Good Things Taken Too Far · Collaborative Fund

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Penicillin is probably the most important discovery of the last 100 years. It’s saved somewhere between 80 million and 200 million lives. Your great grandparents would have found it indistinguishable from sorcery.

But when it first came to use its discoverer, Alexander Fleming, saw a problem: Antibiotics were so good that people would want to take them all the time, and taking them all the time could backfire as drug-resistant bacteria adapted and proliferated. He said in 1946:

the public will demand [the drug and] … then will begin an era … of abuses. The microbes are educated to resist penicillin and a host of penicillin-fast organisms .. can be passed to other individuals to others until they reach someone who gets septicemia or pneumonia which penicillin cannot save. In such a case the thoughtless person playing with penicillin treatment is morally responsible for the death of the man who finally succumbs to infection with the penicillin-resistant organism. I hope the evil can be averted.

It wasn’t averted. It’s exactly what’s happened.

Drug-resistant bacteria have surged so much that the U.K. has revised down future life expectancy. The U.N. thinks drug-resistant bacteria caused by the overuse of antibiotics could kill 10 million people a year by 2050, reversing the lives saved since penicillin came into use in 1945.

Good things can be taken too far – helpful at one level and destructive at another.

They can be more dangerous than bad things, because the fact that they’re good at one level makes them easier to rationalize at a dangerous level. Doctors who overprescribe antibiotics think they’re doing good in a way people selling meth don’t.

A lot of things work like that, don’t they?

Good things – praise-worthy things – that in a high enough dosage backfire and become anchors?

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A few I see in investing:

1. Contrarianism is great because the masses can get it wrong. But constant contrarianism is dangerous because the masses are usually right.

Identifying and avoiding times when millions of people have been derailed by bad incentives and a viral narrative is a wonderful thing. Most investment fortunes come from a bout of contrarianism. Same in business: name a star, find a contrarian.

But a larger group of investors has turned contrarianism into something closer to cynicism. Their contrarianism is constant – at all times, for all things.

They’ve never met a news story they didn’t want to take the other side on, particularly when it means betting against people who are doing well.

Stocks rise 2%: bubble!

Economy grows: we’re due for a recession.

Tech stocks trade at higher valuations than industrials: I’ve seen this movie before and it doesn’t end well.

It’s done with good intentions. They think they’re being wise contrarians. But their cynicism leaves them consistently behind, which compounds into bitterness as the world progresses without them.

The quirk is that if you survey the list of extraordinarily successful investors, entrepreneurs, and business owners, virtually every one has been a contrarian. But none – not a single one – is always a contrarian.

There’s a time to bet against mass delusion, and (more frequent) times to ride the progress that comes from billions of people collectively searching for truth.

2. Optimism is great because things get better for most people over time. But it’s dangerous when twisted into the belief that things will never be bad, which is never the case.

I believe people will solve big problems over the next 20-30 years in a way that creates real value for both society and investors. Life will get better for most people. They’ll be wealthier, smarter, and more productive. The list of things that would cause me to change that view is short.

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That makes me an optimist.

But the path between now and then will be filled with chaos, setback, ruin, embarrassment, agony, anguish, fraud, injustice, and disbelief. The list of things that would cause me to change that view is blank.

Optimism vs. pessimism isn’t black or white. You can believe things will get better in the long while being a mess in the short run. That’s the right stance.

But it’s hard. It’s easier to pick a side.

A lot of people pick optimism because they rightly, correctly, get excited about the long history of progress mixed with confidence in their own skills.

But when optimism is taken so seriously that it assumes things will never be bad – that every period long or short will work out in your favor – it turns into complacency. It encourages leverage and promotes denial. It leaves you without backup plans. Worst, it causes you to wrongly second-guess your long-term optimism when faced with an inevitable setback.

You can be right about optimism in the long run but fail to ever see it because you overdosed on it in the short run.

3. Being open-minded is great because truth is complicated. But being too open-minded backfires because objective and immutable truth exists.

If you’re not open-minded you live in the tiny bubble of whatever you’ve happened to experience in life.

But author Daniel Okrent once showed how it goes too far. He wrote on the problem of journalists giving equal weight to fringe views with little evidence in the name of balance, which can give fringe views credibility and cause imbalance:

The problem is real, and pervasive, and getting more complicated. As fewer and fewer news media stake a claim on being impartial, those that do are more and more inclined to cover their asses with the “on the one hand, on the other hand” trope. Depresses the hell out of me.

Non-journalists do this, too. They do it innocently. They smartly – correctly – try to be open-minded by seeking out a range of views. They’re driven by the principle that truth is complicated. They fight confirmation bias by seeking out opposing views.

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And then they get lost in a rabbit hole, paralyzed by contradictions.

The legal field has a thing called Gibson’s law. It says, “For every PhD there is an equal and opposite PhD.” Any argument in any field can be backed up by an expert armed with data.

Every smart attempt to be open-minded has to be accompanied by a strong nonsense detector. The detector should go off when any of a handful of laws are violated, when the author’s incentives favor an outcome, and when a complex answer is given if a simple one would suffice.

You have to be firm enough in your views to make confident decisions while being open to new views in a way that lets you occasionally update and change those decisions. “Strong beliefs, weakly held” as they say.



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Morgan Housel
Morgan Housel is a partner at Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal.
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