Morgan Housel is as good as ever. A summary with my notes taken as there are many great nuggets.
Summary
Same As Ever argues that by understanding timeless human behavior and focusing on long-term thinking, we can make better decisions about our lives and our investments.
- Focus on timeless human behavior: Predicting the future is difficult, but understanding how people behave can provide valuable insights. People’s fundamental behaviors, such as responding to greed, fear, opportunity, exploitation, risk, uncertainty, and social persuasion, remain largely unchanged over time. Predicting these behaviors can be more valuable than trying to predict specific future events.
- Crave for certainty in an uncertain world: The human desire for certainty in an uncertain world is a common trait that leads to poor decision-making. People often crave certainty more than accuracy.
- The future is uncertain: It’s impossible to predict the future with certainty. However, by studying history and understanding timeless human behavior, we can better prepare for whatever comes our way.
- No one sees it coming. Preparedness is more important than prediction: The biggest risks and most consequential events are often the ones that no one sees coming, as people tend to be better at predicting the future except for the surprises. Investing in preparedness rather than prediction is important.
- The importance and dangers of stories: People are more persuaded by stories than by objective facts. Companies that can tell a compelling story about the future are more likely to be successful.
- Beware of expectations: Happiness depends more on expectations than reality. If you constantly chase after the next best thing, you may never be satisfied. It’s important to manage your expectations and appreciate what you have.
- Optimism and pessimism coexist: Progress requires a balance of optimism and pessimism. Optimism helps us take risks and innovate, while pessimism helps us avoid danger.
- The dangers of perfection: Striving for perfection can be counterproductive. It’s better to be approximately right than precisely wrong.
- Competitive advantages are fleeting: Most competitive advantages eventually erode. Companies need to be constantly innovating and adapting to stay ahead.
- Incentives influences behaviours: Incentives can have a powerful influence on people’s behaviour, often leading them to justify or defend things they would not have otherwise.
- Focus on long-term thinking: Long-term thinking is difficult, but it can be very rewarding. Permanent, timeless information (knowledge and research) is often overlooked in favor of more attention-grabbing, expiring knowledge (news). Investors who can focus on the long term and avoid short-term temptations are more likely to be successful.
- Simplicity is often better than complexity: Don’t be fooled by complexity. Often, the simplest solutions are the most effective.
- Learn from experience: Hard times can leave lasting scars. People who have experienced difficult times may be more cautious and risk-averse in the future.
- Focus on the past to understand the future: Studying history can help us understand the big trends that are likely to shape the future. By understanding what has never changed in the past, we can better prepare for what is to come.
Different but same; we are humans after all
History is filled with surprises no one could have seen coming. But it’s also filled with so much timeless wisdom. If you travelled in time to five hundred years ago or five hundred years from now, you would be astounded at how much technology and medicine have changed. The geopolitical order would make no sense to you. The language and dialect might be completely foreign. But you’d notice people falling for greed and fear just like they do in our current world. You’d see people persuaded by risk, jealousy, and tribal affiliations in ways that are familiar to you. You’d see overconfidence and shortsightedness that remind you of people’s behaviour today. You’d find people seeking the secret to a happy life and trying to find certainty when none exists in entirely relatable ways. When transported to an unfamiliar world, you’d spend a few minutes watching people behave and say, “Ah. I’ve seen this before. Same as ever.”
Change captures our attention because it’s surprising and exciting. But the behaviours that never change are history’s most powerful lessons because they preview what to expect in the future. No matter who you are, where you’re from, how old you are, or how much money you make, there are timeless lessons from human behaviour that are some of the most important things you can ever learn.
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.”
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.
We have no clue what the stock market will do next year (or any year) but people’s penchant for greed and fear never changes.
Two things are worth thinking about
1. 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 worth taking.
2. 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.
We like but are bad at predicting the future. Risk is what you don’t see.
It’s well-known that people like but are bad at predicting the future. This misses an important nuance: 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.
Risk is what’s left over after you think you’ve thought of everything.
