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"Entropy of a system will increase over time."

A Tweet by @fermatslibrary which appears to share the work of 17th century mathematician Pierre de Fermat. Entropy is a fancy word for disorder. This idea is very thought provoking.

    1. Minsky Moment

    Derived by Hyman Minsky, it refers to periods of stability leading to instability as complacency builds. It seems pretty entropic to me.

    2. Complexity

    There is a balance to be struck between needed complexity and making a thing, a system, too complex. An easy example for me is with portfolio construction. If you look, you'll find a lot of ideas on how to build portfolios that take on a lot of complexity. With investing especially, for my money simplicity is better, as simple as you can make it. That doesn't mean no complexity. I think of it as simplicity hedged with a little complexity not the other way around.

    3. Pathway to orthogonality and contrarianism?

    Exposing ourselves to entropy is something to avoid, or maybe more correctly the consequences that come from disorder. We probably have some sort of radar where risk is concerned. A simple example for me was to not buy more house than I could afford or try to buy as much house as possible. We saw in the buildup to the financial crisis 15 years ago, a lot of people were speculating in an overleveraged fashion on real estate. It was easy to do, money was easy to come by and that persisted for a while. That was the build up of the Minsky Moment. Then, seemingly out of nowhere risk happened fast as an acquaintance of mine often says and everyone who jumped on that bandwagon just "entropied" themselves into bankruptcy.

    Being orthogonal or contrarian is one good way to avoid the negative consequences of complacency and entropy.

    4. Lindy

    Lindy then might be the antonym of entropy. That something is Lindy is to say that the longer it survives, the longer it is likely to continue surviving. Bitcoin is talked about by its proponents sometimes. A little more broadly, the power of compounding is Lindy. Weightlifting or other exercise is Lindy in a manner of speaking as people who stay in shape are likely to live longer.

    5. Invoking Karl Popper

    Both Fermat's quote along with support from Minsky and Lindy are not perfect opposites but they are kind of opposite. Popper said all the positives in the world can't prove something like a theory to be true but it only takes one negative to disprove something like a theory. If you thought about it, you'd be able to come up with instances to support both side of this conversation but also instances that disprove each one.

    I'm not smart enough to solve this, I can accept that both sides of this argument are true at times. Each one has been relevant to my experience, maybe yours too. No earth shaking conclusions from this, just something interesting and fun to ponder.

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