The Almanac of Naval – Special Edition Conversation
Introduction
Hello and welcome. It’s been five years since The Almanac of Naval first came out. To honor that, Naval and I wanted to do a special edition for you. We spent the day together and recorded over four hours of conversation. We’re sharing that here, updating and expanding the key ideas in the book.
Like everything else in The Almanac of Naval, this version is free (in addition to the audiobook available on your favorite platforms). This book has grown as a word-of-mouth phenomenon—gifted and recommended—ultimately reaching millions of people in 40 languages. I hope you’ll help these good ideas continue to spread.
Thank you for joining us. Let’s dive in.
Wealth: Naval’s Definition vs. David Deutsch’s
Eric: Over the last few years I’ve watched you go deeper into David Deutsch’s ideas. From my seat, I see the explanations he puts forth and the connecting threads you draw into your existing theories about building wealth—how the definition of wealth evolves, expands, becomes universal, and applies at the civilization level with the same rules all the way down to individual decisions.
Naval: Deutsch had a better definition of wealth than I did. My definition was very focused by my desire to make money. My definition of wealth was assets that earn while you sleep. I wanted to break out of the 9-to-5 trap—the input-tied-to-output trap. I didn’t want to have to work hard. I always used to say I want to be the most successful guy for doing the least work in every aspect of my life—not just business, but personal relationships, day-to-day happiness, even exercise. Like all smart people, I’m lazy.
Laziness is a form of leverage, of efficiency. It’s not lazy in the sense that I want to sit around and do nothing. It means I have time to do other things: focus on my health, spend time with my children, educate myself. I don’t just have to be a drone working away.
So my definition of wealth was: break out of the 9-to-5 trap; have assets work while I sleep. What are those assets?
- Capital is an obvious one. When you invest capital, you’re giving up the right to future assets that society owed you for past work (assuming it was properly earned) so that businesses can employ people and use machinery to build new things.
- A piece of a business.
- A machine—a 3D printer, a computer doing computation, a GPU cluster training the next AI model.
- An organization or process of people operating a certain way (you check in to make sure the assembly and goals are correct).
- Intellectual property.
- A piece of media that continues to circulate and either generates payment, access, or notoriety.
That was a good practical definition if you’re just trying to make money.
But David Deutsch’s definition is deeper and more philosophical. It extends and scales from a society or civilization down to a single individual. His definition of wealth is the set of physical transformations you can effect—bring into existence.
If you have a lot of money, you have wealth because you can buy a machine (a backhoe digging trenches or building houses) or hire people. There is definitely a stored-capital component. But the bigger part of wealth is the set of physical transformations you can affect. The vast majority of that capability comes from technology and leverage.
Ten Paleolithic people do not have the same ability to change things as ten modern humans. That is because of knowledge. Knowledge is the big multiplier—not capital.
This is one of the many reasons Marxism fails. Value is not in the capital or the factories. It is in the knowledge. If you removed Elon Musk from SpaceX, you can’t capture his wealth—it disappears because the knowledge disappears. Space is no pie to be divided up. It is a group of very intelligent people held together by a common mission who are continually affecting change. You’re funding them and betting on that.
Gold is just a pointer to actual value—a scarce metal used to trade value. The actual value is in people doing things.
As a society gains new knowledge, it becomes wealthier. As an individual gains new knowledge, they become wealthier.
I am wealthy by conventional standards, but my earning power is also the highest it’s ever been. Why? Because I have tremendous knowledge, and people know that I have knowledge. Because of that, I can affect change at a very big level.
What am I proudest of? Startups come and go. I’m proud that I got to be a man in the arena. What I seem to have gotten popular for is thinking through and articulating things in a certain way. That’s knowledge.
Timeless Knowledge vs. Modern Knowledge
Modern knowledge—how to build cars, computers, robots—is transmissible. One person can discover it, convey it, and the next person can duplicate it. It makes everybody wealthier.
Wisdom—knowledge about human nature, what is a good life, the purpose of life (Aristotle’s eudaimonia)—is very hard to convey. Wisdom is simple. If it could be communicated easily, we’d all be wise. But it always has to be stitched in with personal experience and recreated inside the listener. You cannot just copy it.
Wisdom is something you need to hear over and over, in a thousand different ways and contexts, until it clicks in your own life. Then you stitch it into your worldview and value system.
