Reality and its narratives
Boy: Do not try and bend the spoon. That's impossible. Instead only try to realize the truth.
Neo: What truth?
Boy: There is no spoon.
Neo: There is no spoon?
Boy: Then you'll see that it is not the spoon that bends, it is only yourself.
– The Matrix
Every human creates their reality and that reality is all there is for them. From this point of view it is (epistemologically) irrelevant whether the sense inputs that make us think we are in a world relate to anything real or not. Whether the world around us is real, as most of us tend to believe, or not, our experience of reality is a construct created by our brains.
This construct is shaped by a multitude of factors such as sense inputs, biology, upbringing, internal narratives, external narratives such as media, beliefs, experiences, culture and the people around us. Examples from studies on social isolation and people emerging from coma suggest how important a part the social feedback loop plays in this construction. The interaction with other people serves to prune away the most obvious bits of an individual’s reality that others don’t share.
Throughout history, cultural narratives have been a key part of how humans perceive and shape reality and their consequential view of the world and reality. The 21st Century has brought some of the weaknesses of this functioning to the fore, especially through the power of digital media, combined with analytics on the massive amounts of data generated by our interaction with these media. People can be influenced to veer from stating or believing what they actually see (e.g. Ash Conformity Experiments).
The world of George Orwell’s 1984 contains unreal truth and absurd slogans, but there is only one truth. In contrast, the 21st century has made real the idea of the collectively solipsistic world. In the parallel world of social and other online media there can be an infinite multitude of truths, so that every individual can find support for even the most outlandish elements of their reality. Arguably this has had a destabilising effect on societies around the world and has been used by political actors to great effect – for a chilling look at the distortion of reality by politics see Alan Curtis’ 2016 documentary Hypernormalisation.
Enter stage left: Coronavirus
Into a world that had already splintered into multiple realities, often energised and driven apart by partisan agendas, came the Coronavirus. It may be partially hindsight, but it looks and feels like an extraordinary slow motion train crash. And there is no doubting that the multiplication and politicisation of truth played a key and sorry role in this tragedy.
In the initial phases, not only in China, there was what looks like an almost instinctive urge to suppress the story. Whether this was for truly sinister ends, or to maintain social control by avoiding a mass panic, there arguably is a continuum from the inevitable and standard suppression of an accurate picture of the scale and severity of the outbreak in Wuhan by Chinese authorities, to the BBC’s low key coverage or the unfolding crisis in February and March.
At the same time, all kinds of different narratives sprung up, some of which have survived to this very day. “It’s just like the flu” was heard quite commonly in the early days. The numbers outside China were very small and people’s innate bias to think that they won’t be affected by something, combined with the part of our wiring that makes it really hard for us to imagine exponential growth, meant that people did earnestly believe it would go away.
The speed and ferocity of the North Italian outbreak in late February brought the epidemic close to home and made clear for all who were prepared to see what COVID could and probably would do. The authority of institutions was undermined by them appearing to bend to political pressure (such as the WHO’s delay in declaring a pandemic) and by politicians and media. Even when it was clear that COVID was not a hoax there were many influential voices that continued to declare it as such.
The behaviour of President Trump and later, President Bolsonaro ( Brazil) in the crisis are extreme cases of personal agendas riding roughshod over prudent policy development and leadership. But they are arguably merely manifestations of an overall collapse of rationality. COVID had become politicised and as a result, any side of the debate seeks to entirely delegitimize the arguments of the other. Warning voices are accused of trying to create panic, while proponents of keeping things going are branded insane or genocidal.
The collapse of rationality has been further exemplified by surreal stories, some from the very top, such as Trump’s “bleach” press conference, and by a fermentation of far-fetched but nonetheless pervasive conspiracy theories, of which the alleged Gates plan to reduce and chip the world population through mandatory vaccination is just one example.
But the facts are strange too
Unhelpfully, the virus and the disease it causes defy sense. Even though formidable resources and capabilities were brought to bear early on – the genome of the virus was sequenced and published by Jan 10 – the facts that emerged were (and are) confusing.
After 4 months and much research, we still don’t understand why and how the disease is symptomless in many carriers and is so devastating in others. Nor do we have a firm handle on the secondary problems it causes, be it clotting, damage to the heart and brain, or the terrible Kawasaki like symptoms that have emerged in a small percentage of children post infection.
