The Digest #137
Lies and Deception, Damodaran on Inflation, David Gottesman, Apple Hedges on China, Excessive Optimization, Trader Joe's
Quote of the Week
“To lie deliberately is to blaspheme — the liar commits deceit, and thus injustice. And likewise to lie without realizing it. Because the involuntary liar disrupts the harmony of nature — its order. He is in conflict with the way the world is structured. As anyone is who deviates toward what is opposed to the truth — even against his will. Nature gave him the resources to distinguish between true and false. And he neglected them, and now can’t tell the difference.”
— Marcus Aurelius, Meditations, 9.1
Lies and Deception
“What has been is what will be, and what has been done is what will be done; and there is nothing new under the sun.” — Ecclesiastes 1:9
It is obvious that interacting with someone who lies is hazardous, whether in one’s personal life or in business. A loose attachment to the truth makes an individual untrustworthy in any context. Someone who lies about small matters is prone to lying about much more serious issues. It is almost impossible to lie “just this one time” and it becomes a vice that is increasingly difficult to break as time goes on.
Often ignored is the fact that there are two types of liars. There are liars who know that they are lying. And then there are liars who actually believe their lies. The latter are far more dangerous. As the renowned twentieth century philosopher George Costanza often said, “it’s not a lie if you believe it”.
Michel de Montaigne was a French philosopher who lived in the 16th century and left us with a treasure trove of wisdom in his essays. Covering a wide range of topics, Montaigne presented numerous quotes and excerpts from ancient philosophers along with his own observations written during his retirement years.
In Of Liars, Montaigne observes the difficulty facing liars who know they are lying:
“It is not unreasonably said that anyone who does not feel sufficiently strong in memory should not meddle with lying. I know very well that the grammarians make this distinction between telling a lie and lying: that telling a lie means saying something false but which we have taken for true; and that lying … implies going against our conscience, and thus applies only to those who say what is contrary to what they know: those of whom I am speaking.
Now liars either invent everything out of whole cloth, or else disguise and alter something fundamentally true. When they disguise and change a story, if you put them back onto it often enough they find it hard not to get tangled up. For since the thing as it has become lodged first in the memory and has imprinted itself there by way of consciousness and knowledge, it is difficult for it not to present itself to the imagination, dislodging the falsehood, which cannot have so firm and secure a foothold.
Likewise, the circumstances that were learned first, slipping into the mind every moment, tend to weaken the memory of the false or corrupted parts that have been added. In what liars invent completely, inasmuch as there is no contrary impression which clashes with the falsehood, they seem to have the less reason to fear making a mistake. Nevertheless even this, since it is an empty thing without a grip, is prone to escape any but a very strong memory.” [emphasis added]
What is Montaigne trying to tell us? Liars often have trouble keeping their lies straight, but if they invent a scenario from whole cloth, the lie is more likely to hold up than if they take a fundamental truth and alter it. In other words, a constructed narrative that is entirely fictional can be easier to keep straight. The problem is that such lies might be more difficult to believe. Lies based on manipulation of some underlying truth may be easier for others to believe but harder to keep straight.
But liars who do not know that they are lying can have an easier time. Since the lies they tell are true for them, they need not remember their lies. They have internalized a false narrative as “their truth” and therefore can repeat the lie and retain consistency over time with fewer problems.
Montaigne considers lying to be among the most serious of vices:
“In truth, lying is an accursed vice. We are men, and hold together, only by our word. If we recognized the horror and the gravity of lying, we would persecute it with fire more justly than other crimes. I find that people ordinarily fool around chastising harmless faults in children very inappropriately, and torment them for thoughtless actions that leave neither imprint nor consequences. Only lying, and a little below it obstinacy, seem to me to be the actions whose birth and progress one should combat insistently. They grow with the child.”
There is a very good chance that a habitual liar has a form of antisocial personality disorder characterized by deception, lack of empathy, and aggressive behavior. It is best to quickly disassociate from such individuals. As Montaigne notes, lying becomes ingrained in a person’s mind at a young age. Chances are that if you have encountered a liar as an adult, they have had decades of practice perfecting their craft and are either resistant to or entirely incapable of change.
