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and profiting.com/deals. I'm starting this new

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2:56

and Profitors, money is a

2:58

mind game. Our financial decisions

3:00

are deeply intertwined with our

3:02

emotions, more so than we

3:04

often realize. That's why recognizing

3:06

the psychological aspects of

3:08

our relationships to money can help

3:10

us avoid some significant financial missteps.

3:12

And there's nobody who's better at

3:15

illuminating this connection between psychology and

3:17

finance than Morgan Housel. Morgan is

3:19

a former financial columnist for the

3:21

Motley Fool and the Wall Street

3:24

Journal. He's the author of books

3:26

like The Psychology of Money, and

3:28

he was my guest earlier this

3:30

week on the podcast. It was

3:32

the second time on the show

3:35

and he had so many wonderful

3:37

insights that he couldn't help but

3:39

give you a second helping in

3:41

this yap classic. In my first

3:43

conversation with Morgan Housell, he talked

3:45

about some of the emotional pitfalls

3:47

related to money, the skiing accident

3:49

that changed his life, and why

3:51

the biggest risks are the ones

3:53

that you don't see coming. He

3:55

also shared some secrets for staying

3:57

rich, along with the underappreciated treat

3:59

of war. Buffett that he thinks we

4:01

all should emulate. If you want to

4:03

find out what that is, let's dive

4:05

in. Here's my interview with Morgan Housle.

4:07

So I'm going to cut straight to

4:10

the chase. You are a master of

4:12

many trades. You're a bustling author, investor,

4:14

you're even a podcaster. So how do

4:16

you define what you do today? It's

4:18

such a good question. I would say

4:20

I don't. I've never tried to put

4:22

myself in a box, and I think

4:24

I've moved around around over the years.

4:26

I think if you asked me that

4:28

question 10 years ago, I would have

4:30

said, I'm an investor who writes. And

4:32

maybe if you asked me today, I

4:34

would say, I'm a writer who invests.

4:36

I've just switched around what I enjoy

4:39

doing. And it used to be that

4:41

all of my emphasis and research and

4:43

enjoyment was investing. I want to scour

4:45

the world and study, investing, history and

4:47

whatnot. And I still love that. I'll

4:49

always do that. But the art of

4:51

storytelling really bit. find joy in doing

4:53

now. And that's the craft that I

4:55

want to hone. And I think jumping

4:57

around like that has been really important.

4:59

If you just put yourself in a

5:01

box and say, I am a blank,

5:03

you're cutting off so much of the

5:06

world that you might find enjoyment in

5:08

and have some talent in doing. Yeah.

5:10

And when did you first get interested

5:12

in finances as a young man? I

5:14

think I was 19 when I first

5:16

stumbled across investing. I've told the story

5:18

before, but it'll always stick with me.

5:20

When I was 18, my grandparents gave

5:22

me $1,000 and I put it in

5:24

a CD at the bank, certificate of

5:26

deposit, where it earned interest. And I

5:28

think I intuitively knew what interest was,

5:30

but I didn't really get it. And

5:32

I remember I logged into my account

5:35

the next day, and the balance had

5:37

grown from $1,000 to $1,000 in three

5:39

cents. I earned three cents of interest,

5:41

and I remembered jaw hitting the floor

5:43

being completely stunned, that I just earned

5:45

money for doing nothing. just for waking

5:47

up in the morning, somebody paid me.

5:49

I knew at that moment, I was

5:51

like, this is the thing. This is

5:53

what I loved. And so all throughout

5:55

college, I wanted to be a hedge

5:57

fund manager or an investment banker. I

5:59

think in that era, like the mid-2000s,

6:02

that's what everybody wanted to do in

6:04

that field. And then I kind of

6:06

stumbled haphazardly across writing. It was never

6:08

part of the plan. I never wanted

6:10

to become a writer. And even when

6:12

I started doing it, I was a

6:14

senior in college when I got a

6:16

job at the Mot Fool, writing about

6:18

stocks, writing about stocks. And I didn't

6:20

want to do it. particularly for people

6:22

in college, you might think you know

6:24

what you want to do. And you

6:26

have a goal and you have a

6:29

path in front of you, but so

6:31

many people, including myself, probably you, stumble

6:33

into what they actually love and want

6:35

to do serenipitously. So I think it

6:37

was great that I did not follow

6:39

the path that I thought I had

6:41

paved for myself and just stumbled into

6:43

something else. Yeah, and it sounds like

6:45

you had an open mind to explore

6:47

different skills and see what you were

6:49

able to merge. finance and writing which

6:51

you didn't expect to actually do into

6:53

a career as an author, a best-selling

6:55

author at that. Well here's what's really

6:58

interesting. I would not say I had

7:00

an open mind about it. I graduated

7:02

college in 2008 when the world was

7:04

on fire and everything was on fire

7:06

and everything was burning. I graduated college

7:08

in 2008 when the world was on

7:10

fire and everything was burning down the

7:12

economy. I graduated college in 2008 when

7:14

the world was on fire and everything

7:16

was like I need a paycheck today.

7:18

and they were like the only people

7:20

in finance who were hiring. And so

7:22

for the first six months, not only

7:25

did I not really like it, I

7:27

was kind of ashamed of it. I

7:29

was like, I want to be a

7:31

hedge fund manager and now I'm a

7:33

blogger. What is this? After about a

7:35

year, I started to really enjoy it.

7:37

What is this? After about a year,

7:39

I started to really enjoy it. Yeah,

7:41

and that makes sense because usually if

7:43

you don't have experience, you're bad at

7:45

that thing. I think if there's one

7:47

thing that has really helped me in...

7:49

career, it's a combination of for the

7:52

first two or three years, I had

7:54

to do that job because nobody else

7:56

was hiring. And then after that, I

7:58

think I've just been stubborn. I don't

8:00

know if it's patience or stubbornness or

8:02

a mix of the two, but I've

8:04

been writing about behavioral finance every day

8:06

for 17 years. And if you do

8:08

anything for that long, you'll gain some

8:10

proficiency. No matter what it is. Anybody

8:12

in any field, if they do it

8:14

every day for 20 years, will get

8:16

good at it. Yeah, and I think

8:18

something that also changed the way that

8:21

you think about the world is actually

8:23

an accident that happened when you were

8:25

younger on ski slopes. It severely impacted

8:27

you. It's really, really traumatic and tragic.

8:29

Can you tell us about that and

8:31

how it shaped the way that you

8:33

view the world? Yeah, so I grew

8:35

up as a competitive ski racer in

8:37

Lake Tahoe, California. I was on the

8:39

squad valley ski team and that was

8:41

my life for my childhood and my

8:43

childhood and my teenage years. It was

8:45

great. It was such a cool experience.

8:48

And there were about 12 of us

8:50

on the Squaw Valley ski team. We

8:52

were all best friends. We had been

8:54

together since we were children skiing six

8:56

days a week all over the world.

8:58

And so one day in February of

9:00

2001, I was 17 years old, and

9:02

I was skiing with my two best

9:04

friends. We had grown up together. They

9:06

were 17 as well. And we would

9:08

ski down the backside of Squaw Valley,

9:10

which is out of bounds, which you're

9:12

not supposed to do. But we did

9:15

this because we were young and rebellious

9:17

and that's where the best skiing is.

9:19

It's on track. You have the place

9:21

to yourself. Now when you ski out

9:23

of bounds like that, when you get

9:25

to the bottom, there's no chairlift because

9:27

you went out of bounds. So it

9:29

would spit us out on this back

9:31

country road and we would hitchhike back.

9:33

We loved doing this. It was kind

9:35

of a hitchhike. It was all very

9:37

rebellious thing that 17-year-olds do. So the

9:39

three of us ski this run. And

9:41

as we're skiing this run. And it's

9:44

like it's a feeling that you will

9:46

never forget because rather than pushing on

9:48

the ground with your skis to gain

9:50

traction and control, all of a sudden

9:52

the ground is pushing you. And avalages

9:54

are very powerful. You'll be skiing down

9:56

and then all of a sudden you

9:58

have no control and it'll push you

10:00

20 feet this way and then jolts

10:02

you 30 feet that way. But it

10:04

was pretty 30 feet that way. But

10:06

it was pretty small and then jolts

10:08

you 30 feet that way. But it

10:11

was pretty small and it was pretty

10:13

feet that way. We hitched like back

10:15

back. And Brendan and Brandon and Brian.

