Why is it so hard to make money?

Why is it hard to get a taxi at night when the weather is bad?

The answer seems obvious: the weather is bad so there are so many taxis.


Saylor doesn’t see it that way. He later won the Nobel Prize, as well as his own fund company, and made a cameo appearance in the movie “The Big Short.”

One of the founders of behavioral finance’s research on the above question answers the title of this article from an interesting angle:

Why is it so hard to make money ?

First look at the taxi problem:

Most drivers work for taxi companies and can rent a car for 12 hours a day, pay rent and take care of their own gas, and earn the extra money themselves.

This is a very hard job, so many drivers stop work after earning enough. For example, they set a target of 200 yuan. If they arrive early, they will finish work early, and if they arrive late, they will run for a while .

When the weather is bad, there are many people taking taxis, and it is relatively easier for the driver to reach the goal (if the congestion caused by the weather is not considered) , so they will go home early, and it will be more difficult to take a taxi if there are fewer cars.

The question is, if the driver adjusts the original target strategy, what will happen to the income? E.g:

Strategy A: No matter how much you earn per day, fix the working hours in a single day;

Strategy B: The total working hours remain the same, work more on good days and less on bad days.

The results show that with strategy A, revenue will increase by 5%; with strategy B, revenue will increase by 10%.

Why don’t taxi drivers opt for a higher-paying (and potentially less labor-intensive) strategy when there are better options?

In this regard, Thaler’s explanation is:

1. Narrow frame ;

2. Risk aversion;

What is a narrow frame? Simply put, it is ” short-sighted ” and ” not big .”

Of course, this is only a relative concept, and “short-sightedness” is even a basic characteristic of all human beings .

The “target strategy” employed by most taxi drivers is a typical example of a “narrow frame”:

Only the income of the day is considered, and the length of working hours cannot be adjusted from the overall income over a longer period of time.

This is done mainly for the following reasons:

1. The state of ” scarcity “. Drivers have limited savings and have to calculate their daily money to support their families and pay their monthly rent on time. The “scarcity” caused by the problem of food and clothing will always limit the so-called pattern.

2. Simplify the decision-making process. Calculate the account of the day every day and worry less.

In this way, the driver breaks a continuous big decision into many discrete and uniform small decisions, with clear goals and easy implementation.

What is risk aversion? It can also be translated as risk aversion (English: risk aversion) , which means that when a person is faced with a transaction with uncertain returns, he is more inclined to choose a transaction that is safer but may also have a lower expected return .

For example, a risk-averse investor would choose to keep his money in the bank for a lower but certain interest rate, rather than spend his money on buying stocks and take the risk of loss for a higher expected return.

In contrast to risk aversion, it is ” risk taker” .

I think that sometimes ” risk aversion ” is a very vague definition, as if to describe a person who is brave, and some people are timid in small things and timid in big things. Some people are honest and friendly on weekdays, and once they do something bad, they will do something big, like an old house on fire.

For a taxi driver, arranging work with a certain amount of income as the goal each day will be “disgusted” by not being able to complete the goal for the day.

To earn more money and rest more requires not only professionalism and experience, but also judgment, as well as the ” inner unease ” of going home early with less income on days with poor harvests.

Fluctuations and uncertainty may be more unbearable for drivers than hard work .


It’s not just taxi drivers, but investors and policymakers who appear to be smarter and wealthier are just as “unwise.”

When investors are in a profitable state, they are often willing to sell stocks to lock in profits, and when they are in a loss, they are more willing to continue to hold stocks rather than admit losses. — Experts call it the ” disposition effect .”

Peter Lynch calls this behavior: Pulling the flowers, watering the weeds .

Research shows that investors, like gamblers, have some kind of ” reversion to the mean” fantasy.

For example, when guessing the size, if the “big” appears 5 times in a row, the old gambler will tend to believe that the probability of the next “small” will increase.

But in fact, for a single occurrence, the probability of “small” appearing this time is still 50%.

Even people who understand probability will have a similar illusion:

According to the law of large numbers, as long as you guess enough times, the probability of “big” and “small” should be 50% each .

In this case, if “big” appears 5 times in a row, there should be some force that causes more small to appear, leveling the probability of “big” and “small”, and letting the law of large numbers work.

