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The Dead Simple Strategy That Will Make Your Great Grandchildren Rich | ft. Morgan Housel

Episode 533: Shaan Puri and Sam Parr talk to Morgan Housel about the psychology of building generational wealth and the one strategy that works better than any 20% return.

Morgan HouselguestGreat Minds Sam ParrhostShaan Purihost

Dec 20, 202335mWatch on YouTube

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Transcript

40 min read · 8,219 words

0:00 – 2:30
Intro
1. MHMorgan Housel
  What matters is not necessarily what are the best returns that you can earn this year. That's what everyone chases, but that's not what matters. What matters is what are the best returns that you can sustain for the longest period of time?
2. SPSam Parr
  [upbeat music] Um, let's just get right into it. Morgan, what's going on, man? I'm happy you're here.
3. MHMorgan Housel
  I'm happy to be here. Thanks for having me, guys.
4. SPSam Parr
  I read the book, uh, your, your first big hit, Psychology of Money, a while ago. What was that, four years ago?
5. MHMorgan Housel
  About, yep.
6. SPSam Parr
  Yeah, and then this new one just came out. What's it called? Same as Ever?
7. MHMorgan Housel
  That's right.
8. SPSam Parr
  Yeah, man. Uh, and people are... I, the Good Reads reviews are higher on the re- most recent one, I think, than the first one, so congratulations.
9. MHMorgan Housel
  No, thanks. It's always, it's always... I think with all books and all articles, this is probably true for podcasts too, you really never know what's gonna work and what's not. And even I, I've been a writer for 17 years, and I still really don't know when I publish something, a blog or a book, how it's gonna be received. And maybe you get a little bit better around the edges, but it's always like you just have to birth it into the world, and then, and then just s- step back and watch. It's gonna do whatever it's gonna do.
10. SPShaan Puri
  Well, you told me that the first version of Psychology of Money, you said that you, the first print run was, I think, 5,000 copies. Is that right?
11. MHMorgan Housel
  That's right.
12. SPShaan Puri
  So you guys, you thought, you know, 5,000 copies is, is the right amount. You sold over four million [laughs] now. So, uh, I think that, that proves your point of you don't really know till you know. Uh, but that is ki- that number's kind of amazing, dude. Like, over four million books sold. You're, I don't know, in the top .001% or something of, of authors. You know, that... I don't know how much you make per book, but I think that means you've made, like, over $10 million as an author on a successful book. That's so hard to do. That's so rare. And, um, you know, congrats to you for doing that.
13. MHMorgan Housel
  Thanks, Shaan. Yeah, I mean, I was telling someone the other day, I think the closest analogy to the book industry is probably professional sports, where 99.9% of high school basketball players will never make the NBA. I don't know, 99.999, whatever it is. Um, but, but then you have a couple of l- of LeBron James and Michael Jordans who go on to make a billion dollars doing it. And I, I don't know this to be 100% sure, but adding it up in my head, I'm pretty sure there are more billionaire authors than there are billionaire athletes, even in a world in which 99.9% of books will sell, you know, a couple thousand copies or, or less, if that. But then you have J.K. Rowling and Dave Plinky and, uh, James Patterson who are, who are, have made over a
2:30 – 13:00
Strive for averageness
1. MHMorgan Housel
  billion dollars writing books. So it's just, like, extremely tale-driven in the success.
2. SPShaan Puri
  I wanna ask you about, um, one of your philosophies, 'cause you're very interesting to me. You have a philosophy... It's very easy to sell a philosophy of more, right? People do that all the time. And in fact, even our podcast, I would say, falls into the bucket of the philosophy of more many times when we say, "No small boy stuff," right? We're th- saying, "Think big, play big. Go for it. Don't sit around and wait. Don't, don't be fearful," right? So more, more action, more ambition, more whatever. That's, that's one philosophy a lot of people fall into. And some people go even crazy, right? David Goggins is like, "Work harder." Gary Vee, Alex Hormozi, these guys are like, "Just grind harder." So people often have the philosophy of more. And some people, Marie Kondo and others, have the philosophy of way less. You need less. Minimalism. Um-
3. MHMorgan Housel
  [laughs]
4. SPShaan Puri
  ... you know, uh, uh, escapism. Just become a, a, a sort of a, a, a Zen person. Go, uh, whatever, get those vans and just like travel around the world, right? So it's like, um, there's the philosophy of less. And you're in the middle, which usually is the, the dead zone for content. Uh, you're in the middle where you're like, "No, just have enough," right? Like moderation. And I can't believe you've got moderation to sell. I'm gonna read you a quote, and then I want you to talk about this. So you said, "More than I want big returns, I wanna be financially unbreakable. If I'm unbreakable, I think I'll actually get the biggest returns, 'cause I'll be able to stick around long enough for the compounding to work wonders." I loved that quote. And I, in general, I find this moderation thing interesting. Tell me more about that.
