AI Summary #
Here are the main takeaways and insights from the podcast episode:
The Power of Nostalgia: The host discusses how nostalgia can distort our perception of the past, making us remember it as a better time than it actually was. He shares examples of how people nostalgically view the 1990s, the 1950s, and even their own parents’ generation.
Historical Context Matters: The host highlights that when we look back at historical events, our perspective changes because we know how they ended. This can lead to rose-colored glasses when evaluating past experiences, making it difficult to accurately judge what people were thinking during that time.
Unsustainable Booms and Busts: The host emphasizes that economies and markets are rarely near their statistical average return. Instead, they often experience unsustainable booms followed by busts. When we look back on these periods, we may overestimate how easy it was to invest or make money.
Good Investing Hurts: The host stresses that investing in the stock market is not supposed to be easy. It involves dealing with uncertainty, volatility, and discomfort, which can lead to a longer-term increase in returns.
Uncertainty in the Future: The host notes that while the past may have been uncertain, it was also obvious. In contrast, the future is often shrouded in uncertainty, making it difficult to anticipate what will happen next.
Overall, the host encourages listeners to approach historical events with a nuanced perspective, recognizing both the difficulties and uncertainties of the past and the present, as well as the potential for the future to be better than we think.
AI Transcription #
We talk so much about investing on this podcast and the different ways to do it.
So before we get going, I want to let you know that this episode is brought to you by my friends at 10 East.
10 East is an investing platform for sophisticated investors to access private markets.
It brings the benefits of having your own family office without the cost and the headaches of doing so.
10 East is founded and led by Michael LaFell.
Forward deputy executive managing member at Davidson Keppner.
10 East core strategy is to apply institutional grade due diligence to more niche exposures across private markets in equity and credit and real estate.
The principles and partners at 10 East invested their own money in these deals to align interests.
To learn more, please check out 10 East.co.
That’s the number 10 East dot C O.
There’s this Russian saying about nostalgia that I thought was so brilliantly put and saying is the past is more unpredictable than the future.
The past is more unpredictable than the future wild idea, but stick with me because I think there are so many modern examples of this.
On Instagram, I subscribe to a couple of feeds that are devoted to nostalgia for the 1990s.
Now, I was a kid in the 1990s.
That was my era that I grew up in.
So these nostalgic posts that show 1990s commercials and sporting events and fashion trends.
I love them.
It just takes me right back to being a child in the 90s and I love them.
And it’s so interesting when you read the comments section of these posts because there’s a lot of people who also grew up in the 90s that comment on these posts and you see the same comment time and time again.
The comment is the late 1990s and the early 2000s were the best time to be alive.
And they say things like, oh, well, we had the internet, but we weren’t rotted by social media yet.
And the world was so calm and the economy was great and everyone liked each other.
And nobody hated to have all this online animosity.
And sometimes when I read those comments, I agree.
I think, yeah, man, if we could go back to 1999, that was a great period, right?
Everything was great back then.
But then sometimes I think about the great line from the comedian John Stewart who said the reason the world seemed like a better place during your childhood is because you were a child.
If I squint and I think about what it was actually like to be alive back then, I can look at a very different view.
What I remember about the late 1990s was as a teenager that was the first time I started paying attention to politics.
Bill Clinton had recently been impeached for sexual relations in the White House.
The 2000 election was the first time that we had legitimate political crises in a long time was not clear.
Did Al Gore win?
Did George W Bush win?
Went to the Supreme Court, Florida hanging chads.
If you remember all that, it was a, there was a lot of chaos back then.
And then 9-11 occurs.
And for me, let me just true for a lot of you who are around back then.
9-11 was the first time and I think a long time that Americans felt a great sense of geopolitical uncertainty and risk and fear.
Well deserved, of course.
And the fear, the feeling after 9-11 was not if, but when there was going to be another terrorist attack.
That was a foregone conclusion that 9-11 was just the opening salvo of the attacks.
And then my friends, your friends, maybe some of you, yourselves were shipped off to Iraq and Afghanistan.
I wonder if it is a period where we’re going to bring back the draft.
Am I going to go?
Is my brother going to go?
That was a great fear that I had during this period.
And then of course, the economy collapsed.
The dot com bubble burst.
And I think we don’t really remember this that much today because 2008 recession was so much worse.
But the 2001-2002 recession felt really, really bad.
The stock market collapsed.
Unemployment went up.
Relative to things that happened since, maybe it wasn’t that bad.
But at the time, the economy in the early 2000s felt really awful, really crummy.
There was of course the Columbine School Shooting, which was one of the first major modern school shootings that really brought that issue to people’s attention.
