Morgan Housel: How Smart Investors Manage Risk and Grow Wealth on Autopilot | E336

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0:01:19 – New Year’s resolutions don’t tend to hold up
0:01:22 because if you need to do something new on January 1st,
0:01:25 that you are unwilling to do on December 31st,
0:01:26 you’re almost certainly not going to stick with it.
0:01:30 Most people have too much of their money in stocks
0:01:31 and they should have less.
0:01:33 And the reason why is–
0:01:34 – How can we actually plan out
0:01:37 what we want to spend our money on this year?
0:01:39 – If you can earn average returns
0:01:41 for an above average period of time,
0:01:44 you will be among the top investors in the world.
0:01:47 Most people are overconfident in what they can do.
0:01:48 You have to have this split personality
0:01:51 of I’m so good at what I do
0:01:54 and I’m a complete idiot who has no idea what I’m doing.
0:01:57 – Bullshit is easier to create than it is to refute.
0:01:59 So meme coins are an example of this.
0:02:00 Somebody creates a meme coin
0:02:02 and you’re like, “That’s obviously bullshit.”
0:02:04 And it becomes Dogecoin.
0:02:06 – So how can we use this information
0:02:09 when we’re making investors and financial decisions?
0:02:10 – I think–
0:02:17 (gentle music)
0:02:20 (gentle music)
0:02:28 – Yeah, bam, my guest today is back
0:02:29 for his second visit to the show.
0:02:31 You may know him as the author of books
0:02:34 like “The Psychology of Money” and “Same as Ever”
0:02:37 or as the host of the Morgan Housel podcast.
0:02:40 I’m, of course, talking about Morgan Housel.
0:02:42 Morgan is also a partner at the Collaborative Fund
0:02:44 and a former columnist at the Motley Fool
0:02:46 and the Wall Street Journal.
0:02:49 I spoke to Morgan about a year ago in episode 266
0:02:51 and we talked about all kinds of juicy things
0:02:54 from why finance is actually more like psychology
0:02:57 to physics and what Bill Gates can teach you
0:02:58 about optimism.
0:03:00 We’ll be running that episode again
0:03:01 as a Yap classic in the near future
0:03:03 and I encourage you to check it out.
0:03:06 Today, we are going to pick Morgan’s brain
0:03:07 on a number of interesting topics
0:03:09 related to psychology, money, investing,
0:03:12 and how you can avoid some of the biggest mental blunders
0:03:15 when it comes to your financial decisions.
0:03:18 Morgan, welcome back to Young and Profiting Podcast.
0:03:20 – Thanks for having me, happy to be back.
0:03:21 – Yeah, I’m happy to have you here.
0:03:23 So you were on the show about a year ago
0:03:25 and we had such an interesting discussion.
0:03:28 We talked about all kinds of things, your backgrounds,
0:03:31 the secrets to building wealth and staying rich,
0:03:33 and some topics you discuss in your books.
0:03:35 And since then, you’ve been busy writing,
0:03:37 recording podcasts, creating content.
0:03:40 So I thought today we could kick off the new year
0:03:43 with a grab bag of things that you’re thinking about now
0:03:46 related to money, investing, and psychology.
0:03:47 – Let’s do it, I’m ready.
0:03:48 – Okay, cool.
0:03:50 So speaking of the new year,
0:03:52 what do you think the top things are
0:03:54 that we should do to kick off the new year right
0:03:56 when it comes to our finances?
0:03:58 Is there any sort of exercise that we should be doing
0:04:02 in the beginning of the year to evaluate our strategy?
0:04:03 – I think there’s a couple of things to keep in mind.
0:04:05 One is the very well-known idea
0:04:07 that has been tracked for many years
0:04:09 that New Year’s resolutions don’t tend to hold up
0:04:12 because if you need to do something new on January 1st,
0:04:15 that you are unwilling to do on December 31st,
0:04:17 you’re almost certainly not gonna stick with it.
0:04:18 So there’s this idea,
0:04:19 I think it was brought up by Scott Adams,
0:04:22 who is the guy who created the Dilbert comic.
0:04:24 You should have systems instead of goals.
0:04:27 One example of that is a goal is I’m gonna lose 10 pounds.
0:04:28 That’s a goal.
0:04:30 A system is I’m gonna work out every day.
0:04:33 That’s a system, it’s very different from a goal.
0:04:34 It’s a much better and more efficient way
0:04:38 to have a new habit to do something.
0:04:40 So I think if you do have an aspiration
0:04:42 to have a New Year’s resolution,
0:04:46 do it right now in December and come up with a system
0:04:48 that you can actually stick with over the long run.
0:04:51 And a system means that it probably should not be extreme.
0:04:53 So if you have a system of I’m gonna work out
0:04:55 five hours a day, let’s say, just using that as an example,
0:04:57 you’re almost not gonna stick with it.
0:04:59 And the financial equivalent would be,
0:05:00 I’m gonna save half my paycheck.
0:05:01 Well, you’re probably not.
0:05:02 It’s probably not gonna work.
0:05:04 So the more realistic it is
0:05:07 and the more systematic it is rather than a goal,
0:05:09 the higher the odds that you can stick with it.
0:05:10 The other thing I would talk about here
0:05:12 that I think is really important is
0:05:14 whenever you are thinking about your financial future
0:05:16 and let’s call them goals if you want to,
0:05:18 despite what I just said,
0:05:19 what you really have to keep in mind
0:05:23 is the idea of what are you gonna regret in the future?
0:05:24 So if you have a savings goal,
0:05:26 are you gonna regret not saving money?
0:05:28 Are you gonna regret saving too much money
0:05:30 because it came at the expense of a vacation
0:05:32 that you could have taken or a new car
0:05:33 that you could have purchased?
0:05:35 You have to understand what you’re gonna regret.
0:05:37 And what I might regret
0:05:38 is probably different from what you might regret.
0:05:40 Everybody is a very different situation.
0:05:42 So you just have to have a good grasp
0:05:44 on what you are likely to look back at
0:05:47 a year from now to 10 years from now, 50 years from now
0:05:49 and say, man, I wish I had done that differently.
0:05:50 It’s different for everybody,
0:05:53 but I think that’s the formula you should have in your mind.
0:05:54 – I think that’s really smart.
0:05:56 And I forgot who told me about this,
0:05:58 but I was speaking to somebody about finances
0:05:59 and they had mentioned to me
0:06:02 that there’s different buckets of your life
0:06:05 where you’re gonna wanna spend on different things.
0:06:07 For example, in your 30s,
0:06:10 you might be trying to save money for your kids
0:06:12 and in your 60s, you might wanna travel
0:06:13 or in your 20s, you might wanna travel,
0:06:15 but you’re not gonna really be doing that.
0:06:16 Let’s say if you have a family
0:06:18 from your 30s and your 40s.
0:06:19 What are your thoughts around that?
0:06:21 How can we actually plan out
0:06:24 what we wanna spend our money on this year?
0:06:25 – What I think is interesting,
0:06:26 if you talk to a lot of financial advisors,
0:06:27 they will tell you one of the biggest problems
0:06:29 that they have with their clients
0:06:31 is you have a client who has saved diligently
0:06:33 for retirement for decades
0:06:35 and they’ve saved up a giant nest egg.
0:06:37 They have millions of dollars saved for retirement
0:06:39 and then they’re 65 years old
0:06:42 and they retire and they cannot bring themself to spend it.
0:06:45 They cannot do it because saving money
0:06:47 has become so ingrained in their identity,
0:06:50 in their personality that they can never switch gears.
0:06:51 That’s really important too.
0:06:52 And it’s a very big problem
0:06:55 because in your 20s, 30s, 40s,
0:06:58 you create a very good habit of I’m a saver.
0:07:00 I’m a long-term investor.
0:07:02 And you can never break away from that.
0:07:03 You can’t do it.
0:07:06 So the idea that a good financial skill in your 30s
0:07:09 can actually be a liability in your 50s or 60s
0:07:10 is really important.
0:07:11 I think about this in my own life
0:07:15 where in my 20s, and let’s say early 30s,
0:07:17 I was a very big saver.
0:07:19 And I’m so proud of that and that’s great.
0:07:21 Now I’m in my 40s, I have two kids
0:07:24 and we spend more than we used to.
0:07:26 And it is not because I broke my previous
0:07:27 good financial habits.
0:07:29 I don’t view it that way at all.
0:07:33 I built up money so that I could spend more of it now
0:07:36 and have maybe a lower savings rate than I used to
0:07:39 because I have a bigger family who are hungry
0:07:41 and we go on vacations and whatnot.
0:07:42 And I think that’s wonderful.
0:07:46 The more you can use money as a tool to live a better life
0:07:49 rather than just a scorecard of social comparison,
0:07:51 the better off you’re gonna be.
0:07:53 And if you always view it through that lens,
0:07:56 like how can I use this money as a tool for more happiness?
0:07:57 Not just how much can I accumulate
0:08:00 and have a higher score than the next person?
0:08:02 I think that’s always the better way to think about it.
0:08:03 – I love that.
0:08:06 So one of the best things that I did this past year
0:08:09 is that I actually started this dashboard
0:08:10 and I used Monarch Money
0:08:12 and they’re not a sponsor of mine yet.
0:08:14 I think they’ll end up becoming a sponsor
0:08:16 because I’m gonna mention it right now.
0:08:19 And basically I have all my accounts on this dashboard.
0:08:21 So I have my bank accounts, my savings accounts,
0:08:25 my E-Trade account, my Fidelity accounts in one place.
0:08:28 And in the past, I used to be really lazy
0:08:31 to like go check on this account, go check on this account
0:08:33 and I would just never check my accounts.
0:08:36 And now that I have everything in one dashboard,
0:08:38 I actually can see my net worth
0:08:40 and suddenly I’ve become more competitive.
0:08:44 Suddenly I’ve been investing more often, more frequently
0:08:46 and it’s become more like a game.
0:08:48 Psychologically, what do you think is happening
0:08:51 and do you think that this is a good strategy for people?
0:08:53 – I think it probably is a good strategy,
0:08:55 but like every good strategy, you can overdose on it.
0:08:57 So it sounds like what you’ve done
0:09:00 is just you have a very keen grasp on your net worth.
0:09:01 That’s great.
0:09:04 I think you can overdose on it if you’re like,
0:09:06 I’m only a success as long as that number goes up
0:09:07 every month.
0:09:09 That’s dangerous ’cause that’s not how the market works
0:09:11 and that’s not how you’re gonna eventually be able
0:09:13 to spend that money in a way that will make you happier.
0:09:14 And so I think it’s great.
0:09:16 I do the same, by the way.
