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August 26 - August 30, 2024
Things that never change are important because you can put so much confidence into knowing how they’ll shape the future. Bezos said it’s impossible to imagine a future where Amazon customers don’t want low prices and fast shipping—so he can put enormous investment into those things.
have no clue what the stock market will do next year (or any year). But I’m very confident about people’s penchant for greed and fear, which never changes. So that’s what I spend my time thinking about.
Here’s an example: What caused the 2008 financial crisis? Well, you have to understand the mortgage market. What shaped the mortgage market? Well, you have to understand the thirty-year decline in interest rates that preceded it.
understand the inflation of the 1970s. What caused that inflation? Well, you have to understand the monetary system of the 1970s and the hangover effects from the Vietnam War. What caused the Vietnam War? Well, you have to understand the West’s fear of communism after World War II . . . and so on forever.
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.
The other thing to keep in mind is to have a wider imagination. No matter what the world looks like today, and what seems obvious today, everything can change tomorrow because of some tiny accident no one’s thinking about. Events, like money, compound. And the central feature of compounding is that it’s never intuitive how big something can grow from a small beginning.
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.
you follow the rule that the crazier the boom, the harder the bust, the Great Depression must have been obvious.
But that’s the point: The biggest news, the biggest risks, the most consequential events are always what you don’t see coming.
Psychologist Daniel Kahneman says, “The idea that what you don’t see might refute everything you believe just doesn’t occur to us.”
Nassim Taleb says, “Invest in preparedness, not in prediction.” That gets to the heart of it.
forecast before you start preparing for it. It’s better to have expectations that risk will arrive, though you don’t know when or where, than to rely exclusively on forecasts—almost all of which are either nonsense or about things that are well-known.
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.
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.”
Investor Charlie Munger once noted that the world isn’t driven by greed; it’s driven by envy.
50 percent higher today than in 1955. Some of today’s economic worries would have puzzled a 1950s family.
The Ferenczes fled Romania to escape Jewish persecution during the Holocaust. The family came to America on the open deck of a ship in the middle of winter, nearly freezing to death. Ferencz later became a lawyer and prosecuted Nazi war criminals during the Nuremberg trials, and he was one of the happiest people I came across.
I have a friend who grew up in abject poverty in Africa. He now works in tech in California. He says to this day he is still blown away when he eats a hot meal. It’s astounding to him how abundant food is in America.
In Silicon Valley, however, it made him just another guy. “You’re nobody here at $10 million,” he said. The Times wrote: “He logs 60- to 80-hour workweeks because he does not think he has nearly enough money to ease up.”
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.
World War II left its mark on America economically and socially. Between 1942 and 1945, virtually all wages were set by the National War Labor Board, which favored flatter pay—a smaller gap between low-income and high-income workers—than would otherwise exist.
If you look at the 1950s and ask, “What was different that made it feel so great?” this is at least part of your answer. The gap between you and most of the people around you wasn’t that large.
It created an era when it was easy to keep your expectations in check because few people in your social circle lived dramatically better than you did.
felt great because everyone else earned a lower wage too. The smaller homes felt nice because everyone else lived in smaller homes too.
Today’s economy is good at generating three things: wealth, the ability to show off wealth, and great envy for other people’s wealth.
be. Being driven by what other people have and you don’t is an unavoidable trait in most people.
Harry Truman—a failed retailer, failed farmer, failed zinc miner, failed oil driller, and senator held on a leash by local Missouri businessmen—was almost universally panned when he became president after Franklin Roosevelt died. The Washington Post wrote: “We should be less than candid at this grave moment if we did not recognize the great disparity between Mr. Truman’s experience and the responsibilities that have been thrust upon him.” David McCullough wrote: “To many it was not just that the greatest of men had fallen, but that the least of men—or at any rate the least likely of men—had
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spend so much effort trying to improve our income, skills, and ability to forecast the future—all good stuff worthy of our attention. But on the other side there’s an almost complete ignorance of expectations,
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.
My friend Brent has a related theory about marriage: It only works when both people want to help their spouse while expecting nothing in return.
When you realize that each part is equally important, you see that the overwhelming attention we pay to getting more and the negligible attention we put on managing expectations makes little sense, especially because the expectations side can be so much more in your control.
And the expectation side of that equation is not only important, but it’s often more in your control than managing your circumstances.
constantly when you look for it, is that people who are abnormally good at one thing tend to be abnormally bad at something else. It’s as if the brain has capacity for only so much knowledge and emotion, and an abnormal skill robs bandwidth from other parts of someone’s personality.
Same for John Boyd. Same for Steve Jobs, who was both a genius and could be a monster of a boss.
One day, I realized with all these people I was jealous of, I couldn’t just choose little aspects of their life. I couldn’t say I want his body, I want her money, I want his personality. You have to be that person. Do you want to actually be that person with all of their
reactions, their desires, their family, their happiness level, their outlook on life, their self-image? If you’re not willing to do a wholesale, 24/7, 100 percent swap with who that person is, then there is no point in being jealous.
“You gotta challenge all assumptions. If you don’t, what is doctrine on day one becomes dogma forever after,” John Boyd once said.
“Was that a yes or a no?” Probability is about nuance and gradation. But in the real world people pay attention to black-and-white results.
If you said something will happen and it happens, you were right. If you said it will happen and it doesn’t, you were wrong. That’s how people think, because it requires the least amount of effort.
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 world breaks about once every ten years, on average—always has, always will.
Sometimes it feels like terrible luck, or that bad news has new momentum. More often it’s just raw math at work. A zillion different things can go wrong, so at least one of them is likely to be causing havoc at any given moment. And given how connected we are, you’re going to hear about it.
It’s an important quirk, because if someone says there’s an 80 percent chance of a recession, the only way to tell if they’re right is to compare dozens or hundreds of times they made that exact call and see if it came true 80 percent of the time.
Knowing the high
odds of something happening loses its meaning when that thing happening hurts. Probability goes out the window.
Great ideas explained poorly can go nowhere, while old or wrong ideas told compellingly can ignite a revolution.
Good stories tend to do that. They have extraordinary ability to inspire and evoke positive emotions,
insight and attention to topics that people tend to ignore when they’ve previously been presented with nothing but facts.
Even within a good story, a powerful phrase or sentence can do most of the work. There is a saying that people don’t remember books; they remember sentences.
