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In Search of New Alpha

 

For a book that is highly critical of the latest incarnation of capitalism that is financial innovation, I was surprised to see it reviewed by the website Seeking Alpha. Two million people subscribe to the site’s financial news and many more visit it to gain better understanding of financial markets.  In layman’s terms, Alpha is a measure of how well a certain stock, bond, or sector performs against expectations set for it by analysts. So when I read the title of the review “Seeking Alpha with Memenomics”, I had an inclination that the reviewer has a good grasp on the macro memetics of capitalism. Here the review in full:

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Seeking Alpha With Memenomics                                                                       By Range Chiever

Feb 11, 2014 10:06 PM

I just finished reading Said Dawlabani’s “Memenomics- The Next Generation Economic System”, and I am still buzzing. Or maybe that is my first cup of Death Wish coffee. In my investing lifetime there has been a handful of works that greatly advanced my investing intellect. Books and articles from Peter Lynch, Warren Buffett and Charlie Munger come to mind. This book may top them all. You see, investing is all about seeing value where others don’t. If one sentence could articulate what seeking alpha is about, that would be it.

However, I would recommend this book to only a small subset of souls who happen to mix economics with their psychology. This is not exactly peanut butter and chocolate. To really understand the message it requires a basic understanding of the works of Clare Grave’s Spiral Dynamics or at least a decent understanding of the study of human development.

The book reframes the economic history of the United States as a process of developmental growth from the early 20th century up through the financial disaster of 2008 and then to today.

His assessment of the crash in 2008 through a cultural development lens is something that has been swirling in my head for half a decade. He integrated and articulated many key points into a beautiful story that resolved many conflicts I was struggling with. I’ve always scoffed at folks who said that the Government bailout was not the best course of action during the crisis. He has changed my mind.

So, how can an economics book about personal and cultural development possibly help your investing prowess? Well, once you understand that the US economy is evolving and developing along a path of greater development, it is easier to see the general direction of the economy and maybe more importantly, spot those companies which are poised to benefit from this development.

Said used two companies to illustrate highly evolved corporations of the future. They are Google and Whole Foods Market. Much to my delight, these were two companies that I added to my portfolio in early 2009.

It’s impossible to explain the context in the book required to understand the praise for these two companies. In his terms, it is the appreciation of People, Profit and Planet as opposed to almost all other companies where Money Only Matters. It’s like the friend who calls only when he needs something compared to the friend who calls because he genuinely likes you.

Google-Moves-Into

He does differentiate between the two as well. Google is a disrupter in the evolving technology field and Whole Foods while steeped in an age old industry is finding ways to differentiate itself. He outlines characteristics, from WF’s restriction on executive pay and team based culture to Google’s democratization of knowledge and their unique venture finance arm. There is so, so much more and if this interests you at all, you must read the book.

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I have renewed vigor today in my search for alpha. It reminds me of the time I first read Peter Lynch’s One Up on Wall Street or the several hour binge session of Warren Buffet’s annual letters to shareholders. I am posting today looking for a few souls out there that might have a similar view or plowed into this untouched jungle with machete in hand.

Disclosure: I am long WFM, GOOG.

 

 

 

 

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The Obama Presidency and Complex Systems

This post is in response to emails and comments I received about a statement I made on a recent radio show about President Obama’s leadership. If you’re wondering why every president ends up with white hair when he leaves office, please read on.

 What was taken out of context was my statement that President Obama was at least a decade ahead of time.  This wasn’t intended as a statement of blind liberal praise for the President as much as it was an attempt to explain alignments in complex systems and how they work.

cover 3rd mmnc cycle

 Here are some of the nuances behind the thinking:

 In the framework we use, we distinguish between the value systems profile of the individual and the value systems dynamics of a culture. The person who captures the hearts and minds of the voter still has to apply his leadership skills to the much bigger system he is elected to lead. If polarization and dysfunction in a society cannot be resolved as quickly as the voter wants them to, the blame automatically goes to the most visible individual without regard to the dysfunctional structures that are in place. When it comes to large scale political systems, under this framework, there’s a direct relationship between effective leadership and the phase of a value system life cycle that a culture is going through during the time that person is in charge.

phases life cycles

To make this concept simpler, think of the system as a train on a journey that lasts a few decades, and the Presidents are its conductors taking turns in 4-year shifts. During the Clinton presidency the current system was in the Growth and Maturity phase of its cycle. Clear track ahead and on automatic pilot most of the time with occasional but minor tweaks. All president Clinton had to do was some fine-tuning and the system moved along nicely providing him with a great legacy. This is what we call Aesthetic Change. President Obama, on the other hand, is presiding over the end phase of that same system. But, instead of the journey coming to a natural end, the system is dying a premature death as a result of decades of misguided monetary and tax policies the likes of which hadn’t been seen since the Great Depression. I call this in my book abnormal collapse and entropy. This phase of a cycle needs structural , or systemic change.

