Edward Quince’s Wisdom Bites: The Great Conformity Trade

 In finance, we often talk about "style drift"—when a manager strays from their core competency to chase the latest fad. But there is a deeper, more existential style drift that plagues almost every investor: the drift away from their own nature.

Today’s wisdom comes from a 1958 letter by Hunter S. Thompson. Before he was the gonzo journalist of Fear and Loathing, he was a 20-year-old grappling with the meaning of a life well-lived.

The Wisdom Bite:

“...we must make the goal conform to the individual, rather than make the individual conform to the goal... In short, he has not dedicated his life to reaching a pre-defined goal, but he has rather chosen a way of life he KNOWS he will enjoy. The goal is absolutely secondary: it is the functioning toward the goal which is important.”

The Mimetic Trap In the investment world, we are obsessed with pre-defined goals: the $5 million net worth, the 20% IRR, the early retirement. We look at a famous investor—say, Warren Buffett or a crypto-billionaire—and we try to become them. We force our individual nature to conform to their goal.

Thompson argues this is backward. If you are naturally anxious, forcing yourself into a high-volatility "Degen" strategy because you want the goal (wealth) will destroy you. You will sell at the bottom because the "functioning" (the daily reality of the strategy) is incompatible with your nature.

Functioning Over Destination "The goal is absolutely secondary." This is heresy on Wall Street, but it is the truth. If you do not enjoy the functioning—the reading of annual reports, the stomach-churning volatility, or the quiet patience of index investing—you will not reach the goal.

The Financial Takeaway: Stop trying to trade like someone else. Stop building a portfolio that looks like the "consensus" of what a successful investor holds. Design a financial life that conforms to you. If you can't sleep when the market drops 2%, your portfolio is wrong, no matter what the expected returns are. The only strategy you can stick with is the one that fits your own "functioning."

Edward Quince’s Wisdom Bites: The Via Negativa of Success

 We are obsessed with the "secret to success." We buy books on "How to Be Rich" and "The Habits of Billionaires." We look for the magic formula, the silver bullet, the "one thing" we need to do.

But what if we are looking through the wrong end of the telescope? What if we can't know what success is, but we can know exactly what it is not?

The Wisdom Bite:

"we are unable to apprehend by knowing what it is. Yet we are able to have some knowledge of it by knowing what it is not." — Thomas Aquinas

“A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc.” — Charlie Munger

Inversion and the Avoidance of Ruin

This is the principle of Inversion. Instead of trying to be brilliant, try to be "consistently not stupid".

In finance, it is hard to know exactly which stock will go up 10x. It is much easier to know what causes ruin: excessive leverage, chasing fads, and panicking at the bottom. If you simply avoid those three things, you are ahead of 90% of investors.

As we discussed regarding Hyman Minsky, "stability breeds instability". We get comfortable, we get complacent, and we stop avoiding the bad habits. We drift into the "idiot" phase of the cycle.

Knowing What You Are Not

This applies to your identity as an investor. You might not know if you are a "value investor" or a "growth investor." But you should know what you are not.

"I am not a speculator." "I am not a day trader." "I am not a gambler."

By defining the boundaries of what you will not do, you create a safe harbor for what you should do. You create a Margin of Safety not just in your valuation, but in your behavior.

The Financial Takeaway

Don't strive for the perfect portfolio; strive for the portfolio that won't get you killed. Don't try to time the market perfectly; just ensure you never have to sell at the bottom.

Success is often just the result of surviving when everyone else has been eliminated by their own mistakes. As Munger said, "It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent".

Edward Quince’s Wisdom Bites: The Fabric of the Rational and Non-Rational

 We like to think of investing as a hard science. We want it to be physics. We want inputs, formulas, and predictable outputs. We want the "efficient market hypothesis" to be a law of nature, not a debatable theory.

But any honest observer of markets knows there is a ghost in the machine. There is a human element that defies spreadsheets. Today, we turn to a rather esoteric source for a financial blog, the German theologian and philosopher Rudolf Otto, to understand this duality.

