4: KFC is Antifragile, Tanks and Missiles in Asia, The Price of Misery, The First Revisionist Historian, A Farewell To Music
Herodotus is lame - Thucydides
Investing & Business
Scott Alexander’s review of Taleb’s Antifragile
Reading time: ~20 minutes
This is how Taleb summarizes the point of his book:
Everything gains or loses from volatility. Fragility is what loses from volatility and uncertainty [and antifragility is what gains from it]. The glass on the table is short volatility.
Just like Girard’s mimetic theory (see my previous post here), the concept has largely grown out of hand and is finding constant new applications:
Buying options is antigragile!
Biological evolution is antifragile!
Exercizing with free weights (vs. using machines) is antifragile!
Which leads Scott to wondering:
Do these really have anything in common? Or is each "antifragile" for its own reasons, such that a category including all three of them wouldn't be very helpful?
Nassim Taleb doesn't have time to answer your dumb question, because he’s too busy coming up with newer, more exciting examples of antifragility! Taxi drivers are antifragile! The Mafia is antifragile! Lifting weights is antifragile! Seneca was antifragile! Small restaurants are antifragile! Religion is antifragile! Ancient Phoenicia was antifragile!
There is an interesting passage in the Book II of Antifragile, which adresses the relation between modernity and antifragility through a parable:
Taleb gives the parable of John and George. John is a banker. He works for a big bank. Every month, the bank pays him a salary of $3000. In a good month, he gets $3000. In a bad month, he gets $3000.
His brother George is a self-employed cab driver. He makes an average of $3000 a month, but it varies a lot. If there's a big convention in town, he may be very busy and make much more than $3000. If there's an economic downturn and people try to save on cab fare, he might make much less than $3000.
John fancies himself protected from volatility. But he is only protected from small volatilities. Add a big enough shock, and his bank goes under, and he makes nothing. George is exposed to small volatilities, but relatively protected from large ones. He can never have a day as bad as the day John gets fired.
And George can adapt. As his business starts going down, he can take appropriate steps, whether that's branching out into new businesses (courier? working as a cabdriver half-time and digging ditches the other half?) or lowering his expenses. If demand declines in one neighborhood, he can figure out where the passengers are and shift to another. John can do none of these things. He just sits and banks until the axe falls.
Focusing on controlling “small burns” is precisely what prevents you to be able to tackle “the big one”. Scott Alexander draws an interesting parallel with Steven Pinker's thesis that war is declining in Europe (The Better Angels of Our Nature). All the institutions put in place since the XXth century have indeed focused on preventing small conflicts, but artificially suppressing volatility led to two world wars.
In the third book, called “A Nonpredictive View Of The World”, Taleb argues that the widely spread on predictions is pointless, and should be shifted towards a focus on payoffs:
You can't predict in general, but you can predict that those who rely on predictions are taking more risks, will have some trouble, perhaps even go bust. Why? Someone who predicts will be fragile to prediction error. An overconfident pilot will eventually crash the plane. And numerical prediction leads people to take more risks.
The fourth book is dedicated to the application of antifragility, and serendipity, to technology, science, business corporations, and even political systems! Taleb starts his analysis by noting that many scientific breakthroughs were made by accident:
Jet engines just sort of happened when engineers played around with airplane engines enough; physicists didn't explain how they worked until later. Engineers were already designing systems along cybernetic principles long before Wiener invented theoretical cybernetics. Medieval European architecture was done essentially without mathematics - Roman numerals (the only numerals anyone had at the time) were too unwieldy to add or subtract, and "according to the medieval science historian Guy Beaujouan, before the thirteenth century no more than five persons in the whole of Europe knew how to perform division."
For Taleb, too much of academia is "teaching birds how to fly" - finding some field that works, formalizing it into an academic/theoretical/narrative mold, then declaring they have discovered it, and demanding anyone who wants to practice it must pay them for a credential. And so "governments should spend money on nonteleological tinkering, not research."
