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So, I think that's important not just in today's world, but I think has always been true historically, is that the world evolves much faster than people's beliefs do and their skills do.
So you have the situation that is so common in business and investing, in politics, whatever it might be, where you have a lot of experts and they are experts, but they're experts from a world that no longer exists.
They're experts from the old world and that's a big danger.
The biggest risk to any evolving system is that you become bogged down by experts from world that no longer exist.
And the more evolution, the more change you have in any system, the more you should expect that previous expertise has a shelf life that what used to be legitimate expertise expires and you need to update that beliefs but that's very hard and difficult to do, right?
Because lay people need experts to put their trust in and the experts themselves want to on to their beliefs because they put so much effort into forming those beliefs, right?
Of course, some expertise is timeless.
Things that were true today were true 100 years ago, will be true 100 years from now, of course, and behaviors often repeat themselves over and over again.
Those are often the most important things to pay attention to.
But most things evolve, they change, they adapt, and they evolve faster than people's beliefs.
It is a tricky thing that leads leads to a long history of older generations whose success came from understanding the new rules of their own era and then not recognizing that the rules may have changed in this era.
Investor Dean Williams once summarized this very cleanly.
He said, �Expertise is great, but it has a bad side effect.
It tends to create the inability to accept new ideas.
�If you appreciate how much the world changes and evolves and adapts, you can appreciate how important that advice can be.
Henry Ford was a tinkerer.
He revolutionized the factory floor by letting his workers experiment.
They could try anything that they could think of to make production more efficient.
But Ford just had one rule for his employees.
It was this crazy quirk that seemed like a wild idea, but it was very vital to his company's success and that was no one could keep a record of the factory experiments that were tried and failed.
If you tried to do something new and it didn't work you could not document that.
Ford once talked about this in his biography about why he did this.
He wrote, quote, 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 It 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 that because one man has failed in a certain method that another man will not succeed.
Ford went on to write, quote, Hardly a week passes without some improvement being made.
Somewhere in machine or process.
And sometimes this is made in defiance of what is called the best shop practices.
He then goes on to explain what some of these changes were.
He says, quote, they told us we could not cast gray iron by our endless chain method.
And I believe there is a record of failures.
But we are now doing it.
The man who carried through our work either did not know or paid no attention to the previous figures.
A record of failures, particularly if it was a dignified and well -authenticated record, deters a young man from trying.
I cannot discover that anyone knows enough about anything on this earth definitively to say what is or is not possible." A great set of quotes right there, I love those.
And the important thing here is that when something that previously didn't work suddenly does work, it doesn't necessarily mean that the people who first tried it were wrong.
It usually means that other parts of the system have evolved in a way that allows what was once impossible to now become practical.
Mark Andreessen, the tech investor, once explained how this idea works out in tech.
He said quote all of the ideas that people had in the 1990s were basically all correct.
They were just early.
So they didn't work in 1998 and people are like ah you idiot you did it wrong, but now a lot of those companies work today.
So the poster child of 1990s stupidity in the dot -com boom was pets .com right?
That's what everyone like derides today is this idiotic idea.
And today you have Chewie which was like a multi -billion dollar business.
It didn't work then, it does work now.
So imagine if the lessons of the .com crash were heated and people actually followed those lessons.
Imagine if everyone who learned what business model didn't work refused to ever try again, based off of the experience of experts who had been there and done that.
If people actually did that, we would be so far behind where we are today.
Then forget about tech, that's true in medicine, In it's true for every field if people actually learned and heeded all the lessons from the past and never tried the failed experiments.
Again, we would be so far behind where we are today.
We've only progressed beyond the crash and previous failures because the old generation armed with accurate wisdom from their era, pass the baton to a new generation who is willing to try the same mistakes.
If you want to call them that in this new world that has adapted and evolved.
Back to Mark Andresen, he once said quote, one thing that's happening now, and by that he means like the last 10 years, is enough time has passed that enough kids are coming to the Valley who don't have the memory of the crash.
He's talking about the crash of 1990s, the early 2000s.
They were in like 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 Silicon Valley who say, let's just go build things.
Let's not be held back by superstition.
And look, I think the same thing happens in investing in stocks in public markets.
So really good advice that we'd learned from the 1970s was like, don't buy stocks when the price to earnings ratio is over 20.
