930: Morgan Housel | The Power of Preparation Over Prediction

Morgan Housel, author of Same as Ever, discusses the power of preparation over prediction. They explore the importance of understanding human behavior for investment lessons, consistent patterns of human behavior, and the rule of low expectations for happiness. They also touch on the dangers of lifestyle creep and comparison, and the interconnectedness of investing and politics.

Episode metadata

Episode title: 930: Morgan Housel | The Power of Preparation Over Prediction
Show: The Jordan Harbinger Show
Owner / Host: Jordan Harbinger
Episode link: open in Snipd
Episode publish date: 2023-12-07

Show notes

If we can't predict the future, how can we prepare for a future in which we'll thrive?
We consult Same As Ever author Morgan Housel for answers!
What We Discuss with Morgan Housel:
- Why the best investment lessons won't be found in a finance textbook they'll be found by understanding human behavior.
- Changes are exciting and novel, but most human behavior patterns are consistent over generations.
- The importance of preparedness over prediction.
- Why Morgan believes the first rule of happiness is low expectations.
- The dangers of lifestyle creep and comparison (and the early epiphany that broke Morgan free from playing this losing game).

Episode AI notes

The book called The Great Depression, a Diary, written by Benjamin Roth, is considered the greatest economic book ever written. The author, an Ohio lawyer, kept a detailed diary during the Great Depression in the 1930s. The author's observations in 1932, the bottom of the Depression, closely resemble what happened in the 2008 financial crisis. The author discusses topics such as the stock market, real estate market, and the actions of politicians during the Great Depression.
The relevance of an article to the current news cycle should not be the primary criterion for its importance. Articles that are only relevant for a short period of time may not be relevant at all. When reading the news or any book, it is helpful to consider whether the topic will be of interest in the long term. Investing time in topics that will remain relevant over time can be a valuable use of time.
Investing in gold may not protect you in extreme scenarios such as a collapse of the banking system or a nuclear war. During historical catastrophic events like Nazi rise and World War II, gold did not guarantee wealth protection. Prepping for extreme scenarios may not be the most effective way to manage risk. Enduring and surviving risks is a more realistic approach than trying to avoid them entirely.
Fame is a mixed bag, becoming famous is great but losing fame is miserable. Being famous creates certain expectations and can dictate one's mood. A small amount of fame can create a positive gap between expectations and reality. Fame can be addicting and not everyone handles it well. According to Chef Gordon, fame has the potential to completely destroy people. Wealth is determined by what one has and what one expects or needs. Humans tend to focus on acquiring more instead of managing their expectations.

Quick Takeaways

Prepare for uncertainties rather than trying to predict the future.
Seek respect and admiration through virtues, ideas, humor, and wisdom instead of material possessions.
Use wealth to gain control of time and achieve independence.
Practice preparedness and develop resilience, flexibility, and adaptability to naviagte unpredictable circumstances.

Deep Dives

Understanding Risk and Preparation: Lessons from Earthquakes

Similar to how people in California prepare for earthquakes despite not being able to predict when and where they will happen, it is important to approach other risks and uncertainties with the same mentality. Just as earthquakes are expected to occur in California, recessions are expected to happen in the economy. By acknowledging this expectation and preparing for it, individuals can better navigate potential downturns and unforeseen events. Rather than trying to predict specific events, it is more beneficial to focus on preparedness and being equipped to handle various situations. This requires maintaining a level of cash reserves and financial stability, as well as being adaptable and resilient in uncertain times.

The Illusion of Material Possessions in Seeking Respect

The pursuit of material possessions as a means of gaining respect and admiration from others often leads to disappointment. While some individuals believe that owning luxury cars, expensive houses, or flashy accessories will garner respect, it rarely yields the desired outcome. True respect and admiration come from virtues, ideas, humor, and wisdom that individuals possess, rather than from material possessions. Focusing on personal growth, building meaningful relationships, and developing valuable skills are more likely to generate respect and admiration from others. By prioritizing these qualities over material goods, individuals can lead more fulfilling lives and avoid the trap of seeking validation through possessions.

Seeking Control of Time and Independence

As one's financial wealth increases, it becomes essential to leverage that wealth to gain control of time and achieve independence. Wealth should be used to create autonomy and flexibility in daily life, allowing individuals to have control over their schedules and pursue activities that bring them joy and fulfillment. Prioritizing independence rather than chasing high salaries or corporate positions that demand constant time and energy can lead to a more gratifying and balanced lifestyle. By valuing time and embracing independence, individuals can enjoy financial success while maintaining control over their lives and pursuing what truly matters to them.

Shifting Focus from Prediction to Preparedness

In the face of uncertainty, it is essential to practice preparedness rather than striving for accurate predictions. Attempting to predict specific outcomes or events can be futile and cause unnecessary stress. Instead, focus on building resilience, flexibility, and adaptability, regardless of what the future holds. Accepting that certain risks cannot be foreseen, but preparing to handle a wide range of situations, allows for a more confident and secure approach to life's uncertainties. Preparedness, combined with a mindset of continuous learning, growth, and the willingness to embrace change, equips individuals to navigate unpredictable circumstances with greater ease and confidence.

Managing Expectations and Comparisons

Comparing ourselves to others and longing for their lives is a common trap, but it fails to account for the trade-offs and costs associated with those lives. Wealth and success often come at the expense of personal relationships, health, and well-being. The notion of wanting someone else's life becomes untenable when you consider the full package, the good and the bad. Wealth is not just about what you have, but also about what you expect or need. By managing and lowering our expectations, we can find satisfaction and happiness in our own lives without constantly striving for more.