0:09:18 I have checked my brokerage account
0:09:21 probably every day for the last 20 years.
0:09:23 That’s very roughly true.
0:09:26 But what’s important is I don’t use that to say,
0:09:27 oh, I’m falling behind.
0:09:30 I don’t use it to say, oh, I should go place a trade
0:09:31 because the market went up or down today.
0:09:33 I just think it’s interesting.
0:09:35 And I have a very keen, in any day,
0:09:36 I could tell you my net worth
0:09:40 to a very high degree of accuracy.
0:09:40 I think that’s great.
0:09:43 And not a lot of people, I think, can do that.
0:09:44 I think a lot of people, if you ask them their net worth,
0:09:46 they would have to have to think very hard about it.
0:09:49 Or if they gave you a number, it would be wrong.
0:09:51 And that’s when things start slipping out of hand.
0:09:53 There’s a lot of study and data
0:09:56 on people who forget about their 401ks.
0:09:58 And some of them will transfer to a new job,
0:10:02 transfer their 401k, where it sits in cash for years
0:10:04 because they forgot about it and they never invested it.
0:10:07 And the lost returns you can have that can be enormous.
0:10:09 So having a very keen grasp
0:10:12 on exactly how much money you have is wonderful.
0:10:13 You just want to make sure
0:10:15 that you don’t become so ingrained in your identity
0:10:17 that you are so obsessed with that number
0:10:20 that you only feel like a success in life.
0:10:21 It’s going up and you feel like a failure
0:10:23 and you need to change if it’s going down.
0:10:25 – I feel like, for me, it’s been good
0:10:28 because I feel like I wasn’t paying attention
0:10:30 and now it is more fun to look at it.
0:10:33 But to your point, I am getting a little addicted
0:10:35 to like going and looking at it all the time.
0:10:36 And maybe I need to like make sure
0:10:38 that it’s just like once a week
0:10:39 instead of every day or something like that.
0:10:41 So I don’t overdo it.
0:10:42 – Yeah, I mean, there’s some people,
0:10:43 I probably fall in this category.
0:10:46 They check their brokerage account once a day
0:10:48 and they check their blood pressure never
0:10:50 or once every five years or something, you know?
0:10:51 Like numbers that are probably actually very important
0:10:55 to your life success and outcome, they’re oblivious too.
0:10:57 But something that is almost by definition
0:11:00 going to jump around randomly every hour,
0:11:02 they pay close attention to it.
0:11:03 I always used to use the example
0:11:06 of nobody checks the value of their house every day
0:11:07 ’cause that would be ridiculous.
0:11:09 But now actually, I think a lot of people do
0:11:10 ’cause of Zillow.
0:11:11 They have this number that like a stock ticker
0:11:13 goes up and down and they check it all the time.
0:11:16 It’s true for any investment that your lifetime success
0:11:18 is almost certainly dependent on how long
0:11:20 you leave it alone for and just let it compound over time.
0:11:22 And if you are the kind of person
0:11:24 for whom checking it every single day
0:11:25 is going to prevent you from holding it
0:11:27 for a long period of time, then that’s an issue.
0:11:28 – Let’s move on to stocks.
0:11:33 So I personally only got back into stocks this year.
0:11:34 During COVID, the start of COVID,
0:11:36 I was doing really well in stocks.
0:11:39 I was younger, but I had put a lot of my savings in stocks.
0:11:43 And then once COVID hit, I took all my money out
0:11:44 and I panicked.
0:11:48 And for a long time, I just didn’t invest in stocks.
0:11:50 I only started back this year.
0:11:51 I’ve always done really well.
0:11:54 So I have 50% returns just from this year
0:11:55 of what I’ve invested.
0:11:57 So I usually do like tech stocks.
0:11:58 Now I’m investing in AI.
0:11:59 And so I’ve done really well.
0:12:01 But why don’t we pause here?
0:12:03 What was wrong with what I did
0:12:06 when I pulled all my money out during COVID?
0:12:08 – I don’t know if it was wrong because you did it
0:12:10 because that’s what you felt like you should do.
0:12:12 Even if you could criticize that and say,
0:12:14 “Oh, you sold at the wrong time, you should have held out.”
0:12:17 I usually don’t say that because if you had tried to hold on,
0:12:20 you probably would have got scared out at a lower price.
0:12:21 The fact that you were tempted to sell
0:12:23 means that at least in that moment,
0:12:26 you didn’t have the right mindset to hold on.
0:12:28 So selling may have been the right thing for you to do.
0:12:30 One of the things I’ve changed my mind on about money
0:12:32 is criticizing the decisions that people make
0:12:33 because you made that decision
0:12:36 because it was the right thing for you to do in that moment.
0:12:37 Even if you could go back in hindsight and say,
0:12:39 “Look at all the money you would have made if you held,
0:12:40 let’s not do that.”
0:12:43 But I think what is true is, like I just said,
0:12:45 what’s gonna account for the majority
0:12:47 of your lifetime returns is not,
0:12:48 “Did you pick the right stocks?”
0:12:50 It’s not, “Did you pick the right industry?”
0:12:52 It’s, “How long did you hold onto the stocks
0:12:53 that you owned?”
0:12:54 And one thing that’s hard for people
0:12:56 to wrap their heads around is,
0:12:58 if you can earn average returns
0:13:00 for an above-average period of time,
0:13:03 you will be among the top investors in the world.
0:13:07 So everybody’s attention goes to what’s big, what’s hot.
0:13:10 Tech, AI, that’s big and hot right now.
0:13:12 Over the next 30 years,
0:13:13 those things are not gonna matter that much.
0:13:15 What’s gonna matter is,
0:13:17 what did you hold onto for the longest period of time?
0:13:18 Carl Richards, who’s a financial advisor,
0:13:21 brought up the idea that for most people,
0:13:24 the house is the best investment they will ever make.
0:13:27 And the reason why is not because it’s a good asset,
0:13:29 it’s not because it’s leveraged with a mortgage.
0:13:31 The reason why is it’s the only asset
0:13:32 that people are willing to hold
0:13:35 uninterrupted for 20 or 30 years.
0:13:38 And so even if the average annual return is not that high,
0:13:41 a mediocre average return compounded for 30 years
0:13:43 balloons into a fortune.
0:13:45 And so that’s what I would keep in mind for you.
0:13:48 I would A, not criticize the decision that you made.
0:13:49 And I would B, say, look,
0:13:52 rather than trying to pick the best industry,
0:13:54 pick a decent industry that you can stick with
0:13:55 for another 10 or 20 years.
0:13:57 And that’s where the big money will be made.
0:14:00 – And I feel like this is why the rich get richer, right?
0:14:03 Because during COVID, all these really rich people,
0:14:05 they didn’t need to worry about the money
0:14:06 they had in the stock market.
0:14:10 They were able to just let it sit there and ride it out.
0:14:13 And so I feel like we should all strive to have money
0:14:16 that we’re okay with just letting it sit there,
0:14:17 don’t you think?
0:14:19 – And that’s why I think most people,
0:14:22 not everybody, but let’s say a lot of people
0:14:25 have too aggressive of an asset allocation.
0:14:26 They have too much of their money in stocks
0:14:28 and they should have less.
0:14:31 And the reason why is the only thing that matters is
0:14:32 what do you need to have to make sure
0:14:34 that you can hold onto the stocks that you own
0:14:36 and are never forced to sell?
0:14:36 You never panic sell.
0:14:38 You never forced to sell because you need the money
0:14:40 for a new car or whatever it might be.
0:14:43 Whatever that level is, that’s the most that you should own.
0:14:46 And for a lot of people, you might have a spreadsheet
0:14:48 or a financial advisor that says, you’re young,
0:14:50 you can have 90% of your money in stocks.
0:14:52 And maybe in theory, that’s true.
0:14:55 But if having that high amount is gonna scare you out
0:14:57 during the next bear market, then it’s the wrong amount.
0:14:59 You should have had less, maybe just 50%
0:15:01 of your net worth in stocks.
0:15:03 Whatever the amount is that you need to hold onto
0:15:05 for the long run, that’s what you should have.
0:15:07 And it gets back to the great Charlie Munger quote
0:15:09 where he said, the first rule of compound interest
0:15:11 is to never interrupt it unnecessarily.
0:15:13 That’s what matters more than anything.
0:15:14 – I love that advice.
0:15:18 For me, that was a lot of my money in the stock.
0:15:19 So I took it out,
0:15:21 but I still think I did smart things with it.
0:15:22 I basically started my company.
0:15:24 I invested in myself.
0:15:25 I invested in my company.
0:15:29 My company started as a group of 10 volunteers.
0:15:31 This year, we made over $6 million.
0:15:33 Next year, we’re on track to make eight figures.
0:15:35 So we’re crushing.
0:15:37 And I’m really happy that I did that.
0:15:39 I’m happy that I bootstrapped my company.
0:15:40 I never took investments.
0:15:43 So when it comes to entrepreneurs,
0:15:45 how should we go about prioritizing investing
0:15:48 in our own business versus investing in things like stocks
0:15:50 and other companies basically?
0:15:52 – Such a good question because there’s no one right answer
0:15:55 because every startup is different.
0:15:56 I think it’s important to understand
0:15:58 if you are a new entrepreneur,
0:16:02 to A, understand the base rate of success for startups.
0:16:04 What I mean by that is how many other startups
0:16:07 that came before you who are just as smart,
0:16:10 had just as much money, had just as much ambition, failed.
0:16:13 And that number is always gonna be very high.
0:16:15 And A, you need to understand that number
0:16:16 and embrace it with both hands.
0:16:19 And B, to be successful as an entrepreneur,
0:16:21 you also have to say, yes,
0:16:23 but I’m still gonna plow ahead as hard as I can.
0:16:26 That’s the dichotomy, that’s the contradiction
0:16:27 of being a startup founder.
0:16:30 Is look, I know the odds of success are stacked against me
0:16:32 and I’m still gonna go ahead nonetheless.
0:16:33 There’s this great story many years ago
0:16:34 that I heard from a founder
0:16:37 where he was raising money from an investor.
0:16:39 And the investor said, I love the idea of this company,
0:16:42 but I think there’s only a 20% chance that it’s gonna work.
0:16:44 I think there’s an 80% chance they’re gonna fail.
0:16:45 And the founder was like,
0:16:48 20% chance it’s gonna work, you’re optimistic.
0:16:50 I think there’s only a 10% chance this is gonna work.
0:16:53 And I think that mindset of an entrepreneur saying,
0:16:55 there’s a 90% chance that I’m gonna fail
0:16:57 and I’m gonna give it everything I’ve gotten nonetheless.