10:17

My two friends were with my two

10:19

friends were with me. My two friends

10:21

were with me. For whatever reason, I

10:23

don't really know. I said, I don't

10:25

want to do it again. But how

10:27

about this? How about you guys go

10:29

do it again? And rather than hit

10:31

checking back, I'll drive around to the

10:33

side of the mountain and I'll pick

10:35

you up in my truck so you'll

10:38

have you up in my truck so

10:40

you don't have to hit check. They

10:42

said, great, let's do it. We went

10:44

our separate ways. They went skiing. I

10:46

went back to get my truck to

10:48

go get them. I thought that they

10:50

had priority hitch type back and maybe

10:52

I was late. It didn't really bother

10:54

me. And I went back to our

10:56

locker room where I expected to find

10:58

them and they were not there either

11:00

and nobody had seen them. At that

11:02

point I started to wonder what happened.

11:04

At that point I started to wonder

11:07

what happened but I really wasn't. At

11:09

that point I started to wonder what

11:11

happened but I really wasn't worried. At

11:13

that point I started to wonder what

11:15

happened but I really wanted. She and

11:17

I pie pieced together what probably happened

11:19

here. Later that day, several hours later,

11:21

we got the police involved, missing persons

11:23

report. They eventually, we had turned into,

11:25

we got search and rescue involved. Search

11:27

and rescue went on the hill at

11:29

about midnight to start looking for them.

11:31

They had these giant portable floodlights and

11:34

a team of search dogs, search and

11:36

rescue dogs. And then later the next

11:38

morning, after about nine hours of searching,

11:40

when the search and rescue workers got

11:42

to the out-of-bounds area where I told

11:44

them we'd skiing. They said it looked

11:46

like half the mountain had been torn

11:48

away from what was... clearly a very

11:50

fresh, just massive, enormous avalanche. And avalanches

11:52

can be the equivalent of like a

11:54

tsunami, just unbelievable amount of power. They

11:56

can snap giant trees with their force.

11:58

And it had clearly just been a

12:01

massive avalanche here. The search dogs eventually

12:03

homed in on a spot in the

12:05

avalanche field where rescuers who had these

12:07

giant propoles found Brennan and Bryan dead

12:09

in the avalanche who were buried about

12:11

six feet under. So of course, I

12:13

always have to say when I tell

12:15

this story. I think you and everyone

12:17

else listening has lost somebody dear to

12:19

them. It's not unique in that sense.

12:21

I don't want to pretend like it

12:23

was unique that I had a friend

12:25

who died. Most people have experienced some

12:27

version of that. Of course, I had

12:30

a really profound impact on me. And

12:32

one of the reasons why, and it

12:34

took me a while to really piece

12:36

us together, was if I had gone

12:38

with them on that second run, 100%

12:40

chance I would be dead. It was

12:42

such a massive, it took out everything

12:44

in its path. And so then I

12:46

look back on it and it's like

12:48

the most important decision that I ever

12:50

made in my life by far was

12:52

not going on the second run. And

12:54

I didn't put any thought into that

12:57

decision. I didn't weigh the pros and

12:59

cons. I didn't do a risk analysis.

13:01

It was just a brainless dumb decision.

13:03

Why don't you guys go do it?

13:05

I'll do something else. And nothing in

13:07

my life has mattered more. And I

13:09

think a lot of things in life

13:11

are like that. Where in hindsight, in

13:13

hindsight, and only in hindsight, do you

13:15

look back. worst or the best thing

13:17

that ever happened to me came about

13:19

because of this dumb brainless decision. And

13:21

maybe people listening to this today, if

13:24

you left your house for work at

13:26

853 instead of 854, you may have

13:28

died in a car accident. I'm making

13:30

this up, but there's all these just

13:32

random, like you understand how the world

13:34

hangs by a thread of these decisions.

13:36

And when you come to terms with

13:38

that, I think it makes you much

13:40

more humble in your ability and willingness

13:42

to predict what's going to happen in

13:44

the future. When you see how fragile

13:46

it is, you just realize you have

13:48

no idea what's coming next. Yeah, and

13:50

so you accomplished a lot at a

13:53

young age. Like I said, I hopped

13:55

on the call and was like... most

13:57

people I interview are like 50, 60

13:59

years old or whatever, you're definitely not

14:01

that old, right? So you accomplished a

14:03

lot in your life. Do you feel

14:05

like it's because you had this experience

14:07

at 17 years old losing your two

14:09

best friends and realizing how fragile life

14:11

is like you better get at it?

14:13

I think that would be a small

14:15

part of it. I think in a

14:17

broader sense, ski racing was so important

14:20

because we were independent and treated as

14:22

adults since we were like 14 and

14:24

we would travel around with the coaches

14:26

skiing, but the coaches. God bless them,

14:28

we'll just go to bars and then

14:30

like we were out being adults for

14:32

better or worse. But I think that

14:34

created an incredible sense of independence and

14:36

like forced you to grow up very

14:38

fast. That had a big impact on

14:40

me, but certainly losing my friends at

14:42

that age made me realize how fragile

14:44

life can be. And I think my

14:47

perception of risk changed dramatically after that.

14:49

And after that, I would not take

14:51

risks that I would have before that

14:53

because you see the consequences of your

14:55

actions. Well yeah, when you're that young

14:57

it's inevitable. A lot of people at

14:59

like 18, 19, 20, that's when you're

15:01

doing the most drugs and like all

15:03

this kind of stuff because you just

15:05

think you're invincible. So I have a

15:07

feeling you probably didn't really do much

15:09

of that at all. I think even

15:11

before that happened, I think even before

15:13

that happened, I was always kind of,

15:16

I had friends who were doing it

15:18

more than I, I'm not going to

15:20

sit here and say I did none

15:22

of it. Absolutely not, like not even

15:24

in the slightest in a million years

15:26

would I touch that stuff, never. But

15:28

all my other friends are like, yeah,

15:30

let's give it a world. Let's see

15:32

how this works. So even at that

15:34

age, I think just naturally, I had

15:36

a risk assessment that was different from

15:38

my friends. Yeah. So you worked at

15:40

Motley Fool, like you were saying you

15:43

got a job right out of college

15:45

at Motley Fool, and you actually thought

15:47

you were going to stay there. and

15:49

work there forever. You bought a house

15:51

near the headquarters and you thought you'd

15:53

never leave. So what actually changed your

15:55

mind to pivot your career a bit?

15:57

Yeah, it was one of the hardest

15:59

decisions of my career. because I was

16:01

really happy and comfortable with the Motley

16:03

Fool. It was a great place to

16:05

work. Still is, filled with great people.

16:08

I was happy there. Got in Craig

16:10

Shapiro, who runs a private equity

16:12

firm called the Collaborative Fund, reached

16:14

out to me in 2015. And

16:16

he just said, hey, I like your work.

16:19

Why don't you come to collaborative

16:21

fun? And he just said, hey, I like

16:23

your work. Why don't you come to

16:25

collaborative fun? Why don't you come

16:28

to collaborative? But he kept pushing

16:30

and kept pushing and kept pushing. And

16:32

I think what the decision for me

16:34

eventually became was, if I stay

16:36

at the Motley Fool forever, from the time

16:38

I was in college until I retire in

16:41

my 60s, will I regret never trying

16:43

something different? And I think after a

16:45

while I realize that the answer was, yeah,

16:47

I think I might wonder what else was

16:49

out there. So I finally joined Collaborative

16:52

Fund in 2016. And it's been amazing. You

16:54

know, that was before I had written

16:56

books or done anything like that. Only

16:58

people I think in the world who would

17:00

say, Morgan, just go do your thing.

17:02

I'm not going to tell you what to write

17:05

or when to write. And I don't write

17:07

about what collaborative fund does. I just,

17:09

I feel like it's just my own

17:11

canvas to write about anything that I'm

17:13

interested in. And so that's a really

17:15

rare opportunity. Almost every professional

17:18

writer at an organization,

17:20

if you write for the Wall Street

17:22

Journal or Reuters or CNN or something,

17:24

you have an editor telling you what to,

17:26

how to write it, job instead of an

17:29

art. So I really enjoy the artistic side

17:31

of it. At what point did you decide,

17:33

hey I want to write actual books,

17:35

not just for a blog? Was that a

17:37

conscious decision or was that when you went

17:40

to this new fund they told you, hey

17:42

we want you to write books? No,

17:44

definitely not the latter and it was

17:46

a conscious decision for a long time to

17:48

not write books. I never saw the point

17:51

in it and I would always say, look,

17:53

I blog twice a week. Why does it matter if

17:55

it's stuffed in between two pieces of cardboard? It's

17:57

the same thing. It's the same words. Like I'm

17:59

not, I'm still... So who cares? So that

18:01

was why I pushed off writing books

18:03

for years. A publisher came to me

18:06

in 2014, maybe 2013, and said, hey,

18:08

like, we want you to write a

18:10

book. And I was absolutely not, I'm

18:12

not ready. Like, I don't want to

18:14

do it. It sounds hard. And so

18:17

in hindsight, I'm so glad that I

18:19

waited because I became a better writer.

