Naming the Culprit

A single concept applies to bad investing, bad decision making, and bad feelings. The idea is living in the past.

I began exploring this concept by speaking to my friend Kyla about nostalgia, and its role in Brexit, the election of Donald Trump, guys who only eat meat, luddite behavior, and economic desperation. She recorded a video about it here

But nostalgia evokes a positive feeling. Like a fireplace. “The times of yore”. Before mobile phones. Oatmeal. Hiking. Mittens. I like nostalgia.

And I do not want to give living in the past a positive connotation, because of how destructive it is. So I’m giving it a new phrasing. I will instead go with retrofixation. Which sounds like a disease, or asphyxiation. A more apt descriptor of how you end up over focused on what was rather than what is to be, or what is.

I’ll explore this concept through different lenses. Financial. Emotional. Societal

Retrofixation in Financial Markets

Stan Druckenmiller, and many great long/short equity investors famously warn new students of the craft not to pay too much attention to historical results. But rather try and understand where the puck is going.

When I worked for Balyasny Asset Management, Dmitry (the billionaire who runs the company) taught one of the classes. He drew two charts. One chart was an interrupted uptrend. The other was a downtrend with what looked like an inflection. He asked, “which one of these do you buy?” I answered the one in the uptrend. I said something along the lines of “Historical execution got that up-trend going, and you should run with it. Furthermore buying uptrends backtests”

He said that this was true, but you make big money when the tide turns. And if you study the present carefully, i.e. look at a company’s new product line up, the current management team, and its go to market strategy - then the past is a denominator, not a numerator. In other words - if a company all of the sudden has a new guy in charge, a better strategy, and a better product line up - everybody else is going to be fixated on the past. And you can use their fixation with the past to get a better price. Betting on Steve Jobs pivoting Apple into the company it is today. Or betting on Netflix moving away from a mail-order movie business.

Dmitry didn’t get rich betting on the trend. He, and many other famous equity investors, got to where they were by correctly recognizing inflections. By being in the moment. Viewing the past as an input, rather than an output.

The question in markets is more “what’s going on right now and is that meaningfully diverging from the past in such a way that other investors are going to be caught flat footed”. Financial markets have a way of punishing natural human cognitive biases. This is surface level - but it helps frame that retrofixation is a form of delusion. If you see it in markets, you can exploit it. And it’s best to eliminate it within yourself

Retrofixation in Our Emotional Worlds

There are three dominant forms of retrofixated emotions. First - the desire to reignite past love. Second, the desire for revenge. Third, the need to recontextualize something that happened in our childhoods.

Perhaps you’ve been on the other side of some of these. When someone wants to reignite past love with you, they typically don’t actually see you as you are. Rather, they see some distorted image of how they constructed you back when you were together. On top of that distorted view, an entire edifice of emotional delusion sits. The longer the time, the more perverse and rotted the edifice becomes. So if you get lonely, and find yourself interacting with this person - you find very quickly that this person isn’t interacting with you. They’re interacting with a phantasm - a construction of you.

Most of the time they can’t snap out of it. And if they do, it requires breaking down the entire fake edifice that pretends you are the same person that you were. This mostly always fails. We run into past versions of other people so that we don’t have to look at ourselves, and we don’t have to see the world as it is. People who pine over past lovers are placing a black shade of delusion in front of their mirror, so they do not have to see themselves.

And that’s their secret. They know what they’ve done. They know that is illogical. And if you take away this comforting blanket of retrofixation, they have to look at themselves. And they don’t want to see. The extent to their retrofixaiton is the extent to which they’ve lost the plot in their own lives. And it will correspond with their level of violence if you make them see the truth. That you are no longer that past person they seek. So block the number. Don’t engage. It’s a common sense playbook.

Second - revenge. As Confucius says, “Before you embark on a journey of revenge, dig two graves. The failure of revenge to bring about any real justice or healing is a nearly endless societal trope. It’s somewhat obvious - when you inflict physical or emotional harm on another being, it does not undo what happened which led you to that path. And it only encourages them/ their family members / allies to enact further retribution. Endless revenge cycles bleed from one generation to the next. Creating chasms in entire countries or groups of people (i.e. religions). Revenge is just another black foam - like unrequited longing for a past lover. It’s a powerful, opaque clot we can put in front of our mirrors. So we don’t have to look at ourselves.

Once people succeed in revenge, the cycle of violence seldom ends. And that’s because that’s the true purpose of revenge. It isn’t justice. It’s hiding from your own present reality. So you don’t have to look. Just more delusion.

Third - recontextualization of childhood. A “chip on your shoulder”. A father who abandoned you. Happy times before it all fell apart.

As an aside - perhaps you can tell by now, that I don’t hate or judge people that have created these black clots in front of their mirrors. I’m writing from my own personal experience. My own pain, and dread of seeing things for what they are.

The idea that you can go back and change your childhood, or its events. Or somehow redeem it, does not survive any logical scrutiny. Yet it’s one of the most powerful emotional drivers. Despite its noble guise, it’s just as pernicious as its sister retrofixations - the need to reclaim lost love, or revenge. Why?

