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Morgan Housel

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2022-03-02

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2022-03-02

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1. “He was a financial advisor, and then he wrote for the New York Times for a long time based on behavioral finance. His book is called The Behavior Gap. So he wrote about behavior finance for a long time. And now he's just on his personal blog, his personal newsletters. He's definitely on that. There's a financial advisor named Blair Dukenay, who I think is incredibly smart and a great writer. I wish he wrote more, but whenever she does, it's just always very well put together and very thoughtful. If you gave me more time, I could probably list 10 more. But off the top of my head, that's the Mount Rushmore in my mind.”

   2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

2. “Understanding the context of these, so much of it is just like he understands the human side of investing better than almost anyone. I mentioned Derek Thompson earlier of the Atlantic. He's one of the smartest humans that I know. And he's also maybe like 32 years old, something like that. He's definitely on that list. I think Jason Zweig, who we mentioned earlier, is probably the greatest financial journalist of modern times. I don't think that's an exaggeration. Carl Richards, who I mentioned earlier too, you strike from the New York Times. He doesn't anymore, but he has a way of taking really complicated thoughts. and making them just so easy to understand in a way that you thought you understood it before, but once you read Carl's work, you're like, oh, okay, now it really makes sense. He would definitely be on the list.”

   2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

3. “Okay, one would be, and I'll try to give some names that are not that well known. They're not under the radar, but they're not the biggest of the big names. One is a guy named Nick Majuli, M-I-J-I-L-U-I. I'm probably butchering that, but he's on Twitter. You're out of blog called Of Dollars in Data. And I think he's a young guy. He's maybe in his early 30s, and he's one of the smartest, most insightful and good writers that I've come across in years. I'm good friends with him now, and I tell him the story that the first time that I read his blog maybe 10 years ago, I read one paragraph. And after one paragraph, I stopped and I was like, this guy's got it. That's all you needed to read, to be like, this guy is smart and he can write and he'll get it. It was so clear early on. He's one of them. Josh Brown, who I mentioned earlier, who is a CEO of Ritholt's wealth management, he's well known and he's on TV all the time. He is one person that I think is as funny as he is smart. And to put those two together in one package is really rare. And that humor is important for us.”

   2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

4. “For it with stress and anxiety and dopamine and cortisol. Like that's how you pay for these things is I think that's the only way to deal with those big ups and downs.”

   2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

5. “View it as a fee instead of a fine. It's much more enjoyable. It's much more realistic to deal with. I said earlier that there are some areas in life where it's like that. If you're talking about a death in the family, a divorce, there's things that it's like, no, that's not straight negative, like no silver lining to some of these things in life. So I want to be careful at parsing that. But particularly in investing, the huge majority of the pain that people go through and put themselves through is just the fee for earning superior returns over time. And if you're not willing to pay that, then you're probably not going to get the reward on the other side. That's why you can see so many people who at the first experience with being uncomfortable in investing with a loss, they view it as a screwed up and then they won out. They want to move on to something else. And of course, they're not going to get the rewards over time. Nothing in life is going to give you those rewards for free. There's a cost to everything. And just identifying what the cost is and realizing that the cost is not on a price tag, you're going to pay.”

   2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

6. “Yeah, and the way that I phrased it in the book was understanding the difference between a fee and a fine, which seems like they're really similar, but there's a very important difference, which is a fine means you did something wrong, like shame on you. Here's your speeding ticket. Don't do it ever again. You're in trouble. And a fee is just a price of admission that you paid to get something better on the other side. Like you go to Disneyland, you pay the fee, and then you get to enjoy the theme park. You didn't do anything wrong. It's just that's the fee. If you can situate your life to where you view a lot of the ups and downs, not all of it, but a lot of the volatility in investing, a lot of the volatility in your career as a fee instead of a fine, then it just becomes a little bit more palatable. And when the market falls 30%, it's not that you enjoy it. You don't think it's fun, but you're like, okay, I understand this is the fee that I have to be willing to pay in order to do well over a long period of time. Most investors don't do that when their portfolio falls 30%. They say, I fucked up. I did something wrong. I clearly made a mistake. And how can I make sure this never happens again? And that's the wrong way to think about it. And I think if you...”