18:21

I had more content to use for

18:23

the books. So the fact that I

18:26

was so stubborn about doing it, it

18:28

was so beneficial to me. In 2018,

18:30

I wrote a very long blog post

18:32

called The Psychology of Money. It was

18:35

a 10,000-word blog post, which is very,

18:37

very long. Most books are about 50,000

18:39

words. So it was one-fifth of a

18:41

book in a blog. It was the

18:43

biggest blog post that I have ever

18:46

written. It did really well. It was

18:48

well received. And so that was when

18:50

I was like, oh, and it was

18:52

like, okay, like... I'm finally going to

18:55

do this. My wife had had convinced

18:57

me. I don't think I've ever told

18:59

this story before, but I'll tell it

19:01

here. Yeah, tell me. An author named

19:04

James Clear, who wrote a book called

19:06

Atomic Habits, it's the best selling and

19:08

one of the best books of the

19:10

last books of the last generation. It's

19:12

just the absolute books of the last

19:15

generation. It's just an absolute gem of

19:17

a book. It's motivation. I want to

19:19

chase it. And James, as you will

19:21

see when he comes on, is the

19:24

nicest, most humble, politest guy you'll ever

19:26

meet. So the fact that not only

19:28

had James had success in a book,

19:30

but I was like, I want to

19:33

be James. I'm not like, not just

19:35

a success, I want to be James.

19:37

I'm not like, not just a success,

19:39

I want to be him. Was like,

19:41

not just a success, I want to

19:44

be him. I want to be him

19:46

was like a big motivator for me

19:48

to be. to have dinner. I don't

19:50

know who invited him. No idea who

19:53

he was. And he introduced himself. He

19:55

said, hi, I'm James Clea. I'm writing

19:57

a book called Atomic Habits, it's going

19:59

to come out in a couple months.

20:02

And so we had no idea, but

20:04

like in hindsight, looking back, it's so

20:06

funny to piece all that together. Yeah,

20:08

that book is huge. I think to

20:10

this day, it's still like on all

20:13

the bestseller lists. So like you were

20:15

saying, you wanted to become an author

20:17

because you saw the opportunity and you

20:19

were like, I want what James Clear

20:22

has, how has being an author actually

20:24

transformed your career, like what opportunities have

20:26

come about? I'm sure you weren't doing

20:28

podcasts before you had a book. Is

20:31

that right? I'd say, in some ways,

20:33

nothing has changed. In some ways, everything

20:35

has changed. Nothing has changed because I

20:37

still write about the same topics. I

20:39

still read the same topics. I still

20:42

read the same topics. I still sit

20:44

in the same topics. I still sit

20:46

in the same chair and think the

20:48

same way. My wife and kids don't

20:51

treat me any differently. In psychology of

20:53

money. What you want to use money

20:55

and wealth for is to gain control

20:57

over your time. And if I'm being

20:59

honest with you, I feel like I'm

21:02

really opening myself up in this podcast

21:04

here. Before the book, I was always

21:06

filled with career anxiety. What happens if

21:08

I get laid off? What happens if

21:11

this doesn't work? What happens if this

21:13

doesn't work? That's the one thing that's

21:15

changed postbooks. A greater sense of financial

21:17

independence. That means the world to me.

21:20

And I also... My life has pointed

21:22

this out too. I think I've been

21:24

in a better mental state postbooks that

21:26

I have in my life. It didn't

21:28

make me happier, but I think it

21:31

removed anxiety from my life. It's interesting

21:33

that in a way that was what

21:35

the book was about. But then because

21:37

of writing the book was about, I

21:40

got to experience it myself, which has

21:42

been a cool thing. And why do

21:44

you think that freedom has come about?

21:46

Is it because you're getting speaking engagements

21:49

that you're like pulling in extra revenue

21:51

streams? Don't really move the needle, right?

21:53

Maybe your books do, but what do

21:55

you think changed in terms of you

21:57

feeling like you have more freedom? It's

22:00

all the above. It's book royalties, it's

22:02

speaking, it's all the above. And we

22:04

haven't really changed our lifestyle to any

22:06

meaningful degree. We live in the same

22:09

house and drive the same car and

22:11

whatnot. A lot of that is just

22:13

a crew to net worth. This is

22:15

what I write about in psychology money

22:18

too. Wealth is what I write about

22:20

in psychology money too. Wealth is what

22:22

I write about in psychology that gives

22:24

you independence that allows you to do

22:26

whatever the heck you want to do.

22:29

The anxiety that I had of what

22:31

if back then has largely been stripped

22:33

away. Now you will never get rid

22:35

of what if because what if you

22:38

get hit by a car. You're never

22:40

going to remove risk. But a lot

22:42

of the tangible career risks that I

22:44

had five years ago has dissipated. Let's

22:47

hold that thought and take a

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get 50% off your first box

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plus free shipping. Okay, so your book

27:04

Psychology of Money came out in 2020

27:07

was a huge hit. And you

27:09

say in the book that money has

27:11

little to do with how smart

27:13

you are and a lot to do

27:15

with how you behave. So let's start

27:18

there. I think it's a good

27:20

foundation of the book. Can you shed

27:22

some more color on that and

27:24

give us examples of how behavior can

27:26

actually trump smarts? Well, here's how I

27:29

always define it. If you are

27:31

the smartest financial mind in the world,

27:33

you have a PhD in finance

27:35

from Harvard, you know all the numbers.

27:37

You won the Nobel Prize in economics.

27:40

But... You don't have control over

27:42

your behavior. You don't have a control

27:44

over your greed and fear or

27:46

patience or temper. You can and very

27:48

likely will go broke. And the flip

27:51

side of that is if you

27:53

have no financial education, you don't know

27:55

anything. You didn't graduate high school.

27:57

You're a country bumpkin who knows nothing.

27:59

But you do have control over your greed

28:02

and fear and patience and temper.

28:04

You have everything you need to become

28:06

wealthy. Just yesterday, there is a new

28:08

story that came out about this guy who lived

28:11

in the middle of West Virginia or

28:13

something like that, and lived in a

28:15

trailer. I heard this. He recently died,

28:17

and he left $4 million to his

28:19

town. Yeah. That's the perfect example. He

28:21

does not have the pedigree. He does

28:23

not have the degree from Harvard. He

28:26

did not work at Goldman Sachs. But

28:28

he was clearly patient. not greedy,

28:30

etc, etc. And because of that,

28:32

he became very wealthy. So there

28:34

are very few fields in which that's the

28:36

case. If you did not go to medical

28:38

school, you do not know how to

28:40

perform open heart surgery, full stop. But it's

28:43

not like that in finance. You don't need

28:45

the education to do well as long as

28:47

you have the behaviors. So because it's one

28:49

of the few fields that's like that, it's

28:52

easy to overlook what you need. And most

28:54

people, if they're like, I want to

28:56

become a good investor, they're like great.

28:58

I'm going to go get a degree in

29:00

finance. I'm going to memorize all the formulas

29:03

and by and large, that's not what

29:05

you need. What you need is the behavior. Now

29:07

for a lot of people that behavior is

29:09

nature instead of nurture. They're born

29:11

understanding. Their brain is wired in

29:13

a way that lets them do it and some

29:15

people are the opposite of that. But just

29:18

understanding what you need and what you

29:20

don't is I think the most important thing

29:22

of doing well with money. And just

29:24

to dig in on what you

29:26

said, you also in your book

29:28

that... We learn traditionally about finance,

29:30

like it's physics, right? It's rules,

29:32

there's laws, but you say we

29:34

should look at it more like

29:36

psychology with emotion and nuance. Can

29:38

you dig deeper on that? In math,

29:40

and in physics, there's one

29:42

right answer for everybody. So if I

29:45

say, what is two plus two? It's

29:47

four, no matter who you are or

29:49

where you're from or where you live or

29:51

how old you are. But in finance,

29:53

it's not like that because it's

29:55

not like that. Everyone listening we're all

29:57

going to come to a different conclusion because

30:00

our risk tolerance is different, our social aspirations

30:02

are different, our time horizons are different,

30:04

everything is different. So it's much closer

30:06

to like taste in music. And if

30:08

I said, what's the best music? There's

30:10

no one answer for that. It just

30:12

depends who you are, and what's the

30:14

best music? There's no one answer for

30:16

that. It just depends who you are

30:18

and what you like and how old

30:20

you are. Music that I liked when

30:22

I was 15 would be atrocious to

30:24

me now. So you're going with each

30:26

other. about how should you spend your

30:28

money? How should you invest your money?

30:30

They're not actually arguing. They're not actually

30:32

debating. It's just people with different experiences

30:34

and different risk tolerances talking over each

30:36

other. And it's the equivalent. If I

30:39

think X and X is good for

30:41

me, you might think X is terrible

30:43

because it would be bad for you.

30:45

That's the biggest issue with financial debates.

