Author Morgan Housel Has a Guide to What Never Changes

Morgan Housel is a longtime Motley Fool contributor and the best-selling author of The Psychology of Money. Motley Fool host Dylan Lewis caught up with Morgan to talk about his latest book, Same as Ever: A Guide to What Never Changes. They discuss:

• The not-so-helpful side effect of having fewer economic downturns.
• Why true optimists believe that the future is messy.
• Cautionary tales from companies that "got too wide."
• And what Warren Buffett understands about storytelling.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Nov. 5, 2023.

Morgan Housel: The stories of individuals got you closer to the truth in finance. That what really mattered in finance was not the numbers and not the data, it was just how can you understand what's going through people's heads, and the only way to really understand that was with stories. Because the behavioral aspect of investing, you can't reduce to a statistic. You can't just say, "Here's the formula, go do it." You have to understand the behavior. You can't teach behavior even to like very smart people because it's not a formula. I think the only way to understand it is through a story.

Mary Long: I'm Mary Long, and that's Morgan Housel, long time Fool contributor and the best-selling author of The Psychology of Money. Dylan Lewis caught up with Morgan to talk about his new book, Same as Ever: A Guide to What Never Changes, which is out on November 7. They also discuss the downside of having fewer economic downturns, reasonably optimistic takes on the year's biggest business stories, and how to find infinite opportunity.

Dylan Lewis: I want to immediately get into one of the last things in the book that you mentioned, if you don't mind me going to the last page. As you wrap you talk a little bit about how you had a concerted effort about a decade ago to start reading more history and start reading fewer forecasts. I'm curious, just given the nature of the book and how it is very historical, is that where the genesis for the book started?

Morgan Housel: I think a lot of it that's true. Really, that started when I was at the Motley Fool, and I started realizing and it really bothered me, how bad people were at forecasting. What's the stock market going to do next? When's the next recession? The whole industry's terrible at it. There's two things you can do with that observation. You can become a cynic and just say, nobody knows anything, why even try, or you can just focus on what's never going to change, the behaviors that never change. One of the big kind of like lightning bolts, moments that I had for this to get to your question about the historical aspect of it.

One of my favorite economics books is called The Great Depression: A Diary. It was written by this guy in the 1930s during the Great Depression, who just kept a very extensive diary about what he saw during the Great Depression. As I was reading it, it was like an entry from 1932, like the bottom of the Great Depression. I started thinking to myself, if you changed the dates on this from 1932 to 2008, it would fit exactly in. What he's describing is exactly what happened in 2008. Then like two pages later, he writes, he says, if you changed the dates from 1932 to 1893 it would fit exactly in. Then it was just like, it's the same story over and over again, and those things never change. How people respond to a financial crisis has been the same since the 1800s as it is today, and it'll be the same in the future. The details always change, but the more history you look back at, the more you see it. It's just like it's the same movie playing over and over again in investing and economics but like all things in life. We can't forecast the change, but history is filled with the same movie over and over again, so it's like, let's just focus on that.

Dylan Lewis: One of the things that, that reminds me of is you have this discussion of the different types of information in the book. You get into basically information that has a shelf life and information that does not have a shelf life. This idea that it's interesting to know some of these things, but you're not going to remember them five years from now. Where information with a much longer shelf life is worth holding onto, worth building on because it will serve you so much better in the long term.

Morgan Housel: If you look at something like Microsoft's earnings last quarter, it's not that it's not irrelevant, it could be very relevant and it could be like, important information to pay attention to. But then if you ask the question, are you going to care about that information a year from now, or five or ten years from now? For a lot of these things, the answer is very obviously no. I try to use that filter when I read the news. I read a lot of news. But if you always ask yourself, will I care about this a year from now? Sometimes when the answer is no. But it's like, oh, but it's entertaining, I want to read it for another reason. But having that filter is really helpful, and I think about that as a writer too. Will this article be relevant a year from now? Will I care about this article and want to read this article 10 years from now? If the answer is no, you might want to question the relevance at all. I've always thought if it's not relevant a year from now, it's rotten, it's not relevant at all. For my style of investing that tends to be how I think.

