Hey everyone, welcome back.
We made it to a third episode.
I didn't think we would really get this far, but I've been having a good time doing this.
This has been a lot of fun.
So thank you for listening.
I hope to do some more of these.
I still don't know how long it's going to last, but this has been a lot of fun.
What I want to talk about today is what I call the rules of the money game.
I'll tell you kind of where I got this idea.
Jason's Wig, who is someone I have really looked up to and admired for my entire career.
He's a columnist at the Wall Street Journal and who I think is kind of the greatest financial
journalists of our time.
He's really just an absolutely wonderful person, a very smart person.
He wrote this thing several years ago that his job as a financial columnist is to write
the same thing 50 times per year without anyone realizing that he is repeating himself.
The reason, as he explained, was because there's only like 10 things worth talking about
in investing.
You know, compound interest, diversification.
There's not that many topics to cover, but the topics are very, very important and they're
also very complex.
There's a lot of nuance in those.
So if you can explain the same topics 50 different ways, number one, you're not pandering
to people by just making up something to talk about this week.
And number two, I think you're actually getting like really close to the truth of what matters
in what needs to be reiterated and driven home.
There's an author named John Reed who wrote this book called succeeding.
And in the book, he has this quote that I think is so, so good.
He writes that quote, when you first study a field, it seems like you have to memorize
a zillion different things.
You don't.
What you need to identify are the three to five core principles that govern a field.
The million things you thought you had to memorize are just various combinations of those
core principles.
That I think is so important in so many fields of health, relationships, your career, anything,
but it's so true in money too.
And I've really noticed that in my 15 years as a financial writer, similar to Jason, I've
probably covered like 10 or 20 topics.
And everything I've written is hopefully just some variation, some little tweak on those
same topics.
So what I want to do with you today on this podcast is I came up with 30 of what I think are
the rules of the money game that are so important to doing well with your money over time.
Okay, let's jump right into this.
Number one, it can happen to you.
There is a comforting delusion when people think about money, where it is so common to
think that other people's bad circumstances that you witness could not have also happened
to you or might happen to you in the future.
I'm talking about things like job loss, divorce, a string of disastrous investments, succumbing
to your emotional flaws, being a victim of fraud, getting hit by a risk that you didn't
see coming.
All these things to people who are in good financial shape, these things tend to be
viewed as things that happen to other people.
But they can happen to you and given enough time, at least one of them almost certainly
will.
Of course, some people are more susceptible to than others, but nobody is exempt from being
humbled in life.
It will tell you what this really comes from.
Behavioral finance is a process of reading about yourself, but so many people think they
are reading about other people.
When you read about the biases and the flaws and the weird quirks of people's thinking
about how they think about risk and greed and fear and how they go wrong in those endeavors
it is so easy and common.
When you learn about these things to think that you are reading about other people, but
nine times out of ten, you are reading about the person in the mirror.
And this of course has a huge impact on how we think about risk management in life.
Shade and Freud, the German word that is like taking pleasure in others misfortune, is
such a terrible trait for this reason.
And not because it's just a jerk thing to do to take pleasure in other people's misfortune
and their suffering and their financial mishaps, it's a terrible thing just because almost
by definition it signals denial about the risks that you yourself face in the future and
will be hit by in the future.
There's a long standing joke you've probably heard that the definition of a recession is
when your neighbor loses their job and a depression is when you lose yours.
People have been saying that joke for decades, but I think that just highlights this idea
that so many people think that risk in the economy and with their finances is just what
happens to other people.
Mark Dow, a great investor who I follow on Twitter, he had this tweet this week and he's
commenting on the Silicon Valley bank drama in plosion that we have witnessed this week.
And he says, quote, the worst people, the absolute worst people are those who only think about
fairness after unfairness happens to them.
Same idea here, when you see something unfair happening in the world, when you see someone
suffering making a mistake with their money, the lesson from that is not to look at them
and say, wow, look at the mistake that person made.
It's to realize that that person almost certainly has very similar views and mindset and
personality and behavioral flaws that you do as well.
One takeaway from this that I found important is the idea of reading fewer forecasts, but
reading more history.
The reason that is is because most forecasts tend to be what people want to happen.
Most forecasts tend to be, this is going to be okay, I'm going to be okay, my investments
are going to go up a lot.
It's things that people wish to have happened, but if you read history, you realize it's so
much what history is.
Are there people being hit by surprise?
Things they didn't see coming.
Risk they never imagined?
That is what drives so much of history.
So reading more of that and fewer of the forecasts that tend to be what we want to have happened
to me is one of the only anecdotes to this.
Number two, I value independence more than anything else out of money.
