"Those who apply themselves too closely to little things often become incapable of great things." Francois de La Rochefoucauld

Saturday, July 18, 2009

Natural Economic Behavior

"Never follow the crowd." - Bernard Baruch



If our behavior guides economics, and our behavior is guided by natural inherent tendencies, then, wouldn't it make sense to study nature and organisms to best underpin economic theory? "What Went Wrong With Economics," is the headline of a recent article in The Economist. What went wrong? Well part of it is the assumption that we have a complete knowledge. The second thing that went wrong is ignorance of behavior. The third thing that went wrong is lack of understanding history.

Complete knowledge doesn't exist in anything. Anyone that speaks with the pedantry of complete knowledge is severely blind to this reality. We don't know what we don't know. Every generation since written record has held assumptions as to having complete knowledge and understanding of many factors of existence. Science especially is a perfect example of how this assumption has always been wrong. And what is economics? At best an evolving science. At worst speculative guesswork.

The easiest way to see that bubbles in economy will probably always exist is to consider the most minute fundamental fractal of economy. In a capitalist system every movement in commerce stems from 'exploiting a profit.' Now, by exploiting i mean simply engaging in a transaction that will yield profit. That is all business is. Everyone one of us lives from this. Every act of profit will be replicated by almost any witness. This initiates a cascade of participants to engage in the same act. By this fact a widget that is being bought to hold for profit (say a stock) will ultimately be bought up to extremely high prices. Its a very natural process all individuals seek to profit. So the problem in economics is simply the fact vast number of economic participants can't self reflect and see this.

History chronicles tulip bubbles, stock bubbles, currency bubbles, gold bubbles, art bubbles, etc. Its almost like seasons. They are a reflection of human behavior. The fact that winter withers away much plant life is not bad; it is a natural cycle. It would seem foolish to us to wish to have a season of harvest perpetually. As it would seem foolish to wish to stay awake without having to rest or sleep. Economy accelerates and de-accelerates perpetually as well.

The lessons we learn is to harvest and build prudently, not exuberantly. To acknowledge length of cycles and bubbles. To save and to cultivate. To build value within ourselves and our businesses. To be adaptive. And, above all to learn from history, seek to understand, and be intellectually humble.

Sunday, January 25, 2009

The Case for Boldness

"Let us seek, in the depths of our experience, the point where we feel ourselves most intimately within our own life." - Henri Bergson



Boldness is a semantically loaded word. It conveys a number of things. To the German polymath Johann Wolfgang von Goethe, boldness was said to have "genius, power, and magic." Boldness is specifically an action taken that is outside the typical realm of common experience, highly risky, and simultaneously highly profitable.

Boldness involves no inherent guarantee, only that of a new experience; which in and of itself is valuable. Boldness, however, I suggest is the one principle that has produced the highest reward in each of our lives.

In the Autobiography of Benjamin Franklin he begins the story of his noble life with such a bold stroke:

"I sold my books to raise a little money, was taken on board the sloop privately, had a fair wind, and in three days found myself at New York, near three hundred miles from my home, at the age of seventeen, without the least recommendation or knowledge of any person in the place, and very little money in my pocket."

Peter Drucker, the 20th Century Management icon, boldly gave up a promising and lucrative career in finance to pursue his dream in management consulting, when such a practice was still in its infancy.

In a more personal commonplace scenario; through our surveying of our current life and personal history, we can probably locate an act of boldness that initiated a train of events to lead us to who we have become today.

To add to Goethe's description of boldness I would further suggest that boldness is absolute faith in oneself, an uncompromising desire for success, and that which breathes divinity into the present. Boldness expands our boundaries - whether mental or physical.

To boldly commit to acquiring a new competency opens a new dimension of experience. To boldly exert ourselves through rigorous exercise makes our bodies adapt to a higher level of function and performance. To boldly speak when shy, to boldly ask when afraid, to boldly do when unsure, and to boldly give when someone's in need...this is life - unapologetic and free.

Angel Armendariz
"We are all in Sales. Period." - Tom Peters