Musings Report #9 3-1-14 Investing in Ourselves
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Investing in Ourselves
I am generally skeptical of the value of behavioral economics, as the primary insight (that humans are irrational and rationalize their mistakes/failures) doesn't differentiate between economic systems that function positively for most participants (i.e. low rates of corruption and inequality, high levels of liberty and transparency) and those which fail most participants. In other words, since all participants in both systems are prone to irrationality, how do beneficial systems arise? Behavioral economics is silent on systems, and that severely limits its utility in my view.
I also find little practical value in the insight that we overvalue ourselves when we succeed and discount our failures (we didn't have enough resources, etc.): yes, markets reflect the herd instinct that creates bubbles and manias, but other than avoiding the herd, how does this make me a more profitable investor?
The one insight of behavioral economics that is practical is the awareness that our willpower/self-discipline is a limited resource which we must invest wisely. In this sense it is a form of scarce capital--"willpower capital." I liken it to a pool fed by a spring: when we exert our will or self-discipline, we drain the available supply of willpower. Given time, the pool will replenish itself. But once we've drained our pool of self-discipline, tasks that require self-discipline become much more taxing.
This suggests several dynamics to me:
1. It requires a daily application of self-discipline to form a new habit or replace a destructive habit with a more positive one.
2. If we "spend" our available willpower on an array of projects rather than on developing one new habit, we are unlikely to be able to persevere long enough to cement that new habit to the point where it is part of our routine.
3. The earlier in the day we apply our self-discipline to forming a new habit, the more success we will have simply because our reserves of willpower are most abundant early in the day.
4. Setting goals is easy. What's difficult is developing a process to reach the goal, and making that process into a habit that becomes part of our routine.
5. Once a process becomes habit, we don't need to invest as much "willpower capital" in maintaining it.
As Aristotle is said to have observed, "We are what we repeatedly do" (or "We are what we do every day"). This explains the importance of habits, which are habits precisely because we do them every day or week, repeating the process again and again.
The power to shape what we repeatedly do is key to becoming a better investor, improving our productivity, becoming a kinder, more compassionate person --whatever we set as goals.
It's not surprising that many of the most productive people (artists, writers, scientists, etc.) often rise early and put in a solid morning of work without distraction. Given the nature of willpower and habit, that schedule makes good sense.
Summary of the Blog This Past Week
A Healthy Haute Cuisine One-Dish Meal in 20 Minutes 3/1/14
Why the Periphery Is Crumbling: The Spoils System Is Cracking 2/28/14
Ukraine: A Deep State Analysis 2/27/14
Clearing Billions in Profit Is About to Get Much Harder 2/26/14
Eating Our Seed Corn: How Much of our "Growth" Is From One-Time Cashouts? 2/25/14
The Dollar and the Deep State 2/24/14
I think Monday's essay on the dollar and the Deep State cuts through a lot of media misinformation and clutter, as does "eating our seed corn." Few ask where the "growth" is coming from.
Best Thing That Happened To Me This Week
I feel (perhaps wrongly) that correspondent A.C. and I were able to add some constructive analysis and context to the situation in Ukraine.
Market Musings
As long as the carry trades that have fueled the rally for five years continue pumping, the rally will continue regardless of the fraying fundamentals. Keep an eye on the yen-dollar currency pair and the Aussie dollar-yen pair. When one of the major carry trades finally fails, the equities game will change decisively.
From Left Field
Speed-riding (parasail-skiing) Mont Blanc (via U. Doran) -- If you're a bit burned out by your week, invest 10 minutes in this amazing video of para-skiing (?) down Mont Blanc. It will transport you....
10 Japanese Travel Tips for Visiting America -- insightful....
How to save yourself if you're choking (1:50 min video)
The U.S. Middle Class Is Turning Proletarian -- at least some are turning lumpenproletariat, i.e. incapable of developing class consciousness....
A Food Lover's Dream: The Kitchener Snack Bar
Imagine a place where burgeoning foodmakers who can't afford their own brick-and-mortars can sell their creations to the public regularly and make a community impact.
China’s poorest beat our best pupils: (U.K.)
Children of factory workers and cleaners in the Far East achieve better exam results than offspring of British lawyers and doctors, says OECD
Life Skills As College? raking higher education over the coals--event planning class, and other costly absurdities....
Teens defend ‘fail factory’ public high school in error-filled letters -- so much for defending public schools against fair criticism...
Beating the State: Third Century Christianity in the Third World Today (via Lew G.) It costs almost nothing to start a home-based church in low-income nations...
Is Venezuela Burning? -- not much in the U.S. media about Venezuela, this is one of the more insightful and informed analyses....
The Mammoth Cometh (via Katharine K.)
Bringing extinct animals back to life is really happening — and it’s going to be very, very cool. Unless it ends up being very, very bad.
The Dalai Lama’s Ski Trip: What I learned in the slush with His Holiness -- recommended.
"You have power over your mind - not outside events. Realize this, and you will find strength." Marcus Aurelius
Thanks for reading--
charles |
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