5. MHMorgan Housel
  This is where, like, moderation in finance is actually gonna lead to the biggest returns, because what matters is not necessarily what are the best returns that you can earn this year. That's what everyone chases, but that's not what matters. What matters is what are the best returns that you can sustain for the longest period of time. And so this is why, like, on an annual basis, I am, I strive for average returns in my index funds by design. Why do I do it? Because that's gonna give me the endurance to hold them for 50 years. And if you can earn average returns for 50 years, you're gonna end up in the top 1% of all investors, and you do it with zero effort.
6. SPSam Parr
  What's average?
7. MHMorgan Housel
  Uh, in the, in the US stock market, 6% real, 6.5% real after inflation is what's been. If you can earn 6.5% returns after inflation for 50 years, it's, it, I mean, you can run the calculations of it. It, it, it, it, it's gonna achieve every... It's, it's dynastic wealth. It'll make your great-grandchildren wealthy. And so that's, this, ba... And you can do that with zero effort. Now, look, past, past performance, not a negative. There's a nuclear war, et cetera. You can come up with all these scenarios in which it's not gonna work out. You can come up with scenarios in which the economic conditions of the last 100 years are not gonna replicate for the next 100 years. Okay, all those aside, earning average returns for an above average period of time is way more lucrative than trying to earn superior returns for a shorter period of time. Like, as always, and I think it's so counterintuitive. The intuition for everyone, including educated professional investors, is, "How do I earn the highest returns this year?" And like, it's like, of course. It's like, how could that be wrong? It's like, no, if you're just average for a long period of time, you, that's the winner. PIMCO, the big bond fund, they had this phrase that I love. They called it strategic mediocrity, where in any given year, they were never gonna be in the top half against their peers. But in every decade, they'd always be in the top decile, because the peers that beat them in any given year get washed out. And I think that, I think it applies to a lot of things. It applies to a lot of businesses. It applies to relationships and marriages of, like, you don't need to be a superhero. If you're just good for a long period of time, that's how compounding works its magic.
8. SPSpeaker
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9. SPShaan Puri
  That, that thing you just said was excellent. Uh, I love that. So you said I want average returns for an ab- above average number of years rather than superior returns for a short period of time. Um, or [laughs] you know, I, you know, I... In any given year, I'm not trying to be in the top, uh... I, I'm trying to be, you know, sort of 50%, but if I do that for 30 years, I'll be in the top 10%. It's so true in the kind of, like, slow and steady wins the race. I think you had a stat that, like, if Warren Buffett has, I don't know what it is, like, let's say $85 billion net worth, like, 81 billion of those 85 came after his 65th birthday, right? And I think he said something like, "If, if Warren had just retired when he was 60, nobody would even talk about him," 'cause the compound would be all-
10. MHMorgan Housel
  Yeah, like, like, obviously he is a great investor, of course, but the whole secret, what's literally 99% of his wealth, is that he's been a great investor for 80 years. That's what... He started investing when he was 11, and he's 93 today, still going as, as, as, as hard as ever, and th- that's where all the money comes from. And yes, like, so his average returns are, are 20% per year, uh, which, which is phenomenal, of course. But if you earn 20% per year for 20 years, it's, it's really good. If you earn 20% a year for 40 years, it's great. If you earn 20% a year for 80 years, you're worth $100 billion. Like, that, that, that's where all the returns come from.
11. SPShaan Puri
  Did you hear this, Sam? They're giving that shirt away at, uh, Buffett's Give It Away this year at the Berkshire Conference. Just hard as ever. Still going hard as ever. [laughs]
12. SPSam Parr
  Is that real? Are you being serious?
13. SPShaan Puri
  [laughs]
14. SPSam Parr
  Oh, dude, that'd be hilarious.
15. SPShaan Puri
  He's looking incredible though.
16. SPSam Parr
  Dude, but we joke about Warren Buffett, where he talks about, uh, you know, like, uh, well, I forget the, how he phrases it, but he talks about, like, the, the, you know, "It's all about the future. It's all about the future." And we were like, "Dude, you're 93. Like, there is no future."
17. SPShaan Puri
  [laughs]
18. SPSam Parr
  Like, bail and enjoy life. And you could argue, like, well, he's, he likes what he does, so, you know, it's cool. He's enjoying life. But I've always, like... When I think about long-term stuff, I'll, like, map out my life, and I'm like, "Man, like, if I only live to be 80, I only have, you know, uh, 40 or something summers left." Like, I don't, I don't know if I wanna be cr- I'm not willing to pay the price of, if that's what's considered great, is doing 30 or 20 per- 20% returns for 80 years. I'm not willing to pay that price, because life's too short. And when I think about, like, what it requires to be one of one, to be one of the greats, uh, it, it, that's what freaks me out, is I don't wanna be that old and not have enjoyed it. You know, that's why, it's, like, the con- converse to all this is Bill Perkins' book, Die With Zero, of, like, spend it while you're here, enjoy it while you're here, 'cause when you're gone, it's, it's pointless. You know what I mean?
