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The Psychology of Money with Morgan Housel
A Few Important Questions For You (And Some Thoughts About Buffett)
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One of my favorite quotes is from David Packard, who once said, more businesses die of indigestion than of starvation. I see this all the time. It is so common with money, whether it is for you individually or for your business, that people get so tangled up in the big, complex projects that they drop the ball on the small stuff. To do well over time, you have to get the simple stuff right first. And one of those fundamentals in business that often gets overlooked is expense management. And that is why 25,000 businesses use RAMP. Ramp is a corporate card that includes the best expense tracking and reporting software that I have ever seen. It makes expense management so simple by automatically capturing every transaction the moment a card is swiped. For listeners of the show, Ramp is offering metal cards for the next 30 days. Just go to ramp.commorgan. that's ramp.com Morgan cards are issued by Sutton bank member FDIC. Terms and conditions apply. Before I start today, let me say a couple words about some of the biggest business news that has occurred. If you are an investor or following investing like I have for many years, which is that Warren Buffett announced his retirement. He's going to be leaving Berkshire Hathaway at the end of this year. So much has already been said, a lot of it interesting, some of it not so interesting. I want to add just a couple of comments that I think were most important to me about Buffett and Berkshire Hathaway, which are the things that I think are repeatable that you and I can actually learn from and do something about. Because so much of the commentary about Warren Buffett, what can you learn from them are things that you and I can't actually implement in our own lives. They're either too complicated, they take too much time, they're only work for someone who's devoting 24 hours a day to investing, or they are lessons that are taken away from, you know, the trading environment, the investing environment of the 1960s that just opportunities that don't necessarily exist anymore. But there are lots of things that we can learn about investing and money and life from Warren Buffett's 60 year career that I think you and I can take away and implement in our own lives. Some of these quotes I'm about to tell you came from Charlie Munger, his late business partner. But all of these, I think had a major impact on the success of Warren Buffett and Berkshire Hathaway that you and I can use. Okay? Quote number one, I did not succeed in life by intelligence. I succeeded because I have a long attention span that was Charlie Munger, who said that. And I think that is so true about the entire career of Buffett and Berkshire Hathaway as well. Yes, Warren Buffett is a good investor, of course, but the real secret, literally 99% of his success and wealth came from the fact that he's been a good investor for 80 years. Buffett made his first investment before Pearl harbor and he was a professional investing manager when Harry Truman was president. Like this guy's been doing it for a very long time. And that endurance and longevity and just that long tail, that's where the success came from. And for, for you and I and everyone else listening, the biggest and most important thing that you can do to become a better investor, to become better with money, is increase your time horizon. That is not easy to do. But nothing that is worthwhile is supposed to be that easy. But that's where all the success comes from. If you want to be a better investor, spend less time thinking about how you can improve your returns and more time thinking about how you can be more durable and having a longer time horizon. All right, number two, have maximum financial flexibility to face both hazards and opportunities. That was part of the secret of Berkshire Hathaway too, was, yes, when the world was falling apart, they did not get sucked into it, but also they had cash and money to take advantage of those opportunities. What I'm reminded of here is a philosophy of saving like a pessimist and investing like an optimist. You want to save money with the idea that the world is fragile in your personal life and in the broader economy, because it is. It's a constant chain of surprises and mishaps and setbacks. But you want to invest your money with the idea that if you can endure those setbacks and take advantage of them, the returns for those who can stick around can be extraordinary. All right, next one here. This, I think, was from Munger too, who said, wisdom is prevention. Wisdom is prevention. We can talk ad nauseam about what Berkshire Hathaway and Warren Buffett did, the investments that they made, the great trades that they made, that the long term time horizons that they had. What is equally important, if not more important, is what they did not do. Didn't get caught up in leverage, didn't have many, if not any scandals, didn't fall for fads, didn't suffer from fomo. Wisdom is prevention. It wasn't what they did, it was what they did not do. This, I think is very important for individual investors too, because we are so lucky to live in a world where we have so many investing tools and opportunities at our