There are two kinds of people in this world. If you drill down deep enough into someone’s psychology you will find she is hardwired psychologically for either momentum or value (a.k.a trend or mean reversion).
Some Characteristics Of Momentum People
Of the two types of people, momentum people are more sociable. They are innate trend followers. For momentum people, it’s always best to stick with what’s working.
Their business and lifestyle decisions reflect this. “Get while the getting’s good,” is what they think during an economic boom. They prefer to “cut losers and let winners run.”
Momentum people are pro-cyclical. They are fun at parties during boom times. It’s easy to be the life of the party when you are making a lot of money.
Some Characteristics Of Value People
Value people by contrast are a pain in the ass. They are often curmudgeonly and unpopular. This is no accident. Value people are innately contrarian. Mean-reversion underlies a value person’s worldview. For a value person, “things are never as good as you hope, or as bad as they seem.”
A value person’s business and lifestyle decisions reflect this. Value people pare risk and accumulate cash during boom times. They take risk and deploy cash during bear markets.
Value people are counter-cyclical. They are never much fun at parties because they’re always out of phase with the crowd.
Which Are You?
In the end it doesn’t really matter whether you are a momentum or value person. You can succeed in life and business either way (well… assuming you don’t over lever yourself).
What matters is that you recognize whether you are wired as a momentum person or a value person, and that you avoid putting yourself in positions that are a fundamental mismatch for your psychology.
For example, I think I would probably make the world’s worst venture capitalist (spoiler alert: I am a value guy). Not because I would lose money but because it would be hard for me to invest in anything in the first place.
The high base rate for failed venture investments would loom large over every decision. The incessant cash burning would haunt my nightmares.
A reader responds to my MMT post:
[t]he above is a terrible unhelpful, misguided and amateurish review of MMT. Your understanding of the role of inflation and the actual operational positions espoused by its proponents is useless. Perhaps it’s driven by politics or some ideology but you could probably learn a bit by spending a bit more time on it all.
Look. I’m not an economist. I write as a practitioner in financial markets. As such, I’m mainly concerned with incentive systems and how they impact strategic decision making by individuals and institutions.
Politicians are always and everywhere incentivized to run deficits and print money. Hand politicians a license to run deficits of arbitrary size and they will print and print and print. This isn’t left versus right political thing. This is a human nature thing.
Under MMT, it would be up to self-interested politicians and their appointed bureaucrats to ensure we don’t end up with hyperinflation. Self-interested politicians and appointed bureaucrats hardly have an unblemished track record when it comes to economic management.
Now, I should be clear here that my commenter is correct. My opposition to MMT is absolutely ideological. Specifically:
- I don’t believe bureaucrats are capable of pulling off the operational balancing act MMT requires.
- More importantly, I don’t believe bureaucrats ought to be empowered to try and pull off the operational balancing act MMT requires in the first place.
In my estimation, the downside risks are catastrophic. We could end up on The Road To Serfdom. We could end up with hyperinflation. Anyone regularly involved in decision making under uncertainty knows that the way you manage the risk of ruin is either to hedge it or to avoid taking it in the first place.
That’s not to say MMT can’t work. The theoretical viability of MMT is something for economists to argue over.
My argument is much, much simpler. Given what we know about human nature and fallibility, and given the historical track record of economic planners and administrators, the potential negative outcomes from a real-world implementation of MMT (you know, total economic collapse) far outweigh the potential benefits.
As a wiser man than me once said: “you were so preoccupied with whether you could, you didn’t stop to think whether you should.”