← The Psychology of Money with Morgan Housel
The Psychology of Money with Morgan Housel
Why I'm an Optimist, And Growing Apart Financially
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I've had several conversations recently about optimism and basically how can you remain optimistic on the future when there's so much obvious downsides and risks in the world and the country right now? On one hand, I understand that there's a lot going on right now, whether it's AI or politics or whatever it might be. Wave your arms at all the things going on that could leave you unable to be optimistic on the future. However you want to define the future. One year, 30 years, 100 years, whatever it is. It's not to poo poo the risks, but I'm as optimistic as I think I've ever been when I'm thinking about the next 10, 20, 30 years. And that doesn't say anything about the risks that we might face on the path to get there. And I was reminded of this amazing interview I saw of Mike Moritz, who was the head of Sequoia, which is the most successful venture capital firm of all time. It's behind some of the biggest tech companies. It was the early investors, and it's been one of the best VC firms not for the past five years, but for the past 45 years. And Mike Moritz went and did an interview with Charlie Rose 10 or 15 years ago and Charlie Rose asked that question. He said, how have you been so successful at venture capital, not just for this cycle, but for the last four decades? And Mike Moritz answer was, I think we've always been scared of going out of business. And what I loved about that was like, if there's any investor in the world who has the right to say the reason we're successful is because we're so smart and we're so good at what we do, it's him. It would be someone like that who could say that without a lot of ego? And it was the opposite. We're so successful because we're terrified of going out of business. What that shows, I think, is a perfect personification almost of this tension between getting rich and staying rich. And that has to do so much with your ability to be optimistic over time. Getting rich requires one set of skills. Taking a risk as an investor, being optimistic about the future, taking a risk, staying rich is like the opposite. Staying rich in Mike Moritz's case was we're terrified of going out of business. This constant sense of pessimism of how dangerous and risky the world is. And for you and I, it's probably the sense of whether it's in the job market or the stock market, a full recognition of how volatile and risky and uncertain things can be, while you remain very optimistic about the long term. And I think about that because as an investor, one of the biggest things I want to do and the most important things I want to do is be unbreakable as an investor. I want to be unbreakable as an investor. Not because I'm so scared of short term volatility. It's just because if I can merely endure short term volatility and everything that's going on in the world for 30 or 40 years, the returns will be astounding. And so more than I want big returns, I want to be unbreakable. Let me show you what I mean. Take a look at this chart. This is real GDP per capita in the United States going back to 1850, very long period of time. And if you're just listening to this instead of watching this on video, it's a chart that just goes up and to the right over time. This is the growth of the US Economy over a very long stretch of period of time, adjusted for inflation, real GDP per person. It's astounding. The little blip in the middle you see there is the Great Depression. But over time, the growth has been astounding. And what I think is so important about this chart, if I left it just right here and said, look at that, look at all that growth. That's optimism. Let me tell you what happened during this chart. I made a little list of things that happened during this chart. 1.3 million Americans died while fighting nine major wars. Roughly 99.9% of all businesses that were created went out of business. Four US presidents were assassinated. 30 separate natural disasters killed at least 400Americans each. 34 recessions lasted for a cumulative 48 years. During this period, the number of forecasters who predicted any of those recessions rounds to zero. The stock market fell more than 10% from a recent high at least 111 times that I could count during this period. The stock market lost a third of its value at least 13 times. Annual inflation exceeded 7% in 22 separate years during this period. And maybe my favorite, the words economic pessimism appeared in newspapers at least 39,000 times according to Google. All that took place during that spectacular growth. And though I know that goes back to 1850, it's not a reasonable time horizon. But if you truncated it that down to whatever your lifespan is, you'd get a similar result. A lot of growth during a period that was constant upheaval. And at every single point on that chart or during your life as an investor, as someone who's participating in the economy, there is always and always will be a hundred things to worry about and a hundred things that are clearly going wrong in the world and posing a major threat. And if you survive those over time, the odds that you will do well are in your favor. And so that idea of getting rich versus staying rich that requires this barbell personality of very optimistic on one hand and very cognizant of risks on the other at the same time is so vital to surviving the economy and doing well over time, no matter who you are, what your career is, or how you're investing. So let me get into some of your questions. Thank you again for sending them in. Send more of them please, to podongtermwords.com podongtermwords.com first question getting right into it. This one's from Kelton and Kelton asks, if you are 25 years old today, with a business degree, modest savings, no family wealth, and a long investing horizon, where would you spend your time learning over the next five years? I'm asking because I'm far more interested in building lasting judgment and character and business acumen over the next 30 years than I am trying to get my next promotion. Kelton, first of all, great question because it seems like you've already figured a lot of things out of learning long term wisdom in those topics rather than just short term promotion and trying to get ahead in your career or investing. First off, it seems like you're on the right path there. The only formula that I tend to use in money and investing is that a pretty decent formula for a good life is independence