Here is part two of the Naval’s expanded points from his viral tweetstorm, “How To Get Rich Without Getting Lucky” (Read summarised post here).

Pick an industry where you can play long term games with long term people.

Play long-term games with long-term people

Yeah, this is an insight into what makes Silicon Valley work, and what makes high trust societies work. Essentially, all the benefits in life come from compound interests. Whether it’s in relationships, or making money, or in learning.

So, compound interest is a marvelous force, where it’s like you start out with 1x what you have, and then if you increase 20% a year for 30 years, it’s not that you got 30 years times 20% added on. It was compounding, so it just grew, and grew, and grew until you suddenly got a massive amount of whatever it is. Whether it’s goodwill, or love, or relationships, or money. So, I think compound interest is a very important force.

You have to be able to play a long-term game. And long-term games are good not just for compound interest, they’re also good for trust. If you look at prisoner’s dilemma type games, a solution to prisoner’s dilemma is tit-for-tat, which is I’m just gonna do to you what you did last time to me, with some forgiveness in case there was a mistake made. But that only works in an iterated prisoner’s dilemma, in another words if we play a game multiple times.

So, if you’re in a situation, like for example you’re in Silicon Valley, where people are doing business with each other, and they know each other, they trust each other. Then they do right by each other because they know this person will be around for the next game.

Now of course that doesn’t always work because you can make so much money in one move in Silicon Valley, sometimes people betray each other because they’re just like, “I’m gonna rich enough off this that I don’t care.” So, there can be exceptions to all these circumstances.

But essentially if you want to be successful, you have to work with other people. And you have to figure out who can you trust, and who can you trust over a long, long period of time, that you can just keep playing the game with them, so that compound interest, and high trust will make it easier to play the game, and will let you collect the major rewards, which are usually at the end of the cycle.

So, for example, Warren Buffett has done really well as an investor in the U.S. stock market, but the biggest reason he could do that was because the U.S. stock market has been stable, and around, and didn’t get for example seized by the government during a bad administration. Or the U.S. didn’t plunge into some war. The underlying platform didn’t get destroyed. So, in his case, he was playing a longterm game. And the trust came from the U.S. stock market’s stability.

When you switch industries, you’re starting over from scratch

In Silicon Valley, the trust comes from the network of people in the small geographic area, that you figure out over time who you can work with, and who you can’t.

If you keep switching locations, you keep switching groups… let’s say you started out in the woodworking industry, and you built up a network there. And you’re working hard, you’re trying to build a product in the woodworking industry. And then suddenly another industry comes along that’s adjacent but different, but you don’t really know anybody in it, and you want to dive in, and make money there.

If you keep hopping from industry to… “No, actually I need to open a line of electric car stations for electric car refueling.” That might make sense. That might be the best opportunity. But every time you reset, every time you wander out of where you built your network, you’re gonna be starting from scratch. You’re not gonna know who to trust. They’re not gonna know to trust you.

There are also industries in which people are transient by definition. They’re always kind of coming in and going out. Politics is an example of that, right? In politics new people are being elected. You see in politics that when you have a lot of old-timers, like the Senate, people who have been around for a long time, and they’ve been career politicians.

Yeah, there’s a lot of downside to career politicians like corruption. But an upside is they actually get deals done with each other because they know the other person is gonna be in the same position ten years from now, and they’re gonna have to keep dealing with them, so they might as well learn how to cooperate.

Whereas every time you get like a new incoming freshman class in the House of Representatives, which turns over every two years with a big wave election. Nothing gets done because of a lot fighting. “Because I just got here, I don’t know you, I don’t know if you’re gonna be around, why should I work with you rather than just try to do whatever I think is right?”

So, it’s important to pick an industry where you can play long-term games, and with long-term people. So, those people have to signal that they’re gonna be around for a long time. That they’re ethical. And their ethics are visible through their action.

Long-term players make each other rich

In a longterm game, it’s positive sum. We’re all baking the pie together. We’re trying to make it as big as possible. And a short term game, we’re cutting up the pie.