Money is greatest intrinsic value in my view is the ability to give you control over your
time.
It's not necessarily to buy nicer things, although there is that of course, I don't want
to diminish that.
But the biggest benefit that money provides most people is just a sense of independence and
autonomy and doing what you want, when you want, with whom you want, for as long as you
want.
That is the most incredible thing that money offers that so often goes overlooked in a
world where money just equals more stuff.
If you can use your money and your savings and your accumulated wealth to control your
time, control your calendar, just to be able to wake up every morning and do what you want
on your terms, not your bosses terms, not your creditors terms, not your bankers terms,
just what you want to do.
But I think for the huge majority of people will give you an enduring and lasting level
of happiness or just a better life than anything material that you can buy.
One way of viewing this that I've thought about is view that every additional dollar
that you save is a piece of your future that you now own and you now control.
And on the flip side, every dollar of debt that you have is a piece of your future that
somebody else owns.
And that independence, I think, is what actually makes people happy in life.
Or at least it's a big part of it that tends to go overlooked because everybody knows
that the nice car, the nice house, the nice clothes, it's not that those things don't
make you happy.
That's not my belief because a lot of those things do and they're great and I like
them too.
But you tend to get used to those things and everybody knows that even if they are still
attracted to that.
But independence and autonomy and just waking up and being able to do what you want, that
is something that I think you will never get used to so to speak that they will always
give you a permanent and enduring level of happiness.
Any assets ability to let you do what you want when you want with whom you want has an
ROI that cannot be found on a spreadsheet and is so powerful and easy to overlook.
Okay, number three, spending money to show people how much money you have is the fastest
way to have less money.
The only way to build wealth.
Especially for people listening to those who buy and large have an above average income,
the only way to build wealth is to have a gap between your ego and your income.
Now I understand if you are younger and you are trying to put out a message to the world
about who you are and show the world who you are and put up your peacock feathers, that
I can kind of understand.
As you get older in life, your ability to generate wealth and accumulate wealth is almost
entirely dependent on your ability to suppress your ego and not use the money that you have
to show off or show people how much money you have but to use it for your own independence
and autonomy.
One way I've thought about this, it's been really practical in my own life and helpful
in my own life is just remember that nobody is thinking about you as much as you are.
Nobody is paying attention to you as much as you are.
Nobody is as impressed with your stuff as much as you are.
I think that is by and large true.
And if you take that to heart and if you believe that, that is the easiest way to suppress
your ego in a way that does not impact your happiness in life.
It's not the priving yourself of anything.
Once you get rid of the idea and no one is paying attention to you, you desire to show
off diminishes substantially.
Moving on number four, there is an optimal amount of bullshit in life.
This I think is so important and easy to ignore that so many people strive to live perfectly
efficient lives where there is nothing in their way, they have no hassles, they have no
hurdles to overcome.
It's completely fictitious.
Nobody has that.
And I think there is an optimal level of bullshit to accept as an unavoidable part of life
that once you accept it, you are just have a much more realistic view of the world.
There's this great little story that I like about Franklin Roosevelt, former US president
who of course was paralyzed in a wheelchair.
He said one time, he said, look, when you are crippled and in a wheelchair, if you ask
for milk and somebody brings you orange juice, you learn how to say, well, okay, that's
just fine and move on with it and accept it.
That I think is a really important trait, like accepting a level of hassle and nonsense
when it's just an inevitable part of life.
I experienced this thing, this was maybe five or ten years ago when I was on a flight,
and there was a CEO on my flight. I know that because he let everybody know in the boarding
area that he was a CEO, he was literally wearing a pinstripe soup so you can picture what
this guy looks like and our plane had to change gates.
Kind of a hassle, kind of a pain, but it happens and he lost his mind.
He was so angry, he was dropping f-bombs at the gate agent and I'm just sitting there
watching and thinking, how could you have possibly made it this far in life without the ability
to put up with and handle petty annoyances?
And I think the answer to that question, I think there is an answer to that question.
The answer is he probably lives in a life of denial, thinking that he can control things
that he actually can't.
And the people who are around him in his job are probably not bringing and exposing him
to a lot of the problems in the company because they know that's how he's going to react.
But just the idea that there is a certain level of hassle and nonsense that you have to
accept is so important.
It's not very intuitive because look, if you own a grocery store, shoplifting is a big
problem.
It is at every grocery store.
But now you could bring shoplifting down to zero.
You could guarantee it's zero if you strip search every person who shopped at your store.
But then of course nobody would shop at that store anymore.
So therefore the optimal level of shoplifting is not zero.
There is an optimal level that you just accept and put up with and work into your budget
as just a fact of life.
Having no tolerance for hassle or nonsense or inefficiency is not an admirable trait.
