“A genius is the man who can do the average thing when
everyone else around him is losing his mind.”
-
Napoleon
“The world is full of obvious things which nobody by any
chance ever observes.”
-
Sherlock Holmes
Forty percent of Americans cannot come up with $400 in an
emergency.
Before World War II, most Americans worked until they died.
That was the expectation and the reality.
…….people who have control over their time tend to be
happier in life is a broad and common enough observation that you can do
something with it.
As I write this,Warren Buffett's net worth is $84.5 billion.
Of that, $84.2 billion was accumulated after his 50th birthday. $81.5
billion came after he qualified for Social Security, in his mid-60s……. His
skill is investing, but his secret is time. That’s how compounding works.
Jim Simons, head of the hedge fund Renaissance Technologies,
has compounded money at 66% annually since 1988. No one comes close to this
record. ….. Buffett has compounded at roughly 22% annually, a third as much.
….thats only one way to stay wealthy: some combination of
frugality and paranoia.
…..40% of companies successful enough to become publicly
traded lost effectively all of their value over time.
Planning is important, but the most important part of every
plan is to plan on the plan not going according to plan.
The great art dealers operated like index funds. They bought
everything they could. And they bought it in portfolios, not individual pieces
they happened to like. Then they sat and waited for a few winners to emerge.
That’s all that happens.
Perhaps 99% of the works someone like Berggruen…..[art
dealer]………..acquired in his life turned out to be of little value. But that
doesn’t particularly matter if the other 1% turn out to be the work of someone
like Picasso. Berggruen could be wrong
most of the time and still end up stupendously right.
A lot of things in business and investing work this way…………It
means we underestimate how normal it is for a lot of things to fail. Which causes
us to overreact when they do.
Investment firm Correlation Ventures once crunched ….numbers.
Out of more than 21,000 venture financings from 2004 to 2014:
65% lost money.
Two and a half percent of investments made 10x-20x.
One percent made more than a 20x return.
Half a percent – about 100 companies out of 21,000 – earned 50x
or more. That’s where the majority of the industry’s returns come from.
This, you might think, is what makes venture capital so
risky. And everyone investing in VC knows its risky. Most startups fail and the
world is only kind enough to allow a few mega successes………Remember, tails drive
everything.
Napoleon’s definition of a military genius was, “The man who
can do the average thing when all those around him are going crazy.”
It’s the same in investing.
There is an 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 spent on cruise control………… Tails drive
everything.
At the Berkshire Hathaway shareholder meeting in 2013 Warren
Buffett said he’s owned 400 to 500 stocks during his life and made most of his
money on 10 of them…….. “Its not whether you’re right or wrong that’s important,”
George Soros once said, “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.
Having a strong sense of controlling one’s life is a more
dependable predictor of positive feelings of wellbeing than any of the objective
conditions of life we have considered.
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.
A wise old owl lived in an oak,
The more he saw the less he spoke,
The less he spoke, the more he heard,
Why aren’t we all like that wise old bird?
We now have better, more scientific evidence of fever’s
usefulness in fighting infection. A one-degree increase in body temperature has
been shown to slow the replication rate of some viruses by a factor of 200.
……progress happens too slowly to notice, but setbacks happen
too quickly to ignore.
There are lots of overnight tragedies. There are rarely
overnight miracles.
Nassim Taleb explained: “True success is exiting some rat
race to modulate one’s activities for peace of mind.”
“The first rule of compounding is to never interrupt it
unnecessarily.”
August, 1945. World War II ends
…..Sixteen million Americans – 11% of the population – served
in the war. About eight million were overseas at the end. Their average age was
23. Within 18 months all but 1.5 million of them would be home and out of
uniform.
And then what?
What were they going to do next?
……no one knew the answers….the most likely scenario – in the
eyes of many economists – was that the economy would slip back int the depths
of the Great Depression.
Three forces had built up during the war:
1.
Housing construction ground to a halt, as
virtually all production capacity was shifted to building war supplies. Fewer than
12,000 homes per month were built in 1943, equivalent to less than one new home
per American city. Returning soldiers faced a severe housing shortage.
2.
The specific jobs created during the war –
building ships, tanks, and planes – were very suddenly not necessary after it,
stopping with a speed and magnitude rarely seen in private business. It was
unclear where soldiers could work.
3.
The marriage rate spiked during and immediately
after the war. Soldiers didn’t want to return to their mothers basement. They wanted
to start a family, in their own home, with a good job, right away.
This worried policymakers, especially since the Great
Depression was still a recent memory, having ended just five years prior.
……This fear was exacerbated by the fact that exports couldn’t
be immediately relied upon for growth, as two of the largest economies – Europe
and Japan – sat in ruins dealing with humanitarian crisis. And America itself
was buried in more debt than ever before, limiting direct government stimulus.
So we did something about it.
………The first thing we did to keep the economy afloat after
the war was keep interest rates low. This wasn’t an easy decision, because when
soldiers came home to a shortage of everything from clothes to cars it
temporarily sent inflation into double digits.
……..low rates………made borrowing to buy homes, cars, gadgets,
and toys really cheap………..Consumption became an explicit economic strategy in
the years after World War II.
