Same As Ever - Morgan Housel (Part 1)
We are big fans of Morgan Housel and his insightful blog posts at Collaborative fund. When one of our partners at PP stumbled upon it, he promptly compiled all the articles into a vast PDF and shared it with others, urging them to dive in. The same enthusiasm arose with his debut book, "The Psychology of Money," a piece we've recommended extensively to friends and clients alike. Naturally, our excitement soared upon the release of his latest book, "Same as Ever: A Guide to What Never Changes." Morgan's books excel in encapsulating critical points from his extensive blog posts, presenting them in an engaging manner that continues to resonate long after the book is closed. In this post, we aim to highlight the key moments from the book that we enjoyed the most, providing you with a glimpse of his writing style while perhaps inspiring you to explore his works further. We won't attempt a book review, knowing there are many adept reviewers out there. So, without further ado, here's the first part of our favorite insights:
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.” 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.
"I have no clue what the stock market will do next year, or any other year. But I’m very confident about people’s penchant for greed and fear, which never changes." This is highlighting the book’s premise—to base predictions on how people behave rather than on specific events. 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 the author would take.
Every event creates its own offspring, which impact the world in their own special ways. It makes prediction exceedingly hard. The absurdity of past connections should humble your confidence in predicting future ones.
We are very good at predicting the future, except for the surprises—which tend to be all that matter. The biggest risk is always what no one sees coming, because if no one sees it coming, no one’s prepared for it; and if no one’s prepared for it, its damage will be amplified when it arrives. Look at the big news stories that move the needle—COVID-19, 9/11, Pearl Harbor, the Great Depression. Their common trait isn’t necessarily that they were big; it’s that they were surprises, on virtually no one’s radar until they arrived. The Economist publishes a forecast of the year ahead each January. Its January 2020 issue does not mention a single word about COVID-19. Its January 2022 issue does not mention a single word about Russia invading Ukraine. That’s not a criticism—both events were impossible to know when the issues were planned in the months before publication. But that’s the point: The biggest news, the biggest risks, the most consequential events are always what you don’t see coming.
The first rule of happiness is low expectations. “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.” John D. Rockefeller never had penicillin, sunscreen, or Advil. But you can’t say a low-income American with Advil and sunscreen today should feel better off than Rockefeller, because that’s not how people’s heads work. The legendary investor Charlie Munger once noted that the world isn’t driven by greed; it’s driven by envy.
What’s your secret to living a happy life?” ninety-nine-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.
People who think about the world in unique ways you like also think about the world in unique ways you won’t like. It’s so easy to overlook, and it causes us to have poor judgment about who we should look up to and what we should expect from very successful people. People who are abnormally good at one thing tend to be abnormally bad at something else. The same personality traits that push people to the top also increase the odds of pushing them over the edge.
“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.”
People don’t want accuracy. They want certainty. “The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt.” —Bertrand Russell. Few people actually use probability in the real world, especially when judging others’ success. Most of what people care about is, “Were you right or wrong?”. Someone who tells you there’s a 60 percent chance of a recession happening doesn’t do much to ease that pain. They might be adding to it. But someone who says “There is going to be a recession this year” offers something to grab on to with both hands, something that feels like taking control of your future.
Think about one-hundred-year events. One-hundred-year floods, hurricanes, earthquakes, financial crises, frauds, pandemics, political meltdowns, economic recessions, and so on endlessly. Lots of terrible things can be called one-hundred-year events. A one-hundred-year event doesn’t mean it happens every one hundred years. It means there’s about a 1 percent chance of it occurring in any given year. That seems low. But when there are hundreds of different independent one-hundred-year events, what are the odds that one of them will occur in a given year?
“The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision. It is easy to see how evolution would make animals, over the eons, drift toward such quick elimination of doubt. After all, the one thing that is surely counterproductive for a prey animal that is threatened by a predator is to take a long time in deciding what to do.” - from Charlie Munger’s talk called “The Psychology of Human Misjudgment.”
The inability to forecast the past has no impact on our desire to forecast the future. 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.
