Speaker 1: Same as it ever was, same as it ever was,
Speaker 1: same as same as it ever was, same as ever,
Speaker 1: same as it ever was, same as it ever was,
Speaker 1: same as.
Speaker 2: It was indexing, massive technology concentration, the rise of AI.
Speaker 2: It's a brave new world? Or is it? As much
Speaker 2: as our era seems to be unprecedented? A lot more
Speaker 2: is the same as ever. Human behavior, risk, opportunity, even
Speaker 2: living the good life all tends to be well, if
Speaker 2: not eternal, pretty close. We tend to focus on what's
Speaker 2: different while ignoring all the things that remain the same.
Speaker 2: I'm Barry Redults and on today's edition of At the Money,
Speaker 2: we're gonna discuss why you should pay attention to the
Speaker 2: unchanging nature of money and human behavior. To help us
Speaker 2: impack all of this and what it means for your assets,
Speaker 2: let's bring in Morgan Housel. He is the author of
Speaker 2: Same as Ever, A Guide to What Never Changes. The
Speaker 2: book has received widespread acclaim for its insightful approach to
Speaker 2: thinking about risk and human nature. So Morgan, let's start
Speaker 2: with your central premise, how consistent is human behavior across
Speaker 2: the millennia?
Speaker 3: Well Berry, this is great quote from Voltaire, who said
Speaker 3: history never repeats itself, but man always does. I think
Speaker 3: that is such a good way to summarize history, that
Speaker 3: the events never repeat themselves. The recessions, the wars, they're
Speaker 3: different every single time, and that's what makes them so
Speaker 3: difficult to predict. But the behavior how people respond to
Speaker 3: recessions or bear markets, whatever it might be, is very
Speaker 3: stable throughout history. How people responded to the risk and
Speaker 3: the surprise of the Great Depression in the nineteen thirties
Speaker 3: is exactly how they responded to the financial crisis of
Speaker 3: two thousand and eight or the panic of March twenty twenty,
Speaker 3: no different whatsoever. And that is important because we cannot
Speaker 3: predict when the next recession is going to occur, when
Speaker 3: the next bear market might occur. Nobody can do it.
Speaker 3: But if you understand that the behaviors are stable over time,
Speaker 3: then you can say, I have no idea when the
Speaker 3: next recession is going to come, but I know exactly
Speaker 3: how people will respond to it when it does come.
Speaker 3: So it's putting your faith in forecasting the future in
Speaker 3: something that is repeatable and predictable, versus fooling yourself into
Speaker 3: trying to predict something that you can't.
Speaker 2: It sounds like the focus is less on predicting events
Speaker 2: and more on understanding our own behaviors.
Speaker 3: That's right, that's exactly right. And you're doing that because
Speaker 3: one is stable and predictable over time and one is not.
Speaker 2: So let's discuss the power of narratives. Why is it
Speaker 2: that stories are so much more influential than data and
Speaker 2: reasoning when it comes to us thinking about things like money.
Speaker 3: I think it's always been the case that the best
Speaker 3: story wins, not the person who has the right answer,
Speaker 3: or the best answer, or the answer that makes the
Speaker 3: most sense. It's always the best story that wins. People
Speaker 3: see that very often in politics, when it's almost always
Speaker 3: the case for generations that the person who wins the
Speaker 3: presidency is not the most competent or has the best policies.
Speaker 3: It's a person who tells the best story. That has
Speaker 3: always been the case, and I think always will be.
Speaker 3: People don't have enough bandwidth, whether it's in investing or
Speaker 3: politics or anything else, to truly parse all the data
Speaker 3: and sift through all the data to find the best answer.
Speaker 3: They need a quick SoundBite, they need a quick story.
Speaker 3: They need the best story to make sense of what's
Speaker 3: going on in the world. So if you're talking about
Speaker 3: the economy or the stock market. Going through all that data,
Speaker 3: I mean, that's an incredibly difficult thing to do. But
Speaker 3: if you could tell someone a quick story. Here's a
Speaker 3: story about Nvidia, here's a story about the US economy,
Speaker 3: they can wrap their head around that in three seconds,
Speaker 3: and it's much more compelling because it takes less effort
Speaker 3: to do. Every stock valuation is a number from today
Speaker 3: multiplied by a story about tomorrow. You take a number
Speaker 3: from today innings per share, and you multiply it by
Speaker 3: a story about tomorrow. That's the multiple that you're that
Speaker 3: you're slapping to it. What's so important to there is
Speaker 3: that the stories that people tell about what tomorrow might
Speaker 3: be are so much more powerful and also fickle changing
Speaker 3: than the number from today. And this is why there's
Speaker 3: so much madness and chaos in the history of markets.