0:17:00 Elon Musk talked about this where I think the figure was
0:17:02 when he started Tesla and SpaceX,
0:17:06 he thought there was like a 99% chance that they would fail.
0:17:07 And he still didn’t nonetheless.
0:17:08 That’s what’s difficult.
0:17:09 When it comes to financial planning,
0:17:11 the important part about that
0:17:14 is that in the very high odds that it’s not gonna work,
0:17:17 you wanna make sure that you have some landing pad
0:17:19 that you’re gonna fall back onto.
0:17:21 ‘Cause in the situation where your business fails
0:17:22 and then you have nothing,
0:17:24 including maybe marketable job skills
0:17:27 to pull yourself back up, that’s a terrible thing.
0:17:29 And it gets back to what we first discussed
0:17:31 about what are you gonna regret?
0:17:32 And I think for a lot of people,
0:17:34 they would regret not starting a business.
0:17:36 They would regret not taking a chance.
0:17:39 They might also regret putting everything they have
0:17:41 into that business so much so that if,
0:17:44 or maybe even when it fails, they have nothing.
0:17:45 They have nothing left.
0:17:47 They’re gonna be left to the state of destitution.
0:17:48 That’s really important.
0:17:50 – I feel like that’s very, very good advice.
0:17:52 And when it comes to entrepreneurs,
0:17:55 we tend to have a lot of the same personality types.
0:17:58 We’re inventors, we’re optimists, we’re risk takers.
0:18:00 What kind of cognitive biases,
0:18:02 when it comes to money and financial decisions,
0:18:06 should entrepreneurs be particularly aware of?
0:18:07 – I think this gets back again,
0:18:09 where it’s like there’s no blank in advice
0:18:11 because by definition, entrepreneurs are oddballs
0:18:14 and are marching to the beat of their own drum.
0:18:15 Henry Ford had this idea.
0:18:17 I read Henry Ford’s biography recently.
0:18:19 Henry Ford’s a very interesting guy
0:18:23 because he was the greatest engineer possibly of all time.
0:18:26 He was an okay businessman,
0:18:28 and he was a devil of a human being.
0:18:30 So he’s like, there’s all these contradictions
0:18:31 wrapped into one.
0:18:34 One thing that he always said was that money in the bank
0:18:35 to him was such a waste.
0:18:37 You should put that to work immediately.
0:18:39 So cash shitting in a checking account to him
0:18:41 was a complete waste.
0:18:43 He was like, go build something, go build a factory,
0:18:45 go invest in something, put that money to work.
0:18:47 I could also argue the other side of that
0:18:51 in terms of cash is actually the oxygen of independence.
0:18:52 But I thought that was really interesting
0:18:54 that he just viewed the opportunity cost
0:18:57 of cash that he had as a complete waste.
0:19:00 And I think actually the thing you see the opposite
0:19:01 in a lot of startups these days,
0:19:03 where if you can raise money from VCs,
0:19:04 there’s a lot of it.
0:19:06 There’s just a gusher of money out there.
0:19:07 So you have a lot of businesses
0:19:10 that will raise $50 million from investors
0:19:12 and then just kind of leave it in a checking account.
0:19:14 And maybe that is not the wrong thing to do.
0:19:16 Maybe that’s actually a wise thing to do
0:19:17 to have that much liquidity.
0:19:19 But I think if you view it in the idea
0:19:21 of entrepreneurs are supposed to build
0:19:23 and cash is a tool to help you go build something.
0:19:24 If you raise a lot of money
0:19:27 and you can’t put it to work in a reasonable amount of time,
0:19:29 there was probably way too much more than you needed.
0:19:32 I think a lot of the behavioral traits
0:19:35 that entrepreneurs have is an unreasonable amount
0:19:39 of confidence in themselves bordering on egomaniac.
0:19:42 And it can be off-putting to a lot of people,
0:19:43 but that’s what you need.
0:19:45 And this is why when the personality traits
0:19:48 of a lot of very successful entrepreneurs become public,
0:19:50 Elon Musk, probably the greatest entrepreneur,
0:19:52 not even probably, he was almost certainly
0:19:54 the greatest entrepreneur of modern times.
0:19:56 And he also has a personality
0:19:58 that a lot of people find distasteful.
0:20:00 And that I think if you look historically
0:20:02 is extremely common.
0:20:05 The reason they are successful is because they’re maniacs.
0:20:07 And that’s why they’re successful.
0:20:09 And it also gives them this personality trait
0:20:11 that a lot of people don’t like.
0:20:13 Steve Jobs was like that, Bill Gates was like that.
0:20:15 Henry Ford, as I just mentioned,
0:20:19 one of the greatest entrepreneurial geniuses to ever live
0:20:21 and a terrible human.
0:20:22 (laughing)
0:20:24 Because anti-Semitism is very well documented and whatnot.
0:20:26 Same with Thomas Edison.
0:20:27 A lot of these people,
0:20:28 the reason they were successful
0:20:31 is because they did not think like most people did.
0:20:32 And because of that,
0:20:34 they had the side that people found distasteful.
0:20:35 That’s very common.
0:20:36 And so for a lot of it,
0:20:38 particularly not necessarily if you are an entrepreneur,
0:20:41 but if you’re gonna work for an early stage startup,
0:20:42 a successful early stage startup,
0:20:44 you need to understand and embrace and be okay
0:20:47 with the fact that you are probably working for a maniac.
0:20:48 That’s usually the case.
0:20:49 And that’s why the company is gonna succeed,
0:20:51 but you need to sign up for that
0:20:52 and understand what you’re doing.
0:20:56 – So let’s talk about overconfidence bias.
0:20:57 This is something that you talk about.
0:21:01 You talk about overconfidence bias, hide and sight bias.
0:21:03 Can you tell us about those two things?
0:21:04 ‘Cause I think it’s important
0:21:07 for entrepreneurs to understand what this is.
0:21:08 – Well, I think for anybody,
0:21:11 not just entrepreneurs, but any random person,
0:21:12 to be able to wake up in the morning
0:21:14 and put one foot in front of the next,
0:21:16 you need to at least be able to look in the mirror
0:21:18 and say, I know what I’m doing
0:21:19 and I’m making good decisions.
0:21:20 ‘Cause if you don’t,
0:21:21 you’re never gonna get out of bed.
0:21:23 You’re not gonna do anything.
0:21:26 But the truth is if you understand how volatile
0:21:29 and uncertain and unpredictable the world can be,
0:21:30 we don’t know what we’re doing.
0:21:33 We don’t know where the world’s gonna go next.
0:21:35 So because of that, you need to be optimistic,
0:21:37 but the world is very uncertain.
0:21:40 Most people are overconfident in what they can do.
0:21:42 I’ll give you a really interesting example of this
0:21:44 that we’ve seen very recently
0:21:46 and is very prevalent in the news right now.
0:21:48 For a lot of people in the economy,
0:21:50 if you ask them, they will say,
0:21:51 how’s the US economy doing?
0:21:53 Most people will vote poorly.
0:21:54 It’s not doing well right now.
0:21:56 Inflation, it’s not going well.
0:21:59 And then if you say, how are you doing in your life?
0:22:01 Most people will say, great.
0:22:03 The gap between those two is enormous.
0:22:05 People say, the US economy is doing terrible,
0:22:07 but I’m doing great.
0:22:08 And you also see this in Congress,
0:22:10 where if you ask people, how much do you like Congress?
0:22:11 I say, I hate Congress.
0:22:13 They’re all a bunch of bums, vote them out.
0:22:15 But then if you say, how do you like your congressman?
0:22:17 People are like, oh, I love them.
0:22:18 They’re wonderful.
0:22:21 That gap between the two comes down to overconfidence.
0:22:22 Where you look around the world
0:22:24 and you say the world is fragile
0:22:25 and it’s broken and it’s uncertainty.
0:22:26 But if you look in the mirror,
0:22:28 you say, I got this all figured out.
0:22:30 And I think people actually need that.
0:22:31 That’s not something we should look down upon.
0:22:34 ‘Cause we need that in order to put one foot
0:22:36 in front of the other in order to get something done.
0:22:38 Entrepreneurs are like this on steroids
0:22:39 because they are doing something
0:22:42 that has very low odds of working,
0:22:44 that there is no defined playbook.
0:22:47 There is no map on what they should do,
0:22:48 but they need to wake up every morning
0:22:50 and look in the mirror and say, I got this.
0:22:53 I am the best in the world at what I do.
0:22:56 I’ve often thought about myself in my own job.
0:22:57 I’ve talked a little bit about this.
0:23:01 I think I have this split personality where in one day,
0:23:03 I can be like, I’m doing great.
0:23:04 I’ve got this all figured out.
0:23:05 I know what I’m doing.
0:23:06 I’m really good at what I do.
0:23:07 And then not even the next day,
0:23:09 but maybe the next hour,
0:23:11 I can flip to, I have no idea what I’m doing.
0:23:13 I’m no better than anybody else.
0:23:14 What am I doing here?
0:23:15 And I actually think that is actually
0:23:17 a pretty healthy personality.
0:23:20 To have the confidence to take a risk,
0:23:22 but also the humility, if not the paranoia,
0:23:24 to be like, I need to really think about
0:23:26 what I’m doing here because I’m actually not that smart.
0:23:29 I think if you can get those two things to coexist,
0:23:31 that’s actually the sweet spot.
0:23:34 People get into trouble when they only have the ego
0:23:35 or they only have the paranoia.
0:23:38 If it’s one of those two things, it’s never gonna work.
0:23:40 You have to have this split personality of,
0:23:42 I’m so good at what I do.
0:23:45 And I’m a complete idiot who has no idea what I’m doing.
0:23:46 – Especially in your areas of weakness,
0:23:48 maybe there’s one part of your business
0:23:49 where you’re like, okay,
0:23:53 I’m definitely not the best at this and I need help, right?
0:23:54 – But sometimes it’s even the same thing.
0:23:56 For myself as a writer, where writing is an art,
0:23:57 there’s no right answer.
0:24:00 It’s just, there’s sometimes where I write something
0:24:02 and I’m like, that’s great, that is beautiful.
0:24:03 I love it.
0:24:06 And then I can read that same paragraph an hour later
0:24:07 and say, this is garbage.
0:24:10 Nobody’s gonna understand what this means whatsoever.
0:24:13 But I think the confidence needed to actually write
0:24:17 and take a risk and write a brave paragraph you need,
0:24:19 but you also need the humility to go back and say,
0:24:21 no, actually I need to change half of this
0:24:22 so it makes better sense.
0:24:25 You need both of those at the same time.
0:24:26 – Let’s hold that thought
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0:28:51 So let’s talk about nostalgia.