Now, there is a lot of news and information that will be relevant one year from now, about competitive advantages and management and whatnot, there are a lot of things. But when you start viewing it through that lens, you see how much of the news cycle is very short term. When I was at the Motley Fool for a period of time, I was a columnist for the Wall Street Journal. This is about 10 years ago. Virtually every column I wrote the editors would say, how is this relevant to this week's news cycle? I would always say it's not, and I think that's great. I think that's the point is that it's not relevant to anything that happened in the last 24 hours. But they always wanted it tied back to the news cycle. There's definitely that bias, I guess for lack of a better word, in the news media of everything has to be relevant to something that happened in the last seven days. Understanding the irony between that and the idea that most people want to be or at least think of themselves as long term investors is a big part of having a healthy news diet as an investor.

Dylan Lewis: You definitely had me questioning my own content diet a little bit there. As someone who's a voracious consumer of video and podcasts and articles and also is part of a content strategy at the Fool where we are trying to make things interesting and relevant to people. There's always that question when you're in a content meeting or you're talking through something, it's like what's the why now? That is the hook that you're looking for. But it's also what contributes to that industrial machine that you're talking about.

Morgan Housel: I think there's a quote from Nassim Taleb where he says, if you want to be read in the future, as in, if you want to write a book that people will read 10 years from now, make sure it's a book that people would have read ten years ago. If you're writing a book about how AI technology is going to change. That might be an amazing book that I would want to read too, but if it's not relevant to something that happened in the past, there's a good chance that people are not going to want to read it 10 years from now. This gets back to focusing on the things that never change. If you're writing about or studying or reading about behavior, and how people respond to financial crises, that book would be relevant 100 years ago, and because of that I think it'll be relevant 100 years from now. Both as a writer, but also as a consumer of this information, that's always what I'm trying to get after.

Dylan Lewis: You mentioned the financial crisis there. I think one of the great points you make in the book is you talk about how you can philosophically be a long term investor. You can think, OK, I'm going to be willing to endure a 30 percent drop in my portfolio. In the abstract, that's something that people are capable of holding their heads. The problem is that when they do that, they're not always putting it in the broader context of all of the other things that happen when a 30 percent drop in the market happens.

Morgan Housel: Right. It's easy to say when everything is going well, everybody thinks they have a high risk tolerance. If I were to say, "How would you feel, Dylan, if the market fell 30 percent?" When things are going well, most people would say, "Oh, that's an opportunity, that's great. I would use that as an opportunity to buy more", and that's great, that's the correct mindset. But what you're missing is that the reason the market falls 30 percent is because there's a terrorist attack on 9/11. Lehman Brothers is threatening the entire financial system and we don't know if the ATM machine is going to work on Monday. COVID shut down your kids school and you work from home. It's all these things that in that context, you realize that it's actually scarier than you thought. It's one thing to say, I have a long term mindset and volatility doesn't bother me, it's another thing to actually experience it in real time. Because of that, I think most people have a lower risk tolerance than they assumed. It's way easier to quote Warren Buffett than it is to have that kind of mentality. I think part of this is you really don't know your risk tolerance and your investing mindset until you've been through the trenches, until you've lived through some of these big declines. One of the problems, I guess, of the modern financial system is that we have fewer declines than we used to. It used to be for most of financial history, we had a recession every two or three years, and now we have one every decade. Every 8-10 years is how it's been over the last generation or so. So we have fewer opportunities to understand how we react to these events. You can see if somebody started investing in 2010, it really took until 2020 before you got tested. You had someone with a decade of experience, who, in terms of understanding volatility, was still a novice and really had no idea how they experienced. So that slow feedback time can really throw a lot of investors for a loop.

Dylan Lewis: I feel very seem with that example, someone in his early 30s, that's absolutely true. That's the experience.

Morgan Housel: Spread that out even more. Think of someone who's been investing for 25 years. You've had really three events that shook you, 9/11, Lehman Brothers, and COVID. It's not that many. Like three attempts to learn who you are in a quarter of a century. Compare that to if you're a basketball player and you play 130 games a year, whatever it is, you're constantly testing how you respond to loss, how you respond to victory, whereas investing is just a much slower feedback period. I would say, even if you are an investor, and one of the things I read about in the book is that we have good economic data since the end of World War II, since the 1940s. Since then, I think we've had 10 recessions, which is not that many. There's a lot that we don't know about the economy only because these things happen so infrequently.

Dylan Lewis: There's no substitute for living through that like you talked about. But do you think adjustments to a content diet, or being careful about what you're willing to consume can help insulate you from that a little bit or make you a little bit more willing to stick to that long term track when it actually hits?

