Book Note #4

In his new book, Morgan Housel explores the concept that, despite changes in the world, certain human behaviors and patterns remain constant. Through a series of short stories and examples, the book illustrates how certain aspects of human nature, like greed, fear, and overconfidence, do not change over time. Housel emphasizes the importance of understanding these unchanging behaviors to predict the future and make better decisions. The book also delves into the role of luck, the inevitability of change, and the importance of preparedness over prediction, highlighting that while technology, politics, and economies evolve, core human behaviors stay the same. 

Here are some portions that we highlighted while reading the book:

• I once had lunch with a guy who’s close to Warren Buffett. This guy—we’ll call him Jim (not his real name)—was driving around Omaha, Nebraska, with Buffett in late 2009. The global economy was crippled at this point, and Omaha was no exception. Stores were closed, businesses were boarded up. Jim said to Warren, “It’s so bad right now. How does the economy ever bounce back from this?” Warren said, “Jim, do you know what the bestselling candy bar was in 1962?” “No,” Jim said. “Snickers,” said Warren. “And do you know what the bestselling candy bar is today?” “No,” said Jim. “Snickers,” Warren said. Then silence. That was the end of the conversation. This is a book of short stories about what never changes in a changing world.
• If you traveled in time to five hundred years ago or five hundred years from now, you would be astounded at how much technology and medicine has 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 behavior 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 behaviors that never change are history’s most powerful lessons, because they preview what to expect in the future. Your future. Everyone’s future. 
• 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. The same philosophy works in almost all areas of life. 
• I 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. 
• I cannot tell you what businesses will dominate the next decade. But I can tell you how business leaders let success go to their heads, becoming lazy and entitled and eventually losing their edge. That story hasn’t changed in hundreds of years and never will. 
• Entrepreneur and investor Naval Ravikant put it this way: “In 1,000 parallel universes, you want to be wealthy in 999 of them. You don’t want to be wealthy in the fifty of them where you got lucky, so we want to factor luck out of it. . . . I want to live in a way that if my life played out 1,000 times, Naval is successful 999 times.” 
• If you know where we’ve been, you realize we have no idea where we’re going. A big lesson from history is realizing how much of the world hangs by a thread. Some of the biggest and most consequential changes in history happened because of a random, unforeseeable, thoughtless encounter or decision that led to magic or mayhem. 
• Every big story could have turned out differently if a few little puffs of nothingness went the other direction. So much of the world hangs by a thread. An irony of studying history is that we often know exactly how a story ends, but we have no idea where it began. 
• 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. What caused falling interest rates? Well, you have to 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. Events compound in unfathomable ways. 
• I try to keep two things in mind in a world that’s this vulnerable to chance and accident. 
• “After booms come busts” is about as close to economic law as it gets. Study history, and the calamity that followed the booming 1920s, late 1990s, and early 2000s seems more than obvious. It seems inevitable.  
• The biggest risk and the most important news story of the next ten years will be something nobody is talking about today. No matter what year you’re reading this book, that truth will remain. I can say that confidently because it’s always been true. The fact that you can’t see it coming is exactly what makes it risky. 
• History knows three things: 1) what’s been photographed, 2) what someone wrote down or recorded, and 3) the words spoken by people whom historians and journalists wanted to interview and who agreed to be interviewed. What percentage of everything important that’s ever happened falls into one of those three categories? No one knows. But it’s tiny. And all three suffer from misinterpretation, incompleteness, embellishment, lying, and selective memory. 
• Nassim Taleb says, “Invest in preparedness, not in prediction.” That gets to the heart of it. 
• Your happiness depends on your expectations more than anything else. 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.
• People don’t want accuracy. They want certainty. A common trait of human behavior is the burning desire for certainty despite living in an uncertain and probabilistic world.
• Dealing with the math behind risk and uncertainty in general is difficult—something people have struggled with forever and always will. That something can be likely and not happen, or unlikely and still happen, is one of the world’s most important tricks. Probability is about nuance and gradation. But in the real world, people pay attention to black-and-white results. 
• Daniel Kahneman once said, “Human beings cannot comprehend very large or very small numbers. It would be useful for us to acknowledge that fact.” 
• Stories are always more powerful than statistics. The best story wins. 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. 
• Great ideas explained poorly can go nowhere, while old or wrong ideas told compellingly can ignite a revolution.  
• When a topic is complex, stories are like leverage.  
• The world is driven by forces that cannot be measured. A lot of things don’t make any sense. The numbers don’t add up, the explanations are full of holes. And yet they keep happening—people making crazy decisions and reacting in bizarre ways that seem to defy rational thinking. 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. 
• Historian Will Durant once said, “Logic is an invention of man and may be ignored by the universe.” And it often is, which can drive you mad if you expect the world to work in rational ways.  
• 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.  
• Calm plants the seeds of crazy. Always has, always will.  
• A good idea on steroids quickly becomes a terrible idea. 
• People handle risk and responsibility in totally different ways when a group scales from 4 people to 100 to 100,000 to 100 million. Same for corporate culture. A management style that works brilliantly at a ten-person company can destroy a thousand-person company, which is a hard lesson to learn when some companies grow that fast in a few short years. 
• 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. When people are a little panicked, shocked, worried, and when the consequences of not acting quickly are too painful to bear. 
• 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. 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. 
