WEBVTT - At the Money: What Never Changes with Money

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<v Speaker 1>Same as it ever was, same as it ever was,

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<v Speaker 1>same as it ever was, same as same as it

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<v Speaker 1>ever was, same as it ever, same.

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<v Speaker 2>As indexing, massive technology concentration, the rise of AI. It's

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<v Speaker 2>a brave new world, or is it? As much as

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<v Speaker 2>our era seems to be unprecedented, a lot more is

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<v Speaker 2>the same as ever. Human behavior, risk, opportunity, even living

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<v Speaker 2>the good life all tends to be well, if not eternal,

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<v Speaker 2>pretty close. We tend to focus on what's different while

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<v Speaker 2>ignoring all the things that remain the same. I'm Barry

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<v Speaker 2>Redults and on today's edition of At the Money, we're

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<v Speaker 2>gonna discuss why you should pay attention to the unchanging

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<v Speaker 2>nature of money and human behavior. To help us unpack

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<v Speaker 2>all of this and what it means for your assets,

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<v Speaker 2>let's bring in Morgan Housel. He is the author of

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<v Speaker 2>Same as Ever, A Guide to What Never Changes. The

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<v Speaker 2>book has received widespread acclaim for its insightful approach to

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<v Speaker 2>thinking about risk and human nature. So Morgan, let's start

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<v Speaker 2>with your central premise, how consistent is human behavior across

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<v Speaker 2>the millennia?

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<v Speaker 3>Well, Berty, this is a great quote from Voltaire, who

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<v Speaker 3>said history never repeats itself, but man always does. I

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<v Speaker 3>think that is such a good way to summarize history,

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<v Speaker 3>that the events never repeat themselves. The recessions, the wars,

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<v Speaker 3>they're different every single time, and that's what makes them

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<v Speaker 3>so difficult to predict. But the behavior how people respond

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<v Speaker 3>to recessions or bear markets, whatever it might be, is

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<v Speaker 3>very stable throughout history. How people responded to the risk

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<v Speaker 3>and the surprise of the Great Depression in the nineteen

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<v Speaker 3>thirties is exactly how they responded to the financial crisis

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<v Speaker 3>of two thousand and eight or the panic of March

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<v Speaker 3>twenty twenty, no different whatsoever. And that is important because

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<v Speaker 3>we cannot predict when the next recession is going to occur,

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<v Speaker 3>when the next bear market might occur. Nobody can do it.

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<v Speaker 3>But if you understand that the behaviors are stable over time,

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<v Speaker 3>then you can say, I have no idea when the

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<v Speaker 3>next recession is going to come, but I know exactly

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<v Speaker 3>how people will respond to it when it does come.

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<v Speaker 3>So it's putting your faith and forecasting the future in

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<v Speaker 3>something that is repeatable and predictable, versus fooling yourself into

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<v Speaker 3>trying to predict something that you can't.

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<v Speaker 2>It sounds like the focus is less on predicting events

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<v Speaker 2>and more on understanding our own behaviors.

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<v Speaker 3>That's right, that's exactly right. And you're doing that because

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<v Speaker 3>one is stable and predictable over time and one is not.

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<v Speaker 2>So let's discuss the power of narratives. Why is it

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<v Speaker 2>that stories are so much more influential than data and

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<v Speaker 2>reasoning when it comes to us thinking about things like money.

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<v Speaker 3>I think it's always been the case that the best

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<v Speaker 3>story wins, not the person who has the right answer

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<v Speaker 3>or the best answer, or the answer that makes the

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<v Speaker 3>most sense. It's always the best story that wins. People

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<v Speaker 3>see that very often in politics, when it's almost always

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<v Speaker 3>the case for generations that the person who wins the

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<v Speaker 3>presidency is not the most competent or has the best policies.

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<v Speaker 3>It's a person who tells the best story. That has

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<v Speaker 3>always been the case, and I think always will be.

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<v Speaker 3>People don't have enough bandwidth, whether it's in investing or

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<v Speaker 3>politics or anything else, to truly parse all the data

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<v Speaker 3>and sift through all the data to find the best answer.

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<v Speaker 3>They need a quick SoundBite, they need a quick story.

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<v Speaker 3>They need the best story to make sense of what's

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<v Speaker 3>going on in the world. So if you're talking about

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<v Speaker 3>the economy or the stock market going through all that data.