Because the world that you create responding to a broken childhood is a world built on something nobody else sees, or experienced. So people who step into that world with you, cannot truly exist in it with you. Because the past you’re responding to mostly no longer exists. You’re engaging in solipsism.

Even worse, to keep the architecture of a retrofixated childhood world from caving in - many times you need to keep engaging with the very people you so badly wanted to escape. Those who broke your past, you have to keep in your present to “keep your edge”. This edge is a sharp black granite slab that sits in front of your mirror. Not only does it stop you from seeing yourself, it cuts other people who stand with you. Who don’t share your past. And you’d never wish that they could share your past - so you push them away so they don’t get cut on the brutal illusion that defines your worldview.

Unrequited longing, revenge, and the desire to change what cannot be changed. The three cruel emotional Banshees of retrofixation. They offer screaming deafness and despair. But this despair coalesces into black sludge. And it offers a way not to look into the mirror. To some, this is truly enticing. And when these banshees infect a group of people - who do not want to see the present - very powerful and evil dynamics can unfold.

Societal Retrofixation

Might as well get straight into it. Religious terrorism, and fascism. That’s what happens when a society gets fixated on ‘returning itself to its glorious past’. The great joke is that historically, everybody has always known this. No great society started with a revanchist summoning of the days of yore. In fact - when societies go through lasting transitions that end in self actualization, it’s almost always premised on a rooting out of the weak and corrupt past. Overthrowing the nobles and elites who do not want to see things as they are, but would rather cling to archaic definitions that serve their delusions. The emotional “black sludge” that accumulates, in a true revolution, is wiped away. And what’s left is seldom glamorous. But it’s real, and it’s a basis for solidarity and growth. Think America after the Civil War. Or Singapore after breaking away from Malaysia in the 60s.

The counter examples are endless. Fascist Italy, or Portugal. North Korea. Iran. Cuba. And not just dicatorships. Argentina yearns for the romanticism of Peronism and has democratically destroyed itself by electing politicians who promise this. Modern day Russia is perhaps the clearest and most extreme example of retrofixation. When Putin writes about his territorial ambitions, it’s filled with endless references to obscure historical battles. Blood shed in the past. Ethnic definitions very few people pay attention to outside of Russia.

Most societies have elements of retrofixation, and the movements therein are rarely as clear cut as the examples cited above. Parts of Brexit, for example, were extremely optimistic and wanted to get away from an increasingly lethargic and overly regulated Eurozone. Even though a good part of the northern electorate that got it over the finish line yearned for the days of yore. Trump “Making America Great Again’’ has some extreme nativist, retrofixated elements. But on the flip side, he wants to reclaim American dynamism. Creative chaos. And like Brexit - he has a bizarre alliance of radical growth types and revanchists working together to elect him.

Some level of societal retrofixation is inevitable. Much as some cholesterol is not a bad thing. An acknowledgment of history and an understanding of it is far preferable than willful ignorance. But too much clogs the heart and results in death - or in a society’s case, collapse.

Choosing to Look in the Mirror

At a financial level, at a personal level, at a societal level - retrofixation is easy and alluring. Focus on past stories, loves and injustices give an emotionally charged means to ignore the world we live in. To not see ourselves. And when we do not want to see ourselves - this is even more appealing.

There has to be a moment though where seeing the light, however painful, is better than keeping the gauze over one’s eyes.

Because when you lose yourself in the past, you lose the people around you. You sacrifice the present. You fail to adapt to the future. You miss investment opportunities. New technologies. New loves. The chaotic joy that comes from speeding down the road ahead instead of having your gaze permanently trained on the rear view mirror. Driving cautiously. Avoiding the freeways.

In this analogy, the new technological era we’re entering into is perhaps a bit like the Autobahn. A vast thoroughfare with no speed limit. Where other cars are driving so quickly that focusing too much on the rearview mirror isn’t just going to miss out on the fun. It’s likely to end in a crash.

The building blocks of our personal and societal reality are shifting rapidly. Social security numbers printed out on cards. Gold bars to represent some form of past work. Money with serial codes to somehow proxy gold bars. Copyrighted blocks of computer code in a world of economic and military multipolarity. Can you see, like I do, that these very concepts are based on retrofixation?

I have a suspicion that the entire premise of most modern institutions is based on retrofixation. And that it is holding us back. Because the past isn’t real. It happened but it no longer is. We reference it because our ability to process the present is insufficient to store our entire worldview in RAM. But what if we are entering a world with near infinite RAM? In a hyper-accelerated world, how much of our current perception, our venerated institutions, and our relationship with others are simply retrofixated delusion?

These are - in my opinion, the questions that need to be asked. But first, I needed to provide a name to the Demon that would forbid their exploration. Retrofixation. A nefarious entity, that seeking minds should seek to banish. Before investing. Before making decisions. Before feeling. And in banishing it, perhaps we can see clearly. Clearly enough to survive.