Investment

On Prognostication

Investment image

|We tend to brag about our most recent brilliant investment while conveniently forgetting our more frequent whiffs.|

Chapter eleven from the first book of essays by Michel de Montaigne serves as a welcome reminder that some truths are beyond debate. A minor noble, occasional public servant and prolific reader Montaigne began writing short works of critical self-reflection around 1570. He referred to these works as essays and, effectively, created a novel genre. (As a side note, 400 years later the Argentinian Jorge Luis Borges would, effectively, perfect the essay.) 

The title of chapter eleven is deceptively perfect as it relates to our theme herein, investing. This brief essay covers two important topics often overlooked by individual investors; survivorship bias and forecasting. As to the first, we’ll quote Montaigne, “Besides, no one keeps a record of their mistakes, inasmuch as these are ordinary and numberless; and their correct divinations are made much of as they are rare, incredible and prodigious.” As has been often reflected upon here at Invest-Notes, when reviewing every stock transition I’ve made over a 12-month period, the many bad trades are inevitably left in the dark, overshadowed by the occasional big winner. We tend to brag about our most recent brilliant investment while conveniently forgetting our more frequent whiffs.

Millionaire-Next-DoorThe glaring error in an otherwise interesting book on the wealthy, The Millionaire Next Door, is this failure to acknowledge the losers. We meet a few very successful businessmen, owners of dry cleaners, who have quietly amassed meaningful fortunes. But no mention is made of the thousands of dry cleaners who not only didn’t make a million dollars but went broke trying. Montaigne tells the story of a skeptic in ancient Greece shown a chapel filled with votive offerings from sailors who survived shipwrecks to prove the beneficence of the gods. The skeptic observes, “Those who were drowned, in much greater numbers, are not portrayed here.”

More importantly, we talk about the records of Warren Buffett and Peter Lynch though never discuss the vast majority of professional investors who went broke or settled into quiet mediocrity. There is a reason books that discuss the “habits of super successful investors” all seem to talk about the same people. Not that many people are successful over a meaningful period of time. Of course, there are big winners, but always remember that the losers are “numberless.” Only with hindsight do we know who survived. This applies equally to individual stocks and hedge funds – no one talks about the ones who didn’t make it.

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“…there is no use in knowing what is to be, for it is wretched to be tormented to no purpose.” -Cicero

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PrognosticationAs to forecasting, we should all know better. The idea that we can tell what is going to happen to the price of any individual stock over a period of a few months is self-deceptive. An analysis showing where a stock price will be 5-years from now is a lie. It has been demonstrated that over meaningful lengths of time the equity markets go up more often than they go down, so while dips can be ferocious, recovery has proven a relatively safe expectation. But this is based on the movement of a cohort of equities, not an individual stock.

As Nassim Taleb has said repeatedly, if the author of that glowing 5-year analysis doesn’t have at least half his net worth invested in the stock under discussion don’t believe anything being said.

The follow-on is our tendency to look at how much we can make instead of how much we can lose. Yes, there is money to be made if an investment increases in value. But when a company you invest in goes bankrupt (as recently happened to me with a private equity deal) being able to write-off the loss is small consolation. At the time I did the deal it never occurred to me that a total loss of invested capital was a possibility. But the lesson learned was a confirmation of one of the most important rules when investing; never make a bet so big that a loss can leave you with a permanent impairment of capital. While painful, and embarrassing, financially there is no change to my lifestyle or future prospects.

So, since we can never know the future we must avoid prognostication. Because when our bets on future outcomes start going off track, or derail completely, the best we can do is reflect wistfully on what might have been. This, in turn, can lead us to fear the future. What if we are wrong again? Opportunity becomes something to be feared, best to avoid. Instead, focus on the here-and-now, what we know and not what might be. I’ll be doing more private equity deals but now with a focus on risks, not just rewards.