Carl Richards
The biggest news, the biggest risks, the most consequential events are always what you don’t see coming. Asking what the biggest risks are is like asking what you expect to be surprised about. The biggest risk and the most important news story of the next ten years will be something nobody is talking about today. The fact that you can’t see it coming is exactly what makes it risky. Risk is what they couldn’t see coming.
Invest in preparedness, not in prediction.
Nassim Taleb
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.
Most of the time, when someone’s caught unprepared, it’s not because they didn’t plan. Sometimes it’s the smartest planners in the world, working tirelessly, mapping every scenario they can imagine, who end up failing. They planned for everything that made sense before getting hit by something they’d never imagined.
Expectations and reality
The first rule of happiness is low expectations.
Your happiness depends on your expectations more than anything else. So in a world that tends to get better for most people most of the time, an important life skill is getting the goalpost to stop moving. It’s also one of the hardest.
Things get better, wealth increases, technology brings new efficiencies, and medicine saves lives. The quality of life goes up. But people’s expectations then rise by just as much, if not more, because those improvements also benefit other people around you, whose circumstances you anchor to. Happiness is little changed despite the world improving.
Investor Charlie Munger once noted that the world isn’t driven by greed; it’s driven by envy.
We might have higher incomes, more wealth, and bigger homes—but it’s all so quickly smothered by inflated expectations. It also highlights just how important managing expectations can be if you want to live a happy life.
Being driven by what other people have and you don’t is an unavoidable trait in most people. It also highlights just how important managing expectations can be if you want to live a happy life.
We tend to take every precaution to safeguard our material possessions because we know what they cost. But at the same time we neglect things which are much more precious because they don’t come with price tags attached: The real value of things like our eyesight or relationships or freedom can be hidden to us, because money is not changing hands.
Peter Kaufman, CEO of Glenair
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.
Charlie Munger
Marriage works when both people want to help their spouse while expecting nothing in return. If you both do that, you’re both pleasantly surprised.
Wealth and happiness is a two-part equation: what you have and what you expect/need. 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.
Understand how the expectation game is played. It is a mental game. You think you want progress but most of the time that is not actually what you want. You want to feel a gap between what you expected and what actually happened. The expectation side of that equation is not only important but it is often more in your control than managing your circumstances.
It comes as a package.
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.
Either you want someone else’s life or you don’t.
Importance of certainty
A common trait of human behaviour is the burning desire for certainty despite living in an uncertain and probabilistic world. The core here is that people think they want an accurate view of the future, but what they really crave is certainty. A related and equally important problem here is how easy it is to underestimate rare events in a world as large as ours.
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. People don’t want accuracy. They want certainty.
The need for certainty is the greatest disease the mind faces.
Robert Greene
Best stories win
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. Great ideas explained poorly can go nowhere, while old or wrong ideas told compellingly can ignite a revolution.
There is too much information in the world for everyone to calmly sift through the data, looking for the most rational, most correct answer. People are busy and emotional, and a good story is always more powerful and persuasive than ice-cold statistics.
The valuation of every company is simply a number from today multiplied by a story about tomorrow.
Some companies are incredibly good at telling stories, and during some investors become captivated by the wildest ideas of what the future might bring.
The most important variable was the stories people told themselves (confirmation bias). And that was the only thing you couldn’t measure and couldn’t predict with foresight.
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.
We are all different and crazy.
- The first step toward accepting that some things don’t compute is realizing that the reason we have innovation and advancement is that we are fortunate to have people in this world whose minds work differently from ours.
- The next is accepting that what’s rational to one person can be crazy to another.
- Third is understanding the power of incentives. People delude not only their customers but themselves.
- Last is the power of stories over statistics.
Oscillating in cycles
Hyman Minsky’s seminal theory of financial instability hypothesis:
- When an economy is stable, people get optimistic.
- When people get optimistic, they go into debt.
- When they go into debt, the economy becomes unstable.
Minsky’s big idea was that 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.
The irony of good times is that they breed complacency and scepticism of warnings.
Carl Jung had a theory called enantiodromia. It’s the idea that an excess of something gives rise to its opposite.
