The psychology of money chapter 6 summary
Every great success story is built on a foundation of failures that we rarely hear about.
Is it the winning streaks that define the journey?
Or it’s the rare, extraordinary wins—the “tails”—that shape everything.
What do you think?
In Chapter 6 of “The Psychology of Money,” we’ll discover this overlooked reality that even the most successful investors, entrepreneurs, and creators are not consistently winning. Instead, they thrive on the rare outliers, the unexpected hits that compensate for the many misses along the way.
Let’s uncover the human side of investing along with exploring the mechanics of finance:
- Our behaviours
- Our misconceptions
- The surprising truths that drive success.
The Psychology of Money Chapter 5 Summary – To me Chapter 6, “Tails, You Win,” is particularly eye-opening because it challenges the comforting belief that success is about getting it right most of the time. Instead, it reveals that most outcomes, whether in business or investing, hinge on just a few pivotal moments.
This concept is crucial for anyone navigating the unpredictable world of finance, as it teaches us to embrace the uncertainties, endure failures, and keep our eyes on the long game.
The Psychology of Money Chapter 6 Summary – “Tails, You Win”
Chapter 6, “Tails, You Win,” centers on the idea that a small number of significant successes—tail events—can make up for a multitude of failures.
These tail events are the rare, high-impact outcomes that drive overall success, and they’re more common in our lives than we might think. The chapter delves deep into the unpredictable nature of these events and how they shape industries, careers, and fortunes.
One of the most striking examples used is Heinz Berggruen, a German art dealer who fled Nazi Germany and later amassed an art collection worth over a billion dollars. What’s fascinating about Berggruen’s story is that his success wasn’t about skillful predictions or flawless execution. Instead, it was his willingness to acquire broadly and hold patiently that allowed him to catch a few masterpieces—like Picassos and Matisses—that far outweighed the value of the many lesser works.
This is the essence of tail events: you don’t need to be right often, just right enough when it counts.
The story of Walt Disney, whose career exemplifies the unpredictable nature of success. Before Disney became synonymous with animation magic, he faced numerous setbacks, including the bankruptcy of his first studio.
Despite producing hundreds of cartoons, it was the 83-minute film “Snow White and the Seven Dwarfs” that changed everything. It was the tail event that paid off all debts, transformed Disney Studios, and launched the brand into the stratosphere. This one hit overshadowed the failures that came before and highlighted how a single breakthrough can define an entire legacy.
It doesn’t stop with individual stories; the concept of tails extends to industries like venture capital, where a few big successes drive most returns.
Investment firms expect the majority of their ventures to fail, but it’s the handful of companies that achieve explosive growth—think Uber or Airbnb—that deliver the bulk of the profits.
The same principle applies to public companies, where a small percentage of stocks account for the majority of market returns.
The overarching message of Chapter 6 is that success is rarely a straight line. It’s often messy, unpredictable, and driven by a few moments of extraordinary impact.
Tails drive everything, and understanding this can shift how we view failure—not as an obstacle, but as a necessary part of the journey toward that rare, transformative win.
Understanding the Concept of ‘Tails’
When we talk about “tails” in investing and business, we’re referring to the rare, unpredictable events that have an outsized impact on outcomes.
Tails represent those extreme, rare events that, while improbable, have an outsized impact on results. Whether it’s a once-in-a-lifetime business opportunity or a breakthrough product that redefines an industry, tails drive everything.
Take Berggruen’s art strategy: He didn’t try to identify every future masterpiece at the moment of purchase. Instead, he bought broadly and waited.
This approach mirrors the strategy of great investors who buy a wide array of stocks, knowing most will perform averagely or poorly. But those rare few that become extraordinary winners are what matter.
Disney’s story echoes the same principle. Despite producing over 400 cartoons, it was just 83 minutes of “Snow White” that made all the difference. This wasn’t a failure of the other films; it was a testament to the power of that one outlier.
Watching ‘Once Upon a Time,’ I always wondered why Snow White and Prince Charming were the lead characters. Now I realize it’s because ‘Snow White and the Seven Dwarfs’ was Disney’s defining tail event—its extraordinary success that overshadowed countless setbacks.
The lesson here is that success doesn’t require you to win constantly—it requires you to endure and be present when the winning moments arrive.
Real-World Examples of Tails in Action
Understanding the concept of tails becomes much more relatable when you see it in action. For instance, the venture capital industry operates almost entirely on the hope of tail events.
Firms make dozens of investments, fully expecting most to fail. The success of companies like Facebook, Uber, or Airbnb—each a massive outlier—often defines the fund’s overall performance.
Similarly, public markets follow this pattern. J.P. Morgan’s analysis of the Russell 3000 Index showed that just 7% of companies accounted for nearly all of the index’s gains since 1980.
Even among established public companies, most end up failing or performing modestly, while a few become the next Apple, Amazon, or Google.