I can say from very recent personal experience that individuals with deep-seated antisocial personality disorders can lie with extreme impunity and not a trace of decency or conscience. If you are willing to invent lies from whole cloth, have a high level of intelligence and no conscience, there are few limits to the evil you can do and the pain you can inflict on others, even if they were formerly close family members.
Marcus Aurelius and Michel de Montaigne would tell you to steer clear of liars at almost any cost. If you must deal with a liar, never allow their malign actions to cause you to join them in the gutter, even if doing so is your natural instinct. A stoic outlook, no matter how difficult, is the only nondestructive course to take.
David S. Gottesman, Friend of Warren Buffett, Has Died at Age 96 by James R. Hagerty, September 30, 2022. Berkshire Hathaway has lost a board member and Warren Buffett has lost an old friend and confidant. Mr. Gottesman joined Berkshire’s board in 2004, but he and Mr. Buffett go back several decades. At the time of the proxy filing for the Berkshire Hathaway annual meeting this year, Mr. Gottesman was the board member with the second largest holding of Berkshire shares, behind only Mr. Buffett himself. Berkshire lost another longtime director earlier this year when Tom Murphy resigned in February prior to passing away in May. (WSJ)
Reaping the Whirlwind: A September 2022 Inflation Update by Aswath Damodaran, September 27, 2022. If you are looking for data on historical inflation and implied market expectations for future inflation, you will definitely want to read this article. “In September 2022, there is no denying that inflation is back, and with a vengeance, though we can still debate how quickly it will fade, and to what level. The happy talk of 2021, where many policy makers and investors were dismissive of its emergence, attributing it almost entirely to the COVID recover and supply chain problems, has largely faded and a grim acceptance has set in that we have an inflation problem, the solution to which may be perhaps as painful as the problem.” (Musings on Markets)
Apple expands iPhone production in India in shift away from China by John Reed, September 26, 2022. With the geopolitical situation taking an increasingly dark and uncertain turn, reducing heavy dependence on China is very important for Apple’s future. I hope the shift occurs quickly enough. “JPMorgan said in a research note last week that it expected Apple to move about 5 per cent of its iPhone 14 production from late 2022 to India, and that the US tech company would be producing one in four of its devices, including iPads and watches, outside China by 2025.” (Financial Times)
Buffett On Compensation Plans by Adam Mead, September 26, 2022. At the 2004 annual meeting, Warren Buffett spent some time talking about how he structures compensation plans for Berkshire’s operating companies. There are no compensation consultants ("I'd rather throw a viper down my shirtfront than hire a compensation consultant.") and the plans are simple, tied to the underlying economics of the business, and scalable. (Watchlist Investing)
IMA is not for everyone. I’m fine with that! by Vitaliy Katsenelson, September 29, 2022. One of the frustrating issues that investment managers have to deal with are clients who are simply not aligned with the firm’s strategy. If your goal is to be judged over multi-year periods but your clients judge you over a few weeks or months, it makes life miserable for both the client and manager. In this article, Vitaliy Katsenelson discusses how he responded to a client who had misaligned expectations. I thought that his friendly and educational tone was a class act. (Contrarian Edge)
Take the Iterative Path by Max Olson, September 27, 2022. This article contrasts what the author calls the “iterative path” and the “determinate path” using the examples of how SpaceX and Boeing have operated. His conclusion: “When a goal is big and complicated, an iterative, fail-fast approach is much better than a linear approach. Determinate paths lead to slower, poorly-adapted solutions, whereas iteration finds problems faster with a result that’s better adapted to the real world.” (Future Blind)
How to Beat Worry by Lawrence Yeo, September 28, 2022. As someone who tends to worry in an unproductive manner, the ideas in this article are worth trying out. I particularly like the idea of replacing a worry with a challenge. Another way of putting it is that if you are dwelling on some concern, try to get into a flow state so you cannot ruminate over the issue: “So what kind of challenges would be a good fit here? Well, I’d suggest anything that requires full presence of mind or body. The brighter your attention needs to be, the better an option it is. That way there’s no headspace for that worry to occupy while you’re immersed in your endeavor of choice.” (More to That)
