The Biggest Returns

The biggest energy story of the last four decades has nothing to do with oil or gas. It’s not wind turbines or solar panels. You can’t touch it, or even look at it.

“Many would not even think of it as a fuel or an energy source. Yet in terms of impact, it certainly is,” Daniel Yergin writes in his book The Quest.

It’s conservation and efficiency.

We don’t need as much energy to do stuff as we used to.

The United States uses 60% less energy per dollar of GDP today than it did in 1950. Globally, it’s dropped 25% since 1990.

The average miles per gallon of all vehicles on the road has doubled since 1975. A 1989 Ford Taurus averaged 18.0 MPG. A 2019 Chevy Suburban averages 18.1 MPG.

U.S. oil and gas production has increased 65% since 1975, while conservation and efficiency has more than doubled what we can do with that energy. Easy to see which has mattered more to energy markets.

And efficiency is largely in your control, versus the rest of the energy industry that relies on a slippery mix of having the right geology, geography, weather, and geopolitics. The decision to buy a lighter car or ride a bike is up to you and has a 100% chance of improving efficiency. But getting energy from wind only works where it’s windy; not in your control. Fracking only works where geology and regulators allow it; not in your control, and subject to change.

Things that are in your control and have the highest likelihood of working can make the biggest difference over time. It follows Jeff Bezos’s rule of betting on things that never change, since you can confidently throw your weight behind them. The importance of every endeavor is its potential multiplied by the odds of it working and how long it will work for. Conservation and efficiency don’t rank high on the first part, but they’re so strong on the second two that over time their impact exceeds what’s been done in more exciting parts of the industry.

This applies to many things.

Investment returns have a lot of potential to make you rich and achieve your goals. But whether a strategy will work, and how long it will work for, and whether markets will cooperate, is always a question.

Personal savings and frugality – finance’s conservation and efficiency – are parts of the money equation that are largely in your control and have a 100% chance at being as effective in the future as they are today.

So which should you pay more attention to?


If we have the same assets and I can earn an 8% annual returns, and you can earn 12% annual returns, but I need half as much money to be happy while your lifestyle compounds as fast as your assets, I’m better off than you are. I’m getting more benefit from my investments despite lower returns.

Think about that in the context of how much time and effort goes into achieving 0.1% of annual outperformance in this business – millions of hours of research, tens of billions of dollars of effort – and it’s easy to see what’s potentially more important or worth chasing.

There are investors who grind 80 hours a week to add 10 basis points to their returns when there are two or three full percentage points of lifestyle bloat in their finances that can be exploited with less effort. Outperformance is amazing when it can be achieved, and some can achieve a lot of it. But the fact that there’s so much effort put into one side of the finance equation and so little put into other is an opportunity for most people, companies, and countries.

This is not about living like a monk, hampered by frugality. It holds true at every level of wealth and spending. The value of all money is relative to expectations – as Chris Rock says, “If Bill Gates woke up with Oprah’s money he’d jump out the window.” The idea that reducing your needs has the same impact as increasing your income – but the former is more certain and in your control than the latter, so it has a higher expected value – is as true for someone spending $15,000 a year as it is someone spending $15 million per year.

My personal investments are designed to maximize for sleeping well at night, not necessarily scouting for the highest returns. But my wife and I are so good at happily living an efficient life – you can call us cheap – that adding our lifestyle efficiency to our investment returns leaves us better off than others who may earn higher returns. Investing alpha is hard and often fleeting, but the lifestyle version is more in your control and permanent. There are those who can earn excellent returns and live an efficient life. Warren Buffett, living in the same house he bought in his 20s, is the best example. But the idea that there are two ways to improve your financial wellbeing, and one is more in your control with higher odds of success than the other, is as overlooked in finance as it has been with energy.


The hard part is becoming satisfied with spending less. It’s not easy. It’s a behavioral trait, not analytical skill, and investing attracts more of the latter. Some are better at it than others, but virtually everyone is primed to at least assume they’ll be happier if they spent more.

For me it’s been realizing that what makes people happy is having options – doing what you want, with who you want, when you want, where you want. And options come from savings and assets, which are the opposite of spending.

Vanguard founder Jack Bogle, who passed away last week, began his book Enough with the following paragraphs. From an investor who improved the financial wellbeing of tens of millions of people through cost efficiency, not outperformance, this is invaluable:

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds,“Yes, but I have something he will never have . . . enough.”

Enough. I was stunned by the simple eloquence of that word—stunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldn’t have been more accurate. For a critical element of our society, including many of the wealthiest and most powerful among us, there seems to be no limit today on what enough entails …

We chase the false rabbits of success; we too often bow down at the altar of the transitory and finally meaningless and fail to cherish what is beyond calculation, indeed eternal. That message, I think, is what Joseph Heller captured in that powerful single word, enough.


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