Same as Ever: A Guide to What Never Changes

by Morgan Housel

A 2010 Yale study showed that one of the leading causes of the increase in obesity is not necessarily people eating larger meals; it’s eating more small snacks throughout the day. It’s a good example of how lots of things work. Most catastrophes come from a series of tiny risks—each of which is easy to ignore—that multiply and compound into something huge. The opposite is true: Most amazing things happen when something tiny and insignificant compounds into something extraordinary.

Small risks weren’t the alternative to big risks; they were the trigger.

Big risks are easy to overlook because they’re just a chain reaction of small events, each of which is easy to shrug off. So people always underestimate the odds of big risks. We’ve seen it happen time after time.

A new virus transferred to humans (something that has happened forever), and those humans interacted with other people (of course). It was a mystery for a while (understandable), and then bad news was likely suppressed (bad, but common). Other countries thought it would be contained (standard denial) and didn’t act fast enough (bureaucracy). We weren’t prepared (overoptimism) and could respond only with blunt-force lockdowns (panic, do what you gotta do). None of those on their own are surprising. But combined they turned into a disaster.

It’s good to always assume the world will break about once per decade, because historically it has. The breakages feel like low-probability events, so it’s common to think they won’t keep happening. But they do, again and again, because they’re actually just smaller high-probability events compounding off one another. That isn’t intuitive, so we’ll discount big risks like we always have. And of course, the same thing happens in the other direction. —

The time, not the little changes, is what moves the needle. Take minuscule changes and compound them by 3.8 billion years and you get results that are indistinguishable from magic.

That’s the real lesson from evolution: If you have a big number in the exponent slot, you do not need extraordinary change to deliver extraordinary results. It’s not intuitive, but it’s so powerful.

If you understand the math behind compounding you realize 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. Same as ever.

Progress requires optimism and pessimism to coexist.

The best financial plan is to save like a pessimist and invest like an optimist. That idea—the belief that things will get better mixed with the reality that the path between now and then will be a continuous chain of setback, disappointment, surprise, and shock—shows up all over history, in all areas of life.

There is a balance, he said, between needing unwavering faith that things will get better while accepting the reality of brutal facts, whatever they may be. Things will eventually get better. But we’re not going home by Christmas. That’s the balance—planning like a pessimist and dreaming like an optimist. That mix is counterintuitive, but it’s so powerful when done right. Remaining optimistic while accepting the reality of despair is fascinating to witness.

Psychologists Lauren Alloy and Lyn Yvonne Abramson have a theory I love called depressive realism. It’s the idea that depressed people have a more accurate view of the world because they’re more realistic about how risky and fragile life is.

What Gates seems to get is that you can only be an optimist in the long run if you’re pessimistic enough to survive the short run.

In the middle is the sweet spot, what I call the rational optimists: those who acknowledge that history is a constant chain of problems and disappointments and setbacks, but who remain optimistic because they know setbacks don’t prevent eventual progress. They sound like hypocrites and flip-floppers, but often they’re just looking further ahead than other people.

The trick in any field—from finance to careers to relationships—is being able to survive the short-run problems so you can stick around long enough to enjoy the long-term growth. Save like a pessimist and invest like an optimist. Plan like a pessimist and dream like an optimist.

Importante

The business that takes huge risks with new products, like an optimist, but is terrified of short-term debt and always wants a big chunk of safety-net cash, like a pessimist.

Same in investing. I wrote in my book The Psychology of Money: “More than I want big returns, I want to be financially unbreakable. And if I’m unbreakable I actually think I’ll get the biggest returns, because I’ll be able to stick around long enough for compounding to work wonders.”

There is a huge advantage to being a little imperfect.

Evolution has spent 3.8 billion years testing and proving the idea that some inefficiency is good. We know it’s right. So maybe we should pay more attention to it.

Many people strive for efficient lives, where no hour is wasted. But an overlooked skill that doesn’t get enough attention is the idea that wasting time can be a great thing.

The irony is that people can get some of their most important work done outside of work, when they’re free to think and ponder. The struggle is that we take time off maybe once a year, without realizing that time to think is a key element of many jobs, and one that a traditional work schedule doesn’t accommodate very well.

The New York Times once wrote of former Secretary of State George Shultz: His hour of solitude was the only way he could find time to think about the strategic aspects of his job. Otherwise, he would be constantly pulled into moment-to-moment tactical issues, never able to focus on larger questions of the national interest. 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.

