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Tuesday 24 March 2015

Gaia And The Ambivalent Investor


We're very keen on people who are very definite about things - even if it subsequently turns out they're wrong or delusional (or both). We're less interested in people who are less certain about things. We don't value ambivalence in our gurus.

Unsurprisingly we're wrong about this. The ambivalent investor is sometimes that rare thing, a genuinely sensible expert in a field dominated by loud mouthed, impossibly certain charlatans. And mostly it doesn't matter which side of the fence you favour, you'll be better off sitting on it. 

Sick Spiritualists

A lot of so-called financial experts are a disguised form of fraudster. They're second cousins to the spiritualists who tell grieving parents they can talk to their dead children. Pause to think about that for a moment and you'll conclude, I hope, that there are a lot of sick people in the world.

Financial experts can't compete with spiritualists for sickness or (being charitable and assuming they actually think they can talk to dead people) mental illness, but their advice is often akin to claims of communing with the deceased. The idea that we can fortell the future in general is bunkum, let alone in an area as complex as financial markets.

These people thrive only because we habitually defer to people who exude false authority - and there's no better way to do that than to make impossibly accurate claims about future events. Because, you see, we never bother to check up and see if they're correct: Clueless - Meet The Overprecise Pundits.

Ambivalent Expertise

On the hand, the ambivalent expert makes no wildly accurate claims about the future, refuses to engage in predictions about things that simply can't be predicted, and sticks to a few specific areas of expertise where they have some genuine claim to precision. Of course, ambivalent experts rarely attract much attention and when they do people usually misunderstand them.

Ambivalence is a fine attribute in the face of the uncertainty that dogs our lives, and which we face with equanimity each day. Perhaps there's no better example of how ambivalence could affect our lives than through the science and politics of climate change.  Climate change ought to be undeniable:
Warming of the climate system is unequivocal, and since the 1950s, many of the observed changes are unprecedented over decades to millennia. The atmosphere and ocean have warmed, the amounts of snow and ice have diminished, and sea level has risen.
Stilt-walking to Disaster

Yes, climate change is undeniable, although the impact of it is definitely not understood - and that fact is one that opponents of climate change routinely trot out when faced with demands to do something to stop polar bears drowning or Pacific islanders being made to stilt-walk.  The problem with this attitude is partly that it's a (hopefully) wilful misunderstanding of the science, which is increasingly showing evidence that the predictions of climate change associated with global warming are coming true.

As we discussed in Mr Popper's Predictions the main feature of science is that it's very difficult to absolutely prove anything - and it's that ambivalence, that refusal to be tied to dogma, that gives science its power. But the attitude that because climate change isn't proven we should act as though it won't be is also an entirely stupid reaction to an area of uncertainty that would be better dealt with by ambivalence. Because an ambivalent approach to climate change would accept that the actual future trajectory of the world's climate is impossible to predict with any great accuracy but would go on to argue that the only safe option is to assume that things are going to get worse.

Bye Bye Humanity

The problem with this fail safe attitude is twofold - firstly it's not one valued by our political systems or our brains, which want certainty. What we get is dubious experts proclaiming with absolute certainty that climate change is hogwash and ambivalent experts stating that it's probably, more or less, definitely going to happen - maybe. And secondly, there's a cost to operating on the basis that climate change is true and then finding our it isn't - and various vested interests aren't shy about pointing that out.

On the other hand, as the ambivalent expert might point out, the cost of operating on the basis that climate change isn't true and then finding out that it is, might be a great deal higher.  Extinction of what may be the only conscious species in the Universe would be a disappointing end to the human race.  And would be personally quite disappointing, to boot.

Gaia, Gaia, Gone

Arguably, though, this is evolution in action. The inventor of the Gaia hypothesis James Lovelock has argued that the planet is a self-regulating biosphere - that once life arose it acted in conjunction with the environment to maintain conditions favorable to itself (see, for example, Gaia as seen through the atmosphere).

There's nothing in the Gaia hypothesis that argues for the continued existence of the human race. If we're changing the global climate, and if we're not able to adjust ourselves quickly enough we'll send ourselves extinct. It's the same as the oil price - the best solution for a high oil price is a high oil price - people will be encouraged to find more oil and the extra supply will push down prices. Similarly, if we're damaging the planet by destroying the conditions necessary to support us we'll shortly stop being a problem.

Rule #1: Avoid Disaster

In this grand context it's fairly easy to see the value of ambivalence towards the future.  But the same is true at the micro-level we all operate at, as we try to figure out how to turn a buck or two on the markets. We can all chase the latest exciting story stock on the basis of untold future riches and the absolute certainty that somewhere there's a corporation that can make us wealthy beyond our dreams: or we can acknowledge that although that may be true the chances of us finding that stock and then holding it through to billionaire status are vanishingly small.

It's the climate change argument writ small. If we assume that climate change is real or that the chances of finding a multi-multi-bagger stock are small then we operate on the basis of ambivalence - sit on the fence, try not to take extreme positions and aim, at all costs, to avoid losing. And that, in the long run, is the safest course of action for both investors and the human race. Because if we go bust or if we go extinct not even the black swan will care.

Remember: Rule #2 - don't lose money, Rule #1 - don't go extinct.


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  1. I wholeheartedly agree with your position on ambivalence with respect to nearly everything related to finance/investment management. However, in your second to last sentence in the section entitled "Bye Bye Humanity", I believe you meant to say: Extinction of what most likely is NOT the only conscious species in the Universe..."

  2. Hi Jerry - actually I did (for once) write what I intended. But to be fair it is the hook for a future article :) - Tim