   2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

7. “You can rent a Porsche from Enterprise for like 300 bucks a day. It's not cheap. It's not 60 bucks a day, but it's a lot different than buying the damn thing.”

   2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

8. “See, actually, I don't think I've ever talked about this before, but I actually do scratch that itch when I rent a car, when I'm traveling, I rent a car. I always get the extreme upgrade, the highest upgrade that they have. A lot of times enterprise will have a Porsche or something sitting around. And whatever the price is, I'm doing that. That's how I scratch the itch without actually buying it.”

   2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

9. “That's really what it is. Like, the idea that all that nicer stuff is going to make you necessarily happier, I think, is just so easy to disprove, especially once you've experienced a little bit of it yourself. And that actually what is going to make people happy is that independence and autonomy, that once I remind myself of that, I'm like, okay. And then the game of earning more just becomes a game. It's less about like, oh, if I have more money, I'm going to be happier. No, if my net worth is 10x what it is today, I'm not going to be any happier. That was not true at one point in my life, but I think it's true today. It's probably true for you right now. It's true for a lot of people listening. And therefore, you can admit that a game is fun and a game is fun to play, but just admit that it's a game and it's actually not going to make you happier.”

   2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

10. “Yes, yeah, I can. There was a point when I couldn't. And that's why I feel like I'm pretty happy. And I feel like I've done a decent job of doing that. Now, I do have, as a lot of people would, a tendency to be like, oh, what if I got that Porsche? What if we got the bigger house? What if we did this? What if we did that? And it's fun to think that because I love nice cars. I love nice, I love all of that. It's just so easy to realize there's a great quote that I love that's the grass is always greener on the side that's fertilized with bullshit.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

11. “I want to wake up every morning and hang out with my kids, and I want them to be happy, and I want to do it on my own schedule. If it's a Wednesday morning and I don't want to work, then I'm going to sit on the couch all day and watch Netflix. And if it's a Sunday and I got a good idea, I'm going to spend all day working. It's all my own schedule on my own time, whatever I want to do. It's that independence and autonomy.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

12. “Can't win, so I'm not even going to try to play it. I just want to focus on the internal, what's going to make me happy? What do I want? What's actually going to give me pleasure? And let's just do that. And I don't want to think about anyone else.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

13. “Think it's the single most important topic in money, in investing in finance, and it's the hardest thing to actually make work. Those are both true statements. It's the same for me. I can write about this and say what people should do, but it's the same for my wife and I. Like we struggle with this as much as anyone else about getting the goalpost to stop moving. I think if there is one thing that has helped me, and I would say helps not fix just like I helped a little bit around the edges, is something that we talked about earlier, which is that just the idea, the observation that no one is thinking about you as much as you are and therefore so much of people's willingness and their desire to spend more is just a social signal to show people how much money you have, whether that's the bigger house, the nicer car, like whatever it is. You just want to show other people. And once you realize that people aren't thinking about you that much, they don't care about you that much, they're thinking about themselves and how much people care about them. Once you realize that, then you're like, okay, I can see what the game is. It's a game that I.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

14. “Once a decade, you learn why. Once a day, whether it's COVID or 9 11 or 2008, once per decade, you're like, oh, okay, I get it now. I didn't see this coming. It was a calamity. And I either ground myself into the floor and like I got wiped out or I had a little bit of extra savings that got me through. That's how I think about how to stay in the game in a long-term history where history is a constant chain of surprises. That's the only way to do it.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