Morgan Housel: I think understanding the connection between your content diet and your actions is what's important. I'm a long term dollar-cost average investor. I hope to own the stocks that I own consistently for the next 50 years if I can live that long and pull it off. But I read a lot of financial news and a lot of daily financial news. I read the Wall Street Journal every day, I check CNBC, I check the stock on my phone because I think it's interesting. I think markets are just like a window into how people behave and think. I think it's interesting to me, but the important thing is that I never read those articles or check my phone and then say, and therefore I need to go sell this stock, buy this stock. If your content diet is impacting your willingness to pull the lever and turn the knobs, that's when I would be cautious about it. It's really understanding why you're interested in the content. Are you looking for an article that's going to get you to completely change your portfolio today or do you just think it's interesting to read about this stuff? That's the distinction.

Dylan Lewis: In the book you talk about optimism and pessimism and the power and the value of both of those things. You actually dedicate the book to the Realistic Optimists. Is that where you land yourself?

Morgan Housel: Yeah. I don't know if I came up with this term, but I started thinking about this term, reasonable optimist, a couple of years ago, which in my definition it was, someone who knows the future will be better than it is today. People will solve problems and become more innovative and more efficient. But the path between now and then is going to be a constant chain of setback and disappointment, and crises, and recession, and bear market, and pandemic. But if you can endure all of those, then the rewards for those who can stick around are going to be great. That's what I think is reasonable optimism. I would contrast that with complacency, which is people who just think everything is going to be great in the future. If you think everything is going to be great in the future, that's not optimism, that's just complacency. So that's what I think reasonable optimism is. I think that's really a core of what I try to think about. I'm very optimistic about the next 50 years in the US and around the world, and as an investor, but with 100% certainty, I know that the path between now and then is just going to be a constant chain of land mines. Therefore, in order to benefit from optimism, you have to have this mindset that is constantly expecting there to be bad news all the time and terrible news occasionally.

Dylan Lewis: If you'll indulge me, can I get the reasonable optimist take on a couple of different topics?

Morgan Housel: Let's do it.

Dylan Lewis: First one is generative AI.

Morgan Housel: I think what's so interesting about AI is that the first time you used it, you knew it was magic. I think the only thing that I've experienced like that in my own life, I think a lot of people can relate to this was like the first time they used AOL Instant Messenger in the 1990s. All of a sudden you're like, "I understand what the Internet is." It's this thing, I can do this magical thing that I could not do before, I can talk to my friend in New Zealand in real time and that feels like magic to me. The first time most people used ChatGPT, their eyes bugged up and they're like, "Oh, I get it, this is amazing, this is going to be huge." Josh Brown made this contrast between that and crypto. Whereas in crypto, and I'm not necessarily a crypto bear, I don't really have a dog in that fight. But he contrasted that with crypto 13 years in, we're still trying to figure out what the purpose is and what the use case is going to be. If you contrast that with like what's the purpose of ChatGPT, it's obvious within two seconds of using it, you know what the purpose is. I think that technology is pretty rare when it's so obvious how great it is.

This is version 1. So to imagine, if version 1 feels like magic, what is version 150 going to feel like? That's what I think is so great about it. That's the complacent take. The reasonable optimist is you can have amazing life changing technology and still have a very hard go making money at it. If you were bullish on the Internet in the 1990s, that was the correct take. The Internet did change the world. It's also true that the vast majority of Dot-com investments went to zero and the vast majority of Dot-com investors lost everything in the late 1990s. The same was true for the railroads in the 1800s. Completely and utterly transformed the world and almost all railroad investors lost everything. Most railroads went bankrupt. I always make the point, in the early 1900s, there were 2000 car companies, and only three of them survived GM, Chrysler, and Ford, two of which went bankrupt eventually. There can be a massive gap between this technology is going to change the world and being right about that and saying, here are the companies that you should buy in order to get rich doing it, the gap between those two can be a mile wide.

Dylan Lewis: Yeah. The trend is humongous and directionally accurate, but the details are very hard to figure out.

