Poison Is Drunk In Golden Cups

I have been reading a lot of Nassim Taleb’s writing lately. I recall that he garnered a lot of attention with his book The Black Swan back in 2007, but I was too busy back then trying to work my way to partnership the the big-shot law firm to do much pleasure reading (billing 2,200 hours or so a year doesn’t leave a lot of time for much else). Taleb just released a new book titled Skin In the Game: Hidden Asymmetries in Daily Life, and after reading it I’ve been racing back through his collection including The Black Swan, Anti-Fragile, The Bed of Procrustes, and will eventually get to Fooled By Randomness. But his latest effort, Skin In the Game, has a wonderfully insightful discussion of the poisonous effect that great wealth (and I would extend to include high income) has on may individuals.

In chapter 10 (titled “Only the Rich Are Poisoned: The Preferences of Others”) Taleb describes how apparent wealth attracts all sorts of “advisors,” “consultants,” and other charlatans that are incentivized to sell complex goods, services, solutions, etc. to people with wealth (or that appear to have wealth to the person doing the selling). Most often these snake-oil salesmen are in reality peddling an unnecessarily complex and likely inferior product that preys on the individual’s sense of wealth-entitlement, and that will ultimately bring less satisfaction and happiness to the wealthy consumer. Taleb discusses a personal anecdote of a dinner outing with an affluent business colleague (with an expense account) who insisted on the fancy/expensive restaurant instead of the comfortable, local, family-owned Greek taverna. In the end Taleb and his dining companion received high-end sommelier service, pretty food . . . and left with hunger. Taleb writes that he received the experience of eating at a Michelin-starred restaurant but not a pleasant meal.

Taleb’s thinking and logic around this phenomenon leads to the conclusion (based on Seneca’s tragedy Thyestes) that “thieves do not enter impecunious homes,” and that one is more likely to drink poison in a golden cup than an ordinary one.

Examples of this phenomenon abound. I believe that I’ve written here before about Warren Buffet’s discussion in his 2016 letter to Berkshire Hathaway shareholders about how his acquaintances of modest means typically follow his advice to invest in a low-cost S&P 500 index fund, but his affluent acquaintances never do. The wealthy cohort simply say “thank you very much” and then seek out the next snake-oil salesman (or hedge-fund manager) with the sharpest look, most expensive luxury automobile, and the best 1-year performance record to move their money to (but first, of course, they must take it out of the management of the last snake-oil salesman that over-promised and under-delivered). If you haven’t already, you must read Buffet’s full account here at pp. 24-25. Classic.

Another hilarious (and at the same time pitiful) example of the poison-in-golden-cups phenomenon is the case of the university endowment funds with huge treasure chests of money to invest and that fail over time to achieve the returns of a simple Vanguard index portfolio. Ben Carlson at A Wealth of Common Sense did a wonderful job of documenting that data here. With all this money and all this prestige, we can’t just put our money in the market, right? We’re better than that! (But ironically, as Jerry Seinfeld once said: “You’re worse. Much, much worse.”)

And right on cue, another recent example: NFL quarterback Drew Brees is suing various parties (undoubtedly “advisors” and snake-oil salesmen) over his “investment” of $15 million in diamonds. And I’m not talking about the Dow Jones Industrial Average ETF that travels under the ticker DIA. (I think I may still own some of those in the  attic of the portfolio.) I mean the sparkly carbon-deposit-rock-like things. It turns out that the sparkly rocks that Mr. Brees bought as an investment for $15 million were only worth about $6 million. Bummer. Apparently Mr. Brees purchased the stones in an attempt to “diversify” his portfolio. Because, you know, owning a slice of every single publicly traded company in the whole world is just simply too pedestrian for BSD-types. And all that those silly businesses do is make money; they aren’t shiny like diamonds. (As a footnote to this discussion: I suppose I must concede that Mr. Brees succeeded in his attempt to diversify his portfolio since the value of the rocks appears to have zigged whilst the stock market zagged much higher over the last period of years.)

I’m guessing that at the closing of the purchase of those multi-million-dollar carbon deposits somebody with a warm smile gave Mr. Brees a drink served in a fancy golden cup.

All this brings us to the basic truism: the simple answer/solution/approach is usually the best one. Take a pass on the golden cup; it is much more likely to contain poison.

Another footnote thought: Most people won’t be able to appreciate the value of this simple approach to money, life, etc., until it’s too late (or at least until they have been burned). As Taleb writes in The Bed of Procrustes: “To be a philosopher is to know through long walks, by reasoning, and reasoning only, a priori, what others can only potentially learn from their mistakes, crises, accidents, and bankruptcies–that is, a posteriori.” I’m pretty sure that I prefer the approach of the philosopher.