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Jazz

Abdullah Ibrahim

Abdullah Ibrahim

|Duke Ellington Presents from 1963 introduces the world to Abdullah Ibrahim, then living in Switzerland. Nelson Mandela invites the prodigal son back to South Africa in 1990. Subsequently, Ibrahim performs at Mandela’s inauguration in 1994. Since then he has continued to find his own way toward new musical worlds.|

In 2019 Abdullah Ibrahim produced The Balance, his first recording as a leader since 2014.

I found the music to be remarkable. While searching his discography for other albums offering his warm, melodic sound, the discovery that Ibrahim was a bandleader starting in 1963 left me feeling pretty stupid. Perhaps this pianist and composer had not appeared on my jazz radar because of how his music is most often described and labeled.

 

 

Best guess is that previously reading about Abdullah Ibrahim being connected with Don Cherry, Ornette Coleman, and Archie Shepp would imply a free jazz orientation – not a genre I listen to much. Then again, talk of Cape Jazz from South Africa favoring gospel influences was also not so interesting. Ditto for his important works like Mannenberg, being described as a major part of the anti-apartheid sound – if we can assume there really was one sound to describe that heady time in South Africa. Then there are the movie soundtracks. Oh, and born Adolph Johannes Brand in 1936 then going by the name Dollar Brand on his earliest recordings, finally becoming Abdullah Ibrahim in 1968 when he converted to Islam made recognition challenging. Also, as we will reference, he has maintained a lifelong interest in Zen Buddhism even after his conversion to Islam.

His first, eponymous album, The Dollar Brand Trio, was produced by Duke Ellington in 1963.

It is an impressive freshman performance and in hindsight clearly points in the direction Ibrahim has pursued for decades. The real surprise is that through all the so-called Cape jazz-free jazz-protest jazz-soundtrack jazz phases, Abdullah Ibrahim’s sound has been remarkably consistent, and certainly not defined by any of these labels. For a discussion of his music, where I will make my own assertions as to his influences, we’ll focus on two albums: the 2011 release Sotho Blue and Mukashi from 2013.

Abdullah Ibrahim - Sotho BlueSotho Blue is a collection of Ibrahim original compositions that include one song by Bud Powell. We hear the influences of Ellington, Powell, New Orleans, and the West Coast jazz of the 1960s. Sounds of the orient and surprisingly contemporary jazz references speak to an open mind, enjoying without embracing. The saxophone, flute, and trombone trade places as lead vocals to Ibrahim’s piano from song to song taking the music from highs to lows. It can remind us of the emotions engendered when we travel as flaneurs rather than tourists. Yet the album is described as “background music” and for “private rumination and meditation” by a resource I usually respect. Neither of these comments rings even remotely relevant when listening to the album. Again, labels and comparisons can be misleading and even unfair.

1. Calypso Minor 4. Nisa 7. Glass Enclosure
2. Sotho Blue 5. The Mountain 8. Star Dance
3. Abide 6. The Wedding 9. Joan Capetown Flower

Consider this, a hot new trumpeter is on the scene and we ask someone recently having heard the player live what she sounds like. A response of Dizzy Gillespie or Miles Davis provides little insight. Dizzy hard bop or big band? Miles first quintet or electric? Using Dizzy and Salt Peanuts or Miles and Kind of Blue makes it clear what to expect. Free jazz? Have you actually listened to one of his recordings? The piano of Ahmad Jamal? Too cerebral, Abdullah Ibrahim is more playful. The piano of Chick Corea? Too muscular, Ibrahim is more lyrical. The influences of Ellington and Monk are assumed by his own admission. With Ibrahim offering so many references that are, quite frankly, somewhat tangential to the music he plays proves a distraction. Though I can’t offer a good point of reference.  (Note to self; listen before assuming.)

Abdullah Ibrahim MukashiMukashi, named for a Zen master Ibrahim deeply respects, is an album that might be more appropriate for meditation, assuming forceful solos don’t harsh your mellow. This music inspires thought not introspection. The recording doesn’t sound oriental though it includes the sound of traditional Japanese flute playing. Perhaps some bright spots reflect the definitions of World Music, while he also plays at the fringes of traditional American jazz. All the labels, the genres, and definitions blur in Mukashi. The most interesting of the Ibrahim recordings currently on my playlist, it is also the most challenging.