0:28:53 Speaking of your writing, your beautiful writing,
0:28:56 you wrote this article on nostalgia,
0:28:58 and it’s one of the things our brains often do
0:28:59 to revisit the past,
0:29:02 and you say in somewhat of a misleading way.
0:29:05 So can you talk to us about why the good old days
0:29:07 are not really the good old days?
0:29:09 – Well, I had this experience a couple of months ago.
0:29:12 This was probably 15 years ago.
0:29:14 My wife and I, before we had kids,
0:29:16 she was my girlfriend at the time,
0:29:19 we had this amazing apartment in the Seattle suburbs.
0:29:22 And given we were young and we were broke,
0:29:24 but the economy was such a mess at the time,
0:29:26 this is after the financial crisis,
0:29:28 that we got this incredible apartment
0:29:31 with a view of the lake in a perfect location
0:29:32 with restaurants nearby,
0:29:34 and we lived there for like three years.
0:29:36 And then so a month or two ago, I was reminiscing.
0:29:39 And I told her, I was like, man, that was peak living
0:29:40 because we didn’t have kids.
0:29:43 We could just wake up and sleep in and go for a walk.
0:29:44 And life was so good.
0:29:45 And she interrupted and she was like,
0:29:47 what are you talking about?
0:29:50 And she said, Morgan, you are more depressed and anxious
0:29:52 and scared when we live there
0:29:53 than you’ve ever been in your life.
0:29:55 Because it was just a weird time in my career.
0:29:56 I didn’t know what I was doing.
0:29:58 I didn’t really have any skills.
0:29:59 It was a low point in my life.
0:30:01 And I was like, yeah, you’re right.
0:30:04 So then why do I remember it as being such a great time?
0:30:07 And I think the reason why is when I look back
0:30:09 with hindsight, with the benefit of hindsight,
0:30:12 I look back and I see a boy back then
0:30:13 who had nothing to worry about
0:30:15 because I know that things worked out.
0:30:17 I know that the career worked out,
0:30:18 my relationships worked out.
0:30:20 It wasn’t always perfect, it wasn’t always easy,
0:30:21 but it all worked out.
0:30:25 And so I look at that boy 15 years ago
0:30:28 and I think about someone who had nothing to worry about.
0:30:30 But back then I didn’t know that.
0:30:31 I didn’t know it was all gonna work out.
0:30:34 So when we know how the story ends,
0:30:36 it’s almost impossible to remember
0:30:39 how uncertain you were during that period of time.
0:30:40 And that’s why we look back at the past
0:30:42 is usually better than it was.
0:30:43 I think this is true too.
0:30:45 If you think about a lot of Americans
0:30:47 have a lot of nostalgia for the 1950s.
0:30:50 You look back at the 1950s as like this glorious age
0:30:52 of middle-class prosperity.
0:30:55 And I think in part we think that’s true
0:30:58 because we know that for the most part it worked out.
0:30:59 That the US economy worked out,
0:31:01 that the global economy worked out,
0:31:02 that there was no World War III,
0:31:03 that there was no nuclear war,
0:31:07 which a lot of people really worried about back then.
0:31:08 So when you know how the story ends,
0:31:11 the past always seems much less uncertain
0:31:12 than it actually was.
0:31:13 And we always fall for this
0:31:16 when we’re thinking about how glorious the 1990s were,
0:31:19 how the early 2000s, whatever it might be.
0:31:20 There’s one other example of this
0:31:22 where a lot of people right now will say
0:31:26 the late ’90s and the early 2000s were as good as it got.
0:31:28 That was such a great time to be alive.
0:31:31 And that was my teenage early 20 years.
0:31:34 And on first glance, I’m like, yeah, that’s true.
0:31:36 The movies we had, the music we had
0:31:37 was so great back then.
0:31:39 But then I’m like, man, do you remember what it was like
0:31:42 to live in America in the year after 9/11?
0:31:43 It was terrifying.
0:31:45 It was utterly terrifying.
0:31:47 Every day you woke up and turned on the news
0:31:48 and held your breath
0:31:50 that this was not gonna be another terrorist attack.
0:31:53 So we remember today as being this amazing time,
0:31:55 but I think that’s just because we know how the story ends.
0:31:57 We know that there was not another major terrorist attack,
0:31:59 that there was not a World War III,
0:32:01 that the economy did recover.
0:32:03 Things that we actually didn’t know back then at the time.
0:32:06 – Yeah, and so how can we use this information
0:32:08 when we’re making investors’ decisions
0:32:09 and financial decisions?
0:32:12 What do we need to think about or be aware of?
0:32:14 – I think it’s very common that you look back
0:32:17 and you’re like, yeah, the stock market has doubled
0:32:19 in the last four years or whatever it is.
0:32:20 And that was really obvious to see.
0:32:22 Anyone could have seen that coming.
0:32:25 And it was easy money to make over the last four years.
0:32:27 And I think that is a very bad mindset to have
0:32:30 because it was never easy.
0:32:31 The future was never certain.
0:32:35 It’s always been this swamp of uncertainty that we live in.
0:32:38 So when you view the past as more certain than it was,
0:32:39 you view like investing decisions
0:32:41 are gonna be easier than they are.
0:32:44 And the fact is making investing decision today
0:32:46 feels uncertain and we don’t know what’s gonna happen
0:32:47 the next five years.
0:32:48 And that’s always been true.
0:32:51 There’s never been a period when that’s not the case.
0:32:54 So realize that the world we live in today
0:32:57 is not any more uncertain than it was five, 10, 20 years ago
0:32:58 is really important.
0:33:00 Yes, it feels uncertain today.
0:33:01 And that is never gonna change
0:33:03 when you’re making a forward-looking investment.
0:33:05 – You were recently asked at a conference
0:33:08 how investors should feel about the stock market
0:33:11 given that it’s gone straight up over the past 15 years.
0:33:14 What kind of thought processes went through your head
0:33:15 when you heard that?
0:33:18 – Well, first I was like, yeah, that seems right.
0:33:20 It feels like the stock market’s gone up
0:33:22 straight up in the last 15 years or whatever.
0:33:24 And then I was like, wait, wait, wait a minute.
0:33:27 The last 15 years have actually been a continuous chain
0:33:29 of uncertainty and nonsense and volatility.
0:33:32 There’s been several times when the market fell 20%.
0:33:35 Market lost to half of its value during COVID.
0:33:37 There was inflation, there are budget deficits
0:33:40 in every given period during the last 15 years.
0:33:42 In any given day, you had a million things
0:33:44 that you could look at and say,
0:33:45 here’s why the economy’s broken.
0:33:48 Here’s why the stock market’s not gonna go up in the future.
0:33:49 And there were very smart people
0:33:51 who said the market’s overvalued,
0:33:52 hyperinflation’s right around the corner,
0:33:55 the budget deficit’s unsustainable, go on down the list.
0:33:57 And yet the market still did,
0:33:59 if you’re just connecting the dots over the period,
0:34:01 go quote unquote straight up.
0:34:02 But during that period,
0:34:05 it was a never-ending chain of uncertainty and volatility.
0:34:06 And this gets back to nostalgia.
0:34:09 I think we think that the last 15 years
0:34:11 were an easy, calm time to make money
0:34:13 because we know how the story ends.
0:34:15 The story ends with the stock market
0:34:18 has gone up fourfold in the last 15 years, whatever it is.
0:34:19 And since we know that,
0:34:22 we view the past as being much less uncertain
0:34:25 and much more stable than it actually was.
0:34:27 – And this also goes back to your point
0:34:29 that if you hold on to things for a long time,
0:34:32 like an extraordinarily long time,
0:34:34 you kind of beat the ups and downs over time.
0:34:36 – Yes, yes.
0:34:39 And so if you held on tight for the last 15 years,
0:34:40 you have done extraordinarily well,
0:34:43 but you had to hold on tight during every single day
0:34:44 where it felt uncertain.
0:34:46 And there were a hundred reasons
0:34:48 that you should panic during the time.
0:34:50 – How do you think we should use nostalgia
0:34:54 to feel better about right now and today’s economic climate?
0:34:58 – I think there’s actually a lot of calmness to be had
0:34:59 when you accept that the world
0:35:02 is not more uncertain today than it’s ever been.
0:35:04 And that at every point in the past,
0:35:08 whether it was 2010 or 2005 or 1995 or 1950,
0:35:09 whatever it might be,
0:35:13 we look back today and say, you guys had it so good.
0:35:16 You guys had a calm, stable world that you lived in.
0:35:17 And that’s not true whatsoever.
0:35:21 The world is not more uncertain today than it was in 1995.
0:35:22 It’s not.
0:35:23 We just think it is
0:35:26 because we know what happened after 1995.
0:35:30 And the odds of a good or bad future today
0:35:31 over the next 10 years,
0:35:34 I think are the same as they were in 1995
0:35:37 or 2005, going back to the past.
0:35:38 And so it’s not to say
0:35:41 that we know the world is gonna be better in the future
0:35:43 or the world is gonna be great over the next 20 years.
0:35:45 We don’t know that, but we’ve never known that.
0:35:48 It’s not any different today than it’s ever been.
0:35:52 – So I was online and I saw this meme yesterday
0:35:54 and it said that we broke records
0:35:56 for Black Friday 2024 sales.
0:36:01 So we spent $10.8 billion online this past Black Friday.
0:36:07 Meanwhile, all year, everyone’s saying they can’t afford eggs.
0:36:09 They can’t afford their groceries.
0:36:11 And so I feel like this really tied everything together
0:36:13 when I was researching for this interview
0:36:16 because here we are thinking it’s the worst year ever,
0:36:21 but then we surpassed Black Friday sales just this past week.
0:36:23 – Yeah, I think at least part of this
0:36:27 is there’s a very big difference between I can’t afford eggs
0:36:30 and the price of eggs has gone up and that pisses me off.
0:36:31 Those are very different things.
0:36:32 It’s one thing to say,
0:36:33 look, there are things in the economy,
0:36:36 particularly with inflation that make people angry
0:36:37 and rightly angry.
0:36:38 They should be angry about it.
0:36:40 They should be upset about it.
0:36:42 And also people are doing better than ever
0:36:44 and earning higher paychecks than ever.
0:36:45 And the stock market’s at an all-time high
0:36:47 and Bitcoin hit $100,000 yesterday.
0:36:51 And those two things are not a contradiction
0:36:52 that people should be angry
0:36:54 and most people have a ton of money right now,
0:36:55 more money than they’ve ever had.
0:36:57 And I think that’s what you see when you have
0:37:02 low economic feelings and moods and also record spending.
0:37:04 So the other thing that I was thinking related to this
0:37:07 is that economic inequality is at an all-time high.
