Sleep Bloviation

Amazing- the heart a dream can contain. A dam breaks, lets a feeling through that seems obvious in retrospect but that was precious, and obscenely missing, all along. Can feelings be so concrete? Perhaps such a dream is a distortion. I am unsure.

Many of my dreams take someone that I have formed into my mind in quite a strong way and embellish them with some detail that amounts to an "a-ha!" moment in the dream. I am not sure what these dreams represent, except perhaps an omission on my part, an act of consciously convincing myself of the understandability of something that I had some distance left to go on. I believe that the mechanism that leads to this phenomenon is known by psychologists as "projection", which I think suggests that the distortions we place onto other people come (this should be unsurprising) from our own predispositions, or our own desires.

I wonder if someone who grew up without verbal or written language would relate to their inner dream world with greater intuition. I can't believe there is anything inherently mysterious about dreams, except that we choose, as members of an outwardly-focused society, to avoid trying to speak their language. I certainly don't believe that dreams are the act of "trying to tell ourselves something", except to the degree that we attempt to anthropomorphize the nature of our own perfectly explainable (though not understood) subconscious into a separate being.

I believe it would be okay for me to outlaw dreams as a blogging topic for, say, six months.

A Survey of Investment Activity, 2009.

• The Fairholme Fund was named Morningstar's "Mutual Fund of the Decade" for the domestic class. I'm very happy and I think it was a shoo-in for the award. It has outperformed almost everything else out there - emerging markets, energy, sector-rotation strategies, etc... And the most extraordinary thing about the fund is that it doesn't require macroeconomic bets. The fund outperforms both because of and despite an aversion to guessing future trends. The only trend the fund plays is the trend that durable, cash-generating businesses bought at attractive prices will outperform the market as a whole. Although I hope we never find out, I am strongly confident that it will prove to be one of the most durable funds in the mutual fund universe if true disaster (i.e. dirty bomb in a U.S. city, severe inflation) one day strikes.
  

• Clear Choice Health Plans received a buyout offer for $26/share. At the time, it was trading for less than $10/share, which is approximately the price I paid for it. I am fortunate that my investment mentality had been enlightened at that point by a not-irrelevant bit of wisdom from Charlie Munger: that if you know what you are doing, then when a great opportunity is identified, a person should commit a significant amount of money to it - regardless of what may be small (but real) risks - and that action will meaningfully improve the financial results of one's lifetime.

• Wellcare Health Plans went on a tear after March, recovering approximately 500% from its low. I believe that it still has significant upside, given that they carry approximately $30 in cash - net of reserves - on their balance sheet. This is not a risky proposition, either; they are trading for 9x free cash flow in an industry with significant growth prospects (or perhaps they will simply be bought during this secular acquisition phase). Indeed, unlocking the value of the cash is quite a contingent upside possibility, not the necessary thesis.

• KSW installs HVAC systems in New York City, so their business fell off a cliff when building activity went into free-fall. Now their backlog has reached near-record levels again and the stock price hasn't recovered. Another story of cash obscuring earnings power. This one was trading for $21m when I bought it, with $14m in cash net of all liabilities. Basically, they were trading for 2x their 2007 earnings number once you backed out the cash. The point of the cash buildup is uncertain (as well as the conditions for it to cease), but the company could probably pay out $10m in cash, the P/E ratio would plummet, and the price would come right back to where it was once people figured out what was happening. Expecting a significant return unless building activity double-dips, and the huge amount of cash limits downside, making the risk/reward profile on this one excellent. (another stock with a similar story and even more cash as a % of market cap is EnviroStar)
  

• Manhattan Bridge Capital makes short-term loans to businesses, secured by inventory, real estate, etc... They are profitable, but the business is trading for 50% of book value, which is primarily comprised of cash and notes receivable. Management's record so far is strong in the arena of lending. Let's see if they can convince investors that the company is worth a premium to book - that would achieve a 100%+ return in stock price.

• I am investing approximately 25% of my cash into a local real estate venture. The base scenario provides me good diversification and a decent return thanks to the power of the most secure type of leverage - real estate mortgages. There are several factors that could provide significant upside, and the diversification effect extends to the exemplary inflation protection that real estate provides.

Comment from the Vegetable Gallery?

"Most philosophers concede that whether others experience consciousness is strictly unknowable. Some take this one step further and argue that consciousness and perfect simulation of consciousness are the same thing. Here most people object. You probably feel that there is a difference between consciousness and the lack thereof, even while admitting that no possible observation or experiment would establish it. Is this a rational objection?"

~ from "Labyrinths of Reason", William Poundstone

Upon Finding a Reason

One way to tell the story of a person is developmentally, through the events that have shaped their life. And although it would be endlessly interesting to tell this story in an absolute sense to someone who was unfamiliar with the common tenets of human behavioral and social development, it is more reasonable to tell the story of the aberrations.

It is impossible to talk about developmental aberrations without talking about childhood, because our early development informs so much of our ingrained behavioral stock. In many cases, we will carry these behaviors with us our entire lives. And usually, the best we can hope to do with an unwanted behavior is to bury it beneath newer and more 'mature' behavioral patterns. Long and winding is the path that leads us 'home'. But which is the greater illusion?

