Morgan Housel on History, AI, and the Future of Investing

0:04Morgan Housel:What's very unique about AI historically though is that it's the first new technology that the people making it promise that if they're successful they could destroy society.

0:30That was Morgan Housel, bestselling author of The Psychology of Money. I'm Motley Fool producer, Matt Greer. At a recent Motley Fool member event, senior vice president of Rule Breaker Strategy, Brian Richards, talked with Morgan about AI, history, investor psychology, optimism, pessimism, and the future. It was a great conversation. Enjoy. All right, Morgan, I've been looking at this conversation for a few weeks, and not just because you're an old friend. The topic du jour, AI and innovation, I wanted to get your take on it as somebody who has studied behavior, psychology, investors over time.

1:10I'd love to hear what's the most useful thing you've learned yourself in the last year as a thinker.

1:17Morgan Housel:One that's very unique to me, maybe, is I don't write nearly as much as I used to. You know, I had a good 15 year run of writing every day. at fool.com was writing two or three pieces per day, many of which you edited, thank you. But about two years ago, I cut way, way back, and I haven't really written anything significant in about two years. And what was interesting for me that I noticed is how much of writing is not just an output, it's an input. It's a very clear way to crystallize your thinking and to understand what you've been learning. And as soon as I stopped writing, I felt like even though I was reading more with my newfound spare time, I was learning less.

1:55Morgan Housel:because I wasn't spending a lot of time actually trying to crystallize the thoughts that I'd had from learning. And so I think for everybody, no matter who you are, forget professional writers, everybody, if you're just reading all day and learning, but you're not going out of your way to really crystallize those thoughts by just writing down what you've learned, taking notes in the books that you've read, you lose a lot. And I think I knew that five years ago, but it was interesting to see in the last two years, how quickly my brain turned to mashed potatoes when I stopped writing. So that's one thing.

2:25Morgan Housel:The other thing that's, I think, been very prevalent at the society level in the last five years is the reinforcement of how addictive pessimism is at the society level. And that's always been true. John Stuart Mill was writing about that 150 years ago. This is not a new thing. But I think 25, 30 years ago, cable news figured out that you can gain attention with pessimism. They all figured it out. And it's just been in the last five years, I think, that the social media algorithms figured it out too. And you see this at the economy level with like levels of consumer confidence are the lowest they've ever been ever right now.

3:03Morgan Housel:Lower than they were during the 2008 crisis, lower than they were in the darkest days of COVID. Consumers have never felt worse about the economy in the history that we've been tracking this stuff than right now. Of course, there's a lot going on right now, but it's not even political. It spans different presidencies. It's been spanning for a while. And I think at least an element of that is that people, particularly young people, are more exposed to pessimism than they've ever been at all. There's some interesting studies about tracking New York Times headlines over the decades. And even as the world has gotten objectively better in terms of life expectancy and average income or whatnot, the headlines progressively get more negative over time.

3:42Morgan Housel:And that's been going on over decades. And in a media world where you're just trying to get attention, you just need everyone's attention. Very different from like the Walter Cronkite days of you had a monopoly on people's attention. Now, when there's an arms race for attention and you're never going to get there faster by being pessimistic, it's like you can live in a world in which things are objectively, analytically getting better and people feel worse and worse about it. So I think that's always been true. But the last five years, it went it went steep. If you have your bingo card, that is John Stuart Mill, Karl Marx, Joseph Schumpeter, and Friedrich Hayek all in one morning.

4:17So wait till we get to the afternoon. All right, Morgan, your second book, the title is Same as Ever. It's a great book, and it's basically an argument that the most important things about human behavior never really change, despite all of the sort of technological progress that we make. I want to start there. Does AI feel to you like a new variable or is it just a stage for the same old human drama? And I don't know if we can, but put the pole back up there because I think that was a pretty fascinating result.

4:46Morgan Housel:I think there's plenty that rhymes with things that have happened in the past. There's been every 20 or 30 years, there's a new technology that at least promises to fundamentally change everything. And usually does. The Industrial Revolution, radio in the 1920s, nuclear energy in the 1950s, the Internet in the 1990s. a new technology that says this is going to rewrite everything that we know and your jobs, your careers are not going to be the same in a short period of time, five or 10 years. That's been going on forever. One thing that's interesting about those trends, if you look back with the glory of hindsight, looking back, is that even the people who invented those technologies and were the most ambitious and had the most foresight in those could not have fathomed what their products turned into.

