Edward Quince's Wisdom Bites: The Discipline of Uncertainty

Welcome back to Edward Quince's Wisdom Bites, your daily reminder to cut through the noise and focus on what truly matters. Today, we're diving into a collection of a timeless mix of previous advice and XTODs (X/Twitter Thoughts of the Day) that illuminate the multifaceted world of risk management.

The Best of Edward Quince on Risk Management

In a world saturated with data and predictions, genuine insight often lies in understanding the unpredictable and managing our responses to it. Here are some profound observations on navigating risk, gleaned from the wisdom shared in our daily updates:

1. Embrace Uncertainty and Ditch Prediction

The future is inherently uncertain, and trying to predict it is often a fool's errand. As Myron Scholes wisely noted, "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". Many "experts" confidently assert future outcomes, but remember that "Nobody knows anything, and that's okay". In fact, "It is very, very hard to keep in mind that we're not good at predicting & even harder to incorporate it into a general policy". The incentives in finance often encourage adding "noise, complexity and a constant pressure to do something", but "Time is the best filter. It is the only filter I trust". Your "behavior matters more than your forecast".

2. Start with Your Goals, Not the Market

Effective risk management begins with a clear understanding of what you want to achieve. As one XTOD puts it, "Risk offers the possibility of more, and risk management tools aim to empower us to go for more while taking less risk. Using them correctly involves staying focused on our goals and taking just enough risk to achieve them". Without a goal, "Taking a risk without a goal is just like getting in a car and driving around aimlessly expecting to wind up in a great place". Remember, "You don't need to worry about progressing slowly. You need to worry about climbing the wrong mountain".

3. Master Yourself: The Toughest Opponent

Risk management isn't just about financial models; it's deeply human. "The greatest battle of all is with yourself—your weaknesses, your emotions, your lack of resolution in seeing things through to the end. You must declare unceasing war on yourself". Overconfidence is a primary pitfall, as "Being 100% sure of yourself at all times betrays arrogance and breeds complacency. Questioning yourself reflects humility and propels growth". We often err by overestimating certainty or misjudging probabilities. Our aversion to loss can even lead us to take "bigger risks than we should or even realize". Cultivate humility, because "The need for certainty is the greatest disease the mind faces".

4. The Peril of Leverage: Don't Drown

One of the most dangerous aspects of risk is leverage. Howard Marks' powerful analogy warns, "never forget the six-foot-tall person who drowned crossing the stream that was five feet deep on average." He stresses that "To survive, you have to get through the low points, and the more leverage you carry (everything else being equal), the less likely you are to do so". Leverage "pushes routine risks into something capable of producing ruin", making investments inherently riskier.

5. Survival and Simplicity are Paramount

For long-term success, staying in the game is more important than chasing speculative gains. As Charlie Munger famously advised, "Never interrupt compounding unnecessarily". Warren Buffett echoed this with his fundamental rule: "Never risk permanent loss of capital". This commitment to survival means prioritizing prudence. "Margin of safety—you can also call it room for error or redundancy—is the only effective way to safely navigate a world that is governed by odds, not certainties". Simplicity is also key: "Block out all the noise and keep it simple".

6. Action and Prudence

While patience is a virtue, there are times to act. "Risk no more than you can afford to lose, and also risk enough so that a win is meaningful. If there is no such amount, don't play". "Intelligence without courage leads to anxiety because you will spend your time overthinking instead of acting, taking risks, improving your life". In making decisions under uncertainty, "the consequences must dominate the probabilities". A simple hedge is often to "simply take less risk".

Ultimately, understanding risk management means acknowledging that "The four most dangerous words in investing are: ‘this time is different’". By focusing on timeless principles, cultivating self-awareness, and maintaining a long-term perspective, you can navigate the inherent uncertainties of life and markets with greater resilience and wisdom.

Edward Quince's Wisdom Bites: The Silent Chains – The Perils of Bureaucracy in Finance and Beyond

Welcome back to Edward Quince's Wisdom Bites, where we peel back the layers of illusion to confront realities that often go unexamined. Today, we turn our gaze to a pervasive, often insidious, force that can stifle innovation, obscure truth, and ultimately, undermine sound financial decision-making: Bureaucracy.