Now this is not to excuse the socialists, right? The socialists are the people who are not involved in baking the pie, who show up at the end, and say, “I want a slice, or I want the whole pie.” They show up with the guns.

But I think a good leader doesn’t take credit. A good leader basically tries to inspire people, so the team get the job done. And then things get divided up according to fairness, and who contributed how much, or as close to it as possible, and took a risk, as opposed to just whoever has the longest knive… the sharpest knives at the end.

Summary:

• Pick an industry where you can play long-term games with long-term people. Long-term players make each other rich.
• Short-term players make themselves rich.

The Internet has massively broadened the possible space of careers. Most people haven’t figured this out yet.

The Internet has massively broadened the possible space of careers

The fundamental property of the internet more than any other single thing is it connects every human to each other human on the planet. You can now reach everyone.

Whether it’s by emailing them personally, whether it’s by broadcasting to them on Twitter, whether it’s by posting something on Facebook that they find, whether it’s by putting up a website they come and access.

It connects everyone to everyone. So, the internet is an inter-networking tool. It connects everybody. That is its superpower. So, you want to use that.

What that helps you figure out is the internet means you can find your audience for your product, or your talent, and skill no matter how far away they are.

For example, Nenad, who is Illacertus, if you look at his videos pre-internet, how would he get the message out there? It would just be… what would he do? He would run around where he lives in his neighborhood showing it to people on a computer, or a screen? Or he would try to get it played at his local movie theater? It was impossible. It only works because he can put it on the internet.

And then how many people in the world are really interested in it? Or even in interested in what we’re talking about are really gonna absorb it, right? It’s gonna be a very small subset of humanity. The key is being able to reach them.

The Internet allows you to scale any niche obsession

So, what the internet does is allows any niche obsession, which could be just the weirdest thing. It could be like people who collect snakes, to like people who like to ride hot air balloons, to people who like to sail around the world by themselves, just one person on a craft, or someone who’s obsessed with miniature cooking. Like, there’s this whole Japanese miniature cooking phenomenon. Or there’s a show about a woman who goes in people’s houses, and tidies it up, right?

So, whatever niche obsession you have, the internet allows you to scale. Now that’s not to say that what you build will be the next Facebook, or reach billions of users, but if you just want to reach 50,000 passionate people like you, there’s an audience out there for you.

So the beauty of this is that we have 7 billion human beings on the planet. The combinatorics of human DNA are incredible. Everyone is completely different. You’ll never meet any two people who are even vaguely similar to each other, that can substitute for each other.

It’s not like you can say, “Well, Nivi, just left my life. So, I can have this other person come in, and he’s just like Nivi. And I get the same feelings, and the same responses, and the same ideas.” No. There are no substitutes for people. People are completely unique.

So, given that each person has different skillsets, different interests, different obsessions. And it’s that diversity that becomes a creative superpower. So, each person can be creatively superb at their own unique thing.

But before that didn’t matter. Because if you were living in a little fishing village in Italy, like your fishing village didn’t necessarily need your completely unique skill, and you had to conform to just the few jobs that were available. But now today you can be completely unique.

You can go out on the internet, and you can find your audience. And you can build a business, and create a product, and build wealth, and make people happy just uniquely expressing yourself through the internet.

The space of careers has been so broadened. E-sports players, you know, people making millions of dollars playing Fortnite. People creating videos, and uploading them. YouTube broadcasters. Bloggers, podcasters. Joe Rogan, I read, true or false, I don’t know, but I read that he’s gonna make about $100 million a year on his podcast. And he’s had 2 billion downloads.

Even PewDiePie… there’s a hilarious tweet that I retweeted the other day. PewDiePie is the number one trusted name in news. This is a kid I think in Sweden, and he’s got three times the distribution of the top cable news networks. Just on his news channel. It’s not even on his entertainment channel.

Escape competition through authenticity

The internet enables any niche interest, as long as you’re the best at it to scale out. And the great news is because every human is different, everyone is the best at something. Being themselves.

