#195 Morgan Housel: Get Rich, Stay Rich | The Knowledge Project

Not having FOMO is the single most important financial skill.

I think it's so important that you cannot ever imagine

accumulating significant wealth over your lifetime

if you are susceptible to FOMO.

Like if there's literally one thing,

like one trait that you want that's going to allow you to accumulate wealth,

it's the lack of FOMO.

Why do index funds work so well?

Two reasons.

One is it's always going to be the case that a very small number of stocks

account for the majority of returns.

The other is, I think, the...

Whether it's like an investing debate or a saving or spending debate,

they're not actually debating.

It's people with different personalities talking over each other.

And once you come to terms with that,

there's not one right answer for any of this.

What's the difference between being rich and being wealthy?

Rich is when you have enough money to make your mortgage payment,

make your car payment,

you can pay off your credit card bill every month.

Wealthy, I think, is when you have a degree of independence and autonomy.

The weird thing here is that wealth is the money that you don't spend.

Let's switch gears and talk about reading and writing.

How do you select what you read?

I heard this idea, I think it was from Patrick O'Shaughnessy many years ago,

who said, you want a wide funnel and a tight filter.

You're one of the best storytellers of our generation.

Teach me how to tell a story like Morgan Housel.

I think it's two things.

One is...

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Today, my guest is Morgan Housel,

the best-selling author of The Psychology of Money and Same as Ever.

Morgan's unique perspective on finance, human behavior, and life

has transformed countless people, including myself,

and how I approach life and investing.

In this episode, we explore the powerful concept of positioning yourself to play the long game.

Morgan shares his insights on what it means to adopt a long-term mindset

and the practical steps you can take to cultivate this perspective in your own life.

While much of this conversation is about money, including how to make it and how to keep it,

you'll discover that it's really a revealing lens for understanding psychology and human nature.

We talk about how recognizing that different people are playing different games in life

and how this insight can help you make better decisions.

We also talk about writing.

As a writer, Morgan has mastered the art of using stories as leverage for statistics.

He shares his approach to writing and how he crafts compelling narratives

that make complex ideas accessible and memorable.

We also explore the critical distinction between rich and wealthy

and how understanding this difference can transform your relationship with not only money,

but success.

By listening to this episode, you'll gain a wealth of insights and practical strategies

for navigating the challenges of investing, personal growth, and life itself.

Morgan's wisdom will inspire you to think different, embrace the long game,

and find greater meaning and joy in your journey.

It's time to listen and learn.

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I want to start with a bit of a paradox.

The less money we seem to have, the more risks we're willing to take.

Can you explain that to me?

Daniel Kahneman said something along the lines of,

when all your options are bad, your willingness to take a risk explodes,

because you got nothing else to lose.

And I think you see this in a lot of areas in life.

One that I see it all the time in, that is a big news story in the United States.

I don't know if it's the same in Canada, but in America,

we spend something like $100 billion a year on lottery tickets.

$100 billion.

It's massive that people spend on lottery tickets.

And if you dig into who's buying it, it's almost exclusively poor people.

They buy the vast majority of lottery tickets.

And the poorer you are, the more lottery tickets you buy.

And these are some people for whom they literally can't buy food,

or they might be homeless.

And whenever little money they have, they go into a 7-Eleven and buy some scratcher tickets.

And you might look at that and say, like, you idiots, like, what are you doing?

This is the dumbest idea I've ever seen.

And maybe that's the right answer.

Like, maybe you couldn't have stopped there.

But in Kahneman's framework, I think it starts to make a little bit more sense.

If you have someone in a situation like this who, in their mind, at least,

they think, I can't get a raise.

I can't build a career.

I can't get promoted.

I'm kind of stuck in minimum wage job.

If that's their mindset, then buying a lottery ticket might be the only time in their life

where they can say to themselves and believe, like, this is my literally ticket out of here.

This is the only chance that I have to get ahead.

And so it starts to make a little bit more sense in that situation.

And maybe you contrast that with someone who has a very high net worth.

They might be like, look, I could just put all my money in treasuries and just live for the rest of my life

to solve the interest.

And when you have so much, you don't need to take the risk.

Well, it comes down to perspective, right?

So, like, if I could see what you see and feel what you feel, that decision would be rational.

Yeah.

There's so many things in life where you can look at other people and the decisions they make,

not just in money, but for politics, their health decisions, whatever it might be,

and fiercely disagree with it.

But what's easy to overlook is that if I were in your shoes and had experienced what you had,

had the same family dynamic that you do, the same DNA that you do, I would do the exact same thing.

And I think that is a more important question to ask yourself.

Like, what financial decisions would I make differently if I were born in a different era,

born to different parents, born in a different country?

And I think you can't answer that question honestly because you don't know.

But you know there would be a lot of things different that are completely outside of your control.

Where and when you were born would have a massive impact.

You and I should not pretend that if we were born in the 1960s in Nigeria,

that we would have the same views about investing in the stock market over time that you and I do today.

This kind of gets to the topic of luck.

And a lot of people, when you bring up luck, they will say something that sounds smart that I fiercely disagree with.

They say, like, oh, you should increase the surface area of your luck.

You should like, oh, the harder I work, the luckier I get.

It was like some variation of that.

And I'm like, no, if you can do something that changes your odds of an outcome, it's not luck by definition.

Luck to me, the biggest start where and when you were born.

You can't control it.

Bill Gates couldn't control it.

Elon Musk couldn't control it.

But it has a massive impact on where you're going to go in life.

That to me is what luck is.

It's what you truly have absolutely no control over.

And then there's also the not only the country you're born into, but the socioeconomic household you're born into, the schools that you go to.

How much of this is nature versus nurture versus chosen nurture?

The stat that I think is so astounding is that income among brothers is more correlated than height or weight.

So basically that means if you have a brother who is rich and tall, you are more likely to also be rich than you are tall.

It's more correlated than the literal DNA that you're sharing with each other.

Look, is it a perfect correlation?

No.

Is it possible to be raised by a poor family and become rich?

Of course.

Is it possible to be raised by a rich family and end up in the streets?

Of course.

But there's a very strong correlation between those two.

I think people can get kind of testy when you talk about luck.

Because if I say that you got lucky, I look jealous.

And if I say that I got lucky,

I feel diminished in what I'm doing in life.

So it plays a massive role, but it's very easy to ignore the impact that it has in the world.

How do we break down that contribution between luck and skill or what's repeatable on our part?

Rather than saying, what is luck?

I think it's important to say, like, what is repeatable?

What is something that happened that I could do again?

And if we look at Buffett, this guy standing behind our shoulder here,

and let's look at the course of his life.

I cannot, he cannot recreate the trading conditions that existed in the 1950s,

that allowed him to buy blue chip stocks at three times earnings,

whatever it was back then that he was doing.

He can't recreate that.

He couldn't do it again.

But could I or you or anyone else listening try to recreate his patience,

his risk framework?

Yes.

So that's something we should pay attention to.

You want to find what is repeatable and what you could do again.

And those are the things you should pay the most attention to.

I think that's fascinating, right?

Because when we look at Buffett, what we want is the outcome.

And what we don't think about is all the things that go into creating that outcome.

So what stays the same between all these different decades where he's done this, right?

So he's done it from buying net net, Ben Graham stocks,

all the way to buying great businesses, all the way to the patients to do nothing.

And then once every 10 years, deploy a whole bunch of cash.

What is consistent across that period in your mind?

Two of the big ones.

We could come up with dozens of things that are consistent with someone like Buffett,

but the two big ones are endurance and maybe tied to that capping a downside risk that allows him to stick around for longer than anyone else.

There's also a psychological trait of wanting to keep going longer than anyone else.

I use this stat in my book that 99% of Buffett's net worth was accumulated after his 60th birthday.

Like the vast majority of people, including me and maybe you, if we became a billionaire at age 60 would be done.

He moved to Florida and buy a private island and like live happily ever after.

For him to be that successful and to keep going full blast for what's now another 33 years and still going stronger than ever

is a very unique characteristic that plays a massive role in his success.

If Buffett had retired at age 60 or 50, like a normal person would have in that situation, you would have never heard of him.

The whole reason he's so successful is just the endurance.

And there's a psychological and a financial component to that.

Never getting wiped out financially and the psychology that will allow him to keep going full blast for nearly a century on end now.

But that sounds academically correct, but in temperament incredibly difficult because I see my friends getting rich off like Bitcoin or something.

And that makes me want to change the patience that I have.

I know how to get wealthy over time.

We know historically that what's worked is saving money, being very patient, letting it compound decade after decade.

Then all of a sudden you wake up with a ton of money and financial independence.

But if I see my neighbor getting richer quicker than I am, it makes me want to accelerate that timeline.

And my lack of patience sort of changes the outcome.

Not having FOMO is the single most important financial skill.

