Thriving in a Complex World
This book serves as a comprehensive guide for navigating the complexities of a rapidly evolving world, particularly aimed at entrepreneurs and investors It seeks to illuminate how economics, business, and finance can be better comprehended through the framework of "Big History," which encompasses the 13.8-billion-year journey of the universe, the 4.5-billion-year evolution of Earth, the million-year ascent of humanity, and the 10,000-year progression of human civilization By examining this grand narrative from various perspectives, readers can gain a competitive advantage amidst uncertainties Utilizing Big History, we will create what renowned investor Charlie Munger refers to as “a latticework of mental models,” enabling a deeper understanding of essential concepts across diverse disciplines.
Big History, a term that emerged in the early 1990s, encompasses various concepts such as "the epic of evolution," "the new cosmology," and "the journey of the universe." Regardless of the title used, these narratives share a common theme, presenting the comprehensive story of the cosmos through diverse perspectives This expansive account integrates multiple disciplines, including astronomy, physics, chemistry, geology, biology, anthropology, history, psychology, technology, and economics, highlighting the interconnectedness of all aspects of existence.
This book presents a unifying origins story that goes beyond ethnic, political, religious, and linguistic differences It is aimed at individuals who may have forgotten or never fully grasped fundamental concepts in science, economics, and finance For those of a certain age, the scientific knowledge acquired in high school or college may now be outdated Our retention of information is influenced by its practical application; for example, many physicians may not recall significant aspects of undergraduate calculus, physics, or organic chemistry.
Charles Munger, in his USC Law School Commencement Address on May 1, 2007, emphasized that mastery in subjects like chemistry is not permanent Unlike riding a bicycle, which is a skill retained for life, scientific knowledge requires continual learning and practice to maintain proficiency.
Failing to actively engage with knowledge leads to rapid loss of understanding, especially when information is fragmented and lacks context The complexity and evolving nature of science, often filled with technical jargon, can make it seem irrelevant to everyday life Consequently, most individuals only turn to scientific information when necessary, widening the gap between specialized experts and the general public.
This book emphasizes the integration of various specializations into a practical framework applicable in daily work and life Its aim is to present fundamental scientific concepts in an engaging way through the perspective of Big History, illustrating how this broader understanding of the universe and its evolution can enhance business, investing, and overall life experiences.
The twentieth century witnessed a remarkable surge in human population and consumption patterns, leading to an unprecedented acceleration in growth This phenomenon raises critical questions about how humanity managed to expand exponentially, seemingly defying the principles established by Darwin and Malthus regarding population limits and resource availability.
$117 trillion global economy of over seven billion people function? What might cause it to dysfunction? And how might our species, and your business, continue to prosper in the future?
The remarkable evolution of money and its rapid growth have transformed our global economy in unprecedented ways We now live in the Anthropocene, marking a significant shift from the Holocene, which spanned the last ten thousand years following the last ice age This article will delve into the implications of Big History for economics and finance, as well as the evolution of humanity and our planet We will examine complex adaptive systems, the role of collective learning, and the methods for calculating value through the lens of energy, matter, and ingenuity.
Utilizing Big History to analyze business and finance enhances our understanding of economic trends, niche opportunities, and inherent risks in the 21st-century economic landscape This approach offers fresh insights into value creation and capture across physics, biology, and the realms of business and finance, as we explore the epic of evolution.
3 we will come to understand emergent complexity, creative destruction, and micro-macro dynamics in nature and society
Investing serves as a powerful metaphor for life, reflecting the challenges of managing a portfolio as akin to overseeing a business and career We invest in education, dedicate our time to work, and nurture our homes, families, and friendships This investment of time, energy, and attention aims to yield a broad and often intangible form of wealth The concept of Big History is relevant not only to financial management but also to life management, as it provides valuable macro-perspectives When discussing investments, portfolios, and markets, consider substituting these terms with those that resonate more closely with your profession, company, or competitive landscape.
The investment landscape highlights the ecological contexts in which businesses collaborate and compete to deliver goods and services in a global market For sustainability, businesses must find profitability in specific niches While entrepreneurship drives capitalism, an emphasis on finance reveals crucial insights into the historical and economic evolution of wealth creation Outperforming the market, such as beating index funds like the S&P 500, poses a significant challenge, as market consensus suggests that most fund managers struggle to exceed average returns in the buy-low, sell-high competition.
In an efficient market, as envisioned by traditional economics, outperforming the averages is deemed impossible due to perfect rationality and information among participants However, real markets are inherently inefficient, characterized by disagreements and volatility, which can create opportunities for unexpected gains While luck can occasionally lead to success, it is not a reliable investment strategy Additionally, unethical practices such as insider trading, bribery, and collusion can provide unfair advantages, allowing some to exploit market conditions In a lawless environment, the relative power of participants ultimately dictates who succeeds and who fails, presenting another avenue for surpassing market performance.
