Okay, that's enough sad music.
Welcome back to the podcast.
Thanks again for being here.
One thing I've always believed is that you can spend years trying to learn new stuff.
But then you look back and you realize that there are maybe like ten big ideas that truly
changed how you think and drive most of what you believe.
Like there's a power law distribution in learning.
You can learn a thousand new things, new ideas and new concepts, but five of them will have
the biggest influence on you, the biggest drivers.
This is actually one of the theories of my new book that's coming out in November, same
as ever, that we spend so much of our time trying to figure out the little things that
are going to change.
What's the next new technology?
Where's a stock market going?
But what actually matters are just a handful of big things that never change.
So I spent some time looking back at what were the biggest ideas that I felt like changed
my life.
I could give you a thousand tiny little things I've learned, and sure you could do the
same.
But what are the ten things that's like, ah, that was a big shift in how I view the world
once I came to terms with it.
So I have nine of them for you here.
And this is get right into it.
Number one, everyone belongs to a tribe and underestimates how influential that tribe
is on their thinking.
Tribes are everywhere.
There are countries and states and political parties and companies and industries and company
departments and investment styles, economic philosophies, religions, families, schools,
college majors, Twitter communities.
There are tribes everywhere.
And people are drawn to tribes because there is comfort in knowing that others understand
your background and your goals.
But then you have to also understand and realize that tribes reduce the ability to challenge
ideas or diversify your views because nobody wants to lose the support of the tribe.
So people go along with whatever their tribe believes even if they don't necessarily think
it's true.
And tribes are as self-interested as people, encouraging ideas and narratives that promote
their own survival.
But they're exponentially more influential than any single person, which is what makes tribes
so powerful.
So I think any time in life that you say, I am a blank.
I am a Democrat.
I am a Republican.
I am a value investor.
I am at this.
I am at that.
You are putting yourself within a tribe.
And I think it is easy to underestimate how influential that tribe is on your thinking.
tribes of course have their own rules and their own beliefs and their own ideas.
And some of them you might disagree with.
Some of them are objectively terrible.
Yet they remain supported because nobody wants to risk being shunned by their tribes
become a part of their identity.
So it is so often in investing, in politics, in every area of life that people willingly
not along with ideas they might disagree with if they were thinking independently.
Dehawk, who is a founder of Visa, he is a quote that I love, he said, we are built with
an almost infinite capacity to believe things because the beliefs are advantageous for us
to hold rather than because they are even remotely related to the truth.
I think again you see that everywhere.
It's all over the place.
And of course it supplies to money and investing, but it applies to so many other things.
I think the only way to really protect yourself here is what the investor Paul Graham once said.
He is the best advice on the downside of tribes.
He says, keep your identity small.
He says quote, the more labels you have for yourself, the dumber they make you.
And if people can't think clearly about anything that has become part of their identity,
then all other things being equal, the best plan is to let as few things into your identity
as possible.
I think that's great.
That is so smart.
It's had a big impact on me.
I'm a fan of the phrase mental liquidity, which is the ability to quickly change your mind
without being stuck on a particular worldview.
And the only way to really do that is if you limit as much as you can the number of tribes
that you happen to belong to.
Number two, everything has been done before.
The scenes change, but the behaviors and the outcomes do not.
Neil Ferguson has this quote that I love that stopped me dead in my tracks the first
time I heard it.
He says quote, the dead outnumber the living 14 to one.
And we ignore the accumulated experience of such a huge majority of mankind at our peril.
That's a good one.
The biggest lesson from the hundred billion people who are no longer alive is that they
tried everything that we are trying today.
They tried to outwit their competition, they swung from optimism to pessimism at the
worst possible times.
They battled unsuccessfully against reversion to the mean.
They did all of the big things that we are doing today and have always been doing.
And there is such tendency when there's a big event going on in the world like COVID
or on 11 or World War II.
Yes, the details are different than anything that's happened in the past.
But the way that people respond to those events is very stable over time.
Like how people responded to COVID is I think very similar to how they responded to previous
flu pandemics.
The details are different.
Maybe the lethality is different.
Now we have social media, but the kind of responses of fear and uncertainty and pessimism
and how people just extrapolate wildly and they seek the firmest answers when there is
the most uncertainty that's been happening forever.
And it will happen forever.
It's the same in every economic cycle.
The details are very different about what's causing it and how the government is responding
to it.
But how people respond to a recession.
How you swing from optimism to pessimism that has never changed.
It's the same today as it was 200 years ago and it'll be the same 200 years from now.
I think history is often abused when you use a specific event as a predictor for the
future.
Like, oh, this happened in World War II, so that's how wars will be fought in the future,
like some example like that.
That's usually an abuse of history.
I think how you can use history to your advantage is identifying the behaviors that never
change over time and using those as a map to the future, realizing that all those behaviors
that we're doing today and we'll do in the future have been tried before in the past.
Number three, multidisciplinary learning.
Another is as much to learn about your field from other fields than there is within your
own field.
Most professions, even ones that look completely different, take, I don't know, like professional
baseball from a college professor, completely different things.
Most of them fall under a pretty universal umbrella, which is just trying to understand
how people's heads work, understanding incentives and how people respond to greed and fear
and risk, and the takeaway is that you can learn so much about your field that you work
in, from fields that have nothing to do with your field.