15. “True. And therefore, the takeaway is you have to have a level of savings in your asset allocation that doesn't make sense. You have to have a level of conservatism that seems like it's a little bit too much. That's the only time that you know that you are prepared for risks that you cannot envision. And if you are only prepared for what you can imagine, again, you're going to miss the biggest risk every single time. Whenever people look at my asset allocation, if I share that with them, it looks a little bit too conservative. And they say, God, you could be taking a little bit more risk. And they're right, like I probably could, but I want to be prepared for the risks that I can't imagine or the risks that is possible, but like I don't want to even think about it. It's too painful to think about. That's the only time that you can be prepared for the surprises in life. And I think most people, not all investors, but the majority investors are not conservative enough. And I know whenever I say that, they kind of shake their head like, come on, like, why are you, why don't you want to take risk?”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

16. “Come buy and hold. I think there's one thing to do here. There's a friend of mine named Carl Richards, who's a financial advisor, and here's a quote where he says, risk is what is left over when you think you've thought of everything. That's the definition of risk is whenever we're done planning and forecasting, everything that's left over that we haven't thought about, that's what risk actually is. And the takeaway from that, the actual practical takeaway is that if you are only planning for risks that you can think about and you can envision and you can imagine, then 10 times out of 10, you're going to miss the biggest risk that actually hits you. The biggest risk is always something that nobody sees coming, including something like COVID. It's actually not fair to say no one saw it coming, but by and large, it's like in financial circles, not a single investor in 2019 in their economic outlook had a viral pandemic as something that they were worried about, not a single one. Or 9-11 or Lehman Brothers going bankrupt, like all the big events that actually mattered, it's pretty much true to say no one saw them coming. I think that's generally.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

17. “So, two parts to this one is that even if you look at the periods that in hindsight we think were the greatest that existed, which for most Americans is the 1950s and the 1990s, that's what we remember as like the golden age of prosperity and happiness and peace. Even if you look at those periods, like in the 1950s, kids were doing nuclear bomb drills under their desks. And there was a lot of pessimism and negativity. Even if we know in hindsight, it was great at the time by and large they did not know that. Maybe it was like it was good economically, but there was a lot to be worried about in the 1950s. Same in the 1990s, which today is like, oh, the booming 1990s, the bull market. But even like people forget in 1994, there was a big interest rate calamity where a bunch of bond, like interest rates rose and the stock market crashed. And then in 1998, a big hedge fund went out of business and almost took the whole global economy down with it. Like there was a lot to worry about during these periods. So how do you protect yourself from that? How do you actually be?”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

18. “What actually happened? No one saw that coming. And even if you look at the dawning of these big events, like World War II and the Great Depression, nobody saw them coming. It seems so obvious to you and I today, if you research what happened during the 1920s and what happened in 1929, like the glorious roaring 20s and stock market bubble, it's easy to be like, of course it all ended in calamity, but people were not saying that at the time. And the few people who did say, hey, this was probably dangerous were completely pushed aside. Same with the period right before World War II and the aftermath of World War II and the technologies that came out of the Cold War, like again and again, the repeating theme among this story is that people didn't see it coming. And that just gives the reader so much humility when you're looking at today that you and I and everyone else and the smartest people that we know have no clue what's going to happen over the next 10 years. That's always been true. And I think it always will be true.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

19. “You hinted at this earlier, but most history books, 99% of them, are about the big figures, the presidents, the generals, the Hitlers, the Stalins, the FDRs. That's most of history. Fredigulis Allen was just interested in how the average ordinary American lived their life. And he wasn't writing about any specific events. He just wanted to write about like, what was life like? How did life change during this period from 1900 to 1950? His crowning book is called The Big Change. And it's just how American life evolved from 1900 to 1950. And the evolution was enormous because 1900 was horse and buggy and 1950 was like rocket and atomic bombs. The amount of progress that took place during that period is way more than what we've dealt with over the last 50 years. And he just wrote about what life was like for people who live through that ordinary people. One of the things that sticks out from that too that comes up again and again is just the extent that no one saw what was coming. No one saw it coming.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

