The Lead-Up

In the early 1900s, millions of Americans left farms to take higher paying jobs in metropolitan areas. The banking system was very fragmented, undercapitalized, and struggling as the 19th century agricultural economy withered. As cities grew, the banking system became ever more imbalanced and precarious.

In 1919, GM struck a blow against the American taboo on taking personal loans by selling loans for buying cars. Soon after, Sears offered installment plans for expensive appliances like dishwashers. Wall Street then went one step further and started offering stock on credit. Americans stared sometimes buying stocks paying 80-90% in credit.

New York’s population swelled. In the 1920s New York had become a fundamentally different place than other American cities. By 1929 NYC had ~2,500 buildings of 10 stories or more (and The Empire State Building, Sears Tower, and Rockefeller Center were all in development). Chicago was in second with ~450. Of the ~200 Americans who reported personal incomes of more than 1 million dollars at the time, half were New Yorkers.

The Bubble

By the peak in 1929, the stock market had experienced nearly 7 years of uninterrupted growth, and in the last year doubled what it was in 1928. Then came October 1929, one of the worst month’s in stock market history and the start of an 80% fall over the next 2 years. “I doubt if anyone will ever disclose the specific thing that produced the debacle. It seemed to me that the time came when a sufficient number of people believed their hour to sell had come. Their actions started a wave of fear and everybody tried to sell at once. The machinery of the brokerage houses could not stand the strain, and that added to the panic that ensued.”

A well-known economist made a pessimistic quote about the market, a major English company was on the verge of collapse, and stocks fell as they sometimes do. Then in one week market went down 8%, leading to brokers issuing margin calls to customers. Investors short on cash watched as brokers sold off their positions to recover debts. Actions triggered yet more margin calls and more liquidation. The New York Stock Exchange was not equipped to handle the volume of activity, leading to even more panic and selling. The market dropped 33% over one month.

The momentum for stock market recovery was never more than episodic in the early 1930s. Every market rally eventually reversed course. Some in hours, some in days, some in months. There was no singular moment of high stakes drama, the air simply leaked out of the balloon day after day after day. Stocks ended 1930 down by 1/3 for the year. Then fell by 1/2 the following year. The collapse was not a moment. It was a relentless unraveling. The hope that a new bull market was imminent vanished.

The Aftermath

Major reduction in equity meant little equity to cover great quantities of debt, eviscerating the credit markets. Throughout 1930, small banks throughout the country began to fail. Americans didn’t trust banks anymore. Money was pulled out of banks and stored under mattresses. There was soon mass unemployment, chanty towns, and bread lines. The Great Depression had started.

By 1931, unemployment had nearly tripled and one quarter of American factory workers had lost their jobs. More than 1300 banks failed (mostly in small towns and rural areas). Bank failures were averaging 60 a month, then jumped to 254 one month in November, then 344 the next in December (on one single day 43 banks failed).

Quite surprisingly to me (sorry to my 11th grade history teacher who I know taught me this once…), Hoover most likely did not lose the 1932 election to FDR due to his handling of the economy. Around the election economic turmoil had quieted down, Dow had increased, and 2/3 of Americans polled at the time felt the Great Depression was over and businesses were recovering. Hoover lost because of prohibition - while FDR was against it, Hoover refused to run against it even though 83% of the country was against it by that point. Democrats/FDR agenda was to showcase and put forth the alternative he offered to the Republicans’ hand off approach to business.

New laws in the early 1930s: FDIC insurance for $2500, SEC established, separation of commercial and investment banking.

Miscellaneous Quotes

• “At the time of the crash, many people and many banks could be knocked over by a feather.”
• “Hoover was considering whether to sign the Smoot Hawley tariff bill, which had been inspired by his own campaign promises to help ailing farmers. The bill would raise tariffs on imported goods to an average of nearly 60%. More than 1,000 economists signed a letter condemning it. Hoover had major reservations about the bill, describing it as “vicious” “extortionate” and “obnoxious”. But In the end it came down to the heartland vs Wall Street, and Hoover knew which side he owed his political debts to. He signed the bill into law on June 17th, 1930. Trade between the US and the rest of the world fell by 60% within a year.”
• “In the less affluent areas of big cities and the vast areas beyond metropolitan centers, daily life was unraveling to a degree that wasn’t yet visible or comprehensible to either Wall Street or Washington.”
• “It’s at this point that the story shift. The Great Depression is rolling on, Hoover continues to flail, and FDR is now becoming a prominent replacement candidate. The country is hungry for a hero, and for villains too.”
• There was a push being made by one of the richest men in the world to cut the 5.5 day work week (half day Saturday, which had gone down by 6) down to 5. The pitch was it would improve the economy by leading to more tires and cars and gas, more camping and fishing gear, sports goods, more hotel spending, more shopping, more activity.
• Future famous composer/playwright Gershwin was deciding between two choices: “I can stay in New York and take a pretty tempting offer to write a show I’ve been offered, or toss that up (and the good financial deal that comes with it) and follow a pretty strong urge I have to go to Paris and study theory and orchestration and work out a new idea of mine.” Response from his friend: “My guess is that unless you follow your real desire, you stand a pretty good chance of writing a pretty bad show”. Gershwin took that advice and went abroad, where he wrote “An American in Paris”.
• Congressman Carter Glass in 1902 when he’d asked to be on foreign committees but got put on banking instead: “I don’t know anything about banking, but I guess I can learn.” Read everything he could, and eventually became the top banking expert in all of Congress and was instrumental in creation of the Federal Reserve and the major financial legislation “The Glass-Steagall Act”.

