effects, our ability to handle contradictions becomes key to sound decision making. Even the phrase ‘contradiction’ isn’t entirely right. It’s sometimes a mild inconsistency. Sometimes a yin-and-yang duality where opposites are meant to coexist. Sometimes a seeming contradiction that isn’t one at all.

Look at my own inconsistencies. I preach safety while operating in riskiest part of capital structure. I own forever though nothing is forever. I seek favourable odds, but operate in a profession (active management) with disastrous odds. I study the past, but bet on the future. I have a prudent buy-price but an imprudent sell-price. My investment approach is tenable in only in a specific (lucky) context, but I pontificate as if it’s universal. I mock everyone but take myself seriously. How can I live with myself and my contradictions? As Seinfeld said, shouldn’t I be out on a ledge somewhere?

In my essays so far, I haven’t adequately discussed greyness and contradictions. I even left it out of my central thesis, that I seek safe and good businesses. But, nothing’s unambiguously safe or good. In reality, I seek safe enough and good enough businesses. And ‘enough’ isn’t properly or consistently defined. My bar is subjective, if not arbitrary. Despite my best efforts, I am inconsistent in how I apply it. Even with seemingly strong businesses, I struggle with which side of the bar they fall into. Even within a longstanding, philosophically-aligned team, consensus is a rarity. My last essay (3rd part of ‘own forever’ series) dwelt on internal consistency. Since we’ll never fully achieve this ideal, it’s as important to understand and accept the kinks that will never get ironed out of any real-world investing approach.

As with ‘own forever’, this is a difficult topic, at least for me. I’ll simply pick pairs of (seeming) contradictions and devote an essay to each pair. Each topic will be narrow enough to discuss issues in a non-abstract way. Tentative topics I’ll write about: balancing arrogance and humility; thinking in relative vs absolute terms; developing conviction amidst crippling unknowability; using past to make sense of future. I may add or subtract topics as I go along. I have no idea how different essays will cohere under my umbrella theme or if any common learnings will emerge. It’s kinda grey. Then again, that’s the point!

PS. I did write one essay on these lines earlier, on the tension between optimism about humanity at large and scepticism about specific humans who aren’t good for minority shareholders:

https://buggyhuman.substack.com/p/new-essay-believer-vs-skeptic

I had even threatened to write more such essays. After much procrastination, I’ll fulfil that threat.