In his book "Zero to One", billionaire Peter Thiel says the most important question to ask someone interviewing for a job is, "What important truth do very few people agree with you on?"
It's important because it shows your ability to think independently, unswayed by popular opinion.
I thought about how I'd answer Thiel's question. Here's what I came up with.
Most people think America's middle class is in decline, but I think the truth is almost no one would go back in time if given a chance.
Median incomes adjusted for inflation have shrunk over the last 15 years, and barely budged over the last 25. Male earnings adjusted for inflation peaked in the 1970s and have declined steadily ever since.
But if offered a time machine, I don't think any American would actually want to go back in time. Almost everyone is better off today.
Incomes have declined a little, but crime has fallen off a cliff.
Reported rape per 100,000 Americans dropped from 42.3 in 1991 to 27.5 in 2010, according to the FBI. Robbery dropped from 272 per 100,000 in 1991 to 119 in 2010. If the murder rate had not fallen as much as it has since 1990, 47,000 more Americans would have been killed in the last decade than actually were. There were nearly 4 million fewer property crimes in 2010 than there were in 1991, which is amazing when you consider the U.S. population grew by 60 million during that period.
Given a choice, I think virtually everyone would take these improvements over a thousand bucks in annual income.
Fewer than 10% of homes had air conditioning in 1960. Today, 89% do. As recently as 1950, one-third of American homes didn't have electricity. Auto deaths per capita have declined by half since 1950. Life expectancy at birth has increased a full decade over the last 60 years, from 68 to 79. High-school graduation rates are at 40-year highs. Twice as many adults smoked 60 years ago than do today.
The median household may have earned a higher income in the past, but I think they'd be appalled at the level of racism and sexism we used to put up with. They would be shocked at how much worse pollution used to be. They would be terrified at how primitive medicine was just a few decades ago.
These improvements don't show up in median incomes, but they're real. And they're huge. If sent back in time, most people would run back to their time machines and come back to 2014 as soon as possible.
Most people think the financial crisis was caused by greedy, immoral Wall Street bankers, but I think the truth is 90% of people would have acted the same way if given the chance.
Self-interest is the most powerful force in the world. If you're 26 years old and your boss says, "Sell these subprime bonds and we'll give you a $1 million bonus," you're going to sell them. I don't care if you were raised by Mother Teresa. You're going to sell them every time.
You would. I would. Almost all of us would.
I firmly believe most Wall Street bankers castigated during the financial crisis as "greedy, crooked, unethical jerks" were actually pretty good guys who just happened to work in a system that highly incentivized bad behavior.
Moral people can self-rationalize immoral behavior if offered the right incentives. Since they rationalize it, they don't think they're doing anything wrong. They go to work every day thinking they're doing the right thing.
As a rule of thumb, I think unless you have been offered the same incentives, it is too easy to criticize someone else's behavior. Most of us underestimate our ability to do bad things if given a big enough carrot.
Most investors think the decline in transaction costs has been a good thing, but I think the truth is it has been one of the most harmful trends of the last two decades.
It used to cost a fortune to trade stocks. But technology and deregulation has caused the price of brokerage transactions to plunge over the last three decades. "It was $100 a trade a few years ago," former E*Trade CEO Mitchel Caplan said in 2005, "Then all of us came to about $20. And now all of us are converging at $10 or so." Some brokerages will now pay you to trade in certain circumstances.
This might seem like a win for investors. But I know of no evidence showing that lower transaction costs have made investors better off.
The cheaper it is to trade, the more you are likely to trade. And the more you trade, the worse you'll do as an investor.
One-hundred dollar transaction costs make you think hard before making a move. "Do I really want to buy this stock?" "Should I get a second opinion?" "Do I really need to make this switch?" "Should I really sell right now?"
Those are fantastic questions to ask, because they reduce emotionally driven investment decisions.
But when transaction costs round to zero, it's easier to skip those questions and go right to the trigger. Go ahead, trade seven times before breakfast. You'll pay almost nothing in commissions. It's easier than ever.
But that's a bad thing. The amount of time you can invest for is your last remaining edge on Wall Street. Hyperactivity is the surest way to have a miserable experience investing.
As Warren Buffett once put it:
I could improve your financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches-representing all the investments that you got to make in a lifetime. And once you'd punched through the card, you couldn't make any more investments at all. Under those rules, you'd really think carefully about what you did, and you'd be forced to load up on what you'd really thought about. You'd do so much better.
High transaction costs are no different.
And I'm stickin' to it.
Check back every Tuesday and Friday for Morgan Housel's columns.