20. “To 2008, it fits right in. The psychology of what happened back then, of how people were thinking, how people thought about risk, what they thought about government policy completely repeated itself in 2008. And Benjamin Roth actually talks about in 1932, he's like, oh, what's going on today was exactly what happened in 1878. It's like all these things repeat themselves so commonly and so frequently. That's one that is not a very well-known book, but I've read it several times and I just think it's fascinating.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

21. “Be recommended the most. Okay, well, here's it's not necessarily a biography, but it's a diary. There is a lawyer named Benjamin Roth, who in the 1930s kept a very detailed diary during the Great Depression. And every day, it was just his personal diary, but he just wrote about what was going on in his town. He's from Youngstown, Ohio. And he just wrote about like what his neighbors were going through, how many businesses were going bankrupt, what that did to people's personalities. And his son published it in 2010. It's called A Great Depression, a diary. And I think it was unintentionally the best economics book ever written for sure. It explains what went on during the Great Depression in a way that no one else has because there's no hindsight bias in it. Every other book on the Depression is hindsight bias. We know how the story ends and that colors our view of what happened. But Benjamin Roth was writing in real time. Every single morning he woke up and he wrote a thousand words on what was going on in the economy. And it's so fascinating to read. And one of the things that sticks out to me that's so interesting is that half of the book, if you change the date from 1930,”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

22. “Anderson Cooper's his mother is Gloria Vanderbilt. Gloria Vanderbilt's father was Reggie Vanderbilt, who was the last Vanderbilt to have significant money. Reggie Vanderbilt inherited a ton of money, blew every cent of it. His daughter, Gloria, went on to have a child named Anderson Cooper, who went on to, of course, build his own life with his own talents, not with his family's money, and seems like he's a pretty happy guy. Everyone else in the book before him seems miserable, including his mother, Gloria. I think that's pretty telling that Anderson Cooper is like the first Vanderbilt who did not have money”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

23. “Of 300 people working at the home that they never went to. So it was just like that here's what's really interesting too. The first Vanderbilt heir that I think has actually lived a pretty cool life and seems pretty happy. Do you know who it is?”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

24. “Ridiculous. Craziest thing. Here's what's crazy about it, too. This just shows how dumb their lives were. So, Bill Moore is 140,000 square feet. George William Vanderbilt, when he was William, no, George Washington Vanderbelt was his name. He hardly ever visited it. It was the biggest house in the world. I think it still is. And he hardly ever went there. He spent most of his time in his apartment in Manhattan. So even when they built these ridiculous mansions, it was just for like a pissing contest of these cousins and of these siblings of who can spend the most money. And it really did not give them. It was just like a social race that they could not win because when you have these heirs, whether it was the Vanderbilts or the Rockefellers or the Carnegie's, that whole, the whole Gilded Age errors, all of their goal was to one up each other. And they basically had unlimited money. So in that situation, you're never going to win that game. The game where everyone is going. Everyone loses. And so they spend a lot of it on homes. They spend a lot like, and all of these homes would have a stat.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

25. “Lot of it was homes. I mean, the Biltmore, which is still around, you can go visit it. It's 140,000 square feet. And that was just one, and that's one of like 10 homes that served. That's like Chelsea.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

26. “Like, you really see how money can ruin people. I've thought about this myself with my kids of like, let's say my wife and I go out and buy a Porsche. We don't have one, but let's just use that hypothetically. We buy a Porsche. And then let's say that my daughter wants to be a kindergarten teacher. And she's driving a Toyota Corolla because that's what she can afford as a kindergarten teacher. Is she always going to feel like she's in the shadow of her parents? Like she did not eclipse what her parents did, even if she has a more noble job than I do and a more job that benefits society more than I do. Is she going to feel like she never reaches that point because of how my wife and I decided to live our lives? I don't want to do that as a parent. And I think about that a lot too is like, how can I live a good life and have a good house and nice stuff, but make sure that I'm not leaving the bar too high for my children if they go into another career that doesn't pay as well? That's a tough thing. I don't know if there's any easy answers to that, but I think about that a lot of like, how can you become a safety net?”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