Stories are always more powerful than statistics. Not the best idea, or the right idea, or the most rational idea. Just whoever tells a story that catches people’s attention and gets them to nod their heads is the one who tends to be rewarded. People are busy and emotional, and a good story is always more powerful and persuasive than ice-cold statistics. Stephen Hawking once noted of his bestselling physics books: “Someone told me that each equation I included in the book would halve the sales.” Readers don’t want a lecture; they want a memorable story. It’s not what you say or what you do, but how you say it and how you present it.
The world is driven by forces that cannot be measured. Most decisions aren’t made on a spreadsheet, where you just add up the numbers and a clear answer pops out. There’s a human element that’s hard to quantify and explain, and that can seem totally detached from the original goal, yet it carries more influence than anything else.
Investor Jim Grant once said: To suppose that the value of a common stock is determined purely by a corporation’s earnings discounted by the relevant interest rates and adjusted for the marginal tax rate is to forget that people have burned witches, gone to war on a whim, risen to the defense of Joseph Stalin and believed Orson Welles when he told them over the radio that the Martians had landed.
In her book A Beautiful Mind, Sylvia Nasar recounts a conversation between Nash and Harvard professor George Mackey: “How could you, a mathematician, a man devoted to reason and logical proof . . . how could you believe that extraterrestrials are sending you messages? How could you believe that you are being recruited by aliens from outer space to save the world? How could you . . . ?” “Because,” Nash said slowly in his soft, reasonable southern drawl, “the ideas I had about supernatural beings came to me the same way that my mathematical ideas did. So I took them seriously.
Stability is destabilizing. A lack of recessions actually plants the seeds of the next recession, which is why we can never get rid of them. 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.
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. They can’t be predicted any more than you can predict what kind of mood you’ll be in three years from now.
A good idea on steroids quickly becomes a terrible idea. Warren Buffett once joked that you can’t make a baby in one month by getting nine women pregnant. Most things have a natural size and speed and backfire quickly when you push them beyond that.
Nassim Taleb says he’s a libertarian at the federal level, a Republican at the state level, a Democrat at the local level, and a socialist at the family level.
Stress focuses your attention in ways that good times can’t. 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. “Nothing can become truly resilient when everything goes right,” Shopify founder Toby Lütke said.
The 1930s were a disaster, one of the darkest periods in American history. Almost a quarter of Americans were out of work in 1932. The stock market fell 89 percent. Those two economic stories dominate the decade’s attention, and they should. But there’s another story about the 1930s that rarely gets mentioned: it was, by far, the most productive and technologically progressive decade in U.S. history. By 1941 the U.S. economy was producing 40 percent more output than it had in 1929, with virtually no increase in the total number of hours worked. Big, fast changes happen only when they’re forced by necessity.
Vannevar Bush, who ran the U.S. Office of Scientific Research and Development during World War II, controversially suggested the medical advances that came about from the war—most notably the production and use of antibiotics—may have saved more lives than were lost during the war.
“Most successful people are just a walking anxiety disorder harnessed for productivity.” - Andrew Wilkinson
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. Progress always takes time, often too much time to even notice it’s happened. But bad news? It’s not shy or subtle. It comes instantly, so fast that it overwhelms your attention and you can’t look away. 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.
If I were to say, “What are the odds the average American will be twice as rich fifty years from now?” it sounds preposterous. The odds seem very low. Twice as rich as they are today? Doubling what we already have? It seems too ambitious. But then if I said, “What are the odds we can achieve 1.4 percent average annual growth for the next fifty years?” I almost sound like a pessimist. One percent? That’s it?
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.
“The greatest shortcoming of the human race is our inability to understand the exponential function,” - Albert Bartlett
Investor Howard Marks once talked about an investor whose annual results were never ranked in the top quartile, but over a fourteen-year period he was in the top 4 percent of all investors. If he keeps those mediocre returns up for another ten years he may be in the top 1 percent of his peers—one of the greatest of his generation despite being unremarkable in any given year.
Progress requires optimism and pessimism to coexist. They seem like conflicting mindsets, so it’s more common for people to prefer one or the other. But knowing how to balance the two has always been, and always will be, one of life’s most important skills. 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.
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. 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. Those who can’t usually end up either bitter pessimists or bankrupt optimists.
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. So species rarely evolve to become perfect at anything, because perfecting one skill comes at the expense of another skill that will eventually be critical to survival.
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.