← The Psychology of Money with Morgan Housel
The Psychology of Money with Morgan Housel
Respecting Each Other's Delusions, Memory Dividends, and What Our Grandchildren Will Enjoy
00:22:18
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- [00:01]
Morgan Housel
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- [00:27]
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- [01:03]
Morgan Housel
Welcome back. Good to see you. Let me start with a quote that I read from Nassim Taleb many years ago and it's going to apply very well to what we're talking about today. The quote is if something looks irrational and has been for a long time, odds are you have a wrong definition of rationality. Very good quote. You could apply that to many things. And I thought of this this past weekend because I had this experience where I read somebody's political beliefs, doesn't matter what it is, because if I say what it is, I'm going to anger half of you. But political beliefs that I really disagreed with, not only disagreed with, but I thought, how could anyone believe that to be true? How? Like how could you believe that without being disingenuous? Had to do with tax rates. Doesn't really matter what it was. Doesn't matter what I believe that was my knee jerk reaction was to have that. Like, how? How could you think that? And then as I try to do with these things, easier said than done. But you try to take a step back and say, okay, if I had experienced what this other person has in life, would I believe the same thing that they do? And if I'm trying to be really honest with myself and as empathetic as I possibly can, the answer is almost certainly yes. That this person had experienced a level of economic uncertainty that I never have in my life. But if I did, I would probably believe that and I would believe it to be true with as much certainty as I believe what I believe to be true right now. And so it's this idea that you can look at other people's quote, unquote irrational beliefs, but then if you can actually force yourself and it's so difficult to be in their shoes, you're like, oh, maybe that does make sense to me. I think that the majority of economic and political and social debates would disappear if you could actually see through the eyes of your opponent who you're debating with. If you could actually be in their shoes and know what they believe, all these things would disappear. Jason Zweig of the Wall Street Journal wrote this many years ago. I have it in my notes. He said, if I ask you in a questionnaire whether you are afraid of snakes, you might say no. If I throw a live snake in your lap and then ask you if you're afraid of snakes, you'll probably say yes and never talk to me again. And so it's just this idea that the gap between believing something as an outsider versus someone experiencing real uncertainty and risk and fear in the moment can be a mile wide. And you can apply this to really big things as well. There's a theory that we have big events like World wars every 60 to 80 years because that's how long it takes for the previous generation to experience it and said never again to die off. And then you have a new generation who's never experienced that kind of trauma, who says, maybe we should give it another shot. And you have these big events that keep coming along like that. And so, look, I think if you go out of your way to try to see the world through other people's eyes, you a become less cynical about other people's bad decisions and other people's irrationality. And I think you become a little bit more humble about your own beliefs and more accepting that I believe X, Y and Z, because I was born in this country, in this generation, to these parents, and through nothing but sheer dumb luck, have experienced these certain events in my life that led me to believe this is how the world works and you do the same. And so I think a good mental exercise for everybody. And this goes beyond politics, because investing in economics and finance has a very strong political element to it. It's almost unavoidable. Ask me yourself these questions. Which of my current views would I disagree with if I were born in a different country or a different generation? That's a tough one. That's a big one. A common complaint I got about my first book, the Psychology of Money, was that it was only relevant to a white American male. And my response to that would be like, yeah, guilty as charged. Of course I'm going to see the world through my life. I can try to be empathetic, but no amount of empathy can actually recreate genuine uncertainty and genuine fear in the moment. Next question. Ask yourself, what have I not experienced firsthand that leaves me naive to how something works? You can apply that to so many different things. Next, what is a problem that I think only applies to other countries or industries or careers that will eventually impact me? Of course, it was not that long ago, like two years ago, that some of the best career advice we could give young people was learn to code. And who are seemingly the first job to be completely upended by AI. It's coders. And that happened in 24 months. And I think to some extent it's impossible to actually answer those questions. Maybe that's the point. You have to experience it before you can actually understand it. And so the biggest takeaway to me is when you try to be more empathetic and outside of the own little bubble that we all live in, you become less cynical about other people's beliefs and more humble about your own. All right, let me get into your questions. Please send me more of them. Of course. Podongtermwords.com first question comes from Tim and he says, how do I deal with the reality of switching away from a high paying corporate job, which I find increasingly demotivating? My real passion is racket sports. The career switch seems drastic and risky, not to mention the income stream that I'll give