Theory of change, depression drugs, fossil fuel divestment

In much of science practice, scientists form ideas and models and then test these models in the world. The more credible the model to other thinkers and the more the model can explain empirical results and - even better - predict new results that be tested then the more useful the model and the more weight we can give it in our thinking.

Many models can not fully explain what we observe in the world. 

Many observations have no good models for them.

How should we think about decision making faced with forward looking uncertainties? I argue we should put more weight on when we have plausible models. This is harder in social sciences than physical sciences but still should be considered. That said empirical data can guide where models seem inadequate.

I’m going to think about these cases and what they might say:

• -Anti-depression drugs and their effectiveness or lack

• -Germ and virus theory and mask wearing

• -Fossil Fuel divestment , social political change strategies

• -Quantitative Easing by central banks

• -ThenDoBetter grants - catalyzing change

Anti-depression drugs and their effectiveness or lack of.

Prozac, known as fluoxetine, is a serotonin re-uptake inhibitor or SSRI and it was designed as an anti-depression drug based on a model for depression that scientists developed.

The basic model is called the monoamine hypothesis of depression and this theory s proposes that patients with depression have depleted concentrations of serotonin, norepinephrine (noradrelanline), and dopamine. 

It was conceived due to at least one line of evidence on the effects of reserpine on serotonin and catecholamines. Reserpine, an alkaloid extracted from the Rauwolfia serpentina, was utilized as a treatment for hypertensive vascular disease in the 1950s; however, reserpine was found to precipitate depression in some patients. The depression produced by reserpine was reversed after the treatment was terminated and following either rest or electric shock therapy (Additionally, reserpine was found to produce depressive-like effects in animals Reserpine was found to inhibit vesicular monoamine transporter, and as a result, depletes brain monoamines (i.e. serotonin and catecholamines), which provided evidence for the role of serotonin, norepinephrine, and dopamine in depression.  

Since its original formulation, scientists can see that this hypothesis can not explain many other observations (for instance that healthy patients who deplete monoamines do not become depressed).

Still, SSRIs were invented  as the NHS website suggests:

“ It's thought that SSRIs work by increasing serotonin levels in the brain.

Serotonin is a neurotransmitter (a messenger chemical that carries signals between nerve cells in the brain). It's thought to have a good influence on mood, emotion and sleep.

After carrying a message, serotonin is usually reabsorbed by the nerve cells (known as "reuptake"). SSRIs work by blocking ("inhibiting") reuptake, meaning more serotonin is available to pass further messages between nearby nerve cells.”

Without going into too much more detail, we know empirically that SSRIs relieve depression in a good number of people and can help prevent relapse. But we also know that they don’t work in  a good number of people and that they stop working for a good number of people. And we are not exactly certain why.

There is much we simply do not understand about depression and brain function.

So how does relate to masks?

We have a pretty good theory about how viruses are transmitted. They travel in aerosol droplets from the nose and mouth - from sneezing and coughing and breathing - and they are then breathed in by others. They can also go from nose to hand to someone else’s hand to nose, or from hand to object back to someone else’s hand. Although there is debate as to how long viruses can survive on objects and how easily this transmission occurs.

Scientists have a consensus on this. And so when thinking about mask use to prevent transmission it’s surprising with hindsight that this did not feature more prominently.

Of course now we can look back and also note how many Asian countries had mask wearing and how European and America seemed initially reluctant. Still, I think it would have been much better if those in policy making or decision making roles could have case back to whether there was an underlying model for whether mask wearing should work and then assess risk/benefit.

Here the model was and is very useful, but didn’t seemed to make an impact.

Central Banks have engaged in what economists call quantitative easing or QE. These are large scale purchases of asserts by central banks. Economists are debating as to how QE actually works in the real economy and they are unsure. At least I can say scientists are much more sure on how germ theory works than on how quantitative easing works.

It’s perhaps in the same area of dispute as depression drugs. There’s some empirical evidence but the totality of it can not be explained by one model we have. And the three models posed by QE are not universally agreed upon.  (Segmented Market, Preferred Habitat and Signalling theory).

There’s - to my sense - maybe more agreement amongst depression scientists about what can or can not be explained then there is amongst economists. I note this as important as the Bank of England publishes an in-depth report into QE - https://www.bankofengland.co.uk/independent-evaluation-office/ieo-report-january-2021/ieo-evaluation-of-the-bank-of-englands-approach-to-quantitative-easing

This brings me to fossil fuel divestment strategies and thoughts on activism.

In biology, scientists call the SSRI mechanism as a mechanism of action. It’s how we best think the SSRIs are working biologically.

In social science, scientists often talk about a “theory of change”. 

“A theory of change is a description of why a particular way of working will be effective, showing how change happens in the short, medium and long term to achieve the intended impact.”

Supposedly a good theory of change needs to be testable. THis is in common with good theories of biological mechanisms of action - but are often much harder to assess in social science.

To my mind - a purported biological mechanism of action - such as the SSRI one - has much in common with a theory of change mechanism.

I come across some activists who have not really thought about their theory of change. And if the conversation allows, I will suggest they do think about it. I will often stress I do not know myself what theory of change is correct because many of the social science ones can not be supported either way by the evidence.

Still - when you think about the theory of change around divesting as opposed to the theory of change around engagement and persuasion of a company - you end up with very different theories.

This was summarised in Ellen Quigley et al’s report for Cambridge University (H/T Dominic Burke).    

The divestment social-political theory of change:

“The political case for divestment rests on expectations that it will accelerate the pace of legislation in favour of an energy transition away from fossil fuels. It does so both through creating a political

environment more favourable to legislation and by weakening the political power of the fossil fuel industry.”

