“A nuclear bomb was detonated today for the first time in 200 years” screams the headlines.
The DOW Jones dropped 20%, hitting multiple circuit breakers where trading was temporarily halted.
People are panic-buying household goods, including toilet paper, water, and staples like rice and beans.
It’s inevitable that the war will drag on, stocks will not recover, and the economy will be in shambles for decades to come.
At least, that’s what people are saying.
Is it different this time?
Those aren’t actual headlines. They are fictitious.
I made them up — one scenario of many I could see where people would claim “This time is different.”
It’s a popular phrase to use when the economy feels different.
It could be war, new technology, high valuations, a debt crisis, new “currency”, or something else.
Let’s discuss what it means when people say, “This time is different” and how it’s unlikely to be different, but how it could be.
This Time is Different
I’m writing this during a time when I’m not hearing “This time is different”, and that’s on purpose.
When you are reading this, I won’t know what it is that could be different.
I do feel confident it will revolve around valuations and psychology. Though, I could be wrong.
When people say “this time is different”, it usually has to do with how people believe valuations don’t matter.
If it isn’t valuations, it’s likely the psychology of rational thought and greed.
This Time is Different: Valuations
One of the common times you’ll hear “this time is different” is when assets are rapidly going up in price and people lose sight of the valuations of what they are buying.
People saw this happen during the Dot-com bubble in the late 90s and early 2000s.
As the internet grew, internet startups grew, and people started throwing money into the fire. They wanted to participate in the IPOs and people who were making money hand over fist.
Everybody thought the internet was going to change the world and valuations got to the point where people would invest in an idea without any revenue or an idea of whether the business would actually work in the real world.
For example, even Cisco, which had an established business compared to many in the late 90s, had a P/E ratio of 196.2 in March of 2000. The historical “normal” P/E ratio for the S&P 500 is about 20.
Although Cisco survived, it’s been more than 20 years later, and it still hasn’t reached its previous value.
Other companies were not as lucky.
Many went out of business or were bought by competitors: Pets.com, Webvan, and eToys.
Pets.com sold pet food and supplies online. Webvan was a grocery delivery service. eToys sold online toys.
Do you notice anything about these businesses?
They exist today — not the specific name of the company — but the idea behind the businesses did not die. Businesses with similar ideas exist today, some of which are doing very well.
While these businesses exist in a form today, the valuations in the Dot-com bubble anticipated massive growth and they were unable to deliver.
The valuations got ahead of the companies.
Eventually, valuations mattered again and prices came down.
Valuations matter, whether people say they do or not.
Can valuations change over time?
It depends on who you ask.
I think there are good reasons for valuations to change over time, such as technology, other investments available in the market, and interest rates, but there is a difference between valuations changing and valuations skyrocketing.
It helps if you have an investment policy statement.
This Time is Different: Psychology of Rational Thought and Greed
People aren’t rational.
At least, they aren’t rational in the way economics makes it out to be.
People make decisions based on their own lived experiences. What seems irrational to you may seem completely rational to me based on my own experiences.
Emotions also play a part, for better or for worse.
When we see mania in the market, big economic events, or a disruption in our everyday lives, “rational thought” can go out the window.
If you see a friend earning 20% or more per year investing in an asset class, you may decide to get greedy.
You may not understand it. You may not know how it fits into your financial plan. You may even know it’s a huge risk.
But, you may do it anyway.
A good example is the housing crisis portrayed in the movie The Big Short when Michael Burry discovers a dancer owns five homes and a condo.
People thought real estate could only go up.
Mortgage brokers sold more loans. People bought more houses. Everybody was getting rich.
Until it all came crashing down.
You have also seen it in stocks, cryptocurrency, and other asset classes.
“This time is different” is a popular phrase to use as people get greedy and abandon their more rational side.
The Cycle of “This Time is Different”
“This time is different” tends to have a cycle: optimism, euphoria, greed, anxiety, denial, and fear.
You could add other emotions to the cycle, but those six words capture most of it.
The path from greed to fear can be a quick or extended, depending on the length of the cycle.
Sometimes there are quick bursts of greed followed by a crash and fear. Other times, it can go on far longer than anyone anticipated, and that’s when it can really feel like “this time is different.”
During the tech bubble, it started with new technology and the internet. There was optimism.
New companies launched, and there was euphoria developing across the U.S. People started adding “dot com” to their names because it could send the stock price up.
Then, greed took hold. People started investing in companies without solid prospects or a path to profitability. People tried raising money merely for ideas without a concrete business plan.
As things started to crash, anxiety started. Then, denial.
Near the bottom when the Dot-Com Bubble popped, fear was everywhere. People were afraid to invest again.
The same happened during the Global Financial Crisis in 2008 and 2009.
Although it’s a cycle, it’s impossible to predict.
