Latest / The Dutch Investors / #80 | Lessons from history on things that never change | Same as Ever - Ep. 4

Transcript

#80 | Lessons from history on things that never change | Same as Ever - Ep. 4 · The Dutch Investors

0:06
SPEAKER_00: We aren't trying to predict what the stock market will do next Tuesday.
0:10
SPEAKER_00: We are trying to understand what humans have done every Tuesday for the last 500 years.
0:16
SPEAKER_00: We're looking for the behaviors that never change.
0:19
SPEAKER_00: Because those are the only things we can truly bank on.
0:22
SPEAKER_00: Today we are tackling five new themes.
0:25
SPEAKER_00: We're going to talk about why being perfect is actually not that good, why everything good hurts a little, why the biggest companies in the world are doomed to die, and why the grass is always, I mean, always greener on the other side.
0:41
SPEAKER_00: Let's get into it.
0:48
SPEAKER_00: There is a huge advantage to being a little imperfect.
0:52
SPEAKER_00: Casualties of perfection.
0:58
SPEAKER_00: In a world obsessed with efficiency, we all optimize our schedules, our portfolios, our diets, and it makes sense.
1:08
SPEAKER_00: But there is a warning from biology.
1:11
SPEAKER_00: There is this Russian biologist called Ivan Schmalhausen.
1:16
SPEAKER_00: He studied evolution and realized something profound.
1:20
SPEAKER_00: Species that become perfectly adapted to their environment are usually the first to go extinct.
1:27
SPEAKER_00: Because if you are perfectly adapted to today's weather, today's food source, and today's predators, you have zero wiggle room when the world inevitably changes tomorrow.
1:40
SPEAKER_00: You have no slack, you have no margin of error.
1:45
SPEAKER_00: The more perfect you try to be, the more vulnerable you generally are.
1:50
SPEAKER_00: Evolution doesn't want perfection.
1:53
SPEAKER_00: Evolution wants resilience.
1:55
SPEAKER_00: And resilience usually looks like redundancy, a little fat, and inefficient.
2:02
SPEAKER_00: To see this in the modern world, we don't need to look further than the supply chain crisis of 2020.
2:08
SPEAKER_00: For decades, business schools taught the just-in-time manufacturing philosophy.
2:14
SPEAKER_00: It was the golden standard of perfection.
2:17
SPEAKER_00: Companies like Toyota and Apple stripped every ounce of fat from their supply chains.
2:22
SPEAKER_00: They held zero inventory.
2:25
SPEAKER_00: Parts arrived at the factory minutes before they were needed.
2:29
SPEAKER_00: It was beautiful, it was efficient, it was perfect.
2:34
SPEAKER_00: But then COVID-19 hit, and the world changed just a tiny bit.
2:39
SPEAKER_00: And there was no fat, no backup inventory, no redundancy, no inefficiency, and the entire global economy collapsed.
2:54
SPEAKER_00: We couldn't buy cars because of 50 cent chips.
2:58
SPEAKER_00: We couldn't buy toilet paper.
3:00
SPEAKER_00: The inefficiency of holding extra inventory, which looked like a waste of money in 2019, would have been the ultimate survival advantage in 2020.
3:12
SPEAKER_00: Perfection is fragile.
3:14
SPEAKER_00: In investing, cash is that inefficiency.
3:17
SPEAKER_00: It drags on your returns in a bull market, but it's the only thing that keeps you alive in a bear market.
3:27
SPEAKER_00: This brings us to the cost of success.
3:30
SPEAKER_00: It's supposed to be hard.
3:32
SPEAKER_00: This chapter reminds us that everything in life worth pursuing comes with a little pain.
3:40
SPEAKER_00: And the trick isn't to avoid the pain, the trick is not minding that it hurts.
3:48
SPEAKER_00: Let me tell you this horrific story of the Donner Party.
3:51
SPEAKER_00: In 1846, the Donner family headed west to California.
3:57
SPEAKER_00: They were exhausted.
3:59
SPEAKER_00: They wanted an easier way, so they listened to a guy named Lansford Hastings, who promised them a shortcut that would save them days of their entire journey.
4:09
SPEAKER_00: And we now know how this ends.
