Mindy: Today, we are talking with perhaps the most notable thought leader in personal finance, Morgan Housel. While you may know him as the author of The Psychology of Money, his new book, Same as Ever, is even better. Scott certainly thinks so.
Scott: It’s so good, Mindy. Today’s conversation is a rare opportunity to get a glimpse into how Morgan’s mind works. Take a deeper dive into some of the themes he’s spent his entire career studying, and learn what he personally is doing with his own money.
Mindy: Hello, my dear listeners, and welcome to the Bigger Pockets Money podcast. You are in for a treat today. My name is Mindy Jensen, and with me today is my co-host, Scott Trench. How you doing, Scott?
Scott: Same as ever, Mindy. Same as ever. How are you doing?
Mindy: I knew I was walking right into that as soon as you said that.
Scott: All right, we’re here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.
Mindy: Morgan Housel, welcome to the Bigger Pockets Money Podcast. I am so excited to talk to you today.
Guest: Thanks for having me. Nice to see you guys.
Scott: Morgan, you’ve had an amazing career in the personal finance world, um, over over the years and and decades and it and building an incredible reputation helping lots of folks. Um, I’ve told folks that have listened to the Bigger Pockets Money podcast that I’m such a nerd that I, uh, devoured Psychology of Money on my honeymoon, and I was super excited to have you on today to talk about your second book, Same as Ever, uh, which has recently come out and which I think is even better than The Psychology of Money. So, can you tell us a little bit about, uh, Same as Ever and then I would love to kind of unwind and go through the, um, um, your career.
Guest: Well, Scott, thanks so much for that that intro. I appreciate it. And Mindy, thanks again for having me. This is great. Um, Same as Ever was was interesting for me. I was I have been a financial writer for my entire career. I was hired by the Motley Fool when I was still in college. So it’s all I’ve ever done is written about finance. And the first couple years of of doing that was I was writing about the stock market in particular. And even early on, I was writing about stock individual stocks. So the idea of writing about something a little bit different had always appealed to me because as the years went on, I realized like I’m I’m definitely not a stock picker. And even even after that, it was like, look, I enjoy the stock market because it’s interesting, but I’m so I’m interested in so much more than that. The Psychology of Money was my first like, hey, I’m really interested in behavioral finance. I couldn’t really care less about where people think the stock market’s going to go next or what you think GDP is going to do in Q4. Like I’m not interested in that and I think no one’s really good at that anyways. But I’m very interested in what is going on inside of people’s heads when they are making financial decisions. Same as Ever though was a little bit different. It was like I’m I’ve as many people are, I’m an amateur uh, student/fan of history. And it had always been so astounding to me when I would be reading something about history, whether it was the history of economics or business or war or politics or science, whatever it would be, and you read something that took place 100 years ago or even 500 years ago, and you realize to yourself, you’re like, that’s exactly what happens today. And the the scene is different, the characters are different, the set is different, so to speak, but so many behaviors about how people behave and and and respond to life, greed and fear and risk and uncertainty and opportunity, never change. It’s the same today that it was hundreds of years ago. And that was really important for the second part of why I wrote this book, which was kind of my uh, cynicism about how bad the entire industry was at forecasting, the financial industry, forecasting the next recession or the bear market, like you guys know as much as anyone else, nobody can do it. That’s kind of an exaggeration, but it’s it’s it’s close enough to accurate to say nobody can do it. And so with that, you can either become more of a cynic and say, don’t you should like nobody should ever try to predict the future. Or you can take the observation that there are all these behaviors that never change and realize that if something was true 100 years ago to the same extent that it is today, it’s probably going to be true 100 years from now. I have no idea when the next bear market’s going to come, but I know how people are going to respond to it whenever it comes because that’s never changed. And I have no idea who’s going to win the next presidential election, but I know how people are going to respond to it regardless of what happens, because that sense of tribalism has never changed. That was really the basis of it.
Scott: Yeah, you know, there’s so many great nuggets in there. The biggest lesson, I think I took away um, from Same as Ever is long-term, compounding slow, unremarkable progress is made every year, adoption of new technologies, better health outcomes, those types of things. But that the short run is always full of risks that are unknowable, right? There’s just thing no one predicted the pandemic, you know, no one, no one predicts any like any of these things that are by definition surprises to everybody else. And so the whole like the game, you know, what my big takeaway is for my personal financial position is to build a strong enough financial foundation and um trajectory to be able to play that long-term game, but then also to couch that with knowing myself and and and and trying or trying to know myself and predict how I would react when the whole world seems to be collapsing. The market doesn’t just go down 30%. Every something else happens that creates that 30%, and that’s where that fear comes in. How am I doing in takeaways? Is that kind of what you wanted a reader to take away from the book?
