Latest / The Dutch Investors / #81 | Lessons on what never changes | Same as Ever - Ep. 5

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#81 | Lessons on what never changes | Same as Ever - Ep. 5 · The Dutch Investors

• 0:03
  SPEAKER_00: Welcome back to the Dutch Investors Podcast.
• 0:06
  SPEAKER_00: This is it, episode 5, our final episode on Same As Ever.
• 0:11
  SPEAKER_00: We've spent the last few episodes tearing apart history, psychology, and money to find new things in this world that actually stay the same.
• 0:20
  SPEAKER_00: Today we are bringing it all home with our final four chapters of Morgan Housell's book, Same As Ever.
• 0:27
  SPEAKER_00: And honestly, we might have saved some of the most controversial topics for last.
• 0:33
  SPEAKER_00: Today we are talking about why good people do terrible things, why you can never truly understand the crisis until it hits your own personal life, the lie we tell ourselves about long-term investing, and finally, our weird obsession with making things harder than they need to be.
• 0:51
  SPEAKER_00: Alright, let's get into this final episode.
• 0:54
  SPEAKER_00: Enjoy.
• 1:15
  SPEAKER_00: Incentives.
• 1:16
  SPEAKER_00: Because this is the most powerful force in the world.
• 1:20
  SPEAKER_00: It's not a compound interest, it's not nuclear energy or nuclear weapons, it's incentives.
• 1:28
  SPEAKER_00: When incentives are crazy, the behavior of people is crazy.
• 1:33
  SPEAKER_00: People can be led to justify and defend nearly anything.
• 1:37
  SPEAKER_00: We often like to think that people are either good or bad, but history teaches us that the people are mostly just navigating the incentives put in front of them.
• 1:47
  SPEAKER_00: If you give a good person a bad incentive, they will find a way to rationalize bad behavior.
• 1:55
  SPEAKER_00: There's this story in the book about a Nigerian scammer.
• 1:59
  SPEAKER_00: He spent 20 years posing as an American fisherman online, scamming widows out of their savings.
• 2:07
  SPEAKER_00: When a reporter from the New York Times asked him how he felt about causing so much pain to those innocent women, his answer was chilling but revealing.
• 2:19
  SPEAKER_00: He said, Definitely there is always some conscience, but poverty will not make you feel the pain.
• 2:27
  SPEAKER_00: He was no psychopath, he was a person whose incentive to eat was just stronger than his incentive to be honest.
• 2:36
  SPEAKER_00: Another example that hits closer to home is this one.
• 2:41
  SPEAKER_00: Think back to the mid-2000s, the housing bubble.
• 2:44
  SPEAKER_00: Hausel tells this true story of a pizza delivery man he knew.
• 2:49
  SPEAKER_00: One day this guy is delivering pepperoni pizzas.
• 2:52
  SPEAKER_00: The next day he became a subprime mortgage banker.
• 2:56
  SPEAKER_00: Suddenly, virtually overnight, he was earning more per day than he used to earn in a month.
• 3:01
  SPEAKER_00: Now his job was to sign people up for loans they clearly couldn't afford.
• 3:07
  SPEAKER_00: Did he know it was wrong?
• 3:09
  SPEAKER_00: Sure, probably.
• 3:10
  SPEAKER_00: But but the bar for someone to say, this is unsustainable, so I'm going to quit my high-paying job and go back to delivering pizzas is unbelievably high.
• 3:21
  SPEAKER_00: There's a famous historical example of this, not inside the book, but it fits perfectly.
• 3:28
  SPEAKER_00: It's the story of British convict ships in the 1860s.
• 3:32
  SPEAKER_00: When Great Britain started shipping convicts to Australia, the captains were paid a flat fee for every prisoner they loaded onto the ship.
• 3:41
  SPEAKER_00: The incentive was simple.
• 3:43
  SPEAKER_00: Maximize capacity, minimize cost.
• 3:46
  SPEAKER_00: The result was a humanitarian disaster, disease, starvation, and a mortality rate of over 30% on some voyages.
