Meditations on Momentum

The Matthew Effect: For to everyone who has will more be given, and he will have an abundance. But from the one who has not, even what he has will be taken away.

“For to everyone who has, more will be given, and he will have an abundance. But from the one who has not, even what he has will be taken away.”

 

—MATTHEW 25:29


In 2013, unknown author Robert Galbraith published his debut novel… to crickets.

The first print run of The Cuckoo’s Calling was 1500 copies. It’s not clear how many actually sold. The book occupied 4709th place on Amazon’s bestseller charts.

And there, perhaps it would have stayed, if the cuckoo in the nest had remained undiscovered. The secret unravelled after a few months: ex-military security contractor Galbraith was, in fact, a pseudonym for J.K. Rowling. As soon as the news broke, The Cuckoo’s Calling soared to the number one spot on Amazon. Sales increased by 150,000 per cent overnight. Copies from that first neglected print run are now worth thousands of dollars.

What’s the difference between Robert Galbraith and J.K. Rowling? Clearly, being a talented writer is necessary, but not sufficient. Rowling has momentum on her side. At this point, she could publish the contents of a bowl of alphabet soup, and it would still sell better than 99 per cent of novels by hopeful first-time authors.

This is a ‘no duh’ example, designed to get you nodding your head along. But momentum is everywhere, and it’s rarely in plain sight. Without being consciously aware of doing so, I’ve written about it in four domains:

1. Popularity

“Popular things often get their start through what amounts to good luck. The rapid ascent is driven by something even more powerful than rocket fuel: social contagion. Our opinions and preferences cluster together, but it’s not because we’ve carefully evaluated them on their merits. We just want to feel close to our fellow social apes, and have something to gossip about around the water cooler.

In other words, popularity is a lot like herpes. After catching a lucky initial break, it manages to spread to a few hosts, then rides the exponential growth curve until it has planted its gentle, blistery kiss on 60 per cent of the population.”

The Madness of Crowds: Why It Pays to Go Where the Tourists Aren’t

2. Wealth

“With enough time on his side, [Fry’s] 93 cents transforms into $4.3 billion. If your gut instincts are screaming that this is staggeringly, ridiculously, wrong—well, you’re not alone.

As Mark Zuckerberg put it: “Humans don’t understand exponential growth. If you fold a paper 50 times, it goes to the moon and back.”

This is a delicious example, not only because the imagery is so jarring—whoa, a tiny sheet of paper can do that?—but because the Zuck himself got it wrong. If you fold a piece of paper 50 times over, it doesn’t make a paltry return trip to the moon—it goes all the way to the freakin’ sun. Humans don’t understand exponential growth, indeed.”

Futurama Taught Me Everything I Know About Compound Interest

3. Entrepreneurship

“Something idea-based can be sold over and over again with almost no extra time or effort. It’s infinitely scalable. Your debut album might sell 10 copies (three of which your mum bought) or 10 million, but the amount of work that went into recording it was the same.

Scalable careers don’t follow a normal distribution, with a clear relationship between effort and reward. Instead, they produce grotesque inequalities. It doesn’t necessarily matter how good you are, or how hard you work: a select few people capture almost all the rewards, while everyone else gets next to nothing.”

The Barbell Strategy: Don’t Be a Starving Artist

4. Health

“What’s life like for a moderately fit and muscular person? Well, everything works in your favor. The wind is at your back. You’ve got momentum.

The fitter you are, the better your hormonal and metabolic health, the lower your bodyfat, the more relaxed you can be with your diet, the more fun life is, the more motivation you have to train, the cooler feats you can perform, the deeper the habit is ingrained, and so on, in an endless positive feedback loop.

In fact, it’s even better than that. Almost all these factors are mutually reinforcing. If you do screw up, and drunkenly devour an entire box of cereal, or take a week off from the gym to clock a new video game, it’s no biggie. Any one link can seize up for a while, and the cycle will keep on turning without it.”

Fat People Are Heroes

 

…and a few more examples I’ve collected, but haven’t written about:

5. Academia

Sociologist Robert Merton coined the term ‘The Matthew Effect’, after the parable of the talents line quoted up top.1

Merton noticed that famous scientists often get credited for discoveries made by lesser-known researchers or grad students toiling in obscurity. Similarly, the success of any given paper often depends on the prominence of the author, and how many early citations it happens to receive:

“So great is this problem that we are tempted to turn again to the Scriptures to designate the status-enhancement and status-suppression components of the Matthew effect. We can describe it as the Ecclesiasticus component, from the familiar injunction ‘Let us now praise famous men’.”