This to use a policy term “moves the Overton window” - this changes the range of policies acceptable to the general public to be enacted by governments.

It’s quite far away from anything involved with investing (Although there are separate arguments for financial risks and theories such as influencing cost of capital).

One can argue this makes the movement more of a moral movement - one that you can align with women rights, minority rights, and slavery abolition and mperhaps more recently apartheid campaigns.

Using aparthied in South Africa is a complex and interesting parallel. Many factors (some with parallels to engagement and diplomacy and some with parallels to embargoes and divestments) are impossible to disentangle with cause and effect in the outcomes.

As strict financial theorists would argue most fossil fuel financing is not made by trading shares but by primary financial capital raising from bank or government loans or share issuance, and such that trading in secondary equities.

Thus the theory of change for engagement or within system workers is to persuade companies to change models and change strategies and this is more effectively done via share votes and engagement. And it is to invest in primary innovation and primary capital formation for companies making the most positive impact.

Neither theory can easily be proven with the empirical evidence we have. There are some companies that have changed course. Some climate policies have come into place and some evidence that the overton window has moved - although more easily for innovation policy than for carbon taxes, it seems.

But, it does bring me back to which theory of change is more meaningful or more reasonable to you.

I am asked where do I stand. If there’s time I typically outline a number of these arguments for both sides and because it is complex and unproven, I hold the theories of change lightly. 

But, my theory of change is that it falls - by a complex dance and a good deal of luck and happenstance - that a number of individuals spark the change that leads to systems altering. These individuals lead others.

And so, this is one of the reasons behind my idea on ThenDoBetter grants. The focus is on individual grant giving with a huge dose of luck and happenstance to people who will make that positive change.

As a coda thought. There are no universal theories of autism. The three main ones (central coherence, theory of mind, executive function) can explain certain aspects of autism but fail in many other aspects.  We have (in my view) poor models of autism (although not zero models, thus we can reject “refrigeration” and other catastrophically bad theories) and so we should hold lightly too much strong form advice here.

Quigley report:

https://www.cam.ac.uk/sites/www.cam.ac.uk/files/sm6_divestment_report.pdf 

How effective are anti-depressants:

https://www.ncbi.nlm.nih.gov/books/NBK361016/#:~:text=Studies%20involving%20adults%20have%20shown,within%20one%20to%20two%20years.

Brief history of anti-depressants: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4428540/

Theories on QE

https://www.stlouisfed.org/on-the-economy/2017/november/economic-theory-quantitative-easing

Quick links: climate, circular economy, grief, china, spaced repetition

Quick Links:

➳Where we are on climate. Wallace-Wells (a former?) climate alarmist (now just not as extreme) looks at the evidence that the central case is for 3 deg warming by 2100 (down from 4c but not 2c).

➳Circular economy: this business recycles chopsticks into furniture. How many more circular economy businesses are out there waiting? 

➳Interstitial times, on the difficulties of endings
➳Mark Carney on the purpose of markets, financial crisis, COVID and climate.
➳Ethical Progress, better today than before
➳Ray Dalio on grief 
➳Jeremy Grantham on late stage bubbles
➳Dan Wang on China
➳Using spaced repetition prompts for recall
➳FiveThirtyEight on US responses to protests.

Was 2020 a turning point year?

Why do I think 2020 may be a rare turning point year?
I still think there’s a decent chance that COVID will fade from memory and we will have learnt little (this would make it like Swine flu). But, I think that chance sits around 30% and moving lower. This is partly due to the length of time COVID will be affecting us and partly due to our response both innovation-wise and public health wise.

On the positive front we have had many science innovations not least on the vaccine and biomedical front:  mRNA technology looks set to prove long-term robust to make many kinds of vaccine. We have a malaria vaccine in late stage testing, Deepmind/AI has made advances in protein folding modelling, and new molecular entity drug approvals (excluding vaccines) was c. 51 this year in the US, which is in line with the last few years in terms of therapeutic innovations. With gene-editing technology and our increasing knowledge and comptuting power, biomedical advances for the next 10-20 years look promising to me.

Environment-wise: We’ve had China, Japan, South Korea commited to carbon net zero. Battery technology has continued to improve. Solar power is the cheapest form of energy in many places. Even Nuclear (mini) and fusion technology has continued to improve. Apple has joined the electric vehicle / driverless car race. 

Governance-wise: We had fiercely contested US elections that have essentially been peaceful and robustly managed given that over 161 million Americans voted. UK and EU managed to agree a Brexit trade deal. 

My guess is that certain people will be inspired by science and innovation as having some answers to our challenges that will make them place more bets here and invent more valuable things that will improve human welfare and the environment. That COVID has triggered an enhanced ability to work out of the office should help bring more productivity and people to work and develop and, hopefully, this should also bring about better welfare.

Many of these improvements are slow-moving - like our overall improvements in human life expectancy and welfare. Many of us both misjudge how far we have come, and perhaps if we understand our progress we misjudge the challenges which are still great.

But we will need both parts. To understand where we have made progress, where we still have challenges and to use the opportunities COVID has given us to do better while trying to defeat its catastrophic impact.

That's not to downplay the awfulness of COVID. That's with us. But how we react is still up to us.

I remain more worried about creative arts practitioners.While over the long-term creative industries have typically bounced back from hard times, I think 2021 will continue to be hard and I see many brilliant creatives having to leave the arts and related work. It’s hard to measure the value of arts and the financial rewards are low for the majority. There is little joy in a future generation of creative work when this generation is so hit.