Breaking the mold: Ardern’s entire career became a counter-example to many stereotypes we have about politicians:

• "I asked students to close their eyes and imagine a politician and then tell me what they saw. The answers were always the same: male, old, gray. Then I would turn to what they heard and tone of voice - the words would come quickly: “confident! Angry, aggressive.” I would repeat this exercise in multiple classrooms up and down the country - the answers were always the same."

Advice from Queen Elizabeth: when Ardern asked her for advice on raising children while leading a country:

• “You just get on with it”

Shout out to trout fishing:

• “In the end, I think 3 things helped mom keep going: her faith, her community, and trout fishing”

Guiding advice from her dad, a police officer, after a situation when she thought he would have used force but he de-escalated peacefully:

• “My words will always be the greatest tool I have”

The core passage of the book: the traits we often label as flaws can be our greatest strengths:

• "Here is what I would say to everyone who is not sure they fit: 'If you have imposter syndrome or question yourself, channel that - it will help you. You will read more, seek out advice, and humble yourself to situations that require humility to be conquered. If you over think everything, if you can imagine the worst case scenario, channel that too. It will mean you are ready when the most challenging days arrive. And if you are thin skinned and sensitive, that is not weakness. It’s empathy. In fact all the traits that you believe are your flaws will come to be your strengths. The things you thought will cripple you, will in fact make you stronger, make you better. They will give you a different kind of power, and make you a leader that this world might just need. That’s what I would tell them, and I suppose, in sharing my story, that’s what I’m telling you.'"

1) Improved his luck surface area. ("The most important decision a poker player makes is what table they sit at; The number one rule of fishing is to fish where the fish are”). The below are focused on geography, but Franklin made similar pivots beyond where to live:

• If Franklin had not moved from Boston to Philly at 17 we would never heard of him (got him away from a bad situation and to a smaller city with more opportunities for him to make contributions).
• If Franklin had not moved from Philly to London at 50, he would not have been an impactful statesmen (opportunity had dried up for him in Philly, a state faction started turning against him, and he looked at pivots whether to London or moving out west to help start a new colony).
• If Franklin had not left London to hop between US and France in his late 60s, the US might not have secured needed support from France to win the war (all these moves were extremely difficult and emotional decisions; on his last day in London, per friend, “he grew very emotional. The tears in his eyes made it impossible for him to read” ).

2) Started small. A couple key examples Franklin was a part of:

• Started his public service career as a clerk when a position opened up; eventually became a Founding Father
• America's first library started as dozen people (including Franklin) in a small social club sharing books
• University of Pennsylvania started as an academy
• Franklin's passion for electricity yielded no results for many years
• Didn’t rush funding requests with France as America's lead diplomat - Franklin waited for the right time when power on the battlefield led to improved power at the bargaining table (this was a very big deal as US might not have won the war without French funding / support!)

3) Overcame obstacle after obstacle: I had imagined a life with this many accomplishments would be one triumph after another, but I was surprised how many setbacks Franklin had. Here’s a list of some adversities Franklin successfully overcame:

• His older brother managed the family store Franklin worked at and bullied/hit Franklin, leading Franklin to run away from Boston to establish a new life in Philadelphia at 17.
• After decades of contributions to Philadelphia, Franklin ran for a public service position in in the city and came in 13th out of 14th place.
• While representing the US in London during the build-up to the American Revolution, Franklin faced major threats on both sides of the Atlantic (a mob tried to burn down his house in Philly, while he faced a British parliament that accused him for hours and almost sent him to jail).
• Some health issues in his later life (while making titanic contributions to the early US) including having gout, kidney stones, and a twice-dislocated shoulder.

