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.

Edward Quince's Wisdom Bites: Amplifiers

 On Shine Together, Nas frames venture capital not as finance, but as recognition: “Angel investing in the angels that the world forgot / Turning a humble vision into a billion-dollar lot”.

This aligns with a core tenet of humanistic capitalism: capital doesn't create greatness, it amplifies it. However, the lesson here is about incentives. Nas didn't just throw money at charity cases; he invested where incentives were aligned, focusing on founders rather than fads. He understands that capital placed without alignment distorts, but capital placed with conviction compounds trust.

This approach stands in stark contrast to the "Idiot Lender" chronicles we’ve reviewed, where capital is deployed based on the foolish assumption that rates will always drop or that trends will last forever. Nas avoids the "blind capital" that Bagehot warned about—the money that seeks someone to devour it in a speculative frenzy. Instead, he looks for "asymmetric upside" in overlooked sectors. By investing in "the angels the world forgot," he is practicing a form of contrarianism, avoiding the crowded trades where "too much money chases too few deals" and securing a margin of safety through valuation and character.

The Financial Takeaway: Don't confuse "doing good" with "doing well." The best investments do both, but only when the incentives are clean. Look for the "angels the world forgot"—the undervalued assets with high character—rather than the hype the world is chasing.

Edward Quince's Wisdom Bites: Exit Strategies

 Retail investors obsess over entry points (buying the dip); professionals obsess over exits (liquidity events). On My Story Your Story, Nas clarifies the endgame: “The exit strategy was always the goal / Now the equity’s a story that never gets old”.

Why is the equity story timeless? Because it provides detachment from the daily grind of inflation. Nas notes, “Inflation hitting the bodega, the price of the hero rose / But the value of the verses, only God knows”. This is a profound macro observation: Inflation destroys cash flow and purchasing power at the bodega, but it rewards scarce assets like intellectual property and equity.

Nas is essentially describing the difference between "nominal" and "real" assets. As we explored in the "Fiscal Theory of the Price Level," when government debts exceed the faith in repayment, you get inflation. In that environment, the "bodega" owner gets squeezed by rising input costs and a consumer with less purchasing power. However, the owner of intellectual property (the "verses") possesses an asset with infinite pricing power and zero marginal cost of reproduction. This is the ultimate hedge against the "debasement of currency". You want to own things that re-price upward when the Fed prints money, not things that require you to work harder just to stay in the same place.

The Financial Takeaway: Wealth that survives cycles must outlast narratives and retain pricing power independent of the CPI print. If you don't have an exit strategy—a way to eventually detach your lifestyle from your labor—you don't have an investment; you have a job.