Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor | Transcription

Transcription for the video titled "Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor".


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Start (00:00)

Hello boys and girls ladies and germs this is Tim Ferriss and welcome to another episode of Tim Ferriss Show. I've been looking forward to this episode for a while. My guest today is Morgan Haussell, H-O-U-S-E-L. You can find him on Twitter @MorganHaussell. He has partnered at the Collaborative Fund and a former columnist at The Motley Fool in the Wall Street Journal. He serves on the board of directors at Mark Elcorpration. He is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers. Winner of the New York Times Sydney Award and a two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism. His book, The Psychology of Money, has sold more than one million copies and has been translated into more than 30 languages. Morgan, welcome to the show. Thanks so much for having me Tim. Happy to be here. So I have just an embarrassment of riches in front of me in the form of tabs open in this browser. And one of them is a Google document that contains my Kindle highlights from your book and that is The Psychology of Money. I have 18 pages of Kindle highlights. I wanted to share that because... That's the whole book. It's the whole book. Your book was recommended to me several times and I'm not going to lie. The Psychology of Money as the title I thought would be different in terms of content than it ended up being. So the subtitle, "Timeless Lessons on Wealth, Greed, and Happiness," which is a great subtitle. I had read books before, I think, attempting to explore certain facets of psychology as related to money. And the conclusion usually was spend money on experiences, not possessions. And I was like, "Okay, after the 17th round on that, I get it. I understand the takeaway." And I was extremely impressed with how many, not just anecdotes, but reframes in the book caught me off guard or were totally unknown to me. Or were hiding in plain sight as I'm sure we could explore in multiple examples. So I thought we would begin, and this is actually not where I was planning on starting, but since I'm blathering on, I'll just go there.

Discussion On Finance And Careers

Warren Buffett vs. Jim Simons (02:28)

Could you speak to comparing Warren Buffett and Jim Simons? And just give a little context on who Jim Simons is. Most people will recognize Warren Buffett. But my brother and I were speaking about this because I recommended your book to him, which is a huge reputational risk on my part. He is for all intents and purposes, a quant PhD in statistics, also very literary, high bar for books. And he also very much enjoyed your book. And this is one of the illustrations that stood out to both of us. So if you wouldn't mind just kind of filling in the color on this, and then we're going to bounce all over the place. Tim, it starts with the question, which seems like a really straightforward question of just asking who's the greatest investor of all time. It doesn't seem like a hard question to answer. It should be an analytic answer. It's just like a number who's had the best performance. But then you can split this different ways. So who is the wealthiest investor of all time? That answer is Warren Buffett. Who's the greatest investor of all time in terms of long-term average annual returns? It's Jim Simons. By a mile. And it's not even close. Warren Buffett's long-term average annual returns. Are about 21% per year. Jim Simons are like 66% per year after his ridiculous fees. He's like in a different universe. But Warren Buffett is like way wealthier. And Jim Simons is like a deck a billionaire himself. And this is like a crazy to say like he's not as rich, sounds crazy. But like to parse that out, the reason that Warren Buffett has earned one-third of the returns, but he's like 10 times as wealthy, is because he's, his Warren Buffett has been investing for 80 years. And so even though he's not the greatest investor of all time in annual returns, he has so much endurance in terms of what he's done that by a mile, he's the wealthiest. Which to me, that gets into a really interesting point, which is how do you become a great investor? And most people when they hear that, what they think of is like, how can I earn the highest returns? What are the highest returns that I can earn this year and over the next five years or the next 10 years? And that's not bad. That can be a great thing to do. But to me, if the goal is to maximize the dollars that you have, just like, what's the way that I can maximize the amount of dollars I accumulate over the course of my life? Then the answer to that question, the huge majority of the time, is not earning the highest returns. It's what are the best returns that you can earn for the longest period of time, which usually aren't the highest returns that are out there. Because maybe you can earn, like maybe you can double your money this year, but can you do that for 50 years in a row? Like probably not. But could you earn 10% annual returns for 50 years? Yeah, you can totally do that. And generate an enormous sum of wealth. All compounding is returns to the power of time. But time is the exponent. And so that's to me what you want to maximize. And that's why Warren Buffett is in my mind. And it seems like an easy answer. The greatest investor of all time, even though his returns are probably not even in the top 20% of annualized returns among professional investors. If for people who want to explore Jim Simon's further, I mean, he's a mathematician by trade, so to speak. But fascinating character. There's a book about him. I think the title is The Man Who Solved the Market, which covers Renaissance Technologies. And also, Tiptoes Around a number of other similar, I would say, firms that are very, very secretive for the most part. But fascinating exploration. Also, completely different one would probably argue in terms of approach from Warren Buffett. But I'd love to maybe take a step back and just say, as things are popping in my mind, this is going to be like watching Memento. Sorry, folks. But the experience of COVID also showed me how trained a skill it is. And trainable skill it is to think about exponential growth curves and compounding. Right, so for instance, most of the folks who actually the people who alerted me first to COVID in January of 2020 and the people who followed at the closest were in my circles, all investors, all active investors. And I sort of a good metaphorical way to explore this would be if you tell somebody, there's a pond, it's a large pond. And every day, there is a small growth of algae that doubles in size. And at day 30, the entire pond is covered at which point on which day is it 50% covered. Right? And the day is number 29, right? But it's sort of counterintuitive to think about. And just to connect that to what we were talking about, this is the other thing that I suppose should have been obvious. But it was kind of hiding in plain sight. And that is the percentage of Warren Buffett's wealth is total. Let's just call it net worth that he is accrued since what age 50 age 65? How does it work out roughly? I know I'm asking you to kind of memorize your book, which is not fair. But do you recall often? Yeah, the math behind it is 99% of his wealth was accumulated after his 50th birthday. And 97% came after his 65th birthday, which is a really obvious thing if you think about how compounding works. Like it's always in the extreme later end of years that the numbers just start getting ridiculous. Compounding is just like, you know, it starts slow and then it's boring. And for 10 years, it's boring for 20 years, it starts to get pretty cool. And then 30 years, you're like, wow, and then 40, 50 years, it's like, whole, like it just explodes into something incredible. There's a friend of mine named Michael Batnik who once explained compound growth. And I think the most easy way to comprehend, which is if I ask you, what is eight plus eight plus eight plus eight, you can figure that out in your head in three seconds. Like anyone can do that. That's no problem. But if I say, what is eight times eight times eight times eight, like your head's going to explode trying to think about it. It's like all compounding is never intuitive. And that's why if we look at someone like Buffett, we in the financial industry have spent so much time trying to answer the question, how has he done it? And we go into all this detail about how he thinks about moats and business models and market cycles and valuations, which are all important topics. But we know that the literally 99% of the answer to the question, how has he accumulated this much wealth is just that he's been a good investor for 80 years. It's just the time. And if Buffett had retired at age 60, like a normal person might, no one would have ever heard of him. He would have been like one of hundreds of people who retired with a couple hundred million bucks and like moved to Florida to play golf. He never would have been a household name. He would have been a great investor, of course, but there's a lot of great investors out there. The only reason he became a household name is just his endurance and his longevity. That's it. And that's why if you go back to like even the late 1990s, not that long ago, Warren Buffett was known within circles, like within investing circles, people knew who he was. But he didn't become a household name until the early and mid 2000s, which is that's when the compounding took his net worth to become worth 20 billion, 50 billion, 100 billion where he is right now. It's just the amount of time he's been doing it for. So let's take a closer look at Warren Buffett and Charlie Munger.

Warren Buffett & Charlie Munger (09:36)

I know you are certainly a fan of Charlie Munger, probably Warren Buffett as well. What do people get wrong about the two of them? I just love to know what you think people misinterpret or over interpret, aside from the longevity piece, just the tally of years involved with compounding. And let's just start with that broad question. I think one of the things that's easy to minimize is that Buffett is a very good communicator. He's a very good writer. He's a very good speaker. That's a big part of why he became a household name. When he writes his annual letters, when he goes on CNBC, it's easy to understand. Anyone can understand it. And that has created the impression that what he does is really simple. And I think it's led a lot of people to be like, oh, I can go out and pick a good business and read a balance sheet. And I can do all this too, because it sounds so easy when Warren does it. And it's not. It's there's so much nuance and I think gut feelings that have just accumulated over 80 years of doing this that has made pretty particularly in the early and mid 2000s, value investing was very popular. It's not in this era, but in the last era, it was. And there were a lot of people, a lot of fund managers, a lot of investors who would read a couple Warren Buffett annual letters and be like, I could do this. I could totally do this. And they go out and try to do it. And there's a reason why quoting Warren Buffett is easier than being the next Warren Buffett. Like it sounds so simple. When you're like, oh, be greedy when others are fearful. It's so simple. And then you go out and try to do it. And October 2008 rolls around and you're like, oh, this is actually way harder than I thought. So I think it's very easy to oversimplify what he's done. And that's why there are hundreds of books titled, some version of how to invest like Warren Buffett. And it's all so overly simplified when actually what they do is really complex. And even if it's not complex, they're just at us, they being Berkshire and Buffett and Muggar are at a size now where they can do things that other people can't. Whether it's picking up the phone and calling the CEO of Goldman Sachs to get a special preferred stock investment, that kind of stuff. This thing that other people can't do. The other thing that's I think easy to overlook is that Berkshire is now a $600 or $700 billion company, something like that. So the odds that they are going to achieve market beating returns in any significant way, I think, round to zero. And it's a casualty of its own success. That when Berkshire was a tiny company in the '70s and '80s, they could go out and buy small cap companies and do things that now Berkshire's largest investment now is Apple. And I think there's two reasons for that. One is because it's a great company. And of course, it's a great company. Two is that the number of publicly traded companies that can actually move the needle in Berkshire's portfolio is probably like 10. There's probably like 10 companies that are actually investable that you can actually, he can actually look at and say, we can put some money to work there. And Apple just happens to be one of them. So I think the odds that Berkshire will outperform over the long term are very slim. And if it does outperform, it's going to be miniscule. That's OK. There's nothing wrong with that. But I think a lot of people have been disappointed. Because Buffett became famous in the mid 2000s. And a lot of people started buying Berkshire stock and becoming part of that cult. And the stock since then has not done very well. And I think that's almost inevitable at the size that it is, that it's just, it's not going to outperform anymore. That's true with a lot of things, right? I can't remember where I first heard this expression. I want to say it's somehow associated with collaborative fund, actually. But I don't know where it began, which is the size is the strategy. In other words, if you're a fund of funds and you're picking fund managers, part of the calculus is going to be perhaps finding a sweet spot where somebody is not in asset accumulation mode just to earn their management fee. They're not going to be able to buy that amazing $50 million mansion in Miami on the management fees just yet, right? So they're still out there to beat the world. So the size of the fund or the size of the company or the size of the phone, the blank, kind of becomes one of the main parameters for picking. You see that actually in a lot of fields, there's this thing in evolutionary biology called copes rule. It's not a law because it's not very universal, but copes rule basically says that organisms get bigger over time. So if you look at the evolution of humans, we used to be half of our height that we were, whereas we evolved over the years, you get bigger and you went from little worms that turned into boa constructors. Like most species get bigger over time. So then the question is, why are all species just enormous? If getting big is better because you are a better hunter, you can hunt more prey. Why aren't we all huge? And the answer is because there's huge downsides to being big. You can't hide from other prey. You need an enormous amount of food to keep yourself going. There's always a sweet spot in evolution of big helps, but only to a certain point. And we see this, one of the areas that this really became clear, that size helps you, but it also has huge downsides, where banks in the early and mid 2000s, where the economies to scale to banking are enormous. Like when you're a big bank, you have a lower cost of capital, you can raise money, you have regulatory capture, you own the politicians, etc. It's like, you want to be a big bank. That's the sweet spot. But then there's this really interesting thing. Like we all know what happened to the banks in the mid 2000s, but one of the most fascinating stories that I remember is city group in the mid 2000s had this product on its balance sheet. I forget what it was called. It was like a CDO put back. Basically what it meant in layman's terms was CDO had all of these collateralized debt obligations, these junk bonds. And there was like a little footnote in them that, hey, if the value of these bonds declines, if these investments go sour to these clients who are selling them to, we, city group, will buy them back at par at full price. And when the mortgage market imploded, city group was obligated to repurchase like tens of billions of dollars in these junk bonds. And that was a big part of what sent them over the edge and nearly bankrupt the company. The interesting thing about this is that Robert Rubin, who was the former Treasury Secretary, and a partner at Goldman Sachs, like one of the most like astute, sophisticated, experienced financial minds in the world was on the city group board of directors at the time. And he afterwards said that he had never even heard the name of this product. He had never even heard of it. This product that could nearly bankrupt the entire company had the ability to almost bank up the company. The chair, the guy who sat on the board had never even heard of it before. So that to me, like you can criticize Robert Rubin for that, but that to me, just showed that city group was just too big to manage. There's too much going on for any sane person to understand what was going on. I actually empathize with a lot of those too big to fail bankers. And look, you know, should they have lost all their wealth of, of course, but I, there's no way that anyone at city group or JP Morgan or Wells Fargo or any of those banks can honestly say that they know what's going on inside of them. They're just too damn big to understand it. Part of what I enjoy about your mind and commentary is that it spans the, spans from the macro to the intensely personal. So I'm going to come back to Buffett and Munger, but I'm going to take a detour for a moment. Less people think we're going to get to into the weeds on banks for the next hour, which we might get into a bit more of it, but I want to go to a piece that you wrote some time ago. And this is financial advice for my new son.

Financial advice for parents (16:58)

