During early ages, skills only included a set of valuable lessons learned from experiences which might have been considered valuable for survival. Eventually everyone who hunted and gathered in a group were supposed to know what everyone else knew, in order to survive if by chance anyone got separated from the group. It made sense because supply exceeded demand by a large magnitude. Since there was no society, there was no need for political institutions which could have gotten away with corruption; or need for an economic system for the optimum utilization of resources. Slowly the groups began to become larger and larger as agricultural revolution came and humans went from a nomadic lifestyle to a sedentary lifestyle. Sedentary living meant that resources could be accumulated and whoever could accumulate more resource could use it to leverage against others in the group. Slowly, hierarchy percolated through the society. People who had more resources ended up at the top and the people with less resources ended up at the bottom.

Initially, the hierarchy in most society was lineage based, either from the father side or from the mother side. Most tribal societies therefore, had a common ancestor. Ancestral societies couldn’t be consolidated into a state and therefore it was very necessary to break them in order to lead to the creation of the modern state. Creation of the state took place at different times in the past at different places. Revolutions had to happen in order to consolidate the fragmented tribal societies into a common state with one leader [1]. Democracy came into picture very later on when the first democratic society was set up in Jamestown in USA [2].

Democracy brought forward the idea of capitalism. Earlier, money was mostly accumulated through labor, but with capitalism, even capital could generate money. Specialization came into existence. According to Adam Smith, specialization was necessary for division of labor and therefore for increased productivity. For example consider the manufacture of a box of nails. It needs someone to get the raw metal from the supplier. Then, someone is needed to refine the metal and melt it so that it can be cast into the form of nails. Someone is needed for casting the nails into their final form and finally, someone is required to package these nails and send it to the distributor. Looks like a job requiring many skills. Earlier the ironsmith was expected to perform all these duties by himself or with the help of a few aids, and everyone working with the ironsmith was expected to have the knowledge of performing all the processes effectively [3]. The process therefore was very time consuming as labor was spread throughout the process, but each labor working there was equally important to the job. The workers were not expendables as they are today. Knowing every part of the process was time taking but in the end they were better off even if they had to perform only one operation because they could always switch to another operation if required because they had the pre-requisite knowledge.

Now, let us look at the current scenario. At a very young age most parents are supposed to gauge the attitude of their children towards different tasks they perform and thereby determine for their children what the right path for them would be later on in their respective lives. So, from a very early age we are exposed to those experiences which will help us more in our field as compared to other experiences which are out of field. At an young age everything looks miraculous and adventurous and we are trying new things every single day and we enjoy each one of those tasks because we are not biased. It is only later on that we chose a specialization and then we are tagged to be a physicist, or a mathematician, or an engineer. We are expected to perform only those tasks that will generate revenue and let go of other things that might not generate revenue. Slowly over time our curiosity is completely lost from our senses and we become afraid to trying new things and experiences in our lives. There is a stigma which by itself gets associated if we become interested in topics and conversation outside our specialization. For example if a doctor tends to show a little interest in technology he might lose his credibility to be a good doctor. People think that an interest in technology might have something to do with a lack of interest in biology itself. Maybe sometimes it might be true, but other times it is just out of curiosity and nothing else.

Our tendency to keep on learning new things that we might find interesting in ours lives is something which makes our life worth living. The best attribute that Richard Feynman had which made him a legend not in just physics but in every domain was his never ending curiosity and the lust to dive deeper into a problem until he had solved it. He was the best on being what he was, a physicist; but he was also the best in being what he was not, a drummer, a painter, a lock cracker and giving lectures on Mayan hieroglyphics. He didn’t believe in superficial knowledge of just remembering the definition word by word without having any knowledge of what the physical significance of those words might be [4]. I read it somewhere, “You do not know something if you cannot explain it to to six year old what it is.” We look at things from the outside and therefore we find it difficult to diversify.

All of us have an idea of investing in a stock. Rarely, anyone of us would want to put all our money in one stock. It would be foolishness. If the stock goes up, we make a large profit, but if it goes down we loose heavily also. Let’s think of specialization as investing money in one single stock. We do it happily every single day. We are so scared of trying anything beyond our domain that we stick to our own domain for the most of our lives. People do not believe in doing something for the fun of it. When I was in college, I decided I had to learn how to play the guitar. I had no plans of being a musician or anything. I just liked the sound of the guitar and mostly played it for myself, but the first moment people would see me practicing they would ask me, “Why are you playing guitar? Do you wanna be a musician?” These are very prevalent questions for which there can be no answers. These questions makes us wonder and then we are discouraged. We do not want to try new things because we are discouraged at every stage and eventually we stick to doing only one thing. Even when most of us are doing just one thing we do not do it effectively.