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<v Speaker 3>I mean, that's an incredibly difficult thing to do. But

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<v Speaker 3>if you could tell someone a quick story. Here's a

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<v Speaker 3>story about Nvidia, here's a story about the US economy,

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<v Speaker 3>they can wrap their head around that in three seconds,

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<v Speaker 3>and it's much more compelling because it takes less effort

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<v Speaker 3>to do. Every stock valuation is a number from today

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<v Speaker 3>multiplied by a story about tomorrow. You take a number

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<v Speaker 3>from today innings per share, and you multiply it by

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<v Speaker 3>a story about tomorrow. That's the multiple that you're you're

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<v Speaker 3>slapping to it. What's so important to there is that

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<v Speaker 3>the stories that people tell about what tomorrow might be

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<v Speaker 3>are so much more powerful and also fickle changing than

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<v Speaker 3>the number from today. And this is why there's so

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<v Speaker 3>much madness and chaos in the history of markets. It's

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<v Speaker 3>all just people clinging to and adapting to and telling

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<v Speaker 3>new stories about what the future might hold.

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<v Speaker 2>So a number from today multiplied by a story about tomorrow.

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<v Speaker 2>That could be growth rate, that could be earnings, that

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<v Speaker 2>could be market share, it could be any sort of story.

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<v Speaker 2>And but that's a total unknown. Is that the power

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<v Speaker 2>of narrative?

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<v Speaker 3>Yeah, I mean if you were to say, you know,

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<v Speaker 3>just making this up, that Netflix stock will be trading

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<v Speaker 3>at x dollars per share in three years, that sounds

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<v Speaker 3>like a reasonable thing to try to predict. But what

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<v Speaker 3>you are really saying is, you know what story investors

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<v Speaker 3>are going to believe about Netflix three years from now.

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<v Speaker 3>You know what kind of mood investors are going to

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<v Speaker 3>to be in three years from now. And when you

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<v Speaker 3>frame it like that, it's absurd. How could anyone possibly

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<v Speaker 3>know what people are going to believe about the future

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<v Speaker 3>three years from now. Most people don't really understand what

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<v Speaker 3>people believe about the future today, let alone what they're

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<v Speaker 3>going to think about it three years from now. And

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<v Speaker 3>so when you realize that it's all narrative is driving

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<v Speaker 3>it's whatever people want to believe. The memes Stock revolution,

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<v Speaker 3>if you want to call that, over the last couple

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<v Speaker 3>of years, has been the perfect example of that, where

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<v Speaker 3>the number from today was almost meaningless, or there was

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<v Speaker 3>no number from today, but the story about what it

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<v Speaker 3>could turn into tomorrow was extraordinary. And this is one

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<v Speaker 3>of those things that has always been the case. That

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<v Speaker 3>was true one hundred years ago, it is so much

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<v Speaker 3>more powerful today when social media allows the number of

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<v Speaker 3>stories and the power of those stories to proliferate in

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<v Speaker 3>a way that we've never seen.

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<v Speaker 2>Huh. Really fascinating. So let's talk about the nature of risk.

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<v Speaker 2>Why is it that we really don't understand it, and

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<v Speaker 2>why do we always seem to be so surprised when

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<v Speaker 2>a low probability event occurs.

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<v Speaker 3>I think, look, if there is a one percent chance

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<v Speaker 3>of a very bad recession in the next year, and

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<v Speaker 3>a one percent chance of a very bad pandemic, and

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<v Speaker 3>a one percent chance of a war, and a one

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<v Speaker 3>percent chance of a natural disaster going down the list, well,

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<v Speaker 3>the odds at any one of those will occur are

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<v Speaker 3>very low, but the odds at at least one of

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<v Speaker 3>them will occur are pretty good. And so if you

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<v Speaker 3>have a once in a century event, but there are

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<v Speaker 3>hundreds of possibilities, a one in a century recession, once

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<v Speaker 3>in a century, bear mark, whatever it is, the odds

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<v Speaker 3>that one of them are going to occur this year

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<v Speaker 3>or in the next five or ten years are very good.

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<v Speaker 3>So this is why we are constantly surprised when there

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<v Speaker 3>are big risks. So I've been an investor for twenty years,

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<v Speaker 3>You've been investing for longer. Than that. But what's happened

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<v Speaker 3>in the last twenty years, Well, it was the aftermath

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<v Speaker 3>of nine to eleven and the war in Iraq and

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<v Speaker 3>then Lehman Brothers now COVID. In twenty years, you've had

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<v Speaker 3>like five once in a century events, and I think

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<v Speaker 3>that'll be the case going forward as well. Over the

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<v Speaker 3>next twenty years, I think we'll have five or ten

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<v Speaker 3>or maybe more events that are easy to call once

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<v Speaker 3>in a century events, But since there are so many

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<v Speaker 3>different versions of it, they tend to happen much more

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<v Speaker 3>frequently than we'd like to believe.