Guest: I I I agree 100% with that. I mean, I dedicate the book to the reasonable optimist. I’ll tell you what that is in a second. But part of the reason I did that is because Psychology of Money was dedicated to my wife and my parents and my kids. I kind of ran out of people to dedicate it to. So same as ever, I said the reasonable optimist, which this is my own definition. I made this up, which is if you think you if you are somebody who thinks the future is going to be great, that’s not optimism. That’s complacency. Reasonable optimism in my definition was you are very confident. You have like the utmost confidence that things are going to be better in your own life and for society in the future. But you are equally confident that the path between now and then is going to be very hard. It’s going to be very surprising. It’s going to be challenging. It’s going to throw you off course. That’s reasonable optimism. Steadfast confidence of where you’re going and realistic uh uh a view about how hard it’s going to be to get there. And so I think that really ties into what you just said of like, you know, the way I phrase it in the book is save like a pessimist and invest like an optimist. Save your money with the idea that life’s hard, careers are hard, families are hard, recessions happen, pandemics happen, wars happen. But invest your money with the idea that if you can endure all of that, the rewards for those who stick around tend to be great, if you can stick around. And the amazing thing about investing is that you do not need to make that many great decisions if you can just stick if you can stick around. You don’t need to be a genius trader. You don’t need to even have like tremendous foresight. What you get paid for in investing is the ability to put up with and endure uncertainty. And if you can do that, the rewards can be amazing. The rewards can be greater than the people who did by luck or skill forecast exactly what what the what the market’s going to do this year. I think that’s that’s always been very appealing to me as an investor.
Mindy: We’re off to a quick break. When we’re back, Morgan Housel will reveal why he believes that what you do to gain wealth will not necessarily help you in keeping it.
Scott: And we’re back. We’re talking to Morgan Housel about his own money journey and why he thinks most people don’t change their money habits.
Mindy: Uh, you’ve mentioned habits don’t change and you can predict reactions based on past reactions. Yet, we keep hearing this statistic over and over, most people in this country do not have an extra $1,000 to spare if an emergency arises. So, what you’ve learned from writing two books and blogging about finances for almost two decades, what do you think most people why do you think most people will die without ever having built wealth?
Guest: I think there’s there’s a couple answers to this question. One could be that the most important word that you just said in that sentence was wealth. Well, what is that what like how how are we going to define that? And and and like in financial values. I mean, there there are there are literally people in this world for whom a billion dollars is is very is is not that much money. Chris Rock, the comedian made the joke where he said, if Bill Gates woke up with Oprah’s money, he’d jump out the window. Um, and it’s it’s it’s a joke, but um, but it’s true like it’s all very relative. And so one of the chapters in psychology of money is about how our expectations have changed. And it’s very common throughout history in all kinds of nations that over a long period of time, over the generations, average wealth increases or increases substantially. But expectations increase by even more. So, you can I’m making this up, but you can imagine, you know, if you had someone today who was like they are a retired 87-year-old and their net worth is $5,000. You and I might say, not good, dangerous, living on the edge. 200 years ago, adjusted for inflation, someone would be like, they’re rich. They’re filthy rich. You got $5,000 even if you adjusted for inflation, you’d be like, you’re doing great. A lot of that’s just because our expectations have changed. It was not that long ago in all of our parents’ generation. Um you know, if if you go back to the 1950s, even the early 1960s, the vast majority of Americans worked until they died. There was no expectation of that every every person, every hardworking person was going to have 20 years where they didn’t have to work and still had a dignified financial situation. That’s a very new concept. And so I think if you even went back to our our our grandparents’ generation for sure, if if you said like, oh, most people don’t have enough money in retirement, I’d the response would be retirement. What? What’s that? You work until you die. Your retirement party is also your funeral. That’s how it worked not that until not that long ago. So, I I I guess the answer to your question, Mindy is, the reason it keeps happening, at least one of the reasons is society’s expectation of what counts as wealth is always inflating. Uh, there’s an expectations inflate inflation. That’s that’s part of it. But I think that’s that’s just one answer. I guess you there we we can almost devote the entire episode to this one question. I’ll give you one other little element to it. I I do think life is so competitive that it’s never going to be a situation where everyone or even the majority of people mean there’s a Charlie Munger quote where he says the iron rule of math is that only 25% of people can be in the top core tile. Uh and it’s another of just like he’s trying to be sarcastic but like what if if you ask a broad question and a lot of people do ask this of like, you know, why like the tools are there. Why can’t everybody be rich? It’s like, well, it’s a competitive game. And the reason that there is opportunity for some people is because other people are going to lose. It’s not quite that zero sum. But I think that I think that that’s at least part of it here. It’s just like there’s not there’s never going to be amazing opportunities for every single person. Part of the reason the system works is because there is an embedded element of inequality in which not everyone is always going to win. That’s a much deeper philosophical, political point, but I think it’s I think there is some truth to it.
