A genius is the man who can do the average thing when everyone else around him is losing his mind.


The world is full of obvious things which nobody by any chance ever observes.


Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know.


Physics isn’t controversial. It’s guided by laws. Finance is different. It’s guided by people’s behaviors. And how I behave might make sense to me but look crazy to you.

The more I studied and wrote about the financial crisis, the more I realized that you could understand it better through the lenses of psychology and history, not finance.

To grasp why people bury themselves in debt you don’t need to study interest rates; you need to study the history of greed, insecurity, and optimism.


History never repeats itself; man always does.


Your personal experiences with money make up maybe 0.0000001% of what’s happened in the world, but maybe 80% of how you think the world works.


People do some crazy things with money. But no one is crazy.

People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons.


Everyone has their own unique experience with how the world works. And what you’ve experienced is more compelling than what you learn second-hand. So all of us go through life anchored to a set of views about how money works that vary wildly from person to person. What seem crazy to you might make sense to me.

The person who grew up in poverty thinks about risk and reward in ways the child of a wealthy banker cannot fathom if he tried.


25 years later, as he was running for president, JFK was asked what he remembered from the Depression. He remarked:

I have no first-hand knowledge of the Depression. My family had one of the great fortunes of the world and it was worth more than ever then. We had bigger houses, more servants, we traveled more. About the only thing that I saw directly was when my father hired some extra gardeners just to give them a job so they could eat. I really did not learn about the Depression until I read about it at Harvard.


The challenge for us is that no amount of studying or open-mindedness can genuinely recreate the power of fear an uncertainty.


Studying history makes you feel like you understand something. But until you’ve lived through it and personally felt its consequences, you may not understand it enough to change your behavior.


Some lessons have to be experienced before they can be understood.


“Our findings suggest that individual investors’ willingness to bear risk depends on personal history.”

Not intelligence, or education, or sophistication. Just the dumb luck of when and where you were born.


Do you know what my aunt did before she worked in one of these factories? She was a prostitute.

The idea of working in a “sweat shop” compared to that old lifestyle is an improvement, IMO. I know that my aunt would rather be “exploited” by an evil capitalist boss for a couple of dollars than have her body be exploited by several men for pennies.


Buying a lottery ticket is the only time in our lives we can hold a tangible dream of getting the good stuff that you already have and take for granted. We are paying for a dream, and you may not understand that because you are already living a dream. That’s why we buy more tickets than you do.


Few people make financial decisions purely with a spreadsheet. They make them at the dinner table, or in a company meeting. Places where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together into a narrative that works for you.


But the entire concept of being entitled to retirement is, at most, two generations old.


Let me reiterate how new this idea is: The 401(k) — the backbone savings vehicle of American retirement — did not exist until 1978.

It should surprise no one that many of us are bad at savings and investing for retirement. We’re not crazy. We’re all just newbies.


Dogs were domesticated 10,000 years ago and still retain some behaviors of their wild ancestors. Yet here we are, with between 20 and 50 years of experience in the modern financial system, hoping to be perfectly acclimated.


It’s possible to statistically measure whether some decisions were wise. But in the real world, day to day, we simply don’t. It’s too hard. We prefer simple stories, which are easy but often devilishly misleading.

After spending years around investors and business leaders I’ve come to realize that someone else’s failure is usually attributed to bad decisions, while your own failures are usually chalked up to the dark side of risk. When judging your failures I’m likely to prefer a clean and simple story of cause and effect, because I don’t know what’s going on inside your head. “You had a bad outcome so it must have been caused by a bad decision” is the story that makes most sense to me. But when judging myself I can make up a wild narrative justifying my past decisions and attributing bad outcomes to risk.


He could have done anything he wanted in life.

And what he wanted, by all accounts, wasn’t to be a mere centa-millionaire. Rajat Gupta wanted to be a billionaire. And he wanted it badly.


Crime committed by those living on the edge of survival is one thing. A Nigerian scam artist once told the NYT that he felt guilty for hurting others, but “poverty will not make you feel the pain.”

What Gupta and Madoff did is something different. They already had everything: unimaginable wealth, prestige, power, freedom. And they threw it all away because they wanted more.

They had no sense of enough.


