AI Summary #
The host discusses the concept of “expectations debt” and how it can impact happiness and performance. They argue that when expectations are extremely high, such as during periods of rapid growth or prosperity, people may feel a sense of pressure to achieve even more, leading to feelings of disappointment and frustration when results fall short.
Notable quotes include:
- “90% of corporate culture is just winning. When a company is winning everyone is happy and they are becoming rich and they’re getting promoted and they see their work as contributing to something bigger than themselves.”
- “Expectations are like a debt that must be repaid before you get any joy out of what you’re doing.”
- “Low expectations don’t make you depressed. They do the opposite. They make a little gain feel amazing while bad news tends to feel normal.”
The host also references Charlie Munger’s quote, “The first rule of a happy life is low expectations.” This phrase highlights the importance of setting realistic expectations and being prepared for disappointment.
Actionable advice includes:
- Being aware of the potential pitfalls of extremely high expectations
- Setting low but reasonable expectations
- Focusing on progress rather than perfection
- Embracing the idea that most outcomes are unlikely to be as good as you expect, and being okay with that
Key takeaways include:
- High expectations can lead to disappointment and frustration when reality fails to meet them
- Low expectations can help make small gains feel more meaningful
- Setting realistic expectations is key to avoiding the “expectations debt” that can come from having unrealistically high standards.
Overall, the host argues that setting low but reasonable expectations is a crucial aspect of living a happy and fulfilling life.
AI Transcription #
Welcome back to the podcast.
This is episode 13.
This episode is all about expectations and how they impact your happiness and your performance and how well you’re doing in life.
I live in Seattle and Amazon is of course our giant employer about a third of my neighborhood I think works for the company that’s not an exaggeration and when Amazon was on top of the world in 2021 when its reputation was gleaming and its stock price was booming you could feel that pride and prosperity in our neighborhood you could practically smell it.
I once heard the saying that 90% of corporate culture is just winning.
When a company is winning everyone is happy and they are becoming rich and they’re getting promoted and they see their work as contributing to something bigger than themselves.
That’s what Amazon was in 2021 and then of course things changed.
Jeff Bezos left the company the stock price fell 50% 20,000 employees were laid off and hundreds of thousands of more feared that they’re next and now that is the scent that is crawling around my neighborhood and it is so clear it is so obvious that the mood around Amazon has shifted.
So here’s the question.
What do you call that top of the world status that Amazon had in 2021?
Was it a gift?
What is it a reward for hard work?
Was it the natural swings of capitalism?
Yes is all of those things but there’s another way to look at what it was and that is in expectations debt.
Expectations for Amazon were so high in 2021 that investors and employees had to achieve extraordinary things just to break even and when the results were merely just good that felt terrible and it felt like you were losing.
Expectations are like a debt that must be repaid before you get any joy out of what you’re doing.
That’s true not just for Amazon but for individuals it’s true for everything you do in life.
The hard thing is that every company and every employee wants to have what Amazon had in 2021.
They want to win they want wealth and prestige and a good reputation but look at what it led to now after the expectations debt was repaid and so then you ask was it worth it?
Was that boom in 2021?
Was it worth it?
It’s hard to say.
The Nikes which is the Japanese stock market equivalent of the Dow Jones industrial average recently closed at its highest level since 1990.
Now there are two ways to look at that.
One you could say it’s a win that it’s back at all time high or two you could say it’s an example of one of the worst performing stock markets of modern times that it took 33 years to get back to its new high but here’s what’s most interesting about the Japanese stock market and it has to do with expectations.
Returns over the last 33 years were terrible they were 0% over an entire generation but returns before that the returns from 1965 to 1990 were extraordinary they were off the charts.
Now if you look at the last 60 years a much longer period the Nikes and the S&P 500 in the United States have very similar returns they’re just about the same but the Nikes earned all of those returns during this one massive 25 year surge in the 60s 70s and 80s while the S&P 500 in the United States has been comparatively more even over time.