I believe that mystery adds to our existence to a profound degree. Understanding through the existence of strong theoretical frameworks and the rigor of inferential deduction is inspiring and powerful, but it removes the mystery from the world. Mystery is the source of awe and wonder, and what do we pursue besides these things? Perhaps pleasure; enjoyment. How much of these feelings do the average person receive from the ego and not the id? Maybe today's learning machines can penetrate to the meaning of the universe through one-dimensional accomplishments. I grew bored with such games long ago, but perhaps I am in the minority to count existential awe as the greatest goal.

Buffett has said, "It's not greed that runs the world; it's envy." Perhaps therein is the answer. It is so much easier to envy things that appear to us to be objective: money, possessions. Much more difficult to envy a mental state or a belief system.

I have always remembered that the locus of reality for a living creature is the perception the creature possesses for the world around it, NOT the ultimate objective reality of the living world (is such a thing even knowable, except as a belief?). In other words, I have always believed in the absoluteness of subjectivity. The universe as we know it begins at conception, and ceases at death; it does not persist. To quote Huxley:

"We can pool information about experiences, but never the experiences themselves. From family to nation, every human group is a society of island universes."

Subjective insight has always strangely held lower currency, perhaps for the simple reason that it is non-transferable. I value it highly enough to devote myself to it, regardless. It has pained me for as long as I can remember that this conversation is necessarily solitary. Who would relate to me, and for what, anyways? What could another person offer me? What existential insight can ever release a person from isolation?

What do two people ever offer each other? Amusement, love, time, money? A relationship is a transaction, whether the currency is subjective or not. And it is surely easy to desire shallow things. Hell, if for no other reason than that they can be found. The true nature of existence is personal and unrelatable.

Let's call this an incomplete thought.

Carl Jung: The Point Where The Wave Broke

Carl Jung will live forever in a general obscurity, as the man who built one of the most natural and complete bridges between science and spirituality, between objectivity and subjectivity, in the abbreviated history of human civilization. Unfortunately, people ceased having widely public discourse on spirituality years ago. There was some false impression of unsolvable ambiguity (as if anything subjective can ever be unsolvable to the individual, or ever avoid being socially ambiguous). That, or perhaps a constant stream of other comforts pummeled us gently and inevitably into a shallower reality. After all, who cares about spirituality when all we have to do here is live and die, and hurry up while you're at it, right? More commonly, who cares about intelligent discussion when it produces better results by our shallow measures to relate to our neighbors through common acknowledgment of ignorance?

The idea that Sigmund Freud maintains some degree of cultural currency, while Jung enjoys relative anonymity, is an example of the power of memetic simplicity (the idea of Freud is an order of magnitude simpler than the idea of Jung; in fact, Jung - like many thinkers who systematically refuse the use of simplifying assumptions in their work and embrace the inevitable complexity of reality - almost completely defies memetic representation). He also provides a working example of society's inability to judge critical ideas as a whole, or to selectively disseminate ideas based on the credulity of the source. In personal experience:

I would consider myself well-educated on a handful of topics where there is a prevailing effect of knowledge isolation (a small educated population amidst a much larger, relatively uninformed population). But the suggested social dynamics beget the reality: remove a few of my close friends, and I fail when I attempt to recall a single occasion when someone uninformed has shown a desire for knowledge, even that being freely offered. Perhaps free knowledge portends deception: is the assumption that surely the disseminator must stand to gain? Not that simple, though. I suppose that a whole list of psychological predispositions is required to explain this; but, let that be a lesson. Simple psychological predispositions don't necessarily have a diffusive effect on each other; they may indeed have an amplifying effect.

I believe that the most identifiable change in humanity's recent priorities is the need to manage time. Then, should we be surprised that people are unwilling to learn lessons that may take a great deal of time, even when the payoff could be great? We are so great at managing risk in some ways and so astoundingly poor at it in others. We won't spend the time to teach ourselves things that may enrich us - because they may not, and why risk the time? But we are notoriously poor at managing the risks of our own health, for instance. Do people do it because they don't know, or they are skeptical, or they are lazy? Do people do it because they are too afraid, or too comfortable?

The issues are deeply psychological. Of course, Jung wasn't much interested in these simple predispositions; go read Adler. But Jung's body of ideas is both strikingly spiritual and reinforced by Jung's life spent psychoanalyzing thousands upon thousands of patients. His theories are also complex beings to mimic the workings of our complex minds. They're not easy for people to hold on to; certainly not to appreciate or relate to after a quick read. It may actually be an intuitive sense of their correctness that allows anyone short of an academician to respond to them at all.

I think it was Jung's idea of the Shadow that first resonated for me. It is one thing to understand that people see unlikeable figures in dreams; but to understand that the feelings behind those figures transcend people or even ideas is extraordinary. The shadow is a manifestation of repressed weaknesses. Perhaps more interestingly, Jung said: "in spite of its function as a reservoir for human darkness—or perhaps because of this—the shadow is the seat of creativity."

