risk, leverage, survival, the idler

the mba nerd

Let me introduce you to my friend: the MBA Nerd.

He is very smart and a bit of a wizard when in front of Excel spreadsheets and PowerPoint slides. Above all, he means well and only wants to optimize outcomes.

He confuses the model for the reality, what is visible with what is real. He wants clean inputs and clean outputs. When, back in the day, Tim and I were tinkering with investments, we were MBA Nerds of the professional variety. Our model's clean outputs felt like real insight.

In beast mode, the MBA Nerd would sell one of your lungs (you only need one anyway) and invest it in an efficient portfolio.

In the business and financial world, he produces fragile systems: over-optimization, high leverage, risk praised as innovation rather than exposure.

In moral philosophy, he produces something similar: the urge to treat ethics as an

shortly after my son was born, I noticed how much more inconvenient our roadtrips had become. Packing time (and volume) quadrupled; the number of unplanned stops became a random variable; even stepping out of the car to take a photo could turn into its own mini ordeal.

I called it logistics at the time, and thought that I either learn to enjoy this logistical nuisance or embrace the ritual of seppuku. In retrospect, that may have been Nature telling me that friction is not a bug, it is a feature. Our instincts evolved under friction.

on physical boundaries

Intuition and instinct work well in the physical world. You don't need a physics major to tell you that you shouldn’t jump off a three-story roof. No nutrition degree to understand that eating ten thousand calories in one sitting may not be good (or even possible)

"let's see what debt does to our excel model"

in the years following the financial crisis, with Bernanke suppressing the cost of money through quantitative easing, the yield of corporate bonds collapsed and stayed low for a long time. This artificial environment pushed bond investors "out the curve" (i.e., take on more interest rate risk) and "down the spectrum" (i.e., take on more default risk). I was managing a bond portfolio at the time, and that is exactly what we did.

Before making these decisions, my colleague Tim and I would model the portfolio in Excel. The model showed that these moves out the curve and down the spectrum would increase expected returns by a meager amount (we're talking less than 1% per year), while magically maintaining, if not lowering, the aggregate risk of the portfolio. The model confirmed that Tim and I, indeed, were "smart money". We

when it comes to money and wealth, I've spent most of my life thinking about how to accumulate it. This must be true for most people, most of their lives. Apart from the occasional "this pro athlete had to declare bankruptcy", I don't remember many conversations about losing money or, better yet, how not to lose it.

Lately, however, I’ve fixated on the ways one can lose a fortune. I've witnessed a few dissolve into ether—one case with one degree of separation, and a couple of others with two.

What's sobering (even foreboding) is that overspending may be the least efficient way to destroy wealth. We all have a built-in mechanism that puts a hard limit on consumption. Spending is a form of consumption, and just as with eating, there is a physical limit imposed by our bodies or the environment.

The real danger isn't consumption. It's abstraction.

life in Mediocristan is quite enjoyable. It reminds me of Lawrence Durrell's Alexandria. The ocean is nearby, and the climate is pleasant. Never too cold, never too hot.

I want to understand one seemingly irrelevant thing about its population: body weight.

I start taking samples of 100 people. I make my selection randomly. Random places, random times, individuals chosen at random.

After 10 samples, I'm satisfied.

The average weight of my 10 samples is 150 lb.

betting the farm and winning every time

A gambling problem: there is no stock market in Mediocristan, so we have to be creative.

I make the following bet with a counterparty (say, the Mediocristan equivalent of Bear Stearns):

• take 100 people at random and measure their weight
• if the average weight is greater than 180 lb. (i.e., 20% higher than the 150 lb. average I estimated), I pay $1 million
• if the average

ok. Ishiguro won the Nobel Prize in 2017 and I’m happy to report that I was a bit ahead of the curve. I had already read Never Let Me Go and gifted four copies of the book to people dear to me. Never Let Me Go is definitely high on the list in my re-read project.

But moving on to The Remains of the Day. This novel precedes Never Let Me Go by 16 years. Ishiguro published Remains in 1989 and wrote it in four weeks.

What are the principles that should guide our lives? Does one principle take precedence over the others? Is its place imperturbable through life, or does it flow?

The Remains of the Day invited me to ponder these questions through the recollections and reflections of Stevens, the buttoned-up butler that tended to an English aristocrat in the years leading up to the Second World