Implicit vs. explicit conviction

One of the things I like most about investing is that it’s actually a far more creative act than its buttoned-up Wall Street reputation might suggest. On one hand, yes, investing is quantitative-driven pursuit that requires financial models and rigorous analysis. But it’s obviously not just a numbers game. To do it successfully, especially over a period of many years, one needs to also embrace intuition, curiosity, pattern recognition, and behavioral psychology. It is, at its core, a multi-disciplinary art.

In his latest essay, the investor Josh Tarasoff of Greenlea Lane explores this powerful dichotomy: how does one navigate the push-pull of “implicit” conviction (i.e. intuition, trust, etc.) vs. “explicit” conviction (i.e. valuation, share prices, etc.) in making investment decisions and forming a viewpoint? In other words, if we accept that investing requires both sides of the brain, how do we effectively navigate that tension?

“This skill of mediating between two disparate ways of seeing the world, I’ve found, is less about knowledge and reasoning than
about balance and flow,” Josh writes. “It is more akin to surfing than to problem solving.” He continues: 

“While in everyday life implicit conviction arises naturally, in the context of investing I can’t help but feel it is somewhat alien. In part, this is because few companies are truly deserving. Even so, I suspect that implicit conviction is proffered by investors even less than it ought to be. It isn’t difficult to see why the investment industry is inhospitable to implicit conviction, and why its partner rules the roost. Implicit conviction forms of its own accord and cannot be planned. It defies quantification, eliciting the charge of being too ‘fuzzy’ to matter. Nor can it be fully captured in words. Implicit conviction is impossible to transmit from analyst to portfolio manager or from portfolio manager to client, which is highly inconvenient for the business of managing money. It is primarily personal. It is quiet. By contrast, the appeal of the explicit is clear. Explicit conviction furnishes the comfort of knowability and modeled outcomes. It projects the legitimacy of diligence and precision. It is thought to be reliably manufactured via ‘repeatable process.’ It is clever and self assured.”


The biggest technological risk that’s rarely discussed 

A few years ago, the reporter Kathryn Schulz wrote a fairly terrifying story in The New Yorker about the massive earthquake (and resulting giant tsunami) that threatens to eventually destroy most of the Pacific Northwest.

Now, Schulz is back with her latest longform report on an altogether new risk to factor into our Monte Carlo simulations: the potential for a big solar storm to devastate our power grid, communication systems, and satellites. “Because space weather affects so many technologies,” Schulz writes, “a severe storm could expose dependencies among them that we did not fully appreciate, or did not recognize at all. Our vast and interrelated technological infrastructure could turn out to harbor a single point of failure—a component, no matter how central or trivial, whose malfunction shuts the whole thing down.”

“This worries the generally unflappable Bill Murtagh. ‘It’s a Wild West out in space right now,’ he says. His assessment of satellite companies is blunt: ‘I do not think they are ready for a major space-weather event.’ If he is right, when that event happens, large portions of our life could be compromised: information, communication, entertainment, economic activity, national security. But all those are our vulnerabilities just in the sky. By most accounts, when the next extreme space storm hits, the real problems will be the ones on the ground.”

A few more links I enjoyed: 

“You can’t learn everything, so getting breadth implies learning about topics that are very different from one another. When I tell people about my book-buying trips to Hay and they ask what I buy books about, I usually feel a bit sheepish answering, because the topics seem like a laundry list of unrelated subjects. But perhaps that’s actually optimal in this business.”
“Osborne understood that copying Apple wasn’t enough. The company had too much of a head start. So he looked at IBM, which was still focused on mainframes, and asked himself why it had been able to secure such a significant share of its market, even when competitors had better products. He came to a realization—one that would become something of a mantra for him. ‘Adequacy is sufficient. Everything else is irrelevant.’ He didn’t need to design a computer that was beautiful or special. Let Steve Jobs do that. He would instead create one that did 90 percent of the basic business tasks most regular people needed it to do.”

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