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Does Not Compute · Collaborative Fund


Lots of things don’t make sense. The numbers don’t add up, the explanations are full of holes. Yet they keep happening – people make crazy decisions, and react in weird ways. Repeatedly.

Historian Will Durant once said, “Logic is a man’s invention and the universe may ignore it.” And it can often drive you crazy if you expect the world to work in rational ways. A common cause of everything from controversial arguments to a poor prediction is that it can be hard to distinguish between what’s going on and what you think should happen.

Two short war stories to show you what I mean.


The Battle of Bulge was one of the bloodiest American military battles in history. Nineteen thousand American soldiers were killed, and 70,000 more were wounded, in just over a month when Nazi Germany launched a fateful final offensive against the Allies.

Part of the reason it was bloody was that the Americans were surprised. And part of the reason for their astonishment was that in the rational minds of American generals, it made no sense to attack Germany.

The Germans did not have enough forces to win a counterattack, and the few remaining were mostly children under the age of 18 with no combat experience. They did not have enough fuel. Food was running out. The terrain in the Ardennes Forest in Belgium posed the odds against them. The weather was terrible.

The allies knew all this. They saw that no rational German commander would launch a counterattack. Therefore, the American lines were left rather weak and unsupplied.

and then, bubble. The Germans attacked anyway.

What the American generals overlooked was the extent of Hitler’s disorder. It was not rational. He was living in his own world, far from reality and reason. When he asked his generals where they should get fuel to complete the offensive, Hitler said they could steal it from the Americans. The reality does not matter.

Historian Stephen Ambrose notes that Eisenhower and General Omar Bradley got all of their war-planning logic and logic right in late 1944, save for one detail—how deranged Hitler became. But this was more important than anything else.

A generation later, something similar happened during the Vietnam War.

Defense Secretary Robert McNamara considered the world a major computational problem. He wanted to quantify everything, and built his career on the idea that any problem could be solved if you obeyed the cold truth of statistics and logic.

A key measure of success during Vietnam was the body count – how many Viet Cong did American forces kill? Do the Viet Cong die more than the Americans? It was easy to keep track of, easy to graph, and it became an obsession.

Then there was the logic: If enough North Vietnamese were killed, you could shatter the soul of an enemy who saw his chances of victory dwindling. More enemy bodies was the equivalent of getting close to winning. William Westmoreland, commander of US forces, explained in 1967:

We will continue to bleed them until Hanoi wakes up to the fact that they bled their country to the point of national disaster for generations. Then they will have to reevaluate their position.

The war turned into an arithmetic equation. If the enemy dead outnumbered the American dead, the Americans would win. Ice cold logic.

But the bodies piled up, and the war continued. and on. and on.

The “equation” will only work if North Vietnam’s leaders are calm, rational actors who “calculate the costs and benefits to the extent that they could be related to different courses of action, and make choices accordingly,” as one newspaper put it.

But they weren’t.

Edward Lansdale of the CIA once told McNamara that his statistics were missing something.

McNamara said, “What?”

“Vietnamese people’s sentiments,” Landsdale said.

You can’t capture that on the graph. but it means everything. in 1966 The New York Times Reporter Harrison Salisbury wrote:

Rarely have I spoken to any North Vietnamese without mentioning the people’s willingness to fight for ten, fifteen, or even twenty years for victory. At first I thought such expressions might reflect government propaganda…but…I began to realize that this was national psychology.

Ho Chi Minh said frankly, “You will kill ten of us, we will kill one of you, but you are the one who will get tired first.”

This is exactly what happened in America, where statistics mean nothing against sentiment.

Westmoreland once told Senator Fritz Hollings, “We’re killing these people at a rate of 10 to one.” Hollings replied, “The American people don’t care about a tenth. They do care about one of them.”

It was hard to reconcile that in the statistical mind of someone like McNamara. It was like defying the laws of physics, or a typo in a mathematical equation.

But this is the way the world works.

Some things don’t count.


Investor Jim Grant once said:

Suppose the value of common stock is determined purely by the company’s earnings deducted from the relevant interest rates and adjusted for the marginal tax rate is to forget that people have burned witches, and have gone to war on a whim, and have risen to the defense and honesty of Joseph Stalin Orson Welles when he tells them over the radio that Mars have landed.

This was always the case. This will always be the case.

One way to think about this is that there are always two sides to every investment: the number and the story. Every investment price, every market valuation, is just a number from today multiplied by a story about tomorrow.

Numbers are easy to measure, easy to trace, and easy to craft. It has become easier because almost everyone has cheap access to information.

But the stories are often strange reflections of people’s hopes, dreams, fears, insecurities and tribal affiliations. And they’re getting weirder as social media amplifies views that are more emotionally appealing.

Some recent examples of how powerful this is:

Lehman Brothers was in good shape on September 10, 2008. Its Tier 1 capital ratio – a measure of a bank’s ability to take a loss – was 11.7%. That was higher than the previous quarter. Higher than Goldman Sachs. Higher than Bank of America. It was more capitalized than Lehman was in 2007, when the banking industry was as strong as ever.

