Welcome back to the podcast. This is episode nine. This episode really has very little to do with money or investing.
But in some ways it has everything to do with money and investing. And that's the little riddle that I want to unpack today.
Many years ago I got this fascinating email. This one, Patrick O'Shaughnessy, many of you will know who he is. He has a wonderful collection of podcasts himself.
And about a decade ago he had a book club where he would do book reviews, book recommendations, and he would email them out to his friends and his subscribers.
And I got an email from Patrick. The subject line of the email was the best investing books of 2013. And the first line of the email really took me back and I loved it.
The first line of the email was, since it is better to read around your field rather than in your field, there are no investing books on this list.
I just thought that was such a perfect way to phrase an idea that I and many other people have long held, which is at most fields that you're studying are fields of behavior.
You're studying how people make decisions and how people summarize things like risk and greed and fear and uncertainty and scarcity.
You're trying to figure out how those fields work. And since all those fields are about behavior, there are so many things you can learn from one field that teaches you something very important about another field.
Money and investing in finance fits so easily into this category. And I've often believed that if you are only looking at money and investing and finance through the lens of finance or economics, you're missing 90% of what is important out there.
And there are so many things you can learn about money. If you are looking through the lens of psychology and sociology, in history, in politics, in biology, and chemistry, and military history, and political science, all these fields have nothing to do with money.
Are actually just teaching you something about behavior. And when you realize that money is just a behavioral topic, you realize how much you can learn so many important things you can learn about money by looking through the lens of another field.
If you find something that is true in more than one field, you've probably uncovered something that is particularly important.
And the more fields that it shows up in, the more likely it is to be a fundamental and recurring driver of just how the world works.
Joseph Tussman, who was a UC Berkeley philosophy professor, he wrote in the 1960s that, quote,
with the people must learn, if he learns anything, is that the world would do most of the work for you, provided you cooperate with it by identifying how it really works and aligning with those realities.
What could be more obvious than that? Just figure out how the world works and align with those realities.
This is something that I've always tried to do with my writing and my thinking and just trying to figure out the world for myself, is I've always been interested in investing and money and finance.
But it wasn't until I started focusing most of my reading and my research on fields I had nothing to do with investing and nothing to do with finance.
I felt like I could start putting together the really big lessons and rules and laws that dictated how people behave and that I think is when I became a smarter and more informed investor.
The best way to learn how the world works is to realize how connected everything is.
We are usually taught in school as if math is math and chemistry is chemistry.
Each field is like siloed off into its own department and it's focused on its own truth.
But learning like that is only useful in academia.
The real world has no silos. The big learning comes when you start to connect the dots from one field to the next.
And once you do, you realize that those connections between fields are infinite. They are never ending.
That the world is all just one big web. It's just a big web of how the world works.
Let me tell you a story that connects the two things in a really interesting way.
Take two groups of identical baby goldfish.
Put one in abnormally cold water and put the other in abnormally warm water.
The goldfish who are living in cold water will grow slower than normal.
While those who are in the warm water will grow faster than normal.
Then if you put both groups back in regular temperature water, they will eventually converge to become normal full size adults.
But then the magic happens.
The fish that had the slowed down growth in the early days go on to live 30% longer than average.
And the fish with artificial supercharged growth that were in the warm water go on to die 15% earlier than average.
That's what a group of biologists from the University of Glasgow found many years ago.
And I've always found this study so interesting.
The cause of this is not complicated.
The supercharged growth can cause permanent tissue damage.
And it may only be achieved by diversion of resources away from maintenance and repair of damaged cells.
While the slowed down growth, the fish in the cold water, the opposite happens.
And there was an increased allocation to maintenance and repair when they were growing in their cells were replicated.
The authors of this study said, quote,
You might well expect that a machine built in haste will fail quicker than one put together carefully and methodically. And our study suggests that this might be true for bodies as well.
The same thing has been found in humans and in birds and in rats.
And isn't the same in business?
Shamaaf Palapiti at the investor, he once said that, however fast your business grows, that's the half life for how quickly it can be destroyed.
So many companies that were flush with cheap money from previous years are learning this right now.