30:47

So this reminds me of something that

30:49

you were just mentioning, the fact that

30:51

you and your wife have basically stayed

30:53

at the same... goalposts all these years.

30:55

You know, you drive the same car,

30:57

you live in the same house, you

30:59

haven't really increased the amount of money

31:01

that it costs to live your life,

31:03

but you've both increased your income, so

31:05

you're able to save more, talk to

31:07

us, talk to us about this importance

31:09

of knowing what your own goalposts is

31:11

and why that matters. The first thing

31:13

I think is important is like, we

31:15

live a great life. We live in

31:17

a great house in a great neighborhood,

31:19

and we take great neighborhood, and we

31:21

take all this money. There is obviously

31:23

some balance to it, but I think

31:25

the idea that if your expectations grow

31:28

faster than your income, you will never

31:30

ever be happy with your money is

31:32

one of the most important and powerful

31:34

realizations and finance, that there are hedge

31:36

fund managers who make $100 million a

31:38

year and feel like they're falling behind

31:40

because their buddies make $200 million a

31:42

year. There is no cap to that.

31:44

Elon Musk displaced Jeff Basos is the

31:46

richest man in the world. I don't

31:48

know this to be the case, but

31:50

maybe that bothered Jeff Basos because... he's

31:52

only worth a quarter of a trillion

31:54

dollars while Musk was worth a third

31:56

of a trillion dollars. There's no end

31:58

to financial comparison. And so yes, it's

32:00

important if you want to do well

32:02

with money to grow your income, invest

32:04

your money, grow your net worth, but

32:06

it is equally important and grow your

32:08

net worth. But it is equally important

32:10

and very easy to overlook that you

32:12

also need to go out of your

32:15

way to manage your expectations and just

32:17

be happy with what you have, knowing

32:19

that if you get the bigger house

32:21

or the bigger house or the nicer

32:23

car, it's going to it. And so

32:25

look, we live in a nice house,

32:27

in a safe neighborhood, all of that,

32:29

checks all the boxes. But there is

32:31

this thing of, yeah, but if we

32:33

got a bigger house, we wouldn't be

32:35

any happier. And we might actually spoil

32:37

the expectations of our kids who think

32:39

that that bigger house is now the

32:41

norm. So this is something that like

32:43

we always battle with, because even for

32:45

us who believe this and live it,

32:47

the expectation of, ah, maybe we should

32:49

get a range rover. It's always there.

32:51

That feeling that drive is always there.

32:53

But then just taking a step back

32:55

and be like, well, is there something

32:57

else we could do with our money?

32:59

Would the vacation make us happier? Would

33:02

donating it make us happier? That battle

33:04

is always there. But whenever we've experienced

33:06

it, and when you go out of

33:08

your way to keep your expectations low,

33:10

too, then your drive for a better

33:12

life moves away from what's the next

33:14

car, what's the next house? Actually what

33:16

makes us happier is spending more time

33:18

with our kids, going for walks with

33:20

my wife. So like, hey, can we

33:22

use our money to do that? use

33:24

our money to free up our time

33:26

so that we can spend more time

33:28

with our kids and with each other,

33:30

because that's definitely gonna make us happier.

33:32

But the range rover probably won't. That's

33:34

the debate that we always have in

33:36

our heads. Yeah, and as I get

33:38

older and make more money, I feel

33:40

like I'm actually becoming smarter about the

33:42

way that I spend my money, because

33:44

I realize how much I have to

33:46

work for a certain amount of things.

33:49

This reminds me, it was Thanksgiving yesterday,

33:51

so I saw my family, and my

33:53

sister-in-law. has never worked a day in

33:55

her life just carrying a $6,000 bag.

33:57

Meanwhile, my company made $5 million less.

33:59

year and my most expensive bag is

34:01

like $3,000. It made me realize how

34:03

much different people's priorities are and how

34:05

people like spend their money and manage

34:07

their money is so varied in terms

34:09

of what people believe success looks like

34:11

in terms of how much they want

34:13

to save and it's so so varied

34:15

across the spectrum. It's so varied and

34:17

this is one thing that I've kind

34:19

of tweaked my views on in the

34:21

last couple years is that... The $6,000

34:23

bag for your sister-in-law, maybe that is

34:25

the best use of her money. Yeah.

34:27

Maybe it's not, but for some people

34:29

it would be, even if for my

34:31

wife and I, or maybe you, it

34:33

would not be to each their own.

34:36

And there are a lot of people

34:38

who will look at how my wife

34:40

and I, or maybe you, it would

34:42

not be to each their own. And

34:44

there are a lot of people who

34:46

will look at how my wife and

34:48

I spend, or maybe you, it would

34:50

not be, to each their own, like

34:52

you, like you are missing out of

34:54

like, like you are missing out of

34:56

us. which to me all that matters.

34:58

I've never wanted to become the mansion

35:00

Lamborghini guy. I've always wanted to become

35:02

the independent guy who can just do

35:04

whatever he wants any day and no

35:06

one's going to tell me what to

35:08

do or when to do it. I'm

35:10

not like a I reject all authority

35:12

kind of guy. I'm not like a

35:14

hardcore libertarian, but for money stuff, for

35:16

work stuff. I'm going to have the

35:18

most fun and do the best work

35:20

if it's on my own terms. So

35:22

the fact that I can write what

35:25

I want, when I want. And the

35:27

reason I can do that is because

35:29

I have some sense of financial independence.

35:31

I don't need to work for the

35:33

salaried company. That is the best use

35:35

of money for me by far. I

35:37

want to talk a little bit more

35:39

about the purpose of money. You've been

35:41

alluding to it. But talk to us

35:43

about why independence and autonomy is really

35:45

the purpose of gaining wealth. I think

35:47

back to what we said of everyone's

35:49

different and maybe the $6,000 handbag is

35:51

right for you, but not for me.

35:53

But if there is one common denominator.

35:55

of which almost everybody from every culture

35:57

and every age is going to get

35:59

benefit. from. It's independence. People by and

36:01

large do not enjoy being told when

36:03

to work, how to work, and what

36:05

work to do. They do that because

36:07

they have to. They need the paycheck

36:09

and that's the way to do it.

36:12

But when most people, the first taste

36:14

of independence, they have, they're like, oh,

36:16

that's good. That's the one I like.

36:18

And even if you are working for

36:20

a salaried company, if you have a

36:22

boss and in a position that gives

36:24

you independence and autonomy, not only isn't

36:26

more enjoyable, you're going to do better

36:28

work. the quality of your work is

36:30

going to go up if you're doing

36:32

it on your own terms. It's such

36:34

a universal driver of happiness. And maybe

36:36

that's actually the wrong word because independence

36:38

doesn't necessarily make you happy, but it

36:40

removes unhappiness. That's an important nuance, but

36:42

it's really important. People who are wealthier

36:44

by and large do not wake up

36:46

happier. Happy in the sense that they

36:48

wake up smiling every morning, it's not

36:50

that. But I think they have fewer

36:52

bad days. And that is a huge

36:54

life advantage to remove uncertainty and misery

36:56

from your life is massive. It's one

36:59

of the few things in money that

37:01

tends to be universal. And it's also

37:03

very easy to overlook because particularly for

37:05

young people and particularly young men, the

37:07

knee-jerk reaction of why do you want

37:09

to become rich is so I can

37:11

have nice stuff. So I can have

37:13

a big house and a fancy car.

37:15

And it's easy to overlook what's actually

37:17

going to bring you the most joy

37:19

is using it to give yourself independence.

37:21

I love that. So let's talk about

37:23

emotions and money. What are some of

37:25

the common emotional pitfalls that a lot

37:27

of us fall under when it comes

37:29

to handling our finances? The two biggest

37:31

that come to mind, one from personal

37:33

finance and one from investing. In personal

37:35

finance, it's social comparison. And there is

37:37

no such thing as an objective measure

37:39

of wealth. Everything is just relative to

37:41

what other people have. You look at

37:43

your house, your car, your bank account,

37:46

and you say, what do I have

37:48

compared to that person? That person is

37:50

usually your friends, your neighbors, your coworkers,

37:52

but also just people on social media.

37:54

That is the fuel to move the

37:56

goalpost. Because even if you are doing

37:58

well, you're going to start... at people

38:00

who are doing better than you, and

38:02

you're always going to feel inadequate. And

38:04

it's very hard to break that cycle.

38:06

Social media makes this so ridiculously

38:08

difficult, because now the people who you

38:11

are comparing yourself to is like

38:13

the curated algorithmic real on TikTok

38:15

and Instagram. That knows exactly what's

38:17

going to make you anxious. They know exactly

38:19

which posts are going to make you feel

38:21

inadequate, because that's what's going to get you

38:23

to stare at the longest and be like, why

38:25

don't I have what he or she or

38:27

she has. That's like a really difficult

38:30

trap to break. In investing, the

38:32

pitfall is fomo, it's fear of missing out.

