I was browsing the titles in Amazon’s Kindle marketplace for something interesting to read and ran across an interesting book by Richard Swenson, MD, titled: Margin: Restoring Emotional, Physical, Financial and Time Reserves to Overloaded Lives the other day and quickly became engrossed in this topic. We are all acutely aware that today’s modern society is moving at breakneck speeds, technology has not only made us more productive but has eliminated much of the “downtime” that we normally used to have in order to “repair” ourselves.
Seth Klarman wrote about Margin from a financial context; Margin Of Safety in dealing with investments or trading strategies, the basic premise being that you need to have a buffer or “safety zone” should your investments or trading strategies don’t go exactly as according to plan. Many people have written about this topic in the financial arena, but very few people have applied the concept of Margin into their own lives. Sean McLaughlin has a dedicated blog called The Minimalist Trader (http://www.chicagosean.com) that has many of the underlying principles of both Klarman and Swenson’s work – Sean has taken both forms of Margin and applied them not only to his investment strategy, but his overall plan for dealing with life.
Swenson talks about the absence of margin in our lives and the spillover effects that it has had on society as a whole: while productivity and life in general has “sped up”, our margin has decreased (and in some areas vanished entirely). Swenson talks about what happens when our margins in life evaporate and the spillover that it has: our relationships become frayed, decision making is fraught with errors (due to lack of margin in sleep), etc.
I noticed a recent comment from James Altucher:
“Here’s the thing: people are really angry. I get it. The world has changed and we’re all in post-traumatic stress syndrome from not only the 2008 crisis, but 9/11, the dot-com bust and everything that happened in between. Everything we thought was safe: having a job, going to college, owning a home, even our relationships, has become more unstable than ever”
He’s correct. This is a prime example of when “progress” has moved us along at so fast of a pace that when we evaporate the historical norms of Margin in our lives and something comes along that attempts to bump us back down to having a little margin (only to see in a short time our lives running back at higher and higher levels of marginless living again) we change. Stress comes in 3 different forms according to Swenson: eustress, distress and hyperstress. Eustress is generally considered a “good” form of stress, he likens it to a “creative energy” that you see in some firms (such as Google). When we talk about “stress”, we’re generally referring to the latter two. Distress (such as what I’m experiencing) happens all of the time in life, but generally lasts for a short period of time – if you’re really good you can manage to turn some of the effects of distress into eustress. But more often than not, we let it become hyperstress which leads to a rapid burnout and violent changes; physical, emotional and mental changes. Hyperstress can warp our thought process and create an insidious negative feedback loop that causes our decision making process to become clouded. Prime example would be allowing distress in the early stages of trading losses such as what I experienced in the fourth quarter of 2010 to morph into hyperstress. Most of my margin (Klarman’s type of margin, as well as Swenson’s definition of margin) vanished in the financial/trading aspect of my life. Given the rapid change and strong interconnectedness of modern living, with exponential speed it affected just about every other thing in my life (relationships, sleeping habits, wild weight/mood swings, etc.). Instead of turning distress into eustress, many of us when faced with drawdowns tend to try to burn the candle at both ends.
Here’s an interesting snapshot from Swenson’s book:
We as a society have run out of room in many aspects of our lives: we have exceeded our limits in just about everything: financial, emotional, mental, performance. It’s hard to really define what emotional and performance limits are (as Swenson talks about in detail), but we can define our financial limits and we often know when we’ve run out of margin in those areas.
I’m still in the process of reading (and re-reading to ensure that I fully understand) Swenson’s book and I can already begin to see some of the areas in which I have run out of margin. Hindsight is always 20/20 but I think that society as a whole needs to re-examine where margin has disappeared. The rapid succession of crises in the previous decade provides us all with the perfect opportunity to stop and examine what areas in our lives are lacking margin: and begin to define where each of our limits exist and moving forward establish a buffer between our limits and where we are at. It’s sometimes OK to exceed the limit, but like anything (redlining a car for excessive periods of time) if we burn the candle at both ends, nature has a way of bringing us back below the limit (or worst case, walking us off the trading floor of Earth) in a bag.