It's just denying reality.
And once you accept a certain level of bullshit in the world, you stop denying its existence
and you have a clearer view of how the real world actually works.
Okay, number five.
And this one is related to number four.
And by the way, these are as vulgar as I get in this podcast.
I promise you that.
Few things are as valuable in the modern world as a good bullshit detector.
That I think no matter what your field is, what your career is, what you're doing in
life, there is so much of what happens in the world.
It's sales and people putting on a face and people performing for one another and trying
to get your attention that if you do not have a good bullshit detector, you are going
to have a very difficult time in life.
A lot of this BS, by the way, comes from good, well-meaning, well-intentioned, innocent
people who are in a situation where they have poor incentives.
Because look, if you asked me if you said, how many people are truly evil in the world?
I would say, I don't know.
One percent, five percent.
I'm making that up.
That seems about right.
But if I said, what percentage of people are willing to do something evil because they
have bad incentives?
I would say, oh, I'm 50 percent, 75 percent.
And so once you accept that, you realize how important it is to have your BS alarm detector
go off, particularly in things like financial services when there are so many good, well-intentioned
people out there who can make an ungodly amount of money if they sell you the right product
or tell you what you want to hear.
If you don't have a good antenna for those kind of things, it's going to be very difficult
to get ahead financially in this world.
Okay, number six.
A lot of financial debates are just people with different time horizons talking over each
other.
So many investors play different games.
The everything from day trading penny stocks to endowments that are investing for the next
century and everything in between.
And we should never pretend that everyone in that spectrum is playing the same game by
the same rules with the same goals with the same risk tolerances they are so obviously
not.
The stock market, I think, is rational.
But investors play different games.
And those games look irrational to people who are playing a different game.
That I think once you understand it, you really start only paying attention to the news
and the information and the people who are playing a similar game to you.
But so often that's not the case.
I think that most of the time when people debate about finance of should you buy the stock,
how much money should you save?
How should you spend your money?
They're not actually debating.
They're not actually disagreeing with one another.
It's people with a different time horizon or a different risk tolerance or just a different
view of the world talking over each other.
Everybody in investing in finance is making a bet on an unknown future.
It's only called speculation when you disagree with somebody else's bet.
When you are playing a different game than they are, but you don't even realize it.
I heard this great story years ago.
It was this dad played a game every week with his son.
This son was a child and the dad said, here's a dime and here's a nickel.
Pick one.
You can keep one of these.
And the son took the nickel every single time.
And his older brother said, you're crazy.
A dime is worth more than a nickel.
Why do you keep taking the nickel if he's offering you a dime?
And the son said, because if I pick the dime, dad would stop playing this game with me.
And I thought that was such a great little story because it just highlights that some people
who do things that look inefficient or look like they are not doing the right thing, look
like they are leaving money on the table are actually just playing a different game than
you are.
Okay, number seven, you cannot believe in risk without also believing in luck because
they are fundamentally the same thing just in the opposite direction.
Both of them luck and risk are just an acknowledgement that things outside of your control can have
a bigger impact on outcomes than anything you do on your own.
So many people in investing spend all of their day.
They are so aware of the concept of risk.
Everything they do all day is risk, risk, risk, risk, risk, risk management.
You have risk adjusted returns.
You hire risk managers.
There is almost a complete ignorance though of luck.
It really talks about luck adjusted returns.
Nobody hires a luck manager.
But they are fundamentally the same thing and risk and luck impact the world, particularly
financial markets in the same way.
Part of the reason I think this is is because if I were to say you got lucky, the success
that you have, you just got lucky.
I look like a jerk.
I look like I am jealous.
I look like I am a little biter.
So I don't, and most people tend not to do that.
And if I were to look in the mirror and say that my success just came from luck, that's
pretty painful to accept for myself.
And so it is so easy to ignore luck when we are so cognizant of risk even when they are
fundamentally the same thing.
Important to keep in mind here, risks greatest fuel in life are leverage, overconfidence, ego,
and impatience.
That's what tends to drive risk.
The greatest antidote to risk the getting rid of it is having options, humility, and
other people's trust.
Number eight, save like a pessimist and invest like an optimist.
Getting rich and staying rich are two completely different skills.
They are often contradictory skills that, but you need them in equal parts to do well over
time.
It is so important to know the difference between rosy optimism and periods of chaos that
tend to trend upward.
And the idea, if you are an optimist, like that's great, like people should be an optimist,
but optimism does not mean that you think everything is going to be great.
That is just complacency.
What I think real optimist is realistic optimism is this idea that things will work out in
the long run, but the period between now and then is going to be a constant chain of chaos
and misery and setback and recession and pandemic that you need to be able to survive and
endure financially for your long-term optimism to actually pay off.