plus purpose. You need some degree of financial independence to be yourself and live your own life, and you need some greater sense of purpose. That's going to keep you going and giving you something to live for, to enjoy life. You need one of those two. And so I think you could also break that out into you need a marketable job skill that's going to pay you, and then you need to understand how the world works. That's maybe just a different version of that equation. I won't tell you what marketable job skill you should have because I don't know you or anyone else. But let me give you a much broader answer to this question. I've always been interested when I'm learning about history and learning about how the world works. What I want to pay the most attention to are the behaviors that have always been true, that were affecting people a thousand years ago, that are affecting people today. And therefore I know is going to have a big impact on the world that I live in, that we all live in over the rest of our lives. Something that has always been true and always will be true is so much more valuable than something that might be true over the next year. And so when I look back at what has been the most valuable for me to learn that I still want to learn now, it's those timeless behaviors. And if I really try to answer your question about the intersection of marketable job skill and long term wisdom, I came up with a couple ideas that I think could help in your job, but are also just true of really important things to pay attention to and to learn over time. The first is the value of good communication. You can't understate how important this is in any field, in any historical period, no matter what you're doing, the best story always wins. Not the right idea, not the best idea, not the most accurate answer. It is always true that no matter where you are, the best story always wins. I've talked about this before, but my favorite example of this, because it's so relevant to what I do, is the book Sapiens came out, I don't know, 15 years ago or so and sold a zillion trillion copies. It just absolutely exploded. One of the best selling nonfiction books of all time. And if you are a historian or an anthropologist, that drives you crazy because so many of them look at the book and say, there's nothing new in there. There's no broken ground in there. Everything that he writes about in that book has been trotted out a million times before than other authors and it drives them crazy. And my response to that is, yes, that might be true, but it's very well written. It's an unbelievably good story that you can just kind of like graze your eyes over and soak it all up. It takes very little effort, understand it. It's a very good story, and that's why it wins. I think you can extend that to almost any field that you're in, because no matter what you're doing, there is usually more opportunity in explaining old things better than there is in trying to discover something new. Like, there's a lot of value in discovering new things. There's more opportunity in just like, what have people already figured out that they haven't explained very well? And you can make that better no matter what you're doing. The ability to communicate that is incredible. You see this in medicine where, like, bedside manner from your doctor is not a nice to have. It is so unbelievably important to understanding the power of good communication. What I think a lot about with writing is that the person who can say the most in the fewest words wins. So much of what good writing is is just brevity and getting to the point. I would explain more, but that would be kind of contradictory. Right. The next skill I think about is getting along with people who you disagree with. This is probably more important than it's ever been because we are more aware of what we disagree with each other about because of modern media and social media. It wasn't that long ago that I would never have any idea what your political views were. We never talked about it, we never shared them. But because of social media, now, even just by who you're following and who you're interacting with, I can probably guess what you think about the world. And half of it is going to be things that I disagree with and the ability to get along and understand other people's points of view that you don't agree with. And asking the question, not why do you believe what you do, but instead asking the question, if I had experienced life in the way that you have, would I believe the same things that you do? And a lot of times the answer to that question is yes. There's a great historian named B.H. liddell Hart, and he wrote in one of his books this quote that I loved. He said, learn enough from history to accept one another's delusions. I'd love that. Accept one another's delusions. I have them, you have them. And of course, there's a limit to that. There are some people's delusions out there that do immense harm in the world that we should not accept. But generally, most of the time, day to day. Accepting other people's disagreements is an important skill. The last I would talk about is study failures in business, in sports, in politics, in your own career. I think there is more to learn from people who have failed at doing something than there is to learn at people who have succeeded. And I'll explain why. It's very simple why this is. Most successes are very individual to that person or that company in ways that you or even they could not repeat. It was very specific to their era and the opportunities at the time that made them successful. But most failures tend to be pretty generic and caused by things that just repeat over and over again and that were the same before than they are today. And so what makes a business successful? It's like, very individual. What made Microsoft successful? Well, it was the right people at the right time, doing the right thing, negotiating the right contract. It was like, very specific to that era. But what makes companies go out of business? It tends to be very common denominators. Too much debt, not paying attention to competition, egomania, like all these things that tend to repeat over time. And so I think you can look at that and learn very pertinent lessons from other people, other companies that are relevant to your own life. One way to summarize that. I listened to this great podcast recently with David Senra and Rick Rubin, the music producer, and they're talking about there tends to be four things that ruin artists, and those things are alcohol, drugs, women, and egomania. And