In our complex world, where institutions grow ever larger, the insidious creep of bureaucracy is a constant challenge. As the late Charlie Munger, a frequent source of wisdom in these pages, noted, the "great defect of scale" is that as an organization gets big, it acquires bureaucracy.

The Unseen Costs of Bureaucracy
Bureaucracy, in its essence, represents a system that, despite its intentions for order, often becomes its own worst enemy. Its perils are multifaceted:
• Inefficiency and Stifled Action: Munger described large bureaucracies as becoming "big, fat, dumb, unmotivated". The work is often perceived as done "when it goes out of your in-basket into somebody else’s in-basket," rather than when it's actually completed. This leads to layers of management and associated costs that are unnecessary. It takes "forever to get anything done," allowing nimbler entities to "run circles around them". This aligns with the idea that bureaucracy "stifles initiative and creativity".
• Corruption and Lack of Accountability: Munger also warned that bureaucracies "tend to become somewhat corrupt". This can manifest in various ways, from direct fraud to a more subtle "dog-ate-my-homework attitude" where policymakers are reluctant to take responsibility for mistakes.
• Distorted Focus: Bureaucracies can become so consumed with internal processes that they lose sight of their core mission. Instead of serving clients, public agencies might be "dominated more by bureaucratic ways of thinking". This can lead to the "enshittification" of services, where a product degrades in the "blind pursuit of profit" once a network effect is locked in, as highlighted by Lyft's CEO David Risher. This also suggests a lack of integrity towards the customer.
• Resistance to Truth and Change: Bureaucratic inertia often prevents organizations from adapting. The concept of "sacred cows"—a set of variables that led to early success—can become "limiting constraints which hold you stuck on a local maximum," leading to decay in growth. This fear of change is significant, as "change is scary. So is flat-lining".
• Hiding Reality: Bureaucracy can contribute to a climate where truth is obscured. For instance, in finance, financial statements signed off by auditors or regulators are not always "right," as "the incentives for these parties just aren't aligned with drawing out the truth". This creates an environment where "believing in something that may not be entirely (or yet) true is the mark of a visionary or a fraud," with luck or timing often differentiating the two.

Bureaucracy's Impact on Financial Decision-Making
In the financial realm, the perils of bureaucracy are particularly acute:
• Hindrance to Effective Risk Management: Risk management, though often seen as a quantitative task, is fundamentally about "managing people, processes, and institutions". Bureaucracies, with their complex layers and misaligned incentives, often fail here. Many financial disasters are "the result of simple operational problems or oversights rather than complex risk management failures". "Lax trading supervision or other management/control problems" have contributed to numerous incidents, sometimes motivated by hiding earlier losses. This underscores that risk management is also about "managing ourselves—managing our ego, our arrogance, our stubbornness, our mistakes".
• Over-reliance on "Expert" Opinion: In a bureaucratic system, there's a tendency to defer to "experts" who may project wisdom they do not possess, leading to a "modern day gnostic impulse". This creates an environment where forecasts, even from "blue chip forecasters," are "less reliable than the flip of a coin".
• Complexity over Simplicity: Financial institutions, being large organizations, often "have a large incentive to favor the complex and costly over the simple and cheap". This complexity, often a byproduct of bureaucracy, can obscure genuine understanding and lead to suboptimal outcomes for investors.

Breaking the Chains
The antidote to bureaucracy lies in fostering environments that prioritize clarity, humility, and genuine accountability:
• Simplicity and Focus: "Keeping your organization simple is not simple, but it is very important". "Clarity comes from subtraction, not addition. Remove the noise, the distractions, and the unnecessary. What truly matters will emerge". This means focusing on "what truly matters" and resisting the urge to have "an opinion on everything".
• Authentic Leadership: Leaders must cultivate "a culture and organization that can respond to risk and withstand unanticipated events". This requires being "attuned to risks (and uncertainties)" and understanding that "true power" stems from "honesty, compassion, and a dedication to enhancing other people's lives".
• Intellectual Humility: Recognizing that "Nobody knows anything, and that's okay" is a powerful starting point. It means constantly asking, "Do I know what I think I know? How do I know what I think I know? What evidence is there that I might be wrong?".
• Courage to Act with Integrity: It takes courage to admit mistakes and to prioritize truth, even when it's uncomfortable. As Jim Leyland put it, telling the truth might cause temporary discomfort but builds long-term trust.