The problem is that if you’ve already heard it said a certain way—too early or too many times—it becomes a cliché and everyone rolls their eyes.
Some of the greatest wisdom is in nursery rhymes. “Row, row, row your boat gently down the stream. Merrily, merrily, merrily, merrily, life is but a dream.” Life is like a river flowing at a certain pace. You want to row, but gently. Keep a good attitude. The whole thing disappears and you’re gone. There’s a lot of wisdom there, packaged so it persists across time. But if I gave that to you as wisdom in a book, you’d laugh because it’s too cliché.
The most common criticism of Naval is “it’s fortune-cookie” or “it’s a cliché.” My response: cliché is Lindy. All I’m trying to do is say something true in an interesting way. Even if the truth has been said before (any truth about human nature has), I don’t mind repeating it in an interesting way so it sticks with me—and maybe with someone else.
If you only stick to brand-new topics, you’re left with contemporary storytelling (what Kim Kardashian had for breakfast) or the latest AI breakthrough. Only a tiny number of people are qualified to talk about the latter, and most of us can’t tell real from hype. If you’re going to discuss anything important and timeless, you will run into clichés.
Ethical Wealth Creation and Capitalism
Eric: Seeing the connections between knowledge, wealth, and ethical wealth creation was a huge unlock. If you don’t believe ethical wealth creation is possible, you reject the whole game.
Naval: Yes. You get bitter too early.
The common critiques of capitalism are around cronyism, Federal Reserve money printing, or favors to bankers. When money and wealth are involved, the majority of efforts go into siphoning, controlling, defending, and fighting over wealth rather than creating it. In nature there are six times as many parasitic species as standalone ones. Most things are eating each other. It always seems easier to grab than to create.
When society ends up with too many people focused on slicing the pie rather than baking it, those societies collapse. It’s easy to be cynical watching bank bailouts. But none of that is free-market capitalism—it is government intervention through and through.
Capitalism is a minimum viable set of rules that allows people to play a fair game in which energy that would otherwise go into stealing or fighting is channeled into creating. The basis is respect for private property: if I improve a piece of land or create something, I can keep that improvement. (You still have to deal with externalities and public goods, but basic free-market capitalism has figured that out to a large extent and has been responsible for the greatest increase in wealth and human flourishing in history.)
We don’t think in terms of a “capitalism quality score.” The U.S. is now roughly one-third to 40% socialist by GDP controlled by government, plus another 20–30% constrained by regulation or quasi-government sectors (education, healthcare). The private sector is smaller and shrinking. The failure case for the U.S. is when the best and brightest no longer immigrate here.
At the same time, this is the greatest period for wealth creation in human history. More knowledge, more capital, more leverage than ever. If you’re moderately intelligent, not afraid of working hard, and flexible, you can do extremely well. You have to get it out of your mind that the whole game is rigged.
There is a lot of luck. The fact that you exist is luck. But life is long. People are consistent. Compounding works. You can rise past luck through will and hard work. If you don’t believe that, you’re a cynic—and cynics’ beliefs are self-fulfilling. Optimists who work hard and look past the unethical or luck-based nature of it all are the only ones who have a chance. On long enough timescales (10–30 years, not two), they do well. There are no get-rich-quick schemes.
Great entrepreneurs take on what they consider impossible tasks because they look around and say, “If other people can do it, why can’t I?”
Deutsch has a structured, optimistic view. We should be optimistic because we discovered the British Enlightenment model: advance science and society through the quest for good explanations. We are truth-seeking. We make conjectures open to criticism, test them against experiment, circulate what works, and advance. That is how we have operated for the last few hundred years. Periods like this existed in the Italian Renaissance, Greek enlightenment, and industrial revolution. We would be foolish to lose it by being anti-rational, denying truth, banning criticism, or believing big science always has the answers.
The real scientific method is conjecture and criticism leading to good explanations. Every person improving their health or fitness is a little scientist running experiments. All truth-seeking systems work this way:
- Science: conjecture and criticism
- Technology/business: innovation and companies going out of business
- Evolution: mutation and selection
- Taleb’s skin in the game: people who take risk bear the consequences; bad risk-takers get weeded out over time
Accountability (you personally bear upside and downside) is a better reframe than “entrepreneurs take risk.”