Engaging With History by Morgan Housel, September 27, 2022. “To me, the point of paying attention to history is not the specific details of certain events, which are always random and never repeat; it’s the big-picture behaviors that reoccur in different eras, generations, and societies. People were dealing with greed and fear 100 years ago the same way they’re dealing with now and will be 100 years in the future. The more you see a behavior throughout history, the more you realize how ingrained it is in human behavior, which makes you more confident that it’ll be part of our future. It’s the only way to forecast with accuracy.” (Collaborative Fund)
Why You Shouldn’t Optimize Your Life by Nick Maggiulli, September 27, 2022. This article makes good points about the risk of over-optimization. In Necessary Inefficiency, wrote about the same concept, except in the context of foreign trade. Whether one is thinking about personal finance or how to structure a supply chain, it is important to keep focus on the desired outcome and to optimize in areas where the impact will be greatest. It is also important to avoid the unnecessary fragility that can often come from situations where optimization is taken to an extreme. (Of Dollars and Data)
Jazz saxophonist John Coltrane on the force that drives an artist by Shaun Usher, September 23, 2022. “Truth is indestructible. It seems history shows (and it’s the same way today) that the innovator is more often than not met with some degree of condemnation; usually according to the degree of his departure from the prevailing modes of expression or what have you. Change is always so hard to accept. We also see that these innovators always seek to revitalize, extend and reconstruct the status quo in their given fields, wherever it is needed. Quite often they are the rejects, outcasts, sub-citizens, etc. of the very societies to which they bring so much sustenance.” (Letters of Note)
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Trader Joe’s: Grocer to the Overeducated and Underpaid, September 28, 2022, 52 minutes. This is an introduction to Trader Joe’s which is, without a doubt, my favorite grocery store. From its unique offerings to friendly service to low prices that do not require “loyalty” programs, there’s much to like about the business model. During this period of rapid food price inflation, I have noticed that the cost of the products I purchase at Trader Joe’s have increased more moderately and less often than at the Safeway that I also shop at. It feels like I’m getting a fair deal. (Business Breakdowns)
Book review of Becoming Trader Joe: How I did Business My Way and Still Beat the Big Guys, the memoir of Trader Joe’s founder Joe Coulombe. (The Rational Walk)
The Challenge and Risks of Managing Inventory in Light of COVID-Related Demand Swings, September 24, 2022. “In this episode, co-hosts Phil Ordway, Elliot Turner, and John Mihaljevic discuss the challenges some companies have experienced managing their inventory levels in light of COVID-related demand swings. In particular, the hosts reflect on a Wall Street Journal article about Scotts Miracle-Gro. They also touch on the challenges faced by Peloton.” (This Week in Intelligent Investing)
Article discussed during podcast: From Shortage to Glut: Scotts Miracle-Gro Is Buried in Fertilizer by Thomas Gryta, September 15, 2022. (WSJ)
Bank of England Emergency, Cheap UK Stocks, Interest Rates, and US Insurance Companies, September 29, 2022. 1 hour, 57 minutes. Geoff and Andrew’s discussion regarding cheap U.K. stocks may be of interest to readers who are looking into taking advantage of market turmoil and the cheaper pound. I also found the discussion on insurance stocks late in the podcast quite interesting. (Focused Compounding)
Erik Hoel on Effective Altruism, Utilitarianism, and the Repugnant Conclusion, September 26, 2022, 1 hour, 17 minutes. “Neuroscientist Erik Hoel talks about why he is not an "effective altruist" with EconTalk host, Russ Roberts. Hoel argues that the utilitarianism that underlies effective altruism--a movement co-founded by Will MacAskill and Peter Singer--is a poison that inevitably leads to repugnant conclusions and thereby weakens the case for the strongest claims made by effective altruists.” (EconTalk)
Tweets of the Week
Cash is not trash. Nassim Taleb posted the following tweet in June 2021 pointing out that cash has utility during times of inflation. Cash depreciates when inflation spikes, but it also provides optionality. Cash holds its nominal value but depreciates in real terms. Still, riskier assets can depreciate more quickly, and cash allows investors to act when opportunities arise. The presence of cash also allows investors to sleep well at night while holding riskier assets since there is no need for forced selling.
Office-to-Residential conversions. The decline of office districts due to the pandemic and the shift to remote work has raised the possibility of offices being repurposed for residential use. However, there are problems with the typical office footprint and layout that make such conversions difficult, as this thread describes. h/t @moseskagan
Photo of the Week
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