“Just when I thought I was out, they pull me back in!”
It’s one of the most famous quotes in movies, as Michael Corleone rages in Godfather III over the assassination he narrowly avoided and his inability to steer the family into legit businesses.
Michael is what I like to call a coyote, someone who is VERY smart and VERY strategic. Actually, too smart and too strategic for his own good, what a Brit would call too clever by half.
That’s in sharp contrast to his father, Vito Corleone, who is no less smart and no less strategic, but is somehow far less conniving and far more beloved.
You see this difference in character most clearly in the deaths of Vito and Michael.
How does Vito Corleone die? Playing in his vegetable garden with his grandson. At home. Surrounded by life and laughter and plenty of bottles of Chianti.
Vito got out.
How does Michael Corleone die? Sitting in a stony Sicilian courtyard as two skinny dogs scurry around. Struggling to peel an orange. All dressed up and no place to go. Alone. Utterly alone.
For all his smarts and strategy and cleverness, Michael NEVER got out.
How did Vito get out, while Michael failed? I think it’s the whole too-clever-by-half coyote thing. Michael never trusted ANYONE in the way that Vito did. Michael was obsessed with finding the Answer, an impossibility in the game of organized crime. Or the game of markets.
Michael was a maximizer.
Which is another way of saying that, like most coyotes, he wasn’t very good at the metagame.
Do you want OUT from the game of markets?
Am I good at the game? Yeah. Do I enjoy it? Not really. I used to. But ever since Lehman it’s been mostly a drag. And that’s okay! The game of markets is a means to an end. It’s a really big, important game, but it’s only one of several big important games within the larger metagame of life and doing.
My goal in doing is to have a happy ending. I want the Vito ending, not the Michael ending.
How do we get there? We keep our eye on the prize – the happy ending – and we work backwards. We maintain our vision on the metagame and its outcome even while we play the immediate game.
My goal as an investor is NOT to maximize my investment returns or to maximize my personal wealth. That’s myopic thinking. That’s coyote thinking. That’s the sort of thinking that ruined Michael.
My goal as an investor is to minimize my maximum regret in the metagame. What is that maximum regret? Dying alone. Failing to protect and sustain my pack, both at the most personal level of family and the broadest level of humanity. Minimizing the risk of THAT is what drives my doing, in both politics and in markets. I want enough wealth to avoid the bad ending, not the most wealth I can possibly achieve, because going for the most wealth I can possibly achieve actually increases the chances of the bad ending.
You will NEVER get out of the immediate game, whether it’s the mafia game or the markets game, if you play that game as a maximizer. You will ALWAYS be pulled back in.
And yet, all of our dominant ideas about financial advice – ALL OF THEM – are based on the assumption that we are maximizers. Every bit of Modern Portfolio Theory – ALL OF IT – is based on assumptions of maximization. All of those Big Bank model portfolios that are handed down from on high every month – ALL OF THEM – are based on the assumption that we are maximizers. Worse, all of these ideas about economics and investing aren’t just based on the assumption that we ARE maximizers. All of these core ideas about financial advice are based on the narrative that we SHOULD BE maximizers.
The business of financial advice is hurting. We all know that. It’s hurting for its practitioners and it’s hurting for its clients. I think it’s hurting because the narrative of maximization, in both its descriptive and its normative forms, gives particularly poor outcomes when Things Fall Apart. It gives particularly poor outcomes when the gravity of a Three-Body System makes the ground beneath our feet quiver and shake.
In order to survive … in order to do better for clients … the business of financial advice needs a new narrative, one based on what truly matters for practitioners and clients alike in a world of profound uncertainty.
What is the new narrative for financial advice?
I think it’s regret minimization in the metagame rather than reward maximization in the immediate game.
I think it’s Clear Eyes and Full Hearts.
A new narrative isn’t just possible. It’s necessary. And it’s happening.
One of my favorite notes - so many good points there
In addition to the challenge of changing human nature (if you want to change the goal of financial advice) as I noted in my Tweet on your piece - and from your analogy - the advantage Vito had is that he had a Michael to hand it over to and to protect him in “retirement -” Michael needed a Michael.
Vito’s advantage was brilliantly adumbrated in one of the best scenes in any movie ever - when Michael thwarts the attempted assassination of the Godfather in the hospital. Also - different times - there was some code - some limits / some sense of boundaries - in the mafia world of the '40s/'50s that was clearly gone by the '80s.
