Recessions and bear markets are very easy to predict, except for the timing, cause, magnitude, duration, location, and policy response.
Jeff Bezos once said "Your profit margin is my opportunity," which is basically all of economics summarized in six words.
Bubbles occur because confidence rises as fast as asset prices. People don't just get excited about making money; they feel brilliant, and intellectually justified to play harder in the next round.
Look at today's five largest companies in the world. Fifteen years ago, one of them didn't exist, one was a tiny start-up, one was a belittled relic of the dot-com bust, another was fighting to stay relevant after flirting with bankruptcy a few years before. I suspect the next 15 years will be even more extreme.
Good ideas rarely come in meetings. They come in the shower, in the car, or while going for a walk. Companies should recognize this and give employees more time to think idly.
If you tell people what they want to hear, you can be wrong indefinitely without penalty. This explains the careers of many pundits.
Individual investors roughly break out into three groups. Ten percent of investors don't need help – they get it naturally. Ten percent of investors can't be helped – they're compulsive gamblers. Eighty percent both want and need good advice.
Almost without exception, the best coworkers aren't the smartest or the most experienced, but the nicest. One pound of intelligence is easily overwhelmed by one ounce of jerkiness.
Many rich people will always have money problems, because expenses increase just as fast as wealth. This probably true for countries as well.
Successful investing is found at the intersection of being respectful of the past, indifferent to the present, optimistic about the future and skeptical of salespeople.
It's almost impossible to hide anymore. Social media has lifted the veil on dishonest businesses and lack of competition. Stuff you could get away with 10 years ago is now impossible, which is a great thing.
A lot of things that look unsustainable are new breakthroughs that don't apply to past trends. Tech, demographics, culture, globalization have been changing old rules for centuries. It's always different this time, but we're so addicted to patterns that we'll never believe it and always think something is in the middle of a bubble.
No one will ever "solve" investing for the same reason we can't eliminate the flu virus: Everything adapts and changes itself into something unrecognizable to solutions that worked in the past.
The same traits needed for huge success are the same traits that increase the odds of failure. We should be careful blindly praising winners or criticizing failures because they often made similar decisions with different degrees of luck.
A lot of people are pessimistic with their words but optimistic with their actions. Many of the same people who talk about how terrible things will get probably buy stocks every month in their 401(k) and try to do a little better at work each day.
Most new technologies look stupid at first, then like toys, then expensive luxuries, then fun gadgets, and finally, necessities. This process often takes 20 or 30 years, and rarely less than 10.
We underestimate our ability to adapt. The root of most pessimism is the failure to recognize that people, business, and economies acclimate and move on from even the toughest setbacks.
Everything I've learned about investing points to the idea that simplicity almost to the point of abdication is the way to success for most people.
For more:
- Why does pessimism sound so smart?
- Why we're terrified of typical
- Is today's market more volatile than the past?
- The evolution of good investing ideas
