Morgan Housel: The Psychology of Money (Season 2, Episode 11)

The psychological part of money, of finance, of investing is more important than the analytical side that we spend so much time thinking about and being taught about.

Welcome to Take the Long View with Matt Hall. This is a podcast to reframe the way you think about your money, emotion, and time. The goal? Helping you put the odds of long-term success on your side. Morgan Housel. Matt Hall just wrote the best personal finance book I've ever read. In fact, I bought 200 copies to give to clients and friends. That's how sure I am that this book is going to make an impact in the same way I've tried to make an impact, but better. Now I'll tell you a bit about his background, but don't forget what I just said. This is the book you need to read. Period. Morgan is a partner at The Collaborative Fund and former columnist at The Motley Fool and The Wall Street Journal. He's a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers, winner of the New York Times Sidney Award, and a two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism. Morgan has presented at more than 100 conferences in a dozen countries. He speaks about behavioral finance and history using storytelling to explore how investors deal with risk, and how we can think about risk in a more productive way. In his book, "The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness," he shares short stories exploring the strange ways we think about money and teaches us how to make better sense of life's most important topics. Morgan, welcome to Take the Long View.

Thank you so much for having me, and thank you for that wonderful introduction. I appreciate it.

Yeah, well, you did it. I mean, I don't know what your goal was when you set out to write The Psychology of Money. But I think, well, at least from my perspective, I think you may have hit, hit, hit a big goal, which is a readable and interesting and at the same time educational book on money that will actually make a difference.

Well, thanks. That's great. That's what every author wants to hear. So that means a lot to me. And thank you. I think one other goal that I had for this is I wanted to make a book that had as little rambling as possible. And there's, there, it's never gonna be that there's no rambling whatsoever, but I'm a big reader. I'm sure you're a big reader. Lots of your readers or lots of your listeners are big readers. And something that's true for me that I think is true for lots of readers is that I don't finish many books. I start a lot of books. I don't finish many. Even books that I love and that I recommend to people and I think are great books, a lot of them I read through chapter 4 and I say, "Okay, I get it. I get the point. It's a good point. I learned from the point, but I don't need anymore." I wanted to write a book where hopefully there was not a lot of that going on. It's never going to be the case that everyone finishes the book. I tried to break this into short chapters that go into depth about this point that I have in this chapter, but I cut it off pretty quickly out of respect for the reader. There's actually one chapter in the book that is one page long, and when I turned it in to the publisher, they said, is this a mistake? Are you missing something here? And I said, no, that's all I have to say on this topic. And out of respect for the reader, I don't want to say anything else. So I'm going to end it there. Yeah.

So, so grateful that that's your philosophy. In fact, in the introduction, you even say It's not a long book. You're welcome.

That's right. You know, it's— there is a difference between brevity and length. It's not that, you know, being brief and getting to the point means that it has to be a short book. I always use this example of one of my favorite books is written by Doris Kearns Goodwin, the presidential historian, and the book is about 1,000 pages long. And I swear there is not a single word in the book that doesn't need to be there. Like it is, it is brief, but it's 1,000 pages long. So you can go into depth. But I don't think like her book was a biography of Franklin Roosevelt. I think most nonfiction topics, especially business topics, do not require 300 pages of explanation to make your point. So I wanted to break this book into 19 separate standalone distinct points and then just say a few thousand words about them, 2 or 3 pages, maybe 5 pages about them, and then move on to the next.

Yeah. So normally on this podcast, I want to know something about the person's history and sort of how they got to where they are. And you You put so much in your book. I feel like in our time together, we'll probably focus mainly on the book itself, but I have to tell you, one of the most powerful stories I've heard you or read from you was a story you told in a post you did when someone asked you what you have learned about investing through skiing. Do you wanna talk about that at all?