5:30Morgan Housel:And so Henry Ford could not have ever imagined that he was going to basically create the American suburb with the car. He understood cars and motors and whatnot. He couldn't fathom that this meant that people are going to live 40 miles from where they work and commute in. All these things that the Wright brothers could never have imagined Delta Airlines. And then so all these things that the people who have the greatest vision can't see where it's going. I don't know if Steve Jobs was alive. I don't think he could have possibly foreseen what social media was going to do to society on the phones that he built.

6:00Morgan Housel:And so I think if that's the trend, even the people who have the most wild AI visions today and who are creating the technologies themselves probably can't comprehend where it's going to go in 10 or 20 years. The people who make Adobe Photoshop, which is like software for manipulating images, they create tools within Photoshop that they have no idea what people are going to do with it. And they just understand that if you create every imaginable tool to manipulate an image, somebody will find a use for it, even if they don't know what that use is going to be. And I think there's a lot of that with technology, particularly with something like AI, where the people who are making these can't fathom what other people are going to do with it.

6:37Morgan Housel:They know what they would do with it, but what is somebody else going to do with that technology? That's where these things go way offhand. What's very unique about AI historically, though, is that it's the first new technology that the people making it promise that if they're successful, they could destroy society. That's a very unique thing. that, hey, if we achieve what we're trying to achieve, we could wipe out 50 % of white-collar jobs and hack every government database. And they're explicitly warning about this on a daily basis. That's a very unique thing. Most of the time when you have a new technology, the people making it want to advertise the good that it's going to do versus constantly warning about how dangerous they are.

7:15It's a technology that there's a lot of existential risk, almost like the nuclear era, and it feeds into the pessimism you were talking about.

7:22Morgan Housel:What's interesting about the nuclear era, too, is that if you go back to the 1950s, the peak of nuclear optimism, when the vision back then all over the world was that every town, big and small in the world, would have its own small little fleets of nuclear reactors, and that the fossil fuel era, at least for power plants, was over, that nuclear was going to take over everything. That was the vision back then. It obviously didn't come to fruition, at least as the optimists saw, because it's dangerous. And so as soon as it started growing, governments all over the world said, you have this amazing, powerful technology, but it's dangerous.

7:54Morgan Housel:So we are at a minimum going to regulate it into the ground, if not outright ban it, as Germany and Austria have done. And so is that analogy for AI? It's like, if the optimists are right, and it actually is a tool to put half of white collar workers out of business, what government is going to say, good for you, congratulations, guys, like, thanks for destroying. So they're not going to let that happen. It's the same way that they did with nuclear. I don't know if it's a perfect analogy, but the more disruptive a technology is going to be, there's like a paradox where the higher the odds, it's just going to be regulated out.

8:25Morgan Housel:And so, but what's different about AI too is like how dispersed it can get globally. If the US regulators regulate everything, but there's one model in China that could just spread out all over the world and everyone can use it. So it's hard to like put it back in the box relative to other technologies. If you're serious about your trading, you know that the platform you use can be just as important as the strategies you execute. That's why I want to tell you about TastyTrade. TastyTrade is a powerhouse platform where you can trade stocks, options, futures, crypto, and more all in one place. It's built for traders who want total control over their portfolio without being weighed down by high costs.

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10:10Morgan Housel:I think largely it's a continuation of what's happened over the last 30 years, which is if you go back before 30 years ago, the edge that you could find in investing if you wanted an edge was informational. So you have stories of Warren Buffett in the 1960s going into the library in Omaha and reading every page in the Moody's manual so that he could find cheap stocks. That doesn't work anymore. Everyone has the same information. It's all on your phone. A kid in Africa has the same information that the people working at Goldman Sachs do. So informational edges almost don't exist like they have.