Now, here’s the dynamic that very few have observed. To President Obama, the current system couldn’t die fast enough for him to usher in simple aesthetic change of a future system. The republicans, on the other want to revive the current comatose and toxic system at any cost. Neither side realizes that relative to the speed at which complex systems move, the old system will take another decade to die, and for its DNA to go through entropy and become informational units that are parts of the next system. As to the coming system, it is still going through its gestation phase still needing a decade or more to differentiate itself while President Obama tried to give it premature birth. Institutions in our culture weren’t ready for it for another decade.

No one should be under the illusion that change could be reversed or accelerated during a system’s premature death. This is not the train pulling slowly into its final destination where the old journey comes to an orderly end and a new journey towards higher values begins. This is a train violently and prematurely derailing off its course leaving a trail of destruction in its path. The best anyone could have done is soften the current collapse while a new paradigm for a new system continues to be formed. There was no track in place for President Obama to launch the new journey. He had little capacities to deal with the current dying system and as a result his legacy will be forever tarnished.

Still, a leader at the helm of a system experiencing a toxic premature death has very few choices. Other than cleaning the carnage over a long period of time, a leader can leave it all behind and immediately start work on a new track and a new train.  We call this Second Order Structural Change (The kind of change that got JFK killed, in my opinion). Today in western culture, change comes very slowly as the existing system (with its toxicity) has to cater to so many diverse and often arrested voices on both sides even as it dies.

 President Obama’s vision, once applied to the collapsing system, was sucked into its energy and became nothing more than a lightening rod for imbedded interest of the dying system. We are simply not ready for the new system, nor can second order structural change be implemented in a divided culture that is openly democratic. Today there are only two ways for Second Order change to happen as quickly as the voter wishes for it to happen:

  1. Through a command and control leadership structure like the military where the President’s goals were simply a matter of delegating responsibility without any of it being questioned. If such leadership were possible, the US would have entered an infancy stage of some form of social democracy. But, since it wouldn’t have emerged naturally, it wouldn’t have any staying power past his presidency.
  2. After the complete and utter collapse of current institutions. For details on how this would have played out, see point one  and add a  Marshall Plan.

Systems move very slowly and there’s too much complexity for complete and systemic collapse to take place. The best the system would allow the President to do is manage an orderly collapse. Or, if the republican were at the helm, continue the toxicity of the current system that would have made for a far worse collapse than the one we saw in 2008.

President Obama is not the first president to have a system die on his watch. Similar value system life cycles also crippled the Carter Administration. President Obama’s legacy unfortunately will be slightly better than that of Jimmy Carter. Both administrations had the previous system die on their watch, but the “next cycle” was much closer in time to Obama than they were to Carter.

life cycles

I suppose the moral is, don’t build a track for a new train when half of the culture is still grieving the death of the old no matter how that death came about. A good lesson in how value systems rise and fall.

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Don Beck’s 1995 Strategy to Unite South Africa through Rugby

In celebrating the life of the great South African leader Nelson Mandela we often ignore the work that was done behind the scenes that made the story of South Africa possible. For a period of ten years my mentor and friend Dr. Don Edward Beck was one of many people who worked with many stakeholders in South Africa to insure the transition from Apartheid is as smooth as possible. What is not being mentioned by the media is that the Orange values in South Africa (industry) took the lead is transitioning the country out it its segregated past. Much of that work is detailed in the book The Crucible; Forging South Africa’s Future, which Dr. Beck co-wrote with South African Journalist Graham Linscott. The book will be republished in 2014 on its 20th Anniversary with an update on where South Africa is today and how far it has come in implementing the Road map outlined in the book. It is ironic that when Madeba passed,  Dr. Beck (after a 15-year absence from South Africa), was in Johannesburg on a tour of South African universities for a closer Memetic assessment of where the country has moved to in the last two decades.

Since work behind the scenes does not make for a sexy read or for prime time media coverage, here is a story that will. Many readers have seen the movie Invictus. What people don’t know is that Don Beck, who was a football player in his youth, became the team psychologist for the New Orleans Saints. Sports psychology remains Don’s passion till this day. In South Africa, he became a close friend and adviser to the Springbok coach Kitch Chritie and team captain François Piennar.  Don declined the invitation to be the adviser on the movie because of certain historic inaccuracies in the script.

Mendela-Piennar

Here’s how journalist Linscott described Don’s strategy: Beck recommended that an African crowd song should be introduced at The World Cup matches. That if possible the support of Nelson should be enlisted… It is history now, but the mainly white crowds adopted the African miners’ song Shosholoza. Afrikaner hardliners cheered and wept with emotion as Nelson Mandela wore Piennar’s No.7 jersey before the final game. Black newspapers, which had ignored Rugby as a white sport, went into frenzies of excitement with each succeeding World Cup Victory. Never before had the new South Africa been more emotionally united. Sports unity is something Beck always called for, not just for its own sake, but as a nation-builder.

For the detailed strategy that Don outlined, please click on this link to an interview Don did with our associate Russ Volkman, editor of Integral Leadership Review  after the release of Invictus.

Invictus & Don Beck’s Six Games to Glory

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Speaking Gaian Truth to Economic Power