It's 2024 and life is still messy

Welcome to 2024! I hope you all had a lovely end of the year. Since there are quite a few new readers who have joined in 2023, I would like to introduce you all to the purpose of these posts.

First, the general structure. I post five days a week but only a mad or extremely bored person would read all of them. So here is a quick guide to the weekly structure: On Mondays, I write about all things ESG and sustainability. Tuesday to Thursday, I write about serious economics and finance stuff but Friday, all bets are off. Friday posts are about the quirky and fun side of economics and I ask you not to take the Friday posts too seriously. They aren’t meant to be taken seriously.

Most importantly though, be aware that in my serious posts Mondays to Thursdays I will not write about the market moves of the day or anything like that. My posts are an opportunity to take a step back and think about markets and economics more fundamentally.

And when I do that – and this is the raison d’être of these missives – I will not do this based on what some theory or model says about the world. I will almost always rely on experimental results because as an investment practitioner, I am interested in the world as it is, not as it should be.

This is important because sometimes readers feel irritated by my posts and in my experience, it is almost always because I have written something that is in contradiction to preconceived notions about how the world should work or what people have learned at university.

Let me be clear, I think most of the things I learned while studying towards my post-grad degree in economics are either wrong or worthless for practitioners. You may not think this is true, but what I do in these posts is show you empirical data that form my view of the world. We can then discuss whether the empirical results are wrong or incomplete, and I encourage all my readers to write and challenge me. But I will almost never discuss things that are based on the argument that “(ceteris paribus) if you do X then Y should happen”, or along the lines of “the model/theory developed by Nobel winning economist Z says that…”

Do you know why I don’t bother with such discussions?

Because while I have a postgrad degree in economics and finance, I first trained as a physicist and mathematician. And in physics (and the hard sciences in general), you build your models and theories to fit the data. In economics, all too often, empirical data that contradicts a theory is dismissed or ignored.

So, to give you an idea of what you can expect when you read these missives in the future, here are some interesting posts from 2023:

• In my view, the most important posts I wrote in 2023 were my arguments against Cassandras. So many people listen to doomsayers and are constantly afraid of things that could go wrong. Here is an explanation of why listening to these people is bad for your performance and in the post you will find links to all the individual doom and gloom scenarios that are frequently debated and why I think they are all not worth listening to.

• Another important post, in my view, was my discussion on why just sitting there and waiting for things to go wrong is not going to work. If you have identified a vulnerability in markets you also need a trigger that will materialise pretty soon otherwise it is better to stay invested in a bubble or mispriced market and just ride along. If you don’t believe me, this post has the maths to go along with the argument.

• When it comes to investing, there is a big difference between the average stock and the median stock as I explain here.

• The world’s most common forecasting mistake is to extrapolate exponential growth forever when in real life there are limits to growth.

• Finally, after all these discussions of things that can go wrong, here is the most uplifting post of 2023, in my view. There is evidence that we can learn anything we set our mind to. No really, I can, you can, we all can.

As I said in the title of this post: life is messy. Financial markets and the economy do not know what your theory says. They do not react to one variable in always the same way and with the same strength. This is why I love being an investor and why I love studying the economy. They are social systems where billions of people interact with each other, and each individual has different information, incentives, biases, and moods. This means there are second round, third round, and fourth round effects that are hard to guess from a simple model that says “(ceteris paribus) if you do X then Y should happen”.  

If you, like me, are curious about how the world works instead of being comfortable in your knowledge that a theory or model tells you how the world should work, then keep on reading and explore the world in all its facets and surprises with me. I promise it is going to be a fun journey.