Scott: Yeah, there’s a there’s only so much beachfront property in this country, for example, right? And prices just reflect the fact that it’s scarce and that everyone is competing for that same beachfront opportunity. Speaking of competition, I want to connect this theme if we can to another component where you that another theme that you opened up the psychology of money with where I think you used two examples. Um, I forget the second guy’s name, but the first one was Ronald Reed, a janitor who died with $8 million in net worth and the other was this hot shot executive who went bankrupt. And your point there was something along the lines of, you know, uh, only in finance can some can a guy like Ronald Reed beat a Harvard-educated MBA executive in the sport of money, you here. You’ve never see that happen in in uh a doctor doing an open heart surgery versus, you know, like there’s no way this janitor could have done that that that job the same way. But money and finance is different from that game. And so how do I bridge this dynamic of there’s of hey, there’s this competitive dynamic where you never have an edge. Yet, people like ordinary people can sometimes win in this game. How do how do we combine those those those themes into a takeaway?
Guest: I think that is part of why finance can be so confusing for people and also why so many people kind of get ripped off by professionals is that in every other endeavor of your life that has very high stakes, you need to seek out the advice of experts because novices cannot even do it. like I use example like open-heart surgery. If you need open- heart surgery, go find the best, most qualified cardi cardiologist. And if the person is not a certified cardiologist, do do not talk to that person or take their advice. And so that’s how most things in in life work. Investing is just not it’s just not like that. And in fact, there are not only some, but literally millions of novices who have no education, no experience, no background. They are just dollar cost averaging into their 401k and they forgot their password and they will literally smoke the majority of hedge funds. And that like that doesn’t happen in any other field. And so for me, the takeaway for psychology of money was that doing well in investing was not about what you know. It’s not about how smart you are. It’s not about where you went to school. It’s just about how you behave. And there are quite a few people who have no education but have mastered their behavior. And there are lots of people who have the best education and have no control over their financial behavior. And the former of those people will do great. They’ll do great financially. And the latter will do very poorly. I think a lot of this was kind of influenced by my own parents who are smart, wise, educated people who have no financial training or background or really interest. Um, like they’re both very smart people, but they’ve dollar cost averaged in a Vanguard funds for 40 years and never sold a single share. And if you look at their performance, it it it stacks up with the absolute greatest people out there. I mean, they were literally in the top 5% of money managers of their generation. And A, they don’t even know it, and B, they didn’t they didn’t even try. They put in no effort to doing it. And like, so that that that like that doesn’t exist in any other field. That was always really fascinating to me. So I think a lot of it was just digging into how my parents did it.
Mindy: Okay, so why do you think so many people are afraid of investing when it isn’t about how smart you are, and it isn’t about when you went to school and it seems to be to to those of us who know about investing, it seems to be so easy and such a no-brainer. Why are people so afraid of this?
Guest: I think it’s two reasons. One, because the stakes are so high. The majority of the investing industry is based off of two life events, retirement and sending your kids to college. That’s what the majority of people and where the majority of capital is investing for. And both those things like the stakes are really high. Like, don’t screw this up or else the entire trajectory of your life is going to be in jeopardy. That’s really scary. And there aren’t a lot of other things that are like that. The only other thing that is like that in life is maybe is maybe health where it’s like, hey, don’t screw this up. Like it’s hard to have a good life unless you get this this one thing right. You want to be healthy. You want to take care of your body. But in health, there are uh, qualified experts to to seek out. Like you go to the doctor. Like it’s it’s it’s pretty straightforward. In investing, I think I think what has made it intimidating for a lot of people, and this sounds kind of cynical, but I think I think the vast majority of investing professionals are good, honest, well-meaning people. But it’s also true that they can make a lot of money in in in in the investing world. There’s a lot of money to be had among investing professionals. and a lot of it is in order to justify your fees, that the financial professional is charging, they make it seem really complicated. And again, I I I think that’s done with good intentions. A lot of it is the people who work in finance are very smart people, and they want to put their big brains and their big degrees to work. So if you are a big brain, well-educated financial advisor, a lot of them do not want to say dollar cost average in the index funds and just let it rip over time. Uh, a lot of them don’t want to say that. They want to say like, look, if I’m charging you a high fee and by the way, I, Mr. Financial Advisor, I have a I have a 180 IQ and I went to Harvard, blah blah blah. They want to put that intelligence to use by making it a little more complicated. And I think part of the reason that is very well meaning is because also there’s so much opportunity in investing. I mean, global financial markets are worth something like $300 trillion. And so if there’s an opportunity to earn an extra two basis points of return, it’s a lot of money. It’s a ton of opportunity. So there is just an enormous amount of brain power in there in that is devoted towards picking up small pieces of opportunity because a small opportunity on a $300 trillion opportunity base is dynastic wealth. I think that’s a lot of reason where this happens. It’s a combination of the stakes are high and the incentives to make it seem more complicated than it is are enormous.
Scott: I want to go back to something you said earlier. You talked about um how your parents were so successful uh as investors over a long period of time. Can you tell and you’ve talked a lot about your father and his perspective in your books and in other interviews. Can you tell us a little bit about your upbringing with money and how you kind of uh how that molded you into this really uh wise uh I think um uh leader thought leader in the personal finance world.