Investors often make similar mistakes, thinking that stocks that have risen for a while are more likely to fall, while stocks that have fallen for a long time are more likely to rise .

This is the classic gambler’s fallacy.

The dice has no memory, it doesn’t know that it has appeared “big” 5 times in a row , so it needs to add a few more “small” to level it.

So, does the law of large numbers still work? meeting.

But the working principle is not by leveling, but by “dilution” of throwing the dice enough times.

Back to the “disposition effect”.

Taxi drivers quit work too early on good days and work too hard on bad days ;

Investors run away when they make a little money, but want to hold on and wait for a rebound when they lose .

Besides mean reversion and sunk costs, the more essential reason for the “disposition effect” is prospect theory (also called “prospect theory”) .


Prospect theory got its name, a bit like the origin of ” information entropy “, by two super smart guys.

Let’s take a look at the famous problem of prospect theory:

Question 1 : Which one would you choose? Will I get $900 for sure, or is there a 90% chance I’ll get $1,000?

Question 2 : Which one would you choose? Will I lose $900 for sure, or is there a 90% chance of losing $1,000?

As Kahneman says, most people choose to avoid risk in question 1 and get $900.

Although calculating the expected value is the same for both.

But according to Bernoulli’s ” expected utility ” theory, one would think that the subjective value of getting $900 is greater than the 90% chance of getting $1,000. So most people’s choice of question 1 is expected.

The point is question 2, most people, when faced with a loss, prefer to take a risk and choose a 90% chance of losing $1,000.

That is, people’s perception of “gain” and “loss” is asymmetric .

The theory leads to four basic conclusions:

1. Determination effect : When in a state of gain, most people are risk averse.

2. Reflex effect : When in a state of loss, most people are risk-lovers.

3. Loss aversion : Most people are more sensitive to losses than gains.

4. Reference dependence : Most people’s judgments on gains and losses are often determined by reference points.

As shown above: the abscissa is the actual monetary amount of profit and loss, and the ordinate is the perceived psychological value.

The S-shaped curve in the figure is not symmetrical. The psychological reaction when you lose 200 is much stronger than when you gain 200 .

In a “disposition effect” experiment, the data showed that the probability of a rising stock being sold exceeds the probability of a falling stock being sold by about 50% .

Kahneman and Tversky call it ” loss aversion .”

In a nutshell:

1. When faced with profit, people are reluctant to take risks; when faced with losses, everyone becomes an adventurer .

2. Loss and profit are relative to the reference point. Changing the reference point when evaluating things will change the attitude towards risk .

” Loss aversion ” explains why we buy stocks and run when we make a little money, but wait for a rebound when we lose money.

However, any theory has its boundaries and scenarios. For example one might ask:

In this case, the core assets of the current A-shares have risen in the past few years. Isn’t it because they didn’t take profits earlier, and are now stuck in a deep decline?

We need to realize that behavioral economics explains the nonlinear relationship between ” psychological value ” and ” real value “, but it cannot solve the problem of how to value the “intrinsic value” of stocks.

That’s right, going beyond the narrow frame and valuing assets over a longer period can avoid the “ short-sighted loss aversion ” that volatility can bring.

But this does not mean that you can just sleep with “high-quality assets”. What if the assets have deteriorated ?


Buffett said: You don’t need to be a genius in investing, you need to be in the right direction .

He believes that 90% of people have the wrong idea of ​​buying stocks, they want to buy stocks and they will go up next week. It’s fun to go up, and it feels bad to go down.

According to “loss aversion,” even if the downside and upside are the same, bad times can be twice as intense as happy times .

Come to think of it, isn’t this a lot like the “narrow frame” of a taxi driver?

Probably worse in a sense:

After all, the volatility of the taxi business is far less than that of investing in stocks. The driver sets a single-day revenue target, which may lead to less than 5% to 10% of the money;

The stock market is full of ups and downs, and there is no so-called uniformity. But most people still use the “narrow frame” of the ups and downs in front of them to make decisions .

The benefits of a ” narrow frame ” are two:

1. Cut the long decision-making cycle full of uncertainty into short decision-making cycles that seem to be deterministic;

2. Turn the decision evaluation that takes a long time to calculate the general ledger into an instant evaluation of “immediate prize draw”;

The “narrow frame” sets the point of reference when you evaluate things and influences your attitude towards risk, thereby placing people in the instinctual pleasure of instant gratification .

