Little Rules About Big Things

At Marcellus, we try to approach a problem with first principles as we believe it is likely to get as closer to the truth without being bogged down by convention. But once solved, we need to draw mental models or what Morgan Housel here calls ‘Little Rules’ that can be applied to similar situations repeatedly. This is not a blog but simply a compilation of little rules about big things in investing and life. The whole long list is worth a read but here are some of our favourites:

• Everyone belongs to a tribe and underestimates how influential that tribe is on their thinking.
• A lot of financial debates are just people with different time horizons talking over each other.
• If your expectations grow faster than your income you’ll never be happy with your money no matter how much you accumulate.
• Having no FOMO might be the most important investing skill.
• A big takeaway from economic history is that the past wasn’t as good as you remember, the present isn’t as bad as you think, and the future will be better than you anticipate.
• Pessimism always sounds smarter than optimism because optimism sounds like a sales pitch while pessimism sounds like someone trying to help you.
• Every past decline looks like an opportunity and every future decline looks like a risk.
• Getting rich and staying rich are different things that require different skills.
• Money’s greatest intrinsic value is its ability to give you control over your time.
• Napoleon’s definition of a military genius was “The man who can do the average thing when everyone else around him is losing his mind.” It’s the same in business and investing.
• It’s hard to tell the difference between boldness and recklessness, greed and ambition, contrarian and wrong.
• Tell people what they want to hear and you can be wrong indefinitely without penalty.
• When and where you were born can have a bigger impact on your outcome in life than anything you do intentionally.
• Most people are good at learning facts but not great at learning rules – the broad lessons from events that will apply to future events.
• Most financial mistakes come when you try to force things to happen faster than is required. Compounding doesn’t like when you try to use a cheat code.
• There is an optimal net worth for most people, after which not only does happiness stop increasing but more money becomes a social and psychological liability. The number is different for everyone, but is probably lower than most people think.
• Risk is what you can’t see, think only happens to other people, aren’t paying attention to, are willfully ignoring, and isn’t in the news. A little surprise usually does more damage than something big that’s been in the news for months.
• Risk management is less about how you respond to risk and more about recognizing how many things can go wrong before they actually do.
• Housing is often a liability masquerading as a safe asset.
• Emotions can override any level of intelligence.
• Small risks are overblown because they’re easy to talk about, big risks are discounted and ignored because they seem preposterous before they arrive.
• No one is thinking about you as much as you are.
• Read fewer forecasts and more history. Study more failures and fewer successes.
• About once a decade people forget that bubbles form and burst about once a decade.
• You can’t believe in risk without also believing in luck because they are fundamentally the same thing—an acknowledgment that things outside of your control can have a bigger impact on outcomes than anything you do on your own.
• Risk’s greatest fuels are leverage, overconfidence, ego, and impatience. Its greatest antidote is having options, humility, and other people’s trust.
• Everything is sales.

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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.

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