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The Attention Span. “The Greatest Thing by Far.”

Brief thoughts on an interesting way to understand an increasingly insane world.

“The Greatest Thing by Far.”

[6 minute read]

“The greatest thing by far is to be a master of metaphor [a combiner of ideas]. It is the one thing that cannot be learnt from others; it is also a sign of genius, since a good metaphor implies an intuitive perception of the similarity in dissimilars”.

- Aristotle

Source: Getty Images.

Morgan Housel’s excellent book The Psychology of Money has now sold over a million copies. He’s a master of using stories, analogies, and metaphors to anchor abstract financial concepts back into the real world.

For example, he tells the story of Houdini’s death to illustrate the nature of risk. Houdini had a trick where he would get the largest man in the audience to come up on stage and punch him hard in the stomach, to little effect. One day he was resting in his dressing room after a performance when a group of students from McGill came to visit. One man hit him before he could prepare himself, he later died of a ruptured appendix. Housel’s simple point is compellingly made: financial risk is what you can’t anticipate.

That pretty much sums up the experience of living through the 2020s so far.

I’ve spent a long time thinking about why coming up with good metaphors is so difficult. Essentially, it’s because if they don’t resonate, they don’t work. And they only resonate if they relate to real world experience. This reveals what I think is a really important idea right now.

Reality bites back.

If there’s a dominant theme of the last few months it’s been popular narratives meeting real world constraints. Many of us that live and work predominantly in digital environments have been sitting in our dressing rooms, and reality has walked in and punched us in the stomach.

  • First, it was the theory of globalization and frictionless supply chains facing the unexpected reality of a worldwide shutdown. Supply chains are now moving from multinational profit drivers to national security priorities. As the world suddenly localized, we saw which workers were truly essential.
  • We’re currently watching the ideological goal of decarbonization meet the reality of global energy geopolitics. Germany’s premature decision to deactivate their nuclear plants meant they burnt the bridge to renewables down as they were walking across it. Moreover, many developed world countries failed to take advantage of prosperous times to upgrade their physical infrastructure (see the great Matt Klein article & podcast below).
  • In markets, the narrative of “democratization of finance” has already gone extremely badly for many. Speculative special-purpose acquisition companies (SPACs) and initial public offerings (IPOs) have been facing the reality of their own financials. Inflated “story” stocks are running into higher interest rates. When time horizons shrink, investors are always more reluctant to pay for theoretical and distant ideas.
  • And, most importantly, the pervasive idea that wars between developed countries were now impossible has been proven devastatingly false.

The right question is which sacred cow is next to the slaughter? The sobering constraints of the physical world will return to ever-greater focus.

I have a feeling Vaclav Smil’s work is going to get a lot more relevant. He makes the point that we should all have a deeper understanding of how the basic foundations of our modern tech-heavy lives are produced. His “4 material pillars of modern civilization,” steel, ammonia, cement, and plastics, cannot currently be produced at commercial-scale with electricity alone (see below). Moreover, the rationalist idea that Western living standards will get steadily transferred to developing nations is extremely threatened by his thesis. The energy intensity required is just too great.

A neglected point among the justified bearishness is that massive spending on military and industrial self-sufficiency driven by deglobalization is going to be positive for global growth. Especially when the “safe” assets governments have squirrelled under their mattresses have proven vulnerable to sanctions. Financial abstractions in foreign accounts are proving a lot less useful than a physical domestic factory.

For years we’ve been told that software will eat the world. But I’ve repeatedly highlighted Dan Wang’s perceptive observation that China is now aggressively pivoting its economy back to heavy industry. Just as many of America’s largest companies retreat into digital worlds. You can’t ascend to the singularity without semiconductors.

Probably my most absurd intuition is that the next iteration of tech is going to be focused more on qualitative experience. Much of the contemporary Internet can make us feel terrible! We may even get headsets and devices that improve our direct experience of the world. With the massive amount of market cap dependent on monopolizing our attention, this would be a seismic, if unlikely, evolution.

But rather than my own flawed opinions, it’s perhaps more useful to you readers to explore the way others have built the kind of genius that can see through false narratives to the real world.

I have written about the role of synthesis in detecting stories and the tools to accelerate expert intuition. At the end of the day, all these ideas boil down to cultivating pattern recognition. This is exactly Morgan Housel’s talent. So I asked him how he does it.

“I'm a finance writer, but I never read finance books. I read history/biology/biography, and in that process, I'm constantly looking for things outside of finance that remind me of finance. I think it's hard to come up with stories if you're only reading/thinking about your own field. It's when you connect the dots from other fields that it gets exciting.”