I think it's so important that you cannot ever imagine accumulating significant wealth over your lifetime if you are susceptible to FOMO.

Like if there's literally one thing, like one trait that you want that's going to allow you to accumulate wealth, it's the lack of FOMO.

Particularly in modern markets, I can get so crazy with social media and Reddit and Twitter and everything.

If you are susceptible to FOMO, there's no hope for you over time.

I really don't think that's an exaggeration.

And that being able to see your neighbor get much richer than you and not being impacted by it is so incredibly critical and easy to overlook these days.

I don't have that many financial skills.

I could never be a stock picker. I could never be a trader.

I don't have the intellect or the horsepower to pull that off.

But I feel like I've never been at least that susceptible to FOMO.

It doesn't bother me in the slightest to watch other people getting rich.

Brent B. Shore, our mutual good friend, had a quote that I love.

He said, I am perfectly happy watching you get very rich doing something that I would never want to do.

And I think that's a great way to frame it.

I don't get jealous or anxious to watch other people get richer than I am over time.

My investing strategy is to own index funds for as long as I possibly can, to be average for an above average period of time.

And I think that will actually lead to an incredible outcome.

Not only will it achieve the financial goals that I have for my family, but I think over a long period of time,

it will put you in the top decile at least of people who are compounding money over time.

I think that's really hard to appreciate that what's short-term optimal and what's long-term optimal are often two different things.

Completely different things.

Howard Marks talked about this investor that he knew who in any given year, he was never in the top half versus his peers.

He was never in the top 50% of other investors.

And over a 20-year period, he was in like the top 4%.

Because everyone else who was beating him in a given year couldn't keep it going.

And so like what's your ultimate goal?

So much of investing is just define the game that you're playing.

And I don't look down upon or criticize people who are short-term traders.

Maybe that's their game and for their investors or for their like it makes sense for them.

My game is different.

I think your game is different.

Most people's game might be a little bit different.

And what's important is that if your game is to invest for the next 20, 30, 50 years that you're not taking your cues from people who are playing a different game of trading for the next quarter.

And that's where a lot of danger and investing comes from.

You've changed my capital allocation strategy.

Our conversations, our walks totally.

How so?

What did you used to do that you don't anymore?

We used to do a lot more private investments.

And now it's mostly index funds.

And as things sort of roll in through dividends or whatever, it just gets re-invested in index funds.

But it's our conversations that changed that.

Well, great.

That makes me happy and nervous that I'm having influence.

One thing that some people will say when you talk about index funds is like,

what is the guarantee that this is going to work for the next 50 years?

Okay.

I don't understand it works in the past 50 years.

And my response is always like nothing.

There's no guarantee that this is going to work.

It's very possible that it doesn't work out for whatever reason.

And there have been periods from the late 1920s and 1950s where the returns were terrible.

Or even from 2000 to 2010, you had basically 0% real returns in index funds.

So it's not perfect in the slightest.

Nothing guarantees that it's going to work or be satisfactory over time.

But I think when you adjust it for the effort that is put in, the lack of effort that's put in,

basically zero effort to do this.

And you adjust it for the fees, which round to zero now.

When you adjust for all those things, it's a very appealing way to invest over time.

If I was to look at your balance sheet, what is your capital allocation strategy?

I'm trying to think of what like the percentage wise, it's probably something like 15 to 20% cash,

the house that I live in, and then the rest, the rest index funds and shares of Markel where I'm on the board of directors.

And that's it.

Those are my only assets, cash, house, index funds, Markel stock.

That's it.

Which index funds?

Vanguard Total Stock Market Index, Vanguard Value Fund, and a little bit of an international fund.

Why do index funds work so well?

Two reasons.

One is it's always going to be the case that a very small number of stocks account for the majority of returns.

So recently it's been Fang plus Nvidia.

If you didn't own those stocks, Fang plus Nvidia over the last decade, your odds of outperforming are very, very low.

It's not zero, but it's incredibly hard if you didn't own those few.

And even if you look at an index fund that owns a thousand stocks, let's say, you're going to get the majority of returns from probably fewer than 20 of them.

And it's always been like that.

Back in the 90s, it was AOL and Cisco and Microsoft and Dell and those kind of companies.

And in previous generation, it was General Electric and Intel and those kind of companies.

It's always the case that it's very tail driven, the distribution of returns and owning the index just guarantees that one

whatever is going to be the next driver I own because it's extremely difficult to know what those are going to be.

If you had gone back to 2004, 20 years ago and tried to predict what are the big winners going to be over the next 20 years.

Well, by the way, some of those companies didn't even exist yet.

Facebook didn't even exist yet.

Google is still a private company or maybe it had just gone public in 2004.

The big winners are, I think, extremely difficult to know with any foresight what it's going to be.

And if you had suggested even three years ago that Nvidia was going to be one of them, you would have been like, what?

Make like, it would have sounded absurd.

So you're guaranteeing that you're going to own the oddballs that account for the majority of the returns over time.

The other is, I think, the lack of effort that goes into it that is needed.

Investing is one of the very few endeavors in life where the harder you try, the worse you're probably going to do.

And yes, there are exceptions to that Renaissance technologies.

And of course, you can name the exceptions for people who tried very hard and did very well.

But for the vast majority of people, there's going to be a negative correlation between the effort you put into it and the results that you got out of it.

And so the leave it alone aspect of investing in index funds is very important.

One little stat that I love about this is that if you look at both the Dow and the S&P 500, those are not static indexes.

They change over time.

There are new constituents that are added, companies go out of business or they merge and then new companies are added to that.

If you were to look at the Dow, I think one of the studies showed over the last hundred years,

if rather than adding a new company when one of the original components went out of business or merged,

if you just left it alone, don't add anything else, don't take anything out.

Just literally take the original components and leave them alone.

You would have done better than the companies that were added and removed, added and removed.

Any activity that goes into it tends to be detrimental over time.

That's I've always thought is very fascinating.

It's literally like there's very few exceptions in the index world to where the more effort you put into it, the better you're going to do over time.

Do you think we find it boring and that's why we don't want to do it?

It's a combination of boredom and just the counter intuition of the less effort, the better we're going to do.

Because any other endeavor in life, whether it's your physical fitness or whatever it might be, there is a positive correlation.

If you want to become in better shape, you exercise, you put more effort into it.

In most endeavors in life, the harder you try, the better you're going to do.

And investing is just not one of those.

And it's so not intuitive that people end up tripping over themselves.

I would also say too that I am not against active investing in the slightest at all.

I have so much respect and admiration for the people who do it well.

And the stats that get thrown around that are true that 90% or more of mutual funds will underperform the benchmark.

My response to that is always like, of course, that's how it is.

You should not expect to live in a world in which everyone who tries to beat the market can do it.

Of course, that's how it is.

And the people who can do it are enormously talented.

And I have so much respect for them.

Two of them are sitting behind our shoulders here.

And other people, I know people, you know people who have been and I think will continue to be successful at this.

So I'm not a passive zealot in the slightest.

I just think for myself and many other people, it's probably the smartest way to invest.

How do you keep your goalposts from moving as you accumulate and compound wealth?

A, I think everyone's including my and my wife's have not stopped moving, nor should they.

I don't personally aspire to live in a world where if I'm lucky enough for my net worth to go up 100% of it, just a cruise to savings over time.

That's not the life that I want to live.

I want to have a great life with some great material possessions and travel with my kids and live and live well over time.

If your net worth grows 10%, but your expectations grow 12%, that's when you get into trouble.

This is the gap between the two.

And so look, I'm making this up.

This is not an actual analysis, but I bet over time, if my net worth has gone up by 10% per year,

our goalpost has grown by 5% per year.

I'm making those numbers up, but it's something like that.

So yes, my family lives a better life materially today than we did 10 years ago,

but we've still saved and lots of money during that period.

I think that's all that matters over time is that you know, and even Buffett and Munger, who are known for being through a buffer lives in the same house.

He bought when he was 26.

Yes, but he also flies a private jet and had a beautiful beachfront house in Laguna Beach.

These guys are not living like poppers over time.

And that's what I think is really important.

It's just making sure that there's a gap between your net worth and your expectations.

Seems one of the things that we inherit from society is that the house you live in is your prime financial asset.

Yeah.

That seems really recent as well.

Maybe the last 30, 40 years where that's become the vast majority of wealth for Americans and Canadians.

I know in the United States, real home prices for most of modern history in the 20th century were flat as a pancake.

Robert Schiller of Yale did did a lot of analysis on this tracking us home prices six, eight since the 1800s.

And in real terms from probably the 1940s through the 1990s were flat as a pancake on average across the United States.

And then in the last 20 years, starting with the housing bubble that started around 2003.

They exploded higher.

And then of course, we had the housing crash in 2008.

And people thought that was the end of the bubble.

