Experts from a world that no longer exists
Whilst growing up, almost all of us learn from books written by the previous generation. In fact, in India it is drilled into our heads from an early age that we should “learn from our elders”. In this blog, Morgan Housel explains why this is not always a good idea: “The biggest risk to an evolving system is that you become bogged down by experts from a world that no longer exists. The more evolution you have, the more you should expect that expertise has a shelf life…most things evolve, and evolve faster than people’s beliefs. It’s a tricky thing that leads to a long history of older generations whose success came from understanding the new rules of their era not recognizing that the rules may have changed again.
Investor Dean Williams once said, “Expertise is great, but it has a bad side effect. It tends to create an inability to accept new ideas.”
If you appreciate how much the world evolves you can appreciate how important that advice can be.”
Housel points that the biggest challenge we encounter in life is that we end up getting too hung up about our so called ‘mistakes’ and ‘failures’: “Henry Ford was a tinkerer. He revolutionized the factory floor by letting his workers experiment, trying anything they could think of to make production more efficient.
There was just one rule, a quirk that seemed crazy but was vital to the company’s success: No one could keep a record of the factory experiments that were tried and failed.
Ford wrote in his book My Life and Work:
I am not particularly anxious for the men to remember what someone else has tried to do in the past, for then we might quickly accumulate far too many things that could not be done.
That is one of the troubles with extensive records. If you keep on recording all of your failures you will shortly have a list showing that there is nothing left for you to try – whereas it by no means follows because one man has failed in a certain method that another man will not succeed.
That was Ford’s experience. “We get some of our best results from letting fools rush in where angels fear to tread.””
It follows therefore that young people – who are unscarred by the failures and traumas of their seniors – can see opportunities that more experience people cannot: “Marc Andreessen explained how this has worked in tech: “All of the ideas that people had in the 1990s were basically all correct. They were just early.” The infrastructure necessary to make most tech businesses work didn’t exist in the 1990s. But it does exist today. So almost every business plan that was mocked for being a ridiculous idea that failed is now, 20 years later, a viable industry…. Some of the biggest businesses of the last 10 years are all in industries that were the starkest examples of stupidity 20 years ago.
So imagine if the lessons of the dot-com crash were heeded. Imagine if everyone who learned what business models don’t work refused to ever try again, based on the experience of experts who had been there, done that….
We’ve only progressed beyond the crash because the old generation, armed with accurate wisdom from their era, passed the baton to a new generation willing to try the same “mistakes” in a world that adapted and evolved. Andreessen again:
One thing that’s happening is now enough time has passed that enough kids are coming to the Valley who don’t have a memory of the crash. They were like in 4th Grade when it happened. We get in these weird conversations where we’re telling them cautionary tales of what happened in 1998, and they look at you like you’re a Grandpa. We have a new generation of people in the Valley who say, ‘Let’s just go build things. Let’s not be held back by superstition.’
Housel concludes that the same thing has happened in the world of investing – the paradigm has changed and older investors find it hard to adjust to the new paradigm: ““Don’t buy stocks when the P/E ratio is over 20” was a good lesson to learn from the 1970s when interest rates were 7%, the Fed hadn’t yet learned what it’s capable of, and most businesses were cyclical manufacturing companies vs. asset-light digital services. Is it relevant today? At a broad, philosophical level, yes. In practical terms, probably not. In the same sense, buying stocks at all seemed like nothing but speculation in the 1920s because corporate disclosures were so opaque. By the 1970s that had changed, and you could begin to make rational, calculated long-term decisions that put the odds in your favor.
What was foolish to one generation was smart to the next, but the older generation’s views lag. Every generation goes through this. Every generation fights it…. Investor Conor Sen recently pointed out that high stock valuations and low interest rates used to mean future investment returns would be low. But now, he wrote:
What it’s actually indicating is that there exists a lot of fiscal capacity for higher levels of government spending, which can boost real GDP and earnings growth (probably some inflation too), an outcome better for financial markets than you’d get without that policy shift.
But for older investors whose careers have overlapped with high inflation and a policy environment dominated by monetary policy they’re not thinking about this — it’s the flaw in their framework.”
Investor Dean Williams once said, “Expertise is great, but it has a bad side effect. It tends to create an inability to accept new ideas.”
If you appreciate how much the world evolves you can appreciate how important that advice can be.”
Housel points that the biggest challenge we encounter in life is that we end up getting too hung up about our so called ‘mistakes’ and ‘failures’: “Henry Ford was a tinkerer. He revolutionized the factory floor by letting his workers experiment, trying anything they could think of to make production more efficient.
There was just one rule, a quirk that seemed crazy but was vital to the company’s success: No one could keep a record of the factory experiments that were tried and failed.
Ford wrote in his book My Life and Work:
I am not particularly anxious for the men to remember what someone else has tried to do in the past, for then we might quickly accumulate far too many things that could not be done.
That is one of the troubles with extensive records. If you keep on recording all of your failures you will shortly have a list showing that there is nothing left for you to try – whereas it by no means follows because one man has failed in a certain method that another man will not succeed.
That was Ford’s experience. “We get some of our best results from letting fools rush in where angels fear to tread.””
It follows therefore that young people – who are unscarred by the failures and traumas of their seniors – can see opportunities that more experience people cannot: “Marc Andreessen explained how this has worked in tech: “All of the ideas that people had in the 1990s were basically all correct. They were just early.” The infrastructure necessary to make most tech businesses work didn’t exist in the 1990s. But it does exist today. So almost every business plan that was mocked for being a ridiculous idea that failed is now, 20 years later, a viable industry…. Some of the biggest businesses of the last 10 years are all in industries that were the starkest examples of stupidity 20 years ago.
So imagine if the lessons of the dot-com crash were heeded. Imagine if everyone who learned what business models don’t work refused to ever try again, based on the experience of experts who had been there, done that….
We’ve only progressed beyond the crash because the old generation, armed with accurate wisdom from their era, passed the baton to a new generation willing to try the same “mistakes” in a world that adapted and evolved. Andreessen again:
One thing that’s happening is now enough time has passed that enough kids are coming to the Valley who don’t have a memory of the crash. They were like in 4th Grade when it happened. We get in these weird conversations where we’re telling them cautionary tales of what happened in 1998, and they look at you like you’re a Grandpa. We have a new generation of people in the Valley who say, ‘Let’s just go build things. Let’s not be held back by superstition.’
Housel concludes that the same thing has happened in the world of investing – the paradigm has changed and older investors find it hard to adjust to the new paradigm: ““Don’t buy stocks when the P/E ratio is over 20” was a good lesson to learn from the 1970s when interest rates were 7%, the Fed hadn’t yet learned what it’s capable of, and most businesses were cyclical manufacturing companies vs. asset-light digital services. Is it relevant today? At a broad, philosophical level, yes. In practical terms, probably not. In the same sense, buying stocks at all seemed like nothing but speculation in the 1920s because corporate disclosures were so opaque. By the 1970s that had changed, and you could begin to make rational, calculated long-term decisions that put the odds in your favor.
What was foolish to one generation was smart to the next, but the older generation’s views lag. Every generation goes through this. Every generation fights it…. Investor Conor Sen recently pointed out that high stock valuations and low interest rates used to mean future investment returns would be low. But now, he wrote:
What it’s actually indicating is that there exists a lot of fiscal capacity for higher levels of government spending, which can boost real GDP and earnings growth (probably some inflation too), an outcome better for financial markets than you’d get without that policy shift.
But for older investors whose careers have overlapped with high inflation and a policy environment dominated by monetary policy they’re not thinking about this — it’s the flaw in their framework.”
