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Some things are immeasurably important. They’re either impossible, or too elusive, to quantify. But they can make all the difference in the world, often because their lack of quantification causes people to discount their relevance or even deny their existence.
Athletic performance isn’t just what you’re physically capable of. It’s what you’re capable of within the context of what your brain is willing to endure for the risk and reward in a given moment.
Capabilities are a function of in-the-moment circumstances.
There was a behavioral and psychological side that was much harder to measure.
pressures, risks, and incentives of real-world conditions that can’t be emulated in the laboratory.
Every investment price, every market valuation, is just a number from today multiplied by a story about tomorrow.
capital than Lehman had in 2007, when the banking industry was about as strong as it had ever been. Seventy-two hours later Lehman was bankrupt. The only thing that changed during those three days was investors’ faith in the company. One day they believed in the company and bought its debt. The next day that belief stopped, and so did its funding. That faith is the only thing that mattered. But it was the one thing that was hard to quantify, hard to model, hard to predict, and didn’t compute in a traditional valuation model. GameStop was the opposite. It looked like it was on the edge of going
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Whenever something like this happens you see people shocked and angry about how the world has become detached from fundamentals. But Grant was right: It’s always been like this.
So much of what happens in the economy is rooted in emotions, which can, at times, be nearly impossible to make sense of.
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.
The ones who thrive long term are those who understand the real world is a never-ending chain of absurdity, confusion, messy relationships, and imperfect people.
Did a lack of pandemics over the last fifty years make the world more vulnerable to COVID-19? Did the decline of infectious disease death make us underestimate the odds that it could happen in modern times?
The irony of good times is that they breed complacency and skepticism of warnings.
“At your highest moment, be careful. That’s when the devil comes for you.”
Are stocks overvalued? What is bitcoin worth? How high can Tesla go? You can’t answer those questions with a formula. They’re driven by whatever someone else is willing to pay for them in any given moment—how they feel, what they want to believe, and how persuasive the storytellers are. And the stories change all the time.
That’s why markets don’t stay within the limits of sanity, and why they always overdose on pessimism and optimism.
Every few years there seems to be a declaration that markets don’t work anymore—that they’re all speculation or detached from fundamentals. But it’s always been that way. People haven’t lost their minds; they’re just searching for the boundaries of what other investors are willing to believe.
Maybe there’s more potential out there, but it’s fine to say, “You know what, I’m pretty happy with this level of risk and I’m fine just watching this game play out.” Not everyone can do it—and markets on average can never do it—but more of us should try.
Whenever people discover something valuable—particularly a lucrative investment or a special skill—there is a tendency to ask, “Great, but can I have it all faster?” Can we push it twice as hard? Can we make it twice the size? Can we squeeze some more juice out of it?
Growth is good, if only because runts eventually get eaten. But forced growth, accelerated growth, artificial growth—that tends to backfire.
A constant truth you see throughout history is that the biggest changes and the most important innovations don’t happen when everyone is happy and things are going well. They tend to occur during, and after, a terrible event. When people are a little panicked, shocked, worried, and when the consequences of not acting quickly are too painful to bear.
Militaries are engines of innovation because they occasionally deal with problems so important—so urgent, so vital—that money and manpower are removed as obstacles, and those involved collaborate in ways that are hard to emulate during calm times.
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.
total factor productivity—that’s economic output relative to the number of hours people worked and the amount of money invested in the economy—hit
Electricity becoming a “willing servant”—introducing washing machines, vacuum cleaners, and refrigerators—freed up hours of household labor in a way that let female workforce participation rise. It’s a trend that lasted more than half a century and is a key driver of both twentieth-century growth and gender equality.
You could never push through something like the New Deal without an economy so wrecked that people were desperate to try anything to fix it.
It’s doubtful that business owners and entrepreneurs would so urgently have found new efficiencies without the record threat of business failure.
There’s an obvious limit to stress-induced innovation. There’s a delicate balance between helpful stress and crippling disaster.
A carefree and stress-free life sounds wonderful only until you recognize the motivation and progress it prevents. 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.
Good news comes from compounding, which always takes time, but bad news comes from a loss in confidence or a catastrophic error that can occur in a blink of an eye.
it. The irony is that growth and progress are way more powerful than setbacks. But setbacks will always get more attention because of how fast they occur. So slow progress amid a drumbeat of bad news is the normal state of affairs. It’s not an easy thing to get used to, but it’ll always be with us.
These tiny nukes felt more responsible, less risky. We could use them without ending the world. But they backfired. Small nuclear bombs were more likely to actually be used in combat. That was their whole purpose. They lowered the bar of justified use. It changed the game, all for the worse. The risk was that a country would “responsibly” use a tiny nuclear weapon in battle, starting a retaliatory escalation that opened the door to launching one of the big bombs.
Small risks weren’t the alternative to big risks; they were the trigger.
People weren’t complacent. The late 1920s saw an overvalued stock market, real estate speculation, and poor farm maintenance. That was obvious. It was well-documented. It was discussed. But so what? None of those things are a big deal in isolation. It wasn’t until they happened at the same time, and fed off one another, that they turned into the Great Depression.
because they’re actually just smaller high-probability events compounding off one another.
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.
Pessimism is more intellectually seductive than optimism and captures more of our attention. It’s vital for survival, helping us prepare for risks before they arrive.
But optimism is equally essential. The belief that things can be, and will be, better even when the evidence is murky is one of the most essential parts of everything from maintaining a sound relationship to making a long-term investment.
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.
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.
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.
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. Those who can’t usually end up either bitter pessimists or bankrupt optimists.
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.
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.
Room for error is often viewed as a cost, an anchor, an inefficiency. But in the long run it can have some of the highest payoffs imaginable.
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.
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.
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.
everyone wants a shortcut. It’s always been this way, but I suspect it’s getting worse as technology inflates our benchmark for how fast results should happen.
“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.”