But then they've exploded higher even more.

And real home prices in the US, I'm sure it's the same in Canada, are much higher today than they were at the peak of the bubble in 2006 on average.

Of course, there's many variables going into that, a lack of building up new homes that didn't keep up with generational growth.

And it makes it, it kind of bifurcates the world in terms of if you have, if you have owned a home for any period over the last 20 years, you've probably done very well.

And if you are looking for your first home today, it's harder than it's ever been, particularly now that interest rates in the US are seven or seven and a half percent for 30 year fixed rate mortgage.

Combine that with home prices that are just absurd, particularly in the in the metro areas that people want to live in.

It's completely bifurcated because if you own a house for the last 10 years, you can sell that house and take the equity that has grown in that house to buy a new one to use for your down payment on the other house that's been in whose prices been inflated.

But if you're trying to break in for the first time, like it's a joke, it's a complete joke.

So that's it's a very difficult thing.

I would not I have a lot of sympathy for the first time home buyer today who is just who does not have parental support, which is the vast majority of them.

It's harder than it's ever been.

And there are a few things that make you feel like you are stable in your adult life than owning the house that you live in.

And I think it plays a huge role in a lot of things in life.

A lot of people, this would have been the same for my wife and I don't want to start having kids until they own their home.

They want to have that sense of stability before they start having kids.

So I think the lack of housing affordability has an impact on demographics and having kids over time that will echo for the next 50 or 70 years.

So it plays a huge role in what's going on in society.

There's also sort of a difference between what's optimal financially and what's optimal psychologically.

We've had this conversation before where you told me you paid after mortgage.

And that makes no very little financial sense because you had one of those crazy, like really low mortgages.

Like I'm a great was 3.2% fixed for 30 years and we paid it off, which I say is very true is the worst financial decision we've ever made.

But it's the best money decision we've ever made.

And the difference between the two is like, look, on a spreadsheet, it's terrible.

I've done the math of like, what if I had just invested that money instead?

How much more money would we have today?

It's a lot. It's a lot of money.

But nothing that we've ever done in our financial life has given us more happiness than paying that off.

And a lot of that is unique maybe to my personality.

This is not advice for other people because maybe you and other people don't have that personality.

I'm a worst case scenario thinker.

I also have a career that can be fickle.

And so and I'm the sole breadwinner in our household.

My wife is home with our kids.

So with all of those, my personality, my career and whatnot, it made perfect sense.

And when we did it, I was nearly in tears with joy when we did it,

knowing full well that it was a dumb financial decision.

So I think once you stop viewing money as just trying to make the spreadsheet happy

and you view it as a tool to live a better life, a lot of things change.

And in that situation, it was a tool that improved the quality of my life and my family's life.

I think dramatically, even if it was the dumbest thing that we've ever done on a spreadsheet.

And a lot of people when I say this, they'll still push back and be like,

well, walk me through like why it was rational.

I'm like, it's not rational.

It's not rational at all.

I can't explain to you on a spreadsheet.

It was dumb to do, but it made me really happy.

And like, is there any worth?

Is there any value to that for you?

Like it made me happy.

We could just stop right there.

I don't need to prove it anymore.

But doesn't that make it rational?

If you're playing a different game, right?

Like if you're trying to optimize every penny over the long term,

maybe that doesn't make sense.

But if you're optimizing for happiness and longevity, maybe it does make sense.

Yes.

And so I think the qualitative factors of money are hard for people to wrap their head around,

particularly in a field that has been taught as an analytical field.

If you get a degree in finance or get your CFA or whatever it would be,

it's purely numbers.

That's not totally accurate.

There's some in there.

But the vast majority of how they teach finance is just numbers.

And so it can be hard for a lot of people to wrap their head around why you would do something where the numbers don't make sense.

What can money do for us?

And what can it do for us?

What's the lie it tells us?

What's the thing that we feel like it can do for us that it can't?

Well, I think the lie is that a lot of people in life,

if they're unsatisfied with how their life is going,

it's a very quick and easy answer to say,

if I had more money, things would be better.

And that can be true.

I think we can solve a lot of your problems.

But I think what a lot of people want in life,

not everyone, I don't want to completely generalize this.

But what I want that I think is reasonably common for people is I want independence

and I want to spend time with the people who I love,

my family and friends.

And that's pretty much it.

And can you use money to do that?

Of course, money is kind of the oxygen of independence.

And if you can use your money to spend more time with your friends and family,

you and I went out to a lovely dinner last night with each other.

That cost money.

Thank you for buying, by the way.

And we had a great time with each other.

Now, if you and I went for a walk that would have been free,

it would have been great too.

But using money to spend time with whom you want, when you want,

for as long as you want, waking up every morning and saying,

I can do whatever I want today.

Even if what I want to do is go to work and be productive,

is absolutely critical.

And that is different from the knee jerk of just,

oh, if I have more money, I can buy more things, nicer things.

But what you actually want in your soul is to like,

is you want independence and to spend time with people who you love.

Money can do those things, but it's not as direct as people think.

One example of this is like, will having a nicer house make you happier?

It might, but the reason it's going to make you happier

is because it makes it easier to have friends over.

It makes it more convenient to hang out with your kids

in a big, nice, glorious living room.

So it's not that the house will make you happier,

but the house can make it more conducive to do things in your life

that those things will make you happier.

I was reading Rich Dad, Poor Dad with my youngest,

and we come to the concept of a house.

And if I get this right, it was sort of, your house is a liability

and not an asset.

So don't think of it as like a financial asset

that's going to grow and acquire wealth for you.

Think of it as liability.

That's just a sort of table stakes for playing the game

if you want or living life and having stability

and all these other things.

And I thought it was really interesting.

And as we talked about it, I was like, you know, it's just the house.

What the house is effectively, it's a container.

And what matters is what happens inside that container.

The house in and of itself, like, who cares?

Yeah.

Just recently, just last month,

I traveled with my son to the town that I grew up in.

And I stopped by the house that I grew up in

for the majority of my childhood.

I hadn't been there in 20 years.

We pulled in the driveway.

Of course, there's people who live there now,

so we just sat in the car.

But I sat there for 10 minutes just kind of reminiscing about as soon as you pull

in the driveway, all these memories start flooding back of the things that happen

in that house, good and bad, fun and sad,

like so many memories in there from my childhood.

And of course, you can go on Zillow and see what that house is worth.

It'll give you a very specific dollar figure for what the house is worth.

But what the house is worth to me and my parents and my siblings is invaluable.

You can't put a price tag on those kind of memories.

And I think that's common for most people.

There's a tangible financial value and there's this intangible

that you can't ever put a price on.

That's true for vacations.

It's true for a lot of things in life that there's a financial value.

If I asked you and said, what is this house worth?

Again, you can go on Zillow and say,

but what are the memories built inside that house worth?

It's like, you can't put a price on that.

When you've reached financial independence,

is that the ultimate when you're spending money,

but it's not a matter of the money.

You're not quantifying it in sort of a dollar figure.

You're quantifying it in a feeling or...

I think there's a truth to that.

It's when you start using it as a tool to become happier.

Now, what's going to make people happy is very different.

Having an incredible Ferrari collection might make you happy.

So it's not to say that the things will make you happy are not material

that you should just use this for experiences.

That, I think, is a step too far.

I think a lot of people have hobbies that cost a lot of money,

that are material that really make them happy.

So it's like, great.

There are a lot of people out there who would say,

you know, who would really promote frugality

and be like, you don't need a big house.

You don't need a nice car.

Well, big houses and nice cars make some people really happy.

Other people, they don't.

It's whatever you can use money as a tool for to give...

to live a better life,

versus, I think, a yardstick of status and success

to compare yourself against other people.

That's what gets dangerous,

is when you're just using it as a scorecard to compete with other people.

How do we catch ourselves in a status game?

We're playing a status game, but we don't...

we can't see it because we're in it.

It's unavoidable at the economy level,

especially at the broad macro level.

It makes sense from an evolutionary perspective

that people compete with each other.

There's limited resources.

And like, if I want the food, if I want the mate,

whatever it would be, I need to compete with you.

That's always what it is.

So it's so natural. It's never going to go away.

This is truly, like, same as ever.

People are always going to be keeping up with the Joneses.

And you can imagine a world in which our kids

and our grandkids are living way better lives

than you and I are, and living longer

and have better material access to you and I do.

And they're no happier for it,

because they're just competing with other people

who have even more than that.

That's always been like that.

If people 100 years ago could see how you and I are living today,

they would be completely dumbfounded

with virtually everything we have in our life.

But I would also wager that you and I are not that much happier

than they are.

We're not that much happier than we are.

How do you keep your surface area small?

Or keep doing the things that you want to do?

The only way to manage that is to say no to virtually everyone.

And that sucks for me for two reasons.

A, I don't have any assistant.