You wrote this October 13th or you published it October 13th, 2015. So that's, let's just call it 60 years ago, a bit over 60 years ago. And your son had been born the week before and you listed out a number of different, I wouldn't say rules, but bits of financial advice. And one, one that stuck out to me that I particularly enjoyed, I'm just going to read it here because it's, it's, it's one of those things again that is obvious once you've heard it obvious in retrospect, framing is very helpful and I hadn't read it presented in just this way. So number one, you might think you want an expensive car fancy watch in a huge house, but I'm telling you, you don't. What you want is respect and admiration from other people and you think having expensive stuff will bring it. It almost never does, especially from the people you want to respect and admire you. Here's the paragraph that stuck out to me. When you see someone driving a nice car, you probably don't think, wow, that person is cool. Instead, you think, wow, if I had that car, people would think, I'm cool. Do you see the irony? No one cares about the guy in the car. Have fun, buy some nice stuff, but realize that what people are really after is respect and humility will ultimately gain you more of it than vanity. Now the, the last sentence has some counter examples, maybe. Yes. But the point that we rarely look at the person in the cool car and say, wow, that person must be cool, rather we apply it to ourselves is I think a very profound observation. What would you add to this list? And people can certainly find this. We'll link to it in the show notes. People can find it easily, but is there anything you would add to this list now, six years later, or that you would change in any material way? Well, first, let me, let me give some insight into that man in the car paradoxes. I call it when I was in college, I was a valet at a high end hotel in Los Angeles. So I was in my early 20s and there were people coming in and Ferraris and Lamborghinis and Rolls Royces like the whole, the whole thing. And it dawned on me one day that when those cars pulled in that I had really admired, I'm a car guy, I love that. Never once did I look at the driver and say, that guy's cool. What I did is I imagined myself as a driver and I thought people would think I'm cool. And this was like, I was in my early 20s, but I was thinking like, this, that was my first kind of light bulb into how wealth works that everyone thinks that they want to be the driver. But no one actually is paying attention to the driver. They're imagining themselves. People think about themselves way more than they think about other people. And, but we all think that everyone's looking at us. I think that's like a universal thing. Everyone thinks like, oh, this person is looking at me. They're impressed with me. By and large, they're not. They're thinking about themselves and how other people might want to be impressed with them. So that was some insight into that view. What I would add today, now that my son is six and we have a two year old daughter as well. And I think I knew this before becoming a parent, but until you're a parent, it's just hard to fathom how powerful it is. It's just you have no clue who your kids are going to grow up to be. And I saw this, especially when my daughter was born and now that my daughter is two, they are so different from one another. My son and daughter completely different despite growing up with the same parents in the same house, with the same means, everything. They could not be more night and day. Now, of course, they're four years apart and they're different genders, of course, but the personality differences are so stark. And that just makes me think like whenever you want to picture or imagine who your kids might be someday, it's like you have no clue what they're going to grow up to be. I think that it's intuitive to think that my kids will grow up similar to my wife and I, because I'm going to instill in them the values that my wife and I value. But they're so starkly different from one another. And I'm so different from my brother and sister. We want so completely different ways in life that it's so hard to give your kids advice when they're young, when you have no clue where they're going to end up. So people have asked me this question similar to going off of that article, what would I teach them now or how am I teaching my son about money now that he's old enough to start to get the basics of it? And the truth is I'm really not because I don't know, maybe when he's a young adult, he wants to be a partner at Goldman Sachs. Maybe he wants to work for Greenpeace. Like who knows what he's going to be. And therefore, I can't give him or anyone universal financial advice and say, this is what you should do, this is what you should value, this is where you should go, because we're all so incredibly different in our goals and our talents and our aspirations. Are there not traits or characteristics that you could cultivate? They would be somewhat agnostic in the sense that, I know this is a study that's come under some scrutiny if you want to even call it a study, but the marshmallow test, right? So are there not ways of not necessarily improving their financial IQ or investment IQ, but cultivating certain characteristics that may be helpful, right? And I'm looking at a piece by Jason Zweig, am I pronouncing that correctly? Yeah. Fantastic writer. This is a, this is a, I say journalist, and this is a great piece discussing your book, Do you know the difference between being rich and being wealthy? And one of the lines that I like in this is investing isn't an IQ test, it's a test of character. So could you speak to that? I think if there is a universal trait of money that's true for like not, not 100% of people, but let's say 90% of people is that what people really want in life is independence and autonomy. I think no matter where you're from, what you do, what your aspirations are, that's a common denominator that people just want to wake up every morning and do what they want to do. On their own terms and whether they're able to do that, whether that they can actually do that today or that's a goal. I think that's a, that's a universal trait among people is just independence and autonomy. And so to the extent that we can use money to gain that, to gain independence and autonomy, that is, I think as close as it comes to a universal want and think that we can use money for that interesting thing to me is that among the huge numbers of people, educated people, financial professionals, the purpose of money is to buy stuff. It's to accumulate more stuff, bigger house, nicer car, whatever it might be, which is great. I love all that stuff too. But to me, the most powerful thing that money can do and the most universal benefit that it can bring us is systematically overlooked, like using it for independence and autonomy is so overlooked. And that, that to me has always been kind of a sad thing that we are so accustomed and attuned to just wanting to use our money, whatever money that we have, whatever savings that we have to go out and buy more stuff when we could be using it for free to amount autonomy. And then when you come to a period like in March and April of 2020 or October 2008, when millions of people lose their jobs and you see during those periods, like the early day of COVID, how many people are just on the razor's edge of insolvency and it does not take them much, you know, one or two weeks of unemployment to be in a really bad financial spot, whether that's for an individual or a small business, it does not take them much to be thrown over the edge. And you realize how dependent so many people are on their jobs, their salaries, their customers in a short period of time. And there's just not a lot of room for error throughout most of the world. And I think for the huge majority of people, not everyone, but for the majority of people, there could be a lot more. And the reason that they don't want to have more savings is because to them, the knee-jerk reaction is why would I just keep my money in the bank or even invest it? Like the purpose of money is to go out and buy more stuff to enjoy my life. I get that, I understand it. But it's usually once every five or 10 years that people realize how important independence and autonomy is. And having that wealth that you have not spent, having the money that you haven't spent, that was just laying around doing nothing, becomes the most valuable thing in the world when it lets you gain control of your time and just wake up every morning and say, I can do whatever the hell I want today. I think that's as close as it gets to like a universal financial law. All right, we may come back to the kids, but I'm going to leave the kids alone. I'm going to go to your parents instead. What did your parents do professionally?

Dad’s unorthodox career move (25:04)

The short backstory, well, to answer the question, my dad was an ER doctor, my mom was an ER nurse. They're both retired now, but they got to it in a really interesting way. My parents met on a hippie commune in the 1970s in Tennessee. And my dad started his undergraduate college when he was 30 and had three kids. And he became a doctor when he was like 43 or something like that and had three teenagers. So he had kids after he began his undergrad in his 30s. Well, I'm the youngest of three. And I think he started undergraduate like the month after I was born. Wow. That's when he started undergrad. And then he became a doctor when I was 12 or something like that. And my brother would have been 18 at that point. So he got a very late start, which is a very like when he started everyone, I think from his parents to the professors, like, what are you trying to do? You're going to become a dot like what you're out of your mind. But he did. He ground through it and did it. And what's interesting about that financial story is that we grew up, me, my whole family, when I was a young kid, very, very poor. My parents were students. We were living off of grants and like low income houses. Like we were poor. We had a great childhood, but we were very poor. And then my dad became a doctor when we were in our early teenage years and then had a comfortable upper middle class life from there. But the frugality that was forced upon my parents when they were poor stuck around. So my parents had a very high savings rate. We lived a great life. We had a nice house drove fine cars. We went on some cool vacations. It was not it was not living poor at all. But my parents had a very high savings, and we lived they lived well below their means because that's how they it was forced upon them for decades of living like that. And then when this is like now, if we fast forward to the last 10 years, my dad after working in the ER for 20 or 25 years, which is probably one of the most stressful fields of medicine you can go into because people are literally literally dying in your arms every day. It's very it's a very stressful profession. So after 20 years, he just kind of had enough. And since he had a high savings rate, he could, well, as soon as he got to the day where he decided he had enough, he just left, he quit. And he could do it on his own terms when he wanted to. And he had all these colleagues who for years had been living a much better life than him, bigger houses, nicer cars, sending their kids to better schools, all that. And they wanted to quit and they couldn't. They were just as burned out, but they needed to put it another 10 years of doing it. And I think watching that watching my dad just getting to a point where he said, I don't want to do this anymore. So I'm going to leave tomorrow. It was like, ah, that clicked with me like that's why you were so cheap curling up, which I which I looked down upon you for when I was young saying, why don't we spend more money? But now I get it. You have he has pure independence and autonomy. And the happiness that he and my mom got from that, I think exceeds the happiness that he would have gotten from driving a Porsche or living in a bigger house, a hundredfold, literally a hundredfold. He's been so happy over the last decade, just doing what he wants to do, particularly retiring as he slows down as his body and mind slow down as he aged, just be able to do what he wants. I literally think it's a hundred times happier than he would have been if he lived a better material life when he was young. So that was a really profound takeaway for me watching that. What type of hippie commune did they meet on in Tennessee? It's called the farm. It's still in existence. It's a tiny, tiny fraction of what it used to be. But back in the 1970s, it's a hippie commune called called the farm and it was huge. It was like thousands of people. And it was, it was truly was a commune. You were not allowed to have your own financial assets. You couldn't have your own bank. When you joined the farm, when you got there, you had to forfeit all of your possessions, all of your money, all of your assets had to be donated to the farm. And everyone worked together. They were farmers. My dad flew a crop dusting plane. He was a pilot before he moved to the farm. And everyone worked together. Now, of course, the punchline here is it failed. It totally, it fell apart, eventually, as you would imagine. But my parents, I was talking to, I was talking to about it just last week. They have nothing but incredible memories from it. They were in their early and mid 20s when they were doing it. And they met their best friends still to this day or from there. They have nothing but great experiences from it, even if the whole thing fell apart. That was like the 70s, of course, was like peak baby boomer. You know, this is like, it was a really cool thing to do to live on this hippie commune back in the 1970s. So your dad after what's called 2025 years of working as an ER doc decides to walk, just call it quits retiree. He's able to do that, as you pointed out for a number of reasons. Freedom and autonomy, I have found and observed, not perhaps surprisingly, carries with it a lot of responsibility. And it seems that sometimes people who are frugal for a very, very long time, then have extreme difficulty spending money on themselves to sort of improve their quality of life or experience of life. Post, let's just say retirement in this case. How have your parents, how has your dad used this freedom and autonomy, right? Because it's a it's a lot of hours in the day. How is that panned out? First, I'd say they're they're the happiest that I've ever seen them now in in the last couple years. They bought a piece of land on the coast of Northern California, and they are just like small time farmers. They're they're vegetarians. They've been vegetarians for 45 years, and they grow like two thirds of the food that they eat. So they spend all of their day in their little personal farm doing it, and they love it. They don't need to do that, but they absolutely love it. They have a tractor and they got all these cool tools. They'd absolutely love doing it. And it's all in their own terms. They they take naps every day, they go for bike rides along the coast, like they have a lot of fun doing it. That's amazing. So they've come full circle in a sense from the farm to the farm. It sounds like including you know during the doctor's years, my dad looked like a a professional and now he's back to full hippie long gray ponytail. It all it all goes full circle. It all comes back. All right. So we might dig further into your dad's career decision to go to undergrad at let's let's say 30 and then pursue medicine. But I want to talk about your trajectory since you'll have presumably more detail and insight there. You also and I should give credit where credit is due for some of this due diligence. I listened to Shane Parrish's interview with you on the knowledge project, I believe it is. Yep. So that's where I'm pulling this from. So your illustrious career began as a greeter at Denny's that did not hand out was not your vocation.

Morgan’s career path (31:36)