19. MHMorgan Housel
  Yeah, yeah. No, there, I, I think, I think there's a couple... I think I, I agree with every word you said, particularly for ordinary people like us. I do think Buffett's DNA is just, he gets more pleasure from anything in life... The, the most pleasure he gets is from compounding. There's nothing that makes him happier. The other thing is, even though he's worth $100 billion today, he's given away 100 billion already, and, and with, with, with the rest of his net worth effect- you know, go into the Bill & Melinda Gates Foundation. I, I imagine, I don't know this to be true, but I imagine when he, when he lays in bed pondering his life, he's like, "I'm, I, I, I did, I, I, I put my skill to use, and I'm gonna give away a quarter of a trillion dollars for the betterment of society." I was just in Omaha a couple months ago, where he's lived his entire life, and in downtown Omaha, one of the tallest buildings says the Buffett Center for Cancer Research or s- som- something like that. I imagine when he drives past that, and this is the building that he drove past when he was five years old, it gives him a ridiculous amount of pride and pleasure. And so I actually think w- if, if he were on his deathbed tomorrow, Charlie Munger just died last month, I think he would look back and say, like, "I, I, I lived the best life that I could've. It's, wasn't perfect by any means." But I, I, I, I think there is a difference between the Bill Perkins philosophy, which is true for 99% of people, and then there's 1% of people who actually get so much pleasure out of compounding and thinking about what that money's gonna do to society after they die.
20. SPSam Parr
  Dude, there's this crazy story about Buffett, where his daughter had just had a baby, and she's living in a shit apartment, and she, and, uh, uh, a mutual friend of Warren and the daughter went, it was actually the CEO of Washington Post, went to the house and was like, "Warren, her kitchen sucks, man." And so the daughter eventually goes to Warren and goes, "Hey, can I get, like, a $20,000 loan in order to redo my kitchen?" And he was like, "Ah, just go to the bank." And, uh, so she eventually goes to the bank, and then a few months later, uh, the, the CEO of Washington Post goes back to her house, and the daughter's sitting in bed, but she has a really small TV where she would sit and nurse her child in front of. And Washington Post lady goes to Warren. She goes, "Warren, give her 500 bucks for a new TV, man. She can barely see this TV, and she's in bed, like, eight hours a day. Can you just give her a new TV?" And Warren was like, "No, compounding's more important for that $500 TV. I can't, I'm not gonna take the money out." And so Katharine, uh, the CEO of Washington Post, ended up buying her a $500 TV. But that's how, like, tight this guy was about following his code, which I guess I appreciate that someone has a code, but that ain't, that ain't my code.
21. SPShaan Puri
  Wait, so Warren Buffett's just an asshole? Is that the story? Is this a real story? 'Cause I hate Warren Buffett now.
22. SPSam Parr
  Yeah. Well, yeah. So Warren Buffett gets, he gets a pass for having this aw shucks attitude.
23. SPShaan Puri
  No, no.
24. SPSam Parr
  But he's definitely an asshole. He's definitely an asshole. Depending on how you define asshole, I would define him as a wonderful, uh, a... What do I say? All great men are also bad men. The way he handled his, his family, I think, was, was not wonderful. The way he handled business associates was wonderful. So, you know, like, it's, there's trade-offs to being great.
25. MHMorgan Housel
  I think, I think he, as someone who, like, I have so much respect and admiration and reverence for him, but I would also put him in the camp of someone who is like, "I'm so glad he exists, but I don't think I would want that for my own life," which is not a criticism against his life. It's just, like, to each their own, and let's not pretend that everyone should want the life of the five standard deviation success. It's like, there's a cost to all of that.
26. SPShaan Puri
  I was just trying to imagine, like, his daughter just, like, you know, at the bus stop trying to get a bus ride to s- wherever she's going. She's looking up at the Buffett Ca- Cancer Research Center and just being like, "Goddammit." [laughs]
27. MHMorgan Housel
  Now, there's, there's some other parts to that story. Buffett's, uh, first wife, Susie, you know, had, uh, billions of dollars of her own, and she was much more freewheeling with, with money. So I think that the Buffett children end- they did just fine. But yeah, there's, there's plenty of stories about Warren. He always described it as, he was like, "Capital is my tool. I'm not gonna give... Like, these are the tools of my business. This is how I make money. I'm not gonna be willy-nilly with it." And even when Buffett was in his 20s When he was a kid, this is back in the '50s, he was already worth tens of millions of dollars in the... when that was real money in the '50s. And you could easily imagine a world in which he's worth the equivalent of $100 million when he's 30 years old or whatever it was, and everyone would be like, "Dude, you need to give all this away. You're never gonna be able to spend this." And his philosophy was like, his philosophy has always been people in the future will be just as needy as people are today, so if I have an
13:00 – 15:30
Financial anti-goals
1. MHMorgan Housel
  above average ability to compound it, it actually makes sense for me to hold onto this money for as long as I can before I give it away, which I think is actually pretty rational.