The hardest financial skill is getting the goalposts to stop moving.


Having more — more money, more power, more prestige — increases ambition faster than satisfaction.


“The only way to in in a Las Vegas casino is to exit as soon as you enter.”

That’s exactly how the game of trying to keep up with other people’s wealth works, too.


Don’t get too attached to anything — your reputation, your accomplishments or any of it. I think about it now, what does it matter? OK, this thing unjustly destroyed my reputation. That’s only troubling if I am so attached to my reputation.


Reputation is invaluable.

Freedom and independence are invaluable.

Family and friends are invaluable.

Being loved by those who you want to love you is invaluable.

Happiness is invaluable.

And you best shot at keeping these things is knowing when it’s time to stop taking risks that might harm them. Knowing when you have enough.


$81B of Warren Buffett’s $84B net worth came after his 65th birthday. Our minds are not built to handle such absurdities.


The gravitational pull of the sun and moon gently affect the Earth’s motion and tilt toward the sun. During parts of this cycle — which can last tens of thousands of years — each of the Earth’s hemispheres gets a little more, or a little less, solar radiation than they’re used to.


It begins when a summer never gets warm enough to melt the previous winter’s snow. The leftover ice base makes it easier for snow to accumulate the following winter, which increases the odds of snow sticking around in the following summer, which attracts even more accumulation the following winter. Within a few hundred years a seasonal snowpack grows into a continental ice sheet, and you’re off to the races.

The amazing thing here is how big something can grow from a relatively small change in conditions. “It is not necessarily the amount of snow that causes ice sheets but the fact that snow, however little, lasts.”


His skill is investing, but his secret is time.

That’s how compounding works.


Put all that together: From 1950 to 1990 we gained 296MB. From 1990 through today we gained 100 million MB.


Few would have said “30M times larger within my lifetime.” But that’s what happened.


Good investing is not necessarily about making good decisions. It’s about consistently not screwing up.


There are a million ways to get wealthy, and plenty of books on how to do so.

But there’s only one way to stay wealthy: some combination of frugality and paranoia.


If I had to summarize money success in a single word it would be “survival.”


Capitalism is hard. But part of the reason this happens is because getting money and keeping money are two different skills.

Getting money requires taking risks, being optimistic, and putting yourself out there.

But keeping money requires the opposite of taking risk. It requires humility, and fear that what you’ve made can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you’ve made is attributable to luck, so past success can’t be relied upon to repeat indefinitely.


Michael Moritz, the billionaire head of Sequoia: I think we’ve always been afraid of going out of business.


Charlie and I always knew that we would become incredibly wealthy. We were not in a hurry to get wealthy; we knew it would happen. Rick was just as smart as us, but he was in a hurry.


Having an “edge” and surviving are two different things: the first requires the second. You need to avoid ruin. At all costs.


No one wants to hold cash during a bull market. They want to own assets that go up a lot. You look and feel conservative holding cash during a bull market, because you become acutely aware of how much return you’re giving up by not owning the good stuff. Say cash earns 1% and stocks return 10% a year. That 9% gap will gnaw at you every day.


Compounding doesn’t rely on earning big returns. Merely good returns sustained uninterrupted for the longest period of time — especially in times of chaos and havoc — will always win.


By age 20 the average person can lose roughly half the synaptic connections they had in their brain at age 2, as inefficient and redundant neural pathways are cleared out. But the average 20-year-old is much smarter than the average 2-year-old. Destruction in the face of progress is not only possible, but an efficient way to get rid of excess.


Roughly 99.9% of all companies that were created went out of business.


The distribution of success among large public stocks over time is not much different than it is in venture capital.

Most public companies are duds, a few do well, and a handful become extraordinary winners that account for the majority of the stock market’s returns.


There is the old pilot quip that their jobs are “hours and hours of boredom punctuated by moments of sheer terror.” It’s the same in investing. Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years on cruise control.


Peter Lynch is one of the best investors of our time. “If you’re terrific in this business, you’re right 6 out of 10.”

There are fields where you must be perfect every time. Then there are fields where you want to be at least pretty good nearly all the time.

Investing, business, and finance are just not like these fields.


