EVERY SPOKEN WORD
150 min read · 30,029 words- 0:00 – 2:28
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- TFTim Ferriss
[upbeat music] Hello, boys and girls, ladies and germs. This is Tim Ferriss, and welcome to another episode of The Tim Ferriss Show. I've been looking forward to this episode for a while. My guest today is Morgan Housel, H-O-U-S-E-L. You can find him on Twitter @morganhousel. He is a partner at the Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal. He serves on the board of directors at Markel Corporation. He is a two-time winner of the Best in Business award from the Society of American Business Editors and Writers, winner of The New York Times Sidney Award, and a two-time finalist for the Gerald Loeb Award for distinguished business and financial journalism. His book, The Psychology of Money, has sold more than one million copies and has been translated into more than 30 languages. Morgan, welcome to the show.
- MHMorgan Housel
Thanks so much for having me, Tim. Happy to be here.
- TFTim Ferriss
So I have a just an embarrassment of riches in front of me in the form of tabs open in this browser, and one of them is a Google document that contains my Kindle highlights from your book, and that is The Psychology of Money, and I have 18 pages of Kindle highlights. So I wanted to share that because-
- MHMorgan Housel
That's the whole book
- TFTim Ferriss
... it's the whole book.
- MHMorgan Housel
That's the whole book. [laughs]
- TFTim Ferriss
[laughs] Your book was recommended to me several times, and I'm not gonna lie, The Psychology of Money as the title I thought would be different in terms of content than it ended up being. So the subtitle, Timeless Lessons on Wealth, Greed, and Happiness, which is a great subtitle. I had read books before, I think, attempting to explore certain facets of psychology as related to money, and the conclusion usually was spend money on experiences, not possessions, and I was like, "Okay, after the 17th round on that, I get it. I understand the takeaway." And I was extremely impressed with how many, not just anecdotes, but reframes in the book caught me off guard or were totally unknown to me or were hiding in plain sight as I'm sure we could explore in multiple examples. So I thought we would begin, and this is actually not where I was planning on starting, but since I'm blathering on, I'll just go there.
- 2:28 – 9:36
Warren Buffett vs. Jim Simons
- TFTim Ferriss
Could you speak to comparing Warren Buffett and Jim Simons? And just give a little context on [laughs] who Jim Simons is. Most people will recognize Warren Buffett, but my brother and I were speaking about this because I recommended your book to him, which is a huge reputational risk on my part.
- MHMorgan Housel
Yeah. [laughs]
- TFTim Ferriss
He's, uh, he is for all intents and purposes a quant, PhD in statistics, also very literary, high bar for books. And he also very much enjoyed your book, and this is one of the illustrations that stood out to both of us. So if you wouldn't mind just kinda filling in the color on this, and then we're gonna bounce all over the place.
- MHMorgan Housel
Tim, it starts with a question which seems like a really straightforward question of just asking who's the greatest investor of all time? It doesn't seem like a hard question to answer. It should be an analytic answer. It's just like a number who's had the best performance.
- TFTim Ferriss
Yeah.
- MHMorgan Housel
But then you can, you can split this different ways. So who is the wealthiest investor of all time? That answer is Warren Buffett. Who's the greatest investor of all time in terms of like long-term average annual returns? It's Jim Simons by a mile. And like it's not even close. Warren Buffett's long-term average annual returns are about 21% per year. Jim Simons are like 66% per year after his ridiculous fees. He's like in a different universe. But Warren Buffett is like way wealthier and Jim Simons is like a deca billionaire himself and this is like a crazy ... To say like he's not as rich sounds crazy. But the, the, like the, to parse that out, the reason that Warren Buffett has earned one-third of the returns but he's like 10 times as wealthy is because he's ... Because Warren Buffett has been investing for 80 years. And th- so even though he's not the greatest investor of all time in annual returns, he has so much endurance in terms of what he's done that by a mile he's the wealthiest, which to me that gets into a really interesting point which is how do you become a great investor? And most people when they hear that what they think of is like how can I earn the highest returns? What are the highest returns that I can earn this year and over the next five years or the next 10 years? And that's not bad. That, that can be a great thing to do. But to me, if the goal is to maximize the dollars that you have, just like h- like h- how ... What's a way that I can maximize the amount of dollars I accumulate over the course of my life? Then the answer to that question the huge majority of the time is not earning the highest returns, it's what are the best returns that you can earn for the longest period of time? Which usually aren't the highest returns that are out there because maybe you can earn ... Like maybe you can double your money this year but can you do that for 50 years in a row? Like probably not. But could you earn 10% annual returns for 50 years? Yeah, you can totally do that and generate an enormous, uh, sum of wealth. All compounding is is returns to the power of time. Like time is the exponent. And so that's, that's to me what you wanna maximize and that's why Warren Buffett is in my mind, and it seems like an easy answer, the greatest investor of all time even though his returns are probably not even in the top 20% of annualized returns among professional investors.
- TFTim Ferriss
For people who wanna explore Jim Simons further, I mean he's a mathematician by trade so to speak, but fascinating character. There's a book about him. I think the title is The Man Who Solved the Market which covers Renaissance technologies and also tiptoes around a number of other similar I would say firms that are very, very secretive for the most part, but fascinating exploration. Also completely different, uh, one would, would probably argue in terms of approach from Warren Buffett but, uh, I, I'd love to maybe take a step back and just say As things are popping to my mind, this is gonna be like watching Memento. Sorry, folks. But [laughs] the, the experience of COVID also showed me how trained a skill it is and trainable a skill it is to think about exponential growth curves and compounding, right? So for instance, most of the folks who ... Actually, the people who alerted me first to COVID in January of 2020, and the people who followed it the closest, were, in my circles, all investors, right? All active investors. And, you know, a, a sort of a good metaphor or way to explore this would be if you tell somebody, "There's a pond. It's a large pond, and every day there is a small growth of algae that doubles in size. And at day 30 the entire pond is covered. At, at which point, on which day is it 50% covered?" Right? And the day is number 29, right? [laughs]
- MHMorgan Housel
Yeah.
- TFTim Ferriss
But it's, it's sort of counterintuitive to think about. And just to connect that to what we were talking about, this is the other thing that, that I suppose should have been obvious, but it was kinda hiding in plain sight, and that is the percentage of Warren Buffett's wealth, his total, let's just call it net worth, that he has accrued since what? Age 50, age 65? W- how does it work out roughly? I know I'm asking you to kinda memorize your book, which is not fair. But do you recall offhand?
- MHMorgan Housel
Yeah. The, the math behind it is 99% of his wealth was accumulated after his 50th birthday, and 97% came after his 65th birthday. Which is a really obvious thing if you think about how compounding works. Like, it's always in the extreme later end of years that it, that, that the numbers just start getting ridiculous. Compounding is just like, you know, it, it starts slow, and then it's boring. And for 10 years it's boring, for 20 years it starts to get pretty cool, and then 30 years you're like, "Wow," and then 40, 50 years it's like, "Holy..." Like, it just explodes into something incredible. There's a friend of mine named Michael Batnick who once explained compound growth, and I think the, the, the most easy way to, to comprehend, which is if I ask you what is eight plus eight plus eight plus eight, you, you can figure that out in your head in three seconds. Like, anyone can do that. That's no problem. But if I say, "What is eight times eight times eight times eight times eight?" Like, your head's gonna explode trying to think about it. It's ... Like, all compounding is never intuitive. And that's why if we look at someone like Buffett, we in the financial industry have spent so much time trying to answer the question how has he done it, and we go into all this detail about how he thinks about moats and business models and market cycles and valuations, which are all important topics. But we know that the, literally the 99% of the answer to the question how has he accumulated this much wealth is just that he's been a good investor for 80 years. It's just the time. And if Buffett had retired at age 60 like a normal person might, you, no one would ever have heard of him. He would've been, like, one of hundreds of people who retired with a couple hundred million bucks and, like, moved to Florida to play golf. He never would've been a household name. He would've been a great investor, of course, but there's a lot of great investors out there. The only reason he became a household name is just his endurance and his longevity. That's it. And that's why if you go back to, like, even the late 1990s, not that long ago, Warren Buffett was known within circles. Like, within investing circles people knew who he was. But he didn't become a household name until the early and mid-2000s, which is that's when the compounding took his net worth to become worth $20 billion, $50 billion, $100 billion where he is right now. It's just the amount of time he's been doing it for.
- 9:36 – 16:58
Warren Buffett & Charlie Munger
- TFTim Ferriss
So let's take a closer look at Warren Buffett and Charlie Munger. I know you are, uh, certainly a fan of Charlie Munger, probably Warren Buffett as well. What do people get wrong about the two of them? I, I, I would just love to know what you think people misinterpret or over-interpret, aside from the longevity piece, right? Just the tally of years involved with compounding. And let's, let's just start with that broad question.
- MHMorgan Housel
I think one of the things that's easy to minimize is that Buffett is a very good communicator. He's a very good writer. He's a very good speaker. That's a big part of why he became a household name. When he writes his annual letters, when he goes on CNBC, it's, it's easy to understand. Anyone can understand it. And that has created the impression that what he does is really simple. And I think it's led a lot of people to be like, "Oh, I can go out and pick a good business and read a balance sheet, and I can do all this, too," 'cause it sounds so easy when Warren does it. And it's not. It's, there's so much nuance and I think gut feelings that have just accumulated over 80 years of doing this that has made ... You know, particularly in the early and mid-2000s, value investing was very popular. It's, it's not in this era, but in the last era it was. And there were a lot of people, a lot of, uh, fund managers, a lot of investors who would read a couple Warren Buffett annual letters and be like, "I could do this. I could totally do this," and they go out and try to do it. And there's a reason why quoting Warren Buffett is easier than being the next Warren Buffett.
- TFTim Ferriss
[laughs]
- MHMorgan Housel
Like, it sounds so simple when you're like, "Oh, be greedy when others are fearful." It's so simple. And then you go out and try to do it, and s- October 2008 rolls around and you're like, "Ugh, this is actually way [laughs] harder than I thought." So I think it's, it's, it's very easy to oversimplify what he's done, and that's why there are hundreds of books titled, you know, some version of how to invest like Warren Buffett. And they all, it's all so overly simplified, when actually what they do is, is really complex. And even if it's not complex, they are just at a s- they being Berkshire and, and Bur- and Buffett and Munger, are at a size now where they can do things that other people can't. You know? Whether it's, you know, just picking up the phone and calling the CEO of Goldman Sachs to get a special preferred stock investment, that kind of stuff. Just things that other people can't do. Um, the, the other thing that's, I think, easy to overlook is that, you know, Berkshire's now a 6 or $700 billion company, something like that, so the odds that they are gonna achieve market-beating returns in any significant way I think round to zero. And it's, it's a casualty of its own success that when Berkshire was a tiny company in the '70s and '80s they could, they could go out and buy small cap companies and do things that now ... You know, Berkshire's largest investment now is Apple, and I think there's two reasons for that. One is because it's a great company, and it's, of course it's a great company. Two is that The number of publicly traded companies that can actually move the needle in Berkshire's portfolio is probably, like, 10. There's probably, like, 10 companies that are actually investable that you can actually, like, he could actually look at and say, "We can put some, put some money to work there," and Apple just happens to be one of them. So I, I think the odds that Berkshire will outperform over the long term are very slim, and if it does outperform, it's gonna be minuscule. That's okay. That, there's nothing wrong with that, but I think a lot of people have been disappointed because Buffett became famous in the mid-2000s, and a lot of people started buying Berkshire stock and becoming part of that cult, and the stock since then has not done very well, and I think that's almost inevitable at the size that it is, that it's just, it's not gonna outperform anymore.
- TFTim Ferriss
That's true with a lot of things, right? I can't remember where I first heard this expression. I wanna say it's somehow associated with Collaborative Fund, actually, but I don't know where it began, which is the size is the strategy. In other words-
- MHMorgan Housel
That's-
- TFTim Ferriss
... if you're, if you're a fund of funds and you're picking fund managers, part of the calculus is going to be perhaps finding a sweet spot where somebody's not in asset accumulation mode just to earn their management fee. They're not gonna be able to buy that amazing $50 million mansion in Miami on the management fees just yet, right? So they're still out there to beat the world. So the size of the fund or the size of the company or the size of the fill-in-the-blank kinda becomes one of the main parameters for picking.