Yeah, so I grew up as a competitive ski racer. I grew up in Lake Tahoe, California. All throughout my adolescence, my teenage years, I was a competitive ski racer skiing all over the world. It was virtually all that I did. I actually don't have a high school education per se because I basically bypassed it so I could ski. I did this independent study program where I did nothing but still managed to get a piece of paper that said diploma on it. So all I did, I skied 6 days a week for over a decade during my younger years. And there were about a dozen of us who did that. They were my closest friends. We were around each other 6 days a week, 10 months a year. We were just right next to each other. We traveled together, we lived together, we were eating together. We were just all by our side. And when I was 17, myself and 2 of my good friends who I had grown up with, you know, side by side 6 days a week for more than a decade at that point, we're out skiing at Squaw Valley and we were skiing on the backside, which is out of bounds where you're not allowed to go. It's illegal to ski out of bounds. You duck under the ropes that say do not cross. But we were doing it because that's where you get the good snow. That's where there's no competition. You know, there's no crowds. You have the whole mountain to yourself. So we would do this. We'd ski down the backside of Squaw Valley, California, and it would spit us out on this backcountry road and we would hitchhike back to the mountain. So we did that that morning. I had probably done it maybe 5 to 10 times, something like that, that I had done that run previously. It wasn't one of our typical spots because hitchhiking was such a pain in the ass to get back. So we did it once that morning, the 3 of us hitchhiked back. When we got back to the mountain, my 2 friends, Brendan and Brian, who I was with, said they wanted to do it again. And I said, "I don't want to do it again." I don't know why I said that, but I didn't want to do it again. So I said, "Hey, how about this? You guys go do it again. I will drive around my truck and pick you up so you don't have to hitchhike back." I drove my truck around to go get them after they skied down the backside and they weren't there. To speed up the story a little bit, as the day went on, it became clear that no one knew where they were. I watched them ski off to go down this out-of-bounds area. And as far as we could tell, no one ever saw them again. We got the police involved, search and rescue involved. And then the punchline here to speed this up is they were killed in a massive avalanche during that run. And it had this— of course, it had a huge impact on me. We were 17 years old at the time, which at the time we thought 17-year-old— like, I think we thought of ourselves as young adults. But I look back at that and we were children. Now that I look back at that, we were kids. Like, no offense to any 17-year-old who might be listening. I really view ourselves as like we were just kids at the time.

Yeah.

So I had a huge impact on me at the time. So I was asked at a conference, "What did skiing teach me about investing?" I just started telling this story. It was all I could think about. I think the takeaway for me was the consequences of tail risk. I say that because we knew when we were skiing that what we were doing was dangerous, it was illegal, and it might have negative consequences. But we thought that the consequences of the risk that we were taking might mean that our coaches would yell at us, maybe it would mean that we would get caught and we would get our season passes revoked. Maybe it meant that you would blow out your ACL in your knee. That was almost like a rite of passage as a competitive skier. We never once in a million years thought that the consequences of the risk that we took would be that we would die. Never, never, never, never, ever even crossed our minds. But it's what happened. And of course, of course, in their lives and also in my life, it was the biggest event of our lives. It was all that mattered. This like low probability tail end event was all that mattered. It moves the needle. for the rest of our lives. I think it's true in investing as well, that it's not the little things that we're paying attention to. It's not the small risks that are always in the news, always in the headlines. That stuff does not matter. It's the tail risks that move the needles in your life. It's September 11th, it's COVID-19. I mean, I make this point in the article that you referenced that for the last decade, investors and economists argued over what was the biggest risk for the economy. We said, "Is it the Federal Reserve raising interest rates too early? Is it stimulus packages? Is it budget deficits?" Of course, none of that was true. It was COVID-19. That was the biggest risk. We never talked about it. We never saw it. No one forecasted it was going to come when it did, but it was all that mattered. All the other risks we talked about, none of that mattered. Only COVID-19 is what has moved the needle for investing in economic risk in the last decade. I think once you experience a tail-end event, a low-risk or, pardon me, a low-probability, high-impact event, once you experience that, and many people have in various times in their life, most people listening listening to this have experienced, have lost someone dear to them. Maybe they've had a near-death experience themselves. Once you experience that, I think it's, it's almost impossible to view risk through any other lens than through this so-called black swan lens of these low-probability, high-impact events that, uh, are so much more meaningful and impactful than any of the little risks that you think about and talk about on a daily basis.

Thank you for sharing that. You know, and, and that connects perfectly to a big, uh, theme in the book, which is this idea of maximizing for endurance and longevity. Anything you can do to sort of prepare yourself to sit still is maybe more critical than we give it credit for. Let's jump to Ronald Read. I love the way you start The Psychology of Money, and I've read this story before, but talk to us a little bit about who Ronald Read is and why his story, in my opinion, is like the perfect jumping-off point for the whole book.