Buffett’s secret: consider how this company will do business twenty years from now .

Once you take a long time to make a decision, it’s a good thing that the stock price falls after you buy it, and you have the opportunity to buy more stocks.

If a taxi driver is willing to lengthen his decision-making cycle, he can make some intertemporal substitutions: work more when business is good, and go home early when business is bad.

Capital has intertemporal characteristics and is full of unevenness, so it is more dependent on intertemporal decision-making .

However, our genes still retain “memory” of the jungle age :

The ancestors of human beings did not like being eaten by wild beasts. They should eat food as soon as possible, and drink water as soon as possible.

Even though there are no tigers to eat us now, there is still fear, fear of loss, and a desire for something good right away .

Therefore, the “narrow frame” and “risk aversion” of human decision-making behavior lead to the following results:

1. We avoid facing the unpredictability of the future in an uncertain way, which may be the reason why human beings “invented” probability very late;

2. We like to meet immediate desires and needs, and enjoy the satisfaction of completing “small goals” immediately ;

3. We like fragmented and uniform things in the present , and hate overall and uneven future things, so we overestimate the present and underestimate the future;

4. We overreact to things that are extremely unlikely, and slow to respond to things that are moderately or highly probable;

5. We drift with the tide in the long river of time and are not sensitive to ” inter-temporal replacement “;

6. We dislike “disgust” more than we like “like”.

Speaking of making money, maybe we can use ” time, space, probability, psychology ” to explain “why is it so difficult to make money”:

1. Time; we are subject to instant gratification, hoping that the stock will rise when we buy it, and fall when we sell it , and we are too eager for success. We are keen on short-term trading and underestimate long-term returns;

2. Space; we lack the overall view and are not good at discovering secrets from the entire chessboard . We only look at the parts, only look at the feet and ignore the distance, only look at what we want, and ignore more options;

3. Probability; we seek too much certainty, try too much to summarize laws from randomness, we always fall into the gambler’s fallacy, we think that the “laws” in limited data will last forever. We use the past experience to apply the future;

4. Psychological; we are willing to do anything to escape volatility. And when volatility occurs, the intensity of disgust when the stock falls 10% is two or three times the intensity of happiness when it rises 10%. So, we pull out the flowers and water the weeds.


After learning the wisdom of the world’s brightest economists and investors, are we one step closer to the ” holy grail of investing “?

Since “pulling out the flowers and watering the weeds” is wrong, isn’t it better to “pull out the weeds and water the flowers”?

Maybe not so simple.

Let’s make an interesting assumption:

If a person always loses money every time he buys stocks and is called “reverse stock god” in the circle of friends, then you “reverse operation” according to his operation every time, is there a high probability that you will make money ?

This question may be more complicated than it seems.

First, the hypothesis turns the “buying and selling of stocks” into a coin toss. Coin tossing has several features:

1. Either positive or negative, the minimal probability is erected , and all the possibilities of the coin have a closed result and are bounded;

2. The probability of positive and negative is symmetrical, ignoring the result of erection, it can be said that positive and negative are the other side of each other;

3. If you keep tossing coins, the result will be closer and closer to the result of the law of large numbers. The future is certain and convergent .

But our real world, including the stock market that simulates the real world, is not the same as flipping a coin. I compare them one by one as follows:

1. Various possibilities in the real world, like the Big Bang, are constantly bifurcated and extended, and all possibilities are like parallel universes that are constantly splitting ;

2. We are used to saying that the opposite of good is bad, and the opposite of good is evil.

This dualistic approach is not complete.

Just like the opposite of fragile is not strong, but antifragile. The opposite of doing evil is not doing good, but not doing evil. The opposite of love is not hate, but forgetting ;

3. The uncertainty of the real world will become more and more chaotic. Everything in the universe is becoming more and more disordered, and everything will eventually pass away.

People often quote only half of a “famous quote,” as is Peter Lynch’s “Don’t pull the flowers and water the weeds.” His original words are as follows:

Some investors habitually sell “winners” – stocks with rising stock prices, but cling to “losers” – stocks with falling stock prices. This investment strategy is as stupid as pulling flowers and watering weeds;

Others, on the other hand, sell “losers” — stocks that are falling in price, and cling to “winners” — stocks that are rising, and this investment strategy isn’t much smarter.

