You don’t know what’s going to happen
Note: My post on Season of Migration to the North is now up at Words Without Borders.
I recently read The Business of Books by André Schiffrin, managing director of Pantheon for thirty years and founder of The New Press. The state of the book business is a depressing topic, and I don’t want to go into it here — though Schiffrin’s book is an excellent concise account of what the relentless pursuit of the bottom line has done to publishers, bookstores, books, and readers.
Here I’d just like to record a simple yet powerful idea that Schiffrin’s book shares with several others that I’ve reviewed or blogged about: You don’t know what’s going to happen.
For generations, publishers have understood that most books will not make money. A few of them will, and those books will subsidize the rest. With luck, the publisher may turn a modest profit at the end of the year. As Schiffrin describes it, the “illiterate businessmen” who have taken over most of the book business had a brainstorm something like this: “Why should we publish books that are going to lose money? Let’s just concentrate on the books that are going to be bestsellers. We can afford to pay big advances for books like that, and with the money we save we can pay ourselves like oil executives.”
It didn’t work. Why not? Because nobody knows which books are going to be bestsellers. So the megapublishers end up in bidding wars over books that will never pay back their advances. Meanwhile the remaining small publishers continue to publish books that they think are original, intriguing, or beautiful. And every so often a book like that sells a lot of copies.
In a similar way, Andrew Tobias’s book The Only Investment Guide You’ll Ever Need, as well as more scholarly works like A Random Walk Down Wall Street, argues that investors simply do not know what the stock market is going to do, or which companies will go up or down. The average investor is therefore better off buying an index fund (which represents a cross-section of the market) and leaving it alone.
Even a hedge fund titan like George Soros has a healthy respect for uncertainty, attributing much of his success to the idea of what he calls “radical fallibility.” Nassim Nicholas Taleb argues that most financial risk comes in the form of unpredictable events that he calls Black Swans. And James Surowiecki shows in The Wisdom of Crowds that diverse groups of people often make more accurate predictions and assessments than the “experts” do. (In a similar way, I heard Lani Guinier on TV the other day arguing that when companies give tests to prospective employees, they shouldn’t just hire the people with the highest test scores. They should also hire the people who got the right answers to questions that most of the others got wrong.)
It’s uncomfortable to realize that you don’t know what’s going to happen. But in business, investing, and perhaps in life it can be disastrous to fool yourself into thinking that you do.