• Progress requires optimism and pessimism to coexist.  
• 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. 
• There is a huge advantage to being a little imperfect. The key thing about evolution is that everything dies. Ninety-nine percent of species are already extinct; the rest will be eventually. There is no perfect species, one adapted to everything at all times. The best any species can do is to be good at some things until the things it’s not good at suddenly matter more. And then it dies. 
• Just like evolution, the key is realizing that the more perfect you try to become, the more vulnerable you generally are. 
• Everything worth pursuing comes with a little pain. The trick is not minding that it hurts. A good rule of thumb for a lot of things is to identify the price and be willing to pay it. The price, for so many things, is putting up with an optimal amount of hassle. 
• Most competitive advantages eventually die.  
• Five big things tend to eat away at competitive advantages. One is that being right instills 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. Size is associated with success, success is associated with hubris, and hubris is the beginning of the end of success. 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. There is a long history of star investment fund managers from one decade underperforming in the next. Some of this is the unraveling of luck. But success also attracts capital, and a big investment fund isn’t as nimble as a small one. The career version of this is the Peter Principle: talented workers will keep getting promoted until they’re in over their head, when they fail. 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. Hard work is in pursuit of a goal, and once that goal is met the relaxation that feels so justified removes paranoia. This allows competitors and a changing world to creep in unnoticed. A fourth is that a skill that’s valuable in one era may not extend to the next. You can work as hard and be as paranoid as you’ve always been, but if the world no longer values your skill, it’s a loss. Being a one-trick pony is common, because people and companies that are very good at one specific thing tend to be the highest paid during the boom. The last is that some success is owed to being in the right place at the right time. The reversion to reality that unmasks good luck is often only obvious with hindsight, and is both humbling and tempting not to believe. 
• The idea that advantage has a shelf life is a fundamental part of growth. 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—and in fact the ones that appear to do so tend to seed their own demise. 
• A common view through history is that past innovation was magnificent, but future innovation must be limited because we’ve picked all the low-hanging fruit. 
• Most people do not disclose what torments them, what they’re scared of, what they’re insecure about, or whether or not they’re actually happy. Rarely will they give you an honest account of their flaws and failures. The window-dressed version of ourselves is by far the most common. 
• 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. Like a successful hedge fund manager’s political views, or a politician’s investment advice. 
• 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. 
• When the incentives are crazy, the behavior is crazy. People can be led to justify and defend nearly anything. “People follow incentives, not advice.” 
• Unsustainable things can last longer than you anticipate. 
• 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. 
• The big takeaway here is that we really have no idea what policies we’ll be pushing for in, say, five or ten years. Unexpected hardship makes people do and think things they’d never imagine when things are calm. 
• People often have no idea how they’ll respond to a big windfall or an incredible gift of good luck until they’ve experienced it firsthand. It’s hard to imagine the full context until you experience it firsthand. You might think you know how it’ll feel. Then you experience it firsthand and you realize, ah, okay. It’s more complicated than you thought. 
• 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. Long-term thinking is easier to believe in than to accomplish. Most people know it’s the right strategy in investing, careers, relationships—anything that compounds. 
• To do long term effectively you have to understand a few points. The long run is just a collection of short runs you have to put up with. 
• Your belief in the long run isn’t enough. Your partners, coworkers, spouses, and friends have to sign up for the ride. 
• Patience is often stubbornness in disguise. 
• Long term is less about time horizon and more about flexibility.  
• Simplicity feels like an easy walk. Complexity feels like a mental marathon. 
• 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. There’s a long history of people adapting and rebuilding while the scars of their ordeal remain forever, changing how they think about risk, reward, opportunities, and goals for as long as they live. 
• An important component of human behavior is that people who’ve had different experiences than you will think differently than you do. They’ll have different goals, outlooks, wishes, and values. So most debates are not actual disagreements; they’re people with different experiences talking over each other. 
• So rather than ending this book with a list of conclusions to implement in your own life, I’ll leave you with a list of questions, all related to the chapters you just read, to ask yourself. 
  • Who has the right answers but I ignore because they’re not articulate? 
  • Which of my current views would I disagree with if I were born in a different country or generation?
  • What do I desperately want to be true so much that I think it’s true when it’s clearly not? 
  • What is a problem that I think applies only to other countries/industries/careers that will eventually hit me?  
  • What do I think is true but is actually just good marketing? 
  • What haven’t I experienced firsthand that leaves me naive about how something works? 
  • What looks unsustainable but is actually a new trend we haven’t accepted yet? 
  • Who do I think is smart but is actually full of it? 
  • Am I prepared to handle risks I can’t even envision? 
  • Which of my current views would change if my incentives were different?  
  • What are we ignoring today that will seem shockingly obvious in the future?  
  • What events very nearly happened that would have fundamentally changed the world I know if they had occurred?
  • How much have things outside my control contributed to things I take credit for? 
  • How do I know if I’m being patient (a skill) or stubborn (a flaw)? 
  • Who do I look up to that is secretly miserable?  
  • What hassle am I trying to eliminate that’s actually an unavoidable cost of success? 
  • What crazy genius that I aspire to emulate is actually just crazy? 
  • What strong belief do I hold that’s most likely to change? 
  • What’s always been true? 
  • What’s the same as ever?