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- [00:03]
Cole Smead
You're listening to A Book With Legs.
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Brad Klontz
A podcast presented by Smead Capital Management.
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Cole Smead
At Smead Capital Management, we advise investors.
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Brad Klontz
Who fear stock market failure.
- [00:13]
Cole Smead
You can learn more@smeadcap.com or by calling your financial advisor. Welcome to A Book with Legs podcast. I'm Cole Smead, CEO and Portfolio Manager here at Smead Capital Management. At our firm we are readers and we believe in the power of books to help shape informed investors. In this podcast we speak to great authors about their writings the late, great Charlie Munger prescribed using multiple mental models and analysis. We analyze their work through the lens of business markets and people. How do you view wealth? Is it a healthy view or is a damaging view? This is what we'll discuss today as we talk about start thinking rich 21 harsh truths to take you from Broke to financial freedom with co author Brad Klontz. Now before I have Brad say anything, I'll give our listeners a little bit background on Brad. He's a clinical psychologist by background. He's an Associate professor of practice at Creighton University, Heider College of Business, co founder of the Financial Psychology Institute, and managing principal of YMW Advisors. Dr. Brad is a co author and co editor of eight other books on the psychology of money. Brad, thanks for joining me today.
- [01:28]
Brad Klontz
I'm excited to be here.
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Cole Smead
So you so I was mentioning this before, we are not the typical podcast to come out and do a self help book and why I liked your book was the principles you dealt in and also really how people evolve over their life. We did a book, the Myth of American Inequality with Senator Graham from Texas and he talked about how people will start in the lowest income quartile of their life after college let's say, or during college and then they end up being in the highest income quartile. And we never talk about how there's different stages to life in wealth. And I think your book does such a good job of talking about these stages. Where do you start? Where do you need to go and how does that mentality need to change? And so that's why I'm really excited to discuss this. But I just want to start out by you've written other books on money. What why this story? Why now?
- [02:22]
Brad Klontz
Well I do a lot of I have a lot of attempts to educate people on social media and so this book was frankly inspired by a lot of comments I've gotten over the last 10 years on posts and just identifying where people are getting stuck in terms of their mindsets. And my focus has really been on researching Success mindsets, like, clinically like. And what can we draw from the research to apply to our daily lives? You know, as a clinical psychologist, that's what I do. I have someone in my office and it's like, how do we make your life better? How do I help you make your life better? And so this book was, it's really sort of an exciting way to put together these research based concepts around, you know, how to climb the socioeconomic ladder.
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Cole Smead
Sure. So what is wrong with this statement? Quote, sure, we don't have money, but that's because it wouldn't make us happy anyway, end quote.
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Brad Klontz
Well, there's several things wrong with it. So first of all, I used to sort of teach that as an understanded concept in psychology where over the course of decades there's been research on money and happiness, income and happiness, quite specifically. And what I've noticed is the number seems to track the median income in the United States. So essentially it was 50,000 a year, 75,000 a year, and it sort of tracked where the median income was. And the message that was going out was that as soon as you hit the average, so you look around, you got pretty much what everyone else has. And there's a psychological basis behind this, by the way. There's really no association between money and happiness above that. Well, the problem with that statement is, first and foremost, it's been essentially debunked by better designed research. So the curve actually continues, which is something I think everyone sort of kind of had a feeling about. And you know, it matters how you spend the money, of course, but the downside to it. And my co author Adrian talks about this in the book where he sort of set that as like, well, if you make money above that, then you're going to have less happiness. And so there's a misconception out there around that, that ceiling. First of all, there's no association with happiness above it. And then secondly, that there's some sort of downside to having more than that.
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Cole Smead
Sure. Well, now we're going to show that that chart you put in the book early on, I think we'll be pulling it up here. So here's a look at what you're getting at, which is that the assumption has been there's a minimal amount of happiness you can attain and once that there's no increasing benefit. And as you point out here, your life satisfaction goes up with income. Okay, now to your point, I would say in a study that says, okay, how do you get to the median income? Doesn't it have more to deal with, dealing with. It just reduces the negative externalities that can be in your life. For example, you know, not being able to pay rent, not being able to have food. That's what the median income really gets rid of. Was that fair statement?
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Brad Klontz
Yeah, I think that's half of it. So half of it is just as you're saying, like you can put clothes on your kids, you have food, you're not having a constant sense of economic insecurity. But then there's another component on the psychology side which is called relative deprivation. And so a lot of studies have been done on this where, you know, your financial wellness is entirely subjective based on your comparison to other people. So you could be in a very poor area. And you have two goats, everyone else has one. And you, you have this subjective experience of being wealthy. And I think that's, that's part of it too is when you're comparing, how are you doing compared to other people?
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Cole Smead
What I think the other part to this, I mean, have you ever. Brad, have you ever met a human that can't tell you who's ahead of them in life?
- [06:00]
Brad Klontz
No, not really. And some of the billionaires I've worked with, they're very focused on where they end up on the list, on the Forbes list of richest people. It's like, all right, I guess you gotta have a goal.
- [06:11]
Cole Smead
Okay, so that kind of gets us to our next. It's in your book and I really like this. You talk about capitalism as a game or competition. Explain this because we're kind of getting into some of the idiosyncratic nature of people that are wealthy. But just in general, think of it as a competition. Explain that to us.
- [06:29]
Brad Klontz
Well, so we're fairly agnostic in this book in terms of what system is better. And there's a reason for that. I see people really get stuck with being focused on that the system is rigged and there's something wrong with it. Therefore, I cannot achieve the things I want to achieve in life. And so that's a very toxic mindset in terms of self destruction, frankly, in every aspect of your life. And so we look at it as it's a game. So we're not taking a position that like we can make an argument. We could probably put together a fairly good argument that capitalism is the best system that's ever existed in terms of, you know, the day to day experience of people when it comes to quality of life. There's a strong argument there, but we just dodged the argument altogether and said, hey, it doesn't really matter. I mean, we live in the world of capitalism. That's the game. And so the idea is to learn the rules so that you can see that the game you're playing.
- [07:24]
Cole Smead
So why, why can, why does a high income might not mean that you're rich?
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Brad Klontz
Yeah. So we do talk about the difference between rich and wealth. And what's a poor mindset? What's your rich mindset? It comes down to your definition of what is rich. And this is a very personal definition. Right. For me, for me it's owning your time. So I look at you as being wealthy the more time you own and buying back more of your time as an approach to becoming wealthy. And I know, and I'm sure you know people who make, you know, multiple six figures a year, but they don't own any of their time. They have to work 70 hours a week to pay the bills. And when I look at that, to me that's not, that's not rich. I mean that's, you're, you're, you're a slave to your boss, to your house payments, your car payments. And that's just not a great quality of life, at least in my opinion.
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Cole Smead
So on that, you know, I mentioned Charlie Munger in my opening. Charlie Munger talks a lot about the idea of delayed gratification. You obviously talk about that. Isn't there effectively in this competition, there is a trade off though, right? You might do that now as long as you can build up enough savings, let's just say off of that, you know, I'll call that treadmill, because later you're not going to do it forever. To your point about what's income and savings versus accrued wealth, if you will.
