More. We want more. Of anything, no matter what. We dread emptiness at our homes. Yet, an empty space is an asset on its own. It’s like a pause in a speech. It remarks what we’re about to say. Silence is a question mark. Picture this: you’re talking with someone and they’re telling you a story. When they finish, you remain silent, nodding with a smile on your face. Chances are they will keep on talking.
We loathe boredom in our lives. But feeling bored gives you mental space to think better. It makes exciting moments more… Exciting. It’s like eating bread while fine dining. Let your palate have a recess before the next bite of scallops. You will make the flavour stand out.
You get the point. Pauses, silences, empty spaces, absences, inaction. These concepts are paramount. Even more so than their loud opposites.
Yet, we don’t understand them.
Economics in one lesson
That’s the name of the first book I read on economics. Economics in one lesson, by Henry Hazlitt, teaches you the dismal science in one lesson. What’s that lesson about? Mainly looking beyond what’s evident.
The art of economics consists in looking not merely at the immediate but long-term effects of any act or policy. It consists in tracing the consequences of that policy not merely for one group, but for all groups.
We can illustrate this with a broken window.
Imagine you’re a store owner. One day you wake up to a broken glass. Furious, you call a glazier to repair it. Let’s assume it costs $150. Now the glazier is $150 better-off. He can indulge in a nice dinner with his wife. The restaurant increases its bottom line. They can reinvest it in the business or pay their staff. The economy gets going, it seems. A broken window led to cash flowing, to people trading. “Let’s break windows then” — you think to yourself.
Not so fast.
We based our line of reasoning on what we saw. But what you see is not all there is. Had the window remained intact, you could have saved $150. You could have bought new shoes. The shoe seller would have made a sale. But not only that. If you didn’t have to call a glazier, you could have tended to your customers. Repairing the window cost you sales and time. You see, breaking windows doesn’t seem a good practice for the economy.
Via negativa
Do you remember all the acts of omission that shaped history? Me neither. Remembering an omission sounds contradictory. But acts of omission were as influential as acts of commission — if not more. Nobody pushed the button during the Cold War. Had someone done it, you wouldn’t be reading this today.
We glorify the doers, the interventionists. But sometimes it’s best to stay still, to do nothing. This isn’t popular though. Inactive governments don’t get votes. The very word ‘inaction’ clashes against the verb ‘govern’. It used to mean ‘to drive a ship’ in Ancient Greek. People celebrate ambitious policies, even if they result in disaster. This leaves room for new policies. It evinces the government is at least trying.
When we have a headache, we take pills. Little do we know that maybe we need more sleep. Or more water. When the ailment goes beyond a headache, we rush to the doctor. They make an overt display of doing. X-Ray, invasive procedures, amputations, numbing pills… Anything is better than doing nothing. Lest their beloved patient sues them. When doctors picture themselves as patients, they don’t prescribe the same treatments. It turns out they do less to treat their illness.
Same applies to investing. Fund managers need to do stuff to justify the commissions of their funds. Retail investors feel the need to buy, sell, or analyse new stocks to make more money. But we all know passive investment works better in the long run.
Photo of the week
Alejandro Lopez — The Psychology of Wealth
This is on point.
I’d disagree with the bit at the end though about fund managers needing to trade a lot to justify commissions. At my old shop (large mutual fund) we’d only buy or sell a new name every month or so. Mostly spend the time looking at new ideas and shoot 95% of them down. In fact, portfolio churn is generally looked at in a bad way and is tracked pretty intensely.
Great stuff again. Im reminded of the line that I absolutely love although cant remember who said it but who cares? "dont just do something, stand there!"