I'm personally saying no to them and I'll pawn it off to anyone else.

And I don't like making people sad when you blow someone off.

Or even respectfully say no.

They're going to be hurt a little bit.

I vividly remember.

I don't want to say who, but names that you and people would know

that I reached out to early in my career and said,

hey, can I please pick your brain for 15 minutes?

And they said no, and I was hurt.

I still remember it.

I still remember the emails.

I remember reaching out to a couple of authors probably 15 years ago

and saying, my name is Morgan.

I'm an aspiring author.

I'm trying to do this.

I so admire you.

Can I please ask you just 10 minutes on the phone?

And some of them didn't respond.

I still remember that.

So if anyone who remembers that gets in that same position themselves,

they have to say no to a lot of people.

It sucks.

But there's no other way to handle it.

There's no other way to manage it.

It seems like success, and we've talked about this before,

but success sows the seeds of its own destruction.

How do you think about that?

And what ways does it do it?

The biggest is just that it allows you to become lazy.

And it's going to degrade the thing that made you great.

What made you, like literally you,

successful was probably like some degree of like waking up and feeling inadequate.

Just waking up and being like, I know I'm capable of doing more than I've achieved already

and I got to go do it.

And it's pretty common.

Like whether that was driven by a lack of self-esteem,

like whatever it was, you're waking up and you're like,

I need to achieve more than I have today.

And once you achieve some level, it's easy to be like,

well, I've already done that.

And then the thing that made you successful, that drive you had is diminished.

Using this in companies and in people.

And the other thing that's really powerful is when you are lower on the totem pole,

it's very, it's easier for everyone around you to tell you what you're doing wrong.

And the higher you gain, particularly when you get up to the very high levels,

no one wants to tell you doing wrong because you're probably paying those people to be surrounded,

to surround you with advice.

And they don't want to tell the emperor he has no clothes.

That happens to a lot, lots of people, lots of companies and whatnot.

The thing that made you great is degraded the more successful that you become.

And some people fight this very well, but a lot of people don't.

It's a tough thing.

I think the laziness aspect of it, of once you become more financially independent,

you're not driven.

For most of my career, I was writing because that was how I fed my children.

I have to do this.

Yes, I love it.

Yes, I enjoy it.

I absolutely have to do this.

Once you get to a point where it's like, look, I still love to do this,

but I don't have to do it anymore.

Is my motivation lower than it used to?

I think the answer is yes.

Like I don't like to admit that, but I think the answer is yes.

Now I'm still as motivated.

I'm still very motivated to keep writing because I love doing it.

And I think there's a part of it that I enjoy more now that I'm not doing it to feed my children.

I'm doing it because I love the art of writing rather than just the business of writing.

But people's motivations change over time.

Now part of that is great.

I don't want to be 60 years old and having to work to feed myself this week,

but you shouldn't pretend that it's going to not impact the thing that made you great.

I want to come to writing later on.

I get a lot of questions about your process around that.

But before we get there, what is risk?

You can have a million different definitions of risk.

I think broadly it's anything that's going to prevent you from achieving the goals that you want.

That's a very basic answer, but I think that's what it is.

And the reason that's important is because take volatility in the stock market.

Is that risk?

Well, it could be.

If you're a day trader, then yes, the market goes down tomorrow.

That's a risk for you.

If you're going to retire in 50 years, it's not whatsoever.

So just defining it in personal terms is I think the most important.

But a lot of finance is not that.

They define risk as volatility, whatever it might be, recessions, all these different things,

but it's a very personal answer.

What is risky for me might not be for you and vice versa.

And this is what gets back to most financial debates are people with different time horizons talking over each other.

There's a quote I love that is personal finance is more personal than it is finance.

That is really important for everyone.

You and I should not pretend that risk for Renaissance technologies is going to be the same for you and I within our personal households.

It's like completely, completely and utterly different.

So anything that pulls you away from whatever goals you personally have is what I would define as risk.

If you had to break down the skill differences between accumulating money, keeping money and spending money, how would you do that?

I've often defined it as getting rich and staying rich are completely different skills.

And there's not that many people who are equally skilled in getting rich versus staying rich.

There's, you know, a sliver society that's very good at getting rich that has no ability to stay rich.

And there's some people who are very good at holding on to money, but much less talented at building it and growing it over time.

When you have both skills combined, it's a very special thing.

Buffett is obviously that Bill Gates is that there's a handful of people who are extremely good at getting rich and have stayed rich very well.

The example that I always use is Bill Gates when he started Microsoft took the most audacious entrepreneurial swing that maybe anyone's ever taken of saying every desk in the world needs a computer on this.

And he's saying this in 1974, whatever it was, crazy amount of risk, crazy bold vision.

At the same time, he said that he always wanted Microsoft to have enough cash in the bank to make payroll for one year with no revenue,

which is the most conservative pessimistic way to run a business.

So he's like very risk taking and very conservative paranoid at the same time, very good at getting rich, very good at staying rich at the same time.

This is very unique to have both of those acting at the same time.

And I think at the individual level, you can have it too.

My, my net worth, you'd say is like, is very barbelled, like a lot of cash.

That's the paranoid conservative side and stocks that I hope to own hold for 50 years.

That's like incredibly audacious that this is actually going to work out over the next half century.

And I don't think that's that's any contradiction.

It's just trying to get both of the skills of getting rich and staying rich work at the same time.

Speaking of staying rich, one of the stories we talked about last night was the Vanderbilt and how they basically blew a $400 billion fortune.

What happened?

If you look at all of the robber Baron, very wealthy families, the Carnegie's, the JP Morgan's, the Ford's, the Rockefeller's, the Vanderbilt's, I think virtually all of them did well or did a decent job at managing that dynastic money except the Vanderbilt's.

The Vanderbilt's completely and utterly botched it.

The status, you know, when Cornelius Vanderbilt died, his net worth adjusted for inflation because he died in the 1800s was the equivalent of $400 billion.

And in three generations, there was nothing left, which is an astounding thing to think about.

And in between there sat three generations who just blew money in the dumbest ways you can imagine.

And the rate, the reason you could say it was dumb is because I don't think any of them were happy.

I think they were pretty much all miserable if you dig into the biographies of these three generations.

A lot of the other robber Baron families taught their children taught their heirs to run the business or to become good philanthropists, whatever it was.

The Vanderbilt's effectively told their heirs, your job, your sole purpose on this planet is to spend more money than anyone else.

And so they did it.

They built the biggest houses that were so big they didn't even want to live in them because they were too big.

They threw parties that were so extravagant.

They were just burdens on themselves.

They were used like their sole financial metric is can you spend more money than the other socialite?

And they were all miserable for it.

And the story that a lot of people know now is that the first Vanderbilt heir to not get any money when all the money was exhausted, the first heir where there's nothing left was Anderson Cooper of CNN.

His mother was a woman named Gloria Vanderbilt.

She got kind of the last trust fund in the family.

And Cooper is not only the most successful Vanderbilt heir in like 180 years, he's probably the happiest.

And he's talked about this, that money that you are given that you inherit can be a burden to your ambition, a burden to your identity of building a name for yourself.

And he was kind of the first Vanderbilt heir who was like relieved of the burden of having to carry on this thing of like, I'm a socialite, I'm a Vanderbilt.

And he's just like, I build my own name and my own career.

And I'm sure because his mother was Gloria Vanderbilt, there were doors open to him that would not be open to anyone else.

He pretty much had to build it for himself for the first time in 150 years.

Do you believe that money should be able to pass between parents and kids?

Well, Abel, sure, it's your decision.

But there are obviously downsides.

And I'm sure, I hope it's a long time for now that I'll leave my kids some money, not a lot.

I love the Buffett quote where he says, leave your kids enough money so they can do anything, but not so much money that they can do nothing.

And that I think is really important.

I want to use whatever money I've saved to give my kids the best opportunity of building the life that they want, but not so much money that they are forced to live the life that I want for them.

I've met some families who are very wealthy and wealth becomes like a personality burden of because I inherited this much money.

My job is to just be an heir of my grandfather, an heir of my parents rather than finding out who I am and discovering who I am for myself.

That's just like the very high levels, but you don't want the wealth that you pass your kids to burden them into a lifestyle that they don't want for themselves.

You just want to be like, here's enough money so that you can have the leverage and the tools to find out who you want to be and live the life that you want,

but not so much that it's going to burden you into like forcing you into a direction that you don't want to be.

It's almost like there's a geometric progression of surface area here where the more houses you acquire, the more staff you need, the more staff you need, the more managers you have, the more managers.

I was talking to Sam Zell, we were supposed to record a podcast.

It never happened because he unfortunately passed away.

But when I was talking to him, he just wanted two houses.

He didn't want 10 houses, he didn't want all of these things like I can just rent them.

I don't want to hassle, I don't want the burden that comes with that.