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<v Speaker 2>Yeah, you need a new name for these once in

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<v Speaker 2>a century events that we get every five to ten years,

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<v Speaker 2>to say, that's right to say the least. So I'm

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<v Speaker 2>glad you're putting this into a historical context. How can

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<v Speaker 2>we better understand history to both comprehend what's going on

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<v Speaker 2>today and to conceptualize what might happen tomorrow.

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<v Speaker 3>This is a great quote that I love that says

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<v Speaker 3>everything feels unprecedented when you haven't engaged with history. So

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<v Speaker 3>if you're not a student of history, then every morning

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<v Speaker 3>you wake up and read the news and it feels

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<v Speaker 3>like this is the first time it's happening. This is

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<v Speaker 3>the first bear market, this is the first recession, this

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<v Speaker 3>is the first presidential assassination attempt, whatever it might be.

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<v Speaker 3>If you're student of history, you know that there have

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<v Speaker 3>been a million different flavors of virtually everything that's going

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<v Speaker 3>on today, and it's the same movie over and over again.

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<v Speaker 3>It's a different cast of characters, it's a slightly different script,

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<v Speaker 3>but it's the same movie again and again and again.

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<v Speaker 3>That doesn't necessarily make things more comfortable, because you deal

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<v Speaker 3>with things that are painful in your own life, painful

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<v Speaker 3>for other people, but you realize that it's not unprecedented.

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<v Speaker 3>This is the same thing, and that really pushed you too,

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<v Speaker 3>towards understanding the behaviors of how people respond to these

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<v Speaker 3>things versus trying to predict exactly what's going to happen next.

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<v Speaker 3>If you understand how people respond to what's always occurred,

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<v Speaker 3>then you have a good sense of how they're going

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<v Speaker 3>to respond next time.

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<v Speaker 2>So one of the things that has always occurred is

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<v Speaker 2>that we tend to go through these cycles of calm

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<v Speaker 2>and chaos. Why is it that during the good times

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<v Speaker 2>we seem to plant the seeds for the chaos that

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<v Speaker 2>invariably seems to follow.

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<v Speaker 3>Well, look, when things are good in the economy or

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<v Speaker 3>the stock market, people naturally, normally rationally take more risk.

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<v Speaker 3>If the economy is really strong, you feel better going

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<v Speaker 3>into debt in your business and building a new factory,

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<v Speaker 3>or if the stock market looks really strong, you feel

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<v Speaker 3>better allocating more assets to there. It's a very rational

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<v Speaker 3>thing to do. But when you do that, you, as

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<v Speaker 3>one of hundreds of millions of actors in the US economy,

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<v Speaker 3>have planted the seeds for the next decline. The more

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<v Speaker 3>risk you're taking in your business, the more risk you're

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<v Speaker 3>taking in your portfolio, makes the market more fragile, more vulnerable.

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<v Speaker 3>And so the irony is that if we never had

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<v Speaker 3>a recession, people would very rationally take a lot of

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<v Speaker 3>risk in their business go into debt if we're never

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<v Speaker 3>going to have recessions, and the fact that they're going

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<v Speaker 3>into debt is what makes the economy fragile, and the

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<v Speaker 3>fact the economy becomes fragile is what causes the next recession.

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<v Speaker 3>So it says, irony of if we never had recessions,

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<v Speaker 3>you would guarantee that you're going to have a very

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<v Speaker 3>bad recession in the future. And it's the same as

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<v Speaker 3>the stock market. The lack of volatility is what plants

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<v Speaker 3>the seeds for future volatility, because you get complacency and

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<v Speaker 3>people take on more risk. And so when you view

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<v Speaker 3>it like that, you view volatility as completely unavoidable. When

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<v Speaker 3>the lack of recessions plants the seeds for the next recession,

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<v Speaker 3>it's guaranteed that we're going to have future recessions, future

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<v Speaker 3>bear markets. You view it as much more inevitable rather

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<v Speaker 3>than something that requires the economy to break or for

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<v Speaker 3>policy makers to make a mistake for it to occur.

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<v Speaker 2>So we've been talking about how history sets our expectations

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<v Speaker 2>for what might occur in the future. Let's talk about

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<v Speaker 2>a gap between expectations and reality. What happens when that

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<v Speaker 2>gap gets to be too large.