As governments are looking to reopen schools, the question of whether children can spread the virus is salient. And, as a quick Google search on the question shows, there is no agreed answer, with contradictory headlines in the same publication commonplace.
So what to do?
Given the devastating effect of the epidemic on the global economy and individual countries there are (frankly quite sinister) rationales to let the disease run its course, ideally in a controlled way so it doesn’t break the health system. Implicit within this strategy is the acceptance that a great many, especially older people, will die. This was the “logic” behind the UK governments’ short-lived dalliance with a “Herd Immunity” approach to the pandemic. And yet, again, we don’t know enough to say with any certainty if such a course of action, even if one were to accept the terrible consequences in terms of suffering and loss of life, would work. Sweden is performing a live experiment with this as we speak, and the outcomes are still not clear at this early stage.
As we all realise when somebody comes too close to us in public, behaviour and attitudes have changed. There is no complete return to a “normal” status quo ante. And as New York and Brazil show, the mathematics of epidemics are brutal. So, deprived of a meaningful factbase and bombarded by an endless array of narratives, it looks like our ability to sense make, even with the most calm and rational approach, is gone. In the meantime, our lives are suspended and a return to normality remains uncertain.
Investing in the time of coronavirus
At the start of our first investor letter, which we shared with our readers a couple of weeks ago, we quoted Chinese author, Liu Cixin’s The Three Body Problem – the first book in the spectacular science fiction trilogy that inspired the name of our business:
“干我们这行的，其实就是把好多看上去不相关的事情串联起来，串对了，真相就出来了。”
“In my line of work, it’s all about putting together many apparently unconnected things. When you piece them together the right way, you get the truth.”
Our investment approach is about putting together different, sometimes unconnected bits and then letting emerge the multiple paths of how a stock may develop. These paths are our truths, and it is important to understand that there are several possible outcomes for one stock.
In the current environment it is practically impossible to conduct meaningful fundamental analysis. And yet the markets function. Stocks are still off their dizzying heights but some have performed spectacularly in the past month. As we have said before, we invest in stocks, not companies, so the effective suspension of fundamentals when looking at securities is something we can live with. And, as our brains struggle to create a coherent single point reality from the inputs we get, the part of our process that specifically seeks and maps out different, often contradictory paths a stock may take becomes useful, not only in terms of investment, but our lives in general. Left to its own devices, our brain creates a reality that it sees as absolute, where cause and effect are clear in a basically Newtonian manner. And having established its truth, it does not welcome contradictions. Hence such dangerous foibles as confirmation bias. Stocks, and in fact reality, do not behave in this way. With investing and with life in general, the suspension of fundamental facts, and our ability to sense-make like we used to tell ourselves we would, have revealed what physicists have been telling us for some time (albeit with an arbitrary distinction between the micro and macro scale): reality does not behave in a Newtonian but in a quantum mechanical manner.
The different paths a stock may take are like the different paths a particle travels at the same time. In a world where reality is hard to construct and pinpoint, where quasi Newtonian mechanics don’t work, maybe the only reality we can construct is quantum mechanical – that is in terms of probabilistic waveforms of outcomes. If as investors and humans we embrace uncertainty, we may arguably become better equipped to deal with the world as it presents itself to us at this point. To give a specific example from investing, we cannot predict, but we can construct probabilities. So companies that benefit from the current situation such as Netflix, or online retailers and food distribution services, are likely to do well. These are straightforward but not necessarily causal. The paths of traditional cyclical investments such as miners are even more probabilistic.
It can be argued that the probabilities are an emergent feature of the interference between the different paths, similarly to that shown in classical quantum experiments. If we try to pinpoint the answer, the wave collapses and we’re left with something that does not reflect full reality. So we can only work with the questions that define the paths (to use the quantum experiment simile: the position of the slits). To improve our chances of navigating the world, both as people and investors, we need to retrain the reality building machine in our heads to focus on the different paths and the questions behind them.
As Rainer Maria Rilke wrote to Franz Xaver Kappus (Letters to a Young Poet) in 1903:
“Be patient toward all that is unsolved in your heart and try to love the questions themselves, like locked rooms and like books that are now written in a very foreign tongue. Do not now seek the answers, which cannot be given you because you would not be able to live them. And the point is, to live everything. Live the questions now. Perhaps you will then gradually, without noticing it, live along some distant day into the answer.”