YAPClassic: Morgan Housel on Investing, Wealth, and Financial Freedom for Entrepreneurs

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0:01:19 (gentle music)
0:01:22 (gentle music)
0:01:32 – Young Improfitors, money is a mind game.
0:01:35 Our financial decisions are deeply intertwined
0:01:39 with our emotions, more so than we often realize.
0:01:42 That’s why recognizing the psychological aspects
0:01:44 of our relationships to money
0:01:48 can help us avoid some significant financial missteps.
0:01:50 And there’s nobody who’s better at illuminating
0:01:53 this connection between psychology and finance
0:01:54 than Morgan Housel.
0:01:57 Morgan is a former financial columnist
0:01:59 for The Motley Fool and The Wall Street Journal.
0:02:02 He’s the author of books like The Psychology of Money.
0:02:06 And he was my guest earlier this week on the podcast.
0:02:07 It was the second time on the show
0:02:10 and he had so many wonderful insights
0:02:12 that he couldn’t help but give you a second helping
0:02:14 in this Yap Classic.
0:02:16 In my first conversation with Morgan Housel,
0:02:18 he talked about some of the emotional pitfalls
0:02:22 related to money, the skiing accident that changed his life
0:02:24 and why the biggest risks are the ones
0:02:26 that you don’t see coming.
0:02:29 He also shared some secrets for staying rich
0:02:32 along with the underappreciated trait of Warren Buffett
0:02:35 that he thinks we all should emulate.
0:02:38 If you wanna find out what that is, let’s dive in.
0:02:40 Here’s my interview with Morgan Housel.
0:02:45 So I’m gonna cut straight to the chase.
0:02:47 You are a master of many trades.
0:02:49 You’re a best-selling author, investor,
0:02:51 you’re even a podcaster.
0:02:54 So how do you define what you do today?
0:02:55 – It’s such a good question.
0:02:56 I would say I don’t.
0:02:59 I’ve never tried to put myself in a box
0:03:01 and I think I’ve moved around over the years.
0:03:04 I think if you asked me that question 10 years ago,
0:03:07 I would have said I’m an investor who writes.
0:03:08 And maybe if you asked me today,
0:03:10 I would say I’m a writer who invests.
0:03:13 Like I’ve just switched around what I enjoy doing.
0:03:15 And it used to be that all of my emphasis
0:03:18 and research and enjoyment was investing.
0:03:21 I wanna scour the world and study investing history
0:03:22 and whatnot, and I still love that.
0:03:24 I’ll always do that.
0:03:29 But the art of storytelling really bit me 10 or 15 years ago
0:03:32 and that’s what I’ve really find joy in doing now.
0:03:34 And that’s the craft that I wanna hone.
0:03:35 And I think jumping around like that
0:03:36 has been really important.
0:03:41 If you just put yourself in a box and say I am a blank,
0:03:42 you’re cutting off so much of the world
0:03:44 that you might find enjoyment in
0:03:46 and have some talent in doing.
0:03:48 – Yeah, and when did you first get interested
0:03:51 in finances as a young man?
0:03:55 – I think I was 19 when I first stumbled across investing.
0:03:58 I’ve told the story before, but it’ll always stick with me.
0:04:02 When I was 18, my grandparents gave me $1,000
0:04:04 and I put it in a CD at the bank,
0:04:06 certificate of deposit where it earned interest.
0:04:10 And I think I intuitively knew what interest was,
0:04:11 but I didn’t really get it.
0:04:14 And I remember I logged into my account the next day
0:04:19 and the balance had grown from $1,000 to $1,000 in three cents.
0:04:20 I earned three cents of interest
0:04:22 and I remember jaw hitting the floor,
0:04:25 being completely stunned that I just earned money
0:04:27 for doing nothing just for waking up in the morning.
0:04:28 Somebody paid me.
0:04:31 I knew at that moment I was like, this is the thing.
0:04:32 This is what I love doing.
0:04:33 And so all throughout college,
0:04:37 I wanted to be a hedge fund manager or an investment banker.
0:04:39 I think in that era, like the mid 2000s,
0:04:42 this was what everybody wanted to do in that field.
0:04:45 And then I kind of stumbled haphazardly across writing.
0:04:46 It was never part of the plan.
0:04:48 I never wanted to become a writer.
0:04:49 And even when I started doing it,
0:04:52 I was a senior in college
0:04:55 when I got a job at the Motley Fool writing about stocks.
0:04:56 And I didn’t want to do it.
0:04:59 I just needed a job, but I fell in love with it.
0:05:01 So I think that in itself is a lesson,
0:05:03 particularly for people in college,
0:05:05 you might think you know what you want to do
0:05:07 and you have a goal and you have a path in front of you,
0:05:11 but so many people, including myself, probably you,
0:05:13 stumble into what they actually love
0:05:15 and want to do serendipitously.
0:05:19 So I think it was great that I did not follow the path
0:05:20 that I thought I had paved for myself
0:05:23 and just stumbled into something else.
0:05:25 – Yeah, and it sounds like you had an open mind
0:05:28 to explore different skills and see what you were good at.
0:05:31 And then you were able to merge finance and writing,
0:05:33 which you didn’t expect to actually do
0:05:36 into a career as an author, a bestselling author at that.
0:05:38 Well, here’s what’s really interesting.
0:05:40 I would not say I had an open mind about it.
0:05:43 I graduated college in 2008 when the world was on fire
0:05:45 and everything was burning down.
0:05:47 The economy, like no one in finance was hiring.
0:05:48 Everybody was laying people off.
0:05:51 So I found a job at the Motley Fool as a writer
0:05:54 and I took it because I had to, I had rent to pay.
0:05:54 That was why I took it.
0:05:55 I didn’t do it because I was like,
0:05:57 oh, maybe I like writing.
0:05:58 That’ll be fun.
0:06:00 I took it because I was like, I need to paycheck today.
0:06:03 And they were the only people in finance who were hiring.
0:06:05 And so for the first six months,
0:06:06 not only did I not really like it,
0:06:07 I was kind of ashamed of it.
0:06:09 I was like, I want to be a hedge fund manager
0:06:11 and now I’m a blogger.
0:06:12 What is this?
0:06:14 After about a year, I started to really enjoy it
0:06:16 and just love the craft of writing.
0:06:18 – Yeah, and that makes sense because usually,
0:06:21 if you don’t have experience, you’re bad at that thing.
0:06:23 And then you feel demotivated
0:06:24 ’cause you’re not that good at it.
0:06:25 But over time, if you get better,
0:06:27 you can enjoy it and find motivation,
0:06:29 I’m sure, in what you’re doing.
0:06:30 – I think if there was one thing
0:06:32 that has really helped me in my career,
0:06:34 it’s a combination of, for the first two or three years,
0:06:37 I had to do that job because nobody else was hiring.
0:06:39 And then after that, I think I’ve just been stubborn.
0:06:41 I don’t know if it’s patience or stubbornness
0:06:42 or a mix of the two,
0:06:45 but I’ve been writing about behavioral finance
0:06:47 every day for 17 years.
0:06:49 And if you do anything for that long,
0:06:51 you’ll gain some proficiency, no matter what it is.
0:06:56 Anybody in any field, if they do it every day for 20 years,
0:06:57 will get good at it.
0:06:59 And so I think that’s been just like sticking with it
0:07:01 has been what’s helped me the most.
0:07:04 – Yeah, and I think something that also changed
0:07:05 the way that you think about the world
0:07:07 is actually an accident that happened
0:07:09 when you were younger on ski slopes.
0:07:11 It severely impacted you.
0:07:13 It’s really, really traumatic and tragic.
0:07:14 What happened?
0:07:15 Can you tell us about that
0:07:17 and how it shaped the way that you view the world?
0:07:20 – Yeah, so I grew up as a competitive ski racer
0:07:21 in Lake Tahoe, California.
0:07:22 I was on the Squad Valley ski team
0:07:26 and that was my life for my childhood and my teenage years.
0:07:28 Skied six days a week, 10 months a year,
0:07:30 all over the world racing.
0:07:31 It was great.
0:07:32 It was like such a cool experience.
0:07:34 And there were about 12 of us on the Squad Valley ski team.
0:07:36 And we were all best friends.
0:07:38 We had been together since we were children,
0:07:40 skiing six days a week all over the world.
0:07:45 And so one day in February of 2001, I was 17 years old
0:07:47 and I was skiing with my two best friends.
0:07:48 We had grown up together.
0:07:50 They were 17 as well.
0:07:53 And we would ski down the backside of Squad Valley,
0:07:56 which is out of bounds, which you’re not supposed to do.
0:07:58 You duck under the ropes that say do not cross.
0:08:01 But we did this ’cause we were young and rebellious
0:08:02 and that’s where the best skiing is.
0:08:03 It’s untracked.
0:08:04 You have the place to yourself.
0:08:06 Now, when you ski out of bounds like that,
0:08:08 when you get to the bottom, there’s no chairlift
0:08:09 because you went out of bounds.
0:08:12 So it would spit us out on this back country road
0:08:13 and we would hitchhike back.
0:08:14 We love doing this.
0:08:16 It was kind of a thrill like we got to hitchhike.
0:08:19 It was all very rebellious thing that 17 year olds do.
0:08:21 So the three of us ski this run.
0:08:24 And as we’re skiing down, I very vividly remember,
0:08:27 we triggered a small avalanche.
0:08:29 And it’s like, it’s a feeling that you will never forget
0:08:33 because rather than pushing on the ground with your skis
0:08:34 to gain traction and control,
0:08:36 all of a sudden the ground is pushing you.
0:08:39 And avalanches are very powerful.
0:08:40 You’ll be skiing down
0:08:42 and then all of a sudden you have no control
0:08:43 and it’ll push you 20 feet this way
0:08:46 and then jolt you 30 feet that way.
0:08:48 But it was pretty small and it ended pretty quickly.
0:08:49 And the three of us ski down
0:08:51 and we like high fived about it at the bottom.
0:08:53 We were like, whoa, do you see that avalanche?
0:08:54 Oh, so cool.
0:08:55 We hitchhiked back.
0:08:57 And Brendan and Brian, my two friends were with me.
0:08:59 They said, hey, let’s do it again.
