I wondered how old it actually was. The OED’s earliest recorded use is from 1769, in the writing of someone named Walter Anderson (about whom I know nothing other than that he was a Scottish historian). He was writing a history of France and needed, at some point, to describe the regrouping of scattered Protestant forces:

The root is the Latin armamentum, which means a ship’s rigging. (Sails, tackle, the gear that lets a vessel move.) Weapons crept into the meaning eventually, within Latin itself, centuries before French got hold of it and pushed it further: armement, meaning by turns a naval force, the crew of a warship, the general process of arming for war. When it settled into English, it no longer referred to re-arming a boat but to re-arming a country. So: rope, then a ship’s weapons, then a whole military.

It wasn’t actually a word that writers needed very much from 1800 to 1900. But its use starts climbing through the 1910s, then climbing very steeply, like a prodromal symptom, through the 1930s, up to a peak in the 1950s. Then it declines through the back half of the century, settling by the 2010s at about a third of its peak:

What does rearmament mean today? Across NATO, the stat that keeps appearing is “5% of GDP by 2035.” From an investing perspective, whether countries ultimately reach those targets may be secondary to the fact that they’re being discussed now as long-term commitments.

I feel the pull of the obvious here. If governments are committing to decades of higher military spending, all you need to do is buy the companies that supply them. No? The problem is that governments have a habit of taking some of that money back. Britain had an “Excess Profits Duty” during WWI that eventually reached 80%. The US had its own excess profits tax during WWII at 95%. The point of these taxes wasn’t just to raise revenue. It was politics: the voting public gets uncomfortable when private companies appear to be getting rich from war.

Anyways, I’m not suggesting history repeats itself. Only that it complicates what first looks like a straightforward investment thesis.

Subscribe now

Gold. Hong Kong and Singapore are both expanding as gold trading/clearing hubs. De-dollarization feeling less like a theory and more like something slowly acquiring plumbing.

Bitcoin. Still below the two-year moving average, where it’s been since February. A good value zone, historically. ETF flows are mostly negative. (The speculative money that used to chase this seems to be chasing AI instead.) Whales are buying.

EM. I had a small project this week: find an EM ETF that isn’t a semiconductor trade in disguise. No luck... Every road seems to lead back to Korea and Taiwan. Nota bene: indexes are not neutral things.

Defense. NATO countries to spend $50 billion toward long-range precision strike capabilities. This kind of military spending will be structural, I think, making up for years of underinvestment. “Rearmament” - a strange word to see regularly in the news. Like a pocket watch or a top hat, it feels like it belongs to another century.

Subscribe now

Later I learned that herons can do this for an hour or more. It’s difficult not to admire that kind of focus and commitment, although focus and commitment may not be the right words. The heron isn’t really practicing discipline about anything. It isn’t reading books about delayed gratification or listening to podcasts about patience. It’s just standing there because that’s how a heron catches a fish. It’s being itself. It naturally gets its food in an entirely different way from, say, a sparrow. Sparrows are all movement, always hopping and pecking. Even when they’re standing still, some part of them still looks like it’s vibrating.

The heron approach is probably the most celebrated investing style. Munger was probably the clearest version of it. Do nothing most of the time, and when the odds are actually in your favour, bet heavily. The problem is the financial media has always been fundamentally sparrow-like. Open any financial website and you see a stream of activity: tariffs, inflation, earnings, Fed meetings, forecasts, upgrades, downgrades, buy, sell, rotate, hedge, rebalance. There probably wouldn’t be much financial television if everyone behaved like herons. It would just be a broadcaster saying “We continue to wait” over and over and over again, then onto commercial break, and repeat that for 2-3 years.

I was listening to Paul Tudor Jones recently and he was explaining that he could never be a long-term investor. The drawdowns would be unbearable for him. Which I find genuinely funny because I cannot imagine anything more stressful than trading. It would ruin my mental health within a week. The idea of waking up every morning needing to make fresh decisions about markets seems unbearable to me, like a punishment from Greek myth. Somewhere in the underworld there is probably someone condemned to spend eternity watching futures markets and making decisions every fifteen minutes.

A few years ago I would have said that the trading approach is mistaken or flawed in some fundamental way and that long-term investing is the only way. But I no longer believe that. There’s no doubt that Paul Tudor Jones is successful at what he does. I think the right “way” for investors really comes down to temperament. You need to know what you are. Getting it wrong can be catastrophic. Being a sparrow who keeps trying to stand still at the edge of the pond, or (probably more common) a heron who reads too much financial news and feels compelled to always keep moving. Both are acting outside of their own nature. Maybe that’s where a lot of the difficulty and unforced errors come from. It might be okay in the short run, to pretend to be something you’re not, but eventually it catches up with you and you end up fighting yourself as much as the market.

“Temperament costs investors more than ignorance.”
— John Train

Subscribe now

What surprised me was how quickly this became, in my mind, an investing topic. Good investing requires clear thinking. Anxiety and poor sleep are enemies of clear thinking. For people sensitive to caffeine (I am; many people are not), coffee is making both worse. I don’t think this is something that gets discussed in investing circles very often: the nervous system of the person making the decisions, the condition of the mind at the moment you decide to buy or sell or do nothing.