Mark Carney: Markets, COVID, Climate, Reith lectures

Former central banker (UK/Canada), Mark Carney gives the 2020 Reith lectures. He tackles the purpose of markets, financial system resilience and climate. He has collated much of the current stakeholder, shareholder, free market, “late” capitalism debate and puts it through the lens of the pandemic, bubbles, and climate and from an active and influential player.

I think he’s putting much of the debate in the mainstream and there are critiques both of unregulated markets (not grounded in values) and the need for a just transistion, but also that market forces are very neccessary for wealth generation and to solve the challenges (a critique of those who don’t favour markets at all). In one interpretation that would be arguing for state capacity.

4 hours of lectures (plus some very brief questions from Nobel Lauerates (the likes of Paul Krugman), politicians etc. I don’t have a super simple summary but I would highlight: 

He views markets as a necessary mechanism for wealth creation. But markets are amoral and so needed to be grounded in values, such as social values, and that’s his reading of the full works of, eg, Adam Smith. 

“...Smith’s writings warn of the mistakes of equating money with capital and divorcing economic capital from its social partner….”

His arguments look at unpriced externalities (climate, COVID), human errors (“irrational decisions”) and then…

”…the  drift  from  moral  to  market sentiments.  They  include  the  undercutting  of  the  social  foundations  of  the  market,  the corrosion of values arising from pricing of goods, services and civic virtues, that have been traditionally outside the market, and the flattening of values by forcing decisions to be made according to utilitarian calculations. Let’s take the first of these drifts, the changing nature of markets. Now of course markets don’t exist in a vacuum, the market is a social construct whose effectiveness is determined partly by the rules of the state and partly by the values of society. It requires the right institutions, a supportive culture and the maintenance of social licence. Values of trust, integrity and fairness are critical to effective market functioning, and these values have increasingly been taken for granted. Milton Friedman’s classic  pion  to shareholder value includes the following caveat: A corporate executive’s responsibility is to make as much money as possible, while conforming to the basic rules of society, both those embedded in law and in ethical custom.

And  where  do these  basic  rules  come  from?  Economic  and  political  philosophers from Adam Smith to Friedrich Hayek have long recognised that beliefs are part of the inherited social capital which provides the social framework for the free market. That social capital is the  product  of  both  formal  institutions  and  culture,  including  what  the  Nobel  laureate, Douglass  North,  referred  to  as  incentives  embodied  in  belief  systems.  The  question  is whether  the  expansion  of  the  market,  an  expansion  that  Friedman  helped  unleash,  is changing the underlying social contract on which it has been based. Could the emphasis on the individual over the community or on our selfish traits over our altruistic ones imperil both the market’s effectiveness in determining value and ultimately society’s values? In short, in moving  from  a  market  economy  to  a  market  society,  are  we  consuming  the  social  capital necessary  to  create  economic  and  human  capital?  The  ethical  customs  that  Friedman assumes can change. Indeed, many of those necessary to support market functioning are corroded   when   financial   returns   become  disembodied   from   their   impact   on   other stakeholders.  Friedman  himself  revealingly  acknowledged  the  importance  of  such  moral sentiments when he observed that a company might devote resources to provide amenities to its community, but only in the expectation of attracting employees, and that it could engage in such hypocritical window dressing by calling this social responsibility lest it, and I quote,

“Harm the foundations of the free market to a dmit that this fraud was all in the pursuit of profit alone.” This is how corrosion happens, and did happen in the ensuing decades…”

And in my reading of his lectures, his current views are very formed from his own experience as a central banker as seen here:

“....The starting point is the right balance between the market and the state, and this has shifted  in  recent  decades  with  markets  gaining  in  stature  and  influence.  The  market  is becoming the organising framework, not only for economies, but also increasingly for broader human relations with its reach extending well into civic and family life. In parallel, the social constraints on unbridled capitalism, religion and the tacit social contract have been steadily eased.  The  Thatcher/Reagan  revolution  fundamentally  shifted  the  dividing  line  between markets  and  governments.  This  change  in  direction  was  long  overdue  and  their  reforms unleashed a new dynamism. With the fall of communism at the end of the 1980s, the spread of  the  market  grew  unchecked.  And  so  by  the  time  I  joined  the  G7  as  the  Deputy  Central Bank  Governor  in  the  early  2000s,  the  conventional  wisdom  of  market  efficiency  reigned supreme. Policymakers like myself had nothing to tell the market, they only had to listen and learn. Put it another way, the market was always right. But as my central bank colleague, and later Italian Minister of Finance, Tommaso Padoa-Schioppa once observed, when we grant an entity infinite wisdom, we enter the realm of faith. Faith can guide life, but blind policy, and such cognitive capture led to the self-cancellation of the policymakers’ judgement as only the market  knows.  And  such  trust  dictated  that  the  only  solutions  proposed  to  market  failures were to add more markets or to reduce regulation further…”

There is much more in the lectures especially the 4th one on Climate. Long time readers won’t find anything that new in the climate lecture but he suggests:

“...The solutions to the climate crisis are intimately tied to our fiscal economic and social wellbeing. We need to leverage these social coalitions that have formed for climate action, but those coalitions won’t and shouldn’t hold if we don’t have a just transition. We can’t achieve environmental sustainability if we sacrifice our economy and with it, peoples’ livelihoods. Similarly, we won’t devise all the necessary solutions or implement them with sufficient speed without market forces.

And let me suggest here’s how you can reinforce these efforts.

First, if you work for a company, find out whether it has a plan to transition to net zero. If so, great, how can it be made better? And if it doesn’t have a plan, why not? Does management think governments and people are bluffing with their net zero targets? Or do they consider the company separate from society?

