Weekend Reading #25
This is the twenty-fifth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 13th July 2019. To receive a copy each week directly into your inbox, sign up here.
What investors can learn from reading fiction.
Another week, another boring newsletter. Thankfully, not from us! We're referring to the email that recently dropped into our team inbox, recommending a list of books promising to give readers an edge in life, business and perhaps even the cut throat world of investing.
Okay, we're being a bit harsh. The list was well intentioned, thoughtfully put together, and certainly contained some interesting recommendations. But it was so predictable. Recently published books on mental models, the psychology of decision making, bite-sized stoic philosophy, the usual drill. All designed to stimulate the left side of the brain but overlooking the importance of creativity and imagination in the act of investing.
Sales gurus and poets.
Logic plays a crucial role in investing. That's why a lot of traders and investors come with engineering, science and mathematics pedigrees. But the right hemisphere is equally important. Creativity, imagination and emotional intelligence compliment the quantitative foundations required of every fund manager. As sales guru Dale Carnegie – author of legendary tome How to Win Friends and Influence People – pointed out:
"When dealing with people, let us remember we are not dealing with creatures of logic. We are dealing with creatures of emotion."
This is really just a rehash of something that the Romantic poets recognised hundreds of years prior. The poetic theory of "Negative Capability", which prized intuition and uncertainty above reason and knowledge, is an important intellectual paradigm for investors to consider. Creative genius, according to John Keats, requires people to experience life as an uncertain domain that gives rise to a diverse array of perspectives. Cast in this light, the world is a complex and fluid landscape that requires complex and fluid responses in order to render it intelligible. Sounds a lot like markets.
Obsessed by fiction.
Stories are just so important when it comes to investing. They help us to make sense of companies, currencies and markets. Our ability to seek out, ingest and act upon stories is a critical skill. So we should take time to practice it.
Warren Buffett is perhaps the quintessential bibliophile, a man who has championed the commercial relevance of reading throughout his career and attributed much of his success to the sheer volume of material he churns through on a daily basis. We haven't spent a lot of time in Warren Buffett's famous study, but we'd like to think that it doesn't contain biographies of other famous investors. It almost certainly plays host to reams of company reports and technical literature, but perhaps the Oracle of Omaha's bookshelves are also home to works from the likes of Dickens, Austen, Tolstoy and Dostoevsky? Who knows, perhaps someone reading this newsletter can put us in touch so we can establish beyond reasonable doubt!
To understand people, read their stories. Like most mature industries, investment management is way too self-referential. We're all guilty of spending too much time talking about other investors and not enough time talking about the world in which we live and the people that live here. As regular readers of this newsletter will know, we are obsessed with storytelling and its potential to improve our potential as investors and human beings. And that means being obsessed with fiction as well as non-fiction.
Training the reading muscle.
So how does this process of transformation happen? How are we made different when we read fiction?
We're not psychologists, but we intuitively know that reading about others helps us to step outside our own lives and gain some much needed perspective. Investing requires a healthy dose of ego – you need conviction in your trades – but you also need humility, the ability to disengage the ego and empathise with other people. Indeed, researchers have found that after reading literary fiction, as opposed to popular fiction or serious nonfiction, people performed better on tests measuring empathy, social perception and emotional intelligence.
Of course, minimising the self in order to gain a deeper understanding of the world around us is easier said than done, since our own lives and biases are so incredibly vivid and immersive. But we believe it is possible to cultivate this skill. Like a body-builder training a specific muscle by placing it under stress, we can force ourselves to grow as people by stimulating our mind with the right kind of stories. Being able to turn this faculty on and off is a kind of superpower, one that gives investors a meaningful edge when interpreting newsflow and market data.
Reframing the present.
Yuval Noah Harari – another writer of non-fiction favoured by the business community – has argued that history is a framing of the present. In order to know where we are, and where we’re going, we need to know where we’ve come from.
Here at Three Body Capital we’re keenly aware of this. It’s why we are so fond of historical fiction, particularly the epic military kind! It’s just such a great way to understand history through story. What better way to get your head around the story of Central Asia than by reading Conn Iggulden’s Conqueror series, based on the life of Mongol warlords Genghis, Ogedai and Kublai Khan? Once you’ve ticked that off, try his Emperor series charting the life of Julius Caesar. And if you want more, there’s his Wars of the Roses series. The guy is seriously prolific and talented to boot!