You see, Peter Lynch means: that’s not right, that’s not right either .

It’s like when someone asks you to guess a coin, you say it’s either heads, tails, or verticals, and the guy says: neither.

You angrily ask him to open his palm and find that the coin is still turning…

Why are both wrong? Peter Lynch’s explanation is:

The reason both of these strategies fail so well is that both use the current stock price change as an indicator of a change in the fundamental value of the company.

As we’ve seen, current stock price changes tell us nothing at all about changes in a company’s prospects, and sometimes share price changes go in the exact opposite direction of fundamental changes.


Almost all attempts to find the “Holy Grail of investment” are a matter of seeking a sword.

Therefore, this article will not follow the “narrow framework” and “risk aversion” to explore how to make money easier .

Peter Lynch’s meaning is clear–

Step 1: Don’t pull out flowers to irrigate weeds, and vice versa may not be right;

Level 2: How do you identify flowers and weeds? What are your standards?

Level 3: How can you recognize this better than others? Otherwise how to bid?

Level 4: What if the irrationality of the market ignores your value judgments? For example, people think that weeds are more valuable than flowers.

I’m quite disturbed by the statement that ” money is the realization of cognition “.

This sentence is of course true in a broad sense, but it misleads too many people in the real world.

If we say that money is the realization of knowledge, everyone will laugh it off.

But why does it make sense to replace ” knowledge ” with ” cognition “?

Maybe knowledge is like a cat, cognition is like a ghost, it is easy to draw a ghost and difficult to draw a cat.

Cognition refers to the process of acquiring knowledge or applying knowledge, or the process of information processing, which is the most basic psychological process of human beings .

It includes feeling, perception, memory, thinking, imagination and language. The human brain accepts the information input from the outside world, and through the processing of the brain, converts it into internal psychological activities, and then dominates human behavior. This process is the process of information processing, that is, the cognitive process.

To say that wealth is the realization of cognition is too general, too broad, and too simplified . According to this logic, saying that “wealth is the realization of people” or “wealth is the realization of knowledge and action” is both correct and meaningless.

Thaler, Kahneman, Tversky, Lynch, Buffett and others are considered the most intelligent people on earth. Their theories are refined and vivid, pointing directly to the essence of things, which can be called the peak of “cognition”.

However, these cognitions are not helpful for making money, they can only help you to reflect on yourself after you have not made money .

Even better, it’s to make people realize that making money is a very difficult thing. So, just don’t mess around.

You might say that the phrase “money is the realization of cognition” is a necessary condition, not a sufficient one.

Unfortunately, most people make most of their money by luck, not knowledge .

Again, this sentence will mislead a lot of people. One is a novice, and the other is a wise man. The former is fearless, while the latter thinks that he is “not ignorant”.

A simple example, can you use the kind of “cognition” that is popular today to do math problems and play chess?

Every year at the end of the college entrance examination, a lot of people discuss composition, and very few people discuss mathematics or physics.

“Composition” is like a generalized “cognition”, and everyone has the urge and illusion to participate in pointing .

However, no matter how powerful your cognition is, you will not be able to face math problems .

Come to think of it, compared to math (not the top research kind) , investing is much harder. Why can investment be realized by “cognition”?

I have always had the following views:

All accurate games (including what is then called learning) require solid and hard basic skills;

On the contrary, all that do not require basic skills, or can reach the peak by ” enlightenment “, are all witchcraft.

The obsession and abuse of metaphysics that can only be understood and cannot be expressed in words is the great enemy of science and reason.

Today’s popular “cognition” is just another packaging for “enlightenment”.


Investing lessons, as well as success lessons, are as indelible as orgasms.

Someone asked at the shareholders meeting: If you chose only one stock to fight high inflation, what would you choose? Why?

Buffett replied:

“The best thing you can do is be exceptionally good at something. Financially or not, people will give you something they produce in exchange for something/skills you can provide, the best investment Just develop yourself.

Do what you are good at and become a useful person to society, so you don’t have to worry about the devaluation of money due to high inflation. ”

You see, this guy who is the best at picking stocks “surprisingly” can’t recommend even a single stock.

The above paragraph is by no means a bowl of illusory chicken soup that “the best investment is yourself”.

Buffett said that because: The poker player is the biggest card in his hand, especially for capital decision makers .

