What can a plane crash teach us? A lot, as it turns out, if you go into the sequence of events that led to the outcome.
Context is everything.
The Air France 447 disaster in 2009 demonstrates how a particular sequence of events led to the pilots crashing a perfectly functioning Airbus into the middle of the Atlantic Ocean. Read the detailed analysis (this will be worth the effort) here
Alternatively watch this video that does a good job of explaining what went wrong
TLDR version
Captain decides to fly through a storm over the equator and takes a sleep break exactly when the plane starts to hit some rough weather, because he was tired after a late night party with his girlfriend the previous night. Pilots lose airspeed indicators temporarily due to an atmospheric effect, rookie pilot panics and tries to climb above the storm as the auto pilot switches off. Plane loses speed due to the climb beyond 36,000ft and goes into an aerodynamic stall which the team cannot diagnose not recover from. Till the end they have no clue if they were falling or climbing due to panic/poor communication between the team. The aircraft literally fell like a stone for more than 4 mins (though all engines were working fine) before hitting the water. All the while the stall warning kept blaring in the cockpit which the team inexplicably never addressed. The Airbus design of the sidestick further compounded the situation and resulted in one of the worst air disasters of recent times.
Lollapalooza Effect
Flywheel Effect
Virtuous Cycle
Negative spiral
What’s the secret ingredient? Feedback loops. Without these being in place, an outcome disproportionate to a slight change in inputs is very unlikely.
We’ve all read the importance of this in the context of investing, how operating leverage can also result in financial leverage, and at the pivotal moment unlock enough resources that can result in higher market share. Thereby decimating competition and becoming the dominant player in that market.
What we sometimes fail is appreciate is the importance of these feedback loops in our daily lives, impacting aspects like health, personal relationships and overall wellness.
- The more successful you are, the easier it is to leverage other people’s effort without pissing them off. If an unknown person quotes my work without giving credit, I might get angry. But if a famous person quotes my article, I might feel flattered. Same action, but different response.
- More the number of followers you have on a social media platform, the easier it is to add more followers.
- Nobody wants to go to a restaurant that is empty. People would rather wait 15 mins to get into a restaurant that is full than dine at an empty restaurant.
- No woman wants to date a guy who does not have options. More the number of options he has, the more he radiates confidence thereby enhancing his prospects even more.
- The friendlier your body language is, higher the likelihood of you having more friends. Even dogs and children latch on to those who have self-assured but relaxed body language.
- Unless you are excited about life, your life is unlikely to be exciting.
A few examples of positive feedback loops from my own experience.
The seeds of my current writing stint were sown in 2004-05. I was a CAT aspirant then and eventually became a respected contributor on India’s largest MBA prep forum. For the next decade or so, I hardly wrote anything. In 2016 I started writing on India’s best amateur investor forum, within 3-4 months I had people reaching out to me through private messages to get to know me better. Since then, I have been one of the Top 25 contributors there, the way people responded to my posts immediately told me that they saw value. Today when I write a post here, I pretty much know my style and why people would want to read what I write.
The seeds of my current money manager stint were sown in 2014-15. That is when I started writing formal research notes for myself before investing into any stock. By 2016 I started sending these out to some institutional investors and their feedback confirmed something I always intuitively knew – that I was good enough to eventually manage money. My formal fund manager avatar fructified in 2019 through a connect I had built a relationship with in 2012, yet another small thing that paid off well after 7 years though I had never planned on it.
Feedback loops can do damage too.
No better example than what happened to Air France 447. Even if one the inputs that the pilots made that day was different/more appropriate, chances are the tragedy could have been averted. A simple question from the co-pilot asking “What input are you making with the sidestick?” could have told them what the problem was – contrasting sidestick inputs which resulted in the aircraft going into a stall.
Another one. Children who lack confidence are more likely to get bullied. Once the bullying starts, their confidence gets shattered even more and aggravates the situation. It eventually trickles down into other aspects of life and makes them miserable over a seemingly trivial matter. This does not always end well, though some recover in time and go on to lead normal lives.
What are the takeaways here?
- Try as many things as you can, get used to the idea of failing and not taking yourself too seriously. Wish I’d known this as a teenager
- Knowledge and wisdom are cumulative and their effects are non-linear. If you understand X well, you are better placed to understand Y well. At the opportune time, this can propel you forward at an impressive escape velocity
- Work on pattern recognition skills as much as possible, Benoit Mandelbrot did not write about fractals for nothing. Economies, stock prices and relationships have cycles that mimic other patterns seen in nature
- Taking the initiative matters, things rarely happen by themselves. Yet another perspective I lacked in my teens
- Read some exotic stuff from time to time. An elementary knowledge of vedic astrology has made me a better investor, I bullshit you not. Study behavioral sciences if you can, your world view will be more grounded and you will see things as they are
- Read a lot. Unless you read, you cannot write. If you cannot write, you cannot articulate
- When you find yourself in a hole, stop digging, take a step back and just focus on the fundamental variables
- The ability to break a negative cycle early on is very important, this can mean the difference between success and failure, sometimes life and death. The AF447 example proves this
Specific to investing, understand fixed income, currency and other markets well enough. While corporate earnings are what matter most to equities, these other asset classes set the operating macro context. In today’s era of money printing and fiscal handouts, the macro context is much more important than it historically has been. Don’t let anyone tell you otherwise.
The dots can connect themselves, but only if you spread your interests and skills wide enough.