so, like, what makes a successful artist? Why were the Beatles successful? Like that is an unbelievably complicated topic. But what takes down artists and celebrities? It tends to be the same four things over and over again. Study those things, and I think you can learn a lot about history in a way that makes you understand how the world works and understand where we're going next. All right, next question. This one comes from Chris. He says, my wife and I are in our late 40s with a friend group that shares similar economic and social background. However, as conversations increasingly turn to retirement in the future, it is clear that some of our friends haven't planned as thoroughly as we have and feel uncertain about what lies ahead. This growing financial divergence seems to be creating subtle tensions in some of these relationships. How can we navigate and preserve these friendships as our financial situation continues to drift apart? Chris, wonderful question. I think about a different version of this in my own life, which is that as my wife and I get older, it becomes harder for us to maintain friendships if those friends don't have kids, because kids are everything in our life right now. It becomes harder to relate to those people if they don't have kids. They're talking about going golfing. I'm talking about waking up at 3am to change a diaper. So much of what makes a good friendship is understanding the lives that each other are going through. And as that grows apart, it becomes harder to maintain it. So my first point is I empathize with the issue that you're going through. I think a lot of people deal with it. This might not have been direct to your question, but I'm going to answer it in a slightly different way that I think it was hopefully more relevant to the greatest number of listeners. I think a lot of times this happens. You have to separate whether your friends are jealous of you or ashamed of themselves and their own situation. Let me break two of those apart. I have a very good friend who I've known for a long time, known him for 25 years, more than that maybe. And he's one of my favorite people in the world. He's just fantastic. I love spending time with him. He's funny, he's kind. I can't spend enough time with this guy and of our friend group, he makes the least amount of money by far. He has a good life, takes care of his family, but he makes the least amount of money by far. And it bothers him. And we're close enough that he tells us that it bothers him that everyone else in the friend group makes a lot more money than him. And finally I told him one day a couple years ago, I said, look, if you are as he is, a funny joke teller and a good friend and a good listener and a good buddy who's going to be there for me and you work hard and take care of your family, You're a good citizen, a good person. You've earned like nine out of the 10 friendship points that I'm willing to give you, that I'm capable of giving you just by doing those things. If you also happen to be a successful entrepreneur who made a ton of ton of money, I might bump up my score of what I think about you to like 9.5, whatever it might be. But don't pretend that it makes that big of a difference. Would I rather be friends with a poor, awesome person or a rich jerk? You don't even need to answer that question. It's so obvious what the answer is. The other thing I think about as other people perceive your success and the decisions that you and your wife have made and in Saving money and being prepared for retirement. There's a Ben Franklin quote that I love where he says, one of the tricks in life is realizing that people will admire you more if they aren't jealous of you. Now, maybe jealousy is the wrong word there, but it's easy to assume with money and spending that people will admire you for the good decisions that you've made and the material objects that you have, or your ability to retire when you want, whatever it might be. It's easy to assume that they're admiring you when more often than not, I think they look at you with a sense of envy. And envy is not something that you want directed at you in any way. It means they hate you and they wish for your downfall, something you want to avoid. And so you have to be very, very careful in these friendships if you are in a better financial position than though than other people to have in the slightest unintentional way, any kind of flexing that you have a better life than they do. Something that I think about jealousy and envy in my own life, that I've thought a lot about in the last year or two, is if there is ever a time when I am jealous or envious of somebody, it's usually not because of what they have or the decisions that they made. It's just because I don't like that person in general. And let me. I won't name those people, but let me name someone who is the opposite of this. The author. James Clear, wrote the book Atomic Habits, came out in 2018, I think, and it's been one of the most successful nonfiction books of all time. Maybe next to Sapiens up there. It sold more than 25 million copies. It is just such a profound, unbelievable success that James pulled off as an author. And he's done it during roughly the same time that I have also been a nonfiction author. James has sold more than double the amount of books that I have. He probably has higher speaking fees that I do, makes a lot more money than I do, gets more attention than I do any metric in my field. He is 2x, if not much more than I am. And I have not one single sell of jealousy or envy for James Clear. Not a single. I am so thrilled for his success, and I'll tell you why. It's because he is the nicest guy you will ever meet. You will not meet someone who is more humble of a success than James Clear, who is more willing to help people beneath him than James Clear, who is just polite in person and a pleasure to be around than James Clear. And because of that, I'm so thrilled for his success. I love it for him. Now, without naming names, there are other authors out there who, in periods of time, sell more books than I do, and authors who I don't particularly like their personality. I don't particularly like the work that they've done. Now, that's just a personal thing, maybe a personal flaw of mine, but those are the people that, when they're selling more books than I do, I kind of get envious. I kind of get jealous of. All of this is like a character flaw. None of this is good, but I'm just trying to be open and honest about how I feel that when you are envious of someone, it's usually just because you don't like them. And