Chapter Six of the book The Psychology of Money caught my attention the most. It is titled "Tails, You Win". It is powerfully built upon this article of the same title.
I love it when I see a recurring theme/concept across my teachers.
The idea of tails can be summarised like this
I love it when I see a recurring theme/concept across my teachers.
The idea of tails can be summarised like this
Warren Buffett once said he’s owned 400 to 500 stocks during his life and made most of his money on 10 of them. Charlie Munger followed up: “If you remove just a few of Berkshire’s top investments, its long-term track record is pretty average.”
Please go grab the book and read it, even that article doesn't do justice enough.
The idea of tails caught my attention because I've heard similar ideas from Malcolm Gladwell and Naval Ravikant.
In explaining tails Morgan Housel used this example of Chris Rock.
“No comedic genius is smart enough to preemptively know what jokes will land well. Every big comedian tests their material in small clubs before using it in big venues. Rock was once asked if he missed small clubs. He responded:
When I start a tour, it’s not like I start out in arenas. Before this last tour I performed in this place in New Brunswick called the Stress Factory. I did about 40 or 50 shows getting ready for the tour.”
Excerpt From: Morgan Housel. “The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness”. Apple Books.
The above is a similar idea to what Malcolm Gladwell called the 10,000 hours in his book Outliers. Gladwell explained that The Beatles at a point in their career were playing 7-8 hours every night for several years.
People criticise Gladwell for his 10,000 hours principle idea, I find that laughable because no matter how you want to look at it, it's not a lie. That's a digression.
Naval Ravikant improved upon Gladwell's idea. He said, what you actually need is 10,000 iterations. Naval said you need a whole lot of "shots on goals" to increase your chances.
I love how they all pass across the same concept.
Just like writing 1000 posts about a certain topic to go real deep is worth more than writing 1000 posts (10 on 100 different topics) going very broad but staying at the surface. When it comes to these 10,000 hours you really gotta ask yourself. Am I taking advantage of exponential compounding?
Exponential compounding requires that some core principled thing about each sliver of that 10,000 hours remains static.