As a student at the time, it was such a scary time going to school.
What’s this going to be like?
Because this can happen to me.
It’s going to happen to my friends.
And so putting this all together, you see these comments on Instagram that say, man, that period was great if only we could go back.
But actually, what I, and I think a lot of people felt during that period, was we’re going through some shit right now.
This is bad.
And if we can endure it, if you could put up with it, the future’s going to be great.
But these times that we’re living through feel pretty bad.
And that disconnect between what people remember today, the nostalgia they have, versus what people actually felt at the time, brings me back to the Russian saying, the past is more unpredictable than the future.
My wife and I were recently talking about how difficult it is to buy a home in America these days, particularly if you’re a first time home buyer, and you don’t have the equity built up from another house that you own.
Home prices are so high, interest rates are high.
It’s just a bad time to be a home buyer.
And we started waxing nostalgically about what it was like to be a potential home buyer in 2009.
Now, we were not in the market back then, but we were talking about our local town that we live in.
And you could buy a house in 2009 for a quarter of what it cost today, a quarter of what it cost today.
And interest rates were low.
There was so much supply on the market.
And we were like, man, that was a great time to be looking to buy a house, right?
And then I had to stop and say, can we just talk about the irony of sitting here talking about how good the economy was in 2009?
What are we talking about?
That was the worst economic crisis since the Great Depression.
Nobody in 2009 woke up and said, man, great time to be a first time home buyer.
This is great.
By the way, people did they woke up and they said, unemployment’s 10% the stock markets down 50%.
The reason homes were cheap because nobody had any money to buy them at the time.
But it’s so easy today to have a nostalgic feeling for that era.
And I think that misguided nostalgia for the past shows up so often when we’re talking about money.
I was asked recently at a conference.
How investors should think about investing in the stock market today because the last 20 years have been so good.
And the comment more or less implied they said, look, the market’s gone straight up in the last 20 years, but that’s not normal.
What should investors expect going forward?
And my first thought was, yeah, the last 20 years have been very good.
If you started investing in 2004, you look at your brokerage account today for the first time.
You’re like, man, great.
I probably did very well.
But then I thought, wait a minute.
Who in their right mind would say the last 20 years have been an easy time to be an investor that things have gone straight up in the last 20 years?
Like, well, of course we had the 2008 financial crisis, as I mentioned, the worst economic disaster in 100 years.
And then you had COVID, which was the second worst economic crisis in disaster in 100 years.
So right then, you can say the two biggest economic catastrophes in modern US history have occurred in the last two decades.
But even putting those obvious ones aside, I don’t think this was ever easy at all.
I mean, it’s so difficult to remember some of these events, but let me take a little run through history of what occurred if you started investing 20 years ago.
Of course, 2009 financial crisis, but then in 2010, you had this massive European debt crisis.
You had the stock market valuation looked way too high.
Everyone was talking about how overvalued the stock market was 2011.
You have the Arab Spring in the Middle East, oil prices surge, something like 50%.
Everyone was talking about double dip recession.
That was a phrase we use back then quantitative easing from the Federal Reserve feds printing a ton of money.
Obama care was coming into light.
But not people said that’s going to ruin the economy.
That was just 2011.
2012 Greece’s economy falls apart.
And the fear was it was going to take down all of Europe with it.
Corporate profits looked like they were crazy stretched companies were gouging everyone.
Ben Bernanke moves the Fed chairman at the time was said to be ruining the value of the dollar taxes were going up.
That was a crazy year.
2013 Cyprus tiny little Cyprus.
Their banking system collapsed.
And so many US banks look like they’re going to be tied to that.
That was a huge fear at the time.
2014 China’s economy starts slowing.
You had Ebola, which people don’t talk about anymore, but before COVID that was a big thing.
You could do this every single year.
It is so easy to look back and say stock market’s gone straight up in the last 20 years.
It’s been so easy.
The easy money was made.
I actually think if you take an honest non nostalgic view of what it was like to be an investor for the last 20 years, it was never easy.
Every day of every single day during this period, you had something to look at in the news and say, oh, this is actually pretty bad.
There’s actually a lot to worry about.
And you can take that far back as you want every year throughout history whenever you have a sense of nostalgia.
If you actually look at what people were saying at the time, not in hindsight today, but what people were saying at the time, it is never as good as it looks today.
There’s a tweet a few months ago where somebody posted a picture of the Chipotle restaurant from 2004.
And on the menu, it has 2004 prices so you could get a burrito back then for six bucks.
Six bucks for a burrito.
What is it today?
I don’t know, 12, 14, whatever it is today.
A lot more than it used to be back then.
And the tweet said, quote, you just had to be there.