Size, Groups, and Progress
The biggest impediment to progress is size—of institutions, countries, groups. The larger the group, the more groupthink. Groups search for consensus, not truth. Only individuals or very small teams search for truth. Groups don’t change their minds or apologize.
The best situation is small groups of people each responsible for benefits and losses (skin in the game) who can take risks. Humans do best when small groups compete. The problem is that competition can turn kinetic. The ideal society federalizes: lots of small competing entities in non-violent (virtual) competition. The U.S. benefited from federalism (50 states running experiments) and capitalism (lots of small companies). It breaks down with big monopolies, banks capturing government, or giant federal agencies running everything from D.C.
The most flourishing systems have small countries, small tribes, and small companies competing non-violently. The trick is keeping them sovereign without kinetic overrun. You can’t get everyone to agree on morals and ethics—that’s why AI alignment is a joke. We can’t even align humans.
Most “alignment” beyond incentive alignment (equity) boils down to coercion. Society runs on a thin veneer of civilization; underneath, people with guns are always in charge. Every law, down to a parking ticket, is ultimately enforced by people with guns.
Good Explanations, Good Products
Eric: Can we play with Deutsch’s ideas in a business and judgment context? If good explanations are hard to vary, are good products hard to vary?
Naval: Absolutely. Hard to vary means you can’t change the details without the thing breaking. You look back and say, “How could it have been otherwise?” Like a puzzle piece that only fits one way.
Good products are hard to vary. The original iPhone form factor from 2007 is still quite similar today. Same with the laptop. They nail a unique set of interlocking parts that allow something greater than the sum to emerge.
Emergence in complexity theory happens when you constrain parts; the constraints create new capability above. Contracts and companies are voluntary constraints that enable future creation. Once locked together, the thing is hard to vary.
A good product is elegant—nothing left to take away (Saint-Exupéry). Technology is the automation of knowledge. Once knowledge is embedded, it is hard to vary. Once you figure out electric cars properly, most cars will go electric. It becomes the hard-to-vary product for the next generation.
Good products also have surprising reach—like good explanations. The iPhone reached applications its creators never imagined. Once multi-touch knowledge existed, keyboard knowledge (BlackBerry) became obsolete in that context.
All technology has network effects and scale economies. The best product amortizes development over the largest user base. You cannot buy a meaningfully better phone or car than the current best mass-market one no matter how rich you are.
Timeless vs. Timely Knowledge (Again)
We search for something perfect and permanent because life is imperfect and impermanent. We look for it in spirituality, science (grand unified theory), art.
I want to focus on the timeless (human nature doesn’t change—Schopenhauer, Tao Te Ching, Bible) because that knowledge carries through the rest of my life. I also want the ultra-modern in science and technology (AI, self-driving, robotics, space, drones)—but only the useful parts, not gossip or news.
The half-life of information you’re consuming is predominantly based on how long it has been relevant in the past. Good explanations have reach across space and time.
Judgment, Taste, and Experience
My earning power is higher than ever because of stored capital, reputation, and—most importantly—practical know-how folded into principles: how to structure a company, recruit, recognize early that someone is too high-ego, etc.
Seneca: learn from the specific to the general, not the reverse. Do things in reality, encounter it, test it, learn, then generalize. That way you know when a maxim applies and when it doesn’t.
The recipe for judgment is heuristics + experience that livens them up. Experience first. “If you want to be a philosopher-king, first be a king.” Life is lived in the arena. You have to do the things to learn the things.
Most of my early reading was worthless academic book knowledge or fiction. Now I read less, but deliberately—spark my own thinking rather than regurgitate. Concepts stick only when I can apply them (e.g., minority rule, skin in the game). Anti-fragility doesn’t stick for me because I can’t find many practical applications.
Judgment is the most important thing in an age of infinite leverage. The captain of the ship is chosen for ability to decide where to go. A CEO who is right 85% of the time versus 80% is worth billions more when steering a multi-trillion-dollar company.
Judgment comes through experience + honest reflection. Eventually it becomes so good you can’t articulate it—that’s taste. Rick Rubin, Steve Jobs, certain SpaceX engineers, leading AI researchers choosing which experiments to run—all operating on taste.
“It takes time to develop your gut, but once it’s developed, don’t listen to anything else.”
