Podcast Summary
Learning from Morgan Housel: Rational Optimism and Human Psychology: Understand the importance of rational optimism, acknowledging progress often comes with challenges, and be aware of human psychology's role in shaping our actions and decisions, while staying adaptable in a constantly changing world.
Learning from this conversation with Morgan Housel is the concept of rational optimism. This isn't just blindly believing that the future will be great, but rather acknowledging that progress and improvement often come with hardships and challenges. Housel emphasizes that people should maintain a reasonable and grounded perspective on the future, recognizing that the path to progress may be filled with unexpected twists and turns. Additionally, Housel discusses the importance of understanding human psychology and its role in shaping our actions and decisions. He shares insights from observing the lives of the wealthy and how they can fall victim to perfectionism and other pitfalls. Housel also touches on the fleeting nature of competitive advantages and the importance of staying adaptable in a constantly changing world. Overall, this conversation offers valuable insights into the human condition and the enduring truths that shape our behavior, regardless of time and place. It's a reminder to approach the future with a realistic and optimistic mindset, and to be aware of the psychological biases that can influence our decisions.
Hardships drive innovation and progress: Hardships motivate people to innovate and push for change, leading to advancements that benefit society as a whole, like nuclear energy, jets, rockets, and penicillin during the Great Depression and World War 2.
Hardships and challenges, whether they be economic recessions, pandemics, or wars, can lead to significant innovation and progress. During difficult times, people are motivated by downside incentives to push for change and improvement, leading to advancements that benefit society as a whole. This was evident during the Great Depression and World War 2, when the need for innovation and survival led to the development of technologies such as nuclear energy, jets, rockets, and penicillin. So while hardships can be devastating, they also have the potential to drive progress and create a better future.
External pressures and scarcity fuel innovation: Pressure and scarcity can unlock hidden abilities and lead to remarkable achievements, while abundance and complacency can lead to stagnation.
External pressures and scarcity can significantly impact innovation and productivity. During times of crisis or trauma, such as wars or economic depressions, humans have shown remarkable capabilities for innovation due to the sense of urgency and the need to adapt. However, during periods of relative prosperity and abundance, there is a lack of urgency and people tend to become complacent, leading to stagnation. This concept is known as Parkinson's law, which states that work expands to fill the time given for it. An extreme example of this is the trust funder who has no downside to not innovating or working hard. The relationship between resource scarcity and preferences for female body size is another example of this phenomenon. The same people with the same intelligence have vastly different potential under different circumstances. External pressures and deadlines can unlock hidden abilities and lead to remarkable achievements. Conversely, a lack of pressure can lead to complacency and stagnation.
Bias towards bad news: Despite gradual improvements in various areas, our focus on bad news can give us a skewed perception of reality. Be aware of this bias and seek out positive changes.
Our perception of reality can be skewed by the way news is presented to us. Bad news tends to capture our attention more due to its immediacy and potential threat, while good news often takes time to compound and may go unnoticed. This can lead to an overly pessimistic view of the world. For example, while there have been massive improvements in heart disease mortality and climate-related deaths over the past century, these gradual improvements often go unnoticed compared to the instant impact of tragedies. Elon Musk's approach at SpaceX, pushing for cost reductions and innovation, illustrates the potential for overcoming artificial constraints and achieving greater capabilities than we may initially believe. However, the human brain is wired to prioritize threats over opportunities, making it essential to be aware of this bias and make a conscious effort to seek out and appreciate the slow-moving positive changes in the world.
Small events can lead to big consequences: Individual occurrences, whether good or bad, can accumulate and have significant impacts on history or the stock market.
Significant events in the world, whether it's in the stock market or in history, are often the result of a series of small occurrences, rather than one large event. This was exemplified during the Great Depression, where a stock market crash, bank run, and the Dust Bowl, each individually bad, combined to create a massive economic calamity. Similarly, during the nuclear age, the risk of nuclear war came not from large-scale attacks, but from the use of small nuclear weapons, which could have potentially triggered a larger conflict. It's a reminder that the smallest things can have the largest impacts.
The Power of Compounding Events: Small changes accumulated over time can have a significant impact on history and personal success. Maintain a balance between optimism and realism to adapt and thrive.