- [08:46]
Brad Klontz
Right, yeah. Delaying gratification is very, very important. And by the way, we're just not wired to do that. So it's the strange people who do it who overcome our natural biological wiring to consume everything right now. And so yeah, very, very important that you do that. There's a downside to that. We talked about it a little bit before we went live here where people can be so focused on the future. And by the way, you have to have a future orientation. So as an example, studies on people who meditate, they tend to have less net worth and they tend to make worse investing decisions. And I know this sounds terrible, I'm actually a fan of meditation, but the research is extremely clear. And I know you're saying yes, but yes, but. Well, they actually put all that in the studies and it turns out that the more and Think about meditation. So like mindfulness meditation, the idea is to focus on the moment and forget about the future, forget about the past. Well, if you're forgetting about the future and you're focusing on your experience in the moment when the market is crashing, you're going to sell. Right. You're not thinking about the future, you're thinking about your panic. And so essentially you have to have an exciting vision too is another component of it. And I've done some research on this. How to get people to save more money. Well, you have to have a really super exciting, palatable vision of why you're asking yourself to delay gratification. Because it's why we struggle. Because most of us are just not wired to do it. So you have to override that with something really, really exciting about a future goal.
- [10:16]
Cole Smead
Sure. And the other idea you get to early in the book is you talk about this idea of getting rich slowly. I think that's again something that Munger talked a lot about is the idea of getting rich slowly. How do you. And this will be something I think we'll probably come back to just because you obviously deal with wealthy people in your work. We do as well in our work in the investment business. But there are times that something could be a get rich slowly game. I think of like back in 10 and 11 and 12, like no one wanted to touch stocks. It was super. You had to be an idiot to do that. But you could get rich slowly. Not overnight obviously. Now we're at a very different place in the stock market, I would argue. How do you think about that? Get rich slowly versus get rich quickly. Because even things that can be one thing can turn into another thing later.
- [11:06]
Brad Klontz
Yeah, I feel like when I'm focused on trying to help people sort out their mindsets around money and how that fits in with their long term financial goals. The whole concept of getting rich quick is probably one of the most self destructive mindsets that I've ever seen. And typically the people who have it are people who are struggling or they're frustrated and they feel like they're missing out. And so then they'll get sucked into the latest get rich quick scheme. So in the book we talk about the lottery. That's just the most popular example. But I know you saw it, the whole crypto craze and I think there's always. It used to be it was tulips, wasn't it way back when, but. And I think there's always going to be something that people are drawn to because we want to Cut to the front of the line, because it's actually really boring. Like when you actually get down to what it takes to grow your wealth for most people. And by the way, researching, like, you know, a big part of this book is looking at all the stats. And I'm, you know, I'm a researcher. So how do people get rich? And by the way, if it was they got rich quick, I would have wrote a book on exactly how to do that. But that's not, that's actually not how most people are doing it. And it's that mindset that we call a poor mindset. So poor mindset when you approach investing is, you know, I'm going to take my 10,000 bucks and I'm going to turn it into 100,000 in the next year or two. And if that's your mindset around investing, you're going to end up losing your money.
- [12:29]
Cole Smead
Yeah, I think of like, the mindset, you know, to your point on investing is like, you know, how stupid am I willing to look? Because to your point, when everyone else is running after something by nature, we want friends, we want to be part of a community, we want to be part of a fabric. And getting rich slowly means you will often have to say, I'm willing to look like an idiot while everyone else does something.
- [12:52]
Brad Klontz
Yeah, that's right. I mean, and you're hitting something that's really, really profound and important. And that is, I think that most of our decisions around money can be explained by our prehistoric brain. So 99% of our time on Earth as human beings, it's been small, hunter gatherer tribes of 100 to 150 closely related people. And of course, of course you're worried about how other people see you. I think it's. I laugh every time I hear somebody say, oh, you shouldn't worry about what other people think. It's ridiculous. We're actually wired to care very intensely about what people think, especially if we feel like we're part of that group. And so essentially, whether it's rushing into the stock market because it's a bubble or rushing out when it's a crash, or wearing the newest, fanciest things, or, you know, God forbid you're on Instagram making you feel feel deprived every single day. Yeah. That we're wired to actually want to belong to the group.
- [13:49]
Cole Smead
So you talk about a person that you knew where they had a situation, they could get either a lump sum, I think you said in the book it was $300,000. Okay. Or they could get a $40,000 settlement per year from a life, you know, work. A workplace compensation issue. Okay. They chose the lump sum. You know, why is this the proclivity of the poor mindset? In other words, is it just. It's. The bird in the hand is too great. How do you think about that?
- [14:20]
Brad Klontz
Yeah, it's. Cause the math on that is pretty clear. You know, you want 40 years of 40k a year or do you want 300k right now? And I think when this individual, and a lot of people do this, when they see that big number, they start to think of all the ways they can spend it. And so we have a chapter in the book, you know, you don't want to be a millionaire. You just want to spend $1 million. And that's essentially the mindset that this individual had a lot of people are vulnerable to. They see the 300k, they're like, I'm going to go buy a house. I'm going to buy a new car. I'm going to take everyone on vacation to Disneyland. We've always wanted to go. And then before you know it, the money's gone.
- [14:54]
Cole Smead
Yeah, agree. Let's see. So another thing I wanted to touch on is, you know, you're. Cause also it speaks to. Is there's times where the simple setup of an annuity over time. Right. To your point about the $40,000 a year, it's just a far better approach for many people. How do you. Obviously, you know, you deal with, you know, estate planning with people and financial planning and things that nature. I mean, I was born in 1983. I'm 40 years old. For most of my career in the investment business, no one's been able to go out and say, hey, I'd like to get a, you know, immediate annuity for, say, 5%. Now, that's been highly attainable. Now, the funny thing, Brad, is no one's going out and saying, you know what? The game's been really good. How about I set my next 20 years of income up away from the stock market, because I don't have to take much risk to attain that. And then I can give myself the peace of mind or time to do other things. Do you see anybody doing that? Because, I mean, I don't.
- [15:48]
Brad Klontz
Yeah, that's actually really great observation. And then you have to ask yourself, why. Why is that not happening in the past? That would be so envious. Desirable, right?
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Cole Smead
Correct.
- [16:00]
Brad Klontz
But what happens is we tend to have some fomo, right? So fear of missing out, it's like, oh, but the stock market's been doing this, so why would I settle for that? And so I think that's people frankly who just aren't clear around the mission and around the history. And one of the things that I found to be true in all of our research on financial psychology, and this is really going to resonate with you too. It's like we have a, it's a framing bias is what we call it in behavioral finance. And when times, when things are exciting or when we're stressed, our frame of reference in terms of time gets really, really narrow and we start to see things, you know, and if you look at the, for example, the Dow Jones Industrial Average, if you have the chart of the last hundred years, I mean it basically looks like a nice, nice joyful little climb, you know, but when you carve out any six month period, it's like, oh my gosh, all this turmoil and totally. And essentially that's what people tend to focus on, is that narrow frame of reference when.
- [16:57]
Cole Smead
I don't know if you've looked at this, but this is something we've brought up a lot with our investors and on the podcast. So. And you'll, you'll also like this because it's all about what people are doing. It has nothing to do with like valuations or interest rates or anything like that. Okay. So the St. Louis Federal Reserve publishes a statistic that you can ascertain its equities as a percentage of total household financial assets. In other words, just tracking what portion of American households have in stocks. Okay, well here's what's fun about today. It's the highest number ever in the history of the data set going back to 1952. The other two highs, and we'll probably touch at this because I want to talk to you about your Kauai day trading experience, which that was a fun little part. The other two highs are 99 and 1969. Now I find them interesting because again, did I say PE multiples, interest rates, what was going on in the economy? I said nothing. But it's a negative correlation coefficient with the four 10 year s and P500 returns across that data set. So I pointed out because to your point, I look at today as I think the S and P will lose money over a decade. Now to your point, is that happening very often in the hundred year chart of the S and P or the Dow Jones? No, but it does happen. And how many people are willing to step back and say this is the old, the old Munger said the young man knows the rules but the old man knows the exceptions. Okay. In other words, there's a wisdom and experience to that, to know that some things can go too far. And so I was thinking of that about a lot in your book. Let me pivot a little bit. You talk about what the Bible does say about wealth briefly in one of the chapters, and what it doesn't. And you kind of pointed out that people tend to go to where they want in things like that to say, well, here's what this says. But in the same book, you can see something that would not agree with that.
