Dao Of Capital Quotes

The real black swan problem of stock market busts is not about a remote event that is considered unforeseeable; it is rather about a foreseeable event that is considered remote—

Thus, the stock market tends to be about immediate bets (or expectations) on distant outcomes—yet all that matters to the bettors tends to be the immediate outcomes.

The shi of Sun Wu was to “make the most of the strategic advantage” and “if there is no advantage, do not move into action.

Although the future remains uncertain, the entrepreneur relies on “specific anticipative understanding,” which “can be neither taught nor learned”; he does not focus on what was or is, but acts upon what he expects the future to be.

The key is to free oneself from a tyranny of first consequences, overvaluing what comes first at the expense of what inevitably comes later. As Bastiat warned, “The sweeter the fruit of habit is, the more bitter are the consequences.”16

To model procrastination—where someone really does intend to do something, just not right now—involves not merely a discount on future enjoyments, but a more subtle problem of time inconsistency, of thinking that what is too onerous in the present will somehow be easier to endure in the future.

Because of the quirks of our human eagerness for the immediate reward, we are forewarned that what seems easy and straightforward is deceptively so; the roundabout is in practice a counterintuitive path—of acquiring later stage advantage through an earlier stage disadvantage—nearly impossible to follow.

it was Böhm-Bawerk who defeated them so effectively with economic theories and critiques such that Marxism did not take root in economics to the degree that it has in other professions, such as sociology and history.10 Using impeccable logic, Böhm-Bawerk showed that the workers who are employed by the entrepreneur are paid immediately for the “full value” of their labor, so long as that value is correctly calculated by including the time element. After all, in most production processes the input of labor hours doesn’t immediately yield a finished good.

All that wisdom—indeed, the summation of every word on these pages—is contained in a deceptively mundane object that weighs but a few ounces and through which, in the words of William Blake, you “hold infinity in the palm of your hand”: a humble pinecone. Worth nothing, neither rare nor unusual, it is like the Dao itself, failing to catch the eye or interest; to most, its meaning remains unseen. Yet to those who know what they are beholding, it is nothing less than a marvel. In the pinecone is a visible reminder of a practical discipline, the tenacious, unyielding pursuit of intermediate means as strategic advantage for achieving the ultimate ends—a quest only possible for those who dare to take the roundabout route.

what I have dubbed Austrian Investing contrasts starkly to the far more typical investing approach that only weighs current contemporaneous opportunities, one against the other, hungry for yield, blind to the changing opportunities likely to materialize around the next bend (the atemporal head-on clash, which, unlike the shi approach, assesses each exaggerated present moment as the same).

Density (overgrowth) and uniformity (too much of one thing—namely immediate-returning or high-yielding capital, as opposed to the more roundabout variety—growing in the economy and “fertilized” by distortion) are the evidence of malinvestment in the economy, exceeding the amount of available resources. Investment cannot exceed savings any more than seeding in the forest can exceed land, nutrients, water, and sunlight—but under these interventions, the system acts as if that’s what is happening. This is what makes the boom so delusive and ultimately illusory.

Blaming wild market volatility on the “animal spirits” of the herd mentality takes the focus off where it belongs: on the actions of the government. Instead of functioning as instruments of information, signaling to entrepreneurs how and when best to serve consumers, interest rates are perpetually manipulated by central bank actions to the point of meaninglessness. Artificial changes in interest rates become a deceptive feint by which entrepreneurs succumb to malinvestment, because they believe there are more resources (i.e., savings) in the system than there really are. Monetary policy insidiously plays with our time preferences and our very ability to engage in economic calculation. The greater the distortion, the greater destruction needed to correct it.

The conifer, as the leitmotif of this book, conjures up the essential lesson of the roundabout, going right with its slow yet steady development at first until, finally, reaching a stage of maturity at which it can go left with accelerating growth that outpaces its competition.

Anyone can see the pinecones in the tree. None can see the trees, none can foresee the forest in the pinecone.”)

The Winter War serves as a powerful example of the effectiveness of the roundabout military strategy of Sun Wu and Clausewitz, of indirect over direct, shi over li, achieving intermediate gains over grabbing immediate territory, and most of all, sisu as the gritty perseverance without which such undertakings are virtually impossible.

The bridge from the seen to the foreseen is crossed purposefully, via a teleological path of means and ends—our familiar Ziel as Mittel to achieve a Zweck, the common thread of the Clausewitzian strategy. Means are teleological; that is to say, means are tools used in service of a telos, an end or goal.