The Wisdom Bite:

"The intimate interpenetration of the non-rational, the rational elements...like the interweaving of warp and woof in a fabric"

The Warp and the Woof of Markets

Otto was writing about the concept of the "holy," but this metaphor of the fabric perfectly describes the reality of the financial markets.

The "rational elements" are the warp—the vertical threads held under tension. These are the fundamentals: cash flows, interest rates, dividends, book value. These things are measurable, calculable, and necessary. Without them, there is no structure.

But the "non-rational elements" are the woof—the horizontal threads woven through the warp. These are the psychological forces: fear, greed, hope, panic, trust, and "animal spirits." These are the stories we tell ourselves about the future.

The Failure of Pure Reason

Investors who rely solely on the "rational" often go broke. They look at a stock that is "mathematically" cheap and buy it, ignoring the non-rational reality that the market has lost faith in the management or that a paradigm shift is rendering the business model obsolete. They are the ones who short a bubble too early because "the math doesn't work," forgetting that the market can remain irrational longer than they can remain solvent.

Conversely, investors who rely solely on the "non-rational" (vibes, momentum, narratives) are gambling. They are weaving a fabric with no structure, which eventually unravels when reality (cash flows) asserts itself.

The Financial Takeaway

True financial wisdom lies in the "intimate interpenetration" of these two worlds. You must be a master of the spreadsheet, yes. You must understand the rational valuation. But you must also be a student of human nature. You must understand the "warp and woof."

When you analyze an investment, ask: "I see the numbers, but what is the feeling of this market? What is the non-rational narrative driving the price?" Success isn't about choosing between math and psychology; it's about seeing how they are inextricably woven together. The data tells you what should happen; the non-rational tells you what might happen in the meantime.

Edward Quince’s Wisdom Bites: The Batboy Strategy (Who is on Your Bus?)

We spend hours analyzing balance sheets, P/E ratios, and yield curves. We obsess over the "what." But we often ignore the "who."

In investing, as in life, you are rarely a solo practitioner. You are part of a network, a team, an ecosystem. Today’s Wisdom Bite comes from Warren Buffett, who uses a baseball analogy to explain one of the most critical leverage points in your financial life: the company you keep.

The Wisdom Bite:

“My managerial model is Eddie Bennett, who was a batboy... It’s simple – to be a winner, work with winners. ...Eddie understood that how he lugged bats was unimportant; what counted instead was hooking up with the cream of those on the playing field."

The Agency Problem

In economics, we call it the "principal-agent problem." When you hire a fund manager, a CEO, or a financial advisor, are their interests aligned with yours? Or are they "working for pay" with "no concern for the sheep"?

Buffett’s "Eddie Bennett" strategy is about identifying high-integrity, high-competence individuals and hitching your wagon to them. It is about recognizing that you cannot be an expert in everything. You cannot be the CEO of every company in your portfolio. You have to delegate. But delegation without vetting character is essentially gambling.

Stewardship vs. Salesmanship

The financial industry has largely shifted from "stewardship to salesmanship." Asset gatherers want your money to earn fees; stewards want to grow your money because they treat it as their own.

How do you tell the difference? You look for the "winners" in the Buffett sense. Not just people who have had a lucky year (the "lucky idiots" Taleb warns of), but people with "skin in the game." People who admit mistakes. People who view their role as a vocation, not a transaction. You look for the "seamless web of deserved trust" that Charlie Munger spoke of.

The Financial Takeaway

Look at your portfolio. Who is running the companies you own? Are they "able and trustworthy"? Do they have a track record of treating shareholders as partners, or as liquidity providers to dump stock on?

Now look at your life. If you surround yourself with "degens" chasing meme coins, you will eventually become a degen chasing meme coins. If you surround yourself with prudent, long-term thinkers, you will absorb that wisdom by osmosis. Environment is the invisible hand that shapes your returns.

Edward Quince’s Wisdom Bites: The Art of Unlearning (Or, How to Escape the ZIRP Trap)

There is a dangerous comfort in experience. We assume that because we have navigated the river before, we know where the rocks are. But what if the river changes course? What if the water level drops?