From 1965 to 1990 the Nikes returned about 14% per year and the S&P 500 returned about 5% per year but since 1990 to 2022 the Nikes returned 0% and the S&P 500 has returned about 8% per year.
So look I don’t think it’s fair to say the Japanese stock market stagnated over the last 33 years.
What really happened is that 50 years of returns were stuffed into this one 25 year period in the late 20th century and the past three decades of misery has just been repaying that excess.
So here again the high expectations of 1990 were like a debt that had to be repaid before investors could get any benefit.
No one got a statement for that debt it didn’t show up on anyone’s balance sheet no one knew what the interest rate on that debt would be but it was a very real debt that anchored investors down and destroyed wealth and took a third of a century to pay off.
One way to think about this is that an asset that you don’t deserve can quickly become a liability.
Maybe your stock portfolio surged during a bubble or your company hit a monster valuation or you negotiated a salary that exceeds your ability although things can feel great at the time but reality eventually catches up and it demands repayment in equal proportion to your delusion.
Plus interest.
These debts are easy to ignore because they are often repaid in the form of self-doubt and crushed morale in the case of Amazon but they are very real and when you understand their power you become more careful about what you wish for.
Companies should want a valuation that they deserve and not a penny more.
Workers should want a salary that matches their skill and not a penny more.
Families should want a lifestyle that they could sustain and nothing higher.
None of those things that I just mentioned are about settling or giving up.
It’s about avoiding a certain kind of psychological debt that comes do when reality catches up.
There’s a stoic saying it says quote mis-fortune ways most heavily on those who expect nothing but good fortune.
Expecting nothing but good news feels like such a good mindset because you’re optimistic and you’re happy and you’re winning but whether you know it or not you are very likely piling up a hidden debt that must eventually be repaid.
I heard the story not too long ago that I thought it was great.
Elon Musk said that he had lunch with Charlie Munger in 2009 and Munger allegedly told the whole table at this lunch all the ways that Tesla would fail.
Musk said it made me quite sad but he said I told him Munger that I agreed with all of those reasons and that we would probably die but it was worth trying anyways.
That is both sad but also kind of inspiring because of course Tesla made it.
But it’s also I think this is more complicated than it looks.
Munger was recently asked an unrelated question that adds a layer to Musk’s point here.
When he was asked you seem extremely happy and content.
What is your secret to living a happy life?
Charlie Munger replied quote 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.
Now I think these two guys Musk and Munger are actually making the exact same point here and I think it’s a really important point.
Musk is right that some things that will probably fail are worth trying anyways.
That’s true for almost everybody in all areas of life because we live in a tail-driven world where a few events drive the majority of outcomes.
It’s a world that demands that you become comfortable with a lot of things not working and a lot of things failing and a constant chain of disappointment because success means that you tried 10 things and eight of them failed miserably but two of them might change your life.
That’s what winning actually looks like.
Munger 2 though is right that unrealistic expectations assure misery.
For two reasons.
One is that the world is fragile and volatile and a complicated place and the only way to avoid disappointment is to expect it.
The second is that progress tends to move the goalpost so the only way to enjoy the modern world is if your expectations rise slower than its progress.
Now the common denominator between both of those guys is the superpower of having low expectations and that is not intuitive because low expectations makes you think of a mopey pessimist who is like accomplished nothing but I want to convince you that it’s actually just the opposite.
Several years ago Elon Musk was asked about one of the hardest problems he was dealing with at SpaceX.
Its massive starship had to cut weight everywhere it could so that the cost of each launch could become low enough that it could launch the thing all day long.
Step 1 to cutting weight was cutting out the landing gear.
So now rather than the rocket returning to earth and landing on its own, the new design means that it comes down to earth with its bottom exposed and it aims itself at a giant tower on the ground.
And just before hitting the ground, this tower shoots out two enormous rods that grab the rocket like a parent that’s catching a falling child.
It’s the wildest thing you’ll ever see.
Elon Musk once explained he said, quote, we are talking about catching the largest flying object ever made on a giant tower with chopstick arms.
