I am skeptical about stories and with using the past to predict the future

[Shawn]

@ Giofranchi

 

Wow you know, I may not post often but I do lurk everyday and of all the posters on here I'd say you were my favorite by far. The article you posted, that quote I read was powerful - yet so simplistic. Thank you for posting.

[twacowfca]

@ Giofranchi

 

Wow you know, I may not post often but I do lurk everyday and of all the posters on here I'd say you were my favorite by far. The article you posted, that quote I read was powerful - yet so simplistic. Thank you for posting.

 

+++1

 

Agreed. You have enlivened the board. Thank you for your many interesting posts.

 

:)

[giofranchi]

 

I truly believe Keynes was a much much much greater fiscal conservative than a lot of people believe, or pretend to believe. What it is currently sold for Keynes’s school of thought or Keynes’s economic ideas is deeply flawed and, probably, only a mean to justify incompetence and “kick the can down the road” policies.

But let’s assume Keynes was only about deficit spending (regardless of whether it occurs in economic expansion or contraction) and money printing (he clearly was not, but let’s pretend it anyway…): if you ask me whether I would choose Keynes or Cicero, I would bet on Cicero 100% of the times. If Keynes is still studied 2000 years from now, then I might change opinion!

 

giofranchi

 

Why do you believe that about Keynes? Why are other people getting it wrong?

 

BTW, Cicero is known more for rhetoric - not quite conducive to analytical thinkning.

Why do you believe that?

 

Well, I guess the reason is simply that in all I have read about Keynes (I cannot claim I have read everything there is to read, but I have read a lot), I have never found even hinted at a 0% interest rate policy, or a 350% world total debt / GDP, or a deficit spending policy in a time of economic growth. Instead, I remember him advocating to build surpluses in a time of economic growth, surpluses that would enable us to engage in deficit spending during a contraction. Deficit spending is the “easy part”, building surpluses is the “hard part”: preaching keynesianism, while adhering only to the easy part and disregarding altogether the hard part, will end like everything ends, when you do what’s easy and procrastinate what’s hard: very badly.

Maybe, you might argue, it is me that should read Keynes more carefully, and have not understood his economic thought correctly. Of course, it might be. But what that means is simply I have not studied history well enough. Not that history is irrelevant.

 

Furthermore, I am not advocating history as a substitute to analysis. Far from me! The usefulness of history should be just to provide you with the most reliable tools to perform your own analysis. If you know history, and you perform your analysis, and you come to the conclusion that “this time it really is different”, you might then very well go for it! What I mean is this: if you already “sit on the shoulders of the giants of the past”, and you find that something new and useful applies to today’s environment, then you will make a great leap foreword. Congratulations! Extremely well done! But why deprive you of the wonderful eyesight you might enjoy sitting on the shoulders of those giants? You surely got something to lose. And nothing to gain! Big downside, with no upside at all.

 

giofranchi

[giofranchi]

LC, scc, twacowfca,

thank you very much! Really, too kind of you!  :)

 

giofranchi

 

[Guest valueInv]

 

I truly believe Keynes was a much much much greater fiscal conservative than a lot of people believe, or pretend to believe. What it is currently sold for Keynes’s school of thought or Keynes’s economic ideas is deeply flawed and, probably, only a mean to justify incompetence and “kick the can down the road” policies.

But let’s assume Keynes was only about deficit spending (regardless of whether it occurs in economic expansion or contraction) and money printing (he clearly was not, but let’s pretend it anyway…): if you ask me whether I would choose Keynes or Cicero, I would bet on Cicero 100% of the times. If Keynes is still studied 2000 years from now, then I might change opinion!

 

giofranchi

 

Why do you believe that about Keynes? Why are other people getting it wrong?

 

BTW, Cicero is known more for rhetoric - not quite conducive to analytical thinkning.

Why do you believe that?

 

Well, I guess the reason is simply that in all I have read about Keynes (I cannot claim I have read everything there is to read, but I have read a lot), I have never found even hinted at a 0% interest rate policy, or a 350% world total debt / GDP, or a deficit spending policy in a time of economic growth. Instead, I remember him advocating to build surpluses in a time of economic growth, surpluses that would enable us to engage in deficit spending during a contraction. Deficit spending is the “easy part”, building surpluses is the “hard part”: preaching keynesianism, while adhering only to the easy part and disregarding altogether the hard part, will end like everything ends, when you do what’s easy and procrastinate what’s hard: very badly.

Maybe, you might argue, it is me that should read Keynes more carefully, and have not understood his economic thought correctly. Of course, it might be. But what that means is simply I have not studied history well enough. Not that history is irrelevant.

giofranchi

 

So you're not really sure what Keynes meant, but that doesn't stop you from reaching a conclusion about him and on whether you believe he is a better choice than Cicero? People can't agree on what he meant? You have no way of going back and verifying that?

 

Are you picking an interpretation of Keynes that agrees more with your temperament? If "you have never found that", you can conclude that he meant the opposite?