[…]
[Taleb] praises Switzerland, which is so federal that it's barely a single country at all, and argues that its small size (or rather, the small size of each canton) has helped it stay one of the world's most stable and prosperous areas (also, Venice!). He argues that a large country isn't just a small country times X. Small countries operate partly on informal bonds of personal relationships; everybody has "skin in the game" regarding decisions. Larger countries don't just multiply everything by a constant, they switch from personal/Near Mode to bureaucratic/Far Mode and get gradually worse as they expand.
Bonus Addendum : Here you can find an explanation about the antifragility of KFC. And yes, the above is a real cropped commercial.
Mapping Asia’s defense industry
Reading time: ~10 minutes
Fritz from Asia Stock Report published a great piece on the Asian defense industry. He starts by outlining the geopolitics at play in the region, with a split between American allies and Chinese allies :
In the region, most of the incremental spending (if not all) in recent years has come from the PRC:
In the second part of the post, Fritz does us a great favor and ges into details for each one of the following companies:
He summarizes his top picks at the end:
From a top-down perspective, the greatest opportunities for higher defense spending is in Japan - especially if the constitution is revised. An attack on the Senkakus would accelerate such a change to the constitution. Tokyo Keiki has a large exposure to the Japanese navy, trades at a very reasonable multiple and spends a large portion of its revenues on R&D.
In Korea, LIG Nex1 trades below 1x EV/Sales and has almost all of its revenues from surface-to-air ballistic missiles.
Another stock that piqued my interest is Hindustan Aeronautics. 12x EV/EBIT is a low multiple in an Indian context and the company enjoys long-term secular tailwinds.
Thought-provoking stuff…
The Price of Misery
Reading time: ~5 minutes
The Rational Walk was one of my main inspirations for starting this little project. The blogs tackles many subjects in investing and finance, and includes a fair bit of book reviews. This particular post explores the trade-off one would be willing to make in arbitraging money and happiness. The results of the poll were the following:
As we get older and accumulate more fixed expenses, the cumulative effect of our lifestyle decisions ossify.
Some younger people might prefer the $300,000 job because they figure that they can work for a few years in a job they hate and save money before switching to the $75,000 job that they will love.
There are at least two problems with this idea: First, you’re accepting misery early in your career in exchange for money which will breed all kinds of negative attitudes toward work and you will not gain any traction in the field that you eventually want to enter. Second, your lifestyle is likely to ratchet up to consume most of the $300,000 income […] You hate your job so you want to enjoy your free time.
[…]
Soon enough, you’re trapped because your lifestyle will no longer permit switching to the career you love.
Financial security is extremely important but it has more to do with your lifestyle decisions early in life than maximizing income. Trading misery for money seems like a terrible way to get ahead because the temporary has a way of becoming permanent.
What is your time worth to you ?
Reading this post reminded me of a website I stumbled upon a year or two ago, named Clearerthinking. It is a startup launched inside a research lab that offers a lot of interactive content thats helps you explore your cognitive & political bias.
The quizz helping you value the value of your time can be accessed below :
I don’t remember the results I got when I took it, if I remember well it was around €25 per hour of free time, but it might have changed since then given the changes in my personal situation!
Arts & History
The First Revisionist Historian
Reading time: ~10 minutes
This post in the Lapham’s Quarterly is a great overview of two of the most influential historians from ancient times, Herodotus and his contemporary Thucydides. I think that this sentences pretty muche summarizes the whole argument:
In opening this fissure between historians of what the French call l’histoire totale and those who focus on discrete, closer events, or l’histoire événementielle (“event history”), he changed the subject of historical inquiry from society and culture (Herodotus’ interests) to war and foreign relations.
In fact, Herodotus was the first writer to distance himself from the influence of the different gods over the human affairs. In his Histories, he set out on a journey to understand the reasons leading to the wars that broke out at the end of the sixth century BC:
He set out to tell of “the causes that led them to make war on each other.” It was a simple aim but, as the future would reveal, one fateful with promise. Herodotus was inaugurating the writing of history. And by writing in prose, he separated the province of history—whether purposefully or not we do not know—from the cultural dominance of imaginative literature. Not for nothing did Cicero call him “the father of history.”