If you think that’s a big failure, we’re working on much bigger failures right now. I am not kidding. Some of them are going to make the Fire Phone look like a tiny little blip.


Our hit ratio is way too high right now. I’m always pushing the content team. We have to take more risk. You have to try more crazy things, because we should have a higher cancel rate overall.


If you remove just a few of Berkshire’s top investments, its long-term track record is pretty average.


It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong. You can be wrong half the time and still make a fortune.


Controlling your time is the highest dividend money pays.


The highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today.”

People want to become wealthier to make them happier. Happiness is a complicated subject because everyone’s different. But if there’s a common denominator in happiness — a universal fuel of joy — it’s that people want to control their lives.

The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.


More than your salary. More than the size of your house. More than the prestige of your job. Control over doing what you want, when you want to, with the people you want to, is the broadest lifestyle variable that makes people happy.


Going home before midnight was considered a luxury, and there was a saying in the office: “If you don’t come to work on Saturday, don’t bother coming back on Sunday.” The job was intellectual stimulating, paid well, and made me feel important. But every waking second of my time became a slave to my boss’s demands, which was enough to turn it into one of the most miserable experiences of my life.


I loved the work and I wanted to work hard. But doing something you love on a schedule you can’t control can feel the same as doing something you hate.


People like to feel they’re in control — in the drivers’ seat. When we try to get them to do something, they feel disempowered. Rather than feeling they made the choice, the feel like we made it for them. So they say no or do something else, even when they might have originally been happy to go along.


Part of what’s happened here is that we’ve used our greater wealth to buy bigger and better stuff. But we’ve simultaneously given up more control over our time. At best, those things cancel each other out.


Almost all jobs during Rockefeller’s time required doing things with your hands. Few professions relied on a worker’s brain. You didn’t think; you labored, without interruption, and your work was visible and tangible.


No one — not a single person out of a thousand — said that to be happy you should try to work as hard as you can to make money to buy the things you want.

No one — not a single person — said it’s important to be at least as wealthy as the people around you, and if you have more than they do it’s real success.

No one — not a single person — said you should choose your work based on your desired future earning power.

What they did value were things like quality friendships, being part of something bigger than themselves, and spending quality, unstructured time with their children. “Your kids don’t want your money anywhere near as much as they want you. Specifically, they want you with them.”

Take it from those who have lived through everything: Controlling your time is the highest dividend money pays.


No one is impressed with your possessions as much as you are.


It was my dream to have one of these cars of my own, because (I thought) they sent such a strong signal to others that you made it. You’re smart. You’re rich. You have taste. You’re important. Look at me.

The irony is that I rarely if ever looked at them, the drivers.


You might think you want an expensive car, a fancy watch, and a huge house. But I’m telling you, you don’t. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does — especially from the people you want to respect and admire you.


But did they know I did not care about them, or even notice them? Did they know I was only gawking at the car, and imagining myself in the driver’s seat?


If respect and admiration are your goal, be careful how you seek it. Humility, kindness, and empathy will bring you more respect than horsepower ever will.


Wealth is what you don’t see. Spending money to show people how much money you have is the fastest way to have less money.


Singer Rihana nearly went bankrupt after overspending and sued her financial advisor. The advisor responded: “Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?”


When most people say they want to be a millionaire, what they might actually mean is “I’d like to spend a million dollars.” And that is literally the opposite of being a millionaire.


There is no faster way to feel rich than to spend lots of money on really nice things. But the way to be rich is to spend money you have, and to not spend money you don’t have. It’s that simple.


Exercise is like being rich. You think, “I did the work and I now deserve to treat myself to a big meal.” Wealth is turning down that meal and actually burning net calories. It’s hard, and requires self-control. But it creates the gap between what you could do and what you choose to do that accrues to you over time.


The danger here is that I think most people, deep down, want to be wealthy. They want freedom and flexibility, which is what financial assets not spent can give you. But it is so ingrained in us to have money is to spend money that we don’t get to see the restraint it takes to actually be wealthy. And since we can’t see it, it’s hard to learn about it.


The first idea — simple, but easy to overlook — is that building wealth has little to do with your income or investment returns, and lots to do with your savings rate.


But spending beyond a pretty low level of materialism is mostly a reflection of ego approaching income, a way to spend money to show people that you have (or had) money.