It turned out. So I was crushed. But yes, that's great. So Denny's out. Enter stage left valet as I understand it. And that continued for eight or nine years, something like that. Yeah, something along those lines. I did it all throughout college before and before and after. And your major was econ. That's right. Okay. Major's econ. Then you try investment banking and the if you don't come into work on Saturday, don't bother coming in on Sunday, ha ha wink wink, not really joking. So the hyper competitive cut through environment was not for you. Right. You moved to private equity, which you did enjoy. Yes. They sort of deep dive study of companies buying and presumably at some point selling entire companies, things like this. But that was roughly 2007 from getting the timing right or I guess it came to its end in 2007 where the parting conversation was you're not fired, but you can't work here anymore. That's that's a verbatim statement. I'm sitting there thinking, I'm pretty sure you just fired me. But thank you for being polite about it. So I'm very curious to know I had to I have to ask like, was that a very clever way of trying to circumvent severance? Or was it just a weird way of firing you and then giving you severance? How did that pan out? Most private equity firms in the summer of 2007 knew they were in in deep shit. It was a really tough time for people when you're borrowing a ton of money to lever these low quality businesses up like that was a tough time. They saw the writing on the wall and I think they were just trying to scale back as quickly as I could. The idea was so I was a summer intern at the time. And the idea was I was going to stick around full time after college and become a full time employee, which would have been that fall. And so that was the plan was kind of all sketched out. Like here's what I'm going to do. I'm going to stick around. And then just before I was going to start full time is when they said, Hey, like there's there's not going to be there's not going to be a spot here for you. So I'm sure their wording was not was not intentional, but that that wording of you're not fired, but you can't work here anymore was funny. I remember walking out and being like, so wait, so do I come back tomorrow? I don't know. How does this work? Yeah, very confusing delivery. I don't know. Is this the tauté changer? Like, what do we do in here, people? So my question to you then, after that, is if my memory is serving me, which I hope it does, because I listened to this episode with Shane a few hours ago, you ended up having a conversation with a friend who I believe was writing at Motley Fool at the time and asked you if you'd be interested in sort of kicking the tires and writing for a bit. You did not have a background as a writer per se, although I imagine you did some writing. We're going to come back to the high school education in quotation marks, which we can explore. But you ended up trying that thinking it was going to be a short experiment, and then you stuck with it. Now you've written, I would have to imagine at this point, what, 4,000 plus articles or 3,000 plus articles? Lots. Yeah. And my question for you is, eye banking, private equity, that that is the meandering, not meandering, but the kind of winding path of one who might aspire to be one of the masters of the universe. And then you choose writing and you stick with writing, which has a very different financial payoff profile than the finance track. Why were you comfortable doing that? Or how did you make that decision? I wouldn't say I was comfortable. I wouldn't even say it was a decision. It really was in the summer of 2007. So I graduated in 2008. So as everything fell apart, I thought I wanted to be an investment banker, and then I realized I don't. That's the culture of it was not for me. And then I thought, great. So I'll go into private equity. And then all those positions just disintegrated before my eyes. I just needed something to do. I just needed a job. And like you said, I had a friend who was a writer at the Motley Fool who said, Morgan, you should apply. You're interested in investing, just apply. And I thought, hey, they're not going to hire me. And even if they do, maybe I'll do it for six months before I find another private equity job. So it was really just out of desperation that I became a writer. That's the right word for it. It was it was not a plan. I didn't even enjoy it. I wasn't excited about it. It was just like how I need a paycheck. I would say the first year of that too was not very much fun because I really had no writing background at all. I was an econ major in college where it's heavily math based. So there's not much right. And so as long as you can write your name at the top of the test, that's all that's required of you. And so I had no writing background. And then so the first year was really hard because I had no idea what I was doing, both on the investing front. Like I had no idea what I was talking about. And on the writing front, I just didn't know how to write a good paragraph. And it was tough, particularly as anyone in online writing or even social media knows, if you say something wrong online, people will tell you about it and no one's certain terms. So I was just, as part of my job, I was just getting torn to shreds day after day. It just wasn't any fun. But after I would say a year or maybe two years, I felt like I started to get a little, I started to get the hang of it. And I started to be like, oh, how can I? Okay, I understand investing better. And I feel like, oh, I can start telling a little bit of a story that people might enjoy. And rather than just being a capital J journalist and just like throwing numbers on the page and hitting publish, maybe I can tell a story that will resonate with people. And if I twist the phrases this way, and if I try to be funny in this way and tell a tale in this way, then I can stick out in this financial media world that is so competitive. And there's so many other people who are writing about the same stocks that I do, that if I can tell a story, it's more fun and it catches people's attention. And even after that, so now we're in like 2009, 2010, I would say it wasn't until probably 2014 or 15 that I felt like I really started hitting a stride of like, oh, I can kind of figure out what I'm doing here. And I kind of feel like I've cracked the formula of what works in a finance article. And so it was really, you know, five to seven years of just kind of hacking my way through trying to put the pieces together to figure it out before I really started a enjoying it and felt like I had some aptitude of doing a good job at it. And in the vein of sort of career crafting, whether by of your own volition or via desperation or chance, I suppose we're all combination probably those things on some level, you've written for a number of different outlets, how did you end up, and I'd like to know both of these, a partner at collaborative fund, which is a venture capital firm, and how did you end up on the board of directors of Markel Corporation? And you should also probably explain what Markel Corporation is and what they do. This is not a small company. So I would love to know the answers to both of those. Okay, let's start with collaborative fund. At the time, I was at the Motley Fool at the time being about, let's go back to 2015. I was at the Motley Fool, and my plan was I was going to stay at the Motley Fool for life, including my wife and I bought a house half a mile from Motley Fool headquarters in Virginia. The plan was we're going to stay there forever. One day I got in Craig Shapiro emailed me and said, Hey, I'm Craig, I run this tiny venture capital firm called, called collaborative fund. I read your stuff, let's grab lunch. And normally if if someone sent me that email, I would just delete, I wouldn't even respond to it. I would literally just delete it. That's a personality flaw of mine, but that's how I respond to those kinds of things. But I was in New York that day where Craig was from, and someone had just canceled a meeting. So I had some free time. So I get this email from a guy in New York who says, Hey, let's meet. And I said, great, I'm two blocks away. Let's meet right now. So I met Craig Shapiro, and he just turned out to be he's one of those people. And I'm really being sincere when I say this. I'm not just blowing smoke because he's my boss. He was one of those people who right away, I was like, ah, this guy, like he and I see eye to eye on how the world works. Like, like we disagree here and there, but in the broad strokes of how to live a good life, and how investing works, and where the economy is going, Craig and I really see eye to eye on the big picture stuff. And that was clear right away. So it was probably about a year after that, that he said, Hey, you should join collaborative fund and just keep writing about the things that you do. And I said, Craig, like, thanks, but no, like I'm really happy at the Motley Fool. I'm going to stay here forever, not interested in it. And he just kind of kept chipping away. And it took me a long time to figure out that like, Oh, no, like I really see the vision of what he's trying to build. And I like it. I like the brand. I like him personally. He's a great guy. And I also knew that he was going to give me complete autonomy to write about whatever I wanted, whenever I wanted, and just make the blog my own little canvas that I could paint on. That was really important to me. And it was clear that he was going to let me do that. So then I joined collaborative fund, which is a venture capital firm, private equity firm kind of invest in lots of different asset classes now. And my whole job is to write and speak and not even write about venture capital, or not even to write about our portfolio, just write about things that I see where the world's going, things that I think are important for investing, investing history and investing behavior. The idea for it, the idea for having a writer like that at a venture capital firm, by and large, is look, if you are a venture capitalist, money is fungible. So if your only asset as a firm is we can write a check, well, that you do not stand apart at all. A lot of people can write a check. You stand apart in the private investing world by having values and a view of the world that is differentiated in some way. And those values that view do not matter at all, unless people know about them. So you need to be kind of going out there, showing the world how you think, what you think, who you are, waving your arms. So that's the purpose of hiring someone like me to be a writer. You can call it marketing if you want, although nothing I write about is saying, here's why we're great, and here's why we should do this. I do that intentionally because I don't want it to sound like marketing, even if it is. No one wakes up every morning and says, I want to read a marketing article. They just want to read something that's interesting and thought stimulating, that they can share with their friends. So that's what I do. And that's what I've done for the last six years is just writing about all the different things that I think are interesting and trying to do a bunch of reading and thinking and talking to friends, trying to learn something and then sharing it with the world. That's all I got started at Cloud and Phone. Yeah, kudos to Craig. We're going to come back to Mark Al in a moment. But he was very prescient in that chess move of his with the persistent recruiting to get you on board. And we've seen, I mean, certainly this word bothers me, but I can't think of a better term because it's multimedia, but the sort of content aspect of differentiation by venture firms. We've seen first-round capital do a pretty good job of this, I think. And there are others now. But the timeline that you're laying out would have placed Craig and collaborative fund very early, paddling for the right wave early in that respect. How did you think about giving up the masthead, so to speak? I mean, presumably the offer was also a good offer, the actual sort of compensation and deal, as it were. We don't need to get into the specifics of that. But I'm asking in part because I've thought about paying journalists, and I spoke with actually Nick Thompson about this. I want to add him on the podcast. Very, very super competitive per word rates to do long-form pieces on my blog, right? But the problem with Tim Ferriss' blog is that Tim Ferriss' blog does not carry the same cache, perhaps, as the newspaper of record self-described or other outlets. So how did you think about the, if any, kind of long-term career consequences of swapping the masthead in that way? It worried me at the time because I had been at the Motley Fool for 10 years, and I felt like I built up an audience there. And I had no idea if any of them would travel with me. And if I went somewhere else would do, like, did I have to start at square one and build myself up from zero? That was terrifying. Or was that audience going to be somewhat portable? And I think the answer is somewhere in the middle. But I think it felt okay to me because I think this is obvious now, but it wasn't obvious five or 10 years ago that people don't necessarily read the New York Times. They read by and large certain writers at the New York Times. I don't read the Atlantic. I read Derek Thompson. I don't read The Wall Street Journal. I read Jason Zweig. It's all about those people. Now, there's some nuance to that. There's some places like the economists that have no bylines. It's just like you're reading one voice. But I think by and large, people want to read certain writers. They want to make it personal. One example of this is most corporate Twitter accounts do not do very well. They don't get any engagement. They don't do very well. But personal Twitter accounts for people like yourself can do very well because people don't want to interact with a company. They want to interact with a person. And I think so leaving the masthead, so to speak, that actually didn't bother me that much because I didn't want to be a Wall Street Journal writer or even a Motley Fool writer. I wanted to be Morgan Hausle. I just wanted to build the name. That's very selfish, but I think it's true. I think it's anything is true for a lot of people. The URL of your blog is It's your name right there. I think branding that after yourself and being explicit about that is the right way to go in content these days because people want to interact with a person. So that didn't bother me. It's good if you're in it for the ultra long haul, i.e. to the end of your life. If you're building a media brand to sell, it's problematic to have it named after you or it can be complicating certainly. But that's not my plan. So it's not a concern for me. So it is for the time being. Mark L, how did Mark L happen? Well, first, I'm sure there's listeners who don't know what Mark L is. The easiest way to describe Mark L is a mini Berkshire Hathaway. In the sense that it is an insurance company that uses the profits from the insurance company to buy whole businesses, industrial businesses, that it plans on holding forever, which is exactly what the Berkshire Hathaway model was. And that's really what Mark L is as well. Mark L started in the 1930s as an insurance company. And it was that for many years. Now, every insurance company in the world does investments because you use the proceeds from your insurance premiums to invest. Most insurance companies will just do that in bonds, maybe some index funds pretty boring. And it's not until you have a company like Berkshire that's like, hey, we got all this money laying around. Let's go buy some amazing businesses. That's how Berkshire Hathaway and Warren Buffett became what they are. And Mark L started doing that really around the 1990s when they realized that you could become a great business and a great, incredible company. If you are not just a good insurer, that's really important. But if you can be a good, insured and a great investor with those insurance proceeds at the same time, you can be an incredible company. So now, if you fast forward today, Mark L is a $17 billion company with 20,000 employees. They own about a dozen industrial businesses of various sizes. And it's a really cool company. It's a company that I've admired for a very long period of time. I'll tell you a little quirky story here. When you join the Motley Fool as an employee, they give you a small sum of money to invest in any stock that you want. They once want every employee to be an investor. When I became an employee in 2007, I got my little allocation and I invested every penny in Mark L at the time. True story. I really admired what they were doing. The guy who is CoCEO runs a place, Tom Gaynor, I really think is one of the great investors of our time. And so I've admired it for a long time. And then about a year ago, I got a call from the company and this asked if I would be interested in joining the board of directors. I said, "Yeah, yes." I admire them so much, of course. So what the hell did they say? I'm just so curious. How does that happen? Because I looked at the website. I was like, "Well, let me see if there are like 75 people on the board of directors. There are not 75 people. It's reasonably small, so please fill in the gaps here." No, I really wish the story was more interesting. But that's really it. They called me up. I had never spoken with them before at all. No communication. And they said, "Would you like to join the board?" Once that phone call ended, began a year of meeting everyone, discussing everything, flying out to meet them, them flying to Seattle to meet me. A long process, as you would expect, any big corporation would have. I think very similar to Craig, Tom Gaynor, who's the co-CEO, and I see the world through a very similar lens of just like, what does an investing company or an investor need for long-term success? Having just those big macro values aligned, I think, was really important. So it was an obvious answer for me. And then getting to know the rest of the board over the last 12 months has been really interesting. It's a very diverse board, diverse in terms of gender, race, and also just background. So it's a really diverse set of views, instead of opinions, within the boardroom. And then I joined the boardroom just about six weeks ago. So I'm still pretty new. Oh, it's very new. Fairly new at this. Yeah. So I have to imagine that there are thousands of people who would claim to have similar macro views or world views to people who are on the board of Markel. Nonetheless, they're not getting the invitation to join the board. So how did they explain what they hope you to contribute? One thing that's interesting, I do think there is some misconception about what a board member does. And the important thing is explaining what a board member does not do, which is run the company. And a board member's job is not to micromanage the company, or it's not even to set the grand strategy for the company. It's really to be an overseer of the company and to kind of be the boss of the executive team to hire the CEO, fire the CEO, and pay the CEO. That's the biggest job of the board. Those are huge responsibilities. They're huge responsibilities. There's a great quote from a guy named Lawrence Cunningham, who says that being on the board of a large company is corporate America's highest honor and heaviest burden. And it's easier to focus on the first part and ignore the latter part. But yeah, it's right. There's a huge burden. And again, I'm speaking with six weeks of experience here. I'm not going to pretend like I have lots of war stories to share with you about this because I don't. But I think seeing eye to eye on the big picture of where the company is going and what it needs to do it right, and just having experience for myself as an investor, as someone who thinks about risk and have done that for my entire career is important. What I do not have is experience running an insurance company, experience running a company with 19,000 employees. Those are things that I do not have. But I think I do bring to the table both a generational diversity of like, if you look at the boards of all public companies, I mean, you're looking at an average age of something like in the mid 70s, something like that, it tends to be an older group that came of age during a similar time and I think sees the world through a similar lens that is not exactly, you know, the clearest lens of where the world is going next. So I think having a generational diversity has been important. That was explained to me. And I think just having a view about risk and about what matters in investing as well. And that's really it. It's been an interesting experience for me. It was not a job that I thought was going to coming my way, but it's a cool job to have that I know has a very heavy burden. It's cool to put it on your resume and talk to your friends about it. But I think like a lot of things, there's a great quote from Jeff ML, who's a former CEO of General Electric who says, "Every job looks easy when you're not the one doing it." I think that's a great quote that applies to a lot of things. And I think that's true for sitting on a board as well. It seems like a great position and a fun kind of cushy position in many ways it is. But you realize even from day one, my first meeting, the burden that is on you for making the right decisions and if things go wrong, realizing the spotlight is going to be on you and you deserve that. Well, congratulations. I have to say, I mean, there's responsibility and there's the potential burden of making a poor decision or being blamed for a poor decision. But it strikes me as nothing but upside potential for you. I mean, it seems like a pretty fantastic experiment. So congratulations. Thanks. Like I said, I was appointed six weeks ago, I bid to one meeting. But even in that one meeting, I would say, Tim, it's obvious from the get-go the burden and the responsibility that you have. And there is a little bit, I think this would be true for anyone in this position, a little bit like of an oh shit moment of like, oh, I realize the decisions that need to be made. There's a good friend of mine named Brent Bishore who says, "Every successful business is a loosely functioning disaster. Every single successful business in the world, that's as good as you can get. That's the highest peak is a loosely functioning disaster. Every business is just a mix of personalities and emotions and imperfect information and you're just trying to hold the thing together and do the best that you can. And you really see that when you're on the inside of any company that exists in the world. So that's always apparent for me, just as an outside investor looking at any company or on the inside as well. Like all businesses are tough and challenging and you need to make tough decisions and imperfect decisions to get ahead. When you say risk, viewing risk in a similar or the same way, how do you view risk or if you were to explain it to a class with respect to how you view risk in investing, let's say, how would you define that or begin to explore it or misconceptions thereof?

On risk (52:38)

Let me start with a short story that I was talking with a friend of mine last week, Derek Thompson, of the Atlantic. He and I did a podcast together and he asked me if I thought inflation would be transitory, which is a very common question that a lot of people are talking about right now. And I said, "Well, what does transitory mean? By transitory, do you mean it's going to be gone in a week? Do you mean it's going to stick around for 10 years?" All these little weasel words that don't have any agreed upon definition, you can really get into a lot of trouble there because I think inflation is transitory. But by that, I mean, it's probably not going to stick around for five years. If your definition of transitory means it's going to be gone next week, then no, I don't think it's transitory. So I think a lot and I bring that up because I think that's the same with risk. And there are a lot of people that will define risk differently by and large based off of the time horizon. So if you were to ask me if the stock market fell 20% and stayed there for three years, is that a risk? A lot of people would say, "Yeah, that's a huge risk. That's an enormous catastrophic risk." I personally would say that's not a risk at all. And the reason is because my goals lie 50 years in the future. So what's going to happen in the next three years? I could honestly care less. That's really how I think. But that would not be my answer if I was a 90 year old retired widow on a fixed income. Then I'd have a very different answer for you. So I think summing all that up, risk is just the odds that something will prevent you from achieving your goals. But the nuance is that everyone has very different goals and aspirations and time horizons. So everyone thinks about risk differently. The takeaway from that is most investing debates where people are arguing with each other, "Is this a risk? Is that a risk? Should I buy this stock? Is the market going to go up next week?" By and large, those debates are not actually debates. It's people with different risk tolerances and different time horizons talking over each other, talking over one another. And that's why. So I think to me, the most important part about risk is that the definition is different for everyone. My definition is going to be different from yours, which is different from anyone else who's listening. And it's not because we disagree with each other. It's just because we're different people with different goals and different ages and different family situations, etc. And so risk is a very personalized calculation for everyone, rather that's in investing where are there areas of your life. One of the illustrations I enjoyed for your book, I think you used Google as an example. I was somewhat arbitrary example, but you highlighted the different questions or considerations you might have if you were considering buying Google based on different time horizons. Ten years, two years, six months, digitrator, something like that. And it was a very helpful exercise to kind of review how the game you choose to play determines the definitions or the parameters for a lot of these terms that we throw around very loosely, like risk. So let's talk about games. I was texting with a friend of mine, a very good investor. I'll leave his name out of it for now, but I asked him if he had any questions for you. And so his map of reality, I'm paraphrasing here, is as a journalist/historian being paid to write interesting things related to investing. So the questions that he has are more related to being a skilled content creator in this new tech world. So here's one question, and this is related to observing that you are very active on Twitter. So zooming out, what is this fin-twit game that you're playing and what are the rules? Here's how I think about content in general, whether this is Twitter or writing, writing an article, writing a book. I am, I call this selfish writing. I'm writing for an audience of one, and that is me. The only thing that I write, the only thing that I tweet, the only thing the articles that I write, the books that I write, I just write through the lens of, do I personally think this is interesting? And if the answer is yes, I make a leap of faith that other people might think it's interesting as well. And I think a lot of writers get into trouble by asking themselves, what does my audience want to read? What will other people think is interesting? And I think that leads to kind of like this bastardization of finance where it's like, oh, this tweet got a million likes. Like, yeah, but it's so corny. It's so salesy. Even if it did really well, like, you can't tell me that you actually the author think this is interesting. I know it perform well, but you don't think it's interesting. And also, when you, the writer, are most interested in, when I'm only looking through the lens of do I Morgan think this is interesting? That's when you do your best work, of course, because that's when it doesn't feel like work. It's like, I'm writing this article because I think it's this topic is really interesting. And I would want to read it written in this way. That's the game that I play is just trying to be really selfish in that endeavor and just ask, what do I think is interesting? And if I think it's interesting, other people will as well. Okay. So let's, let's take a closer look at the playing field.