27. “And within, I think, three or four generations, there was nothing left. They spent everything. And it actually didn't give that much to charity either. They were not, they did not do that much philanthropy. They just blew that money. And a couple things stick out from the book. One is that virtually every heir, I don't think there's a single counter example to this. They were all miserable. They were all depressed. They were all anxious. None of them really lived life that anyone would want to read and say, oh, I wish I could live that life. They were all miserable. And I think another part of this is that none of them were allowed to become their own people. Their job in life was to be a Vanderbilt heir, and they were never allowed to have their own personality, to really have their own pursuits. Or if even if they did their own pursuits, it was never going to live up to what their grandfather did and therefore why even try. And all of them were just living in the shadow of this error that they had, this ancestor that they had. And so I think when I look at that, it's.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

28. “It's also just so. There's a great book that I read a couple years ago and I reread it last year. It's one of my favorite books. It's called Fortune's Children. And it's about how the Vanderbilt Airs spent their money and blew their fortune. And Cornelius Vanderbilt was the richest man in the world. If you adjusted for inflation, he was worth like $400 billion.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

29. “I hate that I'm quoting Buff, but again, I just want to do this ad nauseum for this whole podcast, but he has a great quote on wealth where he says he wants to leave his kids enough money that they can do anything, but not so much money that they could do nothing. I think that's really the key. And that's all I think about my own kids who are very young, but when my wife and I think like, how do we want to use whatever savings that we have to benefit them? Giving them a safety net but not a fuel is, hey, that's what my parents did for myself and my siblings. When I was a teenager and in my early 20s, I always knew they would be there if I fell on my face. I would never just completely fail. I'd never be homeless. They'd always catch me. But they were never going to be a fuel. They're never just going to give me money just to make my life better. That was never going to be the case. So knowing that they were going to be there, but knowing that I had to make it on my own was so important for me. That's what I want to do for my own kids. I think if there's anything that's like that, I think that rule is probably the closest that you get to have.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

30. “Yeah, this is probably one regret that I have from the book that I kind of framed it like Ronald Reed was my idol. And I didn't mean to make that point at all because someone who lives a very impoverished life and is mopping the floors at a gas station and then dies with millions of dollars. I don't aspire to that. That's not the life that I want to live. To me, the whole point was the skills that you need to generate wealth are not the Ivy League education and becoming a partner of Goldman Sachs. This janitor was able to do it, but I don't personally admire the life that he lived. I want to live a good life and buy the things that I want and have a nice house and a nice car and treat my kids well and go on good vacations and travel the whole nine yards. The whole point of that was just showing that the skills that you need do not come from the traditional sources that we associate financial success with.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

31. “Yes, totally true story. It was the craziest thing valeting. There's this guy, I won't say his name, but he was very well. He was worth several hundred million dollars and he was just a complete maniac in his relationship with money was astounding. You usually carry around this stack of $100 bills that I swear was four or five inches thick. And he would just walk up to strangers and pinch a little bit off the top and just hand it to them just to see the reaction on their face. And he did this all the time. And he had all these crazy things, including the story I tell in the book. He told us one day, he pinched off a thick stack of $100 bills and he said, go to the jewelry store and get us some coins.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

32. “Know a lot of people for whom that would be a terrible decision. They could not live with themselves if they knew that they were leaving money on the table. So it works for me and my wife and you it sounds like and other people it wouldn't. And that's where I get down to like all of this is just personal and whatever works for you. And there's something about money where that can irk people. Like there's some people when I tell them I don't have a mortgage. They get angry at it because it's such a bad financial decision. And in a way that like other things in life don't work like that. If you said I like classical music, I might say, cool, that's great. I don't, but that's fine. I don't think any less of you. I'm not going to argue with you about it. It's just that's your taste. This is mine. But for financial decisions, people really don't like that. And I think those are people who only view it as a spreadsheet endeavor versus using capital to give yourself a better life, like you mentioned.”