Well, Ronald Read was a guy who was, by all accounts, for those who knew him— I never knew him personally, but for those who knew him, he was a lovely gentleman, the nicest, kindest, down-to-earth guy. But he had a very humble, low-key life. He worked his entire career as a gas station attendant and a janitor. His friends who knew him said the only hobby that he had was chopping firewood. He was the first person in his family to graduate from high school, and he only did that because he was walking something like 5 or 10 miles each way to the high school to get there. Just like the lowest, humblest, upbringing and life that you can imagine. And when Ronald Read died, his friends who knew him were shocked to learn that he left, I think, $7 million to charity. And everyone said, where did Ronald Read, this janitor, this gas station attendant, get all this money? And they started looking through his paperwork and they realized that there was really no secret to it. There was no inheritance, there was no lottery winnings, there was nothing like that. What he did is he took what little money he could save as a janitor and he invested it in blue chip stocks and he left it alone for like 60 years to compound. And that was it. That was his entire story that let him donate millions of dollars to his local library and some local schools and local hospitals. That was the end of his story. And to me, it's so important. That story, just as you mentioned, you had heard it before. It was pretty big in the news when it came out many years ago. But to me, I think a big part that was overlooked in this that is so important to the psychology of money is, of course, Ronald Read had no financial training, no education, no financial background, no experience, no connections, no resources, but he still still did ridiculously well as an investor because he had mastered, whether he knew it or not, the psychological side of investing. He was patient. He wasn't greedy. He left things alone. He let things compound. He didn't freak out. He wasn't trading. He just let— he just bought some companies and let them compound for decades. And I think that is all you need to do well in investing. It's not that the analytical intelligence side is not important. If you are someone who is very smart, you have a lot of financial sophistication. It's not that it's not important. But if you mix a lot of technical sophistication with bad behavior, the bad behavior is going to win out always, every time. You can be the best stock picker in the world, but if you panic in March of 2020, none of it matters. It's all extinguished. It's all neutralized. On the flip side, if you are Ronald Read and you have no financial sophistication, no knowledge, no experience or training, but you do have good behavior, the good behavior still wins out in that point and you can do very well over time. Which is just this observation that the psychological part of money, of finance, of investing is more important than the analytical side that we spend so much time thinking about and being taught about. Like, most of finance is taught as a math-based field where it's formulas and data and charts. And again, it's not that that doesn't matter, but if you mix that without the right behavior, then none of it matters. It's all gone. So it's just this observation that the cycle of how important the psychology side of money, of investing is. And I've often viewed through my, through my years of writing about this, I came to realize that, uh, investing is not the study of finance. It's the study of how people behave with money. And it— those behaviors are all, are really all that matters. Like, people's relationship with greed and fear, people's ability to take a long-term mindset, like, who you trust and how gullible you are. None of those things are typically found in a finance textbook per se, or an economics textbook, but they make all the difference in the world to investing outcomes.

Yeah, well said. That's one of the things that's so powerful about the book is you shine a light, I think, on the things that matter. And that are often ignored or undervalued. The opposite of Ronald Read is Richard Fuscone.

Yep, yep, that's right.

Tell us just a bit about his story.

Well, Richard had almost the exact opposite upbringing of Ronald Read. He was born to a wealthy family. He went to Harvard. He got his MBA from University of Chicago. He went to work on Wall Street and, and literally became one of the most important, powerful men in global finance. He was a vice chairman of Merrill Lynch, running one of their, their largest divisions. He retired in his early 40s to pursue charitable activities. That was how successful he was in his career. And, you know, just, just from the outside, just about as successful and wealthy a person as you can imagine. He owned several huge mansions, you know, multiple 10,000-square-foot mansions with elevators and whatnot, just kind of the epitome of financial success and wealth. And not long after Ronald Read died, Richard filed for personal bankruptcy. He told the bankruptcy judge that he had no income left, that the financial crisis had that completely wiped him out. There's one story that I read there where he said that he had been wiped out to such a degree that his only ability to buy food for his family was selling the furniture out of his house. And I think this is— this is actually, you know, I have no ill will against Richard. I'm sure he was a very smart guy. But to me, it's just fascinating because it's almost the polar opposite of Ronald Read, that Richard had all of the education, all of the experience, all the sophistication, the connections, the assets, the resources. He had all of that. But from the outside, apparently, he did not have the psychological side. It seems like from the outside, he was greedy. He got in way over his head with debt that he was not able to service over time. So that's the opposite of Ronald Read. Again, if you mix all that sophistication that he had, that Richard had with bad behavior, the behavior wins out. I also don't think there's any other field where Ronald and Richard's stories can coexist. There's no other field where someone with the best education, the best training, the best experience, the best background can massively underperform someone who who has no training and experience and background. It's totally impossible to think of Ronald Reed performing open-heart surgery better than a Harvard-trained cardiologist. It could just never happen. It would just be impossible for that to occur. But those things do occur in finance, which again is just this observation of how important the softer psychological side that is kind of inborn in a lot of people, uh, and how important that is.