- MHMorgan Housel
You see that actually in a lot of fields. There's this thing in evolutionary biology called Cope's rule. It's, it's not a law 'cause it's not very universal, but Cope's rule basically says that organisms get bigger over time. So, you know, i- if you look at the evolution of humans, we used to be half of our height that we were. As we evolved over the years, you get bigger, and you went from, like, little worms that turned into boa constrictors. Like, most species get bigger over time. So then the question is why aren't all species just enormous? If getting big is better because you are a better hunter, you can hunt more prey, why aren't we all huge? And the answer is 'cause, like, there's huge downsides to being big. You can't hide from, from other prey. You need an enormous amount of food to keep yourself going. There's always a sweet spot in evolution of, like, big helps, but only to a certain point. And we see this ... Like, o- o- o- one of the areas that this really became clear that size is a ... size helps you, but it also has huge downsides, were banks in the early and mid-2000s, where the economies to scale to banking are enormous. Like, when you're a big bank, you have a lower cost of capital, you can raise money, you have regulatory capture, you own the politicians, et cetera, et cetera. Like, you wanna be a big bank. That's the sweet spot. But then there's this really interesting thing. Like, we all know what happened to the banks in the mid-2000s, but one of the most fascinating stories that I remember is Citigroup in the mid-2000s had this product on its balance sheet. I forget what it was called. It was, like, a CDO putback. Basically what it meant in layman's terms was CDO had all of these collateralized debt obligations, these junk bonds, and there was, like, a little footnote in them that, hey, if the value of these bonds declines, if these investments go sour to these clients who we're selling them to, we, Citigroup, will buy them back at par, at full price. And when the mortgage market imploded, Citigroup was obligated to repurchase, like, tens of billions of dollars in these junk bonds, and that was a big part of what sent them over the edge and nearly bankrupt the company. The interesting thing about this is that Robert Rubin, who was the former Treasury secretary and a partner at Goldman Sachs, like, one of the most, like, astute, sophisticated, experienced financial minds in the world, was on the Citigroup board of directors at the time, and he afterwards said that he had never even heard the name of this product. He had never even heard of it. This product that could nearly bankrupt the entire company, had the u- had the ability to almost bankrupt the company, the chairman, or the, the guy who sat on the board had never even heard of it before. So that to me ... Like, you can criticize Robert Rubin for that, but that to me just showed that Citigroup was just too big to manage. There was too much going on for any sane person to understand what was going on. I, I actually empathize with a lot of those too-big-to-fail bankers. And look, you know, should they have lost all their wealth? Of, of course. But I ... There's no way that anyone at Citigroup or JP Morgan or Wells Fargo or any of those banks can honestly say that they know what's going on inside of them. They're just too damn big to understand it.
- TFTim Ferriss
Part of what I enjoy about your mind and commentary is that it spans the ... It spans from the macro to the intensely personal. So, uh, I'm gonna come back to Buffett and Munger, but I'm gonna take a detour for a moment, lest people think we're gonna get too into the weeds on, on banks for the next hour, which we, we might get into a
- 16:58 – 25:04
Financial advice for parents
- TFTim Ferriss
bit more of it, but I wanna go to a piece that you wrote some time ago, and this is Financial Advice for My New Son. You wrote this October 13th, or you published it October 13th, 2015. So that's, let's just call it six years ago, a bit over six years ago. And your son had been born the week before, and you listed out a number of different, I wouldn't say rules, but bits of financial advice, and one, one that stuck out to me that I particularly enjoyed, I'm just gonna read it here because it's, it's, uh, it's one of those things, again, that is obvious once you've heard it, obvious in retrospect, but the framing is very helpful, and I hadn't read it presented in just this way. So number one, "You might think you want an expensive car, a fancy watch, and a huge house, but I'm telling you, you don't. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does, especially from the people you want to respect and admire you." Here's the paragraph that stuck out to me. "When you see someone driving a nice car, you probably don't think, 'Wow, that person is cool.' Instead you think, 'Wow, if I had that car, people would think I'm cool.' Do you see the irony? No one cares about the guy in the car. Have fun. Buy some nice stuff, but realize that what people are really after is respect, and humility will ultimately gain you more of it than vanity." Now, the, the last sentence has some counter examples maybe.
- MHMorgan Housel
Yes.
- TFTim Ferriss
But the ... point that we rarely look at the person in the cool car and say, "Wow, that person must be cool," rather we apply it to ourselves, is I think a very profound observation. What would you add to this list? And people can certainly find this. We'll link to it in the show notes so people can find it easily, but is there anything you would add to this list now, six years later, or that you would change in any material way?
- MHMorgan Housel
Well, first let, let me, let me give some insight into that man in the car paradox, as I call it. I... When, when I was in college, I was a valet at a high-end hotel in Los Angeles. So I was in my early 20s, and there were people coming in in Ferraris and Lamborghinis and Rolls-Royces, like the whole, the whole thing. And it dawned on me one day that when those cars pulled in, that I had really admired. I, I'm a car guy, I love that. Never once did I look at the driver and say, "That guy's cool." What I did is I imagined myself as a driver, and I thought people would think I'm cool. And this was like, I was in my early 20s, but I'm just thinking like this, that was my first kind of light bulb into how wealth works, that everyone thinks that they wanna be the driver, but no one actually is paying attention to the driver. They're imagining themselves. People think about themselves way more than they think about other people. And, but we all think that everyone's looking at us. I think that's like a universal thing. Everyone thinks like, "Oh, this person's looking at me, they're impressed with me." By and large, they're not. They're thinking about themselves and how other people might wanna be impressed with them. So that, that was some, some insight into that view. What I would add today, now that my son is six and we have a two-year-old daughter as well, and I think I knew this before becoming a parent, but until you're a parent, it's just hard to fathom how powerful it is. It's just, you have no clue who your kids are gonna grow up to be. And I saw this especially when my daughter was born, and now that my daughter is two. They sh- they are so different from one another, my, my son and daughter. Completely different. Despite growing up with the same parents, in the same house, with the same means, everything, they could not be more night and day. Now, of course, they're four years apart and they're different genders, of course, but they, it, it's, the personality differences are so stark. And that just makes me think, like whenever you wanna picture or imagine who your kids might be someday, it's like you have no clue what they're gonna grow up to be. I think that it's intuitive to think that my kids will grow up similar to my wife and I, because I'm gonna instill in them the values that my wife and I value, but they're, like, uh, they're, they're so starkly different from one another, and I'm so different from my brother and sister. We went so completely different ways in life, that it's, it's so hard to give your kids advice when they're young, when you have no clue where they're gonna end up. So people have asked me this question similar to, to, you know, on, on, uh, going off of that article, what, what would I teach them now? Or, or, or, or how am I teaching my, my son about money now that he's old enough to start to get the basics of it? And the truth is, I'm really not, because I don't know. Maybe when he's a young adult, he wants to be a, a partner at Goldman Sachs. Maybe he wants to work for Greenpeace. Like, who knows what he's gonna be? And therefore, I can't give him or anyone universal financial advice and say, "This is what you should do and this is what you should value, this is where you should go," because we're all so incredibly different in our goals and our talents and our aspirations.
- TFTim Ferriss
Are there not traits or characteristics that you could cultivate that would be somewhat agnostic, in the sense that... I, I know this is a study that's come under some scrutiny, if you wanna even call it a study, but the marshmallow test, right? So are there not ways of not necessarily improving their financial IQ or investment IQ, but cultivating certain characteristics that, that may be helpful, right?
- MHMorgan Housel
Sure.
- TFTim Ferriss
And I'm looking at a piece by Jason Zweig. Am I pronouncing that correctly?
- MHMorgan Housel
Yeah.
- TFTim Ferriss
Uh, pr- fantastic writer. This is a, this is a, let's say journalist, and this is a, a great piece discussing your book, Do You Know the Difference Between Being Rich and Being Wealthy? And one of the lines that I like in this is, "Investing isn't an IQ test, it's a test of character." So could you speak to that?
- MHMorgan Housel
I think if there is a universal trait of money that's true for, like, not, not 100% of people, but let's say 90% of people, is that what people really want in life is independence and autonomy. I think no matter where you're from, what you do, what your aspirations are, that's a common denominator, that people just wanna wake up every morning and do what they want to do on their own terms. And whether they're able to do that, whether that they can actually do that today or that's a goal, I think that's a, that's a universal trait among people, is just independence and autonomy. And so to the extent that we can use money to gain that, to gain independence and autonomy, that is, I think, as close as it comes to a universal want and thing that we can use money for. The interesting thing to me is that among hu- huge numbers of people, educated people, financial professionals, the purpose of money is to buy stuff. It's to ha- it's to accumulate more stuff. Bigger house, nicer car, whatever it might be, which is great. I love all that stuff, too. But to me, the, the most powerful thing that money can do, and the most universal benefit that it can bring us, is systematically overlooked. Like, using it for independence and autonomy is so overlooked. And that, that, that to me has always been kind of a, a sad thing, that we are so accustomed and attuned to just wanting to use our money, whatever money that we have, whatever savings that we have, to go out and buy more stuff, when we could be using it for freedom and autonomy. And then when you come to a period like in, m- uh, March and April of 2020, or October 2008, when millions of people lose their jobs, and you see during those periods, like the early day of COVID, how many people are just on the razor's edge of insolvency. And it does not take them much, you know, one or two weeks of unemployment, to be in a really bad financial spot. Whether that's for an individual or a small business, it does not take that much to be thrown over the edge. And you realize how dependent so many people are on their jobs, their salaries, their, their customers in a short period of time, and there's just not a lot of room for error throughout most of the world. And I think for the huge majority of people, not everyone, but for the m- majority of people, there could be a lot more. And the reason that they don't wanna have more savings Is because to them, the, the knee-jerk reaction is, "Why would I just keep my money in the bank or even invest it? Like, the purpose of money is to go out and buy more stuff to enjoy my life." I get that. I understand it, but it's usually once every 5 or 10 years that people realize how important independence and autonomy is, and having that wealth that you have not spent, having the money that you haven't spent that was just laying around doing nothing, becomes the most valuable thing in the world when it lets you gain control of your time and just wake up every morning and say, "I can do whatever the hell I want today." I think that's as close as it gets, Tim, to, like, a universal financial law.
- TFTim Ferriss
All right. We may come back to the kids, but I'm gonna leave the kids alone and I'm gonna go to your parents
- 25:04 – 31:36
Dad’s unorthodox career move
- TFTim Ferriss
instead. What did your parents do professionally?
- MHMorgan Housel
The short backstory... Well, to, to answer the question, my dad was an ER doctor, my mom was an ER nurse. They're both retired now. But they got to it in a really interesting way. My parents met on a hippie commune in the 1970s in Tennessee, and my dad started his undergraduate college when he was 30 and had three kids, and he became a doctor when he was, like, 43 or something like that and had three teenagers.
- TFTim Ferriss
So he had kids after, after he began his undergrad in his 30s?
- MHMorgan Housel
Well, I'm the youngest of three, and I think he started undergraduate, like, the month after I was born.
- TFTim Ferriss
Wow.
- MHMorgan Housel
Um, that's when he started undergrad, and then b- he became a doctor when I was 12 or something like that, and my brother would've been 18 at that point. Uh, so he got a very late start, which is a very... Like, when, when he started, everyone, I think from his parents to the professors, were like, "What are you trying to do? You're gonna become a do- like, what? You're out of your mind." But, but he did. He ground, he ground through it and did it. And what's interesting about that financial story is that we grew up, me, we being my, my whole family, when I was a young kid, very, very poor. My parents were students. We were living off of grants and, like, low-income housing. Like, we were poor. We had a great childhood, but we were very poor. And then my dad became a doctor when we were in our early teenage years and then had a comfortable upper middle class life from there. But the frugality that was forced upon my parents when they were poor stuck around. So my parents had a very high savings rate. We lived a g- we lived a great life. We had a nice house, drove fine cars. We went on some cool vacations. It was not, it was not living poor at all, but my parents had a very high savings rate and we lived, they lived well below their means because that's how they... It was forced upon them for decades of living like that. And then when, this is, like, now if we fast-forward to the last 10 years, my dad, after working in the ER for 20 or 25 years, which is probably one of the most stressful fields of medicine you can go into, 'cause people are literally, literally dying in your arms every day. It's a very, it's a very stressful profession. So after 20 years, he just kind of had enough. And since he had a high savings rate, he could, w- as soon as he got to the day where he decided he had enough, he just left. He quit, and he could do it on his own terms when he wanted to, and he had all these colleagues who for years had been living a much better life than him, bigger houses, nicer cars, sending their kids to better schools, all that, and they wanted to quit and they couldn't. They were just as burned out, but they needed to put in another 10 years of doing it. And I think watching that, watching my dad just getting to a point where he said, "I don't wanna do this anymore, so I'm gonna leave tomorrow," it was like, ah, that clicked with me. Like, "That's why you were so cheap growing up, which I, which I looked down upon you for when I was young, saying, 'Why don't we spend more money?' But now I get it." You have... He has pure independence and autonomy, and the happiness that he and my mom got from that I think exceeds the happiness that he would've gotten from driving a Porsche or living in a bigger house a hundredfold. Literally a hundredfold. He's been so happy over the last decade just doing what he wants to do, particularly retiring as he slows down, as his body and mind slow down as he aged, to just be able to do what he wants. I, I, I literally think it's a hundred f- times happier than he would've been if he lived a better material life when he was young. So that was a really profound takeaway for me watching that.
- TFTim Ferriss
What type of hippie commune did they meet on in Tennessee?
- MHMorgan Housel
It's called The Farm. It's still in existence. It's a tiny, tiny fraction of what it used to be, but back in the 1970s, it's a hippie commune called, called The Farm, and it was huge. It was, like, thousands of people. And it was, it was truly was a commune. You were not allowed to have your own financial assets. You couldn't have your own bank. When you joined The Farm, when you got there, you had to forfeit all of your possessions. All of your money, all of your assets had to be donated to The Farm, and everyone worked together. My pa- like, they were farmers. My dad, like, my dad flew a crop dusting plane. He was a, a pilot before he moved to The Farm, and everyone worked together. Now, of course, the, the punchline here is it failed. It, it, it totally, it fell apart eventually, as you would imagine. But my parents... I was talking to, I was talking about it just last week. They have nothing but incredible memories from it. They were in their early and mid-20s when they were doing it, and they met s- they, they, like, their, their best friends still to this day are from there. They have nothing but great experiences from it, even if the whole thing fell apart. That was, like, the, that was, like, the '70s of course was, like, peak baby boomer, you know. This is like, that, it was a really cool thing to do, to live on this hippie commune back in the 1970s.