up. Tim, without knowing very much about your personal situation, let me say this. It is extremely hard for anyone to go backwards in lifestyle. If you give up your high paying job and you have to ratchet back your lifestyle, maybe you don't, but let's say you do. That's very difficult. And it's easy to underestimate how difficult it's going to be. To give an example, if you go from a Honda to a BMW, feels pretty cool, feels okay. If you go from a BMW and you are forced to go back to the Honda, it can be devastating, it can be crushing because you realized how much of your lifestyle, whether it was the home you lived in, the car you drive, the vacations that you took, the restaurants that you ate in, became ingrained in your identity that that was who you were. And if you are forced to give it up, it can be a very hard thing to deal with. But let me say this about demotivating jobs as well. Of course there are soul sucking jobs that are miserable that people should not put up with, should not tolerate and go find something else to do. There is another side of this. There's a great quote from Jeff Bezos where he says, if you can enjoy half of your job, that's really good. If you enjoy it 50% of the time, and the other half of the time you hate your job or your job is boring and menial, that's a good balance. No job is fun 100% of the time. There's a really good interview recently on David Sen podcast with Rick Rubin, the famous music producer and one of the most famous men in music in all of history. And he talks about how. How many mornings he wakes up and looks at his calendar and says, oh, I have to go to the studio today. I hate going to the studio. I would much rather just sit around and take a nap and read a book. Most jobs have elements that are not fun, and that's okay. We've probably done a lot of brain damage to young people with this idea that work should be perfectly fulfilling and match your view of the world and your values and whatnot. A lot of times work is just work. And if you tell yourself that the bad parts of your job you should not tolerate, you should go find something in where you always enjoy 100% of what you're doing, that I think is fiction, that I think is a fairy tale that just doesn't exist very often in the world. The last thing I would say is related to that last point. There is huge dignity and honor in working hard to support your family, in doing things that are not always fun and enjoyable, but you're doing it for the right cause, which is working hard to support your family. Now maybe, Tim, you could do that with a career in racket sports, I don't know. Or doing something else, finding a better job with a better boss. That might be the case, but I think we overlook that aspect too often. And maybe it's because the world has become so comfortable and wealthy that we have less tolerance for hard jobs, at least in some parts of the world. That I think reminding yourself that working hard to support your family is one of the most honorable things that you can do. All right, next question. It says, currently I have a very high savings rate, but I also think that if I don't learn to enjoy money now when I am young, I will have a hard time spending money when I am old. And who knows if I will still have health by then. From your experience, and if you could go back to your 20s or 30s, would you dedicate at least a portion of your Income for fun and memory dividends. It's a very good question and I think a lot about this myself. I've been a big saver for my entire adult life. Ever since I earned my first dollar when I was, I don't know, 16 or 17, I've saved the majority of what I've ever earned. And what's interesting, when I look back to my teens and early 20s, I would move mountains and make enormous sacrifices to save a hundred bucks. And let's say that that money that I saved and invested when I was 20 years old, because I invested in the stock market, it's now today it's worth three or four hundred bucks. Pretty good. I grew it over the years. Here's the truth. Three or four hundred dollars means nothing to me today. And so then the question is, if I look back at when I made enormous sacrifices to save an amount of money that frankly means nothing to me today, was it a mistake that I saved that money back then? And I think maybe this is just my self justification. I think the answer is no. And I'll tell you why. The fact that I learned how to save when I was 17, 18, 19 years old and built up that muscle memory of here's how to make sacrifices, it wasn't even sacrifice. I've always had. I've always enjoyed my life, but learned how to delay gratification and save meant so that when my income went up in my 30s and early 40s now saving was no issue. It'd be like, I've been doing this forever. I know exactly how it feels to earn X dollars and save half of it. I know what that feels like because I've been doing it since I was 17. And so the value of saving when you're young is not necessarily the money that you're saving. It's building up that muscle memory so that when you earn money later in your life, more money, it becomes easy to you. That's what I think the value really is. Now a somewhat different topic, but I think this is important. If you find yourself in your 70s or 80s and you are still compounding money in a very big way well beyond what you need for your immediate financial goals, I don't want to say that's foolish because everyone has their own goals and their own values. But I kind of hope that I don't do that. I kind of hope that if I get to some point in my life, I say I would rather this money go towards either my heirs or charities rather than just watching it grow into infinity over Time. And so whether it's spending my money and enjoying my money and building the money dividends that you talked about, but spending my money when I can see the fruits of its labor and giving that money away or whatever I want to do