38:34

It's similar to social comparison.

38:36

That person is getting richer than me, and

38:39

therefore I need to take more risks or

38:41

try to copy that person in order to

38:43

catch up to him. And the danger in that

38:46

is that, just like in gambling, everyone

38:48

on social media talks about their

38:50

wins, never their losses. So the people

38:52

who look like they are getting so much

38:54

richer than you, A, probably are not. That

38:57

gets probably some sort of mirage,

38:59

but because you don't know that,

39:01

you're going to start taking risks

39:03

that you shouldn't and can't afford

39:05

to take. In 2021, when there was like

39:07

the Robin Hood explosion in

39:09

investing, it went supernova at that

39:11

point, because you had all these

39:14

19-year-old people who were like, I just

39:16

made $20,000 on Robin Hood, and you should

39:18

be able to double your money every week.

39:20

A, most of that was bullshit. And B,

39:22

the people who looked at that said, I

39:25

need to go start trading options too.

39:27

And you know how that ended for the

39:29

vast majority of them, it ended in

39:31

tears and losses. And so all of that

39:33

is driven by FOMO, the idea that someone

39:35

else is getting richer than you and you

39:38

need to catch up. And so if you can

39:40

break away from that and realize that there

39:42

are always people who are either look

39:44

like or actually are getting richer than

39:46

you, and that's fine. It's unavoidable. You don't

39:48

need to catch them. You just need to play

39:51

your own game and do what works for you

39:53

is really important. Yeah, I feel like everything you're

39:55

saying is reminding me of this bag story

39:57

from yesterday. That's kind of why I brought

39:59

it. up is because at first I

40:01

felt bad. I was like, man, she's

40:03

got a $6,000 bag. I worked so

40:06

hard. I don't have a $6,000 bag.

40:08

And then I realized, well, I could

40:10

have a $6,000 bag. These are just

40:12

not my priorities. So to your point,

40:14

everybody has different goal. These are just

40:17

not my priorities. So to your point,

40:19

everybody has different gold posts. And just

40:21

because somebody looks like they have a

40:23

$6,000 bag. These are just the example.

40:25

Yeah. when you see somebody driving a

40:28

hundred thousand dollar car, the only thing

40:30

you know about their finances is that

40:32

they have a hundred thousand dollars less

40:34

than they did before they bought the

40:36

car. You have no idea how much

40:39

money they have. And I learned about

40:41

this when I was in college, I

40:43

was a valet at a nice hotel

40:45

in Los Angeles, and these people would

40:47

come in driving porches and Ferraris and

40:50

Lamborghinis, and then if you get to

40:52

know them and talk to them, you

40:54

realize they're actually not that successful. They

40:56

just spent half of their salary on

40:58

a Lamborghini lease payment. The vision that

41:01

they had, the identity of, oh, this

41:03

guy's driving a Lambeau, he's clearly super

41:05

successful. No, you actually don't know that

41:07

at all. And it's the classic millionaire

41:09

next door of, like, a lot of

41:12

the people who are very successful are

41:14

actually driving F-150s. They're actually driving F-150s.

41:16

They're actually driving Toyota four runners. And

41:18

you would never know it, because that's

41:20

why they're rich. It's because they actually

41:23

invested their money. keeping money and getting

41:25

money are two very different skills. You

41:27

actually say that if you could summarize

41:29

money success in a single word, it

41:31

would be survival. So talk to us

41:34

about how we can actually keep our

41:36

money and the main ways that people

41:38

tend to lose their wealth. It's just

41:40

this idea that getting rich and staying

41:42

rich are two different skills, and they're

41:44

often conflicting skills, which means it's hard

41:47

for people to do them at the

41:49

same time. Getting rich requires taking a

41:51

risk. being optimistic about yourself being optimistic

41:53

about the economy and the stock market

41:55

that's what you need to get rich

41:58

and staying rich is almost like the

42:00

exact opposite you have to be a

42:02

little bit a little bit conservative, scared

42:04

of risk, cognizant of risk in order

42:06

to make sure that you're not taking

42:09

big enough risk to throw yourself over

42:11

the edge. I think one way to

42:13

summarize it is save your money like

42:15

a pessimist and invest your money like

42:17

an optimist. Save your money with the

42:20

idea that the world is risky and

42:22

dangerous and fragile, and there are always

42:24

recessions and bear markets and pandemics and

42:26

terrorist attacks and wars and political mess-ups

42:28

that you need to be able to

42:31

endure to endure financially. But if you

42:33

can, if you can, keep your head

42:35

on straight during those periods, the rewards

42:37

for those who stick around are incredible.

42:39

I've been investing for 20 years, 2004

42:42

is about when I started investing, during

42:44

that time, there has never been a

42:46

single moment in which you couldn't point

42:48

to a dozen things going catastrophically wrong

42:50

in the economy. Every single moment, stock

42:53

market's overvalued. Companies are doing very well.

42:55

Unemployment's too high. Interest rates are too

42:57

low. At any moment... you could have

42:59

pointed to a dozen things. And during

43:01

those 20 years, the stock market is

43:04

up fourfold. That's how investing works. You

43:06

have to save like a pessimist to

43:08

endure all of those dozen things to

43:10

point at. But if you can stick

43:12

around, you look back over a 20-year

43:15

period, and you're like, man, you get

43:17

four times my money during this period.

43:19

It's incredible. That's always how it works.

43:21

Saving like a pessimist, investing like an

43:23

optimist. So Bill Gates started Microsoft and

43:25

Bill Gates actually is more of a

43:28

pessimist. Talk to us about how he's

43:30

used his pessimism to set up Microsoft

43:32

for success because even in 2023 Microsoft

43:34

is a huge company that's growing and

43:36

leading the AI charge and everything like

43:39

that. Well I think Bill Gates is

43:41

the best example of someone who has

43:43

gotten optimism and pessimism to coexist. Because

43:45

when he started Microsoft in the 70s,

43:47

he took the most optimistic swing that

43:50

any entrepreneur has ever taken. when in

43:52

the 70s he said every desk in

43:54

the world needs a computer on it.

43:56

That was the craziest idea in the

43:58

world, crazy optimism. At the same time,

44:01

from the day he started Microsoft to

44:03

the day he left and... He ran

44:05

it as conservatively as you possibly could.

44:07

He said he always wanted enough cash

44:09

in the bank so that he could

44:12

run Microsoft for one year with no

44:14

revenue. Like the most pessimistic way to

44:16

run a business. I think that's why

44:18

they've done so well. It's not that

44:20

they're always optimistic or they're always pessimistic.

44:23

They realize that if you can survive

44:25

all the uncertainty and all the upheaval,

44:27

then you have a fighting chance to

44:29

actually compound for 50 years as they

44:31

have. And very few businesses are actually

44:34

like that. if you have a very

44:36

optimistic CEO, they're like, let's bury our

44:38

self in debt and invest every penny

44:40

that we have and swing for the

44:42

fences. And nine out of 10 of

44:45

those businesses are eventually going to go

44:47

bankrupt, probably pretty soon. But also if

44:49

you're too pessimistic, then those businesses become

44:51

obsolete. So it's getting both of those

44:53

at the same time that is so

44:56

rare, but that's really the key to

44:58

doing well over your entire career, over

45:00

the entire lifetime, is getting optimism and

45:02

pessimism to coexist. We'll be right back

45:04

after a quick break from our sponsors.

45:06

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45:11

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45:31

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45:33

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45:35

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selling today. shopify.com/profiting. And I know

46:35

that you are a strong proponent

46:37

of having patience and in your

46:39

book you've got a chapter called

46:41

Tales You Win. And you talk

46:43

about how sometimes it's that one

46:45

Picasso painting that an art investor

46:47

acquires that makes up for all

46:49

the ones that they don't. So

46:51

can you give us some examples

46:53

of long-tail strategy and why that's

46:55

important? The painting example is one

46:57

that I love. There were all

46:59

these art collectors in the last

47:01

50 years and a very small

47:03

number of families ended up with

47:05

these ridiculous art portfolios. They had

47:08

Picasso's and monés and like Renwar,

47:10

like the top paintings. ended up

47:12

in the hands of very few

47:14

number of people. How did those

47:16

art collectors know what was going

47:18

to become valuable? Because when Picasso

47:20

was alive in painting, he was

47:22

not the Picasso, who he is

47:24

today. Most artists become famous after

47:26

they die. How did these people

47:28

know what was going to be

47:30

big? And they looked at their

47:32

art portfolio. And the explanation was,

47:34

those collectors did not know who

47:36

was going to be big. What

47:38

they did is you had a

47:40

couple collectors would go out and

47:43

buy every painting that could possibly

47:45

get their hands off of. With

47:47

any painting was for sale, they

47:49

scooped it up. And they ended

47:51

up with thousands or tens of

47:53

thousands of paintings. And within that

47:55

portfolio, ended up by chance. Some

47:57

Picassos and some Monet. and some

47:59

Renwars, but they didn't know in

48:01

hindsight what it was going to

48:03

be or in with foresight they

48:05

didn't know. It was only in hindsight

48:07

that because they collected so many, a

48:09

couple of them ended up being worth

48:11

a billion dollars. And investing is

48:14

exactly the same. You have no idea which

48:16

companies are going to be the next

48:18

Tesla, the next Apple, the next Amazon.

