Seneca’s Stoic Comfort

Nassim Nicholas Taleb is one of my guiding lights. Even though many people believed that it was ‘Dr Doom’ Nouriel Roubini who was most correct about the economic disaster, it was Taleb who proved to me that he knew what was going on beneath the numbers. People were being specific kinds of fools. In a few weeks, his long-awaited book will be on sale. It’s called Antifragile: Things That Gain From Disorder. That’s what we’re about here.

In advance of this, I’ve been following some of his writing and most of his video chats. In reading one of his papers I came to understand that thing Taleb calls the Dumbell Strategy, which is to pursue seemingly contradicting aims simultaneously in recognition that he who plays both sides manages risk. But it is not being two-faced, but being antifragile, the difference between which are the stuff of wisdom. There’s no easy way to explain it, and I won’t until I read his book. But I am indeed finding parallels of this thinking in history and coming to terms with what has been said by the likes of Epictetus and Cryssipus as well as the gods of OODA.

I try to be both concerned and unworried. What I hate most of all is not the bad news, but being blindsided by it. I am comfortably at home and concerned (but not worried) about those things that are reasonably within my ambit of capacity to change. I reckon that to be a Stoic approach. At the same time, I’m a Californian which means I do not intend to be fat or lazy or overly concerned with the quality of affairs in the public square, that which our meddlesome friends insist on calling ‘Zocalo’, and will, I suppose until their Yankee inflected Spanish fails to deliver them from being dragged foot-first up the coming ziggurats of political human sacrifice ot the greater glory of La Raza. I’m going to the jazz concert anyway. I’m going jogging anyway. I’m going to eat in my walled garden like an Epicurean anyway. That’s how I roll.

I’m becoming convinced, as I’m sure the Stoics were, that Vulgaris populus ago in obscurum. Ordinary people live in darkness. Being OK is slightly better than that, especially for one such as I who is not likely to curse the darkness. That’s part of the dumbell strategy. That is part of living up to Boyd’s theory of liberty.

“The most important thing in life is to be free to do things. There are only two ways to insure that freedom — you can be rich or you can you reduce your needs to zero.”

But Taleb adds the kicker. He imagines, and we expect that he will describe, certain systems that will benefit from failure – not creative destruction, but perhaps one can think of them as twin OODA loops, one for success and one for failure. Here is Taleb:

Seneca was the wealthiest man in the world. He had 500 desks, on which he wrote his letters talking about how good it was to be poor. And people found inconsistency. But they didn’t realize what Seneca said. He was not against wealth. And he proved effectively that one philosopher can have wealth and be a philosopher. What he was about is dependence on wealth. He wanted the upside of wealth without its downside. And what he would do is–he had been in a shipwreck before. He would fake like he was a shipwreck and travel like he was a shipwreck once in a while. And then he would go back to his villas and feel rich. He would write off every night before going to bed his entire wealth. As a mental exercise. And then wakes up rich. So, he kept the upside. In fact, what he had, my summary of what Stoics were about is a people who really had, like Buddhists, an attitude. …

And my definition is a Stoic is someone who transforms fear into prudence, pain into transformation, mistakes into initiation, and desire into undertaking. Very different than the Buddhist idea of someone who is completely separated from worldly sentiments and possessions and thrills. Very different. Someone who wanted the upside without the downside. And Seneca proved it. And the way you get there, Seneca is suggesting, is through mental exertion. Through renunciation–some of it’s action, but some of it is the way you look at your life and what you prepare yourself for and how you affect your expectations.


What’s In Your Go Bag?

I have several of these little go bags in my home office and a few in my truck. This one has a water purification kit, a bunch of painkillers, some carabiners and rope. There’s also a pencil box with all kinds of writing utensils, a small ‘Guppy‘ utility knife. There’s a magnifying glass, fingernail clippers and of course, honey roasted peanuts.  Now that I think of it, it’s kind of a miniature bank. If you’re evacuated to the local gymnasium, this kind of stuff will come in handy, and none of it is so heavy that you’d mind carrying it a walked mile or three. I know that in my other one that’s this size, I’ve got some cigarettes and a lighter as well as chapstick and q-tips. I’ve also got a bag of those plackers dental floss picks.

We covered go bags at my other blog and I’ll bring that content over here. As well, we’ll put together something for the wiki once I get that setup.  What kind of go bags do you have and what’s the scenario you’re planning for?


Risk Aversion in Equity Markets

David P. Goldman is one of my financial gurus. Here he goes through a rather elaborate explanation to come to the conclusion which is the title of this post. A lot of people who are not economists are saying that capitalism is broken. I have a great deal more confidence in men like Goldman who actually watch what capital is doing and can explain what’s going on, instead of looking at the price of gas, panicking and listening to politicians blame each other’s character.

This is one chart among the many that makes sense to me.

Goldman says..

