What Doesn't Change
Most decisions aren’t made on a spreadsheet, where you just add up the numbers and a rational answer pops out. There’s a human element that’s hard to quantify, hard to explain, and can seem totally detached from the original goal, yet carries more influence than anything else.
Capital Thinking • Issue #1151 • View online
I recently had lunch with a guy who’s close with Warren Buffett.
This guy – we’ll call him Jim (not his real name) – was driving around Omaha with Buffett in late 2009. The global economy was crippled at this point, and Omaha was no exception. Stores were closed, businesses were boarded up.
Jim said to Warren, “It’s so bad right now. How does the economy ever bounce back from this?”
Warren said, “Jim, do you know what the best-selling candy bar was in 1962?”
“No.” Jim said.
“Snickers,” said Warren.
“And do you know what the best-selling candy bar is today?” Warren said.
“No,” said Jim.
“Snickers,” said Warren.
Then silence. That was the end of the conversation.
I think what Buffett meant was: Focusing on what’s never going to change is more important than trying to anticipate how something might change.
A Few Good Stories
Virtually everything was in short supply during World War II. The U.S. Army produced over 100 million uniforms to supply the Allies, which left little fabric left over for civilian clothes.
It got worse in 1943 when the Army mandated that the synthetic material typically used in bathing suits had to be reserved for making military parachutes.
Clothing companies got creative by designing bathing suits with less and less fabric. One French designer named Louis Réard took it to the extreme, designing a bathing suit with as little fabric as he could get away with.
Réard introduced the new bathing suit in 1946.
When deciding what to call it, he read in a newspaper about nuclear bomb tests that were taking place on a thin strip of rocks in the Pacific and were catching the public’s attention.
A thin strip catching people’s attention?
That’s exactly what Réard was trying to do, too. So he named his swimsuit after the atoll where the nuclear tests were taking place – Bikini.
When giving tests, Stanford professor Ronald Howard used to make students put the percentage odds they thought they were correct next to each answer.
If you said you were 100% confident that your answer was correct and it turned out to be wrong, you failed the entire test.
If you said you were 0% confident and your answer happened to be correct, you got no credit.
Everything in between gave you a confidence-adjusted score.
I’ve never heard of a better way to teach people that life is about probabilities, not certainties.
Morgan Housel
*Featured post photo by Call Me Fred on Unsplash