Small events or ideas can have a significant impact when they compound over time. This concept was exemplified in the invention of the machine gun by Richard Gatling, who believed it would end wars due to its destructive power. However, the opposite occurred, leading to a chain reaction of events that shaped history. This principle applies to various aspects of life, from biological evolution to business success. Skeptics of evolution often underestimate the power of small changes accumulated over vast periods of time. Similarly, optimistic entrepreneurs who take bold risks but fail to manage their resources conservatively can lead their businesses to ruin. Admiral Stockdale's experience as a POW highlights the importance of being a rational optimist, maintaining a balance between hope and realism. Nassim Taleb's quote about adapting to different situations at various levels illustrates the need to be versatile and adjust to the demands of various contexts. Ultimately, understanding the power of compounding events and maintaining a balance between optimism and pessimism can lead to significant progress and success.
Recognizing the need for new expertise as a business grows: Effective leaders adapt and bring in new expertise to scale their businesses, balancing technical skills with business acumen.
Effective leadership requires recognizing when it's time to step back and bring in new expertise as a business grows. The discussion highlighted the importance of having individuals with different strengths leading at various stages. For instance, Mark Zuckerberg's technical skills allowed him to build Facebook, but as the company scaled, someone with business acumen became necessary. Similarly, Ben Francis, the founder of Gymshark, stepped back as CEO and brought in experienced leadership when the company grew larger. Conversely, Travis Kalanick's risk-taking attitude was essential for Uber's early success but proved detrimental when the company reached a larger scale. The ability to adapt and recognize the need for change is crucial for entrepreneurs looking to build and grow successful businesses.
The Difference Between Exceptional and Good Employees: Exceptional employees, or 'triple A players,' offer unique qualities beyond business skills, leading to greater success in the long run despite potential short-term inefficiencies. Employers who prioritize thoughtfulness and creativity over efficiency may reap significant benefits.
Exceptional individuals, or "triple A players," stand out from the good but imperfect "A players." These individuals are more than just businesspeople; they possess an ineffable quality that sets them apart. In the business world, having a little room for error and allowing time for thought and innovation can lead to greater success, even if it means a lower ROI in the short term. Companies that prioritize efficiency at the expense of flexibility have been shown to struggle during unexpected disruptions. Similarly, in our personal lives, many of us have jobs that require us to think rather than physically labor. In such cases, taking time to ponder and innovate, rather than constantly working, is crucial for success. Employers who value efficiency over thoughtfulness may miss out on the potential benefits of their employees' creativity and problem-solving abilities.
Questioning what seems unproductive but might be: Unstructured activities like sitting in a quiet room or going for a walk can lead to productive outcomes, but they're often overlooked due to a focus on observable productivity metrics.
Productivity is not always about following a structured routine or adhering to observable metrics. Sometimes, the most productive work happens during unstructured, seemingly unproductive activities. For instance, sitting in an empty room surrounded by jigsaw puzzle pieces might seem unproductive, but it helped one person focus on his project without distractions. Similarly, going for a walk or having dinner with friends can lead to creative ideas and productive outcomes that can't be measured by the clock or a dashboard. However, it can be challenging for employees to prioritize these activities when their bosses value observable productivity metrics. It's essential to question what we think is productive but isn't and what we overlook as productive but often overlook. For instance, calls, Slack, and WhatsApp messages might seem productive, but they can also be a distraction from deep work. Conversely, activities like reading, attending events, and having dinner with new people can lead to valuable connections and ideas. It's crucial to remember that not all productivity can be measured, and it's essential to prioritize hidden, observable metrics that drive the most significant returns. As Jeff Bezos noted, it's essential to question whether the metrics we use still lead to success and not just be a habit or tradition.
Exploring new ideas and meeting new people can lead to personal growth: Commit to making time for activities that enrich your mind, like reading, and view them as valuable investments for personal and professional growth, despite initial discomfort or resistance.
Being open to meeting new people and committing time to activities that enrich your mind, such as reading, can lead to significant personal growth. The speaker shares his experience of meeting Douglas Murray and the impact it had on him. He emphasizes the importance of treating reading like a gym session, dedicating time to it, and not letting other urgent tasks take priority. The speaker also highlights the importance of having a mindset that values the importance of these activities, even if they may not appear productive to others. He encourages readers to commit to making time for these activities and to not be discouraged by the initial discomfort or resistance. The speaker's advice can be applied to various aspects of life, including personal development, career growth, and investing. The cost of pursuing these endeavors may come with some pain or discomfort, but the reward can be significant.
