Natural Science #4: Atomic Structure

Around 400 BCE, Leucippus and his pupil Democritus proposed that matter was composed of small indivisible parts called “a tomos,” better known as atoms. They argued that if we take any substance and cut it in half, and repeat this process again and again, eventually we will reach an object so small it cannot be cut in half again.

This hypothesis built upon the work of Parmenides who argued that all existence was a single, all-encompassing and unchanging mass. Democritus imagined a world of many Parmendiean entities. These entities would be made up of different arrangements of atoms, and any sensation relating to these entities was merely the byproduct of those different arrangements.

It would be 2300 years before this idea was properly expanded on. This post will explore how our understanding of the atom has evolved over time.

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History #4: End of the Bronze Age

The end of the Bronze Age is a sudden, violent, disruptive, and largely unknown event in world history. Between 1200 and 1150 BCE, almost every major city in the eastern Mediterranean was destroyed, many of which would not be occupied for another thousand years. The New Kingdom of Egypt, the Hittite Empire, and the Mycenaean kingdom would all cease to exist in their historic form. Isolated village cultures would come to fill the void left by this event, and the Greek Dark Ages would begin.

This was the end of civilization as the world knew it. Trade collapsed, cultures disappeared, and the world grew more divided. It wouldn’t be until modern times, that a truly interconnected world would be reappear.

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Human Nature #4: Wishful Thinking

Christopher Booker, an English journalist and author, described wishful thinking as:

A pattern that recurs in personal lives, in politics, in history – and in storytelling. When we embark on a course of action which is unconsciously driven by wishful thinking, all may seem to go well for a time, in what may be called the “dream stage”. But because this make-believe can never be reconciled with reality, it leads to a “frustration stage” as things start to go wrong, prompting a more determined effort to keep the fantasy in being. As reality presses in, it leads to a “nightmare stage” as everything goes wrong, culminating in an “explosion into reality”, when the fantasy finally falls apart.

Edward Young, an English poet, summarized this concept more elegantly when he wrote:

All men think all men are mortal but themselves.

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Numeracy #4: Permutations

Charlie Munger, vice chairman of Berkshire Hathaway, once explained that:

One of the advantages of a fellow like Buffett, whom I’ve worked with all these years, is that he automatically thinks in terms of decision trees and the elementary math of permutations and combinations.

This post will attempt to break down the concept of permutations in a way that makes it more intuitive. The next Numeracy post will attempt to do the same but with Combinations.

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Analysis: Brexit

Ray Dalio, founder of investment first Bridgewater Capital, wrote an article for the FT in which he argued:

In deleveragings bad economic conditions typically lead to emotional reactions, social and political fragmentation, poor decision-making and increased conflict. When this occurs in democracies, the checks and balance system, which is intended to yield the best decisions for the whole, can stand in the way of thoughtful leadership and lead to ineffective “mob” rule. This dynamic can lead to a self-reinforcing downward spiral.

Frustrations increase, the established ways of doing things come under attack and frustrations over the ineffectiveness of government creates the perceived need for someone to gain control of the mess. Plato spoke of this dynamic. It was the reason Hitler was elected in 1933.

From Trump to Le Pen, the world seems to be getting more divided. This week, Briton voted to leave the European Union. The EU was created with the goal of allowing freer movement of goods, services, and people across member countries. The benefits of this are well-known: free movement of resources, productive allocation, an increase in overall economic welfare. This is not to say there aren’t losers. For those Britons who increasingly saw themselves as worse off, exit seemed to be the rational choice.

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Investment Theory #3: Buffett’s 1959 Letter

In 1956, Warren Buffett concluded his work for Benjamin Graham and returned to Omaha, where he started an investment partnership. This partnership was formed with seven limited partners, made up of family and friends, contributing $105,000, and Warren Buffet contributing $100.

This post is a continuation of my series about that partnership. The goal of this series is to dissect the letters Warren wrote to his investors, in the hope of gaining some insight into one of the most successful investment vehicles of modern history.

Links to past years can be found here: 1957, 1958

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Natural Science #3: Newtonian Gravity

You’ve probably heard the story of Newton’s apple. One day, Newton was sitting under his mother’s apple tree when an apple fell off and hit the ground. Newton wondered if there might be some force acting on the apple, pulling it towards the ground. To understand the significance of this simple question, we need to put it in context.

For most of human history, it was just accepted that everything falls. What goes up must come down. To think otherwise would be crazy. Asking why an apple fell to the ground would be a complete waste of time. But by asking why, and whether things really needed to fall, Newton set himself on a line of reasoning that would become the basis for all of classical mechanics.

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History #3: Disease

What shapes human history? That’s easy, humans shape human history. The great man theory of history, made famous by Scottish writer Thomas Carlyle in the 1840s, argues that history is the byproduct of the actions of great men. From Jesus to Hitler, Carlyle would argue that highly influential individuals were the key factors in shaping the course of human history.

The great man theory of history began to lose influence towards the end of the 19th century. Herbert Spencer, an English philosopher, was probably the most influential critic of the great man theory. Spencer argued the following:

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Human Nature #3: Incentives

Steven Levitt and Stephen Dubner, in their book Freakonomics, open with the following:

Economics is, at root, the study of incentives: how people get what they want, or need, especially when other people want or need the same thing.

We all learn to respond to incentives, negative and positive, from the outset of life. If you toddle over the hot stove and touch it, you burn a finger. But if you bring home straight A’s from school, you get a new bike.

This post will explore the power of incentives in the context of psychology, public policy, business, investing, and self-interest.

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Numeracy #3: Multiple Linear Regression

In the last post on numeracy, we talked about correlation, regression, and how two variables could be related. Regression, specifically, was a way to use one variable to predict another. This was useful but in real-world situations, when making predictions, we are required to weigh a multitude of different variables. Lucky for us there is a regression model that is specifically designed to handle multiple variables. This model is called multiple linear regression (MLR) and it will be the subject of this post.

At its core, MLR is a model that tries to find a mathematical relationship between three or more variables.

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