Wealth

“If a man is proud of his wealth, he should not be praised until it is known how he employs it.”

~ Socrates

Ted Williams

Ted Williams was the most robust batter in baseball history. Williams discarded the strike zone and ignored umpire calls, instead creating his own personal batting zone. This was an area divided into 77 sub-sectors each the size of a baseball.

Through many trials, Williams determined that the probability distribution of him getting a hit was best in only nine of those zones. Using tremendous discipline in his set-up, he would only swing the bat if a pitch was in one of those nine zones. The results are recorded in baseball’s Hall of Fame.

If there was ever a time in market history when we all need to be Ted Williams, it’s now.

Shantideva: Far-reaching Mental Stability

(10) One moment, they’re friends;
In an instant, they’re enemies.
At a time for being delighted, they fall into a rage:
Ordinary beings are so difficult to please.

(11) Told what’s of benefit, they get enraged
And cause me to turn from what’s of benefit too.
But, if their words aren’t listened to,
They fall into a rage and go, then, to a worse rebirth state.

(12) They’re envious of superiors, competitive with equals,
Arrogant toward inferiors, conceited when praised,
And hateful when told what they don’t want to hear:
When is there benefit from infantile beings?

(13) If I associate with infantile people,
Then destructive behavior inevitably arises among infantile folk,
Such as praising myself and belittling others,
And prattling on about the pleasures of samsara.

(14) From entrusting myself to others in this way,
Nothing but loss comes about in the end,
For they’ll be, in fact, no-good for me
And I’ll be, in fact, no-good for them.

(15) So let me flee far away from infantile folk;
But if encountered, I’ll please them with pleasantries,
And without becoming overly familiar,
I’ll conduct myself nicely, merely as an ordinary person would.

Black Swan Revisited

The Black Swan theory (in Nassim Nicholas Taleb’s version) refers to a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations. The term black swan comes from the commonplace Western cultural assumption that all swans are white. In that context, a black swan was a metaphor for something that could not exist. The 17th Century discovery of black swans in Australia metamorphosed the term to connote that the perceived impossibility actually came to pass.

In risk management, we need to deal with black swans that have consequences. Further, a search in the literature in the philosophy and history of probability shows the depressing fact that large impact events are absent from discussions. Probabilities by themselves do not matter. They can be very small, but their results are not. What matters in life is the equation probability x consequence. This point may appear to be simple, but its consequences are not.

If small probability events carry large impacts, and these small probability events are more difficult to compute from past data itself, then our empirical knowledge about the potential contribution – or role – of rare events (probability x consequence) is inversely proportional to their impact.