One cannot learn from history, a posteriori, because causal relationships are deceptively veiled from our perception

The conifers’ progress exhibits the teleology of purposeful “behavior” that shows a goal-oriented mechanism

In its uncarved state, the wood appears useless, and it takes tremendous imagination as well as patience to see what it can become;

As the great tuishou practitioner Zheng Manqing observed, one must first “learn to invest in loss” by leading “an opponent’s force away so that it is useless,” and which will “polarize into its opposite and be transformed into the greatest profit.”23 In taijiquan is the essence of The Dao of Capital.

To win a hundred victories in a hundred battles is not the highest excellence; the highest excellence is to subdue the enemy’s army without fighting at all.

Smaller, naturally occurring fires, however, are nature’s way of turning back the clock as resources are released and flow from trees that are not thriving to those that perhaps can.

Vom Kriege (On War) by the Prussian major general, Carl von Clausewitz.

shi actually requires li in the opposition in order to be effective; it is the hungriness and immediacy of the latter that provides the edge to the former

Wir sind jetzt alle Österreicher

In nature’s demonstration of tuishou (or “push hands”), conifers pose no resistance to the angiosperms in the obvious, fertile places, yielding to the rout that sends them up into the craggy, isolated places. But when the angiosperms extend too far and produce dense overgrowth that leads to wildfires, the conifer follows them back, dumping their seeds on the newly vacated ground.

Standing for decentralized autonomous organization, The DAO was a complex dApp that programmed a decentralized venture capital fund to run on Ethereum. Holders of The DAO would be able to vote on what projects they wanted to support, and if developers raised enough funding from The DAO holders, they would receive the funds necessary to build their projects. Over time, investors in these projects would be rewarded through dividends or appreciation of the service provided.

Unfortunately, politicians hold the conviction that money growth gives us economic growth. They are blind to the fact that government cannot create anything. Government cannot make man richer, but it can make him poorer.

If there were a book that could teach you how to make money, you would be at the end of a long line down the street from any bookstore

The Dao that can be told is not the eternal Dao. Lao Tzu, First verse of Tao Te Ching

Our live-for-today culture has been invaded, like a deadly virus, by an insidious attitude that teaches this moment is all that matters just because it is all we see and experience—right now. The symptoms of this affliction can be found in the chronically low savings rate in our culture (ranging from financial to even fresh water, soil, and, of course, forests) and, analogously and most incredibly, governmental fiscal deficits that deviously and increasingly rob future generations—our helpless intergenerational forward selves.

Impatience now with the belief that we can and will be patient later is the way of all flesh.

The key is to free oneself from a tyranny of first consequences, overvaluing what comes first at the expense of what inevitably comes later. As Bastiat warned, “The sweeter the fruit of habit is, the more bitter are the consequences.

Mechanical equations can be used to solve practical problems through the introduction of empirically acquired constants and data; but equations of mathematical catallactics cannot in the same way be of service to practical problems in the area of human action where constant relations do not exist.”22

Consumers and producers, with their subjective expectations and preferences, do not conform well to mathematical models.

Mises, perhaps the greatest economist of all time, broadened the thinking among his students; the market could not be viewed as or contained by a mere static thing or physical location, but rather as the actions of countless people

Those who studied human action would start from the premise that there is a purpose behind our behavior, which in this instance was to commute from home to work via the train in the morning and then the return trip in the evening. However, the opposite approach by the “truly scientific” behaviorist, who uses only empiricism, would merely see people rushing around randomly, without any particular aim, at certain times of the day. By this example, Mises showed which of the two approaches to human behavior would be most meaningful—clearly the deductive.20

We look to the conifer and its logic of growth, and we learn from one of the truly great success stories of natural history. Through its adaptive strategy that has allowed it to survive over hundreds of millions of years, the patient and persistent conifer teaches us that it is far better to avoid direct, head-on competition for scarce resources and, instead, to pursue the roundabout path toward an intermediate step that leads to its eventual position of advantage.

This ability to look beyond the obvious of the immediate seen and to foresee its later outcomes was, in Bastiat’s view, the true differentiator. “Now this difference is enormous, for it almost always happens that when the immediate consequence is favorable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, at the risk of a present small evil.

