Latest / The Dutch Investors / #77 | Lessons from history on things that never change | Same as Ever - Ep. 3

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#77 | Lessons from history on things that never change | Same as Ever - Ep. 3 · The Dutch Investors

0:00
SPEAKER_00: Welcome back to the Dutch Investors Podcast.
0:03
SPEAKER_00: It's great to have you here for episode three of Same As Ever.
0:07
SPEAKER_00: If you've been with us for the first two episodes, you know we are dissecting Morgan Housel's book Same As Ever.
0:13
SPEAKER_00: We've talked about how history hangs by a thread and how our expectations can trap us.
0:19
SPEAKER_00: But today we are going even deeper.
0:21
SPEAKER_00: I want to slow down and really look at the mechanics of how things grow, how they break, and how they survive.
0:29
SPEAKER_00: Today we are discussing five big new themes: the danger of growing too fast, the creative power of stress, the speed of tragedy versus the slowness of miracles, the power of tiny things, and the paradox of being an optimist and a pessimist at the same time.
0:48
SPEAKER_00: Let's dive in.
1:10
SPEAKER_00: A good idea on steroids quickly becomes a terrible idea.
1:16
SPEAKER_00: Hausell opens this chapter with the tragic story of Robert Wetlow.
1:21
SPEAKER_00: You might know him as the giant of Illinois.
1:24
SPEAKER_00: Due to a very rare abnormality, he never stopped growing.
1:28
SPEAKER_00: By age 11, he was seven feet tall.
1:32
SPEAKER_00: When he died at age 22, he was nearly nine feet tall.
1:37
SPEAKER_00: On paper, he sounds like a superhero, but the reality was grim.
1:42
SPEAKER_00: He needed steel braces to stand, he had little feeling in his legs, and Hausell writes, You can triple the size of a human and expect triple the performance.
1:52
SPEAKER_00: But the mechanics don't work like that.
1:55
SPEAKER_00: Wedlow died from a blister on his ankle that got infected because the circulation couldn't keep up with his size.
2:02
SPEAKER_00: The lesson here is about scaling.
2:05
SPEAKER_00: Biologist JBS Holdain wrote that for every type of animal there is a most convenient size.
2:13
SPEAKER_00: A flea can jump two feet high, but if you made a flea the size of a human, it wouldn't jump over a skyscraper.
2:20
SPEAKER_00: It would collapse under its own weight.
2:23
SPEAKER_00: This applies directly to business.
2:25
SPEAKER_00: In 1994, Starbucks had 425 stores.
2:30
SPEAKER_00: By 2007, they were opening a new store every four hours.
2:36
SPEAKER_00: It was far too much.
2:38
SPEAKER_00: The Starbucks experience watered down.
2:41
SPEAKER_00: They ended up closing 600 stores, and their stock price fell 73%.
2:47
SPEAKER_00: As Howard Schultz said, growth is a tactic, and when undisciplined growth became a strategy, we lost our way.
2:56
SPEAKER_00: There is a perfect example of this from the natural history that isn't in the book.
3:01
SPEAKER_00: The Irish Elk.
3:03
SPEAKER_00: Thousands of years ago, the Irish elk evolved massive handlers to attract mates.
3:10
SPEAKER_00: The bigger the antlers, the more success they had.
3:13
SPEAKER_00: And it was a good idea.
3:15
SPEAKER_00: But evolution acted like a runaway feedback loop.
3:18
SPEAKER_00: A good idea on steroids.
3:20
SPEAKER_00: Eventually, the antlers spent 12 feet and weighed 90 pounds.
3:25
SPEAKER_00: They became so heavy that the elk couldn't lift their heads to eat properly or navigate through the forest.
3:33
SPEAKER_00: The very trait that made them successful eventually contributed to their extinction.
3:39
SPEAKER_00: They grew beyond their convenient size, and the same goes for businesses.
3:48
SPEAKER_00: Next we move to a darker theme.
3:51
SPEAKER_00: Stress focuses your attention in ways that good times can't.
3:56
SPEAKER_00: We like to think innovation comes from well-funded labs and happy scientists, spending lots of money on RD, but history suggests it often comes from panic.
4:08
SPEAKER_00: Hauser tells the harrowing story of the Triangle Shirtwaist factory fire in 1911.
4:13
SPEAKER_00: A fire broke out in a New York garment factory.
4:17
SPEAKER_00: The doors were locked to prevent workers from taking breaks.
4:21
SPEAKER_00: Firefighters' ladders were too short.
