Introduction

  • The world loves to fixate on what is changing, but it is far more important to understand what doesn’t change
  • These patterns can be found in history and will continue to exist for the rest of human civilization
  • Knowing these truths, we can then make decisions around them more wisely

Hanging By A Thread

  • Randomness happens all the time and it can drastically compound and change things forever
  • Examples:
    • George Washington’s army almost got wiped out by the British but a change in the wind direction prevented the British from giving chase
    • An engineer stopped one boiler on the Lusitania for saving some cost, but this put it directly into the route of a German U-boat, which led to a huge disaster and the U.S.’s involvement in WW1
    • A person tried to assasinate FDR and failed. If he succeeded, there would have been no New Deal
  • The absurdity of past connections makes it obvious that predicting the future is a futile cause

Risk Is What You Don’t See

  • To caveat the previous bullet point, we actually can predict the future well, but we cannot ever predict risks and surprises well
  • No one predicted COVID-19, the Russian invasion of Ukraine or the Great Depression.
  • What’s worse is that these surprises are what usually define history. The thing everyone will be talking about in 10 years is something almost no one today can predict
  • You might look at events in the past and think “duh, it’s so obvious that it happened”. Well, people that were living in the past were blinded by their past and couldn’t predict risks that well
  • So what do we do knowing that there’s always a black swan?
    • Invest in preparedness, not in prediction: California is prepared for an earthquake, but it has no idea when it will strike
    • Accept that you will always be vulnerable to risks you can’t even imagine. This is why you should save more than you feel is right and spend less than you feel is right
      • Harry Houdini was always prepared for stage tricks and punches, but when someone punched him when he wasn’t prepared, he died

Expectations and Reality

  • The greatest determiner of happiness is your expectations. If reality greatly exceeds expectations, you become very happy. If reality just meets expectations or does worse than expected, you feel awful
  • These expectations are often a function of our surroundings and the people that we hang out with
  • Why are the 1950s so glorified by Americans? It was the decade in American history where everyone was basically on the same footing and stratified growth hadn’t really started yet
  • This is why celebrities are often much less happy than destitute families: their expectations have risen too high
  • To improve happiness is to improve our management of expectations

Wild Minds

  • The people that are crazy good at one thing are also crazy bad in others and can be destructive
  • Examples:
    • John Boyd: incredible fighter pilot, but was a horrible soldier and refused to follow orders
    • Elon Musk: tackling many problems at once but doesn’t care about PR or lawyers
    • Steve Jobs: visionary but horrible boss
  • You can’t get someone’s once-in-a-decade desirable personality traits without also suffering the consequences

Wild Numbers

  • People don’t view the world in probability; they often view the world in black and white
  • Over the past few decades, we have become more globalized in information. This has increased the sample size of possible events. This has increased the number of occurences of gloomy events being filtered into our news cycles
  • 3 important things about numbers
    • People care about certainty, not probability
    • It may take time for a sufficiently large sample size to occur for us to evaluate actions (eg. whether an expert is good at predicting recessions); this leaves everyone guessing
    • If consequences are painful, its hard to distinguish between bad luck and malfeasance in our head

Best Story Wins

  • There are so many instances in history where it’s not the best idea that won, but the best story that explains a worse idea that won
  • Important lessons about stories:
    • When a topic is complex, a story is leverage
    • The best stories reinforce beliefs
    • Stories can be read by diverse people; they are like water
    • New perspectives on tried-and-true concepts are often novel enough

Does Not Compute

  • Predictions often fail because it is extremely difficult to factor in the human emotions that make decisions
  • Examples:
    • The Battle of the Bulge was a huge human loss for the Allies because they couldn’t predict how unhinged the German generals had become as they neared defeat
    • McNamara had used as much data and statistics as he could to predict outcomes and make decisions during the Vietnam War, but his inability to factor in public opinion caused problems
    • Lehman Brother’s crashed not because it was the most debt-laden of financial institutions (in fact, quite the opposite); the narrative had changed and people went with it
  • Steps to accept this:
    • Recognize that the reason that we have change and growth is precisely because of this human emotion. Life does not play through rationality
    • What is rational to one person may not be rational to another
    • Incentives can change what we think is rational
    • Stories have a much bigger sway than facts

Calm Plants The Seeds Of Crazy

  • Calm periods deludes people to take more risk, which leads to worse and crazy times
  • Examples:
    • Financial instability hypothesis: people will always go past the limits of the markets and trigger recessions
    • Why COVID-19 was so bad: we were unprepared because we thought we had the knowledge to defeat pandemics
  • Accepting that this will always happen is important
  • Learn the power of enough: you don’t need to see the top all the time; the views may not be as pleasant as you think

Too Much, Too Soon, Too Fast

  • Often times, we try to push something good really fast and it often backfires
  • In natural processes, there are often optimal states; pushing past these states can lead to a lot of problems
    • Eg: Waldow had a pituitary gland problem that caused him to grow to almost 9ft, but he died because of the stress on his heart
  • For businesses, growth at all costs often leads to disappointed customer bases
  • Patience is necessary if you want to see something gain value

When the Magic Happens

  • Most innovation happens during stress-filled parts of history
    • Eg: The Great Depression significantly boosted America’s productivity and building
    • Eg: WW2 forced scientists and engineers to build nuclear bombs
    • Eg; COVID-19 gave us mRNA vaccines
  • There’s a reason why the military is often at the centre of many of our inventions: the existential fear of losing your life makes you ultra-productive and creative
  • Being happy and content does not lead to as much innovation. There’s no purpose