0:09:00 That was great.
0:09:01 Let’s go ski that run again.
0:09:04 For whatever reason, I don’t really know.
0:09:06 I said, I don’t want to do it again.
0:09:07 But how about this?
0:09:09 How about you guys go do it again?
0:09:10 And rather than hitchhiking back,
0:09:12 I’ll drive around to the side of the mountain
0:09:14 and I’ll pick you up in my truck.
0:09:15 So you don’t have to hitchhike.
0:09:16 They said, great, let’s do it.
0:09:17 We made that plan.
0:09:18 We went our separate ways.
0:09:19 They went skiing.
0:09:22 I went back to get my truck to go get them.
0:09:25 20 minutes later, I drive around to meet them
0:09:27 at the pickup spot where I was gonna meet them
0:09:28 and they weren’t there.
0:09:30 And I really didn’t think anything of it.
0:09:32 I thought that they had probably already hitchhiked back.
0:09:33 And maybe I was late.
0:09:35 It didn’t really bother me.
0:09:36 And I went back to our locker room
0:09:37 where I expected to find them
0:09:39 and they were not there either.
0:09:40 And nobody had seen them.
0:09:43 At that point, I started to wonder what happened.
0:09:45 But I really wasn’t worried at that point.
0:09:48 Several hours later, Brian’s mom called me at home
0:09:50 and she said, hey, Brian didn’t show up for work today.
0:09:52 Do you know where he is?
0:09:53 And I told her the truth.
0:09:56 I said, yeah, we skied down the backside out of bounds
0:09:58 and I was gonna pick them up, but they never showed up.
0:09:59 And I think in that moment,
0:10:03 she and I pieced together what probably happened here.
0:10:04 Later that day, several hours later,
0:10:07 we got the police involved, missing persons report.
0:10:09 They eventually had turned into,
0:10:10 we got search and rescue involved.
0:10:12 Search and rescue went on the hill
0:10:14 at about midnight to start looking for them.
0:10:16 They had these giant portable floodlights
0:10:19 and a team of search dogs, search and rescue dogs.
0:10:21 And then later the next morning,
0:10:23 after about nine hours of searching,
0:10:26 when the search and rescue workers got to the area,
0:10:28 the out of bounds area where I told them we’d skiing,
0:10:31 they said it looked like half the mountain had been torn away
0:10:33 from what was clearly a very fresh,
0:10:36 just massive, enormous avalanche.
0:10:38 And avalanches can be the equivalent of like a tsunami,
0:10:41 just unbelievable amount of power.
0:10:44 They can snap giant trees with their force.
0:10:47 And it had clearly just been a massive avalanche here.
0:10:49 The search dogs eventually homed in
0:10:52 on a spot in the avalanche field where rescuers
0:10:55 who had these giant propoles found Brandon and Brian dead
0:10:58 in the avalanche that were buried about six feet under.
0:11:00 So of course, I always have to say when I tell this story,
0:11:02 I think you and everyone else listening
0:11:04 has lost somebody dear to them.
0:11:05 It’s not unique in that sense.
0:11:07 I don’t want to pretend like it was unique
0:11:08 that I had a friend who died.
0:11:11 Most people have experienced some version of that.
0:11:13 Of course, it had a really profound impact on me.
0:11:15 And one of the reasons why,
0:11:18 and it took me a while to really piece this together was,
0:11:21 if I had gone with them on that second run,
0:11:23 100% chance I would be dead.
0:11:24 It was such a massive,
0:11:26 it took out everything in its path.
0:11:27 And so then I look back on it
0:11:29 and it’s like the most important decision
0:11:32 that I ever made in my life by far
0:11:34 was not going on this second run.
0:11:36 And I didn’t put any thought into that decision.
0:11:38 I didn’t weigh the pros and cons.
0:11:39 I didn’t do a risk analysis.
0:11:41 It was just a brainless dumb decision.
0:11:42 Why don’t you guys go do it?
0:11:43 I’ll do something else.
0:11:45 And nothing in my life has mattered more.
0:11:48 And I think a lot of things in life are like that
0:11:51 where in hindsight and only in hindsight,
0:11:54 do you look back and you’re like the worst
0:11:56 or the best thing that ever happened to me
0:11:59 came about because of this dumb brainless decision.
0:12:01 And maybe people listening to this today,
0:12:05 if you left your house for work at 853 instead of 854,
0:12:07 you may have died in a car accident.
0:12:08 You know, I’m making this up,
0:12:10 but there’s all these just random,
0:12:14 like you understand how the world hangs by a thread
0:12:15 of these decisions.
0:12:16 And when you come to terms with that,
0:12:18 I think it makes you much more humble
0:12:20 in your ability and willingness
0:12:22 to predict what’s going to happen in the future.
0:12:24 When you see how fragile it is,
0:12:27 you just realize you have no idea what’s coming next.
0:12:29 – Yeah, and so you accomplished a lot at a young age.
0:12:31 Like I said, I hopped on the column.
0:12:32 It was like most people I interviewed
0:12:35 are like 50, 60 years old or whatever.
0:12:37 You’re definitely not that old, right?
0:12:38 So you accomplished a lot in your life.
0:12:41 Do you feel like it’s because you had this experience
0:12:44 at 17 years old losing your two best friends
0:12:46 and realizing how fragile life is?
0:12:47 Like you better get at it.
0:12:49 – I think that would be a small part of it.
0:12:52 I think in a broader sense ski racing was so important
0:12:55 because we were independent
0:12:58 and treated as adults since we were like 14.
0:13:00 And we would travel around with the coaches skiing,
0:13:03 but the coaches, God bless them, would just go to bars.
0:13:07 And then like we were out being adults for better or worse.
0:13:09 But I think that created an incredible sense of independence
0:13:12 and like forced you to grow up very fast.
0:13:13 That had a big impact on me,
0:13:16 but certainly losing my friends at that age
0:13:18 made me realize how fragile life can be.
0:13:22 And I think my perception of risk
0:13:24 changed dramatically after that.
0:13:26 And after that, I would not take risks
0:13:28 that I would have before that
0:13:31 because you see the consequences of your actions.
0:13:33 – Well, yeah, when you’re that young, it’s inevitable.
0:13:35 A lot of people at like 18, 19, 20,
0:13:38 that’s when you’re doing the most drugs
0:13:39 and like all this kind of stuff
0:13:40 ’cause you just think you’re invincible.
0:13:42 So I have a feeling you probably
0:13:44 didn’t really do much of that at all.
0:13:46 – I think even before that happened,
0:13:49 I was always kind of, I had friends who were doing it
0:13:51 more than I, I’m not gonna sit here and say,
0:13:54 I did none of it, but okay, I’ll give you a specific example.
0:13:55 I was telling my wife the other day,
0:13:58 I remember when I was 18, one of my friends had cocaine
0:14:00 and I was like, absolutely not,
0:14:03 like not even in the slightest in a million years
0:14:05 would I touch that stuff, never.
0:14:06 But all my other friends are like, yeah, let’s give it a whirl.
0:14:08 Let’s see how this works.
0:14:10 So even at that age, I think just naturally,
0:14:13 I had a risk assessment that was different for my friends.
0:14:14 Yeah.
0:14:16 – So you worked at Motley Fool, like you were saying,
0:14:19 you got a job right out of college at Motley Fool.
0:14:21 And you actually thought you were gonna stay there
0:14:22 and work there forever.
0:14:24 You bought a house near the headquarters
0:14:25 and you thought you’d never leave.
0:14:27 So what actually changed your mind
0:14:29 to pivot your career a bit?
0:14:32 – Yeah, it was one of the hardest decisions of my career
0:14:34 ’cause I was really happy and comfortable at the Motley Fool.
0:14:36 It was a great place to work, still is,
0:14:38 filled with great people, I was happy there.
0:14:41 Got in Craig Shapiro who runs a private equity firm
0:14:43 called the Collaborative Fund, reached out to me in 2015.
0:14:45 And he just said, hey, I like your work,
0:14:46 why don’t you come to Collaborative Fund
0:14:47 and just keep doing it.
0:14:50 Keep doing exactly what you’re doing, but just do it here.
0:14:51 And I said, hey, I’m flattered,
0:14:53 but I’m really happy here, no thanks.
0:14:55 My wife and I had just had our first kid
0:14:57 who was two months old at the time.
0:15:01 I was not prepared to just throw my career upside down.
0:15:03 But he kept pushing and kept pushing and kept pushing.
0:15:06 And I think what the decision for me eventually became was,
0:15:09 if I stay at the Motley Fool forever,
0:15:12 from the time I was in college until I retire in my 60s,
0:15:15 will I regret never trying something different?
0:15:17 And I think after a while I realized that the answer was,
0:15:21 yeah, I think I might wonder what else was out there.
0:15:23 So I finally joined Collaborative Fund in 2016.
0:15:25 And it’s been amazing.
0:15:27 That was before I had written books
0:15:28 or done anything like that.
0:15:32 And Craig was one of the only people I think in the world
0:15:34 who would say, Morgan, just go do your thing.
0:15:37 I’m not gonna tell you what to write or when to write.
0:15:39 And I don’t write about what Collaborative Fund does.
0:15:41 I feel like it’s just my own canvas
0:15:44 to write about anything that I’m interested in.
0:15:45 And so that was a really rare opportunity.
0:15:48 Almost every professional writer at an organization,
0:15:50 if you write for The Wall Street Journal or Reuters
0:15:52 or CNN or something,
0:15:53 you have an editor telling you what to write,
0:15:55 how to write it, when to turn it in.
0:15:58 And I think that just strips away the art of writing.
0:16:01 It just turns it into a job instead of an art.
0:16:04 So I’ve really enjoyed the artistic side of it.
0:16:05 – At what point did you decide,
0:16:10 hey, I wanna write actual books, not just for a blog?
0:16:11 Was that a conscious decision
0:16:13 or was that when you went to this new fund,
0:16:16 they told you, hey, we want you to write books?
0:16:17 – No, definitely not the latter.
0:16:19 And it was a conscious decision for a long time
0:16:20 to not write the books.
0:16:22 I never saw the point in it.
0:16:26 And I would always say, look, I blog twice a week.
0:16:28 Why does it matter if it’s stuffed
0:16:29 in between two pieces of cardboard?