So that barbelled personality is so incredibly important, but it's rare because those skills
contradict each other.
Most people I found are either optimists or pessimists.
They're either full-blown, diarit optimists who get washed out when the economic cycle
turns.
Everyone knows those people, everyone has seen those people, or they are full-blown
pessimist.
And they never believe in long-term optimism and they never take advantage of the progress
on the productivity that happens over time.
One thing that's important here is that there is more to learn from people who have
endured risk than those who have seemingly conquered it or avoided it, because the kind
of skills that you need to endure risk are more likely repeatable and relevant to the
future risks.
So if you can just avoid disaster and be patient, you don't need to make many smart decisions
to do well over time, for your optimism to actually pay off.
If you can focus on survive, like using half of your capital and your net worth to survive
a continuous chain of surprises and setbacks, and then the other half to stick around and
do well and have endurance in your finances, that is so powerful.
Another way to think about this that is so critical in investing is that most investors
want to answer the question, how can I earn higher returns?
It seems like the obvious question that you should want to answer, but that's not actually
the most important question that exists in investing.
By far the most important question is what are the best returns that I can earn for the
longest period of time?
What are the returns that I can earn for the next 10, 20, 30, 40 years?
By and large, those are not the highest returns that you might be able to earn in any given
year, but if you can stick around and endure the ups and downs and the nonsense that's
going to take place between now and the long run, those are where the big returns occur
over time.
Number 9.
Nothing too good or too bad lasts indefinitely.
When you are in the middle of a powerful economic trend, it is difficult to imagine a force
strong enough to turn things the other way.
That's true when things are going very good, it's true when things are going very bad.
What we tend to miss is that what turns trends around usually isn't some big outside force.
It's when the subtle side effects of that trend itself erode what made it powerful
to begin with.
So let me give you an example.
When there are no recessions, people get confident.
When they get confident, they take risks.
When they take risks, you get recessions.
The same force that caused the thing to keep going is what eventually turns it in the
other direction.
Same in investing.
If the stock market never crashed, stocks would go up.
When stocks go up, valuations go up.
Valuations go up, markets are prone to crash.
It's the lack of crashes that plants the seed of the next crash.
Whenever there is a crisis, by the way, people get motivated.
When they get motivated, they frantically try to solve problems.
When they solve problems, crises tend to end.
The same thing works in reverse.
Good times played the seeds of their own destruction through complacency and leverage.
Bad times played the seeds of their turnaround through opportunity and panic driven problem-solving.
We know that in hindsight, it's almost always true.
Almost everywhere.
But we tend to only know it in hindsight because we are extrapolating machines.
And drawing straight lines when forecasting is easier than imagining how people might
be able to adapt and change their behavior as the trend goes on.
Here's another example that I love from Nature.
When alcohol from fermentation grows, it reaches a certain point where it kills the yeast
that made it in the first place.
Like when alcohol gets so potent, it tends to reverse in the whole process collapses.
Most powerful economic trends, finance trends, and the exact same way.
And that kind of force is not intuitive.
That the thing that made it strong is what's going to actually kill it.
It really requires you to consider not just how a trend impacts people, but how that impact
will change people's behavior in a way that could end the trend all together.
Number nine.
Something no fomo might be the most important financial skill.
Being immune to the siren song of other people's success, especially when that success is sudden
and extreme and caused by factors outside of their control, is so powerful and important
that it's practically impossible to do well financially without it over time.
When he was strategizing Dwight Eisenhower, the former president and general used to quote
Napoleon and used to say, quote, a military genius is the man who can do the average thing
when everyone else around him is losing his mind.
But I think it's the exact same thing with money.
And this is why having no fomo is so important.
You don't need to be brilliant.
If you can just be average when everyone else is going crazy, that's all you need to get
ahead.
Fomo is, this is why it's so dangerous.
Fomo is recklessness masked as ambition.
You see somebody else getting rich and you think, well, if they can do it, I could do
it too.
And that feels like a good emotion.
It feels like you're learning through observation and you're following a data-driven path to success.
But what's actually happening is that you are outsourcing your emotions to people who
is quick windfall has probably left them in a fragile emotional state to begin with.
There's this great quote that I love from Charlie Munger where he says, somebody will always
be getting richer than you.
And that is not a tragedy.
It's such a good, powerful quote that more of us should pay attention to, particularly
in times like 2020 and 2021 when a lot of people around us were getting very rich very
quickly.
If you remove Fomo from the equation, think about what's left though.
You only care about your own goals.
You tend to avoid getting sucked into bubbles.