Yeah, can be a great equalizer. Okay, so You talk about the hardest financial skill is getting the goalpost to stop moving. What's that mean to you?

Yeah, I think, you know, what's so important about this is that if you are lucky enough, I mean, let's just start at the basic level of what, like, most of us want more money, more wealth, more income to be happier. That's like the baseline foundation of what we're doing, right? And it's a pretty obvious observation, but it's easy to overlook that If you are lucky enough to have an income that goes up or a net worth that goes up and your expectations rise by the same amount, if for every dollar of income you get, uh, your expectations rise by one, by $1, then you feel like you're in the same spot. The classic hedonic treadmill that we talk about where, you know, your expectations adjust with your circumstances. So you don't feel as better off. What's important about this is that we as an industry spend so much time talking about how to gain a better, how to grow your income, how to grow your wealth, how to grow your investments. That's the focus of this industry. And it's not that that is wrong or that's bad. Of course, that's a great thing, but we need to, in order to be able to be happier with our money, spend almost as much effort managing our expectations as we put into growing our income and wealth. It is just as important in the calculation of how do you become happier with your money over time. The expectations part is just as important as the growing your income and assets part, and it's easy to overlook. I think one analogy here is something like diet and exercise where, look, There are a lot of Americans spend a lot of time and money in the gym and still cannot lose weight if that's their goal. They're going to the goal, they're going to the gym to lose weight, they cannot do it. And there have been a lot of studies that show exactly why this is. It's not a very complicated equation. It's that what it's something called food compensation, where a lot of people will go to the gym and say, and they will burn, let's say, 1,000 calories. And then directly after they go to the gym, they feel entitled to go home and eat a 1,500-calorie meal. Meal. And so it's, it's just completely offsets what you just did in the gym. And then you feel like you went nowhere. You do go nowhere because what you just burned, you immediately offset as soon as you left the gym. The takeaway from that is what really matters for exercising, for losing weight, is not how much— it's not how many calories you burn in the gym. It is the calories you burn in the gym and then do not offset after your workout. It's the gap between those two. That is what actually helps you lose weight. And it's the same with with money, I think, that how happy you are with your money, the results that you get from your money, is not just about how much money you make. It's how much money you make and then you don't offset it by spending more or raising your material expectations and your aspirations after that. So, it's really important to just keep your aspirations in check. It's not an easy thing to do. And an important part of this conversation is people would say, "Well, look, if I'm keeping my aspirations in check, even while my income is growing," The takeaway from that is I'm not spending the money that I have. My income is growing, but I'm not going to spend it. So what's the point of it? What am I doing with this? That's actually a really important question that ties into this. And to me, the answer to that, for the money that you don't spend, your income, your wealth goes up and you don't spend it, what's the purpose of that? To me, the purpose of that is independence, taking control of your time, and having a level of financial freedom and not relying on other people, that you're using the wealth that you have, the unspent money that is in the bank or in your investment accounts. Using that wealth to gain control over your time, to gain freedom and independence so that you can wake up every day and basically say, I can do whatever I want today because you didn't spend the money you have. It's in the bank. It gives you freedom to live where you want, work where you want, retire when you want. And that, that I think is a level of, of, of happiness that is likely to endure and stick around with you for the longest period of time.

Yeah, that syncs up well with— we had a past guest who said his definition of success was being able to nap whenever he wants.

Yeah, there's a great quote from, uh, from Taleb who says, uh, my only, my only definition of success is how much free time you have to kill.

Speaking of time, uh, and how much time matters, I love the section on compounding because in my world it's, it does seem like compounding is so hard to explain either in words or visually in a way that truly connects. And I, I the way you did it, especially the Warren Buffett, you know, story in comparison to Jim Simons. Um, could you talk a little bit about that?

