AI Optimism and the Agony of Waiting

0:00Success in investing is rarely about knowing more than everyone else. More often it's about avoiding emotional mistakes when uncertainty rises. Davis advisors shares that philosophy. Their research-driven active portfolios are managed with a long-term perspective designed to help investors participate in the growth of durable businesses across market cycles. Learn more at DavisAdvisers.com. Before investing you should carefully consider the investment objectives, risks, charges, and expenses. The prospectus or form ADV as applicable contains this and other information. You can obtain a current prospectus or form ADV by calling 1-800-279-2279. Investing involves risks, including possible loss of principle. All right, welcome back. Last week we talked about a quirk of human psychology, which is when you are anticipating something good, like a vacation or a new house, the anticipation usually feels the best, and it tends to feel better than the actual experience. That's just how people's minds work.

1:01Part of this didn't really mention this last week. I think a lot of the reason is because when you are anticipating something good, you imagine it being explicitly purely good, and you are not thinking about all of the other mundane, if not annoying and bad things that might also take place during that good experience. When you are dreaming about the next vacation, you imagine yourself on the beach and everything is wonderful, and that's this perfect scenario and it feels so great when you imagine it. When you are actually on the beach, you are jet lagged, and the guy you had to wake up early to get a beach chair and you got sunscreen in your eyes and your kids are yelling, and the temperature is not perfect, and the food wasn't that good. There are all these other normal things that combine into the great experience you are having, it just makes it not as great as it was when you are anticipating it. Now bring that up because I think the same is true in reverse, in the other direction, that when you are anticipating something bad happening, the anticipation is the hardest

2:03part. When the actual bad thing happens, it's not as bad as you imagined. I started thinking of this because we're nearing the 25th anniversary of September 11th, and I watched a documentary on September 11th the other day that was so, so, so good, and reminding everyone what it was like that day, and for the people who are not directly involved in the attacks, like leave them aside, the hardest part of that day for most Americans was not knowing if it was over. It was the anticipation of is that it or is there more coming, that fear was among the hardest things that people dealt with that day. I had that kind of idea in my head, and I started thinking about another thing that's happening right now, these days, which is how many people all over the world are anticipating something bad to come out of AI. If you're not one of those, look at the surveys and talk to people about how they feel about AI, and it is off the charts bad right now.

3:06The standard view about what is AI going to do to us is it's going to take all of our jobs, use up all of our resources, et cetera, et cetera, cause huge cyber attacks, whatever it might be. I don't want to discount any of them. It could easily be the case, but I think when you understand the psychology of how people anticipate things, and this being the opposite of anticipating a vacation, that when you are anticipating something bad happens, all you can imagine is the bad, the downside of it, and you cannot anticipate that when it actually happens, if something like that does happen, how much mundane and even good stuff will happen at the same time that will blunt how you feel about this episode. I think there's more going on here than just blowing things out of proportion. When you're anticipating something good, you blow it out of proportion. When you're anticipating something bad, you blow it out of proportion. I think a lot of it is people's inability to recognize how quickly your mind adapts to the circumstances that it's in. Good or bad?

4:06Your own mind is a very proficient storyteller, and it's very good at filling in the gaps of what you might experience in the future. If you think it's good, it will fill in the gaps, and you will imagine yourself having the best time with whatever you're anticipating good thing happening. If you think it's bad, your mind will very quickly fill in the gaps of uncertainty to make it sound like something that is absolutely apocalyptic. You are a very good storyteller inside of your own head, and most people's brains have no room whatsoever for question marks or uncertainty. You can fill them in very quickly. Look, making forecasts about what AI might do to our future is not something that I partake in. I don't think it's necessarily anything that anyone can do with any kind of accuracy. I mean, imagine if this was 1998 right now when we were talking about what the internet was going to do to our future, how many people said, oh, there's two grad students at Stanford named Sergei and Larry, and there's a sixth grader in New York named Mark Zuckerberg, and they're going to own the entire internet platform. Nobody was saying that at the time.