4:12
SPEAKER_00: The shortcut was a lie.
4:14
SPEAKER_00: It led them into unmapped terrain, slowed them down, and trapped them in the Sierra Nevada mountains during one of the worst winters on record.
4:24
SPEAKER_00: They resorted to cannibalism to survive.
4:28
SPEAKER_00: Yes, this is a true story.
4:31
SPEAKER_00: Hausel uses this as a grim metaphor for the shortcuts we look for in wealth.
4:36
SPEAKER_00: We want to get rich quick.
4:38
SPEAKER_00: We want the hack.
4:40
SPEAKER_00: We want the shortcut.
4:41
SPEAKER_00: But the shortcut often leads to the Donner Pass.
4:46
SPEAKER_00: There is a less gruesome but equally powerful story about the Beatles.
4:51
SPEAKER_00: Before they were the fabulous four, they were just a scruffy group of teenagers from Liverpool.
4:57
SPEAKER_00: We look at their success and we think it was pure genius.
5:01
SPEAKER_00: A magical gift.
5:03
SPEAKER_00: But we forget Hamburg, Germany.
5:05
SPEAKER_00: In the early 60s, they played in strip clubs in Hamburg.
5:10
SPEAKER_00: They didn't play one-hour shows.
5:12
SPEAKER_00: They were forced to play for eight hours a night, seven days a week, for months on end.
5:18
SPEAKER_00: They slept in storage rooms behind movie screens next to bathrooms.
5:22
SPEAKER_00: It was grueling, miserable, unpaid grunt work.
5:26
SPEAKER_00: But the pain was the price of admission.
5:29
SPEAKER_00: By the time they arrived in America in 1964, they had performed life more than almost any band in history.
5:38
SPEAKER_00: They didn't find a shortcut to fame.
5:41
SPEAKER_00: They paid the bill in sweat.
5:43
SPEAKER_00: The safest way to try to get what you want is to try to deserve what you want.
5:52
SPEAKER_00: Now let's talk about staying power.
5:58
SPEAKER_00: Keep running is based on the Red Queen hypothesis from Alice in Wonderland.
6:04
SPEAKER_00: In the story, the Queen tells Alice, now, here, you see, it takes all the running you can do to keep in the same place.
6:14
SPEAKER_00: In business and investing, most competitive advantages eventually die.
6:20
SPEAKER_00: Look at Sears.
6:21
SPEAKER_00: If you are under 40, you think of Sears as a debt mall store.
6:26
SPEAKER_00: But in the 1970s, Sears was Amazon.
6:30
SPEAKER_00: It was the largest retailer in the world.
6:33
SPEAKER_00: It had its own credit card, its own insurance company, Allstate, and its own brokerage, Dean Whitter.
6:40
SPEAKER_00: It was the Sears Tower, the tallest building in the world.
6:44
SPEAKER_00: They were once untouchable.
6:47
SPEAKER_00: And then they stopped running.
6:50
SPEAKER_00: They got too comfortable.
6:52
SPEAKER_00: And slowly, then all at once, they vanished.
6:57
SPEAKER_00: Or look at Blockbuster Video.
6:59
SPEAKER_00: In 2000, Reed Hastings, the founder of a tiny company called Netflix, flew to Dallas to meet with Blockbuster's CEO John Antioko.
7:09
SPEAKER_00: Netflix was losing money.
7:11
SPEAKER_00: Hastings proposed selling Netflix to Blockbuster for$50 million.
7:17
SPEAKER_00: He suggested that Netflix could run Blockbuster's online brand.
7:22
SPEAKER_00: The Blockbuster team reportedly laughed them out of the room.
7:26
SPEAKER_00: They had 9,000 stores.
7:28
SPEAKER_00: They were the kings of Friday night.
7:31
SPEAKER_00: They thought their advantage was permanent.
7:34
SPEAKER_00: They didn't realize that their advantage was actually a liability.
7:38
SPEAKER_00: They were addicted to late fees, which customers hated.
7:42
SPEAKER_00: They stopped running too.
7:45
SPEAKER_00: Today, there is exactly one blockbuster left in the world in Bent, Oregon.
