20240505 to 20240704, "Safe Haven" by Mark Spitznagel

20240505 - Foreword by Nassim Nicholas Taleb ix

Never underestimate the effect of absence of feedback on the unconscious behavior and choices of people. p xii

Screen and computer games give us instant gratification, which create illusion that we are growing.

Most of the real progress don't give us instant feedback.

Then how can we measure it?

Things that are good but don't look good must have some edge. pxiii

How can we tell what are good?

PART ONE: WHAT COMES FIRST 1

20240508 - Chapter One: AT WAR WITH LUCK 3

You can't just diversify that risk away with groupings of things that supposedly won't experience such loss simultaneously. p9

A rising tide lifts all boats. A falling tide sinks all ships.

Don't put all eggs in one basket --- this doesn't work.

A safe haven isn't so much a thing or an asset. It is a payoff, one that can take many different forms. p9

How can lay investors do it cost effectively?

We need to control what we can control in a way that gets us closer to our target (of higher wealth) -- and certainly no tfurther from it. p13

"The score takes care of itself"

So far, my understanding is, Safe Haven investing is like insurance company operation.

*When the market is hot, Investment insurance company charge much less than it should, so we can buy multiple insurance policy to cover the same investment.

*When the market is cold, Investment insurance company charge much more than it should, so we can sell the insurance policies to other investors.

20240509 - Chapter Two: NATURE’S ADMONITION 29

Your raw, linear returns are a lie; your true returns are crooked. p53

This is the reason that Warren Buffett emphasize: don't lose money.

This is the reason that Warren Buffett refuse to invest in high risk stock.

But I think it's worth to use 10% money investing in high risk project.

How to win GO game? Don't make mistake. :-)

The author believes that investors should not try to predict the future. I don't agree, more or less.

Normal investors should only invest in a market where they believe the economy will grow.

Profit is finite. Risk is infinite. p56

Own some bonds in portfolio is for insurance purpose, so we can protect ourselves from negative compound effect(logarithmic Bernoulli Falls).

If we believe that interest rate will go up, then it's better to own some short term government bonds.

If we believe that interest rate will go down, then it's better to own some long term government bonds.

PS: Bernoulli's principle explains that why liquid cannot pass thin rubber pipe quickly.

20240523 - Chapter Three: THE ETERNAL RETURN 57

Nietzesche: "the task is to live in such a way that you must wish to live it again, -----you will do so [live again] in any case!" p60

This is correct. Everyday is same to almost everyone.

Schrodinger's demon vs Nietzsche's demon p75

It's parallel vs sequential, arithmetic average vs geometric average

For survey of many people, we should use the former; for any specific individual, the latter is correct.

The key is, whether a event affects other events.

However, can I use 1/6 of my money to gamble on the dice each time? Is the result similar to Schrodinger's demon case? Then diversification makes perfect sense.

It's not fair to compare the store-of-value safe haven with the insurance safe haven, as cash can be replaced with short-term bonds, and insurance fee is much higher in reality. However, the direction is definitely correct.

This book worths millions of dollars!

PART TWO: WHAT COMES AFTER 97

20240601 - Chapter Four: A TAXONOMY 99

1. Hopeful haven: "Fingers crossed!"  p112

Retrospective safe haven fallacy: use perfect story to explain what happened in the past, then use the story to predict the future.

However, I think we can use the story to explain long term trend. For example,

a. Starting with steam machine, technology is evolving faster and faster.

b. Democracy bring us with presperity.

c. Cells die to let human body survive and grow; individuals die to let society survive and grow.

2. Unsafe haven: "Always goes up, so it must be safe!"

House price always go up so far, just like SP500 index.

Surely we can find very good stories to explain them. But, will they last forever? Or just follow much longer period cycle?

3. Diworsifier haven: "Loses less, so it's worth it!"

In serious financial crisis, everyone try to sell all asset categories to get liquidity. But normally FED would lower interest rate to help, such as in 2020. But in front of inflation tide, FED raises rate in spite of liquidity shortage. This is what happened in 2022.

20240605 - Chapter Five: HOLISM 123

Graham: "Essence of investment management is the management of risk, not the management of returns."

If some share price has 50% chance go up 10 times, and 50% chance to go zero, it feels like the average result is 500% return. But, if the share price drop by 99%, then it needs to go up by 100 times to back to the original point. If playing this game several times, we are more likely to end with zero.

The key point is not about the probality of that 10 times return, but the sure result of going zero.

If everyone follow the recommendation to insurance their investment, the insurance fee will be very high, then it won't protect our portofolio effectively.

To ask good questions, we need to know a lot about the background knowledge. However, the background knowledge of biology is not biology. It's history, geography, physics, climate, psychology, law, chemistry, physics, engineering, politics, economy, etc.

The tyre change for auto-racing reminds me of the our lives. To get most out of our lives, we should buy insurance for it. What the insurance is?

Nietzsche: "To forget one's purpose is the commonest form of stupidity."

The core of the Great Pirates spirit from Buckminster Fuller is cost-effective sacrifice(such as insurance fee) to go against the game(such as luck).

20240620 - Chapter Six: BOLD CONJECTURES 163

Insurance may be the best option, but it depends on many things: fees, etc. The best outcome could be just slightly better than SPXTR.

In real world, we need to consider the cost of rebalancing, such as tax and fees.

Does the insurance worth it? Not sure.

But the idea of insurance is great! This book helps me to understand why Warren Buffett said "don't lose money".

When inflation rate is high, gold is attractive; when interest rate is high and likely to drop, government bond can be used as safe haven; at the moment, Nasdaq index is better than SPX!

20240620 - AFTERWORD: AMOR FATI 195

"The Barefoot Investor" says, we should only insure the loss that we cannot afford.

Nietzesche said, "What doesn't kill you make you stronger."

Are they true? I can afford to lose 40% of my wealth, but it would take at least 5 years to get it back to even (0.6*1.1^5=0.96). What about property insurance? Does it worth insuring it at $500 per year to avoid 0.01% of chance losing $1M? Or, is it really just 0.01% of probability?

For the property we live in, we should not insure it if we can afford it getting burn down. But for investment property, I think we should. That's because the latter is out of our control.

Marcus Aurelius: "It's not death that a man should fear, but he should fear never beginning to live."

"Life isn't about waiting for the storm to pass. It's about learning to dance in the rain." This means, don't forget to bring an umbrella!