That was a good lesson that we learned from the 1970s.
But what was also true in the 1970s is that interest rates were close to 10 % and the Fed had not yet learned what it was capable of doing in terms of policy, and businesses were very cyclical.
There were manufacturing companies.
There were not digital tech companies today.
So then you have to ask, is that advice from the 1970s?
Don't buy stocks when the pre -E ratio is over 20.
Does that advice still relevant today?
I think at a broad philosophical level, sure.
Yes. The idea of when valuations are higher, your returns are going to be lower in the future, that's still good advice.
But in practical terms, the specific rules and formulas that we learned that worked in the 1970s, do they still apply to today's market?
Probably not, almost certainly not.
And in the same sense, buying stocks at all seemed like nothing but speculation in the 1920s.
Like, if you were investing, everyone's knew it was speculation, because corporate disclosures were so opaque you didn't actually know what these companies were doing or how they earned their money.
It was all a bet. It was all a gamble.
But by the 1970s, that had changed.
Then you had new regulations about corporate disclosures and audits.
You could have some confidence in what these companies were doing and then you could begin to make rational, calculated, long -term decisions that put the odds of success in your favor.
So in all these examples, what was foolish to one generation became smart in the next.
But the older generations Everyone's views tend to lag.
And every generation goes through this.
Every generation fights this.
It's the same thing in the broader economy.
Take this very simple change in how the government views stimulus.
In 1930, during the Great Depression, the Treasury Secretary's name was Andrew Mellon, famous guy from the Mellon family, Mellon Bank.
During the Great Depression, he had this famous quote, where he said, quote, liquidate labor, Or liquidate stocks, liquidate real estate, purge the rottenness out of the system.
So in the early days of the great depression, the government's view was not, hey cut interest rates and do a big stimulus policy, send people checks, their view was let the whole thing collapse, purge the rottenness out of the system.
Now fast forward to 2020, in the early days of Covid.
Here is what Treasury Secretary Steve Mnuchin said during this time.
he said, quote, we have a lot of money.
We need to get that money in American hands.
And of course, that's exactly what they did.
Like $6 trillion in stimulus packages to just send people checks.
Turns out a lot of that was fraudulent.
Like it didn't matter.
Just, if you want money, let us know, we'll send you a check right now.
Compare that mentality to the 1930s, could not be starker, could not be more black and white.
It's an enormous shift.
It's this evolution in how policymakers handle recessions.
So not a day goes by that I don't become more confident that the secret to business and investing is identifying the very few things that never change.
And hold onto those for dear life.
And also identifying what evolves and has changed and has adapted.
And be willing to adapt those views very quickly.
It's just so difficult to do the latter.
It's so difficult to adapt views that you once held so dear.
Gaining experience takes time, it takes effort, and it often comes with the price of making very painful mistakes.
That's what you need to do to learn.
And because it was so painful and took so much effort, you don't want let go of those lessons.
You want them to mean something.
You want them to help you from making the same painful mistakes again.
Again, you want to use your experience to help others from making the same mistakes you made.
So it will always be the case that those with the most experience, and the good, the smart, the accurate wisdom that comes from that experience, will be the least willing to adapt their views as the world evolves.
And if you are from an older generation, hearing me say that might sound arrogant of saying like, my parents, my grandparents, they're just anchored to the old world.
And if you're from a younger generation, hearing me say that might sound empowering, that you the young person does know how the world works in a way that the older people don't.
But neither of those should really be the case.
Because every generation cycles through the same process.
Today's older generation once understood the world better than their parents, who scoffed at their new beliefs.
and today's younger generation will one day be stuck in the antiquated norms of their past and their kids will scoff at them.
One takeaway from this is that no age has a monopoly on insight and different levels of experience offer very different kinds of lessons.
One way to think about that is that old guys don't understand technology, but young guys don't understand risk.
Another way The reason to put that in kinder terms is everybody has something to teach you.
Everybody has something to teach you.
Henry Ford seemed to understand this, and that is part of why he was so successful in business.
The new is always thought odd, he wrote.
And some of us are so constituted that we can never get overthinking that anything which is new must be wrong.
the moment one gets into the expert state of mind, a great number of things become impossible.
That's it for this week.
Thanks again for listening, and we'll see you next time.