- [18:46]
Brad Klontz
Yeah. So we did use that. Just because we wanted to offend as many people as possible, we decided to talk about religion. But we used it as an example for messages we get around money. And in my research, we call these money scripts. These are beliefs we have about money for most of us. They're held out of our conscious awareness. And religions will teach certain things around money. And we use the Bible as an example, you know, where there's definitely verses in there that you could say, oh, having money is bad. You know, it's easier for a rich camel to go through an iron needle than a rich man to get into heaven. I mean, there's. You can find verses that do that. Conversely, you can find other verses that talk about how, you know, God wants you to be, have abundance. And so essentially, what we understand from psychology is something called a confirmation bias. And this is what I want your listeners to just be conscious of and aware of, because this bites us all the time. So essentially, you have a belief. Right? So in my research, one of the categories of money beliefs we found, we called money avoidance. And these are beliefs like, rich people are greedy, money corrupts. There's virtue in having less money. And this is a belief pattern, no big surprise. It's associated with lower net worth, lower income. And if you grow up in a lower socioeconomic environment, you're more likely to harbor these beliefs. And by the way, I came from a lower socioeconomic environment. And it's one way to make you feel better about your plight. You were born into this certain ses.
- [20:12]
Cole Smead
And so this is not your fault.
- [20:14]
Brad Klontz
Well, not only that, but it's certainly not your fault. But also. And also those people are less desirable. Let's be honest. I wish I was rich. So this is what we find in our research, too. Money avoiders tend to be the ones who are more strongly thinking that money would be better, make their lives better. I want to be rich. It's going to take time. I don't know how to do it. I don't even know any rich people. So I can immediately feel better by looking for examples of nasty, terrible rich people. And so that's called a confirmation bias. So I will ignore examples of people who have money and have done great things in the world and I'll focus on people who have done bad things. And so essentially that's. The confirmation bias is applied in all areas of our life. My wife does it to me all the time. She thinks that I'm not helping out enough so she doesn't notice the times that I'm helping out. And I try to like, direct her towards those. But yeah, so this is something that trips us all up and it's really important to be aware of that because all the studies on success show that open mindedness and being willing to examine your beliefs and admit that you don't know everything is associated with success in essentially every area of life.
- [21:19]
Cole Smead
Hi, I'm Cole Smead, CEO and Portfolio manager here at Smead Capital Management and host of this podcast. If you enjoy this podcast, I'd like to invite you to check out smeadcap.com at our firm. We are stock market investors. We advise investors who fear stock market failure with a discipline that has proven success over long periods of time. Learn more about our funds@smeadcap.com past performance is not indicative of future results. Investing involves risks, including loss of principal. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges and expenses. Read and consider it carefully before investing. Smead funds distributed by UMB Distribution Services llc. Not affiliated. So the next question that I want to ask you, Brad, that I really liked in the book, I'm going to quote right out of the book. Quote, why would you trust your college professors to teach you to run a business if they haven't been successful entrepreneurs? End quote. Explain this.
- [22:17]
Brad Klontz
Yeah, so this, this chapter, I think it was called your teachers can't teach you how to get rich. And it's, it's a cautionary tale around who are you getting advice from? Like, if you're approaching a struggle in life, where are you getting information about how to pursue this or how to achieve this particular goal? I'll use writing a book, for example. So I had a goal of writing a book and I'm thinking of my first book and I didn't know anyone who wrote any books. And so the conversations I would have would be people telling me that it's hard, it's difficult. One person told me, oh yeah, everyone wants to Write a book, you know, And I'm like, oh man, well, that's discouraging. And then meanwhile, I remember I was in a bookstore and I was looking at a book and I saw that this author had graduated from the same university I graduated from. And I thought, you know what I'm gonna do? I'm gonna try to find this guy's email and see if I can talk to him. And sure enough, because of that university connection, I got on the phone with this guy and I just picked his brain for 30 minutes. And in his presence here is his attitude, well, of course you can write a book. That wasn't even part of his discussion with me. It was like, of course you can, of course you can. And so one of the, one of the best hacks I've had in terms of success in my life is to try to find somebody a step or two ahead of me, whatever the goal is, and try to pick their brains and try to understand how they're looking at things. And I'm going to go back to the tribal metaphor. So when, when you're in a particular tribe and you might be really happy in that tribe, we can think of a socioeconomic tribe if you want. Let's say that you're low income and you're really happy with that, that's fine. There's certain beliefs, certain ways people do business, certain cars they drive, places they eat. And then if you want to go to another tribe, like middle class or upper income, they think about things very differently. They have different customs, different traditions. They have different numbers of forks at a place setting. You know, they, they employ different advisors and experts that you may not be accustomed to. If you grew up lower income, middle class, you never met a financial advisor. How do you trust those people? Well, ultra wealthy people, they just about all have advisors. And so it's like, it's like you have to learn a new culture in order to succeed in a culture or a group that you want to join.
- [24:28]
Cole Smead
At the same time, though, you also said that in the book, you said that a college education is a ticket to the middle class. Why do you say the middle class, not the upper class?
- [24:39]
Brad Klontz
Well, it's, it's at least a ticket to the middle class if you pick the right degree. And so we actually did talk about college in there. And again, I'm on social media all the time. I try to be open minded. And so I'm not sure if you've caught the news that a college degree isn't worth it anymore. This is what's being promoted to young people by the way on social media right now. So be alarmed. And I just simply, you know, I'm like, oh really? Is that true? You know, so let me go look at the research. And so then I go look at the Department of Labor statistics and it turns out that right now, and by the way they ask like how much money you're making each week. The average college grad, it's like over $1.2 million more over the over the course of their life. In terms of income, however, you can pick degrees that are worse than minimum wage. And not only that, you've now racked up 30, $40,000 in student loan debt. And so now you're making less than minimum wage or at least minimum wage and you have all this debt. And so college can be a horrific decision. So really it is a business decision which is was the ultimate frame we're trying to encourage people to adopt.
- [25:49]
Cole Smead
Well, and to your point, it is an investment. You're investing money today and time for a, I'll call it higher annuity payment in the future. That can vary and the question is, is it going to produce the returns you expect? It's funny. So when I was reading your book, you showed the ones that produce high incomes right out, which would be computer science oriented degrees. I think of programmers, for example, I think it was the Wall Street Journal and I want to say it was in the last five or six years they had a study where they looked at computer coders versus I think it was a history major. And they pointed out that the coder in the first decade after school made way more money. But by the age of 50, the history major ended up having a higher total income because it was low at the start and rose much more as you got later in their career. So I also to your point, there's also there's kind of like the what if you need to make money right away, one pays off in a different way versus the other one was a get rich slowly kind of a game in comparison. So you know, to your point, it's really who you are and how you can deal with that. Is that fair?
- [26:48]
Brad Klontz
I think so. I'm curious about that study. I want that to be true as somebody who loves the humanities, to be.
- [26:57]
Cole Smead
Honest, I'm a humanities junkies too. So I just say because what they pointed out, and I'll bring it to another thing you talked about, but they pointed out that the coder needs time because that's their primary asset is the ability how much time they can code versus in the humanity sense of things, it's not about your time, it's your ideas and that's how you drive value. And so they were pointing out that as a coder, went into the stage of life of say, getting married, having kids, they lose time and which means they lose the ability to drive the same, you know, relative income compared to the past because of the time. So on that you, we talk, you talk about the billable hour kind of what I was just talking about there. In your work, you know, you reached the point where you were only as good as the time you spent in it, right? Your billable hours for your, your, your, your clients. Charlie Munger talked a lot about as a lawyer. He ran to that same problem. He only got paid based on his time. How important do you think is for people to think about going from there to what's your value? And thus how do you accrue things outside of time?