The Greeks had a word for the mental condition that good judgment actually requires: ataraxia. Literally, “unperturbedness,” a kind of lucid equanimity. The Stoics wanted it. The Epicureans wanted it. The Skeptics wanted it. The word was also used to describe the ideal condition of soldiers entering battle. Not courage, not alertness or aggression, but a settled clarity.

Subscribe now

Investors probably also need some version of that solitude. Not literal isolation, but at least time where we’re not taking in other people’s thinking. Pauses between the podcasts and newsletters and commentary. I notice I can spend hours listening to people discuss markets and come away feeling like I’ve learned a lot. The feeling is convincing. It has the texture of learning: new names, new frameworks, new ways of describing things I half-knew. But if I don’t leave time to sit with it, to turn it over on my own, it doesn’t become anything solid. What feels like learning is really just accumulation, like filling an attic.

The danger is you develop this kind of secondhand confidence. You can repeat all the arguments, and you start to think you know what’s going on because you sound like you do, but you haven’t done the mental work yourself. Then at some point (probably the point when it actually matters) when you have to decide something with real money, you discover that you’ve been carrying other people’s conclusions without having done the work yourself. The ground gives way. You may not even know, in a basic way, what you actually think, which is a fragile place to be indeed.

Subscribe now

This reminds me of a book I read years back by Stanley Cavell called Disowning Knowledge in Six Plays of Shakespeare. Cavell’s argument (if I’m remembering it right) is that Othello’s tragic flaw isn’t jealousy (the common interpretation) so much as his whole epistemological temperament. His inability to tolerate not knowing. In investing, certainty is the one thing we cannot have. We must be okay with murky probabilities, living and thinking in that gray zone. The ground is never solid.

Subscribe now

Then about midway through the book, Marx and Foucault and cultural studies arrive and everything sort of falls apart. The writing turns from stories about shady investment writers to a diatribe against the free market and investing itself. A few passages:

This writing has been sculpted by a set of gendered languages and assumptions, as a feminized notion of the secure home is often implicitly contrasted against a masculinized notion of risk and enterprise.

[Jim] Cramer’s identification with sports erects clear masculine boundaries around this activity.

The fantasy sold by this genre is increasingly that private investment can replace collective provision of welfare.

Five humanities professors wrote this book. I think if you had to take everything that ideological academics hate and compressed it into a single concept, you could do worse than “investing”: the entrepreneurial spirit, reason over emotion, tradition, the idea that discipline and long-term thinking can compound into something real. This book seems allergic to all those ideas. As such I would only recommend the first half.

Subscribe now

One of the most persistent illusions of the business of investing is that information is all you need to make money. Organizations that sell information foster that illusion.
— Thomas Phelps, 100 to 1 in the Stock Market

There’s too much information now and most of it is bad. Not bad in an obvious way - not wrong, exactly, or dishonest. But bad in the way that a diet of only processed food is bad. It fills you up, gives you the feeling of having consumed something, but it doesn't nourish. After a while you can feel the difference. A kind of mental softness, a loss of the ability to sit with a difficult idea long enough for it to become your own.

The wrong voices do worse than simply waste your time. They can cloud your judgment and cause you to make bad decisions. For investors today it is no longer a problem of information scarcity, but a problem of information curation. It’s all about what you decide to let in. The early Christians had a word for it: discretio. The ability to distinguish between things that nourish and things that scatter. Guarding the door.

Subscribe now

If a man does not master his circumstances, then he is bound to be mastered by them.
— Towles, A Gentleman in Moscow

Lear can’t do this.

It’s not that he lacks intelligence or courage - he has both. It’s something more like a failure of imagination. He can’t conceive of himself except in relation to the role he’s always occupied. Even with the Fool beside him, telling him the truth, he doesn’t hear it. Or he hears it and can’t act on it, which amounts to the same thing. His identity is so tied to his position as king that when that goes, there’s nothing left to rebuild from. Even with the Fool at his side telling him his world has changed, he doesn’t hear. He’s incapable of leaving that old world behind, so he ends up mastered by his circumstances.

The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.
— Keynes, The General Theory of Employment, Interest and Money

The ability to destroy your ideas rapidly instead of slowly when the occasion is right is one of the most valuable things. You must force yourself to re-examine what you previously thought you knew.
— Munger, Poor Charlie’s Almanack

The hard part I think is knowing when the investing environment has genuinely changed versus when it is simply testing your patience. Is all the talk of dollar decline and capital rotating out of US markets a structural shift… or merely noise? The task is similar to the Count’s and Lear’s. To see clearly if the world has changed, and if it has, to be willing to change your thesis with it.

Subscribe now

Subscribe now

Subscribe now

…In that Empire, the Art of Cartography attained such Perfection that the map of a single Province occupied the entirety of a City, and the map of the Empire, the entirety of a Province. In time, those Unconscionable Maps no longer satisfied, and the Cartographers Guilds struck a Map of the Empire whose size was that of the Empire, and which coincided point for point with it. The following Generations, who were not so fond of the Study of Cartography as their Forebears had been, saw that that vast Map was Useless, and not without some Pitilessness was it, that they delivered it up to the Inclemencies of Sun and Winters. In the Deserts of the West, still today, there are Tattered Ruins of that Map, inhabited by Animals and Beggars; in all the Land there is no other Relic of the Disciplines of Geography.
—Jorge Luis Borges, “On Exactitude in Science”

The metaphor of the map and the territory is one my mind keeps returning to. What’s real versus what’s only a paper representation.