Secondly, wherever you put your hard-earned savings, in a bank, a pension pot, or in stock market, find out whether it’s been managed towards net zero. And if not, why not? Are the people investing your money missing out on major opportunities or are they taking unnecessary climate risks, or do they think that you just don’t care? If you care about the climate, make your money matter.

And third, ask not what the climate is doing to your country, but what your country can do for the climate. Does your country have a credible net zero plan? Does your government require large companies to disclose the impact of climate on their operations and must those companies have net zero plans? Do shareholders, ultimately you have an automatic vote on these plans? In other words a say on transition. Are banks planning for climate failure and do they know how they can contribute to climate success? “

Worth reading for an insight into what he will likely be arguing for in the coming climate talks in Glasgow.

Links to lectures here.

COVID, why so many are mostly wrong, or only a little correct.

Summary: Vaccines are likely to give protection for at least c. 12 months and likely to reduce transmission rates, but vaccine hesitancy, mutation and maybe some amount of re-infection will mean that the virus stays with us permanently like influenza does. However like ‘flu we will find this disease manageable. We may also never know for sure why certain groups (eg men) suffer higher mortality. 

The medium to long term speculative thoughts is that this crisis will spur more innovation and creativity across several domains.

This is because many may conclude it is human innovation that has saved us and will save us. Similar thinking may be applied to climate challenges (I expect Bill Gates will double down on this in his next book). I also think - while with much pain- the creative arts will also react with more creativity, although extremely crimped near term, as people will have to find new ways of reaching audiences/consumers.

---

This is a long form read over why so many people are fairly wrong (or only a little correct) about COVID and why the information seems so confusing. I will attempt to touch on:

• Predicting vaccines

• Immunity and immune memory

• Cross-protection

• Different strains

• Different genetics

• Super-spreaders

• Cultural differences

• Data reporting differences

• Complexity models

• Re-infection

• Narrow vs broad thinking (fox vs hedgehog)

• Ideology

Back in August 2020, I made the point estimate judgement of an 80% chance of a vaccine by the end of 2020. Significantly above some observers estimates (although a good number of healthcare investors were making similar judgments).  I noted some of my thinking in my August blog.

What’s useful to note is why many expert observers were more pessimistic. I can summarise that those group were focused on past experiences, focused on the risks (which were clear) and anchored on previous examples. They were not willing to place faith in mRNA technology that had not produced commercial vaccine before even if much of the theory is well established.

Source: Google Finance

Stock market prices embody future expectations that people with money (not reputation or press articles) buy and sell at. It’s very difficult typically to be ahead of this collective wisdom of the crowd. Still with in a stock price reveals a signal that can be interpreted.

If you look at Moderna’s (one of the vaccine makers) stock price - which embody many factors including politics, interests rates, etc - there was much of a run up from March to early November before the positive pivotal data in November. There are still future unknown events to come eg launch and distribution, but looking back one can suggest that investors with money were not super surprised by early November as much had already been “priced in” over March to October.

Mostly investors do not bet directly on a question such as “will there be a COVID vaccine in 2020?” But indirectly on stocks or other assets and prices which lead to money win/loss outcomes. These investors were suggesting through the Moderna stock price signal that there was a decent expectation of some success here.

I won’t rehash all the many science and socio-political points that went into my August forecast but suffice to say there are a number of people who do make and essentially bet behind these predictions.

Cross-immunity, herd-immunity, re-infection, strains, genetics and why everyone is only a little bit right.

Mostly - with rare exceptions - media articles will take a single look at a narrow domain question and present evidence in favour of a certain answer. Sometimes coloured by an ideology. (Even studies tend to look at a narrow question).

For example, if by ideas, you strongly favour individual choices you may balk at the idea of government imposed lockdowns and so you are drawn to articles suggesting Sweden or a “herd immunity” process as a way of proceeding without lockdowns. The actual data from Sweden does not matter too much - especially when you can find media articles to support your inclination.

Another example is re-infection. There are cases of re-infection, but it seems from what we know re-infection is rare but it can and does make article headlines.

[A distant simplistic parallel that people might understand is that you can get chickenpox twice (or rather, shingles after chickenpox) but it is rare.]

Still depending if you have an idea already about what we should be doing then a case of re-infection or an article about it can be used to support that view.

So you can put all of these statements together which have a little bit of truth to them.

• There are asymptomatic carriers of COVID.

• You can gain (some amount of) cross-protection for some (unknown) amount of time by exposure to other coronaviruses including the common cold. 

• This level of protection will vary with strain, genetics, immune responses and memory - which in turn vary with factors such as age.

• Different strains can act with different people’s genetics to cause varying levels of severity of disease.

• Different people’s immune system will “remember” the virus differently (age, strain etc. variant)

All of this becomes confusing because we would like a simple answer of do I get cross-protection or not? Not the complex answer of it dependant strain, time and genetics (and perhaps environment)  and will not be static.

And from some of these simple parameters that can change we can have events such as “super-spreaders” where one person or one event (eg a sports or a night club evening) seem to cause many infections. The interplay of all those infection factors can produce those results. Or not.

In that sense - a distant parallel is with weather forecasting.  We can put together large trends to fairly accurate assess total infection cases in regions over  a few weeks or days, but predictions at the single person or event level are much more uncertain.

Other factors which interplay are cultural differences and reporting data differences. Certainly, if you have ever travelled through Japan then the cultural differences in hygiene and also in the populations general adherence to rules from authority (also see China, Taiwan) are very different from England or the US.