I think the biggest thing about compounding is that it's never intuitive. Even if you understand the math, you can explain the math. It's still just never intuitive how powerful it can be. I think the best way to summarize this is, look, if I, if I ask you, what is 8 plus 8 plus 8 plus 8, you could figure that out in less than 10 seconds, less than 5 seconds, maybe not very difficult. But if I ask you, what is 8 times 8 times 8 times 8? 8. Very different, very different. Like, even if you are very mathematically inclined, you're gonna have to put in some mental horsepower to figure that out. And most people just would not be able to figure it out. So the difference between linear thinking and exponential growth is just— is very— it's just completely different universe. One way to describe that in investing terms, as you just mentioned, is Warren Buffett's net worth over the course of his life. Warren Buffett is 90 years old, and he's worth roughly $90 billion. But if you look at you look at the trajectory of his life, 99% of his net worth came after his 50th birthday, and 97% came after his 65th birthday. That is not an intuitive thing to think that over the course— He's had such a long, successful career. He's been a successful fund manager since he's been in his 20s, but 99% of it came after his 50s. It's not because he learned how to become a better investor in his 50s. It's not that at all. In fact, his investing returns returns on an average annualized basis have declined substantially as he's gotten into his later years. But that is just how compounding works, that the biggest numbers occur when you increase your time horizon, and the more you can increase it, the more ridiculous that they get. You can come up with this hypothetical example where you could say, look, in the real world, Buffett started investing when he was 10, and he's continuing to invest today through age 90. So he's been investing for 80 years. Let's say hypothetically, hypothetically, that he did not start investing at age 10. Let's say hypothetically he started at age 25. And let's say hypothetically that he retired at age 65 like a normal person would. And let's say that he earned the same average annualized returns during that period. What would his net worth be today if that were the case? If he started at 25 and retired at 65, the math is really simple and the answer is actually about $12 million, not $90 billion, $12 million. So we can tie literally 99.9% of his net worth worth, just to the amount of time he has been investing for. So look, is Buffett a good investor? Is he a great investor? Yes, of course. Of course he is, period, full stop. The real secret to the dollar amount of his net worth is time. It's the amount of time he has been investing for. I think that answer is not— it's not intuitive, and it's too simple and basic for smart people to take seriously. You don't want to look at someone like Warren Buffett and try to figure out how he did it and just come to the conclusion that, well, he did that because he's been a good investor for 80 years. That's how he's done it. People don't want to think that it's that They want to go into grand depth about how he thinks about business models and moats and market cycles, etc. It's not that that stuff doesn't matter, of course, it does. But we know just by a simple rule of math that the real secret to his success is just the amount of time he's been investing for. You mentioned, I make this kind of quip in the book about a hedge fund manager named Jim Simons. Warren Buffett's average annual returns over the course of his life are about 22% per year. Jim Simons, who is a famous hedge fund manager, his average annual returns are more than 60% per year. 3 times better than Warren Buffett, but Warren Buffett is much, much wealthier than Jim Simons by tens of billions of dollars. Why is that? It's because Jim Simons has been investing for a much shorter period of time. He did not really come into his investing prime until later in his life, so he's worth a mere $20 billion or so. I say that tongue in cheek, of course, but I made this ridiculous calculation that what if Jim Simons had earned 60% annual returns like he has, and he did that for 80 years like Warren Buffett has, what would his hypothetical net worth be? And it was a number that I had to find like a NASA calculator to try to figure this out because it was such a huge number. Uh, it's the number I think was literally like 20 digits long and it contains words like quintillion, sextillion, like all on and on and on and on. It's a ridiculous number. It's, it's, it's ridiculous. And my point is that it's ridiculous because that is the power of time. Time leading to results. And I think the takeaway for all of us is if you want to do better at investing, the most important thing you could do, the strong— the most powerful lever that you can pull is just increasing the amount of time that you are investing for.

Yeah. Okay, let's talk about the difference between rich and wealth, being rich and being wealthy. I love the stories you use around all the concepts you're trying to to get us more familiar with. But can you talk about wealth being what you don't see?