The cost of great success often includes personal sacrifices: Success requires hard work, dedication, and personal sacrifices. Famous individuals like Musk, Gates, and Zuckerberg made extreme sacrifices in their personal lives to achieve great success.
The cost of achieving great success in life, whether it be in career, personal growth, or creative pursuits, is often overlooked but significant. The lives of successful individuals, such as Musk, Gates, Zuckerberg, and athletes like Michael Jordan and Tiger Woods, may seem enviable, but the sacrifices they made, often in the areas of health and relationships, are often extreme. Dali, the surrealist artist, is a prime example of this, with his unconventional upbringing, self-harm, and extravagant behavior contributing to his unique artistic vision. Success requires hard work, dedication, and often personal sacrifice, and it's essential to understand and be willing to pay that price. As Alex, a friend of the speaker, put it, "this is what hard feels like," and most people aren't willing to endure it. However, those who are, like Musk, Zuckerberg, and Dali, are the ones who make a significant impact on the world.
Deserve what you want through hard work and dedication: Success requires passion, hard work, and dedication. Deserving what you want is safer than seeking shortcuts or imitating others.
Success is not something that can be easily achieved through shortcuts or by imitating others. Instead, it requires a deep-rooted passion and the willingness to put in the hard work and time. Champions don't have something that everyone else lacks; rather, they are fulfilled by their pursuits and don't give up even when faced with challenges. The Donner Party, a historical example of a wealthy family seeking more, illustrates the danger of being tempted by shortcuts. Instead, the safest way to achieve what you want is to deserve it through hard work and dedication. Munger's philosophy of deserving what you want applies to various aspects of life, including love and wealth. In relationships, serving each other without expecting anything in return is the key to success. In business, most competitive advantages eventually die, and the only way to sustain success is by continuously working to deserve it.
Success can lead to complacency, causing downfall: Recognize the danger of complacency, stay connected to the core of your business or craft for long-term success
Success can lead to complacency, which in turn can result in the downfall of an individual or a business. Sears, once a dominant retailer, serves as a cautionary tale. They became so successful that they lost sight of their competitive edge and ignored the rise of Walmart. This story is not unique to businesses; it can also happen in individuals' lives. The fear of going out of business keeps companies like Sequoia at the top, but the same mindset can be detrimental in personal life. The "paranoid survival" business model, characterized by vigilance and anxiety, can be effective in a professional context but destructive in personal life. It's crucial to recognize that letting up on the reins of hard work can have unintended consequences for your career, and ultimately, your personal happiness. The moment a CEO stops building the product or a musician stops writing their own songs, they lose the magic that made them successful in the first place. Staying connected to the core of your business or craft is essential for long-term success.
Focus on core business aspects, outsource non-essentials, and keep an open mind towards new technologies: Entrepreneurs should focus on essential business tasks, outsource non-essential ones, and stay open to the potential of new technologies, recognizing their long-term value.
As entrepreneurs and business leaders, it's essential to identify and focus on the core aspects of our businesses that generate revenue and impact, rather than outsourcing or delegating them. This is a common pitfall, especially when success is achieved, and the temptation to become complacent and detached sets in. Instead, we should effectively outsource non-essential tasks and continue to innovate by building on the foundations laid by others. Another insight gained from the discussion was the evolution of new technologies. It's easy to dismiss new inventions as useless or irrelevant, but their true potential often lies in their ability to be combined with other technologies and innovations to create something remarkable. This is evident in the histories of successful inventions like the light bulb, the car, and the airplane. Moreover, people's reactions to new technologies follow a predictable pattern. Initially, they may not understand or see the use of the technology. Then, they may view it as a rich person's toy. Eventually, they come to appreciate its value and become reliant on it. So, instead of dismissing new technologies outright, we should keep an open mind and consider their long-term potential.
Underestimating the Impact of New Technologies: New technologies and innovations may not be fully understood or appreciated at first, and their true impact and benefits may take decades to become clear.