0:16:30 It’s the same thing.
0:16:33 It’s the same words, like I’m still writing, so who cares?
0:16:36 So that was why I pushed off writing books for years.
0:16:40 A publisher came to me in 2014,
0:16:42 maybe 2013 and said, hey, we want you to write a book.
0:16:44 And I was absolutely, I’m not ready.
0:16:46 I don’t wanna do it, it sounds hard.
0:16:49 And so in hindsight, I’m so glad that I waited
0:16:51 because I became a better writer.
0:16:53 I had more content to use for the books.
0:16:56 So the fact that I was so stubborn about doing it,
0:16:58 it was so beneficial to me.
0:17:01 In 2018, I wrote a very long blog post
0:17:02 called “The Psychology of Money.”
0:17:05 It was a 10,000 word blog post, which is very, very long.
0:17:07 Most books are about 50,000 words.
0:17:10 So it was one fifth of a book in a blog.
0:17:12 It was the biggest blog post that I had ever written.
0:17:14 It did really well, it was well received.
0:17:17 And so that was when I was like, oh, people like this style
0:17:19 and format and this substance.
0:17:22 And it’s not gonna take me that much effort
0:17:25 to expand what I already have into a book.
0:17:27 And so that was when it was like, okay,
0:17:29 like I’m finally gonna do this.
0:17:30 My wife had convinced me.
0:17:32 I don’t think I’ve ever told this story before,
0:17:33 but I’ll tell it here.
0:17:34 – Yeah, tell me.
0:17:36 – An author named James Clear,
0:17:38 who wrote a book called “Atomic Habits.”
0:17:40 It’s the best selling and one of the best books
0:17:42 of the last generation.
0:17:44 It’s just an absolute gem of a book.
0:17:47 And he published his book in 2018.
0:17:50 And I think he was seeing the success of “Atomic Habits”
0:17:52 that I was like, I want that.
0:17:55 It was not jealousy, it was not envy, it was motivation.
0:17:57 What James has, I wanna chase it.
0:17:59 And James, as you will see when he comes on,
0:18:04 is the nicest, most humble, politest guy you’ll ever meet.
0:18:06 So the fact that not only had James had success in a book,
0:18:08 but I was like, I wanna be James.
0:18:10 And not just his success, I wanna be him.
0:18:12 Was like a big motivator for me to be like,
0:18:14 okay, like I really wanna write a book now.
0:18:16 And James and I have become friends since then.
0:18:17 It’s actually interesting.
0:18:21 In the summer of 2018, I was in Omaha, Nebraska
0:18:22 for the Berkshire Hathaway Shareholder Meeting.
0:18:24 And we rented a house with like 10 friends.
0:18:27 And this random guy came over to have dinner.
0:18:28 I don’t know who invited him.
0:18:30 No idea who he was.
0:18:31 And he introduced himself.
0:18:32 He said, hi, I’m James Clear.
0:18:34 I’m writing a book called Atomic Habits.
0:18:36 It’s gonna come out in a couple of months.
0:18:38 And so we had no idea, but like in hindsight,
0:18:41 looking back, it’s so funny that we saw that together.
0:18:43 – Yeah, that book is huge.
0:18:44 I think to this day, it’s still like
0:18:46 on all the bestseller lists.
0:18:49 So like you were saying, you wanted to become an author
0:18:51 because you saw the opportunity
0:18:53 and you were like, I want what James Clear has.
0:18:56 How has being an author actually transformed your career?
0:18:58 Like what opportunities have come about?
0:19:00 I’m sure you like weren’t doing podcasts
0:19:02 before you had a book, is that right?
0:19:05 – I’d say, in some ways, nothing has changed.
0:19:07 In some ways, everything has changed.
0:19:09 Nothing has changed because I still write
0:19:10 about the same topics.
0:19:12 I still read the same topics.
0:19:16 I still sit in the same chair and think the same way.
0:19:18 My wife and kids don’t treat me any differently.
0:19:20 In most ways, nothing has changed.
0:19:23 What the book did to me, and it’s a very real thing,
0:19:25 is it gave me independence,
0:19:28 which is a big topic in psychology of money.
0:19:30 What you want to use money and wealth for
0:19:32 is to gain control over your time.
0:19:33 And if I’m being honest with you,
0:19:35 I feel like I’m really opening myself up
0:19:36 in this podcast here.
0:19:40 Before the book, I was always filled with career anxiety.
0:19:41 What happens if I get laid off?
0:19:42 What happens if this doesn’t work?
0:19:45 And it really scared me, particularly as it became a father.
0:19:46 I got mouths to feed.
0:19:48 What happens if this doesn’t work?
0:19:51 That’s the one thing that’s changed post books,
0:19:53 a greater sense of financial independence.
0:19:55 That means the world to me.
0:19:57 And I also, my wife has pointed this out too.
0:20:01 I think I’ve been in a better mental state post books
0:20:03 than I have in my life.
0:20:04 It didn’t make me happier,
0:20:06 but I think it removed anxiety from my life.
0:20:08 It’s interesting that in a way,
0:20:10 that was what the book was about.
0:20:11 But then because of writing the book,
0:20:14 I got to experience it myself, which has been a cool thing.
0:20:16 – And why do you think that freedom has come about?
0:20:18 Is it because you’re getting speaking engagements,
0:20:21 that you’re like pulling in extra revenue streams?
0:20:23 Obviously book sales has some revenue streams,
0:20:26 but book sales these days don’t really move the needle,
0:20:28 right? Maybe your books do.
0:20:29 But what do you think changed
0:20:32 in terms of you feeling like you have more freedom?
0:20:33 – It’s all the above.
0:20:35 It’s book royalties, it’s speaking, it’s all the above.
0:20:37 And we haven’t really changed our lifestyle
0:20:38 to any meaningful degree.
0:20:41 We live in the same house and drive the same car and whatnot.
0:20:43 A lot of that is just accrued to net worth.
0:20:45 This is what I write about in psychology money too.
0:20:47 Wealth is what you don’t see.
0:20:49 It’s not the cars that you buy.
0:20:50 It’s not the house that you buy.
0:20:52 Wealth is the money that you’ve saved
0:20:54 that gives you independence
0:20:56 that allows you to do whatever the heck you wanna do.
0:20:58 And so that’s what it’s been for us.
0:21:00 It’s like we’ve saved the vast, vast majority of it.
0:21:02 And because of that,
0:21:05 the anxiety that I had of what if back then
0:21:07 has largely been stripped away.
0:21:08 Now you will never get rid of what if
0:21:12 because what if you get hit by a car?
0:21:14 You’re never gonna remove risk.
0:21:16 But a lot of the tangible career risks
0:21:18 that I had five years ago has dissipated.
0:21:20 – Let’s hold that thought
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0:26:27 Okay, so your book, Psychology of Money came out in 2020
0:26:28 was a huge hit.
0:26:30 And you say in the book that money has little to do
0:26:33 with how smart you are and a lot to do with how you behave.
0:26:34 So let’s start there.
0:26:36 I think it’s a good foundation of the book.
0:26:38 Can you shed some more color on that
0:26:40 and give us examples of how behavior
0:26:43 can actually trump smarts?
0:26:44 Well, here’s how I always define it.
0:26:47 If you are the smartest financial mind in the world,
0:26:49 you have a PhD in finance from Harvard,
0:26:50 you know all the numbers,
0:26:54 you won the Nobel Prize in economics,
0:26:56 but you don’t have control over your behavior.
0:26:59 You don’t have a control over your greed and fear
0:27:00 or patience or temper.
0:27:03 You can and very likely will go broke.
0:27:06 And the flip side of that is if you have no financial
0:27:08 education, you don’t know anything.
0:27:09 You didn’t graduate high school.
0:27:11 You’re a country bumpkin who knows nothing,
0:27:15 but you do have control over your greed and fear
0:27:17 and patience and temper.
0:27:20 You have everything you need to become wealthy.
0:27:22 Just yesterday, there was a news story that came out
0:27:25 about this guy who lived in the middle of West Virginia
0:27:28 or something like that and lived in a trailer.
0:27:29 I heard this.
0:27:32 He recently died and he left $4 million to his town.
0:27:33 Yeah.
0:27:34 That’s the perfect example.
0:27:36 He does not have the pedigree.
0:27:37 He does not have the degree from Harvard.
0:27:39 He did not work at Goldman Sachs,
0:27:43 but he was clearly patient, not greedy, et cetera, et cetera.
0:27:45 And because of that, he became very wealthy.
0:27:49 So there are very few fields in which that’s the case.
0:27:51 If you did not go to medical school,
0:27:54 you do not know how to perform open heart surgery, full stop.
0:27:56 But it’s not like that in finance.
0:27:58 You don’t need the education to do well
0:28:00 as long as you have the behaviors.
0:28:03 So because it’s one of the few fields that’s like that,
0:28:06 it’s easy to overlook what you need.
0:28:08 And most people, if they’re like,
0:28:09 “I want to become a good investor,”
0:28:10 they’re like, “Great.
0:28:13 I’m going to go get a degree in finance.
0:28:15 I’m going to memorize all the formulas.”
0:28:17 And by and large, that’s not what you need.
0:28:19 What you need is the behavior.
0:28:20 Now, for a lot of people,
0:28:23 that behavior is nature instead of nurture.
0:28:25 They’re born understanding.
0:28:27 Their brain is wired in a way that lets them do it.
0:28:29 And some people are the opposite of that.
0:28:31 But just understanding what you need
0:28:32 and what you don’t is, I think,
0:28:35 the most important thing of doing well with money.
0:28:37 And just to dig in on what you said,
0:28:38 you also say in your book
0:28:42 that we learn traditionally about finance,
0:28:43 like it’s physics, right?
0:28:45 It’s rules, there’s laws.
0:28:47 But you say we should look at it more like psychology
0:28:49 with emotion and nuance.
0:28:51 Can you dig deeper on that?
0:28:52 – In math and in physics,
0:28:54 there’s one right answer for everybody.
0:28:56 So if I say, “What is two plus two?”
0:28:58 It’s four, no matter who you are
0:29:01 or where you’re from or where you live or how old you are.
0:29:02 But in finance, it’s not like that.
