Investors are affected by these cognitive errors, too. It is why a whole generation of investors whose outlook was shaped by the 1960s and 1970s spent much of the second half of their working lives in fear of inflation. For many of them – and I can’t wholly exclude myself from this – that meant opportunity losses since the interest rates that powered their pricing models were higher than they needed to be and, consequently, the values they splurged out were lower than they should have been. Ironically, it is only now there is a generation running the show whose memory isn’t so scarred that policies are being energetically pursued that will permit inflation’s resuscitation. Today’s leaders still understand that money doesn’t grow on trees; they know it is far easier to produce than that.
Similar errors are made in the assessment of internet technology. Some of us whose working lives began clacking away on manual typewriters and using Extel cards for financial information may remain in awe of technology’s information-gathering and processing capabilities and, true, fiercely difficult techie stuff still lies behind it. But the internet itself has evolved to commodity status. It is not just that it’s 36 years since Microsoft (US:MSFT) launched its first version of Windows, it is also 26 years since it released Windows 95, whose interface has a clear connection with today’s Windows 10. Likewise, Amazon (US:AMZN) started trading 25 years ago by which time any number of search engines were up and running (though not Google).