Guest: Well, well the first is everyone, me, you, and everyone listening is shaped by their childhood. I mean, that’s just a that’s just part of how humans works. What gets in early, what you learn early, sticks around. And so it wasn’t until I was, you know, I was older and I was an adult that I started thinking about the trajectory of my childhood from many different areas, but also financially how it worked. And mine was very it was it was it’s pretty interesting because my dad, this is in Psychology of Money, he started his undergraduate college when he was 30 and had three kids. This is when he started his bachelor’s degree. And he became a doctor when he was like 44 and had three teenagers. So it was like a very different trajectory. I’m the youngest of three. Uh, he started his undergraduate college, I think a month after I was born and became a doctor when I was in third grade, something like that. And so growing up, I saw two different very different sides. Before third grade, so I don’t know how old you were in third grade, 10, something like that. From age birth to 10, we were extremely poor. My parents were students. I think they got a little bit of residual money from like student grants enough to like buy us top ramen and live in a cheap apartment. I had a very good childhood with two loving parents who took us out and we did a lot of things, but we were completely broke. I didn’t really know it, as a lot of kids don’t, because I was happy. But and but then when I was in third grade, my dad became a doctor. Now, he’s he’s an ER doctor, which is among the lowest paid of the doctor uh, you know, uh, different kinds of doctors. We were not rich by any stance, but relative to where we were, it was like this sudden shock of we used to be look like bonafied poor and now we’re upper middle class and it literally happened overnight. And so it was jarring because during that period we bought we bought a house and we bought nice cars, we went on vacations. And so I think seeing that, I think most people, maybe this isn’t true, maybe this is just my my my assumption. I think most people’s child like financial childhood tends to be in one bucket. We were always poor. We were always rich. It’s usually pretty standard. Mine was very clearly uh uh separated in 1993. 1993, everything changed. And so, I think seeing both sides of that was really interesting. The other important thing is that the frugality that was demanded of my parents when they were poor. Like we didn’t have any money. They had to be frugal. They had to stretch every dollar. That stuck around with them even when they started making a lot more money. So we lived a better life, but my parents were very big savers. Um all throughout my child my my later childhood and teenage years. And um I think for a long time of my teenage years, I looked down upon them for that. It was like, especially as I became an older teenager, 16, 17, 18, and I started realizing, I was like, I I know how much money you make and you’re not spending very much of it. Like you guys are saving a lot of this and we could be living a better life if you had spent more. That was kind of my view. And then this wasn’t even that long ago. This was 2011 that this happened. My dad retired uh many years earlier than I think he anticipated because as an ER doctor, it’s absurdly stressful. It’s among the most it’s among the hardest professions. There’s literally people dying in front of you every day and you’re working night shifts and whatnot. So after doing it for like 20 years, he said, I’m ready to retire. way earlier than he expected. And he was able to do that, just retire on a whim ahead of schedule because he had saved so much. because he was such a big saver over time. And that really stuck with me of like his frugality was um he was actually buying independence. Every dollar that he saved was not idle money. It was buying something very important, which was independence and the ability to just live the life on his own terms. So now he’s been retired for I don’t know, 12, 13 years. And he’s happy, he’s happier than he’s ever been. My mom’s happier than than than she’s ever been because of the independence that they had. And they only had independence because they were living so far below their means. That really stuck with me.
Scott: Yeah, at Bigger here at Bigger Pockets Money, we’re all about the personal financial independence. and like that’s what I’ve kind of thought about all these all these years is I’m buying financial independence instead of whatever artifact or good or house or whatever it is um on on that front. How how how what are you motivated by there? Is it financial independence? Is it is it something else? Um you talk about rational optimism and risk. Is fear in there at all for you as an emotion with the way you build your money?
Guest: Definitely early on. Um very much motivated by fear. Even like maybe this is somewhat contradictory to what I write, but I’m I’m very much a worst-case scenario thinker. And um I I, you know, I think worst-case scenario about virtually everything, particularly after I got married and then had kids, all of a sudden, as every spouse and parent can relate to, all of a sudden it’s not about you anymore. It’s not just a it’s not just about you, particularly after you have kids, you’re like, I don’t matter. It’s just these these little ones are all that matter and there’s a lot of pressure on my shoulders to make sure I do things right and provide for these children. That that was a fear motivator that is still today. Now, as time has gone on, I think it has moved from fear as the motivator, and then it was independence as the motivator. And then maybe even after that, it’s like the motivator is like, well, how can I like do do I really want to be doing this? Like if if I don’t need to be working as hard as I can just for the paycheck and do I do do I really enjoy the work that I’m doing? And I want to make some money on top of that, but do I really enjoy is do I have intellectual freedom outside of financial and time freedom? That’s always been really important for me.
Mindy: Morgan, you talked about how getting money and keeping money are two different games. Can you explain what the difference is?