5:08I think it's very similar for what it is, but I think there's also something to be said about the amount of worry about what the internet would do in the late 1990s, by and large did not come true. Whether that was Y2K or the elimination of retail jobs, the elimination of retail stores, look, around the edges, there were a lot of things that happened, but there are more retail workers today than there were back then. And two of the most thriving business successes of the last 25 years are Costco and Walmart. And so the idea that a new technology is going to be apocalyptic to either the economy or a single industry has been a worry for hundreds and hundreds of years. And a lot of the reason it's a worry is because you underestimate how much people can adapt psychologically to whatever happens and how much the economy can adapt to new technologies. And back to we blow things out of proportion, either good or bad, but the reality tends to be much more mundane. Look, I'm not going to make a forecast, but is this a reasonable outcome for AI that

6:0910 years from now when we look back at what's happened, that what actually happened was fairly mundane and that mundane outcome was a lot of jobs became 20 or 30% more productive, more efficient in your job. And those gains accrued to economic growth, accrued to wages, accrued to cheaper products for consumers. And that's the main story of AI and the apocalyptic forecast of what it might do to jobs and what not never came to be. If that is what happened, that would be par for the course for new technology. That's the only forecast that I'm going to make. All right, let me get into some of your questions. This one's from Jamie. I'm paraphrasing this one. He says, what belief about money do you hold mainly because it has worked out for you, but might be dangerously specific to your life? Given that, I think I held at one point, but I don't know if I do anymore, is the very stock and standard advice of do what you love. And I bring that up because all I've ever done in my professional career is written about money and it's never felt like work. I love it.

7:10I would be doing it if I wasn't getting paid. It's never felt like a job. It's always felt like this is what I love to do. And it worked out. And I think in general, that is very bad advice for people. Is to say, follow your passion into what you love. There's a great Chris Rock joke. And like most comedy, it's very insightful. And he says, stop telling kids you can be whatever you want when you grow up. He says, you can do whatever you're good at as long as they're hiring. I think there's a lot of truth to that as well. That follow your passion. A lot of people's passion will not make a living for them. Scott Galloway has another idea when he's like, whenever you find a rich person who says follow your passion, that person already made their money, probably an iron or smelting. Something like that. They got rich doing something that was not their passion. And now they go out and tell people to follow their passion. And I think a counter to this might be people do their best work when they're having fun, when they actually enjoy what they're doing. But I think that's not a good interpretation of what's happening. I think people do their best work.

8:10They're the most creative. They can focus. They find a state of flow when they are working on very important, big, meaningful problems. And a lot of those problems are not necessarily fun. You're building bridges, you're designing bridges, you're an engineer, whatever it might be. There's not your passion per se, but it's a very important, challenging problem that people enjoy. Another, I'm going to quote many people for this answer, but there's a Jeff Bezos line where I love where he says, if you can enjoy half of your job, like if 50% of the time you're enjoying what you're doing, that's a great outcome for a job. That every single job in the world is going to have things that don't feel like work and you don't enjoy doing. True for every job and coming to terms with those odds is pretty important. It did work out for me that I love doing what I'm doing and I made a career out of it. There was not always the case. There were many years in my career when I said I enjoy doing this. I don't know if I can make a living out of it. And those were terrifying. All right, next question is from Kevin. He says, what do people misunderstand about the emotional cost of getting exactly what

9:13they want? Great question. I love this. Is misunderstanding or being surprised how quickly when you get, quote unquote, everything you want, your mind just shifts to the next thing. And I think almost everybody will almost always have some idea in their head that if only I had X, then all my problems would go away. It might be a marriage, a college degree, a relationship, a job, retirement, a new house. But only I had this thing, then I'd be happy and content. And it's almost never the case. You instantly just move on to whatever is next. And you see this with a lot of very wealthy people who have more money than they could ever spend with no exceptions. With no exceptions are those people just walking balls of happiness with no problems. If anything, it might be the opposite that if they have more problems than they did before, they were rich. Those very wealthy people can actually be a spotlight and a highlight onto the idea

