Welcome back to episode 6, thank you as always for being here.
One of the craziest experiences I've ever had with money.
And it wasn't even necessarily an experience.
It was just a realization that I had, after reading an article and speaking with a friend
several years ago, came after I read this article about lottery tickets in America.
This was maybe 2018 or 2019 something like that.
And this article made two astounding points about lottery tickets.
The first is how much Americans spend on lottery tickets.
And here's the stat that blew my mind and will probably blow yours as well.
Americans spend more on lottery tickets than they do on movies, video games, music, sporting
events, and books combined.
This is a astounding figure and astounding statistic made all the more astounding by this
second point, which I think is even more incredible.
And that is the majority of lottery tickets in the United States are purchased by some
of the poorest Americans.
The lowest death style of households in the United States based off of income spend
on average $412 a year on lottery tickets.
That is four times the amount that is spent by the highest death style of income earners.
By large the majority of lottery tickets in America are bought by the poorest people.
And they're not spending a little bit of money on it.
They're spending tons of money on it.
So many people in this group in the lowest death style of earners are people who could not
come up with $400 in an emergency to fix their car or whatever it might be.
And those are the people who are spending more money than that on scratcher tickets.
Now here's the realization that really took me a back.
It was when I read this article, my first response and maybe your response too was those
people are crazy.
Those people are idiots.
What are you doing?
You can barely afford to feed yourself and you're buying scratcher tickets.
That's what you're doing.
That was my takeaway and I ended there.
And it was maybe just a couple of days later that I was talking to a friend about this
article and he brought up a point that I had never really considered.
This friend I was speaking with grew up very poor.
He was homeless for a lot of his life.
And he said, look, he remembers when he was a child and his refrigerator was empty and
his mom had three dollars to her name.
And he said, look, three dollars was not going to fill the refrigerator.
But it would buy the re-lateri tickets that had the potential to fill the refrigerator.
And he said, look, I think that is why a lot of this occurs.
To the eyes of someone who has a more comfortable financial position, it looks like what they're
doing is crazy.
To someone who is in some sort of financial desperation, it actually makes a lot of sense.
A lottery ticket might be the only piece of tangible hope that they have that gives
him confidence that there is a way out, that there is a path to the other side.
In all of the sudden, this thing that seemed crazy to me made a lot of sense.
And these people who looked reckless to me suddenly seemed pretty rational.
One other little story here, a brother-in-law is a social worker.
He works with very economically disadvantaged families.
And he told me the story one time of he was working with a very, very poor family.
And my brother-in-law started talking about saving for the future.
Saving for this expense maybe one month down the line, six months down the line.
And the family started laughing at him.
And they said, oh, you're a future thinker.
And they all started laughing.
And my brother-in-law's kind of like, what do you mean?
And this family said, when you are as poor as us, your field of vision of how you think
about finances is measured in hours.
You're thinking about how can we afford dinner tonight?
How can we afford breakfast tomorrow morning?
That's your entire field of vision.
And when somebody comes along and says, let's say for next week, next month, next year,
that's just not how their world works.
Both of those stories, the lottery tickets and the future thinkers.
To me, it just hit me like a ton of bricks, this really important realization, that there
are many different games to play with money.
And everyone is playing a slightly different game.
And a big problem that happens with money is that when people are doing something differently
than you are, managing their money differently than you are, spending their money, saving
their money, investing their money differently than you are, it is so easy to look at those
people and say, you're doing it wrong.
You're not doing it right.
You're not as smart as I am.
That tends to be like the knee jerk reaction.
And sometimes that is the case.
But so often what people are doing is what is right for them and works for them, given
their circumstances, given their own view of the world, given their own time horizon and
their own risk tolerance.
One of the most important ideas in money, in finance, in investing is realizing that some
people are playing a different game than you are.
And I'm telling you, one of the most important financial skills for everybody is figuring
out and identifying what game you are playing.
The idea that some people are playing a different game than you is so obvious in other areas
of life.
It's just very difficult to accept with money.
Michael Jordan once said that he had to reconstruct his entire body when he went from basketball
to playing baseball to back to basketball because baseball favored strong arms and strong
chest while basketball required a leader figure with a stronger core and stronger legs.
And actually part of the reason that Jordan's basketball return was as rusty as it was is
because he was still lugging around his big baseball arms.
And he said, quote, looking back, I didn't have enough time to get back to a basketball
body.
And look, when you think about something like sports, that there are different games with
different skills that require different bodies and different rules, that makes perfect sense.
Everybody understands that nobody criticizes marathon runners for having a different workout
routine than a power lifter.
They're both athletes, but they're playing a completely different game.
ESPN is a sports network, but no anchor pretends that golf and mixed martial arts are
like remotely similar.