What calm planting the seeds of crazy does is important: It makes us fundamentally underestimate the odds of things going wrong, and the consequences of something going wrong. Things can become the most dangerous when people perceive them to be the safest.
At your highest moment, be careful. That’s when the devil comes for you.
Denzel Washington’s advice to Will Smith after slapping Chris Rock on stage at the Oscars
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.
That’s why markets don’t stay within the limits of sanity, and why they always overdose on pessimism and optimism. They have to.
There are two things you can do about it.
- One is accepting that crazy doesn’t mean broken. Crazy is normal; beyond the point of crazy is normal. People haven’t lost their minds; they’re just searching for the boundaries of what other investors are willing to believe.
- The second is realizing the power of enough.
Too much, too soon, too fast
Most things have a natural size and speed and backfire quickly when you push them beyond that. Growth is good, if only because runts eventually get eaten. But forced growth, accelerated growth, artificial growth—that tends to backfire.
An important thing about this topic is that most great things in life—from love to careers to investing—gain their value from two things: patience and scarcity. Patience to let something grow, and scarcity to admire what it grows into. But what are the two of the most common tactics when people pursue something great? Trying to make it faster and bigger.
Stress is good.
Stress focuses your attention in ways that good times can’t.
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.
The circumstances that tend to produce the biggest innovations are those that cause people to be worried, scared, and eager to move quickly because their future depends on it.
Nothing can become truly resilient when everything goes right.
Shopify founder Toby Lütke
There’s an obvious limit to stress-induced innovation. There’s a delicate balance between helpful stress and crippling disaster. The fear, the pain, the struggle are motivators that positive feelings can never match.
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.
Progress has challenges and it takes time.
Progress always starts small and insignificant and takes time. They compound and compounding takes a while, so it’s easy to ignore.
Most catastrophes come from a series of tiny risks—each of which is easy to ignore—that multiply and compound into something huge.
Most amazing things happen when something tiny and insignificant compounds into something extraordinary.
Big risks are easy to overlook because they’re just a chain reaction of small events, each of which is easy to shrug off. So people always underestimate the odds of big risks.
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 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?”
Little changes compounded for a long time create extraordinary changes.
Co-existence of optimisim and pessimism
Progress requires optimism and pessimism to coexist.
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.
A big thing to know about how people think is that progress requires optimism and pessimism to coexist.
The best financial plan is to save like a pessimist and invest like an optimist.
The opposite of depressive realism is “blissfully unaware.” It’s what many of us suffer from. But we don’t actually suffer from it, because it feels great. And the fact that it feels good is the fuel we need to wake up and keep working even when the world around us can be objectively awful, and pessimism abounds.
An important thing to recognize here is that optimism and pessimism exist on a spectrum. At one end you have the pure optimist. At the other end, you have the pure pessimists. In the middle is the sweet spot, what he calls the 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.
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 long-term growth. You can only be an optimist in the long run if you are pessimistic enough to survive the short run.
Save like a pessimist and invest like an optimist.
Plan like a pessimist and dream like an optimist.
Casualties of perfection
The key thing about evolution is that everything dies. Ninety-nine per cent of species are already extinct; the rest will be eventually. A species that evolves to become very good at one thing tends to become vulnerable at another. 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.
it’s better to be approximately right than precisely wrong.
When you keep forecasting simple, you free up time and bandwidth for other activities. I like studying the investing behaviours that never change, and I’d never have the time to do that if I spent my day predicting what the economy will do next quarter. The same is true in virtally every field.
The more precise you try to be, the less time you have to focus on big-picture rules that are probably more important.
It will hurt.
Everything worth pursuing comes with a little pain. The trick is not minding that it hurts.
The reason someone like Jerry Seinfeld, or Michael Jordan, or Serena Williams is so famous is because there is only one of them. What they’ve accomplished is unfathomably hard, and that is what we admire.
The only thing harder than gaining a competitive advantage is keeping one.
Keep running
Most competitive advantages eventually die.
Five big things tend to eat away at competitive advantages.