Ultimately, the goal is to cultivate genuine wisdom, which is about exercising "sound judgment and appropriate action". This ascent to wisdom requires deep understanding, continuous learning, and a willingness to "detach yourself from the crowd". For, while the world will always scream, "Don't just sit there, do something!", wisdom often whispers, "Don't just do something, sit there!". By choosing simplicity, truth, and integrity over the alluring promises of bureaucratic complexity, we pave the way for more robust financial decisions and a more fulfilling life.

Edward Quince's Wisdom Bites: The Enduring Human Condition

Welcome back to Edward Quince's Wisdom Bites, your daily reminder to cut through the noise and focus on what truly matters. Today, let's reflect on a constant in our ever-changing world: the human condition.

No matter how sophisticated our markets or technologies become, human nature remains remarkably consistent. As Ben Graham observed, financial services work often illuminates "human nature in the securities markets". The recurring patterns of greed, fear, envy, and irrational behavior persist through history. "People have always had this craving to have someone tell them the future", a demand that charlatans are always ready to supply with "vague, simple messages wrapped in a well crafted veneer that is alluring".

The rise of "finfluencers" and social media amplifies this ancient dynamic, creating "cultlike followings and draw[ing] people into otherwise ridiculous ideas" at an exponential rate. It becomes increasingly "unclear whether finfluencers are authorised to conduct regulated activities", yet they are "an important source for young investors". As an XTOD bluntly puts it, "Celebrity is the most powerful currency in media, including financial media. It's more important than track record, novelty of insight, or ROI". This means that "most people just want to hear the latest take from the person they know, even if that person's been saying the same thing over and over again for years and has been consistently wrong doing it".

This reality means that "any amount of intelligence can be overridden by ego, insecurity, immorality, bad incentives, or impatience".

Instead of relying on what "experts" confidently assert, we must cultivate intellectual humility and discernment.

Jason Zweig's commentary on Ben Graham's "margin of safety" extends this principle to the investor themselves: "Do I know what I think I know? How do I know what I think I know? What evidence is there that I might be wrong?". This self-awareness is crucial for "investing on the basis of protection - from overpaying for a stock or from overconfidence in the quality of their own judgment".

Ultimately, the goal isn't to eliminate these human tendencies, for "the iron rule of life is that everybody struggles". Instead, it's about recognizing them and building a robust process that accounts for them. It's about consciously choosing "courage" and "focusing on what you can control", rather than getting swept away by the collective delusion of the moment. As a reminder, "The game of life is the game of everlasting learning".

Edward Quince's Wisdom Bites: The Enduring Echoes

In an age drowning in data and relentless forecasts, the most valuable skill might just be the art of ignoring. As this blog often suggests, "the more data you get, the less you know what’s going on". This "Noise Bottleneck" means vast quantities of information can become "toxic," increasing the ratio of "spuriousness" to valuable "signal".

We're often told that some economic data point is "the secret to the future" or "the most important CPI print of your lifetime". But as the sources reveal, predicting economic variables like GDP growth, employment, inflation, and the 10Y Treasury Yield is essentially a coin flip. Mark Twain famously quipped, "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so". Morgan Housel added, "if you’ve relied on data and logic alone to make sense of the economy, you’d have been confused for a hundred straight years". This constant deluge of information often leads to a "noise to signal ratio" that makes it harder, not easier, to understand what's truly going on. This is why we advocate for embracing uncertainty and developing a filter to tune out the overwhelming "noise".

This blog aims to be an intellectually humble source of timely, diverse perspectives that empowers you to become more informed and discerning. So, keep your popcorn stockpile high, focus on what truly matters, and remember: progress comes bit by bit.