Well, I think, you know, my definition of rich is you have enough money in the bank to go buy stuff today, and you do go buy stuff today. Maybe you have a nice car or a nice house and some nice clothes. Like, then you can be rich. If you're driving a Mercedes and you live in a big house, you're rich. Like, congratulations. It does not mean you're wealthy, because I think wealth is the money that you have in the bank that you have not spent. So by definition, then, wealth is what you don't see. You see, wealth is the money that you've earned and did not spend. It's the cars that you don't see that you didn't buy. It's the big house that you didn't buy. It's the fancy clothes that you didn't buy. That's what wealth is. It's money that you have not spent yet. What's important about this is that if you don't see wealth, it's very hard to learn about other people's success because you can see their richness. You can see the car that they drive. You can see the house that they live in. That's what's visible to you. But most of the time, you can't see someone's bank account. You can't see someone's brokerage account, so you actually don't know how wealthy they are. I kind of learned this when I was— during college, I was a valet at a fancy hotel in Los Angeles, and people would come in driving really nice cars, and I was young, so my assumption was, "Oh, this person is driving a Porsche, they're wealthy." I got to know some of these people over time, and I realized getting to know them and what they did, what they did for a living, that a lot of them were actually not that successful. They were mediocre successes, and they spent, you know, half their incomes on a car lease payment. And that to me was just, it was just this eye-opening thing of wealth is like, just because someone looks rich does not mean they're wealthy. You cannot see their wealth. What's hard about this is that if you go back to, you know, diet and exercise, you can see people's physiques. They're visible to you. So I can look at someone and kind of even subconsciously say, I want to look like that person. I don't want to look like that person. I should exercise so I can look like that person. I don't look like this, but like, it's all visible to you. People's physiques are visible to you. So it's easy to have, you know, fitness role models, so to speak, because you can see it and you can see who you want to be and who you don't want to be. Wealth is actually totally the opposite, though. You can't see people's wealth. So how are you supposed to have a good role model? How are you supposed to know that if someone is Ronald or Richard in real time before, you know, Ronald dies and we learn about his net worth or before Richard Richard files for bankruptcy. How do you know who to admire in that situation? Because obviously, in hindsight, I think most people would rather be Ronald. They would rather be the rich person than the— they would rather be the humble rich person versus the— pardon me, let's say, the humble wealthy person versus the guy who has a big house and big cars but then goes bankrupt and loses it all. So who do you look up to in real time? It's very difficult. I think we have to be very careful at finding financial role models. If we actually— if we're only judging their success based on their outward appearance versus what we actually know about their internal wealth that we don't see, and which is, you know, their actual income and their actual assets and investments that they've accrued over time.

I love the section of the book on aim to be reasonable, not rational, or reasonable is greater than rational. And the way I thought of it after I read that little section was it's okay to sin a little if it allows you to leave the real investments alone or provide the endurance necessary to stay the course. Is that the essence of that section?

Yeah, I think that's right. I would even state it a little bit blunter and say, just because someone else thinks that some action is a financial sin, it actually might be the right thing for you to do. We spend a lot of time in investing and in finance talking about how to make rational decisions. Is this a rational thing to do with your money? How can we be more rational? I actually push against that because people are not machines. They're not spreadsheets. They're not rational thinkers. People don't make financial decisions on a spreadsheet. They make them at the dinner table. They make them in a conference room with their coworkers, where all these other emotions and nuance and personal expectations and variant goals come into play. I think rather than aiming to be rational, I think we should aim to just be reasonable. And that's the best that we can do. That's the best that we can hope for. I mean, one example that I use in the book is this concept of fevers, where a fever is a very rational thing to want because a fever is your body's response in fighting an illness. Fever is a helpful thing in being able to battle and overcome an illness that's inside of you. So, we should want fevers. We should welcome fevers, but nobody does. Even doctors, if you get a fever, it's, "Oh, here's some Tylenol. Let's get rid of that. Let's get that out of you right away." Everyone rejects a fever and they view it as nothing more than a nuisance. I think the reason that is, is of course, that fevers hurt. They suck. They're miserable. No one wants to have a fever. So if there's a pill that can get rid of it, let's, let's take it and get rid of it. So fevers are rational, but they are not reasonable because no one wants to be in pain. I think there's a lot of things actually like that in finance that they're saying that the best that we can do is to hope to be reasonable. One example of this is something like there's a well-documented home bias among investors all over the world, where the stocks that you own predominantly are from the country that you live in. If you are in the United States, you own mostly US stocks. If you live in Germany, you own mostly German stocks. Japan, mostly Japanese stocks. There is no rational explanation for that. It is ridiculous to assume that the best companies in the world are the ones that are located closest to your house. There's no justification in that. But the home bias is actually pretty reasonable. If by owning stocks that you are most familiar with because they are from your home country, if that helps you take the leap of faith and able to understand where your money is going, it is going to make you more comfortable at investing for the long run. It helps you kind of, you know, wrap your head around the investments that you're making and how the companies that you own are doing. If that helps you to keep a long-term perspective, then I think that's great. It's not rational, but it's a very reasonable thing to do. I think that's a wonderful thing. Something else is something like paying your mortgage off, which in the United States, in the United States at least, is one of the worst financial decisions you can make because you can get a 30-year fixed-rate mortgage for like 2.8% these days. So you will be so much better off having a big mortgage and investing your excess cash in the stock market. You'll do so much better over time. So it's not rational to pay off your mortgage, but it's very reasonable for a lot of people to pay off their mortgage. It's a reasonable thing to do. Do, if it gives you a sense of security and stability, that no matter what happens in your job or what happens in the recession, the stock market, no one's going to take your house from you. This is your house. The bank can't take it away from you. This is yours. Stability for your family, for your kids. Even if you cannot justify that on a spreadsheet, it makes no sense in terms of dollars and cents. It can be a very good financial decision. Let's frame it this way. It can be a terrible financial decision and a very good money decision. For you. It's not rational, but it can be very reasonable for people. And I think that mentality, that framework applies to a lot of things that we should embrace with money.

