Thinking – Brooke Allen

You do not need permission to do the right thing. No one can give you permission to do the wrong thing.

I went to college in 1970. By 1974 I had a degree in mathematics and experience hitchhiking to every state of the union except for Alaska and Hawaii; perhaps 30,000 miles in all.

I learned more about how to live from those experiences than anything I learned in a school. Here is the story of what I learned from a man in the pick-up truck who took my girlfriend and me from central Minnesota to just west of Fargo, North Dakota.

Had I not learned this lesson my life would have been very different; not only would I have been much less inventive I would not have had the courage to stand up to some of the shenanigans I saw during the 30 years I was on Wall Street.

I’ll call him Jeb. I don’t remember his name, but during Prohibition he used to bootleg whisky, so Jeb sounds like a good bootlegger’s name, don’t you think?

He said the pay was good and it was exciting work because the cops were always chasing you, but it wasn’t very intellectual. The only creative thing he learned was the Bootlegger’s K-Turn. He left the Interstate for a side road to show us how it is done. I’ll draw it for you: Continue reading “You do not need permission to do the right thing. No one can give you permission to do the wrong thing.”

Bad Owners

Shareholders have a problem – themselves.

My friend asked me when his mutual funds would rebound, and I asked him why he cares. He said, “Because if they are not going to rebound, I am going to sell.”

I asked him what he would do if he found a fly in his soup. “I’d want to talk to the waiter.” And if the waiter said it wasn’t his problem? “Then I would want to speak to the chef.” And if the chef said he couldn’t do anything about it? “I’d demand to speak to the manager.” And if the manager did nothing? “I’d want to speak to the owner.”

My friend would want to talk to the owner about the fly, but I would want to talk to the owner about what it means to be an owner.

Over the decades, as a trader and market maker, I’ve been the shareholder of record for billions of shares of common stock, and I have started a few corporations under my own name. While legally, the two forms of ownership are the same, there is a world of difference.

As owner, I know that the customer is a king who can fire me for any reason or no reason, yet my creditors and vendors must still be paid and the taxman must get his due. My employees must keep the customers happy, and my managers must keep the employees happy. I must not only keep an eye on the till, I must save for the rainy day. And when it pours, I will need to dip into those savings to keep the operation running while the customers stay at home. If I want everyone to be loyal to me during good times, I must be loyal to them all the time. I had better believe in my product, or I shall find all this hard to do and sleep soundly, too.

As owner, I must put the interests of all those with claims senior to mine ahead of my own, and only afterward will I receive what is left over. I must bear risk when it needs to be borne, and I can’t bail just because I don’t like watching my net worth decline. I must be responsible and not self-centered. (And, if I have deep pockets, I can afford to be.) After all this, a sane market might reward me for being responsible, fearless, and not greedy, but only if I actually am. Still, there are no guarantees, for time and chance happeneth to us all.

I asked my friend why he owns stocks, and he said, “Because, in the long run, stocks perform best so that is where I keep my retirement savings.” I’ve been to business school too, and I’ve heard this claim before, but for the life of me, I can’t think of a reason it must be true. Besides, stocks represent ownership, and an investment in ownership is different from saving. Savings are what the owner liquidates to keep the company going during hard times. If the owner liquidates his firm to protect his savings, the business is in trouble.

I asked my friend if he is an owner of General Motors and, upon reflection, he realized that he is through his various funds. I asked if he drives a GM car, and he said he thought their products were terrible.

Imagine my friend complains about the fly to the restaurant manager, who researches the situation, and announces that, in fact, my friend is one of the owners; apparently my friend’s broker had purchased stock in the restaurant. When asked what he will do, my friend says, “I will sell my ownership immediately.” If my friend, who only cares about return on his investment, sells to someone with a passion for good food, and a respect for the customer, then that restaurant may one day be a place where you and I would like to eat. Until then, we best stay away. Likewise, we best avoid GM cars until its owners care more about their products (and us) than their portfolio.

You might want to test the thesis that a diversified portfolio of common shares does, in fact, perform well in the long run, in which case you should buy, hold, and see what happens. But, be aware that market prices are determined by the fear and greed of your fellow shareholders, and little else.

But, if you want to be rewarded for being an owner in more than name only, you must be in a position to act like one: be fearless and put the interests of the customers above your own.

Don’t assume I’m talking about others. If you have money in the stock market, I’m talking about you, my friend.