 

BTW, I am pointing out the limitations of studying history, not that it is irrelevant.

[giofranchi]

So you're not really sure what Keynes meant

 

I certainly have not said that. I just acknowledged I have not read everything Keynes wrote. The same holds true with Cicero. We all operate with partial or incomplete tools. On the other hand, if you have perfect tools, please let me know!  ;)

 

but that doesn't stop you from reaching a conclusion about him and on whether you believe he is a better choice than Cicero? 

 

Although endowed with incomplete tools, we must reach conclusions, in order to act. And, if I don’t act, people don’t get paid at the end of the month… BTW, I don’t really have to choose between Cicero and Keynes: the incomplete knowledge I have of both of them suggests they were not in antithesis at all. My preference of Cicero was based on this simple rule: something that has endured 2000 years is more robust than something that has endured 100 years.

 

Are you picking an interpretation of Keynes that agrees more with your temperament?

 

No, I don’t think so. Why should I? I repeat: history provides you with tools. Do you get emotional with tools? Your idea of a hoe is influenced by your temperament? No. Instead, the way you use that hoe might very well be influenced by your temperament. So temperament plays a big role in the second phase: the analysis you perform with the tools you have. Not in putting together those tools! Keynes either advocated deficit spending and zero interest rate during economic growth, or he didn’t. That’s it.

 

If "you have never found that", you can conclude that he meant the opposite?

 

I don’t think the opposite is relevant at all. Policy leaders are justifying deficit spending and zero interest rate during economic growth, citing Keynes. I don’t have to prove the opposite. I just say: the tool you are using had never been advocated by Keynes, it is just a tool of your own invention: therefore, at best untested, at worst very dangerous.

 

giofranchi

[Sportgamma]

Perhaps we should define a little bit better what we are talking about. Here is an attempt to offer definitions to various concepts that we have been talking about.

 

Scepticism: Being critical on the information that you receive (i.e. being aware of common behavioural biases (http://en.wikipedia.org/wiki/List_of_biases_in_judgment_and_decision_making), trying to refute your own hypothesis as opposed to confirm them, using multiple frames of analysis, etc).

 

Past: What happened prior to the current situation. 

 

History: Interpretations of the past.

 

Data: Quantitative representation of past events.

 

Stories: A verbal description about what occurred and why.

 

Theories: The discipline of trying to discover reoccurring phenomena by analysis of the past, either from a qualitative or a quantitative standpoint.

 

Application

What I am trying to get at is that the difficult part is determining how you will study the past and how it will be applicable to the problem that you are trying to solve. I am not proposing that history should not be taken into account.

 

Bicycles have existed longer than cars and therefore are likely to outlive them as a technology. What meaning should I derive from that? Should I sell my car and travel by bicycle or should I sell my Exor and buy Dorel? How much time should I allocate on studying macro economic history to become a good investor? Economists have be debating the gold/commodity standard vs. a fiat system for a long time. Both groups have studied essentially the same history but have come to different conclusions. Gio and I had a discussion on another thread about the management of Exor. We both used past events in our examination but came to different conclusions because we used different measurement tools. 

 

Consider this. Somebody says to you: "There is a brilliant hedge fund manager who is building his own Berkshire from Sears." There you have a story. First of all, you will have to fight the inclination to confirm the story. Then you have to find out how it can be refuted. You might want to look at his past performance (data) but you might also want to look at some behavioural references of his, i.e. by reading his shareholder letters (history). But then you will look at Sears and its current shape and ask yourself how will he do it and you will start to simulate different scenarios and different ways for him to achieve such end.

 

What do we do in the investment idea threads? Somebody starts of with write-up and usually its just a simple story backed up with a few hand picked data points. By doing so the initiator is exposing himself to this group of people who will look at it from a critical standpoint. People will ask critical questions or even offer counter arguments. New data-points will be presented.  I find this to be the true power of theCorner (e.g. the proper treatment of scepticism towards investment stories/thesis´ and theories).

 

[Sportgamma]

Well, I guess the reason is simply that in all I have read about Keynes (I cannot claim I have read everything there is to read, but I have read a lot), I have never found even hinted at a 0% interest rate policy, or a 350% world total debt / GDP, or a deficit spending policy in a time of economic growth. Instead, I remember him advocating to build surpluses in a time of economic growth, surpluses that would enable us to engage in deficit spending during a contraction. Deficit spending is the “easy part”, building surpluses is the “hard part”: preaching keynesianism, while adhering only to the easy part and disregarding altogether the hard part, will end like everything ends, when you do what’s easy and procrastinate what’s hard: very badly.

Maybe, you might argue, it is me that should read Keynes more carefully, and have not understood his economic thought correctly. Of course, it might be. But what that means is simply I have not studied history well enough. Not that history is irrelevan

 

Well, Kyle Bass does agree with you Gio. And this guy for what it is worth: http://hurryupharry.org/2012/06/07/the-misunderstood-mr-keynes/