- [28:01]
Brad Klontz
Yeah, it's a good question because I had my personal route and preference and I do want to say this, and I think it's really important because another false narrative that you see all over social media is that if you want to become a millionaire, you have to be an entrepreneur. And I again, I'm very curious when I see stuff like that, is that true? Like I'm an entrepreneur, a serial entrepreneur. I also know that most businesses fail. And then I did find research. The best I could find. The majority of millionaires, like 7 out of 10 are employees or professionals. And what they have is a rich mindset though. So as soon as they're getting paid, they're setting aside some money for retirement or financial freedom, however, whatever you want to call it. And they're doing that early. And you know, thousands and thousands of people were becoming millionaires every year from 401ks and IRAs. So that being said, what I saw in my own life is I had aspirations of making more money, climbing the socioeconomic ladder. And by the way, I picked the highest paying profession in mental health that I could find that didn't require me to go to med school, which I didn't really want to do. And so in college I'm like, okay, so it's so funny, when I went into school to become a psychologist, my professors, by the way, I'm already in school. And they're like, hey, we're here to help people, not make money. And I'm like, what are you talking about? I just took out $100,000 in student loans and you're telling me we're not here to make money. I mean, what did I just make? A horrible, horrible mistake? But for me, it was an investment from the start. And I saw though, that even though I'm getting highly, you know, I'm getting a lot of money per hour, I just had to work more hours. And so that was the path for me. And I had young kids and I'm like, man, I don't really want to do that. I want to have more money. I don't want to work more hours. And so for me, 20 years ago, I had it in my mind, like, how can I have, I would say more passive income. And I say more passive income because it's not passive. Like most income isn't really passive. When you hear about passive, passive real estate investing, have you ever, you ever owned a house that you're managing? It's not very passive. But I was looking at ways like, how could I be, if I happen to be sick for a couple of weeks, am I going to lose half my income for the month? And so for me, that is, that has been my focus professionally is like, how can I have multiple streams of income? How can I own more and more of my time, frankly, without waiting to quote, retire? Which by the way, I plan to never retire. But like, how can I own more and more of my time? That's been the game I've been trying to play in my own life for the last 20 years when we're going.
- [30:29]
Cole Smead
To come back to the retirement thing. Because that's, that's, that's particularly the reason why I wanted to do the book with you. But to your point, so where I ran into that, I was born and raised in Seattle. Our company was in Seattle and I made good money in Seattle. There's no income tax in the state of Washington. There's only a property tax. So we moved our company about four and a half years ago. And I often get the question from people, how could you go from a state with no income tax to Arizona, which has now a 2 1/2% flat income tax? And then I take them through all the time I used to lose trying to get to work, trying to go to my kids events. I think about all the time I lost in the week. And I would gladly give up two and a half percent of my gross income to get that time back, which is a very, you know, because from a net, you just think of your net of taxes. That doesn't make any sense. But from a personal perspective, it makes all the sense. I mean, my old commute Good day, 25 minutes, bad day, hour. My commute now, seven to eight minutes. Good or bad day. I mean, it's just mind blowingly and really reinforces the principle you're getting at in this book. Let me go to the next thing. So you tell a story about this kid named Henry. He's going up to bat. And what does his dad tell him?
- [31:39]
Brad Klontz
I'm trying to remember which story was Henry.
- [31:44]
Cole Smead
His dad said, hey, go walk.
- [31:47]
Brad Klontz
Oh, right, right.
- [31:48]
Cole Smead
And you start to explain that as the mindset.
- [31:50]
Brad Klontz
Yeah, yeah. So by the way, you see this in baseball, and I coach baseball and my kids play baseball and all that.
- [31:56]
Cole Smead
Yeah.
- [31:56]
Brad Klontz
And it's, it is the mindset. We also talk about another kid in there whose dad's playing the lottery. That's why I was wondering which one we're talking about. And I think it's the same mindset. And it's like you're stepping up to the plate. Okay. And this, this. How do you approach life? Are you stepping up to just kind of squeak and get a walk or are you swinging for the fence? And we, you know, I think the best mindset in baseball and Pete Rose would talk about this too. Peop. People would bring their kids up to him all the time and hey, what? You know, tell my kid how to hit, you know, and essentially he's like, you know, hit as hard as you can. And then what's the second piece? Harder. Swing harder. Swing hard. You know, you're up, you're up to the, you're up to the plate. You know, there's a home run potential, there's hard ground balls. You're going up for a walk and it's okay, it's okay. But you just need to be conscious of it. Like, for me as a psychologist, that's really what's most important to me. Like, are you consciously aware of how you're approaching life? Are you consciously aware of how you're approaching, you know, getting up to hit and making those choices conscious? To me, that's what's most important. Like, I don't think everyone needs to become a doctor, a lawyer, whatever, whatever you attribute success. Like, you don't need to do that. I just want to make sure that you're making a conscious choice not to do that. I had a kid that I worked in schools for many years in Hawaii, and I had a kid who was really upset because she wanted to be the number one drummer in the band. And they have chairs, right. So she was the second chair. And this is something really upset. And she was really irritated by it. And so I did a little exercise with her, and I said, well, how many hours do you practice a week? And she told me, and do you have private instructor? No. And then I said, well, how many hours a week do you think he's practicing? And she said, I don't remember offhand, but it was something like six hours. This kid was putting a lot of time. She's putting one hour a week. And I said, okay, well, this is how you become first chair. Just practice seven hours a week for the next year. And she sat there and she goes, well, I don't really want to do that. And I said, perfect. And by the way, she didn't feel bad about being second chair anymore. She made the conscious choice. And to me, like, that, that's the most important thing.
- [34:00]
Cole Smead
So when you brought up the baseball thing, I had, like, a flashback to when I was a kid. I was 12 years old playing Little League baseball. There's two outs, bottom of the last inning, we're down by three runs. I think there's bases loaded or, you know, something like that. Okay. And my dad's actually umpiring the game. Like, there's no conflict of interest in that. Right? So three, two pitch, maybe three, four inches outside. What do I do? I take the pitch. What does dad do? He rings me up for strike three. And I couldn't. I was so mad at the time. And I said, how could you do that? You knew it was outside. And he said something along the lines of, listen, you needed three runs of score. The person coming up behind you was never going to get a hit. You cannot put your team in the situation where someone else has to do it. You got to be the person to do it. Okay? And it's weird that I think now is like, what a blessing as a kid. But I screamed bloody murder. Because to your point, it's not. That's not what we want to do naturally. But that was a very valuable thing for me, from parent to child in that case. That was miserable at the time. And I think a lot about that. Like you're saying with your own kids.
- [35:05]
Brad Klontz
Yeah. And, you know, the other thing that comes to mind, too, is, like, we get frustrated with our kids when they take a pitch and then they turn around and they look at the ump.
- [35:15]
Cole Smead
It's like, just in case.
- [35:18]
Brad Klontz
Well, you know, it's like, am I. How did I do? You know? And it's like, and the reason I don't love it and the reason I'm trying to teach My kids. The opposite really comes down to this psychological concept called locus of control. And by the way, this is throughout the entire book we're focused on locus of control. And essentially that means the location in which you attribute control for the outcomes you're getting in life. And if there's one thing I could give to my kids that I'm trying to give them, it's an internal locus of control where they think that they struck out because they missed the ball or they swung at a bad ball, not because the ump made the call. You know, if you're looking at the up, it's close, it's a close pitch, you know, and if it's that close, you should be swinging for the fence. That's essentially the mindset we're trying to instill. But I think it's a really important mindset when it comes to money, when it comes to education, when it comes to your relationships, when it comes to your business goals. The more you can take responsibility for things, the more you can frankly blame yourself for the things you're getting in life and the bad things, especially, the better off you'll be.