My investing is almost entirely taste now—taste about the company and about my own values, time, legacy, and what I want to learn.
Is it ideal to be paid purely for judgment? Labor and judgment are hard to extricate. “What you do and who you do it with is more important than how hard you work—but you still have to work as hard as you can.” It should feel like play to you and look like work to others.
Hard work is still important. Breakthroughs happen when you’re deeply into a problem for long stretches. Load the problem into the subconscious so the shower insight can appear days later. You can’t schedule that. You have to focus intensely first.
John Cleese: “You simply have to let your mind rest against the problem in a friendly, persistent way.”
AI and Judgment
AI does not have judgment. It has incredible information-retrieval and cross-correlation capability. For solved problems it can give the conventional correct answer. For creative, brand-new, or highly specific complex situations, do not let the AI make the judgment call.
AI is great when wrong answers are okay. It raises the tide for everyone; there is no alpha left once everyone has the same AI answer. Early adopters who leverage it well will do extremely well. “AI is not going to replace software engineers; AI is going to let software engineers replace everybody else.” Structured, logical systems thinkers who use the latest tools will have massive leverage.
The robot revolution has been here a long time—trillions of robots packed into data centers. Now with AI agents the leverage for someone fluent with the tools is orders of magnitude larger.
To create something truly new (like the iPhone), you still need deep understanding of what is possible, barely possible, and impossible across materials, manufacturing, supply chains, software, hardware, power, bandwidth, etc. AI takes the drudgery out of things already done. You can’t get paid meaningfully for things already done, nor should you want to.
Entrepreneurs are not afraid of AI replacing them. They might be replaced by another entrepreneur who uses AI better. Every human wants to be creative, control their destiny, make new things, be engaged and challenged. Children start out that way. Newer generations will take advantage of these tools.
Happiness
Happiness is a highly personal skill that can be learned, like fitness or nutrition or wealth—the combination of foundational principles and personal application.
My latest thinking: there is no such thing as happiness in the way we usually talk about it. Happiness is a construct of the mind—an idea. You have thoughts that say “I’m happy now.” When those thoughts are gone, what’s going on? The self is itself just a thought. Happiness and unhappiness are just thoughts. If you identify with the thought, you create a “me” that is happy or unhappy. When the thought disappears, there’s no me, no thought, no happiness or unhappiness.
There is no happiness (or unhappiness) outside in the world. The outside world is impermanent and out of your control. There are always reasons to be unhappy with it. Obvious exceptions: physical pain demands a response.
I don’t necessarily want “happiness.” I want the Zen thing of being okay with things the way they are. That state is easier when desires are few and consciously chosen, and when I’m doing things for non-selfish (larger-than-self) reasons. The more you think about yourself, the less happy you’re going to be.
I’m more interested in peace. Boredom reveals the emptiness of existence (Schopenhauer) or, more optimistically, shows the mind is addicted to pleasure. Cultivate strategic indifference to things outside your immediate control. Meditation’s purpose is not enlightenment or immediate happiness—it is to become self-observant so you can catch the mind doing things not in your long-term interest.
If I just do what I do without overthinking it, it naturally leads to a place of happiness. “Row, row, row your boat gently down the stream.”
A lot of people look to someone who is engaged but peacefully. I’m not completely peaceful, but more peaceful than I used to be—and way more peaceful than the average nervous founder. Money helps, but I got more peaceful before making a bunch of money, during a high-stress period, through books, some psychedelics (get the message, hang up the phone), meditation, reading, thinking, introspection.
I want the lazy-man solution to everything: work on something that doesn’t feel like work. Thinking about the big questions doesn’t feel like work.
Truth, Love, Beauty
Stay healthy. Get wealthy. Seek truth, give love, and create beauty.
Truth
I want to know all the things that are true and eliminate the false—on spiritual, philosophical, scientific, technological, and human-nature levels. Truth is permanent, has wide reach, and will make life better even if it makes it worse in the short term. The closer you get to truth, the more silent you become inside. Most mental chatter is concerned with falsehoods.
Love
Better to be in love than to be loved. Falling in love with someone or something involves sacrifice and risk, but people who give up on love live a sad life. Everybody needs to find something they love more than themselves—mission, family, children, religion.