As an aside, I do think the politics of mask wearing especially in the early days of the pandemic in Europe and the US were surprising to me - although not in hindsight. There was (and is) a strand of thought as to how so simple an intervention could have an impact. A walk through a poorer country or even a more mixed one like South Africa would not scorn “simple” interventions so heavily (access to proper toilets and hygiene make huge impacts). I do think - again with hindsight - it is surprising that more weight was not given to first principles - in that we knew the virus was carried in aerosol droplets (and like colds, flus) and so the physical methods of transmission could well be interrupted by barriers like masks.

Putting this all together what does this mean? In my view, vaccines are likely to give protection for at least c. 12 months and likely to reduce transmission rates, but vaccine hesitancy, mutation and maybe some amount of re-infection will mean that the virus stays with us permanently like influenza does. However like ‘flu we will find this disease manageable. We may also never know for sure why certain groups (eg men) suffer higher mortality. 

The medium to long term speculative thoughts is that this crisis will spur more innovation and creativity across several domains.

This is because many will conclude it is human innovation that has saved us and will save us. Similar thinking may be applied to climate challenges (I expect Bill Gates will double down on this in his next book). I also think - while with much pain- the creative arts will also react with more creativity, although extremely crimped near term, as people will have to find new ways of reaching audiences/consumers.

Here are a mix of random thoughts and questions that I considered when thinking about COVID:

Where did SARS-CoV-2 come from?

Some uncertainty, but seems very likely that it came from animals (zoonotic, maybe bats) and crossed into humans. Evidence that is was present in China in November 2019 (as early as 17 Nov) and maybe earlier. Open question. We don’t know if the virus mutated in animals and then crossed to humans. Or crossed to humans and then mutated and crossed human-to—human.

Definitely seems NOT lab made (IMO).

https://www.nature.com/articles/s41591-020-0820-9

https://www.scmp.com/news/china/society/article/3074991/coronavirus-chinas-first-confirmed-covid-19-case-traced-back

Why have certain regions (Taiwan, South Korea, Singapore, Hong Kong) handled the pandemic better than others (Italy, Spain, all of Europe, US….)?

…Same for sectors and businesses ?

The high-performers had:

-Very prepared systems

-Responsive public health authorities

-Responsive general public

-Responsive private companies (at the request of the public health authorities)

But, they had very prepared systems + public because:

-They had dealt with the trauma and cost of SARS-classic

The actions were/included:

-Early responses (masks, restrictions)

-High testing (fast deployment + development of tests)

-Strict isolate, contact, trace protocols

-Travel bans and similar

-Tracking of quarantined people

There is a 124 point list of what Taiwan did:

https://www.vox.com/future-perfect/2020/3/10/21171722/taiwan-coronavirus-china-social-distancing-quarantine

https://jamanetwork.com/journals/jama/fullarticle/2762689

…Same for sectors and businesses ?

Some sectors/businesses:

-had more awareness on what exponential growth can look like (tech), and/or, 

-had more respect for the seriousness that China were taking (and put weight on that signal)

-more redundancy built into their supply chains (typically, as product considered critical, eg insulins, other must-have pharmaceuticals)

-more cash on balance sheets to deal with emergencies (typically these were maybe ear marked for litigation or other catastrophic events)

-ability to remote work

-business models that are resilient to COVID (eg. Video conference calls)

This has lead to:

(Parts of) Tech + Health + Utilities > most business

Big business > small business

Within countries / regions 

Some regions influenced by:

-understanding of exponential growth (Tech community in San Francisco)

-population density

-culture

-strains

-maybe weather?

Open Question: Why are death rates different across European regions, Asia etc ? Also, knows as heterogeneity.

We don’t know. 

We do know:

-Data is patchy

-Testing criteria are different

-Testing efficacy varies

-Older people, men, people with underlying diseases (eg heart problems) are more at risk

(But even here, there are regional differences with US rates of hospitalisation in the young much higher than in other regions).

-Different strains

-Different genetics

-Different cross protection

No one has a model that explains these intersecting factors.

One tentative suggestion is the difference in “viral load” or dosage of virus you get on first infection may explain part of this.

We do know viral load can have an impact with other viruses.

Open: Why are some people more susceptible than others?

This goes across many subgroups: Children, Men, but also differences in the young who do get impacted.

Open Question: Why are death rates so low in children? This pattern is consistent across regions even if rates vary. Explanations include:

• Children’s immune system being more flexible and rapid

• Adult immune system may over react due to priming with other coronaviruses

• Adult immune system being slower

• Other varieties of explanation…

See: Christakis https://twitter.com/NAChristakis/status/1243883141900763137

Open Question: Why are death rates higher in men? (also Co-morbidities)

We don’t know. Partial explanations that I have seen touted but with no evidence include:

-men being worse at hand washing/hygiene 

-men being more likely to smoke or use vapes.

But, essentially whatever your underlying risk the virus seems to magnify it (eg age, male, underlying diseases)…

Open Question: How long will immunity last? (Likely ranges, we have looking to be quite a few months, I’d would hone in on at least a year) 

Partly Open Question: How long does a person remain infectious? (We have some likely ranges)

Partly Open Question: How exactly is the virus spreading? (While we know it’s via viruses in droplets, we don’t really know if it’s surviving to infect people in open spaces as opposed to enclosed spaces. There’s tentative evidence that open spaces are safer (some outdoor mass events protests have not lead to super-spreading spikes but some internal ones have, also cf. different experiences in Italian cities, also Brazil) . Even if viruses can survive on cardboard in a lab how that works in the real world is unclear.)

