A Few Things I’m Pretty Sure About
If something is impossible to know you are better off not being very smart, because smart people fool themselves into thinking they know while average people are more likely to say, “I don’t know” and end up closer to reality.
Most professions would benefit from at least one a day month where you did nothing but think. No meetings, no calls, no deliverables. Just a seat on the couch thinking about what’s working, what’s not, and what to do about it. One day a week is necessary for some fields. But it’s rare, because sitting on the couch doesn’t look like work, so managers raise an eyebrow – even if it’s obvious that if your job involves thinking you should be given time to think.
You shouldn’t be shocked when people who think about the world in unique ways you like also think about the world in unique ways you don’t like. People with crazy good ideas tend to have crazy bad ideas too, because crazy thinking doesn’t always discriminate on truth, collateral damage, or legality.
Once-in-a-century events happen all the time because lots of unrelated things could go wrong. If, in any given year, there’s a 1% chance of a new disastrous pandemic, a 1% chance of a crippling depression, a 1% chance of a catastrophic flood, a 1% chance of political collapse, and on and on, then the odds that something bad will happen next year – or any year – are … pretty good. It’s why Arnold Toynbee says history is “just one damn thing after another.”
Daniel Kahneman says a key to investing is having “a well-calibrated sense of your future regret,” which might actually be the key to understanding all forms of risk. You know exactly how much risk to take if you know exactly when you will cry Uncle when things don’t work out.
Risk is what you can’t see, think only happens to other people, aren’t paying attention to, are willfully ignoring, and isn’t in the news. A little surprise usually does more damage than something big that’s been in the news for months.
It can take a long time to realize the consequences of some events even after they’ve happened. In January 1930 – two months after the stock crash that sparked the Great Depression – a nationwide poll asked Americans what they considered the biggest problem in America was. They said, in order: 1. Administration of Justice; 2. Prohibition; 3. Lawlessness, Disrespect for Law; 4. Crime; 5. Law Enforcement; 6. World Peace. And number seven … the economy. Historian Frederick Lewis Allan once wrote: “It is not usually during a collapse that men rebel, but after it.”
When interest rates are zero stories about what the future could be are more important than what the present actually is. Interest rates tempt investors away from stories about future potential with promises of returns right now, this year. Once those returns fall to zero, stories about what could potentially happen years from now – even if it’s low probability – gain most of the market’s attention. And people are good at coming up with awesome stories. That’s part of why Tesla is worth two-thirds of a trillion dollars, and the market is at an all-time high with 10 million people unemployed.
An engineer can have a successful career knowing nothing other than engineering. Same for a chemist, meteorologist, or radiologist. Business and investing don’t work like that. They’re a little math, a little accounting, a little sociology, a little psychology, a few parts marketing, law, politics, game theory, history, statistics, biology, and public relations. That doesn’t make them harder than other fields; just more uncertain, prone to change, and with fewer experts.
It’s easy to ignore the power tail events because it’s painful to accept that most of what happens isn’t that important. Over the last 20 years, 9/11, Lehman Brothers’ collapse, and Covid-19 were pretty much the only economic headlines that moved the needle. Think of all the attention that went to everything else and ended up not making much difference; it’s depressing. Same with investing: make 50 investments and 10 or fewer – maybe only one or two – will likely provide all of your lifetime returns, and how you behaved in March 2020 was probably more important than what you did in the previous 100 months combined. Not a fun thing to accept, even if it’s reality.
Uncertainty amid danger feels awful. So it’s comforting to have strong opinions even if you have no idea what you’re talking about, because shrugging your shoulders feels reckless when the stakes are high. Complex things are always uncertain, uncertainty feels dangerous, and having an answer makes danger feel reduced. We want firm answers when things are the most uncertain, which is when firm answers don’t really exist.
Covid-19 is the first global crisis in the social media age, and what we’ve learned from social media in the last decade is that 1) information spreads fast, 2) false information spreads fastest because it’s more sensational, and 3) tribal identities are heightened when debates take place online vs. in person, so healthy debate quickly descends to a my-team-versus-yours battle. FDR said, “The only thing we have to fear is fear itself” in an era when the only information source was a morning newspaper, edited and fact-checked by professionals, written by journalists who weren’t motivated by likes, retweets, or paid per click.