Do you think that we lose sight of that?

And then there's sort of like a natural entropy to wealth, right?

Like it starts to expand and you actually have to apply a lot of energy to keep it small.

Yeah, it's obviously not the case that the more money you have, the less happy you're going to be.

That's obviously wrong.

But I think if you have more money, you can have more complicated life and complication can lead to a lot of unhappiness.

That's definitely true.

And I think this is mostly true for people who are like middle wealth.

If you're like extreme upper wealth, you can just hire out every decision people can take care of for you.

It's people who have enough money to buy a second home, but they have to manage it themselves.

That's when things get like really complicated in your life.

Many years ago, I did this consulting session with a group of NBA rookies.

They were some of them were 19, 20 years old and they're now making millions.

And a lot of them grew up in inner city poverty.

They grew up very, very poor.

And when they are teenagers, they sign contracts for millions of dollars.

It's like such a stark movement for them.

And the purpose of this conversation was to talk about money to try to prevent the very well-known path of athletes going bankrupt.

A very significant percentage of these people who make millions of dollars are bankrupt by the time they're 30.

So like, how do we prevent that?

And one of these athletes who was, I think it was 19 said something that I thought was so profound and wise.

He said, when you grow up in inner city poverty and then you make millions of dollars when you're still young, that's not just your money.

That is mom's money.

That is brother's money.

That is cousin's money.

That is neighbor's money.

You can't just tell everyone back at home, good luck to y'all.

I got my money.

I'm going to go live in the mansion.

You stay in this level of how you can't do that.

And he said, the reason so many athletes go bankrupt is not because they bought themselves a mansion.

It's because they bought their fifth cousin a house and they felt so much pressure to do it that they had this like social burden that came with the money.

And I think at many different levels, that's an extreme example, but at a lot of levels.

There is social debt that comes with money.

So if you at every level of network, like if your net worth grows by $1 with that comes a couple pennies, maybe of like social debt where you are like incentivized or like push towards to increase your lifestyle or to take care of other people in ways that might be great, but might be a burden, might be a debt that comes with it.

And at some point, I think that social debt explodes.

I mean, people who are worth, you know, 50 or $100 billion, we see there's not that many of them, but their social debt to use that money wisely and to donate that money wisely is off the charts.

It's enormous the pressure that they have to use that money well to not end up like the Vanderbilt's to, you know, how much pressure does Jeff Bezos and Bill Gates have to donate their money effectively.

And no matter what they do, no matter what causes they give to people are going to say, well, that's not a worthy cause.

This was more worthy than that enormous amount of like invisible social debt that comes with that.

Talk to me more about that.

Like I love that concept.

I don't want to talk about the extremes where like Bezos and Musk and that, but the social debt like almost like you go to a wedding and you have to give more because you have more.

Is that where you go out to if your friends know the money, you go out to dinner, you're forced to pay kind of thing.

Or like, oh, I heard, I heard this guy just got a huge bonus last year.

Let's see what he gets me for Christmas kind of thing.

That there's a lot of that that comes with it.

And of course, it's a good problem to have.

It's you should not have sympathy for people who made so much money that they now have social debt like boohoo, you know, deal with it.

But it's a real thing.

And a lot of it is just the incentive on yourself or within your own family to be like, oh, we have more money now.

We should I guess we should buy more stuff.

It's like this pressure to do something that you may or may not actually want.

One one other like like weird oddball story that I thought about here on the Amtrak train from Washington, D.C. to Boston is where it goes.

There is always a quiet car.

It's it's one section of the train where you're supposed to be completely quiet if you want to get some work done or whatnot.

And always what happens you go there for peace and serenity.

But everyone on the quiet car is so anxious and upset because on the quiet car if someone so much as whispers or if your phone accidentally goes off,

people lose their minds because they have this expectation that it's going to be completely quiet.

And so the slightest little sound sets them off.

And like the irony is you go there for serenity, but you're just so angry while you're there because of anyone's making any noise.

It drives you crazy.

And it's this thing of just like if your expectations shift, then the littlest thing can can make you upset.

So like when you go to the quiet car, yes, it is quieter, but you also have this like sound debt that comes with it.

And I think that's what I'm going to say, this invisible sound debt that is a liability now.

And I think it's so true with money as well that the more money you gain, the more pressure you have to live a better life that may or may not actually make you happier.

Will Smith, the actor said that when he was poor and depressed, he could tell himself, if only I had more money, all my problems would go away.

Right.

And then when he became rich and he was still depressed, he couldn't say that anymore.

He was still depressed, but he was like, I can't say that if I had more money, I would be happier because I already have more money that I could ever spend.

So he said what happened when he became rich is it just removed the hope that he had when he was poor.

He had this hope like, I got to make more money and then I'll be okay.

When he's rich, this is like lost all the hope.

He's still depressed.

Like it's very inspiring to think if I have more money, my problems will go away.

But then once you have that money and you realize that you still have just as many problems, maybe even more problems than you had before.

That's going to be a tough thing for people to wrap their heads around.

We were talking about that a little bit last night in the sense of people who have money can't really talk about money either because they have all the same problems that everybody else has, but they don't feel like they can openly converse about it.

Yeah.

Because it's like boohoo.

And it's true.

Like they are boohoo problems.

There are much bigger problems in the world if you are, you know, have can't afford health insurance, you're homeless, whatever and other much, much bigger problems.

First world problems are real problems in people's heads and you're right that they're by and large can't talk about them.

It's very interesting when you get together a group of wealthy people into a room where they can all start like in that safety zone, they can talk about the problems and they all have the same problems.

How do I not spoil my kids? How do I do this?

Things that they can't talk about with anyone else in their life because it's because those those problems are so different from the other like very real material health living problems.

But there are lots of things that are very difficult to figure out when you have a lot of money or even just a modest amount of money that you can't talk about even with some of your closest friends.

I am sure you do have friends who have less money than you and I do.

And you can talk about with those friends, you can talk about anything else in life, problems with your marriage, problems with your health, whatever it might be.

And there's all these other things that you're like, I can't talk about the things that are actually giving me anxiety right now.

It seems like the metaskill to think about right now throughout this conversation is how do we learn to manage our expectations?

This is maybe this is how we started the podcast. I don't want my expectations to never move.

I want them to just grow a little bit slower than my wealth over time.

I want it so that in 50 years, I hope that I'm living a better material life to some degree.

I just want that level to not exceed my net worth over time.

Once your aspirations exceed your the growth of your wealth, that's when people get they take too much risk.

They go into debt, whatever it might be.

You've hung around spent time with a lot of wealthy families, are they giving talks or individually?

The problems are the same. How do they deal with not raising spoiled children?

How do they? What have you learned from that?

I'd say most of them, how do they deal with not raising spoiled children is they don't deal with it well.

It's a very hard thing to do.

I had a conversation recently with a guy who was his father is a billionaire and they've lived like billionaires his entire life.

He's roughly our age and he's a very down to earth, grounded, polite guy.

And so I asked him, like, how did you grow up with private jets and mansions and not become a spoiled little prick?

Because he's such a nice guy.

And he said, despite having that much money and living like a billionaire, his parents never taught him.

Never told him that because we have more money, we're better than anyone else.

And they told him quite the opposite.

And he said something that was really important.

He said, the reason that so many kids grew up spoiled is because their parents are obsessed with money.

That's why the parents are rich is because they're obsessed with money.

But it naturally grows into this thing of like, you are better than other people if you have more money and people have less money than us, then we're not.

They are not equal to us.

And it's so basic and almost cliche, but if you are very wealthy, but you're still teaching your kids the good values that will stick with them.

And the opposite is true too.

If you raise your kids, even if you have a lower income, but you raise them with an obsession with money to like, that's the scorecard of measuring other people.

It's like, well, what's your net worth?

What's your salary?

That's why I'm going to measure you by and rank you by.

That's when you get spoiled little jerks as children.

How do you ingratiate and talk to your kids about money?

Well, our kids are four and eight, so not that much yet.

The other thing that I've noticed, I'm sure it's the same for you and other people who have multiple children is that my kids could not be more different in their personalities.

And of course, they're raised by the same parents.

They shared, they shared, have their DNA.

Like it's the same house, the same rules, the same upbringing, and they're utterly different people.

So you can't create one philosophy, one parenting philosophy for that.

The other thing is, even if I know my children today, I don't know who they're going to be when they're adults.

Does my daughter want to be a partner at Goldman Sachs?

Does she want to work for Greenpeace?

Does she want to be a kindergarten teacher?

You have no idea what they're going to do.

And the different, you know, rules are going to be different for them.

I also think that what's true is that the more you try to tell your kids this is what you should do, the more they're going to rebel against that, particularly when they're teenagers.

But the more that you can just lead by example, like A, they are going to pick up on it.