7:52
SPEAKER_00: The lesson, as Hausel writes, success tends to lead to growth, and success tends to lead to hubris.
8:00
SPEAKER_00: You have to keep running to stay alive.
8:08
SPEAKER_00: Alright, the next theme is about the wonders of the future.
8:12
SPEAKER_00: Why do we miss these changes?
8:15
SPEAKER_00: As Hausl points out, in the wonders of the future, it always feels like we're falling behind, and it's easy to discount the potential of new technology.
8:25
SPEAKER_00: We have the habit of looking at a new invention and saying, that's a nice toy, but it's not serious.
8:32
SPEAKER_00: Think about crypto, bitcoin, online banks, robotics back in the 2000s, artificial intelligence, the example of online videos like Netflix, and the list goes on and on.
8:47
SPEAKER_00: There is this brilliant interview from 1908 with Thomas Edison.
8:52
SPEAKER_00: The Washington Post asked him, Is the age of invention passing?
8:57
SPEAKER_00: Can you imagine?
8:58
SPEAKER_00: Asking that in 1908, right before cars, planes, antibiotics, and radio exploded?
9:07
SPEAKER_00: Edison laughed and he said, Passing?
9:10
SPEAKER_00: Why?
9:11
SPEAKER_00: It hasn't even started yet.
9:14
SPEAKER_00: Because Edison understood that innovation compounds one small discovery leads to ten others.
9:22
SPEAKER_00: I love the story of Clifford Stoll and Newsweek in 1995.
9:27
SPEAKER_00: Stoll wrote a famous article called The Internet?
9:31
SPEAKER_00: Bah! Listen to what he wrote, and I quote, Visionaries see a future of telecommuting, workers, interactive libraries, and multimedia classrooms.
9:42
SPEAKER_00: They speak of electronic town meetings and virtual communities.
9:47
SPEAKER_00: Commerce and business will shift from offices and malls to networks and modems.
9:52
SPEAKER_00: He wrote this sarcastically.
9:54
SPEAKER_00: He thought it was hilarious, and he concluded by saying, The truth is, no online database will replace your daily newspaper.
10:04
SPEAKER_00: Stall wasn't stupid, he was actually a very smart guy.
10:08
SPEAKER_00: But he suffered from a lack of imagination.
10:11
SPEAKER_00: He judged the future of technology by the limitations of the present day he lived in.
10:17
SPEAKER_00: He could not see that the toy would eventually eat the entire world.
10:22
SPEAKER_00: It's very difficult to envision what one small invention has the potential to become one day.
10:29
SPEAKER_00: There's a typical path of how people respond to what eventually becomes a world-changing new technology.
10:35
SPEAKER_00: I've never heard of it.
10:36
SPEAKER_00: I've heard of it, but I don't understand it.
10:39
SPEAKER_00: I understand it, but I don't see how it's useful.
10:42
SPEAKER_00: I see how it could be fun for rich people, but not for me.
10:46
SPEAKER_00: I use it, but it's just a toy.
10:48
SPEAKER_00: Ooh, it's becoming more useful for me.
10:51
SPEAKER_00: Oh, I use it all the time.
10:53
SPEAKER_00: I cannot imagine life without it.
10:55
SPEAKER_00: Seriously, people lived without this?
10:58
SPEAKER_00: It's too powerful and needs to be regulated.
11:01
SPEAKER_00: Well, the first example that comes to mind is, for example, Google.
11:06
SPEAKER_00: It happens over and over again because it's so difficult to envision what any invention has the potential to become one day.
11:15
SPEAKER_00: No one predicted nuclear power plants.
11:18
SPEAKER_00: When the airplane came into practical use in the early 1900s, one of the first tasks was trying to foresee what benefits would come from it, and the few obvious ones were mail delivery and skyracing.
11:30
SPEAKER_00: No one predicted nuclear power plants, but they wouldn't have been possible without the plane.
11:36
SPEAKER_00: Without the plane, we wouldn't have the aerial bomb.
11:39
SPEAKER_00: Without the aerial bomb, we wouldn't have the nuclear bomb.
11:43
SPEAKER_00: And without the nuclear bomb, we wouldn't have discovered the peaceful use of nuclear power.
