When Finance Isn’t Enough: Swarms, Nautiluses, and Stories
The author reflects on their investing journey, emphasizing the value of broad exploration beyond traditional methods, advocating for diverse mental models like complex adaptive systems and evolutionary biology to enhance investment strategies.
"What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.” — Charlie Munger
My Journey Thus Far
When I started investing, I was taught investing could be reduced to spreadsheets and multiples. Therefore, investors should focus on predicting how a company’s income statement, cash flow, and balance sheet will evolve in the next 3-5 years. The path forward seemed simple: learn to use these existing tools and the rest follows.
As I venture deeper into my investing journey, I have a growing conviction that there is tremendous value not just in digging deeper, but in exploring broadly. While it is helpful to practice the basic skills of investing (how top investors think about investing, how great business leaders think about strategy, how experts dissect business models), I experienced a wall of
diminishing returns in this endeavor.
Studying the writings and philosophies of great investors, I noticed that many of the lessons can be coalesced into the following statements:
Protect the downside first, everything else is upside
Buy high-quality businesses at sensible prices that leave room for compounding
Stay within your circle of competence: craft a simple, falsifiable thesis and try to disprove it
Think in base rates and probabilities, ignoring macro noise that doesn’t change intrinsic value
Pursue variant perception, act with conviction, let winners run, and fix mistakes ASAP
Although these concepts are most likely true, I’ve always disliked mindlessly echoing quotes or heuristics as if they’re immutable truths: they are intellectually lazy. In the past, I struggled to internalize them without addressing the what’s and why’s. Here are some of my questions:
Why prioritize downside? Why not maximize the expected outcome?
Is there a consistent and objective definition of quality across industries?
How do you reliably know your circle of competence and avoid hubris?
How stable are base rates? Can they be applied to emerging or rapidly changing sectors?
How do you create contrarian views that are right?
In the world of investing, reliable case studies are sparse, path-dependent, and difficult to transfer, so pure “inside-view” learning hits diminishing returns. Similar to Daniel Kahneman’s discussion on outside view versus inside view, I found myself learning so much more about investing when looking at it from the “outside”—think biology, systems engineering, statistics, history, literature, etc. Studying each of these fields helped me become a better investor.
Inside View vs. Outside View
The baby steps of investing is to learn the accounting language, familiarize with setting up DCF models, take to heart the importance of capital allocation—this is the bare minimum.
Beyond corporate finance, theory, and economics, most investors would further their expertise by specializing in a handful of sectors, like software or banking. Some investors would go a step further to learn about niche investment situations like M&A and spin-offs. A minority of investors would
dive into cutting edge areas like behavioral finance and quantitative investment strategies. I believe investors should not stop here.
There are three non-finance domains I find useful for understanding investing. For each, I’ll outline what it is, why it matters, and how it relates to investing:
Complex adaptive systems (CAS)
The modern economy and its stock markets are among the largest CAS emerged from our species’ history. Short term macro outcomes are extremely difficult to predict—think the famous butterfly effect. This is a cliche but true to all CAS: rainforest ecology and neural networks in your brain (and LLMs) are similarly black-box-like on a macro level because their
emergent behaviors are driven by self-organized patterns.
Lesson: For fundamentals-driven investors, focus on the non-chaotic aspects of the organization you’re studying. That is: business model, returns on capital, margins, bargaining power, reputation, incentives. Each of these traits has a different level of durability, but all are more tangible than today’s stock price.
Interestingly, some CAS can also exhibit much higher levels of problem-solving ability than its components. In finance, this is the efficient market hypothesis. In nature, we see this in ant and bee colonies—tiny creatures when working together can solve highly complex issues (e.g., finding food sources, optimizing hive location).
Lesson: Having a more diverse set of mental models will amplify your problem-solving ability. Armed with multiple ways to solve a problem, even an individual can mimic the wisdom of a crowd and outperform single-minded competitors.
Evolutionary biology
Nautiluses, a cute sea creature that looks like a coiled seashell with a squid that lives inside it, are the last living descendants of the ancient cephalopod lineage that has persisted since the Cambrian Period (~500 million years ago). This little creature survived five mass extinction events!
As you can tell from its looks, Nautiluses are not particularly smart, fast, or strong. The nautilus survived for eons simply by occupying a deep-water refuge, adopting a low-metabolism lifestyle, and laying eggs away from the surface. Given this creature’s longevity, there may be some benefit to being the ultimate shut-in.
Lesson: It doesn’t matter how smart you are or how much financial engineering you’ve implemented. One fatal error can end your investing career. Think about the downside before dreaming about the upside. How much money will you lose if things do not go your way? What if the company falls into a sinkhole right before an M&A transaction was about to close?
You laugh, but look up what happened to Florida Cypress Gardens in 1985.
Metaphors & Analogies
In literature, metaphors map the familiar to the new or connect seemingly unrelated concepts. Besides helping generations of students to pad their English essays, why does metaphor matter?
Metaphors bring distinct ideas together based on structural similarities. Not all metaphors are created equal—most are just surface-level comparisons, while others are deep structural connections. See examples below:
This memo is a brick—heavy, blunt, and hard to digest.
Debt is a time machine—it moves future cash flow to the
present, at the expense of the future.
As you can see, one underscores a point while the other adds a new perspective without being redundant. Perhaps that is why wise words sounds poetic.
Lesson: Analogies are some of the most powerful and versatile tools for connecting ideas. This is helpful for understanding new concepts, dissecting novel business models, assessing new product launches. And through the exercise of creating analogies, an investor inadvertently tests the limit of their knowledge.
An additional benefit to using metaphors: there is clinical evidence (Bjork, 1994) suggesting that learnings/memories can be enhanced through efforts and struggles, because neural connections are strengthened when it is connected to more neurons in the brain (new connections form whenever you experience difficulties). In other words, purposefully creating analogies is like taking on heavier weights for strength training—breaking muscle fibers will yield greater strength in the long run.
Bottom Line
These three mental models are not the silver bullet to investing but are just the starting points. The more we widen our lens, the better we see what matters and what lasts. My goal is to keep building this list, and I invite you to do the same: collect models wherever you find them, and put them to work.