- TFTim Ferriss
So your dad, after let's call it 20, 25 years of working as an ER doc, decides to walk, just call it quits, retire. He's able to do that, as you pointed out, for a number of reasons. Freedom and autonomy, uh, I have found and observed, not perhaps [laughs] surprisingly, carries with it a lot of responsibility, and it seems that sometimes people who are frugal for a very, very long time then have extreme difficulty spending money on themselves to sort of improve their quality of life or experience of life post, let's just say retirement in this case. How have, have your parents, how or how has your dad used this freedom and autonomy, right? 'Cause it's a, it's a lot of hours in the day. How has that panned out?
- MHMorgan Housel
First I'd say they're, they're the happiest that I've ever seen them now in, in the last couple years. They bought a piece of land on the coast of Northern California, and they are just, like, small-time farmers. They're, they're vegetarians. They've been vegetarians for 45 years, and they grow, like, two-thirds of the food that they eat. So they spend all of their day in their little personal farm doing it, and they love it. They don't need to do that, but they absolutely love it. They have a tractor, and they got all these cool tools, and they absolutely love doing it. And it's all on their own terms. They, and they, they take naps every day, they go for bike rides along the coast. Like, they have a lot of fun doing it.
- TFTim Ferriss
That's amazing. So they've come full circle in a sense from the farm to the farm [laughs] it sounds like.
- MHMorgan Housel
Including, you know, during the doctor's years, my dad looked like a, a professional, and now he's back to full hippie, long, gray ponytail. It all, it all, it all goes full circle. It all comes back [laughs] .
- TFTim Ferriss
[laughs] All right. So we might dig further into your dad's career decision to go to undergrad at, let's, let's say 30, and then pursue medicine. But I wanna talk about your trajectory since, uh, you'll have, uh, presumably more detail and, and insight there. You also, and I should give credit where credit is due. For some of this due diligence, I listened to Shane Parrish's interview with you on The Knowledge Project, I believe it is.
- MHMorgan Housel
Yep.
- TFTim Ferriss
So that's where I'm pulling this from.
- 31:36 – 52:38
Morgan’s career path
- TFTim Ferriss
So your illustrious career began as a greeter at Denny's.
- MHMorgan Housel
Yes.
- TFTim Ferriss
That did not pan out. Was not your vocation it turned out, so...
- MHMorgan Housel
I was crushed, but yes, that's correct.
- TFTim Ferriss
[laughs] So Denny's out. Enter stage left, valet, as I understand it.
- MHMorgan Housel
Yep.
- TFTim Ferriss
And that continued for eight or nine years, something like that.
- MHMorgan Housel
Yeah, something along those lines. I did it all throughout college before... and before and after.
- TFTim Ferriss
And your major was econ?
- MHMorgan Housel
That's right.
- TFTim Ferriss
Okay. Major's econ. Then you try investment banking, and the, "If you don't come into work on Saturday, don't bother coming in on Sunday, ha ha, wink, wink, not really joking" sort of hyper-competitive cutthroat environment was not for you.
- MHMorgan Housel
Right.
- TFTim Ferriss
You moved to private equity, which you did enjoy.
- MHMorgan Housel
Yes.
- TFTim Ferriss
The sort of deep dive study of companies, buying, and presumably at some point selling entire companies, things like this. But that was roughly 2007, if I'm getting the timing right? Or it, I guess it came to its end in 2007 where-
- MHMorgan Housel
Yep
- TFTim Ferriss
... the parting conversation was, "You're not fired, but you can't work here anymore." [laughs]
- MHMorgan Housel
[laughs] That's, that's, that's a verbatim statement. I remember just sitting there thinking, "I'm, I'm pr- I'm pretty sure you just fired me, but thank you for being polite about it."
- TFTim Ferriss
So I'm very curious to know, I had to, I have to ask, like was that a very clever way of trying to circumvent severance, or was it just a weird way of firing you and then giving you severance? [laughs] How did that pan out?
- MHMorgan Housel
Most private equity firms in the summer of 2007 knew they were in, in deep shit. It was a really tough time for people. When you're borrowing a ton of money to lever these l- low-quality businesses up, like that was a tough time. They saw the writing on the wall, and I think they were just trying to scale back as quickly as they could. The idea was... So I was a summer intern at the time, and the idea was I was gonna stick around full time after college and become a full-time employee, which, which would've been that fall. And so that was the plan. It was kinda all sketched out, like, "Here's what I'm gonna do. I'm gonna stick around." And then just before I was gonna start full time is when they said, "Hey," like, "There's, there's not gonna be a, there's not gonna be a, a, a spot here for you." So I'm sure their wording was not, was not intentional, but that, that wording of, "You're not fired, but you can't work here anymore" was-
- TFTim Ferriss
[laughs]
- MHMorgan Housel
... was, was a funny... I remember, I remember walking out and being like, "So, wait, so do I come back tomorrow? I don't, I don't know. How does this work?" [laughs]
- TFTim Ferriss
[laughs] Yeah. Very confusing delivery. I don't know. Is this the Tao Te Ching? You're like, "What are we doing here, people?" So my question to you then, after that, is if my memory is serving me, which I hope it does, because I listened to this episode with Shane a few hours ago, you ended up having a conversation with a friend who I believe was writing at The Motley Fool at the time, and asked you if you would be interested in sort of kicking the tires and writing for a bit. You did not have a background as a writer per se, although I imagine you did some writing. We're gonna come back to the high school education in quotation marks, which we can explore. But you ended up trying that, thinking it was going to be a short experiment, and then you stuck with it, and now you've written, I would have to imagine at this point, what? 4,000 plus articles or 3,000 plus articles.
- MHMorgan Housel
Lots. Yeah. Yeah.
- TFTim Ferriss
And my question for you is, iBanking, private equity, that, that is the, the meandering... not meandering, but like the kinda winding path of, of one who might aspire to be a, one of the masters of the universe, right?
- MHMorgan Housel
Yep.
- TFTim Ferriss
And then you choose writing and you stick with writing, which has a very different financial payoff profile than the finance track.
- MHMorgan Housel
Yep.
- TFTim Ferriss
Why were you comfortable doing that, or how did you make that decision?
- MHMorgan Housel
I wouldn't say I was comfortable. I wouldn't even say it was a decision. It really was in the summer of 2007. So I graduated in 2008. So as everything fell apart, I thought I wanted to be an investment banker, and then I realized I don't, as the culture of it was not for me. And then I thought, "Great, so I'll go into private equity." And then all those positions just disintegrated before my eyes. I just needed something to do. I just needed a job. And like, like, like you said, I had a friend who was a writer at The Motley Fool who said, "Morgan, you should apply." He like, "You're interested in investing, just apply." And I thought, "A, they're not gonna hire me, and even if they do, maybe I'll do it for six months before I find another private equity job." So it was really just out of desperation that I became a writer. That's the right word for it. It was, it was not a plan. I didn't even enjoy it. I wasn't excited about it. It was just like, "How... I, I need a paycheck." I would say the first year of that too was not very much fun, 'cause I really had no writing background at all. I was an econ major in college, where it's heavily math-based, so, you know, there's not much writing. It's like as you, as long as you can write your name at the top of the test, that's all that's required of you. And so I had no writing background, and then so the first year was really hard 'cause I had no idea what I was doing. Both on the investing front, like I had no idea what I was talking about, and on the writing front. I just didn't know how to write a good paragraph. And it was tough, particularly as anyone in online writing or even social media knows, if you say something wrong online, people will tell you about it in no uncertain terms. [laughs] So I was just, you know, as part of my job I was just getting torn to shreds day after day. It just wasn't any fun. But after I would say a year or maybe two years, I felt like I started to get a little... I, I started to get the hang of it, and I started to be like, "Oh, how can I... Okay, I, I, I, I understand investing better, and I feel like, oh, I can start telling a little bit of a story that people might enjoy." And rather than just being a capital J journalist and just like throwing numbers on the page and hitting publish- Maybe I can tell a story that will resonate with people and if I twist the phrases this way and if I try to be funny in this way and tell a tale in this way, then I can stick out in this financial media world that is so competitive and there's so many other people who are writing about the same stocks that I do that if I can tell a story, it's more fun and it catches people's attention. And even after that, so now we're in like 2009, 2010, I would say it wasn't until probably 2014 or '15 that I felt like I really started hitting a stride of like, oh, I can kinda figure out what I'm doing here and I, I, I kinda feel like I've cracked the formula of what works in a finance article. And so it was really, you know, five to seven years of just kinda hacking my way through trying to put the pieces together to figure it out before I really started, A, enjoying it and felt like I had some aptitude of doing a good job at it.
- 52:38 – 57:43
On risk
- TFTim Ferriss
When you say risk, viewing risk in a similar or the same way, how, how do you view risk? Or if you were to explain it to a class with respect to how you view risk in investing, let's say, how would you, how would you define that or begin to explore it or misconceptions thereof?
- MHMorgan Housel
Let me start with a, a, a short story that I was talking with a friend of mine last week, Derek Thompson of The Atlantic. He and I did h- did a, a podcast together, and he asked me if I thought inflation would be transitory, which is a very common question that a lot of people are talking about right now. And I said, "Well, what does transitory mean? By transitory, do you mean it's gonna be gone in a week? Do you mean it's gonna stick around for 10 years?" All these like little weasel words that don't have any agreed upon definition, you can really get into a lot of trouble there because I think inflation is transitory, but by that I mean it's probably not gonna stick around for five years. If your definition of transitory means it's gonna be gone next week, then no, I don't think it's transitory. So I think a lot... And I bring that up because I think that's the same with risk, and there are a lot of people that will define risk differently by and large based off of the time horizon. So if you were to ask me if the stock market fell 20% and stayed there for three years, is that a risk? A lot of people would say, "Yeah, that's a huge risk. That's an enormous, like catastrophic risk." I personally would say that's not a risk at all, and the reason is because my goals lie 50 years in the future. So what's gonna happen in the next three years, I could, I could honestly care less. That's really how I think. But, uh, but that would not be my answer if I was a 90-year-old re- retired widow on a fixed income. Then I'd have a very different answer for you. So I think summing all that up, risk is just the odds that something will prevent you from achieving your goals, but the nuance is that everyone has very different goals and aspirations and time horizons, so everyone thinks about risk differently. The takeaway from that is most investing debates where people are arguing with each other, "Is this a risk? Is that a risk? Should I buy this stock? Is the market gonna go up next week?" By and large, those debates are not actually debates. It's people with different risk tolerances and different time horizons talking over each other, talking over one another. And that's why... So I think to me, the most important part about risk is that the definition is different for everyone. My definition's gonna be different from yours, which is different from anyone else who's listening, and it's not because we disagree with each other. It's just 'cause we're different people with different goals and different ages and different family situations, et cetera, et cetera. And so risk is a very personalized calculation for everyone, whether that's in investing or other areas of your life.
- TFTim Ferriss
One of the illustrations I enjoyed from your book, I think you used Google as an example. I wasn't... A somewhat arbitrary example, but you, you highlighted the different questions or considerations you might have If you were considering buying Google based on different time horizons, right? 10 years, two years, six months, day trader, something like that.
- MHMorgan Housel
Yeah.
- TFTim Ferriss
And it was just a very helpful exercise to kind of review how the game you choose to play determines the definitions or the parameters for a lot of these terms that we throw around very loosely, like risk, right?
- MHMorgan Housel
Yep.
- TFTim Ferriss
So let's, let's talk about, let's talk about games. I was texting with a friend of mine who's a very good investor. I'll leave his name out of it for now, but I, I asked him if he had any questions for you. And so he, his map of reality, I'm paraphrasing here, is as a journalist/historian being paid to write interesting things related to investing, right? So the, so the questions that he has are, are more related to being a skilled content creator in this new tech world. So here, here's one question, and this is related to observing that you are very active on Twitter. So zooming out, what is this FinTwit game that you're playing, and what are the rules?
- MHMorgan Housel
Here's how I think about content in general, whether this is Twitter or writing, writing an article, writing a book. I am ... I, I call this selfish writing. I'm writing for an audience of one, and that is me. The only thing that I write, the only thing that I tweet, the only thing, the articles that I write, the books that I write, I just write through the lens of do I personally think this is interesting? And if the answer is yes, I make a leap of faith that other people might think it's interesting as well.
- TFTim Ferriss
Yeah.
- MHMorgan Housel
And I think a lot of writers get into trouble by asking themselves, what does my audience wanna read? What will other people think is interesting? And I think that leads to kind of like this bastardization of, of, of, of finance where it's like, "Oh, this tweet got a million likes." Like, yeah, but it's so corny. It's so salesy. Even if it did really well, like, like you, you can't tell me that you actually, the author, think this is interesting. I know it performed well, but you don't think it's interesting. And also what, when you, the writer, are most interested in, when I'm only looking through the lens of do I, Morgan, think this is interesting, that's when you do your best work, of course. 'Cause that's when it doesn't feel like work. It's like I'm writing this article because I think it's, this topic is really interesting, and I would wanna read it written in this way. That's the game that I play is just trying to be really selfish in that endeavor and just ask what do I think is interesting, and if I think it's interesting, other people will as well.
- 57:43 – 1:06:42
Fin tweeting heavy hitters
- TFTim Ferriss
Okay. So let's, let's take a closer look at the playing field. So Twitter is one medium that you engage with very heavily, one arena. Who would you consider, I'm picking an arbitrary range here, but like three to five of the top players in FinTwit, financial Twitter, who you pay attention to and why you pay attention to them?
