Tag Archives: optimism

Rules of Nature

The Eye of The Storm

Have you ever been in a hurricane? I have, and one of the strangest things about it is the phenomenon that happens right in the middle of the worst of the storm – the eye.

You can walk outside and literally see the stars and the branches lying askew all around you…the air feels eerie and a sense of anticipation for what is left to come fills the air.

I can’t help but think we are witnessing a similar occurrence in the markets over the last couple of weeks.

Every now and again, I will glance at the screen and see the Dow up a few hundred points, followed by an irrational headline like: “Market Rises on Hope for Shorter Recession” or some such nonsense.

But, we all know that we are only partially through the natural consequences of what we have witnessed already.

Rules of Nature

For those of you who have been reading Paranoid Bull for awhile, you probably are tired of the “shoe-to-drop” metaphor, or before that the “trainwreck in slow motion” ones, so I’ll go for another one.

We are witnessing something like the end of an Ice Age. There has been a fundamental shift in the temperature of the environment which was previously calm and unrealistically muted to risk. The molecules and atoms moved more slowly at the lower temperatures, and the over-confidence of false-statisticians suggested that this temporary cold-chill was indicative of the indefinite future.

However, as we see in the weather, one of the few things that can be certain about the future is that it will look different than the present. Also like the weather, most systems in the world move through a wide variety of states: cold, medium, hot…slow, fast, zooming.

Right now our system has gone from cold to hot, from an appearance of risk mitigation to a reality of correlated, levered and volatile risks.

As the temperature rises and glaciers melt, this has an impact throughout the ecosystem: entire landscapes are transformed as water rushes with such velocity that it crushes anything in its wake.

And once the melt has begun, there is no going back.

The People Factor

The problem with our financial system is that unlike the natural order of a post-glacial natural ecosystem, our world is inhabited by human beings who are smart enough to have some semblance of an understanding of the world, but not smart enough to recognize their own limitations.

In addition, they are driven by passions and irrationalities that cause them to build cities on piles of snow…because if it hasn’t melted yet, it won’t.

These quirks of humanity also cause us to run with the crowd, and as the chaos of the system has emerged over the last couple of months, the emotional side of human behavior – especially that of fear – has set in.

People don’t know what to do, what to expect, which direction to run, and they surely don’t know what the landscape will look like once the ice has finally completely thawed.

As a result, we are caught in a state of fits and starts, with each pundit and pseudo-intellect looking over his or her shoulder at the next quasi-intelligent one wondering what the other one is thinking.

Keep Running

In this game of chicken, however, the one who stops running first will likely be caught in the flood.

I wish there was better news, and given the stars in the sky, one can almost believe that we are through the storm.

However, don’t forget that the patterns of nature are much more powerful than any we could hypothesize…and I haven’t heard of a one-sided hurricane or a partially melted glacier yet.

But Play

But don’t run in fear. Run because it is exhilarating, and enjoy the scenery and lightness in your step as you go.

A friend of mine recently highlighted the importance of ‘play’ in life…and I think even in moments like these, while we are reacting to a change in the landscape, we can find these rose-colored lenses in all that we do.

I for one am going to try, as I stop to catch my breath before the next leg of the marathon.

In The Air

Flying Is Inspiring
For whatever reason when I find myself on a plane far above nowhere, I feel like the creative impulses become more uninhibited.

It might simply be the fact that sitting in one place for so long allows the kind of self-reflection necessary for creativity, but I think instead it has something to do with the unfettered reality of being in the air – literally off the ground.

Going through the process of trying to figure out my first post-grad-school career move in the midst of the biggest market downturn in a generation has been a very intense process to date.

Even though failure is a necessary part of life and an even more understandable part of such trying times, having desired outcomes eliminated by others is never fun.

That this happens both in our personal relationships and in our careers is not a surprise – both are simply the interface of our hopes and expressions of commitment and the outside world.

Challenges Show True Colors
An interesting phenomena in the current environment is that peoples’ true character is being shown, for better or for worse.

Arguably an opportunistically minded employer should see today as a great time to find talent – even those with the most options are having this opportunity set constrained by the reality of a market downturn.

However, instead, many of these previously-shrewd types are hunkering for cover like the rest of the masses.