2. SPSam Parr
  You, you said a few things that I thought were, um, contradictory in, in different interviews that I watched. The f- and I think in the book, I, I forget, I'm mixing up the book and interviews that I watched, but you talk about financial goals and you're like, "I don't look at s- I don't look at my portfolio." Um, I, I think you said, "I don't set goals," or at least that's the vibe that I got in an interview. But then I've also r- read a little bit where you do have some type of goals. Um, so for, for financial goals, do you, like, have a number in your... Oh, sorry, I remember what it was. You said n- whenever you hit your goal, you're always gonna double it, therefore, I don't have goals. I think that's what you said.
3. MHMorgan Housel
  Uh, it's such a, uh... The, the, the, the, the reason it's hard for me to answer that is I'm sure I've said things that are contradictory because I, like everyone else, it's like it depends, depends on my mood that-
4. SPSam Parr
  Yeah, I'm not trying to call you out [laughs]
5. MHMorgan Housel
  No, no, no.
6. SPSam Parr
  [laughs]
7. MHMorgan Housel
  Depends on, on probably the, the, the mood that I'm in that day. Do I, if I'm sitting here today and I think, "Do my wife and I have financial goals?" Not really. It's not like, oh, we're trying to hit X, and once we hit X, we're gonna go buy Y. It's like, not really. But I, like everyone else, think about like, oh, if my income stays the same, we'll have this much money. What kinda life could we live with that much money? And one thing too, like w- we have two young kids, and we are pretty hellbent on not spoiling them. They live an amazing life and we live in a great house, they'll have a great education. They'll live the top .01% of lives, but we don't wanna raise spoiled little pricks. And because of that, we of- we often when we have goals it's not like, "Oh, how can we buy a, a bigger house, another house, nicer cars?" It's kinda like we wanna live a good but not extravagant life because we don't wanna spoil our kids. But, like, even that, sometimes, like, I can talk to other people who are like, "No, actually you can live the big high life without spoiling your kids. Here's how to do it." So I, I, I feel like I say, like, I think a lot of the contradictions come from humility of just like I, I, I haven't really figured it out yet for myself. I tend to not have goals. For years I had a goal of once my net worth is X, I'm not gonna work much anymore because I could easily live for the rest of my life off of that net worth. And I've exceeded that number, and I'm working [laughs] I'm working harder than ever. But I don't, I don't regret that at all. Maybe that is some version of moving the goalpost. But I think more of it is after I hit some level of financial independence after I wrote books, it was like, okay, I'm only gonna do the work that I enjoy now, and it's not really work, it's just like I really enjoy writing these books. I only speak at conferences that, in cities that I want to go to. It doesn't feel like work, and I, I don't think I really understood that
15:30 – 18:30
Sam and Morgan argue about money and anxiety
1. MHMorgan Housel
  10 years ago. 10 years ago work was by and large a means to an ends. I need to do this to feed my family. And now that I've reached kinda the artistic level, I'm like, "Oh, I wanna keep doing this forever." And in that world, goals kinda go out the window.
2. SPSam Parr
  Well, we've, like, interviewed a bunch of, I mean, we've had, we have a bunch of wealthy friends, we've had a bunch of people on here. Um, you're like a financial historian, so you've, like, read about all these people, you also know a lot of them and you've written about them, and you probably r- run in even a more elite circle than we do. Uh, but w- a question that I've always wondered is, is there a threshold where I'm not gonna worry anymore? So far I've not found that threshold, and we had Scott Galloway on here recently and he was like, "I'm worth, like, over 100 million liquid and I still freak out." Have you found any type of thresholds to where the average person changes where they feel more relief?
3. MHMorgan Housel
  I don't know, I don't know if the average person. I can tell you myself though. That number that I was talking about before where for years it was like once I hit this number I'm not gonna work anymore, once I hit that number I still work.
4. SPSam Parr
  Can, can, can you say that number?
5. MHMorgan Housel
  I, I don't know, I don't know if I wanna get too, too into details.
6. SPSam Parr
  That's all right.
7. MHMorgan Housel
  Maybe I'll tell you o- o- off camera.
8. SPSam Parr
  Maybe-
9. MHMorgan Housel
  It's not, it's not a, it's not a ridiculous number
10. SPShaan Puri
  I need you to eye bat it. Like, 'cause, uh, some people don't know how, what, how should I think about what that number is? For me, for example, I was like, oh, if my life annual burn rate was X and I wanted a certain amount of money where, you know, 4% or 5% withdrawals of that, uh, would mean I'm sorta staying neutral. Let's as- assume I'm getting 6% real returns in the market. If I was to withdraw 4% out to pay for lifestyle, uh, you know, that m- that number in the bank account's never gonna go down, it's only gonna go up. Uh, that's how I think.
11. SPSam Parr
  That's literally, it, and yours Shaan was-
12. MHMorgan Housel
  That's literally exactly how I calculated
13. SPSam Parr
  ... years ago, Shaan, you said yours was 6 million, but if I had to guess, that has changed as you've had a family.