4) Set high standards for himself. A few of many examples:

• In his 20s, Franklin was told he was too argumentative. In response, Franklin set a 3-point standard for himself when he disagreed with someone: 1) acknowledge an aspect of their opinion he agreed with; 2) caveat that he was just sharing his opinion and could be wrong; and 3) share his disagreement in the form of a question. This approach made a major difference in Franklin's ability to collaborate effectively with people, a critical component of his success.
• Franklin documented a set of key standards for himself (moderation, humility, frugality, etc.) and then focused on a different one each week to turn them into habits over time.

5) Hard Working & Detail-Oriented. Franklin worked hard, consistently, and granularly.

• As a Printer in his 20s and 30s, people passing Franklin's printing shop would see him working late into the evening
• Pushed himself to make daily, detailed, practical progress 
• Wrote out plans in incredible detail, minutiae, footnotes (such as the charter for the University of Pennsylvania and procedures for the US Post Office)
• Made slight but impactful refinements to America’s founding documents (such as suggesting the famous phrase “self-evident” be used instead of Thomas Jefferson’s original “sacred and undeniable”)

6) Emotional discipline. One of Franklin's most marked characteristics (one he shared with George Washington and which differentiated him from many others like John Adams) was an extremely high level of emotional self control. A few examples:

• When called before Parliament in London, Franklin felt avoiding speaking back to Parliament members would improve his chances of avoiding jail - he was spoken poorly of repeatedly but maintained his composure (“I kept my countenance as immovable as if my desires had been made of wood”)
• To John Adams, Franklin wrote a very adversarial letter when he was upset, but never sent it, as it gave him the ability to express his frustration without making an enemy.

7) Continually earned an enhanced reputation, including:

• Becoming a leading printer in Philly led to him join a social club that helped him make major contributions to the city (university, library, fire insurance, widow insurance)
• Franklin's scientific achievements played an enormous role in his success as a statesmen - from US to London to France he had more doors open to him and was respectfully listened to
• In London, Franklin eventually stood up against British taxes on the colonies - doing so made him one of the most popular and respected Americans, positioning him for success as a diplomat and founding father

8) Avoided major mistakes (though made some medium ones...). Here are things that weren't part of his life - sounds not too difficult but at least one of these were a part of the lives of other founding fathers, past presidents, and geniuses like Newton and Mozart

• didn’t overspend or speculate away his money (his eventual financial success gave him independence and ability to contribute to public service later in his life)
• didn’t have an affair
• didn't have a duel
• generally avoided making personal enemies

9) Teamwork! Almost all accomplishments were with other people where he was just a part:

1. Co-founding America's first public library, the University of Pennsylvania, and insurance for widows
2. Engaging with the French to secure critical funding and support
3. Playing a key role in the Constitution successfully passing: “Attended the convention punctually and talked about it highly, helping to make it real. Chose to nominate Washington to chairman, when he was the only person who could have been thought of as a competitor ...Franklin's closing speech helped convince Constitutional delegates to vote for the Constitution, was called by some historians the most impressive moment of his life."

10) Franklin brought a sense of fun, joy, and curiosity which helped connect him with others and energize him over a long life of contributions:

• Franklin followed his interests, most notably in lightning and science which led to his discovery of electricity
• Franklin consistently had a good sense of humor, told stories, and generally was enjoyable to be around and work with. Quote from a Franklin contemporary: "I never saw a man who was in every respect so amiable in all ways"

1) You get 4,000 weeks if you're lucky

The average human lifespan is absurdly, terrifyingly, short. You get about 150 weeks in high school, 150 weeks in college, 500 Saturdays a decade. See Paul Graham's related essay screenshot below providing a quantitative sense of how life is not only short, but the finite time periods within it are even shorter. Once you accept that you can focus on what’s possible instead of trying to do everything. 

2) Civilization is relatively recent

60 100-year-olds back to back is all of civilization. That's fewer people than you've probably seen at a single birthday party. For perspective, you are:

• 35 people removed from the pharaos and pyramids
• 20 people removed from Jesus
• 7 people removed from the Renaissance
• 5 people removed from King Henry VIII
• 2.5 people removed from the founding fathers

("We have a bias to judge history from the short perch we occupy. Our few thousand weeks feel like the hinge of the universe - they aren't")

3) Accept you can't do everything

You will always have more to do then time to do it. And the faster you move the more things are given to you to move fast on ('the faster you answer email the more email you will get').

The day will never arrive when you have everything under control, when no one is angry with you for missing a deadline or dropping the ball. Controlling your life fully and meeting everyone’s demands and your own goals is not possible.

