Envy, class bigotry and resentment

Warren Buffett has won his $1M, 10-year bet against the hedge fund industry https://t.co/dIdszAw05B Over the last 10 years, $100K invested in the S&P500 would be worth $226K today vs. $148K invested in avg. hedge fund, see chart. pic.twitter.com/NuP7tXptzt

— Mark J. Perry (@Mark_J_Perry) January 3, 2018

Hedge fund managers claimed that they could produce superior results over the market index by actively managing their investment portfolios. Buffett argued that the indexed fund would outperform the active investors. And it did.

As an aside, this is not dissimilar to The Bet between Julian Simon (economist) and Paul Ehrlich (environmentalist) in which Ehrlich argued that human consumption of resources would inevitably drive their real price ever higher and Simon argued that a free market of supply and demand combined with human ingenuity would drive the price of commodities down. The market won, commodity prices were indeed lower after ten years.

But back to the Buffett wager. I think there is a small insight from this with regard to the media/establishment treatment of Trump.

It is a little puzzling just how persistently visceral their aversion has been. It is extremely easy, and almost certainly partially true, that their aversion is ideologically motivated. The media is overwhelmingly Democrat and Trump is (now) Republican. But there is more to it than that. Not only does the media hate Trump, but a not insignificant fraction of the Republican establishment, now known as never-Trumpers, do so as well.

What is it that stirs up this bipartisan hatred? It is also easy to see some form of classism in play. Both the anti-Trump Democrats and never-Trump Republicans tend to be urban, pseudo-urbane, advance degreed, and cognitively biased populations. While some of them hold reasonably radical ideological positions, they tend, in their personal lives, to be solidly bourgeois. There is a whiff of the grande dame arching her eye-brows at the boorishness of a fellow who likes his steak well-done with ketchup, favors gold in his decor, and has a penchant for beautiful wives.

But I don't think that class bigotry is the whole story. It seems to me that there is more in play to warrant such atavistic hatred.

Envy? Perhaps. Certainly, Trump started with a sizable fortune but he made it bigger. What is more striking, from my perspective, is that he did so by demonstrating superior achievement in multiple fields. Property development, brand management, TV shows, entertainment (wrestling and Miss Universe), etc. Indisputably, he had his failures along with his successes (Trump Shuttle, Trump University, etc.). But on balance, his successes in multiple fields of competitive endeavor substantially exceeded his losses in a few fields.

Envy plus class bigotry. Is that the root of the hatred? Perhaps, but that still seems an incomplete explanation.

Nassim Nicholas Taleb in one of his early books, probably Fooled by Randomness, pointed out that performance in financial markets has to distinguish between randomly lucky and purposefully successful. Catch the market at the right inflection points and it is easy to seem brilliantly successful but it is challenging to identify those inflection points a priori.

For decades, the majority of brokers, investment advisers, etc. have underperformed the indexed market. Some years by a lot, some years just a bit, but pretty consistently. So why do we believe that there are superior investors. Because there are a few who do beat market odds.

But among those who do, there are two categories. Those who randomly beat the odds and those who purposefully did so. Taleb's point was that in any given year, if there are 100,000 investors, there will be some portion who are just plain lucky and by chance beat the market. If that random lucky number is 10%, then after year one, there are 10,000 lucky performers. 10% of them will beat the market again in year two, 1,000. In year three, there will be 100. In year four, 10. And in year five there will be 1. One individual who will be characterized as brilliantly and consistently beating the market every year, even though they were simply randomly lucky.

And of course, there will be some small number of people who actually did beat the market through some combination of insight and knowledge. Say that number is also one.

This person will typically, and almost axiomatically, have done something different from the others. Something non-standard and not acceptable to the majority.

Both the lucky one and the purposeful one will each claim system, insight and knowledge as their advantages and you will not be able to actually distinguish one from another. They will both have bucked the crowd and done things differently, but one through random lucky chance and one through purpose.

I am guessing, given success in multiple different commercial domains, Trump, like Buffett, has some native skill stack which is driving his success. It is hard to be consistently successful in one field, much less multiple fields. There has to be some purposefulness. What is that skill stack? Brazenness, negotiating skills, alternating bullying-conciliatory behavior; those are probably in the mix, but frankly I don't know.

The thought sparked by the Buffett bet is that Buffett himself has beaten market performance year in and year out. What is his skill stack mix which has led him to be so successful? Again, I don't know. There is a large punditry submarket for identifying what he does differently but since there are not any other Buffett level performers out there, it seems like no one else knows either. But whatever it is, it works.

The point is that Trump and Buffett are not easily understood or emulated. They do things differently from what is expected and they succeed.

In the political arena, our ecosystem of pundits, newsmakers and talking heads who keep pushing us to listen to or read their analyses are analogous to the fund managers. Fund managers are knowledgeable, smart, articulate, intelligent, persuasive individuals. And they underperform the market.

Pundits, newsmakers and talking heads are also, to a lesser degree, knowledgeable, smart, articulate, intelligent, persuasive individuals. And they get things wrong more often than they get them right (see Philip E. Tetlock's body of work.)

Almost since his announcement of his campaign for the Republican nomination, Trump has proven wrong nearly every chattering class forecast. Against the odds, he beat a large, reasonably diverse and talented field of Republican candidates. Against the odds, he ran an unorthodox, relatively low cost campaign and convincingly defeated an establishment presumptive victor. And against all the forecasts, he ends the year with a revived economy, bull market, high consumer confidence, successful foreign policy, legislative triumphs (Tax Reform) and administrative successes (reduced illegal immigration, reduced regulation, record number of judicial appointments, etc.).

Luck? Possibly. But the longer the run of successes continues, the more likely it becomes that the successes are due to ability. My guess is that part of the establishment revulsion of the anti-Trump Democrats and the never-Trump Republicans is that their traditional thinking, bromides, and mainstream nostrums are being upstaged by a talent stack that they do not comprehend. I suspect that their anger is fueled not only by envy and class bigotry but by resentment as well.

Compounded by the fact that they do not understand how Trump is achieving that which they clearly believe cannot be achieved. They see what is happening and do not comprehend it because their worldview has little insight into the commercial world and the sources of Trump's past successes.

Trump may come crashing down at some point, but it seems to me that much of the past and current hysteria about his actions is a product of incomprehension, class bigotry, resentment and envy.

Maybe.