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<v Speaker 3>It's always been the case in the US economy that

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<v Speaker 3>if you look over a multi generation period, there's economic growth,

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<v Speaker 3>and it's usually substantial economic growth. If you look at

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<v Speaker 3>how we are living relative to our grandparents and their grandparents,

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<v Speaker 3>we've grown so much. It has also always been the

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<v Speaker 3>case that people look back and say, look, it's not

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<v Speaker 3>as good as it used to be. There are things

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<v Speaker 3>that were different in the past, and I think what

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<v Speaker 3>so often happens is that people's incomes grow, but their

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<v Speaker 3>expectations grow by even more. The average middle class American

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<v Speaker 3>today is living a life that John D. Rockefeller could

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<v Speaker 3>not fathom. They have technologies and medicines at Rockefeller, or

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<v Speaker 3>the richest man in the world in his day, could

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<v Speaker 3>not fathom. But you cannot say that the average American

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<v Speaker 3>should feel richer than Rockefeller, because that's not how people's

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<v Speaker 3>brains work at all. Wealth is just relative to what

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<v Speaker 3>other people have around you. So you measure your life

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<v Speaker 3>relative to your neighbors and your coworkers and everybody else.

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<v Speaker 3>And in that situation, you can have a world where

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<v Speaker 3>people's incomes grow, their assets grow, and live a longer life,

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<v Speaker 3>but if everyone else is doing the same, you don't

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<v Speaker 3>feel any better off. And you can also imagine a

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<v Speaker 3>world in which our grandkids are living way better than us.

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<v Speaker 3>They're richer and they're healthier, but they're no happier for it,

0:11:11.160 --> 0:11:12.800
<v Speaker 3>because everyone else is going to be living that too.

0:11:12.840 --> 0:11:14.679
<v Speaker 3>They're all going to have the same cancer medicines, and

0:11:14.679 --> 0:11:16.720
<v Speaker 3>they're all going to have the same high incomes, and

0:11:16.760 --> 0:11:18.800
<v Speaker 3>so by comparison, they don't feel like they're that much

0:11:18.800 --> 0:11:21.839
<v Speaker 3>better off. When you realize that all wealth and happiness

0:11:22.040 --> 0:11:24.680
<v Speaker 3>is just comparison to other people, you realize that the

0:11:24.720 --> 0:11:27.120
<v Speaker 3>gap between your expectations and reality is really what you

0:11:27.160 --> 0:11:30.000
<v Speaker 3>want to go for to gain some sort of happiness

0:11:30.000 --> 0:11:31.199
<v Speaker 3>and contentment out of your money.

0:11:32.320 --> 0:11:35.840
<v Speaker 2>And perhaps that's why social media has become so toxic.

0:11:36.320 --> 0:11:40.439
<v Speaker 2>All it does is raise people's expectations and their comparisons

0:11:40.840 --> 0:11:42.400
<v Speaker 2>rather than appreciating what they have.

0:11:43.040 --> 0:11:44.880
<v Speaker 3>Yeah, because I mean, it used to be that you

0:11:44.920 --> 0:11:48.080
<v Speaker 3>compared yourself to your neighbors and your coworkers. Now you

0:11:48.120 --> 0:11:51.360
<v Speaker 3>compare yourself to a curated highlight reel of a bunch

0:11:51.400 --> 0:11:55.000
<v Speaker 3>of strangers, fake performative lives. And so, no matter how

0:11:55.040 --> 0:11:57.440
<v Speaker 3>well you're doing, you can open up Instagram and be

0:11:57.520 --> 0:12:00.040
<v Speaker 3>bombarded with hundreds of people who appear to be doing

0:12:00.120 --> 0:12:02.839
<v Speaker 3>better and look better and look happier than you are,

0:12:02.880 --> 0:12:05.839
<v Speaker 3>even if it's all bs and so, even though the

0:12:05.880 --> 0:12:08.280
<v Speaker 3>comparison game has always been the case, it is so

0:12:08.360 --> 0:12:09.959
<v Speaker 3>much more potent today than it's ever been.

0:12:10.600 --> 0:12:13.480
<v Speaker 2>What we see on Instagram is the car or the house,

0:12:13.559 --> 0:12:16.200
<v Speaker 2>but we don't see the monthly payments.

