What Always Changes

A few things that always change, never staying in one place for long:

1. The information and metrics people pay attention to always change. So even if you know what’s going to happen, you don’t know whether other people will care.

James Grant says successful investing is about “getting everyone else to agree with you … later.”

Merely predicting what’s going to happen next isn’t enough. To be right you have to predict what’s going to happen next and get millions of other investors to agree that what happened is worth paying attention to in a way that draws their interest and dollars to an investment.

And the things other people pay attention to – the information and metrics that grab our attention – are always changing.

Book value is what investors paid most attention to during the early 20th century. Ben Graham mentions it twice as often as the phrase “net income” in his classic book The Intelligent Investor.

Then it kind of faded away. Profits became the metric of choice for most of the late 20th century.

At other times dividends were the prized metric. In the late 1990s it was page views. In the mid-2000s, user growth.

If Uber was a company in 1985, when investors obsessed over free cash flow, it would be considered a joke. But since it exists in the 2010s, when investors mostly care about revenue growth and brush aside profitability, it became a darling.

Investment facts are always changing. But prediction is doubly hard because the facts investors care about and pay attention to – which is what makes facts relevant – change all the time. Not just by industry, but for the market as a whole.

They change by economic condition, generation, and when a compelling story about a new metric finds its way into enough people’s heads.

The same is true in business, politics, and relationships.

Rarely can you say, “When this happens, that occurs,” because that occurring relies on other people thinking this matters, when their attention may have drifted off to something else.

2. Generational preferences change, shifting demand in ways that’s hard to anticipate because it’s not always linked to a product’s usefulness.

The Beatles, Nike, and LEGO have remained popular across multiple generations.

They are the exceptions.

So many trends that resonate with one generation fail to transfer to the next.

One reason is that it’s hard to feel like you’re moving ahead in life when you associate with your parents’ brands. Every generation wants their own stuff. The odds of getting a 16 year old hooked on Seinfeld or Alanis Morissette round to zero – they are social hand-me-downs. Morgan Stanley could make the indisputably best robo advisor and millennials would still prefer Betterment. That’s how Charles Schwab blossomed in the 1980s and 1990s; with a brand baby boomers felt was theirs, not their parents’. Robinhood is now filling that spot for Gen Z. It does few things the older brokers don’t already do, and it’s constantly breaking down. But young investors love it because it’s theirs.

With rare exceptions, any company whose brand is a signal of “getting it” – getting a new technology, fashion, or being part of a new movement – has a generational shelf life. So no one should be surprised when previous giants cede market share to new entrants, even when the new product is inferior.

Older generations also find it hard to distinguish technological progress from moral decline. The telephone killed the art of letter writing; email killed phone conversations; Slack killed face-to-face meetings, and so on. The traditionalists respond with rebellion. It can take a generation for a great new technology to reach its potential because it takes that long for the older holdout generation to move along – the product version of Planck’s Principle. So it’s easy to underestimate change, because it happens slower than you might assume if everyone always used the most useful products available.

3. People use success as an indication of what to keep doing. But most success plants the seeds of its own demise, so what people think works and try to copy is always changing.

A few things happen when anyone finds success.

The first is that your success attracts competitors who want a bite of their own.

Another is that you’re likely to let your guard down, using success as an excuse to abandon some of the paranoid focus that helped you in the first place.

You’re likely to become locked into a single view, unwilling to abandon what’s worked even as the world evolves.

And you and those who followed you may have mistaken a temporary trend – right place at the right time – for a competitive advantage all along.

That’s how things go. Few bouts of big success – whether it’s a successful company or investment strategy – stay that way indefinitely, because the things that caused success have a tendency to push back in the other direction. The bigger the success, the truer this becomes.

What’s hard is that current successes are the most persuasive instruction manuals for what everyone else should try.

You can’t blame them. They’re doing the right thing: learning and emulating.

But when what works has a shelf life, and people are always trying to copy what works, you realize that a lot of what happens in business and investing is fads coming and going, strategies flourishing and disappearing, popular ideas booming and busting. Always changing.

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