The great American poet Robert Williams once wrote, “there’s levels to this“. [NSFW]
It almost doesn’t matter what he was talking about, because it is true of almost every area of life.
One of my favorite posts from this past week was “In Defense of Complexity” from Phil Huber’s fantastic blog, bpsandpieces. In it, he pushes back on the first level definitions of simple and complex, his most powerful point being that what we see as simple, somebody from a prior generation may have seen as hopelessly complex.
Phil’s post is a great microcosm of the Ouroboros that is the investing world.
Yes, to a first approximation a simple investment style seems obviously better than the complicated ones that pervade our world. It is very easy to take a look at something with many pieces, look backward at which pieces didn’t prove as useful over some time period, and proclaim that by removing them, we can have addition by subtraction. This was captured wonderfully by Brian Portnoy in an article, “Diversification Means Always Having to Say You’re Sorry.“
Avicii
Phil’s piece very eloquently points out that things that seem simple may not be so. For instance, let us assume that you’ve decided you want to be a “passive index investor”. You’ve read about it in the NYT or Reddit and it sounds good. It’s simple. Not so fast. Even if you are just allocating to stocks, you’ll immediately be hit with the question of how to divide your assets among your own country and the rest of the world. I’ve written at length about this before. Can it possibility be a simple decision if people vary so greatly in their allocation just because they live in a different country?
Chess has seen a resurgence in popular culture (and those spikes you see in the graph are the championship every two years). Don’t believe me? Just listen to a hip hop station – about every third song seems to have a reference. Why? I think it is because chess is the ultimate metaphor for levels. Anybody who has played understands that if your opponent calculates a sequences of moves just one level further than you do and you play that sequence, you may end up lost and never find your way out.
Remembering that everything has levels is an extremely useful framework for thinking about life. Looking to eat healthy? Sure, you may get good results with a simple rule about eating more “whole” foods, or only foods that were available ten thousand years ago. But what underlies those diets? Is it the macronutrient mix that you’ll end up consuming if you do? What about figuring out how many calories you burn and ensuring you consume fewer than that?
Levels from the Bottom to the Top
In almost all areas we can learn best from which levels to pay attention to by looking at the first level and the highest level (which may change over time!). The first level for eating healthy means looking at the least healthy people in society. In America, we have a huge proportion of the population that is morbidly obese. What are they doing wrong? It’s pretty obvious they are eating too much. Calories in is greater than calories out (or it has stabilized at a very high number). We should pay attention to this. Regardless of whether they change the composition of their diet, if they don’t reduce the calories they take in (and perhaps one would cause the other), they are not going to be healthier. We should take note – calories in vs. out is very likely to be an extremely important factor in eating healthy.
We can crosscheck this with the other end of the spectrum. Elite athletes like Michael Phelps, Chad Johnson, and NBA players in general are well known for having crazy diets that include outrageous amounts of calories, fast food, candy, you name it.
You don’t have to go particularly far to find an expert who can explain that if you are burning 8,000 calories a day and 2,000 of the calories you eat are McDonalds, there doesn’t seem to be much of an adverse effect. This, of course, reinforces our finding from level one that calories in vs. calories out is a major factor.
But, we can also look at the things the high performance end of the spectrum is doing and tease out what they deem important. NBA players who can afford it (probably most of them now) usually have a chef/nutritionist that makes sure they are eating a diet that covers the bases of nutrients, both macro and micro. Fighters have experts in hydration that ensure they get the water and salt out of and into their system in the best way possible (although the research is clearly pointing to dehydration as never being safe – as long as there are incentives to dehydrate for weigh-ins, people will need to know how to rehydrate most effectively). Marathon runners carefully time and plan their meals before a race so that their energy stores are at an optimal level but their bodies are not oversatiated. These factors are probably all important.
Levels to Learn From
We do need to be careful, however, as elite athletes have an incentive to try things that may not be beneficial, but are unlikely to be harmful. A good example of this is the much derided “TB12 Method“. Other than being a marketing gimmick, it seems like this is pretty much par for the course for high end athletic diets and training – including the pliability aspect, which is touted here as being the secret ingredient, but has been a focus for elite athletes and trainers for many years. Add to that a bunch of dubious but probably harmless ingredients, and you’ve got a recipe for a ‘guru’ book.
However, they will occasionally find something groundbreaking and useful, which is why it can be especially good to see what is picking up traction among the best of the best. Most elite athletes fifty years ago thought weight training was counterproductive for their sport – that was the conventional wisdom from basketball to boxing to badminton. Today almost all elite athletes put up numbers in the weight room that would staple an average joe to the floor.
When you see a movement like that – a sustained shift in conventional wisdom beginning with the people with the most to lose (and gain), that is how you can identify a point of real value and leverage, and potentially benefit from being early to the game.