- MHMorgan Housel
I will expand that slightly out of FinTwit, but two that really stick out, and these are very well-known names. One is James Clear, who wrote a book called Atomic Habits, and the other is Mark Manson, who wrote the book The Subtle Art of Not Giving a Fuck. Both of them do, uh, something that I think is really rare, which is that they don't tweet very much. They maybe tweet once a day, but it's very good. It's very thoughtful. It's, it's thought-provoking, and they tweet one away, and then they back off until the next day. I think that's, that's also something that I've tried to emulate, and I think the people that just kinda flood the feed with every little brain fart that might come into their head and just dump it into Twitter and hit publish, some of them are, are interesting and entertaining, but it can get old after a while. I think the people who have done really well that I've admired have a level of restraint on Twitter of only putting out things that they think are, are, are really worth reading. I think Naval is also pretty good at that-
- TFTim Ferriss
Yeah
- MHMorgan Housel
... in terms of just putting out something maybe once a day. Maybe he's like twice a week at this point, but it's good. Like, it's real- when he tweets, you're like, "Oh, I gotta, I gotta look at this. This is interesting." So James, Mark, and Naval I think have, in my view, played the game really well. Josh Brown, he, he quit Twitter about a year ago, but I thought he was the king.
- TFTim Ferriss
Who's Josh Brown?
- MHMorgan Housel
He is the CEO of Ritholtz Wealth Management. He's on CNBC almost every day, and he was someone who would tweet probably 20, 30 times a day, but he's so funny, and he's so insightful and so smart that it was worth reading every time. So it was, it was a loss for Twitter to see him go. I think Derek Thompson from The Atlantic, I've mentioned him a couple times as someone who I really admire as just being a really multidisciplinary thinker, and whenever he puts something out, it's from completely different fields. Like, he had a podcast recently on, on autocracy in Belarus, and then the next day he could be writing about Omicron. He could be writing about the stock market. He's so well-rounded in his thinking that it's always interesting. It's always fresh. You never know what's gonna come from him. Those are, those are just a few people who I really admire here.
- TFTim Ferriss
So let's take a, take a, a lateral move to some, some maybe related territory, and I remember my promise earlier to people that we would come back to Buffett and Munger. So I have not forgotten for those who are like, "Goddammit, Ferris." I have not forgotten. I take notes as we do these things. [laughs] So who are some investors you respect the hell out of but would never try to emulate? Are there any people who come to mind?
- MHMorgan Housel
I mean, definitely Buffett and Munger for one, just this, them in, in general. I, uh, here's, here's kind of the twist on this. I'm not sure there's any investor who I admire that I would try to emulate, and I think the reason that is is because I admire them because they have a really unique skill, and by definition, most people, including myself, don't have that skill. Another thing is that a lot of people who are really successful at investing were successful in one era but maybe not necessarily this era.
- TFTim Ferriss
Yeah.
- MHMorgan Housel
So you can really admire what they did and how they thought and the risks that they took in that time, but it would never work today. Benjamin Graham, the great investor who wrote the book The Intelligent Investor, he's like the godfather of investing. If you tried to put Benjamin Graham's techniques to work today, you would fail so incredibly hard, so miserably. If you were putting together, like, the actual formulas that he laid out in his book, you would fail miserably. So there, there's really not anyone that I would really try to emulate. I'm a fairly passive investor, and John Bogle, who started Vanguard, I think is probably the most admirable because it was so selfless what he did. Vanguard, a lot of people don't even know this, Vanguard is Owned by the people who own Vanguard Mutual. There's no Vanguard shareholders. There's no profits, there's no dividends that are paid to the owners. Vanguard has, was made for the benefit of the people who own the ETFs, the people who own the mutual funds, and John Bogle did not make that much money for himself because of that. And you could almost think that, like, Vanguard's low fees, like, the amount that you saved in fees is money that could have gone to John Bogle and John Bogle's estate that didn't. It's like he's like this undercover philanthropist of, of finance that I really admire just because there's so few other people like that. And, and I think someone like, uh, James Simons, who we mentioned earlier, I think in every field there's only one person whose claim to fame, whose competitive advantage is, "I'm smarter than everyone else." In tech for 20 or 30 years, that person was Bill Gates, and I think in finance for the last 20 or 30 years, that person has been James Simons, who's e- like, the only person in the field who can say wh- if you, if you ask them the question, "What is your competitive advantage?" They can say, "I'm just smarter than everyone else." Only one person can say that, and it's James Simons. Uh, so it's, if you look at what Renaissance Technology has, has done and just the results that they've accumulated and the consistency of what they've done, it's, it's like LeBron James times Michael Jordan times Tiger Woods to the power of Mikaela Shiffrin. It's like, it's just like s- such a different universe compared to what anyone else has done that it's just, it's astounding to watch.
- TFTim Ferriss
For a fun and fascinating romp through different investing styles and very big personalities, the book More Money Than God by, I wanna say Sebastian Mallaby. Am I getting that right?
- MHMorgan Housel
Yep.
- TFTim Ferriss
Something-
- MHMorgan Housel
That's right
- TFTim Ferriss
... is, is very entertaining. Also, not a whole lot of styles you would want to try to emulate unless that is your sport [laughs] and you are in there. Any other investors besides Jim Simons come to mind and the names that you've already mentioned who you think are, are truly exceptional? Now, they could... I will expand investor to mean capital allocator, right? So it could also-
- MHMorgan Housel
Yeah
- TFTim Ferriss
... be a CEO of a company, but I'll let you pick who you may pick.
- MHMorgan Housel
There's a value investor named Mohnish Pabrai who is not very well known. He's a fairly small investor. He's capped the size of his fund at a fairly low level, so he's not a household name. He's n- like, even within investing circles, not many people know who he, who he is. His returns are incredibly good, and he's just the nicest, wisest, fun-to-be-around guy that, that I've, that I've met in a long time. Like, I really look up to him not just as an investor, but just as a, as a person. Just how he's situated his life, what he aspires to be, how he lives his life, is someone who I, I've, I've, I've really looked up to for a long time. There's someone who lots of listeners will be familiar with, Brent Beshore, who's very active on Twitter as well, is an incredibly successful investor. He won't say that, he will deny that, but he really is. And he too is just one of the nicest, kindest, funniest people who I've met, and most of the time when he and I talk, it's nothing to do about investing. We just talk about life and our kids and our, our spouses and whatnot. So I think most of the people who I really admire as investors, it's more that I admire just how they've lived their lives and their general life philosophies, and their investing philosophy stems from that. That's true for, for Buffett as well. Actually, there, there's an interesting thing about Buffett, which is that it was so easy to admire him and still is, but when the book The Snowball came out, which is a biography written about Buffett by an author named Alice Schroeder, and it came out, I wanna say 2009, something like that, it really makes clear the case that Buffett has not lived a perfect life by any means, and in a lot of instances his family life has been a disaster. I think that's the right word to use. I don't, and it's kind of, it's kind of rude to say that, but I think it's really true. In some ways it's good to hear that, that, like, everyone puts their pants on one leg at a time in the morning. Everyone is human, everyone deals with the ups and the downs of, of, of living a life, and that he's a human. And also that a lot of the reason that his family life was troubled at times is because he was, had a singular devotion in life which was picking the best stocks, and everything else came second to that. Everything from his family on down came second to that in a way that a lot of people, including myself at one point, said, "I wanna be Warren Buffett. I wanna be the next Warren Buffett." But then you re- you read about what it took to get there and I'm like, "No, I, I d- I wanna stay 10 miles away from that." That's a really important insight to learn is that a lot of these people who you admire, the reason that you admire them is because they're s- they're so successful, and that success that they had had enormous costs associated with it that are easy to ignore. And when I look at that, it's like I can look at pieces of Buffett's life that I admire and pieces of Jim Simons' life that I admire, but I don't wanna be them, 'cause th- that mega success had so many costs attached to it that I want to avoid in my life. That's been a really important observation too for me.
- TFTim Ferriss
There's also a slippery slope... I shouldn't say a slippery slope. There's an ease with which you can conflate skills and attributes with investors very easily, right? I- and what I mean by that is, uh, no one looks at, say, Michael Phelps and says, "All right. I just need to swim more so I can, I can grow taller and get more flexible ankles and huge feet like Michael Phelps." They know that's not going to happen, [laughs] right? You can't... Those are not trainable attributes. Uh, those are things you are born with.
- 1:06:42 – 1:31:26
Mistakes and uncertainty
- TFTim Ferriss
And similarly, you might look at, say, a Buffett and you're like, "Oh, that looks like a normal guy," right? "Looks like a grandpa. Aw, shucks," right? "I could, I could, I could learn to do what Grandpa does." But when I read... I d- I've not read The Snowball, but I read an earlier biography, unauthorized as I think they all were, by Roger Lowenstein or Stein, I never know how that's gonna be pronounced, The Making of an American Capitalist. And I read this decades ago, but the story that really stuck out to me, and I'm probably getting this wrong but someone on the internet will correct me, I remember his, his meaning Warren's routine was to work at the office and then come home and basically just walk straight upstairs and begin reading, like, S1 filings or [laughs] what, you know, annual reports of one type or another, quarterly reports, and that was his routine. And one day he came home- After work and I wanna say his son, but one of his kids was like splayed out at the bottom of the stairs and had clearly like fallen down the stairs, and he just stepped over this child and walked up to his office to read reports. Like it didn't even register to attend to his child [laughs] . And I was like, "Okay. [laughs] I am not programmed that way." Like that is-
- MHMorgan Housel
Yeah
- TFTim Ferriss
... that is different out of the box hardwiring that I will not be able to train myself to possess in the same way that, uh, you know, the mistakes, uh, a lot of the mistakes that I've made in investing have been ... Actually, almost all of them have been selling at the wrong times, and which is why I find a lot of these risk assessments that might be given to you by a broker or a wealth manager or who knows, somebody who's- who's- who's hopefully got your best interests at heart, and they say, "You would feel comfortable with a like 15% decrease in your portfolio's value in one quarter, 5%, you know, 1%, 20%, 30%," and you just have no fucking idea until it happens, right? Because I remember I had, at the time, this is 2007, 2008, there were f- a few decisions that I'd made beforehand. I had bought my first home in San Jose with, oops, an adjustable rate mortgage 2007, and I had, I had also a few years before plowed a ton of my net worth at the time into Amazon, and I had very high conviction around it. I don't remember the price. I mean, somebody could look it up. Uh, [laughs] this is, you know, 2006, 2000- late 2005, something like that. And I, I got hammered in the housing market, and then when the sky started falling, intellectually I knew that I shouldn't sell. Does that make sense? Like I'd read the books.
- MHMorgan Housel
Totally. Yeah.
- TFTim Ferriss
I was like, "Longitudinally things are gonna be okay. The fundamentals of the business haven't changed. I feel like I'm have a, I have a pretty good read on the technical or technological trends. I'm living in Silicon Valley. I, everyone I know is using Amazon more and more with each, each subsequent year." But every time I turned on the news it was Chicken Little and the sky was falling, and eventually I was like, "These people seem smart. I'm a kid. What the fuck do I know?" And then I-
- MHMorgan Housel
Yeah
- TFTim Ferriss
... sold the Amazon, right? It was not-
- MHMorgan Housel
Yeah
- TFTim Ferriss
... the right decision. And the ... I s- I tell that story just to draw the contrast between what I did and what I suspect Warren Buffett would have done had he been in my position. He would not have behaved the same way, and it wouldn't have been arri- arrived at purely through logic. The guy is just built differently.
- MHMorgan Housel
Well, here's, here's one counter to that. You're generally right, but here's the counter to this. February of 2020 rolls around, there's a new virus that's gonna rile the, the world economy. What did Buffett do? Do you know the answer to that, what he did?
- TFTim Ferriss
You tell me. You're gonna have a better read on this.
- MHMorgan Housel
He dumped his entire portfolio of airline stocks at a huge loss. That's what he did.
- TFTim Ferriss
Yeah.
- MHMorgan Housel
Here's what's crazy about this. Two weeks before that, maybe it was a week before, it was a very short period of time before, he went on CNBC when it was starting to look like maybe the market was getting toppy, and someone asked him like, "Warren, what would you do if the market starts falling?" And he says, he laughs and he says, "I, I'll tell you what I'm not gonna do. I'm not gonna sell." Two weeks later, he sold all of his airline stocks at the ... at, when, when this virus hit. Now, you can say that that was actually not a mistake even though the majority of them have regained almost all of their value. You can say that was not a mistake because the, the possibility of a complete catastrophic wipe out, particularly in airlines with COVID, was, was there. So you could say like, "Ah, it was actually the right thing to do." But even Buffett in this situation when, when the world's starting falling apart, he panicked, and he did not buy, he did not buy anything of significant value with, with, with big numbers during that huge market decline. Even for him I'm saying it's much easier said than done. I had my own story about this in the early days of COVID.
- TFTim Ferriss
Morgan, can I ask you to bookmark that? Don't lose your place, but I wanna interject with a question and that is do you think that early, earlier career Buffett would have also sold? And the reason I ask is that I saw an interview with Munger from, I don't know, a year or two ago, maybe it was actually more like two or three years ago, and he said, "Too many people have their entire life savings and are depending on Berkshire."
- MHMorgan Housel
Yeah.
- TFTim Ferriss
Which seemed to imply, and I'm paraphrasing, that that was in a sense leading them to behave in ways or make decisions that they would not have made earlier in their careers. What do you think?