Everyone has their own circle of competence, others’ good cards may not be yours .

Another implication of this sentence is that there is no holy grail in investing. At least so far .

That’s where investing is tough, and where it’s fun. Investing is more like poker than Go. In fact, Go makes professional players more desperate than poker .

I once chatted with a friend who invests professionally and talked about whether I am a layman in investing.

I made an analogy: For example, about Go, as a lover, I am barely getting started. The measure is that as long as I keep taking the time, there is a way to make my Go level improve along a certain curve. For example, do life and death problems, multiple games, and use AI to review.

But for investment, I haven’t found a way to cultivate, and I can’t find that curve. If I can’t make money, how can I make that money ?

Too much emphasis on the ” professional ” side of investing seems a bit stereotypical, and it is also a bit suspicious of trying to find a causal linear relationship.

Many times people say that investing is more like art. Buffett also said that investing does not require “high IQ”, and there is no “stock speculation” in college. It seems that reason, patience, and common sense (or vice versa, “passion, ambition, and imagination”) are the keys .

I’ve always been curious and alert about things “only comprehensible”.

When I was young and learning chess, I watched Takemiya Masaki’s ” Cosmic Flow “, and I felt majestic, like a romantic knight. After listening to professional chess players’ evaluation, Wu Gong Masaki’s basic skills are extremely solid, and he is at the top level in both killing and Guanzi. Otherwise, how to “wave” up?

Looking at Buffett, who brought out chicken soup for us, behind his kindly appearance is actually a fighter who fought for life .

He has been in business since he was a child and has experienced various business experiences;

He has a solid foundation in economics and mathematics, and has a deep insight into finance and industry;

He has made countless “bets”, just like Jordan who has played many actual battles;

He is cold-blooded by nature, and he is not fettered by emotions when betting; he only loves to invest in one thing in his life, and he focuses on it every minute and every second.

To become a stock god requires “professional + cognition + muscle + anti-humanity”, as well as very, very good luck .

Even so, he would buy the “wrong” IBM, and then simply admit that he was wrong.

But there is no “wrong”, and then he bought Apple aggressively, and his position accounted for almost half of the market value of his stock holdings (excluding private company shares) .

What is even more rare is that he has continued to move forward throughout his life.

He has said the same thing for decades, always only talking about the most basic common sense , similar to “people will be hungry if they don’t eat, and thirsty if they don’t drink water”. — very old fashioned, but hardly outdated.

Buffett also made no attempt to summarize his own principles and formulas. In his eyes, the possibilities for investing are limitless, and the possibilities for Berkshire are limitless .

“It’s infinite in size, and it has an ever-expanding canvas where I can paint what I want.”


Thaler extended his research from New York taxi drivers to the stock market, explaining the ” mystery of the share price premium. ”

Over the past century, stocks in the U.S. market have yielded far more than bonds. Is this because the market compensates risk-takers?

Thaler found that investors, like taxi drivers, use a “narrow frame” to assess their own returns. They frequently calculate their profit and loss.

Because of the psychological effects of “loss aversion,” evaluations that are too frequent can be unsettling for the client .

Stocks are volatile, and staring at them every day is like a person on a boat staring at the waves under the ship’s side, which is especially dizzy .

So even if the stock investment has a better expected return (about 7% annualized) , people will give up their probability and prefer to only hold Treasury bills that return less than 1%.

A too narrow mental account can limit our imagination and the growth of our wealth .

Interestingly, Musk, the nemesis of Buffett and Munger, also tweeted a piece of “ value investing ” advice:

“Buy a few companies whose products and services you believe in.

Don’t sell until you think their products and services are starting to go bad, don’t panic because of market volatility. This will help you in the long run. ”

If you don’t tell you it’s from Musk, you might think it’s Buffett.

And Bezos, who has been scolding Musk for a long time, also forwarded a passage from investor Gerry:

“An entire generation of entrepreneurs and tech investors built up their entire view of valuation during the second half of an astonishing 13-year bull market.

For many people, the process of ‘ unlearning ‘ can be painful, surprising, and disturbing. ”

In the circle of friends, I also saw a senior investor friend expressing emotion that after enjoying more than 40 years of reform and opening up, he thought it was normal in life, but it was not.

The long river of time always has its ups and downs.