10:14that once you get everything you think you wanted, you are still left with a lot of problems in your life. And a lot of them are miserable because of that. It's easy for someone who doesn't have everything they want to tell themselves, like give themselves hope. Like, oh, if I only had that, I got to strive for this thing because then everything would be okay. It's people who have achieved all those dreams that I think can fall back onto a state of misery. And when they realize, like, no, I did get everything and I'm still unhappy. I'm still unfulfilled. The other point here is that nothing in life is as desired as the thing that you want but cannot have. That's what you want more than anything. If you get everything you want, you appreciate nothing of what you have. In the same way that you and I don't think anything about air because we can get, you only desire what you cannot have. That's always true. And for people who get almost everything that they want, they have unlimited money. The doors open. We'll find something else to shift their desire towards. The last point I want to make is that getting what you want tends to be the death of dreaming

11:17and dreaming is really fun. Like having something to look forward to and anticipate that you don't have yet is a big part of enjoying life. And if you were to take that away, that could be a hard thing to deal with. All right. Next question. This one's some Ryan. He says, I spend so much time dreaming about retirement and planning for the future that I worry I'm not fully enjoying the present, especially during the precarious chaotic stage of raising young children. How do you find the balance between aggressively planning for a secure financial future and staying grounded in the moment? Ryan, people have been asking this for thousands and thousands of years. I'm not going to pretend that I will give you the full and complete and easy answer. But one of the things that I think about having always been a big saver for my whole life is that I never view savings as delayed gratification. I get pleasure out of it right now. And if I didn't get that, that would be a waste for me. I get pleasure today thinking about the financial stability and cushion and help for my children that I have for the money that I've saved in the past.

12:19I don't view it as like, oh, I'm suffering right now, but one day it's going to be okay. And I think if you don't get that, that's when you need to reevaluate your spending priorities. It's fine to be a big saver, a super saver, a hyper saver. If you get pleasure out of it today, if you view it as a sacrifice, that's when I would question it. I think there's no formula on how much you should save or how you should do that. I think people are very different in this regard. No two people are alike in this. And maybe we can bring this together with what we talked about earlier in the episode, which is that anticipating things tends to be a lot of the pleasure of what it is. And so even when I think about spending the money that I have saved up in the future, I get a lot of joy just thinking about that of like, oh, like in the future, because I've saved, we're going to be able to do this with our children and by the way, we don't live any kind of extreme, through good life. Like we, my family and I enjoy everything that we want to in the moment, enjoyed in the moment while saving for the future and taking joy in the moment, knowing that because we

13:21have saved and have this buffer, we have a little bit more protection and can be more flexible and can dream about things that we do in the future. I mean, that's my simple answer. Next question from Michael. He says, from your experience as a father and from your observation of other parents, how do you think kids generally impact the formula for a nice life, which as I've proposed, is independence plus purpose? I will not shock any parents by saying this, but nothing will give you more purpose to live for than kids, especially when you are raising those kids. Great quote from Warren Buffett where he says, it's very important to have people in life who you do not want to disappoint. Very important in life to have people who you do not want to disappoint. And I think no one is capable of giving you that sense more than your children. I do not want to disappoint you. I do not want you to look back when you are adults and say, I wish my dad did this differently. He didn't think it through when he did this to me. And it's very similar that I've heard one of the best definitions from when you are successful

14:24as an older adult is when your adult children still want to talk to you, still want to hang out with you. Everyone is going to be different on what their purpose might be. It can be religion, it can be their careers, it can be helping in their community, whatnot. I think for the majority of people, that's probably a safe statement, it's their children. That's their purpose. Whether those kids are young or adults, that's what it's all about for me at least. I want to raise good kids who become good adults. I don't want to disappoint them. And so not only do I think kids impact that equation, Michael, I think that's the thing they are one of the strongest and most important inputs in it. Last question, Simpson Travis. He says, your books are priced quite modestly compared to many other personal finance books. Was that a deliberate decision? If so, what was the rationale behind it? Kind of a silly question, I debated whether I should even answer this or not, but I'll give you some behind the scenes, views of how books and publishing work. No, that was not my decision whatsoever. And by and large, not even the publisher's decision. If you go on to Amazon right now and you want to buy a paperback copy of the psychology of money, I think it's $10.99.