Fin tweeting heavy hitters (57:43)

So Twitter is one medium that you engage with very heavily. One arena. Who would you consider picking an arbitrary range here, but like three to five of the top players in FinTwit, financial Twitter, who you pay attention to and why you pay attention to them? I will expand that slightly out of FinTwit, but two that really stick out. And these are very well known names. One is James Clear, who wrote a book called Atomic Habits. And the other is Mark Manson, who wrote the book The Subtle Art of Not Giving a Fuck. Both of them do something that I think is really rare, which is that they don't tweet very much. They maybe tweet once a day, but it's very good. It's very thoughtful. It's, it's thought provoking. And they tweet one away, and then they back off until the next day. I think that's, that's also something that I've tried to emulate. And I think the people that just kind of flood the feed with every little brain fart that might come into their head and just dump it into Twitter and hit publish, some of them are, are interesting and entertaining, but it can get old after a while. I think the people who have done really well that I've admired have a level of restraint on Twitter of only putting out things that they think are, are really worth reading. I think Nval is also pretty good at that in terms of just putting out something maybe once a day, maybe he's like twice a week at this point, but it's good. Like it's really, when he tweets, you're like, Oh, I gotta, I gotta look at this. This is interesting. So James, Mark, and Nval, I think have in my view played the game really well. Josh Brown, he quit Twitter about a year ago, but I thought he was the king. Who's Josh Brown? He is the CEO of Rital's Wealth Management. He's on CNBC most every day, and he was someone who would tweet probably 20 30 times a day, but he's so funny and he's so insightful and so smart that it was worth reading every time. So it was, it was a loss for Twitter to see him go. I think Derek Thompson from The Atlantic, I've mentioned him a couple times as someone who I really admire as just being a really multi-disciplinary thinker. And whenever he puts something out, it's from completely different fields. Like he had a podcast recently on, on Autocracy and Belarus. And then the next day he could be writing about Omicron, he'd be writing about the stock market. He's so well-rounded in his thinking that it's always interesting. It's always fresh. You never know what's going to come from him. Those are, those are just a few people who I really admire here. So let's take a, take a lateral move to some, some maybe related territory. And I remember my promise earlier to people that we would come back to Buffett and Munger. So I have not forgotten for those who are like, God damn it, Ferris, I've not forgotten. I take notes as we do these things. So, who are some investors you respect the hell out of but would never try to emulate? Are there any people who come to mind? I mean, definitely Buffett and Munger for one, just this, them in general. I, here's, here's kind of the twist on this. I'm not sure there's any investor who I admire that I would try to emulate. And I think the reason that is is because I admire them because they have a really unique skill. And by definition, most people, including myself, don't have that. Skill. Another thing is that a lot of people who are really successful at investing were successful in one era, but maybe not necessarily this era. So you can really admire what they did and how they thought and the risks that they took in that time. But it would never work today. Benjamin Graham, the great investor who wrote the book, The Intelligent Investor, he's like the Godfather of investing. If you tried to put Benjamin Graham's techniques to work today, you would fail so incredibly hard, so miserably. If you were putting together like the actual formula that he laid out in his book, you would fail miserably. So there's really not anyone that I would really try to emulate. I'm a fairly passive investor. And John Baugho, who started Vanguard, I think is probably the most admirable because it was so selfless what he did. Vanguard, a lot of people don't even know this. Vanguard is owned by the people who own Vanguard mutual. There's no Vanguard shareholders. There's no profits. There's no dividends that are played to the owners. Vanguard was made for the benefit of the people who own the ETFs, the people who own the mutual funds. And John Baugho did not make that much money for himself because of that. And you could almost think that Vanguard's low fees, the amount that you saved in fees is money that could have gone to John Baugho and John Baugho is a state that didn't. He's like this undercover philanthropist of finance that I really admire just because there's so few other people like that. And I think someone like James Simons, who we mentioned earlier, I think in every field, there's only one person who's claimed a fame, whose competitive advantage is I'm smarter than everyone else. In tech for 20 or 30 years, that person was Bill Gates. And I think in finance for the last 20 or 30 years, that person has been James Simons, who's like the only person in the field who can say, if you ask them the question, what is your competitive advantage, they can say, I'm just smarter than everyone else. Only one person can say that in its James Simons. And so it's, if you look at what Renaissance technology has done and just the results that they've accumulated and the consistency of what they've done, it's like LeBron James, Times Michael Jordan, Times Tiger Woods to the power of Michaela Schifrin. It's such a different universe compared to what anyone else has done that it's astounding to watch. I've heard a fun and fascinating romp through different investing styles and very big personalities. The book More Money Than God by Sebastian Malaby, am I getting that right? Something that's right. It is very entertaining. Also not a whole lot of styles you would want to try to emulate unless that is your sport and you're in there. Any other investors besides James Simons come to mind and the names you've already mentioned, who you think are truly exceptional. Now they could, I will expand investor to mean capital allocator. So it could also be a CEO of a company, but I'll let you pick who you may pick. There's a value investor named Monish Pabrai, who is not very well known. He's a fairly small investor. He's capped the size of his fund at a fairly low level. So he's not a household name. He's like, even within investing circles, not many people know who he is. His returns are incredibly good. And he's just the nicest, wisest, fun to be around guy that I've met in a long time. I really look up to him not just as an investor, but just as a person, just how he's situated his life, what he aspires to be, how he lives his life is someone who I've ever looked up to for a long time. There's someone who lots of listeners will be familiar with, Brent B. Shore, who's very active on Twitter as well, is an incredibly successful investor. He won't say that. He will deny that, but he really is. And he too is just one of the nicest, kindest, funniest people who I've met. And most of the time when he and I talk, it's nothing to do about investing. We just talk about life and our kids and our spouses and whatnot. So I think most of the people who I really admire as investors, it's more that I admire just how they've lived their lives and their general life philosophies. And their investing philosophy stems from that. That's true for Buffett as well. Actually, there's an interesting thing about Buffett, which is that it was so easy to admire him and still is. But when the book, "The Snowball," came out, which is a biography written about Buffett by an author named Alice Schroeder. And it came out, I want to say, 2009, something like that. It really makes clear the case that Buffett has not lived a perfect life by any means. And in a lot of instances, his family life has been a disaster. I think that's the right word to use. It's kind of rude to say that, but I think it's really true. In some ways, it's good to hear that. That everyone puts their pants on one leg at a time in the morning. Everyone is human, everyone deals with the ups and the downs of living a life, and that he's a human. And also, a lot of the reason that his family life was troubled at times is because he had a singular devotion in life, which was picking the best stocks. And everything else came second to that. Everything from his family on down came second to that in a way that a lot of people, including myself at one point, said, "I want to be Warren Buffett. I want to be the next Warren Buffett." But then you read about what it took to get there. And I'm like, "No, I want to stay 10 miles away from that." That's a really important insight to learn is that a lot of these people who you admire, the reason that you admire them is because they're so successful, and that success that they had had enormous costs associated with it that are easy to ignore. And when I look at that, it's like, I can look at pieces of Buffett's life that I admire and pieces of Jim Simon's life that I admire, but I don't want to be them. Because that mega success had so many costs attached to it that I want to avoid in my life. That's been a really important observation too for me. There's also a slippery slope. I shouldn't say a slippery slope. There's an ease with which you can conflate skills and attributes with investors very easily. What I mean by that is, no one looks at, say, Michael Phelps and says, "All right, I just need to swim more so I can grow taller and get more flexible ankles and huge feet like Michael Phelps." They know that's not going to happen. There's not trainable attributes. Those are things you're born with. And similarly, you might look at, say, Buffett, and you're like, "Oh, that looks like a normal guy.

Mistakes and uncertainty (01:06:42)

Looks like a grandpa. Aw, shucks. I could learn to do what grandpa does." But when I read, I've not read the snowball, but I read an earlier biography unauthorized, as I think they all were, by Roger Lowenstein or Stein. I never know. That's going to be pronounced the making of an American capitalist. And I read this decades ago, but the story that really stuck out to me, and I'm probably getting this wrong, but someone on the internet will correct me. I remember his meeting. Warren's routine was to work at the office and then come home and basically just walk straight upstairs and begin reading S1 filings or what an annual reports of one type or another quarterly reports. And that was his routine. And one day he came home after work, and I want to say his son, but one of his kids was like, splayed out at the bottom of the stairs, and had clearly like fallen down the stairs. And he just stepped over this child and walked up to his office to read reports. Like, it didn't even register to attend to his child. And I was like, "Okay, I am not programmed that way." That is different out of the box hard-wiring, that I will not be able to train myself to possess in the same way that the mistakes, a lot of the mistakes that I've made in investing have been actually almost all of them have been selling at the wrong times. And which is why I find a lot of these risk assessments that might be given to you by a broker or a wealth manager or who knows, somebody who's hopefully got your best interests at heart. And they say, you would feel comfortable with a 15% decrease in your portfolio's value in one quarter, 5%, 1%, 20%, 30%, and you just have no fucking idea until it happens. Because I remember I had, at the time, this was 2007, 2008, there were a few decisions that I'd made beforehand. I had bought my first home in San Jose with Oops, an adjustable rate mortgage, 2007. And I had also, a few years before, plowed a ton of my net worth at the time into Amazon. And I had very high conviction around it. I don't remember the price. I mean, somebody could look it up 2006, 2000, late 2005, something like that. And I got hammered in the housing market. And then when the sky started falling, intellectually, I knew that I shouldn't sell. Does that make sense? Like I'd read the books. Totally. I was like, longitudinally, things are going to be okay. The fundamentals of the business haven't changed. I feel like I'm, I have a pretty good read on the technical or technological trends. I'm living in Silicon Valley. Everyone I know is using Amazon more and more with each subsequent year. But every time I turned on the news, it was chicken little and the sky was falling. And eventually I was like, these people seem smart. I'm a kid. What the fuck do I know? And then I sold the Amazon, right? It was not the right decision. And I tell that story just to draw the contrast between what I did and what I suspect Warren Buffett would have done had he been in my position. He would not have behaved the same way. And it wouldn't have been arrived at purely through logic. The guy is just built differently. Well, here's, here's one counter to that. You're generally right, but here's the counter to this. February of 2020 rolls around. There's a new virus. It's going to rile the world economy. What did Buffett do? Do you know the answer to that? What he did? You tell me you're going to have a better read on this. He dumped his entire portfolio of airline stocks at a huge loss. That's what he did. Yeah. Here's what's crazy about this two weeks before that. Maybe it was a week before it. It was a very short period of time before he went on CNBC when it was starting to look like maybe the market was getting toppy. And someone asks him, Warren, what would you do if the market starts falling? And he says, he laughs and he says, I'll tell you what I'm not going to do. I'm not going to sell two weeks later. He sold all of his airline stocks at the end when this virus hit. Now, you can say that that was actually not a mistake, even though the majority of them have regained almost all of their value. You can say that was not a mistake because the possibility of a complete catastrophic wipeout, particularly in airlines with COVID was there. So you could say, like, I was actually the right thing to do. But even buffet in this situation, when the world's starting falling apart, he panicked and he did not buy anything of significant value with big numbers during that huge market decline. Even for him, I'm saying it's much easier said than done. I had my own story about this in the early days of COVID. Morgan, can I ask you to bookmark that? Don't lose your place. But I want to interject with the question. And that is, do you think that early, earlier career buffet would have also sold? And the reason I ask is that I saw an interview with Munger from, I don't know, a year or two ago, maybe it was actually more like two or three years ago. And he said, too many people have their entire life savings and are depending on Berkshire, which seemed to imply and I'm paraphrasing that that was in a sense leading them to behave in ways or make decisions that they would not have made earlier in their careers. What do you think? Here's what's so interesting about what happened in March of 2020 in the early days of COVID, which is that if the government had not done trillions of dollars in stimulus, if the Fed had not done trillions of dollars in stimulus, if there was not a vaccine, you can go on down these possibilities that were very realistic possibilities. I think we would honestly be looking at something that would be worse than the Great Depression right now. I don't even think that's a bold statement. It had the potential to be absolutely catastrophic. So when you have Buffett selling and not buying because he wants to bank up more cash, I actually get that. I think if you were to make the 10 most likely outcomes of COVID, I think economically we ended up with absolutely the best one. And it's easy for us in hindsight to look back and say, oh, you should have bought in March of 2020. And it actually was not that obvious back then that that's what you should have done. That's one thing. The other thing that's so different about it is that, you know, Buffett has probably invested through, I don't know, 10 recessions, something like that. But all of those were financial recessions. There were things going on in the economy that caused recession. This was a biological disaster. It was a completely different set of fears that people didn't really know what was going to happen next. I don't think there was any real playbook that even something or somebody who has 80 years experience could really look at and say, oh, here's what you do whenever there's a pandemic that's threatening the global economy. There's not really much insight into what to do with that. So I think in different recessions, the other thing that's important too is that even in 2008, during the financial crisis, Buffett did do some buying, but actually not that much. He actually didn't put that much capital to work even in 2008. The last time that the economy completely lost itself and Buffett put a lot of money to work was like the 1970s. That's a true statement. It's been quite a while since he's put tons of money to work when the economy fell apart. Some of that is just how his style has evolved over time rather than being like a tactical asset allocator. He just wants to buy good businesses and hold them for a long time. And the idea of buying when there's blood in the streets has less relevance to him today than it did 50 years ago. So that's part of it. But I think for everyone, and Buffett is human, that when you get to a situation like this, it's so easy to respond to risk in ways that you never thought you would. And I'll tell you my personal story from this. My wife and I were, for a long time, the plan was we were going to sell our house in Virginia in April of 2020. Well, before COVID, that was the plan. Now, in March of 2020, I woke up one morning at two in the morning and I went, "Holy shit, there might not be a market to sell our house in April. The market just might not exist. Or the banks might go bankrupt. The world just might not exist. And if that's the case, it's going to make our move to Seattle where we live and how much trickier." So I called up our real estate agent and I said, "Hey, I know the plan is to sell the house in April, but I want to put the house on the market today. I want to put the house on the market right now." And he said, "Morgan, don't panic." And I interrupted him and I said, "Oh, I am panic. You are looking panic in the face right now. This is panic. I am totally panicked. And I am someone who does this stuff for a living and right about not panicking for a living." And look, the sale all worked out and I didn't sell stocks. I really didn't. It didn't feel like a panic, but it was so easy when the world is going well and everything is all butterflies and rainbows. To imagine to yourself and to answer the hypothetical question, how would you feel if the market fell 30%? And when the world is going well, you answer that question by imagining a world in which everything is the same except stock prices are 30% lower. And in that world, you're like, "Oh, that would be great. That would be an opportunity." But that's not what happens in the real world. In the real world, the market falls 30% because there's a terrorist attack that no one saw coming or Wall Street is about to collapse or there's a virus that might kill you and your family. And in that context, you think completely differently. And that's why people's ability to say, "I will be greedy when others are fearful" is so much greater than most people's ability to actually do it. That's true for me. It's true for you. I think it's true for Buffett as well. Absolutely. A couple of footnotes on several of the names that have come up. So I believe you wrote about this in your book and it was something I did not know. So Benjamin Graham, right? If not a deity, certainly a minor deity in many of the investing circles, certainly the self-described value investing side of things. Is it true, am I recalling correctly, that a bulk of his career returns came from concentration in Geico? Am I getting that right? That's true. The last page of Benjamin Graham's book, The Intelligent Investor, tells us a little tale about an investor who earned basically his entire career success off of one investment. And that one investment broke every rule that this investor had laid out. And then in the last paragraph on the last page of his book, he says, "By the way, that investor is me." And if you look at Benjamin Graham's track record, his career track record is incredibly good. And if you remove Geico, it's average. And like I mentioned, Geico, by Graham's own saying, breaks every rule that he just laid out in that book to buy it. And so that's an interesting, a really interesting thing is like not only was it one company, but it's one company that broke all the rules. So if you're reading that book and looking for rules to follow, like by definition, you are not going to achieve Benjamin Graham's success. And so I think that's really telling. And I don't know what the takeaway from that is. If you could say, well, then clearly he's just lucky. If all of his success was due to one company that broke the rules, you could say he's just lucky. The other thing you could say is, that's just how capitalism works. And that's true for Buffett. It's true for a lot of people that if they make 100 investments, you're going to make the huge majority of your money on probably five of them. That's true for anyone. It's even true if you're investing in an index fund that within the index, most of the games are going to come from 5% of the companies that you invest in. That's always the case. I think it just kind of changes how people view success though. Like if your view of success is that every stock that Warren Buffett or Shamath or Jim Chanos or all these big name investors, that every time they make an investment, then it's clear that that company is going to be a winner. And that's just not how this success plays out at all. Even among the top names, the best investors over time, the majority of the picks that they make do not do very well. And the reason that they're so successful is because one or two or maybe five investments they've made are ultra home runs. People associate that with venture capital. That's how it works in VC, but it's actually true in all stages of investing. The stat that I'll share with you here is that if you look at the Russell 3000 index, which is an index of large public stocks in the United States, over time from I think 1980 to 2010, 40% of the stocks in this large cap like mom and pop index, 40% of the companies went out of business, not merged, not bought, but they went bankrupt, 40% of them. But the index did very well because 7% of components were huge winners. It was like Amazon, Microsoft, Netflix, those companies. So even in a boring old index fund, almost half the companies are going to go out of business, but you'll still do well because a few do very well. And so that was true. And I think the more successful you are, the more you see that, even at a company like Apple or whatnot, like what percentage of Apple's success is the iPhone? It's enormous, but they've experimented with dozens of different products over time. Amazon has experimented with the Fire Phone, which is a total flop, and they've done things in music, which were flops. They've done all these flops, but they've also done Prime and AWS, which matters more than anything else. So almost anywhere you look, you will see that a tiny number of activities apply for the majority of success. And it's so hard to wrap your head around that when you're trying to emulate these people who you look up to and admire. Yeah, you really got to pay attention and look at the underreported analysis. And I remember learning at one point, this is just a few years ago, and please correct me if I'm getting this wrong. I heard it from someone I consider a very reliable source, but he told me that it'll monger effectively as three concentrated or primary positions, Berkshire Hathaway, Costco, and then money with a Chinese fund manager who has derived a lot of his returns from tech investments in East Asia. And I don't know what that pie chart breaks down to, right? In the sense that if it's 99% Berkshire, I don't know how much you can infer or conclude from what I just said in the same way that if someone's like, well, so and so, like Peter Thiel invested in my company, and I'm like, how much do you invest? Because if you put in 25k, that's literally like dropping a penny on the street for Peter, and maybe it was done through his office and who the hell knows, like the signal may not be very strong. But the disproportionate sort of tail risk, or I should say like asymmetric return reward and punishment is a big deal. One example of this too that I loved was from Walt Disney, who back in the 1920s and 30s was making all of these cartoons that people loved and they were great, but they were all losing money. They were all commercial failures. And he was on the verge of bankruptcy. And his whole career was going to be over and shut down the studio and then Snow White and the Seven Doors came out and it was such a huge mega blockbuster success that all sudden he had enough money to keep the studio open and to make more films. But if you look at Walt Disney's commercial success in those years, the early decades, and you take out Snow White, it's a disaster. So even among like the highest talents in any field that we look at like that, you're going to see that tails drive everything. It's just so hard to wrap your head around that when you're trying to emulate these people. Well, I imagine you a lot of people listening are going to say, well, fuck, this sounds kind of like a hopeless task, right? Because if you're betting on or hoping to emulate someone who found a golden Willy Wonka ticket, I don't know how to form a strategy around that. But I would imagine there are certain certain base principles you can take away if you're looking at whether it's venture very successful venture capitalists who've been successful for a long period of time, right? Because you can get really lucky and hit the Midas list and look like a genius for a short period of time. But people who have just for decades been successful and there is a selection bias because the best tend to then see better and better deals first, but just putting that aside. You also see the same thing in say a book like Bringing Down the House by Ben Metric or Metric. I apologize, Ben. I've forgotten how to say your last name, which was later made into 21 about this. I believe it was a team out of MIT that developed a system for counting cards in Blackjack. And one of the underlying principal/rules was having sufficient bankroll to continue playing through a string of improbable bad luck. So in terms of bet sizing, there are certain principles perhaps. It's the best word I can come up with right now that you could pull from a Disney or one of these other examples that could be translated to some type of investment approach that people could begin to wrap their heads around. Anyway, I'm just thinking out loud as we go through this. Yeah, no, I always think when you have these idols in any field, it doesn't have to be in investing. You just want to ask, what can you emulate? And for all of them, you can't emulate their luck. You probably can't emulate their super special talent or intellect. But there are things among them that you can emulate. For Buffett, I think the thing that I've tried to think about that's been so successful for him, the driver to his success, that hopefully I can have some chance of repeating is just time. It's just the time horizon. I can't mimic his intelligence. I can't mimic the market conditions that he had. But if I can stay invested for the next 50 years, that's as close as I'm going to get to actually learning something from him that I can take away. There's this other, there's this great interview with Michael Moretz, who is the head of Sequoia. And he was asked by Charlie Rose, he said, "Why is Sequoia been so successful? Like, and how have you succeeded for 40 years?" Which is the amount of time that they've been winning in this industry. And what he said was, quote, "We've always been scared of going out of business. We've always been paranoid. We've always thought that what we've earned yesterday is not guaranteed tomorrow. And this is for someone who is a multi-billionaire, who has the most success of anyone else in the history of this industry. And that's what he's thinking about every day is paranoia and fear. If there's one person in the industry that deserves to be cocky about their skill, it's someone like him. And it's the opposite. He's terrified. He's paranoid. I think that idea of only the paranoid survive is another thing that you and I, Tim, can learn from that. Even if we don't have the deal flow of Sequoia, that you and I can take something away from that. So I think just whenever you're looking at these people, that's something to deal. Particularly when you go back to what we were talking about earlier of, I don't want to be buffeted. Even if I could, the life that he's living is not appealing to me in the slightest. So when I'm looking at someone like that and trying to learn or trying to copy them, it's like, "Well, I actually don't want to be them." So what is something from their life that I can pick and choose that I have the chance of replicating myself that is still going to align with the life that I want to live? And that's much different than what most of what goes on, which is just like blind copycatting of investors who are out there. Yeah, for sure. The fear of going broke or going out of business, let's double click on that for a second. So I remember getting advice from a very successful investor at one point who I think would put himself squarely in the value investing camp. He's been very successful for decades. Does not care about the glitz and the glam and the flash of the latest crypto fill in the blank has absolutely zero interest. So very much a student of an acolyte of the buffet, monger side of things. And he said, "Just do not take short positions. Do not short and do not use leverage." He's like, "If you just avoid those two things, chances are you're not going to go totally out of business. You're not going to go totally bankrupt." This is cool from Buffett where he's talking about leverage. And he said, "If you're smart, you don't need it. And if you're dumb, you shouldn't be using it." That's a good way to summarize what leverage is in investing. Now, then you have, and I'm bringing this up because I think it's very hard for people to parse fact from fiction or signal from noise in the financial press or even just financial discussion. Who to listen to is a difficult to answer question for a lot of people. It's difficult for me too sometimes. I've just realized that if you read anything, you should skip to the bottom and just read the disclaimers first because they're just shilling their book and shilling their position. Then you want to know that before you read 10 pages. But on the flip side, then I read this piece in the Wall Street Journal that was sent to me by someone which had the headline, "Bye, borrow, die." Are you familiar with this at all? The "Bye, borrow, and die" approach? I'm not familiar with it, but I think I can put it together. You just go into a bunch of debt and then die? Is that what it is? Yeah, basically that. It's like a dynastic approach to wealth transference whereby you basically get everything that you need and want through leverage. I mean, obviously you have risk of margin calls and things like that as we saw to dramatic effect during COVID, certainly. Some people would just overextend and got their faces ripped off, including some very, very famous families I want to name. How do you make sense of conflicting diametrically opposed advice from seemingly intelligent rational parties on both sides? I think you have to parse the difference between what works on a chalkboard and what works in real life. Many years ago, there was a study put out by a group of researchers at Yale. What they showed is that their advice was everyone, every single investor should use 100% leverage in their 401. They should lever up as much as they possibly can in their 401. They showed historically that that was the right thing to do. Because even if you got completely wiped out, even if your portfolio went to zero because of your leverage, as long as you picked yourself up the next day and bought stocks with two times leverage, over time, you would earn an extra 3 percentage points of return. And there were dead serious in this report. And the math all works out. It works on the chalkboard, on the spreadsheet. They're right. It's the right thing to do. In the real world, people would not worry. There's no real world in which someone would watch their retirement portfolio go to zero. And then the next day, keep doing the same thing. That's just not how people's heads work. And so, there's a lot of things in finance that look smart and sound smart and the numbers add up. And it's just completely opposed to how the real world works. I'd write in the book that the difference between being rational and reasonable. And there are a lot of things that investors do that are not rational. But I think they're perfectly reasonable. And they align with how people's heads work. One of which I would say is there's this well-documented home bias with investors where by and large, people who live in America only own US stocks and people who live in Germany only own German stocks in Japan and so on, people own the stocks that are closest to where they live, which is not rational at all. It's not rational to think like the best stocks are the ones that are closest to your house. That's crazy. But that's how people invest. And it's not rational, but it's actually very reasonable. If taking the leap of faith of investing your life savings in these companies, if it's easier to do that when you're most familiar with them, that's totally a reasonable thing to do. And so I think that difference between reasonable and rational is really important. I write about in the book too that my wife and I don't have a mortgage on our house, which is the worst financial decision we've ever made. And I would never try to justify it on a spreadsheet because I can't. It's a terrible, it's a terrible financial decision. But it's been the best money decision that we've ever made. It's given us more joy and pleasure than of anything that we've done with our money. Even though it's the worst financial decision we've ever made, just because it gives us a sense of independence and security and particularly when we're raising our kids, like this is our house. It's not the bank's house. This is our house. I cannot rationalize that, Tim, on a spreadsheet. I can't. But it makes me happy. And so that difference between the spreadsheet and the real world is so important. Everyone thinks about it a little bit differently. But I turn my nose a little bit at the academics who just live inside of Excel and think that's how the world works. And I respect a lot more the gritty people on the street that understand how the real world works and how people's brains works, what makes them tick and how things actually play out. Yeah. And I should also volunteer that maybe four years ago, five years ago, I was having a conversation with a very financially successful friend of mine who's also done a very great job of crafting an unusual, just trying to think of how to tip toe around some of his adventures, exciting life for himself that is just quintessentially him, right?