This might mark capitulation, but instead I think it highlights the danger of a human-driven economy: it is driven by psychology as much as any “reality of the matter”.

What I mean is that today even the even-keeled in the crowd have become part of the collective pessimism that is currently gripping our markets and economy.

That it has become the status quo is reflected in the experiences of my fellow graduates of Harvard Business and Law Schools, who arguably have a unique snapshot into the corporate psychology across our economy as we are welcomed into organizations for interviews, meetings and other gatherings.

The mood across these organizations is one of fear-of-failure at worst to wait-and-see for most.

Entrepreneurs Remain Optimistic
Thankfully, this is not a uniform experience, and unsurprisingly it is the entrepreneur-set that retains the most optimism. I have spoken to a number of venture capitalists as well as aspiring and current entrepreneurs over the last several months, and the outlook for this group remains upbeat.

Sure there is a sense of “cash-preservation” typified by the now infamous “Sequoia book” on the economy; however, this group also recognizes that there are likely an infinite number of problems waiting to be solved and a lot of really smart and creative people out there solving them.

This sense of innovation and optimism is what our nation thrives on, and it is what will ultimately inspire and drive the rest of the crowd out of the shadows and back into the eye-squinting light.

Social media, communications technologies, renewable energy, biotechnology, music, film…all of these areas continue to feature brilliant minds doing wicked-cool stuff.

Innovation Needed: Personal Finance
One area where innovation has only moderately occurred is in the area of personal financial management. Sites like Mint.com help people to manage their personal finances, but as too-many people are experiencing the current state of financial advisors is inadequate.

I think there is room for someone to create a service to help moderate-income people manage their personal finances and retirement accounts. With the out-flux of talent from the failed financial-services industry, a would-be entrepreneur has a legion of people to help with execution.

The cool thing about our country is that someone will solve this problem. And they will be another entrepreneur in a series of creative folks who have helped built our country and its ever-persistent economy. (Update: I met a guy from MIT last night who is working on a very similar idea…beautiful thing).

Landing
The plane is banking left and my batteries are low…until next time, be careful of the continuing-to-fall shoes and try to keep an eye on the sun.

Giving Thanks

America is a beautiful nation that gives you the freedom to sit on your chair, hold the device in your hand, and listen to your yuppie-like and defiantly-critical music.

But lately it has become far too popular to throw stones, and to point to others for blame.

Last week it was President Bush and The War, this week it is Wall Street and The Greed.

The maniacal thing about all of this is that you are happy…for the most part.

You have the stuff you want, a full stomach, a warm bed, a choice of profession.

By any historical standard you are one of the luckiest people ever born on this earth…and yet you defiantly pip-squeak complaints and critiques at every chance.

For this I blame your comfort. A human being needs a certain amount of controversy and challenge in her life. If life is good, where else can we find it but in creating an uproar in the world around us?

Now surely the world is not perfect, and surely mistakes have been made in Washington and on Wall Street that have negative repercussions for many – not you specifically – but many…they could-have-should-have done better! So you say.

I say stop whining.

This week we will stop to *celebrate* with our friends and families at full tables across the country. We will laugh and eat and enjoy moments of the pinnacle of human-living with full stomachs and warm feet.

In the afterglow as you watch the Cowboys on the TV through the one eye-still-open, take a moment to notice.

And say thanks to our country, our leaders, our parents, and our friends.

Happy Thanksgiving my friends. I am grateful for you and this Great Country on this Beautiful Day.

How To Be Happy

Here are my notes on a talk that I attended this weekend at Harvard Law.

The talk, entitled Positive Psychology: The Science of Positive Potential, was given by Shawn Achor, an expert on “Happiness”…sounds like a pretty sweet job to me.

The basic idea is that we can impact our own happiness with a few mental tricks. This newfound happiness should help our health, well being, how attractive people think we are, and pretty much every aspect of our lives.

Positive Psychology: The Science of Positive Potential.

He first got interested in happiness when he told his sister that she was a unicorn…and it worked to cheer her up.