10:42Morgan Housel:And so over the last 30 years, what has become more important in terms of having an edge is behavioral. Very hard to have an information edge. But if you can remain calm when others are panicking, that's your edge. And to the extent that AI is another layer on top of that, that the people building investing models on Wall Street, you know, discounted cash flow models, even 10 years ago, that was kind of a unique thing. those unique skill they had. Now, any AI can whip out those models in three seconds, and anyone can do it for free. So that edge doesn't exist anymore. What could backfire with AI and investors is everyone knows if you've used ChatGPT or Anthropic or whatever, they're all sycophants.

11:19Morgan Housel:They just tell you whatever you want to hear. And very much like social media, it's very good at keeping you engaged. They know exactly how to keep you scrolling. And I think with the LLMs now, they want to keep you on the page. They want to make you happy. They want to tell you that you're doing great. And so if you were to upload your portfolio to ChatGPT and said, what do you think of this? It's going to say you're the most brilliant investor ever. You're doing great. And if it were to say, hey, you're an idiot. These are the worst companies. You would stop using it. And the companies know that.

11:50Morgan Housel:They want to keep you engaged. And so just like a lot of times with politics and news in the last 20 years, everyone found their own bubble. Whatever you want to believe, there's someone out there who's going to tell you that you're right. If LLMs are that for investing, that's probably a risk. So the for you page in LLM world, you just serve the things that you want to be served. Well, the other thing with LLMs too is that if you take a field that you are an expert in, that you really, you truly are an expert in this field, and you start querying ChatGBT about some of the basics of your field, you'll see how much of it it's just making up.

12:22Morgan Housel:And so you don't know that when you're not an expert. You read it and you're like, oh, this is all the right information. But whatever your profession is, ask an information and you're like, it's making a third of this up. But if people don't know that, it just furthers them down to that bubble that they want to be in. It's going to tell them whatever they want to hear. I want to stay on this topic. You've written before that bubbles aren't really about valuation, or they're not exclusively about valuation. They're about narrative and zeitgeist and identity. People don't just own a stock. They sort of become it.

12:51By that definition, do you think we're currently in an AI bubble?

12:56Morgan Housel:Two things about bubbles. One, there's no definition of what a bubble is. So people can just subjectively say it is or it isn't a bubble. But I think what's interesting about it is that AI is so expensive to build. It'll cost trillions and trillions of dollars to build out these data centers that the company is raising money, whether it's OpenAI or Anthropic or XAI, any of them. They have to be hyperbolic when they're describing it. They have to. If they just went out and said, we're creating a technology that's going to be a marginal improvement for a couple white-collar workers, you can't raise$2 trillion on that.

13:29Morgan Housel:They have to say this is the technology that ends all technology. There's no other way that they can do it. What's also interesting about how expensive it is, is that at least for the chips that they're building, the fundamental inputs in these data centers right now have a 12 to 24 month shelf life before they're obsolete. So not only does it cost trillions of dollars, you got to redo that every couple of years, which means they have to be hyperbolic, squared now when they're talking about what they're going to do. I mean, it's not dissimilar for when you were buying a new laptop in 1995, it was obsolete by 1996.

14:02Morgan Housel:So that's very much what they're going through right now. And so we don't know if it's a bubble, but we know that they have to talk as if there's nothing that comes after AI. This is it. The chip obsolescence is a bit of an argument in favor of NVIDIA. But I want to stay on this and piggyback off that. So a critique of behavioral finance or the behavioral finance worldview is that it's sort of it's conservative. So you're always not you, but that worldview is always preaching about the dangers of recency bias or overconfidence or narrative seduction. The issue with that is that some of the greatest wealth creation over time accrues to people who are wildly optimistic or almost hype men and women.

14:45in the case of the leaders of some of the AI companies who are out raising money. And so I guess I want to ask you the line between bias and vision or optimism. Like how do you strike the balance between those two things?

15:01Morgan Housel:I think part of this is like being very careful who you look up to because a lot of the people who are extremely successful, outsized, huge, multi-billionaires are successful because they don't think about the world in the same way you and I do. Some of that is very positive. They create amazing products, create a lot of wealth for their investors. Inevitably, with every single one of them, there's going to be parts of the world where they think differently in bad ways. And so when people have negative views about Elon Musk for his political statements, all that, whatever it might be, like, yeah, this guy's been trying to colonize Mars since he was 25 years old.

