The Importance Of Slack In Life And Investing

During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed The Importance Of Slack In Life And Investing. Here’s an excerpt from the episode:

Jake Taylor:
All right, so hat tip first of all to Baker Street Partners for sending this paper over to me and it’s called Studies on slack and it was by Scott Alexander on the Slate Star Codex website. So I want you to imagine there’s this planet that has all these animals on it that none of them can see. And they’re in this fierce competition. You could almost imagine like Pandora from Avatar it’s just much more competitive than even earth. Now, obviously it would be a huge advantage if one of the animals could evolve an eye, but it takes some metabolic energy and it’s actually a cost to get that eye evolved. They are at a disadvantage. So when the competition is crazy high, there’s not enough room for an eye to evolve, even though it over a longer period of time would be very, very advantageous.

Jake Taylor:
So the fact that you need a little bit of slack basically, is a very interesting concept that I’m going to apply to some other places. So one way to think about this in evolutionary biology, they call it adaptive fitness landscapes and landscape is really the operative word here. So imagine that you’re standing and you pour a bucket of water out and it’s at a puddle at your feet. Now water wants to go to the lowest level that it can because of gravity. Now, if you could imagine that just up over the hill from you, there’s a crevice that’s super deep, but the water can never quite get up over the hill and get down into that crevice because the gravity, the competition is so strong. Well, if you relax gravity a little bit, the water can find its way up and over the hill and find a much, much more, a happier place to be.

Jake Taylor:
And hopefully you can kind of see the interplay there between competition and slack that can allow a species or in this case water to find the landscape and find its way over it. Okay, so couple of things. Number one isn’t this fascinating that you need both competition and slack to find the optimal way. This is out of the Tao Te Ching type of thing. It’s very yin and yang, right? So the first thing to think about would be think about the stock market as especially the more original version of the stock market, which was to actually raise capital and not just a secondary market for people to exchange shares of ownership. But you are taking, if you think about money as a storage of time, you were taking other people’s slack time and reallocating it to others who are going to then use it to maybe build something even bigger. You’re giving them a chance to climb from that little puddle over the hill and into a much bigger potential outcome.

Jake Taylor:
So slack savings, turning into an investment if everyone’s living hand to mouth, it’s very hard to make any kind of progress, if we’re all in just dire competition. We can’t find that next level. So another thing to think about, with the economy, when I think about, we had a, call it a 4% GDP contraction in 2008. Now any system in my mind that couldn’t handle a 4% change seems kind of boggles my mind. You would think if 4% of the squirrels in the forest disappeared, would anyone notice? Would it go into history books as this amazing thing that we should all study? It makes me wonder about how tightly we run all of our systems. So what’s the opposite of slack?

Bill Brewster:
Why do you hate squirrels?

Jake Taylor:
Well, whatever animal you want to make it, but what’s the opposite of slack?

Bill Brewster:
I mean, we run it pretty tight, I don’t disagree with that. I don’t know that we don’t derive enough benefit to justify that though. At least in normal times. But if I was arguing the other side, I’d say, well that’s true if you socialize the losses, you anti-capitalist pig.

Tobias Carlisle:
Yeah. It’s like overclocking or something, right? Overdrive.

Jake Taylor:
It’s leverage.

Tobias Carlisle:
Leverage.

Jake Taylor:
That’s the opposite of slack. So we’ve run our system at this way that’s probably overleveraged where you would think a 4% change would not lead to such crazy outcomes. So when I think about when you think about all of us have in our heads this list of our wants and needs at a given time and that can change based on the world around us. So COVID has been a pretty good example of that. All of a sudden we don’t want to travel as much, but we do want to watch more Netflix or whatever. All of our lives have had some pretty drastic shifts relative to normal times. Bill, you look like you want to jump [crosstalk 00:33:55].

Bill Brewster:
I don’t know that people don’t want to travel. I would push back on that just a little, but I agree that they are precluded from traveling right now and choosing not to for the time being. One thing that I was thinking just real quick is it is possible and I know that this is going to really upset some people. So get ready. It’s possible that the policy things that we have done through the Fed and the government have maybe enabled us to swallow a greater slack this time around than the financial crisis because the financial markets aren’t going to lock up. And in March, that was a legit risk. And I think that we were way fragile in March and maybe aren’t as fragile now, but we’ll see in a year.

Jake Taylor:
Okay.

Bill Brewster:
Or a five. Right.

Jake Taylor:
One idea that I had about kind of the economy and how we operate given that we should allow for some slack. I think we should really do everything we can to probably destigmatize actually bankruptcy and also unemployment and do what we can to help people to transition to change, going into really actually building the structure of production that will create all the things that we want as consumers. So to reduce some of the friction in the whole system of being able to transition people from one thing to another, whether it’s an entrepreneur who’s looking to build things or the employees who are coming along to help them. I think whether that means like more training or even more lenient bankruptcy laws, let’s have things die in competition and let’s get you right back into the game.

It’s Necessary To Be Slightly Underemployed If You’re To Do Something Significant

Jake Taylor:
So another an interesting quote, and this is from James Watson, who was the co-discoverer of DNA with Francis Crick. He says that it’s necessary to be slightly underemployed if you’re to do something significant. So that’s really another form of slack. He had a lot of time to be working on these really big ideas he had. He wasn’t working a crazy schedule based on that comment. So maybe this is an interesting argument for universal basic income.