Dogs and Learned Helplessness

  • Authors gave a shock to dogs thinking that rewards and punishments will predict behavior.
  • However, after the training, 2/3rds of dogs just sit there when shocked.
  • They accidentally taught the dogs helplessness…behavior has no effect on negative consequences.
  • People do the same thing: why put effort in if nothing will change?
  • However, we should notice 1/3rd of dogs kept jumping. They were animal optimists.
  • Optimism can be *learned* just like other stuff. We can shape our lens.

Importance of A Positive Lens

  • Happiness makes is more intelligent, better perception of success, career opportunities, attractiveness, etc.
  • Harvard Undergrads are sad: They have less than 1 romantic relationship and less than 0.5 sexual partners…24 percent don’t even know if they are in one.
  • Lawyers are more alcoholic, fat, and likely do drugs. 53 percent are clinically depressed.
  • At Harvard Law: Upon entering – no depression. Months later up to half.
    Symptoms: start none…pessimism seeps in within 2 months.
  • As students we should change the dialogue – don’t talk about stressful stuff all the time. Instead talk about making positive changes in our life.
  • We have a negativity bias. We look at the stressful view of the world.
  • Data shows that happy students are not determined by grades and performance. GPA does not correlate with happiness.
  • It is the lens through which we see these evaluations.

Why are you smiling?

  • People have a positive lens have greater endurance and more success.

Why so serious?

Negativity bias.

  • Brain causes a natural reaction, chemicals released.
  • We process fear at a high level. News highlights this – always a crisis. No one wants to hear good news.
  • Relationships. A famous observer could predict up to 90 percent accuracy whether the relationship would succeed after 5 minutes of watching – based on the positive or negative vibe
  • We need 5 positive things to weigh out every 1 negative things.
  • We start to bring in a number of negative things to reinforce negative thinking.
  • No matter what, we have a deluded view of the world – either too positive or too negative.

Happiness is relative.

  • Delayed planes, sometimes over-stare at bad stuff…but all other flights got cancelled.
  • You could have Paranoia – fear of everyone conspiring against you or Pronoia + world is conspiring in your favor. The key is comparison point.
  • We need an anchor point to determine our current state.
  • Counterfactual of dying makes shot in arm good.
  • Is positive psychology lying to yourself? You *pick* your counterfact.
  • But what is reality? We can choose what to see. Like in the beginning of the movie Love Actually…people in the airport could be seen as rushing around, or as smiling and making connections.

Affective forecasting.

  • We predict how happy we will be.
  • If I just get X done, *then* I will be happy.
  • We are terrible at predicting our future happiness.

Emotional immune system.

  • We should strengthen this as well.
  • What are you *doing* about it?
  • Our immune system moves us back to our baseline of happiness
  • Having some stress and failure is good. Like an innoculation.
  • Why will stress make me better? It will build me up for the future.
  • When you step on campus, you feel the stress. We pick up on non-verbals all the time
  • When you look at someone smiling. You can’t help smiling.

The Soprano Effect.

  • Mirror neurons…we react when dude gets hit hard in a football game on T.V.; same thing when u see needles on tv.
  • Our brains are dumb – put a pen into your mouth – it will make you happier.
  • Being happy and positive makes u more attractive and trustworthy.

2 parts of nervous system: Sympathetic and parasympathetic.

  • Sympathetic – adrenaline rush – super-human for a moment. We want it all the time.
  • But these rushes are catabolic – very hard on your body.
  • Parasympathetic – calms you down
  • Activated when you are happy
  • We are addicted to sympathetic.

Tony Soprano.

  • He is forced to break down. Having panic attacks. Chronically activating sympathetic nervous system.
  • We do this to ourselves: I have way too much to do, I’m way to stressed and busy, etc.
  • Our challenges become a threat.
  • Challenge: we think we have resources, our breath is deep, our bloodflow is better, etc.
  • Threat: we don’t, the opposite happens.

What Should WE Do to be Happy?

  • Smile and laugh
  • Exercise
  • Stop playing broken record of job stuff, etc
  • Self-control/self-discipline is a muscle.
  • If we keep saying: I’m so stressed, I’m so tired, etc – it impacts us.
  • Our self-discipline is a muscle. We only have so much effort to expend. You need to rest this muscle as well.
  • Have variation. Write in a journal 5 minutes a day. Write down 3 things you are grateful for.