Bezos responded to Gurley’s quote above:

“Most people have seriously underestimated the extraordinaryness of this bull market. The bull market has indeed brought benefits to many people until the bull market is over. The market will educate people, and the lessons may be painful.”

It is the consensus of Buffett, Musk, and Bezos to understand the world, deal with the world, and change the world in a larger time frame .

Several of them have very different styles and do not see each other on weekdays. But if they were sitting at the same table, maybe they would have a good chat and maybe even have a few drinks.

After all , “intelligence, rationality and sincerity” are interlinked and scarce.


Seiler really realized it with cognition.

In addition to winning the Nobel Prize of more than 1 million US dollars, the performance of his UBVLX was calculated from the foundation date of December 28, 1998, and the return rate by the end of September 2017 reached an astonishing 832.44%. Returns are also ok.

The secret of the funds that Thaler participated in, used a ” contrarian investment strategy ” to earn excess returns from the irrational behavior of investors. Here’s what it says on the company’s website:

The craziest thing is that you think humans act logically every moment .

He does not do those complicated analyses, but makes judgments based on the research results of behavioral economics. For example, he found that the CFO of a company suddenly doubled his shares, which is very likely to be an important signal that a company is improving.

He is also involved in another fund, in which Kahneman has a stake. Not necessarily that behavioral economists are all good at making money, perhaps because they are all Jewish.

Of course, it is very likely that Thaler contributed fame and wisdom to the fund, and there are other professionals in the specific trade.

Even so, among economists and university professors, very few can use “cognition” to realize wealth in the field .

If we have to talk about cognition, perhaps the most important thing is to break the framework of cognition and keep openness .

In 2013, economists Fama, Hansen and Shiller were awarded the Nobel Prize in Economics.

Interestingly, Fama and Schiller were never ” hostile “:

Fama is a member of the Chicago School, the University of Chicago is known as the base of free market economics, Fama is famous for proposing the “efficient market hypothesis”;

Shiller, one of the founders of behavioral finance, believed that some irrational deviations had predictable patterns.

Fama’s theory is:

Movements in asset prices are unpredictable because prices fully reflect all available information . It was his ideas that contributed to the rise of index funds. Economist Burton Malkiel explains it this way:

“A portfolio picked by a blindfolded monkey who projects darts into the financial pages of a newspaper is as good as one handpicked by an expert.”

Fama doesn’t even believe in the existence of a bubble because asset prices reflect all available information.

Shiller, who is known for predicting the dotcom bubble in 2000 and the housing bubble in 2008, studied market inefficiency and human irrationality, proving that stock prices are more volatile than corporate dividends.

he thinks:

” Popular psychology may be the main reason for changes in the overall price level of the stock market .”

Giving that year’s economics prize to both ” opposite ” Fama and Shiller represents such an attitude:

“The field of economics has yet to agree on a fundamental, important question – how markets work.”

Oaktree’s Max reconciles Fama and Schiller’s points:

Efficient market theory is not the whole truth about financial markets, mainstream markets are indeed becoming more efficient, but inefficiencies are always there.

He believes that outstanding investors can beat the market precisely because they are good at finding inefficiencies in efficient markets.

According to our tradition, a ” yin and yang ” like Max’s is simply ” obvious “, and Fama and Schiller are the naive point of view.

Having said that, maybe we need to revisit philosophy and science, especially the relationship between philosophy and science that sees everything from the top down.

As early as the 5th century BC, the ancient Greek philosopher Leucippus put forward the atomic theory:

Everything is made of atoms . According to his student Democritus, these atoms

“Too small for us to perceive them…they, or the elements…that allow visible, perceptible matter” to form.

” Atomic theory ” looks amazingly farsighted and insightful. But scientists think they just stumbled upon part of the truth.

Physicist and Nobel laureate Steven Weinberg said:

“These early atomists seemed quite ahead of their time, but (the monists) were ‘wrong’, the atomic theories of Democritus and Leucippus were in a sense ‘right’, the difference between right and wrong It doesn’t matter to me…

If we don’t know how to calculate the density, hardness or conductivity of matter, how far can we go in understanding nature even if Thales or Democritus tell us that stone is made of water or atoms? ”

Einstein and Infield use a metaphor to describe such a ” Greek dilemma “:

The explorers of the natural world in ancient Greece were like: someone desperately wanted to understand the mechanics (mechanism) of a watch , but he could only stare at the dial and the constantly turning hands, and listen to the ticking sound of the watch because the cover Can’t open it anyway. If he’s still smart, he can draw a diagram of the movement and explain everything he observes.