As a man, it was just a period of time when everything was so cheap and everything was so great.
And the tweet exploded as 28,000 likes on this tweet.
My response that did not get 28,000 likes.
My response was more people complained about how awful the economy was back then than they do today.
Which is true.
Go back to 2004.
What were people saying about the economy?
They were saying that it sucked that it was terrible, that it was miserable in higher numbers than they do today.
And it’s so easy today to think about when stock prices bottomed in 2009.
That wasn’t they bottomed after the financial crisis.
And in hindsight, they were so cheap, buying opportunity of a lifetime.
And it’s easy to look back and say, man, I wish I had bought stocks.
That seems like such an obvious thing to do.
They were so obviously cheap.
It was so obvious that they were going to go back up.
But I went back and looked and said, what were the best selling investing books of 2009?
The most popular investing books of 2009, let me read you a list of their title.
Number one, the Great Depression ahead, how to prosper in the crash following the greatest boom in history.
Number two, House of Cards, a tale of hubris and wretched excess on Wall Street.
Number three, meltdown, a free market look at why the stock market collapsed.
Number four, Susie Orman’s 2009 action plan, keeping your money safe and sound.
Number five, end the Fed.
Those were those were the best selling books at the time.
Do you think it’s easy to have that be the most popular narratives collapse and the Fed, the Great Depression ahead?
Do you think you read those books, see those books in the bookshelves and simultaneously think what a great time to be an investor?
This is a great opportunity.
In hindsight, of course, that makes sense.
Back then, it was not obvious at all.
And tying some of these together, I think a lot of the reason that this occurs, where false nostalgia comes from, of it all making sense in hindsight, but nobody actually thinking that way during the time.
Is that it’s very difficult to remember how you felt during a period of time in the past when you know how the story ends.
Because today, looking backwards, you know how all of this ended.
You know that there was not another major terrorist attack after 9-11.
You know that the financial crisis of 2009 did end.
You know that the housing collapse that occurred in 2009 eventually recovered.
You know all of that today.
And it colors how you think how people should have felt about the past.
But people back then did not know.
They did not know that there was not going to be another terrorist attack.
They did not know that the financial crisis was going to end or how much worse it would get.
They did not know that home prices were going to rebound.
They did not know that stock prices were at a generational low.
Nobody knew that at the time.
And because of that, there was such a long history economically, politically, culturally, of looking back at a previous era with a sense of nostalgia.
So today, maybe we have nostalgia for the 1990s.
But back in the 1990s, they had nostalgia for the 1980s.
In 1980s, they had nostalgia for the 1950s.
In the 1950s, people longed for the calm piece of the 1920s.
In the 1920s, they longed for the Victorian era.
It goes on like that forever.
But here’s just one example of how broken this can be.
So many Americans look at the 1950s today with a sense of nostalgia because it was middle-class prosperity.
It was American dominance geopolitically seems like a great era to be in.
But of course, back in the 1950s, one of the major topics was nuclear war.
And preparing for the inevitable nuclear attack that was sure to occur between the Soviets and the Americans.
And then so children in elementary school had the now famous drills where they would hide under their desk in case it was a nuclear missile incoming as if that would save them whatsoever.
But I think why that is kind of an interesting kind of a funny little quirk of history to discuss now is because we know today that there was not a nuclear attack.
But they didn’t know that back then.
It was seen as inevitable back then.
And there’s this very interesting anecdote from the Cuban missile crisis in the 1960s when Robert McNamara, who was Secretary of Defense at the time, he talked about that during the height of the Cuban missile crisis, he took a walk outside for a couple minutes.
In the middle of all these frantic negotiations, he wanted to catch some fresh air.
So he walks outside of his office at the Pentagon and he thinks to himself, this might be the last Saturday that I ever see in my life.
Because in his mind, the guy with all of the information who knew exactly what was going on thought it’s inevitable.
We’re all about to die.
The first time I read that, I thought, wow, what an interesting anecdote.
But back then it was not interesting.
It was the free world is about to collapse here.
And that will all be burned down to rebel.
The gap between nostalgia and what people were actually thinking at the time is enormous.
One area in life that you tend to see this idea of judging the past with rose-colored glasses is how parents view their child’s generation.
There’s a very long history of older generations labeling the younger generation as lazy and whining and immoral.
This has been going on for many generations.
So baby boobers over the last decade or two did this with millennials, their own children.
There was a survey in 2009, a Pew survey that said seven in 10 adults say older people have better morals and values than the younger generation.
Seven in 10 older Americans believe that about the younger generation in 2009.
And what’s interesting today is that if you asked a lot of older millennials of whom I am one, what do you think about today’s young generation?