We are currently navigating a potential regime change in markets—from a decade of zero interest rates (ZIRP) to a world where money actually costs something. The skills that made you rich in 2021 might be the exact habits that make you poor in the current cycle. Naval Ravikant provides the perfect framing for this struggle in today's Wisdom Bite.

The Wisdom Bite:

“The hard parts are not the learning, it is the unlearning. It’s not the climbing up the mountain. It’s the going back down to the bottom of the mountain and starting over. It’s the beginner’s mind... you have to be willing to start from scratch. You have to be willing to hit reset and go back to zero. Because you have to realize that what you already know, and what you’re already doing, is actually an impediment to your full potential.”

The Sunk Cost of Knowledge

In finance, we often talk about "sunk costs" regarding money. But there is also a sunk cost of intellectual capital. If you spent the last ten years becoming an expert in analyzing unprofitable tech growth stocks valued on "price-to-sales" (or price-to-dreams), you have a heavy sunk cost in that framework.

Unlearning is painful. It requires admitting that the "rules" you mastered were perhaps just temporary anomalies. It requires acknowledging that "history doesn't repeat itself, but it rhymes," and the rhyme scheme has changed. The strategies that worked when capital was free are often toxic when capital is scarce.

The Danger of the "Great Winfield"

In the 1970s, during the "Death of Equities," there was a character in the financial literature called the "Great Winfield" who said, "The strength of my kids is that they are too young to remember anything bad."

Sometimes, experience is a shackle. The veterans are often held back by historic norms. But today, the "kids" who only know crypto bubbles and Fed pivots might be the ones shackled by a lack of history. They need to unlearn the idea that the Fed will always save them. They need to unlearn the idea that valuation doesn't matter.

The Financial Takeaway

The market is a ruthless teacher. It punishes hubris. To survive, you must cultivate "intellectual humility." Ask yourself: What belief am I holding onto just because it worked for me in the past?

Are you still betting on "transitory" inflation? Are you still leveraging up because "rates never stay high"? Be willing to go back to the bottom of the mountain. Re-underwrite your thesis. True wisdom isn't just accumulating new facts; it's scraping away the barnacles of old, defunct beliefs that are dragging you down.

Edward Quince’s Wisdom Bites: Finding Your Fixed Point in a Volatile World

We talk a lot about volatility here. We measure it with the VIX, we stress about it during earnings season, and we pay expensive fees to hedge funds promising to dampen it. But rarely do we talk about the internal mechanism required to survive it.

Today’s wisdom comes from Myron Scholes. Yes, that Scholes—the Nobel laureate of Black-Scholes fame. While his mathematical models attempted to price risk and options, his philosophical take on the relationship between volatility and time offers a profound lesson for the individual investor trying to navigate a chaotic world.

The Wisdom Bite:

"Everything in life is volatility times time. As volatility increases, time compresses. But what we care about is the validity of the fixed point. If we lose it, everything in the past becomes meaningless."

When Time Compresses

"As volatility increases, time compresses." Anyone who lived through the GFC in 2008, the Covid crash of 2020, or even a sudden flash crash knows this feeling viscerally. During a market panic, a day feels like a month. A week feels like a decade. You check your portfolio at 9:30 AM, and by 10:00 AM you have aged five years.

In these moments of compressed time, our biological wiring goes haywire. We are programmed for survival, which means "fight or flight." In finance, that translates to "sell everything" or "buy the top" in a FOMO frenzy. We lose our ability to think about the long term because the short term has become so loud, so violent, and so consuming. The "long run" suddenly shrinks to the next five minutes.

The Necessity of the Fixed Point

Scholes mentions the "validity of the fixed point." For an investor, this "fixed point" is your Investment Policy Statement (IPS), your core philosophy, or your "North Star." It is the pre-commitment you made when the skies were clear and your heart rate was resting.

If you don't have a fixed point—if you don't know why you own what you own, or what your time horizon actually is—volatility will wash you away. You will become the "six-foot-tall man who drowned crossing the stream that was five feet deep on average." You drown because you panic in the deep spot, losing your footing because you forgot where you were trying to go.