0:29:05 Because if I say, “How should you invest your money?”
0:29:07 Well, what works for me might not work for you
0:29:08 and vice versa.
0:29:10 Everyone listening, we’re all gonna come
0:29:11 to a different conclusion.
0:29:13 Because our risk tolerance is different,
0:29:15 our social aspirations are different,
0:29:17 our time horizons are different, everything is different.
0:29:21 So it’s much closer to like taste and music.
0:29:23 And if I said, “What’s the best music?”
0:29:24 There’s no one answer for that.
0:29:26 It just depends who you are and what you like
0:29:27 and how old you are.
0:29:29 Music that I liked when I was 15
0:29:30 would be atrocious to me now.
0:29:32 So you’re gonna change throughout time.
0:29:34 That’s most of the nuance in finance
0:29:37 is just realizing that there is not one right answer.
0:29:39 And I think the majority of the time in finance
0:29:41 when people are arguing with each other
0:29:43 about how should you spend your money?
0:29:44 How should you invest your money?
0:29:46 They’re not actually arguing.
0:29:47 They’re not actually debating.
0:29:49 It’s just people with different experiences
0:29:52 and different risk tolerances talking over each other.
0:29:54 And it’s the equivalent.
0:29:56 If I think X and X is good for me,
0:29:58 you might think X is terrible
0:30:00 because it would be bad for you.
0:30:03 That’s the biggest issue with financial debates.
0:30:04 So this reminds me of something
0:30:05 that you were just mentioning.
0:30:08 The fact that you and your wife
0:30:12 have basically stayed at the same goal post all these years.
0:30:15 You drive the same car, you live in the same house.
0:30:18 You haven’t really increased the amount of money
0:30:19 that it costs to live your life,
0:30:21 but you’ve both increased your incomes.
0:30:23 You’re able to save more.
0:30:25 Talk to us about this importance
0:30:27 of knowing what your own goal post is
0:30:28 and why that matters.
0:30:30 – The first thing I think is important
0:30:31 is like we live a great life.
0:30:33 We live in a great house in a great neighborhood
0:30:34 and we take great vacations.
0:30:36 We are not the kind of people
0:30:37 like the guy who’s living in the trailer
0:30:39 and it’s like leaving all this money.
0:30:41 There is obviously some balance to it.
0:30:43 But I think the idea that
0:30:46 if your expectations grow faster than your income,
0:30:49 you will never ever be happy with your money
0:30:50 is one of the most important
0:30:53 and powerful realizations in finance.
0:30:55 That there are hedge fund managers
0:30:57 who make $100 million a year
0:30:59 and feel like they’re falling behind
0:31:01 because their buddies make 200 million a year.
0:31:04 There is no cap to that.
0:31:06 Elon Musk displaced Jeff Bezos
0:31:07 as the richest man in the world.
0:31:08 I don’t know this to be the case,
0:31:11 but maybe that bothered Jeff Bezos
0:31:13 because now he’s only worth a quarter of a trillion dollars
0:31:16 while Musk was worth a third of a trillion dollars.
0:31:18 There’s no end to financial comparison.
0:31:21 And so, yes, it’s important if you wanna do well with money
0:31:24 to grow your income, invest your money, grow your net worth.
0:31:27 But it is equally important and very easy to overlook
0:31:29 that you also need to go out of your way
0:31:31 to manage your expectations.
0:31:33 And just be happy with what you have
0:31:35 knowing that if you get the bigger house
0:31:38 or the nicer car, it’s gonna feel cool for like four minutes.
0:31:40 And then you’re gonna get used to it
0:31:41 and it’s not gonna feel any different.
0:31:44 And so, look, we live in a nice house
0:31:47 in a safe neighborhood, all of that checks all the boxes.
0:31:49 But there is this thing of, yeah,
0:31:51 but if we got a bigger house, we wouldn’t be any happier.
0:31:55 And we might actually spoil the expectations of our kids
0:31:58 who think that that bigger house is now the norm.
0:32:00 So this is something that like we always battle with
0:32:03 because even for us who believe this and live it,
0:32:07 the expectation of, ah, maybe we should get a Range Rover.
0:32:08 It’s always there.
0:32:11 That feeling, that drive is always there.
0:32:12 But then just taking a step back and be like,
0:32:15 well, is there something else we could do with our money?
0:32:17 Would the vacation make us happier?
0:32:19 Would donating it make us happier?
0:32:21 That battle is always there.
0:32:22 But whenever we’ve experienced it,
0:32:24 and when you go out of your way
0:32:26 to keep your expectations low too,
0:32:29 then your drive for a better life moves away from
0:32:31 what’s the next car, what’s the next house?
0:32:32 Actually, what makes us happier
0:32:34 is spending more time with our kids,
0:32:36 going for walks with my wife.
0:32:38 So like, hey, can we use our money to do that?
0:32:40 Use our money to free up our time
0:32:42 so that we can spend more time with our kids
0:32:43 and with each other.
0:32:45 ‘Cause that’s definitely gonna make us happier.
0:32:47 But the Range Rover probably won’t.
0:32:49 That’s the debate that we always have in our heads.
0:32:52 – Yeah, and as I get older and make more money,
0:32:54 I feel like I’m actually becoming smarter
0:32:56 about the way that I spend my money.
0:32:59 ‘Cause I realized how much I have to work
0:33:00 for a certain amount of things.
0:33:02 This reminds me, it was Thanksgiving yesterday,
0:33:03 so I saw my family.
0:33:07 And my sister-in-law has never worked a day in her life
0:33:09 just carrying a $6,000 bag.
0:33:13 Meanwhile, my company made $5 million last year.
0:33:16 And my most expensive bag is like $3,000.
0:33:20 It made me realize how much different people’s priorities
0:33:23 are and how people spend their money
0:33:26 and manage their money is so varied
0:33:30 in terms of what people believe success looks like,
0:33:31 in terms of how much they want to save.
0:33:35 And it’s so, so varied across the spectrum.
0:33:36 – It’s so varied.
0:33:39 And this is one thing that I’ve kind of tweaked my views on
0:33:40 in the last couple of years,
0:33:43 is that the $6,000 bag for your sister-in-law,
0:33:45 maybe that is the best use of her money.
0:33:46 – Yeah.
0:33:47 – Maybe it’s not, but for some people, it would be.
0:33:49 Even if for my wife and I, or maybe you,
0:33:51 it would not be to each their own.
0:33:55 And there are a lot of people who will look at how my wife
0:33:56 and I spend our money,
0:33:58 particularly the few of our friends who would know our income.
0:33:59 And then look at how we spend it.
0:34:00 We’d be like, what are you guys doing?
0:34:02 Like you are missing out on so much.
0:34:04 And I don’t think we are.
0:34:06 I think we’re pretty cognizant of what we’re doing
0:34:07 and how we spend it.
0:34:10 And we’re doing the best thing for us,
0:34:12 which to me, all that matters.
0:34:16 I’ve never wanted to become the Manchin Lamborghini guy.
0:34:18 I’ve always wanted to become the independent guy
0:34:21 who can just do whatever he wants any day.
0:34:24 And no one’s gonna tell me what to do or when to do it.
0:34:27 I’m not like a, I’ve reject all authority kind of guy.
0:34:29 I’m not like a hardcore libertarian,
0:34:31 but for money stuff, for work stuff,
0:34:34 I’m gonna have the most fun and do the best work
0:34:35 if it’s on my own terms.
0:34:38 So the fact that I can write what I want when I want.
0:34:40 And the reason I can do that
0:34:42 is because I have some sense of financial independence.
0:34:44 I don’t need to work for the salaried company.
0:34:47 That is the best use of money for me by far.
0:34:49 – I want to talk a little bit more
0:34:51 about the purpose of money.
0:34:52 You’ve been alluding to it,
0:34:56 but talk to us about why independence and autonomy
0:34:58 is really the purpose of gaining wealth.
0:35:00 – I think back to what we said of everyone’s different
0:35:03 and maybe the $6,000 handbag is right for you,
0:35:04 but not for me.
0:35:07 But if there is one common denominator
0:35:09 of which almost everybody from every culture
0:35:13 and every age is gonna get benefit from, it’s independence.
0:35:16 People by and large do not enjoy being told
0:35:19 when to work, how to work and what work to do.
0:35:21 They do that because they have to.
0:35:23 They need the paycheck and that’s the way to do it.
0:35:26 But when most people, the first taste of independence
0:35:29 they have, they’re like, oh, that’s good.
0:35:30 That’s the one I like.
0:35:32 And even if you are working for a salaried company,
0:35:35 if you have a boss and in a position
0:35:37 that gives you independence and autonomy,
0:35:38 not only is it more enjoyable,
0:35:40 you’re going to do better work.
0:35:42 The quality of your work is gonna go up
0:35:44 if you’re doing it on your own terms.
0:35:46 It’s such a universal driver of happiness.
0:35:47 And maybe that’s actually the wrong word
0:35:50 because independence doesn’t necessarily make you happy,
0:35:53 but it removes unhappiness.
0:35:55 That’s an important nuance, but it’s really important.
0:36:00 People who are wealthier by and large do not wake up happier,
0:36:02 happy in the sense that they wake up smiling every morning.
0:36:05 It’s not that, but I think they have fewer bad days.
0:36:07 And that is a huge life advantage
0:36:12 to remove uncertainty and misery from your life is massive.
0:36:14 It’s one of the few things in money
0:36:16 that tends to be universal.
0:36:18 And it’s also very easy to overlook
0:36:19 because particularly for young people
0:36:21 and particularly young men,
0:36:24 the knee-jerk reaction of why do you wanna become rich
0:36:26 is so I can have nice stuff.
0:36:28 So I can have a big house and a fancy car
0:36:29 and it’s easy to overlook
0:36:31 what’s actually gonna bring you the most joy
0:36:33 is using it to give yourself independence.
0:36:34 – I love that.
0:36:37 So let’s talk about emotions and money.
0:36:39 What are some of the common emotional pitfalls
0:36:40 that a lot of us fall under
0:36:43 when it comes to handling our finances?
0:36:44 – The two biggest that come to mind,
0:36:47 one from personal finance and one from investing.
0:36:49 In personal finance, it’s social comparison.