48:20

Nobody knows. And people who say they

48:22

do know are fooling you. But if you own

48:25

an index fund that owns 3,000 companies in

48:27

it. then you know that whatever is

48:29

going to be the next Tesla is

48:31

in there, whatever it might be.

48:33

Always in investing, if you own an

48:35

index of a hundred companies, over

48:37

a 10-year period, you're going to

48:39

earn most of your returns from five

48:42

of them. A very small portion is

48:44

going to return most of your

48:46

returns from five of them. A very

48:48

small portion is going to return most

48:50

of most of them. A very small

48:52

portion is going to be the winner

48:54

is going to be in your portfolio.

48:56

outperform index funds, it's

48:59

very very low. Particularly if

49:01

you adjust it for fees and for taxes.

49:03

Over a 10 or 20 year period, it

49:05

rounds to zero. Warren Buffett recently

49:07

said that in his life, he's met

49:09

10 people who he thinks can

49:11

consistently outper the stock market, consistently

49:14

pick the right stocks, 10 people

49:16

that he's ever met in his

49:18

entire life. And everyone listening to

49:20

this podcast. you are not one of

49:22

them. I'm sorry to say. Good luck.

49:24

And so I think that's the only

49:26

anecdote to that. And it's the easiest,

49:28

cheapest anecdote to that is

49:30

index investing. It's just own all

49:32

of them knowing that you're going to

49:35

have the winners in there. And speaking

49:37

of Warren Buffett, in your book, you

49:39

say if he had retired at 60

49:41

years old, he might not be the

49:43

Warren Buffett that we know today that's

49:46

like such, like everybody thinks of him

49:48

as like the most successful investors.

49:50

99% of his net worth was

49:53

accumulated after

49:55

his 60th birthday. So he's

49:57

93, I think he is now, and

49:59

99% that money came after he was

50:01

60, which means that if he had

50:03

retired when he was 60, like a

50:06

normal person may, if he was a

50:08

billionaire when he was 60, you would

50:10

have never heard of him. The whole

50:12

reason he's so successful, and the whole

50:14

reason he's now a household name, is

50:16

because he's now a household name, is

50:19

because he's a household name, is because

50:21

he's a household name, is because he's

50:23

been yes, he is a good investor,

50:25

but he's been doing it nonstop from

50:27

11 to 93. That's actually the biggest

50:29

takeaway that ordinary people can take from

50:31

him, because I and you and anyone

50:34

else cannot pick stocks like Warren Buffett.

50:36

But can we try to emulate his

50:38

patients? Is that something that we could

50:40

maybe copy from him? You have a

50:42

fighting chance of replicating his patience, then

50:44

you do replicating his intelligence. Just understanding

50:46

why he's wealthy and using that as

50:49

a takeaway of what we can do

50:51

and copy him that is really important.

50:53

So this is a concept that I

50:55

think is from your next book that

50:57

we're going to talk about, but what

50:59

we're talking about is reminding me of

51:01

this. I know that you actually don't

51:04

really pay attention to daily news when

51:06

it comes to changing your stock strategy

51:08

or picking your stocks. You're picking your

51:10

stocks. You're picking your stocks. You're going

51:12

to invest in for the long term.

51:14

So your last point, I keep it

51:16

as simple as I can. I own

51:19

vanguard index funds. I've owned for a

51:21

long time, it's probably all I will

51:23

own for a long time. I'm not

51:25

recommending other people exactly do that. You

51:27

have to figure out what works for

51:29

you. And as we talked about earlier,

51:32

there are definitely people for whom picking

51:34

stocks is the right strategy for them,

51:36

even if it's not the best for

51:38

my wife and I. But one little

51:40

quirk, I would say, is I actually

51:42

do follow financial news every day. Every

51:44

day I know what the market did.

51:47

I read the Wall Street Journal every

51:49

day. I read the Wall Street Journal

51:51

every day. But the important thing is

51:53

that I don't read the Wall Street

51:55

Journal and then say I need to

51:57

go out and buy and sell these

51:59

specifics. It doesn't influence my behavior. I

52:02

just think it's a fascinating window into

52:04

how people behave. But my personal investing

52:06

strategy is as simple and basic as

52:08

you could possibly be. My entire net

52:10

worth is this house, a checking account,

52:12

vanguard funds, and shares of Markel where

52:14

I'm on the board of directors. And

52:17

that's pretty much it. And where do

52:19

you park your cash? What's your strategy

52:21

for cash? It's spread out over many

52:23

different accounts, and actually quite a bit

52:25

of it is now in treasuries, because

52:27

you can earn a great return a

52:29

great return there. spread out over different

52:32

bank accounts, different brokerage accounts. Yeah, and

52:34

the money that I have in short-term

52:36

treasuries, I consider that cash. That's cash-like

52:38

to me. Hmm, got it. Okay, let's

52:40

move on to your new book. It's

52:42

called Same as Ever. It covers a

52:45

lot of the ideas that we've been

52:47

discussing in much more. So talk to

52:49

us about why you wrote this book

52:51

and how it expands on your first

52:53

book, The Psychology of Money. the behavior

52:55

of you the individual and same as

52:57

ever is about the behavior of us

53:00

the collective like what do we the

53:02

collective society keep doing over and over

53:04

and over again and I've always been

53:06

a student of I think two things

53:08

one is investing and the other is

53:10

history I like the intersection of that

53:12

like investing history and economic history I've

53:15

always been so fascinated in and one

53:17

of the things that will really stick

53:19

out when you're studying any kind of

53:21

history is it's really interesting to see

53:23

what has changed over time What do

53:25

people used to do that they don't

53:27

anymore? That's interesting. But to me, way

53:30

more interesting and way more common is

53:32

when you see what has not changed

53:34

at all. And when you're studying the

53:36

history of Americans 100 years ago, or

53:38

Europeans 1,000 years ago, or Chinese 5,000

53:40

years ago, you see all these kinds

53:42

of behaviors that would fit in perfectly

53:45

today, that have not changed whatsoever. So

53:47

how people respond to greed and fear

53:49

and uncertainty and opportunity? That is the

53:51

same today in the United States as

53:53

it was in any... culture a thousand

53:55

years ago, and it hasn't changed at

53:58

all. And because of that, we know

54:00

that it's going to be part of

54:02

our future for the rest of our

54:04

lives. And a lot of why I

54:06

wrote this book was because I kind

54:08

of got disgruntled at how bad we

54:10

were as an industry at predicting what's

54:13

going to happen next, predicting the next

54:15

recession, the next bear market. Nobody can

54:17

do it. Nobody has any ability to

54:19

do it. And so with that you

54:21

can either say, nobody knows anything, don't

54:23

even try to become a cynic about

54:25

it. Or you can say, okay, we

54:28

don't know what's going to change, but

54:30

we do know what's not going to

54:32

change. We do know what behaviors are

54:34

going to be part of our future,

54:36

regardless of where the future goes. So

54:38

let's put all of our emphasis on

54:40

that. And so same as ever is

54:43

23 very short little stories about little

54:45

facets of human behavior that I think

54:47

have always been with us and always

54:49

will be. And no matter where your

54:51

future goes or where society's future goes,

54:53

you know that these little bits that

54:55

I write about are going to be

54:58

part of the part of the story.