You tend to think long-term.
And you don't really need much else than that to do well over time.
Okay, number 10.
If your expectations grow faster than your income, you will never be happy with your money.
No matter how much you accumulate, wealth is a two-part equation.
You need to grow your income, grow your net worth, everyone knows that part.
But then you need to keep your expectations in check relative to those numbers or else
you are never going to be satisfied with what you have.
And it is so common in the financial services industry to spend all of your attention, 100%
of your attention, on the growing your wealth side of the equation.
That's where all of the commentary and the money and the effort goes into, which is great,
that part makes sense.
But I think there's almost a complete ignorance on the second half of the equation, which
is keeping your expectations in check.
And we all know, we all have seen someone who got very wealthy, did very well in their
careers, did very well with their investments.
But if their expectations rise by just as much, not only are they going to be unhappy with
that success and unsatisfied with that success.
But what really happens here is, if you are never satisfied with the money that you have,
people tend to take more risk, more risk, work longer hours, longer hours, in this chase,
in this pursuit for something that has no end.
So they keep doing that, taking more risk, working more hours until it backfires on them.
It's like if you have it, if your appetite for money is insatiable, it's eventually going
to catch up with you.
And there are criminal forms of this.
Bernie made off as a great example of someone who was very successful in his career before
the fraud, but took every risk that he could to earn more money.
He started this fraud in a way that of course blew up on him, ruined his life, ruined his
family's life.
But the innocent version of this are the people who just have no appetite for more, so they
keep taking more risk, working more hours until they end up regretting it.
And it's a tragic thing to watch.
And one thing that's important here is that having some idea of enough money does not
mean that you have no aspirations for more.
I want more money.
I want a higher net worth than a higher income.
Of course, everybody does.
The concept of enough just means that you realize and you pay attention to the idea that
if your expectations are growing just as much or faster than your income, you will never
be satisfied with what you have.
Number 11, there is rarely more or less economic uncertainty.
There are just changes in how ignorant people are to potential risks.
This is something there is all these periods in the economy.
When you go through periods where people say, there's so much uncertainty right now,
heightened uncertainty, living in a time of uncertainty.
And their idea, they're like, what is implicit in that, is that the amount of uncertainty
about the future can be higher at one point than another.
I think if you think this through, it's really not the case.
There have been studies that try to track economic uncertainty.
And they look about things like policy change and how much people are talking about uncertainty
in the newspaper.
And if you look at these studies, it tends to show that uncertainty bottomed as in certainty
over the future peaked in two periods.
One is right before 9-11.
The other is in 2007, right before the financial crisis, which makes no sense at all.
Those were the periods when actually the future was as uncertain as it had ever been.
We were staring down these enormous societal risks.
We were just oblivious to it.
And look, on September 10th, 2001, the risk of a terrorist attack was enormous.
It was the highest it had ever been.
We were all just oblivious to it.
In on September 11th, the risk of terrorist attacks, not in Greece, we just suddenly became
aware of a risk that we were previously oblivious to.
Making what the biggest risk in the economy is, is like asking what you expect to be surprised
about.
Because if you knew what the biggest risk was, you would do something about it.
And doing something about it makes it less risky.
So what your imagination cannot fathom is the dangerous stuff.
It's why risk can never be mastered.
Risk by definition is what is left over when you think you've thought of everything.
Number 12, an extreme adherence to an investing strategy is dangerous in a world that changes
all the time.
I'll tell you a little story that I think is underappreciated and more people should know
this story.
Benjamin Graham's great book, The Intelligent Investor.
It's like the Bible of value investing.
Most of you have probably read it.
That book was updated.
I think it had four different editions.
And in every edition, Ben Graham changed the formulas that he would recommend people
use.
In one edition, he would say, you know, I'm making this up by stocks on the trade for
less than two times book value, whatever it would be.
And then in the next edition, he would change it.
He came up with a new formula.
Jason Zwagin, the Wall Street Journal, who's kind of a Graham historian, he wrote one
time that, look, of course Graham did that because the old formulas that worked suddenly
became outdated and outmoded.
They didn't work anymore.
So he came up with new formulas that did work.
Is it like there was a shelf life on what worked on the strategy that worked at that
time?
And the crazy thing is that Benjamin Graham died in the 1970s.
So if he was updating his formulas every few years back in the 50s and 60s, imagine what
he would think about today's market that has changed so much since then.
Just drives home the point that having a dogmatic adherence to a single investing strategy
that you never change can be so dangerous and difficult.
Number 13, there are few universally right answers in finance.
There are just lots of shades of gray that happen to work for people's unique personality
and their certain situations.
So many finance arguments happen when people get upset after realizing that not everybody
has or wants the same life as you.