Morgan Housel: Right. If you think about like what companies won the Internet? I'm only saying this, but with hindsight it was Facebook, Google, Netflix, and a few others. But if you go back to the 1990s, a lot of those companies didn't even exist yet. The companies that were the obvious winners in the 1990s like AOL and Excite, and those companies like either don't exist or are shelves of their former self. You can easily imagine a world in which AI completely and utterly transforms the world over the next 20 years. But the biggest winners don't even exist today. That's a pretty constant theme throughout history.

Dylan Lewis: You might go able to borrow some for this answer too, from what you just said. But a second one is Ozempic and other weight loss drugs or the intervention of medicine into weight loss.

Morgan Housel: I love this question. I was just thinking about this yesterday. I'm pretty sure I might be wrong about this by a few years, but I think pretty sure Prozac came out in like the late 1980s. I'm making this up. But you can easily imagine a world in the 1980s where you said, because of this miracle drug Prozac in the future, nobody is going to have anxiety or depression. We're going to eradicate it. The irony of that is like, no anxiety and depression has exploded. [laughs] It's gone vertical over the last 30 years. There can be a gap between a miracle drug and actually really transforming society. Of course, without knowing any technical details, and obviously, without being a doctor when you see the early results from Ozempic, not just for weight loss, but what it's done to all forms of addiction like smoking and gambling, and alcoholism, you're like that looks like a miracle drug. But the history of miracle drug is not exactly eradicating the problem that they look like they are targeting. That history exists there too, or do you think about something like antibiotics. Made a massive, massive change to society. But did we eliminate bacterial infections? No. It was just a little bit better at managing it. So you can imagine a world in which Ozempic really moves the needle, but not to the black and white degree that it's made out to be today.

Dylan Lewis: My last one for you on the reasonable optimistic is X, formerly known as Twitter. You're active there, so I have to ask about that one.

Morgan Housel: [laughs] I think Twitter is the greatest communication device created in modern times. That's a big statement, but I think that that's true, but it's in a sense, a commodity. It's just a way to put your thoughts out there and as it stumbles, Threads and other forms, and other social networks that pop up, I think could have a very reasonable chance of taking it over. In the sense that Facebook ran roughshod over Myspace and whatnot, and Google ran roughshod over all the other Yahoo!. Just because somebody is entrenched and has a big network, if they really lose what made them great, other people can and inevitably will just come in and take what they had. I think that's fine. I think people who built a big following on Twitter will be able to build a new following on Threads, if that's what they want to do. I think that's just the normal course of how these things work. Like you start with a scrappy company that builds a competitive advantage and the prosperity that comes from that competitive advantage makes them fat and lazy and then it starts to unwind from there.

Dylan Lewis: It seems like we've seen a mix with X and with Twitter where it is both the legacy of what it has been and the new start of what Musk wants it to be and maybe some of the culture and the tension that we set with that company is those two things butting up against each other with?

Morgan Housel: One of the things that worries me a little bit too is that a big downfall of so many successful companies is that they want to diversify into new fields. Sears was very good at retailing, and then they said, "Hey, we should become a bank. We should become a financial service", and it's just like they lost focused on what they were supposed to do. Same with General Motors. "We're really good at building cars. We should start a lending arm that makes mortgages to people." Of course, like that was part of why they fell. Now Twitter and X wants to become a financial app. They want to become your bank and a payments processor. Once you just move the vision away from the thing that you're actually good at and that you have a skill at doing. There's such a long history of that being the start of the downfall of the company.

Dylan Lewis: So is that a cautionary tale that just getting too wide as a business, getting away from what it is that made you good to begin with?

Morgan Housel: Yeah, because for most companies it's two things. Either they make a ton of money doing what they're good at, and they don't know what to do with that money. They don't want to just give it out as a dividend. They're like, "Oh, we got all this money laying around, we should start a new line of business," or it's just a form of boredom. They get bored doing the same thing, and they want something that's exciting, or the CEO wants to build an empire, which I think is probably more the case with Twitter here. There's a long history of Elon Musk. His recent biography goes into depth in this, like he gets bored very, very easily. In his new biography by Walter Isaacson, he talks about why he got excited in Twitter. He had just cashed in a bunch of options from Tesla, and he had $10 billion of cash, and he didn't know what to do with it. He had $10 billion of cash. Doesn't know what to do with it, your options are pretty limited at that point. He had to buy a big company and he was a Twitter power user, so it made sense. But that's just like if you dig into that, like why did he want to buy Twitter? I don't think it's because he had a grand vision of what it could be. I think he just got bored and had a bunch of money lying around. That's when it's like there are a lot of individual companies that will do a form of that and I just think Musk was so rich that he was like his own form of that. He had so much money, he didn't know what to do with, he had to expand into something else.