But I think what people try to use that same logic for money, it tends to break down.
We categorize virtually everyone under the same label.
You're an investor, you're a saver, you're a spender.
And suddenly you have investors and all kinds of people who start judging one another, even
if they are very different people with different goals, playing a different game.
There's a question that I really like for lots of areas in life, which is asking people,
what have you changed your mind about in the last decade?
And I use one decade because it really forces people to think about big things, not like
changing your mind about who you think is going to win the Super Bowl this year, but something
big.
And I'll tell you what it is for me, what have I changed my mind about in the last decade?
I think in general I am a lot less judgmental about how other people manage their money and
invest their money than I used to be.
I used to think 10, 15 years ago that unless you were managing your money in a certain way,
spending your money in a certain way, investing your money in this specific way, unless you
were doing it in the way that I thought was right, you were there for wrong.
Like I viewed it as black and white, you either did it the right way or the wrong way.
But I think it's time went on, I realized that people play wildly different games and
they have different goals.
And if you view money as a single game, then you think every deviation from that game's
rules and strategies and skills is wrong.
And then when you see somebody managing money differently than you, it drives you crazy,
because you think they're doing it wrong.
But most of the time what happens when you see someone managing money differently than
you are, it's the equivalent of a marathon runner criticizing the workout routine of a power
lifter.
You guys are playing completely different games.
Of course you're doing things differently.
There's a big problem with money, which is that we treat it like it's math.
And in math, there is one right answer for everybody.
Two plus two equals four, no matter who you are or where you're from or how old you are
or where you live, there's one right answer.
But I think money is actually, it's much closer to something like sports, where equally
smart and talented people can do things completely differently depending on what game they're
playing.
And so much of what we consider financial debates, investing debates, things like that are
not actually disagreements.
It's not actually people arguing with one another.
It's people with different time horizons and different risk tolerance as playing different
games talking over one another.
Because here's the obvious truth.
What you want in life might not be what I want.
And what's fun for you might be miserable for me.
And vice versa, your family is different from mine, your job is different from mine.
You have different life experiences than I do.
You have different role models, different risk tolerances and goals and social aspirations.
And work life balance targets.
You have different career incentives on and on and on.
And so of course we and everybody don't always agree on what's the best thing to do with
our money.
There's no world in which we should always agree on what's the best thing to do with our money.
And if we are different people who want different things, then the money skills that we need and
the money information that we pay attention to also might be completely different.
Information that is relevant to you might be a complete waste of time to me and vice versa.
One big problem with financial media is that it is rarely acknowledged how different
people can be and that different people have different goals.
19 year old day traders buy Apple stock in the Robin Hood account.
So do endowment funds that have century long time horizons.
But the headlines in the financial media usually say something like, is Apple undervalued?
It's like, it's like there's one size fits all question, one size fits all information.
And then you see why so many investing debates are a waste of time.
It's different people talking over one another.
20 year olds trying to learn about the stock market have a very different desire than a
48 year old who's saving for their kids college.
98 year old Charlie Munger is not as interested in new technology or crypto as younger investors
might be because he is 98 years old.
It's all fine.
It's all perfectly normal and unavoidable.
And even if we try to find obvious common denominators of what people want, like all investors
want to make money.
It seems obvious you can get tripped up by assuming that other people want what you do.
10 years ago Daniel Coniman told this interesting story that I always liked.
He said that one day he told his financial advisor that he had no desire to become richer.
He had no desire to grow his net worth.
He said he just wanted to live comfortably off of the money that he had accumulated.
That was fine.
And his financial advisor allegedly told him she said, I can't work with you.
And I asked Coniman about this relationship many years ago.
And he said that the financial advisor was just so puzzled in the context of somebody
coming to get financial advice and not wanting to get richer.
Like that was so confusing to her.
But Coniman said that he's not that all unusual.
He said many people who are retired and have pensions are perfectly satisfied with what
they have.
And they are not desperate to have more money.
So again, even when you try to have the most basic universal common denominator of all
investors want more money, it seems obvious to me and most of you because that is what we
want.
But you still find these people, a lot of people who are just playing a very different
game.
Everybody is different.
Every decision that people make with money is justified by taking the information that
they have at that given moment and plugging it in to their own unique mental model of how
the world works and what they want.
And look, people can be misinformed.
They can have incomplete information.
They can be bad at math.
They can be persuaded by rotten marketing.
They can have no idea what they're doing.
They can misjudge the consequences of their actions.
Oh my God, can they ever do that and they do do that all day long.
But every financial decision that every person makes makes sense to them in that given moment,
it checks all the boxes that they need to check.
The problem is when people don't understand or appreciate that other people can be so
different than they are, thinking different things, wanting different things, having different
risk tolerances.