The full potential and impact of new technologies and innovations are often not immediately apparent. People, including experts and industry insiders, have a tendency to underestimate their significance and potential. The car and the airplane, for instance, were initially seen as military tools, while the Internet was once dismissed as an unnecessary luxury. It can take decades before the true implications and benefits of these innovations become clear. This trend is not unique to our time, and it's important to keep this in mind when evaluating new technologies and ideas. Additionally, it's crucial to remember that success, whether it's in business or personal life, is often harder than it appears from the outside. The grass may seem greener on the other side, but the reality is that everyone faces challenges and obstacles. It's essential to recognize this and appreciate the complexity and effort that goes into achieving success.
The complexity of our thoughts vs others: People underestimate their own thoughts' depth, judge others based on actions, and must remember everyone has hidden complexities and moral boundaries shaped by incentives.
People often underestimate the complexity and depth of their own thoughts compared to others, leading to misunderstandings and romanticizing past relationships. At the same time, it's easier to judge others based on their actions rather than their thoughts. This asymmetry can be used to our advantage, as we all have unique thoughts and perspectives that are much deeper than what others may observe. However, it's important to remember that everyone has their own internal struggles and complexities, which are often hidden from the outside world. Additionally, incentives play a significant role in shaping people's behaviors and moral boundaries, and can change them in unexpected ways. Ultimately, it's crucial to be aware of these biases and complexities in ourselves and others to foster empathy and understanding.
People's actions and beliefs influenced by incentives: People can overlook negative behaviors or beliefs when incentives align with their desires, leading to the embrace of seemingly wicked or evil things.
People's actions and beliefs can be influenced significantly by their social and personal incentives, even if those incentives lead them to overlook or rationalize objectively negative behaviors or beliefs. This was evident in the examples given, such as the town's love for El Chapo in Mexico, the German civilians' embrace of Hitler, and the Heaven's Gate cult's belief in a spaceship. These incentives can be rooted in various factors, including economic hardship, the promise of prosperity, or a desire to feel superior to others. As a result, people may easily dismiss evidence that contradicts their beliefs or overlook the negative aspects of someone's behavior, leading them to embrace seemingly wicked or evil things. This phenomenon is not unique to extreme cases and can be observed in various aspects of life, including economic pessimism.
Disconnect between planned and actual responses in high-pressure situations: Understanding potential for fear and panic can help us prepare for various scenarios, recognizing responses are complex and may not be fully understood until experienced firsthand.
Our reactions to high-pressure situations, such as those faced in war or financial markets, may not align with our preconceived notions or beliefs. During World War 2, many soldiers exhibited a lack of readiness to engage in combat despite their bravado during boot camp. Similarly, investors may express confidence in their long-term investment strategies, but panic during market downturns. Studies suggest that soldiers on the front lines may not have fired their weapons as much as expected, and investors may underestimate their fear and anxiety during volatile markets. This disconnect between our planned responses and our actual responses highlights the importance of preparation and experience. While we can't predict exactly how we'll react in a crisis, understanding the potential for fear and panic can help us better prepare for various scenarios. In the end, it's crucial to recognize that our responses to high-pressure situations are complex and may not be fully understood until we've experienced them firsthand.
Understanding the importance of long-term thinking: Success in long-term investing or achieving goals needs discipline, strategy, and the ability to adapt to change. Everyone's situation and perspective are unique, so it's essential to remain open to new opportunities and recognize that we'll inevitably change over time.
Being a successful long-term investor or achieving long-term goals requires not only discipline and strategy but also an innate ability to think long term. Some people are naturally wired to do so, while others may struggle. It's essential to understand that everyone's situation and perspective are different. For instance, those in impoverished circumstances may only focus on the present, making it challenging for them to consider long-term goals. Furthermore, people's wants, wisdom, and incentives change over time, making it crucial to remain adaptable and open to new opportunities. Moreover, the end of history illusion can hinder our ability to embrace change. We often believe we'll remain the same person for the rest of our lives, but that's not true. Reflecting on what we would tell ourselves 10 years ago can provide valuable insights into what we should have started doing, stopped doing, and focused on. However, it's essential to question whether we genuinely know and accept those truths today. In summary, being a successful long-term investor or achieving long-term goals requires a combination of discipline, strategy, and the ability to think long term. It's essential to understand that everyone's circumstances and perspectives are different and that change is inevitable. By recognizing these truths, we can better prepare ourselves for the future and make the most of the opportunities that come our way.
