Speaker 1: Same as it ever was, same as it ever was,
Speaker 1: same as it ever was, same as same as it
Speaker 1: ever was, same as it ever, same.
Speaker 2: As indexing, massive technology concentration, the rise of AI. It's
Speaker 2: a brave new world, or is it? As much as
Speaker 2: our era seems to be unprecedented, a lot more is
Speaker 2: the same as ever. Human behavior, risk, opportunity, even living
Speaker 2: the good life all tends to be well, if not eternal,
Speaker 2: pretty close. We tend to focus on what's different while
Speaker 2: ignoring all the things that remain the same. I'm Barry
Speaker 2: Redults and on today's edition of At the Money, we're
Speaker 2: gonna discuss why you should pay attention to the unchanging
Speaker 2: nature of money and human behavior. To help us unpack
Speaker 2: 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, Berty, this is a great quote from Voltaire, who
Speaker 3: said history never repeats itself, but man always does. I
Speaker 3: think that is such a good way to summarize history,
Speaker 3: that the events never repeat themselves. The recessions, the wars,
Speaker 3: they're different every single time, and that's what makes them
Speaker 3: so difficult to predict. But the behavior how people respond
Speaker 3: to recessions or bear markets, whatever it might be, is
Speaker 3: very stable throughout history. How people responded to the risk
Speaker 3: and the surprise of the Great Depression in the nineteen
Speaker 3: thirties is exactly how they responded to the financial crisis
Speaker 3: of two thousand and eight or the panic of March
Speaker 3: twenty twenty, no different whatsoever. And that is important because
Speaker 3: we cannot predict when the next recession is going to occur,
Speaker 3: when 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 and 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 you're
Speaker 3: slapping to it. What's so important to there is that
Speaker 3: the stories that people tell about what tomorrow might be
Speaker 3: are so much more powerful and also fickle changing than
Speaker 3: the number from today. And this is why there's so
Speaker 3: much madness and chaos in the history of markets. It's
Speaker 3: all just people clinging to and adapting to and telling
Speaker 3: 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: to be in three years from now. And when you
Speaker 3: frame it like that, it's absurd. How could anyone possibly
Speaker 3: know what people are going to believe about the future
Speaker 3: three years from now. Most people don't really understand what
Speaker 3: people believe about the future today, let alone what they're
Speaker 3: going to think about it three years from now. And
Speaker 3: so when you realize that it's all narrative is driving
Speaker 3: it's whatever people want to believe. The memes Stock revolution,
Speaker 3: if you want to call that, over the last couple
Speaker 3: of years, has been the perfect example of that, where
Speaker 3: the number from today was almost meaningless, or there was
Speaker 3: no number from today, but the story about what it
Speaker 3: could turn into tomorrow was extraordinary. And this is one
Speaker 3: of those things that has always been the case. That
Speaker 3: was true one hundred years ago, it is so much
Speaker 3: more powerful today when social media allows the number of
Speaker 3: stories and the power of those stories to proliferate in
Speaker 3: a way 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 at least one of
Speaker 3: them will occur are pretty good. And so if you
Speaker 3: have a once in a century event, but there are
Speaker 3: hundreds of possibilities, a one in a century recession, once
Speaker 3: in a century, bear mark, whatever it is, the odds
Speaker 3: that one of them are going to occur this year
Speaker 3: or 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 and 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 tomorrow.
Speaker 3: This is a great quote that I love that says
Speaker 3: everything feels unprecedented when you haven't engaged with history. So
Speaker 3: if you're not a student of history, then every morning
Speaker 3: you wake up and read the news and it feels
Speaker 3: like this is the first time it's happening. This is
Speaker 3: the first bear market, this is the first recession, this
Speaker 3: 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 pushed you too,
Speaker 3: towards understanding the behaviors of how people respond to these
Speaker 3: things 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 the economy becomes fragile is what causes the next recession.
Speaker 3: So it says, irony of if we never had recessions,
Speaker 3: you would guarantee that you're going to have a very
Speaker 3: bad recession in the future. And it's the same as
Speaker 3: the 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 for 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, or
Speaker 3: the richest man in the world in his day, could
Speaker 3: not fathom. But you cannot say that the average American
Speaker 3: should feel richer than Rockefeller, because that's not how people's
Speaker 3: brains work at all. Wealth is just relative to what
Speaker 3: other people have around you. So you measure your life
Speaker 3: relative to your neighbors and your coworkers and everybody else.
Speaker 3: And in that situation, you can have a world where
Speaker 3: people's incomes grow, their assets grow, and live a longer life,
Speaker 3: but if everyone else is doing the same, you don't
Speaker 3: feel any better off. And you can also imagine a
Speaker 3: world in which our grandkids are living way better than us.
Speaker 3: They're 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 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 or 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 leads 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
Speaker 2: in our own lives With money?
Speaker 3: I've always phrased it as you want to save like
Speaker 3: a pessimist and invest like an optimist. You ought to
Speaker 3: be very confident in where we're going for your investments,
Speaker 3: but you want to be very realistic about how hard
Speaker 3: it's going to be to get there. I hope to
Speaker 3: be an investor for another thirty or fifty years, and
Speaker 3: I'm very confident that fifty years from now the market's
Speaker 3: going to be extraordinarily higher than it is today. I'm
Speaker 3: equally confident that it's going to be a very painful
Speaker 3: slog to get there. It's going to be a NonStop
Speaker 3: chain of surprises and setbacks and recessions and pandemics, on
Speaker 3: and on and on and so I think that's how
Speaker 3: you balance it to very optimistic on where you're going
Speaker 3: in the long run and very realistic about how difficult
Speaker 3: it's going to be to 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 1: That's the same as it ever was, the same as
Speaker 1: it ever was, same as it never was. The look
Speaker 1: what our name was, Time isn't holding up?
Speaker 3: Time is an after us.
Speaker 1: The same as it ever was.
Speaker 2: It's the same as it ever was, as it ever was.
Speaker 2: H