Perhaps modern life will twist our Shadows into something that desires a more spiritual connection to life. I doubt we would listen anyway, which is not an admonition; just an observance. But I do hope that Jung is remembered by our progeny.

Behavioral medications and the failure of exclusive verifiability

As all of our outcomes are determined by risk, all of our decisions must be informed as strongly as possible by it. The medical community has a long and proud tradition of utilizing the basic tenets of the scientific method to provide confidence of both risk and reward in the application of modern medical practice, including the use of pharmaceuticals. This is not unwarranted; the presence of this tradition is the sole credit upon which we can place millions of lives that have been either improved or outright saved by the more informed application of medicine and medical practice.

I have been on behavioral medications intermittently for nine years and consistently for periods of up to five years. Like any US-sold medication, they were screened to FDA standards to ensure that side effects were identified and quantified to ensure that the users would enjoy benefits to more than offset any of these effects. Unfortunately, the complexity of the human body, our lack of complete understanding regarding its working, and the nature of statistical confidence conspire to create practical limits to the testing process. If you assume that a stated statistical confidence can make us reasonably “certain” of the presence or absence of a specific side effect, then you can also understand that the frequency of various side effects can make us only so “certain” of the presence of any side effect at all, as our testing, by its nature, must be exclusive. Ultimately, the end users of a medication often become the first legitimately comprehensive test group, and even then, such a statement is still technically a generalization. Such is the nature of statistical observance in science.

I feel very confident in regard to the following, which I unmistakably admit to be conjecture. The causes I suggest are guesses, and I am not educated in the field of neuroscience (a single read of my descriptive language will attest to this). The effects that I describe are very real and give me as much (and no more) confidence than any single case can give, which is perhaps not much in the plight of a scientific mind.

I believe simply that the behavioral medication I have taken has had three effects:

1) To directly alleviate the symptoms for which the medication exists; namely, depression and attention-deficit disorder. This is, of course, both expected and great.

2) To promote feedback loops in chemical brain activity that exacerbates the symptoms in the absence of the medication. The testing that the medication went through would statistically deny these effects; however, such a conclusion assumes that the testing period was sufficient to allow brain chemistry to reach a new equilibrium. I could name half a dozen mechanisms that would support a theory of long-duration disequilibrium and rebalancing, but it would do no more good than I can do by evoking the concept: the brain is far too complex in composition and process to play upon with reductionist theories of cause and effect.

3) To promote mental activity that rebalances neural pathways and firing patterns in an imperfect way, so that the end result is not to fix the undesirable behavioral problems but to produce some approximate common effects in a way that interferes with or fails to compliment other brain activities. Here, although the common pop-understanding is that “a behavioral tic is a neural firing pattern”, the truth is that the firing pattern is sufficiently complex that we can more productively think of it as a sequence and interplay of many interrelated firing sequences. Again, in a reductionist fashion, a simple thought might be that a firing pattern has been made to happen “too often”, as in, “repeat too fast”. This is easy to picture, and then we assume that the end result is that the behavioral tic recurs too often. However, imagine instead that our over-active firing pattern is one of the many firing sequences that comprise a much larger firing pattern. What will the effects be? More likely than direct over-activity, the effect will act to diversify the full pattern’s outcome. Poker hands will always be dealt in the same way from a deck organized in a certain sequence, until you begin randomizing the position of a single card throughout the deck on each deal. At this point, the outcome will not marginally diversify - in many cases, it will become completely unrecognizable.

I think that by this point, my lament would be predictable, and so I will resist crossing this discussion into the personal. But the idea of a blind spot in behavioral medicine, due to the enormously more complex workings of the brain than the balance of our physiology, is worrisome and finally unfortunate, and I offer no solutions.

Have the benefits of the medicine outweighed the costs? I don’t expect to ever know.

The Sheltering Sky

I just finished The Sheltering Sky, and it is important. That is the highest praise I give books; I really don't know what else would mean more. I should let it sink in before I claim things like that, but it's the inner world of the book, and not the outer world, that is most impressive. Like McCarthy, the book exists in layers, and the bottom-most layer must always be the Ultimate Truth of the Universe. (I capitalize because this ultimate truth is a worldview specific to the book - not our objective reality, and this way it feels like another literary component, equal with Plot or Characters, for instance.) The book's jacket insists that the book is about the ways "in which [the characters'] incomprehension destroys them." I think that's both overly dramatic and completely misses the essence the book obviously makes a specific effort to convey. Maybe this is because I believe that all books written in layers must finally and necessarily reduce to the bottom-most. All else is a vehicle; or, at best, all else is ostensible. I would say the book is about the delusions we carry regarding the nature of time and our passage through it.

Some symbols are powerful and immovable in our perception. The relationship of the earth with the sky is one. Day and night is another. The stars; darkness. This book made me remember the idea of a landscape that is part of no living thing, great or small. The idea of lifelessness in anything can be terrifying if we carry around with us a perception of fundamental divinity in the world. Do you remember the first time you wondered what exactly you were looking at when you looked at the sky? I remember something quite close to that the first time I saw a shooting star: it appeared from nothingness, streaked, broke in two, and disappeared again into nothingness. Life is short.