Same As Ever - Morgan Housel (Part 2)
Here is the second part of the collection of our favorite insights from Morgan Housel’s book, "Same as Ever: A Guide to What Never Changes." You can find the first part here.
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.”
Harvard Business Review once pointed out to Jerry Seinfeld that part of the reason he ended his show was writer burnout. The magazine asked if he and show cocreator Larry David could have avoided burnout and kept the show going if they used a consulting company like McKinsey to create a more efficient writing process. 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.”
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.
What’s easy to miss is that there are bad things that become bigger problems when you try to eliminate them. I think the most successful people recognize when a certain amount of acceptance beats purity. Theft is a good example. A grocery store could eliminate theft by strip-searching every customer leaving the store. But then no one would shop there. So the optimal level of theft is never zero. You accept a certain level as an inevitable cost of progress.
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.”
Most competitive advantages eventually die. Аlmost 40 percent of all public companies lost all their value from 1980 to 2014. Evolution is ruthless and unforgiving—it doesn’t teach by showing you what works but by destroying what doesn’t. 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. Another takeaway is to keep running. No competitive advantage is so powerful that it can let you rest on your laurels.
It always feels like we’re falling behind, and it’s easy to discount the potential of new technology. Тhere’s a typical path of how people respond to what eventually becomes a world-changing new technology: • I’ve never heard of it. • I’ve heard of it but don’t understand it. • I understand it, but I don’t see how it’s useful. • I see how it could be fun for rich people, but not me. • I use it, but it’s just a toy. • It’s becoming more useful for me. • I use it all the time. • I could not imagine life without it. • Seriously, people lived without it? • It’s too powerful and needs to be regulated.
You can never tell what apparently small discovery will lead to. Somebody discovers something and immediately a host of experimenters and inventors are playing all the variations upon it. - Edison
Author Safi Bahcall notes that Polaroid film was discovered when sick dogs that were fed quinine to treat parasites showed an unusual type of crystal in their urine. Those crystals turned out to be the best polarizers ever discovered. Who predicts that? Who sees that coming? Nobody. Absolutely nobody. Facebook similarly began as a way for college students to share pictures of their drunk weekends, and within a decade it was the most powerful lever in global politics.
There’s a theory in evolutionary biology called Fisher’s Fundamental Theorem of Natural Selection. No one can know what traits will be useful; that’s not how evolution works. But if you create a lot of traits, the useful one— whatever it is—will be in there somewhere. It’s the same thing with innovation.
It’s easy to always feel like we’re falling behind. In most eras it can feel like we haven’t invented anything useful for ten or twenty years. But that’s merely because it can take ten or twenty years for an innovation to become useful. When you realize that progress is made step-by-step, slowly over time, you realize that tiny little innovations that no one thinks much of are the seeds for what has the potential to compound into something great. The value of every new technology is not just what it can do; it’s what someone else with a totally different skill set and point of view can eventually manipulate it into.
“The grass is always greener on the side that’s fertilized with bullshit.” It’s easiest to convince people that you’re special if they don’t know you well enough to see all the ways you’re not. “All businesses are loosely functioning disasters,” Brent Beshore says. But a business is like an iceberg; only a fraction is visible. It’s the same for people. Everyone’s dealing with problems they don’t advertise, at least until you get to know them well. Keep that in mind and you become more forgiving—of yourself and others.
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.Incentives are the most powerful force in the world and can get people to justify or defend almost anything. Ben Franklin once wrote, “If you would persuade, appeal to interest and not to reason.”
In 1997 a religious cult called Heaven’s Gate believed a spaceship traveling behind a comet was heading to Earth to pick up true believers and carry them to paradise. Several cult members pitched in to buy a high-powered telescope. They wanted to see the spaceship with their own eyes. They found the comet in the sky. But there was no spaceship following it. So they took the telescope back to the store for a refund. The store manager asked if there was something wrong. They said yes, the telescope was clearly broken—because it didn’t show the spaceship. There’s a long history of people believing what they want to believe. And not just cult members.
An advisor just feels useless if they tell a client “we don’t need to do anything here.” In the quest to be helpful they add complexity even when none is needed, or when it might backfire.
Unsustainable things can last longer than you anticipate. Incentives can keep crazy, unsustainable trends going longer than seems reasonable because there are social and financial reasons preventing people from accepting reality for as long as they can.
Nothing is more persuasive than what you’ve experienced firsthand. Harry Truman once said: The next generation never learns anything from the previous one until it’s brought home with a hammer. . . . I’ve wondered why the next generation can’t profit from the generation before, but they never do until they get knocked in the head by experience.
Or take Varlam Shalamov, a poet who spent fifteen years imprisoned in a gulag. He once wrote how quickly normal people can crack under stress and uncertainty. Take a good, honest, loving person and strip them of basic necessities and you’ll soon get an unrecognizable monster who’ll do anything to survive. Under high stress, “a man becomes a beast in three weeks,” Shalamov wrote.