So let me tell you what I think is the single most important investing advice that I know
of.
Figure out what game you are playing and then play it and only it.
So few investors or just people managing their money do this.
Maybe they have a vague idea of their game, but they haven't clearly defined it.
And when they don't know what game they're playing, they're at the risk of taking their
cues and seeking advice from people who are playing a different game than they are.
Which can lead to risks that they didn't intend and outcomes that they never imagined.
Being swayed by people playing a different game than you do can also throw off how you think
you're supposed to spend your money.
With so much of consumer spending, particularly in developed countries, is socially driven.
You are subtly influenced by people who you admire.
And it's done because you subtly want people to admire you.
But while we can see how much money other people spend on cars and homes and clothes and
vacations, we don't get to see their goals.
Or their worries.
Or their aspirations.
A young lawyer who is aiming to be a partner at a prestigious law firm might need to maintain
an appearance that I, a writer at all, and we can work in my sweatpants, has no need
to do.
But when his purchases set my own expectations, I'm wondering down a path of potential disappointment
because I'm spending the money without the career boost that he's getting.
There are so many different versions and variations of that problem.
Of people chasing people who are playing a different game than they are.
Let me show you an extreme example of how this idea has impacted so many investors around
the world.
Amazon stock rose about 40 fold from 1997 to 1999.
That of course was incredible.
That was a massive, massive boom.
At that point, the company was valued at $30 billion, which seems small today, but
at the time was completely insane given where the company was.
It was still a tiny little online bookstore that was losing money every single transaction,
and it looked like it had almost no prospects of turning that around anytime soon.
So then the question is, why was Amazon worth $30 billion in 1999?
Most people, when they want to answer this question, they will say, well, 1999 was a bubble,
and people were losing their minds.
They were overly optimistic.
They were too giddy.
I think that, of course, is part of the reason.
But there is another answer here that I think is equally important that is so often overlooked.
Few people actually thought Amazon was worth $30 billion in 1999.
The stock was priced at that level because day traders were just having their fun.
They were the ones by a large who were pushing the price up.
They were the ones who just thought, hey, this stock is going to go up between now and
lunchtime.
It's gone up every day.
Let's buy it again.
They were the ones who were in there buying and selling all day long pushing the bubble
up.
But if you were a long-term investor in 1999, then Amazon at $130 a share, like it was
at the time, was the only price available to buy.
Because that's to the price that was being thrown around and being pushed up by day traders.
And many people long to investors were buying at that price.
So you may have looked around and said to yourself, wow, maybe these other investors
know something that I don't.
And maybe you went along with that.
And you even felt smart about it.
What you didn't realize is that the traders who were setting the marginal price of the
stock were playing a completely different game than you were.
$130 a share was reasonable for the traders because they played on selling the stock before
the end of the day or maybe tomorrow afternoon when its price would probably be higher.
So given the game that they were playing, it was rational.
But $130 a share was really hard and challenging for you, the long-term investor, because you
planned on holding these shares for a long time.
So what's the day traders left?
They left the game, they got off the field, and shares fell 90% of course.
From 2000 to 2002, you with the long-term investor felt like you got burned.
The day traders were gone, their game was over, they packed up and went somewhere else.
It was the long-term investors who may have gotten tied up emotionally.
And the games of those traders who took the biggest emotional hit.
That is why so many long-term investors get burned during bubbles.
They end up taking their cues from short-term investors who are playing a different game
than they are.
And now what game you're playing is not something that I can decide for you because everybody's
different of course.
Different ages, different risk tolerances, different life experiences and whatnot.
But I'll tell you my game.
I'll tell you the game that I've defined for myself, maybe that will help you define
yours.
I wrote this down years ago.
I am a passive investor who is optimistic in the world's ability to generate real economic
growth.
And I am confident that over the next 30 to 50 years, that growth will accrue to my investments.
That's it.
That's by game.
And once I define that game that I'm playing, so much of what goes on in the investing
world suddenly doesn't seem relevant to me.
Daily market commentary, quirky little details about the market's valuation, whether this
stock or that stock is overvalued, that information might be very relevant to other people.
But it's not necessarily relevant to me.
And paying attention to it could actually be detrimental to achieving the goals of my
game.
So I'll leave you by emphasizing how important it is to think about who you are.
Now what other people are saying about the stock market, or what you should do with your
money, or how you should spend your money or save your money, but what your own personal
goals are, what your own risk tolerance is.
What kind of investing strategy fits your own unique personality and your own unique
view of the world.
Even if other people who are just as smart as you might disagree with it, they might be
playing a very different game.
And as Michael Jordan once said, this is how I play the game.
If you don't want to play it that way, don't play it that way.
Thanks again for listening.
We'll see you next time.