4) Tough choices are needed

Since we don’t have time for everything, we have to make tough choices between things. Every real-world way to live entails the loss of countless other ways of living. Practice strategic underachievement - decide in advance what to fail, what you’ll let slide to protect what matters. Identify the areas of your life that you won’t expect to excel in for some period of time - you can rebalance later (to a degree) to take a stand on what matters most to you.

5) Claim time

“After years of trying and failing to make time for her illustration work, by taming her to-do list and shuffling her schedule, Abel saw that her only viable option was to claim time instead—to just start drawing, for an hour or two, every day, and to accept the consequences, even if those included neglecting other activities she sincerely valued.” (see video metaphor - prioritize your foundational 'rocks' first)

6) Use the little moments of spare time

“The art of living is to make use of the spare time, the odd moments, that most men throw away.” (30 mins daily = 182 hours a year; the spare moments meaningfully add up)

7) De-instrumentalize time

Before the Industrial Revolution, time used to be the medium in which life unfolded, the stuff life was made of. After, once time and life had been separated it became a resource or input to be used.

Don’t be someone who is always living in the future, never enjoying the present but just looking at time as an instrument to help you get to the next point. Treat moments as ends in themselves, not just means. Rest and leisure have intrinsic value (sabbath, walks, looking around). You don’t have to be doing something for some other reason. Resting doesn’t have to be used for something else. In fact it’s the way to fully inhabit the world. 

8) Time isn't something we can ever really possess or fully control

You can have an expectation for how the evening or week or month or next chapter of your life will go, but you will almost always end up surprised.

Demand for reassurance from the future will never happen. The struggle for certainty is an intrinsically infeasible thing to get. Time just isn’t the sort of thing you get to order around like that.

9) There will be final occasions for everything

There will be a last time when you visit your childhood home, see an old friend, swim in the ocean, hug your partner, drop off your kid at school, etc. You never know in most cases when the last time will be.

Indeed there’s a sense in which every moment of life is a last time - it arrives, you’ll never get it again, and once it’s passed your remaining number of moments will be one smaller than before.

10) Your attention defines your life

What you pay attention to defines for you what reality is. It’s not just a resource. It is your life. Life is a succession of transient experiences valuable in themselves which you’ll miss if you’re completely focused on the destination to which they’ll be leading.

• “The easy thing to send money by email we viewed as an add-on and built in 3 days, mattered more than the hard problems we worked on for months that we thought would be the core of our business.”
• "Too much precision in early plans cuts the iterative loop prematurely."

• Not too long
• Memorable
• Easy to say (“If people don’t know how to say something they will do anything to avoid saying it”)
• Trademarkable + available domain
• Works well across multiple languages

• “We have given up sleep, free time, exercise, and sunshine.”
• “We worked 7-day weeks, 20 hours a day.”
• It’s been an exhilarating ramp up…but after 17 months working literally day and night, I’m simply exhausted."

• 100+ fundraising rejections
• 25,000 customer complaint emails in 1 week
• almost ran out of money several times
• competitors tried to kill them
• fraudsters almost killed them
• regulatory scrutiny
• 4+ CEO changes before IPO

• "A’s hire A’s; the first B brings the whole company down.”
• "PayPal gave employees ample freedom: the room to be everything they could be - but set high expectations for performance."

• The “PayPal Mafia” saw inexperience not as a weakness but a strength - “experience is massively overrated...inexperience led to minimizing fraud in innovative new ways that a banking veteran never would have"
• “I discovered that you just have to use common sense, and that’s actually a better guide than experts”

• Multi-thousand-dollar referral bonuses to incentivize and accelerate user referrals and sign ups
• Meaningful employee referral sign-up bonuses helped build the company employee base

• COO and first-real product manager of PayPal: "product management is as much about saying no as inventing breakthroughs — protecting scarce engineering cycles is existential."
• Early PayPal employee on importance of focus in the early days of PayPal (see video link)

• "You can build something out of nothing."
• "He thought his college classes were boring - so he started a company, hired himself as an intern, and used his internship hours for class credits."
• "Focusing on a great product was a far more effective sales tool than having a big sales force or some marketing gimmick."
• "At Google you’re a cog in a cubicle. With me, you’re an instrumental part of building something great."
• “Elon is a very gifted storyteller, and some of the stories even come true.”
• "Often times it’s better to just pick a path and do it, rather than just vacillate endlessly on the choice"
• "A lot of times, the question is harder than the answer. If you phrase the question properly, the answer is easy.”
• "Who is successful and who is not is a thin razors edge"
• "Once embedded in users’ lives, dislodging a product or service took meaningful effort."
• “If you can’t tell me the 4 ways you fucked something up before you got it right, you probably weren’t the one who did it.”