Peace of mind over profit (01:31:26)

It's like unapologetically non-consensus. And he seems to just have a great time in life. And he's made a lot of very deliberate decisions. And I wanted to get some advice from him about something. And he asked me to lay out what my current kind of balance sheet looked like. And I laid it out and he said, why do you have this mortgage left or this amount left on your mortgage on your house? And I said, well, blah, blah, blah, blah, blah. And I gave him the kind of spreadsheet justification, right? Like interest rates are low. It's basically free money, blah, blah, blah, blah, blah, if I can take that money and do blah, blah, blah. And he said, just pay it off. He said, just having the peace of mind that no matter what you have a house that cannot be taken away is going to do more for your ability to sleep at night than anything else. He's like, it doesn't make sense mathematically, but pay off the mortgage. And he was right. Psychologically, the payoff was tremendous. And I guess if we think of investing, or one way to think of investing being allocating capital to improve your quality of life, then it is a good investment, right, to pay it off. Totally makes sense. I'm not recommending that for everybody. This is just my own story, but I ended up in the same place as yourself for that reason. I also know a lot of people for whom that would be a terrible decision. They could not live with themselves if they knew that they were leaving money on the table. So it works for me and my wife and you, it sounds like, and other people that wouldn't. And that's where I get down to like all of this is just personal and whatever works for you. And there's something about money where that neck and irk people, like there's some people when I tell them I don't have a mortgage, they get angry at it because it's such a bad financial decision. And in a way that like other things in life don't work like that. If you said I like classical music, I might say, cool, that's great. I don't. But that's fine. I don't think any less of you. And I'm not going to argue with you about it. That's your taste. This is mine. But for financial decisions, people really don't like that. Because, and I think those are people who only view it as a spreadsheet endeavor versus using capital to give yourself a better life, like you mentioned. Let's hop back to Jason's Wigs piece. This is from August 7th, 2020, discussing your book. And I want to pull out a contrast in styles and explore this a little bit. You'll recognize this, of course. So the first example, this person, a Ronald Reed, I'm guessing that's how you say his last name. To Ronald Reed, however, money was a possibility. So I'm reversing the order here. Mr. Reed spent decades pumping gas and working as a janitor in Brattleboro, Vermont. After he died in 2014 at the age of 92, his estate was able to give more than $6 million to local charities because he had scrimped and put every spare penny into stocks that he held for decades. No college degree, no training, no background, no formal experience, no connections. But nonetheless, massively outperformed many professional investors. All right. So I'm going to leave Mr. Reed at that for now. The contrast is something you saw yourself. A technology multi-millionaire handed a hotel valet, thousands of dollars in cash to go buy a fistful of gold coins at a nearby jewelry store. I can see it. I can see it in my mind's eye. The executive then flung the coins worth about $1,000 a piece into the Pacific Ocean one at a time skipping them across the water, like flat rocks, quote, just for fun, end quote. To that man, money was a plaything. And then in parentheses, he later went broke. Totally true story. It was the craziest thing valeting. There's this guy won't say his name, but he was very well. He was worth several hundred million dollars. And he was just a complete maniac in his relationship with money was astounding. Usually carry around the stack of hundred dollar bills that I swear was four or five inches thick. And he would just walk up to strangers and pinch a little bit off the top and just hand it to them, just to see the reaction on their face. And he did this all the time. And he had all these crazy things, including the story I tell in the book. He told us one day, he he pinched off a fixed stack of hundred dollar bills. And he said, go to the jewelry store and get us some coins, some gold coins. And we went when my colleagues did it. And he came back and him and his friends just sat there skipping them into Pacific Ocean, just cackling to each other, like who can make it the farthest. And they're throwing a thousand dollars, thousand dollars, a thousand dollars. And they just thought it was the funniest thing in the world. And then years later, I found out that this guy went broke. It went bankrupt. And that's not, that's not surprising, but it was just astounding to watch how some people, really smart, successful people deal with money. So one lesson we could take from that, I mean, there are many lessons we could take from this, if you're a valet, take the money and run. I'm kidding. It's a joke. But one lesson we could take is slow and steady wins the race, right? Substance over smoke and and rasmitas. That would be one moral of the story that you can get, you can build wealth very effectively without doing anything fancy, without being Jim Simons, simply by being consistent and holding for a long period of time. I think that's a good way to summarize it. Yeah. Yeah. So that's one. Now, I think for purposes of the contrast, it makes sense that you would have these two extremes, right? But there's a lot in between. And so one question that comes to me when I hear a story like this also is, would Mr. Reed have been, would he have considered his life better lived, had he taken some of that money and used it to enjoy himself or do something while he was still above ground or not at 92? Yeah. This is probably one regret that I have from the book is that I kind of framed it like Ronald Reed was my idol. And I didn't mean to make that point at all, because someone who lives a very impoverished life and is mopping the floors at a gas station and then dies with millions of dollars, I don't aspire to that. That's not the life that I want to live. To me, the whole point was, the skills that you need to generate wealth are not the Ivy League education and becoming a partner in Goldman Sachs. This janitor was able to do it. But I don't personally admire the life that he lived. I want to live a good life and buy the things that I want and have a nice house and a nice car and treat my kids well and go on good vacations and travel the whole nine yards. The whole point of that was just showing that the skills that you need do not come from the traditional sources that we associate financial success with. Got it. All right. So I have a question for you as a researcher, professional observer. I don't want to say of finance because it's more than that, right? But I imagine including the example of these guys handing a stack of money to go buy gold coins, you've observed wealthy people, whether directly or through reading and so on, for a while now. And I'm going to lead into this with a recent conversation I overheard. Two wealthy people were having a conversation about basically how much to save for how long.