The Matthew Effect in Science, Robert K. Merton

6. Reading

Psychologists have discovered the same effect in education. The longer it takes kids to learn how to read, the slower the development of their other cognitive skills and performance:

“The longer this developmental sequence is allowed to continue, the more generalized the deficits will become, seeping into more and more areas of cognition and behavior. Or to put it more simply – and sadly – in the words of a tearful nine-year-old, already falling frustratingly behind his peers in reading progress, “Reading affects everything you do.”

—Progress in Understanding Reading, Keith Stanovich

7. Market prices

For most intents and purposes, the efficient markets hypothesis is correct. You can’t reliably beat the market. But even the Nobel prize-winning EMH creator, Eugene Fama, has admitted there is one major anomaly: momentum, which he describes as the “biggest embarrassment to the theory”.2

Here’s Fama’s old advisor, Benoit Mandelbrot, on the long memory of market pricing:

What a company does today—a merger, a spin-off, a critical product launch—shapes what the company will look like a decade hence; in the same way, its stock-price movements today will influence movements tomorrow.

…a bottom line emerges. Stock prices are not independent. Today’s action can, at least slightly, affect tomorrow’s action. The standard model is, again, wrong.”

—Benoit Mandelbrot, The (Mis)behavior of Markets

 

Had enough?

There’s also the height of trees, the colour, brightness, and lifetime of stars, the proliferation of  species, the halo and horns effect, and the existence of life itself.

Take a moment to think about just how strange this is. The principle of cumulative advantage spans physics, biology, psychology, economics, and culture. It almost seems like some underlying feature of the universe. Here’s Mandelbrot again:

“Can you seriously compare the wind to a financial market, a gale to a rally, a hurricane to a crash? In terms of the underlying causes, certainly not. But mathematically, yes. It is an extraordinary feature of science that the most diverse, seemingly unrelated, phenomena can be described with the same mathematical tools.”

On the macro scale of the universe—the birth of stars, complex life bootstrapped from mud—momentum is kind of miraculous. For a brief candle-flicker, we get to resist the relentless march of entropy; create defiant bastions of order and beauty amongst the chaos.

On the micro scale of individual human affairs—wealth, waistlines, popularity, power—momentum is kind of terrifying. It makes us, and it breaks us. The 1 per cent control almost half of the world’s wealth, a small number of startups succeed astronomically, most books are sold by the J.K Rowlings of the world.

Momentum leaves behind a distinctive calling card, which looks something like this:

The publishing industry and the Matthew Effect
If this graph was drawn to scale, the tail would extend several kilometres off your computer screen. For self-published ebooks, it’s worse: the median number of sales is zero.

You will know these various patterns as the ‘80/20 rule’, power laws, long-tails, and Pareto distributions. The Italian economist Vilfredo Pareto devoted years to the pattern which now bears his name. Surely he has some kind words to say about his curvy wife?

“At the bottom of the [curve], men and women starve and children die young. In the broad middle of the curve all is turmoil and motion: people rising and falling, climbing by talent or luck and falling by alcoholism, tuberculosis and other kinds of unfitness. At the very top sit the elite of the elite, who control wealth and power for a time — until they are unseated through revolution or upheaval by a new aristocratic class.”

Yikes!

If each instance of the Matthew effect stayed in its own lane, that would be unfair enough. But as Pareto points out, they’re all hopelessly entangled. Each of these domains – money, opportunity, health, education, talent, prestige – not only compounds on itself; but spills over into the other buckets too. Some interactions are obvious: a successful author will almost by definition make more money. Others are less so: a fit and healthy person might get promoted over an equally-qualified overweight person, for no good reason at all.

And that’s the positive side of the ledger…


The Downward Spiral

Momentum also works in reverse.

Imagine your partner breaks up with you.  You start drinking more. The drinking affects your work. You become isolated from friends and family. You stop exercising and looking after yourself. Eventually, you lose your job. Now you have money problems, on top of your declining physical and mental health, and total lack of support network. Things don’t tend to deteriorate in a linear fashion: you spiral downwards faster and faster, until you fall off a cliff.

The further down you slip, the harder it is to regain lost ground. “My dear, here we must run as fast as we can, just to stay in place,” says the Red Queen. “And if you wish to go anywhere, you must run twice as fast as that.”

I had a little taste of this recently. A series of bad things came along in quick succession. Each of them would have been OK in isolation; together, they put me into a tailspin. I pride myself on being put-together, but I unravelled disturbingly quickly. Order begets order; chaos begets chaos. It was an uncomfortable reminder that everyone is always only a few strokes of misfortune away from the abyss: there but for the grace of God go I.


Further Down the Spiral

Moloch vs Saint Matthew
Moloch! Robot apartments! invisible suburbs! skeleton treasuries! blind capitals! demonic industries! spectral nations! invincible madhouses! granite cocks! monstrous bombs!