People who are under stress quickly embrace ideas and goals they never would otherwise has left its fingerprints all over history.
In investing, saying “I will be greedy when others are fearful” is easier said than done, because people underestimate how much their views and goals can change when markets break.
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.”
Saying “I’m in it for the long run” is a bit like standing at the base of Mount Everest, pointing to the top, and saying, “That’s where I’m heading.” Well, that’s nice. Now comes the test.
The world changes, which makes changing your mind not just helpful, but crucial. But changing your mind is hard because fooling yourself into believing a falsehood is so much easier than admitting a mistake.
I try to ask when I’m reading: Will I care about this a year from now? Ten years from now? Eighty years from now? It’s fine if the answer is no, even a lot of the time. But if you’re honest with yourself you may begin to steer toward the more enduring bits of information. The point isn’t that you should read less news and more books. It’s that if you read good books you’ll have an easier time understanding what you should or shouldn’t pay attention to in the news.
There are no points awarded for difficulty. Computer scientist Edsger Dijkstra once wrote: Simplicity is the hallmark of truth—we should know better, but complexity continues to have a morbid attraction. When you give an academic audience a lecture that is crystal clear from alpha to omega, your audience feels cheated. . . . The sore truth is that complexity sells better.
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. MIT cancer researcher Robert Weinberg once described it this way: You can’t die from cancer if you don’t get cancer in the first place. But that simple truth is easy to overlook, because it’s not intellectually stimulating.
When you first start to study a field, it seems like you have to memorize a zillion things. You don’t. What you need is to identify the core principles—generally three to twelve of them—that govern the field. The million things you thought you had to memorize are simply various combinations of the core principles.
This is so vital. In finance, spending less than you make, saving the difference, and being patient is perhaps 90 percent of what you need to know to do well. But what’s taught in college? How to price derivatives and calculate net present value. In health it’s sleep eight hours, move a lot, eat real food, but not too much. But what’s popular? Supplements, hacks, and pills.Stephen King explains in his book On Writing: This is a short book because most books about writing are filled with bullshit. I figured the shorter the book, the less bullshit.
In most fields a handful of variables dictate the majority of outcomes. But paying attention to only those few variables can feel like you’re leaving too much of the outcome to fate. The more knobs you can fiddle with—the hundred-tab spreadsheet, or the Big Data analysis— the more control you feel you have over the situation, if only because the impression of knowledge increases.
The flip side is that paying attention to only a few variables while ignoring the majority of others can make you look ignorant. If a client says, “What about this, what’s happening here?” and you respond, “Oh, I have no idea, I don’t even look at that,” the odds that you’ll sound uninformed are greater than the odds you’ll sound like you’ve mastered simplicity.If the reps don’t hurt when you’re exercising, you’re not really exercising. The problem with simplicity is that the reps don’t hurt, so you don’t feel like you’re getting a mental workout. It can create a preference for laborious learning that students are actually okay with because it feels like a cognitive bench press, with all the assumed benefits.
Drive past the Pentagon, in Washington, D.C., and there is no trace of the plane that crashed into its walls on September 11, 2001. But drive three minutes down the road, to Reagan National Airport, and the scars of 9/11 are everywhere. Shoes off, jackets off, belts off, toothpaste out, hands up, and empty your water bottle while going through security. Here’s a common theme in the way people think: Wounds heal, but scars last.
Most debates are not actual disagreements; they’re people with different experiences talking over each other.
Experiencing something that makes you stare ruin in the face and question whether you’ll survive can permanently reset your expectations and change behaviors that were previously ingrained. “A mind that is stretched by new experience can never go back to its old dimensions,” said Oliver Wendell Holmes. It’s why the generation who lived through the Great Depression never viewed money the same afterward. They saved more money, took on less debt, and were wary of risk—for the rest of their lives. This was obvious even before the Depression was over.
Historian Tony Judt notes that the state of affairs was so bad in postwar Europe that only the state could offer hope of salvation to the masses of displaced people. So it did. Everything from generous unemployment insurance to universal health care became common after the war in ways that never caught on in America.
Two things tend to happen after you get hit with something big and unexpected: • You assume what just happened will keep happening, but with greater force and consequence. • You forecast with great conviction, despite the original event being improbable and something few, if anyone, predicted. And, importantly, the more those who didn’t experience that big event will struggle to understand your point of view. “What have you experienced that I haven’t that makes you believe what you do? And would I think about the world like you do if I experienced what you have?” It’s the question that contains the most answers about why people don’t agree with one another. But it’s such a hard question to ask.
People will disagree, even as access to information explodes. They may disagree more than ever because, as Benedict Evans says, “The more the Internet exposes people to new points of view, the angrier people get that different views exist.”
A decade ago I made a goal to read more history and fewer forecasts. It was one of the most enlightening changes of my life. And the irony is that the more history I read, the more comfortable I became with the future. When you focus on what never changes, you stop trying to predict uncertain events and spend more time understanding timeless behavior.