Another tweet I had that is worth kind of weaving in, but didn’t go into this tweetstorm, was a very simple one. I like things when I can compress them down because they’re easy to remember, and easy to hook onto. But that one was, “Escape competition through authenticity.”

Basically, when you’re competing with people it’s because you’re copying them. It’s because you’re trying to do the same thing. But every human is different. Don’t copy.

I know we’re mimetic creatures, and René Girard has a whole mimesis theory. But it’s much easier than that. Don’t imitate. Don’t copy. Just do your own thing. No one can compete with you on being you. It’s that simple.

And so the more authentic you are to who you are, and what you love to do, the less competition you’re gonna have. So, you can escape competition through authenticity when you realize that no one can compete with you on being you. And normally that would have been useless advice pre-internet. Post-internet you can turn that into a career.

Summary:

• The Internet has massively broadened the possible space of careers, by allowing you to scale any niche obsession.
• Before the Internet there was no way to find all the people in the world who were interested in your obsession. Now you can.
• Escape competition through authenticity—when you’re competing with people it’s because you’re copying them.
• No one can compete with you on being you. Before the Internet, this was useless advice—now it’s a career.

Play iterated games.

All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest.

Returns come from compound interest in iterated games

When you have been doing business with somebody, you’ve been friends with somebody for ten years, twenty years, thirty years, it just gets better and better because you trust them so easy. The friction goes down, you can do bigger, and bigger things together.

For example, the simplest one is getting married to someone, and having kids, and raising children. Like, that’s compound interest, right? Investing in those relationships. Those relationships end up being invaluable compared to more casual relationships.

It’s true in health and fitness. You know, the fitter you are, the easier it is to stay fit. Whereas the more you deteriorate your body, the harder it is to come back, and claw your way back to a baseline. It requires heroic acts.

Summary:

• All returns in life come from compound interest over many turns of long-term games—and they usually come at the end.
• People are fair with each other when they know there will be more turns of the game. Friction goes down with each turn, so you can do bigger and bigger things together.

Pick business partners with high intelligence, energy, and, above all, integrity.

Pick business partners with high intelligence, energy and integrity

In terms of picking people to work with, pick ones that have high intelligence, high energy, and high integrity, I find that’s the three-part checklist that you cannot compromise on.

You need someone who is smart, or they’ll head in the wrong direction. And you’re not going to end up in the right place. You need someone high-energy because the world is full of smart, lazy people.

We all know people in our life who are really smart, but can’t get out of bed, or lift a finger. And we also know people who are very high energy, but not that smart. So, they work hard, but they’re sort of running in the wrong direction.

And smart is not a pejorative. It’s not meant to say someone is smart, someone else is stupid. But it’s more that everyone is smart at different things. So, depending on what you want to do well, you have to find someone who is smart at that thing.

And then energy, a lot of times people are unmotivated for a specific thing, but they’re motivated for other things. So, for example, someone might be really unmotivated to go to a job, and sit in an office. But they might be really motivated to go paint, right?

Well, in that case they should be a painter. They should be putting art up on the internet. Trying to figure out how to build a career out of that, rather than wearing a collar around their neck, and going to a dreary job.

And then high integrity is the most important because otherwise if you’ve got the other two, what you have is you have a smart and hard working crook, who’s eventually going to cheat you. So, you have to figure out if the person is high-integrity.

And as we talked about, the way you do that is through signals. And signals is what they do, not what they say. It’s all the non-verbal stuff that they do when they think nobody is looking.

Motivation has to come intrinsically

I almost won’t start a company, or hire a person, or work with somebody if I just don’t think they’re into what I want them to do.

When I was younger, I used to try and talk people into things. I had this idea that you could sell someone into doing something. But you can’t. You can’t keep them motivated. You can get them inspired initially. It might work if you’re a king like Henry V, and you’re trying to get them to just charge into battle, and then they’ll figure it out.