Guest: I’d always been astounded by the story of Jesse Livermore, who is on one hand, one of the greatest investors who ever lived. Most of he he was around in the early 20th century, made most of his money in the 1920s and the 1930s. Um and I think at three separate occasions, he became the inflation-adjusted equivalent of a billionaire. And after the crash of 1929, which he was short the market right before that, he became uh by by some accounts, the richest man in the world. He made during the crash of 1929 the equivalent of $3 billion by shorting the market. That’s one side of Jesse Livermore’s story. The other side is that he went bankrupt, I think four times and eventually committed suicide the last time he went bankrupt. So here you have someone who is better at getting rich than literally anyone else in history and is among the worst people in history at staying rich. He could not stay rich. It was like every time he he became wealthy, he just kept taking bigger bets, bigger bets, bigger bets until they would blow up in his face. That was all he could do. So that that to me is what motivated the concept of getting rich versus staying rich. And once you like have that little framework, you see it everywhere. There are actually a lot of people who are very good at getting rich in the stock market and in business. It’s a totally different skill to stay rich because getting rich requires being an optimist. It requires you to like take a risk, be optimistic on yourself, be optimistic about the economy. Staying rich is almost the exact opposite. It’s a completely contradictory skill. It requires that while you are taking a risk and being an optimist, you’re also a little bit paranoid, a little bit pessimistic. You’re you acknowledge like your own faults, your own flaws. You’re you are keenly aware of how fragile the economy can be. And you need both of those feelings to coexist to do well over time. Most people view optimism and pessimism as like as black and white. You’re either an optimist or a pessimist. And I think once you understand getting rich versus staying rich, you realize that you need both optimism and pessimism to co-exist at the same time and the cognitive dissonance of like, I can I can explain my very optimistic view of the future. I can also switch gears instantly and explain my very pessimistic view of the future. And the ability to hold both of those thoughts together and be like, yep, that’s that’s my philosophy. It’s both, it’s the it’s the forging of those two things is a really important skill financially. And I think there are also a lot of people who are very good at staying rich but not good at getting rich. I know that’s a oxymoron, but like people who are only pessimistic, only um conservative, they’re never going to they’re they’re just putting their money into FDIC insured savings account. They’re never going to get rich. They’re they’re always going to keep their principle, but they’re never going to get rich. And the opposite of that is like the YOLO trader or like the the a the crypto trader in 2021. Very good at getting rich, zero skill at staying rich. I think you see it everywhere.
Scott: Where do you get all of these anecdotes from? Like, how did you find out about Jesse Like, what is the process you undertake to learn about the history of all of these stories that you have interwoven so, you know, into your works so thoroughly?
Guest: It’s all it’s the entire, I mean, I I first say like there’s there is no strategy. That is the strategy is you just have to view it as just let your curiosity take you where it is. And at least for me, anytime that I’ve tried to put a structure around it, even a structure as mild as saying like, oh, I want to read more about this topic. I think the whole thing breaks down. It’s it’s only fun for me and I only learn if I can just just just have no structure and just be like, oh, I I heard about this topic and it seemed interesting. So I read more about it. And I think if you, at least for me, if you always have this seed in your head of how does this story relate to finance, then you see it everywhere. And then when you’re reading about evolution, when you’re reading about science, when you’re reading about politics, when you’re reading about militaries, everywhere you look, you’re like, oh, that’s exactly the behaviors that impact investors. It’s once you once you look for it, it’s it’s impossible not to see it everywhere. And so the huge majority of my day for the last 17 years has been casual reading with no structure. I actually spend very little time writing. it’s usually maybe one day a week that I’m actually typing on a keyboard. The rest of the time is just sitting around reading. And it’s been hard to convince my wife that when I’m sitting on the couch in my sweatpants reading a book, I’m working very hard. This is this is the core of my work. It’s it’s taken me a long time to convince her of that. But that’s that’s really what it is. Now, I would
Scott: But you invested in this great office. So, you know, you got to use it for that.
Guest: I think I’ve been able to pull that off because I’ve always worked from home. Um I for my for 17 years, I I’ve I’ve never worked I’ve never worked in an office. And because of that, I’ve been able to pull off that I’m going to sit here and read and that’s my most productive work. If you work in an office, if you’re a journalist in the New York Times, by and large, you can’t do that. Your boss wants you at your desk typing, moving the mouse in your in your nice business suit sitting at your desk looking productive. And so I think that’s I think that’s part of what’s worked for me is that the fact that nobody’s watching me has allowed me to do things that do not look like work but actually in hindsight are the most productive things that I could possibly be doing.
Mindy: That sounds a lot like Warren Buffet and Charlie Munger. They get up on stage and talk about how all they do all day long is read newspapers and chat with each other.
