Yesterday, a friend of mine forwarded me an email which he had first sent in 2010. He was reminding me of an opportunity from back then, which he had suggested to me. In the original mail he noted that it was ‘the easiest time ever to do this, so please get on it.’ I didn’t. Also copied in that mail were four others who he also encouraged to ‘get on it.’ They didn’t. As I now read how the communication evolved, it is clear that, from the very beginning, there was questionable commitment to the enterprise. Ultimately the endeavour petered out in a sort of muted fashion, under the usual groaning about the administrative hassles (documents, money, time, you know, the usual fare) of simply starting. We moved on with our lives, all was forgotten.
Without going into details—mainly because I am still a little too upset by the whole business—I can say that the decision to do nothing was quite possibly one of the worst I have ever made. It may even be more accurate to speak of having made a non-decision. An opportunity was forwarded from someone I knew to be credible, who himself was putting something meaningful at risk to take advantage of this opportunity. (That was how strong his conviction was.) And yet, somehow, I ignored it and moved on, zombie-like, to some new ridiculous distraction which was more immediately gratifying and less difficult.
Now, of course, it is easier to see the future when it becomes the past. I have the benefit of knowing now what the past eight years looked like. Back in 2010, it was all uncertainty. And with uncertainty comes the real burden of trying to make important decisions using what is necessarily incomplete information. That uncertainty often leads to a sort of paralysis. We do nothing, and hope that that difficult situation resolves itself. Sometimes it does, we get lucky. But sometimes we don’t need too much luck. Sometimes we have what gamblers call an edge. At such times we really can say something intelligent about the future. We can influence the outcomes, or tilt the odds to ensure that whichever outcome emerges, we generally end up not too bad. Mohnish Pabrai, who wrote one of the smartest investment texts I’ve read, memorably described such situations as: “Heads I win; tails I don’t lose too much.”
Consider this wonderful post by Scott Alexander, where he discusses a heads-I-win-tails-I-don’t- lose-too-much situation involving Bitcoin. He observes that though his readers were some of the earliest people to hear about and understand the promise of cryptocurrencies—it had been first discussed on the site in early 2011, when coins were trading for $0.91—very few of the site’s regular readers made any meaningful money as crypto-investors. His description of one of the lessons he took out of this is instructive:
When I first saw the posts saying that cryptocurrency investments were a good idea, I agreed with them. I even googled “how to get Bitcoin” and got a bunch of technical stuff that seemed like a lot of work. So I didn’t do it.
Back in 2016, my father asked me what this whole “cryptocurrency” thing was, and I told him he should invest in Ethereum. He did, and centupled his money. I never got around to it, and didn’t.
On the broader scale, I saw what looked like widespread consensus on a lot of the relevant Less Wrong posts that investing in cryptocurrency was a good idea. The problem wasn’t that we failed at the epistemic task of identifying it as an opportunity. The problem was that not too many people converted that into action.
That last line is critical. Like the case with my friend, they recognised the opportunity, they understood it, and they were being instructed by credible people who themselves had something at risk. Beyond that, the potential upside of their investment was so vast that the downside (Min return = -100%) seemed irrelevant. Anyone who had invested $10 in Bitcoins when they first read about it on the site, even after the huge swings in price over the past few months, would be, you know, 50-cent, basically.
And yet, again like me, “not too many people converted that into action.” Fewer than 3% of the site’s readers (including the author) made decent money in cryptocurrencies (as at the end of January 2018).
And this is perhaps not surprising. Most of the time the future is a haze. We cannot do much but our best every day and hope that things don’t get too rough. But on those few occasions when you know something about the future that most people don’t, when you can pick the joker in the pack, when you can get an extremely valuable low-cost option, or when you can setup a heads-I-win-tails-I-don’t-lose-too-much situation, for God’s sake, don’t make a non-decision, jump in with both feet.
I note the irony of referencing this particular investing legend after a discussion on crypto speculation, but I think this quote from Charlie Munger closes things off quite nicely:
The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don’t.
True in investing. True in life.