Experts From A World That No Longer Exists

The biggest risk to an evolving system is that you become bogged down by experts from a world that no longer exists. The more evolution you have, the more you should expect that expertise has a shelf life.

That’s always been the case and will always be. It’s just hard to accept because people need experts to trust and experts want to hold onto beliefs that were hard-fought to learn.

Some expertise is timeless. A few behaviors always repeat. They’re often the most important things to pay attention to.

But most things evolve, and evolve faster than people’s beliefs. It’s a tricky thing that leads to a long history of older generations whose success came from understanding the new rules of their era not recognizing that the rules may have changed again.

Investor Dean Williams once said, “Expertise is great, but it has a bad side effect. It tends to create an inability to accept new ideas.”

If you appreciate how much the world evolves you can appreciate how important that advice can be.

Henry Ford was a tinkerer. He revolutionized the factory floor by letting his workers experiment, trying anything they could think of to make production more efficient.

There was just one rule, a quirk that seemed crazy but was vital to the company’s success: No one could keep a record of the factory experiments that were tried and failed.

Ford wrote in his book My Life and Work:

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 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 because one man has failed in a certain method that another man will not succeed.

That was Ford’s experience. “We get some of our best results from letting fools rush in where angels fear to tread.” He wrote:

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 practice.”

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 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 is a dignified and well-authenticated record – deters a young man from trying … I cannot discover that any one knows enough about anything on this earth definitely to say what is and what is not possible.

The important thing is that when something that previously didn’t work suddenly does, it doesn’t necessarily mean the people who tried it first were wrong. It usually means other parts of the system have evolved in a way that allows what was once impossible to now become practical.

Marc Andreessen explained how this has worked in tech: “All of the ideas that people had in the 1990s were basically all correct. They were just early.” The infrastructure necessary to make most tech businesses work didn’t exist in the 1990s. But it does exist today. So almost every business plan that was mocked for being a ridiculous idea that failed is now, 20 years later, a viable industry. was mocked, but Chewy is now a $30 billion business. Webvan failed, but Instacart and UberEats are now thriving. eToys was a joke, but now look at Amazon. Some of the biggest businesses of the last 10 years are all in industries that were the starkest examples of stupidity 20 years ago.

So imagine if the lessons of the dot-com crash were heeded. Imagine if everyone who learned what business models don’t work refused to ever try again, based on the experience of experts who had been there, done that.

We’d be so far behind where we are today.

We’ve only progressed beyond the crash because the old generation, armed with accurate wisdom from their era, passed the baton to a new generation willing to try the same “mistakes” in a world that adapted and evolved. Andreessen again:

One thing that’s happening is now enough time has passed that enough kids are coming to the Valley who don’t have a memory of the crash. They were like in 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 the Valley who say, ‘Let’s just go build things. Let’s not be held back by superstition.’

The same thing happens in investing.

“Don’t buy stocks when the P/E ratio is over 20” was a good lesson to learn from the 1970s when interest rates were 7%, the Fed hadn’t yet learned what it’s capable of, and most businesses were cyclical manufacturing companies vs. asset-light digital services. Is it relevant today? At a broad, philosophical level, yes. In practical terms, probably not. In the same sense, buying stocks at all seemed like nothing but speculation in the 1920s because corporate disclosures were so opaque. By the 1970s that had changed, and you could begin to make rational, calculated long-term decisions that put the odds in your favor.

What was foolish to one generation was smart to the next, but the older generation’s views lag. Every generation goes through this. Every generation fights it.

Same thing in the economy. Take this simple change in how the government views stimulus:

“Liquidate labor, liquidate stocks, liquidate real estate. Purge the rottenness out of the system.” – Treasury Secretary Andrew Mellon, 1930

“We have a lot of money. We need to get that money in Americans’ hands.” – Treasury Secretary Steve Mnuchin, 2020

That’s an enormous shift, an evolution in how policymakers handle recessions. Investor Conor Sen recently pointed out that high stock valuations and low interest rates used to mean future investment returns would be low. But now, he wrote:

What it’s actually indicating is that there exists a lot of fiscal capacity for higher levels of government spending, which can boost real GDP and earnings growth (probably some inflation too), an outcome better for financial markets than you’d get without that policy shift.

But for older investors whose careers have overlapped with high inflation and a policy environment dominated by monetary policy they’re not thinking about this — it’s the flaw in their framework.

Not a day goes by that I don’t become more confident that the secret to business and investing is identifying the few things that never change and hold onto them for dear life, and identifying what evolves and be ready to adapt those views quickly.

It’s just so hard to do the latter.

Gaining experience takes time, effort, and often comes at the price of making painful mistakes. You don’t want to let those lessons go. You want them to mean something, to help you from making the same painful mistakes again. 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, smart, accurate wisdom that comes from it – will be the least willing to adapt their views as the world evolves.

If you’re from an older generation, hearing me say that might sound arrogant. If you’re from a younger generation, hearing me say that might sound empowering.

Neither should 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 them. Today’s younger generation will one day be stuck in the antiquated norms of their past, and their kids will scoff at them. I can imagine my son in 80 years screaming, “Get off my metaverse lawn!”

One takeaway from this is that no age has a monopoly on insight, and different levels of experience offer different kinds of lessons. Vishal Khandelwal recently wrote that old guys don’t understand tech, but young guys don’t understand risk. Another way to put it is: everyone has something to teach.

Ford seemed to understand this, which is part of why he was successful.

“The new is always thought odd,” he wrote, “and some of us are so constituted that we can never get over thinking 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.”