11:48
SPEAKER_00: Same thing today.
11:50
SPEAKER_00: Google Maps, TurboTax, Instagram wouldn't be possible without ARPANET, a 1960s Department of Defense project linking computers to manage Cold War secrets, which became the foundation for, you guessed it, the internet.
12:07
SPEAKER_00: That's how you go from the threat of nuclear war to filing your taxes from your couch.
12:14
SPEAKER_00: A link that was unthinkable 50 years ago.
12:17
SPEAKER_00: But there it is.
12:19
SPEAKER_00: Author Savi Bacall notes that Polaroid film was discovered when sick dogs that were fed quinine to treat parasites showed an unusual type of crystal in their urine.
12:32
SPEAKER_00: Those crystals turned out to be the best polarizers ever discovered.
12:38
SPEAKER_00: I mean, who predicts that?
12:41
SPEAKER_00: Who sees that coming?
12:43
SPEAKER_00: Absolutely nobody, right?
12:45
SPEAKER_00: The path from A to Z can be so complex and end up at such a strange point that it's nearly impossible to look at today's tools and extrapolate what they might become.
12:57
SPEAKER_00: I think this is just such an important lesson to remember at all the little things that compound into big ideas eventually.
13:06
SPEAKER_00: That brings me to the theme 5, Harder Than It Looks.
13:10
SPEAKER_00: We end with perhaps the most personal lesson of the book.
13:14
SPEAKER_00: The grass is always greener on the side that's fertilized with bullshit.
13:19
SPEAKER_00: We look at other people, successful investors, influencers, millionaires, billionaires, and we envy them.
13:28
SPEAKER_00: We see the highlight reel.
13:30
SPEAKER_00: But we don't see the reality.
13:33
SPEAKER_00: James Baldwin once said, and I quote, you think your pain and your heartbreak are unprecedented in the history of the world, but then you start reading.
13:43
SPEAKER_00: Everyone is fighting a battle, you know?
13:46
SPEAKER_00: Everyone is fighting a battle you know nothing about.
13:49
SPEAKER_00: Household mentions that even Warren Buffett, the god of investing, has had a complicated and often difficult personal life.
13:58
SPEAKER_00: The resume doesn't tell the whole story.
14:01
SPEAKER_00: There is this phenomenon called the lottery chorus.
14:05
SPEAKER_00: We all dream of winning the Powerball.
14:08
SPEAKER_00: We all think if I just had$100 million, all my problems would vanish.
14:14
SPEAKER_00: And sure, life would be a lot easier.
14:17
SPEAKER_00: But if you look at the data, lottery winners often end up more miserable than they started.
14:23
SPEAKER_00: There are the tragic stories like Jack Whitaker, who won$315 million, and within a few years, he was robbed repeatedly.
14:34
SPEAKER_00: His granddaughter died of a drug overdose funded by his money, and he wished he had torn the ticket up.
14:40
SPEAKER_00: We envy the results, the money, but we don't understand the overhead that comes with it.
14:47
SPEAKER_00: The loss of privacy, the fake friends, the family in finding.
14:52
SPEAKER_00: You never know if the love you experience is real or if it's about the money.
14:57
SPEAKER_00: As Hausl puts it, everything comes with overhead.
15:01
SPEAKER_00: That's the reality.
15:04
SPEAKER_00: Right, so we close episode 4 of Same As Ever.
15:08
SPEAKER_00: Let's reflect real quick on what we have learned.
15:11
SPEAKER_00: We've learned that perfection is fragile.
15:14
SPEAKER_00: We've learned that shortcuts like the dollar party usually lead to disaster.
15:18
SPEAKER_00: We've learned that if you stop running, you become serious.
15:22
SPEAKER_00: We've learned that you should never bet against the compounding wonder of the future.
15:26
SPEAKER_00: And we've learned to be careful who we envy, because we don't know the price they paid.
15:33
SPEAKER_00: This book is just so awesome.
15:36
SPEAKER_00: I hope all these episodes will help you grow.
15:39
SPEAKER_00: Keep looking for the things that never change, and we'll see you in the next one.
15:43
SPEAKER_00: As always, stay curious, keep learning, and happy investing.