At the end of the quarter, we all look at our statements and evaluate how we’re doing. Depending on the results, we either congratulate ourselves or start to ask what went wrong—and what we can do about it. The implicit assumption here is that we are in control of our investments.

To a great extent that’s true, of course, but the markets are beyond anyone’s control. Trying to manage that uncertainty has been the great quest of modern finance. The management of uncertainty is also characteristic of another financial endeavor: gambling.

“Those who can’t remember the past are condemned to repeat it.” — George Santayana

The quote above is often used to describe one of Ben Bernanke’s prime qualifications for his position as chairman of the Federal Reserve. As a student of the Depression, it is said, he has a unique perspective on what happened then and knows what has to happen now to avoid a repeat. Put another way, he understands the mistakes that were made last time so we can avoid them this time.

With the economy recovering, the market doing well, and the politicians seemingly getting down to the business of actually negotiating rather than yelling at one another, people are feeling more cheerful, especially about the stock market. Investor surveys are at very high levels for confidence, volatility is at historically low levels, and U.S. markets are closing in on all-time highs. What’s not to like?

Actually, there are a lot of reasons to be concerned—which I have written about in the past and will do so in the future—including the fact that high levels of bullishness are themselves contrary indicators. Today, however, is about how to invest in individual stocks, rather than about the market as a whole, and here there are encouraging signs.

One of my favorite authors is Terry Pratchett, best known for a series of novels about the Discworld, a fantasy world (very) loosely based on medieval London and Europe. When you hear “fantasy,” though, don’t think unicorns and rainbows; instead, think folklore and Charles Dickens. Pratchett’s writing is an interesting combination of Dickens and Douglas Adams (The Hitchhiker’s Guide to the Galaxy), with more than a bit of P. G. Wodehouse thrown in. The series is worth a look, but the later books are better than his earlier ones, in my opinion.

One of the tropes of Pratchett’s universe is “narrative causality,” the notion that stories are entities that actually shape behavior in the real world. As he writes in The Last Continent, “. . . the proliferation of luminous fungi or iridescent crystals in deep caves where the torchlessly improvident hero needs to see is one of the most obvious intrusions of narrative causality into the physical universe.” Obviously, narrative causality doesn’t extend into the physical universe here, but it does extend into the behavioral universe. Therefore, it’s worth considering in terms of economics, which, after all, is just human behavior writ large.

Just a quick note regarding some of the more interesting things I have read recently.

Bob Woodward is known for writing books that let readers imagine that they are first-hand witnesses at critical political events. With a depth of reporting and access matched by few, he specializes in telling the stories that affect our lives as played out in Washington, DC.

I do not normally read, much less review, books that self-characterize as prophecy. Most such books, especially those written more than 10 years ago, are kindly described as being of historical interest only. To find one that actually got quite a number of things right—both in specific types of events and time frame—is therefore pretty interesting.

It gets even more interesting when the book’s next set of predictions is not only scary, but also in line with its earlier forecasts that proved largely correct.

One of my newly adopted habits, as I discussed in my “Good Habits” post a few days ago, is to read a chapter a day from a book that covers something I want to know more about. Given the major role China plays in how the world is evolving, I had become fairly current on the Chinese economy, but I had no in-depth knowledge of the country itself.

I still don’t, really. What I do have is a much better sense of the political and historical context in which China makes decisions. I would describe Henry Kissinger’s On China as applied history—history applied to an understanding of how a country is likely to act in the future . . . and why. In that sense, it succeeds well.

This post will be a bit different—I am writing it on the road, so I don’t have access to many of my usual resources and tools. I am therefore going to take the chance to talk about something nonquantitative that I find helpful in both an investment and a noninvestment context.

One of the significant perks of my position at Commonwealth is the ability to talk with a wide range of experts in a wide range of fields. A couple of years ago, at our Chairman’s Retreat, we had a speaker who was an expert in the field of happiness.