Investing: The Greatest Show On Earth

In this essay Morgan Housel uses two interesting analogies to illustrate that investing is a far more evolved, more sophisticated discipline than it appears at first blush. The first analogy is he draws is with trees: “Most young tree saplings spend their early decades under the shade of their mother’s canopy. Limited sunlight means they grow slowly. Slow growth leads to dense, hard wood. But something interesting happens if you plant a tree in an open field: free from the shade of bigger trees, the sapling gorges on sunlight and grows fast. Fast growth leads to soft, airy wood that didn’t have time to densify. And soft, airy wood is a breeding ground for fungus, disease, and ultimately a short life. “A tree that grows quickly rots quickly and therefore never has a chance to grow old,” forester Peter Wohlleben writes.
Which is exactly how it works in business and investing, isn’t it?
There’s a graveyard of companies and investors who tried to grow too fast, attempting to reap a decade’s worth of rewards in a year or less, learning the hard way that capitalism doesn’t like it when you try to use a cheat code. Chamath once put it: “The faster you build it, that is the half life. It will get destroyed in the same amount of time.””
The second analogy is even more interesting – it is with cancer: “In 2013 Harold Varmus, then director of the National Cancer Institute, gave a speech describing how difficult the war on cancer had become. Eradicating cancer – the National Cancer Act’s goal when it was signed in 1971 – seems perpetually distant. Varmus said:
“There’s a paradox that we must now honestly confront. Despite the extraordinary progress we’ve made in understanding the underlying defects in cancer cells, we have not succeeded in controlling cancer as a human disease to the extent that I believe is possible.”
One of the missing pieces, he said, is that we focus too much on cancer treatment and not enough on cancer prevention. If you wanted to make the next big leg up in the war on cancer, you had to make prevention the top priority.
But prevention is boring, especially compared to the science and prestige of cancer treatments. So even if we know how important it is, it’s hard for smart people to take it seriously…
And the same irony hurts investors, doesn’t it? The solution to 90% of financial problems is “save more money and be more patient.” Nothing is more powerful or more capable of moving the needle. But it’s so boring…..”
Morgan Housel ends the piece with a recommendation which forms the basis of why we publish 3 Longs & 3 Shorts every Sunday at 7am: “…you can learn lots about investing by reading things that have nothing to do with investing. Greed, fear, risk, opportunity, and scarcity – the most critical topics in investing – reveal themselves in all kinds of fields.
More important is this: If you find something that is true in more than one field, you’ve probably uncovered something particularly important. The more fields it shows up in, the more likely it is to be a fundamental and recurring driver of how the world works.
Which is to say: Restricting your investment learning to the narrow lens of finance means you’re less likely to uncover the biggest and most important parts of investing, which are the ways that people think about things like risk and reward and show up in many fields. You can’t appreciate how important a topic is until you see it play out with as much influence in, say, evolutionary biology as it has in investing.” Housel then lists the five fields (none of them Finance related) which yield the richest insights for investors. So that you read the underlying piece from Housel we won’t list the five fields here.