But he…may never be able to compare the real movement with his own drawings.

He felt that such comparisons were not only impossible, but also meaningless.

To be precise, what Einstein was against was ” mashing up “. They wanted to open the black box and see what happened.

Fama and Schiller’s views are not two sides of the coin.

They may have each discovered a certain gear inside the watch.

We can certainly say that the watch is a whole, a system, the result of the combined action of multiple gears.

But this kind of philosophical thinking is meaningless without opening the watch to explore the true structure of the movement .

Just like Tu Youyou who discovered artemisinin and dihydroartemisinin, she was inspired by traditional medicine and used modern scientific methods to extract active ingredients to benefit mankind .

I don’t mean to say, as Feynman did, that science kicks philosophers in the ass all the way, and that you might fall into ” scientific fundamentalism. ” Philosophical thinking like Soros, and a low profile calling himself ” financial alchemy ” is also a laudable attitude.

On the contrary, those who dogmatically embrace ETFs and core assets, desperately looking for formulas where randomness and probability should be handed over, are equivalent to carving patterns on the board of the sea, but ignoring huge waves and icebergs. It’s a quest for the illusion of certainty.

Talk about Samuelson, a staunch defender of ” efficient markets theory ,” believing that ” no one can beat the stock market .”

But he bought Buffett’s stock very early and made a fortune until his death in 2009.

Buffett has always ridiculed the ” efficient market theory “, but the only investment advice he has ever given to the public is to buy index funds.

We can learn from it the following attitudes:

I have my own opinions, but I could also be wrong.

My theory (belief) works locally, my opponents may have another angle;

Go deep into the essence, but don’t fall into the local trap; get a bird’s-eye view of the whole, but don’t use the so-called holistic view to make a mess.

In terms of worldly wisdom, Samuelson bought Buffett stock and did some kind of hedging:

If Buffett succeeds, Samuelson makes a fortune;

If Buffett fails, the efficient market theory is strongly proven.


Some things, such as “ordinary people don’t invest in stocks” and other common sense, require people to “experience” in a recent generation (usually 10-20 years) .

By the time he realizes it, it may be too late (or courageous) to do another round, and he has since fallen into doubt and sinking into nothingness.

Often these intergenerational wisdoms depend on passing on from one generation to the next, and require collective contemplation as the soil .

I have seen a post-90s story about buying stocks:

Ta is very smart and understands that ” buying a stock is buying a company “. Therefore, two star companies of Chinese concept stocks with good tracks were selected. ” The total market is broad and growing, and the company model is also very new .”

Ta also understands that a good company also needs a good price, so he buys when it falls, and the more it falls, the more he buys, “such a good company has fallen tenfold, where else can it fall?” However, it fell several times.

The young man also understands expectations and odds, and believes that if he buys the wrong one, it will return to zero at most, and if he buys the right one, he will earn several times .

Where did Ta go wrong ?

That’s right, Tu Youyou got her inspiration from folk medicine. She and her team selected about 2,000 anti-malaria prescriptions, and after screening, they focused on 380 possible prescriptions for 200 kinds of Chinese herbal medicines.

Finally, the anti-malarial drug was extracted from Artemisia annua.

The initial extraction of active ingredients failed, because the traditional Chinese medicine prescriptions at that time required decoction, and high temperature would destroy all artemisinin.

She then extracted Artemisia annua with ether, and after a series of purifications, she finally obtained artemisinin.

As shown above, artemisinin is an organic compound with a molecular formula of C15H22O5 and a relative molecular mass of 282.34

Tu Youyou’s achievements are not based on the conjectures of ancient Greek philosophers, but rely on scientific methods and a large number of experiments, and have experienced countless failures .

The post-90s Ta above knows a lot of investment terms, knows the ” track “, knows the probability, and knows ” I am greedy when others panic “.

However, knowing a noun is completely different from understanding a concept , and knowing a principle; knowing a principle is completely different from understanding the underlying mechanism;

Insight into the mechanism behind it is also far away from its application in the real world .

The young man above finally cut his flesh and left.

