Edward Quince's Wisdom Bites: Trees

 

Every market cycle begins with a compelling story. This one usually starts with the phrase “structural change.” New technology. New productivity. New rules. And sometimes, the story is even true.

But cycles do not disappear simply because the narrative improves.

Mean Reversion Never Retires

The old rule—trees don’t grow to the sky—is shorthand for a deeper truth: excess returns invite competition, and competition erodes margins. This is not ideology; it is arithmetic.

High profitability attracts capital. Capital attracts competitors. Competitors compress returns. Rinse. Repeat.

Yet every cycle produces its own “New Era” argument. Railroads. Electricity. The internet. Cloud computing. AI. Each genuinely changed the world. None abolished valuation gravity.

When the Exception Becomes the Rule

There are rare exceptions—companies that evade mean reversion by deliberately suppressing short-term profits to widen their moat. Nomad called this Scale Economies Shared. Amazon and Costco didn’t grow because they were expensive; they grew because they refused to extract maximum margin.

But here’s the catch: most companies claiming to be structural winners are not.

The Lesson

Mean reversion is the most powerful force in finance because it is rooted in human behavior and incentives. Betting against it requires overwhelming evidence—and paying a price that still allows for disappointment.

If you’re paying peak-cycle multiples for a cyclical business dressed up as a revolution, the cycle will eventually remind you who’s in charge.

XTOD

“There are two great sayings. One is, ‘If a thing can’t go on forever, it will eventually stop.’ The other… ‘People who expect perpetual growth in real wealth in a finite earth are either madmen or economists.’” — Charlie Munger

Edward Quince's Wisdom Bites: Razor

 

Is it a bubble, or just expensive?

David DeRosa suggests applying Occam’s Razor: start with the simplest explanation.

Expensive Is Not Irrational

Prices can rise for good reasons: technological change, supply shocks, increasing returns to scale. Labeling everything a bubble is lazy analysis.

But when prices detach entirely from plausible cash flows, the simplest explanation is often mass belief.

Timing Is the Trap

Bubbles can last longer than skeptics remain solvent. Being right too early is indistinguishable from being wrong.

The Lesson

Be skeptical without being cynical. Don’t short stories just because they sound ridiculous. But don’t abandon valuation because “this time is different.”

XTOD

“The most dangerous words in investing are: ‘this time is different’.”

Edward Quince's Wisdom Bites: The Orange Hat

 

Paul Volcker once recalled being told by the White House not to raise rates before an election. He did it anyway. That story is the exception, not the rule.

Central banks are political institutions pretending not to be.

Independence Is Conditional

The Fed’s independence exists only insofar as it is tolerated. Election cycles amplify pressure. Every rate move becomes political theater.

Powell’s challenge is not forecasting inflation—it’s navigating perception.

Words as Policy

Robert Greene’s law applies: Always say less than necessary. The more the Fed communicates, the more it constrains itself. Every word becomes a commitment. Every deviation becomes a credibility test.

The Lesson

Do not assume the Fed is a robot. It is a human institution balancing credibility, politics, and stability. Expect volatility—not precision.

XTOD

“I define central bank independence in one sentence: it's the ability to raise interest rates when the Treasury doesn't want you to.” — Peter Stella

Edward Quince's Wisdom Bites: No Free Lunches

 

Modern Monetary Theory (MMT) offers a seductive idea: sovereign governments that issue their own currency cannot run out of money. Deficits don’t matter—until inflation does.

This is not entirely wrong. It is dangerously incomplete.

The Missing Constraint

MMT focuses on financial constraints while downplaying real constraints. Governments can print currency, but they cannot print labor, energy, or productive capacity. When spending outpaces those resources, inflation is the balancing mechanism.

You don’t get something for nothing. You get redistribution—usually from savers to debtors.

Fiscal Dominance

As deficits grow, fiscal policy begins to dominate monetary policy. Central banks lose freedom. Inflation becomes politically inconvenient, but austerity becomes impossible.

This is the environment investors must navigate.

The Lesson

You cannot print wealth—only claims on it. When claims grow faster than goods, currencies weaken. Investors should pay attention not just to central banks, but to legislatures.

XTOD

“Deficits are like putting a rock in a garden hose. The water (inflation) has to go somewhere eventually.”

Edward Quince's Wisdom Bites: Civilization

John Stuart Mill warned in 1836 that mass society risks drowning thoughtful voices in noise—the “hubbub” of the crowd. In 2026, that hubbub has a ring light and a referral link.

Enter the finfluencer.

Attention Is Not Insight

Finfluencers are not paid to protect your capital. They are paid to capture your attention. These incentives matter more than credentials, track records, or outcomes.