One thing I've often thought about is the single most important decision that most people
will ever make in their life is whether, when and whom to marry.
It's the most important decision that you will ever make for most people.
But that topic of how to find a spouse, when to marry, who you should marry, is never
taught in schools.
It never will be taught in schools because it can't be taught in schools.
It's not something that you can just distill down to a formula.
So the idea that some of the most important decisions in your life just are things that
cannot be taught, cannot be formed or are not formulaic, I think it's the same in money.
And why is by and large is financial education not taught in high schools or colleges?
I think there's a lot of answers to that.
This is not black and white.
But one of them I think at least is that it is very difficult to teach money because
everybody has different views and goals and time horizons and family dynamics.
It's very difficult to teach something where people who are equally smart, equally educated,
equally informed can come to a vastly different answer in terms of what they want in life.
For 14, pessimism always sounds smarter than optimism because optimism sounds like a sales
pitch, well pessimism sounds like somebody trying to help you.
It pays to be a long-term optimist.
We talked about that earlier, but my God is pessimism more common and more able to catch
your attention.
There is a historian named Geardron McCloskey who has this quote that I love, she says,
for reasons I have never understood, people love to hear that the world is going to hell.
If you are familiar with financial news and financial commentary, you see that everywhere
pessimism gets people's attention, even if the optimism was what actually pays off in
the long run.
Number 15, most of what people call conviction is just a willful disregard for new information
that might make you change your mind.
That is when beliefs turn dangerous.
It's when you say, I have so much conviction about this stock.
I have so much conviction about this strategy, about this company, whatever it might be.
So often what that is, the reason you have so much conviction is because you have a brick
wall that is not letting in the counter examples and the counter information that might make
you change your mind because that idea of changing your mind is too uncomfortable.
You can't handle the cognitive dissonance of saying, you're putting your money into this
investing strategy.
You are all in on this career, even if there is an odd.
There are odds that it might not work out over time.
Charlie Mugger says you could only have an opinion when you can state the other side's
position as well as they can.
If you want to have conviction in what you're doing, you better be able to state the opposing
side's view as well as they can.
Number 16, your willingness to believe a prediction is influenced by how much you want or need
that prediction to come true.
There was this documentary that I watched many years ago, it was called How to Live Forever.
And it asks these centenarians, people who were over 100 years old, what the happiest day
of your life was.
You've lived for over 100 years, what was the best day?
And there was this old French woman, I think she was like 106.
And she said the happiest day of her life was Armistice Day.
The deal in 1918 that ended World War I.
And the producer said, why?
Why was Armistice Day the happiest day of your life?
And the old woman said, quote, because we knew that there would be no more wars ever
again.
And of course World War II began 21 years later and killed 75 million people.
There are so many things in life that we think are true because we desperately want them
to be true.
People do this with their relationships, their careers, their investments, their political
views.
Anything forward looking is subject to being swayed by your desire to have a pleasant life.
And everyone is a dreamer because it is hard to go about your day when you genuinely
believe the future will be difficult.
So there is an appealing fiction in life, which is believing in the outcome that you want,
even if it's unlikely to come true.
And it's often your only comfort in an uncertain world.
And the higher the stakes, the truer this becomes.
Before modern medicine came about, for centuries we did bloodletting and starvation therapy
and cutting holes in your body to let the evils out, whatever those were, all these
treatments that made everything worse.
But they gave people a little bit of hope that something might work, that these treatments
might make them better.
And that was as good as you could get.
So people clung to it, even if it didn't work, they clung to it because it gave them
a little hope.
And people do this all the time with their finances as well.
If you desperately need a solution and a good one isn't known or it's not readily available
to you, the path of least resistance is willing us to believe anything.
Not just try anything but believe anything.
The same thing happens in investing when people are so eager to listen to forecasters,
whose track record is abysmal.
People who have never accurately predicted the next recession or what the market's going
to do, but if they say what you want to hear and what you want to believe, you pay attention
to them.
If you tell people what they want to hear, you can be wrong indefinitely without penalty.
Number 17, everybody belongs to a tribe and underestimates how influential that tribe
is on their thinking.
Tribes are everywhere.
Countries, states, political parties, companies, industries, departments, investing styles,
economic philosophies, religions, families, schools, majors, credentials.
There are tribes everywhere and everybody loves their tribe because there is comfort
in knowing other people who understand your background and share your goals.
But tribes have their own rules and beliefs and ideas.
Some of those ideas you might disagree with.
Some of them are even abjectly terrible ideas, but they remain supported, even maybe
by you because nobody wants to argue with a tribe that has become so integral in such
a big part of their identity.