You don't need to sit your kids down and say, let me teach you about money.

And in fact, if you do that, most kids are going to yawn and say, I'm not interested in this.

But they are definitely paying attention to every time you say, we can't afford this.

They're making a mental note of it.

Every time you say, that's too expensive.

Every time you say, I value this, I don't value that.

They're forming a model in their head.

That's going to stick with them forever.

And so I think just leading by example with them is what we try to do rather than trying to say, this is what I want to teach you.

These are the values I want to instill back to my own parents.

I don't think they ever sat near my my siblings down and said, let me teach you about money.

But I, I learned profound money lessons for them by just observing when I was eight years old.

Well, let's invert it.

Well, we can go from parenting and then maybe the money broader.

But like what lesson don't you want your kids to learn about money?

What would be the worst thing that they can take away from you about money?

Don't think that all poverty is due to laziness and don't think that all wealth is due to hard work.

It's not if you are just ranking people by their net worth and ranking their value by the net worth.

That's that's probably the most dangerous thing you can do with money.

It's the most profoundly wrong take away from money.

And yes, a lot of wealthy people earned it, of course.

And a lot of wealthy people or a lot of poor people made some very bad decisions.

But once you just use it as a yardstick to measure people's value by, you're making a you're making a huge mistake.

There are a lot of wealthy people who I cannot stand.

And some of my best friends don't make that much money.

And I think you only you can only have that in your life if you divorce someone's salary and net worth from their their personal worth in life.

What else keep going?

I think what's interesting.

I don't know if this is the lesson was interesting is that if you want, if you ask most parents, what do you want for your kids?

Almost every parent will say, I just want them to be happy.

I just want to raise happy kids.

And then if you said, do you want your kids to be rich and successful?

Like, well, sure, but I just wanted to be happy.

I just I just want them to be happy.

So then figuring out how to use money as a tool to make you happier rather than just a tool to pile on to become wealthier is really important that I would.

You know, there are for sure people who earn 30 grand per year that are so much happier than people who earn $3 million per year.

And understanding that value of money, I think is is really important.

Like what what can money do to make you happier?

Because there's no other purpose.

There's nothing else that you should even think about other than that.

What do you think is the biggest risk to capitalism?

I think it's always going to be the case.

It is inevitable and it is actually ideal that there are some level of inequality in the world.

It's not only it's not only inevitable.

It's ideal. The opposite of that is a nightmare.

But it's also the case that you do not want a third of society waking up every morning and saying, this doesn't work for me.

This system doesn't work for me.

So once you get to some critical level, maybe it's not 30%, whatever it is.

But if enough people wake up in the morning and say, this sucks, this system doesn't work, then it's going to reverse itself.

And there's a very long history of that.

So the balance of you want inequality, you because people's skills are unequal, you want you want that to be the case.

But there is some barrier at which it starts to reverse itself and it becomes a pitchforks in the streets kind of scenario that that reverts.

Now, in the history of the United States, that's happened several times in the 1920s and the Great Depression.

I haven't thinking what we've dealt with in the last couple years.

There's always a pendulum between labor and capital workers and investors and it kind of swings back and forth of who's taking the lion's share of the spoils in this economy.

In the 1920s, it was capital from the 19 probably 50s to 70s.

It was labor.

And since then it's been capital and it kind of shifts back and forth.

Now, just in the last three or four years, there's been a huge growth.

The segment of society whose incomes have grown the most tends to be the lower incomes.

We're still kind of attached to this narrative of the rich get richer and the poor get poorer.

But in the last couple years, it has kind of flipped around at least to a degree that we haven't seen in a very long time is that the pendulum shifting towards another 30 year trend.

Maybe I have no idea, but that pendulum is always there to kind of keep itself in check.

And I think if it gets too extreme, you can get very extreme outcomes.

We don't remember this now, but in the 1930s, during the Great Depression, the words dictator and authoritarian and even fascism were not the dirty words that they are today.

A lot of people during that era, it was very, it was not uncommon for people to say capitalism and even having a big democracy just doesn't work.

The Great Depression in their minds proved that it didn't work.

And people's push to say, hey, look at all these countries in Europe that are going towards fascism.

Maybe we should try that because this didn't work.

I think that's the danger when you get too unequal in society is that too many other people can be tempted to saying that didn't work.

Let's try something even more extreme.

It's almost like I feel like I don't have opportunity.

Yes.

And the minute I feel like I don't have opportunity.

And it's almost like we want equal opportunity and we're OK with unequal outcomes.

Yeah. It's a really tough thing.

And I would not, I think you and I, if we felt that we were trapped, that there's no way, no matter how hard we work, if we felt, whether it's true or not, that we were trapped in a low income job, you and I would be prone to some extreme views too.

Oh, totally.

There's a saying I love that.

It was from a Russian poet who spent a lot of time in the Gulag.

And he says, man becomes a beast in two weeks.

If you have two weeks of deprivation, two weeks without food, two weeks in solitary confinement, a refined, kind, polite person becomes an animal.

So like if you put someone in an extreme scenario, they're going to be prone to extreme views, extreme outcomes.

Do you think most adults understand compounding?

I think it's not intuitive to virtually anyone.

Michael Badneck, a good friend of mine, has a saying that's so simple, but I think sums us up the best.

He said, if I asked you, what is eight plus eight plus eight plus eight, you can figure that in your head in five seconds.

If I said, what is eight times eight times eight times eight times eight times eight, even if you're a math genius, you're like, I don't know.

It's such a huge number.

Like I have no idea what it is.

Basic linear math is very intuitive, very easy.

Compounding math is just, it's so, it's so unintuitive for even people who understand it.

And it's everywhere. Compounding is not just in your bank account, your brokerage account.

There's compounding in nature.

There's compounding for social trends.

And it's easy to underestimate how big something can become because compounding is so counterintuitive.

You see this with COVID, which was compound interest at its prime.

Like this virus that in the early days is, you know, doubling every day, whatever it would be.

And that's how you go from, oh, three people are infected in March of 2020 to today.

Like, I don't know anyone who's not had COVID.

And so it goes from literally three people to the entire world in the blink of an eye when it's doubling that quickly.

How would you explain it to kids or adults?

Like, what is the best way to teach people the power of compounding?

It's like the one formula.

I tell my kids this when they're in math and they're learning this in sort of grade eight, grade nine.

They learn about compounding and I'm like, your teacher is never going to tell you this, but this is the most important formula you're probably going to learn in your math class.

Yeah. I don't know if I don't know. I'm not making this up right now. I've not thought about this.

I don't know how I explain it, but just growth fuels more growth.

The more you grow, the more fuel you have for more growth.

That's not a very good explanation for it, but that's the thing to wrap your head around is like, it's not what you start with.

It's just like, how long you're doing it for.

And it's not even the growth. It's the duration that otters.

Yes. So I said this earlier, how I think about my own investing philosophy.

If I can be average for an above average period of time that leads to a way above average result.

It's not, it's not about like, what are the returns that I can earn this year?

If I can earn 8% returns for 50 years, the results are ridiculous.

The results are absurd.

And so maximizing the variable that matters, which is time and endurance, you know, all compounding is effectively is returns to the power of time.

And so if you understand math, that the exponent there is what's doing all the heavy lifting, like maximize for that.

But where is all of the effort in the investing industry?

It's in the smaller number. It's in returns. How do I increase my returns this year?

But I think when you understand like, no, all the power, all the wealth, all the leverage is in the endurance.

Just focus on that before you think about anything else.

That's a really powerful way to think about it.

Let's switch gears and talk about reading and writing.

How do you select what you read?

I heard this idea, I think it was from Patrick O'Shaughnessy many years ago, who said,

you want a wide funnel and a tight filter.

I will start reading any book on any topic that looks even mildly interesting to me.

But I will slam it shut without mercy and move on to something else if it's not working for me.

A lot of the reason that people don't like read, why people don't read as much as they should, or if they say, I'm not a big reader.

A lot of the reason is because they feel like morally that they need to finish every book that they start.

And we realize that the majority of book, there's four million books for sale on Amazon.

I bet 3.9 million of those are not meant for you or for me.

They're meant for other people, but they're not. They just don't work for what we want out of them.

And if you force yourself to finish every book, your start, of course, it's going to be a miserable experience.

But when you are willing to try anything but have a filter that just has no mercy to move on if you don't like it,

that's when you find the great books.

Because if you only stick to books that you know you're going to like about topics that you're interested,

you are missing so many other topics out there that you don't even know that you would like.

You have to try a million different things, but then cut it off very quickly if you don't like it.

So that's how I try to read. If it's even slightly interesting, if someone has said,

oh, this is a good, I will start reading it. By the way, Kindle samples are free.

You have no excuse to not try any book and then just mercilessly cut it off if it's not working for you.