Your behavior matters more than your forecast. 

Stop trying to be spectacular. Start being consistent. 

Clarity comes from subtraction, not addition. Remove the noise, the distractions, and the unnecessary. What truly matters will emerge. 

The less the prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs. 

Your time is your most valuable asset. Leverage it wisely by focusing on what truly matters

Edward Quince's Wisdom Bites: The Ascent to Wisdom – Beyond Mere Data

As we navigate an increasingly data-saturated world, today we ponder the ultimate goal: the ascent to wisdom.

In this blog, we've often referenced the DIKW (Data, Information, Knowledge, Wisdom) pyramid. While data is the base, and information provides meaning, and knowledge offers context, wisdom sits at the apex, representing the exercise of sound judgment and appropriate action. Unfortunately, as Simon Winchester warned, "today's all-too readily available stockpile of information will lead to a lowered need for the retention of knowledge, a lessening of thoughtfulness, and a consequent reduction in the appearance of wisdom in society".

The irony is that many seek answers from external sources, whether it's the daily barrage of economic updates or social media pundits. Yet, much of this is just "noise". As the esteemed Charlie Munger advised, "In my whole life, I have known no wise people who didn't read all the time — none, zero". 

But it's not just about reading; it's about how you read. As an XTOD emphasizes, "Re-reading is probably more important than reading. Seek to cognitively own a great book rather than just reading it". It's about deep understanding, not just consumption.

The journey to wisdom involves:

• Continuous Learning: "The game of life is the game of everlasting learning". This means constantly seeking to "get a little smarter every day".

• Critical Thinking: Being able to discern "signal from the noise" and challenging assumptions, even your own. As an XTOD reminds us, "Compelling writing requires clear thinking".

• Humility: Recognizing that "Nobody knows anything, and that's okay". Steve Kerr gained more respect as a leader by admitting he didn't know everything and letting others make decisions.

• Prioritization: Understanding that "Clarity comes from subtraction, not addition". An XTOD simply asks, "Is this truly necessary?” when looking at a to-do list. "If it won’t matter in 5 YEARS don’t give it more than 5 MINUTES attention".

• Action based on Principles, not Predictions: As Edward Quince notes, "Actions demonstrate competence and create value, whereas words, often in arguments, lead to negative emotions and resentment".

The "hard part is knowing what to apply and when". This "true learning is 'on the job'". It's about applying timeless principles and developing your own "right filter" to navigate the complexities of life and markets. Because ultimately, "Being smart and being wise are not correlated". The goal is to cultivate the kind of wisdom that allows you to "focus on controlling the things you can", and approach life with a clear mind and sound judgment

FOMC Recap: 6 7

 Maybe Edward, maybe not…if you know, you know

Six… Seven

The Fed held.

4.25%–4.50%.

No surprise there.

But two Governors dissented — the first time that’s happened since Jurassic Park debuted and Alanis dropped Jagged Little Pill. The headline writers scrambled. “Cracks in the façade,” they muttered. “Rising internal tension.” Okay.

Dot plot? Still penciling in one rate cut by the end of 2025?

The market responded with a casual scroll, maybe a sip of flat LaCroix. We’ve heard this song before — and we’re not dancing to it anymore.

Truth is, the Fed walked out like Powell always does:

🎶 Six… Seven… 🎶

Suit pressed, message tight, performance predictable.

But in the background, markets were already vibing to their own beat.

🎺 Doot doot doot da-doot doot…

Rate cuts aren’t coming because the Fed said so.

They’re coming because credit’s flowing, nominal’s cooling, and politics are heating up.

This isn’t a pivot. It’s a vibe shift.

And Powell’s still reading off the prompter while the music’s already changed.