    2022-03-02 · The Tim Ferriss Show · #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor · IDENTIFIED FROM THE TRANSCRIPT

33. “About in the book, too, that my wife and I don't have a mortgage on our house, which is the worst financial decision we've ever made. And I would never try to justify it on a spreadsheet because I can't. It's a terrible financial decision. But it's been the best money decision that we've ever made. It's given us more joy and pleasure that have anything that we've done with our money, even though it's the worst financial decision we've ever made, just because it gives us a sense of independence and security and particularly when we're raising our kids. Like this is our house. It's not the bank's house. This is our house. I cannot rationalize that, Tim, on a spreadsheet. I can't. But it makes me happy. That difference between the spreadsheet and the real world is so important. Everyone thinks about it a little bit differently, but I turn my nose a little bit at the academics who just live inside of Excel and think that's how the world works. And I respect a lot more the kind of gritty people on the street that understand how the real world works, how people's brains works, what makes them tick, and how things actually play.”

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34. “There's a lot of things in finance that look smart and sound smart, and the numbers add up, and it's just completely opposed to how the real world works. I'd write in the book that the difference between being rational and reasonable. And there are a lot of things that investors do that are not rational, but I think they're perfectly reasonable and they align with how people's heads work. One of which I would say is there's this well-documented home bias in investors where by and large, people who live in America only own U.S. stocks and people who don't live in Germany only own German stocks in Japan and so on. People own the stocks that are closest to where they live, which is not rational at all. It's not rational to think like the best stocks are the ones that are closest to your house. That's crazy. But that's how people invest. And it's not rational, but it's actually very reasonable if taking the leap of faith of investing your life savings in these companies, if it's easier to do that when you're most familiar with them, that's totally a reasonable thing to do. And so I think that difference between reasonable and rational is really important.”

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35. “I think you have to parse the difference between what works on a chalkboard and what works in real life. Many years ago, there was a study put out by a group of researchers at Yale. And what they showed is that their advice was everyone, every single investor should use 100% leverage in their 401k. They should lever up as much as they possibly can in their 401k. And they showed historically that that was the right thing to do. Because even if you got completely wiped out, even if your portfolio went to zero because of your leverage, as long as you picked yourself up the next day and bought stocks with two times leverage, over time, you would earn like an extra three percentage points of return. And there were dead serious in this report. And the math all works out. It works on the chalkboard, on the spreadsheet. They're right. It's the right thing to do. In the real world, people would not worry. There's no real world in which someone would watch their retirement portfolio go to zero. And then the next day keep doing the same thing. That's just not how people's heads work. And so.”

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36. “I'm not familiar with it, but I think I can put it together. You go into a bunch of debt and then die. Is that what it is?”

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37. “This quote from Buffett where he's talking about leverage and he said, if you're smart, you don't need it. And if you're dumb, you shouldn't be using it.”

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38. “Want to be Buffett, even if I could, the life that he's living is not appealing to me in the slightest. So when I'm looking at someone like that and trying to learn or trying to copy them, it's like, well, I actually don't want to be them. So what is something from their life that I can kind of pick and choose that I have the chance of replicating myself that is still going to align with the life that I want to live? And that's much different than what most of what goes on, which is just like blind copycatting of investors who are out there.”

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39. “And he was asked by Charlie Rose, he said, Why has Sequoia been so successful? Like, and how have you succeeded for 40 years, which is the amount of time that they've been winning in this industry and what he said was, quote, We've always been scared of going out of business. We've always been paranoid. We've always thought that what we've earned yesterday is not guaranteed tomorrow. And this is for someone who is a multi-billionaire who has the most success of anyone else in the history of this industry. And that's what he's thinking about every day is paranoia and fear. And if there's one person in the industry that deserves to be cocky about their skill, it's someone like him. And it's the opposite. He's terrified. He's paranoid. I think that idea of only the paranoid survive is another thing that like you and I, Tim, can learn from that. Even if we don't have the deal flow of sequoia, that you and I can take something away from that. So I think just whenever you're looking at these people, that's something to deal, particularly when you go back to what we were talking about earlier of like, I don't.”