Their content is optimized for virality, not durability. Certainty sells. Complexity does not. Nuance is death on a short-form platform.

This creates a dangerous illusion: confidence masquerading as competence.

Herding Without Anchors

Markets already suffer from herd behavior. Finfluencers accelerate it by broadcasting narratives at scale. Price becomes proof. Momentum becomes validation.

This is the “I Know” school—loud, fast, and allergic to doubt.

The Lesson

Curate your information diet like a portfolio. Cut low-signal content ruthlessly. If advice is urgent, emotional, or promises easy wealth, it is almost certainly noise.

Silence is often the most intelligent response.

XTOD

“Celebrity is the most powerful currency in media... It's more important than track record, novelty of insight, or ROI.”

 

Edward Quince's Wisdom Bites: The Optimists Paradox

At first glance, optimism and pessimism look like opposites. In investing, they are better understood as complements.

Joachim Klement captures the tension well: pessimism sounds intelligent. It catalogs risks, critiques assumptions, and anticipates failure. Optimism, by contrast, sounds naïve—until you look at the data. Over long horizons, optimism is what actually makes money.

Human progress is real. Productivity grows. Problems get solved. Capitalism, for all its flaws, adapts. Betting against that trend has been a historically losing proposition.

And yet—blind optimism is lethal.

The Asymmetry of Survival

The paradox is this: you must survive the short run to benefit from the long run. Markets do not move in straight lines. They lurch, crash, and occasionally panic. If your optimism leads you to excessive leverage or concentrated bets, the market will eventually remind you who is in charge.

This is why the correct posture is asymmetric:

• Save like a pessimist: assume bad things happen. Hold liquidity. Avoid ruin.
  
  

• Invest like an optimist: own productive assets. Stay exposed to growth.
  
  

This is the barbell, not as theory, but as temperament.

Why Optimism Without Defense Fails

Optimists fail not because they are wrong about the long term, but because they underestimate volatility. Drawdowns test psychology, not spreadsheets. When losses exceed tolerance, forced selling replaces rational decision-making.

Your optimism must be earned through prudence, not asserted through bravado.

The Lesson

Long-term success belongs to those who combine faith in progress with paranoia about survival. If your strategy cannot withstand temporary failure, your long-term thesis is irrelevant.

XTOD

“Real optimists don’t believe that everything will be great. That’s complacency. Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way.” — Morgan Housel

 

Edward Quince's Wisdom Bites: It's Radical

 

Risk is measurable. Uncertainty is not.

John Kay and Mervyn King call this distinction Radical Uncertainty—situations where you don’t know the odds because you don’t even know the game. Financial markets live here more often than models admit.

The Failure of Models

Most financial models assume normal distributions—bell curves where extreme events are rare. Reality disagrees. Financial history is a graveyard of “once-in-a-century” events that happen every decade.

VaR models don’t protect you from regime change. Sharpe ratios don’t warn you about political shocks.

Survival Beats Optimization

You cannot model the unmodelable. But you can design for survival.

That means redundancy, liquidity, low leverage, and humility. It means accepting lower returns in exchange for staying power.

As the saying goes: Risk means more things can happen than will happen.

The Lesson

Stop pretending the future is knowable. Build portfolios that endure surprise.

You don’t need to predict the apocalypse—you need to survive it.

XTOD

“The need for certainty is the greatest disease the mind faces.” — Robert Greene

Edward Quince's Wisdom Bites: Digital A's

 

We live in an age of abundance—data everywhere, insight nowhere.

Simon Winchester’s idea of “Digital Amnesia” captures the problem well. As we outsource memory and thinking to devices, we mistake access to information for understanding. Finance is particularly vulnerable to this confusion.

Enter the DIKW Pyramid.

Data Is Not Wisdom

At the base of the pyramid sits Data: prices, headlines, earnings releases. Above that is Information—data organized into narratives. Then Knowledge, which requires synthesis and context. At the top sits Wisdom, which demands judgment and restraint.

Most financial content never leaves the bottom two layers.

Checking prices feels productive. Consuming news feels informed. Neither guarantees understanding.

Why Speed Kills Insight

Markets reward patience, not reflexes. Yet the financial media ecosystem is optimized for immediacy. Push notifications, hot takes, and minute-by-minute updates ensure you are always reacting—and rarely thinking.

Wisdom requires time. It requires sitting with ideas long enough for them to settle.

The Lesson

Do not confuse checking your phone with doing research.

If something won’t matter in five years, don’t give it five minutes. Read old books. Study history. Let ideas compound the same way capital does.

XTOD

“If it won’t matter in 5 YEARS don’t give it more than 5 MINUTES attention.”