Dylan Lewis: Musk comes up in the book and you talk about other visionaries as well and how you just need to accept the person in total. There's no bits and pieces to the, I think you call them wild minds in the book. For investors, that acceptance comes in the form of dollars. It's us committing our dollars to that company and being shareholders of that company. How should investors think about those wild minds or like those kind of visionary geniuses?

Morgan Housel: I think it's true for people and businesses. If there is somebody or someone or something that you admire because they think out of the box in a good way, then with 100% certainty, they also think out of the box in a way that you won't like to. There's no such thing as like the crazy genius thinker who is also just like very common rational all the time. So you look at someone like Elon Musk. We admire him because he's such a risk taker. His mindset is the rules don't apply to me. There are sides of that that are amazing. Like he was 30 years old when he took on GM, Ford, and NASA and succeeded. There's that side of them that we should not be surprised at somebody who has that mindset, who says, "The rules don't apply to me. I'm just going to do whatever I want. I'm going to swing for the fences like nobody's ever seen before." We should not be surprised if some of what he does and says are wrong, or offensive, or whatever it might be. Of course, he's not a well balanced individual. He's trying to go to Mars, like of course, [laughs] he's a maniac and so there are so few exceptions like that. I read a lot of biographies of entrepreneurs and people like that. I cannot think of one of a biography of a famous entrepreneur that I finished the book and said, "I want that person's life." Far more common is you get to the end and you say that life was amazing. I'm glad that person existed because of the innovations they came up with.

Their life sounds like an absolute frick, and nightmare to me. Because what made them successful was they work 100 hours a week. They didn't care about their family, they didn't have any social life. They just committed everything to one product or one company and that has so many downsides. The most shocking example to me, and maybe a lot of people who listened to his podcast, is if you read the book, The Snowball, which is like the official biography of Warren Buffett, you realize that this guy who I admire so much and you and everyone admire so much, his personal life has not been great. That's the charitable way to put it. I think a lot of that came from the fact that since he's been 11 years old, he's devoted roughly 100% of his life to picking stocks and there's a good side of that that comes, that we all admire. But the downside of that was, came at the expense of his relationships with his former wife and his children, and some of his friends. Recognizing that you cannot just say, I want Warren Buffett's stock picking skills and the Dalai Lama's patience and you can't pick and you have to take the whole package. Doing that when you're looking up to people, make sure that you're looking up to traits that you can really replicate yourself. Most people, the reason that they cannot replicate Warren Buffett's stock picking skills, it's not because they're not smart enough. It's because they don't want to devote 24 hours a day for 75 years to one thing at the expense of everything else in their life.

Dylan Lewis: One of my favorite chapters, and same as ever is the chapter best story wins. You break down, basically, you don't need to have the most right thing or even a correct thing as your idea. It's really the way you tell the story and your ability to get people on board. I felt myself captivated by the book and captivated by the idea. I also had to take that step back and say, "Is this something that we need to fortify ourselves against as readers, as information consumers, as investors." Like is this a concept we need to be more aware of and be part of our approach?

