I was born and raised in Canada. I did not have to fight in a war, worry about death by starvation or disease. I had a great education. I had a mother that cared deeply for me. My lifestyle was enabled by cheap labour elsewhere who did not have the advantages I had. My late grandfather was a teenager in Nanjing during WWII. He saw an incredible amount of death, rape, racism, desperation that likely haunted him his entire life. He escaped, survived, was forced to learn 2 languages, and built a family. As we speak, there is injustice that lives today and it is important that we do not take it for granted. However, by having the childhood that I had, I believe I’ve played an “unfair game”. My starting place in life is deeply unfair. The baby born in a war torn country is unlikely to have the opportunities that I’ve had. Maybe we can complain loudly that the world is unjust. However, I think better is to acknowledge the injustice, not squander our opportunity, play the game when it's unfair in our favour, and hopefully contribute back to a more fair society.
One easy place to see where one should play unfair games is in a business. We live in a capitalist system where the rules tend to be: the entity that delivers the most amount of value to the most amount of people makes more money. The most ideal kind of business under this circumstance is a monopoly where there is only one business which can provide value in a certain good/service. Peter Thiel once famously wrote “competition is for losers”. Monopolies tend to enjoy pricing power, predictable demand, and an easier time. It’s incredibly hard to become a monopoly and unfortunately, a great deal of monopolies are created artificially through regulatory capture (ie. highway tolls, liquor distribution, credit ratings, power generation, etc.). The next best thing tends to be an oligopoly or an environment where the supply of goods/services is scarce. This doesn’t necessarily need to be scarce in the nominal sense of the word, it just needs to be scarce relative to demand. For example, at the time of writing, Nvidia’s graphics processors have more than 10x’d in demand in value from a decade before. The value that Nvidia provides to society is immense and they are compensated well as a result.
(Source: Tikr.com)
Another obvious area where one should play unfair games is in a career. I tend to view a career as being a business of size one where most of the same rules apply. The rare individuals that offer a monopoly service also experience pricing power, the most interesting work, status, ability to contribute, and so on. Examples might be Geoffrey Hinton, Warren Buffett, Pablo Picasso, and so on. While it is ideal to be as good as Warren Buffett is, there are only so many people who are “geniuses” in their respective areas. The next best thing is to be in a supply constrained environment. For example, when I started my career, the iPhone came out not too long ago, Facebook was a few years old, and we had two waves catalysing the growth of software engineering: the Internet and mobile. I graduated from electrical engineering, but it did not take me long to realise I was an awful electrical engineer. Fortunately, I was a “good” software engineer. The growth of demand in electrical engineering at that point had plateaued while the demand for software engineers was immense. For just over a decade, I got to play an unfair game: software engineering. I remember days when we would go to the Twitter offices in San Francisco and software engineers were so sought after and spoiled, they would complain about their free Michelin star pasta as “not al dente enough”. As of the time of writing, software engineers I know of, even if mediocre, can treat their families to vacations, live in great homes, and can donate to causes they care about.
It is worth considering the opposite case as a case study in what to avoid. That is, the career where individuals are in high supply, the work is difficult, the demand is shrinking, and the individual is below average in skill. In an area where demand is shrinking, it is effectively survival of the fittest. What is society’s demand for journalists today?
Well as it turns out, not very high. The Internet has permanently impaired the demand for journalists. In the past, newspapers were limited by distribution as they were physical. The very best newspapers can now be distributed to the entire world, crowding out the mediocre. Much news can now be had for free. Even among media companies born in the modern age, the number of bankruptcies is incredible. Vice Media, BuzzFeed, Business Insider, Metro Media, Metroland, the list of dead bodies is incredible. I used to have an engineer on my team who was a former journalist for a leading publication, a publication that was among the fittest. In his eyes, journalism is dead and making a life from journalism was a miserable affair. In his words, even if you managed to get your foot in the door of a leading publication, it is not as if you’d get to write about what you’d want to write about since you need to pander to your readership. As a teen in Ontario, career studies were a course we took in highschool. For some reason the changes in each industry we might be entering weren’t discussed. However, they are of paramount importance and they affect the quality of our lives whether we are aware of it or not. So even if one does not play an unfair game, it is important to avoid being a victim of an unfair game.