You could say paper money was designed as a kind of map. It was a represention of a territory that was finite, physical, buried in the ground (ie. gold). The discipline of the gold standard was the discipline of the map staying honest, of the representation remaining tethered to the thing it represented. You couldn’t draw more map than there was territory, couldn’t print money infinitely. But around fifty years ago (1971, Nixon), it was decided that this was too restrictive. If they could get rid of the territory, the “cartographers” would be able to draw endlessly. So it was abandoned.

Half a century is a long time. Now most people don’t even know there was once a territory. Half a century is long enough that most people alive today have never known anything else but fiat money, so they don’t feel anything is missing. You can talk to people about gold or bitcoin and they don’t see what purpose either would serve. You’ve already got the map. What do you need the territory for?

Subscribe now

I think it took a few times experiencing this to learn the lesson. Outside of the inevitable market extremes, investing is mostly uneventful. Long stretches of time pass without anything significant happening at all. Most commentary seems designed to fill that time with the appearance of significance; every week there is something urgent to monitor, some development that requires attention. I find the awareness of uneventfullness to be pretty liberating. Obviously it’s not an original idea. But to really learn it, I think you have to experience it a few times.

Subscribe now

I’ve been thinking about this habit after reading Michael Mauboussin’s book More Than You Know: Finding Financial Wisdom in Unconventional Places. He tells a story about an investment firm treasurer who needed to reduce the size of his team. So he plans to fire his portfolio managers who have the lowest “batting average” (the percentage of their stocks that beat the market). The problem was the manager with the best returns had the worst batting average. Many of his stocks were down but a handful were up substantially. He was wrong a lot, but he made the most money. Mauboussin writes: “The frequency of correctness does not matter; it is the magnitude of correctness that matters.”

It’s one of those things that’s easy to understand but hard to practice. Because naturally everyone likes being right. I like opening my portfolio on the weekends and seeing a lot of green. Who doesn’t? It seems the human brain runs on frequency, even as investing returns depend on magnitude. We can’t all be like Mark Spitznagel, intentionally losing money every day in order to win big one day in the future. (Klipp’s Paradox: “You’ve got to love to lose money, hate to make money…”) As a routine experience, day after day, watching the red accumulate. Most people can’t do that. It doesn’t feel right. (Which, for Spitznagel, is exactly the point.)

Subscribe now

The memo quotes Adam Anderson’s 1764 account of the South Sea Bubble: “Was there ever such a delusion from the beginning of the world ... according to this Way of Computing, no Person can Purchase at too high a Rate, since his Profit will increase in Proportion to the Price he gives.” This is the logic of bubbles: price goes up, therefore price should go up more, therefore you should buy at any price.

It’s worth sitting with that logic for a moment, because it isn’t stupid exactly. It’s a perfectly rational response to the evidence in front of you. If the price has gone up every time you’ve bought, the rational inference is that it will go up again. The irrationality isn’t in the reasoning - it’s in the assumption that the recent past is a reliable guide to what comes next. Which is an assumption almost everyone feels pulled to make, almost all the time.

Dutch tulips, the South Sea Company, British railways, Japanese real estate, dot-com stocks, housing bubbles, altcoins. The histories are there. It’s all documented. And yet reading Extraordinary Popular Delusions and the Madness of Crowds (great book) or Manias, Panics, and Crashes (great book) isn’t really enough. I used to think the knowledge would be enough. That if you could just see the pattern clearly, with examples and dates and everything, you’d gain some kind of immunity. But you don’t really. You’re still wired to respond to social proof, to fear of being left behind, etc. It’s like the knowledge sits in one part of your brain and the feeling sits in another, and when the feeling gets loud enough the knowledge goes quiet. I know I still feel drawn to participate. When everyone around you is making money on something you’ve dismissed, there’s this persistent, embarrassing thought: what if you’re wrong? Wrong about everything. Wrong in some deeper way that you can’t quite articulate but that the rising price seems to confirm.

The fact is, humans love mesmerizing stories about the future and they love making money. Bubbles are a natural fit for both impulses at once. We are not wired for the things that actually help — self-discipline, moderation, thinking in probabilities.

Subscribe now

A character enters a castle. She turns around to look at the door she entered from, and above it sees the inscription, Be bold. She walks into a second room, this one all gold, and turns again to look back above the doorway. Be bold, again. As she walks through the room, she sees written over the walls, Be bold, be bold, be bold. Then, at the far end, she comes to an iron door. Above it, another inscription: Be not too bold.

I like this scene more than I think I can explain. Perhaps because it captures something of the uncertainty of our decision-making. The difficulty of knowing where boldness ends and recklessness begins. I find myself thinking about this in relation to markets right now, valuations being what they are.