with it, really important. And so when people think about, like, oh, I have a hard time spending money, there's ways that you can disperse money without it going towards an expensive vacation. A lot of good causes, a lot of good charities out there would love your money. And you will get a lot of benefit and joy from it, I guarantee you. Last thing I would say about spending money in your youth is that a lot of amazing experiences do not cost much money and a lot of hollow experiences do. And I think to some extent, the more you try to force money into having a good time, the less fun it's going to be. If you ask a lot of adults, when do you have the best memories in life? When was it most enjoyable? A lot of them will tell you, like, oh, high school, college. I had so much fun with my friends. We had so many funny stories. We went on so many fun, like road trips and whatnot. And a common denominator of that phase of life is that most people don't have any money and they had a blast. And by the way, when are most people the saddest in life? Statistically, from all the surveys, it's midlife, 40s, 50s, when you're probably earning more money than you you ever will for the rest of your life. And so it's not that there's a negative correlation between money and happiness, but I think the more we try to force it, the harder it can be. I think about that in my life when I think about college and right after college, when my wife and I had very little money, we had enough to have a dignified and enjoyable life. But those years were so good and so fun and they didn't cost that much. And so don't worry about, as a young person, of saying, should I spend more money on experiences? You should have experiences. Not all of them cost a lot of money. All right, next question. This one's from Michael. He says, related to the last question, Morgan, you have been a saver all your life. This means you started compounding early. It seems that I missed the early entry boat with compounding. What can you tell older listeners like me who did not have the mindset of beginning to invest when we were young? It's a hard question because you might not like this answer, but I think this is the honest Answer. If you find yourself older, however you want to define that and you say, I haven't saved enough, the worst thing you can do, and a lot of people do this, is to say, in order to reach my financial goals, I need to take a lot of risk. That's the only way that I'm going to reach those goals. And I will just remind you that the stock market does not know or care how old you are. It's going to do whatever it's going to do. And if you are taking outsize risk to get to your goals, you are accepting the downside risk as well. And so my advice to you would be embrace reality with both hands. If you have found yourself, let's say, 75 years old and you don't have enough, save for the life that you wanted to, the solution is to adjust your expectations accordingly. I told you might not like that answer, but I think there can be a positive side to this as well. It is very likely that anyone in the situation has enough money right now that would be enough to somebody else. In a different mindset, it would be enough for somebody else. It may not be enough for you because your expectations are different than theirs. So the solution for that is not necessarily taking enormous financial risks or staying in work for much longer than you wanted to. It can be adjusting your expectations much easier for me to say that than it is for you to do it. But this is where embracing reality with both hands is so important. Another part of this question was, says Morgan, secondly, you seem to be an outlier in terms of being able to save and invest and not spend while young. What can I tell young people to behave in the same way? This, too is maybe an answer you don't want to hear, but I think it's the most honest. There's a story that maybe it's apocryphal. Charlie Munger used to tell it a lot. A young musician came up to Mozart and said, mozart, I want to start writing symphonies. What advice can you tell a young person? And Mozart said, You're 25 years old. You're way too young to be writing symphonies. And the student said, but Mozart, you were writing symphonies when you were 8. And Mozart says, yes, but I was not asking for anybody's advice. It's a blunt story, a hard story. Maybe it's apocryphal, but I think it's true that it's very hard to get a young person to save a ton of money through education. I think a lot of times it is just ingrained in Their personality. And when you meet a big saver, it is very often, not always. I'm obviously pro financial education, but when you meet someone who's been a big saver their whole life and you ask them who taught you how to do this? The answer is, usually nobody. It just made sense to me from day one. That tends to be the case now. Financial education can absolutely prevent bad decisions. It can prevent a lot of downside. It can steer people in the right direction. But I think the people who have been mega savers since the time they were teenagers could not have done it any other way. That's just who they were, and no one needed to tell them how to do it. All right, next question. This is from Pedro. He says, sometimes I wonder whether my children or grandchildren will be able to enjoy experiences that still feel relatively attainable today, like visiting the Coliseum or watching a live World cup game or going skiing, not because technology won't keep making us richer, but because demand for these scarce experiences may grow at an even faster rate than anyone could expect. Do you think that's a reasonable concern? I'll give you the very personal version of this. For me, I grew up skiing. That was my sport. I was a competitive ski racer. And skiing in the 90s was a middle class sport. And a lot of people on my ski team, their parents were plumbers and nurses and middle