15:24That price is entirely determined by Amazon. Their algorithm that says we should discount it by this much and price it by this much is in that. And when I say determined by Amazon, determined by some faceless, humanless algorithm on Amazon that prices it like that that shows that they can maximize profit or revenue or whatever they do it in there is not to me. But one thing I'll say about book pricing is two things. The idea that you can for $10 or 20 or at the most $30 gain access to five or 10 years of someone's work is incredible. And I don't think it's an amazing thing of how much knowledge you can glean from books for what seems like a pretty low price. And I buy a lot of books. I haven't read the majority of books that are in this office. And sometimes when a new book comes out and it's like $35 for a hard back, I'm like, oh, that's an expensive one. I'm like, are you kidding me? Like $35 to gain full access to five years of someone's thinking or more of their thinking.

16:25That's incredible. The other side of this that is fairly new to the last 10 years is that there is so much free content available in the world, whether it is blogs or podcasts or this podcast that you can as have access to for free, almost infinite. Just in the podcast world, you will never run out of amazing content to listen to for free. And it has made the idea of paying $10, $20, $30 for someone's words more difficult than it used to be. And so the book industry in general, I think, is facing not hard times, but not great times right now. And we should recognize that the reason, the main reason it's having a hard time is because we live in such an amazing, abundant world of free content for consumers. What's hard for the businesses and the publishers and some of the authors is amazing for the people who just want to get smarter and consume content. All right. My recommendation told you earlier, obviously the 25th anniversary of 9-11 is coming up, watch a documentary. I also read this amazing book recently by Garrett Graff.

17:26It's called The Only Plane in the Sky, an oral history of 9-11. It's an oral history. It just goes through paragraph by paragraph asking people who were there that day and experienced it, what they went through. And it is unbelievably good. If you're in this kind of history and reading about kind of stuff, the anxiety, the pain, the trauma, the heroism, everything in there, all combined. Oral history, I think, is one of the best ways to portray history, not through the lens of the author weaving a single narrative, but just asking a bunch of people, what did you see? And just writing their quotes down for Badam is a wonderful way to portray history. I'll tell you something that I learned from it that I had absolutely no idea that stunned to me, which is when Flight 93 was still in the air. It was hijacked, but still in the air and heading towards Washington. This was the flight that eventually crashed in Pennsylvania. It's heading towards Washington. We already knew the World Trade Center that it was terrorism, that there were hijacked planes and we saw another plane coming to Washington and we knew it was probably heading to either the capital or the White House.

18:26And there was a very quick decision made at the highest levels of government that the military should shoot that plane down. Even though it was a commercial plane filled with passengers, we have to shoot that plane down. A, the decision to make that in just in a split second, the pressure to make that kind of decision. Here's why I did not know though. The DC Air National Guard, when they scrambled jets to go get this plane, did not have planes on the tarmac that had missiles loaded on them. And it takes a lot of time to load those missiles on. And so they sent up two pilots in F-16s to intercept Flight 93 without missiles. And the two pilots were told you don't have missiles on your plane, but you need to get this plane out of the air. And their commander looked at them and said, do you understand what I'm asking you to do? And what they were asking them, the U.S. pilots to effectively do was a suicide mission to ram Flight 93 with their F-16s. And I want to read you the passage from the two U.S. military pilots.

19:30This is Lieutenant Heather Penny. She was one of the F-16 pilots. She says, we would be ramming the aircraft. We didn't have weapons on board to shoot the airplane down. Because we, her and the other pilot, whose name is SAS, as we were putting on our flight gear in the life support shop, SAS looked at me and said, all ram the cockpit. I made the decision that I would take the tail off the aircraft. Obviously, it didn't happen because Flight 93 crashed from the people who are on the plane who intercepted the hijackers, but so much went on that day. And one of the things when you study a lot of history, the history of really bad events, wars and things like this, it's often that you get, yes, so much trauma and bad news and pain and suffering. You also hear stories of people just being unbelievably brave and a level of heroism that I think is just astounding to think about. That's it for this week. Thanks again. We'll see you next time.