4:24
SPEAKER_00: 146 people died, many jumping from the windows as crowds watched in horror.
4:32
SPEAKER_00: This was an absolute nightmare.
4:34
SPEAKER_00: But from that nightmare came Frances Perkins, who witnessed the fire.
4:40
SPEAKER_00: Schelayer became the Secretary of Labor and said that the New Deal began in spirit on March 25, 1911.
4:48
SPEAKER_00: That horrific tragedy forced the creation of workers' rights, fire safety codes, and labor laws that we take for granted today.
4:59
SPEAKER_00: The biggest changes and the most important innovations don't happen when everyone is happy and things are going well.
5:07
SPEAKER_00: Look at the 1930s.
5:09
SPEAKER_00: We remember it for the Great Depression, but it was actually the most productive and technologically progressive decade in US history.
5:17
SPEAKER_00: Because factories were desperate, they had to find efficiencies to survive.
5:23
SPEAKER_00: A great example of stress-induced magic outside of the book is the Black Death in the 14th century.
5:30
SPEAKER_00: It killed a third of Europe.
5:34
SPEAKER_00: An absolute apocalypse.
5:36
SPEAKER_00: But that massive loss of life created a severe labor shortage.
5:42
SPEAKER_00: Suddenly, peasants had leverage.
5:45
SPEAKER_00: They could demand higher wages.
5:47
SPEAKER_00: This broke the back of the feudal system, where peasants were essentially property and laid the economic groundwork for the Renaissance.
5:57
SPEAKER_00: The greatest cultural explosion in history was in part a reaction to the greatest plague in history.
6:05
SPEAKER_00: Fascinating, right?
6:09
SPEAKER_00: This leads perfectly into our third theme.
6:12
SPEAKER_00: Good news comes from compounding, which always takes time, but bad news comes from a loss in confidence or a catastrophic error that can occur in the blink of an eye.
6:24
SPEAKER_00: Hausell uses the story of President Eisenhower.
6:27
SPEAKER_00: In 1955, he had a massive heart attack.
6:31
SPEAKER_00: It was very sudden, it was terrifying.
6:34
SPEAKER_00: That is how bad news works.
6:37
SPEAKER_00: It's an event.
6:38
SPEAKER_00: It's Pearl Harbor, it's 9-11, it's a crash.
6:42
SPEAKER_00: But look at what happened to heart diseases since then.
6:46
SPEAKER_00: The death rate has dropped 70% since the 1950s.
6:51
SPEAKER_00: That saves half a million American lives every year.
6:56
SPEAKER_00: But there was no headline that said heart disease mortality drops 1.5% this year.
7:03
SPEAKER_00: It happened too slowly to notice.
7:06
SPEAKER_00: Growth always fights against competition that slows its rise.
7:11
SPEAKER_00: But everyone gets out of the way of decline.
7:14
SPEAKER_00: Creating a human takes nine months of complex biological compounding.
7:18
SPEAKER_00: Destroying one takes a second.
7:22
SPEAKER_00: I think about Moore's Law in computing.
7:25
SPEAKER_00: If you look at a computer from the 1990s and one from today, the difference is nothing short of a miracle.
7:33
SPEAKER_00: But you didn't notice it happening day by day.
7:36
SPEAKER_00: It was a slow, boring grind of compounding transistors.
7:42
SPEAKER_00: Contrast that with the collapse of the, I don't know, Silicon Valley Bank in 2023.
7:48
SPEAKER_00: It took 40 years to build that bank into an institution, it took about 36 hours for a Twitter-fueled panic to burn it into the ground.
7:59
SPEAKER_00: Miracles take years, tragedies take hours.
8:03
SPEAKER_00: Remember that for next time.
8:06
SPEAKER_00: Theme 4 is about the power of small things, but little things compound into extraordinary things.
8:14
SPEAKER_00: We often assume that big results need big causes.
8:19
SPEAKER_00: But look at evolution.
8:21
SPEAKER_00: The real magic of evolution is that it's been selecting traits for 3.8 billion years.
8:28
SPEAKER_00: The changes are tiny.
8:31
SPEAKER_00: But if you give them 3.8 billion years, you go from single-celled organisms to Shakespeare, to the atomic bomb, to humans working on computers, to robots.
8:44
SPEAKER_00: Hausell also mentions a Yale study on obesity.
8:47
SPEAKER_00: We think obesity comes from eating too much, and that can be the case.
8:52
SPEAKER_00: But the studies show that it's not necessarily large meals, it's eating more small snacks throughout the day.
