Edward Quince's Wisdom Bites: The Thanksgiving Series: The Deceptive Calm — Why Observed Frequencies Betray Us

Welcome back to the digital saloon, where the turkey isn’t the only thing getting carved this week. As we drift toward a holiday built on gratitude (and stuffing), let’s give thanks for something else entirely: the humbling reminder that the past is a terrible forecaster of the future.

Modern finance operates under a quiet delusion:
that what we’ve observed is the full menu of what can happen.

It isn’t.

As Elroy Dimson famously put it:
“Risk means more things can happen than will happen.”
A line so simple that most financial models immediately ignore it.

Relying on observed frequencies—the stuff we can neatly count and chart—creates the illusion of certainty. It tells us the world is calm, stable, and predictable. A lovely story, completely false.

The markets live not in the tidy middle of the bell curve but in the uncharted corners. The improbable disasters. The “this wasn’t supposed to happen” events.
If you’ve ever wondered why models blow up exactly when you need them not to—this is why. They are backward-looking by design.

Financial Takeaway:
Don’t confuse the narrow sliver of reality you’ve observed with the full distribution of possibilities. The world is constantly changing, and sometimes the thing that “never happens” shows up precisely because everyone believes it can’t.

Be grateful—but don’t be complacent.

Edward Quince's Wisdom Bites: The Inverse Degen Trader pt.5

 “I’m 100% Sure” — The Four Most Expensive Words in Finance

The Degen Cliché:
"I'm certain. My analysis is flawless. LTCM? Those guys were amateurs."

Translation:
“I have never met humility.”

This is the apex predator of arrogance—a trader who believes the universe takes orders. They confuse skill with luck, precision with wisdom, and backtests with divine revelation.

Every crash in history started with someone who was “sure.”

The Inverse Degen Trader’s Wisdom: Intellectual Humility and Process Over Outcome
Veteran investors know the truth:
Nobody knows anything. And that’s okay.

Forecasting is a probabilistic art form wearing a lab coat. The goal is not to predict the future but to behave sensibly in uncertainty.

Mark Twain’s line (which he may or may not have said, but we’ll use it anyway) nails it:
“It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.”

Lesson:
Your edge isn’t brilliance. It’s humility. Make “not stupid” your baseline operating system.

Final Analogy:

The degen trader treats markets like a casino—jumping from table to table, chasing the loudest crowd.
The inverse degen treats markets like an ocean.
He builds a sturdy ark (Margin of Safety), loads it with supplies (Patience), studies the currents (Valuation), and sails only when conditions are right.

One gets wet.
The other gets wealthy.

Edward Quince's Wisdom Bites: The Inverse Degen Trader pt. 4

He Who Refreshes His Feed Most Knows Least

The Degen Cliché:
"I need real-time data and 50 Twitter takes before making a move. YOLO the consensus!"

Translation:
“My mind is a leaf blower.”

This trader’s greatest asset is their attention span, which they lend out at 0% interest to anyone posting a chart on X. They confuse data with wisdom, headlines with signals, and activity with insight.

They are the patron saint of the Noise Bottleneck, where the ratio of nonsense to knowledge approaches infinity.

The Inverse Degen Trader’s Wisdom: Clarity Comes from Subtraction
Wise traders subtract, not add.

They understand that wisdom sits at the top of the DIKW pyramid:
Data → Information → Knowledge → Wisdom.
Most people get stuck somewhere around “Information” and never see daylight again.

Clarity comes when you turn off alerts, mute half the world, and return your brain to factory settings.

Lesson:
Filter aggressively. If it won’t matter in five years, don’t give it more than five minutes.

 

Edward Quince's Wisdom Bites: The Inverse Degen Trader pt. 3

 Work-for-Work’s Sake: A Tragic Epidemic Affecting Traders Aged 18–85

The Degen Cliché:
"Patience is for boomers. Real traders make money every day. Gotta churn to earn!"

Translation:
“I mistake activity for intelligence.”

This is the trader who believes the market rewards busyness, as if portfolio turnover increases IQ. They practice a kind of restless financial cardio—burning calories, not building muscle.

They suffer from W4W Syndrome—Work for Work’s Sake—the condition where doing anything feels more productive than doing nothing, even when nothing is the correct answer.

The Inverse Degen Trader’s Wisdom: The Big Money Is in the Waiting
Charlie Munger cracked the code decades ago:
“The big money is not in the buying or the selling, but in the waiting.”

Compound interest is the eighth wonder of the world, but only if you stop poking it with a stick.

Most investors sabotage themselves not through stupidity, but through fidgeting.

Lesson:
Make “strategic inertia” your superpower. Sit so still you become the market’s version of a Zen monk guarding the temple of compounding.

Edward Quince's Wisdom Bites: The Inverse Degen Trader pt. 2

 “Double the Debt, Double the Dream!” — Words Engraved on Tombstones Since 1637

The Degen Cliché:
"Leverage isn't risk; it's maximizing gains. Double the debt, double the dream!"

Translation:
“I’ve never read a history book.”

To the Degen, leverage is a gift from the gods. They view debt like a relationship red flag: something to ignore because the dopamine feels good.

They forget (or never learned) that leverage doesn’t add intelligence. It just accelerates the consequences of your stupidity.

