12 Unexpected Laws Of Human Psychology - Morgan Housel

Added: Feb 18, 2024

Stress and Innovation

Housel highlights the idea that stress can often lead to innovation and progress. He gives examples from history, such as the Great Depression and World War II, where periods of intense stress and crisis spurred significant advancements in technology and productivity. He explains that when faced with a sense of urgency and pressure, individuals and societies are often able to achieve remarkable feats that would not have been possible in more stable and comfortable times.

He also discusses how bad news tends to grab our attention more than good news, as it often occurs quickly and dramatically. In contrast, good news, such as improvements in heart disease mortality rates or climate-related deaths, tends to happen gradually over time and may go unnoticed. Housel points out the importance of recognizing and appreciating the slow, compounding progress that occurs in various aspects of life.

Small Events Leading to Big Outcomes

Housel delves into the concept that major events are often the result of a series of small, seemingly insignificant events that compound over time. He uses examples like the Great Depression, where a combination of factors such as the stock market crash, bank runs, and the Dust Bowl led to a catastrophic economic downturn. He emphasizes the idea that big outcomes can stem from a chain of small events that interact in the right order.

Elation and Despair

The conversation touches on the importance of balancing optimism and pessimism in achieving success. Housel shares the story of Admiral Stockdale, who observed that optimists fared poorly in challenging situations because they set unrealistic expectations that were often dashed. On the other hand, rational optimists, who maintained a positive outlook while acknowledging the difficulties ahead, were better equipped to handle adversity.

Housel also discusses the case of Bill Gates, who exemplified the ability to combine optimism with caution in his approach to running Microsoft. Gates took bold risks in envisioning a future where computers would be ubiquitous while also managing the company conservatively with ample cash reserves. This ability to hold both optimistic and pessimistic perspectives simultaneously allowed Gates to navigate the complexities of running a successful business.

Adaptability and Specialization

The conversation explores the idea that individuals and organizations must adapt to the demands of different situations and contexts. Housel mentions the importance of specialization and finding the right people for specific roles within a business. He uses examples like Uber, where founder Travis Kalanick's risk-taking attitude was instrumental in the company's early growth but became a liability as the company scaled. Recognizing when different skill sets are needed at various stages of growth is crucial for long-term success.

The discussion also touches on the concept of aligning personal ambitions with the goals of a larger entity. Housel shares the story of Ben Francis, founder of Gymshark, who recognized when his own capabilities were not sufficient for the company's growth and brought in experienced professionals to lead the organization. This willingness to set aside personal ego and prioritize the success of the brand exemplifies the importance of adaptability and self-awareness in achieving success.

The Balance Between Innovation and Efficiency

Housel talks about the importance of having a balance between innovation and efficiency in a company, using Apple as an example. He mentions the need for a visionary like Steve Jobs to come up with groundbreaking ideas, followed by someone like Tim Cook to ensure the smooth operation of the company.

The Importance of Unstructured Time

In discussing the success of individuals like Elon Musk, Housel emphasizes the need for a little room for error and inefficiency in one's work. He mentions the importance of unstructured time for thinking and creativity, highlighting the value of activities like going for a walk or reading in generating new ideas.

Housel and the host delve into the concept of productivity and the misconception that certain activities, like going out for dinner or attending events, are not productive. They stress the importance of dedicating time to activities that may not seem like work but are essential for personal growth and success.

Embracing Challenges

The conversation shifts to the idea of embracing the challenges and sacrifices that come with pursuing success. Housel mentions the quote, "The trick is not minding that it hurts," emphasizing the need to accept the difficulties and challenges that come with achieving one's goals.

The Importance of Reading

Housel shares insights from his friend about the importance of reading and dedicating time to it, comparing it to going to the gym. He discusses the tendency for people to overlook the value of reading and other activities that may not seem like work but are crucial for personal development.

Success

The conversation touches on the concept of hidden metrics and the importance of looking beyond observable metrics in measuring success. Housel emphasizes the need to understand the true cost of success and the sacrifices that may be required to achieve it.

Housel shares anecdotes about successful individuals like Salvador Dali and the Donner Party, highlighting the extreme lengths some people go to in pursuit of their goals. He discusses the idea that champions are often driven by a sense of fulfillment and a desire to serve others, rather than seeking personal gain.

Not Letting One's Guard Down

The discussion continues with the idea that most competitive advantages eventually fade, using the example of Sears as a cautionary tale. Housel emphasizes the importance of staying humble, innovative, and adaptable in order to sustain success in the long term.