Ruining children with money (01:38:43)

And both of them had been sort of born into very moderate circumstances, like lower middle class or even poor. So one was saving everything kind of until the very end to hand off to future generations. And the other person said, well, you might want to consider spending or using more of that money now because there's only so much, you can't take it with you, and there's only so much money you can give to your kids before you ruin them. And I'd never heard it quite put that way, but I grew up on Long Island as a townie in the Hampton. So I worked restaurants as a busboy and just various low status, low paying jobs in a resort town where you get to see the best and the worst, but mostly the worst of Manhattan. Yep, kind of see and be seen. Crowd. There are some great people, right? Many of my best friends are in New York City, but nonetheless, saw some really horrible behavior. And so this is a very roundabout way of asking. If you kind of scan over your experiences observing the wealthy and so on, if you look at examples where their kids aren't cunts and titled cunts, how do they achieve that? I hate that I'm quoting Buffett again. I don't want to do this ad nauseam for the whole podcast, but he has a great quote on wealth where he says he wants to leave his kids enough money that they can do anything, but not so much money that they could do nothing. I think that's really the key. And that's why I think about my own kids who are very young, but when my wife and I think like, how do we want to use whatever savings that we have to benefit them? Giving them a safety net, but not a fuel is a that's what my parents did for myself and my siblings. When I was a teenager and in my early 20s, I always knew they would be there if I fell on my face. And they would like, I would never just completely fail. I'd never be homeless. I'd never, they'd always catch me, but they were never going to be a fuel. They're never just going to give me money just to just to make my life better. That was never going to be the case. And so knowing that they were going to be there, but knowing that I had to make it on my own was so important for me. That's what I want to do for my own kids. I think if there's anything that's like that, I think that rule is probably the closest that you get to having very wealthy kids who are not cunts as you put it, which is a great way to put it. Not to get too technical, but it's also just so there's a great book that I read a couple years ago and I reread it last year. It's one of my favorite books. It's called Fortune's Children. And it's about how the Vanderbilt heirs spent their money and blew their fortune. And Cornelius Vanderbilt was the richest man in the world. If you adjust it for inflation, he was worth like 400 billion dollars. And within, I think three or four generations, there was nothing left. They spent everything. And they didn't actually didn't give that much to charity either. They were not, they did not do that much philanthropy. They just blew that money. And a couple of things stick out from the book. One is that virtually every heir, I don't think there's a single counter example to this, they were all miserable. They were all depressed. They were all anxious. They were all like, none of them really lived. Life said anyone would want to read and say, Oh, I wish I could live that life. They were all miserable. And I think another part of this is that none of them were allowed to become their own people. Their job in life was to be a Vanderbilt heir. And they were never allowed to have their own personality, do I really have their own pursuits? Or even if they did their own pursuits, it was never going to live up to what their grandfather did. And therefore, why even try? And all of them were just living in the shadow of this, this answer should have had. And so I think when I look at that, it's like, you really see how money can ruin people. I thought about this myself with my kids of like, let's say my wife and I go out and buy a Porsche, we don't have one, but let's just use that hypothetically, but we buy a Porsche. And then let's say that my daughter wants to be a kindergarten teacher. And she's driving a Toyota Corolla, because that's what she can afford as a kindergarten teacher. Is she always going to feel like she's in the shadow of her parents? Like she did not eclipse what her parents did, even if she has a more noble job than I do, and a more benefit, a job that benefits society more than I do, is she going to feel like she never reaches that point because of how my wife and I decided to live our lives? I don't want to do that as a parent. And I think about that a lot too, is like, how can I live a good life and have a good house and nice stuff, but make sure that I'm not leaving the bar too high for my children if they go into another career that doesn't pay as well. That's a tough thing. I don't know if there's any easy answers to that, but I think about that a lot of like, how can you become a safety net, but never a fuel? And I'll tell you something that I didn't really realize a couple years ago was that the instinct to be a fuel when you are a parent is really strong. The instinct to say, "Hey, I'm fortunate enough to have some savings. How can I use it to benefit my kids and open doors for my kids and push them along and put them on third base?" is tough to fight against that because every cell in your body as a parent says you should do that. I was really hoping that the book you're going to recommend would be called "How to Raise Kids Who Aren't Cunts" or something really on the nose. That's book number two. It's coming. Yeah, please someone write that book. You can have the title. Just write something kind in the acknowledgments. "Fortune's Aries." I have to ask, "Okay, 400 billion or so after adjusting for inflation. How in holy hell do you spend or blow that much money?" What did they do? A lot of it was Holmes. I mean, the Biltmore, which is still around, you can go visit it. It's 140,000 square feet. And that's one of like 10 homes that William Vanderbilt had. It's absurd. That's like Chelsea Pier. That's ridiculous. It's the craziest thing. Here's what's crazy about it, too. This just shows how dumb their lives were. So Biltmore is 140,000 square feet. George William Vanderbilt, when he was William George. No, George Washington, Vanderbilt was his name. He hardly ever visited it. It was the biggest house in the world. I think it still is. And he hardly ever went there. He spent most of his time in his apartment in Manhattan. So even when they built these ridiculous mansions, it was just for a pissing contest of these cousins and of these siblings of who can spend the most money. And it really did not give them. It was just like a social race that they could not win. Because when you have these heirs, whether it was Vanderbilt's and the Rockefeller's and the Carnegie's that whole, the whole Gilded Age heirs, all of their goal was to one up each other. And they basically had unlimited money. So in that situation, you're never going to win that game. And they just kept going and going and going the game where everyone loses. Everyone loses. And so they spent a lot of it on homes. And all these homes would have a staff of 300 people working at the home that they never went to. So it was just like that. It's really interesting too. The first Vanderbilt heir that I think has actually lived a pretty cool life and seems pretty happy. Do you know who it is? I do not. Anderson Cooper. No shit. Wow. Anderson Cooper's his mother is Gloria Vanderbilt. Gloria Vanderbilt's father was Reggie Vanderbilt, who was the last Vanderbilt to have significant money. Reggie Vanderbilt inherited a ton of money, blew every cent of it. His daughter Gloria went on to have a child named Anderson Cooper, who went on to, of course, do like build his own life with his own talents, not with his family's money. And seems like he's a pretty happy guy. Everyone else in the book before him seems miserable, including his mother, Gloria. So that's, I think that's pretty telling that Anderson Cooper is like the first Vanderbilt who did not have money. And he seems like he's the happiest one. Good for Anderson. Wow. I had no idea. I had absolutely no idea. I'm going to ask you some journalism and book questions.

Good biographies and memoirs (01:46:36)

Favorite biographies you have recommended most to other people or given the most other people. Biographies or just recommended or gifted. Doesn't have to be recommended the most. Okay. Well, here's, it's not necessarily a biography, but it's a diary. There is a lawyer named Benjamin Roth, who in the 1930s kept a very detailed diary during the Great Depression. And every day it was just his personal diary, but he just wrote about what was going on in his town. He's from Youngstown, Ohio. And he just wrote about like what his neighbors were going through, how many businesses were going bankrupt, what they did to hurt people's personalities. And his son published it in 2010. It's called a Great Depression, a diary. And I think it was, it was unintentionally the best economics book ever written. I'd be for sure. It explains what went on during the Great Depression in a way that no one else has because there's no hindsight bias in it. Every other book on the Depression is hindsight bias. We know how the story ends and that colors our view of what happened. But Benjamin Roth was writing in real time. Every single morning he woke up and he wrote a thousand words and what was going on in the economy. And it's so fascinating to read. And one of the things that sticks out to me that's so interesting is that half of the book, if you change the date from 1932 to 2008, it fits right in. Like the whole, the psychology of what happened back then of how people were thinking, how people thought about risk, what they thought about government policy completely repeated itself in 2008. And Benjamin Roth actually talks about in 1932, he's like, oh, what's going on today was exactly what happened in 1878. It's like, all these things repeat themselves so commonly and so frequently. But it's that's that's one that is not a very well known book, but I've read it. I've read it several times and I just think it's fascinating. A Great Depression. I know you're also a fan of, you call him your favorite historian in the book, Frederick Louis Allen. Yep. Spanish career depicting the life of the average media in American. I know you've spoken about this before. People could definitely listen to your conversation with Shane Parrish for more on this. But some of those books are the big change since yesterday. What is the third? The big change since yesterday and only yesterday. Only yesterday. And I suppose there's maybe a bit of hindsight bias, but it's it's describing a period that he lived through. And therefore, I suppose is just more how would you summarize why you find his work interesting? You hinted at this earlier, but most history books, 99% of them are about the big figures, the presidents, the generals, the hitlers, the Stalin's, the FDR's. That's most of history. Frederick Louis Allen was just interested in how the average ordinary American lived their life. And he wasn't writing about any specific events. He just wanted to write about like, what was life like? How did life change during this period from 1900 to 1950? His crowning book is called The Big Change. It's just how American life evolved from 1900 to 1950. And the evolution was enormous because 1900 was horse and buggy. And 1950 was like rockets and atomic bombs. The amount of progress that took place during that period is way more than what we've dealt with over the last 50 years. And he just wrote about what life was like for people who lived through that ordinary people. One of the things that sticks out from that too, that comes up again and again, is just the extent that no one saw what was coming. No one saw coming. What actually happened? No one saw that coming. And even if you look at like the dawning of these big events, like World War II and the Great Depression, nobody saw them coming. It seems so obvious to you and I today, if you research what happened during the 1920s and what happened in 1929, like the glorious roaring 20s in the stock market bubble, it's easy to be like, of course, it all ended in calamity. But people were not saying that at the time. And the few people who did say, hey, this is probably dangerous, we're completely pushed aside. Same with the period right before World War II and the aftermath of World War II and the technologies that came out of the Cold War, like again and again, the repeating theme among the story is that people didn't see it coming. And that just gives the reader so much humility when you're looking at today, that you and I and everyone else and the smartest people that we know have no clue what's going to happen over the next 10 years. That's always been true. And I think it always will be true. One of the sections in the book that I really enjoyed, I mean, maybe enjoyed isn't the right word.

Financial panic, temptations, and long hauls (01:50:54)

You'll see why in a second, but found illuminating and worth contemplating. And you'll have to help me with the specifics here. But it was looking at, I want to say in brief, how misleading or incomplete averages can be, right? So you might look at something that's at some statistic like from I'm making this up from 1950 to 2000, the S&P 500 averaged, whatever it happened to average, 7% per year. I have no idea what the actual number is. But then you go further to explore how lumpy and volatile that actually is, right? It's not this nice clean incline, like, you know, a ramp for wheelchairs or something. And you list off all of the calamities and disasters that took place over that period of time and that the sort of psychological experience of living through the years that ultimately result in that average is very different than what most people would expect. So feel free to correct or elaborate on that in any way that makes sense. But my meta question is related to how terrible people are at actually buying and holding, right? They tend to panic and sell. So even with the knowledge that all this shit is going to happen, that the one guarantee is there's going to be a bunch of unmitigated catastrophe that is totally unexpected. How can you increase the likelihood that you will not respond in moments of panic by doing what cripples you financially? So two parts to this. One is that even if you look at the periods that in hindsight, we think were the greatest that existed, which for most Americans is the 1950s and the 1990s. That's what we remember as like the golden age of prosperity and happiness and peace. Even if you look at those periods, like in the 1950s, people were like, like, kids were doing nuclear bomb drills under their desks. And there was a lot of pessimism and negativity. Even if we know in hindsight, it was great at the time, by and large, they did not know that. Maybe it was like it was good economically, but there was a lot to be worried about in the 1950s. Same in the 1990s, which we like today, it's like, oh, the booming 1990s, the bull market. But even like people forget in 1994, there was a big like interest rate calamity where a bunch of bond for like interest rates rose and the stock market crashed. And then in 1998, a big hedge fund went out of business and almost took the whole global economy down with it. Like, there was a lot to worry about during these periods. So how do you protect yourself from that? How do you actually become buy and hold? I think there's one thing to do here. There's a friend of mine named Carl Richards, who's a financial advisor. And he has a quote where he says, "Risk is what is left over when you think you've thought of everything." I think that's the definition of risk is whenever we're done planning and forecasting, everything that's left over that we haven't thought about, that's what risk actually is. And the takeaway from that, the actual practical takeaway is that if you are only planning for risks that you can think about and you can envision and you can imagine, then 10 times out of 10, you're going to miss the biggest risk that actually hits you. The biggest risk is always something that nobody sees coming, including something like COVID, where it's actually not fair to say no one saw it coming. But by and large, it's like in financial circles, not a single investor in 2019 in their economic outlook had a viral pandemic as something that they were worried about, not a single one, or 9/11 or Lehman Brothers going bankrupt, like all the big events that actually mattered, it's pretty much true to say no one saw them coming. I think that's generally true. And therefore, the takeaway is you have to have a level of savings in your asset allocation that doesn't make sense. You have to have a level of conservatism that seems like it's a little bit too much. That's the only time that you know that you are prepared for risks that you cannot envision. And if you are only prepared for what you can imagine, again, you're going to miss the biggest risk every single time. Whenever people look at my asset allocation, if I share that with them, it looks a little bit too conservative. And they say, "God, you could be taking a little bit more risk." And they're right. Like I probably could. But I want to be prepared for the risks that I can't imagine or the risk that is possible. But I don't want to even think about it. It's too painful to think about. That's the only time that you can be prepared for the surprises in life. And I think most people, not all investors, but the majority investors, are not conservative enough. And I know like whenever I say that, they kind of shake their head, like, "Come on. Why don't you want to take risk?" And once a decade, you learn why. Once a decade, whether it's COVID or 9/11 or 2008, once per decade, you're like, "Okay, I get it now. I didn't see this coming. It was a calamity." And I either ground myself into the floor and I got wiped out or I had a little bit of extra savings that got me through. So that's how I think about how to stay in the game in a long-term history, where history is a constant chain of surprises. That's the only way to do it. Yeah. Let me read one of my 17 million Kindle highlights. Thank you to your publisher for not throttling the number of highlights that I could actually read after the fact that is extremely annoying when that happens. So thank you, publisher. Who ended up publishing the book? It's a group in London called Harriman House. And so we may or may not get a chance to dig into this, but one of the bullets I have here is every major publisher rejected the book. That seems just stupid, especially based on the fact that my understanding is it began as a popular blog post. It seems like the most obvious indicator of interest imaginable, but what do I know about publishing? We may come back to that, but let me just read something here that I ended up highlighting. So for people who are wondering about my process, I highlight on the Kindle. In this particular book, I actually read in a way I had not read any book before. And that was I bought it on Kindle. That prompted me to buy the Audible version. And then I listened to the Audible inside the Kindle app so that I could, while going for say a hike with my dog, be listening, listening, listening, hit a point where I would want to make a highlight stop. And it would be tracking simultaneously in the Kindle. And I could then make my highlight and then continue hiking and listening. So I digested the book very, very quickly. Here's a section that I then ended up bolding because I take those highlights, which you can access on desktop through your Amazon account. And I drop them into a Google document. And then I will go through them a second time and I'll bold the section as I want to pay particular attention to. And my friends, some friends, and I will share our Kindle highlights from different books that we have read so that we can determine if we want to end up reading the entire book. So here's a section. And it's from a much larger context, of course, but I think it kind of makes the point. Say cash earns 1% in stocks earn or return 10% a year that 9% gap will not you every day. But if that cash prevents you from having to sell your stocks during a bear market, the actual return you earn on that cash is not 1% a year. It could be many multiples of that thought that thought that was on. And this leads me and I am going to come back to the journalism question. I haven't forgotten that. But since we're on a bit of a thread here, I will say, you know, I ended up with a tremendous cash reserve in part because I got my nuts kicked into my throat in 2007, 2008. It just both self-inflicted wounds in the case of selling Amazon and then in the housing market. And I was very conservative after that point, or I should say I took a barbell approach of sorts, right? So not some solid talks about this. But I was in the Bay Area, I felt like I had an informational advantage if I wanted to really commit time to trying to become well-versed and well-networked within technology. So I decided to begin angel investing. That was the highly, highly speculative, potentially high return investing side of things. And then the rest was basically in cash. I mean, the equivalent of being in a mattress, I mean, I didn't even have the guts to put it into an index. And I missed some tremendous, tremendous growth as a result of that. It didn't bother me though. At the time, at least, I was still sleeping pretty well. I was enjoying learning what I was learning in tech. And then in January, began tracking COVID, this is of 2020. And I was able to deploy a ton of my cash reserves, basically end of March, beginning of April. So it did well, but one could very, I think convincingly argue that I would have made more money just by having it play in the market for a longer period of time. But I think that would have made it hard for me to sleep at night, having just had my face ripped off. I know I'm mixing a lot of metaphors, face balls, you get it, but it was unpleasant. It's the point I'm trying to make. And I'm going to bring this back to how you think about success in investing. And I hate that word, so I'll parse it out a little bit. But I want to read something from a blog post that you wrote or an article, I'm not sure what you prefer. This is on the collaborative fund website, internal versus external benchmarks. And let me just read these two paragraphs. All right, the most important point, maybe this internal benchmarks are only possible when you have some degree of independence. The only way to consistently do what you want, when you want, with whom you want, for as long as you want is to detach from other people's benchmarks and judge everything simply by whether you're happy and fulfilled. Okay, I want to bold that in your mind. Judge everything simply by whether you're happy and fulfilled, which varies person to person. This next paragraph, I circled because I thought it was really worth reading over and over again. I recently had dinner with a financial advisor who had a client that gets angry when hearing about portfolio returns or benchmarks. None of that matters to the client. All he cares about is whether he has enough money to keep traveling with his wife. That's his sole benchmark. "Everyone else can stress out about outperforming each other," he says. "I just like Europe." Maybe he's got it all figured out. I just love that because it's highly subjective, meaning it's personal, but it's also very objective. It's an absolute measure. It's an example of, unless he gets a lot of lifestyle bloat and wants to have a yacht in the Mediterranean or something, it is a goal post that won't move. All right, so you talk about the importance of the goal posts not moving. In my experience, with people who have gone from very, very moderate circumstances, not having much money growing up to being very, very successful, offhand, I'm sure there are some examples, but 99% of the people who come to mind, who are smart, I think good people, who are very much students of life, the goal posts have always moved. I want to know what you've seen work or not work in that specific domain and how you think about it for yourself. I think it's the single most important topic in money, in investing in finance, and it's the hardest thing to actually make work. Those are both true statements. It's the same for me. I can write about this and say what people should do, but it's the same for my wife and I. We struggle with this as much as anyone else about getting the goal post to stop moving. I think if there is one thing that has helped me, and I would say helped, not fixed, just like I helped a little bit around the edges, is something that we talked about earlier, which is that just the idea, the observation that no one is thinking about you as much as you are, and therefore so much of people's willingness and their desire to spend more is just a social signal to show people how much money you have, whether that's the bigger house, the nicer car, whatever it is, you just want to show other people. Once you realize that people aren't thinking about you that much, they don't care about you that much, they're thinking about themselves and how much people care about them, once you realize that, then you're like, "Okay, I can see what the game is. It's a game that I can't win, so I'm not even going to try to play it. I just want to focus on the internal of like, what's going to make me happy? What do I want? What's actually going to give me pleasure? Let's just do that. I don't want to think about anyone else. So much of this is just selfish." What's the happy and whatever the other thing I bolded, which I could promptly forgot? But what are those things for you? I want to wake up every morning and hang out with my kids, and I want them to be happy, and I want to do it on my own schedule. If it's a Wednesday morning and I don't want to work, then I'm going to sit on the couch all day and watch Netflix. And if it's a Sunday and I got a good idea, I'm going to spend all day working. It's all my own schedule, on my own time, whatever I want to do. It's that independent autonomy. Can you not do that right now? Yeah, I can. There's a point when I couldn't. And that's what I feel like I'm pretty happy, and I feel like I've done a decent job of doing that. Now, I do have, as a lot of people would, a tendency to be like, "Oh, what if I got that Porsche? What if we got the bigger house? What if we did this? What if we did that?" And it's fun to think that because I love nice cars. I love all of that. It's just so easy to realize. There's a great quote that I love that's, "The grass is always greener on the side that's fertilized with bullshit." I think that's really what it is. That's the accurate phrasing of that well-known quote. And I think that's really what it is. The idea that all that nicer stuff is going to make you necessarily happier, I think is just so easy to disprove, especially once you've experienced a little bit of it yourself, and that actually what is going to make people happy is that independence and autonomy, that once I remind myself of that, I'm like, "Okay." And then the game of earning more just becomes a game. It's less about like, "Oh, if I have more money, I'm going to be happier." No, if my net worth is 10x what it is today, I'm not going to be any happier. That was not true at one point in my life, but I think it's true today. It's probably true for you right now. It's true for a lot of people listening. And therefore, you can admit that a game is fun, and that game is fun to play, but just admit that it's a game, and it's actually not going to make you happier. Yeah. I think I may have a solution for you. I think that all of that experience as a valet, come back to serve you, if you took a Saturday shift as a valet and took a few pourshes for a joyride, I think you could scratch that itch without the expense or the guilt and karma associated with buying one. You can also buy one, certainly. See, actually, I don't think I've ever talked about this before, but I actually do scratch that itch when I rent a car, when I'm traveling, I'm renting a car. I always get the extreme upgrade, the highest upgrade that they have. A lot of times, enterprise will have a Porsche or something sitting around, and whatever the price is, I'm doing that. That's how I scratch the itch that I have without actually buying it. That's a great way to do it. You can rent a Porsche from enterprise for 300 bucks a day. It's not cheap. It's not 60 bucks a day, but it's a lot different than buying the damn thing. Let's talk a little bit more about scratching the itch, because the question that I asked a while back was, how can people fortify themselves against their lesser instincts when shit goes sideways? Because it's always going to go sideways. Right? Yeah. They know, I need to be in this for the long haul. Let's just call long haul at least 20, 30 years. But in the meantime, a lot of things are going to happen. I remember, I think this was in the book. Maybe this was in a conversation that I heard of yours where if someone has the impulse, the unbridled passion and impulse to trade or pick stocks, that's fine as long as you cordon off a small amount of your money as play money in the same way that you might scratch the itch by renting the Porsche at enterprise. Right. Right. So that would be one way, theoretically, again, maybe easier on paper than it is in practice to handle some of the damage control. Could you speak to other ways that people can philosophically, psychologically, prepare themselves for a long haul that is going to be very bumpy? And one of the discussions in the book was, and I'm going to get the wording off here, but related to accepting the prices you will have to pay upfront with a commitment to such a strategy. Right. Yeah. And the fees that are involved. Could you speak to that? Yeah. And the way that I phrased in the book was understanding the difference between a fee and a fine, which seems like they're really similar, but there's a very important difference, which is a fine means you did something wrong. Like shame on you, here's your speeding ticket, don't do it ever again, you're in trouble. And a fee is just a price of admission that you paid to get something better on the other side. Like you go to Disneyland, you pay the fee, and then you get to enjoy the theme park. It's you didn't do anything wrong. It's just that's the fee. I think if you view, if you could situate your life to where you view a lot of the ups and downs, not all of it, but a lot of the volatility and investing, a lot of the volatility in your career as a fee instead of a fine, then it just becomes a little bit more palatable. And when the market falls 30%, it's not that you enjoy it. You don't think it's fun, but you're like, okay, I understand this is the fee that I have to be willing to pay in order to do well over a long period of time. Most investors don't do that. When their portfolio falls 30%, they say, I fucked up. I did something wrong. I clearly made a mistake. And how can I make sure this never happens again? And that's the wrong way to think about it. And I think if you view it as a fee instead of a fine, it's just it's much more enjoyable. It's much more realistic to deal with. Now there, I said earlier that there are some areas in life where it's like that. If you're talking about a death in the family, a divorce, there's things that it's like, no, that's just a straight negative, no silver lining to some of these things in life. So I want to be careful at parsing that, but particularly in investing, the huge majority of the pain that people go through and put themselves through is just the fee for earning superior returns over time. And if you're not willing to pay that, then you're probably not going to get the reward on the other side. That's why you can see so many people who at the first experience with being uncomfortable in investing with a loss, they view it as a screwed up and then they want out. They want to move on to something else. And of course, they're not going to get the rewards over time. Nothing in life is going to give you those rewards for free. There's a cost to everything. And just identifying what the cost is and realizing that the cost is not on a price tag, you're going to pay for it with stress and anxiety and dopamine and cortisol. That's how you pay for these things is I think that's the only way to deal with those big ups and downs. Journalistic question. Twitter doesn't exist. Parallel universe called much more peace of mind, less doom scrolling and hatred and neighborhoods online where people throw potted plants in your head as you walked on the sidewalk.