This kind of “connecting the dots” is the single most important action that takes you from abstract back to real. This is what Aristotle means by being able to see “similarity in dissimilars.” The real world is infinitely more complex than advocates of “mental models” commonly think it is. And it’s constantly in motion. So it needs to be approached from as many different angles as possible. If pattern recognition is the greatest skill, you demonstrate you can do it by correctly applying the right pattern to something else. A resonant metaphor is the proof you’ve managed it. Then if you constantly see the same pattern across many different fields, you know it’s more likely to be true than something that just sounds incredibly smart. And the real world always beats abstractions in the end.

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. “

Related Reading & Listening.

  • Read. The Implications of Unrestricted Financial Warfare by Matt Klein. (22 minute read, paywalled)
  • Why read. Aside from being extremely topical, I’ve long been a huge fan of Klein’s book written with Michael Pettis “Trade Wars are Class Wars”. As I wrote early last year, we have a fundamental cognitive defect when it comes to underestimating both the complexity of the world and how it flows together. Klein’s substack The Overshoot is one of the first I’ve paid to subscribe to in 2022. His article this week was excellent on two long-term implications from Ukraine. He also did a great Odd Lots podcast (1 hour listen) on how German energy policy went quite so wrong.
  • "Safe” financial assets now look much less appealing to any government that thinks it could ever get cut off from the allies currently mobilizing against Russia. China is the most obvious and single largest case, but not the only one.
  • By contrast, “saving” by investing in domestic industrial capacity and by investing in efficiency gains that lower the need for imported commodity inputs now looks much more appealing. A global increase in capital spending to promote self-sufficiency (or at least supply chain resiliency) and to limit the risk of security-related disruptions seems likely, although it is far too early to estimate the magnitude of the change."

  • Read. How The World Really Works by Vaclav Smil- quick review in New Scientist (5 minute read)
  • Why read. As explained above, Smil asks us to be more realistic as to the physical foundations of modern society. He’s also one of Bill Gates’ favorite authors
  • In his view, it is inexcusable that most of us don’t know the first thing about the basic workings of modern life and the technologies that keep us all alive. It’s not all rocket science, he says. “Appreciating how wheat is grown or steel is made… are not the same as asking… somebody to comprehend femtochemistry.”
  • Smil deplores the way that Western culture disproportionately rewards work that is removed from the material realities of life on Earth. Most of all, he is concerned that the general public is abandoning its grip on reality.
  • Smil believes it is worth understanding what might seem like outdated technologies given that the building blocks of our lives won’t change significantly over the next 20 to 30 years. Most of our electricity is still generated by steam turbines, invented by Charles Parsons in 1884, or by gas turbines, first commercially deployed in the late 1930s, he writes. And many of the trappings of the industrial world still hinge on the production of ammonia, steel, concrete, and plastics, all of which currently require fossil fuels for their production. Even the newest technologies – AI, electric cars, 5G, and space tourism – get most of their energy from fossil fuel-based turbines, says Smil.

  • Read, ironically. The Reading Obsession by Frederik Gieschen (19 minute read).
  • Why read. My sense is that the reason younger people are now so obsessed with mental models is that it’s tacitly proposed as a substitute for real-world experience. But it isn’t. My friend Frederik Gieschen wrote a wildly popular takedown of the idea that Warren Buffett is so successful because he reads all day. Buffett was also incredibly proactive about getting into the real world and building his network. He is said to be exceptional at reading managers in face-to-face meetings. Obviously both Morgan Housel and I read a lot, but you don’t get rich pattern recognition exclusively from books. Cedric Chin has insightfully noted that even the spiritual father of mental models, Charlie Munger, reasons from analogy, which is the opposing skillset (applying the real world back to the model).

  • Morgan Housel with Tim Ferriss (3 hour 7 minute listen).
  • Why listen. A timely illustration of why I love Morgan. He’s an unusually clear communicator of complex financial topics. I especially enjoy his simplification of the Buffett mythology, which is itself a resonant way to view your own investments in a chaotic time.
  • All compounding is never intuitive. And that’s why, if we look at someone like Buffett, we in the financial industry have spent so much time trying to answer the question: how has he done it? And we go into all this detail about how he thinks about moats and business models and market cycles and valuations, which are all important topics. But we know that literally 99 percent of the answer to the question, how has he accumulated this much wealth, is just that he’s been a good investor for 80 years. It’s just the time. And if Buffett had retired at age 60, like a normal person might, no one would’ve ever heard of him. He would’ve been like one of hundreds of people who retired with a couple hundred million bucks and like moved to Florida to play golf.
  • The math behind it is 99% of his wealth was accumulated after his 50th birthday, and 97% came after his 65th birthday.

Have a great weekend!

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