nvesting changed my life. Not in terms of money, but in terms of how I see the world.
When I think about what I've learnt. 10 ideas stand out.
Deception. Destruction. Reflection. Independence. Obsession. Simplicity. Risk. Randomness. Patience. Compounding.
Here are the first three of those ideas that the stock market has taught me about life.
You can read about the next three here.
You can’t take the world at face value. To do something great, it has to be different. To do something differently, you can’t accept everything you’re told.
At one time or another people thought:
- The earth was flat.
- Witches existed.
- Slavery was fine.
- Smoking wasn't harmful.
Plus thousands of other things we now look back on in disgust or amusement.
In every period of history people believed things we now know to be ridiculous. And they believed them so strongly that anyone who disagreed got in terrible trouble for saying so.
It's easy to say "we know better now." But it's guaranteed we don't. There are things we believe today that will make future generations cringe. Just look at how poorly women and children have been treated in our lifetimes.
1970s - 1990s
- It took until the 1970s for many Western countries to repeal laws that treated women as possessions of their husbands.
- A man could no longer claim justifiable provocation when he killed his adulterous wife or her lover.
- A husband could no longer forcibly confine his wife or prevent her from leaving the house, and a woman's family or friends were no longer guilty of the crime of 'harbouring' if they gave sanctuary to a fleeing wife.
- Divorce laws became more symmetrical.
- All the way up until the 1990s, it was legal for a husband to rape his wife.
- Dead babies were a frequent sight in parks, under bridges and in ditches. According to a British coroner in 1862, "The police seemed to think no more of finding a dead child than they did of finding a dead cat or dead dog."
- Children who survived infancy were often beaten with a stick, whip or other weapon.
- It wasn't unusual to hear that children "were placed on a red-hot iron stove if obstinate, tied to their bedposts for days, thrown into cold water or snow to 'harden' them, [and] forced to kneel for hours every day against the wall on a log while their parents ate and read."
- Benjamin Spock's bestseller Baby and Child Care was considered radical because it discouraged mothers from spanking their children, stinting on affection, and regimenting their routines.
- Some argue attitudes towards children have swung too far the other way now. Parents won't let their children out of their sight. Schools have had playgrounds padded with rubber, their slides and monkey bars lowered to waist height, and their seesaws removed altogether.
If the world’s brightest people have been proven wrong about the world’s most important issues throughout the course of history, we’re bound to be wrong in so many other areas of life.
Once you think about it this way - i.e. that what you see isn’t necessarily right - you start to spot cracks everywhere.
Think about schools.
The most popular TED talk ever is called 'Do schools kill creativity?' It's a twenty-minute video during which Sir Ken Robinson argues that we have to rethink the fundamental principles on which we're educating our children.
It has over 66 million views so far, which suggests there’s a lot of sympathy for his view that our schooling system is broken. Would you bet that the current curriculum and school system lasts another 50 years? I wouldn't.
If our schooling system isn’t right, what about universities? Chances are their teaching methods, and entrance criteria, aren’t fit for today’s age, either.
How you look at these cracks is up to you. You can see them as consequences of a broken system or you can see them as fault lines guiding you to build something better.
Trillions of pounds have been made by finding and fixing society’s blindspots. Uber mended taxis. Amazon re-built delivery. WhatsApp painted over messaging. Literally every inch of human progress can be traced back to people who disagreed with the status quo they stumbled upon.
- Never believe anything because it's convenient. Never assume anything is right because it exists.
- Always question. Pry apart cracks in conventional wisdom to see what's underneath.
We shy away from bad news. Often for good reason. But loss and destruction, which tend to incite bad news, are vital to any type of progress on earth.
As Picasso put it, "every act of creation is first an act of destruction." To make an omelette you have to break eggs, to build a house you have to break rocks, to make something new you have to break convention. Every process involves breaking something up.
Look at the greatest artists and creators. They have this ability to start over and do something brand new that they’re supposedly not qualified for.
Two more examples:
200 years ago, a baby born in Europe was expected to live until 33. Today, they can look forward to life in their 80s.
Babies born today have won the generational lottery. The world has never offered so much hope.
But, as you flick through the annals of the most innovative 200 years the world’s ever seen, you find atrocity after atrocity. To name a handful; the Napoleonic War, American Civil War, Crimean War, Cholera Epidemic, San Francisco earthquake, World War I, Spanish Flu, Great Depression, World War II, Cold War, Vietnam War and Persian Gulf War.
Yet, in spite of unimaginable suffering civilisation has progressed at an unprecedented rate. Economic output per person has increased by 1000% on average, and electricity, telephones, cars, computers, clean water, penicillin, airplanes and so much more have become part of our language and lives.
