Play Long-term Games With Long-term People

I like a little bit about what industries you should think about working in, what kind of job you should have, and who you might want to work with. So you said one should pick an industry where you can play long-term games with long-term people. Why? 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, making money, or in learning.

So, compound interest is a marvelous force. It's like, you know, you start out with one X, what you have, and then if you increased 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, grew, and grew until you suddenly got a massive amount of whatever it is—whether it's goodwill, love, relationships, or money. So, I think compound interest is a very important force.

You have to be able to play a long-term game. 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, the 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 other words, if we play the game multiple times.

So if you're in a situation like, for example, you're in Silicon Valley with people 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 get 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. That compound interest in high trust will make it easy to play the game and will let you collect the major rewards, which are usually at the end of the cycle.

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 long-term game, and the trust came from the U.S. stock market stability.

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. 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, you know, actually, I need to open a line of electric car stations for electric car refueling, that might make sense. It 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 trust you.

There are also industries in which people are transient by definition; they're always 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—they love them. The downside of the career politicians is the 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 10 years from now. They 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, a big wave election, nothing gets done because a lot of fighting occurs. They say, 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 and do whatever I think is right?

So it's important to pick an industry where you can play long-term games with long-term people. 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 actions. In a long-term game, it seems that everybody is making each other rich, and in a short-term game, it seems like everybody is making themselves rich. I think that is a brilliant formulation.

Yeah, in a long-term game, it's positive-sum; we're all baking the pie together. We're trying to make it as big as possible. In 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 that the team gets 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— not the sharpest knives at the end.

So these next two tweets are: play iterated games. All returns in life, whether in wealth, relationships, or knowledge come from compound interest. Yeah, when you have been doing business with somebody, you've been friends with somebody for 10 years, 20 years, 30 years, it just gets better and better because you trust them. So, easy. If the friction goes down, you can do bigger and bigger things together.

For example, you know the simplest one is getting married to someone, having kids, and raising children. Like that's compound interest, right? Investing in those relationships, those relations can be 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.

Regarding compound interest, I think I saw you retweet something a while back—maybe it was from Edie Lattimore. It was something along the lines of get some traction, get purchase, and don't lose it. So the idea was to gain some initial attraction and never fall back; just keep ratcheting up and up. I remembered exactly, but I think that was right. Yeah, was that get traction and don't let go? It was a good one.