- MHMorgan Housel
Here's what's so interesting about what happened in March of 2020 in the early days of COVID, which is that if the government had not done trillions of dollars in stimulus, if the Fed had not done trillions of dollars in stimulus, if there was not a vaccine, you can go on down these possibilities that were very realistic possibilities, I think we would honestly be looking at something that would be worse than the Great Depression right now. I don't even think that's a bold statement. It had the potential to be absolutely catastrophic. So when you have Buffett selling and not buying because he wants to bank up more cash, I actually get that. I, I think if you were to make the 10 most likely outcomes of COVID, I think economically we ended up with absolutely the best one, and it's easy for us in hindsight to look back and say, "Oh, you should have bought in March of 2020," and it actually was not that obvious back then that that's what you should have done. That's one thing. The other thing that's so different about it is that, you know, Buffett has probably invested through, I don't know, 10 recessions, something like that. But all of those were financial recessions. There were things going on in the economy that caused recession. This was a biological disaster. It was a completely different set of fears that people didn't really know what was gonna happen next. So I, I, I don't think there was any real playbook that even something or somebody who has 80 years experience could really look at and say, "Oh, here's, here's what you do whenever there's a pandemic that's threatening the global economy." There's not really much insight into what to do with that. So I, I, I think in, in different recessions ... The other thing that's important too is that even in 2008 During the financial crisis, Buffett did do some buying, but actually not that much. He actually didn't put that much capital to work even in 2008. The last time that, like, the economy completely f- lost itself and Buffett put a lot of money to work was, like, the 1970s. That's, I, then, that's, that's a true statement. It's been, it's been quite a while since he's put tons of money to work when the economy fell apart. Some of that is just how his, his style has evolved over time. Rather than being like a tactical asset allocator, he just wants to buy good businesses and hold them for a long time, and the idea of, like, buying when there's blood in the streets has less relevance to him today than it did 50 years ago. So that, that's part of it. But I think for everyone, and Buffett is human, that when you get to a situation like this, it's so easy to respond to risk in ways that you never thought you would. And I'll tell you my personal story from this.
- TFTim Ferriss
Yes, please.
- MHMorgan Housel
My wife and I were, for a long time, the plan was we were gonna sell our house in Virginia in April of 2020. Well before COVID, that was the plan. Now, in March of 2020, I woke up one morning at, at 2:00 in the morning and went, "Holy shit, there might not be a market to sell our house in, in, in April." The market just might not exist, the, all the, all the banks might go bankrupt, the, the, the world just might not exist. And if that's the case, it's gonna make our move to Seattle where we, we live now much trickier. So I called up our real estate agent and I said, "Hey, I know the plan is to sell the house in April, but I wanna put the house on the market today. Today. I wanna put the house on the market right now." And he said, "Morgan, don't panic." And I interrupted him and I said, "Oh, I am panic. You are looking panic in the face right now. This is panic."
- TFTim Ferriss
[laughs]
- MHMorgan Housel
"I am totally panic." And I am someone who does this stuff for a living, and write about not panicking for a living. And look, the, the sale all worked out and I didn't sell stocks. Like, I really didn't... It was, it didn't feel like a panic. But it was so, it's so easy when the world is going well and everything is all butterflies and rainbows to imagine to yourself and to as- to answer the hypothetical question, how would you feel if the market fell 30%? And when the world is going well, you answer that question by imagining a world in which everything is the same except stock prices are 30% lower. And in that world you're like, "Oh, that would be great. That would be an opportunity." But that's not what happens in the real world. In the real world, the market falls 30% because there's a terrorist attack that no one saw coming, or Wall Street is about to collapse, or there's a virus that might kill you and your family, and in that context you think completely differently. And that's why people's ability to say, "I will be greedy when others are fearful," is so much greater than your a- most people's ability to actually do it. That's true for me, it's true for you, I think it's true for Buffett as well.
- TFTim Ferriss
Absolutely. Couple of footnotes on several of the names that have come up. Uh, so I believe you wrote about this in your book, and it was something I did not know. So Benjamin Graham, right? Uh, i- if not a deity, certainly a minor deity in many of the investing circles, uh, certainly the self-described sort of value investing side of things. Is it true, am I recalling correctly, that a v- a, a bulk of his sort of career returns came from concentration in GEICO? Am I getting that right?
- MHMorgan Housel
That's true. The, the last page of Benjamin Graham's book, The Intelligent Investor, tells this little tale about an investor who earned basically his entire career success off of one investment, and that one investment broke every rule that this investor had laid out. And then kinda in the last paragraph on the last page of his book he says, "By the way, that investor is me." And if you look at Benjamin Graham's track record, his career track record is incredibly good, and if you remove GEICO, it's average. And, and like I mentioned, GEICO, by Graham's own saying, breaks every rule that he just laid out in that book, like, to buy it. And so that's, that's an interesting, a really interesting thing is, like, not only was it one company, but it's the one company that broke all the rules. So if you're reading that book and looking for rules to follow, like, by definition you are not gonna achieve Benjamin Graham's success. And so I think that's, that's really telling, and I, I don't know what the takeaway from that is. If c- you could say, well then, clearly he's just lucky. If hi- if all of his success is, was due to one company that broke the rules, you could say he's just lucky. The other thing you could say is, that's just how capitalism works, and that's true for Buffett, it's true for a lot of people, that if they make 100 investments, you're gonna make the huge majority of your money on probably five of them. That's true for anyone. That's even true if you're investing in an index fund, that within the index, most of the gains are gonna come from 5% of the companies that you invest in. That's always the case. I think it just kinda changes how people view success, though. Like, if your view of success is that every stock that Warren Buffett or Chamath or Jim Chanos or, you know, all, all these, like, these big name investors, that every time they make an investment, then it's clear that that company's gonna be a winner, and that's just not how this success plays out at all, that even among the top names, the best investors over time, the majority of the picks that they make do not do very well. And the reason that they're so successful is because one or two or maybe five investments they've made are ultra home runs. People associate that with venture capital, that's how it works in, in VC, but it's actually true in all stages of in- of investing. The stat that I'll share with you here is that if you look at the Russell 3000 Index, which is an index of large public stocks in the United States, over time from I think 1980 to 2010, 40% of the stocks in this large cap, like, mom and pop index, 40% of the companies went out of business. Not, not merged, not bought by, but they went bankrupt. 40% of them. But the index did very well because 7% of components were huge winners. It was like Amazon, Microsoft, Netflix, those companies. So even in a boring old index fund, almost half the companies are gonna go out of business, but you'll still do well because a few do very well. And so that was true... And I think the more successful you are, the more you see that. Even at a company like, like Apple or whatnot, like, what percentage of Apple's success is the iPhone? It's enormous, but they've experimented with dozens of different products over time. Amazon has experimented with the Fire Phone, which was a total flop, and they've done things in music which were flops. They've done all these flops, but they've also done Prime and AWS, which matters more than anything else. So almost anywhere you look you will see that a tiny number of activities apply for the majority of success. And it's so hard to wrap your head around that when you're trying to emulate these people who you look up to and admire.
- TFTim Ferriss
Yeah, you really gotta pay attention and l- [laughs] look at the underreported analyses. Uh, and I, I remember learning at one point ... This is just a few years ago, and please correct me if I'm getting this wrong. Uh, I, I, I heard it from someone I consider a very reliable source, but he told me that, you know, Munger effectively has three concentrated or primary positions, right? Is Berkshire Hathaway, Costco, and then money with a Chinese fund manager who has derived a lot of his returns from tech investments [laughs]
- MHMorgan Housel
Yep
- TFTim Ferriss
... in East Asia. And I, I, I don't know what that pie chart breaks down to, right? In, in the sense that if it's 99% Berkshire, I don't know how much you can infer or conclude from what I just said, in the same way that if someone's like, "Well, so and so, like Peter Thiel, invested in my company." And I'm like, "How much did he invest?" Because if he put in 25K, that's [laughs] you know, literally like dropping a penny on the street for, for Peter, and maybe it was done through his office and who the hell knows. Like, the signal may not be very strong. But, uh, the, the disproportionate sort of tail, tail risk, or I should say like asymmetric return reward and punishment is a big deal.
- MHMorgan Housel
One example of this too that I love is from Walt Disney, who back in the 1920s and '30s was making all of these cartoons that people loved and they were great, but they were all losing money. They were all commercial failures. And he was on the verge of bankruptcy and his whole career was gonna, was gonna be over and shut down the studio. And then Snow White and the Seven Dwarves came out and it was such a huge mega blockbuster success that all of a sudden he had enough money to keep the studio open and to make more films. But if you look at Walt Disney's commercial success in those years, the early decades, and you take out Snow White, it's a, it's d- a disaster. So even s- even among like the highest talents in any field that we look at like that, you're gonna see that tails drive everything. It's just so hard to wrap your head around that when you're trying to emulate these people.
- TFTim Ferriss
Well, I, I imagine, you know, a lot of people listening are gonna say, "Well, fuck, this sounds kind of like a hopeless task," right? Because if you're, if you're betting on or hoping to emulate someone who found a golden Willy Wonka ticket, I don't know how to form a strategy around that. But I, I would imagine there are certain, certain base principles you can take away if you're looking at whether it's venture ... very successful venture capitalists who have been successful for a long period of time, right? Because you can get really lucky and hit the Midas List and look like a genius for a short period of time, but people who have just for decades been successful. And there is a, uh, selection bias because the best tend to then see better and better deals first, but just putting that aside. You also see the same thing in, say, uh, a book like Bringing Down the House by, uh, Ben Mezrich, uh, or Mezrich. I apologize, Ben, I've forgotten how to say your last name. Uh, which was later made into 21 about this ... I believe it was a team out of MIT that-
- MHMorgan Housel
Yep
- 1:31:26 – 1:38:43
Peace of mind over profit
- TFTim Ferriss
And I should also volunteer that maybe four years ago, five years ago, I was having a conversation with a, a very financially successful friend of mine who's, who's also done a very, a, a great job of crafting an unusual ... [laughs] Just trying to think of how to tiptoe around some of his adventures. Exciting life for himself that is, is just quintessentially him, right? It's like unapologetically non-consensus, and he seems to just have a great time in life, and he's, he's made a lot of very deliberate decisions. And I, I, I wanted to get some advice from him about something, and he asked me to lay out what my current kinda balance sheet looked like. And I laid it out, and he said "Why do you have this mortgage left or this amount left on your mortgage on your house?" And I said, "Well, blabbity, blabbity, blah." And I gave him the kind of spreadsheet justification, right? Like, interest rates are low, it's basically free money, blah, dah, dah, dah, dah. If I can take that money and do blah, blah, blah. And he said, "Just pay it off." He said, "Just having the peace of mind that no matter what, you have a house that cannot be taken away-"
- MHMorgan Housel
Yeah
- TFTim Ferriss
... "is going to do more for your ability to sleep at night than anything else." He's like, "It doesn't make sense mathematically, but pay off the mortgage." And he was right. Psychologically, the payoff was tremendous, and, uh, I guess if we think of investing or one way to think of investing being allocating capital to improve your quality of life, then it is a good investment, right? To pay it off.
- MHMorgan Housel
Totally makes sense.
- TFTim Ferriss
I'm not recommending that for everybody. This is just m- my own story, but I ended up in the same place as yourself for that reason.
- MHMorgan Housel
I also know a lot of people for whom that would be a terrible decision. They could not live with themselves if they knew that they were leaving money on the table. So it works for me and my wife, and you it sounds like, and other people it wouldn't. And that's where I get d- down to, like, all, all of this is just personal, and whatever works for you. And there's something about money where that, that can irk people. Like, there's some people, when I tell them I don't have a mortgage, they, they, they get angry at it 'cause I've... it's such a bad financial decision. And in a way that, like, other things in life don't work like that. If, if you said, "I like classical music," I might say, "Cool, that's great. I don't, but that's fine. I don't think any less of you and I'm not gonna argue with you about it. It's just that's your taste, this is mine." And but for financial decisions, people really don't like that because... And I think those are people who only view it as a spreadsheet endeavor versus using capital to give yourself a better life, like you mentioned.
- TFTim Ferriss
Let's hop back to Jason Zweig's piece, uh, this is from August 7th, 2020, discussing your book. And I wanna pull out a contrast in styles and explore this a little bit. You'll recognize this of course. So the first example, this is Person A, Ronald Read. I'm guessing that's how you say his last name.
- MHMorgan Housel
Yep.
- TFTim Ferriss
Uh, "To Ronald Read, however, money was a possibility." So I'm reversing the order here. "Mr. Read spent decades pumping gas and working as a janitor in Brattleboro, Vermont. After he died in 2014 at the age of 92, his estate was able to give more than $6 million to local charities because he had scrimped and put every spare penny into stocks that he held for decades. No college degree, no training, no background, no formal experience, no connections, but nonetheless massively outperformed many professional investors." All right, so I'm gonna leave Mr. Read at that for now. The contrast is something you saw yourself. "A technology multimillionaire handed a hotel valet thousands of dollars in cash to go buy a fistful of gold coins at a near- [laughs] nearby jewelry store." Sorry, this story's just... I can see it. I can see it in my mind's eye. "The executive then flung the coins, worth about $1,000 apiece, into the Pacific Ocean one at a time, skipping them across the water like flat rocks," quote, "'just for fun'" end quote. "To that man, money was a plaything." And then in parentheses, "He later went broke." [laughs]
- MHMorgan Housel
[laughs] Totally true story. It was the, it was the craziest thing valeting. There was this guy, I won't, won't say his name, but he was very well... He was worth several hundred million dollars, and he was just a complete maniac, and his relationship with money was astounding. He used to carry around this stack of $100 bills that I swear was four or five inches thick, and he would just walk up to strangers and pinch a little bit off the top and just hand it to them just to see the reaction on their face. And he did this all the time. And, and he had all these crazy things, including the, the story I tell in the book. He told us one day, he, he pinched off a thick stack of $100 bills and he said, "Go to the jewelry store and get us some coins, some gold coins." And we, one, one of my colleagues did it, and he came back and him and his friends just sat there skipping them into Pacific Ocean just cackling to each other like, "Who can make it the farthest?" And they're throwing $1,000, $1,000, $1,000, and they just thought it was the funniest thing in the world. And then years later, I found out that this guy went broke. He, he went bankrupt. And that's not, that's not surprising, but it was just astounding to watch how some people, really smart, successful people, deal with money.