Overnight Tragedies and Long-Term Miracles

  • Growth requires compounding, which takes a long time. Setbacks are near instantaneous
  • Our news cycles are dominated by setbacks as we can clearly see the outcomes. Meanwhile, growth moves glacially so individual news is not that exciting
    • Eg: We have cut heart disease by 70% since 1950, which is tremendous. However, the annual heart disease rate decrease is ~1.5%. We are not impressed by this number
  • It is very easy to discount the amount of progress that can be made because humans are naturally bad at thinking about exponentials

Tiny and Magnificent

  • We often make a misconception that the biggest things will cause the biggest threats and opportunities. It is much more the case that a series of small things can lead to a huge outcome
    • Eg: Nuclear war is a lot more likely because we are now manufacturing smaller nuclear warheads, which lowers the barrier towards using nukes

Elation and Despair

  • Too much optimism and too much pessimism is bad; success requires both in roughly the same quantity
  • Example: Bill Gates was very optimistic with the future of personal computing but was paranoid of company finances. This helped Microsoft grow into the juggernaut that it is today
  • Optimism is what helps you stick in the long-term game while pessimism is what helps you avoid short-term traps

Casualties of Perfection

  • Being perfect is something often leads to being bad in something else, which can be devasting
    • Eg: The tallest trees are the ones who suffer the most wind damage, the biggest lions are the ones who are shot first
  • Having a little bit of inefficiency can help significantly
    • Eg: humans in thought jobs are often far more product if they take breaks throughout the work day
    • Eg: Having over-optimized factories led to the supply chain shocks in the pandemic

It’s Supposed To Be Hard

  • Shortcuts are almost always fake and can cause serious issues later
    • Eg: the Donner party took a fatal shortcut that led to them being trapped in the Sierra Nevada during the dead of winter and having to resort to cannibalism
  • One of the things in life is that there is always going to be some things you don’t like. We have to learn to adjust and minimize it as much as possible; it’s the price that we have to pay

Keep Running

  • Your competitive advantage usually withers away as time passes
  • Eg: Sears was at the top of the game in the 1900s, but fell off
  • Things that eat away at competitive advantages:
    • Being right instills confidence that you can’t be wrong
    • Strategies that are useful at one stage are not useful when you grow into another stage
    • People relax when they have achieved a certain level of success
    • Skills that are valuable in one era may not be as valuable in the next
    • Success has a large part of luck involved; luck is fickle
  • Red Queen theory of evolutionary biology: just because a particular taxon is long lasting, it doesn’t mean that they are less at risk of extinction
  • This is why things die off in one era and why it is important to “keep running” and adapt as times change

The Wonders of the Future

  • Different improvements can combine to form huge step function improvements
  • It’s very hard to predict scientific advancements because emergent effects happen when multiple small steps happen across different fields

Harder Than It Looks And Not As Fun As It Seems

  • Everyone is dealing with problems; we just don’t know about it
  • Everything in life is about sales, including the image that we try to sell to others

Incentives: The Most Powerful Force In The World

  • People can do crazy things if the incentives are right
    • Drug dealers deal drugs not because they are bad people, but they are rewarded handsomely for it
    • Cults happen because of incentives
  • Incentives can keep insanity going much longer than it should (eg. housing crash of 2000s)

Now You Get It

  • You don’t really know people will respond to first hand situations. The context really matters
  • Americans once supported sweeping social credit systems during the Great Depression because they experienced extreme poverty. Now, they would never approve of the same thing
  • Germans supported Hitler because they were going through an extremely difficult economic situation. It’s hard to rationalize this support without understanding the context of the first hand situation

Time Horizons

  • Long-term thinking is way harder than most people think. The mentality and endurance required is nothing ever experienced
  • Key points to consider when thinking about the long-term:
    • It’s a series of short-runs: there is going to be a lot of crazy things you will need to put up with
    • It requires trust from others: telling your investors that you are thinking long-term when you weathered a 40% value reduction is not going to help much. You need to convince others that the long-term strategy is correct
    • There’s a thin line between long-term thinking and stubborness. Identify what doesn’t change do long-term thinking about that rather than sticking to some fad/trend
    • Long-term thinking is more about flexibility. You shouldn’t need to have a deadline some time in the future
  • Long-term thinking can also be applied to your information diet. Books often have a lot more long-term knowledge than news articles or social media

Trying Too Hard

  • Many times, we often favour complex approaches over something simple and way more effective
    • Eg: Cancer scientists really want to find cures for cancer but preventing cancer by stopping smoking can lead to much bigger impact
  • In most situations, only a handful of variables are going to affect the outcome. Everything else is noise
    • Even in novel fields, like AI, only a handful of topics are actually fundamental. Everything else is just a recombination of those topics
  • Why do we often go for complexity?
    • Only looking at a few driver variables may make you look ignorant of the other noisy variables
    • People who know complex things will automatically get a mystique around them
    • Length and complexity is usually one of the few signals that someone has put in work. Often times, a lot of the length of a piece of work (eg. book, research paper) is just to back up a few core insights
    • Complexity is like a cognitive bench press, while simplicity doesn’t feel nearly as painful

Wounds Heal, Scars Last

  • People who have had different experiences than you will think differently than you. This will create different behaviours
  • Hard-core events and stresses can change you drastically
    • Eg: Pavlov’s dogs forgot what the bell signified after they had to struggle to survive a flood in Leningrad
    • Eg: People who survived the Great Depression always saved more and craved security in jobs
  • The question that often gives you insights into why there is a disagreement: what is it that you have experienced that makes you believe this is true?
  • Because people will always have different experiences, there will always be different viewpoints, leading to disagreements