- [36:26]
Cole Smead
Yeah, you talk about the power of collective neuroscience. You talk about it in the context of who are you friends with? But I also think about this a lot in the context of like, who do you work around, who do you work with? It can be just as powerful there. Can you explain that?
- [36:44]
Brad Klontz
Yeah. So mindsets are infectious. They are infectious. And so we actually have a chapter in there. If you wanna get rich, you gotta get rid of your poor friends. And it's pretty. I said these were harsh truths. Right. And we do describe make the differentiation between poor and rich. So, you know, or I mean poor and broke. So broke is you have no money. Poor is a mindset. So we talk a lot about a poor mindset. And this is something that's terrible for you. And so essentially, if you're around a bunch of people who have a poor mindset. So by the way, these can be people who all make six figures and they live paycheck, paycheck. And as soon as they got that first six figure check, they went and got the best, best apartment they could get. They leased a Mercedes, they go out to eat every weekend to get the appetizers, they get the drinks, they have a net worth of zero. And if you're hanging around people, even high income people like that, they might, by the way, help you become high income. But if they're living like that, like with a poor mindset, it will Bring you down, you will only be able to fight it for so long. And so, because eventually you're gonna start feeling bad about yourself, human psychology kicks in. And then you're gonna wanna go buy that handbag or that or that new watch or whatever it is. And so being, trying to be conscious around what is it you want in life, whether that, like I said, whether you wanna be an author, for example, whatever it is. And then how can you be around people who are already around the path to achieving that, or at least a step or two ahead of you? Because that's the mindset you wanna understand. You wanna understand how they think. You, you ask, you'd ask Pete Rose how to hit because you know he's a hitter, so how does he think about hitting? What's his attitude when he goes up to the plate? You don't want to be asking people who want to take a walk all the time because they're going to be teaching you their mindset and you're going to end up with the results they're getting.
- [38:28]
Cole Smead
So I'll hit this real quick and not that we need to spend a lot of time on it. Friend comes to you from your past, says hey, can I borrow some money from you? What's your response?
- [38:38]
Brad Klontz
Well, first of all, it's like, no, it's the same thing. I tell my kids no, I mean, I would, since it is my friend, I'm going to want to know more about that. I'm going to try to help them, frankly, but probably not give them the money because to me it does several things. I had a college professor tell me that if you ever want to get rid of a friend, just loan them 20 bucks because it changes the dynamics of the relationship. So now all of a sudden, am I lending you this money? Should you be paying it back? And I caution people like unless you're totally willing to let go of that money. So quite quite literally, your friend says, I can't pay my rent, could I borrow $100? And then tomorrow you see them with a brand new set of sneakers. And if you're not 100% okay with that, I'm not sure you should give them the money because you're going to be destroying your relationship. So I try to find other ways to help. Like why are you in this situation? What happened? How can we, how can I help you think through this and plan for it in the future.
- [39:38]
Cole Smead
And I would add family into that too. I, I would never recommend you do that, cuz you can just ruin Thanksgiving as we Come up on it here soon.
- [39:45]
Brad Klontz
Yeah, it changes the dynamics of the relationship. So it's very dangerous. And it's also dangerous to say no, by the way too. I should throw that out there. Um, so I'm always trying to find. Yeah, no, and how can I help you?
- [39:56]
Cole Smead
Yeah, who can I introduce you to? Who else can I. Yeah, to your point, an arm's length transaction. So on page 121 of your book, you talk about this idea of like, what do you get paid in your time per hour? Let's just say, and therefore, when you buy a good, you should think about it as though how many minutes or how many hours of your time did it cost you to really kind of equate money and time together? I totally agree with you. Another book that we talked about prior that I, that we've done here in the podcast, I think fulfills exactly what you're getting at. It's called Superabundance, where they look at time prices and they track the price of goods in time, much like you do on page 121. Do you look at time and money as a perfect relationship? Because ultimately we all die. So it's not perfect. But would you say it's the closest thing we have?
- [40:43]
Brad Klontz
Yeah, I mean, to me it's sort of the frame of wealth. So we have a chapter in there that poor people buy stuff, rich people own time. And so for me, that's, that's always been a focus. You know, there's the fire movement. Have you heard of the fire movement? These people are real, real sort of extreme around owning their time. And I'm not sure that I'm ready to go to live in that level of sort of poverty to get there. But, but, but the mindset's really, really incredible. And it's like the idea of how can I own more and more of my time so I can do what I want, when I want, with who I want? To me, that's been the game. To me, the game is not how fancy is your car, by the way? If, if that actually led to happiness, I would actually be telling you.
- [41:28]
Cole Smead
We hope you're enjoying the podcast. You know, we work hard putting together this show, but we work even harder for our investors at SMEAD Capital Management. At Smead, we believe in disciplined investing, which is why the Smead funds have a proven track record of long term outperformance. If you're an investor who fears stock market failure like I do and want to invest in wonderful companies to build wealth, we invite you to visit smeadcap.com past performance is not indicative of future results. Investing involves risks, including loss of principal. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges and expenses. Read and consider it carefully before investing. SMEAD funds distributed by UMB Distribution Services, llc. Not affiliated Wealthy people are good at the art of time satisfaction is what you say in your book. So this is not a focus of your book, but I want to talk about this. Let's just say we're looking among wealthy people, people that have accrued wealth in their life or their family or whatever that may be. So when I look at what's going on in second, third, fourth homes of wealthy people, how do you evaluate that? In other words? I look at it right now, I mean, like my family, we're going to go out and get a place to rent where I know the owner of that is literally paying twice as much to own it as we are to rent it at the time that we're doing that. And how do you evaluate when this idea of time satisfaction? Because it's a great location, you feel pleased by that? Or something along those lines, you're back to actually doing, like you said, you're buying luxury goods. This is not time satisfaction, because I think I see that going on a lot as I watch luxury real estate prices in destination places are absolutely bonkers the last three to four years.
- [43:20]
Brad Klontz
Yeah, it's a trap that I see people fall into, and it's the idea that this next purchase is going to bring me more happiness. And so I've seen it. I've seen a lot of people in the phase of unwinding, winding up and unwinding. And so this is the typical pattern, by the way. Okay, at my house, I'm going to get a second house. Here I'm going to get a place where I can ski, and then maybe a summer home. And then eventually people are like, oh my God, I got to manage all this. And then they just want to get rid of it all because they want to simplify their life. And so it's just one of those things where I think it's really, really helpful to actually be good at visualizing things. I heard a comedian once say that the only people who cheat on their spouses are people who have no imagination. You know, they can't think about what's happening next, you know, and then they're sort of shocked at their entire life melting and things going awry because they didn't really picture it. And so I've actually talked Myself out of more goals by closing my eyes and visualizing, actually attaining it and how it feels and, and what am I doing? And then at the end of it, I'm like, all right, no, I'm not. To spend the next 10 years trying to get that. It's not giving me what I actually want and actually need. And so I think it's a balance and it's something to be sort of consciously thinking through because we are all subject to the hedonic treadmill. So you have this thing inside of you that is going to say, I'm never satisfied. I want more, more, more, more. This is, this is the curse and blessing of humanity. Like, we have indoor plumbing because we had ancestors that said, no, no, no, no, this isn't okay. I want things to be different. I want to be able to go to the bathroom inside. And so. But just understand that that hedonic treadmill, there's no happiness on the other side of that.
