Naval sees signaling as the key to understanding humans. “Almost all human behavior can be explained by incentives. The study of signaling is seeing what people do despite what they say”. True motivations hide behind words. Actions reveal authentic desires.
“People are much more honest with their actions than they are with their words”. Naval reads people by watching what they do when they think nobody is looking. “Reading signals is very, very important. Signals are what people do despite what they say”. This is his specific knowledge for picking founders. Watch how they treat waiters.
Trying too hard backfires. “If you overtly bid for status, if you overtly talk about being high status, that is a low status move”. Virtue signaling destroys itself: “if you openly talk about how honest, reliable, and trustworthy you are, you’re probably not that honest and trustworthy”. “That is a characteristic of con men”. It corrupts clear judgment.
Luxury goods become negative leverage. “If you look at something like buying a Rolex, which is no longer about telling time. It’s a signaling good. It’s all about showing off”. The mathematics break down: “If everybody in the world is wearing a Rolex, then people don’t want to wear Rolexes anymore because they no longer signal”. Artificial scarcity follows: “Rich people do have an advantage. They’ll just price it up until only they can have Rolexes”.
Social media destroys inner awareness. “We’re always signaling, right? It’s like, rather than really looking at yourself, you’re looking at how other people look at you”. “Celebrity is the most miserable people in the world, right? Because they’re this strong self image that gets built up”. Fame blocks true happiness and personal freedom.
Even work becomes performance theater. “People who say they work 80-hour weeks, or even 120-hour weeks, often are just status signaling. It’s showing off”. “Nobody really works 80 to 120 hours a week at high output, with mental clarity. Your brain breaks down”. Real work compounds through iteration.
Naval spots false signals everywhere. People “virtue signal by attacking the whole enterprise” of wealth creation. The best people don’t perform: “They’re not trying to signal all the time how important they are, or who they know, what they’ve done”. “They’re not virtue signaling or bigoteering”. This is evolutionary game theory playing out.
The solution is authentic compound returns. “If you’re the kind of person who long term signals ethics and virtues, then you’ll attract other people who are ethical and virtuous”. Build equity in relationships through consistent accountability, not words. Your reputation becomes an asset you truly own.