Let me ask you this about the book. You decided to share your own personal investment strategy. Why did you do that?

I thought it was really important. I mean, I didn't feel— I didn't feel good talking about, you know, how other people deal with money and then not, not talking about my own. So the last chapter of the book is called Confessions, and I try to to open the kimono on my and my wife's finances as much as possible. There's no numbers, there's no figures, but leaving that aside, I tried to be as transparent as I could about how we think about money and what we do with our own money. And I think, look, we don't talk about that enough. There are a lot of famous money managers, famous financial pundits and consultants, and by and large, we have no idea what they actually do with their own money. They spend all day talking about what you should do with your money, but what do they actually do? I think a lot of times, those answers, that view would surprise you, that there are people who might preach one thing and do something else, not because they are necessarily not being moral, but just because the nuance between, again, what is rational to do with your money and what people actually do with their money can be really different. You can have a financial pundit who goes on TV and says, "You should do X, Y, and Z," and they're actually doing A, B, and C. They're doing something different. And that's actually okay, because if, if A, B, and C is what works for them, helps them sleep at night, is more attuned with their own unique goals and circumstances, and that's a fine thing to do. So I think it's a really interesting view into people's, into people's, into how they think about money is to just tell them, don't tell me what you think is right. Show me what you actually do with your money. I kind of got this idea after reading a study that showed that oncologists, when they get cancer themselves, when, when, when, when a cancer doctor gets cancer themselves, they treat themselves very differently than they treat their own patients when they're treating someone else. By and large, when an oncologist is treating another cancer patient, it is, let's throw the kitchen sink at this— surgery, chemotherapy, etc. When oncologists get cancer themselves, they by and large, when it's terminal cancer, they by and large just say, give me palliative care and just let me go. Don't— like, let's not throw the kitchen sink at this. So that difference between what they recommend for others and what they do for themselves is often like that That is, that to me really gets at that. It's just such a spotlight on the nuance of these topics, whether it's medicine or investing. So I think it's really important. It felt good to me to kind of let it all out there because money, of course, is a taboo subject that we don't often talk a lot about. Definitely not the numbers. But even if you leave the numbers aside, just the philosophies of what we do with our own money, how we save, where we spend, what our goals are, what our fears are. Is something that we talk about in broad terms, but very rarely personal terms. So it felt good to get it out there.

Is there anything you left out of the book that after it was all said and done, you look back and you think, man, I really should have addressed this or that?