Trustworthy Journalism And Future Innovations

Journalists to trust (02:09:48)

So parallel universe, Twitter doesn't exist. And the way you consume your news is the following. You're allowed to read the cover of a handful of newspapers. That's it. Can't flip to any interior pages, but you can kind of scan a handful of newspapers. Okay, that's not the part I want to ask about, but that's part one. Part two is you get to choose and let's limit it for now to finance investing or business. Okay, broadly speaking, you get to choose a handful of journalists, writers, and you just you basically have an RSS feed to their articles and you get those automatically. But that's it. On those subjects, that's how you get your information. Who are some of the people you would choose? Okay, one would be, and I'll try to give some names that are not that well known. They're not under the radar, but they're not the biggest names. One is a guy named Nick Majuli. M-I-J-J-I-L-U-I. I'm probably butchering that, but he's on Twitter. You know, it's a blog called Of Dollars and Data. And I think he's a young guy. He's in his early 30s, and he's one of the smartest, insightful, and good writers that I've come across in years. He was one. I'm good friends with him now, and I tell him the story that the first time that I read his blog maybe 10 years ago, I read one paragraph. And after one paragraph, I stopped and I was like, "This guy's got it." That's all you needed to read to be like, "This guy is smart, and he can write, and he's got it." It was so clear early on. He's one of them. Josh Brown, who I mentioned earlier, who is the CEO of Rital's Wealth Management, he's well known, and he's on TV all the time. He is one person that I think is as funny as he is smart. And to put those two together in one package is really rare. And that humor is important for understanding the context of these. It's so much of it is just like he understands the human side of investing better than almost anyone. I mentioned Derek Thompson earlier of the Atlantic. He's just one of the smartest humans that I know. And he's also maybe like 32 years old, something like that. He's definitely on that list. Jason Zweig, who we mentioned earlier, is probably the greatest financial journalist of modern times. I don't think that's an exaggeration. Carl Richards, who I mentioned earlier too, he's straight from the New York Times. He doesn't anymore, but he has a way of taking really complicated thoughts and making them just so easy to understand in a way that you thought you understood it before. But once you read Carl's work, you're like, "Okay, now it, now it really makes sense." He would definitely be on the list. What does Carl's beat or what is he right about? He was a financial advisor, and then he wrote for the New York Times for a long time, basically on behavioral finance. His book is called The Behavior Gap. So he wrote about behavior finance for a long time. And now he's just on his personal blog, his personal newsletters. He's definitely on that. There's a financial advisor named Blair Duke and A, who I think is incredibly smart and a great writer. I wish he wrote more, but whenever she does, it's just always very well put together and very thoughtful. If you gave me more time, I could probably list 10 more. But off the top of my head, that's the Mount Rushmore in my mind. Are there, you said I'll leave off some of the bigger names. Are there any of the bigger names you would care to mention? I mentioned earlier, James Clear, Ryan Holiday, Mark Manson, You, Tim, I don't want to blow too much smoke, but I'll just drop that there and then move on. I think those people like that that have a lot of success and a lot of followers have earned it. Content is a meritocracy. And for people who have sold a zillion books and have a million followers and get this, by and large, they've earned it. And so a lot of those people who are big names and almost cliche dimension, I think are very insightful people. James Clear and Ryan Holiday are too that really stick out as just really thoughtful, almost philosophers. The way that can be off-putting to some people, but I think they are just so smart and a funny story about this in 2018. Some friends of mine rented a house in Omaha for the Berkshire Hathaway shareholder meeting. And a guy came over who I had never met before and I said, "Hey, who are you?" And he said, "Oh, hi, I'm James Clear." And I said, "What do you do?" And he said, "I'm an author. I'm writing a book right now." I said, "What's it called?" He said, "It's called atomic habits." And I didn't say this, but at the time I was like, "That sounds like a dumb name." I don't know. Of course, I didn't say that to him, but in my head, I'm like, "Atomic habits. That sounds cheesy." And he explained it. He was a really nice guy. I like talking to him, but for those of you who don't know, I think atomic habits has now sold five or six million copies. It's probably the best-selling book of the last five years. Yeah, "Blackbuster." Yeah, Ryan also, I'll just speak to Ryan since I know Ryan quite well and I've known it for a very long time. He really walks the walk and makes every effort to walk the walk. So I have tremendous respect for Ryan also, because there's such congruency at the very least incredible effort put into congruency between the words and deeds, if that makes sense, because that is not always the case. You know who comes to mind for me also is Matt Levine. I have to guess, Levine, I don't know if it's Levine, but Matt Levine of Bloomberg, I have no idea how he manages to put out the volume with the density of insight and humor that he does. He has some hilarious, hilarious, hilarious stuff. It's so good. And he writes every day. He puts out a letter five days a week and they're long posts. Yeah. And every one of them is great. There's almost never a dud. He gave an interview last week where he talks about his process and he said his process is like he wakes up at 6 a.m. and panics until there's something written, which I think that's a great, a great thing to admit that like writing is hard. It's not even for the people that make it look easy. It's almost always like a daily panic attack of like, Oh shit, what am I going to do now? What am I going to write about now? The other observation I make about all these people, Matt Levine, James Clear, Ryan Holiday, all those people, is that their skill is very universal and their observations could be applied to other fields. Like if Ryan Holiday wanted to become like a writer of astronomy or like soccer games or like a medical writer, he would be one of the best medical writers. If James Clear wanted to write about like early childhood education, he would be the best childhood education writer. They're just great observers of how the world works and great communicators of putting those observations onto paper. What's your Hall of Fame personal Hall of Fame? Just for you.

Great books + writing advice (02:16:25)