0:36:53 And there is no such thing as an objective measure of wealth.
0:36:55 Everything is just relative to what other people have.
0:36:58 You look at your house, your car, your bank account
0:37:01 and you say, what do I have compared to that person?
0:37:04 That person is usually your friends, your neighbors,
0:37:06 your coworkers, but also just people on social media.
0:37:09 That is the fuel to move the goalpost.
0:37:11 ‘Cause even if you are doing well,
0:37:12 you’re gonna start looking at people
0:37:13 who are doing better than you
0:37:15 and you’re always gonna feel inadequate.
0:37:17 And it’s very hard to break that cycle.
0:37:21 Social media makes this so ridiculously difficult
0:37:24 because now the people who you are comparing yourself to
0:37:26 is like the curated algorithmic real
0:37:28 on TikTok and Instagram.
0:37:32 That knows exactly what’s gonna make you anxious.
0:37:34 They know exactly which posts are gonna make you
0:37:36 feel inadequate because that’s what’s gonna get you
0:37:38 to stare at it the longest and be like,
0:37:40 why don’t I have what he or she has?
0:37:42 That’s like a really difficult trap to break.
0:37:45 In investing, the pitfall is FOMO,
0:37:47 it’s fear of missing out.
0:37:48 It’s similar to social comparison.
0:37:50 That person is getting richer than me
0:37:53 and therefore I need to take more risks
0:37:56 or try to copy that person in order to catch up to him.
0:38:00 And the danger in that is that just like in gambling,
0:38:03 everyone on social media talks about their wins,
0:38:04 never their losses.
0:38:06 So the people who look like they are getting
0:38:08 so much richer than you, A, probably or not,
0:38:11 that gets probably some sort of mirage,
0:38:12 but because you don’t know that,
0:38:15 you’re gonna start taking risks that you shouldn’t
0:38:17 and can’t afford to take.
0:38:20 In 2021, when there was like the Robinhood explosion
0:38:23 in investing, it went supernova at that point
0:38:26 because you had all these 19 year old people
0:38:29 who were like, I just made $20,000 on Robinhood
0:38:32 and you should be able to double your money every week.
0:38:34 A, most of that was bullshit.
0:38:36 And B, the people who looked at that said,
0:38:39 I need to go start trading options too.
0:38:40 And you know how that ended.
0:38:44 For the vast majority of them, it ended in tears and losses.
0:38:46 And so all of that is driven by FOMO,
0:38:48 the idea that someone else is getting richer than you
0:38:50 and you need to catch up.
0:38:51 And so if you can break away from that
0:38:54 and realize that there are always people
0:38:56 who are either look like
0:38:59 or actually are getting richer than you, and that’s fine.
0:39:01 That’s totally fine, it’s unavoidable.
0:39:02 You don’t need to catch them.
0:39:03 You just need to play your own game
0:39:06 and do what works for you is really important.
0:39:08 – Yeah, I feel like everything that you’re saying
0:39:10 is reminding me of this bag story from yesterday.
0:39:12 That’s kind of why I brought it up
0:39:14 is because at first I felt bad.
0:39:17 I was like, man, she’s got a $6,000 bag.
0:39:18 I worked so hard.
0:39:19 I don’t have a $6,000 bag.
0:39:22 And then I realized, well, I could have a $6,000 bag.
0:39:24 These are just not my priorities.
0:39:26 So to your point, everybody has different goal posts.
0:39:29 And just because somebody looks like they have a lot of money,
0:39:30 doesn’t mean like behind the curtain
0:39:32 that they actually have much going on at all.
0:39:34 – I would actually take it a step further
0:39:36 with nothing to do with your sister-in-law.
0:39:36 – Yeah, nothing.
0:39:37 I love my sister-in-law.
0:39:38 I’m sure she’s wonderful.
0:39:41 – Yeah, just as an example, yeah.
0:39:44 – When you see somebody driving a $100,000 car,
0:39:46 the only thing you know about their finances
0:39:48 is that they have $100,000 less
0:39:49 than they did before they bought the car.
0:39:51 You have no idea how much money they have.
0:39:53 And I learned about this when I was in college.
0:39:56 I was a valet at a nice hotel in Los Angeles.
0:39:59 And these people would come in driving Porsches
0:40:00 and Ferraris and Lamborghinis.
0:40:03 And then if you get to know them and talk to them,
0:40:05 you realize they’re actually not that successful.
0:40:06 They just spent half of their salary
0:40:08 on a Lamborghini lease payment.
0:40:11 The vision that they had, the identity of,
0:40:12 oh, this guy’s driving a Lambo.
0:40:15 He’s clearly super successful.
0:40:17 No, you actually don’t know that at all.
0:40:19 And it’s the classic millionaire next door.
0:40:21 A lot of the people who are very successful
0:40:23 are actually driving F-150s.
0:40:25 They’re actually driving Toyota forerunners.
0:40:26 And you would never know it
0:40:28 because that’s why they’re rich.
0:40:30 It’s because they actually invested their money
0:40:32 instead of spending it on a car they couldn’t afford.
0:40:33 – Yeah, I love it.
0:40:37 So related to this, you say that keeping money
0:40:40 and getting money are two very different skills.
0:40:43 You actually say that if you could summarize money success
0:40:45 in a single word, it would be survival.
0:40:48 So talk to us about how we can actually keep our money
0:40:51 and the main ways that people tend to lose their wealth.
0:40:53 – It’s just this idea that getting rich
0:40:54 and staying rich are two different skills.
0:40:56 And they’re often conflicting skills,
0:40:59 which means it’s hard for people to do them at the same time.
0:41:02 Getting rich requires taking a risk,
0:41:03 being optimistic about yourself,
0:41:05 being optimistic about the economy and the stock market.
0:41:07 That’s what you need to get rich.
0:41:10 And staying rich is almost like the exact opposite.
0:41:12 You have to be a little bit paranoid,
0:41:14 a little bit conservative, scared of risk,
0:41:17 cognizant of risk in order to make sure
0:41:18 that you’re not taking big enough risks
0:41:20 to throw yourself over the edge.
0:41:23 I think one way to summarize it is save your money
0:41:26 like a pessimist and invest your money like an optimist.
0:41:30 Save your money with the idea that the world is risky
0:41:31 and dangerous and fragile.
0:41:34 And there are always recessions and bear markets
0:41:36 and pandemics and terrorist attacks
0:41:39 and wars and political mess ups
0:41:41 that you need to be able to endure financially.
0:41:45 But if you can, if you can keep your head on straight
0:41:46 during those periods,
0:41:49 the rewards for those who stick around are incredible.
0:41:52 I’ve been investing for 20 years, 2004,
0:41:54 is about when I started investing.
0:41:57 During that time, there has never been a single moment
0:42:00 in which you couldn’t point to a dozen things
0:42:02 going catastrophically wrong in the economy.
0:42:04 Every single moment, stock market’s overvalued,
0:42:07 companies are doing very well, unemployment’s too high,
0:42:09 inflation’s too high, interest rates are too low.
0:42:12 At any moment, you could have pointed to a dozen things.
0:42:15 And during those 20 years, the stock market is up fourfold.
0:42:17 That’s how investing works.
0:42:19 You have to save like a pessimist
0:42:22 to endure all of those dozen things to point at.
0:42:24 But if you can stick around,
0:42:26 you look back over a 20-year period and you’re like,
0:42:28 man, I made four times my money during this period.
0:42:29 It’s incredible.
0:42:31 That’s always how it works.
0:42:34 Saving like a pessimist, investing like an optimist.
0:42:35 – So Bill Gates started Microsoft
0:42:38 and Bill Gates actually is more of a pessimist.
0:42:40 Talk to us about how he’s used his pessimism
0:42:42 to set up Microsoft for success.
0:42:43 Because even in 2023,
0:42:46 Microsoft is a huge company that’s growing
0:42:48 and leading the AI charge and everything like that.
0:42:50 – Well, I think Bill Gates is the best example
0:42:52 of someone who has gotten optimism
0:42:54 and pessimism to coexist.
0:42:57 Because when he started Microsoft in the ’70s,
0:42:59 he took the most optimistic swing
0:43:01 that any entrepreneur has ever taken.
0:43:02 When in the ’70s, he said,
0:43:04 every desk in the world needs a computer on it.
0:43:08 That was the craziest idea in the world, crazy optimism.
0:43:10 At the same time, from the day he started Microsoft
0:43:12 to the day he left in 2000,
0:43:16 he ran it as conservatively as you possibly could.
0:43:18 He said he always wanted enough cash in the bank
0:43:22 so that he could run Microsoft for one year with no revenue.
0:43:24 Like the most pessimistic way to run a business,
0:43:26 I think that’s why they’ve done so well.
0:43:28 It’s not that they’re always optimistic
0:43:29 or they’re always pessimistic.
0:43:32 They realize that if you can survive
0:43:34 all the uncertainty and all the upheaval,
0:43:35 then you have a fighting chance
0:43:38 to actually compound for 50 years as they have.
0:43:40 And very few businesses are actually like that.
0:43:42 If you have a very optimistic CEO,
0:43:44 they’re like, let’s bury ourselves in debt
0:43:46 and invest every penny that we have
0:43:48 and swing for the fences.
0:43:49 And nine out of 10 of those businesses
0:43:51 are eventually gonna go bankrupt, probably pretty soon.
0:43:54 But also if you’re too pessimistic,
0:43:56 then those businesses become obsolete.
0:43:58 So it’s getting both of those at the same time
0:44:00 that is so rare.
0:44:01 But that’s really the key to doing well
0:44:04 over your entire career, over an entire lifetime,
0:44:07 is getting optimism and pessimism to coexist.
0:44:11 – We’ll be right back after a quick break from our sponsors.
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0:45:18 – And I know that you are a strong proponent
0:45:21 of having patience and in your book,
0:45:23 you’ve got a chapter called “Tales You Win”.
0:45:26 And you talk about how sometimes it’s that one Picasso painting
0:45:28 that an art investor acquires
0:45:30 that makes up for all the ones that they don’t.
0:45:33 So can you give us some examples of long tail strategy
0:45:36 and why that’s important?
0:45:37 – The painting example is one that I love.