0:12:16.600 --> 0:12:18.840
<v Speaker 3>And you don't see the person bickering with their spouse,

0:12:19.000 --> 0:12:21.240
<v Speaker 3>or dealing with their health problems or whatnot. It's all

0:12:21.280 --> 0:12:24.600
<v Speaker 3>the highlight reel, and sometimes it's the fake highlight reel,

0:12:24.880 --> 0:12:27.720
<v Speaker 3>and it leads people to think that everyone else is

0:12:27.760 --> 0:12:31.120
<v Speaker 3>happier than you are. There's this great quote from Montesque

0:12:31.120 --> 0:12:33.200
<v Speaker 3>who said this three hundred years ago. He said, if

0:12:33.240 --> 0:12:35.800
<v Speaker 3>you only wish to be happy, that is very simple

0:12:35.840 --> 0:12:39.000
<v Speaker 3>to do. But people want to be happier than other people,

0:12:39.640 --> 0:12:42.480
<v Speaker 3>and that is very difficult because we overestimate how happy

0:12:42.520 --> 0:12:44.880
<v Speaker 3>those other people are. And he said that three hundred

0:12:44.960 --> 0:12:48.160
<v Speaker 3>years ago, well before social media. If you are around today,

0:12:48.600 --> 0:12:50.880
<v Speaker 3>I think he would look at that statement and say

0:12:50.880 --> 0:12:52.839
<v Speaker 3>it is ten times truer today than it's ever been.

0:12:53.480 --> 0:12:58.559
<v Speaker 2>Our final question, how can we balance optimism and pessimism

0:12:58.880 --> 0:13:01.040
<v Speaker 2>in our own lives With money?

0:13:01.080 --> 0:13:02.800
<v Speaker 3>I've always phrased it as you want to save like

0:13:02.800 --> 0:13:05.440
<v Speaker 3>a pessimist and invest like an optimist. You ought to

0:13:05.440 --> 0:13:08.199
<v Speaker 3>be very confident in where we're going for your investments,

0:13:08.200 --> 0:13:10.000
<v Speaker 3>but you want to be very realistic about how hard

0:13:10.040 --> 0:13:11.880
<v Speaker 3>it's going to be to get there. I hope to

0:13:11.880 --> 0:13:15.120
<v Speaker 3>be an investor for another thirty or fifty years, and

0:13:15.400 --> 0:13:18.040
<v Speaker 3>I'm very confident that fifty years from now the market's

0:13:18.080 --> 0:13:20.680
<v Speaker 3>going to be extraordinarily higher than it is today. I'm

0:13:20.720 --> 0:13:23.480
<v Speaker 3>equally confident that it's going to be a very painful

0:13:23.480 --> 0:13:25.439
<v Speaker 3>slog to get there. It's going to be a NonStop

0:13:25.520 --> 0:13:28.560
<v Speaker 3>chain of surprises and setbacks and recessions and pandemics, on

0:13:28.600 --> 0:13:30.560
<v Speaker 3>and on and on and so I think that's how

0:13:30.600 --> 0:13:32.960
<v Speaker 3>you balance it to very optimistic on where you're going

0:13:33.040 --> 0:13:35.760
<v Speaker 3>in the long run and very realistic about how difficult

0:13:35.800 --> 0:13:36.720
<v Speaker 3>it's going to be to get there.

0:13:37.400 --> 0:13:41.079
<v Speaker 2>So, to wrap up, the world is changing faster than ever,

0:13:41.200 --> 0:13:46.280
<v Speaker 2>and we tend to focus on each incremental, unprecedented action

0:13:46.440 --> 0:13:50.200
<v Speaker 2>that takes place. We really should be focusing on all

0:13:50.280 --> 0:13:53.200
<v Speaker 2>the things that are the same as they've ever been.

0:13:53.920 --> 0:13:58.000
<v Speaker 2>I'm Barry Ridults. You're listening to Bloomberg's at the Money.

0:14:00.280 --> 0:14:03.200
<v Speaker 1>That's the same as it ever was, the same as

0:14:03.240 --> 0:14:07.760
<v Speaker 1>it ever was, same as it never was. The look

0:14:07.760 --> 0:14:10.760
<v Speaker 1>what our name was, Time isn't holding up?

0:14:11.760 --> 0:14:13.559
<v Speaker 3>Time is an after us.

0:14:13.640 --> 0:14:14.960
<v Speaker 1>The same as it ever was.

0:14:15.640 --> 0:14:18.360
<v Speaker 2>It's the same as it ever was, as it ever was.

0:14:21.080 --> 0:14:21.120
<v Speaker 2>H