Stock markets tend to get better over time, but when you pull back the curtain, all you see is chaos, loss and destruction.
Take the US stock market. From 1925 to 2015, it turned $100 into $31,134, even after inflation. But if you surveyed investors during any part of that period, they’d never say it felt as good as it sounds.
Because when you look at how that return was generated, 58% of stocks did worse than money on deposit while only 4% of stocks accounted for the market’s entire return.
You might look at that and argue - quite correctly - that while the market has done well in spite of all those losing companies, you could have done so much better by just buying the 4% of winning companies.
That's where theory derails from reality. It's only possible to know who wins and who loses in hindsight. Amazon can explain why.
Amazon has grown more than 100,000% since it listed but along the way investors have seen it fall 95% once, over 50% six times, 15% one-hundred times and 6% in a day, nearly two-hundred times.
Chances are, investors gave up thinking Amazon was a winner the first time it halved their money.
The fact stands. The only way you can take advantage of winners is to accept losers.
- Accept failure. Destruction and innovation are inseparable. Don’t be afraid to start over. Don’t be afraid to fail. Failure is natural. More than that, it lights the path of progress.
- Keep going. It will never be easy to accept any kind of loss but the trick is to stick with whatever you're doing for long-enough to let the winners take care of the losers. As Winston Churchill said:
We don’t take simple questions seriously.
- Are you happy?
- Would you be in your job if they didn’t pay you?
- Are you working on and thinking about the most important problems in your field?
You have one life. Say "yes" to each of these.
Do what makes you happiest. Do it your way. Make a difference. And enjoy every moment.
It's too easy to sleepwalk through life, living your perception of other people's dreams. First, we have parents. Then teachers. Then bosses. Then partners. They're all important in our lives but no matter how well intentioned they may be, they all have their own agenda and biases, which influence our actions and leave us answering "no" to at least one of these simple questions.
It's natural to try and please people you care about but the reality is this. Everyone will be better off if you do what you want because you'd be better at it, and happier for it.
Joseph Campbell, a writer, wrote
“As you go the way of life, you will see a great chasm. Jump. It is not as wide as you think.”
I took a small leap earlier this year. Here's what I've learnt about that chasm.
- More money won't make you happier. Money used to hold me back. I didn't want to let go of my job because I might not earn as much. But you have to trust the evidence. We think of money on a relative scale. As we earn more, we move to a nicer neighbourhood, where we become poor again. It's an unwinnable game.
- More to the point, great work takes commitment beyond ordinary lengths. The hard way is always the right way. So you have to enjoy what you do or you won't be as successful as you'd like to be.
- Don't try to be better, try to be different. There will always be someone smarter than you, but there might not be someone as passionate, imaginative or courageous. When you focus on what matters to you, you stop competing with the crowd and you stand a better chance of being the best.
- Be optimistic. There's a perfect job out there for everyone. Most people never find it. Keep looking. Be the one who does.
It's no coincidence that the world's most successful founders and investors talk about how important it is to live on your own terms and think for yourself. It's the only way to sustainable success.
I have this complicated procedure I go through every morning, which is to look in the mirror and decide what I'm going to do. I feel at that point, everybody's had their say.
Our task is to find singular ways to create new things that will make the future not just different, but better. The essential first step is to think for yourself. Only by seeing the world anew, as fresh and strange as it was to the ancients, can we both re-create it and preserve it for the future.
Some people say, "Give the customers what they want." But that's not my approach.Our job is to figure out what they're going to want before they do. People don't know what they want until you show it to them. That's why I never rely on market research.
- Listen to yourself. Everyone has a plan for you. Do what gives you joy, do it well, and let the rest take care of itself.
- Forget everyone else. Comparison is the enemy of joy. Warren Buffett says it helps if you can be satisfied with your inner scorecard. He poses this question:
"Would you rather be the world's greatest lover, but have everyone think you're the world's worst lover? Or would you rather be the world's worst lover but have everyone think you're the world's greatest lover?"
- Richard Hamming
- Paul Graham (on genius)
- Paul Graham (on work)
- Paul Graham (on love)
- Paul Graham (on mistakes)
- Steven Pinker
- Morgan Housel
- Howard Marks
- William Dawson
- Joseph Campbell
- Safi Bahcall
- Hendrik Bessembinder
- The Last Dance
- Tim Urban
- Byron Wien
- Nassim Taleb
- Steve Jobs
- Warren Buffett
- Peter Thiel
- Patrick O'Shaughnessy
- Jeff Bezos