0:45:41 There were all these art collectors in last 50 years
0:45:43 and a very small number of families ended up
0:45:45 with these ridiculous art portfolios.
0:45:48 They had Picasso’s and Monet’s and like Renoir,
0:45:51 like the top paintings ended up
0:45:54 in the hands of very few number of people.
0:45:56 How did those art collectors know
0:45:58 what was gonna become valuable?
0:46:00 Because when Picasso was alive in painting,
0:46:02 he was not the Picasso who he is today.
0:46:05 Most artists become famous after they die.
0:46:08 How did these people know what was gonna be big?
0:46:10 And they looked at their art portfolio
0:46:12 and the explanation was those collectors
0:46:14 did not know who was gonna be big.
0:46:16 What they did is you had a couple of collectors
0:46:18 who would go out and buy every painting
0:46:20 they could possibly get their hands off of.
0:46:22 With any painting was for sale, they scooped it up
0:46:24 and they ended up with thousands
0:46:26 or tens of thousands of paintings.
0:46:30 And within that portfolio ended up by chance,
0:46:33 some Picasso’s and some Monet’s and some Renoir’s,
0:46:35 but they didn’t know in hindsight what it was gonna be
0:46:37 or in with foresight, they didn’t know.
0:46:40 It was only in hindsight that because they collected so many,
0:46:43 a couple of them ended up being worth a zillion dollars.
0:46:45 And investing is exactly the same.
0:46:48 You have no idea which companies
0:46:50 are gonna be the next Tesla, the next Apple,
0:46:52 the next Amazon, nobody knows.
0:46:55 And people who say they do know are fooling you.
0:46:57 But if you own an index fund
0:46:59 that owns 3,000 companies in it,
0:47:02 then you know that whatever is gonna be the next Tesla
0:47:04 is in there, whatever it might be.
0:47:08 Always in investing, if you own an index of 100 companies,
0:47:10 over a 10 year period, you’re gonna earn
0:47:12 most of your returns from five of them.
0:47:15 A very small portion is gonna return most of them.
0:47:17 And since you don’t know what those five are gonna be
0:47:20 with foresight, the best idea is just own all of them,
0:47:22 knowing full well that whatever is gonna be the winner
0:47:24 is gonna be in your portfolio.
0:47:26 And that’s why you have the statistics
0:47:29 about what percentage of active stock pickers
0:47:32 outperform index funds, it’s very, very low.
0:47:35 Particularly if you adjust it for fees and for taxes,
0:47:38 over a 10 or 20 year period, it rounds to zero.
0:47:41 Warren Buffett recently said that in his life,
0:47:45 he’s met 10 people who thinks can consistently
0:47:47 outperform the stock market, consistently pick
0:47:49 the right stocks, 10 people that he’s ever met
0:47:51 in his entire life.
0:47:53 And everyone listening to this podcast,
0:47:55 you are not one of them, I’m sorry to say.
0:47:56 – Yeah, good luck.
0:47:58 – And so I think that’s the only anecdote to that.
0:48:01 And it’s the easiest, cheapest anecdote to that
0:48:02 is index investing.
0:48:03 It’s just own all of them,
0:48:05 knowing that you’re gonna have the winners in there.
0:48:07 – And speaking of Warren Buffett in your book,
0:48:10 you say if he had retired at 60 years old,
0:48:12 he might not be the Warren Buffett that we know today
0:48:14 that’s like such, like everybody thinks of him
0:48:15 as like the most successful investor.
0:48:19 It’s because he’s been investing for 60 years
0:48:20 or whatever it’s been.
0:48:23 – Yeah, if you look at his net worth,
0:48:26 99% of his net worth was accumulated
0:48:28 after his 60th birthday.
0:48:30 So he’s 93, I think he is now.
0:48:33 And 99% of the money came after he was 60,
0:48:36 which means that if he had retired when he was 60,
0:48:37 like a normal person may have,
0:48:39 if he was a billionaire when he was 60,
0:48:40 you would have never heard of him.
0:48:42 The whole reason he’s so successful
0:48:44 and the whole reason he’s now a household name
0:48:47 is because he’s been, yes, he is a good investor,
0:48:50 but the secret is that he’s been a good investor for 80 years.
0:48:52 And it’s just the amount of time he’s been doing it for
0:48:54 that generates all of that money.
0:48:56 He also started investing when he was 11 years old.
0:48:58 That’s why he’s so successful
0:49:02 because he’s been doing it nonstop from 11 to 93.
0:49:04 That’s actually the biggest takeaway
0:49:05 that ordinary people can take from him
0:49:08 because I and you and anyone else
0:49:10 cannot pick stocks like Warren Buffet.
0:49:13 But can we try to emulate his patients?
0:49:15 Is that something that we could maybe copy from him?
0:49:18 You have a fighting chance of replicating his patients
0:49:20 than you do replicating his intelligence.
0:49:23 Just understanding why he’s wealthy
0:49:25 and using that as a takeaway of what we can do
0:49:28 and copy him at is really important.
0:49:31 – So this is a concept that I think is from your next book
0:49:32 that we’re gonna talk about,
0:49:35 but what we’re talking about is reminding me of this.
0:49:37 I know that you actually don’t really pay attention
0:49:41 to daily news when it comes to changing your stock strategy
0:49:43 or picking your stocks.
0:49:45 You don’t just follow like here’s something’s hot
0:49:46 and then buy it, right?
0:49:49 So talk to us about how you actually decide
0:49:51 what stocks you’re gonna invest in for the longterm.
0:49:54 – So your last point, I keep it as simple as I can.
0:49:56 I own Vanguard index funds.
0:49:57 I’ve owned for a long time.
0:49:59 It’s probably all I will own for a long time.
0:50:02 I’m not recommending other people exactly do that.
0:50:03 You have to figure out what works for you.
0:50:05 And as we talked about earlier,
0:50:07 there are definitely people for whom picking stocks
0:50:09 is the right strategy for them,
0:50:11 even if it’s not the best for my wife and I.
0:50:15 But one little quirk I would say is I actually do follow
0:50:16 financial news every day.
0:50:18 Every day I know what the market did.
0:50:20 I read the Wall Street Journal every day
0:50:22 because I think it’s intellectually interesting.
0:50:25 I think it’s a fascinating window into how people behave.
0:50:27 But the important thing is that I don’t read
0:50:29 the Wall Street Journal and then say,
0:50:32 I need to go out and buy and sell these specific stocks.
0:50:34 It doesn’t influence my behavior.
0:50:36 I just think it’s a fascinating window
0:50:37 into how people behave.
0:50:40 But my personal investing strategy is as simple
0:50:41 and basic as you could possibly be.
0:50:44 My entire net worth is this house,
0:50:47 a checking account, Vanguard funds,
0:50:49 and shares of Markel where I’m on the board of directors.
0:50:50 And that’s pretty much it.
0:50:52 – And where do you park your cash?
0:50:54 What’s your strategy for cash?
0:50:57 – It’s spread out over many different accounts.
0:50:59 And actually quite a bit of it is now in treasuries
0:51:01 ’cause you can earn a great return there.
0:51:03 Spread out over different bank accounts,
0:51:05 different brokerages accounts, yeah.
0:51:06 And the money that I have in short-term treasuries,
0:51:08 I consider that cash.
0:51:10 That’s cash like to me.
0:51:11 – Mm, got it.
0:51:13 Okay, let’s move on to your new book.
0:51:14 It’s called “Same as Ever.”
0:51:16 It covers a lot of the ideas
0:51:18 that we’ve been discussing and much more.
0:51:19 So talk to us about why you wrote this book
0:51:22 and how it expands on your first book,
0:51:23 “The Psychology of Money.”
0:51:26 – So “Same as Ever” is about what never changes over time.
0:51:28 I think in many ways, psychology of money
0:51:31 is about the behavior of you, the individual.
0:51:34 And “Same as Ever” is about the behavior of us, the collective.
0:51:37 Like what do we, the collective society,
0:51:39 keep doing over and over and over again?
0:51:42 And I’ve always been a student of, I think, two things.
0:51:44 One is investing and the other is history.
0:51:46 I like the intersection of that.
0:51:47 Like investing history and economic history
0:51:49 have always been so fascinated in.
0:51:52 And one of the things that will really stick out
0:51:54 when you’re studying any kind of history
0:51:56 is it’s really interesting to see
0:51:58 what has changed over time.
0:52:00 What do people used to do that they don’t anymore?
0:52:01 That’s interesting.
0:52:04 But to me, way more interesting and way more common
0:52:06 is when you see what has not changed at all.
0:52:09 And when you’re studying the history of Americans
0:52:11 a hundred years ago or Europeans a thousand years ago
0:52:14 or Chinese 5,000 years ago,
0:52:16 you see all these kinds of behaviors
0:52:19 that would fit in perfectly today
0:52:20 that have not changed whatsoever.
0:52:24 So how people respond to greed and fear
0:52:27 and uncertainty and opportunity,
0:52:30 that is the same today in the United States
0:52:33 as it was in any culture a thousand years ago.
0:52:34 And it hasn’t changed at all.
0:52:35 And because of that,
0:52:38 we know that it’s gonna be part of our future
0:52:40 for the rest of our lives.
0:52:41 And a lot of why I wrote this book
0:52:43 was because I kind of got disgruntled
0:52:46 at how bad we were as an industry
0:52:48 at predicting what’s gonna happen next,
0:52:50 predicting the next recession, the next bear market.
0:52:51 Nobody can do it.
0:52:54 Nobody has any ability to do it.
0:52:56 And so with that, you can either say,
0:52:57 nobody knows anything,
0:52:58 don’t even try to predict.
0:52:59 No one has a clue,
0:53:00 just kind of become a cynic about it.
0:53:02 Or you can say, okay,
0:53:04 we don’t know what’s gonna change,
0:53:06 but we do know what’s not going to change.
0:53:09 We do know what behaviors are gonna be part of our future
0:53:11 regardless of where the future goes.
0:53:13 So let’s put all of our emphasis on that.
0:53:17 And so same as ever is 23 very short little stories
0:53:19 about little facets of human behavior
0:53:22 that I think have always been with us and always will be.
0:53:24 And no matter where your future goes
0:53:26 or where society’s future goes,
0:53:28 you know that these little bits that I write about
0:53:30 are gonna be part of the story.
