A fascinating and wide ranging conversation with Vaughn Tan, author of the Uncertainty Mindset, a fascinating newsletter about not knowing. Vaughn was in the army, worked at Google, studied at some of the world’s best restaurants. We talked about uncertainty vs risk, low-intervention wine, population wheat and so much more.
LISTEN TO THE CONVERSATION ON:
Investors and everyone in the regenerative ag and food space can and should learn a lot from getting comfortable with not knowing. What can we learn from how the best restaurants in the world deal with uncertainty or not knowing. And why are low intervention wine and population wheat important?
THE DIFFERENCE BETWEEN RISK AND NOT KNOWING
There is a difference between a risky situation and a not-risky situation where we don’t know what is going on.
”When you are in a truly risky situation, you don’t know exactly what’s going to happen, right? You don’t know how it’s going to happen, you don’t know exactly what’s going to happen. But you know all the possibilities for the things that could happen, and you know all the things that you could do. And also, very important that you know exactly the probability that any action that you take results in any particular outcome. And what this allows you to do this very artificial situation of knowing almost everything about what you don’t know, what that allows you to do, it allows you to believe that you have more control over a situation of not knowing than you actually do, it allows you to believe that you have the ability to do a cost-benefit analysis that’s precise enough to tell you how to act, it allows you to do an expected value analysis that allows you to say if I do this, it will maximise my expected value in the future. So, I will do that.” – Vaughn Tan
”Now, if you are in a situation where you don’t know all the possible outcomes, you don’t know all the possible actions you can take. And you don’t know the probabilities that any given action results in any given outcome. Those methods for thinking about how you decide what action to take, they make no sense, right? The math just doesn’t make sense. […] I think the biggest takeaway is, let’s first be very clear about when we are facing truly risky situations. In real life, almost never, the only truly risky situation is flipping a fair coin tossing a fair dice, right? Most of what we face and certainly almost everything, almost all of the major problems that farmers now face, like the problems of highly unpredictable weather, the problems of unpredictable soil quality changes as a result of unpredictable weather, the result of anthropogenic changes in pests and also disease, pressure on crops, all of those things we know sort of where things are going, but we definitely don’t know them enough.” – Vaughn Tan
LONG-TERM VIEW IS CRUCIAL FOR INVESTING AT LEAST 20 YEARS
Agriculture and its problems are not short-term things so it needs long-term investors. It is crucial to be investing at the generational scale.
”If you’re only investing 20 years plus, that’s still not long enough. But even now, 20 years plus seems impossible, right? […] So, first of all, has to be long-term. And the second is, I think maybe as an investor, especially one that is interested in and genuinely concerned about the impact of investment on the world that we live in and whether or not it will continue to exist in a habitable form. The idea is that you need to always pursue maximising financial returns.” – Vaughn Tan
”I wonder whether it is possible to have a system that is both good for sustainable long-term agriculture and one that only insists on maximising single variable financial returns, I don’t think it’s possible actually. So, conditioned on this idea that it’s a long-term investor, and also that it may be an investor that has multiple ideas of what a successful outcome is in investment.” – Vaughn Tan
If you are an investor, you already think about the idea of portfolios. You don’t invest in just one kind of thing, but you invest in a range of kinds of things, and you try and diversify that.
”If you are a long-term investor that is willing to have multiple criteria of success, that are traded off between each others, the things that you can do to avoid being paralysed are: really think about what it means to diversify your portfolio. You have lots of different things that might succeed or fail in different ways under different conditions. So, the idea that you should have multiple different approaches to farming becomes something which is truly beneficial from a portfolio approach, not just something that you talk about. And then you only invest in mono-crop agriculture in multiple countries, for instance, or mono crops across multiple different kinds of crops, maybe a different way to think about it is investing in multiple ways of farming, some of which are industrial mono-crop large, and some others we don’t even know yet. But they will have to not be industrial, or not large or not mono-crop or not large industrial monochrome you can break it up in all sorts of different ways.” – Vaughn Tan
KEY OF SMALL EXPERIMENTS
Vaughn argues that if you want to do something very good, and you don’t know how to do it, you can’t expect to run your fund the way a fund would run. Efficiency only happens when you know what’s going on.
”The benefit of thinking about a true portfolio approach in that way is it naturally leads you to take small experiments, in the sense that when you experiment with a small investment, you have basically done a small-scale trial of something that could work or might fail, but you’ve not invested your whole fund behind it, you have literally done something which diversifies your portfolio.” – Vaughn Tan
”So maybe one of the things that need to be traded off is this idea that investments are very big and chunky that returns are only financial and need to be maximised and that returns need to be short-term on the order of a fun return schedule, right? Like maybe a 10-year fund return or something like that. So if we get rid of those three things, suddenly a lot of things I think become possible, may not like to hear it, but I think a lot of things become possible.” – Vaughn Tan
LACK OF IMAGINATION
Investment managers and people seeking out opportunities should try very hard to think on their own.
”The reason why you get people glomming on is, unfortunately, lacking imagination. If you lack imagination, you look at other people to tell you where to go. If you genuinely have your own imagination, then you look for your own thing. And historically, this is what the most successful fund managers have done, they found a way to make money that has not been outcompeted by other people who are already doing it. And it’s the followers that don’t do as well.” – Vaughn Tan
”I think in terms of returns, capital sources also have different priorities. And if you are an investor investing on behalf of your capital sources, it may be interesting to try and understand what trade-offs your different sources of capital may have, and what trade-offs they are willing and not willing to make. So I know, for instance, that there are some family offices, which represent in some cases quite a lot of money, which are willing to sacrifice financial return if they believe that there are long-term pro-social or environmental benefits to their investments.” – Vaughn Tan
WHAT CAN WE LEARN FROM POPULATION WHEAT
Wheat is a massive commodity crop. It’s one of the three, four or five largest in the world by volume, and the vast majority is grown as mono-crops. A single variety of wheat is grown in hundreds or even 1000-hectare farms.
”A population wheat is a field of wheat where there are potentially multiple varieties of wheat growing, sometimes 10s, and sometimes hundreds of different varieties of wheat and they’re all growing together, and they must get harvested together because they’re interplanted, they’re not planted in rows separated by variety, they’re generally planted together. And the analogue to that in a city is a city where there are people who are lots of different ethnic backgrounds who do lots of different things, they’re genetically different.” – Vaughn Tan
”A mono-cultural wheat, if you find a disease, for instance, that attacks that particular mono- crop, you might be in a situation where maybe hundreds of 1000s of hectares of wheat are fucked all at once. But if you were in a population wheat context, you might find that okay, that one year, that one variety that is susceptible to this fungus, or that insect, that particular one doesn’t do very well, but the rest of the field is okay. So, there is a kind of resistance to unexpected pressure on the population the more diverse the population is.” – Vaughn Tan
OTHER POINTS DISCUSSED
Koen and Vaughn also talked about:
- How do we calculate financial returns for ecosystem services
- What it means to be natural in agriculture
- The difference between modern and historic varieties of wheat
- Vaughn Tan
- Uncertainty Mindset
- Not-knowing project: https://vaughntan.org/notknowing
- Twitter: https://twitter.com/vaughn_tan
- Farcaster: https://warpcast.com/vt
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The above references an opinion and is for information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.