But if you’re trying to keep someone motivated for the long-term, that motivation has to come intrinsically. You can’t just create it, nor can you be the crutch for them if they don’t have that intrinsic motivation. So, you have to make sure people actually are high-energy, and want to do what you want them to do, and what you want to work with them on.

Integrity is what someone does, despite what they say they do

Reading signals is very, very important. Signals are what people do despite what they say. So, it’s important to pay attention to subtle signals. We all know that socially if someone treats a waiter, or waitress in a restaurant really badly, then it’s only a matter of time until they treat you badly.

If somebody screws over an enemy, and is vindictive towards them, well it’s only a matter of time before they redefine you from friend to enemy, and you feel their wrath. So, angry, outraged, vindictive, short-term thinking people are essentially that way in many interactions in real life.

People are oddly consistent. That’s one of the things you learn about them. So, you want to find long-term people. You want to find people who seem irrationally ethical.

For example, I had a friend of mine whose company I invested in, and the company failed, and he could have wiped out all of the investors. But he kept putting more and more personal money in. Through three different pivots he put personal money in until the company finally succeeded. And in the process, he never wiped out the investors.

And I was always grateful to him for that. I said, “Wow, that’s amazing that you were so good to your investors. You didn’t wipe them out.” And he got offended by that. He said, “I didn’t do it for you. I didn’t do it for my investors. I did it for me. It’s my own self-esteem. It’s what I care about. That’s how I life my life.” That’s the kind of person you want to work with.

Another quote that I like, I have a tweet on this. I think I read this somewhere else, so I’m not taking credit for this. But I kind of modified it a little bit. Which is that “self-esteem is the reputation that you have with yourself.” You’ll always know.

So, good people, moral people, ethical people, easy to work with people, reliable people, tend to have very high self-esteem because they have very good reputations with themselves, and they understand that.

It’s not ego. Self-esteem and ego are different things. Because ego can be undeserved, but self-esteem at least you feel like you lived up to your own internal moral code of ethics.

And so it’s very hard to work with people who end up being low integrity. And it’s hard to figure out who is high integrity and low integrity. Generally, the more someone is saying that they’re moral, ethical, and high integrity, the less likely they are to be that way.

It’s very much like status signalling. If you overtly bid for status, if you overtly talk about being high status, that is a low status move. If you openly talk about how honest, reliable, and trustworthy you are, you’re probably not that honest and trustworthy. That is a characteristic of con men.

So, yeah, pick an industry in which you can play long-term games with long-term people.

Summary:

• Pick business partners with high intelligence, energy and integrity.
• They need intelligence or they’ll head in the wrong direction. They need energy because the world is full of smart, lazy people. And they need integrity or you’ll have a smart and hard working crook, who’ll eventually cheat you.
• People may be energetic on some tasks but not on others. Put them on the right tasks.
• Integrity is what someone does, despite what they say they do.

Don’t partner with cynics and pessimists. Their beliefs are self-fulfilling.

Don’t partner with pessimists

Essentially, to create things, you have to be a rational optimist. Rational in the sense that you have to see the world for what it really is. And yet you have to be optimistic about your own capabilities, and your capability to get things done.

We all know people who are consistently pessimistic, who will shoot down everything. Everyone in their life has the helpful critical guy, right? He thinks he’s being helpful, but he’s actually being critical, and he’s a downer on everything.

That person will not only never do anything great in their lives, they’ll prevent other people around them from doing something great. They think their job is to shoot holes in things. And it’s okay to shoot holes in things as long as you come up with a solution.

There’s also the classic military line, “Either lead, follow, or get out of the way.” And these people want a fourth option, where they don’t want to lead, they don’t want to follow, but they don’t want to get out of the way. They want to tell you why the thing is not going to work.

And all the really successful people I know have a very strong action bias. They just do things. The easiest way to figure out if something is viable or not is by doing it. At least do the first step, and the second step, and the third, and then decide.

So, if you want to be successful in life, creating wealth, or having good relationships, or being fit, or even being happy, you need to have an action bias towards getting what you want.