• 3:55
  SPEAKER_00: Public outcry didn't change it.
• 3:58
  SPEAKER_00: Moral lectures didn't change it.
• 4:00
  SPEAKER_00: Then an economist suggested changing the incentive.
• 4:04
  SPEAKER_00: The government changed the contract so the captains were paid only for every prisoner who walked off the ship alive in Australia.
• 4:14
  SPEAKER_00: And the survival rate shot up to almost 99% almost immediately.
• 4:20
  SPEAKER_00: The captains didn't become better people overnight.
• 4:23
  SPEAKER_00: The incentives just aligned their greed with human survival.
• 4:28
  SPEAKER_00: As investors, we have to ask, what is the person selling me this product incentivized to do?
• 4:35
  SPEAKER_00: Because people follow incentives, not advice.
• 4:40
  SPEAKER_00: That brings me to the next theme, time horizons.
• 4:44
  SPEAKER_00: There is this popular phrase in investing in finance.
• 4:48
  SPEAKER_00: We are long-term investors and I'm in it for the long run.
• 4:52
  SPEAKER_00: And we do the same thing, if we're being brutally honest.
• 4:57
  SPEAKER_00: And I'd like to think I'm a long-term investor.
• 5:00
  SPEAKER_00: But Hausel points to a metaphor for this.
• 5:04
  SPEAKER_00: He says, Saying I'm in it for the long run is a bit like standing at the base of Mount Everest, pointing to the top, and saying, That's where I'm heading.
• 5:15
  SPEAKER_00: Well, that's nice.
• 5:16
  SPEAKER_00: Now comes the test.
• 5:18
  SPEAKER_00: We tend to treat the long run as this peaceful waiting room where we sit until we get rich.
• 5:26
  SPEAKER_00: But the long run is just a collection of short runs you have to put up with.
• 5:31
  SPEAKER_00: You don't get the long-term average return unless you survive the short-term disaster.
• 5:36
  SPEAKER_00: There's a classical example of this, involving Peter Lynch, the legendary manager of the Fidelity Megalan Fund.
• 5:44
  SPEAKER_00: From 1977 to 1990, Lynch generated an average annual return of 29%.
• 5:52
  SPEAKER_00: He was the Michael Jordan of investing, and you'd think anyone who put his money in the fund would be rich.
• 5:59
  SPEAKER_00: But Fidelity did a study and found that the average investor in the Megaland fund actually lost money.
• 6:07
  SPEAKER_00: How is that even possible?
• 6:09
  SPEAKER_00: Because of the short runs, when the fund had a bad quarter, investors panicked and sold, and when the fund soared, they got fear of missing out and bought back in at the top.
• 6:21
  SPEAKER_00: They were so-called long-term investors, in theory, but short-term panic sellers in practice.
• 6:29
  SPEAKER_00: Patience is often stubbornness in disguise.
• 6:33
  SPEAKER_00: Real long-term thinking isn't just holding on, it's enduring the pain of looking like an idiot while you hold on.
• 6:42
  SPEAKER_00: Think about that for a second.
• 6:45
  SPEAKER_00: Finally, we have to talk about complexity.
• 6:49
  SPEAKER_00: We live in a world that rewards effort.
• 6:52
  SPEAKER_00: If you want to be a doctor, you study for years.
• 6:56
  SPEAKER_00: If you want to build a house, you work hard.
• 6:59
  SPEAKER_00: So we assume that if we want to be successful investors or problem solvers, we need to use complex strategies.
• 7:06
  SPEAKER_00: But Hausel argues, there are no points awarded for difficulty.
• 7:12
  SPEAKER_00: He shares a fascinating perspective from the war on cancer.
• 7:16
  SPEAKER_00: Robert Weinberg, a top cancer researcher at MIT, once admitted that while his lab work was prestigious, the most effective way to fight cancer wasn't complex science.
• 7:27
  SPEAKER_00: It was about getting people to stop smoking.
