Month: August 2016

Sapiens: Yuval Noah Harari

Sapiens is an excellent read just full of insight, and stuff for reflection and debate. His basic question is why are we where and what we are now? Or, how did homo sapiens come to dominate the planet in the fashion in which we did? He covers so much ground from an account of human evolution, an anthropological survey of early humans through to the scientific revolution and the question of what’s it all about: this life, the universe and everything.

His answer to this latter question is that, whatever it is, it is all in our heads. And, for me, this is his first big point. His basic thesis is that homo sapiens came to dominate, not just other early human species, but also all other species, because we have the most developed ability to create narratives, eventually including cosmic narratives, that hold together larger groups of individuals than any other species.

We were not stronger, quicker or even necessarily quicker thinking than other species, we just co-operated better with each other in larger numbers than the rest. And the root of this co-operation was an extraordinary ability to accept, believe, be motivated by things we had made up in our heads. This includes kingship, religion, empire, money, joint stock companies and all. None of these things start off in the real world. No, they start in our heads and then we create things in the real world based on what we’ve chosen to believe at that moment in time.

What I consider his second big point is the idea that possessing a successful genetic code does not necessarily, or even at all, make for a happier life. He illustrates this most graphically with farmed animals. The cow gene has been a roaring success. It hitched itself to the dominant homo sapiens gene and is now one of the top five most numerous animal species.

If the aim of a gene is to self-perpetuate, then the cow gene has made itself very robust. It is so numerous, so geographically widespread and so intertwined with the dominant human gene that it has far outgrown its fragile origins as one of many competing large animal genes. What gene is more likely to die out first – the tiger or the cow? But, despite its genetic robustness, the life of individual cows is ghastly. They do not live their natural lives: they are reared in factory conditions, separated from their mothers and have short lives. Which animal has a better life – the tiger or the cow?

He extends this to humans in his analysis of the agricultural revolution when thousands of years ago we went from hunter-gatherers to farmers. Whilst we became far more numerous and therefore our genes more likely to survive, he asserts that individual lives worsened. We were designed to be hunter-gatherers, both in body and social spirit, and were less happy after agriculture than before.

Amusingly and parenthetically, he couches the agricultural revolution as the moment when the human gene was captured by the wheat gene. The wheat gene was a fragile grass existing in the fertile crescent at risk of climate change or some such. So, it hitched itself to the human gene, became omnipresent and therefore robust, and literally shackled the human race to the plough where it has thereafter unhappily laboured.

His third big point is his account of how and why we went from the world of c.1500 to the world of today. What made the Europeans from c.1500 different to other cultures was their embrace of ignorance; their willingness to admit that that they did not know. Religions, cultures and Empires up to that point had had answers to everything. There was nothing that was not known. These omniscient narratives were effective, see earlier point one, in uniting large groups in common purposes. But the Europeans turned this on its head. They embraced the idea of the unknown, which drove their historically unusual and, in all senses, voracious explorations of the world, geographical and scientific.

The outcome of a few centuries of breakneck discovery and innovation is that homo sapiens stands at an unusual juncture. For example, the greatest risk to our species is ourselves whether you consider the power of nuclear weapons or the risk of environmental degradation. Or, that we are at the transition from evolution of the species by natural selection to evolution by intelligent design. Some amongst us will soon be able to choose to be amortal and enjoy superior powers: Wolverine without the adamantium.

All this leads to his fourth big point, the question of what’s it all been for. He considers and dismisses the supernatural and secular religions. These are our creations with no objective veracity. (Although if I had to bracket him, I sense a liberal humanist.) We have not pursued a consistent guiding purpose. Instead, we have dreamt up guiding purposes to do or justify the next thing that came our way. We have accumulated immense power, made immense achievements. He does concede that, in recent decades, the happiness of the individual, the only sensible criterion of success, has become more our guide even if we have not yet agreed what constitutes happiness. We have eliminated or reduced some objective bads. But he does not posit that we are necessarily going to keep doing so well.

Anyway, homo sapiens is nearing its end as we move to intelligent design. He says at the start of the book that he reckons that, after a run of seventy or so millennia, homo sapiens has, at best, got perhaps a thousand years left.

 

 

 

 

 

 

 

 

 

wonder what’s it all been for and

2% and 20%: Really?

Where are hedge fund fees headed? As a (careful and selective) investor in hedge funds, I frequently find myself grappling with how to justify their fees. And the answer is most times, I cannot. Indeed, we routinely screen out 2% and 20% funds. What is a fair level? My feeling is that 1% and 10% does not sound like a bad answer. But it sounds unrealistic.

Did you know, however, that in the early days of hedge funds, the General Partner paid itself 20% of profits full stop. That’s right, no management fee, just a share of profits. And the General Partner was often a significant Limited Partner as well. So, the General Partner’s payoff was simple. In a profitable year, he took 20% of profits. In an unprofitable year, he lost money as Limited Partner. That sounds aligned.

I discovered this reading Carol J Loomis’s January 1970 article in Fortune magazine, “Hard Times Come to the Hedge Funds”. She was reflecting on the impact on the nascent hedge fund industry of its poor performance in 1969. She described the shock felt by investors who had thought that hedge funds hedged.

As well as talking about the impact on investors, she also described the impact on General Partners who had made no money. Some of them had started talking about paying themselves a salary as well as taking the 20% profit share in order to deal with years when the profit share was zero. Now, to a twenty-first century investor paying 2% and 20%, a salary and 20% sounds a better deal.

Indeed, the idea of paying the reasonable costs of a hedge fund manager and then letting them take a profit share sounds the best bet. But having looked at projects that were based on passing through cost, I know how tricky it becomes. As an investor, you become embroiled in questions of what is and what is not a reasonable cost. Better to keep it simple and go for a modest and sensible 1% management fee. In exchange for this, however, the performance share should be closer to 10%.

Will we get there? It is certainly possible. Is it probable? Well, I don’t think it is improbable.

Going back to Loomis’s article, she notes that Warren Buffett was closing his Buffett Partnership despite having had a profitable 1969. She says that he had “a strong feeling that his time and wealth (he is a millionaire many times over) should now be directed toward other goals than simply the making of more money.” Despite being close to Buffett, she got this wrong or was, at least, premature.