Think of it like this, and one of the most powerful ways to increase your savings isn’t to raise your income. It’s to raise your humility.

When you define savings as the gap between your ego and your income you realize why many people with decent incomes save so little.


You can spend less if you desire less.

And if you will desire less if you care less about what others think of you.

As I argue often in this book, money relies more on psychology than finance.


What is the return on cash in the bank that gives you the option of changing careers, or retiring early, or freedom from worry?

I’d say it’s incalculable.


Savings in the banks that earn 0% interest might actually generate an extraordinary return if they give you the flexibility to take a job with a lower salary but more purpose, or wait for investment opportunities that come when those without flexibility turn desperate.


A one-degree increase in body temperature has been shown to slow the replication rate of some viruses by a factor of 200.


My own theory is that, in the real world, people do not want the mathematically optimal strategy. They want the strategy that maximizes for how well they sleep at night.


There’s a well-documented “home bias,” where people prefer to invest in companies from the country they live in while ignoring the other 95%+ of the planet. It’s not rational, until you consider that investing is effectively giving money to strangers. If familiarity helps you take the leap of faith required to remain backing those strangers, it’s reasonable.


History is mostly the study of surprising events. But it is often used by investors and economics as an unassailable guide to the future.

Do you see the irony?

History helps us calibrate our expectations, study where people tend to go wrong, and offers a rough guide of what tends to work. But it is not, in any way, a map of the future.


But investing is not a hard science. It’s a massive group of people making imperfect decisions with limited information about things that will have a massive impact on their wellbeing, which can make even smart people nervous, greedy and paranoid.


The most important events in historical data are the big outliers, the record-breaking events. They are what move the needle in the economy and the stock market. The Great Depression. WW2. The dot-come bubble. 9/111. The housing crash. A handful of outlier events play an enormous role because they influence so many unrelated events in their wake.


The Intelligent Investor is one of the greatest investing books of all time. But I don’t know a single investor who has done well implementing Graham’s published formulas. The book is full of wisdom — perhaps more than any other investment book ever published. But as a how-to guide, it’s questionable at best.


Graham was constantly experimenting and retesting his assumptions and seeking out what works — not what worked yesterday but what works today. In each revised edition of The Intelligent Investor, Graham discarded the formulas he presented in the previous edition and replaced them with new ones, declaring, in a sense, that “those do not work anymore, or they do not as well as they used to; these are the formulas that seem to work better now.”


History is littered with good ideas taken too far, which are indistinguishable from bad ideas. The wisdom in having room for error is acknowledging that uncertainty, randomness, and chance — “unknown” — are an ever-present part of life. The only way to deal with them is by increasing the gap between what you think will happen and what can happen while still leaving you capable of fighting another day.


But people underestimate the need for room for errors in almost everything they do that involves money. Stock analysts give their clients price targets, not price ranges. Economic forecasters predict things with precise figures; rarely broad probabilities. The pundit who speaks in unshakable certainties will gain a larger following than the one who says, “We can’t know for use,” and speaks in probabilities.


Bill Gates understood this well. When Microsoft was a young company, he said he “came up with this incredibly conservative approach that I wanted to have enough money in the bank to pay a year’s worth of payroll even if we didn’t get any payments coming in.”


I have pledged — to you, the rating agencies and myself — to always run Berkshire with more than ample cash. When forced to choose, I will not trade even a night’s sleep for the chance of extra profit.


It is easy to underestimate what a 30% decline does to your psyche. Your confidence may become shot at the very moment opportunity is at its highest. You — or your spouse — may decide it’s time for a new plan, or new career. I know several investors who quit after losses because they were exhausted. Physically exhausted.


What if a future bear market scares you out of stocks and you end up missing a future bull market, so the returns you actually earn are less than the market average? What if you need to cash out your retirement accounts in your 30s to pay for a medical mishap?


Leverage is the devil here. Leverage — taking on debt to make your money go further — pushes routine risks into something capable of producing ruin. The danger is that rational optimism most of the time masks the odds of ruin some of the time. The result is we systematically underestimate the risk. Not only were they left broke, but being wiped out erased every opportunity to get back in the game at the very moment opportunity was ripe.