- TFTim Ferriss
So one lesson we could take from that, I mean, there are many lessons we could take from this, right? [laughs] Uh, you know, if you're a valet, take the money and run. I'm kidding.
- MHMorgan Housel
[laughs]
- TFTim Ferriss
It's a joke. But one lesson we could take is slow and steady wins the race, right? Substance over smoke and, and razzmatazz. That would be one moral of the story, that you can get... You can build wealth very effectively without doing anything fancy, without being Jim Simons, simply by being consistent and holding it for a long period of time.
- MHMorgan Housel
I think that's, that's a good way to summarize it, yeah.
- TFTim Ferriss
Yeah. [laughs] So that's one. Now, I think for purposes of the contrast, it makes sense that you would have these two extremes, right? But there's a lot in between, and so o- o- one question that comes to me when I, I hear a story like this also is would Mr. Read have been... Would he have considered his, his life better lived had he taken some of that money and used it to enjoy himself or do something while he was still above ground or not at 92?
- MHMorgan Housel
Yeah. This is probably one regret that I have from the book is that I kinda framed it like Ronald Read was my idol, and, uh, I, I didn't, I didn't mean to make that point at all because someone who lives lit- like, a very impoverished life and is swe- and is mopping the floors at a gas station and then dies with millions of dollars, I don't aspire to that. That's not the life that I wanna live. To me, the whole point was the skills that you need to generate wealth are not the Ivy League education and becoming a partner at Goldman Sachs. This janitor was able to do it. But I, I don't personally admire the life that he lived. I wanna live a good life and buy the things that I want, and have a nice house and a nice car, and treat my kids well, and go on good vacations, and travel, the whole nine yards. The, the whole point of that was just showing that the skills that you need do not come from the traditional sources that we, that we associate financial success with.
- TFTim Ferriss
Got it. All right. So I have a question for you as a- A researcher, professional observer, I don't wanna say of finance 'cause it's more than that, right? But I, I imagine including the, [laughs] the example of these guys handing a stack of money to go buy gold coins, you've, you've observed wealthy people, whether directly or through reading and so on, for a while now. And
- 1:38:43 – 1:46:36
Ruining children with money
- TFTim Ferriss
I'm gonna lead into this with a recent conversation I overheard. Two wealthy people were having a conversation about basically how much to save for how long, and both of them had been sort of born into very moderate circumstances, like lower middle class or even, you know, poor. So, so one was saving everything kind of until the very end to hand off to future generations, and the other, the other person said, "Well, you might wanna consider spending or using more of that money now because there's, there's only so much... You can't take it with you, and there's only so much money you can give to your kids before you ruin them." [laughs]
- MHMorgan Housel
Yep.
- TFTim Ferriss
And I'd never heard it quite put that way, but I grew up on Long Island as a townie in the Hamptons, so I worked restaurants as a busboy and just, you know, various low-status, low-paying jobs in a resort town where you get to see the best and the worst, but mostly the worst of Manhattan.
- MHMorgan Housel
Yep.
- TFTim Ferriss
Kinda see and be seen crowd. Uh, there are some great people, right? I've, I've... Many of my best friends are, are in New York City. But nonetheless, saw some really horrible behavior, right? And so this is a very roundabout way of asking, if you kinda scan over your experiences observing the wealthy and so on, if you look at examples where their kids aren't cunts, entitled cunts, how do they achieve that? [laughs]
- MHMorgan Housel
I hate that I'm quoting Buffett again.
- TFTim Ferriss
Yes.
- MHMorgan Housel
I just, I don't wanna do this ad nauseam for the whole podcast, but he has a great quote on wealth where he says he wants to leave his kids enough money that they can do anything, but not so much money that they could do nothing.
- TFTim Ferriss
Hmm.
- MHMorgan Housel
So I think that's really the key. And that's how I think about my own kids, who are very young, but when my wife and I think, like, how do we wanna use whatever savings that we have to benefit them, giving them a safety net but not a fuel is, A, that's what my parents did for myself and my siblings. We, I, I always knew... When I was a teenager and in my early 20s, I always knew they would be there if I fell on my face, and they would... Like, I would never just completely fail. I'd never be homeless. I would never... They'd always catch me, but they were never gonna be a fuel. They were never just gonna give me money just to, just to make my life better. That was never gonna be the case. And so knowing that they were gonna be there, but knowing that I had to make it on my own was so important for me. That's what I wanna do for my own kids. I think if there's anything that's like that, I think that rule is probably the closest that you get to having very wealthy kids who are not cunts, as you put it, which is a, which is a, which is a great way to put it.
- TFTim Ferriss
[laughs] Not to get too technical, but... [laughs]
- MHMorgan Housel
It's also just so ri- There's a great book that I read a couple years ago, and I reread it last year. It's one of my favorite books. It's called Fortune's Children, and it's about how the Vanderbilt heirs spent their money-
- TFTim Ferriss
Huh
- MHMorgan Housel
... and blew their fortune. And Cornelius Vanderbilt was the richest man in the world. If you adjust it for inflation, he was worth, like, $400 billion.
- TFTim Ferriss
Wow.
- MHMorgan Housel
And within f- I think three or four generations, there was nothing left. They spent everything. And they di- they actually didn't give that much to charity, either. They were not, they did not do that much philanthropy. They just blew that money. And a couple things stick out from the book. One is that virtually every heir, I don't think there's a single counterexample to this, they were all miserable. They all, they were all depressed. They were all anxious. They were all... Like, none of them really lived lives that anyone would wanna read and say, "Oh, I wish I could live that life." They were all miserable. And I think another part of this is that none of them were allowed to become their own people. Their job in life was to be a Vanderbilt heir, and they were never allowed to have their own personality, to really have their own pursuits, or if, even if they did their own pursuits, it was never gonna live up to what their grandfather did, and therefore, why even try? And all of them were just living in the shadow of this, this ancestor that they had. And so I think when, when I look at that, it's like you really see how money can ruin people. I've thought about this myself with my kids of, like, let's say my wife and I go out and buy a Porsche. We don't have one, but let's just use that hypothetically. We buy, we buy a Porsche, and then let's say that my daughter wants to be a kindergarten teacher, and she's driving a Toyota Corolla 'cause that's what she can afford as a kindergarten teacher. Is she always gonna feel like she's in the shadow of her parents? Like she did not eclipse what her parents did? Even if she has a more noble job than I do and a more benefi- a job that benefits society more than I do, is she gonna feel like she never reaches that point because of how my wife and I decided to live our lives? I don't wanna do that as a parent, and I think about that a lot, too, is, like, how can I live a good life and have a good house and nice stuff but make sure that I'm not leaving the bar too high for my children if they go into another career that doesn't pay as well? That's a tough thing. I don't know if there's any easy answers to that, but I think about that a lot, of like, how can you become a safety net but never a fuel? And I'll tell you something that I didn't really realize a couple years ago was that the instinct to be a fuel when you are a parent is really strong. The instinct to say, "Hey, I'm l- fortunate enough to have some savings. How can I use it to benefit my kids and open doors for my kids and push them along and put them on third base?" is tough to fight against that, 'cause every cell in your body as a parent says you should do that.
- TFTim Ferriss
I was really hoping that the book you were gonna recommend would be called [laughs] How to Raise Kids Who Aren't Cunts or something really on the nose.
- MHMorgan Housel
[laughs] That's book number two. It's coming.
- TFTim Ferriss
Yeah. Please, someone write that book. You can have the title. Just, just write something kind in the acknowledgments. Fortune's heirs, I have to ask, okay, 400 billion or so after adjusting for inflation. How in holy hell do you spend or blow that much money? What did they do?
- MHMorgan Housel
A lot of it was homes. I mean, the Biltmore, which is still around, you can go visit it, it's 140,000 square feet.
- TFTim Ferriss
[laughs]
- MHMorgan Housel
And that's one of, like, 10 homes that William Vanderbilt had.
- TFTim Ferriss
It's absurd. That's like Chelsea Pier. That's ridiculous.
- MHMorgan Housel
It's the craziest thing. Here's what's crazy about it too, this just shows how dumb their lives were. So Biltmore is 140,000 square feet. George William Vanderbilt, or maybe it was William George ... No, George Washington Vanderbilt was his name. He hardly ever visited it. It was he ... It was the biggest house in the world, I think it still is, and he hardly ever went there. He spent most of his time, like, in his apartment in Manhattan. So even when they built these ridiculous mansions, it was just for, like, a pissing contest of these cousins and of these siblings of who can spend the most money, and it really did not give them ... It was just like a social race that they could not win because when, when you have these heirs, whether it was the Vanderbilts or the Rockefellers or the Carnegies, that whole, the whole Gilded Age heirs, all of their goal was to one-up each other, and they basically had unlimited money. So in that situation, you're never gonna win that game, and they just kept going and going and going.
- TFTim Ferriss
The game where everyone loses.
- MHMorgan Housel
Everyone loses. And so they spent a lot of it on homes. They spent a lo- like, and all of these homes would have a staff of, you know, 300 people working at the home that they never went to. So it was j- it was just like that. Here's what's really interesting too. The first Vanderbilt heir that I think has actually lived a pretty cool life and seems pretty happy, do you know who it is?
- TFTim Ferriss
I do not.
- MHMorgan Housel
Anderson Cooper.
- TFTim Ferriss
No shit. Wow.
- MHMorgan Housel
So Anderson Cooper's, his mother is Gloria Vanderbilt.
- 1:46:36 – 1:50:54
Good biographies and memoirs
- TFTim Ferriss
I'm gonna ask you some journalism and book questions. Favorite biographies you have recommended most to other people or given the most to other people.
- MHMorgan Housel
Uh, biographies.
- TFTim Ferriss
Or just recommended or gifted. Doesn't have to be recommended the most.
- MHMorgan Housel
Okay. Well, here's ... It's not necessarily a biography, but it's a diary. There is a lawyer named Benjamin Roth, who in the 1930s kept a very detailed diary during the Great Depression. And every day, it was just his personal diary, but he just wrote about what was going on in his town. He's from Youngstown, Ohio. And he just wrote about, like, what his neighbors were going through, how many businesses were going bankrupt, what that did to per- people's personalities, and his son published it in 2010. It's called A Great Depression: The Diary. And I think it was, it was unintentionally the best economics book ever written.
- TFTim Ferriss
Wow.
- MHMorgan Housel
I, I'd ... I mean, for sure. It explains what went on during the Great Depression in a way that no one else has because there's no hindsight bias in it. Every other book on the Depression is hindsight bias. We know how the story ends, and that colors our view of what happened. But Benjamin Roth was writing in real time. Every single morning he woke up and he wrote 1,000 words on what was going on in the economy, and it's so fascinating to read. And one of the things that sticks out to me that's so interesting is that the, half the book, if you change the date from 1932 to 2008, it fits right in.
- TFTim Ferriss
Hm.
- MHMorgan Housel
Like, the, the whole, the psychology of what happened back then, of how people were thinking, how people thought about risk, what they thought about government policy, completely repeated itself in 2008. And Benjamin Roth actually talks about in 1932, he's like, "Oh, what's going on today was exactly what happened in 1878." It's like, all these things repeat themselves so commonly and so frequently, but it's, that's, that's one that is not a very well-known book, but I've read it, I've read it several times, and I just think it's fascinating.
- TFTim Ferriss
A Great Depression. I know you're also a fan of, uh, you call him your favorite historian in the book, Frederick Lewis Allen.
- MHMorgan Housel
Yep.
- TFTim Ferriss
Spent his career depicting the life of the average median American. I know you've spoken about this before. People could definitely, uh, listen to your conversation with, uh, Shane Parrish for more on this, but some of those books are The Big Change, Since Yesterday. What is the third?
- MHMorgan Housel
The Big Change, Since Yesterday, and Only Yesterday.
- TFTim Ferriss
Only Yesterday. Uh, w- and I suppose there's maybe a bit of hindsight bias, but it's, it's describing a period that he lived through, and therefore, I, I suppose is, is, is just more ... How would, how would you summarize why you find his work interesting?
