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Amazon founder Jeff Bezos once said that he’s often asked what’s going to change in the next ten years. “I almost never get the question: ‘What’s not going to change in the next ten years?’ ” he said. “And I submit to you that that second question is actually the more important of the two.”
As financial advisor Carl Richards says, “Risk is what’s left over after you think you’ve thought of everything.” That’s the real definition of risk—what’s left over after you’ve prepared for the risks you can imagine. Risk is what you don’t see.
Investor Charlie Munger once noted that the world isn’t driven by greed; it’s driven by envy.
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.
Tennis player Naomi Osaka said that she got to a point in her career when winning a tournament didn’t bring her any joy—“I feel more like a relief,” she said.
Reversion to the mean is one of the most common stories in history. It’s the main character in economies, markets, countries, companies, careers—everything. Part of the reason it happens is because the same personality traits that push people to the top also increase the odds of pushing them over the edge.
The core here is that people think they want an accurate view of the future, but what they really crave is certainty.
Bad news gets more attention than good news because pessimism is seductive and feels more urgent than optimism. • The odds of a bad news story—a fraud, a corruption, a disaster—occurring in your local town at any given moment is low. When you expand your attention nationally, the odds increase. When they expand globally, the odds of something terrible happening in any given moment are 100 percent.
The danger, one you see often in investing, is when people become too McNamara-like—so obsessed with data and so confident in their models that they leave no room for error or surprise. No room for things to be crazy, dumb, unexplainable, and to remain that way for a long time.
A final word about why things have a tendency of getting out of hand. It’s that optimism and pessimism always have to overshoot what seems reasonable, because the only way to discover the limits of what’s possible is to venture a little way past those limits.
A good summary of investing history is that stocks pay a fortune in the long run but seek punitive damages when you demand to be paid sooner.
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.
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.
An important lesson from history is that the long run is usually pretty good and the short run is usually pretty bad. It takes effort to reconcile those two and learn how to manage them with what seem like conflicting skills.
A century ago a Russian biologist named Ivan Schmalhausen described how this works. A species that evolves to become very good at one thing tends to become vulnerable at another. A bigger lion can kill more prey, but it’s also a larger target for hunters to shoot at. A taller tree captures more sunlight, but becomes vulnerable to wind damage. There is always some inefficiency.
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.
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.
A common view through history is that past innovation was magnificent, but future innovation must be limited because we’ve picked all the low-hanging fruit.
No one predicted nuclear power plants. But they wouldn’t have been possible without the plane. Without the plane we wouldn’t have had the aerial bomb. Without the aerial bomb we wouldn’t have had the nuclear bomb. And without the nuclear bomb we wouldn’t have discovered the peaceful use of nuclear power.
Good advice that took me awhile to learn is that everything is sales. Everything is sales. This is usually framed as career advice—no matter what your role in a company is, your ultimate job is to help sales.
Jason Zweig of The Wall Street Journal says there are three ways to be a professional writer: 1. Lie to people who want to be lied to, and you’ll get rich. 2. Tell the truth to those who want the truth, and you’ll make a living. 3. Tell the truth to those who want to be lied to, and you’ll go broke.
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.”
Jim Carrey once said, “I think everybody should get rich and famous and do everything they ever dreamed of so they can see that it’s not the answer.”
Your belief in the long run isn’t enough. Your partners, coworkers, spouses, and friends have to sign up for the ride.
There are two types of information: permanent and expiring. Permanent information is: “How do people behave when they encounter a risk they hadn’t fathomed?” Expiring information is: “How much profit did Microsoft earn in the second quarter of 2005?” Expiring knowledge catches more attention than it should, for two reasons. One, there’s a lot of it, eager to keep our short attention spans occupied. Two, we chase it down, anxious to squeeze insight out of it before it loses relevance.
One of the missing pieces, he said, is that we focus too much on cancer treatment and not enough on cancer prevention. If you wanted to get the next big leg up in the war on cancer, you had to make prevention the front line. But prevention is boring, especially compared to the science and prestige of cancer treatments. So even if we know how important it is, it’s hard for smart people to take it seriously.
Here you have one of the top cancer researchers in the world, and he’s saying he could make a bigger impact on cancer if he focused on getting people to quit smoking—but that’s not intellectually stimulating enough for him. Or for many scientists, for that matter. Now, I don’t blame him—and Weinberg has added enormous value to the war on cancer.