Housel emphasizes the importance of staying vigilant and not letting one's guard down even after achieving success. He mentions the concept of "only the paranoid survive" in business, highlighting the need to always be on edge and scrutinize competitors to stay ahead.

Serotonin vs. Dopamine

Housel introduces the idea of "serotonin Morgan vs. dopamine Morgan," where serotonin represents a calm and content state, while dopamine signifies a vigilant and anxious mindset. He explains that successful individuals often maintain a dopamine-driven approach, constantly monitoring their surroundings and staying alert to opportunities and threats.

Innovation and Perception

Housel delves into the concept of innovation and how new technologies are often underestimated or misunderstood in their early stages. He highlights the tendency for people to resist change and overlook the potential of emerging technologies until they become mainstream and widely accepted.

The Illusion of Ease

Housel discusses how people often perceive success as easier than it actually is, attributing achievements to luck or innate talent rather than hard work and dedication. He points out the tendency for individuals to overlook the challenges and obstacles faced by successful individuals, leading to a skewed perception of their accomplishments.

Incentives and Behavior

The conversation touches on the powerful influence of incentives on human behavior. Housel explains how people can be led to justify and defend questionable actions when their incentives align with certain behaviors, citing examples from history and economics to illustrate this phenomenon.

Perspective and Empathy

Housel explores the idea of toxic compassion, where individuals display performative empathy to mask underlying negative traits. He emphasizes the importance of understanding the asymmetry between how we perceive others and ourselves, highlighting the complexity of human thoughts and emotions.

Long-Term Perspective

The conversation continues with a discussion on the importance of maintaining a long-term perspective in investing and decision-making. Housel emphasizes the need to endure short-term challenges and fluctuations while staying focused on long-term goals and objectives.

Long-termism and the Nature vs. Nurture Debate

Housel emphasizes the significance of playing long-term games with long-term people and investments, such as investing in the S&P and focusing on signals rather than noise. He acknowledges that some individuals are naturally inclined towards long-term thinking, while others may struggle with it due to their genetic makeup or life experiences. Housel shares a story about his brother-in-law working with impoverished families who have a limited time horizon, highlighting how different individuals perceive and plan for the future based on their circumstances.

Personal Growth and Behavioral Change

The conversation delves into the concept of personal growth and the idea of giving advice to one's past self. Housel suggests that many people tend to focus on what they wish they had known in the past, but fail to implement those lessons in the present. He emphasizes the importance of self-awareness and the willingness to change behaviors and beliefs over time. He also discusses the end of history illusion, where individuals underestimate how much they will change in the future, leading to a lack of preparedness for personal growth.

The Pitfalls of Trying Too Hard and Complexity

Housel points out that in certain endeavors, such as investing, trying too hard or overcomplicating things can be counterproductive. He highlights the tendency for individuals, especially in finance and other technical fields, to rely on complexity as a signal of expertise. However, he argues that simplicity often leads to better outcomes, particularly in behavioral aspects of investing and decision-making. He uses examples like the yield curve and radiology to illustrate how unnecessary complexity can hinder understanding and progress.

The Influence of Personal Experiences and Scars

The conversation touches on the impact of personal experiences on beliefs and behaviors. Housel discusses how individuals' backgrounds, including their upbringing, culture, and past traumas, shape their worldview and decision-making processes. He mentions examples like the German stock market and Australian economic stability to demonstrate how historical events can influence people's risk perceptions and behaviors. He introduces the concept of wounds and scars, highlighting how psychological trauma can leave lasting effects even after physical wounds have healed.

The Value of Not Needing to Impress Others

Housel explores the idea that the most valuable personal finance asset is not needing to impress anyone. He discusses how spending habits often revolve around signaling status or overcoming past challenges. Housel shares a personal anecdote about his father-in-law's journey from poverty to success and how his decision to send his daughter to an expensive school symbolized his achievements. He also touches on the symbolism behind luxury items like watches and the role they play in signaling status and success.

The World's Split Between Making Money and Knowing When to Stop

Housel references Nassim Nicholas Taleb's quote about the world being split between those who don't know how to start making money and those who don't know when to stop. He applies this concept to personal growth, suggesting that individuals may struggle with either initiating change or knowing when to pause and reflect on their progress. Housel emphasizes the importance of self-awareness and balance in pursuing personal and financial goals.