What it wasn’t:

It wasn’t charisma, because none of these CEOs had much of it. So what was it then?

Frugality

These CEOs were cheap and constantly sought to reduce costs. [One key exception – they were not frugal about compensation incentivizing performance; employees often shared in the success of the company and did remarkably well]. Tom Murphy, called by Buffett the best CEO he’s ever seen, exemplifies the frugality of these CEOs:

• Painted only the sides of his first office building that faced the street
• Passed on a company’s limo practice for executives, taking cabs – the rest of the executive suite soon followed. (When asked if he was leading by example regarding taking cabs, he responded ‘is there any other way?’)
• The most memorable example of all: When a colleague wanted to hire a secretary, Murphy declined spending the money to do so. When the colleague noted this would only cost $20,000, Murphy responded that ‘20k per year would increase as she got raises over time, and she may stay for 30 years, and other people would then also want secretaries, and how much toilet paper would she use that we would have to pay for over those 30 years?’

Steadfast Independence of Mind

A CEO very much not on the list of top CEOs was the Citigroup CEO at the banking height of the mid-2000s. He declared on his firm’s increasingly risky financial decisions that ‘as long as the music is playing, you’ve got to get up and dance’. As the book reads, ‘he danced off a cliff from $240 per share to $3 per share.’ Warren Buffett, on the other hand, largely sat out the mid-2000s financial frenzy while his peers made great profits, and then when the 2008 financial crisis hit and fear peaked he deployed capital as aggressively as any time in his career. The Outsider CEOs each had examples like this, often multiple of them – achieving extraordinary results by at key junctures zigging while their peers zagged.

Getting the Key Decisions Right (or adjusting until they did)

Kay Graham, who took over the Washington Post in the early 1970s, exemplifies getting the rare key decisions right. When her husband unexpectedly left her with ownership of the Post, Graham made this string of decisions, changing the course of the paper:

• Replaced the editor in chief with Ben Bradley – about as important as any decision for a paper. He helped bring in an influx of talent, started the first national paper style section, and proved to be an exceptional fit for the role. [Also went through four COOs fairly quickly until she found the right one, again showing the importance of getting key people decisions right]
• Ignored the advice of her board who urged her to avoid meeting with Warren Buffet, relatively unknown at the time. “Figuring out he was a genius” and bringing him onto the board was one of the best decisions she ever made, informing subsequent key financial decisions.
• Chose to publish the Pentagon Papers when faced with unclear legal advice and many others urging her not (see above trait). The Pentagon Papers eventually led to Nixon’s resignation and the reputation of the Post was made, establishing it as the only journalistic peer to the New York Times.

Crocodile Patience

These CEOs could wait an entire decade or more for the right opportunity to emerge, and on the rare occasion with compelling returns, they could act with boldness and blinding speed. Case in point – Richard Smith, who made nearly zero acquisition moves for well over a decade until the right investment opportunity came up from a phone call. That same day he was on a plane to the potential acquisition’s headquarters and within a few days had made a company-altering deal equal to 40% of his company’s value. (See another example of crocodile patience here from the Warren Buffett May issue: https://qorrum.com/post/470)

Flexibility

From perhaps the top performing CEO of the last 75 years, Henry Singleton, on the importance of flexibility (all the more interesting given how significantly this diverges from most of us, but how similarly this was practiced by the most successful CEOs):

·      “I don’t reserve any day to day responsibilities for myself. I define my job in terms of having the freedom to do whatever seems to be in the best interest of the company at any specific times. I like to steer the boat each day rather than plan ahead way into the future. I know a lot of people have very strong and definite plans they’ve worked out on all kinds of things, but we’re subject to a tremendous number of outside influences, and the vast majority of them cannot be predicted. So my idea is to stay flexible.”

And 10 Quotes

• "It’s almost impossible to overpay the truly extraordinary CEO (but the species is rare)"
• "Capital allocation over operations — the true job of the CEO"
• "Their advantage relative to their peers was temperament, not intellect"
• "Charisma is overrated; analytical thinking is key"
• "Always do the math. It’s just fifth-grade arithmetic"
• "Extraordinary results came as much from the deals not done as from those completed"
• "Long periods of inactivity, punctuated by occasional large moves, produced extraordinary results"
• "It’s not easy to diverge from peers — the business world can feel like a high school cafeteria"
• "Hire the best people you can and leave them alone"
• "Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is more efficient than patching leaks"