Sotho Blue and the piano solo album from 2008, Senzo (mostly his greatest hits), are getting the most playtime these days. I prefer music without words so that it doesn’t distract me while reading books and magazines. Curiously, I have found myself pausing mid-sentence upon hearing a phrase or block of notes in Ibrahim’s playing. He definitely has something to say and doesn’t need words to express an idea.

For those interested in hearing Abdullah Ibrahim, a good start would be with The Balance. An elegant and confident album, once again featuring compositions by Ibrahim, with one by Monk. Ellington would be a proud and happy mentor hearing Ibrahim at 86 still playing like a seeker of new worlds.

 

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Art

When Similar Does Not Mean Same As

Paul Klee 2

|“…it’s fascinating to see people converging at similar visual endpoints even when starting from different places, following divergent paths, and all the while thinking about different things.”|

 

Paul Klee Exhibit 1993For no particular reason, I bought a handsome catalog of Paul Klee works printed in conjunction with an exhibit at the Guggenheim Museum (May 7 to September 19, 1993). Fairly limited in scope, featuring works mostly from the Guggenheim’s own collection, it did manage to convey the breadth of styles that Klee worked through, from adolescence to his early death. Always experimenting, Paul Klee used some unconventional methods to create original works, as well as multiples and prints. From sophisticated uses of color to the more primitive, and childlike imagery that he is widely known by, the guy did some really fine work.

Paul Klee PolyphonyBut the “A-Ha” moment came with two works in particular. The first was a pen and ink drawing from a Bauhaus course catalog (1929), “Five Part, Polyphony.” The second was a later painting (1939), “Rocks at Night.” Both were precursors – whether acknowledged or not – of Sol Lewitt. This suggestion is not to in any way intended to diminish the originality of Lewitt’s work.

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“By diverse means, we arrive at the same end.”

-Michel de Montaigne

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I was reminded of an essay by Jorge Luis Borges, Kafka and His Precursors. Borges reflected on the phenomenon of similarities of early artistic expressions to later ones that only become obvious in retrospect. In other words, to use Borges’ example, the relationship of writings from the Greek philosopher Zeno of Elea to those of Franz Kafka. The work of Kafka is not intended to reference Zeno, but using ideas discussed by Kafka allows us to see something fresh in Zeno. Or, put another way, reading Zeno through the lens of Kafka allows us to tease new meaning from something old and familiar.

Similarly, Lewitt took some heat in the early 1970s when his “Circles, Grids, Arcs,” series culminated (logically) with a drawing similar to the works of a French artist, Francois Morrellet. Very different sensibilities, both arriving at similar visual expressions, are not proof of plagiarism. Isaac Newton and Gottfried Wilhelm Leibniz anyone?

So here in the Paul Klee oeuvre was a drawing, Polyphony, of straight lines in four directions, many converging and overlapping, creating an image reminiscent of ideas explored by Lewitt years later in his many series’ featuring “Lines in Four Directions.” Then the beautiful blue painting, Rocks, which could hardly appear more alike to some of Lewitt’s “Irregular Shapes” images.

Paul Klee, Sol Lewitt

“Polyphony”, “Lines in Four Directions”, “Rocks”, “Irregular Shapes”

 

Stretching out a bit, some of the most beautiful of the Paul Klee paintings in the Guggenheim catalog look like carbon copies of Australian Aboriginal Dream paintings. The similarities of some Klee drawings to the work of Milton Avery and Ben Shahn is striking. Prints reminiscent of recent work by Jim Nutt seem obvious. Like Lewitt’s intersection with Morrellet, it’s fascinating to see people converging at similar visual endpoints even when starting from different places, following divergent paths, and all the while thinking about different things.

 

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