Beauty / Creation
We are active creatures, universal explainers, meant to reverse entropy and advance knowledge. Creativity is our highest art form. Create beautiful things that are hard to vary, embed deep knowledge, and that people want to use. The iPhone is among the greatest works of art ever created.
Any moment you’re not having a great time, you’re not doing anyone any favors. Acute unhappiness can be useful; chronic unhappiness is an ego trip. Keep your identity thin. Identity often stands between you and seeing reality. Chosen identity is a straitjacket.
Depression can be understood (per William Glasser) as a series of choices that became unconscious habit. You can make it worse; you can also change.
Enlightenment and the Self
There are actual enlightened people accessible now via the internet. They have a persistent experience of no-self. They see that the self is just a constructed identity/thought. They live as pure awareness/consciousness. Nothing bothers them the way it bothers the rest of us.
It is binary: either you know you are a separate self or you know you are not. Belief is not strong enough. The common path is self-inquiry: look for the self. You can never pin it down. It is always on the edge of vision (Alan Watts’ burning stick creating the illusion of a flaming wheel). Thoughts that refer to a non-existent target eventually die down because they are false. Then there is peace.
Enlightened people still have jobs, relationships, desires, and wants—but they are not egoic. They take the same actions more calmly and don’t take things personally. They may be slightly less “motivated” in the driven sense, but more effective in other ways. A terminator that is enlightened is far more dangerous than one wrapped in ego.
You cannot overdose on true introspection (self-awareness). You can overdose on rumination.
Relationships
It is very difficult to be happy if bound up in needy relationships. Just needing the relationship is needy. I love my family and fulfill obligations, but I will not stay in any relationship that makes me unhappy. Every non-blood relationship is transactional at some level—there is value exchange and expectation of give-and-take. That is hard truth.
I don’t go to obligatory events (most weddings, anniversaries, etc.) unless I think they will be fun. Obligations drive pain. The relationships left are with similarly free, low-ego people we all want to see voluntarily. Invest in relationships you value, but without false attachment or neediness. The secret to a happy relationship is two happy people. Happiness is personal work first.
Truth is non-negotiable. We are caught in collective traps of false obligations (Valentine’s Day, etc.). Breaking those is good, the way COVID legitimized working from home.
Virtues are long-term selfish. They pass the marshmallow test (even if that experiment doesn’t fully replicate). They also produce better game-theoretic outcomes for society.
Exploration vs. Investment / Compound Interest
Your goal in life is to find the people, business, project, or art that needs you the most.
Modern society gives infinite choice (scary, but also liberating). Explore widely until you find fit, then invest. All the benefits of life come from compound interest—invest in place, people, business, knowledge, career, health. There is an exploration phase and an investment/execution phase. You cannot skip either.
Modern society has made exploration easier; the benefits are still all in investment. If you never invest, life is empty.
We learn through iterations, not merely hours (contra Gladwell’s 10,000 hours). Iteration = do → honestly reflect → change → try again. Enough iterations develop judgment. Then you reject most things until you find the right fit and can invest.
Environment, Agency, and Intelligence
Environment is upstream of thoughts. Choose your environment consciously, then adapt it. The first IQ test is whether you stay where you were born.
The only true test of intelligence is whether you get what you want out of life. That is a two-part test: (1) choose what to want (achievable, at the edge of your range, process won’t make you miserable), (2) get it.
Envy, Inspiration, Heroes
Choose inspiration over envy. There is no one on Earth whose life I would wholesale swap with. When you see success, look for the inspirational part rather than fixating on luck or unethical behavior. Deliberately select heroes or traits of heroes. Resonance with something already in yourself gives license and existence proof.
Every human is whole and capable of everything (Deutsch: universal explainers / Turing-complete). We get limited by social scripts. Figure out what will get you what you want—and want the right things.
Closing Principles and Habits
Either create wealth / passive income, become a monk, or do what you love more than money. What remains is taming the mind and the body, seeking truth, creating love and art. The world has nothing to offer you and you are free.
Daily / life habits (refined version of the tweet):
- Fast, lift, sprint, stretch, meditate
- Build, sell, write, create, invest, and own
- Read, reflect, love, seek truth, and ignore society
- Make these habits. Say no to everything else.
- Avoid debt, jail, addiction, disgrace, sugar, and media
Relax. Victory is assured.
Row gently. Merrily. Life is but a dream.
Live for something larger than yourself, but only on your own terms.