14. SPShaan Puri
  Uh, yeah. No, uh, to be honest, can I say the honest answer is kind of, uh, ridiculous sounding, but, like, it's not that oh, I had kids and oh man, I really underest- these diapers are expensive. That's not actually what happened. I literally, I remember one day I was like, "Okay, so I've done this." I was like, "I kinda feel like a guy who should have $100 million."
15. SPSam Parr
  [laughs]
16. SPShaan Puri
  And [laughs] I literally had to come to face with myself where I was like, "I think I'm, I think I'm worth that. I think I should be..." Like, you know, I don't have to have it, but, like, if I didn't have it, something would feel amiss. Something would feel a little wrong. And, uh, then I was like, "Okay, cool. I think I should do that." It wouldn't become my, like, North Star of like I'm gonna do this, but what I did do was I made sure that I would only, um, I would only work on things that either I was doing purely for the joy of it, it, it didn't have to bring in any dollars, or if I was doing it because it, I thought it was gonna be financially rewarding, the financial reward had to be big enough to make it, to be, like, on that path, not a path, not a smaller path.
17. MHMorgan Housel
  Yeah.
18. SPShaan Puri
  But then that's not-
19. MHMorgan Housel
  And my, like, I, I came up with my number exactly as you did, Shaan. It was like if I have a 4% withdrawal rate, what is the annual income that I know is gonna be, like, easily, comfortably all that we're ever gonna wanna spend, and like I just backed into the number. And Sam, to answer your question of like once I hit that level, A, I, I kept working as I am now, and I don't think I was any happier, but I had a, I have less financial stress, less career stress. Because 10 years ago-
20. SPSam Parr
  But that's happiness, dude. That's
18:30 – 23:00
Biggest psychological trap with money
1. SPSam Parr
  happiness.
2. MHMorgan Housel
  Well, no, I, no, actually I, I see, I, that I disagree with you.
3. SPSam Parr
  That's such a cop-out.
4. MHMorgan Housel
  No.
5. SPSam Parr
  I hate when people say money doesn't make you happier, but it just gets rid of money problems. And I'm like, yeah, when I worried about rent, I was unhappy.
6. MHMorgan Housel
  See, I think there's that, and like-
7. SPSam Parr
  Now I don't. I'm more happy. I'm not necessarily happy, but I'm happier
8. MHMorgan Housel
  I, I think, like, I, I think we're, we, we probably agree, this is like arguing over the definition of words, but I would say there's a big difference between happiness and a reduction of anxiety. I think those are very different things. Happiness is, is like you wake up grinning ear to ear. Or it's like if you're watching the funniest comedy you've ever seen-
9. SPShaan Puri
  Sure
10. MHMorgan Housel
  ... and you're just, like, laughing on the floor, that's a happy moment, but it's always fleeting. But to me, the reduction of anxiety or contentment, that is something that money can buy and that is worth chasing. It's great. So like, when people say money can't buy happiness, w- what they're implicitly saying is it's not worth chasing. I think it absolutely is worth chasing, but it's not gonna give you happiness per se. It's gonna give you contentment and a reduction of anxiety, which is wonderful. It's a massive increase in the quality of your life. But in my definition, it's not necessarily happiness. But I, I, I f- I feel like I hit that. I feel like I'm... My, my, my wife and I were talking about this last night. I feel like I'm in a better mental state of, like, less anxiety than I've had relative to, you know, 5 or 10 years ago, which is great.
11. SPShaan Puri
  Y- you know, you wrote "The Psychology of Money," um, you've studied this a lot. I wanna ask you, what are, what are the most, what are the biggest or maybe the most common leak? Instead of m- uh, most common, I would say the most impactful, uh, psychological leak, meaning a wa- a, a tra- a psychological trap or mistake people make around money. And I want you to answer it for somebody who is kind of on the come up, so somebody who isn't totally financially independent yet, and then for rich people who still have a bunch of weird psychology and re- a weird relationship with money. I want you to tell me what you've seen or what you believe is kinda maybe the biggest mis- fi- uh, psychological mistake people have around money in each of those buckets.