Guest: I think it’s I I yeah, it’s I mean, most of us and I I I would venture that the vast majority of people listening to this have what I would call thought jobs. Their job at work is to make a decision with their brain. And I I’d contrast that to working with your body if you are digging a ditch or what not. So like more and more people in the modern economy have thought jobs. And if your job is to use your brain, then I think the most productive thing that you can be doing most of the time is thinking. And most thinking doesn’t look like work. You’re not typing, you’re not moving your mouse. A lot of time most people will recognize that their best ideas, regardless of what their profession is, does not come when they’re sitting at their desk. The best ideas come when they’re in the shower or on the treadmill or walking their dog or doing the dishes or folding the laundry. That’s when you get aha moments. And the reason why is because when you are folding laundry, you’re probably thinking. You’re not typing any an email, you’re thinking. And so one of the great ironies of like the information age is that so many of us have thought jobs and we don’t give ourself any time to think. Our employers don’t allow us to think and even we don’t allow ourselves to think. And so if you’re in a situation like me where nobody’s watching you, then I think you actually have a fighting chance of using your precious time during the day to think.
Scott: I I I think it’s fantastic. Um, I completely agree and you know, I think a substitute for if you feel like you can’t think, a great substitute for that is to turn on an audiobook and like um, same as ever and let Morgan do the thinking for you and absorb some of those thoughts and do that 500 times over the course of 10 years and you’re going to have a lot of you’re going to start making a lot of connections that you would never have predicted across a lot of different disciplines. So, completely agree with that and, you know, sometimes I’m not ready to think, so I just passively absorb.
Mindy: And now, a quick break. When we’re back, we’ll be talking to Morgan Housel about his investment strategy.
Scott: We’re back and we’re talking to Morgan Housel about his biggest money regret. But before that, we’ll hear about how he invests and why he chooses to continue investing simply.
Mindy: All right. So I want to I want to transition here. You spend all this time thinking, you spend all this time researching, you’ve studied money as exhaustively as anybody around. What do you do personally with your money? Has your investment strategy evolved, for example, since writing psychology of money with the pandemic or anything like that? What are you what are you doing today?
Guest: Hasn’t hasn’t really changed that much in years. I went through a period of of uh of change in my early mid 20s. You know, I started I mean, I started investing when I was 19 as a day trading penny stocks as as many people do because that’s appealing. But I I think I learned I I I learned very quickly. That was one thing in hindsight, I’m so glad that I day traded penny stocks for like a month and then said like, ah, this is this seems dumb. But then there was a good 10-year evolutionary period for me of trying different things before I finally settled where I am right now, which is I dollar cost averaging to index funds. I have a pretty high percentage of my overher assets in cash and Treasuries. And I I always have to say like, I’m not recommending other people do that. You just have to figure out what works for you. And my wife and I really value the simplicity of it. And also the variable that I want to maximize for is endurance and longevity. And so if by owning index funds, the simplicity of it and the brainlessness of it increases the odds that I can stick it that that I can stick with it. So if having this boring basic investing strategy means that it increases the odds that I can stick with it for 50 years, then it’s the right thing to do. So I I really haven’t changed that in probably a decade. Our the composition of our net worth is I mean our entire net worth is this house, Vanguard funds, cash, treasuries and shares of Martel where I’m on the board of directors. and uh that’s it. There’s really nothing else other than that.
Scott: Awesome. What percentage how many months or years of your annual household expenses do you keep in cash? months or years?
Guest: It’s a lot. It’s it’s quite a bit. I mean so I mean, some of that is just because our our household expenses are not terribly large relative to our net worth. It’s also I think as a writer, I have a most writers, this is probably going down a little bit a different avenue. Most writers do not have 30-year careers. You know, a lot of it is like it’s not quite as fickle as an athlete where even pro athletes can have two-year careers. Like maybe it’s not that fickle as an author, but like no author no matter unless they’re JK Rowling or Stephen King, no one should expect to like, oh, I can keep doing this and earning this money for 30 years. So because of just the natural reality of the business I’m in, I keep more cash than might seem advisable for other industries. A lot of it too is just my personality. I value sleeping well at night and particularly because like I said, I have a a worst-case scenario mindset. Um, I I you know, I I would never want to trade a bad night’s sleep because I think I could get an extra three basis points of return uh from from my stuff. It’s not not worth it for me. And now that you can earn five and a half percent on your cash, it’s like, oh, it doesn’t even feel like there’s that much of a trade-off anyways. So, um, it’s it’s it’s quite a bit. Most people
Scott: Is it year?
Guest: It’s uh it’s years. Yeah. Yeah, for sure. I have two friends who are CFPs, certified financial planners, who I am very open with about our finances. And I think it’s really important, even if you consider yourself a quote unquote financial expert, like bring somebody else into the fold who doesn’t have your emotional baggage. So I have two friends who know every detail about my wife and I’s money. And both of them like the at first glance were like, why do you have so much cash? I don’t really get it. And I I explain our reasonings and at the end it’s like, okay, maybe it makes sense for you. Um, but it so there’s there’s lots of it where it’s like I I I’m not recommending you do this. I don’t think that’s the right amount of cash for you necessarily, but it works for us.
