Resist the urge to chase short-term gains.
Transcript:
Speaker 1
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, 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. (Time 0:12:46)
Index Funds
Invest in index funds for the long term.
Aim for average returns over an extended period.
Transcript:
Speaker 1
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, who are compounding Money over time. (Time 0:13:54)
Investing Paradox
Investing is counterintuitive: less effort often yields better results.
The harder you try, the worse you’re likely to perform, unlike other life endeavors.
Transcript:
Speaker 2
Think we find it boring and that’s why we don’t want to do it?
Speaker 1
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’s 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. (Time 0:20:02)
Mortgage Payoff
Morgan Housel paid off his low-interest mortgage, calling it his worst financial but best money decision.
Prioritizing happiness over spreadsheet optimization improved his family’s quality of life.
Transcript:
Speaker 2
Financially and what’s optimal psychologically. We’ve had this conversation before where you told me you paid off your mortgage.
Speaker 1
And that makes no very little financial sense because you had one of those crazy, like really low mortgages. Like I’m worried it 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 thickle. 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. (Time 0:25:21)
Money’s True Value
Money buys independence and time with loved ones, not just material possessions.
Use money as a tool for happiness, not as a status symbol.
Transcript:
Speaker 1
What can money do for us and what can it do for us?
Speaker 2
What’s the lie it tells us? What’s the thing that we feel like it can do for us that it can’t?
Speaker 1
Well, I think the, 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. It 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, 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, 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 costs 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 we love. Money can do those things, but it’s not as direct as people, 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’s, it’s, 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. (Time 0:27:57)
Morgan Housel’s parents were frugal, enabling his dad to retire early from a stressful ER doctor career.
Saving for independence is more valuable than overspending.
Transcript:
Speaker 2
There’s so many things that we inherit from our parents, like invisible rules about money or practices around money. I remember like these moments in my childhood where, you know, my parents had to decide between fixing the roof and fixing the car and they couldn’t afford to do both. And I remember they, you know, they worked for the military and the military had sent them a financial advisor. And I remember listening to the conversation they had with the financial advisor and how out of the loop, they were with what was happening with my, you know, the severance pay that my Mom was getting and what was happening. And they had new knowledge of it. And I was like, I never want to be in this position. What are the lessons that you learned from your parents that really stick with you today that sort of defined how you think about money?
Speaker 1
The two things that stick out for my parents, my parents upbringing. So my dad started undergraduate college when he was 30 and had three kids. I’m the youngest of three. He started his undergrad when I was like a month old, something like that. And he became a doctor when I was in third grade. My early childhood, my parents were very, very poor. I was a doctor for students and maybe they had some like student grants that allowed us to buy groceries and live in a tiny little apartment. We were very happy at a great childhood, but they were very, very poor. And then my dad became a doctor when I was in third grade and had the, so it was a immediate shift towards very poor to like upper middle class, literally overnight when I was in third grade. And then my brother and sister were teenagers at that point. So I got to see very like both sides of the spectrum. And I remember the year 1993 is the year everything changed in our family. What sticks out from that is that the frugality that was demanded of my parents when they were poor stuck with them after they started making more money. And so even after my dad became a doctor, they were, we were very frugal. We lived a much better life than we did when we were poor because we were, we were living in abject poverty for most of my childhood. But after that, it was, they had a very high savings rate. We were not spending money like my dad’s coworkers were. Like you would expect a normal doctor too, it was nothing close to that. I think I looked down upon my parents for that. I was like, we could be living in an nicer house. I know how much money you make. We could be living in a better house and driving a better car, but we don’t because you’re cheap skates. That was my view for my teens and early twenties. My dad was an ER doctor, which is a very stressful field. And so I was literally people dying in front of you in your arms every day and working night shifts and it’s a very stressful field. So after about 20 years or so, he had just had enough. And well before I think he intended to retire, he more or less woke up one day and said, I’m done. It was a little more planned than that, but that was close to it. And because he had saved so much, he could do that. He had the independence to wake up one day and say, I’m going to do like, I’m proud of what I did, but I’m going to go do something else now. And a lot of his peers could not do that because they spent like doctors. They lived in big houses and sent their kids to private school and drove fancy cars. So when they wanted to quit, they couldn’t. They wanted to retire. They were tired and they wanted to quit, but they couldn’t do it. And that was such a profound shift in my thinking. This was not that long ago. I don’t know, 12 years ago or so. Of when I was like, oh, that’s why you were saving so much. It wasn’t because you were cheap skates. It’s because you were wanting to become independent. And now you are. You want to quit so you could quit. That’s why you were saving. That was a profound shift for me. You’re not saving because you’re just scared to spend. You’re saving because you want something different, which is independence. And independence is going to give you so much more pleasure than the big house ever would. (Time 0:35:25)
Rich vs. Wealthy
Being rich means affording expenses, while being wealthy means having independence.