12. MHMorgan Housel
  I think there's, there's two. I'll start with one that's probably the biggest, which is social comparison, which is always... Shaan, you just mentioned, you know, you wanna be a guy, you should be a guy with $100 million. I'm willing to bet if you told 17-year-old Shaan that figure, you would faint. But it doesn't seem that ridiculous to you now because I bet you know people who are worth $100 million. And so who you compared yourself to when you were 17 or 25 is different now, and I think there's no end to that. If, and I hope you are worth $100 million someday, I guarantee you you're gonna start comparing yourself to people who are worth 200, 500, a billion, and that never ends. Never, ever ends. The point I always make is, like, the, the minimum wage in, um, in the MLB is, like, 500,000 a year, whatever it is, 400, what- what- whatever it is. A, a shitload of money by any definition if you're making half a million dollars a year, and I guarantee you there's not a single minimum wage professional baseball player who thinks they're doing well, 'cause they're comparing themselves to their teammates who are making 10 million a year. And so there's no end to that, but you always think there is, which is why f- I for myself had this idea, "Once my net worth is X, I'm never gonna work ever again." But once, now that I'm here, maybe it is because I'm comparing myself to other people, other authors. Maybe that's at least part of it. So I think even if I can write these philosophies and made a living talking about these, like, I'm still susceptible to that as, as anyone else. I think everybody is. So I think it's such a natural thing. I mean, in all of evolution, what matters is not how much success you have, it matters that you have more success than the other person, 'cause in a competition for resources, that's all that matters. Doesn't matter if you're worth a billion dollars. If somebody else is worth a billion and one, they have more resources than you, and from the evolutionary perspective, they're gonna win and you're gonna lose. So that, like, always chasing no matter how much you have is, is a big psychological underpinning to people's anxiety. The second that I would mention that's, that's probably equally as important is realizing that there is not one right answer for everybody, and everyone in finance is always thinking, is seeking the right answer, like quote unquote the right... It doesn't exist. I think it's much closer to, like, your taste in music of, like, there's no such thing as the best music. You like this, I like that, to each their own. And a lot of times when you have a financial debate of people who are like, "I can't believe you manage your money like that. Why don't you do it like me?" You're not actually debating. It's people with a different risk tolerance, different social aspirations, different family dynamics who are talking over each other. And I think it's like, it's hard for people to come to terms of like, "Look, that works for you, this works for me, to each our own." People don't wanna settle on that because it's easier to think that there should be a right answer like there is in math.
13. SPShaan Puri
  You, uh, you had this quote, uh, I think it was from the book, but it could've been from the, a blog post that you wrote, where you said, "The biggest risk and important news story of the next 10 years will be something nobody is talking about
23:00 – 27:00
The biggest risk no one is talking about
1. SPShaan Puri
  today." And, but you're in this weird position where you work at a VC where you actually do have to predict the future a bit, or at least you're around people who are trying to predict the future. What do you think, are there any trends or topics today that you think in 10 years are gonna be a lot more common and popular?
2. MHMorgan Housel
  Well, the good n- the, the good news for me is that since I'm not involved in the, the deal side of the f- [chuckles] VC, that it doesn't really rest on my shoulders to make those predictions. Of the risks that we know of, which is, like, obviously very distinct from the surprises that are gonna be more important, but of the risks that we know of, I've, I've been saying for years that the biggest, um, by far in the global economy is, is demographics, the terrible demographics that almost the entire industrialized world has. Outside of India and Africa, almost the entire world is shrinking population-wise, and the biggest economies, China, Japan, all of Europe, are, are shrinking very, very fast. China's working age population, age 16 to 64, will decline by 200 billion people between now and 2050. It's just, like, there's no precedent outside of, like, the Black Death plague. There's no precedent for that in all of human history. It's always been the case that economic growth was driven by the fact that there was massive population, uh, growth, and we just don't have it anymore. And in the United States, we have about the best demographics relative to our peers, but it's still way less than we've had for the last 100 years. And all economic growth is either population growth or productivity growth. All economic growth comes from those two things. And so when you take half of the equation of economic growth, and for the last 100 years it's been really good, and now it's at best poor if not a headwind, it's a very different world, totally different world. And maybe, like, the takeaway from that is it used to be that 4% economic growth was like, "Oh, good, you're running at full capacity." Now maybe it's 2% just because we've taken away so much of that. So of the, of the things that we know are gonna be at risk, that's probably the most prominent.
3. SPShaan Puri
  Can you explain that one a little more? I've heard Elon talk about this too, that like, uh, you know, the big risk is that we're not having enough babies. And at first, I thought he was just saying it to cover his ass 'cause he was like, you know, knocking everyone up. But then I was like, no, he's serious about this.
4. MHMorgan Housel
  [laughs]
5. SPShaan Puri
  He actually believes this to be true. Uh, but I don't fully get it. Uh, I'm maybe just kinda dumb about this, so maybe just explain like I'm a, I'm a five-year-old. So, uh-
6. MHMorgan Housel
  Yeah
7. SPShaan Puri
  ... if economic growth goes down but the population shrinks, is it kind of like... Isn't there kind of like a per capita type of thing where it's like-
8. MHMorgan Housel
  Yes
9. SPShaan Puri
  ... what's the big deal? Like, why did, why is that disastrous if, uh, if economic productivity slows down, if there's also less, less people to share. You know, the pie shrinks, but there's less people eating pie. Um, does that matter or is that the wrong way to think about it? Why is it so disastrous?
10. MHMorgan Housel
  No, I think it's, it's, it's not the wrong way to think about it 'cause you could look at Japan for the last 30 years, which Japan for the last 30 years has had abysmal demographics. But I think it's safe to say that by and large it's been a fairly pleasant place to live. It has not led to economic collapse.
11. SPSam Parr
  But their, their, their, their version of an index has been shit, yeah, from a money perspective?
12. MHMorgan Housel
  Yes. Yes. That's a slightly different topic because the reason it's been shit is because it was so preposterously overvalued in 1990.