Speaker 3: It's all just people clinging to and adapting to and
Speaker 3: telling new stories about what the future might hold.
Speaker 2: So a number from today multiplied by a story about tomorrow.
Speaker 2: That could be growth rate, that could be earnings, that
Speaker 2: could be market share, it could be any sort of story.
Speaker 2: And but that's a total unknown. Is that the power
Speaker 2: of narrative.
Speaker 3: Yeah. I mean, if you were to say, you know,
Speaker 3: just making this up, that Netflix stock will be trading
Speaker 3: at x dollars per share in three years, that sounds
Speaker 3: like a reasonable thing to try to predict. But what
Speaker 3: you are really saying is, you know what story investors
Speaker 3: are going to believe about Netflix three years from now.
Speaker 3: You know what kind of mood investors are going to
Speaker 3: be in three years from now. And when you frame
Speaker 3: it like that, it's absurd. How could anyone possibly know
Speaker 3: what people are going to believe about the future three
Speaker 3: years from now. Most people don't really understand what people
Speaker 3: believe about the future today, let alone what they're going
Speaker 3: to think about it three years from now. And so
Speaker 3: when you realize that it's all narrative is driving it's
Speaker 3: whatever people want to believe. The Memestock revolution, if you
Speaker 3: want to call that, over the last couple of years,
Speaker 3: has been the perfect example of that, where the number
Speaker 3: from today was almost meaningless, or there was no number
Speaker 3: from today, but the story about what it could turn
Speaker 3: into tomorrow was extraordinary. And this is one of those
Speaker 3: things that has always been the case. That was true
Speaker 3: one hundred years ago, it is so much more powerful
Speaker 3: today when social media allows the number of stories and
Speaker 3: the power of those stories to proliferate in a way
Speaker 3: that we've never seen.
Speaker 2: Huh. Really fascinating. So let's talk about the nature of risk.
Speaker 2: Why is it that we really don't understand it, and
Speaker 2: why do we always seem to be so surprised when
Speaker 2: a low probability event occurs.
Speaker 3: I think, look, if there is a one percent chance
Speaker 3: of a very bad recession in the next year, and
Speaker 3: a one percent chance of a very bad pandemic, and
Speaker 3: a one percent chance of a war, and a one
Speaker 3: percent chance of a natural disaster going down the list, well,
Speaker 3: the odds at any one of those will occur are
Speaker 3: very low, but the odds at least one of them
Speaker 3: will occur are pretty good. And so if you have
Speaker 3: a once in a century event, but there are hundreds
Speaker 3: of possibilities, a one in a century recession, once in
Speaker 3: a century, bear mark, whatever it is, the odds that
Speaker 3: one of them are going to occur this year or
Speaker 3: in the next five or ten years are very good.
Speaker 3: So this is why we are constantly surprised when there
Speaker 3: are big risks. So I've been an investor for twenty years.
Speaker 3: You've been investing for longer than that. But what's happened
Speaker 3: in the last twenty years, Well, it was the aftermath
Speaker 3: of nine to eleven in the war in Iraq, and
Speaker 3: then Lehman Brothers now COVID. In twenty years, you've had
Speaker 3: like five once in a century events, and I think
Speaker 3: that'll be the case going forward as well. Over the
Speaker 3: next twenty years, I think we'll have five or ten
Speaker 3: or maybe more events that are easy to call once
Speaker 3: in a century events, but since there are so many
Speaker 3: different versions of it, they tend to happen much more
Speaker 3: frequently than we'd like to believe.
Speaker 2: Yeah, you need a new name for these once in
Speaker 2: a century events that we get every five to ten years.
Speaker 2: To say, that's right to say the least. So I'm
Speaker 2: glad you're putting this into a historical context. How can
Speaker 2: we better understand history to both comprehend what's going on
Speaker 2: today and to conceptualize what might happen?