Training your brain

  • Change the way you *talk* about it.
  • Talk about the positive things.
  • Tiger Woods: I think about the times when I got through it. Focused on the positive.
  • Consciously talk about the positive stuff all the time
  • Give up complaining for 7 days straight.
  • Introduce positive counterfact.
  • If someone taps their foot and looks at watch other people will.

KEY TAKEAWAYS

  1. Re-craft our conversations to focus on positive
  2. Rest, do other stuff
  3. Pick positive counterfactuals (ie worse options)
  4. Behavior for 30 days: Write down in journal for 5 minutes a day; Do 5 random acts of kindness, Write down 3 things you have to be thankful for every night

Dealing With Really Bad News

  • The Stockdale Paradox: “You must never confuse faith that you will prevail in the end — which you can never afford to lose — with the discipline to confront the most brutal facts of your current reality, whatever they might be.”
  • Admiral Stockdale, an American hero, discussed here: (James Stockdale)
  • The Key: Have a realistic assessment of reality with an optimistic outlook for the future.

Q&A:
Religion.

  • If you view it as completely external, could be bad. But if it is internal, it can create power/happiness.
  • People with a high internal locus (it was my fault). Have more likelihood for success.

Gratitude.

  • Our brains are scanning the environment all the time.
  • Gratitude brings your attention to the things you appreciate.

Is it lying to yourself?

  • Totally negative or totally positive are equally as pessimistic.
  • Positive people are better in almost every way. Its not what you do. It is your lens.

You can learn optimism.

Hope Is A Long-Term Investment

The Short-term Outlook is Dark.

The unfortunate reality is that we are going to face tough economic times in the short term.

Furthermore, certain “structural” factors in the credit markets have led me to believe that the market prices of assets (including most stocks) have more downside risk than upside potential in the short term.

The key data point here is one of supply and demand. Anywhere from 65-80% of demand in the corporate bond and bank debt markets came from highly-levered entities including CLOs, CDO’s and SIV’s over the last few years. These entities no longer have leverage available, and thus are not buying assets. Until this problem is mitigated, prices will continue to fall in the credit market even if we ignore the weakening underlying fundamentals.

Add to this the facts that: a) the economy has only just started slowing down, b) job losses have been relatively muted to date, and c) the key to this whole puzzle – the underlying housing market – is still facing massive challenges the foremost of which are homeowners underwater in their mortgages, and it is easy to see why things don’t look good in the short term.

However, *if* you are willing to keep a long term focus there is light emerging on the horizon.

Reasons For Hope.

1) Barack Obama is the President-elect.

I want to point out that I am not a Democrat. I am not a Republican. I am an American who finds it equally deplorable to see the disrespect that people show our current President (discussed by the WSJ here: The Treatment of Bush Has Been a Disgrace) as I am optimistic with the election of our new President in Barack Obama.

He stands for something: the kind of optimism and hope in our country that is very important in times like these.

But don’t forget, President-elect Obama called for a sense of service and sacrifice. And he meant it.

2) We have a sense of solidarity again.

This is delicate. We can’t let the short term bad news over the coming months distract us from the momentum this election has achieved.

Voter turnout was the highest it has been in a century. You cared, and your voices were heard.

Last night people were literally dancing in the streets across the country singing God Bless America.

This patriotic spirit is essential for us to collectively overcome the challenges we face.

3) Our long-term economic prospects are strong.

We are the most innovative country in the world.

Trends such as in the success of web services like Twitter; the current adoption of the mobile internet on devices like the I-Phone, the Blackberry Bold and the G1; innovations in clean nanotechnology; and countless other great opportunities show that there are tons of great things happening in our country today.

Our economy is $13T and even if it declines by the greatest amount in history it will still be the largest and strongest economy in the world by a long shot.

Keep A Long-Term Focus.

Emulating great investors like Warren Buffett, we should disentangle the long-term value from the short-term “signal” and technically-driven prices.

The short term is murky, but the long-term truly is hopeful.

The sun has set and we are in the midst of a cool and dark night. The silence is almost deafening, but on the horizon rays show the Hope of a new day. And now we have a leader to take us there.

Creating The Future. Not Predicting It.

