Lessons from the week (3 Dec 2023)
I am rich. But I am unhappy because he is richer.
This weeks lessons come from the book Same As Ever: A Guide to What Never Changes by Morgan Housel. As the name suggests it is about all the things in our lives that will never change. If you know it, you can take advantage of it. Here we go.
Predicting what the world will look like fifty years from now is impossible. But predicting that people will still respond to greed, fear, opportunity, exploitation, risk, uncertainty, tribal affiliations, and social persuasion in the same way is a bet I’d take.
Risk is what you don't see
The biggest news, the biggest risks, the most consequential events are always what you don’t see coming. So what should you do?
One, think of risk the way the State of California thinks of earthquakes. It knows a major earthquake will happen. But it has no idea when, where, or of what magnitude. Emergency crews are prepared despite no specific forecast. Buildings are designed to withstand earthquakes that may not occur for a century or more.
Nassim Taleb says, “Invest in preparedness, not in prediction.” That gets to the heart of it.
Two, realize that if you’re only preparing for the risks you can envision, you’ll be unprepared for the risks you can’t see every single time. So, in personal finance, the right amount of savings is when it feels like it’s a little too much. It should feel excessive; it should make you wince a little.
If you want to be happy, have low expectations
Montesquieu wrote two hundred and seventy-five years ago, “If you only wished to be happy, this could be easily accomplished; but we wish to be happier than other people, and this is always difficult, for we believe others to be happier than they are.”
When asked, “You seem extremely happy and content. What’s your secret to living a happy life?” ninety-eight-year-old Charlie Munger replied: The first rule of a happy life is low expectations. If you have unrealistic expectations you’re going to be miserable your whole life. You want to have reasonable expectations and take life’s results, good and bad, as they happen with a certain amount of stoicism.
Money buys happiness in the same way drugs bring pleasure: incredible if done right, dangerous if used to mask a weakness, and disastrous when no amount is enough.
Today’s economy is good at generating three things: wealth, the ability to show off wealth, and great envy for other people’s wealth.
Actual circumstances don’t make much difference in all these cases. What generates the emotion is the big gap between expectations and reality. When you think of it like that, you realize how powerful expectations are. They can make a celebrity feel miserable and a destitute family feel amazing.
Be OK with doubt
Certainty is so valuable that we’ll never give up the quest for it, and most people couldn’t get out of bed in the morning if they were honest about how uncertain the future is.
You can show people that the market historically crashes every five to seven years. But every five to seven years people say, “This is wrong, this feels broken, my advisor screwed up.” Knowing the high odds of something happening loses its meaning when that thing happening hurts. Probability goes out the window.
Stories are powerful
Great ideas explained poorly can go nowhere, while old or wrong ideas told compellingly can ignite a revolution.
Winston Churchill was, by most accounts, a mediocre politician. But he was a master storyteller and orator, a savant at getting people’s attention through motivation and provoking emotion—which is what made all the difference during his time in office.
The valuation of every company is simply a number from today multiplied by a story about tomorrow.
Economist Per Bylund once noted: “The concept of economic value is easy: whatever someone wants has value, regardless of the reason (if any).”
Don't leave the emotion which made you successful in the first place
A common irony goes like this: Paranoia leads to success because it keeps you on your toes. But paranoia is stressful, so you abandon it quickly once you achieve success. Now you’ve abandoned what made you successful and you begin to decline—which is even more stressful. It happens in business, investing, careers, relationships—all over the place.
Know the power of Enough.
Jerry Seinfeld had the most popular show on TV. Then he quit. He later said the reason he killed his show while it was thriving was because the only way to know where the top is, is to experience the decline, which he had no interest in doing. Maybe the show could keep rising, maybe it couldn’t. He was fine not knowing the answer.
If you want to know why there’s a long history of economies and markets blowing past the boundaries of sanity, bouncing from boom to bust, bubble to crash, it’s because so few people have Seinfeld’s mentality. We insist on knowing where the top is, and the only way to find it is to keep pushing until we’ve gone too far, when we can look back and say, “Ah, I guess that was the top.”
You need to be struggling for something
“Nothing can become truly resilient when everything goes right,” Shopify founder Toby Lütke said.
“The excess energy released from overreaction to setbacks is what innovates!” wrote Nassim Taleb.
Stress focuses your attention in ways good times can’t. It kills procrastination and indecision, taking what you need to get done and shoving it so close to your face that you have no choice but to pursue it, right now and to the best of your ability.
President Richard Nixon once observed: The unhappiest people of the world are those in the international watering places like the South Coast of France, and Newport, and Palm Springs, and Palm Beach. Going to parties every night. Playing golf every afternoon. Drinking too much. Talking too much. Thinking too little. Retired. No purpose.
Because what makes life mean something is purpose. A goal. The battle, the struggle—even if you don’t win it.
