Wednesday, August 10, 2011

Everybody is a dancer. With uncertainties!


Where would you be 10 years from now?
Yeah, I briefly mentioned about this question in my twitter's last post. But I think I want to write some more about its significance.
Of course, I was half-joking about the stupidity of the question. The question can be stupid or HALF-stupid depending on the intent. If the intent is to predict where I will be in 10 year time, that would classify as a “full stupid” question. Because anyone’s prediction is as good as a monkey’s, which I will come back to this later. But if the question is about my ambition, then the question is “half stupid”. A plan consists of a big part our plan plus our effort. BUT the other bigger part is external forces beyond our control. That’s why people say “Insya Allah”, “God Willing”, or “If circumstances allow…” (whatever your belief is:D), to acknowledge the uncertainty elements that can ruin, or catapult us to great success, overnight.
But let’s get back to prediction.
One of the most important, life-changing personal enlightenments of mine is the notion of “prediction.” I used to believe in experts, analysts, futurolog, their analytical skill and their ability to forecast, predict the future, based on their knowledge. Surely they are different from fortune-tellers, tarot card readers, and astrology because they are “scientific”?
But then I stumbled across two great books about uncertainty, “Fooled by Randomness” and “The Black Swan”, both by Nicolas Nassim Taleb. The Black Swan has received glittering reviews all over, and even considered to be an instant “classic”. Taleb’s sarcastic, no holds barred style also make the books good reading.
I don’t remember ALL the key concepts from the books, but two key ideas stick to my mind:
1. Things happen at random, but we think there is cause and effect. Because humans are gifted (or cursed?), to find narration, causality, explanation for an event – even if there is none. It was a gift, because many experts thought that was how humans discover tool-making (Hey, if I beat my cave neighbour with a bone, he passed out faster than if I beat him with my hand. Hence, bone is a good beating tool!) And tool-making was essential feature of early humans that let us manipulate our environment. Or beat the crap out of each other.
Problem starts when this cause-and-effect program is applied without control, or reason. Example, imagine a witch doctor cures a patient by giving the patient some useful herbal potion, and singing Bon Jovi songs-badly. And then the patient is healed. And people will think that the herbal potion AND badly-sung Bon Jovi songs cure diseases. This may sound funny to you, until you realize in the past some tribes did sacrifice virgins to prevent natural disasters.
This “brain program” remains today, even in modern world of investors and analysts. We think we understand a phenomenon and what caused it, even though in reality it happens totally randomly. And with this “understanding”, we try to predict the future, using completely inaccurate theory and model.
2. There is just NO WAY the limited human minds make prediction of the future – except for some short-term phenomenon (weather, for example). Especially in areas where the factors interplay are not only of large numbers, but also are unidentified. We are also prone to the mistake of “continuity” thinking – basically looking at the past, trying to find “pattern” and then simply extrapolate it into the future. The problem is, the future couldn’t care less about the past.
I remember back, I was read an article in Australia in 2006, there is someone who-don't-you-know who was about to invest in Australian stock market. The banker was very confident, and showing an ever rising index of Australian stock market was in the 6,000. He said that Australian was excellent and hot, and it was the best time to invest.
Nobody – NOBODY – ever warned us of the 2008 crash. And since then, the Australian market has never recouped its 6,000 level. Even now as many Asia Pacific markets are already surpassing their pre-2008 level, Australian index is still in the 4,500.
Just because something happened in the past, even repeatedly, is not a guarantee of the future. Taleb in The Black Swan made an amusing example using a turkey at a farm. For days the turkey was well fed with plenty of corn, until it was fat and happy. Looking back, the turkey would make a “forecast” that this would go on forever. Nice life indeed at the farm! And then Thanksgiving Day arrived.
I personally experienced over and over again analysts’ prediction that went out of the window. For 3 days in a row last week, “analysts” predicted that Indonesian stock market will be corrected, i.e. index will go down, because it was already “too high”. For 3 days also, the stock market went up. So much with analysts’ prediction.
But what about some investors who actually succeeded in their investment strategy, and then write books about it? Nicolas Taleb had a simple answer: they got lucky. Out of millions of people, based on probability alone, there will be some people who would ‘make it’. The problem is when these people think they actually control their success, and start formulating some models and theories, and worse: write books and sell them to the poor unsuspecting souls. Hence Taleb’s first book: “Fooled by Randomness”.
So what to make of this in life?
Initially, the cold fact of men’s incapability to foresee the future may be a scary thought to many. Suddenly life is ‘dark’ ahead (unless you still keep the faith in astrology.) The thought of “not-knowing” is humbling indeed, and naturally, it sucks. But gradually, I learned to see it as liberating. To be humble. To accept our limitation, and still make the best out of the uncertain life.
I remember an old song “Que Sera Sera”, and the lyric goes “Que Sera Sera, whatever will be will be. The future’s not ours to see, que sera sera…” The future is indeed not ours to see, and be careful with those who claim they do.
But then, what should we do?
The best advice, to me, came in the form of an analogy. Think of life as a dance. A dance naturally requires two dancers. One dancer is uncertainty, probabilities, the randomness of life. The other dancer is YOU, with your effort, plans, and hard-work. And life is a dance between probabilities and your decisions.
An example: you may not control whether you will meet the girl of your dream in some random events or party. But when you do, whether you will walk up to her and ask her name or not is entirely up to you. And ‘love’ is born throughout this dance :D
So where will YOU be in 10 years? :D

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