The Destructive Nature of Fame

Fame may seem glamorous and appealing, but the reality is often different. Being famous comes with a price. It can disrupt personal relationships, hinder personal growth, and rob individuals of the ability to lead normal lives. The constant scrutiny and pressure can take a toll on mental health and well-being. The pursuit of fame can lead to a never-ending cycle of craving attention and validation, without truly finding fulfillment and happiness.

Wealth and the Importance of Managing Expectations

Wealth is a complex equation that goes beyond the material possessions and financial resources. It involves managing expectations and finding contentment with what one has. It is essential to recognize that the pursuit of more wealth and material possessions can have significant costs, such as strained relationships, diminished well-being, and a never-ending desire for more. By aligning our expectations with our values and focusing on the things that truly bring joy and fulfillment, we can find a path to a more balanced and fulfilling life.

Snips

[06:51] Predicting Future Behaviors Based on Historical Patterns

🎧 Play snip - 1min️ (06:51 - 08:43)

✨ Summary

The insights from the snip reveal that historical patterns of human behaviors tend to repeat over time, as observed during economic depressions which display similar stock market and real estate market behaviors across different time periods. Similarly, the behavior of customers also remains consistent over time, as evidenced by Jeff Bezos' statement about Amazon customers' enduring preference for big selection, fast shipping, and low prices. These insights illustrate the value of predicting future behaviors based on historical patterns that persist over time.

📚 Transcript

Click to expand

Speaker 2

But what are the behaviors that have just always been here that are always going to be there in the future? That idea was like appealing to me. And then two things really solidified this for me. One was I was reading a book that I think is the greatest economic book ever written. It's called The Great Depression, a Diary. And it's written by this Ohio lawyer named Benjamin Roth, who during the Great Depression in the 1930s, kept a very big diary. And he's just writing about what he saw during the Depression. And he wrote in 1932, which is the bottom of the Depression. When I read it, I was like, if you change the dates, this could have been exactly what happened in 2008. He's talking about what happened in the stock market, what happened in the real estate market, what politicians were doing. It could have been verbatim, a post from 2008. And then a couple pages later, Benjamin Roth says, you know, what's happening in 1932 looks exactly like what happened in 1892 and 1874, all the previous depressions before that. He made some comment to the effect of, look, the details always change, but the behaviors never do. It's always the same story. So every recession is the same thing over and over and over again throughout history in terms of how people respond to it. That was the first one. And then several years ago, I read this now famous Jeff Bezos quote where he said, everybody always asked me, what's going to change in Amazon? And then he said, I would actually propose to you that what is not going to change is more important, because you can never imagine a future in which Amazon customers don't want big selection, fast shipping and low prices. Impossible to imagine a future where people don't want those things. And because those are going to be part of their future, they can invest so much time and money into those three things, knowing that they will be as relevant 30 years from now as they are today, which you can't do for most technologies.

[14:35] The Relevance of News and Reading Material

🎧 Play snip - 1min️ (14:35 - 15:12)

✨ Summary

The relevance of news and reading material should not be confined to the current week's news cycle, but should be evaluated based on its long-term significance. Content that remains relevant and valuable over time is worth investing time into, while time-limited material may not be as significant in the long run.

📚 Transcript

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Speaker 2

I used to work at a major news publication and every article that I wrote, the editors would write something along the lines of, hey, good piece. But how is this relevant to this week's news cycle? And I would be like, hey, it's not. Who cares? Yeah. And be that's the point. And I was always, always, always have the thought that if the article is only relevant this week, it's not relevant at all. And I think this is actually a good filter when you're reading the news too, or reading any book is to ask yourself, will I still care about this topic a year from now and five years from Now and 10 years from now? And if the answer is no, it's a pretty good filter for like how much of your time you actually want to invest into it.

[38:22] Conquering Risk vs Enduring It

🎧 Play snip - 21sec️ (38:22 - 38:44)

✨ Summary

The concept of conquering risk is unrealistic, as no one can eliminate risk entirely. It's more practical to endure and survive risk to the best of one's ability, rather than attempting to avoid it. Having a bunker or trying to eliminate risk is not feasible, as everyone can only strive to endure risk as effectively as possible.

📚 Transcript

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Speaker 2

The idea that you can conquer risk is I think the idea you need to get out of your head because you can't. I think if you can try to like endure it and survive it to the best, you can. That's the best anybody can do rather than thinking that you can avoid it, which is, I think, what some of the bunker people try to do is like, if I have a bunker, I can eliminate risk.

Speaker 1

And it's like, no, I don't like nobody can. You can just try to endure it to the best of your ability.

[01:14:35] Wealth and Expectations

🎧 Play snip - 1min️ (01:14:35 - 01:15:18)

✨ Summary

Wealth comprises what you have and what you expect or need. People tend to focus on accumulating more instead of managing their expectations, which is counterproductive. Pursuing more wealth leads to an endless pursuit and sacrifices time and relationships. It's more effective to control and lower expectations, as they are more within our control.

📚 Transcript

Click to expand

Speaker 1

Wealth is a two-part equation. One, what you have. Two, what you expect or what you need. And I love this gem. Because what we do as humans, we focus on getting more instead of focusing on lowering or managing our expectations. But this doesn't really make sense, right? Because going and getting more, one, it's a bottomless pit. There's never enough. And it's also really, really hard. You trade your time, you trade your relationship with your wife and kids because you're at work all the time, whatever it is. But the ideal thing to do here is control the expectation side, right? Since the expectations side is so much more within our control, what we can do is manage or lower our expectations