The title of this post is an homage to an essay by Scott Alexander, Meditations on Moloch. As Scott points out in his epic close-reading of an Allen Ginsberg poem, there are obvious things we could do to make the world a better place, but some invisible force stymies our efforts:

If everyone hates the current system, who perpetuates it? And Ginsberg answers: “Moloch”. It’s powerful not because it’s correct – nobody literally thinks an ancient Carthaginian demon causes everything – but because thinking of the system as an agent throws into relief the degree to which the system isn’t an agent.

The same alien ‘otherness’ applies to momentum. A handful of A-list actors are inundated with roles, when tens of thousands of talented hopefuls would jump at the chance to eat the scraps from their table. One per cent of everyone owns half the wealth, while billions of others are desperately poor.

In every area of life, the people who are least in need of further advantage are most likely to receive it.

Almost everyone is unhappy with this distribution of outcomes, but blaming ‘capitalism’ or ‘the government’ or whichever tribe you happen to hate might be missing the point. If there is some blind force of nature operating behind the scenes, the exact same pattern will continue to crop up (which might explain why socialist utopias don’t tend to go exactly as planned).

Back to Pareto, for some more cheerful words of encouragement:

“There is no progress in human history. Democracy is a fraud. Human nature is primitive, emotional, unyielding. The smarter, abler, stronger, and shrewder take the lion’s share. The weak starve, lest society become degenerate: One can compare the social body to the human body, which will promptly perish if prevented from eliminating toxins.”

Assume we are dealing with some kind of all-pervasive force of nature. Moloch works tirelessly to destroy everything humans hold dear. The Matthew Effect/Momentum is more like the blind, alien god of evolutionresponsible for creating everything humans hold dear, but in the same mindless fashion, smites entire species into oblivion.

The universe is neither hostile nor benevolent; it’s utterly indifferent. What to do?


The Lord Giveth, and The Lord Taketh Away

The parable of the talents says: you better use it or lose it. Get some momentum behind you. Start saving money as early as possible. Reduce debt aggressively. Build behaviours that compound, and nip bad habits in the bud as soon as possible. Stay the hell away from the abyss.

Saving that first $100,000, as Charlie Munger put it, is a bitch. You have to be the little rocket trying to escape the Earth’s gravitational pull, with all your engines on full thrust. Then you can take your foot off the gas a little, but don’t get complacent. If you lose your momentum, you’ll drift back to earth, slowly at first, then faster and faster, until you slam into the ground at 200 kph.

You have to fight tooth and claw to get some momentum, and then stay up there just as long as you possibly can.

This moral sounds suspiciously demonic. But unlike Moloch’s favourite games, which are zero or negative-sum, climbing the pyramid doesn’t always involve stamping on the fingers of those below you.

Improving your own health and fitness doesn’t make anyone else sickly. Making a consistent habit of reading, or learning new skills, doesn’t make other people dumber. Contrary to popular belief, getting richer doesn’t necessarily make other people poorer. And of course, one of the best ways of getting rich in the first place is refusing to pay a premium for popular things that are popular only because they are popular.


Extending a Helping Hand

the matthew effect: extending a helping hand

If you help yourself without hurting anyone, that’s terrific, but loads of people are stuck at the bottom of the curve.

Three encouraging observations: First, even if the overall pattern never changes, at least the individual data-points can move around.

We know this happens, because even mighty empires topple. Generational wealth doesn’t last forever. Celebrities burn out or fade away. Trees get struck by lightning. Stars implode. In dynamic societies, everyone gets their turn at the top.

The second encouraging observation is that momentum reaches a point of diminishing returns.

Sometimes there are hard physical limits: a redwood can only grow so tall before it takes more energy to pump water up from its roots than its new needles can harvest through photosynthesis. After a certain point, a fit person has to train harder and harder to eke out smaller and smaller gains, and so on.

Even where there are no physical limits, there’s a rapid drop-off in the advantage gained. A famous person receives more offers and opportunities than they know what to do with. The same goes for wealth. After the first couple million bucks, Bill Gates tells us, it’s the same hamburger.

If you take these two observations together, it makes a lot of sense to extend a helping hand up, rather than keep pushing for smaller and smaller gains. The pattern persists, but you create a lot more mobility up and down the curve.


Above and Beyond

Maybe Pareto was wrong.

The third encouraging observation is that mobility seems to be increasing, without a bloody revolution.

Human nature is primitive and emotional, but not unyielding. Even though we struggle to wrap our monkey-minds around compound interest—much less social contagion and inequality and non-linear causalitywe’re getting less bad at it.

