You can understand the world through patterns.
Picking up from the last post, this one keeps going through the 7 relationships hiding around us.
Following the 4 relationships from the last post, today let’s start from the fifth
5. Oscillating relationships: memory
The weather turns cold, then hot, then cold again. Day comes, night comes, day comes again. You breathe in, breathe out, breathe in. Bull markets and bear markets take turns. Some things repeat, and we call that an oscillating relationship.
A vibrating piano string rings out a clear note. Oscillating relationships make clear patterns the same way.
An oscillating relationship is where we learn how useful memory is. You can read next winter’s temperature off this winter’s, and an investor who remembers the last bull market can picture the next one even in a crash where everyone is terrified. Remember the repeating pattern and you can guess what’s coming with some clarity.
But sometimes the pattern shifts a little each time it repeats. Summer and winter get slightly hotter every year, because of global warming. Unlike a fixed oscillation, a shifting one can’t be handled on memory alone. And there we find another relationship.
6. Trend relationships: strategy
Temperature goes up and down, and the annual average has risen 3 degrees over the last 100 years. The market goes up and down, and the S&P has grown 400% over the last 100 years. We sleep and wake and sleep again, and our sleeping hours shrink as we age. When there is change inside the repetition like that, we call it a trend relationship.
In a trend relationship you can predict the long-run trend but not the short-run swings. That is why you need a strategy. A cold winter doesn’t stop global warming from running in the long view, and a crash doesn’t stop the stock market from growing in the long view.
Temperature rises and falls, but the trend is clear. Source: https://berkeleyearth.org/global-temperature-report-for-2023/
In a trend relationship, don’t let short-term moves shake you. Hold a steady strategy instead. Holding S&P names for the long run has paid about 6% a year on average since the 1900s. A long-term strategy against global warming can head off a future where we all die. There are sick days and healthy days, and knowing you are aging steadily lets you build a long-term health plan. You won’t push the drinking just because you feel good, and you get a longer, healthier life.
Trend relationships are the most complicated and the hardest to handle. The last one left is the opposite, very simple. Let’s look at the simplest relationship of all, the one where nothing changes.
7. Independent relationships: calm
So far we have only looked at dependent relationships, where two factors affect each other. But independent relationships exist too. Intelligence and conscientiousness have no relationship. Instagram followers and happiness have no relationship. (Though there is research finding social media use and happiness inversely related!) Whether you eat seaweed soup on the morning of the college entrance exam has nothing to do with your score, as long as you don’t let it get to you. There are times when no amount of comfort makes the sadness go. There are plenty of people who ignore the most sincere advice and do as they please. However badly I want it, my odds of winning the lottery stay exactly where they were. Pray to win, buy the same numbers every week or different ones, and my odds do not change.
Don’t be taken in by the flashing lights and the spinning roulette wheel. The casino’s expected value is already fixed.
Some situations have no relationship at all, or one so faint it does not matter. Those you can ignore. Which means finding one actually sets you free. If you want a luxury watch and then find that an expensive watch has nothing to do with happiness, you can see that not having the watch is not what is making you unhappy. Free of the watch, you get room to look at what you actually feel. You can get out from under your superstitions, and get a free mind. Independent relationships give us calm and freedom. They give us room to focus on the problems that matter more.
Conclusion
The world is a complicated, messy place where signal and noise are mixed together. The 7 relationships are patterns for reading that messy world. The simplest proportional relationship, the exponential and logarithmic ones that teach patience and restraint, the V-shaped one that teaches balance, the oscillating and trend ones that teach memory and strategy, and last the independent one that teaches calm. Keep the 7 in mind and a complicated world gets easier to unpick.
Patterns like these are called mental models. A mental model is an intellectual tool. The more tools you have, the more problems you can solve, and the more powerful mental models you have, the smarter you get.
Which mental models are the best and how to get them is something I will cover later in the “knowledge series”.
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