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  • Writer's pictureMonmouth Capital

Q1 2023: What the hell is water?

Once a year, our quarterly letter to clients is written by co-founder and Investment Director, Can Esenbel:



“There are these two young fish swimming along and they happen to meet an older fish swimming the other way, who nods at them and says “Morning, boys. How’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes “What the hell is water?”

– David Foster Wallace, This Is Water. [1]


I am back on quarterly letter duty. Had I started writing this a week ago you would have received a more downbeat piece, the tail end of winter takes no prisoners. But the sun is shining, spring is in the air and with that my eyes open, and I cannot help but be more cheery.


It is that simple. And it is important to be aware of what is happening to us as we go about our day. Not doing so can have serious consequences. I’ve started reading psychologist Daniel Kahneman’s book Noise [2]. An early chapter delves into the large differences in sentencing by judges for similar crimes. From the Guardian review of the book [3]:


“A 1974 study of 50 judges setting sentences for identical (hypothetical) cases found that “absence of consensus was the norm”. And the sentences didn’t just slightly differ by judge: they varied wildly. Depending on the luck of the judge lottery, the same heroin dealer was sentenced to anything between one and 10 years, a bank robber received sentences ranging between five and 18 years, while an extortionist faced anything between three years with no fine at all to 20 years plus a $65,000 fine.”


Some of the real-world differences are explained by bias – racial for instance – but plenty are related to noisy elements that affect the decision: the weather that morning, someone honking at them while parking, or indigestion after lunch. It is terrifying if we stop to think about the effect on a life from these small unperceived pebbles.


The fact that the reason for my optimism is the sunshine is lost on my brain. Feeling is feeling, so the brain just accepts it as real and valid, then backfills a plausible reason which hardens into reality for us.


As an investor if I don’t recognise and control for this then I place myself in grave danger. It needn’t be dramatic. It can evolve quietly through misguided decision after misguided decision, small negative outcomes compounding to massive damage over time.


A map of where not to go


In the excellent Richer, Wiser, Happier [4], William Green interviews, amongst others, Charlie Munger (Warren Buffett’s business partner and oft-mentioned in these letters along with Nassim Taleb). Munger gives us a roadmap for success in investment, for minimising the effects of noise:


“I tell Munger that I regard him as “the Grand Master of Stupidity Reduction,” and I ask him why he focuses so much attention on avoiding common errors and predictable patterns of irrationality. “Because it works,” he says. “ It works. It’s counterintuitive that you go at the problem backward. If you try and be smart, it’s difficult. If you just go around and identify all of the disasters and say, ‘What caused that?’ and try and avoid it, it turns out be a very simple way to find opportunities and avoid troubles.”


This is dramatically at odds with the business of investment and how most people conceive of how successful investment or financial strategy looks. The emphasis on making the right moves, beating your opponent (who is this opponent?) is commonplace. The structure of financial markets tells us that the desire to beat the market is unlikely to be backed up by the fact of beating it.


Munger gives an example on how to follow his roadmap by quoting his friend, Garrett Hardin:


“Hardin’s basic idea was, if somebody asks you how to help India, just say, ‘What could I do to really ruin India?’ And you think through all of the things you could do to ruin India, and then you reverse it and say, ‘Now I don’t do those.’”


Medicine and Money


Physician, Peter Attia, in his new book Outlive [5] talks about Medicine 2.0 vs 3.0. Medicine 2.0 is blunt and mainly concerned with cure, while 3.0 is targeted and prioritises prevention.


This resonated with me. If we at Monmouth Capital do our job well, you will live a successful financial life with few surprises, shocks or difficulties.


In this context, your portfolio is not a thoughtless entity which exists purely to maximise returns, but part of a powerful system that will deliver the financial outcomes that enable you to live the life you want to live, without hiccups and without concerns about existential risks.


We want to preserve and nurture what is important to you because you have one chance at this. Your path to this point, your current situation and the road forward are unique. The solutions required are therefore also unique.


But the majority of the industry can’t offer unique.


We can.


Most wealth managers, with the best will in the world, do not have the structural capability to do what we do. They don’t have time to think about individuals, and they don’t have the flexibility to tailor solutions. We have the time to think about you. We can be proactive and we can plan. This is by design: we built the business to be this way.


This need not be anything flashy. There is a piece of work Faisal has carried out that over the years has delivered benefits worth seven figures to clients. It is work that took skill and know-how, but it also took lots of time and the ability to engage in deep work.


What he did, few others would have thought of doing, or had the institutional freedom to carry out. These are moments that bring me real satisfaction.


The Evolution of MonCap


Over the next year or so we are likely to reach the place where we soft close – we will have the target number of clients we want. This is a lovely position to be in as it removes the need for most business development work: the time and focus can be reallocated to take our investment and service offerings to the next level. The structure we have now, strong as it is, will be reinforced and extended.


The investment climate over the next period is unlikely to reflect the recent years. The tools that many investors have developed over the past decade will not work as well, if they are not aware of how entangled their methods are with the environment in which they were developed.


With noise, with strategy, with structure, with moment-to-moment decisions, those who are aware of “the water”, the environment in which they operate, have a more complete understanding of the world around them. They can detect and correct errors faster, they can discern new opportunities sooner. Our work is to be on that side of the equation.


You will hopefully continue to benefit from the compounded value of that work.


Can K. Esenbel




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