You have to survive to succeed. To repeat a point we’ve made a few times in this book: The ability to do what you want, when you want, for as long as you want, has an infinite ROI.


A good rule of thumb for a lot of things in life is that everything that can break will eventually break. So if many things rely on one thing working, and that thing breaks, you are counting the days to catastrophe. That’s a single point of failure.

Some people are remarkably good at avoiding single points of failure. Most critical systems on airplanes have backups, and the backups often have backups.


The biggest single point of failure with money is a sole reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future.

The trick that often goes overlooked — even by the wealthiest — is realizing that you don’t need a specific reason to save.


An underpinning of psychology is that people are poor forecaster of their future selves.

Imagining a goal is easy and fun. Imagining a goal in the context of the realistic life stresses that grow with competitive pursuits is something entirely different.


The End of History Illusion is what psychologists call the tendency for people to be keenly aware of how much they’ve changed in the past, but to underestimate how much their personalities, desires, and goals are likely to change in the future.


Young people pay good money to get tattoos removed that teenagers paid good money to get. Middle-aged people rushed to divorce people young adults rushed to marry. Older adults work hard to lose what middle-aged adults worked hard to gain.


All of us are walking around with an illusion — an illusion that history, our personal history, has just come to an end, that we have just recently become the people we were always meant to be and will be for the rest of our lives. We tend to never learn this lesson.


We should avoid the extreme ends of financial planning. Assuming you’ll be happy with a very low income, or choosing to work endless hours in pursuit of a high one, increases the odds that you’ll one day find yourself at a point of regret. The fuel of the End of History Illusion is that people adapt to most circumstances, so the benefits of an extreme plan — the simplicity of having hardly anything, or the thrill of having almost everything — wear off. But the downsides of those extremes — not being able to afford retirement, or looking back at a life spent devoted to chasing dollars — become enduring regrets. Regrets are especially painful when you abandon a previous plan and feel like you have to run in the other direction twice as fast to make up for lost time.


Every job looks easy when you’re not the one doing it because the challenges faced by someone in the arena are often invisible to those in the crowd.

Most things are harder in practice than they are in theory. Sometimes this is because we’re overconfident. More often it’s because we’re not good at identifying what the price of success is, which prevents us from being able to pay it.


But do you know how hard it is to maintain a long-term outlook when stocks are collapsing?

Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret — all of which are easy to overlook until you’re dealing with them in real time.

The inability to recognize that investing has a price can tempt us to try to get something for nothing. Which, like shoplifting, rarely ends well.


The question is: Why do so many people who are willing to pay the price of cars, houses, food, and vacations try so hard to avoid paying the price of good investment returns?

The answer is simple: The price of investing success is not immediately obvious. It’s not a price tag you can see, so when the bill comes due it doesn’t feel like a fee for getting something good. it feels like a fine for doing something wrong. And while people are generally fine with paying fees, fines are supposed to be avoided.

It sounds trivial, but thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favor.


An idea exists in finance that seems innocent but has done incalculable damage.

It’s the notion that assets have one rational price in a world where investors have different goals and time horizons.

Ask yourself: How much should you pay for Google stock today?

The answer depends on who “you” are.

Do you have a 30-year time horizon? Then the smart price to pay involves a sober analysis of Google’s discounted cash flows over the next 30 years.

Are you looking to cash out within a year? Then pay attention to Google’s current product sales cycles and whether we’ll have a bear market.

Are you a day trader? Then the smart price to pay is “who care?”

When investors have different goals and time horizons — and they do in every asset class — prices that look ridiculous to one person can make sense to another, because the factors those investors pay attention to are different.


An iron rule of finance is that money chases returns to the greatest extent that it can. If an asset has momentum — it’s been moving consistently up for a period of time — it’s not crazy for a group of short-term traders to assume it will keep moving up. Not indefinitely; just for the short period of time they need it to. Momentum attracts short-term traders in a reasonable way.

Then it’s off to the races.

Bubbles form when the momentum of short-term returns attracts enough money that the makeup of investors shifts from mostly long term to mostly short term.

Bubbles aren’t so much about valuation rising. That’s just a symptom of something else: time horizons shrinking as more short-term traders enter the playing field.