Psychology of Money, Morgan Housel

• Short, readable advice book by Morgan Housel

• Covers financial thinking, room for errors

• Unusually, covers spending within means, understandable “tail risk” stories

• Plenty of insights backed up by stories

• A focus on the power of stories and narratives

• Recommended

Background

I follow Morgan Housel as he writes a readable blog covering investments and wider life and world thinking. He’s also a partner of the Collaborative Fund which is a type of Impact Investment fund (“tech for good”), which readers will know I have a keen interest. So I was intrigued to read what he had to say in longer form.

What I liked

The book is short (I read it in 2 hours). This is a good quality.

While a number of the ideas are already available in some form on his blog, the additional information, anecdotes and further detail are worth it.

Housel covers a few areas of “non-standard advice”. Concepts of:

• -“having enough” - setting your own goal (not getting too greedy?!)

• -The value of time (although I’d have liked more on the non-financial assets given how he links the two)

• -Knowing the Game you are playing 

• -Room for errors

• -”Barbells” in how you might think about money and investing

• -That advice is always individual (like an architect or a doctor) so he can’t give you individual advice (I am always saying this too!) even though some principles hold

Morgan’s own investing strategy

He has about 80% in low cost index tracking funds and about 20% in cash. This works for him. The cash part gives his household more flexibility. (This might NOT work for you).

(This excludes his house and I assume investments in his own fund. As an aside, he mentions most money managers don’t have money in their own fund, which I find strange. Most of my wealth is tied up in my own fund and money manager should be expected to have a good amount in their funds).

Interestingly, this turns out to be very similar to what Warren Buffet consistently says to typical savers/investors. Buffet often suggests 90% in a low cost tracking fund (typically S&P500 he mentions, as Buffet bets on America) and 10% in cash. 

What I learned 

• Figure out what “enough” is and stick to it.

• Appreciate outliers/tail risks may well drive most of your returns 

• Be or aspire to be time rich

• Spend less than you accumulate/earn to be wealth

• Humility, kindness and empathy (over being flash)

• Power of stories (both positive and misleading)

• Know the game you are playing

• Do not risk what you have, for what you do not need

Figure out what “enough” is and stick to it.

(This might move a bit through time) But many people go wrong getting greedy for more (eg ex CEO of Mckinsey) at some point true wealth comes from sticking to your goal.

Appreciate outliers/tail risks may well drive most of your returns 

This is very true in venture capital investing or any portfolio idea. A very few unexpected events might drive most of your return (or loss). You should expect this. Also, be OK with being wrong a lot of the time.

In a crossover with arts learnings, he shows that comedians thoroughly test their jokes in small audiences first and only their best jokes survive to their main sets. Although, I’m not sure this says too much about tail risks but more about trial and error and practice in the real world. (It rings a lot with Nassim Taleb who is quoted on several occasions).

Be or aspire to be time rich

TIme wealth is valuable. Housel argues this is under appreciated as both a life goal and a wealth goal. 

I would comment, I would have like further detail here on other “non-financial” aspects of wealth. This might not have been the book for it. But as I have written about, I like the idea of offsetting “risk” with what you have in your life in other assets like social, intellectual assets and hedging against your career risk. A very stable career might definitely want equities. A very risky career might want that cash.

Spend less than you accumulate/earn to be wealthy

Giving many stories, he shows that wealth is spending less than your household earns. And that a rich household can then do what it likes if it is earning/spending within its means.

Humility, kindness and empathy (over being flash)

He was a valet and never impressed with the drivers of flash cars even he might have been impressed with the cars.

Power of stories (both positive and misleading)

There is a cross-over in arts and creativity, but we make up stories to explain the past.

Know the game you are playing

Don’t play someone else’s game. No point competing for money for the sake of it or in someone’s other game. Although, there is a point in simply saving.

Do not risk what you have, for what you do not need

In a similar vein, don’t risk for more stuff. Especially if you don’t need that more “stuff” and even more especially if you are risking money you don’t really have (borrowings, leverage etc).

Overall I will end in Morgan’s words and then Buffet.

“…Go out of your way to find humility when things are going right and forgiveness/compassion when they go wrong. Because it’s never as good or as bad as it looks.

Less ego, more wealth. Saving money is the gap between your ego and your income, and wealth is what you don’t see. 

...the foundation of, “does this help me sleep at night?” is the best universal guidepost for all financial decisions. 

If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon. Time is the most powerful force in investing. 

Become OK with a lot of things going wrong... 

Use money to gain control over your time...

Be nicer and less flashy….

...Save. Just save. You don’t need a specific reason to save….

...Define the cost of success and be ready to pay it. Because nothing worthwhile is free.

...Worship room for error.

 ….Avoid the extreme ends of financial decisions. 

….You should like risk because it pays off over time. But you should be paranoid of ruinous risk because it prevents you from taking future risks that will pay off over time. …

Define the game you’re playing, and make sure your actions are not being influenced by people playing a different game.

 Respect the mess. Smart, informed, and reasonable people can disagree in finance, because people have vastly different goals and desires. There is no single right answer; just the answer that works for you. ….”

And

“Someone's sitting in the shade today because someone planted a tree a long time ago.”

Warren Buffet

---

Link to book on Amazon UK and link to Amazon US

Link to Morgan Housel’s blog

Some of my thoughts on non-standard (non)financial advice

And my blog on life career advice

Life changing love of a world changing physicist

This was fascinating on Paul Dirac (by Richard Gunderman for the Conversation based on Graham Farmelo’s biography, The Strangest Man: The Hidden Life of Paul Dirac, Mystic of the Atom)…

…Born in Bristol, England, in 1902, Dirac became, after Einstein, the second most important theoretical physicist of the 20th century. He studied at Cambridge, where he wrote the first-ever dissertation on quantum mechanics. Shortly thereafter he produced one of physics’ most famous theories, the Dirac equation, which correctly predicted the existence of antimatter. Dirac did more than any other scientist to reconcile Einstein’s general theory of relativity to quantum mechanics. In 1933 he received the Nobel Prize in Physics, the youngest theoretical physicist ever to do so.

