Industrial machines are more powerful in their physical power than any human who has ever lived—cars have more power than human legs. AI chatbots are more powerful in their intellectual IQ than any human who has ever lived—even locally hosted LLMs are impressively good; I am running several LLMs completely locally on my Nvidia RTX 50 series GPU. If what separates humans from machines is no longer our muscles or our IQ—it must be something beyond these.
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What is wisdom?
Is it about being smart? Being kind? Being compassionate? Being knowledgeable? Being prescient? Being divine?
Or, is wisdom about knowing when we don’t know? Or, maybe, is wisdom about when we don’t know, we can still have the right judgement and faith?
Who can be said to be wise? Hmmm… It appears a person cannot self-claim to be wise. “Being wise” appears to be a label given by the people who live around a wise person.
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We experience the world through feelings. Through individual life experiences, we generate feelings and we can later access these feelings. We capture our feelings by finding the most fitting words. Words form sentences, and sentences form thoughts. Some thoughts are more “respected” than others and we call them intelligence.
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To optimize day-to-day life, one has to optimize locally. To pursue a higher goal, one has to optimize globally. Two distinct concepts.
When a person focuses on something important and long-term, there will be prioritization. There will be some give and take. Global Optimization will bring about some costs… and those costs can be “optimized away” via Local Optimization.
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Today’s education system is largely a system that rewards students for following the “right answer” and punishes them for following the “wrong answer.” People spend their most formative years living in such a system and this system shapes these people into who they are. The best-performing students (at least, academically) are the ones who are best at remembering and following the “right answer” and best at not touching the “wrong answer.” This way of doing things becomes instinct. That’s how they succeed. That’s how they build up their own social identity. Whether they know it or not, it is part of them.
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The Serenity Prayer:
God, give me grace to accept with serenity the things that cannot be changed,
Courage to change the things which should be changed,
and the Wisdom to distinguish the one from the other.
Looking back at 2023, I want to borrow the spirit of the Serenity Prayer and make a version of my own to summarize what I learned from the year:
Be tranquil and accept reality.
Be courageous and seek truth.
Have the fortitude to do both at the same time.
I observe myself and my investment activities and outcomes. I also observe other active investors and their investment activities and outcomes (this was actually my full-time job before). Something I noticed perplexes me: Despite almost all active investment managers being highly educated, well trained, and extraordinarily hardworking, almost all of them (at least in the U.S.) end up underperforming stock indexes.
For example, for the past 20 years, over 97% of “Large-Cap Growth Funds” in the U.S. underperformed the S&P 500 Growth Index; and the longer the measurement time window, the higher the percentage of underperformance (source: link). According to another source, losing funds’ underperformance is about 2x the size of winning funds’ outperformance (source: Figuring It Out, Ellis). To put it differently: Most investors end up underperforming, and when they underperform, they underperform by a wide margin. Clearly, investors’ hard work has largely failed to translate into good results. Why?
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In recent weeks, I had the chance to study the philosophy of Jean-Jacques Rousseau through a course offered by the Yale Alumni College (YACOL), an Yale alumni-run organization with which I am actively involved.
As I studied Rousseau’s ideas, I began to recognize connections between his perspectives and my own thoughts on investing, ultimately inspiring me to share these insights in this post.
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Jackson Zhu's Personal Blog 