A (Largely) Functioning World!
Programming Note: On every Sunday from now on, I will try to write pieces that are predominantly based on personal experiences which may or may not be loosely connected with investing. If you are reading MBI Deep Dives everyday, I think it would be rather useful for my readers to understand my personal lens a bit better since that presumably affects (at least in some capacity) the way I analyze businesses as well.
If you go to any newspaper website (or still hold onto the relic of actually reading the physical paper) on any random day, it is commonplace to get bombarded by a deluge of negative news flow. Any person who ardently follows news may require a conscious effort to stay optimistic about the world. Indeed, there are always legitimate reasons to be deeply concerned even if you personally live in a safe distance from any of the headline grabbing events that are playing out on a daily basis.
Nonetheless, I often get this feeling that most people underestimate how largely functioning the world is. That may seem like a banal observation, but frankly speaking, I cannot help but wonder whether that is gradually becoming almost a contrarian belief. Of course, the world is so complex and our experiences in the world are so diverse that we all are running a little blind trying to grasp the “elephant”. So let me contextualize what I mean by “functioning” world.
One of my rules of thumb to think about the world is to imagine how much your life can be largely dictated just based on where you are born regardless of your intelligence. Back in 2013, Warren Buffett called it the “Ovarian Lottery”:
My political views were formed by this process. Just imagine that it is 24 hours before you are born. A genie comes and says to you in the womb, “You look like an extraordinarily responsible, intelligent, potential human being. [You're] going to emerge in 24 hours and it is an enormous responsibility I am going to assign to you — determination of the political, economic and social system into which you are going to emerge. You set the rules, any political system, democracy, parliamentary, anything you wish — you can set the economic structure, communistic, capitalistic, set anything in motion and I guarantee you that when you emerge this world will exist for you, your children and grandchildren.
What’s the catch? One catch — just before you emerge you have to go through a huge bucket with 7 billion slips, one for each human. Dip your hand in and that is what you get — you could be born intelligent or not intelligent, born healthy or disabled, born black or white, born in the US or in Bangladesh, etc. You have no idea which slip you will get. Not knowing which slip you are going to get, how would you design the world? Do you want men to push around females? It’s a 50/50 chance you get female. If you think about the political world, you want a system that gets what people want. You want more and more output because you’ll have more wealth to share around.
The US is a great system, turns out $50,000 GDP per capita, 6 times the amount when I was born in just one lifetime. But not knowing what slip you get, you want a system that once it produces output, you don’t want anyone to be left behind. You want to incentivize the top performers, don’t want equality in results, but do want something that those who get the bad tickets still have a decent life. You also don’t want fear in people’s minds — fear of lack of money in old age, fear of cost of health care. I call this the “Ovarian Lottery”
Well, the slip I happened to “pick” back in 1991 was Bangladesh. Just before my brother (who was two years older than I am) was born, my parents moved from a small village in Bangladesh to a tier-two city named Bogura. My father sub-leased a room in the city, and all four of us lived in a single room for a few years before my father was able to manage to buy a land and build a tin-shed house. My childhood memory is filled with rain pouring on our tin-shed house and everyone in our house then frenetically trying to put buckets under the tin roof to stem the water flowing to different corners of the house. Fun times!
Given that context, I was reasonably confident that my household was in the bottom quintile of the world back in 1991. But after chatting with Claude today, I realized I was likely born in a household with income somewhere between 45th and 55th percentile of the world. That actually makes me realize why I almost never felt poor in my life despite being objectively poor for a good part of my life. The reason is perhaps quite simple: I was always surrounded by even poorer people. Just as millionaires cannot quite feel rich if they’re surrounded by billionaires, the poor people have oddly similar dynamic. I grew up reading about “Monga” (an annual phenomenon in the 1990s and early 2000s); every year, some people in the Northern part of Bangladesh used to die of hunger. Thankfully, my family never had to endure starvation. So, in the poverty “Olympics” back then, I can understand why I never felt poor given the visceral awareness that there were people dying out of hunger in nearby villages back then in Bangladesh.
In this backdrop, my parents harbored this belief that the genie that can outweigh the Ovarian lottery is education. So they made it their life’s mission to send us to a good school, and it was my mother’s responsibility to ensure we truly excel in academics. I certainly did. Given my own academic success, most of my friends also happen to have similar academic prowess and almost all of them came from similar socioeconomic backgrounds as mine. Thanks to Facebook, I am still connected with almost all of them despite moving abroad. In fact, this allows me to assess and calibrate my views of how “functioning” the world may be. If only ~10-20% of these peers experienced social mobility despite similar intelligence, I would be tempted to infer that the world may be less functioning, and it may just be randomness as well as “ovarian lottery” that are playing too big of a role in dictating our progress.
However, when I thought about this yesterday and discussed with my wife (who have similar background and peers as mine), we realized nearly 75% of our talented peers (who were born somewhere between 40th and 60th percentile of global income) are now firmly in the top decile of global income. That is a remarkably rapid social mobility in the span of three decades! In fact, while this is nearly impossible to prove as no such data likely exists, the rate of social mobility for talented kids regardless of their origins has likely quietly accelerated in my lifetime without much fanfare.
It can be tempting to think the world is getting worse and worse over time, but my personal experience in life has always given me pause in giving into such temptations. Of course, human beings have innate ability to take everything for granted and we are all very good at moving the goal posts almost constantly, but part of me thinks the 15-year old me would probably burst into tears with joy if he got to “see” how my life has turned out to be. In fact, I believe there are a lot of these “15-year olds” in the world who may have lost the Ovarian lottery but would react similarly if they could see how their “35-year olds” are living like today. Perhaps you can see why it is hard for me to be dismayed by any recent news flow and would rather prone to be perennially almost romantic about the steady, uneventful progress!
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Please note that these are NOT my recommendation to buy/sell these securities, but just disclosure from my end so that you can assess potential biases that I may have because of my own personal portfolio holdings. Always consider my write-up my personal investing journal and never forget my objectives, risk tolerance, and constraints may have no resemblance to yours.
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