What do you expect people to do when momentum creates a big short-term return potential? Sit and watch patiently? Never. That’s not how the world works. Profits will always be chased. And short-term traders operate in an area where the rules governing long-term investing — particularly around valuation — are ignored, because they’re irrelevant to the game being played.


Rising prices persuade all investors in ways the best marketers envy. They are a drug that can turn value-conscious investors into dewy-eyed optimists, detached from their own reality by the actions of someone playing a different game than they are.


But while we can see how much money other people spend on cars, homes, clothes, and vacations, we don’t get to see their goals, worries, and aspirations. A young lawyer aiming to be a partner at a prestigious law firm might need to maintain an appearance that I, a writer who can work in sweatpants, have no need for. But when his purchases set my own expectations, I’m wandering down a path of potential disappointment because I’m spending the money without the career boost he’s getting. We might not even have different styles. We’re just playing a different game. It took me years to figure this out.


For reasons I have never understood, people like to hear that the world is going to hell.


Optimism is the best bet for most people because the world tends to get better for most people most of the time.

But pessimism holds a special place in our hearts. Pessimism isn’t just more common than optimism. It also sounds smarter. It’s intellectually captivating, and it’s paid more attention than optimism, which is often viewed as being oblivious to risk.


Real optimists don’t believe that everything will be great. That’s complacency. Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way. The simple idea that most people wake up in the morning trying to make things a little better and more productive than waking up looking for trouble is the foundation of optimism.


Tell someone that everything will be great and they’re likely to either shrug you off or offer a skeptical eye. Tell somebody they’re in danger and you have their undivided attention.


The intellectual allure of pessimism has been known for ages. John Stuart Mill wrote in the 1840s: “I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.”


Assuming that something ugly will stay ugly is an easy forecast to make. And it’s persuasive, because it doesn’t imagining the world changing. But problems correct and people adapt. Threats incentivize solutions in equal magnitude. That’s a common plot in economic history that is too easily forgotten by pessimists who forecast in straight lines.


A third is that progress happens too slowly to notice, but setbacks happen too quickly to ignore.


There are lots of overnight tragedies. There are rarely overnight miracles.


Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant.

It’s easier to create a narrative around pessimism because the story pieces tend to be fresher and more recent. Optimistic narratives require looking at a long stretch of history and developments, which people tend to forget and take more effort to piece together.


And in careers, where reputations take a lifetime to build and a single email to destroy.


This underscores an important point made previously in this book: In investing you must identify the price of success — volatility and loss amid the long backdrop of growth — and be willing to pay it.


We had an identical — if not greater — capacity for wealth and growth in 2009 as we did in 2007. Yet the economy suffered its worst hit in 80 years.


Everyone has an incomplete view of the world. But we form a complete narrative to fill the gaps.


Take history. It’s just the recounting of stuff that already happened. It should be clear and objective. But history cannot be interpreted without the aid of imagination and intuition. The sheer quantity of evidences is so overwhelming that selection is inevitable. Where there is selection there is art. Those who read history tend to look for what proves them right and confirms their personal opinions. They defend loyalties. They read with a purpose to affirm or to attack. They resist inconvenient truth since everyone wants to be on the side of the angels. Just as we start wars to end all wars.


Hindsight, the ability to explain the past, gives us an illusion that the world is understandable. It gives us the illusion that the world makes sense, even when it doesn’t make sense. That’s a big deal in producing mistakes in many fields.


Coming to terms with how much you don’t know means coming to terms with how much of what happens in the world is out of your control. And that can be hard to accept.


Risk is what’s left over when you think you’ve thought of everything.


We need to believe we live in a predictable, controllable world, so we turn to authoritative-sounding people who promise to satisfy that need.

Satisfying that need is a great way to put it. Wanting to believe we are in control is an emotional itch that needs to be scratched, rather than an analytical problem to be calculated and solved. The illusion of control is more persuasive than the reality of uncertainty. So we cling to stories about outcomes being in our control.


Even when they are not sure they will succeed, these bold people think their fate is almost entirely in their own hands. They are surely wrong: the outcome of a start-up depends as much on the achievements of its competitors and on changes in the market as on its own efforts. However, entrepreneurs naturally focus on what they know best — their plans and actions and the most immediate threats and opportunities, such as the availability of funding. They know less about their competitors and therefore find it natural to imagine a future in which the competition plays little part.


