1/ Thread: Half-life of Investing
Until 1965, medical students were taught the number of chromosome in a human cell to be 48.
What was remarkable is two researchers found the number to be 46 in 1956, yet almost for a decade students continued to learn the incorrect number.
Until 1965, medical students were taught the number of chromosome in a human cell to be 48.
What was remarkable is two researchers found the number to be 46 in 1956, yet almost for a decade students continued to learn the incorrect number.
2/ When these researchers discussed their findings with their peers, they realized many others also fell short of two chromosomes. But most of them simply assumed they were wrong.
This is, however, anything but unique. All body of knowledge experience this.
This is, however, anything but unique. All body of knowledge experience this.
3/ In 2012, Samuel Arbesman wrote a book on this topic named "The Half-Life of Facts".
What is the half-life of facts?
It is the amount of time that has to elapse before half of the facts in a particular field is shown to be false.
What is the half-life of facts?
It is the amount of time that has to elapse before half of the facts in a particular field is shown to be false.
4/ This is NOT an indictment of science. Quite the opposite.
It is an admission that while our understanding of the world is always incomplete, it is still a worthy pursuit.
It is an admission that while our understanding of the world is always incomplete, it is still a worthy pursuit.
5/ Isaac Asimov had a great quote on this:
"When people thought the earth was flat, they were wrong. When people thought the earth was spherical, they were wrong. But if you think that that thinking the earth is spherical is just as wrong as thinking the earth is flat...
"When people thought the earth was flat, they were wrong. When people thought the earth was spherical, they were wrong. But if you think that that thinking the earth is spherical is just as wrong as thinking the earth is flat...
6/ ...then your view is wronger than both of them put together."
Not all science, of course, are created equal.
Physical sciences, especially Mathematics, take much longer time to be outdated than Social Sciences.
Not all science, of course, are created equal.
Physical sciences, especially Mathematics, take much longer time to be outdated than Social Sciences.
7/ Half-life of facts, I believe, has a profound implications not just on science, but also on our careers and investing.
An engineering degree went from having a half life of 35 years in ~1930 to ~10 years in 1960.
Some estimates indicate the current number to be 2.5-5 years.
An engineering degree went from having a half life of 35 years in ~1930 to ~10 years in 1960.
Some estimates indicate the current number to be 2.5-5 years.
8/ So what are the implications of this on investing?
People who are puzzled why a certain way of investing does not seem to work anymore should actually be puzzled if the opposite were true.
People who are puzzled why a certain way of investing does not seem to work anymore should actually be puzzled if the opposite were true.
9/ As new knowledge is built on the foundations of old ideas, and new companies emerge, the only way to *persistently* generate alpha is to pivot to match the changing nature of time.
This is incredibly difficult, and in fact, largely frowned upon in the investing world.
This is incredibly difficult, and in fact, largely frowned upon in the investing world.
10/ One way to increase your chances of a successful pivot is by increasing diversity in your investing team.
If all the team members have similar life experiences and similar world views, it makes that much difficult to understand the changing pulse of the time.
If all the team members have similar life experiences and similar world views, it makes that much difficult to understand the changing pulse of the time.
11/ Perhaps one of the effective ways to have diversity in your team by making sure there is diverse age-group in your investing team.
A team consisting of only 20-something is perhaps equally bad compared to a team of only 60-year olds.
A team consisting of only 20-something is perhaps equally bad compared to a team of only 60-year olds.
12/ Remember those chromosome numbers? Why did it take ~10 years for everyone to accept the fact?
Max Planc had an insight on why change takes time:
“A new scientific truth does not triumph by convincing its opponents and making them see the light...
Max Planc had an insight on why change takes time:
“A new scientific truth does not triumph by convincing its opponents and making them see the light...
13/ ... but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”
Investors can likely break this cycle by always inviting new generations to their teams and allowing them to challenge the dogma of "this is how we do things".
Investors can likely break this cycle by always inviting new generations to their teams and allowing them to challenge the dogma of "this is how we do things".
End/ While you certainly need people experienced with multiple market cycles, you also need those 20-something to get a better grasp of the world of tomorrow.
Buffett can survive without investing in tech. We are no Buffets.
Buffett can survive without investing in tech. We are no Buffets.
*Buffett
Yes, I have cringed a lot after spotting it :(
Yes, I have cringed a lot after spotting it :(