It’s pretty cool that J.K. Rowling deliberately tried to play life on hard-mode again. It’s much more exciting that more than 100 billionaires have pledged to give away most (or all) of their fortunes. And that thousands of ordinary people have made a lifetime commitment to give at least 10 per cent of their income to the most effective charities.

The parable of the talents is pretty cut-throat. My guess is that it’s meant to describe the way the world works, not suggest we should be OK with it. And lots of peopleeven those at the top aren’t OK with it.

Sure, it’s the natural order of things. But nature also gave us strychnine, parasitic wasps, and cuddly meerkats that systematically murder their infants. Nature is not to be trusted.

What’s the moral of this story? As far as I can see:

  1. work your butt off to get some momentum behind you,
  2. keep a watchful eye out for any signs of entropy creeping in,
  3. once you hit the point of diminishing returns, focus your efforts on helping other people up.

John Wesley, the founder of Methodism, delivered a famous sermon on this topic in the 18th century. I think he summed it up more pithily:

“Having, First, gained all you can, and, Secondly saved all you can, Then give all you can.” - John Wesley


Further Reading

The public library will loan you these books for free. If you’d rather buy them, use the links below to send a few pennies to support this site, at no extra cost to you (read more here).


The Compound Effect - Darren HardyThe Compound Effect – Darren Hardy

This is written in cheesy self-help style, but the central idea is really good: small lifestyle changes compound over time. There’s really not much more to it than that, but it’s a quick read, and lays out various examples to illustrate the point.

Thinking in Systems – Donella Meadows

Not exactly a page-turner, but a solid primer on systems thinking. Let’s say your model of the world is that A [hard work] causes B [success].

In fact, A and B both interact with one another, and with 100 other factors, in all sorts of hideously complicated ways: people are successful/work hard because of their DNA, upbringing, early experiences, and countless random encounters, many of which are important not only because they happened, but because of the sequence in which they happened…

In short, few things are ever as simple as our intuition suggests. Or as Meadows (no relation!) puts it: “You think that because you understand ‘one’ that you must therefore understand ‘two’, because one and one make two. But you forget that you must also understand ‘and.'”

The Black Swan, Nassim TalebThe Black Swan – Nassim Taleb

Taleb introduced me to the Matthew Effect, scalable and non-scalable careers, asymmetric risk, the barbell strategy, and all sorts of other useful mental models. I struggle to remember which idea came from which book, because they all overlap, but you can’t really go wrong. The Black Swan might be the best starting point, Fooled by Randomness is tighter and somewhat less acerbic, Antifragile is the most insightful of the series, but also the hardest to read, and Skin in the Game is more philosophical.

 

Misbehavior of Markets, Benoit MandelbrotThe (Mis)Behavior of Markets – Benoit Mandelbrot

Taleb’s teacher and collaborator. This a surprisingly readable walkthrough of the flaws in modern finance theory, accompanied by lots of diagrams and charts, and an explanation of fractal randomness.

Apparently fractals were all the rage back in the 80s and everyone was rocking the Mandelbrot set on t-shirts and mousepads and stuff. Maybe it’s hipster-cool again by now? Seriously, this shit is trippy.

Doing Good Better – Will MacAskill

This was a ‘quake book‘ for me. It’s an introduction to the fast-growing Effective Altruism movement, which is all about taking a calculated approach to doing the most good possible, rather than chasing feel-good fuzzies. By giving to effective causes over the course of our careers, any normal person can become a hero, saving perhaps 100 times as many lives as a doctor.

For example: The way things are going, we might be able to stamp out malaria in our lifetimes. A treated mosquito bed net costs the same as a cup of coffee. You can tell your kids or grandkids that you personally helped to eradicate the single deadliest disease humanity has ever known. See also: The Giving What We Can pledge, mentioned in the post, and 80,000 hours, which helps people figure out the most effective way to use their careers.


Notes:

  1. The Matthew Effect, cumulative (dis)advantage, (neg)entropy, and exponential growth/decay are all pointing towards the same general phenomenon, which I’m bundling together in this post as ‘momentum’.
  2. Momentum investing is heretical, in that it defies the standard advice about not trying to time the market (a line which I’ve repeated many times). A reader recently pointed me to materials that make a fairly compelling case for momentum. I’m not convinced, but I am sufficiently intrigued by the idea that I might write a separate post reviewing some of the main arguments, if people are interested.

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Paul Barnes

I agree, both brilliant and enduring.

And also a fabulous demonstration for anyone new to your work of your depth and ability to synthesize apparently disparate ideas.

Andrew
Andrew

Brilliant article!

Cal
Cal

This post feels, for want of a better word, enduring.