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40. “No, I always think when you have these idols in any field, it doesn't have to be in investing. You just want to ask, what can you emulate? And for all of them, you can't emulate their luck. You probably can't emulate their super special talent or intellect. But there are things among them that you can emulate. For Buffett, I think the thing that I've tried to think about that's been so successful for him, the driver to his success, that hopefully I can have some chance of repeating is just time, it's just the time horizon. That's something I can't mimic his intelligence. I can't mimic the market conditions that he had. But if I can stay invested for the next 50 years, that's as close as I'm going to get to actually learning something from him that I can take away. There's this great interview with Michael Moritz, who is the head of Sequoia.”

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41. “One example of this too that I loved was from Walt Disney, who back in the 1920s and 30s was making all of these cartoons that people loved and they were great, but they were all losing money. They were all commercial failures. And he was on the verge of bankruptcy. And his whole career was going to be over and shut down the studio and then Snow White and the Seven Doors came out. And it was such a huge mega blockbuster success that all of a sudden he had enough money to keep the studio open and to make more films. But if you look at Walt Disney's commercial success in those years, the early decades, and you take out Snow White, it's a disaster. Even among the highest talents in any field that we look at like that, you're going to see that tails drive everything. It's just so hard to wrap your head around that when you're trying to emulate these people.”

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42. “Of Apple's success is the iPhone. It's enormous, but they've experimented with dozens of different products over time. Amazon has experimented with the Fire phone, which is a total flop, and they've done things in music which were flops. They've done all these flops, but they've also done prime and AWS, which matters more than anything else. So almost anywhere you look, you will see that a tiny number of activities apply for the majority of success. And it's so hard to wrap your head around that when you're trying to emulate these people who you look up to and admire.”

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43. “One or two, or maybe five investments they've made are ultra home runs. People associate that with venture capital. That's how it works in VC. But it's actually true in all stages of investing. The stat that I'll share with you here is that if you look at the Russell 3000 index, which is an index of large public stocks in the United States, over time from I think 1980 to 2010, 40% of the stocks in this large cap like mom and pop index, 40% of the companies went out of business, not merged, not but they went bankrupt 40% of them. But the index did very well because 7% of components were huge winners. It was like Amazon, Microsoft, Netflix, those companies. So even in a boring old index fund, almost half the companies are going to go out of business, but you'll still do well because a few do very well. And so that was true. And I think the more successful you are, the more you see that. Even at a company like Apple or whatnot, what percentage...”

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44. “Lucky. If all of his success was due to one company that broke the rules, you could say he's just lucky. The other thing you could say is that's just how capitalism works. And that's true for Buffett. It's true for a lot of people that if they make 100 investments, you're going to make the huge majority of your money on probably five of them. That's true for anyone. That's even true if you're investing in an index fund that within the index most of the games are going to come from 5% of the companies that you invest in. That's always the case. I think it just kind of changes how people view success though like if your view of success is that every stock that Warren Buffett or Shamoth or Jim Chanos or all these like these big name investors that every time they make an investment then it's clear that that company is going to be a winner and that's just not how this success plays out at all even among the top names the best investors over time the majority of the picks that they make do not do very well and the reason that they're so successful is because”

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45. “That's true. The last page of Benjamin Grimm's book, The Intelligent Investor, tells us a little tale about an investor who earned basically his entire career success off of one investment. And that one investment broke every rule that this investor had laid out. And then kind of in the last paragraph on the last page of his book, he says, by the way, that investor is me. And if you look at Benjamin Graham's track record, his career track record is incredibly good. And if you remove Geico, it's average. And like I mentioned, Geico by Graham's own saying breaks every rule that he just laid out in that book to buy it. And so that's an interesting, a really interesting thing is like not only was it one company, but it's one company that broke all the rules. So if you're reading that book and looking for rules to follow, by definition, you are not going to achieve Benjamin Graham's success. So I think that's really telling. And I don't know what the takeaway from that is. If you could say, well, then clearly he's just.”