Where you live and raise your family is very much also a part of the game. As a means of illustration, I was born in the late 80s. At that time, within Canada, on average, the price to income ratio for houses was ~3.2. As of 2023 it’s closer to 11. Let’s say your tax rate is 35% and your expenses take another 35%. In the 1980s, it would have taken you about 11 years to save up for the house. In 2023, it would take you about 37 years, the vast majority of your working life and that is not including the interest payments of a mortgage. The numbers are even more extreme when looking at the metropolitan areas. Taxes are high in Canada, but in the past, we could justify it to ourselves by saying we got healthcare and reasonable infrastructure. According to Ontario Health, the average wait time for a hospital bed in the emergency room is 22 hours. People are dying waiting for care. At the same time, Canadian GDP per capita (in USD) has essentially remained flat for more than a decade.
(Source: World Bank)
So the rules of the game that our parents got to play in Canada is not the game that’s played today. Democracy works, but it is messy and takes time. It seems unlikely that Canada will fix its problems quickly. It’s likely a process that will take years if ever fixed. It is conceivable that for the average family in Canada that wants prosperity/reasonable quality of life, leaving Canada could be the best option so as to not be a victim. This is, personally, a painful realisation. I grew up in Canada, I have Canadian values, I see myself as Canadian and Canada is home. My family and friends live there and it’s where I’d like to be. However, I believe I have an obligation to my future kids.
Unfair games are especially important in investing. In investing, money is at stake, so the competition can be fierce. There tends to be no free lunches. When you buy or sell an investment, there is always another side to a transaction. The other side could be an army of PhD quants with billions at their disposal, an industry insider with more information than you could ever have, or a forced seller that has to liquidate due to the mandate of their fund. As I write this, there has been a great deal of fear mongering about Hong Kong. However, as I live in Hong Kong, I feel I have a great edge against those who get their information from erroneous sources like mass media. At the time, mass media news outlets were arguing insane things like the entire country of China was going to collapse. In 2020, US president Trump banned US ownership in a great swath of Chinese equities. One of them was a company called CNOOC. In the time following, we had a great number of forced sellers, a great deal of fear, and proportionately few people with first hand experience. From that time to today’s (June 9, 2024) price represents a ~275% gain (not including dividends which were substantial) and it is possible that CNOOC is still undervalued. Anyone who participated got to engage in an unfair game. It is worth pointing out that there is often no penalty for forgoing game play. For example, if I don’t make an investment, I’m not going to be punished. I can sit on my hands all day and wait until I feel the rules are unfair in my favour.
There's a very common bug among players that attempt to play unfair games on a regular basis and that is with ethics and short term thinking. For example, the power dynamics between a parent and child is inherently unfair. A parent is free to be a fool, to make the child’s life awful, and so on. However, if you think of that relationship 18 years out, it seems obvious that that child will likely hate the parent. As I imagine the endeavour of parenting is inherently one where the journey is a reward in itself, this is one case where I think long term thinking and morality makes sense. The same can be said of nations. It wasn’t that long ago that colonialism was alive and well. Not all unfair games should be played.
There’s also another unfair game where, perhaps, the game should not be played. It’s my belief that despite having vastly different outcomes, we should aspire to create a society with an equal starting place for all. As there exists generational wealth, and one generation can pass wealth on to the next, we effectively have a world where capital can compound forever. There is a moral hazard here where if generational wealth is passed, we create a class in society which no longer contributes. I believe if one does attain some quantity of wealth in a lifetime, as benefits were reaped from society, some large percentage should be committed to giving back to society. In addition, from what I’ve seen of wealthy families, it is common for the offspring to have no skills, no ambition, no areas where they are tested, no appetite for seeing what challenges life has to offer because everything has already been given to them. Passing down infinite generation wealth, to me, seems like a condemnation to an empty life and a poor use of capital. As the rapper Notorious BIG once famously said “mo money, mo problems”. So while I believe I have an obligation to my future kids to set them up for a prosperous future, if we ever attained wealth, I do not think the amount of wealth passed down should be enough for them to do nothing.
In summary, I think it is worth thinking of the rules of most games that are played and playing the games where the rules are in your favour. That said, there are limits to when and where unfair games are played and considerations should be made with respect to long term effects as well as ethics. Most endeavours in life have rules and unfair games, whether we are aware of them or not. Having an awareness of how those games are played enables us to provide better for our families, for us to realise our ambitions, and hopefully give us the means to give back.
Comments
Post a Comment