8:59
SPEAKER_00: And then there's the example of nuclear weapons.
9:03
SPEAKER_00: We built huge bombs, like the Tsar Bomba, which was 1500 times stronger than the bombs dropped on Hiroshima.
9:12
SPEAKER_00: But the real danger weren't the big bombs, it were the small ones.
9:17
SPEAKER_00: Tactical nukes.
9:18
SPEAKER_00: Because they were small, leaders were more tempted to use them, which would trigger the big ones.
9:25
SPEAKER_00: Small risks weren't the alternative to big risks, they were the trigger.
9:30
SPEAKER_00: Let's look at the assassination of Archduke Franz Ferdinand.
9:35
SPEAKER_00: This is the ultimate tiny thing.
9:38
SPEAKER_00: A driver made a wrong turn in Sarajevo in 1914.
9:43
SPEAKER_00: Because he got lost, he happened to stop the car right in front of an assassin named Galvrido Princip, who was actually walking away having failed his mission earlier that day, and that one wrong turn led to World War I, which led to the collapse of empires, which led to the rise of Hitler and World War II, which led to the Cold War and the nuclear bomb.
10:10
SPEAKER_00: The entire 20th century was shaped because a driver didn't check his map.
10:16
SPEAKER_00: I mean, that's crazy, right?
10:21
SPEAKER_00: Finally, we arrive at one of my favorite concepts from the book.
10:26
SPEAKER_00: Progress requires optimism and pessimism to coexist.
10:31
SPEAKER_00: We tend to think you are either an optimist or a pessimist.
10:36
SPEAKER_00: But Hausel says you must be both.
10:39
SPEAKER_00: You need to be a rational optimist.
10:42
SPEAKER_00: He tells the story of Admiral Jim Stockdale, a POW in Vietnam.
10:47
SPEAKER_00: Stockdale said that the men who struggled the most in prison were the pure optimists, the ones who said, We will be out soon, maybe by Christmas.
10:58
SPEAKER_00: But when Christmas came and went, they died of a broken heart.
11:03
SPEAKER_00: Stockdale survived because he balanced two things.
11:06
SPEAKER_00: One, he never lost faith that he would prevail in the end, the optimism part, but he faced the brutal facts of his current reality, the pessimistic side.
11:17
SPEAKER_00: Or take a look at Bill Gates.
11:19
SPEAKER_00: Gates was an optimist.
11:21
SPEAKER_00: He believed the computer would be on every desk.
11:24
SPEAKER_00: But he ran Microsoft like a paranoid pessimist.
11:28
SPEAKER_00: He insisted on having enough cash in the bank to keep the company alive for 12 months with zero revenue.
11:36
SPEAKER_00: Save like a pessimist, invest like an optimist.
11:41
SPEAKER_00: There is a famous race to the South Pole in 1911 between Roland Abundson and Robert Falcon Scott.
11:48
SPEAKER_00: We actually have a full episode on this one.
11:50
SPEAKER_00: But the short story is that Scott was a pure optimist.
11:54
SPEAKER_00: He planned for the best case scenario.
11:57
SPEAKER_00: He brought motorized sledges, which broke, and ponies, which froze.
12:03
SPEAKER_00: He didn't bring enough food.
12:04
SPEAKER_00: He and his team died on the ice.
12:07
SPEAKER_00: Amundsen was a paranoid pessimist.
12:10
SPEAKER_00: He planned for the absolute worst.
12:13
SPEAKER_00: He brought dogs.
12:14
SPEAKER_00: He brought way more food than he calculated for than what he would need.
12:19
SPEAKER_00: He marked his supply depots with massive flags so he couldn't miss them in a blizzard.
12:24
SPEAKER_00: Because he was a pessimist in his preparation, he had the luxury of being an optimist in his execution.
12:31
SPEAKER_00: He won the race and returned safely.
12:35
SPEAKER_00: So, as we wrap up episode 3, think about where you fall on these spectrums.
12:41
SPEAKER_00: Are you trying to grow fast like the Irish elk?
12:44
SPEAKER_00: Are you letting stress defeat you?
12:47
SPEAKER_00: Or are you using it to focus like the scientists of the 1930s?
12:51
SPEAKER_00: Are you preparing for the overnight tragedy so you can stick around for the long-term miracle?
12:57
SPEAKER_00: As Hausl says, the best financial plan is to save like a pessimist and invest like an optimist.
13:05
SPEAKER_00: Like always, stay curious, keep learning, and happy investing.