An era of encouraging thrift and saving to fund the war
quickly turned into an era of actively promoting spending…….the GI Bill, ….offered
unprecedented mortgage opportunities. Sixteen million veterans could buy a home
often with no money down, no interest in the first year, and fixed rates so low
that monthly mortgage payments could be lower than a rental.
The second was an explosion of consumer credit, enabled by
the loosening of Depression-era regulations. The first credit card was
introduced in 1950. Store credit, installment credit, personal loans, payday
loans – everything took off.
………demand from GIs ……..Married, eager to get on with life,
and emboldened with new cheap consumer credit, they went on a buying spree like
the country had never seen.
…….Commercial car and truck manufacturing virtually ceased from
1942 to 1945. Then 21 million cares were sold from 1945 to 1949. Another 37
million were sold by 1955.
Just under two million homes were built from 1940 to 1945.
Then seven million were built from 1945 to 1950. Another eight million were built
by 1955.
Pent-up demand for stuff, and our newfound ability to make
stuff, created the jobs that put returning GIs back to work. ………..The defining
characteristic of economics in the 1950s is that the country got rich by making
the poor less poor.
Average wages doubled from 1940 to 1948, then doubled again
by 1963.
And those gains focused on those who had been left behind
for decades before. The gap between rich and poor narrowed by an extraordinary
amount.
….Women held jobs outside the home in record numbers. Their
labor force participation rate went from 31% after the war to 37% by 1955, and
to 40% by 1965.
Minorities gained, too………..Women and minority rights were
still a fraction of what they are today. But the progress toward equality in
the late ‘40s and ‘50s was extraordinary.
The levelling out of classes meant a levelling out of
lifestyles……… TV and radio equalized the entertainment and culture people
enjoyed regardless of class. Mail-order catalogs equalized the clothes people
wore and the goods they bought regardless of where they lived. ……..most people –
lived lives that were either equal or at least fathomable to those around them…….Debt
rose tremendously. But so did incomes, so the impact wasn’t a big deal……… the
growth in household debt-to-income from 1947-1957 was manageable………..
The homeownership rate in 1900 was 47%. It stayed right
about there for the next four decades. Then it took off, hitting 53% by 1945
and 62% by 1970………….
1973……..The recession that began that year brought unemployment
to the highest it had been since the 1930s.
Inflation surged. But unlike the post-war spikes, it stayed
high.
Short-term interest rates hit 8% in 1973, up from 2.5% a
decade earlier.
And you have to put all of that in the context of how much
fear there was between Vietnam, riots, and the assassination of Martin Luther
King, and John and Bobby Kennedy.
It got bleak.
America dominated the world economy in the two decades after
the war. 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.
A combination of lucky economic advantages and a culture
shared by the Greatest Generation – hardened by the Depression and anchored in
systematic cooperation from the war – shifted when Baby Boomers began coming of
age. A new generation that had a different view of what's normal hit at the same
time a lot of the economic tailwinds of the previous two decades ended.
………between the early 1970s through the early 2000s …… growth
continued, but became more uneven…..Ronald Reagan’s 1984………GDP growth was the
highest it had been since the 1950s. by 1989 there were six million fewer
unemployed Americans than there were seven years before. The S&P 500 rose
almost fourfold between 1982 and 1990. Total real GDP growth in the 1990s was
roughly equal to that of the 1950s – 40% vs 42% ………..Between 1993 and 2012, the
top 1 percent saw their incomes grow 86.1 percent, while the bottom 99 percent
saw just 6.6 percent growth………It was nearly the opposite of the flattening that
occurred after the war.
Rising incomes among a small group of Americans led to that
group breaking away in lifestyle.
They bought bigger homes, nicer cars, went to expensive
schools, and took fancy vacations………….The lifestyles of a small portion of
legitimately rich Americans inflated the aspirations of the majority of
Americans, whose incomes weren’t rising.
A culture of equality and togetherness that came out of the
1950s-1970s innocently morphs into a Keeping Up With The Joneses effect.
……..the beginning of debt crises: The moment when people
take on more debt than they can service………what happened in 2008.
….A lot of debt was shed after 2008. And then interest rates
plunged. ….The Fed backstopped corporate debt in 2008. That helped those who owned
that debt – mostly rich people.
Tax cuts over the last 20 years have predominantly gone to
those with higher incomes. People with higher incomes send their kids to the
best colleges. Those kids can go on to earn higher incomes and invest in
corporate debt that will be backstopped by the Fed, own stocks that will be
supported by various government policies, and so on………the bigger thing that’s happened
since the early 1980s. The economy works better for some people than others.
Success isn’t as meritocratic as it used to be ………….
You can scoff at linking the rise of Trump to income
inequality alone. And you should. These things are always layers of complexity
deep. But it’s a key part of what drives people to think, “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.”
Take that mentality and raise it to the power of Facebook,
Instagram, and cable news – where people are more keenly aware of how other
people live than ever before……. “The more the Internet exposes people to new
points of view, the angrier people get that different views exist.”
………….The unemployment rate is now the lowest its been in decades.
Wages are now actually growing faster for low-income workers than the rich. ……….If
everyone studied advances in health care, communication, transportation, and
civil rights since the Glorious 1950s, my guess is most wouldn’t want to go
back……..expectations move slower than reality on the ground ……..So the era of “This
isn’t working” may stick around.
And the era of “We need something radically new, right now, whatever
it is” may stick around.
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