Listen on Apple Podcasts, Spotify, Youtube.

Morgan Housel, partner at Collaborative Fund, author of The Psychology of Money and Same as Ever (available for pre-order), and long-time friend of the firm/Twitter frenemy of Brent Beshore recently described luck as “the same thing as risk, just in the other direction.” His point? Good times and bad times ebb and flow, but we’re preconditioned to think of bad outcomes as a result of “risk” – something outside of our individual control that influenced outcomes more than we intended or foresaw. But we think of good outcomes as fueled by our own actions and outstanding decision-making. But, really, it’s all more luck than we like to think.

The following are excerpts from Brent Beshore and David Cover’s Outside Insights episode with Morgan. Their full conversation spans writing for an audience of one and knowing what counts as “enough” to the difference between getting wealthy and staying wealthy to how emotion and care affect perception of value (in businesses and in wine). But they repeatedly came back to two ideas: 1. How our experiences determine how we see the world and 2. How acknowledging the role of luck in our lives can help us feel gratitude and counter pessimism.

On pessimism and experiences: From an evolutionary perspective, it makes sense that species are more attuned to threats than opportunities – the first goal is to stay alive. If you die, the opportunity’s gone anyway. So you have to be keenly aware of threats and only somewhat aware of opportunities…

From the media perspective, pessimism sounds like somebody trying to help you. Optimism sounds like a sales pitch. Pessimism is like, “Oh, there’s this big recession coming. Let me help you to make sure you don’t get hurt.” That’ll catch people’s attention. But if someone says, “Oh, I know the stock that’s gonna double in the next year,” people will rightly say, “That’s probably a sales pitch.” It’s always going to be the case that we are much more attuned to the threats than the opportunities. 

The other point is that most good things in the world come from compounding, which happens slowly – 2% growth per year, 5% growth per year. If you compound that over 50 years, you change the world. But most threats happen very quickly. So, bad news happens overnight but good news takes a long time to play out. Think about 9/11 and Pearl Harbor. Both of those massive events took place over the course of one hour. One hour, and the world was completely changed. 

There is no equivalent to that on the upside. There is no massive breakthrough that takes place in one hour.  [But take something] like the massive decline in heart disease and fatalities over the last 60 years, which declined 80% or 90% on a per capita basis over the last 60 or 70 years. We don’t pay attention to it that much because it was a 3% improvement every year. So over 50 years, it’s this ridiculous improvement to society. But it happens so slowly. Compared to Pearl Harbor, which takes place in one hour, it’s just a totally different beast.

On experiences and luck: Everybody, including me, is a prisoner to their own experiences in life. Nothing is more persuasive than what you have experienced firsthand. And you can try to be empathetic and read about other experiences, try to understand what that might be like. But nothing leaves an emotional scar like what you’ve experienced… [even] positive experiences. Nobody should pretend that if they were born in a different generation, in a different country, or even in the same situation, but to different parents that they would have the same beliefs, the same values that they do today…

This is really important in finance… “What is this stock worth? How should I invest? How should I spend my money? How much money should I save?” To the extent that people disagree [on these questions], they’re not actually disagreeing with each other. It’s people with different experiences in life, different time horizons, different risk tolerances talking over each other. We want to believe that there is one right answer in finance. Here’s what to do with your money. Here’s the formula. They want it to be like physics, and it’s just not. Part of the reason it’s not is because we are all so heavily influenced by our own experiences. 

The best example of this… is the generation who were young adults during the Great Depression. That stuck with them for the rest of their lives. It’s heavily documented that they were very conservative. They eschewed debt. They didn’t invest in the stock market relative to other generations that had the same information and the same education. They had different experiences that taught them to think about the world in a vastly different way.  

Coming to terms with the fact that you are a product of your past, the majority of which has been dumb luck (particularly where and when you were born and whom you were born to) is a pretty powerful idea… And it impacts how people think about money in particular.

On luck and risk… and gratitude: I grew up as a competitive ski racer in Lake Tahoe… I was skiing with two of my best friends, Brendan and Brian. The way that the snow was layered that day was very soft, light, fluffy snow, with another layer of very heavy wet snow on top of that. Whenever you have that layering, the mountain is very susceptible to avalanche. 

We would ski out of bounds. You’re not supposed to do it. You have to duck under the ropes that say “Do not enter,” “Do not cross.” But if you ski out of bounds, that’s where all the good things are because it’s untracked. You get the mountain to yourself, and we would ski down, out of bounds, where there’s no chair lift. It would spit us out on this backcountry road and we would hitchhike back. 

The three of us did it that morning, and we triggered a small avalanche… It came up to our knees, and it ended pretty quickly. We didn’t think that much of it, and we hitchhiked back. Brendan and Brian said, “Let’s go do it again. Let’s go ski that run again. It was great.” And it was, but for whatever reason, I said, “I don’t wanna do it. But how about this? Rather than hitchhiking back, you two go do it and I’ll drive my truck around and pick you up on the road so you don’t have to hitchhike back.” They said, “Great.” We went our separate ways. I drove my truck around to pick them up, and they weren’t there. I thought they hitchhiked back because I was late. But the hours went on, and nobody had seen them. 

The next morning, the search and rescue dogs found them buried under six feet of snow, dead. They got hit by a massive avalanche. The search and rescue people said it looked like half the mountain was torn away. 

It had a huge impact on how I thought about risk and how I think about luck. That decision I made to not go with them was a completely blind, brainless decision. I didn’t think about that decision... Brendan, Brian, and myself ended up on just the opposite size of luck and risk that day because, in their decision to do it, they weren’t weighing the pros and cons and the risk. We were 17, just having a good time, and my decision to not do it wasn’t based on the pros and cons either. But no other decision that the three of us have ever made was more consequential than that. Every single person has some version of that story. 

Tiny little trivial things play out that utterly shift the shape of history — for the whole world or for your own life. And when you read enough of those stories, you just realize how much of life hangs by a thread. An uncomfortable takeaway from that [is that] everything you have can be taken away tomorrow. That’s true for the country. It’s true for the world. It’s true individually. It gives you a much healthier appreciation for risk. It makes you more cautious financially. At least that’s what it does for me. But hopefully it also makes you just a little bit more grateful about what you have… Most people become introspective about how fragile life can be. You realize we’re on a precarious balance beam every single day. 

Hear more conversations like this one – subscribe to Permanent Podcast on your favorite platform.