And Kudos to you and Rusty as it says so much about your and his passion that you are putting out fresh material - real thought provoking pieces - over the weekend.
So do we zig or zag here, what is the game of the market telling us? Is one or more of the three horseman nigh?
My son (10) was flipping thru channels and landed on Titanic (the end when Rose and Jack are in the water). Immediately he wanted to know if Jack was going to die, why weren’t there enough boats, why couldn’t he survive swimming in ice cold water, why did the captain hit the iceberg… How to explain hubris to a kid.
Why do I feel there is going to be a lot of explaining to do when he gets older?
Love this post. For those not on Twitter, although this is not specifically related to investing (but I feel many of the Epsilon posts speak to broader themes as well), it reminded me of this post by Dave Winer from 18 years ago that I adore, “Transcendental Money”: http://scripting.com/davenet/2000/10/19/transcendentalMoney.html Very profound.
I hadn’t seen this Winer post, Tanya. Really good! TY.
I wanna end up like Zorba. Part ravaged by the past, part mad dreamer, but still free.
It is exactly articles like this one that made me WANT to subscribe to Epsilon Theory!
Thank you Ben, David and even Rusty ( even though he hates Philadelphia, it’s sports teams and by extension the people in the 4th largest market in the country! ) but I digress.
But to Ben specifically, thank you not only for your insights in the market game but more importantly for your insights on life itself.
I personally believe I’ve made the right meta-game decisions in my life but of course there are always doubts when one has intentionally not chosen maximizing, especially in our culture. This beautifully written article brought joy to my heart and reaffirmed the decisions I made .
And will continue to make
Glad to have you in the pack, Peter! And thank YOU.
If you look back in your inbox to March, 2015, you’ll find a message from me in response to your post about the perils of operators like Steven Cohen using big data to achieve an unfair advantage in the market. My message, in part, was as follows:
“Long ago, I figured out that playing fields are seldom level, and that big players take advantage of smaller players – the smaller the better. Whales don’t get big by chasing fish; they scoop up krill – by the million. With these cruel realities in mind, I never use leverage, I avoid investments where information asymmetry is a significant risk, and I spend a lot of time pondering how much is enough. Answering this last question is far and away the most important element in my investment discipline. For those for whom the answer is always MOAR!, I have no sympathy. They are swimming with the krill, and Mr. Cohen is welcome to make a meal of them.”
It sounds as though you’ve arrived at a similar conclusion.
Really profound writing Ben. This really brings back memories of my mother’s father and his final day. For generations he and his family had a large scale fruit and vegetable farm just south of Baltimore. After the end of World War 2 the city of Baltimore decided that it needed a big new airport and that his farm was the perfect location. If you have ever flown into BWI airport, then your plane landed on land where he once grew tomatoes, green beans and cantaloupes for the people of Baltimore. He took the city of Baltimore’s money and moved out to Howard County near where my family had a dairy farm and bought a farm to raise beef cattle, And of course a huge vegetable garden as well. Then in the mid 60s the Rouse Company came along and decided to build the planned city of Columbia right in the middle of our county . So he sold to Rouse and moved to the Eastern Shore of Maryland where he had about 3 acres on the water where he continued to have a big garden every year. He didn’t see his farms in terms of potential capital gins or return on investment. He liked owning land because it let him live his life doing what he loved. He outlived my grandmother by many years. In fact my grandfather never spent one day in a hospital. I can never recall him ever being sick. I never heard him once complain or say anything bad about anyone. But that just may have been just because my grandmother did all the talking in the family. He met his end while working in his beloved garden. It was late winter and he was burning off all the dead vegetation from the previous season. The fire got out of hand. It could have been smoke inhalation or the exertion of trying to extinguish the fire, but his life ended right there. He was 92 and I don’t think think there could have been a fitter way to go.
Hah! Peter, I’m not sure where you got the idea that I hate Philadelphia, although now I’m feverishly searching my post history to see if, in some rampage of Eagles hatred (which, as a Cowboys fan, is legitimate and something I shall not apologize for), I MAY have said some unkind things about the lovely city that I lived in for four mostly good years of my life. If so, understand that anything I said, I said only because I dislike the Eagles so, so, so, so very much. So much. Everything else about Philly? I’m secretly a fan!
Thanks for being here!
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