- One is that being right instils confidence that you can’t be wrong, which is a devastating characteristic in a world where outlier success has a target on its back, with competitors in tow.
- Another is that success tends to lead to growth, usually by design, but a big organization is a different animal than a small one, and strategies that lead to success at one size can be impossible at another.
- A third is the irony that people often work hard to gain a competitive advantage for the intended purpose of not having to work so hard at some point in the future.
- A fourth is that a skill that’s valuable in one era may not extend to the next.
- The last is that some success is owed to being in the right place at the right time.
Advantage has a shelf life is a fundamental part of growth.
Competitive advantages tend to be short-lived, often because their success plants the seeds of their own decline.
There are no permanent advantages. Everyone is madly scrambling all the time, but no one gets so far ahead that they become extinction-proof.
“Keep running” just to stay in place is how evolution works.
The wonders of the future: What is left to innovate and invent
A common view throughout history is that past innovation was magnificent, but future innovation must be limited because we’ve picked all the low-hanging fruit.
All innovation is hard to predict and easy to underestimate.
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.
Everything is sales.
Since they’re crafting the image, it’s not a complete view. There’s a filter. Skills are advertised, and flaws are hidden. it’s always hard to know where anyone sits on that spectrum when they’ve carefully crafted an image of who they are. “The grass is always greener on the side that’s fertilized with bullshit,”
What most of us see most of the time is a fraction of what has actually happened, or what’s going on inside people’s heads. And it’s stripped of all the hard parts. Most things are harder than they look and not as fun as they seem.
When you are keenly aware of your own struggles but blind to those of others, it’s easy to assume you’re missing some skill or secret that others have. The more we describe successful people as having superhuman powers, the more everyone else looks at them and says, “I could never do that.” Which is unfortunate, because more people would be willing to try if they knew that those they admire are probably normal people who played the odds right.
When someone is viewed as more extraordinary than they are, you’re more likely to overvalue their opinion on things they have no special talent in.
Everyone’s dealing with problems they don’t advertise, at least until you get to know them well.
Incentives are the most powerful force in the world.
Incentives can get people to justify or defend almost anything.
When you understand how powerful incentives can be, you stop being surprised when the world lurches from one absurdity to the next.
No matter how much information and context you have, nothing is more persuasive than what you desperately want or need to be true.
It is easier to recognize other people’s mistakes than our own. What makes incentives powerful is not just how they influence other people’s decisions but how blind we can be to how they impact our own.
People follow incentives, not advice.
James Clear
Too many of us underestimate how we ourselves would have acted if someone dangled enormous rewards in our faces. Incentives lean heavily toward not rocking the boat. So everyone keeps paddling long after the market becomes unsustainable.
One of the strongest pulls of incentives is the desire for people to hear only what they want to hear and see only what they want to see.
Show me a man who thinks he’s objective and I’ll show you a man who’s deceiving himself.
Henry Luce
Easier said than done: Nothing is more persuasive than what you have experienced firsthand.
A big theme throughout history is that preferences are fickle, and people have no idea how they’ll respond to an extreme shift in circumstance until they experience it for themselves.
One of the most fascinating parts of the Great Depression isn’t just that the economy collapsed, but how quickly and dramatically people’s views changed as a result.
Unexpected hardship makes people do and think things they’d never imagine when things are calm.
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.
The reason you may embrace ideas and goals you once thought unthinkable during a downturn is because more changes during downturns than just asset prices.
If I, today, imagine how I’d respond to stocks falling 30 percent, I picture a world where everything is like it is today except stock valuations, which are 30 percent cheaper.
But that’s not how the world works. Downturns don’t happen in isolation.
Even though Warren Buffett says to be greedy when others are fearful, far more people agree with that quote than actually act on it. Hard times make people do and think things they’d never imagine when things are calm.
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.”
Part of this is the same reason that predicting how you’ll respond to risk is difficult: It’s hard to imagine the full context until you experience it firsthand.
It’s more complicated than you thought.
Easier said than done: Time horizons
Long-term thinking is easier to believe in than to accomplish. Long-term is harder than most people imagine, which is why it’s more lucrative than many people assume.