Scott: Morgan, I have a question for you here, um that I want to get to before we run out of time, which is around real estate. You own no real estate outside of your primary residence, and I’m wondering kind of what your viewpoint is on real estate investing as a strategy, where and when you think it might make sense as a tool, and just your general views on it, since we’re, you know, here at Bigger Pockets, that’s what we’re all about.
Guest: Yeah, well I would very clearly separate investing in in investing properties versus your primary residence. And mostly that’s because when you and when you have a rental, you have a cash flow. You have money coming off of it. Um versus your primary residence, you’re kind of just crossing your fingers that the real inflation adjusted value is going to increase over time. And a lot of people do, and they do that with a lot of leverage. Now, Robert Schiller from Yale won the Nobel Prize for by for many things, but one of which was putting together this historical um series of US home prices since I think the 1800s. And if you look at it in real terms, adjusted for inflation, for the vast majority of US history, US home prices adjusted for inflation are flat as a pancake. Like property prices with the exception of the booms of the last 10 or 20 years, property prices like will keep up with inflation every year and that’s it. And so it gets dangerous when people assume that their primary residence is going to go up by leaps and bounds and and that’s and they’re like, oh, that’s that’s my retirement. I’ll just buy a home and hold on and then I’ll sell it and by and large, like historically, that’s not been the case. There are periods when that works well during if you’re in the middle of some sort of real estate boom. But I think investing, if you’re like, oh, I went out and bought a duplex to to rent it out. Like great. Now, I would say great. I wouldn’t say like, oh, that’s the best way to do it because there’s a ton of everyone who has done that knows the the broken toilets, the cracked windows, the missed rent payments. like it’s it’s not an easy way to make money at all. And if there is any alpha so to speak in that of like, oh, you can make more money than you could in in the stock market doing that. It’s because you have to work for that money. You have to earn that money with sweat and labor and stress.
Scott: I’ll see that point and I’ll raise you the hundreds of hours of self-education to actually learn about the mental models that you’re either going to do up front before you invest or you’re going to do after you invest while you’re bleeding money.
Guest: Yes. So I don’t I I’m not I’m not for or against it. I just think that uh to to to me the the biggest thing that I would be against is the diehard assumption that your primary residence is going to make you rich. That’s I think that’s a dangerous mindset. If you can keep up with inflation, amazing, and that’s great. But the reason that I own a house is because it’s a great place for my family, not because I think it’s going to make me money over time.
Mindy: Yeah. I love that. and another thing that I would say I am absolutely against is people investing in real estate because they feel like they have to. There are so many things you can invest in that that I am not invested in. I don’t invest in, well, I I don’t consider an investment, but I’m not in Bitcoin, I’m not in bonds. I there’s a lot of things I’m not invested in. and I don’t feel like I’m missing the boat. There are so many people who are like, oh, well, I feel like I really have to get into real estate, so I’m going to. Well, that’s when you’re probably going to lose the most money you could possibly lose because you’re not going to be educated like Scott said, you’re not going to be um into it. It’s not going to be something that you’re you’re going to want to do, so you’re not going to give it your best. It’s a real business. It’s a real lot of work.
Scott: I’ll just chime in and say, I agree with everything Morgan said there. There is potentially an alpha to be made in real estate. And one of the things that one of the rewards of real estate for me is, you know, an index fund like Vanguard might deliver a 1 and a half percent dividend yield and a rental property that’s paid off might produce income at a 5 to 6% cap rate. And I just feel better spending that cash flow and feel like it’s an inflation adjusted uh return on my lifestyle. And that’s that’s the end result of the real estate investing for me that makes me like it. But yeah, I I agree completely. It’s not better, especially not unlevered than the stock market. It’s worse on the average if you were throwing darts at the wall and picking an average duplex out, for example.
Mindy: I love Mindy’s point about the feeling that you just need to do it. Brent Beshore has a great quote where he says, I am perfectly fine watching you make a lot of money doing something that I have no interest in. I think that’s an important financial skill to do. It’s like that’s that it’s the lack ofMO that is such an important financial skill. And the danger is that you see your friends making a lot of money in real estate and then you say I have to get into this as well just because you have the FOMO of what they’re doing. That’s tough.
Scott: I love that. Morgan, is there anything else you want to leave us with before we ask a final question here?
Guest: No, this has been fun. This is this is good.
Scott: All right, our last one here is is, uh, what, you know, are there any financial regrets that you have or big mistakes that you that you that you have that you that you’ve take back in your personal story?