And the story of Carolco, a film studio that produced iconic hits like “Terminator 2” but eventually went bankrupt. Despite its spectacular rise, it couldn’t sustain the momentum of its initial success—a vivid reminder that even established companies aren’t immune to the whims of tail events.
These stories underscore a crucial point:
It’s not about the number of times you’re right; it’s about the magnitude of those rare times when you hit it big.
Behavioral Insights: Why We Struggle with Tails
Human nature works against us when it comes to accepting the role of tails. We’re wired to seek certainty, to crave patterns, and to feel in control.
When failures stack up, it’s natural to panic or feel demoralized. Yet, the reality that was presented is that our greatest successes often come from those chaotic, unpredictable moments we can’t plan for.
Biases like loss aversion make it incredibly hard to stick with an investment or venture when things aren’t going well.
We’re naturally inclined to feel the pain of loss more acutely than the joy of gain, which often leads to poor decisions, like selling too soon or avoiding risk altogether.
The fact that our emotional responses can sabotage long-term success because we focus too much on the failures we can see and not enough on the potential for unseen, extraordinary wins.
It’s easy to overreact to a string of bad outcomes without appreciating that these losses are simply the price of admission to a few monumental successes.
The challenge is deeply emotional, requiring us to rethink how we interpret setbacks and stay resilient through the rough patches.
Implications for Investors and Entrepreneurs
The unpredictability of tails teaches us that resilience is more important than perfection. It’s easy to get discouraged by failures, but understanding that a single tail event can outweigh many losses shifts the focus from avoiding mistakes to staying the course.
So, what does all this mean for you as an investor or entrepreneur?
For entrepreneurs, this means not giving up after a few failed ventures—your Snow White might still be ahead.
For investors, it’s a lesson in patience and diversification: most investments won’t work, but the few that do can define your success.
So by just embracing tails changes how we view setbacks. Failures become steps toward rare, pivotal moments that make all the difference. It’s not about perfection; it’s about persistence and being ready for when your tail event arrives.
Key Takeaways from Chapter 6
- The main takeaway from Chapter 6 is that in investing, business, and life, a few significant successes can overshadow countless failures.
- Patience, persistence, and the ability to weather setbacks are more valuable than constantly striving for perfection.
- Success often looks messy and inconsistent, but it’s those rare “tail” moments that define it.
- Consistency—showing up and trying repeatedly—often outweighs skill or timing.
The journey is messy, but each failure brings you closer to defining moments that make it all worthwhile. Tails teach us to embrace the unpredictability and keep going, knowing that the next big win could be just around the corner.
Key Quotes from Chapter 6
Here are some powerful quotes from Chapter 6 that encapsulate the soul of this idea:
- “You can be wrong half the time and still make a fortune.”
This quote speaks to the core of what tails mean. Success requires resilience and capitalizing on the few moments when things go right.
- “We underestimate how normal it is for a lot of things to fail.”
This quote highlights the reality that failure is a common part of success in investing, reminding us that losses are not only expected but a normal part of the journey.
- “Tails drive everything.”
A powerful reminder that a few rare, impactful events often determine the majority of outcomes in life, business, and investing.
- You can be wrong half the time and still make a fortune.”
The key to financial success is ensuring that your wins far outweigh your losses. This perspective is vital for maintaining confidence and composure in the unpredictable world of investing.
- “If you’re terrific in this business, you’re right six times out of 10.”
Even the best investors don’t bat a thousand. This quote is a comforting reminder that being wrong isn’t just okay—it’s expected.
Critical Analysis
Morgan Housel’s exploration of tails in Chapter 6 is both insightful and relatable, mainly because it taps into a universal truth about success: it’s rarely about winning every time. His use of diverse examples—from art collections to Hollywood to venture capital—adds a layer of realism that grounds the abstract concept in real-world scenarios.
These stories do more than just illustrate the point; they connect us emotionally to the unpredictability of outcomes and help us see the broader picture.
However, while Housel’s argument is compelling, it also presents a challenge too.
As applying the concept of tails in real-time decision-making isn’t easy. Knowing that most ventures or investments won’t work out and that success hinges on a few critical wins doesn’t make the failures any less painful.
It’s one thing to intellectually accept that tails drive success; it’s another to endure the psychological toll of frequent setbacks while holding out for those rare wins.
The insights are valuable because they encourage a shift in mindset, but the practical application requires a level of emotional resilience and patience that’s hard to maintain, especially in high-stakes situations.
Let’s just focus on the long-term, build a broad portfolio of efforts, and most importantly, develop the grit to weather the inevitable storms.
The strength of this chapter lies in its honest portrayal of the ups and downs of success and its reminder that perseverance often trumps perfection.
Conclusion
“Tails, You Win” is a powerful reminder that a few significant successes can define a career, company, or investment strategy. It challenges us to rethink our approach to risk, failure, and the unpredictable nature of outcomes.
By welcoming uncertainty and learning from both our wins and losses, we can better navigate the complexities of investing and business.
The journey won’t always be smooth, but in a world driven by tails, staying resilient and persistent is the key to catching those rare, transformative moments.