People always complain that they do not have time for other things in life. To be honest, how can they have any time. Most of the time is spent is remembering what they had memorized the earlier day. People can easily define anything, or take a stance on any idea without actually having any idea of what they are saying actually means. There was a time when I had to give a presentation on my research work on behavioral biases, and one other batch mate of mine had to give the presentation before us because he was in a rush to catch a flight back home. So, he is standing there explaining “Volatility Spillover”. In his slides were the list of numerous papers he had referenced and all sorts of charts and graphs and all of sudden the professor asks him, “What is volatility?” He takes no time and just narrates the definition he had memorized word by word and had also mentioned on his slides. The professors then asks, “Well that is very fine, but what do you mean by volatility of a stock. Suppose I give you a stock with its prices on different dates and ask you to show me what volatility is for the stock which I have given you?” He just stood there for a while with a dumb look on he face and all I could do was smile. I wasn’t smiling because I was happy to see his embarrassment, but because I though this will help him understand where he was lacking and improve on that.

This is what happens. We fixate on one thing because we are never sure about what we know. We have no confidence in our own abilities and therefore we keep trying to improve upon what we already know, but most often we end up where we were. When you know something to its basic foundation you know it completely, and when you know something completely you can move on to knowing other things. The difficulty is in spending time to dig deeper into what we already know. To raise doubts and questions and to challenge our own knowledge. We rarely do that. So eventually we end up spending all our time and money in a sinking stock.

Harry Markowitz came up with the “Modern Portfolio Hypothesis” [5]. It used a constant alpha which was a predictor of how much a stock price would move if the market moved in any direction. The alpha of a stock would be negative if the stock price always moved in a direction opposite to the market and it would be positive if the stock price always moved in the same direction of the market. The alpha would be zero if the price of a stock was not depended upon the market condition. So according to the Modern Portfolio Hypothesis, investors could diversify away their losses by investing in different stocks with different alpha. So if the portfolio was made up of two stock and one of them had a positive and the another one a negative alpha, then when the market moved in any direction the two alphas would cancel out each other resulting in a net profit or net loss. We should diversify away our skills the same way.

The first step to diversification is to be skilled in one particular field. There is a correlation between all the fields in some way or the another and this correlation can only be found when we do a thorough study of whatever skill we are pursuing. The demand of every skill fluctuates with the market conditions which can be called the alpha of a skill. The next step then comes is of learning something new or another skill that we might like and is unrelated to our domain and this new skill will again require thorough study otherwise there is no point. Knowing just the tip of the iceberg is of no use unless we are ready to dive into the cold freezing water to know about the remainder of the iceberg. Every new skill we acquire is the same way. Initially when we start something new there is very fast growth but after a while as the problems before more difficult the progress becomes very slow and almost negligible in most cases, and this the very point at which most of us give away and move on or try to find a short cut out of the process, and then it all goes into vain. Most often all that is required is the patience. Things just does not happen. Most often we overlook concepts because we believe it might be too difficult to understand because we do not have the patience to go thorough it at a slow pace and make something out of it [4]. So if we do it right, we end up with another skill with a different alpha because each skill has its own demand based upon the needs of the industry, the purchasing power of the people and lots of other economic factors.

Slowly, over time with patience we will have a lot of skills with varying demands in the market with varying market conditions but one of these skills will always end up cancelling the other skill in profits and losses and we will always end up with a net profit. The best part is that we end up learning so much that wouldn’t have been possible before and we become a better person for it. Curiosity is the driving factor that drives us humans to move forward in life do tasks that would never have seemed possible. The idea is to keep looking and trying to know more about anything that we like and then moving on to something else that sparks our curiosity. The money comes in when we are very good at something and in order to be very good at something we need to enjoy it, and we can only enjoy something if we know what it is all about.

References.

1. Origin Of Political Order – Francis Fukuyama
2. Why Nations Fail – Daron Acemoglu & James A. Robinson
3. Wealth of Nations – Adam Smith
4. Surely You’re Joking Mr. Feynman – Richard P. Feynman
5. Portfolio Selection – Harry Markowitz (1952)