The Financial Takeaway

If you lose your fixed point, "everything in the past becomes meaningless." All the years of disciplined saving, all the dividends reinvested, all the prudent decisions—they are vaporized in one moment of panic-selling at the bottom.

You cannot predict the storm. We’ve established that forecasting is a "fool's errand." But you can build an anchor. Before the next crisis hits (and it will), define your fixed point. Is it a specific retirement date? Is it a commitment to own high-quality businesses forever? Write it down. When time compresses and the noise becomes deafening, look at the fixed point, not the ticker tape.

Edward Quince’s Wisdom Bites: We Are The Market

Missed posting last week, whoops! I won't make it up to you. 

We spend an inordinate amount of time discussing "the market" or "the economy" as if they are weather patterns—external forces that happen to us, completely outside our control. We check the CPI print like we check the rain forecast. We talk about a "vibecession" as if it’s a flu bug going around.

But today’s wisdom comes from a source far removed from Wall Street, yet perhaps more relevant to our current malaise than any Fed governor. Writing in the 5th century, Saint Augustine of Hippo offered a perspective on "hard times" that cuts through the noise of modern financial fatalism.

The Wisdom Bite:

“Bad times, hard times, this is what people keep saying; but let us live well, and times shall be good. We are the times: Such as we are, such are the times.”

The Myth of the External Market

In finance, we often fall into the trap of thinking the market is a distinct entity. But Augustine’s logic reminds us of a fundamental truth: We are the market.

The economy is not a machine; it is a complex adaptive system made up of the aggregate decisions of millions of individuals. When we collectively hoard cash out of fear, we create the recession we dread. When we collectively chase speculative assets like meme coins or the latest AI hype because of envy, we create the bubbles that eventually burst. The "times" are not imposed upon us; they are a reflection of our collective character, prudence, and fortitude.

Reflexivity and Responsibility

George Soros famously coined the term "reflexivity" to describe how market participants' views influence the market, which in turn influences the participants' views. Augustine was essentially preaching reflexivity 1,500 years before Soros.

If you are constantly doom-scrolling, sharing pessimistic takes on X (formerly Twitter), and making investment decisions based on fear, you are actively contributing to the "bad times." Conversely, if you act with prudence, focusing on value and long-term compounding, you contribute to a stable, functioning capital market.

The Financial Takeaway

Stop waiting for the Fed to make the times "good" again. Stop waiting for a particular election result to fix your portfolio. As Augustine suggests, the quality of the times depends on the quality of our actions.

If you want a healthier market, be a healthier investor. Do you want a market that values substance over hype? Then stop buying hype. Do you want an economy that rewards long-term thinking? Then stop trading on short-term noise. We cannot control the geopolitical winds or the supply chains, but we can control our contribution to the aggregate. If you invest with integrity and discipline, you are—in a small but non-zero way—improving the "times" for everyone.

Edward Quince's Wisdom Bites: Low Ego

Nas closes his masterclass with a lesson on temperament: “The liquidity is high, but the ego is low / Light years ahead of where the paper used to go”.

This is the definition of the "Inverse Degen" trader. High liquidity usually breeds high ego, leading to leverage, overconfidence, and eventual ruin. Nas treats his liquidity as optionality—dry powder waiting for an opportunity—rather than a scorecard to flash. He creates a "Margin of Safety" by keeping his ego small while his bankroll grows.

This "low ego" approach is the exact opposite of the "six-foot-tall man who drowned crossing the stream that was five feet deep on average". High ego investors assume they can navigate any volatility, so they leverage up. But as Howard Marks reminds us, leverage doesn't add value; it only magnifies outcomes and reduces survivability. Nas keeps his liquidity high so he never has to sell at the bottom to meet a margin call. He understands that in a market of "forced sellers" and "noise," the person holding the cash (liquidity) and the patience (low ego) holds all the cards when the cycle turns.

The Financial Takeaway: Markets punish overconfidence—slowly, then all at once. If your strategy requires constant public validation or "flashing" your wins, you are fragile. The ultimate financial flex is having the liquidity to act, but the discipline (and low ego) to wait.