Every business in every industry has a natural growth rate. And when you push beyond it and you go for short term supercharged growth, that it comes at the cost of long term quality and eventually survival.
So look, when the limits of fast growth impact goldfish and rats, the same way it limits tech companies, you know you found something that is essential to how the world works and will continue working in the future.
Just like Patrick taught me a decade ago, this might sound crazy, but once you understand the basic principles of your profession, you might gain more expertise by reading around your field rather than within your field.
Connecting the dots between fields helps you uncover the most powerful forces that guide how the world works, which can be so much more important than the little new detail that's hyper specific to your profession.
And if you look around hard enough, there are so many of these dots to connect. I have so many of these to share, I want to share one of my other favorite ones.
Most young tree saplings spend their early decades of life under the shade of their mother's canopy. Limited sunlight means that they grow slowly.
Slow growth of course leads to dense hard wood.
But something interesting happens if you plan a tree out in an open field.
Free from the shade of bigger trees, the sapling gorges on sunlight and it grows really fast. Fast growth leads to soft, airy wood that doesn't have time to densify.
And soft airy wood is a breeding ground for fungus and disease and ultimately a short life.
There's an author named Peter Woebelin who writes, quote, a tree that grows quickly, rots quickly and therefore never has a chance to grow old.
Which isn't that exactly how it works in business and investing too? There is a graveyard of companies and investors who try to grow too fast.
Attempting to reap a decade's worth of rewards in a year or less, learning the hard way that capitalism does not like it when you try to use a cheat code.
That's what's happened so clearly over the last couple years.
I honestly can never get enough of these little lessons and rules from one field that teach you about another field and I have so many others that I want to share with you right now.
I'm just going to spend a brief amount of time on each one, but I'm going to go through a little list of my favorite learnings from one field that teach you about something else.
In evolution, there is a rule called Mueller's Ratchet. It says that dangerous mutations tend to pile up when there is no genetic recombination, ultimately leading to extinction.
This is why so few species reproduce asexually. In the absence of variety, bad ideas tend to stick around.
Which is also exactly what happens in close societies and large corporations.
In astronomy, there is something called the Sagan Standard. It says that extraordinary claims require extraordinary evidence in equal proportion.
As a corollary, extraordinary claims require extraordinary scrutiny.
Sagan used it as a standard to measure whether extraterrestrials were communicating with Earth, but it applies to almost any field where people get attention and recognition and money for discovering something new.
In linguistics, there is something called Zip Slah. It says that there is a heavy power law distribution in the words that people use, with the most common word, which is the being used twice as often as a second most common word, which is of, which is used twice as often as the third most common word, which is and, and it keeps on going down like that.
There are something like 180,000 English words, but fewer than 200 of them make up half the words that people speak and write.
So look, even in a massively diversified set, a tiny little handful of things make up the majority of occurrences.
And it is the exact same in business and investing.
Tails drive everything and it is so easy to underestimate how important just a few companies and a few investing periods of time and a few products can be to your long term success.
This next one comes from the field of vaccines. Derek Thompson of the Atlantic once told me,
money is more of a vaccine than a performance enhancing drug. It can prevent a lot of misery, but it won't necessarily make you happier. I love that one.
In complexity science, there is something called emergence. It is when 2 plus 2 equals 10 more or less. I will give you a little example.
Take a little bit of cold air from the north, and that's no big deal. Take a little warm breeze from the south, and that's pretty pleasant.
But when those two things mix over Missouri, you get a tornado.
The same thing happens in careers when someone with a few mediocre skills mixed together at the right time becomes multiple times more successful than someone who was an expert in just one thing.
In anatomy, there is something called wolf's law. It says that bones will adapt to pressure by becoming stronger or a lack of pressure by becoming weaker.
So you never really know something's maximum strength because it's capable of adapting to whatever you throw at it.
In astrophysics, there's something called a Benford's law of controversy. It says that passion is inversely proportional to the amount of real information available.
So when given the opportunity to fill information gaps with rumor, and theory, and imagination, people cling to what they want to believe to be true, which tends to be something that they are passionate about.
The real world, though, is often very boring. In pharmacology, there is something called the art shults rule. It states that for every substance, small doses stimulate, moderate doses inhibit, and large doses kill.