You know, the younger Gen Z, the generation just now graduating college heading into the workforce.
I might say something similar to what my parents said about me 20 years ago or so.
And that is not in aberration.
Every generation does this.
Tom Brokaw’s book The Greatest Generation talking about the baby boomer’s parents.
He goes into depth about how baby boomer’s parents viewed their own kids.
He writes quote, the idea of personal responsibility is such a defining characteristic of the World War II generation that when the rules changed later, these men and women were appalled.
So the same baby boomers who criticized the millennials, they were criticized themselves by their own parents.
And what’s interesting is that baby boomer’s parents, the greatest generation, were also criticized by their own parents.
Fortunately magazine wrote in 1936 quote, the present day college generation is fatalistic.
It will not stick its neck out.
If we take the mean average to be the truth, it is a cautious and subdued and unadventurous generation.
Every generation does this.
You compare yourself to the younger generation and you think, we, the older generation, got everything right, but these new kids, they have no idea what they’re doing.
And I think there’s a version of this that occurs at the individual level.
When you are looking at a peer or a coworker and looking at them and saying, man, they seem to have everything going for them, but I don’t.
Everything’s going great in their life, but not in my life.
Of course, sometimes there are a few situations where that is the case that is true, but I think it’s very easy to underestimate the pains and the troubles and the insecurities of other people.
Warm Buffett’s biography is called the snowball.
Really reveals in a shocking way that one of the most admired people in this industry, in finance, has had at times what I think you could accurately describe as a miserable family life.
And part of that I think was his own doing.
It was the collateral damage of a life where picking stocks was the highest priority came above everything else.
Same for Bill and Melinda Gates in the last couple years.
I’m in Seattle.
They were like, that was the King and Queen of Seattle, of course.
And people have different feelings about different people, but there’s a narrative about Bill Gates where you can be like, what an amazing life created some of the most transformational technology of his era became the richest man in the world and wanted to give all that money away to, you know, Cure Beleriand in education and things like that.
What an amazing life.
And then he gets divorced and you realize that there was actually a lot more going on behind the scenes that you didn’t see.
Many years ago, Elon Musk broke down in tears doing an interview when he was asked about the mental toll of Tesla struggles.
And he said, quote, this has really come at the expense of seeing my kids and seeing my friends.
And he began to cry.
Now, I don’t know, do you have sympathy for him in that situation?
I don’t know.
I think I actually have more respect for him in that situation, but it’s so easy to look at someone like Elon Musk and say, richest man in the world, you do anything he wants, so admired, etc.
Which is true.
It is much more difficult to think about everything that has come at the expense of.
And so some things to keep in mind here, when we are thinking about this idea that things were actually not as good as you remember them as you think about them today.
One is the idea that unsustainable things can last for years longer than you think.
When you’re thinking about the economy, the stock market, or the housing market, it is easy to say something like, oh, the easy money is behind us.
You know, it was easy to make money in the past, but not anymore.
It’s easy to say that because people have this feeling of, oh, stock market valuations cannot possibly go higher than they are today.
Home prices cannot get higher than they are today.
That just seems impossible.
They’re already too high.
But the truth is, like, yes, they absolutely can.
The entire history of economics is a crazy ride of unsustainable booms and bus.
And so we come up with this statistical average return, or average, you know, the average economy where things should eventually revert to.
But the economy and the stock market rarely spend any time near average.
They’re almost always doing something that they should not be statistically at least.
They’re way too expensive.
They’re going down, you’re going up way too much, going down way too much.
It’s always a crazy ride of boom to bust.
And because of that, whenever you see a trend and you say, this cannot last.
Oh, actually, that’s like the economy saying, hold my beer.
Watch me.
This absolutely can last.
Number two, keep in mind the idea that good investing hurts.
It’s not supposed to be easy.
It’s not supposed to feel good.
The reason that the stock market tends to do well over time is because it’s specifically because in the short term, every day you wake up with a constant chain of uncertainty and unknowns and volatility and things that are uncomfortable to deal with.
That’s what you’re getting paid for.
That’s the cost of admission over time.
And I think putting up with that means when you look back in the past and say it was so easy, you remember, no, it wasn’t.
The reason the stock market went up is because it wasn’t easy.
It was because there were so many things to worry about in every given moment.
Number three, the future is as uncertain as the past is obvious.
But it is so easy to convince yourself of the opposite.
One idea that I’ve always liked, some all of this up maybe, is I think one of the most powerful lessons from economics is that the past was not as good as you remember.
The present is not as bad as it seems.
And the future will be better than you anticipate.
That’s it for this week.
Thanks again for listening.
And we’ll see you next time.