- [45:07]
Cole Smead
Yeah, I agree. Because I think about the utility like, you know, let's say I'm going to maximize utility from an economics perspective. Well, I'd have to get a lot of enjoyment out of that. And if. Can you really do that among three different locations all at once? I don't think that works like that. So I think a lot about that as I, you know, try to address like, you know, what is that? And it's funny to say this. I mean, I'm 40 years old, I make a good living. I'm like one of the few people in my neck of the woods that doesn't own a second home anywhere. And it's like, I'm. To your point, in the mind, you say, well, you know, something might be wrong with me or I might need to fix this. When in reality is that's just a feeling you have on the outside of humanity looking in saying, why am I not like everyone else? Let me touch up one more thing. You talk about this idea of quiet luxury or stealth wealth. When you talked about this, I thought a lot about my wife. She is not a. You know, she might buy something nice, but she does not want a logo tattooing. Your view of her. Do you think that's very common? Because I live in Scottsdale, Arizona and it's a pretty flashy place. So I think, you know, trying to get a picture of this outside of my own bubble, if you will, is always really helpful.
- [46:17]
Brad Klontz
Yeah. So I did a study where we looked at the ultra wealthy and I compared them to a group of middle class. I'd say Upper middle class people. So the ultra wealthy in the study had an average of 11 million in net worth. And I compared them to a group of people that had half a million in net worth and looked at a bunch of psychological stuff that we're talking about a lot of those things now. But I also asked them how much money did they spend on their last house watch, vacation and car. Okay, so now one group has about 20 times more net worth than the other group and they only spent twice as much on those things. And I found that to be fascinating. It actually blew my mind because I would assume it'd be 20 times more. I mean, that's the logical answer. That's what I was sort of expecting. And really there is a very false narrative in Scottsdale, especially now. There are other places too, Louisiana. But by the way, not most places, just so you know, Miami, Scottsdale, Louisiana. There are certain places where you see these lavish outward displays of wealth occurring. But understand this, that is absolutely not most wealthy people. Bottom line, and this is all research. Most wealthy people, they are money vigilant, as I described. That's the money script pattern we've found. They believe that it's important to save for any day. They'd be a nervous wreck if they didn't have money. Save for an emergency. If you ask them how much money they made, they would probably tell you they make less than they actually do. Conversely, other groups in the studies, they had money status beliefs. They would tell you they make more than they actually do. And those people had lower net worth and they came from lower socioeconomic backgrounds. So outward displays of wealth, that what you should assume is they actually have lower net worth because statistically that is much more likely. The other thing too is you don't know where they are on the wealth cycle. We talked about this, right? You get wealthier. Well, some people are in the process of becoming less wealthy because they have spent. And you only hear about these stories after they, you know.
- [48:18]
Cole Smead
People, yeah, they're the trust fund babies or things. We hear about that.
- [48:21]
Brad Klontz
Yes. Or the Entertainers who had 25 million and now they have 500,000. So you don't know where they are on the cycle of blowing through generational wealth or mismanaging money. But the bottom line is that that need to display outward displays of status, you got to think about what is that? Psych psychology, what's happening. There's some insecurity there. There's a desperate need to be seen as valuable. And so what I always try to train people is when you're seeing that stuff on social media, odds are they actually have less net worth and people who don't have those hour displays of wealth. I'll give you another example too. I grew up in a working class town in Michigan. Now I live in Boulder, Colorado. The labels were way bigger in my low income environment than they are in Boulder. You can't even find a label here. So there really is something to be.
- [49:09]
Cole Smead
Said about that stealth wealth to your point about label. So I live in Phoenix, Arizona now when I was jokingly saying living in Scottsdale, my neighborhood is split, half of it's in Scottsdale, half of the neighborhood is in Phoenix. So when I tell people oh, I live in Phoenix, they're like, oh, I'm sorry to hear that. Kind of like I've lost the game of life. Now the truth is they don't know where I live in the sense of those two cities. But I just say it because it's those stigmas are so powerful to the outsider. There is night and day between Scottsdale, Scottsdale's like a 20 mile long city, north to south, and there's poor, rich, everything under the sun. But yet it has that stigma of, oh, it's a, it's a really normal good, where the more income you attain it, and so on and so forth. Let me pivot marriage. Why is marriage so important? So for all the young people that are like, why should I marry my girlfriend or boyfriend that I've been dating for the last decade of life, why would they do that?
- [50:10]
Brad Klontz
Yeah, we have, we have a chapter that we say go to college, get married, buy a house. And so first of all, I'm not saying you should get married, but the.
- [50:19]
Cole Smead
Bottom line is I am, but I want you to go, I am too, I am too.
- [50:25]
Brad Klontz
But, but quite literally on social media. There's this whole dark masculine hole on social media that I found myself in one day and it's like, you know, marriage is a scam. You know, women just take your money, blah, blah, blah. So there's an entire generation of people growing up that think marriage is a scam and it's actually going to hurt your net worth. And so as a scientist, I'm like, really? Is this true? So I go look at the research and it actually turns out that married people have significantly higher net worth. And so like between the ages of 25, 35, for women, they have 7x the net worth than their single counterparts at the same age. And for men, it's three times the net worth as their single counterparts. And I think there's many reasons for this. So the first is, I think, fairly obvious and practical. It's like you got dual salaries. You got, you're sharing expenses, especially in the age of inflation, by the way. This gap has gotten bigger with inflation. But there's another element in all the studies we've done on psychology and money when we talk about beliefs around money. People who are married have healthier beliefs around money. And I think there's a reason for that. And essentially you have somebody in life saying, what are you doing? Like, what are you spending your money on? And it sort of like makes you become more aware of your beliefs around money and what it is you're doing. And I think it also, you know, quite often you're together and you're planning a future together. So there's a future orientation that gets built into having a close relationship. So it turns out it's good for your net worth.
- [51:57]
Cole Smead
Yeah, you guys don't touch on this in the book, but, like, how would you then say, like, what would the studies then say on kids? Because, for example, like you and I talking before, I always ask people the question, do we have too many people in this world or do we have too few people in this world? How would you answer that question? And then how do you think about kids as part of that? Where are you going? What are you on mission for as a married couple?
- [52:21]
Brad Klontz
Yeah, so I actually don't really have an opinion on too little. You know, I guess I wanted more people because I traded a couple.
- [52:32]
Cole Smead
Yeah. But it's also, as a capitalist, like, if it's a competition, aren't there more people to do business with? And flavors. Well, if you want to talk on.
- [52:39]
Brad Klontz
The economy side, I mean, we're in a lot of countries are in big, big trouble because they don't have enough people. And who's going to take care of the older generation and the whole population shift? And so there's sort of a worldwide panic right now about we need more people.
- [52:55]
Cole Smead
Yeah. But I don't see a lot of studies trying to attack, like, how you solve that. For example, I saw this the other day, Israel, which so everybody knows they're in a war zone. If you're checking the news in the last year, they're producing three to four children per household. It is. And by the way, it's true for secular Jews as well as conservative Jews. And so it's interesting to watch a place like that divert completely from the rest of the world in so many ways. And yet I haven't Seen anybody come out with a study that says, well, here's why, that you could be in a war zone and have that.
- [53:27]
Brad Klontz
Yeah, well, we were talking before too, that a lot of your listeners are into history. And I think it's, it's fascinating that it's the more liberal, highly educated people who are having less kids, and it's the more conservative, more religious people are having more kids. And I think just in terms of history too, I wonder what the world's gonna look like in a hundred years as that trend continues.