It’s like karate kid with the fly but much bigger.
He then laughed and he added the most important line.
He said quote, this probably won’t work the first time.
He says something along those lines about almost all of his endeavors.
When a rocket failed to land five years ago, he said quote, I didn’t expect this one to work but next flight has a good chance.
When talking about the starships challenges a couple months ago, he said quote, success is one of the possible outcomes.
Three years ago, he tweeted quote, to be frank, in the early days, I thought there was a 90% chance that both SpaceX and Tesla would be worth zero.
The press and the aerospace and the automotive industry at the time correctly agreed with me.
I don’t think any of that is casual irreverence towards cocky risk taking.
I think it is purposely low expectations and it is the only way to survive in a world that is not kind enough to reward every ambitious person with success.
When people say that higher risk equals higher return, what they should actually be saying is that higher risk means I will probably earn lower returns most of the time.
But there is a small chance that I’ll earn very good returns that make up for it.
That’s the distinguishing factor of higher risk.
It’s the greater prevalence of failure, not the smaller chance that it has a potential to offset that failure.
The key part here is that low expectations and accepting frequent losses increases the odds of sticking around long enough to eventually be right enough to make up for it and then some.
And that applies to ordinary people like me and you, not just maniacs like Elon Musk.
In a boring index fund of 500 stocks like the S&P 500, fewer than 20 make up most of the returns in any given year.
Sometimes it’s fewer than five companies make up the majority of the return.
And the rest of the companies in the index literally 80% or more of companies in the index, their returns usually range from okay to disastrous.
So if you track every individual company, make sure you have very low expectations because that’s how the world works.
Charlie Munger was born in 1924.
The richest man in the world that year was John DeRoccafeller, whose net worth equaled about 3% of GDP.
Now today, 3% of GDP would equal something like 700 billion dollars.
700 billion dollars is the equivalent of what John DeRoccafeller was worth.
It’s just a, you can’t even wrap your head around that kind of number.
But let’s make just a short list of things that did not exist when John DeRoccafeller had that kind of money.
He didn’t have sunscreen, adville, Tylenol, antibiotics, chemotherapy, flu and tetanus and measles and smallpox vaccines.
He didn’t have insulin for diabetes.
He didn’t have blood pressure medication.
He didn’t have fresh produce in the winter.
He didn’t have TVs.
He didn’t have microwaves.
There were no overseen’s phone calls.
There were no jets to say nothing of computers or iPhones or Google Maps.
Now, I think if you’re honest with yourself, I don’t think you or anyone else listening to this would trade Rockefeller 700 billion dollars in the early 1900s for an average life and an average wage in 2023.
The average person is just so much better off today with the things that they can enjoy in life than Rockefeller had access to with his fortune back in his day.
But I think that is hard to admit because all the insane luxuries that Rockefeller didn’t have are now considered basic necessities.
And everything works like that.
All luxuries become necessities in due time.
It’s why Louis CK, the comedian once said, everything is amazing and nobody is happy.
The only way to counter that truth is to go through life with purposely low expectations.
Don’t expect a lot of economic growth.
Don’t expect great investing returns.
Don’t expect a ton of innovation.
Don’t expect politics to improve.
Be okay with things staying roughly the way they are right now or even getting a little bit worse.
Because for most people, the way things are right now is indistinguishable from magic relative to how things used to be.
And then if you do that, any little improvement that happens to come along feels incredible.
You appreciate it more.
Low expectations don’t make you depressed.
They do the opposite.
They make a little gain feel amazing while bad news tends to feel normal.
That’s not easy because the knee jerk way to set expectations is to anchor to what everyone else has right now.
But imagine the tragedy of there being unbelievable progress throughout your life and you enjoy none of it because you expected all of it.
My friend Brent Beeshore has a theory about marriage.
He says it only works when both people want to help their spouse while expecting nothing in return.
And if you both do that, you are both pleasantly surprised.
That’s a good model for a lot of things.
Thanks so much for listening.
We’ll see you next time.