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My First MillionThe Dead Simple Strategy That Will Make Your Great Grandchildren Rich | ft. Morgan Housel
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Book Sales and the Tail-Driven Economics of Publishing
Sam Parr and Shaan Puri congratulate Morgan Housel on his new book Same as Ever and the success of The Psychology of Money. Housel says no one knows how a book will land and compares publishing to professional sports, where a few outliers capture most of the rewards.
- •Psychology of Money's first print run was about 5,000 copies and it has sold over four million
- •Housel has written for 17 years and still can't predict how something will be received
- •He compares the book industry to pro sports, with success driven by a tiny tail
- •He says he believes there are more billionaire authors than billionaire athletes
Strive for Average Returns and Strategic Mediocrity
Prompted by Shaan's contrast between philosophies of more and less, Housel explains why he aims for average index-fund returns. Earning average returns for 50 years can produce dynastic wealth with zero effort, and he cites PIMCO's idea of strategic mediocrity.
- •What matters is the best returns you can sustain for the longest time, not the best this year
- •Average US stock returns are about 6 to 6.5% real, which over 50 years could make great-grandchildren wealthy
- •PIMCO's 'strategic mediocrity' meant never top half in a year but top decile each decade
- •The idea applies to businesses and marriages as well
Buffett, Compounding and the Cost of Being the Best
The hosts and Housel discuss Buffett's wealth coming from decades of compounding. Sam questions whether the price of that life is worth paying and cites Die With Zero, and Housel argues Buffett is a rare case who loves compounding and giving it away.
- •Most of Buffett's wealth came late because he has invested for about 80 years
- •Sam says he isn't willing to pay the price of 80 years of 20% returns because life is short
- •Housel says Buffett gets great pleasure from compounding and philanthropy
- •Sam tells a story of Buffett refusing his daughter a $500 TV because of compounding
- •Housel says he admires Buffett but wouldn't want that life, and not everyone should want a five-standard-deviation success
Financial Goals, Moving Goalposts and Enjoying the Work
Sam asks about contradictions in Housel's comments on financial goals. Housel explains that he and his wife have loose goals, want to avoid spoiling their kids, and kept working after passing the net worth number he once set because he now enjoys the work.
- •Housel admits contradictions come from humility and mood, as he hasn't figured it out
- •He and his wife want a good but not extravagant life so as not to spoil their children
- •He passed his old stop-working number and is working harder than ever
- •Work used to be a means to an end and is now something he wants to keep doing
Financial Independence Numbers: Happiness vs. Reduced Anxiety
Sam asks whether there is a threshold at which people stop worrying. Housel and Shaan describe backing into their numbers using a 4% withdrawal rate, and Housel and Sam debate whether money buys happiness or only reduces anxiety.
- •Housel and Shaan both calculated their numbers from a 4% withdrawal rate
- •Shaan says he felt he should be a person with $100 million and chooses work accordingly
- •Sam argues that relief from money problems is happiness
- •Housel distinguishes fleeting happiness from contentment and reduced anxiety, which money can buy and is worth chasing
Biggest Psychological Traps: Social Comparison and No One Right Answer
Shaan asks for the most impactful psychological mistakes around money. Housel names social comparison, which never ends at any wealth level, and the belief that there is a single right answer to financial questions.
- •Your reference group shifts as you gain wealth, so the chase never ends
- •Minimum-wage MLB players still compare themselves to higher-paid teammates
- •Housel ties the comparison instinct to evolution, where relative resources are what matter
- •Financial debates are often people with different risk tolerances and goals talking past each other
The Biggest Known Risk: Global Demographics
Shaan asks about trends that will matter in a decade, and Housel names shrinking populations in much of the industrialized world as the biggest known risk. He explains the link between population, investment and innovation, using Japan as an example.
- •Outside India and Africa, almost the entire world has shrinking population
- •Economic growth comes from either population growth or productivity growth
- •Japan has remained pleasant but has seen less investment and innovation
- •The expectation that each generation lives much better than the last may fade
Same as Ever: Betting on What Doesn't Change
Shaan asks Housel to explain his new book's premise. Housel tells Buffett's Snickers story and says that since forecasting is unreliable, one should focus on unchanging human behaviors such as responses to greed, fear and risk.
- •Buffett noted Snickers was the best-selling candy bar in 1962 and still is today
- •Housel finds the financial industry bad at predicting recessions, pandemics and technologies
- •History shows people respond to greed, fear and uncertainty the same way over centuries
- •The book is a collection of stories about enduring behaviors
Humility About the Future: Read More History, Fewer Forecasts
Shaan asks what actionable takeaway came from studying unchanging behavior. Housel says the main plea is humility: the biggest events, such as September 11th, Lehman Brothers and COVID, were not foreseen, so he doesn't forecast and prefers reading history.
- •The three biggest economic stories of Housel's adult life were unforeseen
- •The biggest story of the coming years is likely something not being discussed today
- •Admitting we don't know what's next is uncomfortable, which sustains punditry
- •Housel says it is healthier to read more history and fewer forecasts
Morgan's History Book Recommendations and World War II
With Housel short on time, Sam asks for specific history books to read. Housel recommends Erik Larson's The Splendid and the Vile and Doris Kearns Goodwin's No Ordinary Time, and explains why World War II is so useful for understanding human emotion.
- •The Splendid and the Vile covers the London Blitz and the human element on the ground
- •No Ordinary Time shows how FDR managed the politics and emotions of the war
- •Housel calls Larson the greatest living storyteller
- •World War II was heavily documented, offering a range of emotions from despair to elation