Wealth is hidden; don’t judge financial success by visible possessions.
Transcript:
Speaker 2
Between being rich and being wealthy?
Speaker 1
The definitions are my own. I’m just making this up. But I think 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. Like, you can afford the things that you’re buying, technically. Wealthy, I think, is when you have a degree of independence in autonomy. The weird thing here is that wealth is the money that you don’t spend. That’s what wealth is like, the homes you didn’t buy and the car you didn’t buy. It’s money that you saved and invested that is going to give you independence. And that’s a hard thing for people to wrap their head around that wealth is what you don’t see because I can see your house. I can see your car. I can see your clothes. But I have no idea what your not worth this. I can’t see your brokerage account. I can’t see your bank account. So wealth is always hidden. And it throws a lot of people for a loop because if I was looking for a role model of physical fitness, I can see your fitness. I can see your weight and your muscle tone, whatnot. It’s all visible. But when you’re looking for a financial role model, who do you look up to? And a lot of people, particularly young people, will look up to the guy in the mansion with the Ferrari. But that guy for all you know is living paycheck to paycheck. A lot of those people are. And the person who is actually wealthy and independent might be the person in the modest house driving the modest car that you would actually want to be. If you want to be wealthy instead of just rich, you want to be independent instead of just making your monthly payments. The people that you actually want to look up to are some of the hardest people to identify in society. (Time 0:40:36)
Vanderbilt Fortune
The Vanderbilts squandered a $400 billion fortune in three generations by prioritizing excessive spending.
Anderson Cooper, the first heir with no inheritance, became the most successful and perhaps happiest.
Transcript:
Speaker 1
Speaking of staying rich, one of the stories we talked about last night was the Vanderbelts and how they basically blew a 400billionfortune.Whathappened?Ifyoulookatalloftherobberbaron,verywealthyfamilies,theCarnegie′s,theJPMorgan′s,theFords,theRockefeller′s,theVanderbelts,IthinkvirtuallyallofthemdidwellOrdidadecentjobatmanagingthatdynasticmoneyexcepttheVanderbelts.TheVanderbeltscompletelyandutterlybotchedit.Thestatus,youknow,whenCorneliusVanderbeltsdied,hisnetworthadjustedforinflation,becausehediedinthe1800s,wastheequivalentof400 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 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 Vanderbelts 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 Vanderbelts heir to not get any money, when all the money was exhausted, the first heir, whether there’s nothing left, was Anderson Cooper of CNN. His mother was a woman named Gloria Vanderbelts, she got the last trust fund in the family. And Cooper is not only the most successful Vanderbelts 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 Vanderbelts heir who was, like, relieved of the burden of having to carry on this thing of, like, I’m a socialite, I’m a Vanderbelts. And he’s just like, I can build my own name and my own career. (Time 0:53:41)
Reading Strategy
When reading, use a wide funnel and tight filter: start any interesting book but quit mercilessly if it doesn’t work.
Don’t feel obligated to finish every book.
Transcript:
Speaker 2
Switch gears and talk about reading and writing. How do you select what you read? I heard this idea.
Speaker 1
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 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 morally that they need to finish every book that they start. And we realize that the majority of books, there’s 4 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 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. (Time 1:17:07)
Writing Advice
Write for an audience of one (yourself) and be succinct to keep readers engaged.
Get to the point quickly and avoid unnecessary details.
Transcript:
Speaker 2
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 Hassel.
Speaker 1
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. 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 perform for them in a way that is very hard to 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 at one point that when he would edit his reading, 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, all right, 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 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. (Time 1:23:41)