At the time Dirac received the Nobel Prize, he was leading a remarkably drab and, to most eyes, unappealing existence….

….Dirac was socially awkward and showed no interest in the opposite sex. Some of his colleagues suspected that he might be utterly devoid of such feelings. Once, Farmelo recounts, Dirac found himself on a two-week cruise from California to Japan with the eminent physicist Werner Heisenberg. The gregarious Heisenberg made the most of the trip’s opportunities for fraternization with the opposite sex, dancing with the flapper girls. Dirac found Heisenberg’s conduct perplexing, asking him, “Why do you dance?” Heisenberg replied, “When there are nice girls, it is always a pleasure to dance.” Dirac pondered this for some minutes before responding, “But Heisenberg, how do you know beforehand that the girls are nice?”

Love finds the professor

Then one day, something remarkable entered Dirac’s life. Her name was Margit Wigner, the sister of a Hungarian physicist and recently divorced mother of two. She was visiting her brother at the Institute for Advanced Study in Princeton, New Jersey, where Dirac had just arrived.

Known to friends and family as “Manci,” one day she was dining with her brother when she observed a frail, lost-looking young man walk into the restaurant. “Who is that?” she asked. “Why that is Paul Dirac, one of last year’s Nobel laureates,” replied her brother. To which she replied, “Why don’t you ask him to join us?”

Thus began an acquaintance that eventually transformed Dirac’s life. Writes Farmelo:

His personality could scarcely have contrasted more with hers: to the same extent that he was reticent, measured, objective, and cold, she was talkative, impulsive, subjective, and passionate.“

A self-described "scientific zero,” Manci embodied many things that were missing in Dirac’s life. After their first meeting, the two dined together occasionally, but Dirac, whose office was two doors down from Einstein, remained largely focused on his work.

After Manci returned to Europe, they maintained a lopsided correspondence. Manci wrote letters that ran to multiple pages every few days, to which Dirac responded with a few sentences every few weeks. But Manci was far more attuned than Dirac to a “universally acknowledged truth” best expressed by Jane Austen: “A single man in possession of a good fortune must be in want of a wife.”

She persisted despite stern warnings from Dirac:

I am afraid I cannot write such nice letters to you – perhaps because my feelings are so weak and my life is mainly concerned with facts and not feelings.

When she complained that many of her queries about his daily life and feelings were going unanswered, Dirac drew up a table, placing her questions in the left column, paired with his responses on the right. To her question, “Whom else should I love?” Dirac responded, “You should not expect me to answer this question. You would say I was cruel if I tried.” To her question, “Are there any feelings for me?” Dirac answered only, “Yes, some.”

Realizing that Dirac lacked the insight to see that many of her questions were rhetorical, she informed him that “most of them were not meant to be answered.” Eventually, exasperated by Dirac’s lack of feeling, Manci wrote to him that he should “get a second Nobel Prize in cruelty.” Dirac wrote back:

You should know that I am not in love with you. It would be wrong for me to pretend that I am, as I have never been in love I cannot understand fine feelings.

Yet with time, Dirac’s outlook began to change. After returning from a visit with her in Budapest, Dirac wrote, “I felt very sad leaving you and still feel that I miss you very much. I do not understand why this should be, as I do not usually miss people when I leave them.” The man whose mathematical brilliance had unlocked new truths about the fundamental nature of the universe was, through his relationship with Manci, discovering truths about human life that he had never before recognized.

Soon thereafter, when she returned for a visit, he asked her to marry him, and she accepted immediately. The couple went on two honeymoons little more than month apart. Later he wrote to her:

Manci, my darling, you are very dear to me. You have made a wonderful alteration in my life. You have made me human… I feel that life for me is worth living if I just make you happy and do nothing else.

Full essay here.

COVID Vaccine coverage estimates

An assessment of COVID vaccine coverage in 2020 - 2022

—> 80% (*) chance of a US vaccine approval by year end 2020

—> 60% chance that the US will have enough supply of vaccine to cover the country by mid 2021

—> 60% chance significant part of world is covered by early 2022

(* This estimate dipped in Sep but has rised by Nov, and should probably now nudge 90% for Dec/Jan approval due to both Pfizer and Moderna vaccines hitting)

Table 1. Source: Milken Institute, Press Releases, Author estimates. No approvals are certain. One vaccine in Russia and one vaccine in China have been approved for certain use.

I estimate an 80% chance of a vaccine approval by year end 2020 and a 60% chance that the US will have enough supply of vaccine to cover the country in first wave by mid 2021. (Although note as counter point on the safety risk you can note this article on the 1976 Swine flu).

The base case uses the public announcements of the large sophisticated UK and US groups. (See Table above). 

Downsides are from (1) negative data and (2) negative regulators; other possible downside are from (3) manufacturing constraints and (4) distribution constraints; and (5) vaccine hesitancy (certain anti-vaccine sentiments). Note (1) and (2) are separate risks as there may be data positive enough for patient choice (or developers to submit) but not enough to convince (risk averse) regulators. 

Upsides are from (a) China developers and possibly  (b) Russian development although I do not see those vaccines coming to Europe or the US but may well go to Asia and LatAm in H2 2021. A detailed overview of the developer groups is available from the the Milken Institute (link end) and WHO. I select a highlight below to give a sense of (i) the variety of technology mechanisms in play here and (ii) the colloborative group nature of the development even while there typically is a lead group.