So people either willingly not along with bad ideas or they become blinded by tribal loyalty.
This happens so often in money and economic views and political views you see it all over
the place.
Liberating most financial mistakes come when you try to force things to happen faster than
is required.
The root of most financial misery is not bad decisions.
It tends to be good decisions that you try to make happen faster than they should.
Investing in the stock market is great.
Investing in the stock market and demanding that you double your money over the next two
weeks is not.
It's very easy to conflate those two.
Cobbound interest does not like it when you try to use a cheat code and it is so easy
to underestimate how much time is actually needed to put the odds of success in your favor.
That particularly in investing when people say long term, they don't mean six months or
a year, but if you look at a lot of financial history, we're talking five, ten, twenty years
that is truly needed to put the odds of success in your favor.
It is so easy to underestimate that kind of time period.
So you have people who seem like they are making good decisions.
They're just not giving in enough time to pay off.
One thing to think about here is that there are three edges in finance.
You can be smarter than other people.
You can be luckier than other people or you can be more patient than other people.
Only one of those, the patient part, of course, is the one that most people can actually
have a fighting chance of making work over time.
Number twenty, the goal of investing is not to minimize boredom.
It is to maximize returns.
So much of what happens in the financial media is designed for entertainment.
It's designed just to get your attention and it's no different than sports where it's
just trying to entertain you, but so many people don't really realize that.
And they spend so much time, they were so turned off by a simple investing strategy that
might work because it seems too boring to them.
I think part of the reason this is is that money is one of the only fields where simplicity
tends to equal better results.
If you want to be a great athlete, you should work out, you know, train, you know, a hundred
hours a week.
If you want to be the best golfer in the world, you should go to a driving range and hit
balls for six hours straight.
Most fields, if you want to get better, you put in more effort.
Finance, particularly money and investing, tends not to be like that, tends to be the opposite.
For people who put in less effort and take a more simplistic approach tend to do better
over time.
But there are so many big brain smart people in this field who can't do that because it
feels like a waste of their intelligence and a waste of their resources.
There tends to be a sweet spot in money I've noticed where you grasp the important stuff,
but you are not so smart that you end up bored with it.
It's a hard balance to find.
Number 21.
Your personal experience is makeup maybe 0.0001% of what has happened in the world, but
maybe 80% of how you think the world works.
Everybody is a prisoner to their own experiences of what they have happened to experience in
life, primarily based off of the dumb luck of where and when you were born, and since
nothing is more influential to people than what they have experienced firsthand.
And all of us have experienced something vastly different in life, all of us who are equally
smart as one another and maybe have the same information the one another.
Think about the world and the economy and investing and spending and social habits in
very different ways.
Where and when you are born can have a bigger impact on your outcome in life than anything
you do intentionally.
This is especially true for looking at investing.
I've often I joked one time that the most important investing skill is being born during
an era where your peak saving years happened during a 40 year decline in interest rates.
And for so many investors it's true that that was like the biggest, like the most important
thing that they ever did was saving money and investing money from 1983 to 2021.
And of course that was completely outside of their control.
It was just the dumb luck of when they were born.
So just the acknowledgement that there are so many big things and our view of the world
can be so far out of our control is a really important part of this.
Number 22.
All investing ability is unproven until it has survived a disaster.
It is so important to be careful when identifying skill when you're trying to identify skill,
whether it is yours or other people's.
If you are only viewing it during the last market cycle.
One of the reasons that I admire people like Warren Buffett, even George Soros and those
people, it's not even the magnitude of their investing skills.
It's the fact that they have earned money and outperform the market during so many different
market cycles.
Both of those people have done it for 50 or more years.
When during high inflation, during low inflation, during economic booms, during economic busts
they've made money and bollons, they've made money and stocks.
That is the only time that you can really separate luck from skills when you see somebody
succeeding in multiple different environments.
And during every market cycle, every investing cycle, there are so many people who can succeed
in that specific market cycle.
But as soon as the tide turns, they have no skill whatsoever.
Number 23.
Past success always seems easier than it was because you now know how the story ends.
And you can't unremember what you know today when trying to remember how you felt about
the past.
What I mean by this is it is much easier to quote Warren Buffett than it is to do what
he does.
Much easier to say, I'll be greedy when others are fearful than to actually do it.
It is so easy to look back and hindsight and say, oh, if you just bought stocks in 2008,
if you just bought stocks in 2002, if during the bottom of the Great Depression, if you
just put all your money and stocks, you could have been a millionaire, it is so easy to do
that.
But the only reason that's easy to do that is because you now know how those stories
ended.
You know that 1933 was the bottom and 2008 was the bottom.
At the time, people did not know that.