- [53:53]
Cole Smead
You're hitting on something I've talked a lot about with people. I say, listen, I know this sounds a very weird, bizarre conversation. Cause it's not in your book. But I like what you touch on from a historical context. I've thought about this kind of like a pruning. I know it sounds really weird to say, like you prune a tree, you take off the branches that you need to get rid of because the tree can't grow until those branches are gone. And what you just said is the people that don't reproduce prune themselves in a way and you end up with the remainder of the tree and then it begins to grow again. I've thought about that. It's a weird way to think about history, but everyone has the chance to do what they want. It's just what they choose to do is what the outcomes end up giving.
- [54:31]
Brad Klontz
Well, what's interesting about your metaphor too is I have immediately envisioned a self pruning tree. So it's nobody's pruning you. It's like you're taking your branch and you're cutting it off and you're ending it.
- [54:41]
Cole Smead
You're saying, I'm done.
- [54:42]
Brad Klontz
And it's a choice. It's a choice people are making. But I also, as somebody who's fascinated with history too, we also have this belief. Now we're really off topic here. We have this belief that the world just gets more liberal. And by the way, I'm not even casting judgment around liberal or conservative.
- [54:57]
Cole Smead
Yeah.
- [54:57]
Brad Klontz
But in reality, when you actually look at what happens is it comes in waves. And so Iran's a perfect example where like in the 60s, very liberal, women's liberation, very liberal place.
- [55:08]
Cole Smead
Yeah.
- [55:08]
Brad Klontz
Miniskirts. I mean, women just driving. And now it's, it's the opposite of that. So it's gone way more fundamental in terms of, you know, eradication of women's rights. I mean, you know, in really profound ways. And so just the assumption that things are gonna move in one direction with the stock market with the population is erroneous.
- [55:30]
Cole Smead
Yeah. So you have two takes on housing in your book. Okay. If you just share with Adrian, I like your take a lot better. So I think you give seven benefits it provides, and I think they're just so on point. Let me just start with one, though, and I'd love to just kind of explain.
- [55:52]
Brad Klontz
Yeah, please don't text me on all seven, because I. Yeah, no, I won't.
- [55:55]
Cole Smead
But let me just use this. So, you know, I come to you. Let's say I'm getting advice from you, Brad, and I say, hey, Brad, you know, if I go to get that mortgage at 7% right now, that's just a lot more expensive than, say, it was in the not too distant past. Well, what that inherently doesn't say, though, is as though it's an ever increasing cost. No, no. At 7%, I've fixed my cost in for my future housing needs. And what no one is saying is that if inflation is good or bad, no matter what, I don't pay the price increases outside of just the maintenance of the home. And I don't hear anyone make that case of what if this actually provides more safety in your life for future costs and therefore is beneficial to you emotionally, physically, like we talked about with kids. Right. You talked a lot about how that safety enhances the experience of the child in that home to have better mentalities around life and money. And yet I don't hear anybody say, you know what? The fact that I know what my problems are and I can address those matter of factly, actually helps me as a human psychologically.
- [57:00]
Brad Klontz
Yeah. So Adrian and I get into a bit of a debate around whether homeownership is good or bad in terms of wealth. And, you know, again, I kind of go to the research and he did too, by the way. He's got some great spreadsheets in there.
- [57:13]
Cole Smead
He does? Yeah, his data. His data on it. I just don't know. Too many people are going to go live in a van, which was his experience. So I tip my cap to him. I have four kids. I couldn't do that. Not even in a motorhome, for that matter.
- [57:26]
Brad Klontz
He's living in a great house now, but it's like, so. And by the way, again, on social media, there's all this, you know, renting's better. There's all these people saying, you should rent, you should rent, it's better. Meanwhile, like, nine out of ten millionaires in the United States own their own homes. And so you gotta sit back and say, hmm, that's interesting. So you're hearing, if you want to become wealthy, you should rent. Meanwhile, nine out of 10 wealthy people own their own homes.
- [57:52]
Cole Smead
Yeah.
- [57:53]
Brad Klontz
Okay. Well, I'm sort of in favor of if there's a goal you want to achieve, and 90% of the people who have achieved that goal are doing a certain thing, you might want to consider doing it. And there's some good reasons for it, too. So the argument for renting is, you know, there's less phantom costs, et cetera. I don't think they really take into account how much rent will be in 20 years for that same thing.
- [58:14]
Cole Smead
Correct, I agree. The compounded effect of that. Yeah, I agree.
- [58:16]
Brad Klontz
Meanwhile, you've locked in your house cost. Maybe not the tax, but at least the mortgage payments. You could also refinance later if you're worried about the interest rate being too high. But it's forced savings too. It's forced saving. So now what most people don't do is take the extra money they would have saved on rent, those phantom costs, because what is that? You have a phantom cost account you're putting money into. No, you're not. And so the argument would be like, if you invested the rest, you'll be wealthier on the end. And there's a great argument there. Scientifically, statistically, I lean more towards the, what are all these rich people doing? I'll probably want to do that for many reasons, including safety and security. Like, most people are renting are only in the place for like two years. Your landlord could be like, guess what? Get out. That happened to me when I first moved to Boulder. We were just going to rent for a while. And I'm looking around and there was no other house to rent in our school district. So quite literally, I'm going to have to change schools for my kid. And at that point we're just like, all right, we're buying a house. So there are other reasons to do it, but the fact is it's for savings. And most, most wealthy people own their own homes.
- [59:22]
Cole Smead
So another thing, because again, we've just been so shaded by low interest rates for a long time. Another argument that can be made is, what if paying off your mortgage actually becomes your best investment decision for a While? So on 7% mortgage, let's just say you're in a 25% tax bracket, which is obviously not the highest. You are making 8.75 pre tax returns to pay off that mortgage. Now, if you can't get that from the stock market, you can't get that from the bond market. You can't get that from your bank. You can't get that from passive income by owning real estate. That's a great return. And I don't hear anyone say, oh, maybe we're in the era where people accrue savings via paying down debt tied to their home, and that actually is the best way to become the next millionaire.
- [60:05]
Brad Klontz
Yeah. And even if it's only like a 3 or 4% historic appreciation in terms of ROI, it's leveraged for most people. Right, I agree.
- [60:15]
Cole Smead
I agree. You make money on the total principle of it, too. I'm thinking about the pay down of the corpus to your point. If it goes up in value, it could be a double whammy. It's a wonderful thing.
- [60:23]
Brad Klontz
Yeah. And by the way, I've never met somebody who had some sort of cash infusion, paid off their mortgage and regretted it, but I know a lot of people who haven't done it who do regret it. So even if you got a low interest rate, again, on paper, it might make sense to invest it. The difference. Whatever. You know, a lot of those people too, haven't really experienced the 40% downturn in a market, which. Which is an exciting experience that, that everyone listening is probably going to have at some point.
- [60:52]
Cole Smead
At some point. Yeah.
- [60:54]
Brad Klontz
But. Yeah, so it's, It's. Yeah. I'm not to be too conservative, but the bottom line is I have a very low interest rate right now and I would love it if I didn't have a mortgage payment.
- [61:04]
Cole Smead
Hey, I want to give a big shout out to everyone who's been working so hard on the show. You know, we recently hit the top 10 investing podcasts on Apple Podcasts and even number one in the business category in several countries. As you may know, this show is brought to you by Smead Capital Management. Smead Capital Management understands how frustrating and illogical the stock market can be. If you are searching for funds with a proven track record, give the Smead funds a look. Or better yet, reach out@smeadcap.com and don't forget to mention that you're a fan of the podcast. Past performance is not indicative of future results. Investing involves risks, including loss of principal. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges and expenses. Read and consider it carefully before investing. Smead funds distributed by UMB Distribution Services llc. Not affiliated. Okay, so I've been waiting the whole time to ask you this, Brad, but why is retirement so bad? And why is it so bad, particularly if you're a man or if you're a woman that has to live with that man might be a better way of putting it.