– EQ

Edward Quince’s Wisdom Bites: Timeless Lessons For The Powell Rangers (and all of us)

Another FOMC day, another deluge of data, and another chorus of “experts” telling us exactly what the Fed did wrong, or right, or what they should do next. You know, the usual. While this blog famously believes that most of the daily financial commentary is “noise and false stimuli”, occasionally, amidst the cacophony, you stumble upon timeless wisdom. And who needs timeless wisdom more than the Federal Reserve, constantly navigating unexpected twists and turns? So, dear reader, grab your favorite beverage (mine’s a newly-tariffed tequila, if this blog’s GoFundMe ever takes off), and let's distill some enduring lessons for the FOMC, drawn from the wellspring of this very blog.

Here are 10 enduring and wise quotes that can serve as valuable advice to the Federal Reserve over time:

1. Independence is Paramount. Peter Stella nailed it: “I define central bank independence in one sentence, it's the ability to raise interest rates when the Treasury doesn't want you to. And the Treasury almost never wants you to, because of the cost of the debt.”. When politicians are clamoring for this or that, the Fed's ability to act without political interference is the bedrock of its credibility. Don't be swayed by the siren song of fiscal convenience.

2. Credibility Restores Stability. As Paul Volcker’s memoir reminds us, credibility is crucial "in restoring price stability and guarding against the ‘real danger [that] comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation and risk taking…'". It’s about building trust, which, like good wine, takes time.

3. Say Less, Imply More. Robert Greene’s Law 4: “Always Say Less Than Necessary: When you speak, always say as little as possible. The more you speak, the more likely you are to say something foolish.”. In a world of constant Fedspeak and interpretations, perhaps fewer words mean more impact. As the "wise old owl" knows, "The more he saw the less he spoke, The less he spoke, the more he heard".

4. Guard Your Reputation. Greene’s Law 5: “So Much Depends on Reputation – Guard It With your Life: Reputation is the cornerstone of power. You can influence more people and gain more opportunities with a solid reputation. Therefore, it is essential to protect it fiercely.”. The Fed’s power isn't just in its balance sheet, but in the trust it commands.

5. Actions Speak Louder. Greene’s Law 9: “Win through your Actions, Never through Argument: Actions demonstrate competence and create value, whereas words, often in arguments, lead to negative emotions and resentment.”. The market, and the economy, ultimately respond to policy actions, not carefully crafted press conference narratives or veiled threats about future moves.

6. Prevent Crises, Don't Just Cure Them. Charlie Munger's wisdom applies universally: “Nobody survives open heart surgery better than the guy who didn't need the procedure in the first place.”. This is a potent reminder for the Fed to act prudently and prevent economic conditions from deteriorating to a point where drastic, "surgical" interventions become unavoidable.

7. Plan for the Unexpected, Not the Predicted. As Dwight D. Eisenhower sagely put it: “Plans are worthless, but planning is everything…” because an emergency “is unexpected, therefore it is not going to happen the way you are planning.”. The future is inherently uncertain. Flexibility, not rigid forecasts, is the superpower.

8. Embrace Humility, Not Perfection. “It is impossible to be perfect: … The odds that the Fed can steer the economy to perfection by moving an interest rate both gives the Fed too much credit and creates an illusion that something as complex as the economy is that controllable.”. The economy is a beast, not a tightly controlled machine. Intellectual humility is a virtue.

9. Trust Observable Data, Not Blurry Guideposts. As one XTOD advises on r-star, it’s "advisable to guide policy decisions based more firmly on observed inflation rather than on highly uncertain estimates of the natural rate.”. When models and theories get too "blurry", perhaps it’s time to focus on what you can actually see and measure. Less star-gazing, more data-gazing.

10. Expect the Unexpected. This blog’s core philosophy: “The primary lesson is one of learning that the future is uncertain, expect the unexpected and that anything can happen.”. No amount of forecasting, political pressure, or market "vibes" can change the fundamental truth that the economic road is unmapped. Remain adaptive.

So, there you have it, folks. Ten timeless lessons that apply to the Fed, and frankly, to us all. In a world drowning in data, forecasts, and fleeting narratives, the real wisdom lies in subtraction, in discipline over drama, and in the humble acknowledgment that “Nobody knows anything, and that's okay.”. Because ultimately, “Your behavior matters more than your forecast.