Focus on key variables for maximum impact: Recognize that doing less can lead to better outcomes in various aspects of life, and focusing on a few key variables can yield significant results
We are the common denominator in the patterns and situations we encounter in life. Whether it's relationships, business, or investing, focusing on the few key variables that drive the majority of returns is often more effective than trying harder or practicing more. In fact, in some cases, such as investing, doing less can lead to better outcomes. Additionally, managing expectations can greatly improve experiences, as demonstrated by the example of Terminal 5 at London Heathrow. In contrast, trying too hard or touching things more in technical endeavors can sometimes lead to negative results. Overall, it's important to recognize that there are no points awarded for difficulty and that often, the simplest solutions can yield the best results.
Focusing on behavioral skills leads to success: Patience, courage, and simplicity are crucial for success in golf, investing, and relationships. Warren Buffett's success shows the power of simplicity, but beware of complexity used to justify fees or education.
While technical expertise is important in certain areas, such as golf or finance, behavioral skills like patience, courage, and simplicity are often more crucial for success. Tiger Woods' golf prowess comes from his ability to adjust his body, not just technical skills. In investing, it's essential to be patient and endure volatility, rather than trying to outsmart the market with complexity. Relationships also benefit from focusing on simple, respectful behaviors rather than trying to constantly improve. Complexity can be attractive because it signals expertise, but it's not always necessary or beneficial. Warren Buffett's success is a testament to the power of simplicity. However, simplicity can be mistaken for cluelessness, and some professionals use complexity to justify their fees and education. Ultimately, it's important to distinguish between advice that works and advice that sounds impressive but may not be as effective. Trust and contribution come from putting in genuine effort, not just appearing busy or knowledgeable.
Experiences and backgrounds shape our perspectives and beliefs: Our unique experiences and backgrounds significantly influence our financial decisions, political beliefs, and overall understanding of the world.
People's perspectives and beliefs are shaped by their unique experiences and backgrounds. Two individuals may seem similar on the surface, but they could have vastly different views on various topics due to the distinct experiences they've had in life. For instance, financial decisions or political beliefs can be influenced by factors such as generational experiences, cultural backgrounds, and personal risk tolerances. Moreover, the psychological impact of significant events, like economic downturns or wars, can leave lasting scars that influence individuals' perceptions and beliefs. Therefore, it's essential to recognize that our individual experiences make us who we are and shape our understanding of the world around us.
The power of deeply held beliefs and their impact on our lives: Deeply held beliefs can hinder progress and happiness, such as the geocentric vs heliocentric model, focusing too much on career success, and the need to impress strangers, even genetically.
Foundational beliefs and assumptions about the world can be hard to change, even when new evidence emerges. This concept, called conceptual inertia, was discussed in relation to the shift from the geocentric to the heliocentric model of the solar system. Similarly, the high number of divorces among the world's richest men serves as a reminder that focusing too much on career success at the expense of personal relationships can lead to unhappiness. Additionally, the need to impress strangers with material possessions can be a costly financial burden. Genetics also play a role in materialism and financial decision-making. Overall, understanding conceptual inertia and recognizing the importance of personal relationships and the cost of impressing strangers can lead to greater financial and personal fulfillment.
The Importance of Being Content with What You Have: Remember, true personal growth comes from within and financial independence and contentment are valuable assets in personal finance and personal growth.
People often spend money as a symbol of their progress and success in life, whether it's through luxury experiences or material possessions. This can be seen in the stark differences between classes on airplanes or the desire to attend expensive schools. However, it's important to remember that true personal growth comes from within and not from external validation. As Nassim Taleb says, the world is split between those who don't know how to change their lives and those who don't know when to stop. A valuable asset in personal finance and personal growth is the ability to be content with who you are and what you have, without the need to impress others. Morgan Housel's book "Money: Master the Game" is a great resource for understanding the importance of financial independence and contentment. You can follow Morgan on Twitter @MorganHassel for more insights.