Not yet. I'm sure that will happen. I mean, one thing that's interesting is I finished writing it in January of 2020. Uh, so this was all pre-COVID. And of course, if I had, if I had been writing it 4 months later, I would've, I would've added a little bit more in there. But it was actually okay. I set out to write this. I wanted these things to be timeless. I didn't want anything to be topical to the news, to the news cycle. I wanted these things like what has been true in finance for 100 years and what will still be true 100 years from now. That was always really important. I mean, one thing that reminds me about your question is that with a book, once you turn it into the printer, it's done. You can't change anything. You can't update it. It's done. So I I actually, I don't want to read it today. And even if I just open up and look at a paragraph, I will kind of wince and say, oh, I could have written that better. I could have written this differently. So I just, I just don't even make myself suffer with that. And I just, I don't read the book. I don't even open up any of the pages because it's done. I can't change it anyways. So, you know, there's not necessarily any topics that I feel like I left out, but yeah, I think in many ways COVID has been, uh, has reinforced some of the ideas in there about dealing with tail events, about about the need and the benefit of room for error and about being surprised, things coming out of the blue, which are all topics that were written about in the book. I just didn't know when I was writing this in January that we were weeks away from living it in real life.

Yeah. How do you describe your tone or writing style if you were talking to someone who hadn't read your work before? There's no one else who has, you know, the same voice as you. It has such a unique— your style of writing, I think, is truly unique. Unique. How do you describe it to someone who's not familiar with your work?

I would, I would hope— my goal at least is to have radical empathy for the reader and to waste as little of their time as possible. I just get that because I'm a very impatient reader. If I'm reading something, and even if I read one sentence that is confusing to me or I feel like doesn't need to be there, most of the time I'm like, okay, bye, I'm gone, you lost me, I'm out of here. Particularly early on, if you don't catch my attention in sentences, I'm gone. I'm out of there. I'm moving on to the next article. So I try to keep that in mind when I'm writing for other people. Um, there's a great book by Steven Pressfield. The title of the book is No One Wants to Read Your Shit. That's such a good title because it summarizes what good writing is. No one wants to read it. If you're writing bad stuff, fluff doesn't need to be in there. Get it out of there. Mark Twain has had a quote too where he says, to become a better writer, leave out the parts that readers tend to skip. Which is so true too. Everyone knows when they're reading, there are parts that you skip. You get to a paragraph and you can intuitively know this paragraph is not important. I'm just going to skip it. Okay, then leave— if you're writing it, leave that paragraph out. That's what I try to do. So it's like, how do you say— to me, the best writing is saying the most amount of stuff in the fewest words possible. And that's, that's, that's the, that's the philosophy that I keep in mind that maybe comes through in the voice.

Yeah, I think you nailed that. And I have to say, I have never in my life read a book or a paperback in my hands and listened to it at the same time. I felt like I had to do that, so I bought the book twice. I mean, I bought it 202 times, maybe, but I bought the book, the audio version, and had the print version in front of me because I wanted to soak it up. I think there is an adjustment required, in part because you do do exactly what you intend to do, but it makes for— dense and really powerful statements. Although you don't use fancy language, but you can make a huge point in 8 words that takes a second to really absorb. And I just think your thoughtful style is really, really appreciated. So thank you for caring about the reader.

Well, thanks. That's, that's, that's great to hear. It makes me happy.

Yeah. So aside from reading the book, which I'm going to make everyone I interact with do, where can people learn more about about you and what you're up to?

I mean, so most of where I spend my time, all my writing, all my thoughts, whatnot, are on Twitter. My handle is Morgan Housel, my first and last name. That's where I spend most of my day, for better or worse. Twitter has become my drug of choice. So that's where most people can find me.

Okay, great. Morgan, anything we should have talked about that we didn't?

No, I think this has been great.

Okay. And you're going to write another book?

Yeah, we've signed the contract for it. I'm probably not going to start writing it until, you know, Q1 or Q2 of 2020. And there's a big lead time on book. It probably won't be out until maybe early 2022, something like that. Yeah.

Well, I just want to say thanks for your massive contribution to helping investors. As I said, I think this is the best money book I've read, and I've read a few. So really appreciate it and appreciate your time being on.

Well, thanks very much. That means the world to me, and I appreciate it.

Thank you.

Wow, amazing stories. I'm Buddy Reisinger, a longtime member of the Hill Investment Group team that helps translate Matt's thinking into action for our clients. If you want to learn more about evidence-based investing or gaining back weeks of your life, head on over to our website hillinvestmentgroup.com and order a complimentary copy of Matt's book Odds On, or even better, set up a complimentary call or meeting, and we look forward to hearing your story.

Please note the information shared in this podcast is not intended as advice. The intent is to share meaningful experiences. I am likely not your advisor, nor wealth manager, nor financial planner. And my opinions are my own and not necessarily shared by Hill Investment Group. Investing involves risk. Consult a professional before implementing an investment strategy. Thank you.