13. SPSam Parr
  Got it.
14. MHMorgan Housel
  Um, so that's like the two, two separate different stories. But by and large, it's, it has not led to economic collapse. The one thing that I would say though is like what it does lead to is when you don't have a growing economy, you have much less investment. You're not investing in new businesses, new homes, new factories because you don't need them. You're fine with what you have. Whenever you have less investment, you have less innovation. And so in those situations, like when was the last incredible tech company to come out of Japan? I, I, I'm sure, I'm sure one or two exist, but I can't name it off the top of my head. Versus if you, if, if you and I were talking in 1990 and we said, "What was the last tech company?" We'd be like, "Oh my gosh, Sony, Toshiba," going like, Mitsubishi, going down the list. They're everywhere. Because when Japan had a booming population, it was investment up the yin yang of like new technologies. And so when you, once you remove that from the equation, you can still have a pleasant society that's in some form of stasis, but you're not gonna have growth. Not just economic growth, but technol- technology growth, medical technology growth, like all the things that we associate with like a better life kinda goes out the window. So maybe it is the case that for a lot of the developed
27:00 – 30:00
Worry about what doesn't change
1. MHMorgan Housel
  world over the next 50 years, it's still a pleasant place to live. But the idea of like every generation is gonna live 30% better than their parents, like that idea might kinda go out the window.
2. SPShaan Puri
  Uh, Sam just asked you about like trends or prediction, like what, what, what is gonna come in the future, but actually your, your new book is actually about the opposite. It's about what's not gonna change. Same as ever, right? So-
3. MHMorgan Housel
  Yep
4. SPShaan Puri
  ... can you explain the premise of the book? I, I like the Buffett story that you kinda lead with. May- maybe start with that one. But, uh, give us the, the teaser of like what are some of the, the... Like, I buy the premise that some things don't change. Um, what are some of the big so what's that come out of that? But, uh, start with the Buffett story.
5. MHMorgan Housel
  Yeah. So I had lunch last summer, maybe it was two summers ago, with a guy who's very close friends with Warren Buffett. And uh, this guy was driving around with Buffett in 2009 in Buffett's car in Omaha. They were just driving around town together. In 2009 the economy was a wreck, and there was like businesses boarded up and it was like the economic apocalypse. And this guy says, "Warren," like, "how do we ever recover from this?" Like, "How, how is the world ever gonna be the same?" And Warren said, "Do you know what the best-selling candy bar was in 1962?" The guy said, "No." Warren Buffett, Warren says, "Snickers." And Buffett says, "You know what the best-selling candy bar is today?" The guy says, "No." He says, "Snickers." And that's, that's the end of the story. The premise being like don't worry about like how are we gonna change. Like, find something that does not change and bet on that. And I've also thought, uh, I've been a, a financial writer for 17 years, and it's always bothered me how bad the whole industry is at predicting. The next bear market, the next recession, the next pandemic, the next technology. Nobody's any good at it. That's like a little bit too harsh, but that's, that's directionally true. Nobody's any good at it. And so there's two things you could do with that. One, you could become more of a cynic and just say nobody knows anything. Don't even try. Or kind of the Buffett approach of like find something that is never gonna change and put your weight on that. And so th- that was one observation. The other was, as a student of history, realizing when you're reading about the economy from 100 years ago or, uh, 500 years ago or 1,000 years ago, there's some things that you read about and you're like, "Oh, things were very different back then." But there are even more things that you can read that make you stop and think, "That's exactly how it is today." The way that people responded to greed and fear and risk and uncertainty is the exact same today as it was 100 years ago. And so putting those two things together, if you can find things of human behavior that are never gonna change, then you know something that is gonna be part of your future. So stop pretending that you know when the next recession is gonna happen, but study how people respond to recessions when they do happen, because that's never changed, so it's gonna be part of our future. And so that's kind of the premise of the book. It's just a bunch of little stories of things that, facets of human behavior that have always been with us and I think always will be. And you, like regardless of what is gonna happen in our future, you know that these little bits of behavior are going to be a part of it.
6. SPShaan Puri
  And so what's something where when you studied how people, let's say, respond to greed or fear or change or whatever, and you looked at these
30:00 – 33:00
How to action sameness
1. SPShaan Puri
  patterns of human behavior, what's something that you... Like, the best research or books or insights that I get, I'm like, "Oh, I feel like I have a superpower." Like, you know, like almost like I could read people's minds now, right? So it sounds like by studying what doesn't change or how, how human behavior works, did you come out with anything that you're like... Did you change anything that you do, or did you have a new strategy or a new plan or any new like, um, could you action that? Uh, 'cause I c- I, you know, I guess my f- my, uh, skeptical view would be I feel like I could understand how people behaved in the past, but attaching that to what the hell am I supposed to do today is-
2. MHMorgan Housel
  Yeah
3. SPShaan Puri
  ... is not so easy of a leap. What's one that you made do- yourself doing this?