fingertips. And if you have $10 to invest, you can open up a brokerage account and invest in a low cost index fund that lets you invest alongside the most extravagant, incredible businesses in the world. We're so lucky to live in that world. So fortunate to live in that world. And it means that really all you need to do to do well over time is not screw up. The upside is already kind of set for you. It's not guaranteed, but the opportunity for upside is already set for you. You just have to not screw up. Wisdom is prevention. And then last. This one is very related to that last point. But I love this quote. The quote is Berkshire's success is an inversion process. Start out with failure and then engineer its removal. Rather than asking, how can I get better? What is the path to success? Start out by saying, what does failure look like? What would I end up regretting? What is failure? And now how can I just avoid that? And if you remove the past, the avenues to failure, a lot of times what you will see is what you end up with is something that looks a lot like success. All right, so getting into this episode, I think it's often true with money and investing, but a lot of things in life that we are looking for answers to our problems, trying to find the right answers, but we're not asking the right questions to begin with. That's a little bit cliche, but I think it's often helpful to come up with a list of questions about your life, about the world that you don't have any answers to whatsoever. I've done this a couple times. I ended my book, same as ever, with a list of questions for you. And it was questions that I don't, I think almost by definition are impossible to answer. And so I want to leave you with a bunch of questions today that I will challenge you to ponder within your own life. But with the asterisks on there that I don't think you can answer these questions honestly. I think it's too difficult, if not impossible. But they're very helpful to me at least to ponder some of these questions about my own life. So, all right, here we go. Which of my strongest beliefs were formed off of second hand information versus firsthand experience? What do I strongly believe that I just read somebody else's view on versus actually experience myself? All right, next one. If I could not compare myself to anybody else, how would I define a good life? Next one, whose views do I criticize that I would actually agree with? If I lived in their shoes. Who do I envy that is actually less happy than I am? Looking back, am I any good at anticipating how I would feel and react to risks that actually occurred? Is my desire for more money based on the false belief that it will solve personal problems that have nothing to do with money? How many of my principles are cultural fads? Whose silence do I mistake for agreement? What kind of lifestyle would I live if no one other than my immediate family could see it? What events nearly happened that would have fundamentally changed my life for better or worse, had they occurred? What views do I claim to believe in that I know are wrong, but I say them because I don't want to be criticized by my employer or industry? How much of what I do is internal benchmark, as in it makes me happy versus external benchmark, as in I think it changes what other people will think of me? Am I thinking independently or going along with the tribal views of a group that I want to be associated with? Whose approval am I auditioning for? Which of my principles would I abandon if they stopped earning me praise and recognition? If I could see myself talk, what would I cringe at the most? What question am I afraid to ask because I suspect I know the answer and I don't want to hear it? How much of things outside of my control contributed to things that I take credit for? How do I know if I'm being patient, which is a skill, or stubborn, which is a flaw? What crazy genius that I aspire to emulate is actually just crazy? What strong belief do I currently hold that is most likely to change in the future? Which future memory am I creating right now, and will I be proud to own it? Am I addicted to cheap dopamine as so many of us are on social media? And last, if I were on my deathbed tomorrow, what would I regret the most? So again, I don't know if I or you can answer those questions for yourself. They're very hard to answer. But I think rather than spending your time trying to figure out what's right and what the answers are, I think if you ponder some of those questions, maybe you will become a little bit more humble, a little bit more grateful, a little bit more empathetic towards others, maybe even a little bit happier. And so I will challenge you to think about those and ponder some of those questions. And we'll end it there. That's it for this episode. Thanks again for listening and we'll see you next time. And Doug Limu and I always tell you to customize your car insurance and save hundreds with Liberty Mutual. But now we want you to feel it. Cue the emu music. Limu Save yourself money today. Increase your wealth. Customize and save. Save. We save. That may have been too much feeling. Only pay for what you need@liberty mutual.com Liberty Liberty Liberty Liberty Savings Very unwritten by Liberty Mutual Insurance Company and affiliates. Excludes Massachusetts.
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