I want to know the future. So do you. However, our desire to know the future leads us to seek answers to unanswerable questions.
The question, “What’s going to change in the next 10 years?” is a popular one in nearly all industries. The siren song of avoiding uncertainty and knowing the future is hard to resist. Having the answer is the equivalent of signaling to the world that you’re an oracle.
The best thing? No one will remember how wrong you were.
To capitalize on what’s going to change in the future, a lot of things have to go right. Not only do you have to speculate the changing variables correctly, but you have to guess how they will interact. And you have to go all in on that version of the future. On top of that, you have to hope that your competitors thought you were crazy and didn’t invest resources in that version of the future. This is why it rarely works, and when it does it’s mostly luck.
While predicting the future is important, it’s often not knowable. We’re speculating, but our brains convince themselves otherwise. Plausible answers about the future tend to cement as reality in our minds. We convince ourselves that we know something that is not knowable.
The range of possible futures is always changing, a lot like electrons. Electrons baffle physicists because they are hard to pin down. Any attempts to locate them require the use of energy. Electrons are so light that the energy we use to locate them changes their location. In the same way that shining a light on an electron will change its position ever so slightly, investing in a particular version of the future will change the probability of that particular future ever so slightly. Complicating things further, it’s not a single-player game—it’s a multi-person game and the odds are always changing.
Beyond that, once you shine the light on what’s going to change and how this time is different, you may forget to look at a simpler and more important question: “What’s not going to change in the next ten years?”
Jeff Bezos and Warren Buffett agree on this question being the more important of the two. Think about that for a second. The leader of one of the most innovative high-tech companies in the world and the leader of one of the most boring conglomerates in history both agree that a question about what’s not going to change is more important than one about what will change.
Bezos realizes that energy and effort put into predicting what’s going to change is a speculative bet. It might work, and it might not. The hope is that if it works it pays off spectacularly, and if it doesn’t work, it doesn’t cost you much.
While investing in what’s changing is risky, investing in what stays the same is not. Bezos realizes investments in what doesn’t change will still be paying off in ten years. “When you have something you know is true, even over the long term,” he said, “you can afford to put a lot of energy into it.”
Predicting what’s going to change is hard. Predicting what’s going to stay the same is relatively easy. Think about the dotcoms. Everyone was running around and saying this time would be different—everyone but Warren Buffett. He was sitting in his office in Omaha asking himself what would stay the same.
Alice Schroeder, Buffett’s authorized biographer, explains it this way:
There is less emphasis on trying to reason out things on the basis that they are special because they are unique, which in a financial context is perhaps the definition of a speculation. But pattern recognition is his default way of thinking. It creates an impulse always to connect new knowledge to old and to primarily be interested in new knowledge that genuinely builds on the old.
While you can’t know what’s going to change in the future you can intelligently speculate on it, which is the best path. The safe play is to invest resources into all probable futures. This conveniently keeps options open, allows you to tell the board of directors with a straight face that you’re working on it, and makes you better off than had you not explored the future. The problem, again, is that the game has many players. While most companies took the same safe strategy as yours, someone—somewhere—went all in on this particular version of the future. That company is now being expensively acquired, by you or someone else.
The important point is that while you’re doing that, you should be inverting the problem. Answers to what’s going to stay the same in the next ten years, while boring, offer the best investment opportunities.