Day traders have the potential to outperform the market, but the rise of high-frequency trading has transformed traditional practices Modern day traders now rely on sophisticated computer algorithms that execute trades in microseconds, with 50 to 80 percent of daily trades on Wall Street being high-frequency transactions While this strategy has proven successful for those with advanced mathematical skills and access to powerful computing resources, complexity theory in economics indicates that such rapid trading may ultimately contribute to increased market chaos.
Value investing, championed by Benjamin Graham and practiced by renowned investors like Warren Buffett and Charlie Munger, focuses on purchasing undervalued stocks from well-managed companies with strong long-term growth potential Unlike quick-profit strategies, value investors prioritize sustained growth and stability Graham, known as the father of value investing, recognized that the market often fluctuates between extremes, and he advocated for a thorough analysis of a company's fundamentals—such as price, earnings, balance sheet, and management—before investing By acquiring shares below their intrinsic value, investors create a safety net against market volatility, emphasizing a strategy of buying, diversifying, and holding for the long term.
In today's intricate markets, opportunities exist to outperform despite the odds, by developing effective long-term and short-term strategies By identifying and leveraging structural changes and instabilities, one can capitalize on common errors in collective reasoning and pricing Complexity economics offers numerous avenues for increasing income and wealth, albeit with inherent risks of loss Ultimately, preparation is key, as the adage suggests: luck favors the prepared mind This book aims to equip you with the knowledge needed to seize these opportunities.
2 Seth Shobhit, "The World of High Frequency Algorithmic Trading," Investopedia, https://www.investopedia.com/articles/investing/091615/world-high-frequency-algorithmic- trading.asp
3 Benjamin Graham, The Intelligent Investor (New York: Harper, 1949)
The Great Matrix of Being
The Great Matrix of Being
Famed investor Charlie Munger emphasizes that grasping the fundamental concepts across various disciplines is not only achievable but also enjoyable and rewarding He advocates for the creation of a "latticework of mental modules" to effectively integrate and apply these big ideas.
A lattice, also known as a matrix, refers to a structure or environment where development occurs, encompassing physical, biological, social, and mathematical contexts In biology, matrices serve as molds that shape organisms, such as the intercellular matrices found within our bodies In mathematics, a matrix resembles a spreadsheet, organizing quantities, formulas, and statistical data into a grid format, facilitating comparisons and geometric possibilities The term "matrix" originates from the Latin word for "womb" or "mother," suggesting a nurturing space for all forms of existence, which could be aptly titled "the Great Womb of All Beings."
The concept of the "Great Matrix," as revealed by science, serves as a valuable metaphor for understanding the interconnectedness of all existence This framework encompasses everything in the universe—from natural processes and human biology to our histories and cultures—organized into various hierarchies and scales, including size, time, matter, energetics, and consciousness These ten fundamental scales form the foundation of the universe, highlighting the emergent complexity that arises from them By acknowledging this intricate web, we can effectively apply Big History to explore the essential ideas across diverse disciplines.
17 Munger, "Usc Law School Commencement Address, May 1, 2007"
Understanding the vast scales of size from the macrocosm to the microcosm is a challenging yet essential endeavor, as revealed by scientific exploration Internalizing these scientific scales, which often extend beyond our direct sensory perceptions, requires effort since much of science is inherently counter-intuitive Many phenomena are either too large, too small, too fast, or too slow for us to perceive directly While contemplating the immense size of the universe can be overwhelming, it is equally crucial to recognize the astonishingly small entities that exist within it Remarkably, the known universe is as many orders of magnitude smaller than us as it is larger, highlighting the complexity of our existence within this vast cosmos.
In particle physics, the Planck units represent the smallest measurable quantities, where traditional concepts of size and distance cease to apply At this scale, quantum indeterminacy prevails, leading to a realm where matter transforms into tiny fields and forces To fully understand these complex subatomic phenomena, consulting a particle physicist is essential.
The transition from the Planck scale to the size of simple atoms represents a leap of about twenty-four orders of magnitude A hydrogen atom, consisting of one proton and one electron surrounded by significant empty space, has a diameter of roughly 0.1 nanometers To put this into perspective, one nanometer is one-billionth of a meter, highlighting the incredibly small scale of atomic structures.
