Lesson 6 of 6
Holding a minority position
Six habits that separate a reader who holds a heterodox view from a partisan. They are checkable practices, not attitudes, and they work in any field.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- A partisan and a serious minority-position reader believe the same things. What differs is what they do: the habits are observable and can be practised.
- Two of them do most of the work: say in advance what would change your mind, and never use a theory of the cycle as a forecast.
- The last one is specific to this product's subject: a cycle reading changes which conditions you write down about a company, and it does not tell you what to buy.
This is the last lesson of the track. It is not a summary, because a summary would be the least useful thing here. It is a list of practices, and the test of the track is whether a reader keeps them.
Six habits, and the failure each one prevents
The habit
- Name the edition and the chapter for every claim.
- Read the criticism in the original.
- State in advance what would change your mind.
- Separate the mechanism from the policy conclusion.
- Check whether a prediction was recorded before the event.
- Say what you could not obtain.
What it prevents
- Claims that drift as they are retold, and invented page numbers.
- Answering a version of the objection nobody made.
- A position that survives every observation and explains nothing.
- Treating a disagreement about values as a disagreement about facts.
- Retrospective credit for calls nobody can date.
- A confident summary of a document you have not read.
Each habit on the left prevents the specific failure on the right.
The two that matter most
Say in advance what would change your mind. The last lesson of the third course found no writer in this tradition who states such a criterion, and the same test applied to the rivals in the fourth course produces uncomfortable answers for several of them. Doing it yourself costs nothing and is the difference between holding a position and being held by one.
Never use a theory of the cycle as a forecast. This is the rule this whole academy runs on, and it is not a matter of taste. The theory in this track claims that a credit-driven boom misallocates resources and that the misallocation is revealed later. It contains no clock. Turning it into a date, a level or a call is a step the theory does not license, and every attempt to do so in public has a record that anyone can look up.
The four that keep the record straight
Name the edition and the chapter. Editions differ, translations differ, and a claim attached to a chapter can be checked by somebody who disagrees with you. This track prints no page numbers for that reason.
Read the criticism in the original. The previous lesson explains why, and this academy's own failures to do so are marked in the two lessons where they happened.
Separate the mechanism from the policy conclusion. The fourth lesson of this course shows a careful author doing exactly that in a footnote, and most books do not.
Check whether a prediction was recorded before the event. A theory that explains a crisis after it happened is doing something, but it is not the thing its supporters usually claim for it.
The one that belongs to this product
A cycle reading changes which conditions you write down about a company. It does not tell you what to buy, and it does not tell you when.
The practical version: if you think credit conditions matter for a business, the honest expression of that is a guardrail on its balance sheet. Interest cover below a level you name. Debt maturing within a period you name. Inventory or receivables growing faster than sales for more than a stated number of quarters. Those are conditions that can break and can be checked against filings.
What you cannot honestly do with any of this is decide that the market is late in a cycle and act on it. The gap between what the theory says and what a position requires is filled by timing, and nothing in this track supplies any.
Check yourself
What distinguishes a partisan from a serious minority-position reader?
- The strength of their beliefs
- What they do: a set of observable practices, not a difference in conviction
- Which sources they read
Show the answer
Answer: B.
Two people can hold the same view. The habits in this lesson are checkable by somebody else, which is what makes them a standard rather than a temperament.Why can a theory of the cycle not be used as a forecast?
- Because forecasting is difficult
- Because the theory contains no clock, so a date or a level is a step it does not license
- Because the data are unreliable
Show the answer
Answer: B.
The account claims a misallocation is revealed later. Nothing in it says when, and supplying a when is an addition the theory does not carry.What is the honest expression of a view about credit conditions?
- A position sized to the risk
- A condition written about a company's own accounts that the next filing can test
- A forecast with a probability attached
Show the answer
Answer: B.
A guardrail on interest cover or a maturity wall can break and can be checked. That is what a cycle reading changes, and it is all it changes.Sources
- Salerno, 'Comment on Tullock's Why Austrians Are Wrong About Depressions', Review of Austrian Economics, volume three, and Tullock's reply in the same volume, for the exchange in which the meaning of a term turns out to be the disagreement.
- Rothbard, America's Great Depression, fifth edition, 2000, part one, chapter one, for an author separating advocacy from analysis in a footnote to his own policy section.
- Mises, Human Action, 1949, part one, chapter one, section three, on the aprioristic and deductive character of the reasoning, and Caplan, 'Why I Am Not an Austrian Economist', for the two positions on whether evidence can bear on the theory. That is the question the third habit asks a reader to answer for themselves.
What this leaves out
- This is a heterodox tradition. The mainstream account of the same phenomenon differs, and nothing here is a forecast or a view on any security.
- The guardrail example is invented, with invented figures, to show the form of a condition. It is not a recommendation and describes no company.
- These habits are not peculiar to this subject. They are the ordinary practices of reading a contested literature, written down here because this track needed them more than most.