Stuck in the Middle with You

And why that's a good thing.

The book "Children of Ruin" is the 2nd book in a series about a lot of various Sci-Fi concepts all woven together. It includes traveling through space to escape a dying Earth, a consciousness being absorbed into a machine to create super AI, and a scientist accidentally implanting genes into huge spiders to create a new race of eight-legged intelligent beings.

It’s a wild ride. I highly recommend it.

At one point in this story, a “mad scientist” character was studying octopuses, and had an interesting thought that stuck with me:

"Senkovi’s personal theory was that the pressure of being in the middle of the food chain was an essential prerequisite for complex intelligence. Like humans (and like Portiid spiders, had he only known), octopuses had developed in a world where they were both hunter and hunted. Top predators, in Senkovi’s assessment, were an intellectual dead end."

This made a lot of sense to me. Why would we have needed to develop better brains if we were already kings of the jungle? We were small, had no claws or teeth or tusks, and needed to coordinate in order to get any large task completed, like taking down a larger prehistoric animal. Living in fear of giant birds snatching away our children, crocodiles and leopards, saber-tooth tigers and bears and hyenas, etc. forced us to evolve smarter rather than stronger, or else go extinct. We needed to be able to hunt, scavenge, and forage in more intelligent ways, or else starve.

Our ability to coordinate was crucial to our survival and made us into who we are today, but what made us need to coordinate? Likely the situation portrayed in the story above: being both the hunter and the hunted. Being stuck in the middle of the food chain may have made us evolve into a more intelligent species*.

*Note: This last point is often disputed.

So maybe taking the middle road is the best choice for us. Maybe it's what we've always done, and how we evolved as a species.

Good investment advice is based around your personal preferences using this “hunter vs hunted” framework. In the industry it’s more commonly called “risk-averse” and “risk-seeking” behavior, but it’s the same idea (even though being called “a hunter” is way cooler than being called “risk-seeking”). And whether we’re one or the other usually depends on our personal situation.

Going full “risk-on,” we could could launching ourselves at woolly mammoth with a wooden stick or making OTM call options on GameStop because that’s how we could make millions.

Going full “risk-off,” we could be running for our lives from a sabertooth tiger or going to cash and gold because the FED is printing money, the market is down, and you’re afraid of losing your job.

To our monkey brains, it’s the same thing. And where would we feel the safest? Where are we most comfortable?

Stuck in the middle, being both the hunter and the hunted.

This is complete speculation, but maybe this is yet another reason why something like the 60/40 portfolio works so well, and people are able to stick with it. We may be evolutionary built to perform best in environments where we can a hunter (holding stocks) and the hunted (holding bonds). It may also be why a barbell strategy where you are extremely risky with one part of your portfolio and extra safe with another works so well and makes sense to us.

It’s what we were born to do.

Thanks for reading.