Morgan Housel: That's such a great question. That latter part, and I'll answer that yes. I often think, particularly for financial pundits, if you tell people what they want to hear, you can be wrong indefinitely without penalty. If you tell people the things that they want to hear. If you tell them the stories that get in the nod their head and say, "Yes, that's how I feel too," even if what they're saying is factually wrong or the bad advice, if it's what they want to hear, then you'll get people to nod along with you. I think that can really drive you crazy if you're an analytically minded person and you expect the world to be driven by the right answer. Like who figured out the right answer and they're going to win. Like no, it's in finance, in politics, in all kinds of things. Just the person who tells the best story is the winner. That can be actually like, pretty optimistic too. For a lot of entrepreneurs to think that you don't need to reinvent or you don't need to come up with a brand new product. There are plenty of really great products out there that are just very poorly branded and haven't told a very good story. If you can take that and just spin it into a great narrative, there's infinite opportunity already out there. I think Steve Jobs in some ways did this too of like MP3 players had been around for a while. But the iPod was just a better story. He branded it better. It's a better design, which a design is in itself a story. Rather than calling it the Apple Digital MP3 player, he came up with this tag line, of 1,000 songs in your pocket. It's just such a better story even if it's like technology that's existed for a while. I remember people talking about too that the iPhone that, there were so many features that Samsung came up with before and the iPhone was copy and to the extent that that's true, I think Apple just does a better job telling the story. I would also say somebody like Warren Buffett in a very underappreciated part of why he's been successful is that for the last 70 years, he's been a very good storyteller about what he does and why he does it. He writes in a clear plain language than anybody can understand. Then so whether it was at his hedge fund back in the 1960s or with Berkshire Hathaway today, virtually everyone who invests with him says, "Warren, I understand what you're doing. Just go do it. Just go do your thing, because I understand it," and there's almost no other fund manager or CEO who gets that kind of leeway, who gets that kind of independence to do whatever they want. I'm willing to bet that Buffett does that intentionally. That the reason that he writes every year and the reason he goes on CNBC and he's so open with the press, is because he knows that if he tells the best story about what he's doing, people will give him all the freedom and independence in the world to just go do what he's good at.

Dylan Lewis: You're a pretty good storyteller. Do you feel like that gives you a little bit of wiggle room or maybe makes your BS meter a little bit better? Do you feel like spending time understanding that has helped you?

Morgan Housel: I feel like the biggest area it came in was just trying to survive as a writer. If you are just putting out data and statistics that everybody else has access to, you can't stand out. You're just competing against 10 million other people who are doing the same thing as you. But if you can tell a good story, that was something where you look, we're all looking at Microsoft's earnings, whatever it would be. We're all looking at the same data. But if we can come up with a good story that's something to make yourself unique and make your writing unique To me, it was just like a survival mechanism of like, how can I stand out as a writer and compete against the 10,000 other financial writers that are out there. To me, it was a lot more fun. I just thought that I enjoyed it and it's so often that if I'm writing one of these stories, I will like stop and smile or laugh as I'm writing it. That's when I know it's onto something. It's like if it's fun when you're writing it, hopefully it's fun to read as well. I also think that the stories of individuals got you closer to the truth in finance. That what really mattered in finance was not the numbers and not the data. It was just how can you understand what's going through people's heads. The only way to really understand that was with stories. Because the behavioral aspect of investing, you can't reduce to a statistic. You can't just say, "Here's the formula, go do it." You have to understand the behavior. You can't teach behavior even to very smart people because it's not a formula. I think the only way to understand it is through a story. Both because it got you closer to the truth, and because to me it was just more enjoyable, and to survive as a writer, that's where storytelling came in during my career.

Dylan Lewis: I have a couple of things from the book I want to dive in for our investing audience. It's an investing book, but it's also not an investing book which I think it's one of those things that you've mastered and done so well. You mentioned competitive advantages a little bit earlier. I want to zoom in on that topic because you do a great job of breaking it down. You talk about, just frankly, how difficult they are to maintain, and how hard it is over time for what has worked to continue to work. Do you see any cracks forming in any of the things that we've accepted as this works right now? This is something that is ubiquitous and just understood as a Titan or as a giant.

Morgan Housel: I think the biggest that stands out to me that we talked about earlier was Twitter. You can just see a company that had so much going for it, and was just such a special place a couple of years ago that both because of its success and because [laughs] maybe of its new owner, it's giving it up a little bit. But I also think that the common thread through all these in history is that it's very hard to notice, without hindsight, what company is losing it. One example of that, if you go back to the late 1990s, I'm pretty sure it was Fortune, but I might be wrong about that. One of the main business magazines put out an article and said, here are 10 stocks to own for the decade ahead. I think it was contrasting these are not Dot-com high flyers, but good solid blue chips you can count on for the next decade. The companies, I'm not making this up, were Enron, Kodak, GM, AIG. All these companies that literally don't exist anymore.

Dylan Lewis: The short basket.