Speaker 3: Tomara, this is a great quote that I love that
Speaker 3: says everything feels unprecedented when you haven't engaged with history.
Speaker 3: So if you're not a student of history, then every
Speaker 3: morning you wake up and read the news and it
Speaker 3: feels like this is the first time it's happening. This
Speaker 3: is the first bear market, this is the first recession,
Speaker 3: this is the first presidential assassination attempt, whatever it might be.
Speaker 3: If you're student of history, you know that there have
Speaker 3: been a million different flavors of virtually everything that's going
Speaker 3: on today, and it's the same movie over and over again.
Speaker 3: It's a different cast of characters, it's a slightly different script,
Speaker 3: but it's the same movie again and again and again.
Speaker 3: That doesn't necessarily make things more comfortable, because you deal
Speaker 3: with things that are painful in your own life, painful
Speaker 3: for other people, but you realize that it's not unprecedented.
Speaker 3: This is the same thing, and that really push you, too,
Speaker 3: towards understanding the behaviors of how people respond to these things,
Speaker 3: versus trying to predict exactly what's going to happen next.
Speaker 3: If you understand how people respond to what's always occurred,
Speaker 3: then you have a good sense of how they're going
Speaker 3: to respond next time.
Speaker 2: So one of the things that has always occurred is
Speaker 2: that we tend to go through these cycles of calm
Speaker 2: and chaos. Why is it that during the good times
Speaker 2: we seem to plant the seeds for the chaos that
Speaker 2: invariably seems to follow.
Speaker 3: Well, look, when things are good in the economy or
Speaker 3: the stock market, people naturally, normally rationally take more risk.
Speaker 3: If the economy is really strong, you feel better going
Speaker 3: into debt in your business and building a new factory,
Speaker 3: Or if the stock market looks really strong, you feel
Speaker 3: better allocating more assets to there. It's a very rational
Speaker 3: thing to do. But when you do that, you, as
Speaker 3: one of hundreds of millions of actors in the US economy,
Speaker 3: have planted the seeds for the next decline. The more
Speaker 3: risk you're taking in your business, the more risk you're
Speaker 3: taking in your portfolio, makes the market more fragile, more vulnerable.
Speaker 3: And so the irony is that if we never had
Speaker 3: a recession, people would very rationally take a lot of
Speaker 3: risk in their business, go into debt if we're never
Speaker 3: going to have recessions, And the fact that they're going
Speaker 3: into debt is what makes the economy fragile, and the
Speaker 3: fact that the economy becomes fragile is what causes the
Speaker 3: next recession. So it says, irony of if we never
Speaker 3: have recessions, you would guarantee that you're going to have
Speaker 3: a very bad recession in the future, and it's the
Speaker 3: stimulus stock market. The lack of volatility is what plants
Speaker 3: the seeds for future volatility, because you get complacency and
Speaker 3: people take on more risk. And so when you view
Speaker 3: it like that, you view volatility as completely unavoidable. When
Speaker 3: the lack of recessions plants the seeds from the next recession,
Speaker 3: it's guaranteed that we're going to have future recessions, future
Speaker 3: bear markets. You view it as much more inevitable rather
Speaker 3: than something that requires the economy to break or for
Speaker 3: policy makers to make a mistake for it to occur.
Speaker 2: So we've been talking about how history sets our expectations
Speaker 2: for what might occur in the future. Let's talk about
Speaker 2: a gap between expectations and reality. What happens when that
Speaker 2: gap gets to be too large.
Speaker 3: It's always been the case in the US economy that
Speaker 3: if you look over a multi generation period, there's economic growth,
Speaker 3: and it's usually substantial economic growth. If you look at
Speaker 3: how we are living relative to our grandparents and their grandparents,
Speaker 3: we've grown so much. It has also always been the
Speaker 3: case that people look back and say, look, it's not
Speaker 3: as good as it used to be. There are things
Speaker 3: that were different in the past. And I think what
Speaker 3: so often happens is that people's incomes grow, but their
Speaker 3: expectations grow by even more. The average middle class American
Speaker 3: today is living a life that John D. Rockefeller could
Speaker 3: not fathom. They have technologies and medicines at Rockefeller, the
Speaker 3: richest man in the world in his day, could not fathom.