- MHMorgan Housel
You hinted at this earlier, but most history books, 99% of them, are about the big figures, the presidents, the generals, the, the Hitlers, the Stalins, the FDRs. That's most of history. Frederick Lewis Allen was just interested in how the average, ordinary American lived their life. And, and he wasn't writing about any specific events. He just wanted to write about, like, what was life like? How did life change during this period from 1900 to 1950? His crowning book is called The Big Change, and it's just how American life evolved from 1900 to 1950. And the evolution was enormous because 1900 was horse and buggy, and 1950 was, like, rockets and atomic bombs. Like, the, the amount of progress that took place during that period is way more than what we've dealt with over the last 50 years, and he just wrote about what life was like for people who lived through that, ordinary people. One of the things that sticks out from that too, that comes up again and again, is just the extent that no one saw what was coming. No one saw it coming. What actually happened, no one saw that coming. And even if you look at, like, the dawning of these big events like World War II and the Great Depression, nobody saw them coming. It seems so obvious to you and I today. If you, if you research what happened during the 1920s and what happened in 1929, like the, like the glorious Roaring '20s and the stock market bubble, it's easy to be like, "Of course it all ended in calamity." But people were not saying that at the time. And the few people who did say, "Hey, this is probably dangerous," were completely pushed aside. Same with the period right before World War II, and the aftermath of World War II, and the technologies that came out of the Cold War. Like, again and again, the- The repeating theme among the story is that people didn't see it coming, and that just gives the reader so much humility when you're looking at today. That you and I and everyone else, and the smartest people that we know, have no clue what's gonna happen over the next 10 years. That's always been true, and I think it always will be true.
- TFTim Ferriss
One of the
- 1:50:54 – 2:09:48
Financial panic, temptations, and long hauls
- TFTim Ferriss
sections, uh, in the book that I really enjoyed ... I mean, maybe enjoyed isn't the right word [laughs] . You'll see why in a second. But found, uh, illuminating and worth contemplating a- and, uh, you'll have to help me with the specifics here, but it was looking at, I wanna say, in brief, how misleading or incomplete averages can be, right? So you might look at something that says, at, at some statistic like from, I'm making this up, from 1950 to 2000, the S&P 500 averaged whatever it happened to average, 7% per year. I have no idea what the actual number is. And it ... But then you, you, you go further to explore how lumpy and volatile that actually is, right? It's not this nice, clean incline like, uh, you know, a ramp for wheelchairs or something. And you list off all of the calamities and disasters that took place over that period of time, and that the sort of psychological experience of living through the years that ultimately result in that average is very different than what most people would expect. So feel free to, to correct or elaborate on that in any way that makes sense, but my, my meta question is related to how terrible people are at actually buying and holding, right?
- MHMorgan Housel
Yeah.
- TFTim Ferriss
They, they tend to panic and sell. So even with the knowledge that all this shit is gonna happen, that the, the one guarantee is there's going to be a bunch of unmitigated catastrophe that is totally unexpected, how can you increase the likelihood that you will not respond in moments of panic by doing what cripples you financially?
- MHMorgan Housel
So two parts of this. One is that even if you look at the periods that in hindsight we think were the greatest that existed, which for most Americans is the 1950s and the 1990s. This, that's what we remember as like the golden age of prosperity and happiness and peace. Even if you look at those periods, like in the 1950s, people were high ... Like do, like kids were doing nuclear bomb drills under their desks, and there was a lot of pessimism and negativity. Even if we know in hindsight it was great, at the time, by and large, they did not know that. Maybe it was like it was good economically, but there was a lot to be worried about in the 1950s. Same in the 1990s, which we ... Like today it's like, oh, the booming 1990s, the bull market. But even, like people forget in 1994 there was a big like interest rate calamity where a bunch of bond f- like interest rates rose and the stock market crashed, and then in 1998 a big hedge fund, uh, went out of business and almost took the whole global economy down with it. Like there was a lot to worry about during these periods. So how do you protect yourself from that? How do you actually become buy and hold? I think there's one thing to do here. There's a great ... There's, there's a friend of mine named Carl Richards, who's a financial advisor, and he has a quote where he says, "Risk is what is left over when you think you've thought of everything." I think that's, that, like that's the definition of risk is whenever we're, we're done planning and forecasting, everything that's left over that we haven't thought about, that's what risk actually is. And the takeaway from that, the actual practical takeaway is that if you are only planning for risks that you can think about and you can envision and you can imagine, then 10 times out of 10 you're gonna miss the biggest risk that actually hits you. The biggest risk is always something that nobody sees coming, including something like COVID, where it's, you know, it's, it's, it's actually not fair to say no one saw it coming, but by and large, it's like in financial circles, not a single investor in 2019 in their economic outlook had a viral pandemic as something that they were worried about. Not a single one. Or 9/11 or Lehman Brothers going bankrupt. Like all the big events that actually mattered, it's pretty much true to say no one saw them coming. I think that's generally true. And therefore the takeaway is you have to have a level of savings in your asset allocation that doesn't make sense. You have to have a level of conservatism that seems like it's a little bit too much. That's, that's the only time that you know that you are prepared for risks that you cannot envision. And if you are only prepared for what you can imagine, again, you're gonna miss the biggest risk every single time. Whenever people look at my asset allocation if I share that with them, it looks a little bit too conservative and they say, "God, you, you could be taking a little bit more risk," and they're right. Like I probably could, but I wanna be prepared for the risks that I can't imagine or the risk that like is possible but like I don't wanna even think about. It's too painful to think about. That's the only time that you can be prepared for the surprises in life. And I, I think most people, not all investors but the majority of investors, are not conservative enough. And I know like whe- whenever I say that they kinda shake their head like, "Come on," like, "Why are you ... W- why don't you wanna take risk?" And once a decade you learn why. Once a dec- whether it's COVID or 9/11 or 2008, once per decade you're like, "Oh, okay, I get it now. I didn't see this coming. It was a calamity and I either like ground myself into the floor and like I got wiped out, or I had a little bit of extra savings that got me through." So that's, that's how I think about, you know, how, how, how to stay in the game in a long-term history where history is a constant chain of surprises. That's the only way to do it.
- TFTim Ferriss
Yeah. Let me read a, uh, one of my 17 million Kindle highlights. Thank you to your publisher for not throttling the number of highlights that I could actually read after the fact. That is extremely annoying when that happens. So thank you publisher. Who ended up publishing the book?
- MHMorgan Housel
It's a group in London called Harriman House.
- TFTim Ferriss
And, uh, so we [laughs] we may or may not get a chance to dig into this, but one of the bullets I have here is every major publisher rejected the book. That seems just stupid, especially based on the f- just based on the fact that my understanding is it began as a ... popular blog post. It seems like-
- MHMorgan Housel
Yeah
- TFTim Ferriss
... the most obvious indicator of interest imaginable, but what do I know about publishing? Let me-
- MHMorgan Housel
[laughs]
- TFTim Ferriss
We may, we may come back to that, but let's... L- let me just read something here that I ended up highlighting. So for people who are wondering about my process, I highlight on the Kindle. In this particular book, I actually read in a way I'd, I had not read any book before, and that was I bought it on Kindle. That prompted me to buy the Audible version, and then I listened to the Audible inside the Kindle app so that I could, while going for, say, a hike with my dog, be listening, listening, listening, hit a point where I would want to make a highlight, stop, and it would be tracking simultaneously in the Kindle, and I could then make my highlight and then continue hiking and listening. So I, I, I digested the book very, very quickly.
- MHMorgan Housel
Cool.
- TFTim Ferriss
Here's a section that I then ended up bolding because I take those highlights, which you can access on desktop through your Amazon account, and I drop them into a Google document, and then I will go through them a second time and I'll bold the section that I wanna pay particular attention to. And my friends, some friends and I will share our Kindle highlights from different books that we have read so then we can determine if we want to end up reading the entire book. So here, here's a section, and it's from a much larger context, of course, but I, I think it kinda makes the point. "Say cash earns 1% and stocks earn or return 10% a year. That 9% gap will gnaw at you every day. But if that cash prevents you from having to sell your stocks during a bear market, the actual return you earn on that cash is not 1% a year. It could be many multiples of that..."
- MHMorgan Housel
Yep.
- TFTim Ferriss
And it goes on. And this leads me, and I'm, I am gonna come back to the journalism question. I haven't forgotten that. But since we're on a bit of a thread here, I will say, you know, I ended up with a tremendous cash reserve in part because I got my nuts kicked into my throat in 2007, 2008. [laughs] It just... Both self-inflicted wounds in the case of selling Amazon and then in the housing market, and I was very conservative after that point. Or I should say I took a barbell approach of sorts, right? So Nassim Taleb talks about this. But I was in the Bay Area. I felt like I had an informational advantage if I wanted to really commit time to trying to become well-versed and well-networked within technology. So I decided to begin angel investing. That was the highly, highly speculative, potentially high return investing side of things. And then the rest was basically in cash. I mean, the equivalent of being in a mattress. I mean, I didn't even have the guts to put it into an index, and I missed some tremendous, tremendous growth as a result of that. It didn't bother me, though, at the time at least. I was still sleeping pretty well. I was enjoying learning what I was learning in tech. And then in January began tracking COVID, this is of 2020, and I was able to deploy a ton of my cash reserves basically end of March, beginning of April. So it did well, but one could very, I think, convincingly argue that I would've made more money just by having it play in the market for a longer period of time. But I think that would've made it hard for me to sleep at night, having just had my face ripped off. I know I'm mixing a lot of metaphors, face, balls, you get it, but it was unpleasant is the point I'm trying to make. And I, I'm going to bring this back to how you think about success in investing, and I hate that word, so I'll, I'll, I'll, I'll parse it out a little bit. But I wanna read something from a blog post that you wrote or an article. I'm not sure which you prefer. This is, uh, on The Collaborative Fund website, "Internal Versus External Benchmarks." And let me just read these two paragraphs. All right. "The most important point may be this. Internal benchmarks are only possible when you have some degree of independence. The only way to consistently do what you want when you want with whom you want for as long as you want is to detach from other people's benchmarks and judge everything simply by whether you're happy and fulfilled." Okay, I'm g- I wanna bold that in your mind. "Judge everything simply by whether you're happy and fulfilled, which varies person to person." This next paragraph I circled because I just thought it was really worth reading over and over again. "I recently had dinner with a financial advisor who had a client that gets angry when hearing about portfolio returns or benchmarks. None of that matters to the client. All he cares about is whether he has enough money to keep traveling with his wife. That's his sole benchmark. Quote, 'Everyone else can stress out about outperforming each other,' he says. Quote, 'I just like Europe.' End quote. Maybe he's got it all figured out." So I just love that because it's like an... It, it is a, it is, it's highly subjective, meaning it's personal, but it's also very objective. It's an absolute measure.
- MHMorgan Housel
Yeah.
- TFTim Ferriss
And it's an, it's, it's an example of, you know, unless he gets a lot of lifestyle bloat and wants to have a yacht in the Mediterranean or something, it is a goalpost that won't move. All right. So you talk about the importance of the goalposts not moving. In my experience with people who have gone from very, very moderate circumstances, not having much money growing up to being very, very successful, offhand, I'm sure there are some examples, but 99% of the people who come to mind who are smart, I think good people, who are very much students of life, the goalposts have always moved. [laughs]
- MHMorgan Housel
Yep.
- TFTim Ferriss
And so I want to know what you've seen work or not work in that specific domain and how you think about it for yourself.
- MHMorgan Housel
I think it's, it's the single most important topic in money, in investing, in finance, and it's the hardest thing to actually make work. Those are both true statements. It's the same for me. I can write about this and say what people should do, but it's the same for my wife and I. Like, we struggle with this as much as anyone else about getting the goalpost to stop moving. I think if there is one thing That has helped me, and I would say helped, not fixed, just like it helped a little bit around the edges, is something that we talked about earlier, which is that just the idea, the observation that no one is thinking about you as much as you are, and therefore so much of people's willingness and their desire to spend more is just a social signal to show people how much money you have, whether that's the bigger house, the nicer car, like whatever it is, like you, you just wanna show other people. And once you realize that people aren't thinking about you that much, they don't care about you that much, they're thinking about themselves and how much people care about them, once you realize that, then you're like, "Okay, I, I, I can see what the game is. It's a game that I can't win, so I'm not even gonna try to play it. I'm, I'm just gonna... I just wanna focus on the internal of like what's gonna make me happy, what do I want, what's actually gonna give me pleasure, and let's just do that, and I don't wanna think about anyone else." So much of this is just selfish.
- TFTim Ferriss
What's the happy and whatever the other thing I bolded, which I [laughs] probably forgot. But what are, what are those things for you?
- MHMorgan Housel
I wanna wake up every morning and hang out with my kids, and I want them to be happy, and I wanna do it on my own schedule. If it's a Wednesday morning and I don't wanna work, then I'm gonna sit on the couch all day and watch Netflix. And if it's a Sunday and I got a good idea, I'm gonna spend all day working. It's all my own schedule, on my own time, whatever I wanna do. It's that independence and autonomy.
- TFTim Ferriss
Can you not do that right now?
- MHMorgan Housel
Yeah, I can. There was a point when I couldn't, and that's why I feel like I'm, I'm, I'm pretty happy, and I feel like I've done a decent job of doing that. Now, I do have, as a lot of people would, a tendency to be like, "Oh, what if I got that Porsche? What if we got the bigger house? What if we did this? What if we did that?" And it's fun to think that because I love nice cars, I love nice... I love all of that. It's just so easy to realize, there's a great quote that I love that's, "The grass is always greener on the side that's fertilized with bullshit."