The traditional eight-hour work schedule is great if your job is repetitive or physically constraining. But for the large and growing number of “thought jobs,” it might not be. You might be better off taking two hours in the morning to stay at home thinking about some big problem. Or go for a long midday walk to ponder why something isn’t working. Or leave at 3:00 p.m. and spend the rest of the day envisioning a new strategy.

The most efficient calendar in the world—one where every minute is packed with productivity—comes at the expense of curious wandering and uninterrupted thinking, which eventually become the biggest contributors to success.

Same in investing. Cash is an inefficient drag during bull markets and as valuable as oxygen during bear markets. Leverage is the most efficient way to maximize your balance sheet and the easiest way to lose everything. Concentration is the best way to maximize returns, but diversification is the best way to increase the odds of owning a company capable of delivering returns. On and on.

If you’re honest with yourself, you’ll see that a little inefficiency is the ideal spot to be in.

Investing in your long-term future is of course great, because the odds that the economy will become more productive and more valuable are pretty good. But trying to predict the exact path we’ll take to get there can be such a waste of resources. I describe my forecasting model as “good enough.” I’m confident people will solve problems and become more productive over time. I’m confident markets will allocate the rewards of that productivity to investors over time. I’m confident in other people’s overconfidence, so I know there will be mistakes and accidents and booms and busts along the way. It’s not detailed, but it’s good enough.

The more precise you try to be, the less time you have to focus on big-picture rules that are probably more important. It’s less about admitting that we can’t forecast, and more about acknowledging that if your forecast is merely good enough, you can invest your time and resources more efficiently elsewhere. Just like evolution, the key is realizing that the more perfect you try to become, the more vulnerable you generally are.

It’s Supposed to Be Hard Everything worth pursuing comes with a little pain. The trick is not minding that it hurts.

There’s a scene in the movie Lawrence of Arabia in which Lawrence puts out a match with his fingers and doesn’t flinch. Another man watching tries to do the same and yells in pain. “It hurts! What’s the trick, then?” he asks. “The trick is not minding that it hurts,” Lawrence says. This is one of the most useful life skills—enduring the pain when necessary rather than assuming there’s a hack, or a shortcut, around it.

He was nice. But he never mentioned the most effective social media trick: write good stuff that people want to read. That’s because writing good stuff isn’t a hack. It’s hard. It takes time and creativity. It can’t be manufactured. It works, with a near 100 percent success rate. But it is the social media equivalent of a heavy workout.

Hacks are appealing because they look like paths to prizes without the effort. But in the real world, those rarely exist.

Charlie Munger once noted: “The safest way to try to get what you want is to try to deserve what you want. It’s such a simple idea. It’s the golden rule. You want to deliver to the world what you would buy if you were on the other end.”

Seinfeld asked if McKinsey is funny. No, the magazine said. “Then I don’t need them,” he said. “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.” If you’re efficient, you’re doing it the wrong way. That is so counterintuitive. But I think it perfectly highlights the danger of shortcuts. Part of this is simply understanding the costs of success. Jeff Bezos once talked about the realities of loving your job: If you can get your work life to where you enjoy half of it, that is amazing. Very few people ever achieve that. Because the truth is, everything comes with overhead. That’s reality. Everything comes with pieces that you don’t like. You can be a Supreme Court justice and there’s still going to be pieces of your job you don’t like. You can be a university professor and you still have to go to committee meetings. Every job comes with pieces you don’t like. And we need to say: That’s part of it.

A simple rule that’s obvious but easy to ignore is that nothing worth pursuing is free. How could it be otherwise? Everything has a price, and the price is usually proportionate to the potential rewards. But there’s rarely a price tag. And you don’t pay the price with cash. Most things worth pursuing charge their fee in the form of stress, uncertainty, dealing with quirky people, bureaucracy, other peoples’ conflicting incentives, hassle, nonsense, long hours, and constant doubt. That’s the overhead cost of getting ahead. A lot of times that price is worth paying. But you have to realize that it’s a price that must be paid. There are few coupons, and sales are rare.

A unique skill, an underrated skill, is identifying the optimal amount of hassle and nonsense you should put up with to get ahead while getting along.

Importante

Franklin Roosevelt—the most powerful man in the world, whose paralysis meant his aides often had to carry him to the bathroom—once said, “If you can’t use your legs and they bring you milk when you wanted orange juice, you learn to say ‘that’s all right,’ and drink it.”