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46. “That might kill you and your family. And in that context, you think completely differently. And that's why people's ability to say, I will be greedy when others are fearful is so much greater than most people's ability to actually do it. That's true for me. It's true for you. I think it's true for Buffett as well.”

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47. “Put the house on the market today. I want to put the house on the market right now. And he said, Morgan, don't panic. And I interrupted him and I said, oh, I am panicked. You are looking panic in the face right now. This is panic. I am totally panicked. And I am someone who does this stuff for a living and write about not panicking for a living. And look, the sale all worked out and I didn't sell stocks. It didn't feel like a panic, but it's so easy when the world is going well and everything is all butterflies and rainbows to imagine to yourself. To answer the hypothetical question, how would you feel if the market fell 30%? And when the world is going well, you answer that question by imagining a world in which everything is the same except stock prices are 30% lower. And in that world, you're like, oh, that would be great. That would be an opportunity. But that's not what happens in the real world. In the real world, the market falls 30% because there's a terrorist attack that no one saw coming. Or Wall Street is about to collapse or there's a virus.”

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48. “Of that is just how his style has evolved over time rather than being like a tactical asset allocator. He just wants to buy good businesses and hold them for a long time. And the idea of like buying one, there's blood in the streets has less relevance to him today than it did 50 years ago. So that's part of it. But I think for everyone, and Buffett is human, that when you get to a situation like this, it's so easy to respond to risk in ways that you never thought you would. And I'll tell you my personal story from this. My wife and I were for a long time, the plan was we were going to sell our house in Virginia in April of 2020. Well before COVID, that was the plan. Now, in March of 2020, I woke up one morning at 2 in the morning and I went, holy shit, there might not be a market to sell our house in April. The market just might not exist. All the banks might go bankrupt. The world just might not exist. And if that's the case, it's going to make our move to Seattle where we live and how much trickier. So I called up our real estate agent and I said, hey, I know the plan is to sell the house in April, but I want to.”

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49. “Here's what's so interesting about what happened in March of 2020 in the early days of COVID, which is that if the government had not done trillions of dollars in stimulus, if the Fed had not done Buffet has probably invested through, I don't know, 10 recessions, something like that. But all of those were financial recessions. They were things going on in the economy that caused recession. This was a biological disaster. It was a completely different set of fears that people didn't really know what was going to happen next. So I don't think there was any real playbook that even something or somebody who has 80 years experience could really look at and say, oh, here's what you do whenever there's a pandemic that's threatening the global economy. There's not really much insight into what to do with that. So I think in different recessions, the other thing that's important too is that even in 2008, during the financial crisis, Buffett did do some buying, but actually not that much. He actually didn't put that much capital to work even in 2008. The last time that the economy completely lost itself and Buffett put a lot of money to work was like the 1970s. That's a true statement. It's been quite a while since he's put tons of money to work when the economy fell apart.”

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50. “He dumped his entire portfolio of airline stocks at a huge loss. That's what he did. Here's what's crazy about this two weeks before that, maybe it was a week before it was a very short period of time before he went on CNBC when it was starting to look like maybe the market was getting toppy and someone asked him like Warren, what would you do if the market starts falling? And he says, he laughs and he says, I'll tell you what I'm not going to do. I'm not going to sell. Two weeks later, he sold all of his airline stocks when this virus hit. Now, you can say that that was actually not a mistake, even though the majority of them have regained almost all of their value. You can say that was anonymous because the possibility of a complete catastrophic wipeout, particularly in airlines with COVID, was there. So you could say like I was actually the right thing to do. But even Buffett in this situation, when the world's starting falling apart, he panicked and he did not buy anything of significant value with big numbers during that huge market decline, even for him, I'm saying, it's much easier said than done. I had my own story about this in the early days of COVID.”

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