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