I find this really interesting because with my oldest who reads a ton, I just put books on his nightstand.

And you know, some of them I think he'll like, some of them I don't think he'll like,

and he randomly he'll pick them up and he read like an immune system textbook last year and loved it.

Yes. I think there's a lot of like that. If you ask me right now, would I like to read a book on the immune system?

I say, I don't know, not really. But there are so many topics like that over the years that I never would have thought that I would like.

That I start reading, I'm like, this is incredible. Or it's working for me in that moment.

It's a missing puzzle piece in that moment. There are a couple books that have always been on my go to books that I recommend to other people.

Oh, this is one of my favorite books of all time. A couple of those books, I went back and reread and I'm like, they're really not that good.

But at the time that I read them, it was a missing puzzle piece that it was like perfect for me in that moment.

Even if when I read it now, I'm like, this book's kind of very basic, not that well written.

And so I think that missing puzzle piece is true for a lot of people.

And that's why like you need to read a lot of books because what other people think are good may or may or may not be the book that you need at that moment.

Are you a Kindle reader mostly?

I'd go back and forth. I'm in a Kindle kick right now.

And I've been in physical books before.

What I love about Kindle is so easy to highlight and go back and search, which for me as a writer is really important.

When I'm writing, I'm like, oh, what was that quote from this book? I need to go find that really hard to do that in a physical book.

Where's Kindle? It's just so easy.

Do you take them out of the Kindle or just leave the highlights on the Kindle?

I use the Readwise app. And so everything that I highlight, whether it's in a blog post or on Twitter or it goes all into that.

David Senra is the one who said his Readwise feed of all of his highlights is his smart Twitter feed.

Twitter can be filled with so much garbage and noise.

But Readwise, you can flick through.

I think David Senra said he has like 28,000 highlights and you can sit there and scroll it of these like amazing quotes and anecdotes that he's highlighted over the years.

Are there passages that stick with you or haunt you that you've read that you can't stop thinking about?

This might seem a weird one, but I just because I'm a writer too, as you are, I'm a sucker for just a well-crafted phrase.

But there was one, I forget who wrote this. I'm sorry, I can't tell you who wrote this, but it was a book about D-Day.

And it was talking about this one group, this one company of soldiers on D-Day of whom many of them died.

And the passage was all of them were prepared to die that day and all of them did die that day.

And that was something I still, they're such a beautifully crafted sentence and it's also just haunting in its own way.

I'm such a sucker for that. It's not like, I always say the best story wins.

You could phrase that fact that they all died a million different ways, but how whoever the author was phrase that always really stuck with me.

Why do you think the best story wins? What's behind that?

What we're trying to do when we read a lot of times is just contextualize whatever factor story that was within our own lives.

And it's much easier to contextualize a story than a statistic because there's a human element to a good story.

And I also, it's just so much easier to remember and stick with you.

I don't remember any of the formulas that I was forced to memorize in school, forced to memorize the night before the test.

I remember a single one, but every good story that I was told, some of them when I was six years old, I still remember.

So because it's just so much easier to remember a story than a statistic and it's easier to contextualize it within your own life.

And because there's so much emotion embedded in it, stories are like leverage for good statistics.

If you just like, there's some statistics, like I just said, if I said first platoon of company E all died on D-Day, that's a statistic.

But if you phrase that, if you put a name or a face to it, it becomes a completely different thing.

I always use the example of Ken Burns, who makes the best documentaries about US history.

And the vast majority of what is in his documentaries are already known.

Documentary about the Civil War or World War II, you know how it ends, you know what happened.

There's not that much new in there, but he is a better storyteller than I think any historian has ever been in history.

He can tell a story about the Civil War that will literally bring you to tears, even if you know what happened.

You knew what happened, but when you hear the story and see the face and hear the music in the documentary, it will literally bring you to tears.

And Ken Burns has talked about how important music is in his documentaries, the background music.

And he said that he will literally edit the script so that when the narrator says a specific emotional word, it matches up with a beat in the background music.

So that the emotion and the music is literally aligned like that.

No other historian is doing that.

No other historian does that.

And that's why he has the leverage by telling, by talking about the Civil War, that no other of the historians who are writing about the Civil War can recreate.

Take a few seconds and think about how you would teach me to tell a better story.

You're one of the best storytellers of our generation.

Teach me how to tell a story like Morgan Housel.

I think it's two things.

One is right for an audience of one, which is yourself.

Don't think about other people.

Don't think about who's going to read this.

Don't think, don't ask yourself, how is the reader going to interpret the sentence?

Write a sentence that moves you, that makes you when you read it, you're like, I like that without thinking about anyone else.

I think once you start thinking about who is my audience and what are they going to like?

You start to pander and you start to like perform for them in a way that is very hard to like create a good emotional story about just write for yourself.

The other is don't forget how impatient everyone is.

So this is a sense where maybe you are thinking about the reader, but everyone is so impatient when they're reading that you just always have to ask yourself, what is the point that I'm trying to make?

Make that point and get the hell out of people's way and move on to another point.

And most storytelling, you lose it once you lose the reader.

Mark Twain, he said, he said at one point that when he would edit his work, he would read it aloud to his family, you'd read the story aloud.

And when he saw them getting bored, he would make a note, cut that part.

They're clearly dozing off here.

And when he would see their eyes bug up, he'd be like, oh, this is a good thing.

This is a good part.

And I think Mark Twain was the one who said, leave out the parts that readers tend to skip.

That's the key to good writing.

Leave out the parts that people tend to skip.

I think that's important to keep in mind too, is just write for yourself in a way that you like and get to the point and get out of people's way after that.

How did you learn to write?

You didn't even go to high school.

Right.

When I was at the Motley Fool for 10 years, that was a 10-year period where I was sometimes writing three posts per day.

Three articles per day doing that every day for almost a decade.

I wrote thousands and thousands of blog posts.

And when you write online, people are merciless about the feedback they give you.

The readers in the comment sections are on Twitter will tell you in no uncertain terms, this article was shit and you did a terrible job.

Or they'll say, this was really good.

I really enjoyed it.

So having that level of constant feedback and doing that thousands of times over a decade will turn anyone into a much better writer than they were when they started.

So that was really what it was for me.

It's a combination of quantity and fierce, unvarnished feedback from readers.

Do you test ideas?

I think in some ways you test ideas in Twitter.

And if they work, you can turn those ideas into a blog post.

And if the blog post worked, you can turn it into a book idea or book chapter.

That's kind of the natural progression for a lot of these things.

And just like it's very true in comedy too, even the best comedians, the world-class comedians don't necessarily know what's funny until they've tested it.

And this is why George Carlin, Chris Rock, Jerry Seinfeld, they test their new jokes in tiny clubs.

Because even Chris Rock does not know what's funny until they've tested it, until he's tested it.

And I think it's true for writers as well.

I've had a lot of experience with, I'll write a blog post and I'm like, this is good.

This is some of my best work.

And it flops.

No one else likes it.

And the opposite is true too.

The biggest, most popular blog posts I've ever written were always ones where when I was writing and I was like, I don't think this is any good.

This is so obvious.

It's so boring.

It's too personal.

No one else is going to care about this.

That does well.

So even after doing this for so many years, I don't know if my ability to find a topic and say, like, ooh, that's going to turn into a good post is really that good.

Which is why you kind of have to test ideas over time.

It's so interesting because podcasts are like that too.

I'll record an episode and I'll be like, oh my God, that was mind blowing.

And then, you know, three months later, I'll check at the stats and be like, what?

And then I'll record a podcast where I'm like, oh, you know, I wasn't that engaged.

And I look at the stats and it's like off the charts.

Yes.

The most popular blog post I've ever written by far by like an order of magnitude was a post in 2017 that I wrote about.

I grew up with and still have a stutter.

And when I was a child and teenager, I could barely speak.

It was a very severe stutter when I was a child and I couldn't really overcome it to where I can talk to you like it to now until I was 30 years old.

And so I wrote a post about this trial.

It's called overcoming your demons.

I know it's the most popular post I ever wrote.

When I published it, I literally hid it from our blog feed because I was like, no one's going to be interested in this.

I lose a little hidden like the link was out there, but it wasn't even on the feed because I was like, I'm so embarrassed about this that I would just be writing about a personal thing.

No one else cares about this.

And I really felt that way and it turned into the most popular thing I ever wrote.

It's hard to tell.

Do you think you were scared to put it out there?

A combination of scared also the point of the post was overcoming your demons that I started with this like profound disability that had such a big impact on my childhood and I overcame it.

And now I speak on stage and do these kind of podcasts.

And I felt like it was to look at me, look at me, look at me.

I didn't want that.

But I think everyone has their demons.

You do.

I do.

Everyone has something where they're like, I've got this problem in my life.

And a lot of those are hidden.

People don't talk about them because they're embarrassed.

They don't want to talk about it.

