Did We Learn The Right Lesson?

February 02, 2021

It’s one thing to look back and say, “What did we learn here?” It’s a whole other thing, and maybe even more important, to ask, “Did we learn the right lesson?”

WSJ columnist and author Jason Zweig says lots of day-traders in the late 90s learned how to flip stocks in that environment, but they learned next to nothing about what makes a business or the process of investing profitable over time. It’s one thing to learn to flip to willing buyers when they’re seemingly always a mouse click away. It’s another thing to learn to survive when the hype turns into panic.

After the crash of the early 2000s, Zweig saw many those traders go off in search of new games. The lesson they’d learned was how to chase, and so they went after energy companies (like Enron), investment properties (in the real estate bubble), and onto whatever they’re up to today. Zweig says the reason we know they never learned the right lesson, is because we see them jumping from get rich scheme to get rich scheme, always hoping to catch a big break.

There are a few “right” lessons we can unpack here. The first is that if the game is to find the hot thing to flip, you’d have to get out before you’re at risk of being the last person holding the bag in order to win. That’s a high, high, high-risk game. But big-risk and big-luck is the game of getting rich (relatively) quickly.

The second lesson is that if our goal is to understand how something really works, over time and in different environments, we have to understand who is buying and selling to who, why, and on what terms? In other words, we have to go deep if we want to focus on one game in hopes of getting rich slowly. No plumber gets rich fixing one sink, but a career can be very profitable. We still need some luck, but not necessarily all at once.

Uncovering the right lesson to learn is hard. As Zweig says, humans are really good at pattern matching. Once we know what a tree looks like, we can see lots of trees. What humans are not so good at is zooming out and trying to understand how the forest works. They can do it, but it takes a more thoughtful approach than what our brains are hardwired to impulsively do.

It’s really easy to have an experience and learn the wrong lesson. Being right doesn’t make someone brilliant. They might be able to recognize a tree, but it doesn’t mean they can understand the forest. Being skilled in a craft is understanding the whole ecosystem, seeing both the collective forest and the individual trees. Being skilled means surviving unlucky as much as it means capturing the lucky over time.

Our goal should be to pay attention to the “why” behind how things happen and are connected. Feedback is tricky. We don’t just want to learn a lesson, we want to strive to learn the right lesson.