Amino acids, essential molecules for cell chemistry, measure approximately 0.8 nm, while the DNA molecule is about 2 nanometers wide but varies significantly in length DNA encodes vital information for cell construction and replication, with the longest human DNA found in chromosome 1, containing 220 million base pairs that stretch to about 85 millimeters The human genome comprises around 3 billion base pairs, but this is dwarfed by the marbled lungfish genome at 133 billion base pairs Conversely, the smallest known genome belongs to the bacterium Carsonella ruddii, which contains just 159,662 base pairs Prokaryotes, including single-cell bacteria and archaea, are the fundamental units of life, with a teaspoon of ocean water harboring a million prokaryotes and ten times as many viruses, while the smallest bacteria measure approximately 150–250 nm in length.
18 Edward De Long, "Deciphering the Ocean’s Microbiome," (Simons Foundation2017)
15 intestinal microbiome, measures approximately 2 àm (micrometers, or microns) Here, we have moved up in the scale a thousand-fold, from nanos to microns, from 10 -9 m to 10 -6 m
It takes imagination to grasp these jumps in orders of magnitude
Light-years are a unit of distance, not time, representing the distance a photon travels in one Earth year, equivalent to 9.4 trillion kilometers The farthest observable entity in the universe is the background radiation from the Big Bang, located approximately 13.8 billion light-years from Earth.
If you multiply 9.4 trillion kilometers by 13.8 billion, you get a really big number and an incomprehensible distance to grasp
To grasp the vastness of the universe, picture a 1-meter diameter beach ball representing the sun In this scenario, the nearest star, Proxima Centauri, would be another beach ball located 6,609 kilometers away, comparable to the flight distance from Boston to Rome, while the actual distance is 4.2 light-years.
If a 1-meter-diameter beach ball represented the Milky Way galaxy, the Andromeda galaxy would be another beach ball situated 25 meters away, illustrating the vast distances of 2.5 million light-years between galaxies At this scale, you would observe countless beach ball galaxies in every direction, totaling around a hundred billion While galaxies are relatively close and gravitationally bound within a dynamic web, the distances between stars within these galaxies are immense, resulting in minimal gravitational interaction Even during galactic collisions, such as the eventual encounter between Andromeda and the Milky Way, stars typically pass through without colliding Ultimately, the universe consists of a hundred billion galaxies interconnected in a complex gravitational embrace.
While it’s easy to feel insignificant in the vastness of the universe, spanning billions of galaxies and light-years, it's essential to recognize our immense size in comparison to cells, molecules, atoms, and subatomic particles Humans occupy a unique scale measured in millimeters to kilometers, positioning us approximately midway between the very small and the very large This human scale is crucial, as it is the only realm where specific forms of complexity can manifest, influenced by the fundamental building blocks of matter.
The Cosmic Uroboros symbolizes the hierarchy of size, illustrated by a snake consuming its own tail, a motif found in ancient Egyptian, Greek, Norse, and Indian art, representing self-reflectivity and regeneration In the depiction by cosmologist Joel Primack and Nancy Abrams, this concept is visualized in powers of ten along a circle, illustrating how the vast universe loops back to the minuscule scale of subatomic particles The CERN particle accelerator mimics the intense energy of the early universe to explore matter's fundamental constituents The pursuit of a "Grand Unified Theory" aims to connect the four fundamental forces—gravity, electromagnetism, and the strong and weak atomic forces—bridging the subatomic and cosmic realms, much like the Uroboros.
The foundational axis of the Great Matrix of all beings is size, highlighting the intriguing reality that life thrives in the space between the largest and smallest entities recognized by science Reflect on the intricate structure of your own existence, which is constructed from the smallest units—atoms, molecules, and cells—building up to create larger, complex forms.
The time scales of the universe are measured today in billions of years down to the nanosecond vibrations of cesium in atomic clocks
The universe's history spans 13.8 billion years, with Earth's evolution taking 4.5 billion years and the rise of humanity occurring over 300,000 years In the last 10,000 years, human civilization has rapidly advanced This timeline reflects the overarching narrative of Big History, which integrates these milestones into a cohesive story of complexity from the Big Bang to the present day.
In brief, our omnicentric universe began infinitesimally small some 13.8 billion years ago as something like infinite heat, infinite
19 Joel R Primack and Nancy Ellen Abrams, The View from the Center of the Universe:
Discovering Our Extraordinary Place in the Cosmos (New York: Riverhead, 2006)
20 See Christian, Maps of Time: An Introduction to Big History
17 density, and total symmetry This universe expanded, cooled, and evolved into more differentiated and complex structures—forces, quarks, hydrogen, helium, stars, galaxies, heavier elements, complex chemistry, and planetary systems
Around 4 billion years ago, life began on a small planet in a nascent solar system, orbiting a modest, slow-burning star This emergence of animate energy-matter on Earth marked a remarkable enhancement of the universe's creative dynamics Over time, life adapted and evolved, becoming increasingly complex Powered by the sun, Earth transformed into a vibrant planet, showcasing intricate forms and relationships that contributed to the marvels of the natural world.