Speaker 3: But you cannot say that the average American should feel
Speaker 3: richer than Rockefeller, because that's not how people's brains work
Speaker 3: at all. Wealth is just relative to what other people
Speaker 3: have around you, So you measure your life relative to
Speaker 3: your neighbors and your coworkers and everybody else. And in
Speaker 3: that situation, you can have a world where people's incomes grow,
Speaker 3: their assets grow, and live a longer life, but if
Speaker 3: everyone else is doing the same, you don't feel any
Speaker 3: better off. And you can also imagine a world in
Speaker 3: which our grandkids are living way better than us. They're
Speaker 3: richer and they're healthier, but they're no happier for it,
Speaker 3: because everyone else is going to be living that too.
Speaker 3: They're all going to have the same cancer medicines, and
Speaker 3: they're all going to have the same high incomes, and
Speaker 3: so by comparison, they don't feel like they're that much
Speaker 3: better off. When you realize that all wealth and happiness
Speaker 3: is just comparison to other people, you realize that the
Speaker 3: gap between your expectations and reality is really what you
Speaker 3: want to go for to gain some sort of happiness
Speaker 3: and contentment out of your money.
Speaker 2: And perhaps that's why social media has become so toxic.
Speaker 2: All it does is raise people's expectations and their comparisons
Speaker 2: rather than appreciating what they have.
Speaker 3: Yeah, because I mean, it used to be that you
Speaker 3: compared yourself to your neighbors and your coworkers. Now you
Speaker 3: compare yourself to a curated highlight reel of a bunch
Speaker 3: of strangers, fake performative lives. And so no matter how
Speaker 3: well you're doing, you can open up Instagram and be
Speaker 3: bombarded with hundreds of people who appear to be doing
Speaker 3: better and look better and are look happier than you are,
Speaker 3: even if it's all bs and so, even though the
Speaker 3: comparison game has always been the case, it is so
Speaker 3: much more potent today than it's ever been.
Speaker 2: What we see on Instagram is the car of the house,
Speaker 2: but we don't see the monthly payments.
Speaker 3: And you don't see the person bickering with their spouse
Speaker 3: or dealing with their health problems or whatnot. It's all
Speaker 3: the highlight reel, and sometimes it's the fake highlight reel,
Speaker 3: and it leaves people to think that everyone else is
Speaker 3: happier than you are. There's this great quote from Montesque
Speaker 3: who said this three hundred years ago. He said, if
Speaker 3: you only wish to be happy, that is very simple
Speaker 3: to do. But people want to be happier than other people,
Speaker 3: and that is very difficult because we overestimate how happy
Speaker 3: those other people are. And he said that three hundred
Speaker 3: years ago, well before social media. If you are around today,
Speaker 3: I think he would look at that statement and say
Speaker 3: it is ten times truer today than it's ever been.
Speaker 2: Our final question, how can we balance optimism and pessimism in.
Speaker 3: Our own lives With money? I've always phrased it as
Speaker 3: you want to save like a pessimist and invest like
Speaker 3: an optimist. You ought to be very confident in where
Speaker 3: we're going for your investments, but you want to be
Speaker 3: very realistic about how hard it's going to be to
Speaker 3: get there. I hope to be an investor for another
Speaker 3: thirty or fifty years, and I'm very confident that fifty
Speaker 3: years from now the market's going to be extraordinarily higher
Speaker 3: than it is today. I'm equally confident that it's going
Speaker 3: to be a very painful slog to get there. It's
Speaker 3: going to be a NonStop chain of surprises and setbacks
Speaker 3: and recessions and pandemics, on and on and on and
Speaker 3: so I think that's how you balance it to very
Speaker 3: optimistic on where you're going in the long run, and
Speaker 3: very realistic about how difficult it's going to be to
Speaker 3: get there.
Speaker 2: So, to wrap up, the world is changing faster than ever,
Speaker 2: and we tend to focus on each incremental, unprecedented action
Speaker 2: that takes place. We really should be focusing on all
Speaker 2: the things that are the same as they've ever been.
Speaker 2: I'm Barry Ridults. You're listening to Bloomberg's at the Money.
Speaker 3: The same as it ever was, the same as it ever.
Speaker 1: Was, same as it never was. Even what my man was,
Speaker 1: Time isn't old enough, Time as an after us, the
Speaker 1: same as it ever was. It's the same as it
Speaker 1: ever was.
Speaker 2: It m hm