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The Madame Bovary Effect

Summary:
Bitcoin price last 12 months She wanted to die, but she also wanted to live in Paris. Gustave Flaubert wrote Madame Bovary in 1856 and published it as a serial novel in a Parisian literary magazine, which were what blogs were called back then. The publication was quite scandalous for the day, and the resulting obscenity trial made Flaubert famous and Madame Bovary a bestseller when it was published as a book the next year. Of course, to the modern eye and ear, nothing that Emma Bovary says or does is scandalous in the least, so many readers today are bored by the book. I hear that a lot when I mention Madame Bovary as one of the most important works of fiction since the novel was invented. I get it. Yes, as scintillating as the book was 150 years ago, it’s that tame today. But

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The Madame Bovary Effect
Bitcoin price last 12 months

She wanted to die, but she also wanted to live in Paris.

Gustave Flaubert wrote Madame Bovary in 1856 and published it as a serial novel in a Parisian literary magazine, which were what blogs were called back then. The publication was quite scandalous for the day, and the resulting obscenity trial made Flaubert famous and Madame Bovary a bestseller when it was published as a book the next year.

Of course, to the modern eye and ear, nothing that Emma Bovary says or does is scandalous in the least, so many readers today are bored by the book. I hear that a lot when I mention Madame Bovary as one of the most important works of fiction since the novel was invented. I get it. Yes, as scintillating as the book was 150 years ago, it’s that tame today. But it’s still a masterpiece. Why? Because more than any other author I know, Flaubert captures and communicates the immense power of BOREDOM over human behavior.

Why does Emma Bovary do all the “scandalous” things that she does?

Because she’s bored.

To me, at least in retrospect, the really interesting question is why dullness proves to be such a powerful impediment to attention. Why we recoil from the dull…surely something must lie behind not just Muzak in dull or tedious places but now also actual TV in waiting rooms, supermarkets’ checkouts, airport gates, SUVs’ backseats. Walkman, iPods, BlackBerries, cell phones that attach to your head. This terror of silence with nothing diverting to do. I can’t think anyone really believes that today’s so-called ‘information society’ is just about information. Everyone knows it’s about something else, way down.

– David Foster Wallace, “The Pale King” (2011)

The Madame Bovary Effect

DFW is right, it’s a really interesting question … why is dullness such a powerful impediment to attention?

I see this effect most powerfully in two games that I enjoy playing: poker and stock-picking. In both games, I think I’m pretty good … a medium talent to use Bill Murray’s phrase … but I’m definitely not a great poker player or a great stock-picker. And I know myself well enough to recognize the problem. I get bored with the interminable and rigorous discipline that being a great poker player or a great stock picker requires.

I bet you do, too.

From an ET note I wrote in 2015, called Rounders:

To be clear, it’s not the actual work of poker playing or stock picking that I find boring. I could happily spend every waking moment turning over a new set of cards or researching a new company. And it’s certainly not boring to make a bet, either on a hand or a stock. What’s boring is NOT making a bet on a hand or a stock. What’s boring is folding hand after hand or passing on stock after stock because you know it’s the right thing to do. The investment process that makes a great poker player or a great stock picker isn’t the research or the analysis, even though that’s what gets a lot of the attention. Nor is it the willingness to make a big bet when you believe the table or the market or the world has given you a rare combination of edge and odds, even though that’s what gets even more of the attention. No, what makes for greatness as a stock picker is the discipline to act appropriately on whatever the market is giving you, particularly when you’re being dealt one low conviction hand after another.The hardest thing in the world for talented people is to ignore our mental “shriek of unused capacities”, to use Saul Bellow’s phrase, and to avoid turning a low edge and odds opportunity into an unreasonably high conviction bet simply because we want it so badly and have analyzed the situation so smartly. In both poker and investing, we brutally overestimate the edge and odds associated with merely ordinary opportunities once we’ve been forced by circumstances to sit on our hands for a while.

Sound familiar?

I thought about all this when I was looking at the Bitcoin price chart over the past year, there at the top of this note. How would I describe the price action in Bitcoin over the past five or six months? Boring. Utterly boring.

To be clear, I have no idea why the price of Bitcoin has flatlined in the mid-6k range. It’s VERY weird, I think, and looks for all the world like some sort of currency peg, but I am serious when I say that I really don’t know what’s going on. It’s entirely possible that nothing is “going on”, that this is just what Bitcoin is today.

But what I DO know is that many of the market participants in Bitcoin cannot abide this boredom, any more than I can stand a long string of boring poker hands or a long string of boring stock ideas. Boredom begets action, and it’s usually less-than-well-considered action. If there are no kicks to be had in Bitcoin, then maybe the players here will make a bet on a less boring cryptocurrency … certainly plenty of those around. Maybe they will leave crypto for something else entirely … hey, what about those cannabis stocks? But they will do SOMETHING.

One way or another, boredom must be eliminated. It’s as much an iron law of markets as the impact of greed and fear. And it’s just as powerful.

So … what do I do if I have a business model that’s levered to attention being paid to Bitcoin? What do I do if I have a business model that dies when players get bored and find another game to play? Well, I’m in trouble. I’ve got to move to the new hot dot.

On the other hand, if I have a business model that’s playing a long game, that can hang in there while the hot-dot business models get wiped out or move on to the next hunting ground … well, now is the time for consolidation and a land-grab and a moat-building exercise, particularly when it comes to government regulation and authorization. Yeah, I like that business model.

One more thing …

Everything I just wrote about business models and the need for robustness when confronted with market boredom or complacency … I’m not just talking about Bitcoin.


About Ben Hunt
Ben Hunt
He is the chief investment strategist at Salient, a $14 billion asset manager based in Houston and San Francisco, and the author of Epsilon Theory, a newsletter and website that examines markets through the lenses of game theory and history. Over 100,000 professional investors and allocators read Epsilon Theory for its fresh perspective into market dynamics.

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