Ta’s reflection on himself is: he didn’t escape when he should escape the top, and he didn’t stop when he should stop. When he is optimistic, it is because it is too easy to be fooled by the institution, and when he is pessimistic, it is because he is too emotional .

These reflections may just go from one extreme to the other, and still stay at the stage of ” holding a watch without opening it and guessing how the gears work and why it doesn’t work “.

But in my opinion, the most serious problem is not young people’s understanding of ” investment is difficult “, but:

For the rest of his life, Ta no longer believes that a person can achieve a prosperous life with the labor of thinking;

Ta began to feel that everything was just fate;

Ta has since grown old and lived a life of self-pity.

This is also a “narrow frame” thinking trap. Life is long and 10 years is just a small part of it.

This 10-year market situation is not good, we will stop work and go home early, rest, be patient, and wait ;

When the next 10 years are good, we’ll work a little longer and pull out bigger pots to pick up the pie from the sky .

Humans may indeed be ” a trivial fish under the tide of the times “, but we can break the “narrow frame”, make intertemporal decisions from a longer cycle, and be a long-lived fish that learns to surf.

At last

For me, the joy of writing (or thinking) is also its unexpected randomness.

At first, I just wanted to think about ” narrow frames ” and ” risk aversion “.

Continuity of decision making is often overlooked by us .

For the most part, life hangs in the balance. We have to move forward in grayscale, act when the conditions are not available, pay when there is no result, imagine the fruits of the midsummer in the cold winter and sow the seeds for it.

This is very, very difficult.

For certainty, people are willing to pay any price for uncertainty. Some of my friends, no matter how smart, how hard-working, how ambitious, want to achieve excess returns with stability as the bottom line .

In other words, you have to make money every day, and then make a fortune.

I don’t think there’s anything wrong with this mentality, and it’s better than going bankrupt and gambling to start a business .

Moreover, such feelings and judgments are very personal. For example, in Musk’s eyes, ordinary people like me are timid salted fish.

People’s fascination with and dependence on uniformity and certainty takes various forms.

The novices stay on the surface of the concept, while the smart go to the search for algorithms and the Holy Grail.

However, once they fail to realize that the real world is made up of infinite possibilities that are constantly exploding, they fall into the trap of seeking certainty .

This article is a homage to the ” rational study of human irrationality ” by taking a quick look at the behavioral economics of Thaler, Kahneman and Tversky and Shiller .

The study of birth and the practice of accession can playfully parallel, and numerical precision and psychological ambiguity can describe each other.

From the ” loss aversion ” curve, when we are uncomfortable and fearful because of failure, remember to reduce the intensity of our inner feelings by two to three times, don’t be too scared, be optimistic.

There is no holy grail in investing. Again I explore science and human ignorance.

” My life has a limit, and my knowledge has no limit. If I have a limit and follow the limitless, it is perilous; the one who has been known is perishable .”

Why is it so hard to make money?

Because of the law of increasing entropy, and because our luck has been too good and too rare in the past few decades, it should always “return”.

Because investing requires ” professional + cognition + muscle + anti-humanity “, and very, very good luck.

But don’t doubt the future because of failures and losses at a certain stage. Especially young people, you have enough time to achieve “inter-temporal substitution”, don’t waste your youth pain.

An important finding of the “Prospect Theory” is that humans perceive the entire world in terms of ” comparisons “.

The last paragraph of The Count of Monte Cristo reads:

There is neither pleasure nor pain in the world; there is only a comparison of one condition to another, and that’s it. Only those who have experienced misfortune can experience the greatest joy.

Dumas thus appealed: Morrel, we must experience the pain of death in order to experience the joy of life. So, my beloved children, enjoy life !

However, pain and pleasure are not symmetrical. Therefore, many people give up the subsequent peaks after encountering a trough in this life.

Only time is the real asset of life. The Count of Monte Cristo waited 14 years in prison to complete his revenge;

It took the protagonist of The Shawshank Redemption nearly 20 years to dig a dog hole leading to a beautiful beach.

Buffett was 92 years old when he waited 60 years for the opportunity to buy property and casualty reinsurer Alleghany Corp for $11.6 billion in all cash.

The future is long and you are still young .

Never forget. Before God has made his decision, all human wisdom is contained in these four words: ” wait ” and ” hope .”

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