Investing: The Greatest Show On Earth

Let me share two quick stories that have nothing to do with investing. I want to convince you of something important and overlooked: Investing is a broader field than it looks, and there is so much to learn about it outside of the narrow lens of finance.

The first comes from forests.

Most young tree saplings spend their early decades under the shade of their mother’s canopy. Limited sunlight means they grow slowly. Slow growth leads to dense, hard wood. But something interesting happens if you plant a tree in an open field: free from the shade of bigger trees, the sapling gorges on sunlight and grows fast. Fast growth leads to soft, airy wood that didn’t have time to densify. And soft, airy wood is a breeding ground for fungus, disease, and ultimately a short life. “A tree that grows quickly rots quickly and therefore never has a chance to grow old,” forester Peter Wohlleben writes.

Which is exactly how it works in business and investing, isn’t it?

There’s a graveyard of companies and investors who tried to grow too fast, attempting to reap a decade’s worth of rewards in a year or less, learning the hard way that capitalism doesn’t like it when you try to use a cheat code. Chamath once put it: “The faster you build it, that is the half life. It will get destroyed in the same amount of time.”

Another story, this one from medicine.

In 2013 Harold Varmus, then director of the National Cancer Institute, gave a speech describing how difficult the war on cancer had become. Eradicating cancer – the National Cancer Act’s goal when it was signed in 1971 – seems perpetually distant. Varmus said:

There’s a paradox that we must now honestly confront. Despite the extraordinary progress we’ve made in understanding the underlying defects in cancer cells, we have not succeeded in controlling cancer as a human disease to the extent that I believe is possible.

One of the missing pieces, he said, is that we focus too much on cancer treatment and not enough on cancer prevention. If you wanted to make the next big leg up in the war on cancer, you had to make prevention the top priority.

But prevention is boring, especially compared to the science and prestige of cancer treatments. So even if we know how important it is, it’s hard for smart people to take it seriously.

MIT cancer researcher Robert Weinberg once described it:

If you don’t get cancer, you’re not going to die from it. That’s a simple truth that we sometimes overlook because it’s intellectually not very stimulating and exciting.

Persuading somebody to quit smoking is a psychological exercise. It has nothing to do with molecules and genes and cells, and so people like me are essentially uninterested in it – in spite of the fact that stopping people from smoking will have vastly more effect on cancer mortality than anything I could hope to do in my own lifetime.

Breakthrough drugs are amazing, and we should cheer them. But few things are as effective at fighting lung cancer as the boring advice of telling people to quit smoking.

And the same irony hurts investors, doesn’t it?

The solution to 90% of financial problems is “save more money and be more patient.” Nothing is more powerful or more capable of moving the needle. But it’s so boring. It makes you sound like a kindergartener. Smart people don’t want to devote their careers to it. They want derivatives, high-frequency trading, offshore tax shelters and The Lightning Round.

In both cancer and investing, things that are boring but effective are discounted relative to things that are exciting but knowingly less effective.

The point of these is not to just tell a neat story. It’s that you can learn lots about investing by reading things that have nothing to do with investing. Greed, fear, risk, opportunity, and scarcity – the most critical topics in investing – reveal themselves in all kinds of fields.

More important is this: If you find something that is true in more than one field, you’ve probably uncovered something particularly important. The more fields it shows up in, the more likely it is to be a fundamental and recurring driver of how the world works.

Which is to say: Restricting your investment learning to the narrow lens of finance means you’re less likely to uncover the biggest and most important parts of investing, which are the ways that people think about things like risk and reward and show up in many fields. You can’t appreciate how important a topic is until you see it play out with as much influence in, say, evolutionary biology as it has in investing.

Investor Patrick O’Shaughnessy has a book club. An email he sent to his readers a few years ago began: “Consistent with my growing belief that it is more productive to read around one’s field than in one’s field, there are no investing books on this list.”

I love that. In the last five years I’ve learned more about investing by reading things that have nothing to do with investing than I did in the previous decade when I exclusively read investing books.

I’ve come to the view that five fields teach more about investing than most finance textbooks:

Health, and how people make short-term tradeoffs with long-term consequences.

Sociology, mostly people’s desire to belong to a tribe and signal their success.

Military history, and how people underestimate complex systems, become overconfident in their abilities, react in stressful situations in ways they hadn’t imagined, and underestimate risks that hadn’t been considered.

Evolution, which shows how competitive advantages are gained and squandered.

Nature (anything from geology to forestry) which has the best examples of compounding because incredible things happen over very (very) long periods of time.

There is a flip side to this. If we can learn about investing through the lens of other fields, can we learn about other fields through the lens of investing?

Oh gosh, yes. So, so much.

I call investing The Greatest Show On Earth because money is everywhere, it affects all of us, and confuses most of us. Everyone thinks about it a little differently. It offers lessons on things that apply to many areas of life, like risk, confidence, and happiness. Few topics offer a more powerful magnifying glass that helps explain why people behave the way they do.

How people manage their money is a window into what they value, who they want to impress, what they think they’re good at, what they’re clearly awful at, what they’re insecure about, and where they see the world going.

It shows how people go crazy in groups, obsess over what they want to be true and ignore what they don’t.

It can reveal what people have experienced in life. Show me a pessimist and I’ll show you someone whose economic well-being hasn’t turned out the way they imagined; show me an optimist and I’ll show you someone whose career has exceeded their expectations. There are so few exceptions to this it’s astounding.

Money reveals who people trust, who they don’t, who they find compelling and who they will never take seriously.

It shows what society values (not necessarily skills, but scarcity) and what makes things break (expectations getting too high, having no room for error).

It highlights why so many couples don’t get along, and how much power politicians have.

It shows, better than anything else, the advantage of being born lucky vs. having the odds stacked against you.

It shows what makes people happy and what clearly doesn’t.

Few things are better than money at revealing our capacity to adapt to circumstances. Few things are better at revealing how prone people are to jealousy, envy, and regret.

Each of those have takeaways outside the field of investing. But investing exposes them in such vivid ways.

The point is we should go out of our way to learn about investing by looking at things that have nothing to do with investing. And we should learn about things that have nothing to do with investing by looking at investing.

It’s more fun and gets you closer to the truth.