Bill Brewster:
Oh God, Jake, come on.

Jake Taylor:
Hey, let’s expand our thinking a little bit and imagine. So here’s one of our-

Bill Brewster:
Jake the Marxist. This has really taken a turn.

Jake Taylor:
Yeah. The character arc. Well, just imagine for a second though, what if we use that UBI with a little bit more than just to not sit on the couch and watch more Netflix. But what if people actually worked on building cool shit that we all wanted? They took that slack in there, they’re not commuting anymore. They’re not killing themselves for 60 hours a week jobs. And they were working on things that were actually maybe it would move the needle in a bigger way. I find that to be an interesting idea.

Bill Brewster:
Oh men, we’re going to have to tag AOC in this.

Tobias Carlisle:
Google kind of did that, right? Google used to have that you could use one day of the week, like Fridays 20% of your time you’re allowed to go and work on other projects. And then they killed that right at about the time that killed the don’t be evil thing. So I wonder what they discovered.

Jake Taylor:
Yeah. I don’t know. That’s a good question. I’m sure we have some friends at Google who can tell us the answers. So let’s talk a little bit about slack when it comes to your personality. And just like Jordan documentary is, everyone is all ra ra about it and granted, I thought it was fascinating and very interesting, but I mean, Jordan was obviously very hard to get along with. And very exacting and demanding. I think about this like the 20th century theoretical physicist named Paul Dirac who was apparently just as smart as any of the other guys, but was really hard to talk to, really prickly and kind of a pain in the ass. And then you contrast that with someone like Richard Feynman, who everyone loves and it’s because he had this more of a slack in his personality to find new things to… He was always playing the bongos, drawing women in strip clubs, doing all this crazy stuff, lockpicking-

Bill Brewster:
[inaudible 00:38:29]?

Jake Taylor:
He probably would have been. He’s a pretty good artist. He had all of these different places in slack and his personality compared to Dirac who was no nonsense, a pain to talk to. Who would you rather hang around with? Who would you rather have lunch with? Everyone would say Feynman and yet they both got a lot, they got things done. I find that interesting maybe we could all use a little bit more playfulness in our approaches.

Bill Brewster:
This is why I don’t think people should ask Buffett and Munger for life advice. You want to be Buffett? Go be Buffett. I bet you end up unhappy. It is a unique personality that lives that life and gets that outcome and if you’re wondering how to raise your children and have a happy wife, that dude isn’t the guy to ask.

Jake Taylor:
That’s fair. Speaking of Berkshire, I think another point would be there’s almost a group selection kind of evolution thing happening at Berkshire where Buffett’s calendar, you look at it and I bet it’s mostly empty and there’s a lot of slack in his calendar versus the people below him. I bet Abel’s got a 60 hour a week calendar and I bet all the other CEOs do as well. So you have this kind of intense competition at one level and then slack up at another level that can help process and maybe find that, evolve that eye, if you will, from the biological example.

Tobias Carlisle:
Yeah. I love that idea that you need the competition to force the evolution, but if the competition is too intense, then nobody can spare the energy to make that evolution. That’s really fascinating. I’d never heard that idea before. You need some slack in that system in order to… Doesn’t it fly in the [inaudible 00:40:15] there’s that guns, germs and steel article where they say that there’s a reason that there’s this tiny little island that was covered or tiny little areas that were covered with lots of people who had to fight each other all the time. And so they had to develop better weapons and they all got immunity. And that was part of the reason why they were then able to go and colonize the rest of the world.

Jake Taylor:
I don’t think it was the weapons so much, but at least for the immunity part. It was they lived with livestock close and livestock. They swap germs back and forth with the livestock over and over and developed immunity and then took it over to a place where they didn’t have that immunity. And then-

Tobias Carlisle:
But that’s a separate idea. There are three ideas, they’re guns, germs, and steel and steel being technology. But the guns is if you’re at war with somebody, if you can come up with a better weapon then you probably you’re going to win that war, probably.

Jake Taylor:
Yeah. So there’s an interesting example of, I don’t know if you guys ever played Civilization but there’s kind of two strategies there. They call it like the axe rush is one strategy. So you’re just as fast as you can try to get to have the technology of the axe. And then you just go chop up all of your competitors and win the day.

Bill Brewster:
[crosstalk 00:41:28]. I like that.

Jake Taylor:
Well then the other strategy would be called build and that’s, it’s more of the kind of you’re going to just keep working on your technologies, building it. And eventually if you’re not under pressure from the people who are chasing the axe, if they’re not subject to the competition, you can get to the point where you’re so much better that, you can just go defeat them at your leisure because you’re so much more advanced. So two strategies and a lot of them have to do with how much competition versus slack do you have? And a lot of that can be geography based. How hard is it? How isolated are you to kind of build versus having to go fight and chop right away?

Bill Brewster:
I used to play Magic: The Gathering, shout out to the Magic nerds. And that was different deck strategies. Do you attack quickly or do you have something that has more power in it? Just like magic nostalgia. I wonder why I never touched a boob for a long time. Thanks, Sarah.

Jake Taylor:
All right. So I’m done.

Bill Brewster:
Magic and a forward that had a purple shaft. I didn’t stand a chance for a while.

Jake Taylor:
No.

Bill Brewster:
Oh well, it worked out. Three little boys, the Brewster nerds will live on. I have taken this the wrong way.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

Apple Podcasts