- [62:12]
Brad Klontz
Yes. We have a chapter titled Retirement is for dead people, which is a controversial hot take, especially if you're retired. But we looked up the definition of retirement. It basically means to stop working. And when we looked up the definition of work. Work is an activity to design to achieve a purpose or result. And our suggestion is that it's terrible for you psychologically to no longer engage in activity designed for a purpose or result. And there's actually an entire syndrome that has been identified. In Japan. You talked about the impact on males. Well, in Japan, there's a lot of workaholics. So by the way, I'm married to, my wife is Japanese. There's a bunch of workaholics in Japan whose entire identity is wrapped up around work and who I am. So they actually have something called retired husband syndrome In Japan, it's entire interventions designed to try to help the woman feel less miserable around the guy who no longer has a purpose or something that he's doing. And so the bottom line is you really have to have purpose. And so I think that if you're attaching too much on the idea of retirement is going to make you happy. That's really not how it works. Especially as you mentioned, if you're real, your identity is wrapped up in work because in work you have to face challenges. You get into what's called in psychology a flow state where you forget about your worries. You know, in retirement, on vacation, on the weekends, you have more unstructured free time. This is sort of the hack. And the bottom line is people are less happy. There's been a lot of research on this, and as I say this, no one's going to believe me, but trust me, it's true. People are less happy on vacation and on the weekends than they are at work. And not if you ask them, but if you give them little happiness meters and every hour they have to check in, they're less happy on vacation and on the weekends because it's unstructured. So the key is you have to have a sense of purpose. And by the way, you can just make this up. You know, maybe your purpose is getting gold medals in pickleball, and you want to become really good at pickleball. It almost doesn't matter what it is, but it needs to involve other people so that you have social connections, and it needs to be something that you're passionate about and that you can sort of lose yourself in the activity.
- [64:26]
Cole Smead
Yeah. I'm going to show another chart that you have here later in the book. And this is going to look at poverty rates over time across various countries. This is the, I'll call it the compounding effect of history and economics and capitalism and human creativity and all these great incentives coming together to produce this outcome. Do you see? Do you ever think of anything that can stop this? I mean, we talked a little bit about population as a potential issue. Beyond population maybe as a potential issue. Do you ever look and say there's something that could halt this progress and trend over time or is it just going to continue to decline over time?
- [65:04]
Brad Klontz
It's sort of leveled out, I think, if I recall, like within the last decade or two. And, but I mean like, but the point of this too is like you hear all the time like how bad things are. And I think it's like any student of history understands how ridiculous that statement is. Like we live in the best time in human history. Now you could debate and say, oh, 10 years ago is better or something, whatever. Yeah, but this is the absolute best time in human history. The quality of life across the world has never been better than it is right now. And I just think that's something that we should get excited about. It's like one of the stats that most millionaires in the US are self made. This is an incredible statistic that should make you really, really excited if you want to make a better life. And so again, it sort of gets at a mindset. Like it's a defeatist mindset. Some people pedal this sort of like it's like a learned helplessness. They peddle it. It just disgusts me when I see it, frankly. And it's usually people feel bad about themselves or something. I don't really understand it. But the bottom line is to me it's like that's a message of empowerment. How incredible. Of course, things. We should work on things. Of course capitalism has its failures, of course, of course. But we have never had more opportunities than we have right now. And by the way, like Adrian's whole thing is making money online. Like he made 1.7 million bucks in a van. Living in a van. It's like you couldn't do that in the past. There's never been a time where there are more opportunities. And by the way, I think that's the best mindset too. That is the best mindset for success and the statistics happen to back it up.
- [66:42]
Cole Smead
But aren't you going to tell us that A politician is going to fix all of our problems. Naturally. Brad.
- [66:47]
Brad Klontz
I know, I know. We're just finished up with an election here. A lot of people are happy, a lot of people are sad. And one of our chapters is, you know, your political party doesn't give a shit about you. And the bottom line is they don't. And when I looked at poverty rates in the U.S. as I mentioned, I grew up humble beginnings. And people in my family were like, oh, we're going to vote for this person. They're going to make our lives better. Well, the poverty rate has been flatlined my entire life. They're not going to make it better for you. Yeah, maybe they'll send you a check for 1,000 bucks or something. I guess that's a new thing now to get reelected. That's what I would do if I was president. I would immediately send you all a check. But. But the bottom line is it's an external locus of control. So it's not just your politicians, your political party, your boss at work. Nobody's gonna do this for you. You have to do it yourself. And what's so interesting historically too, Cole, My grandfather. That wasn't necessarily the case. You know, like my grandfather, there was the promise of Social Security. He worked for gm. GM was gonna pay him a pension. And as a matter of fact, they did. And then when he died, they gave it to my grandma. Well, a few years back, all of that pension stuff got taken away. The liabilities got taken off the corporations. And now it's a defined contribution plan.
- [67:57]
Cole Smead
And what's the risk on the individual?
- [67:59]
Brad Klontz
And what makes me so sad is nobody got a postcard telling them this. They're not being taught it in schools. And so when I run across, people are like, oh, well, the system's gonna take care of me. I mean, it bothers me cause I'm worried about this person. But I understand why they got that idea. And even historically, it was the tribe who would take care of you. And don't romanticize that too much too, because if you were, if you're behind the tribe and you're walking along, a warrior would come around and bash you over the head for the benefit of the tribe. So don't romanticize, you know, our hunter gather days too much. But the bottom line is we had tribes that would take care of us. Companies were supposed to take care of us, the government's supposed to take care of us. Nobody's going to take care of you. Wake up. You got to do it yourself. That. That is sort of the mindset that we're trying to instill.
- [68:44]
Cole Smead
When I agree, and I think it, you know, to your point, giving people ownership of how they think about things, how they think about their everything from their income to their wealth to their time. I think you and Adrian do such a great job of hitting that on your book. I want to ask you, for our listeners, where can they follow you, Brad, going forward and where can they follow Adrian as well?
- [69:03]
Brad Klontz
Yep. So I'm at Dr. Brad Clonton on social media. You can find Adrian Brambilla on all social media too, where we're there trying to educate. And for your listeners, we have a website, startthinkingrich.com a book with Legs, where if people want to get the book, then get it there. But we'll also have some other giveaways in appreciation for your audience.
- [69:24]
Cole Smead
Awesome. Well, this has been a lot of fun. I thank you for your time and thank Adrian for me too. Start thinking rich makes me think about the second, third and fourth gears that we must shift into into our marriages, our families, our careers, and really our legacies as we grow. Very few people equate. Time and money is interchangeable. We talked a lot about that today. Though it can't stop death, it can slow it for sure. We must focus on both time and money. If you enjoyed this podcast, go to Apple, Spotify, YouTube or wherever you listen to A Book with Legs, give us a review. Tell others about the books and authors like Dr. Brad Klontz that we get to share the world with and through. Let's see for our tribe. If you have a great book that you'd like to recommend, email podcastmeadcap.com that's podcastmeadcap.com you can also send your suggestions to us on X. Our handle is Meadcap. Thank you for joining us for Book with Legs podcast. We look forward to the next episode. Thank you for listening to A Book.
- [70:25]
Brad Klontz
With Legs, a podcast brought to you by Smead Capital Management. The material provided in this podcast is for informational use only and should not.
- [70:33]
Cole Smead
Be construed as investment advice. You can learn more about Smead Capital Management and its products@smeadcap.com or by calling your financial advisor.