Against The Gods: The Remarkable Story of Risk

I have been reading 15 pages of the Peter L. Bernstein book on the historical observation and analysis of risk every morning. The book starts in Ancient Greece and follows history to modern day stock market decision-making. It is interesting to consider the change of perspective from divine law, or no outcome is in the control of humans to the renaissance where free thinking enabled man to think about the future as an outcome that can be altered and controlled by managing risk. My new habit is to begin reading as soon as my coffee is brewed and I’ve had a protein shake.

I find the early morning when the sun is rising a time when my mind is quietest to focus deeply and read. It must be noted that I am not much of a reader outside of capital market reports and news that could impact investments that I am interested in.

I have been heavily invested in AI since the beginning of 2021 and it has not been until recently that the market crowd has priced my information and conviction. As I write this, Nvidia ($NVDA) crushed earnings by tripling its forecasted revenue. Thus, bolstering the major indices concurrently while consumer confidence dwindles and the peak of industrial capacity and commercial real estate investment surpasses demand due to the increasing influence of the COVID-induced supply chain disruptions. Like a pendulum from over-demand to over-supply. Much like politics as we enter a familiar populist cycle.

Even with interest rates staying higher for longer, consumers have supported the market, as they always have with consistency. Manufacturers are beginning to revert to “on-hand” stock of inventories as opposed to the covid strategy of holding additional inventories to balance outpaced demand. Essentially, manufacturers are a leading indicator that the economy is now priced evenly with supply and demand and suggests lower growth and spending.

The example that I can extrapolate from this data is as follows: If a manufacturer owns 3 warehouses they are more likely to sell 1 to raise capital to improve and modernize the remaining 2. This is an about face from the covid surge in adding square footage or buying additional warehouse space.

Back to the book:

The foundations of the book start with ancient games of dice played with the ankle bones of deer and the great questions of probability outcomes by Paccioli’s game of Balla and Blaise Pascal’s Triangle from the 17th century. The book hits on baseball World Series statistics and the minimum number of games to win the title as well as the probability of the team that is ahead will win or lose in an upset.

I am now entering the 100th page of the book and the introduction of intuition combined with objective data or how differing levels of risk-aversion lead to opportunities for creative risk takers.

My reward for the high caloric demands of deep thought require a peanut butter covered Bobo’s. The high carbohydrate, fat, and protein is a an excellent hit of energy for my brain. A Bobo is a Costco favorite and is similar to a PB&J sandwich. I add an additional layer of peanut butter because it’s delicious and nutritious.

“Both objective measurement and subjective degrees of belief are essential; neither is sufficient by itself”.