55:00

I love you, have it in your

55:02

book that you say if you travel

55:04

500 years back or 500 years forward,

55:06

the world will look much different in

55:08

terms of technology and medicine and even

55:11

language, but human behavior doesn't change much

55:13

over time. It's so fascinating, it's so

55:15

true, it takes I think thousands and

55:17

thousands of years for us to, like

55:19

our brain, biologically to actually change or

55:21

evolve. So we're the same human that

55:23

we were thousands of years ago, even

55:26

though so much has changed. And one

55:28

of the things that doesn't go away

55:30

for humans is risk, right? This is

55:32

something that we're going to enjoy to

55:34

the end of time is this concept

55:36

of risk. And we touched about risk

55:38

a little bit earlier, but in your

55:41

book, you write, the biggest risk is

55:43

always what nobody sees coming. So talk

55:45

to us about these blind risks. There's

55:47

a great financial advisor named Carl Richards

55:49

who has this quote, one of those

55:51

quotes that just knocked me off my

55:53

feet. The quote is, risk is what

55:56

is left over when you think you've

55:58

thought of everything. So you can spend

56:00

all day trying to predict the next

56:02

risk in your personal life or in

56:04

the economy and for sustainability. And that's

56:06

great, you should do that. But then

56:08

when you are done with that exercise,

56:11

the thing that is not on the

56:13

list is what's actually the biggest risks

56:15

that you're going to face. So think

56:17

about what the biggest risks we've dealt

56:19

with in the United States over the

56:21

past couple generations. Pearl Harbor, September 11th,

56:24

and COVID are probably the three biggest

56:26

societal shocks that we've dealt with in

56:28

America. And the common denominator of all

56:30

three of those is that nobody, certainly

56:32

no... ordinary Americans saw those coming and

56:34

told the day that they happened. In

56:36

all those situations, there was no economic

56:39

outlook, there was no analyst forecast, there

56:41

was nobody on the news warning you

56:43

about these things that in one day

56:45

utterly transformed the world that you lived

56:47

in. And so the biggest risk is

56:49

what you didn't see coming. And the

56:51

fact that people didn't see coming is

56:54

what made it dangerous because they were

56:56

not prepared, it was like... Red Alert,

56:58

what do we do now? And it's

57:00

always like that. I think in any

57:02

given year, it is like that. What

57:04

is the biggest worldwide news story in

57:06

2023? It's probably, I hope it's going

57:09

to end up, hopefully nothing bigger than

57:11

it happens. Will be Israel and Hamas

57:13

will be the biggest story of 2023.

57:15

Of course, there has been tensions, to

57:17

say the least in that region, for

57:19

literally thousands of years. But how many

57:21

people in January of 2023 predicted, But

57:24

by and large, ordinary people watching the

57:26

news, it was not on the radar

57:28

whatsoever. Same with, in 2019, if you

57:30

were looking at the biggest risk for

57:32

2020, nobody said a viral pandemic that's

57:34

going to close down the schools. Nobody

57:37

said that. 2001, nobody sees 9-11 coming.

57:39

You can play that game all day

57:41

long. And so because of that, you

57:43

can state with a lot of confidence

57:45

that the biggest risk over the next

57:47

year and over the next 10 years

57:49

is something that you and I and

57:52

none of us are even thinking about,

57:54

because it's always been like that. To

57:56

your point, I'm Palestinian and I didn't

57:58

even see it coming. I was just

58:00

like, wait, what happened? These big stories,

58:02

they blow you away by surprise. How

58:04

can we prepare for these risks if

58:07

we don't know what they're going to

58:09

be? How can we prepare accordingly? By

58:11

definition, you can't. But that in itself,

58:13

that realization, that realization, that realization, and

58:15

that realization, and that mindset, is really

58:17

powerful in itself, because you stop pretending

58:19

that you can predict. There's a great

58:22

quote from Nossentalab where he says, invest

58:24

in preparedness and not in prediction. So

58:26

one way that I think about earthquakesakes

58:28

in California. California knows that there is

58:30

going to be a major earthquake in

58:32

the future, but everybody also knows that

58:34

you can't predict when it's going to

58:37

come. It's impossible to predict what day

58:39

it's going to happen or what year

58:41

it's going to happen. So because of

58:43

that, you're just always prepared. They build

58:45

buildings that can withstand it, or what

58:47

year it's going to happen. So because

58:49

of that, you're just always prepared. They

58:52

build buildings that can withstand it, no.

58:54

And I think that's how you should

58:56

think about it's going to come. So

58:58

don't try to think, oh, once you

59:00

see a recession coming, then you'll start

59:02

to save money. No, it could happen

59:05

tomorrow. So always be prepared for it.

59:07

I think that idea of having expectations

59:09

instead of forecasts is the only way

59:11

to really survive in that world where

59:13

risk is what you don't see. Yeah,

59:15

that makes sense. And another key concept

59:17

that you talk about in terms of

59:20

human behavior is pushing too far too

59:22

fast. Now you say that this is

59:24

something people do in investing. You say

59:26

it's also something people do with their

59:28

companies. So can you talk to us

59:30

about that? Yeah, whenever you have something

59:32

good, you have an investing strategy that

59:35

works or a company that's going well,

59:37

the very normal knee jerk reaction is

59:39

great. Let's make it go faster. Let's

59:41

make it bigger. Let's milk it. Let's

59:43

push it as hard as you can.

59:45

You do it with noble intentions. You're

59:47

like, I don't want to leave money

59:50

on the table. If I have this

59:52

golden goose, let's keep milking. or they

59:54

start making bigger bets, more concentrated bets.

59:56

In businesses when it's going well, it's

59:58

like, let's raise more money and... faster,

1:00:00

faster, faster, faster. And it is such a

1:00:03

common story that those investors, those

1:00:05

entrepreneurs, or even in your

1:00:07

own individual career, you eventually realize

1:00:09

that there was a natural speed limit

1:00:11

to what you're doing. And if you

1:00:14

go over the speed limit to

1:00:16

what you're doing, and if you go

1:00:18

over the speed limit, you're going to

1:00:20

get in trouble. And you only know

1:00:22

where that speed limit is in hindsight

1:00:24

when you've gone past it, and you

1:00:26

get a speeding ticket, so to speak.

1:00:28

But there is a period. in the early

1:00:30

and mid-2000s where Starbucks was opening

1:00:32

a new store on every street

1:00:34

corner like every couple of hours.

1:00:37

It was just like this absolute

1:00:39

proliferation of Starbucks stores. And because

1:00:41

of it, the quality of the coffee and

1:00:43

of the food plunged, the company's only

1:00:45

goal was to grow, grow, grow, grow, grow,

1:00:48

and the quality of the stores

1:00:50

just disintegrated. And Starbucks had

1:00:52

a really rough period because of

1:00:54

that. And in hindsight, they talked about,

1:00:56

they're like, look, the natural growth

1:00:58

rate. that we could sustain the quality of

1:01:00

the product, we way exceeded, we pushed it

1:01:02

way too hard. And because of that, the

1:01:04

business broke for a period of time. There's

1:01:06

so many examples of that, of like

1:01:08

you have a good legitimate business that

1:01:10

is working and customers love you and they

1:01:12

will pay you. But if you try to take that

1:01:15

and just say, let's try to make it go

1:01:17

twice as fast, it's probably going to break.

1:01:19

So understanding the natural speed limit and

1:01:21

size of whatever you're doing is a

1:01:23

really critical aspect of what you are doing.

1:01:26

Any guidance for us to understand like,

1:01:28

hey, this is a red flag that I'm pushing

1:01:30

too hard and that I should just calm down

1:01:32

a bit with what I'm doing. Let's use the

1:01:34

Starbucks example. The reason people

1:01:36

love Starbucks was not necessarily because it

1:01:39

was on every corner. It was because

1:01:41

they liked the quality, the food, they like

1:01:43

the taste. And once your ability to

1:01:45

scale takes precedence over that, then you

1:01:48

know exactly what's going to happen.

1:01:50

So understanding, I think this is such

1:01:52

a basic comment, but it's so

1:01:54

easy to overlook. understanding why you

1:01:56

are successful is the key to doing this.

1:01:58

And a lot of people... don't actually

1:02:00

understand why consumers like them or why

1:02:02

their boss appreciates them. And because of

1:02:05

that they overlook what is actually needed

1:02:07

to keep this going. Once you have

1:02:09

an honest assessment of customers like me

1:02:11

because of X, then you realize any

1:02:13

deviation away from X. Then you realize

1:02:16

any deviation away from that. And of

1:02:18

course you're going to lose what made

1:02:20

you special to begin with. I don't

1:02:22

think it's any more complicated than that.

1:02:25

Yeah, I think that's great advice for

1:02:27

all the entrepreneurs tuning it. your attention

1:02:29

in ways that good times can't. Talk

1:02:31

to us about why stress sometimes can

1:02:33

be a good thing. We look back

1:02:36

historically, the biggest periods of innovation and

1:02:38

new technology and productivity growth without exception

1:02:40

happened during periods when the world was

1:02:42

on fire, so to speak. Like the

1:02:45

most productive economic decade that's ever occurred

1:02:47

is the 1930s during the Great Depression,

1:02:49

when the economy was the biggest train

1:02:51

record had ever been. Because every business

1:02:53

in America woke up and they're like

1:02:56

if we don't find ways to get

1:02:58

more productive and get our act together

1:03:00

We're going to go out of business

1:03:02

tomorrow and that as a motivator that

1:03:05

fear as a motivator creates the biggest

1:03:07

productivity boom we've ever had Mm-hmm. The

1:03:09

other was World War two and the

1:03:11

Cold War the incentive to figure things

1:03:13

out was going to control the world

1:03:16

next year and that kind of incentive

1:03:18

created this technology boom of the likes

1:03:20

the world has never seen. What do

1:03:22

we get out of World War II?

