The Seed Delusion


We may call Connecticut home now, but (as I’ve alluded to in prior notes) my family wasn’t willing to leave Texas completely behind. To that end, we bought a bag containing around 50,000 seeds of lupinus perennis, and we’ve begun to spread them around the property, including along the street-facing edge of our old stone wall.

Now, Lupinus perennis isn’t exactly the same thing as a Texas Bluebonnet, but the latter is a surprisingly poorly defined thing anyway. From 1901 to 1970, the State of Texas recognized only Lupinus subcarnosus as a true Texas Bluebonnet. From 1971 on, at the urging of a mass of increasingly opinionated citizens, it switched its allegiance to Lupinus texensis. Since then, one of the most outstanding and underrecognized institutions we have in these United States – the Ladybird Johnson Wildflower Center – has taken the more liberal stance of informally recognizing several blue-flowered lupinus species as Texas Bluebonnets. Whatever the official status, the seeds we’re spreading are native to Connecticut and unlike the Texas variants, don’t germinate in the fall in expectation of a mild southwestern winter. Their pale blue flowers will make an appearance later this year.

It’s a far cry from the kind of planting we did with our children last weekend. Being about 8 weeks from planting here, we carefully pulled pepper, tomato and onion seeds from packets, pressed 2 or 3 into an 1/8” divot in starter soil, and moistened the soil. With each pod set onto heat mats and resting under properly tuned and time-controlled LED lights, just about every one should produce at least one proper plant.

Not so with the wildflowers. With that many seeds, there’s little hope of getting them planted at the right depth and under perfect conditions. You can scarify them by freezing and removing the seeds to warm water – and we did – but beyond that you’re at the mercy of nature. So you cast them far and wide. A very modest yield would suit us just fine. There’s nothing wrong with either of these methods, but that’s only because (1) seeds are shockingly inexpensive and (2) I’m a homeowner and hobbyist farmer, not a professional trying to maximize my output per acre.

There is a point in every market cycle, too, where your average investor stops thinking like a professional and starts thinking like a hobbyist. I think we’re there.

Why do I think so, and how do you know when we’ve reached that point?

You know it when otherwise professional institutional investors start seriously talking about opportunistic positions in speculative investments like diversified 1-2% crypto footholds.

You know it when PE shops start pitching – and asset owners start subscribing to – massively oversized tweener funds with ‘the upside potential and opportunity’ of VC and the ‘confidence of an established growth equity franchise’ to capture the next leg of growth from the most adversely selected graduates from early-stage funding.   

You know it when family offices start pursuing more idiosyncratic one-off direct PE deals, not because they believe in the franchise, its business case or its cash flow potential, but because they know that there’s money out there to snap it up.

It isn’t that there is something inherently wrong with any of these investment ideas. It is surely possible that they might have arisen as part of an investor’s regular process for evaluating investment ideas and opportunities. More power to those investors. Yet the far more common justification for casting seeds into a field isn’t a real process, but the belief that establishing small positions with asymmetric or speculative return profiles is an inherently advantageous road to outperformance.

This is a delusion. It is the Seed Delusion.

The Seed Delusion is a natural response to three ideas and effects: (1) the Madame Bovary Effect, which biases us against anything that feels like boredom, (2) the undeniable fact that a true edge in estimating odds or payoffs will make these activities profitable, and (3) the delusion that we are likely to possess that true edge. The third idea is where the framework breaks down. It breaks down because of a feature of our behavioral response to observing returns, a response that inevitably creeps into our thinking regardless of our investment DNA. Stolen shamelessly from Ben, that response tends to follow this pattern:

Contrarian investors confuse outsized payoffs from long odds bets with edge.

Consensus investors confuse frequent payoffs from short odds bets with edge.

It’s worth being pretty direct about this one: If you are a professional subscriber to The Seed Delusion, over sufficient time your expectation should be that you will lose every seed you cast, because you are likely to consistently overestimate the payoffs and edge of your long odds bets. If you are routinely casting 25 and 50bp seeds – and my conversations with institutions, consultants, FAs and advisers indicate that many of you are doing exactly that – you run the risk of systematically eliminating just about every benefit you have gained from reducing fees over the last decade. Maybe worse.

The things that look to us like asymmetric payoffs are not magic beans, y’all.

(FYI – Commenters submitting a “but my deal flow” comment should do so with confidence that it will be referenced in a future Deal Flow Delusion piece.)


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Mark Kahn
Mark Kahn

Rusty, do you think there is also fear of missing out at work here? For example, I don’t see cryptos as offering any long-term investment value (but if you are able to trade it better than the next guy – which I can’t – go for it) and I’m willing to say, if I’m wrong – so be it; however, some people can’t mentally accept that attitude and find some “smart” sounding “process” reason for putting a small amount of money in cryptos for, in truth, FOMO. The “smart” sounding “process” reason allows them to do what they want to do without having to admit it’s all FOMO driven. Said another way, a lot of the “process” and “smart” reasoning is reverse engineered from the desire to “cast far and wide.” Some private banks have an allocation (usually one to five percent) to a “fun” or “personal” bucket where clients invest on tips, ideas, etc., that they hear from their friends or the newspaper or somewhere and, one, can’t stand the thought of missing out and, two, like to be able to say at a cocktail party, “sure, I own some of ‘that,’ too” (I’m not making that last point up one bit). It’s a silly thing to do, but the clients love it, and private banks like to make their clients happy. To do so, they need to make it sound thoughtful, so they put it in the allocation model and, as to one of your prior notes, it… Read more »


The work I did on Behavioural Finance with investment consultant Watson Wyatt (Now Willis Towers Watson) back in 2000 we recognised there are some behaviours clients have, that they do CAF style*, as it SeemsGood but it has no financial value. The real hurdle is net alpha and chasing these micro bets FOMO-wise (as Mark points out) just leads to increased costs (many hidden), and more complex governance for fiduciaries. When one of these little ideas blows up as they eventually do at some stage in the cycle, Regret Risk rears its head and there is a knee jerk reaction to keeping it simple again. Once again with large costs to the investment management structure.

* CAF – Client Acceptance Factor See



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