It is a bad time for the market when utilities trump other sectors, but they did so during the past two years (technology came close, but without Apple would have lagged far behind). Shown in Exhibit 2 are price returns only; when dividends are included, total returns to utilities rise by another 8%, bringing utilities’ two-year returns to 30%.

Another sign of times is the fact that utilities and consumer stables traded in lock step with Treasuries during the past three years – a noteworthy break from past trading patterns. Exhibits 3 and 4 below show a close relationship between bonds and the stocks with the most stable cash flows, namely utility and consumer staples. The scatter graph of bond yields against stock prices in these two sectors shows a more-or-less straight line relationship.

I’m looking for some co-hosts to sign on and be authors. If you have a good grasp of the sort of thing Goldman is saying, you could be my editor for Money & Trade. In the meantime, you can see that the handbasket is roomy and Hell may not be as close as it seems, unless you’re in mining.

Speaking of mining, now that I think about it, I did not do so well in that sector. Based on what I was hearing about China’s demand for copper in their massive electrification plans, I bought Southern Copper (SCCO) and BHP Billiton (BHP) earlier this year. Cost me. Hmm.

Downsider Investment

My little clutch of speckled eggs are doing just fine. I stayed out of the market for quite some time, having learned the very worst way back in 2000 or there abouts. You know what I’m talking about, the bursting of the Dot Com bubble. And I wasn’t even too deeply speculative. I picked some self-evident winners and ignored a lot of advice. So yes I got in on Netscape back in the day. What I didn’t do was cash in my gains on a periodic basis and ended up losing.. I still pout when I think about it. Let’s just say I ended up losing a down payment on a house that would today be worth somewhere around 1.7 million bucks, yes even now. I remain quite sanguine about all that, because in fact, I’ve had worse luck and because I’ve always had my inner peace since my daughters were born.

One of the things I hope to do here at the Downside is to gather a few experts in various fields to sign on as co-authors of various sections. Investment is going to be one of those sections. And, building on the premise that I suggested before, we are going to have to talk about means-tested disasters. Everywhere from slight downturn in the market, to fiscal cliff, to hyperinflation to global meltdown. I’ve spent some time over at ZeroHedge, and they have a mix of paranoia over there. Now is a good time for me to check them out again.

You see I’ve been picking stocks, and this year I’m proud to say that I’ve done about 23% on my portfolio (so far). With any luck I’ll be able to retain those earnings. The problem is that as I see it, the downside scenario that is the most likely to occur is continuation and worsening of economic bad times. That means first of all that my investment strategy needs to change in anticipation of the bad news.

This brings me to a number of points.
1. I need to begin to understand bond funds.
2. I will be publishing financial & investment information here at the Downside
3. I obviously expect that there’s not going to be a complete global financial meltdown any time soon.
4. Let me introduce to you my financial gurus.

On that last point a bit of background. A couple years back I determined that I was reading far too broadly and listening to too many people who didn’t deserve my attention. To help focus myself I took on what I called the T50 project -which is basically to identify the Top 50 thinkers I would bother reading. So if we could imagine the desert island scenario – which 50 books would you take, I’d take the best books of the T50. Well and also “How To Build An Airplane From Coconut Palms”.

My Financial Gurus
Niall Ferguson, Tyler Cowen, Nassim Nicholas Taleb, David P. Goldman

You Might Just Be A Downsider

What is a downsider?

If you think about emergency preparedness even though there is no emergency, you just might be a downsider. If you think it’s rather uncivilized to be rolling around in a luxury sedan while the country is in recession, you just might be a downsider.  If you don’t trust  Iran with nuclear weapons. If you think public bailouts of private failures are a bad idea. If you are on the lookout for Black Swans, you just might be a downsider. If you have solar panels on your house. If you have fresh water stored in your garage. If you own a gasoline powered generator. If you have no fond memories of inflation, you just might be a downsider. If FEMA’s performance after Katrina made you distrustful. If you’d rather learn CPR than wait for help to come. If you have ever been a floor warden at your place of business, you just might be a downsider. If you don’t trust McDonald’s to cook for you. If it bothers you that you can’t fix things that break. If you like watching the Discovery Channel. If you don’t want to be an addict to modern convenience,  you just might be a downsider.

Downsiders are not paranoid. Downsiders simply refuse to be bewildered, helpless or clueless. Downsiders are not excited about the downside, they just want to be cleareyed if such things happen. Downsiders are not hedging against  civilization to cash in on misery. Downsiders are not obsessed with zombies, the Mayan Calendar or the Book of Revelations. Downsiders are not Eloi or Morlocks, but we want to know what the future holds.  Downsiders are interested in being civil under all conditions, of keeping their heads when all about them are losing theirs. Downsiders have intellectual insurance. Downsiders are about figuring out how to live indifferent to fashion. Downsiders are about maintaing personal integrity tested in the worst of times. Downsiders are the enemy of panic.

Come along with us. Explore the potential of life, not completely off the grid, but on the grid that malfunctions.