0:37:09 And I see this in my own personal life.
0:37:11 I have friends who are entrepreneurs
0:37:14 and they’re doing incredible.
0:37:15 They’re making more money than ever
0:37:18 or doctor friends, lawyer friends, they’re doing really well.
0:37:20 And then I have friends who are really smart
0:37:22 who can’t get a job right now
0:37:24 and who literally can’t even hold a job.
0:37:28 And so I just see this complete disparity of experiences
0:37:29 when it comes to money.
0:37:31 And I want to understand your thoughts
0:37:34 about what’s going on here in America.
0:37:35 – There are many things going on.
0:37:37 This is not a black and white issue
0:37:38 that you can just give one answer
0:37:39 and say here’s what’s going on.
0:37:41 But I think one of the things that is going on
0:37:45 that’s easy to overlook is that it’s not necessarily
0:37:47 that these things are happening at record rates.
0:37:50 It’s that we are more aware of it than we’ve ever been.
0:37:53 So when there was incredible wealth inequality
0:37:55 as recently as the 1990s, most people didn’t know about it
0:37:58 because your view of the world was constrained
0:38:00 to your neighbors, your coworkers,
0:38:02 your friends who you talked to on the phone
0:38:05 and whatever you watched on the NBC Nightly News that night.
0:38:06 That was your view of the world.
0:38:09 And now because of social media in particular,
0:38:11 if something’s happening in the world,
0:38:13 if somebody in the world is experiencing the world
0:38:15 in a different way than you are,
0:38:16 you are going to know about it.
0:38:18 And you’re going to know about it in social media terms,
0:38:20 which is the person who says the most provocative
0:38:22 off the wall thing, it’s the most attention.
0:38:25 So yes, there is a lot of wealth inequality right now.
0:38:26 There has been for decades,
0:38:29 people are just more aware of how the other half lives
0:38:30 than they used to.
0:38:33 And it used to be that the people who lived in Beverly Hills
0:38:35 and lived behind gated mansions, you never saw them.
0:38:38 Nobody else ever saw how they lived.
0:38:40 And now if you flip open Instagram,
0:38:43 it is an often fake view
0:38:46 of how beautiful, wealthy and happy people are.
0:38:48 And everyone is so aware of it.
0:38:50 And when you are aware that there are other people
0:38:53 who look like they are working not as hard as you,
0:38:54 they’re not as smart as you,
0:38:57 but they at least appear to be happier, wealthier
0:38:59 and prettier than you are.
0:39:01 That leads to a lot of anxiety,
0:39:04 a lot of social Fulbo that we have,
0:39:06 just because we are more aware of it.
0:39:08 What’s interesting with wealth inequality too,
0:39:10 is that actually in the last five years,
0:39:12 in percentage terms, not in dollar terms,
0:39:13 but in percentage terms,
0:39:16 the group who has grown their incomes the most
0:39:17 are the poorest.
0:39:19 That has been a complete reversal for what happened
0:39:22 over the last 30 years or so, or 40 or 50 years or so,
0:39:25 where it was lower incomes were stagnating
0:39:27 and the rich were just exploding.
0:39:29 And now it’s been post COVID
0:39:30 that a lot of low income workers,
0:39:32 people who used to make $7 an hour,
0:39:34 maybe now they’re making $14 an hour.
0:39:36 In percentage terms, it’s enormous,
0:39:39 even if it’s still a big gap between rich and poor.
0:39:41 I don’t know how long that will last,
0:39:42 or if that’s sustainable at all,
0:39:44 but it’s definitely taken place.
0:39:46 But I think it is always countered with the idea
0:39:49 that those people who maybe used to make $7 an hour
0:39:50 and now they make 14,
0:39:52 they’re still opening up Instagram and TikTok
0:39:54 and looking at people who at least are pretending
0:39:57 to live this gigantic life
0:39:59 that is inflating their aspirations.
0:40:00 – It’s so interesting.
0:40:01 I never even thought of that,
0:40:04 the fact that we can just see it all more
0:40:05 than we could in the past.
0:40:06 It’s so true.
0:40:08 I think that’s really eye-opening.
0:40:09 – When I was a teenager,
0:40:12 my view of the world outside of the little town
0:40:14 that I lived in was MTV Cribs.
0:40:16 That was like the only opportunity
0:40:19 to see how the other half lives.
0:40:21 And it was so interesting about that specific example.
0:40:22 If you go look,
0:40:25 there are so many documented cases of MTV Cribs,
0:40:29 which was like, that was the show of my teens in early 20s
0:40:31 that the mansions that they were showing off
0:40:33 did not actually belong to those celebrities.
0:40:34 You would have a rapper or whatever
0:40:37 who would go rent a mansion to film in,
0:40:38 but it wasn’t actually them,
0:40:41 which highlights the idea that a lot of times
0:40:43 when you view how the other half lives,
0:40:44 it’s not even accurate.
0:40:45 It’s not even true.
0:40:48 It’s not a depiction of how they’re actually living.
0:40:50 It’s either a rented mansion
0:40:51 or that is actually their mansion,
0:40:54 but they’re actually not as happy as you think they might be.
0:40:56 There’s so much going on behind the scenes
0:40:58 that they look like they’re living this incredible life,
0:40:59 but they’re actually not.
0:41:01 – So true, so true.
0:41:02 I love that.
0:41:04 So moving on here,
0:41:06 just as we have a tendency to use our brains
0:41:08 to travel back in time with nostalgia,
0:41:10 we also have a tendency to use our brains
0:41:14 to travel forward in time to worry about the future.
0:41:16 So how can we get better at not worrying
0:41:19 about things that are likely never going to happen?
0:41:21 – I think it’s a hard trade off
0:41:23 because you should be worrying about things
0:41:24 that might happen in your future.
0:41:26 That’s what’s going to propel you into action today
0:41:29 in your personal life and for the rest of the world.
0:41:31 So you can take something like climate change
0:41:32 and say, look, for not everybody,
0:41:33 but for a lot of people,
0:41:36 it has no impact on their life today at this moment,
0:41:37 but they should be taking action
0:41:38 and trying to come up with new forms of energy
0:41:41 because it’s going to change 10, 20 years in the future.
0:41:44 I think having an appropriate level of worry
0:41:45 is what gets you going.
0:41:47 And in your own individual life,
0:41:49 the idea that you wake up a little bit nervous and paranoid
0:41:52 about your own career is what’s going to propel you into action
0:41:55 to bring you success five or 10 years from now.
0:41:57 Jeff Bezos talks a lot about
0:41:59 when they report a good quarter for Amazon,
0:42:03 that’s actually for actions that they took five years ago.
0:42:04 They made a change in the company five years ago
0:42:06 that is now paying off in this quarter
0:42:08 because they were worried about their future five years ago.
0:42:10 So I think that’s always important.
0:42:12 I think like a lot of things though,
0:42:14 you can overdose on good ideas.
0:42:17 So if your fear and paranoia for the future
0:42:18 is preventing you from taking action today
0:42:20 because it seems so uncertain.
0:42:21 So I’ll give you an example of that.
0:42:23 People who are so worried about climate change
0:42:24 that they don’t want to have kids,
0:42:26 that’s a documented thing as well.
0:42:29 That’s an example of, okay, in my view at least,
0:42:31 you are clearly overdosing on that worry
0:42:34 that’s preventing you from taking action
0:42:35 to do things in your life
0:42:37 that might actually bring you a lot of joy.
0:42:39 Not to judge anyone’s personal decisions,
0:42:41 but I think there are certain cases
0:42:43 when you are clearly taking it too far
0:42:45 and it’s preventing you from taking action.
0:42:46 So finding that balance between
0:42:49 how can I be kicked in the butt to take action,
0:42:52 but not so much that’s gonna paralyze me in my tracks.
0:42:53 That’s always what it is.
0:42:55 And you also have to bring that with the idea
0:42:58 that what you are worried about in the future
0:43:00 is very likely not gonna happen,
0:43:01 but there are gonna be bad things that do happen
0:43:03 that you’re not even thinking about today.
0:43:05 So if I’m thinking about the next 10 years
0:43:07 and you said Morgan, like what are the biggest risks
0:43:09 to the US economy over the next 10 years?
0:43:11 I can name a couple of things,
0:43:13 inflation, budget deficits, whatever it might be,
0:43:16 that very likely will not be the biggest risk.
0:43:18 The biggest risk over the next 10 years
0:43:20 is something that you and I and nobody else
0:43:21 are talking about.
0:43:26 It’s gonna be some equivalent of 9/11, Pearl Harbor, COVID,
0:43:29 that nobody talks about until it actually happens.
0:43:31 So when you embrace the idea that the biggest risk
0:43:33 is something that you and I are not even thinking about
0:43:36 right now, it’s not in the news, nobody’s talking about it.
0:43:38 Then you kind of throw up your hands in a good way
0:43:40 and you’re like, look, I know the world is fragile.
0:43:41 I know the world is uncertain,
0:43:42 but I’m not gonna waste my time
0:43:44 trying to predict exactly what it’s gonna be
0:43:46 because nobody knows what it’s gonna be.
0:43:47 – It’s so true.
0:43:50 I even think about it with AI all year.
0:43:53 All we’ve been talking about on the podcast is AI.
0:43:54 It’s such a hot topic.
0:43:56 I started this podcast six years ago.
0:43:59 I’ve talked to the smartest people in the world.
0:44:00 Nobody talked about AI
0:44:03 for the first five years of the podcast.
0:44:03 – Yeah, yeah.
0:44:05 – And it’s just insane to think about
0:44:07 how much like it’s just taken over out of nowhere.
0:44:10 It’s like COVID just popped out out of nowhere.
0:44:11 – Totally, I think a lot about too.
0:44:12 In the early days of the internet,
0:44:15 let’s call that 1990s, let’s say.
0:44:17 The biggest fear, the worry for the internet
0:44:19 was that it was gonna put brick and mortar stores
0:44:20 out of business.
0:44:23 To some extent, it kind of did, but not really.
0:44:27 Costco is still an absolutely booming empire and whatnot.
0:44:30 But what did happen was what virtually nobody talked about
0:44:32 was it was gonna have an incredible impact
0:44:35 on teenage, particularly mental health,
0:44:37 on teenage anxiety, depression, suicide and whatnot
0:44:40 that we know is at least heavily caused
0:44:42 by social media addiction.
0:44:45 That probably is right now the biggest risk
0:44:47 that the internet poses on society
0:44:50 and virtually nobody was talking about it 20 years ago.
0:44:52 And so that’s just one example of what is actually
0:44:54 the biggest risk is what no one’s talking about right now.