Source: Milken Institute, slight author edits.

Further upside would be positive data from manufactured antibody studies (eg Regeneron/Roche) which are due Q4 2020. The two major studies due in Q4 2020 are (a) Regeneron/Roche and (b) Lilly/AbCellera. If these are positive, then the Regeneron collaboration would add 4m to 8m prevantative doses to the calculations below.

I am less worried about distribution because:

—>vaccination during the flu season routinely reaches 50% of the population, thus distribution efforts are likely surmountable (cf US wholesaler deal with McKesson which is an experienced organisation). Also fill/finishers (packing the finished product) such as Catalent are already involved.

—> some nucleic-acid based vaccines may be distributed frozen, but appear stable for several days in regular refrigeration

The leading makers are also fully flying on manufacturing and there is expertise from flu vaccine and animal vaccines and outsourced makers (eg Lonza). I have toured vaccine plants (which are typically under utilised compared to chemical plants) and the technology and expertise from the leading makers is competent at scale, although this current speed is much faster than before - in my view, it’s not been out of reach for biopharma.

There are previous papers on biopharma probability of success. And while certain technology is new eg mRNA-based vaccines, much of the expertise on coronavirus and vaccine understanding has a high degree of understanding. Severe side effects (or long-term side effects) are risks (particularly from our understanding of side effects from previous RSV vaccines) but current data from multiple trials are not yet picking up a nasty effect. Although the trials are small, and many are across different products, the fact that there are multiple trials running across different geographies and populations gives statistical strength to the net probability of success. (Link end, see my primer on forecasting).

Some vaccines will fail. Some supply bottlenecks will materialize. New bottlenecks, so far undiscovered will appear.  But the net effect of so many shots on goal is that a first wave of vaccinations can be done in the US by mid 2021 and quite likely globally by end 2021 / early 2022. The stated capacity up to 1bn doses of many of the possible successes balances out those vaccines that will fail.

Source: Author estimates, Company Press releases, transcripts of managment calls. This table looks only at US, however similar calculation can show reasonable global coverage by mid 2022. Note, vaccination = 2 x doses in most cases as two doses required.

There will need to be boosters (maybe every 2 years, possibly every year) and possibly - like flu - new strains will have to be made yearly if the virus ends up mutating and still being lethal, but my view is that we now are looking pretty likely to be on track to solving this one.

Source: Milken Inst, Press releases, Author estimates. Note: Private funding may not be but have not assertained. DOD = Dept of Defence, HHS = Human Health Services. BARDA = Biomedical Advanced Research and Development Authority. CEPI = Coalition for Epidemic Preparedness Innovations . EC = EU Commission. EIB = EU Investment Bank. GAVI = Vaccine Alliance. GAtes = Bill and Melinda Gates Foundation.

While there will be many debates on the public health responses of various countries, it’s notable that the US, China and the UK are the geographies where the developing makers are concentrated with honourable mentions to a few countries such as France (Sanofi) and maybe Germany (CuraVax). Adjusting for population keeps UK in the spotlight (note Tyler Cowen has highlighted this in his column, link end).

Understanding this is insightful as the observation centres around historic expertise in vaccines and biological manufacturing capability from GlaxoSmith Kline, AstraZeneca and the Jenner Institute (Oxford University).  There is a learning here too for the unfortunate circumstance of much of biopharma closing down antibiotic research (in reality because of lack of commerical markets arguably due to inability to be able to price effectively as generics for old drugs are cheap and systems won’t pay enough for novel antibiotics).

After arguably a slightly slow start US government, the BARDA programme, looks fairly effective and the US biopharma response across the spectrum has been pretty good (I’d also include most global biopharma where they have expertise eg Roche partnered with Regeneron as well as executing on diagnostics, Novartis where it had technology (hydroxychloroquine). 

China is hard to assess sitting at a desk outside China, but impressions also seem favourable given they have many shots in the leading group and the sheer number of smaller biotechs working in the area (see Milke Institute tracker) is large at earlier stage. 

Overall, this to me looks like a win for science and innovation and perhaps shows we as humans can still build things (fairly fast) when needed.

Background assumptions to consider:

Vaccine developers will begin delivery of vaccine at the earliest possible date of approval and deliver the purchased amount over 6 months. The exception to this logic is AstraZeneca where the purchase volume is significantly greater (although the terms of the agreement are unclear).

There is an adjustment from 'doses' to 'vaccinations' based on whether each vaccine will require a second dose (booster). Immunogenicity data from Pfizer, Moderna, AstraZeneca and Novavax all suggested that that a booster will likely be required. 

Limited EUA (emergency use authorisation) will likely prevent supply shortage even early on. If vaccines were approved for the entire US population in late 2020, there would be shortages until March 2021. Still this seems unlikely. The initial market entry based on EUA will be based on convincing efficacy data. In contrast, safety data will be broad (10,000s  patients) but of relatively short duration, as the trials are expected to accumulate events (infections) quickly. 

Given political pressures, historic risk aversion when full data lacking (also note recent complete response letters to novel treatments eg gene therapy haemophilia, JAK inhibitor, in Q2 / Q3 2020)  FDA would limit the use to high-need groups (essential employees, high-risk comorbidities). If this is the case, then pre-approval manufactured amounts will be sufficient to satisfy demand.

I would still support informed patient choice in this scenario (see my previous paper) but I doubt we will have it. 

Links:

My forecasting Primer including on drug probabilty forecasting.

Milken Institute Data

My early vaccine use idea based on patient choice.

Tyler Cowen on UK COVID response.