AI Summary #
The host discusses the idea that there are a limited number of fundamental concepts that can have a significant impact on our thinking and behavior, rather than trying to learn many small details. He identifies nine key ideas that he believes had a major influence on his life and career:
- Tribes: The power of belonging to a group or tribe can be both a comfort and a limitation, as it can reduce our willingness to challenge ideas and diversify our views.
- Everything has been done before: History shows us that many events and behaviors have occurred before, and by studying these patterns, we can make better predictions about the future.
- Multidisciplinary learning: Learning from multiple fields and disciplines can help us gain a deeper understanding of how people’s heads work and develop more effective strategies in our own field.
- Self-interest: Our desire for self-interest can lead us to believe and justify things that may not be true, and it’s essential to recognize this bias.
- Luck vs. risk: We often overlook the role of luck in our success or failure, but recognizing its presence is crucial for making informed decisions.
- Room for error: Having a buffer of “room for error” can help us navigate uncertainty and increase our chances of success.
- Sustainable competitive advantage: Developing sustainable sources of competitive advantage, such as learning faster than others, empathizing with customers, or being a better communicator, is key to long-term success.
- Personal experience: Our personal experiences shape our worldview, but this can also lead to biases and oversimplifications. It’s essential to recognize the limitations of our own perspective.
The host suggests that by focusing on these nine ideas, we can gain a deeper understanding of ourselves and the world around us, and make more informed decisions in our personal and professional lives.
Notable quotes:
- “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.”
- “The more labels you have for yourself, the dumber they make you.”
- “Luck increases confidence without increasing ability, which makes people double down with less room for error than before.”
Actionable advice:
- Recognize the power of tribes and their potential to influence our thinking.
- Study history to identify patterns that can inform your decisions about the future.
- Develop a habit of multidisciplinary learning to gain a deeper understanding of how people’s heads work.
- Be aware of your own self-interest and biases, and make an effort to challenge your assumptions.
- Acknowledge the role of luck in your success or failure, and adjust your expectations accordingly.
- Build “room for error” into your strategy to navigate uncertainty.
- Focus on developing sustainable sources of competitive advantage in your field.
AI Transcription #
Okay, that’s enough sad music.
Welcome back to the podcast.
Thanks again for being here.
What 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 we’re 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 I’m 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 the 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.
Some 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.
Vihak, 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 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.
Maybe 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 will 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 struggle to communicate effectively with their own patients that gets the same thing.
It’s the same topic.
And you can learn so much about finance and or 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.
But 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.
If whatever will, it’s so easy to ignore luck and focus on risk even if they’re 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.
Most 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.
Probably 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 were 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 will 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.
Thanks again for listening and we’ll see you next time.