It feels like it is easy after the fact, but it’s not in the moment.
People get caught up in making money and feeling like the good times will roll on for forever — that things really are different this time.
Although sometimes things are slightly different, it’s rarely when people are saying, “It’s different this time.”
Those words are usually a justification for something that isn’t different but part of the cycle.
Examples of “This Time is Different”
What is challenging about “this time is different” is that it can really feel different, even when you know the history behind bubbles, mania, and greed.
Below are a few examples:
- Latin American Debt Crisis of the 1980s
- Asian Financial Crisis of the 1990s
- Dot-com bubble in the late 1990s and early 2000s
- Beanie Babies in the 1990s
- Real estate during 2008 and 2009
- Cannabis stocks in 2018
- Cryptocurrency between 2018 and 2024
Many of these feel obvious, but that is in hindsight.
It’s easy to say, “Oh, that was a bubble. It was obvious.” I would never participate in anything like that or be suckered into the mania, but it’s hard to avoid.
When greed happens and you start hearing “this time is different”, it’s everywhere.
It’s in the news, talked about at the dinner table, discussed with a neighbor over the fence line, speculated about with colleagues, mentioned by the grocery store clerk, and talked about while getting a haircut.
It’s hard to resist participating when it feels like everyone is getting rich.
That’s why people lost fortunes during the Dot-com bubble, families bought Beanie Babies as if they were a retirement plan, and people lost homes and went through bankruptcy during the real estate crash.
It feels easy. It feels like this time is really different.
I encourage you to read about any of the past manias and the resulting consequences.
What is the best upside scenario? What’s the worst possible scenario?
Do you want to risk it all for the best upside scenario knowing what the worst possible scenario entails?
For many people, it can be bankruptcy, starting over financially, never recovering, and losing family and friends.
If you really think this time is different, one idea is to not take on enough financial risk for it to ruin you. If it really is different this time, a small investment may be enough to radically change your life.
But, is it really different this time?
Probably not.
How to Evaluate if “This Time is Different”
There is no foolproof way to determine if this time is different; however, let’s discuss questions you can ask yourself before participating and how to limit your exposure.
Below are a list of questions you can ask yourself to help decide if this time is different:
- Does it feel like I’ll miss out on something major if I don’t participate?
- Am I hearing about it from everywhere, even the most unlikely places?
- Is it requiring me to risk my financial security to participate?
- Is almost everyone telling the same narrative?
- Is the investment/situation attracting many people outside of the industry?
Fear of missing out, or FOMO, shows up during manias. It feels like everyone around you will get filthy rich, and you’ll be poor.
You may hear things like, “You need to get in on the ground floor. I don’t know how much longer it will last. Now is the time.”
That’s probably a good sign things are not different.
If you are hearing about it from everyone, there is a good chance this time is not different.
During past euphoria, rideshare drivers talk about making money, hairdressers discuss their financial moves, your grandpa or parents may ask about it, it shows up in the news nearly every day, and you hear wild stories about people who went from nothing to making a fortune.
If you have to risk your financial security to participate, is it worth it?
I like the Warren Buffett quote “Never risk what you have and need for what you don’t have and don’t need.”
Leverage, or debt, is an excellent way to change your financial situation — either for the better or for worse.
A common sign during periods where it’s not different is people loading up on debt to make financial moves. It can feel okay, until something minor changes. You lose a job, an investment goes down, new laws are enacted, or a renter does not pay rent.
Everything is okay, until it is not.
Have you ever asked your office colleagues for their opinions?
How many would agree?
Chances are, not very many. You probably hear 20 different opinions from 12 different people.
Imagine if everybody was agreeing about it being different this time. Everybody is telling the same story and making similar moves to participate.
What are the odds people from across the United States or world would agree on the same thing and they are right?
I’m betting very low. It’s probably not different this time.
Lastly, if the investment is attracting people outside of the industry, tread cautiously.
It’s one thing for industry professionals to get excited about something. It’s different when seemingly everybody is excited about it.
When everybody is buying technology stocks, multiple homes, or saying it will be doom and gloom for forever, you should question it.
Everybody agreeing is unlikely to mean everybody is right.
Final Thoughts – My Question for You
“Is it different this time?” is a good question to ask.
It feels like it’s easier to get caught up in the hype, mania, and doom-and-gloom of recent history.
The world is more interconnected, and you can hear more voices more quickly.
That can be good for some things, but when it comes to making good financial decisions, it can muddy the water.
While the world changes, it’s rare for it to be different this time.
Whatever is going on in the world right now, it could be different, but remove yourself from the emotion of it. Ask yourself the questions previously discussed. Consider your own financial picture and what it means to participate.
That should tell you whether this time is different.
I’ll leave you with one question to act on.
Is it different this time?