Morgan Housel: The short basket. But those are the stalwart companies that you can. That's not even a criticism, because if you go back to 1999, Kodak did look like it was the company that was going to dominate everything. GM was the most successful automaker in the universe. It wasn't that they were missing anything. It's just that a lot of times when a company is that successful as Kodak or AIG was, that's when they lose their way. I use this quote in the book from Denzel Washington, where he says, when you feel like you're at the peak, that's when the devil comes for you. I think that's true. Denzel Washington was saying that in reference to Will Smith losing his mind when he slapped Chris Rock. But I think it happens to companies too. When they are at their peak, that's when everything starts to unravel. Of course, that's actually a tautology. Of course, when you're at the peak, that's when it's never going to get better. But it's true that success plants the seeds of its own downfall. It's true for stock markets. When the market is really calm and investors feel great, they feel optimistic, they bid valuations up. When valuations go up, the market becomes unstable. It's always a case that the success plants the seeds of the decline.

Some companies are pretty good at fighting this better than others. At least to me the most amazing example is Microsoft, which has been a staggeringly amazing company for 45 years now, and it's done it in several different industries. That is so incredibly rare. Much more common is General Motors or JC Penney, or Sears that goes from just utterly dominant in its industry to out of business, or close to it. That's way more common, and it's true for individuals as well. Someone told me one time that the most powerful band that's ever existed is The Beatles. I said, The Beatles, why? He said because no other band has stayed cool for four generations, or three generations, whatever it is. My grandparents and my children will rarely both think that The Beatles is cool, great music to keep it going for that long way, more common is the Backstreet Boys, where it's very popular for three years, and then it just disintegrates and nobody cares about it anymore. That's way more common. Understanding why competitive advantage die, and why it's so hard to maintain that is critical, not just in investing, but it's true for so many things in life.

Dylan Lewis: One of the other principles I wanted to bring up is the wounds heal scars last discussion that you have in the book, and just how much experience shapes outlook. We touched on this a little bit before but I'm in my 30s, and I have never bothered to look at certificates of deposits, or treasuries because why would I have? It was just not the investing environment that I was born into really. Do you feel like the antidote, or the ability to get outside of your own experience is simply to read, or what is it that gives you that other perspective?

Morgan Housel: I think the first point, the most important point is realizing that you cannot, no matter how hard you try, understand the experiences of other people. Nothing is going to recreate the emotions that they had in their life. Like I said earlier, I like World War II history. Never in a million, no matter how many books I read, will I be able to actually understand what it was like to be a soldier during that period because I was not one. I think that's the first part, is understanding that you will never be able to fathom things that people have been through. That's really important because what it means is that the boundaries of what the world is capable of are much wider than you think. Most people look at their life, and they build a model of how the world works based on their own experiences. But since what they've experienced is such a infinitesimal fraction of what other people have experienced, the world can be crazier, and more dangerous, or more optimistic than you think. You can easily imagine the people who grew up during the Great Depression were pessimistic for the rest of their life because that's what their experience told them to do. You can contrast that with somebody who came of age in the 1990s, being very optimistic. If you came of age in the 90s in America, you're very optimistic about the future because that's what your experience told you to do. Nothing is more persuasive than what you've experienced firsthand.

You can read a book and try to become empathetic to other people, but nothing is going to change your mindset more than what you've experienced firsthand. I think this explains a lot of things. So many people are dumbfounded about what the other political party believes. How can you possibly believe X, Y, and Z? Doesn't matter which side you're on, the other side doesn't make any sense to you. Nine times out of 10, the reason is because they've experienced something that you have not. That alone is a pretty powerful thing, and I think that it plays a role in finance and investing. Most investing debates are not because people actually disagree with each other, it's because people with a different life experience, a different risk tolerance, a different time horizon are talking over each other. They want different things. They've experienced different things. We saw this a lot in the 2010s, when gold as an investment became very popular. After the financial crisis and the Fed was printing a lot of money, the demographic that gold was most popular with were baby boomers who lived through the inflation of the '70s and '80s. My generation, your generation didn't know what the heck they were talking about because we had never experienced that. It didn't matter how many articles or books I could read about inflation in the 70s. If you were not emotionally scarred by living through it, you were never going to understand it. I think it's a very common thing that happens through history, and explains why so many people disagree with each other about different topics.

Mary Long: If you like hearing from Morgan, there's more where that came from. Premium members of the Motley Fool US receive a monthly video in which Morgan shares his thoughts on investing for the long term. If you're not already a Motley Fool member, we're offering a discount on our flagship stock advisor service to all Motley Fool Money listeners. You can claim that discount at www.fool.com/mfmdiscount. There's also a link in the show notes. As always, people in the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll see you tomorrow.