Study Constants Not Predictions

Morgan Housel explains why studying historical patterns and unchanging human behaviors is more valuable than trying to predict the future.

Core Philosophy

• Focus on what stays constant rather than trying to predict changes
• The biggest future events are usually things no one is currently discussing
• Humility about prediction capabilities is crucial for good decision-making

Why Predictions Fail

• Three biggest economic events of recent times were unpredictable:
  • September 11th
  • Lehman Brothers collapse
  • COVID-19 pandemic
• Pattern continues throughout history:
  • Pearl Harbor
  • Collapse of Soviet Union
  • Great Depression

Investment Strategy Based on Constants

• Focus on sustainable returns rather than maximum returns
  • "What matters is not the best returns you can earn this year"
  • "What matters is what are the best returns you can sustain for the longest period of time"
• Aim for average returns over a longer timeframe
  • 6-6.5% real returns after inflation
  • Sustained for 50 years leads to top 1% of investors
  • Requires zero effort through index funds

Key Behavioral Constants

• Social comparison never ends
  • People always compare themselves to peers
  • Satisfaction is relative, not absolute
• Human responses to key events remain consistent:
  • Greed
  • Fear
  • Risk
  • Uncertainty

Actionable Takeaways

• Read more history, fewer forecasts
• Study how people respond to events rather than trying to predict events
• Focus on understanding timeless human behaviors
• Maintain humility about prediction capabilities
• Build strategies around constants rather than changes

Recommended Historical Reading

• "The Splendid and the Vile" by Eric Larson
  • About London Blitz bombing
  • Shows human element during crisis
• "No Ordinary Time" by Doris Kearns Goodwin
  • About FDR managing WWII
  • Demonstrates political and emotional management