• 7:31
  SPEAKER_00: But as Weinberg says, people like me are essentially uninterested in it, because persuading people to quit smoking isn't intellectually stimulating.
• 7:42
  SPEAKER_00: We prefer the complex cure over the simple prevention because complexity feels like progress.
• 7:49
  SPEAKER_00: Hausel compares the US Constitution, which runs the most powerful nation on earth and is only 7,591 words long, while the average mortgage contract is over 15,000 words of legal gibberish.
• 8:05
  SPEAKER_00: We have confused long and confusing with important and effective.
• 8:11
  SPEAKER_00: I want to close with this story of Harry Markowitz.
• 8:14
  SPEAKER_00: Harry Markowitz won the Nobel Prize for inventing the modern portfolio theory.
• 8:20
  SPEAKER_00: He literally wrote the math on how to optimize a portfolio to get the perfect balance of risk and reward.
• 8:28
  SPEAKER_00: It involves complex calculations of covariance and standard deviation.
• 8:35
  SPEAKER_00: A lot of difficult jargon.
• 8:37
  SPEAKER_00: But when he was asked how he invested his own retirement money, he didn't use his own Nobel Prize-winning math.
• 8:46
  SPEAKER_00: He said, I visualized my grief if the stock market went way up and I wasn't in it, or if it went way down and I was completely in it.
• 8:55
  SPEAKER_00: So I split my contributions 50-50 between stocks and bonds.
• 9:00
  SPEAKER_00: So the man who invented the complex math chose the simplest possible style for his own life, because he knew that trying too hard to be perfect often leads to regret.
• 9:14
  SPEAKER_00: Before we close the book on Same As Ever, I want to take a step back.
• 9:19
  SPEAKER_00: We've spent five episodes, over 60 minutes, talking about whatever doesn't change, crashes, genius people, wars, and the strange wiring of the human brain.
• 9:31
  SPEAKER_00: But if you walk away with only one thing from this entire series, what should it be?
• 9:37
  SPEAKER_00: I think the ultimate lesson is found right at the beginning of the book, in a quote from none other than Jeff Bezos.
• 9:46
  SPEAKER_00: Bezos said that people are always asking him, what's going to change in the next 10 years?
• 9:52
  SPEAKER_00: They want to know about the next internet, the next AI, the next big disruption, but he said, I almost never get the question what's not going to change in the next 10 years.
• 10:05
  SPEAKER_00: Bezos argues that the second question is actually the more important one.
• 10:11
  SPEAKER_00: Because you can build a business strategy or an investment portfolio or even a life around the things that are stable.
• 10:19
  SPEAKER_00: You can count on the people wanting low prices in 10 years.
• 10:24
  SPEAKER_00: You can count on people wanting fast shipping.
• 10:27
  SPEAKER_00: Those are things that will never change.
• 10:30
  SPEAKER_00: That is the takeaway.
• 10:32
  SPEAKER_00: Stop trying to predict the events of the future, because you can't.
• 10:37
  SPEAKER_00: You can't predict the next pandemic, you can't predict the next 9-11, you can't predict when exactly the stock market will crash, but you can predict how people will react when those things happen.
• 10:50
  SPEAKER_00: You know that when the market crashes, people will panic.
• 10:53
  SPEAKER_00: You know that when a charismatic leader tells a good story, people will follow them, even if he's wrong.
• 11:00
  SPEAKER_00: You know that when things are calm, people will get complacent and take on too much debt, planting the seeds of the next crisis.
• 11:08
  SPEAKER_00: So stop trying to be a prophet and start being a student of human nature.
• 11:13
  SPEAKER_00: That is what this book is all about, and I highly recommend you get the book.
• 11:18
  SPEAKER_00: History is a story of things changing, but investing is the art of betting on few things that never do.
• 11:26
  SPEAKER_00: And if you appreciated this book series, please let me know by sending us an email, giving us a five-star review, or just DMing us on either X or Substack.
• 11:36
  SPEAKER_00: Thank you for listening, and like always, stay curious, keep learning, and happy investing.