- TFTim Ferriss
[laughs]
- MHMorgan Housel
I think that's, that's really what it is. That's the accurate phrasing of that, of that well-known quote. And I think that's really what it is. Like, the idea that all that nicer stuff is gonna make you necessarily happier I think is just so easy to disprove, especially once you've experienced a little bit of it yourself, and that actually what is gonna make people happy is that independence and autonomy that once I remind myself of that, I'm like, "Okay." And then the game of earning more just becomes a, a, a game. It's less about like, "Oh, if I have more money, I'm gonna be happier." No. If my net worth is 10X what it is today, I'm not gonna be any happier. That was not true at one point in my life, but I think it's true today. It's probably true for you right now. It's true for a lot of people listening. And therefore, you can admit that a game is fun, and a game is fun to play, but just admit that it's a game and it's actually not gonna make you happier.
- TFTim Ferriss
Yeah. I think I may have a solution for you. I think that, uh, all of that experience as a valet could come back to serve you. If you took like a Saturday shift as a valet and took a few Porsches for a joyride, I think you could scratch that itch without the expense, uh, or the, [laughs] the guilt and karma associated with buying one. You could also buy one, certainly. But-
- MHMorgan Housel
See, actually, I don't think I've ever talked about this before, but I actually do scratch that itch when I rent a car. When I'm traveling, I rent a car. I always get the extreme upgrade, the highest upgrade that they have. A lot of times Enterprise will have a Porsche or just something sitting around, and whatever the price is, I'm doing that. That's how I scratch the itch that I have without actually buying it.
- TFTim Ferriss
That's a great way to do it.
- MHMorgan Housel
You can rent a Porsche from Enterprise for like 300 bucks a day. It's not cheap. It's not, it's not 60 bucks a day, but it's, it's a lot different than buying the damn thing.
- 2:09:48 – 2:16:25
Journalists to trust
- TFTim Ferriss
Journalistic question, Twitter doesn't exist, parallel universe called Much More Peace of Mind. [laughs]
- MHMorgan Housel
[laughs]
- TFTim Ferriss
Less doom scrolling and hatred and neighborhoods online where people throw, uh, potted plants at your head as you walk down the sidewalk. So parallel universe, Twitter doesn't exist, and the way you consume your news is the following: you're allowed to read the cover of a handful of newspapers, that's it. Can't flip to any interior pages, but you can kinda scan a handful of newspapers.
- MHMorgan Housel
Okay.
- TFTim Ferriss
That's not the part I want to, I want to ask about, but that's, that's part one. Part two is you get to choose, and let's limit it for now to finance, investing, or business, okay?
- MHMorgan Housel
Yep.
- TFTim Ferriss
Broadly speaking. You get to choose a handful of journalists, writers, and you just a- you basically have an RSS feed to their articles
- MHMorgan Housel
Yep
- TFTim Ferriss
... and you get those automatically. But that's it. The, uh, on, on those subjects, that's how you get your information. Who are some of the people you would choose?
- MHMorgan Housel
Okay, one would be, and I'll try to give some names that are not that well-known. They're not under the radar, but they're not the biggest names. One is a guy named Nick Maggiulli, M-M-I-J-J-I-L-U-I. I, uh, I, I'm, I'm probably butchering that, but he's h- he's on Twitter. He writes a blog called Of Dollars and Data, and I think he's a young guy, he's maybe in his early 30s, and he's one of the smartest, insightful, and good writers that I've come across in years. He was one... I, I, I, I'm good friends with him now and I tell him this story, that the first time that I read his blog maybe 10 years ago, I read one paragraph, and after one paragraph I stopped and I was like, "This guy's got it." It's, uh, that's all you needed to read to be like, "I, this guy is smart and he can write and he's got it." It was so clear early on. He's one of them. Josh Brown, who I mentioned earlier, who is the CEO of Ritholtz Wealth Management, he's, he's well-known and he's on TV all the time. He is one person that I think is as funny as he is smart, and to put those two together in one package is really rare. And that humor is important for understanding the context of these... It's, so much of it is just, like, he understands the human side of investing better than almost anyone. I mentioned Derek Thompson earlier of The Atlantic. He's just, he's one of the smartest humans that I know, and he's also maybe, like, 32 years old, something like that. He's definitely on that list. Jason Zweig, who we mentioned earlier, is probably the, the, the greatest financial journalist of modern times. I don't think that's an exaggeration. Carl Richards, who I mentioned earlier too, used to write for The New York Times, he doesn't anymore, but he has a way of taking really complicated thoughts and making them just so easy to understand in a way that you thought you understood it before, but once you read Carl's work you're like, "Oh, okay, now it, now it really makes sense." He would definitely be on the list.
- TFTim Ferriss
What is Carl's beat, or what does he write about?
- MHMorgan Housel
He was a financial advisor, and then he wrote for The New York Times for a long time, basically on, on behavioral finance. His book is called The Behavior Gap. Uh, so, so he, so he wrote about behavior finance, uh, for a long time, and now he's just on his personal blog, his personal newsletter, so he's definitely on that. There's a financial advisor named Blair Duquesne who I think is incredibly smart and a great writer. I wish she wrote more, but whenever she does it's just always very well put together and very thoughtful. If, if, if you gave me more time, I could probably list 10 more, but off the top of my head, th- that, that's, that's the Mount Rushmore in my mind.
- TFTim Ferriss
[laughs] Are there... You said, "I'll, I'll leave off some of the bigger names." Are there any of the bigger names you would care to mention?
- MHMorgan Housel
I think, I, I, I mentioned earlier James Clear, Ryan Holiday, Mark Manson, you, Tim. I don't wanna blow too much smoke, but I'll just leave, I'll just drop that there and then move on.
- TFTim Ferriss
[laughs]
- MHMorgan Housel
Uh, you know, I, I-
- TFTim Ferriss
Thanks
- MHMorgan Housel
... I think, I think those people like that that have a lot of success and a lot of followers have earned it. Like, content is a meritocracy, and for people who have sold a zillion books and have a million followers and get this, they, by and large, they've earned it. And so a lot of those people who are big names and almost cliche to mention I think are very insightful people. James Clear and Ryan Holiday are two that, that, that really stick out as just, like, really thoughtful, almost philosophers.
- TFTim Ferriss
Yeah.
- MHMorgan Housel
In a way that can be off-putting to some people, but I think they are just so smart. And a funny story about this, in 2018 some friends of mine rented a house in Omaha for the Berkshire Hathaway shareholder meeting, and a guy came over who I had never met before and I said, "Hey, who are you?" And he said, "Oh, hi, I'm, I'm James Clear." And I said, "What do you do?" And he said, "I'm, I'm an author. I'm writing a book right now." I said, "What's, what's it called?" He said, "Uh, it's called Atomic Habits." And I didn't say this, but at the time I was like, "That sounds like a dumb name. I don't, that's, that's not..." Of course I didn't say that to him, but in my head I'm like, "Atomic Habits, that sounds cheesy." And, but he explained it. He was a really nice guy. I liked, I liked talking to him, but for those who don't know, I think Atomic Habits has now sold five or six million copies. It's probably the best-selling book of the last five years.
- TFTim Ferriss
Yeah, blockbuster. [laughs] Yeah, Ryan also, I'll just speak to Ryan since I know Ryan quite well and I've known him for a very long time. He really walks the walk and makes every effort to walk the walk, so I have tremendous respect for Ryan also, uh, because there's such congruency, at, at the very least incredible effort put into congruency between the words and deeds, if that makes sense.
- MHMorgan Housel
Yeah.
- TFTim Ferriss
Because, uh, that is not always the case. You know who c- who comes to mind for me also is Matt Levine. I have to guess it's Levine, I don't know if it's Levine, but Matt Levine of, of Bloomberg. I have no idea how he manages to put out the volume With the density of insight and humor that he does, he has some hilarious, hilarious, hilarious stuff
- MHMorgan Housel
It's so good.
- TFTim Ferriss
[laughs]
- MHMorgan Housel
And he, and he writes every day.
- TFTim Ferriss
Yeah.
- MHMorgan Housel
He puts out a letter five days a week, and they're long posts.
- TFTim Ferriss
Yeah.
- MHMorgan Housel
And every one of them is great. There's almost never a dud. He actually ... He, he gave an interview last week where he talks about his process, and he said his process is, like, he wakes up at 6:00 AM and panics until there's something written.
- 2:16:25 – 2:40:19
Great books + writing advice
- MHMorgan Housel
onto paper.
- TFTim Ferriss
What's your hall of fame, personal hall of fame, just for you? Favorite books on investing, finance, behavioral finance, any of that kind of stuff, decision-making?
- MHMorgan Housel
One that's not that well-known, but I, I wish was, and it's n- it's not a behavioral s- finance book, per se, but it's a behavioral book, is a book by a guy named Dan Gardner who wrote a book called The Science of Fear. The title's basically self-explanatory. And it's not a deep science book. I would say it's more of a pop science book, but I don't mean that in a derogatory way. It's, it's very digestible. You can understand it. But that book really changed how I think about fear and just observing fear, um, in, in, in a pretty profound way. I've, I've read that several times. What else? I mean, obviously the work from Jason Zweig.
- TFTim Ferriss
So let's bookmark Jason Zweig. How did it change how you think about or relate to fear?
- MHMorgan Housel
I think what that book really showed me, and, and put into words in a way that, uh, really stuck with me, is the difference between your slow, thoughtful process of thinking about future risks and the oh, shit, like, heat of the moment, how am I actually gonna react? In, in, in the book it's framed as head versus gut. Years later, Daniel Kahneman, the great psychologist, framed it as system one, system two. I think that's really important, and particularly in investing where, like, uh, like we've talked about in this podcast, it's so easy to sit back in your armchair and be like, "Oh, if the market fell 20%, I would do X, Y, and Z." And then when it actually happens, you don't. You think something totally different. It's a very different experience. The difference between what you think and what you actually do can be 10 miles apart, and that book really explains that quite well.
- TFTim Ferriss
Now, how does that affect your ... You said you've read it several times. How does that affect your planning or behavior?
- MHMorgan Housel
I don't fool myself. A, I, I think a, a big part for me of just, like, taking this off the table for me that relieves a lot of pressure is, like, I have no desire to become the world's greatest investor. And I, I respect people who do, but I'm not one of that. So when I ... You know, i- if, if I can just compound my money passively for 50 years, I'm gonna achieve every goal that I have and then some. So for me, the idea of like, "Well, how can I take the greatest advantage over the next market crash? How can I maximize my portfolio?" I'm just not playing that game. And once I'd, like, become more introspective about my own personality, about what I want and how I react, how I think, how I interpret stress, how prone I am to stress, that kind of thing, it's like once, once you become more introspective about yourself ... I just, I just took that pressure off my shoulders in a way that was very relieving.
- TFTim Ferriss
I would like some writing advice. [laughs] Let me just turn this into a even more self-indulgent conversation for myself. Self-gratifying maybe. What made me think of this was actually flashing back on COVID, because I'd committed to getting back on the blog and writing regularly right before COVID hit, and I had, I had built up a bit of momentum, had hit publish a handful of times, and then COVID hit and I was like, "Okay, that's not a priority at the moment," right? [laughs] I wanna figure out how to keep my extended family as safe as possible and marshal resources and plan for contingencies, and have not gotten back on the saddle since, even though I've drafted a few things here and there, haven't hit publish. I would like to get back into some regular cadence of writing, and I'm wondering if you have any advice or would care to, uh, describe your writing process if you think it might be helpful.
- MHMorgan Housel
I don't know if I really have a writing process other than I, I really don't try to schedule it or say, "Okay, like, Monday is writing day and I'm gonna sit down and do it." I know a lot of r- great writers who would come on this show and say that that's the way to do it, that your routine is so important. For better or worse, it's never been like that for me. I just kinda take as a leap of faith that maybe twice or three times a month I'll come up with an insight where I'm like, "Oh, that would be pretty cool, and here's a story that I could tell," but I don't try to force it at all. Every good idea that I've come up with has come when I'm not trying to force it at all. It's like in the shower or going for a walk or going for a run that you just all of a sudden you're like, "Oh, I, I got it. Here's the idea." And so the process for me is no process. It's just, like, wander aimlessly around life and then it'll eventually come to you. The actual writing for me, I would say, too, I, I go for a lot of walks. I walk several times a day just around my neighborhood, and 90% of the quote-unquote writing takes place there. I, I don't think that well when I'm sitting at my computer in front of a Google Doc typing, but when I get up and move around and go for a walk, then I'm like, "Oh, here's how I can write that paragraph. Here's how I can do it." Like, "Oh, actually, that sentence, here's a better way to phrase it." All that takes place when I'm walking, never when I'm sitting. And so for me, whenever I, uh, I feel like an article's not going well, where, like, I'm stuck a little bit, it's like, "Okay, let's go for a walk," and then most of the time I'll figure it out there. The other thing that I've, I've come to realize about myself is that- The majority of the time that you have writer's block, it's not that you have writer's block, it's that your idea sucks, and that's why you can't figure out a way to write it. Like, good ideas are very easy to write, and bad ideas are, are hard. Like, that's, that's pretty easy. So a lot of invest- or a lot of writers, when they, they get writer's block, they're like, "Oh, how can I s- muscle through this and figure it out?" And I think 9 times out of 10, you're like, "No, let's take a step back," and maybe it's hard to put this into words because the idea that you're trying to get across is wrong, and that's why it's hard. So I've tried to do that with myself of just quitting pretty easily. Even if I'm halfway through an article and I'm like, "Oh, I can't figure out how to phrase this," it's like, well, maybe that's 'cause my idea is wrong and I should just move on to something else.
- TFTim Ferriss
How do you distinguish between a block that is due to an impotent idea versus a performance anxiety/pressure that is preventing you from moving forward? Does that make sense? Like, if your standards-
Episode duration: 3:03:39
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