What to Think About How to Think

When discussing “math phobia” our neighbor, a psychotherapist, said, “I can’t think mathematically.”

My son said, “Then you can’t think.”

She was taken aback. “Of course I can think. I just can’t think mathematically.”

My son said, “See, you’re not thinking.”

The conversation ended there.

Do you see? My son understands logic, which is a subset of mathematics. He knows that to say, “I can think; I just can’t think mathematically,” makes no more sense than saying, “I can drive; I just can’t make left turns.”

Try picking the right room air conditioner or planning your retirement without thinking mathematically. You can’t do it. Of course, you can exist without knowing how to do these things yourself, but if you do, you will be having others do some of your thinking for you. This is fine in the case of an air conditioner but it can be disaster when it comes to your retirement. If the guy at the store sold you the wrong air conditioner, you’ll know by August but by the time you discover that your retirement planner got it wrong it will be too late.

I understood all this when I was 16 except that: 1) I mostly thought mathematically, and, 2) I wasn’t thinking about retirement at all.

Now I know better. I understand why colleges require both Math and Verbal SAT scores.

Just as you can’t think very deep mathematical thoughts without writing down numbers and mathematical symbols, you can’t think about much else without writing down words.

Don’t believe me? Try some experiments.

First, plan your retirement in your head without paper, computer or calculator. You might already have performed this experiment.

Now try planning your retirement with the aid of numbers, a calculator, some financial models and a bit of data. When you are done, compare your results to the first experiment. Scary?

Next make a major decision that doesn’t involve mathematics without writing down words: Should I go to college? Should I take this job? Should I quit this job? Should I start this business? Should I marry this person? Should I divorce this person? Perhaps you’ve already made a big decision without writing down your thoughts.

Now, just as an experiment, treat your next (or most recent) major life decision as if it were a serious writing assignment; something worthy of a semester’s grade in college. And not just any grade but an A+. A paper that prompts your professor to say, “Wow, you could base a life on thinking like that!”

Don’t just write down your thoughts but edit them. Write down the opposite of your thoughts and contrast them to your first thoughts and then decide which you want to keep. Sleep on it. Forget about it and go out to a party. Incorporate any 2 A. M. insights and then reconsider them when you’re sober. No bullet points. No PowerPoint. Full sentences only. Subject. Verb. Noun. Have you considered everything? Are your words convincing?

Then read what you wrote out loud. Does it sound convincing? If you believe it, try reading it to another person.

When you are done, compare your final version with to your first draft and then think back to how hard it was to get that first draft onto paper. The distance between where you are now and where you were before you started can be measured in thoughts; thoughts you couldn’t have kept straight without writing things down.

When you declare your essay complete; act. Keep your words around. Later, compare your predicted future to what is now your recent past. Did you write well? Probably not. Most things take practice. Repeat this experiment from now on and you’ll get better.

You might say, “I’m not going to write an essay on whether I’m going to marry my lover. We’re in love. It isn’t an essay topic.”

Fine. But you can still write things down. If you don’t think people can write about love then where have you been?

Write a love letter worth mailing. Then mail it. A love letter is not just a letter to your lover; it is a gift of love to your lover in letter form. If you are like me, you’ll find that you either love the process or you hate the process and your feelings about the process will vary depending on the lover. So it’s not the process at fault.

Describe your lover in the third person as if you were painting a picture of a newly introduced character in a novel. Show it to some friends who know your lover. Do they think you got it right? If not, you might be in for a surprise when you stop producing, or responding to, the dopamine that floods your brain when “in love.” (Scientists have shown that this will happen within 12 months, 18 at the max.)

Do you find it hard to express your feelings but you still want to get married? OK. When are you going to start working on that? Or do you think marriage has nothing to do with expressing feelings?

To say that you know how to think without knowing how to write is like saying you know how to drive without knowing how to turn right.

Do you want to go through life without control of the steering wheel?

If you don’t know how to think mathematically, then you don’t know how to think.

If you don’t know how write, then you don’t know how to think.

If you feel these statements are false then you are feeling but you’re not thinking.[1]

[1] I am open to the possibility that I am wrong on this so feel free to make your case and mail it to me.

(Note: A few months after publishing this a woman wrote to say when she first read it she was furious and convinced I was wrong. So she sat down to write a letter and after an entire weekend attempting to compose her thoughts she realized I was right.)