No one cheers for hardship—nor should they—but we should recognize that it’s the most potent fuel of problem-solving, serving as both the root of what we enjoy today and the seed of opportunity for what we’ll enjoy tomorrow.
Progress always takes time but bad news happens instantly
It took less than fifteen months for Lehman Brothers—a 158-year-old company—to go from an all-time high to bankrupt. Same with Enron, Fannie Mae and Freddie Mac, Nokia, Bernie Madoff, Muammar Gaddafi, Notre-Dame Cathedral, and the Soviet Union. Things that thrived for decades can be ruined in minutes. There is no equivalent in the other direction.
On a similar note, author Yuval Noah Harari writes: “To enjoy peace, we need almost everyone to make good choices. By contrast, a poor choice by just one side can lead to war.”
The most important question is not “How can I earn the highest returns?” It’s “What are the best returns I can sustain for the longest period of time?”
Little changes compounded for a long time create extraordinary changes.
Plan like a pessimist and dream like an optimist
Paul Allen once wrote about the first time he met Bill: You could tell three things about Bill Gates pretty quickly. He was really smart. He was really competitive; he wanted to show you how smart he was. And he was really, really persistent. But there was another side to Bill Gates. It was almost paranoia, virtually the opposite of his unshakable confidence. From the day he started Microsoft, he insisted on always having enough cash in the bank to keep the company alive for twelve months with no revenue coming in.
You can only be an optimist in the long run if you’re pessimistic enough to survive the short run.
Create time to day dream
A lot of workers have “thought jobs” without much time to think.
Albert Einstein put it this way: I take time to go for long walks on the beach so that I can listen to what is going on inside my head. If my work isn’t going well, I lie down in the middle of a workday and gaze at the ceiling while I listen and visualize what goes on in my imagination.
Mozart felt the same way: When I am traveling in a carriage or walking after a good meal or during the night when I cannot sleep—it is on such occasions that my ideas flow best and most abundantly.
It's supposed to be hard
“If you’re efficient, you’re doing it the wrong way. The right way is the hard way. The show was successful because I micromanaged it—every word, every line, every take, every edit, every casting.” - Seinfeld
Keep running
One takeaway is that you should never be surprised when something that dominates one era dies off in the next. It’s one of the most common stories in history. Few companies, products, musicians, cities, or authors remain relevant for more than a few decades, tops. The ones that have (the Beatles, Levi’s, Snickers, New York City) are rare exceptions.
Another takeaway is to keep running. No competitive advantage is so powerful that it can let you rest on your laurels—and in fact the ones that appear to do so tend to seed their own demise.
It's impossible to connect the dots
You can never tell what apparently small discovery will lead to. Somebody discovers something and immediately a host of experimenters and inventors are playing all the variations upon it.
Facebook similarly began as a way for college students to share pictures of their drunk weekends, and within a decade it was the most powerful lever in global politics. Again, it’s just impossible to connect those dots with foresight.
When you realize that progress is made step-by-step, slowly over time, you realize that tiny little innovations that no one thinks much of are the seeds for what has the potential to compound into something great.
Everything is Sales
Everything is sales also means that everyone is trying to craft an image of who they are. The image helps them sell themselves to others. Some are more aggressive than others, but everyone plays the image game, even if only subconsciously. Since they’re crafting the image, it’s not a complete view. There’s a filter. Skills are advertised, flaws are hidden.
Instagram is full of beach vacation photos, not flight delay photos. Résumés highlight career wins but are silent on doubt and worry. Investing gurus and business titans are easy to elevate to mythical status because you don’t know them well enough to witness times when their decision-making process was ordinary, if not awful.
People do crazy things if their lives depends on it
When the incentives are crazy, the behavior is crazy. People can be led to justify and defend nearly anything.
James Clear put it this way: “People follow incentives, not advice.”
A good question to ask is, “Which of my current views would change if my incentives were different?” If you answer “none,” you are likely not only persuaded but blinded by your incentives.
We don't learn from history because we have not experienced history
Harry Truman once said: The next generation never learns anything from the previous one until it’s brought home with a hammer. . . . I’ve wondered why the next generation can’t profit from the generation before, but they never do until they get knocked in the head by experience.
Comedian Trevor Noah once discussed apartheid in his native South Africa, noting: “If you find the right balance between desperation and fear, you can make people do anything.”
It’s just so hard to understand that, and understand how you’ll respond to risk, fear, and desperation, until you’re in the heat of the moment.
Take a good, honest, loving person and strip them of basic necessities and you’ll soon get an unrecognizable monster who’ll do anything to survive. Under high stress, “a man becomes a beast in three weeks,” Shalamov wrote.
*All the italic text above is from the book Same As Ever: A Guide to What Never Changes by Morgal Housel
Harsh Batra
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