His method was original as he focused on human acts and personal accounts, as opposed to high-level and mythological explanations in prior works such as Homeric tales:
Even though he was unable fully to dismiss the gods’ influence over human affairs, as philosophers had already started to do, Herodotus began to remove them as causative agents on earth. Causation, he thought, lay in human events and decisions, not with capricious deities, and he thus laid down one of the permanent criteria by which a work is judged to be history or not: he sought to explain, not just to record, how the Persian Wars had come about.
[…]
Herodotus was a historian because he described his sources, such as what he heard and saw among the people whom he encountered and whom he had learned from (“There were other things, too, which I learnt at Memphis in conversation with the priests of Hephaestus”). He also told his readers how distant he was from those sources (for instance, second- or thirdhand)
Harsh criticism of Herodotus’ work came from his contemporary Thucydides, who described it as “a prize essay to be heard for the moment”, not likely to be studied or endure for long:
So careless are most people [that is, Herodotus] in the search for truth,” wrote Thucydides, “that they are more inclined to accept the first story that comes to hand.
Pretty savage for a VIth century BC book review if you ask me
Thucydides distanced himself from the methods employed by Herodotus, and in doing so, brought about a new step forward in structuring the study of history, but claiming to study the histoire totale, while still distancing himself from prior mythological works. By going a step further in terms of abstraction, Thucydides intented his work to be:
A possession for all time. Future ages will wonder at us, as the present age wonders at us now.
This distinction between two conceptions of what history is supposed to be do really open new ways of looking at the field. As the author notes, we often wrongly encapsulate history in the mere recalling of facts and dates:
History thus becomes, and we too often incorrectly think of it as, a parade of facts—lists of events recorded just because they happened. But a mere relation of facts is not history.
History is what emerges from chronicle—when facts are used for a purpose. Herodotus’ Histories and Thucydides’ Peloponnesian Wars transcended chronicle and became history because their authors tried to explain the causes and outcomes of the wars of which they wrote, because they were linking events, acts, and motives causally and for a purpose.
Treat for the Ears
The last tune composed by blind Irish harper Turlough O'Carolan (1670–1738). "It was in the spring of 1738 that Carolan felt a weakness coming over him and, foreknowing his death, he made a return to the home of his dearest friend and sponsor, Mrs. MacDermott Roe. It was by now an old, old lady who received him at (the ancestral seat of the MacDermott Roes,) Alderford. Carolan spoke lovingly to her, telling her he was come home to die.
Then, calling for his harp, he played this farewell to music. At the close of the tune, he walked upstairs to the bed, where he died a few days later amid the tears and praises of friends and mourned the country round" (Williamson, 1976).
John McCutcheon (1982) said that when he visited the site the present occupants told him stories of a two-week wake given in the harper's honer "...with port barrels and ale as far as the eye could see! There was harp music around the clock for the entire wake!"
Other Interesting Links
How do drugs get named? (in the Journal of Ethics)
Pharmaceutical names are assigned according to a scheme in which specific syllables in the drug name (called stems) convey information about the chemical structure, action, or indication of the drug. The name also includes a prefix that is distinct from other drug names and that is euphonious, memorable, and acceptable to the sponsoring pharmaceutical firm. Drug names are the product of complex, multiparty negotiations in which the needs and desires of various stakeholders (patients, pharmaceutical firms, physicians, pharmacists, other health care professionals, and US and international regulators) must be balanced.
[…]
The class to which a drug is assigned can indirectly affect a company’s decisions about whether or not to continue developing it. Sometimes there are financial benefits if a drug is assigned to a specific drug class, and assignment to an undesirable drug class (often one in which there have been safety problems) might adversely affect drug development. Because pharmaceutical firms are in business to generate profits for their investors, they tend to develop more drugs in classes that they believe are commercially viable.