0:44:57 – So are there any positive things that we can learn
0:45:00 from our own nostalgia, our own uncertainty
0:45:02 and the emotions that they produce?
0:45:05 – I think what’s true historically is that the biggest
0:45:08 inventions, the biggest innovations come specifically
0:45:11 because there is a problem in the world.
0:45:13 And when the world is on fire, so to speak,
0:45:16 that is what gets people’s butts into gear to go innovate.
0:45:19 So the most innovative decades that we’ve ever had
0:45:22 in America are the 1930s and the 1940s.
0:45:23 And it’s not even close.
0:45:25 The inventions that we came up with,
0:45:27 the added productivity that they added to our life,
0:45:29 ’30s and ’40s is where it’s at.
0:45:30 What are the 1930s?
0:45:32 It’s the Great Depression and World War II.
0:45:34 ‘Cause what happened during those periods
0:45:37 where if you were an entrepreneur or a business owner
0:45:39 in the 1930s, during the Great Depression,
0:45:42 every single morning you woke up scared out of your mind
0:45:44 and you said, I need to get more productive
0:45:47 because if I don’t, we’re gonna go bankrupt next week.
0:45:49 So I need to figure out how to run my business
0:45:51 way more efficiently and come up with new technologies,
0:45:52 new ways to do things.
0:45:56 And the accumulated impact on that was enormous.
0:45:57 In World War II, it was,
0:46:00 if we don’t come up with new innovations,
0:46:03 Adolf Hitler is gonna take over the planet next year.
0:46:06 And that spawned a ridiculous wave of innovations
0:46:09 for everything from nuclear energy to rockets, to jets,
0:46:13 to penicillin, microwaves, radar going down the list
0:46:14 because people were so scared.
0:46:16 So that’s the contradiction of,
0:46:19 you actually don’t want most of society to wake up
0:46:20 every morning and say everything is great
0:46:23 ’cause that can lead to a period of getting fat, happy
0:46:24 and lazy.
0:46:28 What you want is a low level of anxiety, not too much.
0:46:30 The most innovation happens when people wake up
0:46:32 in the morning and they say, I have to get more innovative.
0:46:34 Not it would be fun if I became more innovative
0:46:37 but I have to do it because there’s this existential threat.
0:46:39 That’s when you look back 20 years later
0:46:41 and you’re like, man, that period was tough.
0:46:44 It was stressful, but look at all the good things
0:46:45 that came out of it.
0:46:47 That’s always the long history of innovation.
0:46:49 – This is a really good tie-in to the next topic
0:46:50 that I wanna speak about,
0:46:53 which is cumulative versus cyclical knowledge
0:46:56 because innovation can compound in certain fields
0:46:59 and in some fields, it doesn’t really compound.
0:47:01 For example, on finance,
0:47:03 people just tend to make the same investment mistakes
0:47:05 from one generation to another.
0:47:06 And in a recent blog post,
0:47:08 you made this fascinating comparison
0:47:10 between medical knowledge and finance knowledge
0:47:14 and how one field is cumulative and one field is cyclical.
0:47:16 Can you break that down for us?
0:47:19 – Yeah, so in medicine, we have learned a tremendous amount
0:47:23 about biology and chemistry and anatomy
0:47:25 over the last 200 years and it is cumulative.
0:47:28 What I mean by that is if in the 1920s,
0:47:30 we discover penicillin,
0:47:32 the next generation gets to start their career
0:47:34 understanding what penicillin is.
0:47:36 All the knowledge is cumulative over time.
0:47:37 What one generation learned,
0:47:40 the next generation starts with as a baseline of knowledge.
0:47:43 And that’s when knowledge just explodes exponentially.
0:47:45 Other fields like finance are not like that.
0:47:48 And by and large, the lessons that were learned
0:47:50 in the 1920s and the 1930s
0:47:53 and the Great Depression and the roaring 20s,
0:47:54 we have to relearn those lessons.
0:47:57 We don’t have that knowledge passed down from generations
0:47:59 that were like, great, we’ll never do that again.
0:48:00 No, we keep doing the same thing
0:48:02 over and over and over again.
0:48:04 And it would be the equivalent of every generation
0:48:07 of new doctors had to find new medicines,
0:48:08 had to rediscover medicines
0:48:10 that the previous generation already discovered.
0:48:13 That’s ridiculous, but that’s what happens in finance.
0:48:16 A lot of it is because finance is not a science,
0:48:17 it’s behavioral.
0:48:19 And I can read about what it was like
0:48:22 to experience the Great Depression
0:48:24 and the stupid risks that people took in the 1920s
0:48:25 and how it all blew up in the 1930s.
0:48:27 I can read about that.
0:48:28 But for a lot of people,
0:48:29 they’re only gonna really understand it
0:48:32 and they’ve experienced it firsthand themselves.
0:48:34 And that’s why we keep doing the same things
0:48:35 over and over and over again.
0:48:38 And so any field that is behavioral
0:48:39 and finance is definitely that.
0:48:41 It’s probably the greatest example of a field
0:48:42 that’s purely behavioral.
0:48:45 There is virtually no accumulated knowledge over time.
0:48:48 All the lessons have to be learned over and over again.
0:48:50 And you can easily imagine a world where,
0:48:53 look, my grandparents lived through the Great Depression
0:48:56 and then my generation made some really stupid mistakes
0:48:57 during the housing bubble
0:48:59 and maybe during the dot-com bubble.
0:49:01 And my kids and my grandkids
0:49:03 are gonna make a bunch of stupid mistakes themselves.
0:49:05 There’s very little looking back and saying,
0:49:08 “Hey, we learned from that, so let’s never do that again.”
0:49:10 It’s the same mistakes over and over again.
0:49:12 – And it’s also because there’s just so many people
0:49:13 participating, right?
0:49:16 It’s not just financial advisors participating,
0:49:19 it’s everybody’s participating in the finance world.
0:49:23 So do we just have to accept a level of vitality in this?
0:49:24 – I think that’s definitely the case.
0:49:26 It’s true that in the 1920s,
0:49:30 during the peak of the stock market bubble in 1929,
0:49:32 5% of Americans owned stocks.
0:49:33 That’s it.
0:49:36 95% of Americans did not own a single share of any stock.
0:49:39 And today it’s about 55% of Americans own some stocks,
0:49:41 maybe in their 401K or their brokerage account.
0:49:44 So it’s a way higher exposure today than it used to be.
0:49:46 And I think that’s good, that’s great.
0:49:48 But it also makes it so like, yes,
0:49:50 there’s so much participation in the stock market
0:49:52 that when the stock market falls 50%,
0:49:55 it has a much greater impact on society than it used to,
0:49:57 because there’s a greater participation rate.
0:50:01 And so a lot of those mistakes that we’re still making today,
0:50:03 when they occurred 50 or 70 years ago,
0:50:06 it was bad for a small sliver of society.
0:50:09 Whereas today when the stock market falls 50%,
0:50:12 it is crushing and completely derails half the country’s
0:50:14 ability to retire on time, something like that.
0:50:16 – Do you feel like with influencers like you,
0:50:19 for example, that are spreading information
0:50:22 about how to take control of your personal finances
0:50:24 and this wave of people wanting to learn about
0:50:26 how to manage their own personal finances
0:50:29 and wealth outcomes,
0:50:31 do you think that’s gonna help at all?
0:50:34 – I think it can help, it can also be very dangerous.
0:50:36 And one thing that I’ve tried to do in my career
0:50:39 is not pretend that I know who you are, because I don’t.
0:50:40 I don’t know what your goals are.
0:50:41 I don’t know what your income is.
0:50:42 I don’t know what your personality is.
0:50:45 I don’t know what your family situation is.
0:50:47 So who am I to give you medical,
0:50:48 to give you financial advice?
0:50:51 I said medical there because what I was gonna say is,
0:50:53 imagine a world where there was the equivalent
0:50:55 of CNBC from medicine.
0:50:57 And you had doctors going on saying,
0:51:00 you should take this medicine, you should get the surgery.
0:51:03 And what you would do as a viewer is you would be like,
0:51:05 you don’t even know me, you don’t even know if I’m sick.
0:51:07 And you’re recommending that I go take this pill.
0:51:10 That would seem ridiculous, but we do that with finance,
0:51:12 where you have a financial influencer who says,
0:51:14 you should buy this stock.
0:51:16 You should have half your money in Bitcoin.
0:51:18 And that might be good advice for some people
0:51:20 and disastrous for others.
0:51:23 You have to understand that person individually.
0:51:26 This is why I think despite the massive growth
0:51:28 and like digital financial advice and whatnot,
0:51:30 there is still a huge incredible need
0:51:33 for a face-to-face human financial advisor
0:51:34 who can actually get to know you.
0:51:36 Because it’s never gonna be the case
0:51:39 that an app can know everybody and give blanket advice.
0:51:41 There is no blanket financial advice.
0:51:44 And what works for me might be disastrous for you
0:51:45 and vice versa.
0:51:47 That’s the limitation of giving advice
0:51:51 to a very big audience is that there is no one size fits all
0:51:54 the piece of advice that you can give anybody.
0:51:55 – We’ll be right back
0:51:57 after a quick break from our sponsors.
0:51:59 – Yeah, fam.
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0:53:44 So we were talking about AI earlier
0:53:47 and Elon Musk has some predictions
0:53:48 about what’s gonna happen with AI
0:53:50 that I think are really interesting.
0:53:53 He says that humans aren’t gonna work like we used to
0:53:54 and we’re gonna have to reimagine the ways
0:53:56 that we find purpose.
0:53:59 And he also mentions that to address this job displacement
0:54:03 caused by AI, that there’s gonna be a universal basic income
0:54:05 or he at least advocates for one.
0:54:08 Then he also has suggested that with AI’s efficiency
0:54:10 that it could lead to a universal high income
0:54:13 where abundance created by AI allows for higher standards
0:54:15 of living for all.
0:54:17 So do you feel like changes like this
0:54:20 are actually gonna make finance more cumulative
0:54:22 and less cyclical?
0:54:24 – When I hear that, I have two thoughts.
0:54:28 One is, yes, I believe that to be true, that makes sense.
0:54:32 And B, people have been saying that for literally centuries.
0:54:36 John Maynard Keynes, one of the most famous financial minds
0:54:39 of the 1920s, 1930s, he very famously predicted
0:54:42 that I think it was by the year 2000,
0:54:45 the average work week would be 15 hours a week.
0:54:47 ‘Cause he calculated we were gonna become so productive
0:54:48 and so efficient that people just wouldn’t need
0:54:50 to work that much anymore.
