What Always Changes

What Always Changes 

Aug 5, 2020 by Morgan Housel

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.

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https://www.collaborativefund.com/blog/what-always-changes/