Partner with rational optimists

And you have to be optimistic about it. Not irrationally. You know, there’s nothing worse than someone who is foolhardy and chasing something that’s not worth it.

That’s why I say rational optimist. But you have to be rational. Know all the pitfalls. Know the downsides, but still keep your chin up.

You’ve got one life on this planet. Why not try to build something big? This is the beauty of Elon Musk, and why I think he inspires so many people, it’s just because he takes on really, really big audacious tasks. And he provides an example for people to think big.

And it takes a lot of work to build even small things. I don’t think the corner grocery store owner is working any less hard than Elon Musk, or pouring any less sweat and toil into it. Maybe even more.

But for whatever reason, education, circumstance, they didn’t get the chance to think as big, so the outcome is not as big. So, it’s just better to think big. Obviously, rationally, within your means, stay optimistic.

The cynics and the pessimists, what they’re really saying, it’s unfortunate, but they’re basically saying, “I’ve given up. I don’t think I can do anything. And so the world to me just looks like a world where nobody can do anything. And so why should you go do something because if you fail, then I’m right, which is great. But if you succeed, then you just make me look bad.”

We’re descended from pessimists

There’s a completely rational frame on why you should be an optimist. Historically, if you go back 2,000 years, 5,000 years, 10,000 years, two people are wandering through a jungle, they hear a tiger. One’s an optimist, and says, “Oh, it’s not headed our way.” The other one says, “I’m a pessimist, I’m out of here.” And the pessimist runs and survives, and the optimist gets eaten.

So, we’re descended from pessimists. We’re genetically hardwired to be pessimists. But modern society is far, far safer. There are no tigers wandering around the street. It’s very unlikely that you will end up in total ruin, although you should avoid total ruin.

Much more likely that the upside is unlimited, and the downside is limited. So, adapting for modern society means overriding your pessimism, and taking slightly irrationally optimistic bets because the upside is unlimited if you start the next SpaceX, or Tesla, or Uber, you can make billions of dollars of value for society, and for yourself, and change the world.

And if you fail, what’s the big deal? You lost a few million dollars of investor money, and they’ve got plenty more, and that’s the bet they take on the chances that you will succeed.

It made sense to be pessimistic in the past. It makes sense to be optimistic today, especially if you’re educated and living in a First World country. Even a Third World country. I actually think the economic opportunities in Third World countries are much larger.

The one thing you have to avoid is the risk of ruin. Ruin means stay out of jail. So, don’t do anything that’s illegal. It’s never worth it to wear an orange jumpsuit. And stay out of total catastrophic loss. That could mean that you stay out of things that could be physically dangerous, hurt your body.

You have to watch your health. And stay out of things that can cause you to lose all of your capital, all of your savings. So, don’t gamble everything on one go. But take rationally optimistic bets with big upside.

BOCTAOE

Scott Adams got so annoyed by this that he came up with a phrase, an acronym, which is “but of course there are obvious exceptions”, BOCTAOE. And he used to pin that acronym at the end of his articles for a while.

But Twitter is overrun with nitpickers. Whereas exactly as you were pointing out, Silicon Valley has learned that the upside is so great that you never look down on the kid who’s wearing a hoodie and has coffee on his shoes. And just looks like a slob because you don’t know if he’s going to be the next Mark Zuckerberg, or the next Reid Hoffman.

So, you’ve got to treat everybody with respect. You’ve got to look up to every possibility, and opportunity because the upside is so unlimited, and the downside is so limited in the modern world, especially with financial assets and instruments.

Summary:

• Partner with rational optimists. They know the downsides but they keep their chin up.
• Don’t partner with cynics and pessimists, their beliefs are self-fulfilling.
• Pessimists don’t have an action bias nor do they want to lead, follow or get out of the way.
• It made sense to be pessimistic in the past. But modern society is far safer, with limited downside and unlimited upside. Adapting for modern society means overriding your natural pessimism.
• Worst of all is the nitpicker.

References: image, nav.al/; extensive explanations are gotten from the podcasts on “Wealth” between Naval and Nivi podcast, link: here.