It's too personal.

And I think when you are vulnerable and open, people love it because even if you don't stutter, you're like, oh, I have this similar.

I have this issue, whatever it would be.

And like, thank you for telling me that your life was not as was not perfect.

Thank you for being open about the struggles that we all have in our lives.

I think people like that.

But it's a fine balance between that and being too personal, which we've all seen online.

Or being too braggie, egotistical about like, look how much I overcame.

I'm so important.

I'm so special.

It's a heart.

It's a balance.

It's almost like a str- some people use vulnerabilities strategically.

Yes, you can tell.

There was that viral LinkedIn post a year or two ago of it was a founder and he said, I just had to lay off half my company.

And he included a picture of him with like tears running down his face.

And people are like, that's terrible.

You like shame on you for just trying to like pull up the heartstrings and say like, oh, I'm, I'm so empathetic that I cry.

And I feel like it's actually a hard balance between like, why, why did my stuttering post work?

But that picture was just universally panned.

It's a, it's a balance, but I think it's hard to know where you crossed the line there.

I want to come back to comedians for a second.

What did they know about telling stories that we should learn from them?

And I forget who says this and this is not a direct quote.

I'm paraphrasing it.

I'm going to do a much poor job paraphrasing it, but it's like comedy is a way to show you're smart without being arrogant.

Something like that.

That's not the quote.

I'm doing such a bad job paraphrasing this, but I honestly think that the best comedians are the some of the smartest people in society.

They understand psychology.

George Carlin understood psychology.

I think better than Daniel Kahneman did.

That's a bold statement, but I think that is, I think that is actually true.

They are so smart at understanding how the world works, what makes people tick, how people think, but they're doing it in a way where they don't want to just impress you with their intelligence.

They want to make you laugh.

What could be better than that?

And so I'll give you one example.

My favorite George Carlin line.

He says, have you ever noticed that everyone driving slower than you as an idiot and everyone driving faster than you as a maniac?

A, it's, it's funny, but B, it's like, God, that is, if you think about that's profound.

And I understand like how like relative views of other people and whatnot.

And so they are, I think they're absolute geniuses, but they want to deliver it in a way rather than using big words to say, like, look how smart I am.

They just want to make you laugh.

And they are also because particularly for like a young comic, if they are not making you laugh quickly, they're going to get boot off stage.

So they are the epitome of one liner, just like so succinct in their delivery, so succinct in their writing, because they don't have the luxury that

a lot of authors do of like, let me write a 7000 word chapter.

A comedian on stage is like, if you don't make me laugh every 10 seconds, you're going to get boot off.

It's interesting because you mentioned psychology there.

They're, they're keen observers of human nature and psychology.

And all we've talked about today, we've talked about it through the lens of money, but it's basically psychology.

I think a lot of things in life fall under this umbrella of how do people make decisions around uncertainty, risk and lack of information.

And that is health, that is politics, that is friendships and marriages, and it's also money.

A lot of things fall under the same umbrella.

There's a study of like how do people behave.

And one of the things I think is important here is that you can learn so much about money by studying and reading fields that have nothing to do with money.

I think you can learn more about money by reading about politics, military history, biology, sociology, then you will by reading a finance book.

Because you're just trying to figure out how do people make decisions, how do you make decisions and how do other people make decisions.

And by and large, you're not going to learn that in an economics textbook, but you will learn about it by reading all of these other fields that have nothing to do with money.

What's your process for writing?

I don't think this is a good advice.

So if you're a writer out there, I'm not saying this is the right way to do it.

But one of the things that I do that I think is not common is I write by the time I get to the bottom of a post, it's pretty much the final draft.

Not because I can write a final draft in one shot, but because I by and large don't move on to the next sentence until I'm satisfied with the previous one.

Most writers, most very good writers will do the opposite.

They say your first draft should just be a brain dump.

And then you go back and edit it. And for whatever reason, it's never really worked for me.

So the other thing is I can't say I think I get too anxious and jittery sitting for too long.

So all the times I'll write one sentence when I'm satisfied with it.

I'll get up and like go do the laundry and I'll come back and write two more sentences and I'll go do the dishes or walk my dog or something.

So it's very sporadic like that.

And I think that contrasts with a lot of writers who are like, oh, I sit down, I can dump 5,000 words on the page and then I go back and edit it.

That is probably the best advice to get.

That's what you should do. And it's for whatever reason, this is never really worked for me.

We should do what works for you.

I guess that that's it. But most writers that I look up to, I think are much better writers than I do it the opposite.

How do you hook people? You're one of the best at sort of you and James Clear, the two people who, you know, the first sentence to your paragraph and sort of like the first part of your story really pulls people in.

What do you think you do differently?

I think it's a constant reminder of how impatient people are.

And if you don't hook them in five seconds, you're gone.

And I know that because I'm a big reader and if you don't hook me in five seconds, I'm probably gone.

Unless you are like an author who I really know that I will give you a little bit more leeway to be like, okay, like, I don't know where your article is going, but I'm going to stick with you because I like you.

If you're not that, you got five seconds to catch your attention or else you're out of there.

And I think that is easy to overlook that, that it's not just being succinct, you know, in the core of your article, but it's almost like an inverted pyramid.

People are most impatient in the first two sentences.

You would think of me the other way around.

They would get impatient after they've worked their way through your article and they're getting bored.

Like, no, they're most impatient at the top.

And there's a lot of data that can be very disheartening for authors.

There was a mathematician who looked at Kindle highlight data and he used highlights as a proxy for how far people are making it a book.

And the assumption was when people stop highlighting in Kindle, they probably stopped reading.

And he showed that even among bestselling books, the most popular books, the average reader makes like a quarter of the way through.

That's in the bestsellers.

That's in the good books, a quarter of the way through and they're done.

And so just always reminding yourself how impatient people are.

It's just like, what's your point?

Make your point and get the hell out of people's way.

I also think Twitter has made people better writers because the character count limitation has forced people to be like, you have two sentences to tell me your idea.

And that's all you get.

That's actually, I think that's been a great thing overall for making people more succinct.

What makes a good hook?

It could be a lot of things.

I could think it could be funny.

It could be profound.

We were talking about this last night about, I forget who said it, that good writing fits one of the acronyms of like,

OMG, LOL, you know, like something like that.

It should be shocking or funny or profound or scary.

Something like that.

That's going to invo...

Basically in a moment.

Yeah.

Something like that.

I want to end with two questions.

So one being what you can leave everybody some parting wisdom on money and life.

What would it be?

I think the most important is to realize how personal it is.

And therefore you really got to be careful taking your cues from other people.

You and I, again, same age, same, like going on the list, you and I are very similar people.

I have very different views about what to do with money and that is fine.

Just like you and I might have different views about food.

You like this food, I like that.

It doesn't mean that you're wrong.

It's got different tastes.

What not?

People understand that with food, but there is a common sense with money that there is one right answer for everybody.

And so I think you really have to be introspective and look in the mirror and just say like, what works for myself and my own family?

And even if there are holes and flaws and other people disagree with that, if it works well for me, that's as good as you can do.

That's an important thing.

And final question.

What is success for you?

I heard, I think Jim O'Shaughnessy said that his goal as a parent was not to raise good kids.

It was to raise good adults.

He wanted to be the kind of father that when his kids became adults, they were well balanced.

That's different from raising good kids.

You want to raise good adults.

So that would be a big, like maybe the top box to check in my life is looking back and being like, my wife and I did our best to raise kids that became good, self-sufficient, well balanced, polite, happy adults.

That's excellent.

Thank you very much, Morgan.

Thanks, Shane.

Thanks for listening and learning with us for a complete list of episodes, show notes, transcripts and more go to fs.blog.com or just Google the Knowledge Project.

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Until next time.

[Mastering the Long Game: Insights on Wealth, Psychology, and Life with Morgan Housel]-[#195 Morgan Housel: Get Rich, Stay Rich]

📋 Summary

The Philosophy of the Long Game: Wealth, Psychology, and Human Nature

The Distinction Between Being Rich and Wealthy

The Role of Luck and Risk

The Power of Index Funds and Effortless Investing

Managing Expectations and Social Debt

The Art of Reading and Writing

Conclusion: Defining Success

🎯Key Sentences

📝Key Phrases

📖 Transcript

[Mastering the Long Game: Insights on Wealth, Psychology, and Life with Morgan Housel]-[#195 Morgan Housel: Get Rich, Stay Rich]

📋 Summary

The Philosophy of the Long Game: Wealth, Psychology, and Human Nature

The Distinction Between Being Rich and Wealthy

The Role of Luck and Risk

The Power of Index Funds and Effortless Investing

Managing Expectations and Social Debt

The Art of Reading and Writing

Conclusion: Defining Success

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🎯Key Sentences

📝Key Phrases

📖 Transcript

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