0:54:52 Of course, that did not happen
0:54:54 ’cause there’s such a long history of
0:54:58 if people’s incomes go from $20,000 to $50,000,
0:54:59 they don’t say, great, that’s enough,
0:55:01 I can just retire on 50,000.
0:55:03 What they do is they say, great, now I make 50,000
0:55:05 and I aspire to make 100.
0:55:06 And once they make 100, they’re like, great,
0:55:08 now I aspire to make 200.
0:55:12 So you can imagine a world where AI makes us all much richer
0:55:14 and way more productive.
0:55:16 I think it’s much harder to imagine a world
0:55:17 where because of that, we all say, great,
0:55:18 I don’t need to work anymore.
0:55:20 I think if we do that, we’re just gonna find
0:55:22 some other new technology to wanna work on.
0:55:25 And that’s always been the history of new technology.
0:55:26 Maybe this time will be different,
0:55:28 but I feel like that’s always what it is.
0:55:30 That if you double people’s income, it’s great,
0:55:31 they live a better life
0:55:34 and they are not satiated in the slightest,
0:55:36 they’re always gonna want more.
0:55:38 And I think the reason why is because
0:55:40 people’s ability to feel wealthy
0:55:42 has very little to do with
0:55:44 the actual material life that they’re living
0:55:45 and has a lot to do
0:55:47 with whether I have more money than you do.
0:55:49 It’s all about social comparison.
0:55:53 And so if my income doubles and your income doubles,
0:55:55 by and large, I will not feel better off
0:55:57 ’cause I’m still comparing myself to you.
0:56:00 So if AI makes everybody richer,
0:56:02 it’s probably the case that nobody feels better off
0:56:03 because by comparison to their peers,
0:56:05 they’re not any better off.
0:56:07 – Oh my God, that is so fascinating.
0:56:08 And it’s so true.
0:56:11 All of our decisions are based on status
0:56:14 and whether things increase or decrease our status.
0:56:16 So if everybody’s making the same amount of money,
0:56:17 we’re gonna find some other way
0:56:19 to try to increase our status.
0:56:22 – Everyone just wants to be the top 1%,
0:56:24 but I’d misuse a Charlie Munger quote.
0:56:25 He’s like, the iron rule of math
0:56:28 is that only 1% of people can be in the top 1%.
0:56:31 It’s always gonna be that the other 99%
0:56:33 feel like they’re falling behind
0:56:36 even if their incomes are going up and up and up.
0:56:39 – So Elon Musk is somebody that we mentioned
0:56:41 quite a few times already in this interview
0:56:43 and let’s stick on him here.
0:56:48 So he is somebody who takes a lot of risk.
0:56:52 What can we learn about failure and risk and resilience
0:56:56 when it comes to Elon Musk and his experiences?
0:56:58 – I’m probably gonna get some of these numbers wrong,
0:56:59 but I think this is roughly accurate.
0:57:03 He made about $200 million from PayPal.
0:57:04 I think he was about 30 years old,
0:57:06 cashed out $200 million.
0:57:09 Obviously anybody could have and would have
0:57:11 just sailed off into the sunset
0:57:13 and bought a private island and a private jet
0:57:15 and lived out the rest of their days in luxury.
0:57:19 What he did is he plowed every single cent of that money
0:57:23 into Tesla and SpaceX, which at the time were nothing.
0:57:25 And by his estimation, as I mentioned earlier,
0:57:27 there was like a 99% chance that those were not gonna work.
0:57:28 Now both of them worked.
0:57:30 He’s now the richest man to ever live.
0:57:32 Everyone knows what happened.
0:57:35 It’s also important to realize that the vast majority
0:57:37 of people, including myself, do not have that personality,
0:57:39 that you could have made $200 million
0:57:40 and said I’m gonna bet it all on companies
0:57:42 that have almost no chance of survival.
0:57:45 Even if it did work out in the end, we know how it worked out.
0:57:49 And so more than the fact that he is a genius entrepreneur,
0:57:51 a genius engineer going down the list,
0:57:53 he has a level of risk taking
0:57:56 that is truly one in a billion that I don’t have.
0:57:59 And so I think for lots of entrepreneurs, not just Musk,
0:58:01 but many of those people, I can look at them
0:58:03 and say I am glad they exist
0:58:05 because the products that they created make the world better.
0:58:07 And at the same time,
0:58:10 I would never wanna live that life for myself.
0:58:12 Where I’m lucky enough to make a fortune
0:58:14 and I literally go put all of it on black.
0:58:17 That’s not what I have, but he does have it.
0:58:19 Back to like, people like Henry Ford.
0:58:21 He was like, look, if you have cash in the bank,
0:58:22 you need to put it to work immediately.
0:58:24 Otherwise it’s a total waste.
0:58:26 I don’t have that personality, but I’m glad that he did.
0:58:28 ‘Cause he made the world better for it.
0:58:30 That’s a lot of the contradiction here.
0:58:31 I think it’s important for people to wrap their heads around
0:58:34 is that it’s not a contradiction to say,
0:58:36 I’m so glad that person exists
0:58:39 because their technology’s made the world better.
0:58:40 And at the same time,
0:58:42 they have parts of their personality
0:58:43 that I find distasteful.
0:58:46 And I would never wanna take that much risk in my own life.
0:58:47 That’s not a contradiction.
0:58:49 That’s actually a very important thing to acknowledge
0:58:53 for lots of those entrepreneurs outside of Elon Musk.
0:58:55 – I have a quote from one of your articles
0:58:57 that I think is really insightful for entrepreneurs.
0:58:58 So I’m gonna read it.
0:59:00 We live in a tail driven world
0:59:03 where a few events drive the majority of outcomes.
0:59:05 It’s a world that demands you become comfortable
0:59:07 with a lot of things not working,
0:59:10 lots of things failing and constant disappointment
0:59:12 because success means that you tried 10 things
0:59:16 and eight of them fail miserably, but two change your life.
0:59:18 – Yeah, it’s a hard thing to wrap your head around.
0:59:20 And this is true for a lot of things in life,
0:59:22 for your relationships and whatnot
0:59:24 that you might need to try out 10 different things
0:59:26 before you find one that works.
0:59:28 And understanding the idea that
0:59:30 if you start 10 businesses, let’s say
0:59:33 and nine of them fail and one is a success,
0:59:34 that’s a good outcome.
0:59:35 That means you did it right.
0:59:37 But that means you have to be comfortable
0:59:38 with nine of the things not working.
0:59:40 And you might need to date 10 people
0:59:42 before you find your spouse.
0:59:45 Like that idea exists everywhere in your life.
0:59:47 And so getting used to the idea
0:59:51 that the path to success often looks a lot like failure
0:59:53 is very hard to wrap your head around.
0:59:55 It’s true for stock picking as well,
0:59:57 where if you pick 10 stocks,
1:00:00 there’s a very good chance that in the next 10 years,
1:00:02 three to five of them won’t even exist anymore.
1:00:03 Those companies will go out of business.
1:00:06 Even for big mega companies,
1:00:07 they just won’t exist anymore.
1:00:10 And a couple of them will do okay.
1:00:11 And if you’re good and if you’re lucky,
1:00:14 one of them will generate all of your returns.
1:00:15 That’s always how it exists.
1:00:16 I mean, if you go back 20 years ago,
1:00:20 a lot of the biggest stocks in the world were AIG, Enron,
1:00:23 General Motors, companies that either don’t exist
1:00:24 or barely exist anymore.
1:00:26 And that’s always been the case.
1:00:29 And you can so imagine a world 20 years from now,
1:00:34 where one of Amazon, Google, Microsoft, Nvidia, Facebook
1:00:36 don’t exist anymore.
1:00:37 That sounds crazy,
1:00:39 but that has always been the path of history.
1:00:40 Or they still exist,
1:00:42 but they’re shells of their former sales.
1:00:44 And there’s gonna be some new company
1:00:46 that you and I aren’t talking about today
1:00:48 that’s gonna be worth $10 trillion.
1:00:49 That’s always been the case as well.
1:00:52 So understanding that you can fail half the time
1:00:54 and still do very well,
1:00:55 seems like a contradiction,
1:00:58 but that’s always how it works in the tail-driven society.
1:01:01 – Such an important lesson for all of us to take heed to.
1:01:03 So I wanna close out this interview
1:01:07 with your Universal Laws of the World,
1:01:08 which you recently wrote about.
1:01:10 Can you tell folks what inspired you to do this
1:01:13 and what some of these Universal Laws are?
1:01:14 – I’ve always liked the idea
1:01:17 that fields are more interconnected than we think.
1:01:20 So in school, the biology department’s over here.
1:01:22 And then in a separate building, you have the math department.
1:01:24 In a separate building, you have the history department.
1:01:26 There’s actually so many interconnections between those fields.
1:01:29 And there’s so much that we can learn from biology
1:01:31 that teaches us about investing.
1:01:33 And there’s so much that we can learn from history
1:01:34 that teaches us about medicine,
1:01:36 like all these interconnections.
1:01:39 So I think it’s fun to look at some other laws and rules
1:01:40 from other fields that you’re like,
1:01:41 look, that’s from a different field,
1:01:43 but it teaches me a lot about this field.
1:01:45 There’s lots of different laws from evolution
1:01:47 that can teach you a lot about investing,
1:01:49 from biology that can teach you a lot about investing.
1:01:51 And I think if you are only looking through
1:01:53 the narrow lens of your field,
1:01:55 whatever your field is, if you’re an investor,
1:01:56 you’re only looking through finance.
1:01:59 If you’re a lawyer, you’re only studying law,
1:02:00 that you can actually learn so much
1:02:02 if you expand your horizons
1:02:06 and you realize how interconnected the world truly is.
1:02:10 – So you have this bullshit asymmetry principle.
1:02:11 What’s that about?
1:02:14 – That was a guy who coined it Brandolini’s law,
1:02:18 which is that it is much easier to create bullshit
1:02:20 than it is to refute it.
1:02:23 So if somebody lies or says something completely untrue,
1:02:27 that’s very easy to refute it is extremely difficult.
1:02:29 And it’s always been like that.
1:02:31 Social media makes it a hundred times more potent
1:02:32 than it used to be.
1:02:33 And you see this online.
1:02:36 If somebody tweets something that is obviously false,
1:02:40 profoundly false, it might get a hundred thousand retweets.
1:02:43 And then when it is corrected and the truth comes out,
1:02:46 that correction will get a half a percent
1:02:49 as much attention and as many eyeballs as it did.
1:02:50 That’s always been the case,
1:02:52 but it’s so much more potent now than it used to be.
1:02:56 That bullshit is easier to create than it is to refute.
1:02:58 – So interesting.
1:02:59 And so how does that relate to finance?