1:03:24

We got nuclear energy, rockets, jets, penicillin,

1:03:27

microwaves, radar, eventually with the Cold War

1:03:29

satellites, all of these things that benefit

1:03:31

you and I today that happen specifically

1:03:33

because of the stress and anxiety of

1:03:36

the war. And you may be able

1:03:38

to say this with COVID in hindsight

1:03:40

too, like as tragic and deadly as

1:03:42

it is. If it unleashes the scientific

1:03:44

boom as it has, that maybe 20

1:03:47

years from now... going to benefit us

1:03:49

in ways that we can't even fathom

1:03:51

today. Using the phrase silver lining to

1:03:53

COVID is a step too far, because

1:03:56

it's killed like 10 million people. I'm

1:03:58

not saying like, oh, that's a great

1:04:00

thing. But it's always the case that

1:04:02

you look back and you're like, hey,

1:04:04

despite that tragedy, we got this incredible

1:04:07

new innovation because of it. That's making

1:04:09

life so much better today. So everybody

1:04:11

wants a world in which everything goes

1:04:13

great and there's no uncertainty. to improve

1:04:16

would diminish greatly. And it's always the

1:04:18

stress that creates the biggest improvements. I

1:04:20

love this concept because it's so true.

1:04:22

Constraints, deadlines, even if you think about

1:04:24

your own self, if you know that

1:04:27

you have a deadline tomorrow, your procrastination

1:04:29

releases and you can just get your

1:04:31

shit done because you know the deadline

1:04:33

is tomorrow. It really helps you become

1:04:35

more creative, helps you step on the

1:04:38

gas in terms of... completing whatever you

1:04:40

need to complete. So what you're saying

1:04:42

totally makes sense in terms of big

1:04:44

disasters in the world and how it

1:04:47

can actually foster lots of innovation and

1:04:49

creativity because our backs are against the

1:04:51

wall. We basically have no choice but

1:04:53

to get it done now. Yeah, I

1:04:55

think for writing books, one of the

1:04:58

biggest benefits that a publisher provides is

1:05:00

a deadline. It's not necessarily that they're

1:05:02

going to help you write the books,

1:05:04

so to speak, but they're going to

1:05:07

tell you you have to turn in

1:05:09

your manuscript on this date, and that

1:05:11

will get your assing gear. Okay, so

1:05:13

one of the last ones I'm going

1:05:15

to ask you about this book is

1:05:18

Incentives. So you've got a chapter in

1:05:20

it in your book where you quote

1:05:22

Benjamin Franklin who once said, if you

1:05:24

would persuade appeal to interest and not

1:05:27

to reason. So talk to us about

1:05:29

incentives, what we need to watch out

1:05:31

for in terms of how incentives can

1:05:33

trick us into doing things that we

1:05:35

already know are wrong. I think there

1:05:38

are, it's very often the case, that

1:05:40

if you see somebody doing something that

1:05:42

you find morally wrong. or just something

1:05:44

that you disagree with. You are probably

1:05:46

underestimating the odds that you would do

1:05:49

that exact same thing if you had

1:05:51

their... incentives. And I saw this firsthand

1:05:53

during the financial crisis of 2008, when

1:05:55

a lot of Americans rightly pointed at

1:05:58

Wall Street bankers and said, those greedy,

1:06:00

bastard bankers who ruined the economy. And

1:06:02

maybe that was not necessarily the wrong

1:06:04

criticism. But I think what people overlooked

1:06:06

is that if you worked at Bear

1:06:09

Stearns in 2006, and they said, hey,

1:06:11

package these subprime bonds and we'll give

1:06:13

you a $6 million bonus, you would

1:06:15

have done the exact same thing if

1:06:18

dangled in front of your face. And

1:06:20

so I think we underestimate the boundaries

1:06:22

of our morality when we don't understand

1:06:24

the power of our incentives. Everyone thinks,

1:06:26

oh, my moral boundaries are right here.

1:06:29

But if you had different incentives, you'd

1:06:31

be like, oh, maybe I can shift

1:06:33

them out a little bit. And you

1:06:35

don't even know you're doing it. It's

1:06:38

subconscious. Everyone is so influenced by these

1:06:40

incentives. And at every level, when you're

1:06:42

looking at World War II, how could

1:06:44

the Germans possibly have acted like this?

1:06:46

What the 1930s were like for them,

1:06:49

the incentives, the incentives to go along

1:06:51

with it, the incentives did not want

1:06:53

to be an outsider, the incentives to

1:06:55

do what you're told, it's not to

1:06:57

justify anything in the slightest, but if

1:07:00

you want looking for an answer of

1:07:02

how can people do that thing, whatever

1:07:04

that thing would be, in business, in

1:07:06

wars, whatever it be, the answer is

1:07:09

usually some sort of incentives. And it's

1:07:11

not even a financial incentive. There are

1:07:13

social incentives, there are tribal incentives, there

1:07:15

are political incentives. to do things that

1:07:17

you would otherwise find repugnant, but you

1:07:20

do it because the incentives push you

1:07:22

to do it. That's super insightful. The

1:07:24

last question I'm going to ask you

1:07:26

about your book in terms of a

1:07:29

concept is you talk about permanent and

1:07:31

expiring information, and I love the distinction

1:07:33

that you draw between these two. And

1:07:35

I hope today's interview is going to

1:07:37

be permanent information for our listeners, but

1:07:40

can you explain what you mean between

1:07:42

the difference of the two? I mean,

1:07:44

one way as someone who writes books

1:07:46

that I've ever heard is... If you

1:07:49

want to write a book that people

1:07:51

will read 20 years from now, write

1:07:53

a book that people would have read

1:07:55

20 years ago. Make sure that what

1:07:57

you're writing about is timeless. And I

1:08:00

think we can say that about this

1:08:02

podcast. I think if we had a

1:08:04

time machine and someone listened to this

1:08:06

podcast in 2003, 99% of what we

1:08:08

said would be relevant. So you have

1:08:11

to understand what kind of information is

1:08:13

expiring if you're watching the stock market.

1:08:15

Oh, Microsoft missed quarterly earnings by one

1:08:17

penny per share. Like, that's expiring information.

1:08:20

I'm not going to say it's irrelevant,

1:08:22

but it's expiring. It has a shelf

1:08:24

life. But if you're talking about how

1:08:26

people. 20 years from now as it

1:08:28

is today. So you should put more

1:08:31

of your emphasis in learning permanent skills,

1:08:33

knowing that they're going to stick around,

1:08:35

rather than drowning yourself in expiring information

1:08:37

that might be relevant for a week

1:08:40

or maybe even a year, but it

1:08:42

has the shelf life of something that's

1:08:44

going to expire. I totally agree with

1:08:46

that. Well, Morgan, thank you so much

1:08:48

for your time today. I feel like

1:08:51

this podcast was filled with so much

1:08:53

timeless wisdom about finances. So I end

1:08:55

my show with two questions that we

1:08:57

ask all of our of our guests.

1:09:00

The first one is what is one

1:09:02

actionable thing our young and profitors can

1:09:04

do today to be more profitable tomorrow.

1:09:06

Go out of your way to define

1:09:08

your game and realizing that your game

1:09:11

might be very different from your co-worker's

1:09:13

game, even your co-workers game, your co-founder's

1:09:15

game, your siblings game, everyone is different

1:09:17

and don't assume that because society tells

1:09:19

you that you should have X, that

1:09:22

that's actually what you should be chasing.

1:09:24

Back to the goalposts we were talking

1:09:26

about before. And what is your secret

1:09:28

to profiting in life? And this can

1:09:31

go beyond business and finance. Realizing that,

1:09:33

there are probably 10 people in life

1:09:35

who I want to love me. My

1:09:37

wife, my kids, my parents, maybe three

1:09:39

friends, maybe three friends. And it's not

1:09:42

that I don't care about the opinions

1:09:44

of anyone else, but I think it's

1:09:46

really helpful to have people in your

1:09:48

life who you don't want to disappoint.

1:09:51

Just a few people who are, it's

1:09:53

like, that's Seattle North Star. Is this

1:09:55

going to help my relationship with them?

1:09:57

I think it's just a very strong...

1:09:59

guiding light. What really matters? And if

1:10:02

you're on your deathbed, are you going to

1:10:04

care about your net worth or the square footage

1:10:06

of your house? Or are you going to be

1:10:08

proud that you are a good spouse, you are a

1:10:10

good parent, you are a good friend, you

1:10:12

helped your community? Like it's obvious what's going

1:10:14

to be more important to you. So like,

1:10:16

let's keep that as the focus. I love

1:10:19

that. That's great advice. Well Morgan, thank you

1:10:21

so much for joining us on Young and

1:10:23

Profiting Podcastiting podcast.