After seventy-two hours, it went bankrupt.

The only thing that changed during those three days was investor confidence in the company. One day they believed in the company. The next time they didn’t and they stopped buying the debt that financed Lehman’s balance sheet.

This belief is the only thing that matters. But it was the one thing that was hard to quantify, hard to model, hard to predict, and not accounted for in the traditional valuation model.

GameStop was the opposite. Statistics showed that it was on the verge of bankruptcy in 2020. Then it became a culture frenzy on reddit, the stock went up, the company raised a ton of money, and is now worth $11 billion.

Same here: The most important variable is the stories people told and the feelings they suddenly found themselves. And that was the one thing you couldn’t measure and you couldn’t predict after sight. That’s why the results are not counted.

When something like this happens, you see people shocked and angry at how the market has detached from the fundamentals.

But Grant was right: It’s always been this way.

The 1920s were full of vertigo. The thirties were a total panic. The world was coming to an end in the 1940s. The ’50s, ’60s, ’70s, they were boom and bust, over and over again. The ’80s and ’90s were crazy. The 2000s was more like a reality TV show.

If you have relied solely on data and logic to understand the economy you have been confused for 100 years in a row.

Japan offers companies a 40% tax deduction for wage increases. But most companies are not, in part because raises are not part of Japanese business culture.

Meanwhile, the value of monkey JPEGs has gone up several thousand percent in the past few months, in part because of that. is being Part of the crypto culture.

Bear Billund Economist chirp This is recently:

The concept of economic value is easy: everything a person wants has value, regardless of the cause (if any), and its value is higher the more and less wanted.

No interest, no discounted cash flow – just whether people want it or not, for Which Reason. Much of what happens in economics is rooted in emotions, which can sometimes be nearly impossible to comprehend.

To me, it’s clear that the one thing you can’t measure, you can’t predict, and can’t model in a spreadsheet is the most powerful force in all of business and investing – just as if it were the most powerful force in the military. The same in politics. Same thing in jobs. Same thing in relationships.

Lots of things don’t count.

The danger, as you often see it in investing, is when people become McNamara-obsessed with data and too confident in their models to leave room for error or surprise. There is no way things can be crazy, stupid, and unexplainable and stay that way for long. He always asks, “Why is this happening?” We expect that there will be a rational answer. Or worse, always mistake what happened for what you think should have happened.

Those who thrive in the long run are those who understand that the real world is an endless series of messes, confusion, messy relationships, and imperfect people.

Understanding this world requires acknowledging a few things.


John Nash is one of the smartest mathematicians who ever lived, and he won a Nobel Prize. He was also schizophrenic, and spent most of his life convinced that aliens were sending him coded messages.

in her book beautiful MindSylvia Nassar recounts a conversation between Nash and Harvard professor George Mackey:

“How can you, a mathematician, a man of reason and logical proof, how can you believe that aliens are sending you messages? How do you believe that you are being recruited by aliens from outer space to save the world?” asked Mackie.

“Because,” said Nash slowly on his sensibly gentle southern ride, “the ideas I had of supernatural beings came to me the same way my mathematical ideas did. So I took them seriously.”

The first step to accepting that some things don’t count is to realize that the reason we innovate and advance is because we are fortunate to have people in this world whose minds work differently from yours. Beyond Nash people like Elon Musk and Steve Jobs, their personalities are radiant and absurd, and the absurd is inseparable from the illustrious – you have to accept the whole package. We will never get anywhere if everyone views the world as a clean set of rational rules to follow.

Next is accepting that what makes sense to one person can be crazy to another. Everything will count if everyone has the same time horizon, goals, ambitions and risk tolerance. But they don’t. Panic of selling stocks after they drop 5% is a terrible idea if you are a long-term investor and have a job imperative if you are a professional trader. There is no world in which every business or investment decision you see has to align with your own view of the world.

The third is to understand the power of incentives. Bubbles are technically irrational, but the people who work in bubbles — mortgage brokers in 2004 or stockbrokers in 1999 — make so much money from them that there is a strong incentive to keep playing the music. They deceive not only their customers, but also themselves. Nothing makes people look the other way like easy money.

The last is the power of stories over statistics. “House prices for middle incomes are now above their historical average and usually mean a return,” is a statistic. “Jim just won $500,000 from flipped houses and can now retire early and his wife thinks he’s amazing” is a story. It’s way more persuasive at the moment. If you look, I think you’ll find that wherever information is shared – wherever there are products, companies, professions, politics, knowledge, education, culture – you will find that the best story wins. Great ideas poorly explained can’t go anywhere while old or wrong ideas told convincingly can spark a revolution.

Novelist Richard Powers said, “The best arguments in the world will not change anyone’s opinion. The only thing that can do that is a good story.”

It’s hard to calculate, but that’s how the world works.





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