So it is so what's, you want me to think about this is that every past market crash looks
like an opportunity.
But every future market crash seems like a risk.
When you understand the paradox of those two, I think you become much more humble in your
ability to try to forecast what is going to happen next.
Number 24.
We are bad at imagining how change will feel because there is no context in dreams.
Nobody thinks they have a high risk tolerance when things are going great.
And then things turn around and they decline and then people say, how you know what actually
this hurts more than I thought.
The reason this happens is because when thinking about the future, you tend to think in isolation.
If I said, how would you feel the stock market fell 40 percent?
Most people would say, oh, that would be an opportunity.
That would be an opportunity for me to invest more.
The reason they say that is because when you imagine stocks falling 40 percent, you imagine
the market becoming 40 percent cheaper, but nothing about the world being different other
than that.
But that's not actually why the market might fall 40 percent.
It might fall 40 percent because there is a terrorist attack you didn't see coming or
a pandemic that might kill you and your family or a major recession or a political meltdown
or whatever it might be.
And in that context, it is much harder to say I'm going to be greedy when others are fearful.
The same thing happens when we're trying to imagine how a gain might feel.
I don't think I've met a single person or no of a single person, anyone with outsized
success who gained as much happiness as an outsider might expect.
That doesn't mean that success can't bring pride or contentment or independence or whatever
it might be, but it is rarely what you thought it would be before you achieved it.
Jim Carrey, the actor, he once said, quote, I think everybody should get rich and famous
and do everything they ever dreamed of so that they can see that it is not the answer.
I think part of the same reason is why prediction and predicting loss is so difficult.
It is hard to imagine the full context of what you're up to experience.
If you think of your future self as living in a new mansion, you might imagine basking
in the splendor and everything feeling great.
What is so easy to forget though is that people who live in mansions also get the flu
and they have psoriasis and they become embroiled in lawsuits and they bicker with their
spouses and they're racked with insecurity and they're annoyed with politicians.
All of those things that still are with you when you're in your mansion have a huge impact
on just your day-to-day well-being.
So future fortunes are always imagined in a vacuum, but reality has always lived with
the good and the bad taken together competing for your attention.
The best way to teach your kids about money is to make them feel the power of its scarcity.
So I always get nervous when people talk about big-liances or parents who always say yes
to their kids.
Making sure your kids understand the power of scarcity with money teaches them the difference
between necessary and desirable.
It forces them to budget.
It makes them learn to enjoy what they have and fix what's broken.
Those are all essential life skills and the only way to teach your kids about money is
to make sure that if you have some means that you are withholding it from them so that
they can learn firsthand the power of its scarcity.
Sorry to my two kids if you're going to listen to this someday, that's what we're doing.
Number 27.
Getting to the end here.
Embrace and accept your flaws and build a financial plan around them.
Rather than assuming that you can alter your susceptibility to dopamine and cortisol just
by reading a blog post, so many people try to look at their past financial mistakes and
they will think, oh, they've learned their lesson.
Maybe you panicked and sold all your stocks in 2008 but now you've learned your lesson
and you'll never do that again.
Buy and large that tends to not be true.
I think most of the time, however you respond to the last crisis is how you are going, is
very likely how you're going to respond to the next crisis.
That the same emotions are going to come flooding back when you're in the same situation.
The solution to that is rather than assuming that you can fix your financial flaws, just
accept and embrace what they are and build a financial plan around that.
Number 28.
Emotions can override any level of intelligence.
A genius who loses control over their emotions can be a financial disaster.
And the opposite is true.
Ordinary folks with no financial education can be wealthy if they just have a handful
of behavioral skills that have nothing to do with formal measures of intelligence.
Patients, level-headed, low ego, those are the kind of things that actually make a difference
over time.
Number 29.
Comedians are the only good thought-lators because they understand how the world works
but they want to make you laugh rather than making themselves feel smart.
This really doesn't have anything to do with money but I threw that in there just for
communication in general, it is such an important idea of understanding why comedians are so famous.
They are psychological geniuses but they just want to make you laugh rather than making
themselves look good.
And number 30.
Your close us out.
By maybe the most important one.
The luckier you are, the nicer you should be.
So people have pointed out to me that the opposite is actually true, that the nicer you
are, the luckier you will become.
To be what's important about this is that it is the only way to protect against entitlement
in a cyclical economy is to realize and recognize what you have going for you and when things
are going a little bit abnormally good, the only way to protect against entitlement in
that situation is to try to be nicer to the people around you.
That's all I got for this week.
Thank you again for listening.
Maybe we'll come back next week, maybe I'll bring somebody on.
We'll see.
But this has been a lot of fun as always.
Thank you again.