This is just a loose rule. It's not a law, but it applies to so many other things, including debt, inhibition, and networking, and exercise, and caution, and analysis.
A lot of problems come from doing the right thing, just in the wrong dosage.
In biology, there are something called absorption rates.
There is a natural limit to how fast something can grow, governed by how fast it can absorb certain nutrients.
But different organisms have massively different absorption rates, despite being delivered nutrients at the same rate.
So you can get vastly different outcomes, despite feeding something the same nutrients.
It's the same with education, and career success, and social networks. Some people are primed to absorb much more than others, even when they are part of the same system.
In physics, there is something called gallean relativity. It says that all physical laws work when you're moving the same way they do when you are at rest, which gives two people watching an event different perspectives of what happened.
If I'm on an elevator and I throw a ball in the air, to me the ball only rises a few feet.
If you're watching me ride up in an elevator and you see me throw a ball in the air, to you it looks like the ball is trafelling faster and higher than I saw it.
Neither of our views is right or wrong, it's just relative to another.
So to fully understand what's happening in any system, you have to see it from two perspectives, as an insider and as an outsider.
In statistics there is something called stationarity. It's an assumption that the past is a statistical guide to the future.
Based on the idea that the big forces that impact a system don't change over time.
If you want to know how tall to build a levy, look at the last hundred years of flood data and assume that the next hundred years will be the same.
Stationarity is a wonderful science-based concept that works right up into the point that it doesn't.
It is a major driver of what matters in economics and politics.
Scott Sagan, a professor at Stanford, says, things that have never happened before happen all the time.
In philosophy there is something called leabnitz's worlds. It says that there are infinite possible worlds. We just happen to live in this one.
Some ideas hold true in all possible versions of the world, while others would only work in this specific iteration.
Neval Rovacant has this saying that I love. He says, in a thousand parallel universes, you want to be wealthy in 999 of them.
You don't want to be wealthy in the 50 of them where you got lucky. I want to live in a way that if my life played out a thousand times, Neval is successful 999 times.
In evolutionary biology there is something called orgles rule. It says evolution is cleverer than you are.
Whenever a critic says evolution could never do that, they usually just lack imagination.
When trillions and trillions of organisms among millions of species interact for billions of years, the results can be indistinguishable from magic.
It is the same, I think, with technology and a lot of other social trends.
In sociology there is something called the toqueville paradox. It says people's expectations rise faster than living standards.
So society that becomes exponentially wealthier can see a decline in net happiness and satisfaction.
There is virtually nothing that people cannot get accustomed to over a time. People have an unlimited capacity for taking things for granted, which also helps explain why there is so much desire for innovation and improvement.
In statistics there is something called cromwells rule. It says never say something cannot occur or will definitely occur unless it is logically true, like 1 plus 1 equals 2.
If you say something has a 1 in a billion chance of being true and you interact with billions of things in your lifetime, you are nearly assured to experience some astounding surprises.
And so you should always leave open the possibility of the unthinkable coming true.
In agriculture there is something called the liebig's law of the minimum. It says that a plant's growth is limited by the single scaric nutrient.
Not the total nutrients. If you have everything that you need to grow a plant except for nitrogen, a plant goes nowhere.
Liebig wrote, the availability of the most abundant nutrient in the soil is only as good as the availability of the least abundant nutrient in the soil.
Most complex systems are the same, which makes them more fragile than we assume. One bad bank, one stuck container ship or one broken supply line can ruin an entire system's trajectory.
Last, there is a Chinese proverb called three men make a tiger. I love this one. It says, if one person tells you there is a tiger roaming around your neighborhood, you can assume they are lying.
If two people tell you there is a tiger in your neighborhood, you begin to wonder. If three people say it's true, you are convinced there is a tiger in your neighborhood and you run for your life.
The proverb first came about hundreds of years ago but is probably more relevant today than ever in the social media age.
People will believe anything if enough people tell them that it's true.
Look around and you will literally find hundreds of these ideas linking one field to another. It is so much more fun to find these things than confining yourself to your own field.
And better yet I think it gets you closer to the truth.
That's all for this week. We'll see you next time.