when you are really happy for someone's success, even when it's much grander than yours, it's usually just because they're a wonderful person. Who you like being around is something to keep in mind. The other thing I think about a lot is that most of the time that someone is jealous or envious of your success, it's because they don't understand all of the other parts of your life that are unpleasant. And if you are only judging the quality of someone's life by their financial success or their career success or their job title, if you're only judging it by those elements, you're missing a million other things that are going to be unpleasant and unfun and depressing in that person's life that you're overlooking. And so if you are truly open with a group of friends who they understand the good parts of your life and the miserable parts of your life, it's much harder for those people to be jealous or envious of what you have when you get a full picture of the stresses and the uncertainties of your life. The great comedian Jimmy Carr has a quote that I love here. He says, everybody is jealous of what you got. Nobody is jealous of how you got it. The more open you are with people, the more they understand that life is not perfect for anybody. All right, next question. This one's from Rachna, and she asks how not to look back on financial mistakes with regret. This might be the shortest question that we've ever answered, but it might be one of the most important. I love this question. Let me read you two quotes that I love about regret. The first is from Cormac McCarthy, the great author, and he says you never know what worse luck your bad luck saved you from. Now, that quote's not exactly about regret, but it's just a wonderful way to frame about thinking about mistakes you've made in the past. The second quote is from Jerry Seinfeld, another great modern philosopher, Right. And he says, I don't believe in regret. I think it's arrogant to think you could have done something different. You couldn't. That's why you did what you did. I like that, too, that it's very easy to look back and say, I should have done this, I should have done that. 99% of the time. It's because you have hindsight bias in the decision that you made at the time was right for you. And check the boxes in your head in that moment doesn't mean you don't regret it, doesn't mean you can't learn from it. But the ability to give yourself empathy for the situation you are in when you made that mistake is really important. I think rather than dwelling on your mistakes that we've all made, that I've made, that everyone has made, it's better to understand the psychology of why you made them in the time. And so if you regret looking back and burying yourself in debt, what's important is not to beat yourself up over that. It's to think about why were you persuaded to go into that debt to begin with? Was it because you had a level of impatience of you couldn't wait to get the raise next year, you had to have this thing right now, and it was the impatience that was drawing you to the debt. Was it envy of other people? You couldn't stand that your neighbors had a bigger house than you did, and so you had to go out and take out a bigger mortgage to buy a house that you couldn't afford. Understanding the behaviors behind it I think is really important. If you were day trading and lost a lot of money, did you have FOMO from other people who are making money faster than you? If you were living paycheck to paycheck, was your identity disconnected from your reality? You had this vision of your head that you are someone who was a little bit grander and richer than you actually were. Understanding those is really important because one of the most important life skills is getting better at understanding your personal propensity for regret. And you become a little bit better over time at understanding situations. When you're really tempted to do something not necessarily financial. In many aspects of your life, you have this great temptation to go out and make a decision. And over time, when you become a little bit more introspective, it's Easier to say, I know what I'm feeling right now and I know if I do this thing, I'm going to regret it in the future. Learning that over time is not easy for any, anybody. Nobody is a pro at this. But doing that versus beating yourself up over the decisions that you made, that, as Jerry Seinfeld said, you probably had no other choice but to make them at the time is so important. I think about this a lot myself. And one of the things that I try to get better at over time, in terms of regret, looking back, this doesn't have anything to do with money. When my kids say, dad, come play, and I say, no, I'm busy doing something else, the odds that I will regret that in the future are enormous. I know that because that's what every other parent says. And so I try to get better at that over time. It is not easy. It's not always the most pleasant. But if your overarching goal in life is to look back in the future with as few regrets as possible, I think there's probably nothing more important than understanding those behaviors. And now I want to finish with a recommendation of something we talked about. The best story wins and the power of communications. And I think the best communicator of our era. I will make that claim right now, is Ken Burns, the great documentary filmmaker. I think he's just an absolute gem. I can't stop talking about him enough. My favorite documentary of his is probably the least well known that I had not heard of until about a year or two ago that I watched. And I just loved it. I loved every second of it. Documentary is called Horatio's Drive, America's First Road Trip. And it talks about a guy in 1903 when the car, the automobile was still very much in its infancy. And roads, forget about it. It was just a bunch of dirt trails for your horse and buggy who wanted to drive across the country from San Francisco to New York. And he did it. And it took him more than two months. This is in 1903. And the story of how he did it is unbelievable. Stopping every mile or so to fix an axle and trying to desperately find gasoline along the way. It's an astounding, astounding story. And as Ken Burns does, it's just filled with so much good artistic narration and storytelling. Amazing story. And watch it with the eye of the best story wins to learn how to become a better communicator. And that's it for this week. Thanks again for watching. Thanks again for listening.
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We'll see you next time, Sam.