class jobs. It is not like that anymore. If you've tried to go skiing in the last couple years, it is unbelievable how expensive it has become and is priced out the majority of people who used to be able to do it 20 or 30 years ago. So it's a real thing that you're talking about that as society gets richer, things that used to be attainable become more in demand. And if there's a fixed pile of them, it's hard to create new ski resorts. The price goes up and up and up and up. One thing I would say is that what tends to be valuable to people is not necessarily what is fun or beautiful or anything like that. What tends to be valuable to people is what is scarce. The sociologist Rob Henderson told this great story about this, which is that when he went to Yale, the play in the movie Hamilton was huge among all of his Yale classmates. They loved it. They went to see it and they talked about it and it was amazing. And then Hamilton became available to stream on, I think Disney or whatever platform it was on. This was 2020, I believe. And then anybody in the world could go watch Hamilton. It was streaming. And during the COVID Lockdowns. A lot of people did. I did. And Rob Henderson tells a story that once Hamilton became available to the masses, his friends at Yale suddenly hated it. And talking about Hamilton was like, ah, you're still talking about that thing. It was cool when it was scarce. As soon as it was not scarce, they didn't value it that much anymore. There's another amazing story about pineapples, the fruit a pineapple. And how about 150 years ago they were unbelievably scarce and people would sell pineapples in America for the inflation adjusted equivalent of $20,000 per pineapple because they were scarce. And so scarcity is where value comes from. You can easily imagine a world in which my grandkids, your grandkids, are doing things today that are very scarce to people today, whatever that might be, some form of vacation that is only reserved for the wealthy today, that will be available to the masses by then. And so they won't appreciate it that much because it's not scarce anymore. But they will find their new scarce thing to value, whatever that might be. People will always sort themselves into hierarchies and the top of the hierarchy is, I can obtain something that you can't. Regardless of what that is. It can be a play, it can be a vacation, it can be a pineapple. We've been doing it forever. We will do that forever. All right, last question. This one's from Matt. He says, is it illogical to be an optimist on the future path of humanity and still pessimistic on the stock market because of market valuations compared to history? My gut reaction is to say, yes, it is illogical because I'm confident that we're going to create better technologies that'll make us more productive and value will accrue to investors over time. The last part's the most important. Over time, over a very long period of time. Now, can I think of counters to that? Yeah, of course. The Soviets came up with a lot of great technologies. I don't need to remind you that you could not have been an investor, that China in the last 20 years has created a lot of unbelievable technologies, created a lot of value, and the stock market has not done very much. Japan went about 30 years of stock market stagnation, if not decline. So are there examples where society as a whole grew technologically and the stock market did not follow? Yes, there are examples, but so much in the stock market is not a guarantee. It's just the best odds that you should be placed in. And so Would I look anyone in the eye and say, I promise you the stock market will be higher in 50 years? No, nobody can do that. But I think it has the highest odds of where I should put my money? Because you can think about the counter example to this, Matt. You would say, look, I'm bullish on humanity, but I think the stock market's overvalued. So what are you going to do with your money? You can sell and wait for the stock market to crash and fool yourself into thinking that you're going to time it perfectly to get back in. Or you could put your money somewhere else and say, I'm going to invest in bonds or cash or gold or whatever it might be that historically are almost certainly not going to outperform stocks over a very long period of time. And so the question is not, is this a perfect investment? Because it never is. The question is, are the odds in my favor that this is where my money should be over the long term? And I think, despite everything that's going on in the world, that answer is yes. All right, I have a recommendation for you. Now, I read recently. It's a big book. It's a long book. This book called Power Failure by William Cohen. He's a fantastic writer. The book is about the growth and subsequent downfall of general electricity, which, of course, was the poster child of corporate brilliance for decades. In the 80s and 90s, Jack Welch was like the first celebrity CEO. And then everything unraveled in the 2000s, and it became a shell of its former self. And it's a look at kind of the corporate sociology of how it happened. Now, even if you're not interested in that topic, so much of it is how you let your guard down after you become successful, that once you reach the top of the mountain, whatever that might be, you say, I'm the king. I can relax. I'm the king. I make good decisions. I'm the king. Nobody can catch me. And that's the highest moment of your vulnerability. It's a fascinating tale. It's not technical. It's a tale of personalities and egos run amok. I really enjoyed it, and I hope you will, too. And thank you again for watching. We'll see you next week.
- [23:15]
Ryan Reynolds
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- [23:37]
Morgan Housel
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- [23:44]
Indeed Sponsored Jobs Announcer
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