0:53:32 – I love you have it in your book that you say,
0:53:35 if you travel 500 years back or 500 years forward,
0:53:38 the world will look much different in terms of technology
0:53:39 and medicine and even language,
0:53:43 but human behavior doesn’t change much over time.
0:53:45 It’s so fascinating, it’s so true.
0:53:48 It takes I think thousands and thousands of years
0:53:50 for us to like our brain biologically
0:53:52 to actually change or evolve.
0:53:55 So we’re the same human that we were
0:53:58 thousands of years ago, even though so much has changed.
0:53:59 And one of the things that doesn’t go away
0:54:01 for humans is risk, right?
0:54:03 This is something that we’re gonna enjoy
0:54:06 till the end of time is this concept of risk.
0:54:08 And we touched about risk a little bit earlier,
0:54:10 but in your book, you write the biggest risk
0:54:13 is always what nobody sees coming.
0:54:16 So talk to us about these blind risks.
0:54:18 – There’s a great financial advisor named Carl Richards
0:54:19 who has this quote, one of those quotes
0:54:22 that just knocked me off my feet.
0:54:24 The quote is, risk is what is left over
0:54:26 when you think you’ve thought of everything.
0:54:29 So you can spend all day trying to predict the next risks
0:54:32 in your personal life or in the economy and for society.
0:54:34 And that’s great, you should do that.
0:54:36 But then when you are done with that exercise,
0:54:38 the thing that is not on the list
0:54:41 is what’s actually the biggest risks that you’re gonna face.
0:54:44 So think about what the biggest risks we’ve dealt with
0:54:47 in the United States over the past couple of generations.
0:54:51 Pearl Harbor, September 11th and COVID
0:54:54 are probably the three biggest societal shocks
0:54:55 that we’ve dealt with in America.
0:54:58 And the common denominator of all three of those
0:55:01 is that nobody, certainly no ordinary Americans
0:55:04 saw those coming until the day that they happened.
0:55:06 In all those situations, there was no economic outlook.
0:55:08 There was no analyst forecast.
0:55:11 There’s nobody on the news warning you about these things
0:55:14 that in one day utterly transformed the world
0:55:15 that you lived in.
0:55:17 And so the biggest risk is what you didn’t see coming.
0:55:19 And the fact that people didn’t see coming
0:55:20 is what made it dangerous
0:55:23 because they were not prepared emotionally,
0:55:25 financially, logistically,
0:55:27 they were not prepared for these things to happen.
0:55:31 So when they hit, it was like red alert, what do we do now?
0:55:31 And it’s always like that.
0:55:34 I think in any given year, it is like that.
0:55:37 What is the biggest worldwide news story in 2023?
0:55:39 It’s probably, I hope it’s gonna end up,
0:55:40 hopefully nothing bigger than it happens,
0:55:42 will be Israel and Hamas,
0:55:44 will be the biggest story of 2023.
0:55:46 Of course, there has been tensions to say the least
0:55:48 in that region for literally thousands of years.
0:55:52 But how many people in January of 2023 predicted
0:55:54 that that would be the biggest news story?
0:55:56 Maybe there were some people who were on the ground
0:55:57 and had a greater sense,
0:55:59 but by and large, ordinary people watching the news,
0:56:01 it was not on the radar whatsoever.
0:56:03 Same with in 2019,
0:56:05 if you were looking at the biggest risk for 2020,
0:56:07 nobody said a viral pandemic
0:56:09 that’s gonna close down the schools.
0:56:10 Nobody said that.
0:56:12 2001, nobody sees 9/11 coming.
0:56:14 You can play that game all day long.
0:56:15 And so because of that,
0:56:18 you can state with a lot of confidence
0:56:20 that the biggest risk over the next year
0:56:23 and over the next 10 years is something that you and I
0:56:25 and none of us are even thinking about.
0:56:26 ‘Cause it’s always been like that.
0:56:28 – To your point, I’m Palestinian
0:56:29 and I didn’t even see it coming.
0:56:32 I was just like, wait, what happened?
0:56:35 These big stories, they blow you away by surprise.
0:56:38 How can we prepare for these risks?
0:56:39 If we don’t know what they’re gonna be,
0:56:42 how can we prepare accordingly?
0:56:44 – By definition, you can’t.
0:56:47 But that in itself, that realization
0:56:49 and that mindset is really powerful in itself
0:56:52 because you stop pretending that you can predict.
0:56:53 There’s this great quote from Nassin Talab
0:56:55 where he says, “Invest in preparedness
0:56:57 and not in prediction.”
0:56:59 So one way that I think about that is,
0:57:01 think about earthquakes in California.
0:57:03 California knows that there is gonna be
0:57:04 a major earthquake in the future.
0:57:06 But everybody also knows that you can’t predict
0:57:08 when it’s gonna come.
0:57:10 It’s impossible to predict what day it’s gonna happen
0:57:11 or what year it’s gonna happen.
0:57:14 So because of that, you’re just always prepared.
0:57:16 They build buildings that can withstand it
0:57:17 no matter when it comes.
0:57:19 They don’t like, oh, an earthquake is gonna come
0:57:21 in December, so let’s retrofit the buildings then.
0:57:23 You’re always prepared for it.
0:57:25 And I think that’s how you should think about
0:57:28 economic risks, recessions and bear markets and job losses.
0:57:30 You have no idea when it’s gonna come.
0:57:34 So don’t try to think, oh, once you see a recession coming,
0:57:35 then you’ll start to save money.
0:57:37 No, it could happen tomorrow.
0:57:38 So always be prepared for it.
0:57:41 I think that idea of having expectations
0:57:44 instead of forecasts is the only way to really survive
0:57:46 in that world where risk is what you don’t see.
0:57:47 Yeah, that makes sense.
0:57:50 And another key concept that you talk about
0:57:54 in terms of human behavior is pushing too far too fast.
0:57:56 Now, you say that this is something people do in investing.
0:57:59 You say it’s also something people do with their companies.
0:58:01 So can you talk to us about that?
0:58:03 Yeah, whenever you have something good,
0:58:05 you have an investing strategy that works
0:58:07 or a company that’s going well,
0:58:10 the very normal knee-jerk reaction is great.
0:58:11 Let’s make it go faster.
0:58:12 Let’s make it bigger. Yeah, let’s milk it.
0:58:14 Let’s milk it. Let’s push it as hard as you can.
0:58:16 You do it with noble intentions.
0:58:18 You’re like, I don’t want to leave money on the table.
0:58:22 If I have this golden goose, let’s keep milking the goose.
0:58:23 It happens all the time.
0:58:25 Like in investing, people who are doing well
0:58:27 start using leverage or they start making bigger bets,
0:58:29 more concentrated bets.
0:58:30 In businesses, when it’s going well,
0:58:32 it’s like let’s raise more money and grow faster,
0:58:34 faster, faster, faster.
0:58:38 And it is such a common story that those investors,
0:58:40 those entrepreneurs, or even in your own individual career,
0:58:44 you eventually realize that there was a natural speed limit
0:58:45 to what you’re doing.
0:58:46 And if you go over the speed limit,
0:58:47 you’re going to get in trouble.
0:58:50 And you only know where that speed limit is in hindsight
0:58:51 when you’ve gone past it
0:58:53 and you get a speeding ticket, so to speak.
0:58:55 And so you see this with every successful business.
0:58:59 The example I use in the book was Starbucks 15 years ago.
0:59:00 And maybe those people don’t remember this now,
0:59:03 but there was a period in the early and mid-2000s
0:59:06 where Starbucks was opening a new store
0:59:09 on every street corner like every couple of hours.
0:59:11 It was just like this absolute proliferation
0:59:12 of Starbucks stores.
0:59:15 And because of it, the quality of the coffee
0:59:17 and of the food plunged.
0:59:20 The company’s only goal was to grow, grow, grow, grow, grow,
0:59:23 and the quality of the stores just disintegrated.
0:59:26 And Starbucks had a really rough period because of that.
0:59:27 And in hindsight, they talked about, they’re like,
0:59:30 look, the natural growth rate
0:59:33 that we could sustain the quality of the product,
0:59:36 we way exceeded, we pushed it way too hard.
0:59:37 And because of that, the business broke
0:59:38 for a period of time.
0:59:40 There’s so many examples of that,
0:59:42 of like you have a good legitimate business
0:59:45 that is working and customers love you and they will pay you.
0:59:47 But if you try to take that and just say,
0:59:49 let’s try to make it go twice as fast,
0:59:50 it’s probably gonna break.
0:59:53 So understanding the natural speed limit
0:59:55 and size of whatever you’re doing
0:59:58 is a really critical aspect of what you are doing.
1:00:00 – Any guidance for us to understand like,
1:00:03 hey, this is a red flag that I’m pushing too hard
1:00:05 and that I should just calm down a bit
1:00:07 with what I’m doing?
1:00:08 – Let’s use the Starbucks example.
1:00:10 The reason people love Starbucks
1:00:13 was not necessarily because it was on every corner.
1:00:16 It was because they liked the quality, the food,
1:00:17 they liked the taste.
1:00:21 And once your ability to scale takes precedence over that,
1:00:23 then you know exactly what’s gonna happen.
1:00:25 So understanding, I think this is such a basic comment,
1:00:26 but it’s so easy to overlook.
1:00:29 Understanding why you are successful
1:00:30 is the key to doing this.
1:00:31 And a lot of people,
1:00:34 they don’t actually understand why consumers like them
1:00:36 or why their boss appreciates them.
1:00:38 And because of that, they overlook
1:00:39 what is actually needed to keep this going.
1:00:42 And once you have an honest assessment of customers
1:00:44 like me because of X,
1:00:46 then you realize any deviation away from that.
1:00:48 And of course you’re gonna lose
1:00:50 what made you special in to begin with.
1:00:52 I don’t think it’s any more complicated than that.
1:00:53 – Yeah, I think that’s great advice
1:00:56 for all the entrepreneurs tuning in.
1:00:58 So something else that you talk about in the book is stress.
1:01:01 You said that stress focuses your attention
1:01:03 in ways that good times can’t.
1:01:06 Talk to us about why stress sometimes can be a good thing.