A key benefit of reading fiction is its timeless quality. Great works of fiction like Cervantes’ Don Quixote, Tolstoy’s Anna Karenina, or even Jonathan Franzen’s The Corrections are eternal. They don’t become irrelevant as underlying economic, social and political conditions shift. They endure. And far from diminishing with the passing seasons, they are more likely to remain as features of our cultural life with every year that passes.
The Lindy Effect states that the life expectancy of non-perishable things is proportional to their age, meaning that each additional period of survival implies a longer remaining life expectancy. This isn’t obvious. When you compare a young person to an old person, you can be relatively confident that the younger will survive the elder. But with technology, the old can often be expected to have a longer life expectancy than the young, in proportion to their relative age. The Lindy Effect is typically used to describe technology, but if you think about it, books are kind of technology, a particularly elegant kind. Award-winning fantasy and science fiction author Ursula K Le Guin once said:
"The book itself is a curious artefact, not showy in its technology but complex and extremely efficient: a really neat little device, compact, often very pleasant to look at and handle, that can last decades, even centuries. It doesn’t have to be plugged in, activated, or performed by a machine; all it needs is light, a human eye, and a human mind. It is not one of a kind, and it is not ephemeral. It lasts. It is reliable. If a book told you something when you were 15, it will tell it to you again when you’re 50, though you may understand it so differently that it seems you’re reading a whole new book."
It’s precisely the ability of books to evolve over time and mold to their surroundings that makes them so powerful – and so useful to investors. They can help us recognise developments in markets that seem ground-breaking, but are really examples of the “eternal recurrence” beloved by Nietszche and before him, Judaism’s Tanach:
"What has been will be again, what has been done will be done again; there is nothing new under the sun."
In this way, War And Peace teaches us more about contemporary Russian national identity than Bloomberg TV, and American Psycho reveals the limitations of rampant consumerism better than earnings updates from Walmart and Amazon. This is perhaps because factual information has become so accessible and plentiful. Indeed, Kevin Kelly, co-founder of Wired, observes that, “When answers become cheap, good questions become more difficult and therefore more valuable.” That's the thing – reading fiction helps us to ask the right questions as investors and as people.
Of course, investing – and life – are all about balance. That why we have two sides to our brains and why managers must develop a balanced approach that acknowledges investing as both a science and an art. Books, play a vital role in that process, the importance of fiction cannot be overstated.
We’d love to get your reading recommendations, and share ours with you. Please get in touch and let’s talk books!
What we're doing.
This week we’ve been getting on with the nuts and bolts of building a fund management and fintech business. This has involved productive meetings with potential investors and conversations with friends about expanding our network in local markets. Building a decentralised network of respected partners and representatives is a crucial part of our plans and something we believe has been overlooked by traditional managers.
We’re making good progress and continue to be amazed (and humbled) by the support that people have shown us. We’re excited about launching our flagship fund later this year and rolling out our tech platform for professional investors to invest in private assets.
Please do get in touch in the meantime if you think you can help us, or you think we can help you.
What we're watching.
We’re going to resist the temptation to bang on about the Cricket World Cup again! Instead, let’s talk about Russian history! On the blog this week we waxed lyrical on the subject of historical fiction, and this doesn’t stop with books.
Netflix’s latest masterpiece is a docuseries that delves into the history of the Romanovs, the last imperial dynasty to rule Russia. It might sound like a Russian version of The Crown or Victoria, but this six-parter is different. Rather than the usual scripted drama, it’s a neat combination of documentary and reenactment. This format is not for everyone, but we thought it worked well. Check out the trailer and see what you think.
For those of you that read Simon Sebag Montefiore’s masterful study The Romanovs (which despite the riveting plot twists is pure non-fiction), this is a great way to feed your addition to historical fiction.
What we're reading.
This week we’re reading one very timely tweet from Patrick O’Shaughnessy, fund manager and podcaster extraordinaire. O’Shaughnessy recently sat down with Bill Gurley, a general partner at Benchmark Capital, to talk marketplaces. It’s well worth catching their conversation. Later, O’Shaughnessy took to Twitter to announce:
“Demand is the game. True in so many places. I have tremendous respect for those who can build unique distribution and pools of demand.”
This is EXACTLY what we are doing here at Three Body Capital. By focusing on sourcing demand in emerging markets, we’re creating a unique distribution channel for fund products and private assets. This is an ambitious project and one that’s going to take time to realise, but we’re fired up by enormous possibilities that come with local partnerships across markets.