“Culture eats strategy for lunch”

2020 laid bare the truth in that saying. To manage a pandemic, it is not about whether a country has the strategy, the money, or the technology to handle the virus; it is about the culture of its people.

My wife and I were in Beijing during the outbreak. The news broke out during dinner time on January 20, 2020. Within an hour or two of that news, as we left restaurant that night, some people were already wearing masks. By the second day, some 20% to 50% people we saw in Beijing and Shanghai were wearing masks. Mask wearing — it was a culture.

A few days later, on our flight back to the U.S., I saw almost no American travelers wearing masks, while almost all Asian travelers had their masks on during the entire flight. The feeling was surreal. The financial market supported that feeling as well. The S&P 500 index showed no interest to the virus news for another three to four weeks, as if in a highly globalized world, the virus could be limited to one or two countries and could not cross borders.

The virus demonstrated that it could even spread among various mammal species. So, to think the virus could not spread from one country to another, it was ridiculous.

What went wrong here?

We are social animals. We develop cultures, which then influence our behaviors. According to Merriam-Webster, the definition of culture is as follows:

The customary beliefs, social forms, and material traits of a racial, religious, or social group
also: The characteristic features of everyday existence (such as diversions or a way of life) shared by people in a place or time

https://www.merriam-webster.com/dictionary/culture

So, culture is a belief, but a “customary” one. It has little to do with logical reasoning nor scientific knowledge.

Culture, however, has something to do with “race”, “religion” and “society.” It is “shared” in accordance with people’s place and time. So, it has some identity feelings attached to it, something “we-versus-they.”

Culture is “a way of life” — you live it, practice it. But you do not question it, do not think about it.

Daniel Kahneman pointed out in Thinking, Fast and Slow that a person’s biases cannot be turned off. Perhaps, a person’s own culture cannot be turned off either. If a culture is deeply rooted in a society and is shared by many, it will crush whatever strategies that stand in its way without people even noticing it. Culture eats strategy for lunch. A big lesson from 2020.

Predicting negative oil price

I am enormously proud that I successfully predicted negative oil price in April 2020. See my previous blog piece here (link). Following that event, a friend of mine said this to me, “Jackson, had you consulted industry experts, you would have never foreseen the coming of negative oil price.”

My friend was extremely wise in that he explained not only how I pulled it off but also how most investors failed to generate outsized returns.

Independent thinking matters.

A hedge fund’s moat and edge?

What is a hedge fund’s moat and edge? I have been puzzled by this question for a long time. The investment industry is flat (everyone can participate in the stock market) and intense (too many smart and hardworking people studying too few stocks). By some accounts, in the U.S., there are approximately 8,000 hedge funds but only approximately 4,000 listed U.S. companies. The ratio is almost two-to-one: you can assign two hedge funds to full-time study one stock. That is how difficult the game is.

My experiences and observations have led me to increasingly believe that the “moat and edge” of a hedge fund is probably built by something “soft” rather than “hard.” There are few investors succeeded because they have better “hard skills” — e.g., they succeeded by being better at building valuation models. There are too many smart and hardworking people in this field and by “hard skills” alone, no one can consistently outcompete others.

Instead, what truly matters I believe are the “soft skills”: a manager’s temperament.

• Does the manager have passion?
• Does the manager think independently?
• Can the manager stick to core beliefs for the long-term?
• Can the manager overcome human instincts, overcome fears?
• Is the manager unusually talented?

As Warren Buffett described successful investing in an old speech in 1984, “it doesn’t seem to be a matter of I.Q. or academic training. It’s instant recognition, or it is nothing.”

A software that can debug itself

I am a self-taught programmer and I have written multiple programs each containing thousands of lines of code. One pattern that keeps amazing me is this: a program is wrong and has bugs, but in many cases, it does not behave in a manner that makes the wrong behavior easy to diagnose. I once spoke with a genius programmer and he told me this: “as a programmer, you spend 10% of your time coding and 90% of your time debugging.” Very true! So far, I have not heard of any software that can debug itself — likely that is not even possible.

That is how tough it is to debug software.

And I think that applies to “debugging” ourselves as well. If we are wrong or we have a problem, in many cases, we do not behave in a manner that makes our behavior easy to diagnose.

It is already hard enough for software engineers to debug a piece of software. Can we debug ourselves? Can I debug myself?

How to realize what is working in me (so I make more out of it)? How to realize what is not working in me (so I debug that part of myself)? How?

How can I achieve a higher level of awareness so to see how my culture is influencing my beliefs, so to repeat “negative oil price” success again and again, so to overcome human instincts and weakness?

If I can continuously debug myself, continuously improve the piece of software in me, I am confident that my knowledge will compound with time, and I will be a better investor.

(END)