1:03:02 People giving advice and then everybody believes it
1:03:05 and then you just can’t take it away basically.
1:03:06 – Yeah, rumors and whatnot.
1:03:09 What’s interesting in finance is that a lot of what might seem
1:03:13 like bullshit and rumors can become true
1:03:14 because it’s a story driven thing
1:03:16 that enough people latch onto.
1:03:18 So meme coins are an example of this.
1:03:20 If someone creates a meme coin and you’re like,
1:03:21 that’s obviously bullshit.
1:03:24 It’s obviously has no fundamental backing.
1:03:27 It’s obviously a joke and it becomes dogecoin.
1:03:29 – Yeah, like 10s of billions of dollars.
1:03:30 – Exactly.
1:03:31 If enough people believe it,
1:03:34 at least for a short period of time,
1:03:36 it can become self-fulfilling.
1:03:38 And even if it’s based in bullshit
1:03:39 and long-term is bullshit,
1:03:41 it becomes self-fulfilling for a very long period of time.
1:03:43 If enough people think it’s true.
1:03:44 – That’s so crazy.
1:03:46 All right, last one, little woods law.
1:03:49 Why do miracles happen all the time?
1:03:51 – Little woods law was this idea from a mathematician
1:03:54 where he was like, a lot of what people consider miracles
1:03:56 are actually just basic statistics.
1:03:59 Because if something has a one in a billion chance
1:04:01 of occurring, well, how many people are in the world?
1:04:02 Eight billion.
1:04:05 So by definition, there should be eight,
1:04:09 one in a billion things happening every day,
1:04:10 day after day after day.
1:04:12 And so in the news, we’re always gonna hear
1:04:14 about this amazing, ridiculous thing,
1:04:16 good or bad that happened to somebody.
1:04:17 And you’re like, that’s a miracle.
1:04:19 How could that possibly have ever happened?
1:04:21 Well, a lot of the answers to that is just
1:04:22 there are so many people in the world
1:04:24 doing so many things,
1:04:26 things that seem completely preposterous
1:04:27 actually happen all the time.
1:04:29 And in a global news world,
1:04:30 you are definitely gonna hear about it.
1:04:32 And it leads people to this idea
1:04:34 that the world is probably more fragile
1:04:35 and more uncertain than it actually is.
1:04:37 It is very fragile and uncertain.
1:04:40 But when you only hear about the one in a billion things
1:04:41 that are guaranteed to happen
1:04:43 because there are so many people,
1:04:45 it gives us this idea that those things happen more frequently
1:04:47 than they actually do.
1:04:49 I actually wanna ask one more law
1:04:51 because I feel like it’s important for entrepreneurs
1:04:53 and that’s Parkinson’s law.
1:04:55 Tell us about that.
1:04:58 It’s the idea that work expands to the time that you have.
1:05:02 And so if you give someone a two month deadline,
1:05:03 they’re gonna take two months to do that project.
1:05:05 If you give them a one week deadline,
1:05:07 they’ll get it done in a week.
1:05:09 Back to Elon Musk, who we’ve been talking a lot about.
1:05:11 He’s been known for this very often,
1:05:13 particularly in space lesson in Tesla,
1:05:15 where an engineer says,
1:05:17 Elon, this part is gonna take a million dollars to build,
1:05:20 to a million dollars to create and design this part.
1:05:21 And he basically comes back and he’s like,
1:05:24 your budget is $50,000, go get it done.
1:05:26 And they do, they do get it done.
1:05:27 Steve Jobs did this a lot too,
1:05:30 where he was like, the iPhone or the iPod has to,
1:05:33 it cannot be bigger than Ness.
1:05:35 And the engineers are like, we can’t do it.
1:05:36 He’s like, yes, you can go figure it out.
1:05:38 And they do it, they get it done.
1:05:39 If you give someone a tight deadline,
1:05:42 they will probably find a way to get it done.
1:05:44 But if you give them the expense and the time,
1:05:46 a larger budget or a larger period of time,
1:05:49 they’re gonna fill up their needs in that time.
1:05:51 And you see this in so many different careers,
1:05:53 where the amount of time and money
1:05:54 that you need to get something done
1:05:56 is just the amount of time and money
1:05:58 that your boss gave you to get it done.
1:06:00 – Morgan, this has been such an awesome conversation.
1:06:03 You have so much value to share beyond just finance.
1:06:05 And I feel like we really got to hear
1:06:06 a lot of your perspectives today.
1:06:08 And I personally really enjoyed it.
1:06:10 I end my show with two questions
1:06:11 that I ask all my guests.
1:06:14 The first one is, what is one actionable thing
1:06:16 our young and profitors can do today
1:06:18 to become more profitable tomorrow?
1:06:20 – One is figure out what is unique to you
1:06:22 that does not apply to other people in your circle
1:06:25 who you are currently looking up to and trying to copy.
1:06:28 What is very unique about your goals or your personality
1:06:30 that you’re like, look, this person who I look up to,
1:06:32 this strategy works for them,
1:06:33 but it probably doesn’t work for me.
1:06:34 And it’s not a contradiction.
1:06:37 I’m not going against them to say, I know that worked for you,
1:06:39 but I have a different personality.
1:06:40 So I’m gonna do it my own way.
1:06:42 Whatever that might be, everyone is different.
1:06:44 I think that’s what’s most important.
1:06:45 – Can you give us an example?
1:06:48 – I probably don’t take as much investing risk
1:06:51 as somebody of my age and income could.
1:06:53 But that’s because I have no aspiration
1:06:55 to be the world’s greatest investor.
1:06:57 My only aspiration is to give myself
1:06:59 and my family independence.
1:07:00 And that might not be your goal.
1:07:02 It might not be some of the listener’s goals.
1:07:04 So if we are doing things differently,
1:07:06 it’s not necessarily because we disagree with each other.
1:07:08 You might just have a slightly different personality
1:07:10 and different goals over time.
1:07:12 – And what is your secret to profiting in life?
1:07:15 And this can go beyond business and finance.
1:07:17 – Independence, always.
1:07:18 Not just financial independence,
1:07:20 but hanging out with only people who I wanna hang out with,
1:07:22 only doing work that I wanna do.
1:07:24 If you could wake up every morning and say,
1:07:25 I can do whatever I want today,
1:07:27 regardless of what that might be.
1:07:30 Having a sense of independence is not only the most enjoyable,
1:07:33 but it’s gonna push you towards doing your best work.
1:07:34 – Love it.
1:07:35 And where can everybody learn more about you
1:07:36 and everything that you do?
1:07:38 – My books, The Psychology of Money,
1:07:41 and Same as Ever, and I also have a podcast and a blog.
1:07:43 Twitter, my handle is Morgan Housel,
1:07:44 my first and last name.
1:07:46 – Awesome, what’s your podcast called?
1:07:48 – It’s called The Morgan Housel Podcast.
1:07:50 Very creatively named.
1:07:51 – Easy to find.
1:07:53 I’ll stick all the links in the show notes.
1:07:55 Morgan, it’s always a pleasure to have you on the show.
1:07:56 Thank you so much.
1:07:57 – Thanks so much.
1:08:03 – Well, Young Improfitors, I have to say,
1:08:06 I feel so much better and relaxed
1:08:09 about my financial situation after speaking with Morgan
1:08:12 because he just taught me so much
1:08:14 and I love his approach to money.
1:08:18 And I love his belief that money should be a tool
1:08:22 for a better life and not an end to itself.
1:08:24 When it comes to your finances and your investments,
1:08:27 you’re never gonna be able to anticipate the market.
1:08:29 It’s just never gonna happen.
1:08:31 But you can understand the big picture,
1:08:35 not to mention human psychology, including your own.
1:08:37 And so here were some of my favorite pieces of advice
1:08:40 from Morgan from the conversation today.
1:08:44 First, invest for the long haul and don’t panic sell.
1:08:46 There’s a reason why a house is the best investment
1:08:48 that many people will ever make.
1:08:51 And that’s because they tend to buy and hold it.
1:08:53 That’s because they’re living in it.
1:08:55 So don’t be afraid to buy and hold,
1:08:57 but also don’t be afraid to take your money
1:09:01 and then invest it in yourself instead, like I did.
1:09:03 Even if you don’t believe like Henry Ford did
1:09:06 at any cash that just sits around is going to waste,
1:09:09 you should still think about putting that money to use.
1:09:12 Maybe to start a side hustle or a business
1:09:13 or to learn a new skill
1:09:16 that could help you start a business one day.
1:09:19 Morgan calls cash the oxygen of independence.
1:09:23 And I think that is especially true for entrepreneurs.
1:09:26 So yeah, bam, don’t look back in 20 years and wonder
1:09:29 if you should have taken that shot at starting a business.
1:09:31 Invest in yourself now.
1:09:33 That might sound overly optimistic,
1:09:36 but remember that sometimes overconfidence
1:09:38 can be your superpower as an entrepreneur.
1:09:40 Just be smart about it and also recognize
1:09:43 that you may well fail nine times out of 10,
1:09:46 but that 10th time young and profitters,
1:09:49 well, that could be the time that changes everything.
1:09:51 Thanks for listening to this episode
1:09:53 of Young and Profiting Podcast.
1:09:54 If you listened, learned and profited
1:09:56 from this conversation with Morgan Housel,
1:10:00 then share this episode with your friends and family.
1:10:01 And if you enjoyed this show,
1:10:03 I have two asks.
1:10:06 First off, if you’re not subscribed to the channel yet,
1:10:08 make sure you do that so you never miss an episode.
1:10:12 Second, drop us a five star review on Apple Podcasts,
1:10:13 Spotify, Cast Box, PlayRFM,
1:10:15 wherever you listen to your podcast.
1:10:17 I love getting your reviews.
1:10:18 I read them every day.
1:10:20 They always make my day.
1:10:22 So take the time to write us a review,
1:10:25 give us some feedback, help us grow our social proof.
1:10:27 I’d really appreciate it.
1:10:29 If you wanna watch your podcast as videos,
1:10:31 I’m doing a lot more in-person content.
1:10:33 You can find all of our videos on YouTube
1:10:35 at Young and Profiting.
1:10:38 You can also find me on Instagram at @yappithala
1:10:39 or LinkedIn by searching my name.
1:10:41 It’s Hala Taha.
1:10:43 And of course, I wanna thank my YAP production team.
1:10:45 You guys are so awesome.
1:10:47 Thank you for all your hard work.
1:10:48 I see you guys hustling every day.
1:10:50 You make this show possible.
1:10:52 I couldn’t do this without you.
1:10:54 This is your host, Hala Taha,
1:10:57 AKA the podcast princess, signing off.
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