Insights of Same as Ever by Morgan Housel

Right now, the economic outlook for my country, Bolivia, seems chaotic, to say the least. Rising inflation, along with numerous social and political issues, is not only causing widespread anxiety among the population but also giving the impression that we are sinking into a never-ending pit. This is one of the reasons I decided to re-read Morgan Housel's book, Same as Ever, and to share some of the insights that I found important.

In environments with this level of uncertainty, we focus on everything that could happen in the future but forget to question ourselves about what is not going to change. This is an important way to shift our mindset. Another equally important aspect is to factor in risk. We are generally good at predicting the future, except for the surprises, which tend to be all that matters. Risk is what we do not see. A significant part of this idea is coming to terms with how limited our view is of what is happening in the present.

So, in personal finance, the right amount of savings is when it feels like a little too much, and the same goes for debt—probably, the amount you should take is a bit less than you think. Keep these concepts in mind when you consider expectations, because it’s staggering how expectations can alter how you interpret current circumstances. Investor Charlie Munger once said that the world is not driven by greed but by envy. In many ways, it has always been like that and always will be. Being driven by what others have that you don’t is an unavoidable trait in most people. But your happiness relies entirely on your expectations; this variable is more within your control than managing circumstances.

All of us are unique, and we see the world in a unique way. People who achieve incredible things often take risks that can backfire just as powerfully. This is because the personality traits that push people to the top also increase the odds of pushing them over the edge. That’s why it’s important to remember that life is about managing probabilities.

A common trait of human behavior is the strong desire for certainty, despite living in an uncertain and probabilistic world. Probability and uncertainty are challenging for us to comprehend. The human brain is wired to quickly remove doubt by reaching some decision. Keep in mind that what you always want to avoid is catastrophic risk. It is crucial to ask yourself if you’re telling yourself the story you want to hear or if you’re actually analyzing the data—remember, a good story is always more powerful and persuasive.

Every investment price, every market valuation, is just a number from today multiplied by a story about tomorrow. The most important variable was the story people told themselves. And that was the only thing you couldn’t measure or predict with foresight. That’s why the results don’t compute.

When we think about markets, we underestimate the effects of calm, which plants the seeds of chaos. This is because we often overlook the odds of things going wrong and the consequences when they do. That’s why we need to understand the power of “enough.” But the history of taking something valuable and pushing it too far is long. Most things have a natural size and speed and tend to backfire quickly when pushed beyond that. Growth is not a strategy; it is a tactic. And when undisciplined growth becomes the strategy, we lose our way.

One important point about this topic is that most great things in life gain their value from two things: patience and scarcity. Patience to let something grow, and scarcity to appreciate what it grows into. This is more difficult when stress enters the picture. However, stress can be beneficial because it focuses our attention in ways that good times can’t. The circumstances that tend to produce the greatest innovations are those that make people worried, scared, and eager to act quickly because their future depends on it. Stress kills procrastination and indecision, forcing what you need to do right in front of you, leaving no option but to pursue it, right now, to the best of your ability.

Nevertheless, we must remember the true magic of investment, which is “compounding.” The most important things come from compounding, but because it takes time, it’s easy to overlook. We tend to focus on setbacks because of how quickly they happen. We overlook how small actions can compound into extraordinary outcomes. This also works in reverse—most catastrophes result from a series of small risks, each easy to ignore, that compound into something enormous. It’s time, not the little things, that moves the needle.

If you understand the magic of compounding, you realize the most important question is not “How can I achieve the biggest returns?” but “What are the best returns I can sustain over the longest period of time?”

Progress requires optimism and pessimism to coexist. However, knowing how to balance the two has always been, and always will be, one of life’s most important skills. The key in any field is being able to survive short-term problems so you can stay around long enough to enjoy long-term rewards. A valuable lesson from history is that the long run is usually quite good, while the short run is often challenging.

Another important aspect to consider is that there is an advantage in being a little imperfect. Not maximizing your potential can actually be ideal in a world where perfecting one skill can compromise another. It’s not about working less, but quite the opposite. Many demanding jobs are practically endless, and without structuring time for thought and curiosity, you end up less effective during the hours devoted to focused work.

Room for error is often seen as a cost, an inefficiency. But in the long run, it can have some of the greatest rewards imaginable. The more precise you try to be, the less time you have to focus on the big-picture principles that are probably more important. The more perfect you try to become, the more vulnerable you generally are. Always remember that everything worth pursuing comes with a bit of pain. Enduring that pain when necessary, rather than looking for a hack or shortcut, is essential. Every job has aspects you won’t enjoy, and we need to accept that as “part of it.” Everything has a price, and that price is usually proportionate to the potential rewards.

A unique, underrated skill is identifying the optimal amount of hassle and nonsense you should tolerate to get ahead while getting along. Compounding is fueled by endurance, so sitting through periods of difficulty is not a flaw; it’s embracing an optimal level of hassle. And as we talk about endurance, remember that most competitive advantages eventually fade. Talented workers keep advancing until they reach their limits and fail. Competition never stops. Evolution is relentless and unforgiving—it doesn’t teach by showing what works but by discarding what doesn’t.

When thinking about the future, remember that you can never predict what an apparently small discovery might lead to. The value of new technology isn’t just what it can do; it’s what someone else with a completely different skill set and perspective might eventually turn it into. Another important truth is to remember that everything is sales—people are always crafting an image of who they are, and almost everything looks better from the outside. Most of what we see is just a fraction of what actually happened. When someone is viewed as extraordinary, we’re more likely to overvalue their opinion on things they may not have any special talent in.?

The author also highlights one of the world’s most powerful forces: incentives. When incentives are extreme, behavior can become extreme as well. People can be led to justify almost anything. No matter how much information and context you have, nothing is more persuasive than what you desperately want or need to believe. It’s difficult to remain objective when incentives are pushing you in a certain direction. Incentives can sustain crazy, unsustainable trends longer than seems reasonable because there are social and financial factors preventing people from accepting reality for as long as possible.

Understanding all this prepares us to handle experience. It helps us understand how we will respond to risk, fear, and desperation when we’re in the heat of the moment. Working for the long run is just a series of short runs that you must get through. So ask yourself, “How can I endure a never-ending parade of nonsense?” Your belief in the long run isn’t enough; your partners, coworkers, and friends need to be on board for the journey, too.

It’s also essential to distinguish when you’re being patient versus just stubborn. That’s why long-term thinking is less about time and more about flexibility. Time is compounding’s magic ingredient, and its importance can’t be overstated. But the odds of success are greatest when you mix a long time horizon with a flexible end date—or an indefinite horizon. The more flexibility you have, the less you need to know what happens next.

Also remember, there are no points awarded for difficulty. In most situations, a handful of simple variables drive the majority of outcomes. If you’ve covered the essentials, you’re all set. You need to identify the core principles that govern your field. In finance, spending less than you earn, saving the difference, and being patient is perhaps 90% of what you need to know to do well.

To conclude, an important aspect of human behavior is that people who have had different experiences will think differently. After experiencing a major, unexpected event, two things usually happen: you assume what just happened will keep happening, but with greater impact, and you predict future outcomes with great conviction, even if the original event was improbable and something few anticipated. Disagreement often stems less from what people know and more from what they have experienced. Since experiences will always differ, disagreement will be a constant.