Morgan Housel on Getting Rich vs Staying Rich. Some highlights…
Everything in the economy is cyclical. Nothing great or terrible is likely to stay that way for long, because the same forces that cause things to be great or terrible also plant the seeds to push them the other way.
Bull markets make stocks expensive, expensive stocks leave little room for error, and little room for error increases the odds of bull markets ending. Same thing in the other direction. Recessions cause pessimism. Pessimism causes underproduction, underproduction leads to scarcity, scarcity leads to a new boom.
This is reversion to the mean, the force of entropy pulling at the elastic ends of the distribution to bring boom-bust cycles back to centre.
There are a million ways to get rich. But there’s only one way to stay rich: Humility, often to the point of paranoia. The irony is that few things squash humility like getting rich in the first place.
It’s why the composition of Dow Jones companies changes so much over time, and why the Forbes list of billionaires has 60% turnover per decade.
… Only the paranoid survive.
It’s this fooled-by-randomness selection bias that makes people misattribute success to a proprietary skill instead of the Darwinian survival that can only be understood looking backwards. Upfront, you have no idea who will survive or churn. Stock picking looks attractive but all the data suggests otherwise.