Guest: I’ve made I’ve made plenty of mistakes, but I would not call those regrets. And I I mentioned earlier, I started as an investor day trading penny stocks. Was that a mistake? Of course. Was it a regret? No, because I’m so glad I learned that lesson when I was 19 versus 46 and trying to put my kids through college. Like it’s like everyone’s going to have to learn some tough financial lessons. Nobody goes through life doing everything perfect. I I actually really am grateful that I learned those lessons young and I learned them quickly. And so I could I could we could sit here for another five hours talking about mistakes that we’d made, but I feel like because we’ve learned we’ve learned from them, my my wife and I, I don’t consider them regrets at all. I think if there if there might be some, you know, and this is this is so common for people of my my generation and hundreds of millions of other people, during the aftermath of the financial crisis in 2008, I was just overwhelmed with career anxiety of like because nobody was hiring. I’m playing was 10%. And it it just it really took a toll on me. It was a really big stress in life when during the area where I was trying to figure out my own writing career, like can I be a writer? How do I be a writer? I look back at that and like I don’t regret that because I think fear is is a motivator. But I wish I could go back and just say like, it’s it’s all going to be okay. It’s not going to be easy, it’s not going to be flawless, it’s not going to be it’s not a straight path up, but like it’s all going to work out eventually. I think that’s that’s something that I think about financially that maybe this comes full circle to where we we began of like you’re going to be better over time, but don’t fool yourself into thinking that it’s going to be easy. I think coming to terms with both of those realities and grasping with both of those hands is is a really important part of doing well financially.
Mindy: I love the distinction between regrets and mistakes. That is such a important lesson that people need to learn. Morgan, this has been so much fun. Seriously, dream come true. I am so excited to have had this opportunity to listen to you and to talk to you. Where can people find you online?
Guest: Well, my my two books, Same as Ever and the Psychology of Money are out there. Most of my time is is on Twitter. That’s that’s for better or worse where I’ve chosen to to live my digital life. So on Twitter my my handle is Morgan Housel, my first and last name.
Mindy: Awesome.
Scott: Yeah. And thank you for writing two great books, the second even better than the first, in my opinion, um, on out there. So, everyone got everyone needs to go check out Same as Ever if you haven’t if you haven’t get a chance yet.
Guest: Well, I mean, a little book inside baseball. Amazon is roughly 90% of book sales, so I know that’s where you’re going to get it anyways, but uh, but other than that, it’s it’s pretty much in all bookstores. There’s just not many of them left except for Amazon.
Mindy: Okay. The book is Same as Ever by Morgan Housel, and it is an awesome read. If you have not picked it up yet. All right, Morgan, we will talk to you soon. Thank you.
Guest: Thank you.
Mindy: Oh my goodness. Scott, I hope my fan girl didn’t show too much. That was Morgan Housel and that was so much fun. I know I say that at the end of every episode, but this one was seriously my favorite episode that we have ever done. I loved specifically at the end, Morgan’s distinction between regrets and mistakes. What a brilliant piece.
Scott: Yeah, I I I think he’s just he’s one of those people that has spent so much time building up his mental models and has a framework for all of the things that are related to personal finance. You feel like we could have fired random questions at him for 10 hours straight and every single response would have had a well-rounded uh answer to it. And I think that, you know, and and it’s probably not just true in personal finance. It’s probably true in a great body of related and other, you know, areas of life because of the amount of time he spends thinking, uh, reading, and writing. And I just, you know, I have true admiration for that and, you know, hope over the course of the next, you know, 50 years, if I’m so lucky to live that long, I can get somewhere close to that.
Mindy: You said that we could just fire questions at him and he kept answering. and there were several points in this interview where I was like, oh, that’s just like Warren Buffett. That’s just like Warren Buffett. He’s just like Warren Buffett. I see a lot of similarities and it’s underlined the the amount of time that they both spend reading and consuming. And it isn’t just pump out all this content. It’s absorb information as well. And he you’re absolutely right. We could have spent the next nine hours. I happily would have spent nine hours talking to Morgan. This is just an absolutely fabulous interview. I had such a good time. I’m so excited it worked out.
Scott: I want to leave a speculative question here because I think Morgan is one of those minds that, you know, if he had decided to spend his career trading and investing like Warren Buffett, maybe he would have been one of those few exceptional people who could have actually delivered those size returns. And instead, he chose to do to put his mind to work in this capacity and he’s going to create 10 times that amount of wealth or 100 times that amount of wealth for the people who absorb his information and thought leadership instead. And it’s like, you know, like you I just like, like I wonder about that. So that’s as high a compliment as I can give to somebody around there and say, you know, like the guy’s the guy is just absolutely mastered uh these frameworks and um has really made a dent in the world.
Mindy: Yes, he has really made a dent in the personal finance world. If you are not currently reading his blog, if you are not following him on Twitter, make sure you go and do that. All right, Scott, should we get out of here?
Scott: Let’s do it.
Mindy: That wraps up this fabulous episode of the Bigger Pockets Money podcast. Of course, he was Morgan Housel. That guy there is Scott Trench, and I am Mindy Jensen saying, got to hit the road, little Toad.
Scott: If you enjoyed today’s episode, please give us a five star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.
Mindy: Bigger Pockets Money was created by Mindy Jensen and Scott Trench, produced by Kalyn Bennett, editing by Exodus Media, copywriting by Nate Winetraub. Lastly, a big thank you to the Bigger Pockets team for making this show possible.