1:01:08 – We look back historically,
1:01:11 the biggest periods of innovation
1:01:14 and new technology and productivity growth,
1:01:17 without exception happened during periods
1:01:20 when the world was on fire, so to speak.
1:01:23 Like the most productive economic decade
1:01:25 that’s ever occurred is the 1930s
1:01:26 during the Great Depression,
1:01:28 when the economy was the biggest train wreck
1:01:30 it had ever been.
1:01:32 Because every business in America woke up
1:01:34 and they’re like, if we don’t find ways
1:01:37 to get more productive and get our act together,
1:01:39 we’re gonna go out of business tomorrow.
1:01:42 And that as a motivator, that fear as a motivator
1:01:45 creates the biggest productivity boom we’ve ever had.
1:01:48 The other was World War II and the Cold War.
1:01:52 The incentive to figure things out was so extreme
1:01:54 because if we didn’t figure things out,
1:01:57 Adolf Hitler was gonna control the world next year.
1:02:01 And that kind of incentive created this technology boom
1:02:03 of the likes the world has never seen.
1:02:05 What do we get out of World War II?
1:02:09 We got nuclear energy, rockets, jets, penicillin,
1:02:13 microwaves, radar, eventually with the Cold War satellites,
1:02:16 all of these things that benefit you and I today
1:02:19 that happen specifically because of the stress
1:02:21 and anxiety of the war.
1:02:22 And you can maybe able to say this with COVID
1:02:26 in hindsight too, like as tragic and deadly as it is,
1:02:30 if it unleashes the scientific boom as it has
1:02:32 that maybe 20 years from now is gonna benefit us
1:02:34 in ways that we can’t even fathom today.
1:02:38 Using the phrase silver lining to COVID is a step too far
1:02:40 ’cause it’s killed like 10 million people.
1:02:41 Not say like, oh, that’s a great thing.
1:02:43 But it’s always the case that you look back
1:02:45 and you’re like, hey, despite that tragedy,
1:02:49 we got this incredible new innovation because of it
1:02:51 that’s making life so much better today.
1:02:54 So everybody wants a world in which everything goes great
1:02:57 and there’s no uncertainty, there’s no bad times.
1:02:59 Of course that sounds like a great world,
1:03:03 but in that world, the incentive to improve
1:03:04 would diminish greatly.
1:03:06 And it’s always the stress
1:03:08 that creates the biggest improvements.
1:03:11 – I love this concept because it’s so true.
1:03:14 Constraints, deadlines, even if you think
1:03:15 about your own self, if you know
1:03:17 that you have a deadline tomorrow,
1:03:19 your procrastination releases
1:03:21 and you can just get your shit done
1:03:23 because you know the deadline is tomorrow.
1:03:25 It really helps you become more creative,
1:03:28 helps you step on the gas in terms of completing
1:03:28 whatever you need to complete.
1:03:30 So what you’re saying totally makes sense
1:03:33 in terms of big disasters in the world
1:03:36 and how it can actually foster lots of innovation
1:03:38 and creativity ’cause our backs are against what
1:03:41 we basically have no choice but to get it done now.
1:03:42 – Yeah, I think for writing books,
1:03:46 one of the biggest benefits that a publisher provides
1:03:47 is a deadline.
1:03:48 It’s not necessarily that they’re gonna help you write
1:03:50 the book, so to speak, but they’re gonna tell you
1:03:52 you have to turn in your manuscript on this date
1:03:55 and that will get your ass in gear.
1:03:57 – Okay, so one of the last ones I’m gonna ask you
1:03:58 about this book is incentives.
1:04:01 So you’ve got a chapter in it in your book
1:04:03 where you quote Benjamin Franklin who once said,
1:04:07 “If you would persuade appeal to interest and not to reason.”
1:04:10 So talk to us about incentives, what we need to watch out for
1:04:13 in terms of how incentives can trick us
1:04:15 into doing things that we already know are wrong.
1:04:17 – I think there are, it’s very often the case,
1:04:19 not always, this is not black and white,
1:04:21 but it’s often the case that if you see somebody
1:04:25 doing something that you find morally wrong
1:04:27 or there’s just something that you disagree with,
1:04:29 you are probably underestimating the odds
1:04:31 that you would do that exact same thing
1:04:33 if you had their incentives.
1:04:35 And I saw this firsthand during the financial crisis
1:04:39 of 2008 when a lot of Americans rightly pointed
1:04:41 at Wall Street bankers and said those greedy,
1:04:44 bastard bankers who ruin the economy.
1:04:46 And maybe that was not necessarily the wrong criticism,
1:04:48 but I think what people overlooked is that
1:04:51 if you worked at Bear Stearns in 2006,
1:04:54 and they said, “Hey, package these subprime bonds
1:04:56 “and we’ll give you a $6 million bonus,”
1:04:57 you would have done it too.
1:04:58 You would have done the exact same thing
1:05:01 if you had that incentive dangled in front of your face.
1:05:04 And so I think we underestimate the boundaries
1:05:06 of our morality when we don’t understand
1:05:07 the power of our incentives.
1:05:11 Everyone thinks, “Oh, my moral boundaries are right here.”
1:05:12 But if you had different incentives, you’d be like,
1:05:14 “Oh, maybe I can shift them out a little bit.”
1:05:16 And you don’t even know you’re doing it, it’s subconscious.
1:05:19 Everyone is so influenced by these incentives.
1:05:23 And at every level, when you’re looking at World War II,
1:05:26 how could the Germans possibly have acted like this?
1:05:30 I think when you look into what the 1930s were like for them,
1:05:31 the incentives, the incentives to go along with it,
1:05:33 the incentives to not want to be an outsider,
1:05:35 the incentives to do what you’re told,
1:05:37 it’s not to justify anything in the slightest.
1:05:39 But if you were looking for an answer
1:05:42 of how can people do that thing,
1:05:43 whatever that thing would be,
1:05:45 in business, in wars, whatever it be,
1:05:47 the answer is usually some sort of incentives.
1:05:49 And it’s not even a financial incentive.
1:05:52 There are social incentives, there are tribal incentives,
1:05:55 there are political incentives to do things
1:05:57 that you would otherwise find repugnant,
1:05:59 but you do it because the incentives push you to do it.
1:06:01 – That’s super insightful.
1:06:04 The last question I’m gonna ask you about your book
1:06:05 in terms of a concept is you talk about
1:06:08 permanent and expiring information.
1:06:11 And I love the distinction that you draw between these two.
1:06:13 And I hope today’s interview is gonna be
1:06:15 permanent information for our listeners,
1:06:16 but can you explain what you mean
1:06:18 between the difference of the two?
1:06:20 – I mean, one way, as someone who writes books,
1:06:22 I’d say one of the best advice that I’ve ever heard
1:06:24 is if you wanna write a book that people
1:06:26 will read 20 years from now,
1:06:29 write a book that people would have read 20 years ago.
1:06:32 Make sure that what you’re writing about is timeless.
1:06:34 And I think we can say that about this podcast.
1:06:36 I think if we had a time machine
1:06:39 and someone listened to this podcast in 2003,
1:06:41 99% of what we said would be relevant.
1:06:44 So you have to understand what kind of information
1:06:46 is expiring if you’re watching the stock market.
1:06:49 Oh, Microsoft missed quarterly earnings
1:06:50 by one penny per share.
1:06:52 Like that’s expiring information.
1:06:53 I’m not gonna say it’s irrelevant,
1:06:55 but it’s expiring as a shelf life.
1:06:57 But if you’re talking about how people respond
1:06:59 to greed and fear, that’s permanent.
1:07:00 That never changes.
1:07:02 And that will be as relevant 20 years from now
1:07:03 as it is today.
1:07:05 So you should put more of your emphasis
1:07:08 in learning permanent skills,
1:07:09 knowing that they’re gonna stick around
1:07:12 rather than drowning yourself in expiring information
1:07:15 that might be relevant for a week or maybe even a year,
1:07:17 but it has the shelf life of something
1:07:18 that’s gonna expire.
1:07:20 I totally agree with that.
1:07:22 Well, Morgan, thank you so much for your time today.
1:07:23 I feel like this podcast was filled
1:07:27 with so much timeless wisdom about finances.
1:07:28 So I end my show with two questions
1:07:30 that we ask all of our guests.
1:07:32 The first one is what is one actionable thing
1:07:34 our young and profitors can do today
1:07:36 to be more profitable tomorrow?
1:07:39 – Go out of your way to define your game
1:07:42 and realizing that your game might be very different
1:07:45 from your coworkers game, even your co-founders game,
1:07:47 your siblings game, everyone is different.
1:07:50 And don’t assume that because society tells you
1:07:51 that you should have X,
1:07:53 that that’s actually what you should be chasing.
1:07:56 – Back to the goalposts we were talking about before.
1:07:58 What is your goalpost, young and profitors?
1:08:00 And what is your secret to profiting in life?
1:08:03 And this can go beyond business and finance.
1:08:07 – Realizing that there are probably 10 people in life
1:08:09 who I want to love me.
1:08:12 My wife, my kids, my parents, maybe three friends.
1:08:14 And it’s not that I don’t care
1:08:15 about the opinions of anyone else,
1:08:17 but I think it’s really helpful
1:08:19 to have people in your life who you don’t want to disappoint.
1:08:21 Just a few people who are, it’s like,
1:08:23 that’s Yatsu Northstar.
1:08:24 And like, am I doing this for the benefit
1:08:26 of those 10 people?
1:08:28 Would they be proud of me?
1:08:30 Is this going to help my relationship with them?
1:08:33 I think it’s just a very strong guiding light.
1:08:34 What really matters?
1:08:36 And if you’re on your deathbed,
1:08:38 are you going to care about your net worth
1:08:39 or the square footage of your house?
1:08:43 Or are you going to be proud that you are a good spouse?
1:08:45 You were a good parent, you were a good friend,
1:08:46 you helped your community?
1:08:48 Like it’s obvious what’s going to be more important to you.
1:08:50 So like, let’s keep that as the focus.
1:08:52 – I love that, that’s great advice.
1:08:53 Well, Morgan, thank you so much
1:08:56 for joining us on Young and Profiting Podcast.
1:08:57 – Thanks so much for having me.
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