It is hard to be a patient long-term investor when the long-term is comprised of a series of often volatile short-terms. This requires great emotional and intestinal fortitude to hang in there when one sees his or her net worth dropping quite rapidly. It is very difficult when markets are volatile and dropping seemingly endlessly to know if those long-hoped-for positive signals may be the light at the end of the tunnel or the train coming at you. Remember February 2016 and the 12% increase in crude oil? Did you think that it was finally at the bottom? No one knows of course. So what is an investor to do? Perspective is very important to improve the odds of not getting bluffed out towards the bottom and going all-in at the top.
Finite and Infinite Games
Every so often I come across something that helps put things in perspective for me or shift my perspective in ways that I believe can help lessen the chances I fall prey to my emotions and set myself up for the permanent loss of capital or bad life decisions beyond the realm of money. I recently read a book called Finite and Infinite Games by James P. Carse which has helped me do just this (or so I hope).
If one were to take a step back and reflect on one’s life, one would see how much of life is like a game, or many games within one big game. We have a goal, we determine what victory is, we learn the rules, we develop a strategy, we learn from the past, we take action, risk, etc. In these games we come across obstacles, we make alliances, we assess the odds, and hopefully, take action that can lead to victory. Sometimes we stumble and sometimes we succeed. Hopefully, we improve and keep striving to get better, succeed, and grow.
Carse divides life into two types of games: finite games and infinite games.
The former is essentially what I described earlier. It is played for the purpose of winning. It is externally defined and played within boundaries and a set of rules understood and adhered to by all players. It is usually a serious endeavor. Most of us live life this way, especially in the world of business and investing. We study the past, develop pattern recognition, view the game as zero-sum, and do our best to beat the competition. It also presents its challenges, however, in providing meaning and fulfillment. To generate more joy and fulfillment requires shifting to playing an infinite game.
While most people think of the best investors and businesses as being hardcore, finite players, I would argue that the ability to succeed over many years requires playing the other game…the infinite game. What is the purpose of an infinite game? According to Carse, the entire purpose is not to win the game but to continue the game. Think about that for a moment. It is quite powerful if one reflects on the distinction between playing to win versus playing in order to continue the game. Imagine designing a business or life to always be playing so that one is on the field through thick and thin. The choices one would make and the perspective achieved would be very different from finite players. Infinite players are much more focused on protecting the downside versus finite players because they realize that part of winning is by not losing. One can only keep playing if one has the resources to keep playing. If one is solely focused on beating the competition they are much more apt to make ego-driven decisions that come at a great cost to them being able to continue to play the game in the future.
One can only keep playing if one has the resources to keep playing. If one is solely focused on beating the competition they are much more apt to make ego-driven decisions that come at a great cost to them being able to continue to play the game in the future.
The infinite game is internally defined. Only you know what you are playing for and what success is. There are no externally defined rules.
It is akin to John Wooden’s definition of success:
“Success is peace of mind which is a direct result of self-satisfaction in knowing you made the effort to become the best of which you are capable.”Click To Tweet
There is nothing externally driven in Wooden’s definition. Nor is there for any infinite players.
The goal of an infinite game is to bring as many people into the game as possible to play. It is very inclusive. Finite players want to stifle completion and have fewer players competing. The former is very joyous while the latter is quite serious. According to Carse, “To be playful is to allow for possibilities whatever the cost to oneself.” What I really like about an infinite game mentality is that surprise is crucial. In finite games, a surprise is used to defeat opponents. In infinite games, a surprise is the reason it continues.
“It is the triumph of the future over the past. With each surprise the past reveals a new beginning in itself. The future is always surprising. The past is always changing.”Click To Tweet
That is so inspiring to me. To be open to and looking for surprises makes life much more interesting and fun. And with each new surprise, we may also be able to reinterpret our pasts in ways that can help us to continue to grow rather than be slaves to the stories we tell ourselves about our pasts. This is quite powerful and can offer a life-changing shift in perspective for those whose deep wounds from the past continue to take away their freedom in the present.
According to Carse, “The creative is found in anyone who is prepared for a surprise.”According to Carse, “The creative is found in anyone who is prepared for a surprise.”Click To Tweet
And from an investment perspective, one always should be prepared for and welcome surprises. Change truly is the only constant and if one is not “searching for the secret and listening for the sound” in the words of Phil Lesh, then one is much more apt to follow the crowd to disappointing results. According to Carse,
“We are not defeated by floods or genetic disease or the rate of inflation. It is true these are real, but we do not play against reality; we play according to reality. These establish the context of play, the limits within which we are to play. All limitations of finite play are self-limitations.”
I find this very helpful from an investment perspective. We have to play the cards that we have been dealt. Of course, we can wish we had a better hand, but it is what it is. We have to adjust to what is versus how we want things to be. Maybe I don’t think that oil prices should be driving every major financial asset class, but who am I to say the markets are wrong? Of course, they may be at some point, but right now that is the reality and I have to understand this context and work within it.
Leaving a Wall Street trading desk for a moment, preparing for surprise is hugely beneficial for human beings and society for, according to Carse,
“To be prepared for surprise is to be educated. Education leads to continuous self-discovery. Nothing can be scripted. The joy lies in starting something we can’t finish.”Click To Tweet
The best investors and most successful people are highly self-aware and are ruthlessly on guard to know what their blind spots are and guard against falling prey to them in sub-optimal ways. They are also ever-evolving and creating. Carse’s last sentence above is what Nike was trying to convey in its famous slogan “There is no finish line.” Once we can accept that we are perpetually painting our canvasses, recognizing that they will never be finished, and yet we can occasionally take a step back and notice how what we have seen and painted has changed, evolved, and hopefully improved in terms of style, shading, light, meaning, depth, etc. over the years we will be inspired to keep on keeping on knowing that in the words of the Grateful Dead,
“The wheel is turning and you can’t slow down.
You can’t let go and you can’t hold on.
You can’t go back and you can’t stand still.
If the thunder don’t get you then the lightning will.
Round, round robin run round, got to get back to where you belong,
Little bit harder, just a little bit more,
A little bit further than you gone before.”
All we can do is try to keep on painting our masterpieces (thank you, Bob Dylan). Find our particular place in the world we can operate from our unique, quiet centers, doing what comes naturally to us and what can bring us joy, even when times get very tough. There will be days when the thunder or lightning will get to us and there is nothing we can do but try to put a smile on our faces and get back up because that is part of the human condition.
In the words of Joseph Campbell, it is up to us “[t]o participate in the sorrows of the world joyfully.”
We move forward, we get knocked down, we learn and grow from getting our butts kicked, we become stronger, paint more of our masterpiece, fall down again, get up, share what we have learned with others, and hopefully, when it all comes to an end we will have left the world a little better than we left it as our masterpieces help others grow and evolve in life-affirming ways themselves. The wheel keeps turning and there is no slowing it down and that is the infinite game.
Over to You:
Have you grown as an investor throughout the ups and downs of the market? If so, how?
Wow, very excellent Gary. Pretty much explains my life in the many areas and aspects of it. I use to try to explain business to others as a game without a clock. I like yours and Carse explanation and take of finite and infinite so much better. Oh by the way because of you I have started reading Campbell again. Thanks.
A primary reason why I invest with CWS is that the fortitude to stay long is transferred from me to you.
This was an excellent read sir. So philosophically insightful.