15:36Morgan Housel:He doesn't think like you and I do. Of course, he has very strange views about what we should do politically, But go on down the list, whether it's Zuckerberg or Bill Gates, like Jeff Bezos, all of them. The reason they're so successful is because their brains don't work like us. And a lot of them, I think, have hardest their demons for productivity. And there's another saying from Paul Graham, the investor, who he says half of the traits of the eminent are actually disadvantages. And they succeeded in spite of those things. And so it gets dangerous when people try to mimic those traits of like, oh, Steve Jobs was successful and he was kind of a jerk to his employees.

16:13Morgan Housel:So maybe I should try to do that, too. Like, no, he succeeded in spite of being a jerk to his employees. And so I think there's there's a lot of that. But in terms of like the thin line between bold and reckless is always very difficult to understand in hindsight. One example of this is Cornelius Vanderbilt. It was, you know, the richest man in the world during his day. by any account, by even the most optimistic account, the most charitable account of what he did, the huge portion of his wealth came from breaking laws, just completely flouting the laws. And he admitted that he had no qualms about that whatsoever.

16:45Morgan Housel:It was an era where he could get away with it. He could pay off judges. He did pay off judges. And we remember him today, by and large, as being wealthy entrepreneur, maybe like a maverick. It's so easy to imagine in alternative history, in which eventually caught up with him and they threw him in prison. And we remembered him as like the old school Bernie Madoff. So that line between bold and reckless is very, very thin and hard to know different ways in which it would have turned off. You know, Sam Bankman-Fried of FTX, who's now in jail right now for the crimes that he committed. He's tweeting a lot from...

17:16Morgan Housel:He's tweeting, he's trying to get a pardon. Trying to get a pardon, yeah. But that is another scenario where he easily, easily could have gotten away with that. If he had kept it going for another two months, He probably could have gotten away with it. And there's an alternative history where you and I right now were praising how much of a genius he was. Like those outside successes, there's always, there's a graveyard of people who made the same decisions of them and ended up with a very different outcome. It's spring cleaning season. And this year we decided it was time to clear out our old mattress and settle into a legend hybrid from Lisa.

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18:56Morgan Housel:I don't know about my financial life, but as a writer, I mean, it would be literally talking my book to say it's not going to replace writers, that we're still going to be in demand. But let's say what has changed for me as a reader, I consume a lot more content than I create. obviously there's a lot of discussion and whatnot like will this replace not just authors but musicians artists of all kinds I'm not optimistic on that at all I think people really like art and writing fits into that category as being able to connect with a fellow human I'll give you an example of this one of the best business books of the last 20 years shoe dog by Phil Knight I'm sure half of you have read it's phenomenal book unbelievable book about how he created Nike And this was not hidden.

19:38Morgan Housel:They didn't try to hide this, but I learned after I read it. And after I read it, I said, this is one of the best business books I've ever read. I learned that it was ghostwritten. And they didn't hide that. Interesting. The same ghostwriter wrote Prince Harry's biography and Roger Federer's biography. Very good ghostwriter. But after I learned it was ghostwritten, it took away some of the magic that I had really cherished that book for. And look, it's the same story. It is his story. But there's something very special about reading it and saying, like, I'm reading Phil Knight's words right now.

20:06Morgan Housel:And when you learned you weren't, I'm like, ah, it doesn't, it kind of took it away. Two years ago, Google came out with a product called Notebook LM, which what it was is an AI product that would create a custom podcast for you. So you go in and say, make me a podcast about the fall of the Roman Empire, about technology in the 90s, whatever you want. Or you can even upload a PDF and say, make me a podcast about this topic. And it would spit out a perfect 10 minute podcast describing anything you want. When that came out, I was like, this is the end of podcasts for people. Everyone's just going to listen to their own custom podcast.

20:41Morgan Housel:Why would anyone want to listen to a human? That was what I thought two years ago. How many notebook LN podcasts have I listened to since then? Zero. Because I don't want to listen to a bot describing it, even if it's perfect and accurate and fluent. I want to listen to the messiness of another human who's actually experienced these things going into it. So I'm actually not that optimistic that AI is going to disrupt art, writing, music, those kind of things as much as some other people. But of course, I have a stake in that game. Morgan, you have a gift for finding the question behind the question.