It’s late at night on a cross country flight that was delayed three hours before leaving JFK due to storms coming off the Pacific. I believe I land sometime around 2am in San Francisco, and as I sit here, I find myself thinking about people’s lives represented as mathematical models. Specifically, what’s been running through my head over the past weeks in the few slow moments of my life is the idea of real-time scorekeeping.
I’m 36 years old, have been married for years and now have two children. Many of my friends and colleagues are in some sort of similar position, at least in a general sense – beginning families or considering it, moving further and further down the path of a career, and waking up in the morning with things like back pain for the first time. I suppose the same is true for people all over the place at this stage in their lives, but I seem to find myself in a lot of conversations with folks who are assessing themselves. Did they make the right decisions about what career field to get into? Should they have stayed at that company longer? Are they working too hard? Should they be working harder? Should they just flee their hectic city lives and head towards a simpler life? Are they getting compensated enough? Is there enough meaning in their lives? In the end, I guess it all boils down to a single underlying question – are they living a good life.
Years ago, I read Naseem Taleb’s great book, Fooled By Randomness, and one of the many parts that has stuck with me since was a section where he discusses why people who own stocks are less and less happy the more frequently they check their portfolios. The basic reasoning is this – if a person loses a dollar or gains a dollar, the two events trigger different chemical reactions within the body. For most people, the disappointment of the loss is not equal to the joy of the gain. So if you bet a dollar on the flip of a coin and then flipped it 100 times in a row, settling up each time, the result would be a significant net disappointment, despite the fact that on average, you haven’t gained or lost anything. Applied to the stock market, the situation is slightly different. In general, markets tend to rise over time. So, if you only check your portfolio once a year, in general that should be a happy event more often than not. Conversely, no matter what the general trend of any stock may be, if you check it with infinite frequency, it should be up or down effectively 50% of the time. So the casual observer is more prone to be happy. And the trader with infinite frequency is prone to be unhappy, despite the fact that his portfolio may be performing far better.
I think it was this analysis, rattling around somewhere in the dark recesses of my mind in between sales trajectory curves and monte carlo simulation results, that probably led me to picture happiness in the context of the above questions on a visual basis – eg. plotted on a chart over the span of an 80 year life. So if we look at it in this frame, how would you keep score for the following 8 “people”?
When considered in this frame, it seems to me that the question itself is fundamentally useless, especially with respect to the validity of any finite measurement at a specific point in time. Further to this point, we have to take into account that people often are not happy even when they are supposedly on top of the world. In Michael Lewis’ latest book, The Big Short, he tells the story of Dr. Michael Burry, one of the first hedge fund managers to foresee the looming subprime crisis. Dr. Burry positioned his fund Scion Capital perfectly for the fallout and made a fortune for his investors and for himself. Before the profits started to flow in, with investors moving towards open revolt, he wrote an email to his wife saying that “It feels like my insides are digesting themselves.” So when the market turned exactly according to his predictions and his $550 million fund generated profits in excess of $700 million in a single year, you would have thought that there would have been enough of an equal and opposite happiness reaction to make Newton proud, but nothing of the sort happened. In fact, after it was all done, he wrote to a friend, “…this business kills a part of life that is pretty essential. The thing is, I haven’t identified what it kills. But it is something that is vital that is dead inside of me.”
So what does this mean for those of us who are riding our own curve, anywhere from a third to half way across the chart? First of all, there has to be a recognition that the individual cannot see all of the data, and as such, cannot score the game. Second, I think my suggestion to friends and colleagues who are wrestling with an unhappy section of their own personal chart will be something along the lines of the following, “Keep flipping that coin as much as your thumbs will allow. But just don’t bother checking to see if it’s heads.”
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