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy.”33

How could it be that “guys who know where the market is heading are no longer at the Board of Trade. They are either retired or broke. And I can’t think of any that are retired.” Classic Klipp.

we are decidedly inconsistent in our time preferences—that is, our preference for delay reverses as the delay period changes; and we are certainly not well-described by a single (or perhaps by any) static parameter.

What we have here is a clear, systematic source of investment mispricing, ripe for intertemporal arbitrage (a term synonymous with Austrian Investing itself).

Mark Spitznagel, “Christmas Trees and the Logic of Growth,” Wall Street Journal, December 22, 2012.

The Land of the Nibelungen, just like the real world under such intervention, is a frightfully distorted place. It is physically impossible to devote more land to timber production because all the pastureland currently in use appears to be quite profitable and, indeed, deserving of expansion, as well.

to be shi until strategic advantage coalesces into the opportunistic action of li within shi

We ask ourselves: How are we exposed to malinvestment? Are we, for instance, investing in what is most manipulated by, whose profitability is most dependent upon, artificially low interest rates? Beyond avoiding it, can we perhaps even benefit from it?

In addition to casting our net for firms with a high ROIC, we are also looking for firms with a low Faustmann ratio, meaning a low market capitalization (of common equity) over net worth (or invested capital plus cash minus debt and preferred equity) ratio.

To be clear, it is the abnegation of interest rates as an information and control parameter in the economy that creates the distortion, not just inflation per se.

They do not become more roundabout, because they refrain from investing in capital that will not show returns for a period of time (or a period when the interest rate has not been lowered as much as shorter-term rates). Thus there is a hyperfocus on—and even addiction to—the yields of stocks and other risky and high-duration securities (a “maturity-mismatch”); there is an irrepressible allure to the steep yield curve.

Interestingly, this increased temporal myopia under artificially lowered rates is the very opposite effect of naturally (savings-driven) lower rates. Genuine, savings-driven declines in the interest rate lead to capital accumulation, more roundabout production, and a progressing economy; artificially lower rates, driven by credit inflation, ultimately lead to naught but capital consumption and a regressing economy.

We have thus succumbed to a blind faith in bureaucratic authority over natural processes.

Feedback is crucial, and must be continuously given by and within the system in order to make the necessary, typically small corrections to keep on course.

Within the economy, as Hayek stated, the “mutual adjustments” of individual participants occur through negative feedback.11 Government and central bank interventions can at best postpone the negative feedback mechanisms; they can’t repeal them.

With a market capitalization of $5 billion as of writing, the most popular crypto-collateralized stablecoin is DAI, created by MakerDAO9 and and backed by ETH and other crypto assets. It is soft pegged with economic mechanisms that incentivize supply and demand to drive the price to $1.

It is not the globe trotter who knows mankind, but the thinker.

Böhm-Bawerk had his favorite metaphors for capital heterogeneity. His stream, which is not “of equal breadth at all stages,” with “dams at certain points, and leakages at others,”17 evokes the favorite image of Sun Wu. Best of all, though, and conveniently following our conifer leitmotif, Böhm-Bawerk offered the depiction of a tree’s growth, specifically a crosscut, essentially a large trunk, revealing its annual growth rings in a pattern of concentric circles (“konzentrische Jahresringe”).

Years later, Mises would take on the historicists in his book, Theory and History, countering their view that economic theorems are void because they rely on a priori reasoning and that only historical experience is valid. As he wrote: “Such historical experience does not give the observer facts in the sense in which the natural sciences apply this term to the results obtained in laboratory experiments.” He further criticized those “who call their offices, studies, and libraries ‘laboratories’ for research in economics, statistics, or the social sciences” as being “hopelessly muddleheaded.” Mises stated, “Historical facts need to be interpreted on the ground of previously available theorems.

Importantly, Crusoe demonstrates that savings is not mere renunciation, nor is it simply deprivation. Rather, it is highly strategic, yielding or “losing” now to realize an advantage in the future that—the saver hopes—more than justifies the setback and waiting to be paid for the fruits of one’s labor and investment

the roundabout is in practice a counterintuitive path—of acquiring later stage advantage through an earlier stage disadvantage—nearly impossible to follow.

Clausewitz thus sums up the intertemporal tradeoff with a very effective argument for cultivating one’s resources now (upstream)—even if it entails a retreat—for strategic advantage later (downstream): “In this way it becomes evident how the employment of too many forces in combat may be disadvantageous; for whatever advantages the superiority may even give in the first moment, we may have to pay dearly for in the next.”62