Page 131 - Psychology of Money - Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

rewarding activity, say, 40 years ago, when our textbook was first

published. But the situation has changed a great deal since then.⁴¹
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What changed was: Competition grew as opportunities became well known;
technology made information more accessible; and industries changed as
the economy shifted from industrial to technology sectors, which have
different business cycles and capital uses.

Things changed.

An interesting quirk of investing history is that the further back you look,
the more likely you are to be examining a world that no longer applies to
today. Many investors and economists take comfort in knowing their

forecasts are backed up by decades, even centuries, of data. But since
economies evolve, recent history is often the best guide to the future,
because it’s more likely to include important conditions that are relevant to
the future.

There’s a common phrase in investing, usually used mockingly, that “It’s
different this time.” If you need to rebut someone who’s predicting the

future won’t perfectly mirror the past, say, “Oh, so you think it’s different
this time?” and drop the mic. It comes from investor John Templeton’s view
that “The four most dangerous words in investing are, ‘it’s different this
time.’”

Templeton, though, admitted that it is different at least 20% of the time. The
world changes. Of course it does. And those changes are what matter most
over time. Michael Batnick put it: “The twelve most dangerous words in
investing are, ‘The four most dangerous words in investing are, ‘it’s

different this time.’”

That doesn’t mean we should ignore history when thinking about money.
But there’s an important nuance: The further back in history you look, the
more general your takeaways should be. General things like people’s
relationship to greed and fear, how they behave under stress, and how they