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Lewis HowesBecome a Master of Finance with Harvard Professor Mihir Desai (with Lewis Howes)
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Chapter summaries
Why Mihir Desai Wrote The Wisdom of Finance
Lewis introduces Mihir Desai, a Harvard professor of finance and law, and asks why he wrote the book. Desai says he wanted a new challenge after years of tight academic writing, and wanted to demystify finance and push it to live up to its potential.
- •Desai describes academia as a predictable path that he found terrifying
- •He started an online course, taught at the law school, and then wrote a book
- •He wanted to demystify finance, which he thinks people demonize for the wrong reasons
- •He also believes chunks of finance are broken after the financial crisis
Financial Illiteracy and the Rich Dad Poor Dad Comparison
Lewis asks why finance isn't taught early, and Desai points to the costly mistakes people make with student and credit card debt. They compare the book to Rich Dad Poor Dad and discuss the strong demand for clear finance books.
- •Low financial literacy leads to life-changing mistakes with debt
- •Desai says these ideas should be taught to kids
- •He respects the impact of Rich Dad Poor Dad even though academics tend to look down on it
- •The same few finance books stay on bestseller lists for decades, which he reads as demand outrunning supply
Debt as a Liberating Tool and the Education Decision
Desai argues that debt is demonized but is the only route to opportunity for people without resources. He warns about debt overhang and explains how to weigh a costly degree against incremental wages, and the investment-versus-consumption distinction.
- •Debt has been condemned throughout history, yet it enables access to homes and education
- •Debt overhang is when so much debt looms that you can't make the best choices
- •Evaluate education by the extra wages it produces, not total wages
- •Something like cooking school purely for fun is consumption, not investment
- •Houses and education are both investment and consumption
Luck vs. Skill and the Case for Index Funds
Desai says people mistake luck for skill in investing, illustrating with a coin-tossing trick. He points to the rise of indexation and discusses Buffett's approach of monetizing his halo.
- •It is nearly impossible to tell luck from skill except over the long run
- •The coin-tossing room example shows someone will always get ten heads
- •Persistently beating the market is very hard, and you can't tell who can do it
- •Index funds are what have worked over the years
- •Buffett gets terms others can't because of his reputation
Practical Rules for Saving and Investing
Asked what to do with money, Desai gives a set of rules: save more than you think, use tax-advantaged accounts, avoid high fees, and set aside a small fun fund. He adds that young people should take more risk and taper it over life.
- •Very few people over-save, so save as much as you can
- •Max out IRAs, company plans, health savings accounts and flexible spending accounts
- •Don't pay a lot to have others manage your money; he suggests splitting between a government bond fund and an equity index fund
- •Treat speculative bets as a small fun budget, like consumption
- •Take more risk when young and taper down with age
Startup Investing and Desai's Own Money Habits
Lewis shares his zero-return startup investments, and Desai notes startups are bimodal with most ending at zero. Desai admits he overestimates his own investing ability and ties his saving habits to his immigrant upbringing in Bombay.
- •Desai says 80-90% of startups go to zero and a few return multiples
- •Lewis treated his startup investments as learning and relationship-building
- •Desai writes fewer checks now and thinks he overestimates his abilities
- •He follows the tax and indexation advice and pays no fees
- •His immigrant background shaped a strong saving mindset
Optionality and Jane Austen's Take on Risk
Desai explains how the book uses stories rather than graphs, starting with Pride and Prejudice to explain options and diversification. He warns against the trap of endlessly collecting optionality instead of committing.
- •The book explains finance ideas with stories, not equations
- •Jane Austen's marriage-market plots illustrate options and diversification
- •Options give the right but not the obligation to own something
- •Young people can become addicted to buying more optionality and never act
- •Closing off options is how great things often happen
Bankruptcy, Failure and Robert Morris
Desai tells the story of Robert Morris, the richest man in the colonies who ended up in jail after going bankrupt. The story leads to the 1800 Bankruptcy Act, which he uses as a model for treating failure as something to recover from rather than stigmatize.
- •Morris financed Yorktown and turned down Washington's Treasury offer to rebuild his wealth
- •He later went bankrupt and was jailed
- •The founding fathers' reaction led to the 1800 Bankruptcy Act
- •Finance prioritizes a clean slate after failure, a model for thinking about life
Leverage, Commitments and Reputation
Desai connects financial leverage to personal commitments, using The Merchant of Venice and the contrast between George Orwell and Jeff Koons. He closes with Archimedes' lever and Jefferson's idea that reputation is life's biggest lever.
- •Leverage lets you own assets you have no right to own
- •Commitments to people and organizations let you do things you can't do alone
- •Orwell wrote 1984 alone, while Koons relies on a factory of 150 people
- •Jefferson called reputation the biggest lever in life
Standout Students and Why Work Ethic Beats Raw Smarts
Asked about the smartest student he's taught, Desai instead names entrepreneurs, authors and a former IRS head, and says smarts are not the scarce resource. He values attitude and work ethic, and Lewis relates it to sports.
- •Examples include Sarah Kauss of S'well, authors Lee Carpenter and Gail Lemmon, and Doug Shulman
- •Desai says he doesn't know who the smartest is
- •He cares most about attitude and hard work
- •Talented people who don't work hard are the most tragic stories
The Parable of the Talents and Making the Most of What You're Given
Desai retells the biblical Parable of the Talents and links it to value creation and beating your cost of capital. They discuss duty, urgency and how Milton and Johnson were haunted by the parable.
- •Talents originally meant money in the parable
- •The servant who buried his one talent out of fear was cast out
- •In finance, sitting on resources destroys value instead of creating it
- •Milton and Johnson kept asking whether they were doing enough
- •Lewis and Desai stress acting now rather than over-incubating
Lessons from 18 Years of Teaching
Desai says teaching is an act of empathy and that years in the classroom taught him humility about who will do great things. He now judges people less and errs on the side of encouragement.
- •Good teaching means getting into the other person's shoes
- •You can't tell which students will do great things
- •Quiet students can be spectacular and talkative ones can be empty
- •He used to be tougher and now leans toward encouragement
Final Class Lesson, the Power of Stories, and Defining Greatness
Given a hypothetical final 60-second lesson, Desai names the environmental risk and the underestimated power of kindness and generosity, and says he would tell it as a story. They discuss narratives in life, where to find the book, and Desai defines greatness as making the most of what you've been given.
- •Desai's two lessons are taking existential environmental risk seriously and valuing kindness and generosity
- •Stories are remembered where lectures aren't, though stories shouldn't violate facts
- •People organize their lives through narratives, such as the immigrant narrative
- •The book and his website are mihirdesai.org
- •Greatness means making more than you could out of what you've been given, and it resides in everybody