And once you see the roots shared by most fields, you realize that there is a sync of
information that you have been ignoring that can help you make better sense of your own
profession.
I didn't appreciate how important communication is to providing investing advice, before
reading about how many doctors struggled to communicate effectively with their own patients,
like it's the same thing, it's the same topic, and you can learn so much about finance
and how to be a financial advisor, from learning about how doctors have learned over the years,
how to effectively communicate complicated topics to their own patients.
And there are millions of these dots to connect to their everywhere, and I think looking
at your own field through the lens of another field, not only gets you closer to the truth
about how your own field works, it's also just a lot more fun.
Most people that they spend their entire life in one field looking through the same lens
are going to get bored of it pretty quickly.
If you can spend your life jumping from topic to topic, and learning about your own job
through the lens of sociology, or psychology, or biology, or World War II history, whatever
it might be, it's just a lot more fun to do it that way as well.
Number four, self-interest can lead people to believe and justify nearly anything.
I have seen investors justify strategies and sales techniques.
They fiercely argued against at previous employers, but they come around to accepting at the moment
that their career depends on it.
And these are good and honest people, but self-interest is a free train of persuasion,
persuading yourself and justifying your own actions.
When you accept how powerful it is, you become more skeptical of promotion and more empathetic
to those doing the promoting.
Number five, you cannot believe in risk without also believing in luck because they are fundamentally
the same thing.
They are both in acknowledgment that you are one person in a 7 billion player game.
And the accidental impact of other people's actions can be more consequential than anything
you do yourself.
But we really think about it like that.
The path of least resistance is to be keenly aware of risk when it affects you, and oblivious
to luck when it helps you.
Investors adjust their returns for risk.
They talk about risk-adjusted returns.
Nobody ever talks about luck-adjusted returns.
The pretty ever will is so easy to ignore luck and focus on risk even though they are the
same things.
Companies disclose the known risks in their annual reports, but lucky breaks are rarely
mentioned.
Luck increases confidence without increasing ability, which makes people double down with
less room for error than before.
It's very, very dangerous.
And realizing that luck and risk are ever present and normal makes you accept that not everything
is in your control, which is the only way to identify what is in your control.
Number 6.
Room for error is underappreciated and misunderstood.
Room for error is usually viewed as a conservative hedge, used by those who don't want to take
on too much risk.
But when used appropriately, it's the exact opposite.
Room for error lets you stick around long enough to put the odds of success in your favor.
The person who has a lot of room for error in their financial strategy or just in their
general life strategy obviously has an edge over the person who is maybe taking more
risk but is going to get wiped out, game over, at the first hiccup of uncertainty.
Number 7.
Sustainable sources of competitive advantage.
This might be the most important topic in business and investing because other than luck,
it is the only path to long-term success.
The only truly sustainable sources of competitive advantage that I know of are these.
Learn faster than your competition.
Empathize with customers more than your competition.
Be a better communicator than your competition or wait longer than your competition.
Everything else, whether it is intelligence or design or insight, gets smashed to pieces
by competitors who are almost certainly just as smart as you are.
Hey, if you think that you're advantage in your career or as an investor, is that you're
smarter than other people?
That is one of the most dangerous mindsets you can have because 99.99% chance it is not
true.
There are people who are just as smart, just as motivated, looking at the same information
as you are.
Sustainable sources of competitive advantage.
Those few that I just laid out are really the only way to ensure that you can get ahead
over the long run.
Last one.
Your personal experience make up maybe 0.0000001% of what has happened in the world, but
maybe 80% of how you think the world works.
People believe what they've seen happen with their own eyes.
Exponentially more than what they read about has happened to other people.
We are all biased to our own personal history of what we've experienced first-hand and
nothing is more persuasive to you than what you've happened to experience first-hand.
It's true for everyone, true for me, true for you, true for everybody.
If you have lived through hyperinflation or a 50% bear market in the stock market or
you are born to reach parents or if you have ever been discriminated against, you know
you understand something that people who have not experienced those things never will.
But you are also likely to overestimate the prevalence of those things ever happening
again or happening to other people.
Everyone just anchors on what they've experienced themselves.
And one of the hardest things when you're trying to make sense of the economy or your
careers or the state of your own personal finances, other people's personal finances, is
that something that is obviously true or obviously false to you?
The exact opposite can be believed by someone who is just as smart as you and just as informed
as you are.
And I think a question that is really interesting for everyone to ask themselves.
It's nearly impossible to answer, but it's such a great question to ponder.
It's just what would I believe today?
How would my values be different?
How would my outlook be different?
If I were born in a different country or born to different parents or took the other fork
in the road at various points in my life and just had a different experience, every single
person would have very different views.
Financial views, political views, religious views, whatever it would be.
We're all just kind of products of what we've happened to experience and who we've met
in our life.
So much of which is out of our control.
If you start with the assumption that everyone is innocently out of touch because they have
an experience to what you have, you'll be more likely to explore what's going on through
multiple points of views instead of just cramming what's going on in the world into the framework
of your own experiences.
It's very hard to do.
It's uncomfortable when you do it, but I think it's the only way to get closer to figuring
out why people behave the way they do.
That's all I got for you this week.
Thank you.