4. MHMorgan Housel
  I know this is an answer that people will find inadequate, but to me it's, it's incredibly powerful and important. And I think the main plea in the book is for humility. It's not even about the, the examples that, of things that are never gonna change. That's obviously the core of the book. But the reason we're doing that is because we have humility and not fooling ourselves to thinking that we know what's gonna change. What are the three biggest economic stories of our adult lives? By far, by an order of magnitude, it's September 11th, Lehman Brothers collapsing, and COVID But by an order of magnitude, nothing else matters more than those three things. And the common denominator is nobody saw them coming. They're not in any economic outlook, no analyst forecast. Unless you were, had inside information, you were part of those things, nobody saw them coming. And it's always been like that. 'Cause you can go back another generation and it was Pearl Harbor, collapse of the Soviet Union, all these things that even if in hindsight you're like, "Oh, you, you should have seen those coming," Great Depression, of course. The fact is that very few people did. If anybody. And something like Pearl Harbor, you could not have seen it coming. But think about how that changed the entire fabric of society, not just the economy, but everything. And going forward, it will be like that, too. You can state with so much certainty that the biggest economic story of our lifetimes in the future or, or even the next 12 months is something that you and I are not talking about today. I mean, what, what, what's the biggest global news story of 2023? Uh, this is, this is subjective, but I would say it's Israel-Hamas, which is something that even if you were an expert in Middle East politics you did not see coming on October 6th, so let alone people like us. So that's... And I think it's, it's always been like that. It'll be like that next year. And the reason that we, that view, like, we, we tend to ignore that is because I think coming to terms with it is too painful. Coming to terms with the idea and admitting to yourself that we don't know what's gonna happen next is a really uncomfortable level of uncertainty. It's much easier and more comfortable to just say, to pretend that we do, which is why the market for punditry is always gonna exist no matter how poor the results are. And so that, I, I think that's the biggest actionable takeaway for me, is I, I, I don't forecast. I, I think, I think it's much healthier to read more history and fewer forecasts. And when you read history, you start focusing on the indelible behaviors that never change, and you become more humble in your ability to fool yourself
33:00 – 35:46
Morgan's history book diet
1. MHMorgan Housel
  into thinking that we do know is, what, what, what is gonna change.
2. SPSam Parr
  Morgan, I know you gotta leave. You have a hard stop in two minutes, so let me, I wanna ask a, a very takeaway or, uh, an, an actionable question, which is what two or three or four, however many you want, history books can I go and read over the next month that do the best job of me... Not, not a book like yours that aggregates a bunch of them, but literally a specific era or a specific book that I can go and read that does a good job of, of showing this, where I'll read it and I'll be like, "Oh, this is exactly what I'm experiencing now," or things won't change.
3. MHMorgan Housel
  I think one of the best World War II books, because it's not only a book about the military operations but also the human element on the ground, is Erik Larson's book The Splendid and the Vile, which is a pretty recent book. I think it came out four years ago. And it's about the London blitz bombing in World War II. Erik Larson, I think, is the greatest living storyteller, period. And, uh, he, he's so good.
4. SPSam Parr
  His book on the Lusitania is wonderful.
5. MHMorgan Housel
  It's absolutely epic. So his, so that book is, is, is incredible. Doris Kearns Goodwin's book No Ordinary Time, which is about how FDR managed World War II. It's not about the war itself, it's about how he managed the politics and the emotions of it, is absolutely stunning. I also use that book as an example of... I think the book is 700 pages, and every single word needs to be there. There's not a single wasted word in the 700 pages. It's, she's just, like, such an extraordinary writer.
6. SPSam Parr
  And-
7. MHMorgan Housel
  Those are two that really stick out as, like, some of the best.
8. SPSam Parr
  And you're doing an excellent job of giving into the stereotype of 30 or 40-something-year-old white guys obsessing over World War II. [laughs] This, that-
9. MHMorgan Housel
  This is what we're supposed to do.
10. SPSam Parr
  Yeah. Everyone talks about the Roman Empire. Fuck the Roman Empire. World War II, that's where it's at, man. [laughs]
11. MHMorgan Housel
  [laughs] It's so, it's, it's so true. I, I can't get enough of it.
12. SPSam Parr
  [laughs]
13. MHMorgan Housel
  I will say, the last thing I say, 'cause I do have to jump. I, I, I think the reason World War II is so interesting is because it was the most documented major event, and therefore, like, the emotion, the emotions on either end of the spectrum from despair to elation are, there's more documented examples of that during that six-year period than have ever existed in all of human history. So it's not just understanding the military and the politics. It's like if you wanna understand human emotions, there's no better spotlight or magnifying glass than studying World War II.
14. SPSam Parr
  Well, we appreciate you coming on, man. This is awesome. Um, we're big fans of your first book. I, I know I'm in the middle of reading the second one, Same as Ever. And, uh, you're badass. We appreciate you doing this.
15. MHMorgan Housel
  Thanks, guys. This has been fun.
16. SPSpeaker
  Thanks, Morgan.
17. SPSam Parr
  All right. That's the pod. [upbeat music]