The Inverse Degen Trader’s Wisdom: Survival Is the Only Road to Riches
Ask yourself: What is the one thing every successful investor has in common?

They’re still alive.

Howard Marks said it best:
“Never forget the six-foot-tall man who drowned in a river that averaged five feet deep.”

Leverage erases your margin of safety. It turns small errors into fatal ones. It asks you to be right on schedule, which is hard because the market keeps refusing to follow your Google Calendar.

Lesson:
Fortune favors the unlevered. Or at least the moderately levered and constantly paranoid.

Edward Quince's Wisdom Bites: The Inverse Degen Trader pt. 1

“Only Up” Is Not a Strategy, It’s a Confession

The Degen Cliché:
"I'm buying the top because it's only up from here. YOLO that momentum!"

Translation:
A hope, a prayer, and a total unwillingness to check a long-term chart.

This is the trader who believes that the higher something goes, the more obligated the universe is to keep pushing it upward. They treat valuation like an optional attachment package—like floor mats at a car dealership. Nice to have, but why let it get in the way of a good buzz?

It’s the purest expression of the three I’s of every bubble:
Innovator → Imitator → Idiot.
The Degen shows up fashionably late to stage three, champagne in hand.

The Inverse Degen Trader’s Wisdom: Buy Low, or Wait Longer
Real adults buy cheap assets or—novel idea—wait for them to become cheap. They don’t chase euphoria. They farm it.

Everything in markets (and in life) moves in cycles. Even the mighty tech stock, the beloved commodity, the meme that “can never go down” because it has a cult following and a mascot wearing sunglasses.

Trees don’t grow to the sky.
But they do fall on inattentive speculators.

Lesson:
Be a value sniffing contrarian, not a momentum-addled romantic poet.

Edward Quince's Wisdom Bites: The Oracle - The Search for the Elephant: Dealing with the Constraints of Scale

 Edward Quince (EQ): Warren, Berkshire Hathaway holds a massive cash and T-Bill position, often exceeding $300 billion, which generates frequent headlines and questions. Given your belief in owning equities over cash, why maintain such a large buffer? Is this a strategic hedge or a reflection of current market conditions?

Warren Buffett (WB): The massive cash pile is a reflection of how few opportunities meet our bar: understandable, attractively priced, and safe. We would spend $100 billion in a second, but things don’t come in an orderly fashion—and they never will. We view cash as a "call option with no expiration date", an option on every asset class.

EQ: This brings up the challenge of scale. Berkshire is so large now that finding acquisitions that genuinely "move the needle" must be incredibly difficult.

WB: That’s correct. I state plainly that the size of Berkshire today makes it nearly impossible to double the net worth of the company in the near future. There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and outside the U.S., there are essentially no candidates. We recognize that we should only do a bit better than the average American Corporation, and anything beyond "slightly better" is wishful thinking.

EQ: So, investing today becomes an exercise in monumental patience: waiting for that one big opportunity. How does this compare to earlier in your career?

WB: Earlier, when running the Partnership, there were different categories of investments, including "Workouts" and "Controls". Today, the complexity requires us to wait as long as it takes for the right pitch, and when it’s there, you swing for the fences. "Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble". Our challenge is that we cannot create those investment opportunities when they are not there. That's why being willing to sit on cash is crucial—it enables us to act decisively when a true opportunity presents itself.

The Edward Quince Takeaway

As capital grows, compounding becomes harder, and the universe of opportunities shrinks dramatically. The critical discipline is maintaining immense liquidity (cash) and patience—not as a defensive hedge, but as the mandatory capital required to seize rare, high-conviction opportunities when they finally appear.

Edward Quince's Wisdom Bites: The Oracle - The Priceless Value of Integrity and Reputation

Edward Quince (EQ): Warren, beyond the financials, you place enormous weight on the character and integrity of the managers who run Berkshire's operating businesses. Why is management quality so fundamental to your investment calculus?

Warren Buffett (WB): You need businesses run by "able and trustworthy" managers. We prefer to buy businesses with good managements and then let them run things the way they always have. However, the most critical element is reputation and integrity. "It takes a lifetime to build a reputation and five minutes to ruin it". If you lose money for the firm by bad decisions, I will be very understanding. But "If you lose reputation for the firm, I will be ruthless".

EQ: In your recent shareholder letters, you've often called out modern corporate behavior, particularly regarding transparency and admitting mistakes. Why does this lack of candor bother you?

WB: An Annual Report carries the responsibility of communicating to investors both the good and bad decisions in a manner that engenders trust. But there is a prevailing lamentation about how few companies actually admit their mistakes. "If you start fooling your shareholders, you will soon believe your own baloney and be fooling yourself as well". The cardinal sin related to mistakes is delaying the correction—problems cannot be wished away.

EQ: You also emphasize choosing who you work for and associate with. Is that also a way of guarding against reputational risk?

WB: Absolutely. "Go to work for whomever you admire the most. You can't get a bad result. You'll jump out of bed in the morning". Life is about choosing the right people to surround yourself with, professionally and personally. I've never known anybody who was kind that died without friends. But I've known plenty of people with money that died without friends.

The Edward Quince Takeaway

Integrity and reputation are non-negotiable assets. Judge management not just on financial outcomes, but on their transparency, honesty, and willingness to admit and quickly correct mistakes. Remember that good profits and good behavior often go hand in hand.