I have often said that I like to try to predict the future. This materializes most concretely in the area of investing – I think the core being an investor is literally attempting to predict how the world will look in the future. If your view is different from other people, and you are correct, then you win.

However, lately as the markets have played out like a broken record the results of a too-levered too-risk agnostic system, my thoughts have turned from future predicting to future creating…and this brings my thoughts to entrepreneurship.

The world today has many problems:

  • A challenged financial system driven by a falling real estate market and a slowing economy.
  • A massive and growing national debt.
  • Homeowners with too much mortgage debt.
  • Middle class families that are being squeezed by expenses ranging from health care to consumer credit.
  • An educational system that does an inadequate job for many – especially minority urban youth.
  • Environmental challenges.
  • A dependence on foreign oil.
  • Global poverty and illness.
  • A health care system that does not serve the poor.

However, the only way these problems will be solved is if *we* fix them. Thus, the inspiration for entrepreneurship emerges.

Rather than standing by and watching these problems and “predicting” their continuation, instead I think we should try to envision a future where these problems are solved. And further, I think coming up entrepreneurial solutions to these problems is crucial.

And so lately my mind has shifted to this mode of thinking.

I don’t think I could stop the “future predicting” part of me if I tried. But I feel like trying to think about trying to solve these other problems for the next period of time.

Please share any ideas you might have, and I will do the same.

Perspective Matters. Especially In Tough Times.

The Reality: We are facing real challenges.

I really hate to admit it, but I think there is more bad news on the horizon. The news coming out of the hedge fund industry is really troubling, and the issue with this industry’s challenges (like that of the banking industry) is that as these firms are forced to sell assets en-masse, values of securities fall in a disproportionate relation to their intrinsic value.

This phenomenon is very similar to the one that is occurring in the housing market: banks are foreclosing on houses, and selling them into a market where there are not enough buyers.

These pressures are likely to remain for awhile. And we should be prepared for this.

In addition, the pressure that the middle class in America is feeling from strained personal balance sheets in addition to a growing pessimism about the economy will likely cause spending to fall as: 1) people stop buying because they are worried and 2) people stop buying because they just can’t stretch any farther and no one will lend to them.

All of this is likely going to materialize slowly over the next few weeks and months.

Warren Buffett’s Pro-American stance.

However, now is not the time to dwell on these issues.

As I mentioned below (Dealing With Bad News), it is natural to retreat into a cave when bad news strikes. People don’t like to face the music and unfortunately this is materializing in the markets as investors stand on the sidelines in fear.

However, at least one investor – and arguably the best investor in History – is buying American stocks. And urging the rest of us to do so: Buy American. I Am.

If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why? A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.

….

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

Warren Buffett is stepping up in the way that few others in this country have done yet to point out in simple and clear terms: America has the best economy in the history of the world, and we can’t lose sight of all of the great companies and innovation going on here today and the strength of our economy in the long term.

Case in point, Google, a perfect example of the kind of innovation that makes this country great, has continued to grow as advertisers continue to recognize that the old media’s approach – pushing ads down people’s throat – has been defeated by Google and others who allow us to consume our content (and our advertising) in ever more flexible and personalized ways.

In addition to Google and new media there are exciting things happening in education, clean technology, biotech & healthcare, the entertainment industry, the power industry, biotech plastics, and many other industries.

So before you give up on our country while it is down, step back for a moment and think about it.

Optimism has real impact.

Someone I admire a lot told me today about a study that was done recently where 2 groups were given a set of identical household tasks to perform over a period of weeks. Group 1 was told nothing special about their chores. Group 2 was told that the tasks they were performing as a good form of exercise and good for their health by a group of healthcare professionals.

A surprising result ensued: those who *believed* their efforts were healthy for them lost weight, lowered their blood pressure and got healthier.

This was a study done by serious researchers at a major academic institution. The takeaway: our perspective sometimes matters as much as the reality.

I believe we are capable of facing the world, the good and the bad parts of it, and keeping our optimism intact. And right now our country needs us to do just that.

Who Won The Debate? America. (Video)

America won the debate tonight. The candidates agreed on 1 thing – education. Regardless of our politics this issue is the most important for our future. Now let’s hold them to their promises.