But the alien circling over Earth?

The one who’s confident he knows what’s happening based on what he sees but turns out to be completely wrong because he can’t know the stories going on inside everyone else’s head?

He’s all of us.


But the foundation of, “does this help me sleep at night?” is the best universal guidepost for all financial decisions.

If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon. Time is the most powerful force in investing. It makes little things grow big and big mistakes fade away. It can’t neutralize luck and risk, but it pushes results closer towards what people deserve.


Define the cost of success and be ready to pay it. Because nothing worthwhile is free. And remember that most financial costs don’t have visible price tags. Uncertainty, doubt, and regret are common costs in the finance world.


Doctors don’t die like the rest of us. For all the time they spend fending off the deaths of others, they tend to be fairly serene when faced with death themselves. They know exactly what is going to happen, they know the choices, and they generally have access to any sort of medical care they could want. But they go gently. A doctor may throw the kitchen sink at her patient’s cancer, but choose palliative care for herself.

The difference between what someone suggests you do and what they do for themselves isn’t always a bad thing. It just underscores that when dealing with complicated and emotional issues that affect you and your family, there is no one right answer. There is no universal truth. There’s only what works for you and your family, checking the boxes you want checked in a way that leaves you comfortable and sleeping well at night.


It doesn’t need to be more complicated than that for us. I like it simple. One of my deeply held investing beliefs is that there is little correlation between investment effort and investment results. The reason is because the world is driven by tails — a few variables account for the majority of returns. No matter how hard you try at investing you won’t do well if you miss the 2 or 3 things that moves the needle in your strategy.


The 1930s were the hardest economic decade in American history. But there was a silver lining that took 2 decades to notice: By necessity, the Great Depression had supercharged resourcefulness, productivity, and innovation.

We didn’t pay that much attention to the productivity boom in the ’30s, because everyone was focused on how bad the economy was. We didn’t pay attention to it in the ’40s, because everyone was focused on the war.

Then the 1950s came around and we suddenly realized, “Wow, we have some amazing new inventions. And we’re really good at making them.”


It’s difficult to imagine now, but ever night tens of millions of families would sit down together in front of their TV set watching the same show, at the same time, as their next door neighbors. What happens now with the Super Bowl used to happen every night. We were literally in sync.

This was important. People measure their well-being against their peers. And for most of the 1945-80 period, people had a lot of what looked like peers to compare themselves to.


They were confident in themselves and their futures in a way that those growing up in harder times found striking. They did not fear debt as their parents had. They differed from their parents not just in how much they made and what they owned but in their belief that the future had already arrived. As the first homeowners in their families, they brought a new excitement and pride with them to the store as they bought furniture or appliances. It was as if the very accomplishment of owning a home reflected such an immense breakthrough that nothing was too good to buy for it.


And you have to put all of that in the context of how much fear there was between Vietnam, riots, and the assassinations of MLK, and John and Bobby Kennedy.

It got bleak.

America dominated the world economy in the two decades after the world. Many of the largest countries had their manufacturing capacity bombed into rubble. But as the 1970s emerged, that changed. Japan was booming. China’s economy was opening up. The Middle East was flexing its oil muscles.


Everything in finance is data within the context of expectations. One of the biggest shifts of the last century happened when the economic winds began blowing in a different, uneven direction, but people’s expectations were still rooted in a post-war culture of equality. Not necessarily equality of income, although there was that. But equality in lifestyle and consumption expectations; the idea that someone earning a 50th percentile income shouldn’t live a life dramatically different than someone in the 80th or 90th percentile. And that someone in the 99th percentile lived a better life, but still a life that someone in the 50th percentile could comprehend. That’s how America worked for the most of the 1945-80 period. It doesn’t matter whether you think that’s morally right or wrong. It just matters that it happened.


A culture of equality and togetherness that came out of the 1950s-1970s innocently morphs into a Keeping Up With The Joneses effect.


I don’t live in the world I expected. That pisses me off. So screw this. And screw you! I’m going to fight for something totally different, because this — whatever it is — isn’t working.