The long run is just a collection of short runs you have to put up with. Rather than assuming long-term thinkers don’t have to deal with short-term nonsense, ask the question, “How can I endure a never-ending parade of nonsense?” The longer your time horizon, the more calamities and disasters you’ll experience.
The future is much like the present, only longer.
Dan Quisenberry
The reason so many financial professionals stray toward short-termism is because it’s the only way to run a viable business when customers flee at the first sign of trouble. But the reason customers flee is often because investors have done such a poor job communicating how investing works, what their strategy is, what they should expect as an investor and how to deal with inevitable volatility and cyclicality. Eventally being right is one thing. But can you eventually be right and convince those around you? That’s completely different and easy to overlook.
Patience is often stubbornness in disguise. Doing long-term thinking well requires identifying when you are being patient versus just stubborn. Not an easy thing to do. The only solution is knowing the very few things in your industry that will next change and putting everything else in a bucket that is in constant need of updating and adapting. The few (very few) things that never change are candidates for long-term thinking. Everything else has a shelf life.
Long-term is less about time horizon and more about flexibility. A long time horizon with a firm end date can be as reliant on chance as a short time horizon. Far superior is flexibility.
Another point about long-term thinking is how it sways the information we consume. 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.
Permanent information is harder to notice because it’s buried in books rather than blasted in headlines. But its benefit is huge. It’s not just that permanent information never expires, letting you accumulate it. It also compounds over time, leveraging what you’ve already learned.
Expiring information tells you what happened; permanent information tells you why something happened and is likely to happen again.
We should read less news and more books. It is that if we read good books, we will have an easier time understanding what we should or should not pay attention to in the news.
Trying too hard
An enduring quirk of human behaviour: the allure of complexity, intellectual stimulation, and discounting things that are simple but very effective, in preference to things that are complex but less effective. Example: Focus on treatment rather than prevention.
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 intellectuually stimulating.
MIT cancer researcher Robert Winberg
Complexity being favoured for its excitement, when simplicity may actually do a better job.
Simplicity is the hallmark of truth—we should know better, but complexity continues to have a morbid attraction. When you give an acagemic audience a lecture that is crystal clear from alpha to omega, your audience feels cheated…. The sore truth is that complexity sells better.
Computer scientist Edsger Dikstra
In most situations, a handful of simple variables drive the majority of outcomes. If you’ve covered the few things that matter, you’re all set. A lot of what gets added after that is an unnecessary filler that is either intellectually seductive, wastes your time, or is designed to confuse or impress you.
Complexity gives a comforting impression of control, while simplicity is hard to distinguish from cluelessness.
Things you don’t understand create a mystique around people who do. When you understand things I don’t, I have a hard time judging the limits of your knowledge in that field, which makes me more prone to taking your views at face value.
Length is often the only thing that can signal effort and thoughtfulness.
Wounds heal, and scars last.
Recessions, business failures and mistakes — over time, things heal, they recover and past mistakes are forgotten but scars last. We learned from bitter experiences to crave security.
People tend to have short memories. Most of the time they can forget about bad experiences and fail to heed lessons previously learned. But hard-core stress leaves a scar.
Experiencing something that makes you stare ruin in the face and question whether you’ll survive can permanently reset your expectations and change behaviours that were previously ingrained.
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.
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.
The more impactful the surprise, the more this is true.
“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?”
“The more the Internet exposes people to new points of view, the angrier people get that different views exist.”
Benedict Evans
Disagreement has less to do with what people know and more to do with what they’ve experienced.
The idea that what lies in front of us is a dark hole of uncertainty can be so intimidating, that it’s easier to believe the opposite—that we can see the future, and that its path is logical and predictable.
The typical attempt to clear up an uncertain future is to gaze further and squint harder—to forecast with more precision, more data, and more intelligence.
Far more effective is to do the opposite: Look backward, and be broad. Rather than attempting to figure out little ways the future might change, study the big things the past has never avoided.
A decade ago I made a goal to read more history and fewer forecasts —- 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 behaviours.