Favorite books on investing finance, behavioral finance, any of that kind of stuff? Decision making. One that's not that well known, but I wish was, and it's not a behavioral finance book per se, but it's a behavioral book is a book by a guy named Dan Gardner who wrote a book called The Science of Fear. The title is basically self-explanatory and it's not a deep science book. I would say it's more of a pop science book, but I don't mean that in a derogatory way. It's very digestible. You can understand it. But that book really changed how I think about fear and just observing fear in a pretty profound way. I've read that several times. What else? I mean, obviously, the word from Jason's Wig. So let's bookmark Jason's Wig. How did it change how you think about or relate to fear? I think what that book really showed me and put into words in a way that really stuck with me is the difference between your slow, thoughtful process of thinking about futurists and the oh shit, like, heat of the moment. How am I actually going to react? In the book, it's framed as head versus gut. Years later, Daniel Kahneman, the great psychologist framed it as system one, system two. I think that's really important and particularly in investing where like we've talked about in this podcast, it's so easy to sit back in your armchair and be like, oh, if the market fell 20%, I would do X, I, and Z. And then when it actually happens, you don't. You think something totally different. It's a very different experience. The difference between what you think and what you actually do can be 10 miles apart. And that book really explains that quite well. Now, how does that affect your, you said you've read it several times, how does that affect your planning or behavior? I don't fool myself. Hey, I think a big part of me have just like taking this off the table for me that relieves a lot of pressure. I was like, I have no desire to become the world's greatest investor. And I respect people who do, but I'm not one of that. So when I, if I can just compound my money passively for 50 years, I'm going to achieve every goal that I have and then some. So for me, the idea of like, well, how can I take the greatest advantage over the next market crash? How can I maximize more portfolio? I'm just not playing that game. And once I like become more introspective about my own personality, about what I want, and how I react, how I think, how I interpret stress, how prone I am to stress, that kind of thing, it's like once once you become more introspective about yourself, I just took that pressure off my shoulders in a way that was very relieving. I would like some writing advice. I just turn this into even more self-indulgent conversation for myself, self-gratifying, maybe. What made me think of this was actually flashing back on COVID because I'd committed to getting back on the blog and writing regularly right before COVID hit. And I had built up a bit of momentum, had hit publish a handful of times, and then COVID hit. And I was like, okay, that's not a priority at the moment, right? I want to figure out how to keep my extended family as safe as possible and martial resources and plan for contingencies and have not gotten back on the saddle since, even though I've drafted a few things here and there haven't hit publish, I would like to get back into some regular cadence of writing. And I'm wondering if you have any advice or would care to describe your writing process if you think it might be helpful. I don't know if I really have a writing process other than I really don't try to schedule it or say, okay, like Monday is writing day and I'm going to sit down and do it. I know a lot of great writers who would come on this show and say that that's the way to do it, that your routine is so important. For better or worse, it's never been like that for me. I just kind of take as a leap of faith that maybe twice or three times a month, I'll come up with an insight where I'm like, oh, that would be pretty cool. And here's a story that I could tell, but I don't try to force it at all. Every good idea that I've come up with has come when I'm not trying to force it at all. It's like in the shower or going for a walk or going for a run that you just all sudden, you're like, oh, I got it. Here's the idea. And so the process for me is no process. It's just like, wander aimlessly around life and then it'll eventually come to you. The actual writing for me, I would say too, I go for a lot of walks. I walk several times a day just around my neighborhood. And 90% of the quote unquote writing takes place there. I don't think that well when I'm sitting at my computer in front of a Google Doc typing, but when I get up and move around and go for a walk, then I'm like, oh, here's how I can write that paragraph. Here's how I can do it. Like, oh, actually that sentence, here's a better way to phrase it. All that takes place when I'm walking. Never when I'm sitting. And so for me, whenever I feel like your article is not going well or like, I'm stuck a little bit, it's like, okay, let's go for a walk. And then most of the time, I'll figure it out there. The other thing that I've come to realize about myself is that the majority of the time that you have writer's block, it's not that you have writer's block, it's that your idea sucks. And that's why you can't figure out a way to write it. Like, good ideas are very easy to write and bad ideas are hard. Like, that's pretty easy. So a lot of investors or a lot of writers, when they get writer's block, they're like, oh, how can I muscle through this and figure it out? And I think nine times out of 10, you're like, no, let's take a step back. And maybe it's hard to put this into words, because the idea that you're trying to get across is wrong. And that's why it's hard. So I've tried to do that with myself of just quitting pretty easily. Even if I'm halfway through an article and I'm like, oh, I can't figure out how to phrase this. It's like, well, maybe that's because my idea is wrong. And I should just move on to something else. How do you distinguish between a block that is due to an impotent idea versus performance anxiety slash pressure that is preventing you from moving forward? Does that make sense? Like if your standards for yourself are too high, the idea may be good, but you're just expecting Tolstoy to roll out and then you're like, this isn't Tolstoy, fuck. And then you can't write. I think that I end up there, fair amount, because I'm clearly not Tolstoy. It's definitely the case if you are writing for a big publication and you have a deadline. Like your deadline is like 3 p.m. on Friday, you need to turn your article in, then you have to do it. If you're, if you are away from those handcuffs and you can just kind of publish whatever you want, that that to me is the best setup for a writer. Because here's like the truth is even if you are one of the big name writers, if you miss a week, no one's going to hold it against, you know, one's going to care. What they want is good content. And if you miss, if it takes you an extra week to come up with the next good idea, just do that. So I publish on random days, sometimes I publish once a week, sometimes it's twice a month. It's just whenever I come up with something that I think is worth writing about that I do. So freeing yourself from that, that timeline, if you can, is the only way to do that for me. And I think, I think if there's one thing I've gotten a little bit better at over the last 15 years of doing this, it's having a little bit better sense before I sit down and write whether it's going to work or not. I think in the past, like a lot of times, I would work on something for five hours before I realized like, no, this isn't working. Now I feel like within 10 minutes of writing, I'd be like, nope, nope, this is not going anywhere good. Let's just quit this and move on to the next idea. And that's fine. There's also a lot of times where you write half an article that doesn't work out. But there's some story in that in that scrap of an article that's going to work a year from now or six months from now. So saving all those scraps is really helpful. And maybe you told a great story in this article that didn't work out. And so you just leave that in your drafts. But then a year from now, you're like, oh, I got the story. Where do you save that? I have a Google Doc called Scrapped Bits. And that's where it is. It's like it's like 50,000 words. It's over 10 years of just the paragraphs that I cut from articles. And I get a lot of material in future articles from that scrap bits that didn't work in the past. Could you give an example of a recent story or article and like where the idea occurred to you? And then what the next steps were right after that? One article that I wrote fairly recently is called How This All Happened, which is a very a short history of how the US economy evolved from the end of World War II through today. And I don't want to write a complete history. That's too ambitious. But just what are the connecting dots from how we got from here or from the end of World War II to today? Like how like what's the what's the narrative of how this all happened? I just wanted to connect the dots between all those. And it started actually years ago when I said like how can I write the history of the US economy basically in tweets? Like what is the shortest that I can do this? And just write a couple sentences of like, okay, after World War II, this happened. And then that happened. And the whole article is like 10 sentences. I wanted to like challenge myself to summarize it that quickly. And so that was I don't know eight years ago that I wrote that piece. Then I realized, hey, that was actually like a cool format. But there's obviously a lot to expand on there. So rather than writing the history of the US economy in single sentences, like what if I just put it together in each block, each chapter is like 300 words, which is a length in which like you can go into a little bit of detail, but it's it's quick, you can breeze through it. So just putting that together in that in that format was like a challenge. But I was pretty happy with how it turned out. Let's grab another one just because I think that that format wise is maybe a typical maybe not. But what would be another example of kind of an A disease single piece that you could tell the story of like the Genesis story of like, all right, the idea, you don't have to have the exact time in place. But when you have this idea, what happens next? Like, do you start drafting it in your mind as you're walking? Are you like, Oh, shit, here comes the muse, let me get back to my computer so I can start brain vomiting, everything that comes to mind down. Or something else. The majority of the time that I start writing an article, I have no idea where it's going to go and no idea how it's going to end. And the actual act of writing is kind of what gets the brain moving. And you write one sentence and then you're like, Oh, that reminds me of this other thing. And then you write a paragraph and you go, Oh, that reminds me of this thing I read five years ago to pull it in. And so it's really, I think that's the art of writing is you don't have any idea where it's going to go. It's true for articles is true for entire books. When I started writing my book, I didn't really know what the format was going to be. How long I didn't know what the chapters were going to be. It was just let's start putting this together and see where it goes. I think a lot of writers do themselves a disservice by writing as you're taught in school, which is like, have your outline, have it all outlined before you start writing. It's like, no, that takes away the creativity and the art of like exploring as you go. That's been really interesting for me. So it often starts with just one little tiny nugget of like, Oh, that's really interesting. And I go from there, I'll give you one example that I got from your show. You had Stephen Pressfield on your show fairly recently. And he was talking about a time when he lived in a mental institution. He was not, he was not a patient himself, but he lived there and he starts talking to all these people. And he made this comment that a lot of the common denominators of these people who lived in a mental institution was they were not, they were not crazy. They just could not handle or put up with the bullshit of life. They couldn't, they just couldn't deal with it. And that was kind of why they ended up in the mental institution. He said, all these people were the smartest, most creative people who he had ever met, but they couldn't put up, they had no tolerance for the bullshit of the real world. And that to me just like brought this idea that there's actually an optimal amount of bullshit to deal with in life. If your tolerance for bullshit is zero, you're not going to make it at all in life. Yeah, the lesson I took from that was maybe I should live in a mental institution, please continue. But I listened to that. And it was like, Oh, see, these people could not function in the real world because they had no tolerance for bullshit. Like the second step from that is there is an optimal amount of bullshit to put up within life. And that was where this article, the optimal amount of hassle came from. And I remember, like, I was on a flight many years ago. And there was this guy in pinstripe suits who let everyone know that he was a CEO of some company. And the flight was like two hours delayed and he completely lost his mind. He was dropping F bombs to the gate agents and just like completely making an ass of himself because the flight was delayed. And I remember thinking like, how could you make it this far in life and have no tolerance for petty annoyance, like a delayed flight? And I just think like there's a big skill in life in terms of just being able to deal with some level of bullshit. And a lot of people don't have that. There's another great quote that I love from FDR who of course was paralyzed in and in a wheelchair. And he said, when you're in a wheelchair, and you want milk, but they bring you orange juice instead, you learn to say, that's all right, and just drink it. And I think that just having the ability to put up with that kind of stuff is I think really important and often lost in this age where we want perfection, we want everything to be perfect and it never is. So just to track the trajectory, like birth cycle of this, of this article you wrote, the optimal amount of hassle, is that right? Yeah. And I actually remember I was going for a run listening to your podcast with Stephen Pressfield. I heard him talk about the story of the people in the mental institution could not put up with it. I stopped and I sent myself an email, which is how I take notes. And I said, like, optimal amount of hassle, Stephen Pressfield. And then I put like the timestamp in your podcast, that was and then I kept running. And then I came home and then like, I just had that nugget the next day just that I had no idea where I was going to go. But let's start with that and see where it takes me. That was the genesis of that article. All right, thank you. I just find that, you know, it's like tomato tomato. Everyone has a different approach to this. There's no consensus whatsoever because then there are folks. I mean, people are probably a long time listener sick of hearing me mention this name, but like John McPhee and you read draft number four and like he has the structure anatomically decided to such a level of precision that it is almost unbelievable. But before he gets going, most of the time, right? Like he has everything. It's like a NASA space shuttle launch. There's nothing left to chance or very little. I'm pretty sure Ryan Holliday is like that as well. He talks a lot about routine is so important to his writing. And for me, it hasn't. And my takeaway is not that I'm right or he's right. I just it is different for everyone. And maybe I would be a better writer if I had more routine, but for better or worse, I've just kind of slapped it together haphazardly over the years. So you you were a junior Olympic ski racer. I want to bring this up in part. And we may may or may not have time to get into this right now, but I really recommend people read the three sides of risk, which is a piece you wrote, which I read, which is I mean, a an extremely heart wrenching and poignant piece. So thank you for writing that. But you you were I mean skiing was life for a good stretch of your childhood and adolescence. And you were very, very serious athlete in training. Yep. I have a bullet here. I'll let people see behind the curtain here. I will often ask guests if there are any particular topics or questions they think might be interesting, fun, productive, fill in your adjective to explore. And one of the bullets that you said was I have no formal high school education. Yep. Could you please say more about this? Well, I grew up as a competitive ski racer, as you mentioned in Lake Tahoe. And ski racing is one of the only sports that it was pretty common for people in my group in this competitive ski racing group to view high school as a nuisance that got in the way of our skiing. And the way that we got around that, because we were skiing six days a week. And so like the amount of like we just didn't have who just viewed it as we didn't have time to go to school. And so the way that we got around that was there was an independent study program that was designed for juvenile delinquents who had been like expelled from every other school that was kind of like a home schooling. It was like a guided home schooling system where we didn't have to go to a high school. They gave us some work packets to fill out that we did. And then when I was 16 years old, they sent a diploma in the mail. It's not a GED. It's a real high school diploma. But I did nothing for it. I don't actually, I don't have any memory of actually doing academic work during these years doing it. They had some work packets where it's like, can you spell your name and tie your shoes? It's basically like how I remember it. It was just like the most basic bare-bones stuff. And then I got a diploma for that. So I really had no high school education. I spent my entire teenage years just skiing. That was the sole focus. And everyone else in my cohort, all of my friends around me did the exact same thing. So it felt normal to me. It wasn't until I was a little bit older that I realized that like, hey, everyone else went to four years of high school and they actually learned something that I didn't. Where did you end up going to college? I got my degree from USC. But I kind of slipped my way in there since I had no high school education. Well, I was going to ask how the hell did you get into USC? Yeah. So I had to start at, because I basically had an eighth grade education up to that point. So I started when I was 19 or 20. So I was a little bit older than others to begin with. And I started at the local junior college in Truckee, California, where I lived. And I started like the most remedial math that exists. It was basically eighth grade math that I had to start. And I was 20 at the time. And it was really like, okay, like how to simplify fractions. It was really like starting at that level. So I was in junior college for a year or two. And then I transferred to the University of Nevada, Reno, I was living in Lake Tahoe at the time. I went to UNR for a year. And then I went to another junior college in Southern California. And then I transferred to USC. And I was there for three years and then got my degree there. So my whole college experience was, I don't know, like seven years or something, because I had to start at the very bottom. This might sound like a silly question, but why did you go to college? Like, why go through that trajectory versus taking a different path? I think there was a period when I didn't think I was going to, when I was, you know, 18 or 19. And I wanted to be a ski racer. Now, every ski racer at that level knows the odds of you making the US ski team and going on the Olympics. It's 0.00001 that you actually go there. So, like, I knew that I was not going to become the next Lindsey Vaughn. But I knew, but I really enjoyed it. And I thought, oh, I'll probably go on to be a coach. That'll probably be what I'll do for the rest of my life. And I think working as a valet at a nice hotel in Tahoe, that was my first experience to very wealthy people. First time I had seen very wealthy people coming in in their Ferraris and their Lamborghinis and the Rolls Royces. And it was the first time in my life that I was like, oh, like, I want, I want to be that, which is funny thinking now, because that, like the guy in the Rolls Royce is like, I definitely don't want to be that guy now. But at the time, I was like, whatever you're doing, I want to do it. Like, whatever I got to do to get there, this guy is so cool, I want to do it. And most of them were working in finance, I learned. So I was like, cool, like, I'm going to Wall Street. That's what you did. That's what I'll do now too. And so that was my first indication of like, so I think to answer your question, I did it because I wanted to become rich, which is, that's not how I think now. It's funny to say that. But I think in my 19 year old mine, that's why I went to college. I want to dig into this question of writing, because how on earth do you learn to write if you were not doing coursework to speak of during high school? You got to college, but as you mentioned, more math focused once you got to Econ than writing focused. So why did your friend think you had a snowball's chance in hell of getting a gig at Motley Fool? Or was there just no downside? So it didn't matter. He was like, hey, if you throw a thousand monkeys into a room and let them bang on typewriters, eventually they'll come up with Shakespeare. I mean, what was the sort of grist for the mill behind any ability to write? I'll give you one little story about where it all like the level of which I was at. And I was probably 21 at the time when this happened, but I was, I wrote a paragraph, I forget what, but a friend of mine looked at it. It was just like, it was just like a note that we wrote at work. And he said, he was a good friend of mine and he was a smart guy himself. And he said, hey, Morgan, do you know the difference between then and then, T H E N and T H A N? He said, because you used it wrong in this paragraph three times, you said then, but you met then, he said, do you know the difference? And I said, no, now that I think about it, I don't, I could not explain to you when to use each one. And that was when I was 21 years old. I just say that to like the level I was at was so basic, I really had an eighth grade education, 90% of which I had forgotten at that point. And then so to go from that and then try to become a professional writer, when I was an econ major that didn't have any writing, it was terrifying. It really was. And the first year, like I said earlier, was, was bad. It was, I was really self conscious about what I was writing. And it needed heavy editing on behalf of these like angel editors that the Molly Fool that were walking me through it. But the answer to that question was, I didn't think I could do it. I had no self confidence. It's incredible that they let me do it. I would say if there was one like point to this, the first article that I wrote from the Molly Fool, I wrote a draft and I sent it to a coworker. I was at the private equity firm at the time, I sent it to the coworker. And he said, Hey, this is really good. This is actually really well written. And I was like, really? Is that is that true? And when I go back and look at it now, like it's not that good. But I think early on, I did have some aptitude of like putting a little story together, even if it was it was pretty bad back then, but I had some little seed of like, maybe I do have some skill at trying to do this, even if it was really hard grinding through it. Jeez, what an adventure, man. You know, it's like if you just think about all the chance encounters and random occurrences, the kind of blessings and disasters also. You want to hear about chance, chance encounters about where this all led to. I mentioned my friend who was a writer at the Molly Fool, who got me into this. His name was Sham Gatt. He's still a great investor, great writer out there. And I came across Sham and I became friends because he wrote a blog. And in his blog posts, he had a personal blog. And in a blog post, he had a typo in error that drove me crazy. And I emailed him, he was a complete stranger. And I said, Hey, you got this error, you need to fix it. And he wrote back and he said, Hey, thanks. I'll correct it. By the way, I see from your email address that you go to USC. I'm going to be at LA next week. Do you want to meet up for dinner? Complete stranger who I just wrote a nasty email to. And I said, great. Yeah, let's meet up. And Sham and I met. And during that dinner, he said, Hey, I don't have a place to stay tonight. Do you have do you know that hotels around here? And I said, Do you want to sleep on my couch? And he said, that would be great. Thanks. So this complete and utter stranger, who I was writing to tell him that he was wrong the next day, he's sleeping on my couch. He and I became good friends. And that's how I got into writing. That's a he introduced me to the Molly Fool. So it was like, if he didn't have that typo in his blog post, that I was a jerk enough to write out to email him and say this is wrong. I wouldn't I wouldn't have had this career that I've had. So like, there's so many little serendipitous accidents in life that are like that. Yeah. Isn't that the truth? So I want to start to bring us to a close. You're being very generous with your time, but we're going to come up on three hours shortly. So let me, let me bring us to a recent piece that you wrote. Very recent. And it's titled I have a few questions. And it's it's really, it's it's I don't I don't want to minimize by saying just but it is a list of questions and it starts with they're relevant to everyone and apply lots of things colon. And then there is a whole list of questions and I would like to ask you some of them. I encourage people to check this out. We'll put it into the show notes as well. But I want to throw a few of these at you. So one is what do I think is true, but is actually just good marketing?

Truth vs. good marketing (02:40:19)

And I'm wondering if anything comes to mind that you suspect may fall into that category. I try to keep them to myselfs and I don't I don't write or tweet about this, but I have I have my political views. And I'm sure a lot of that is just catch phrases and and talking points that I have over the years been like, oh, that I I like that that makes sense to me that I've run with that has been persuasive to me. And it's just someone came up with something that's not really true, but like sounds really good. There's also probably some investing beliefs that I have that sound good that are very simple. Maybe maybe it's around passive investing. Maybe it's around, you know, my admiration for Warren Buffett. I don't know what it is, but that sounds really good and it's easy to explain, but it's actually not how the world works. So I think by definition, I don't know the answer to that question, but I know that there are things that I believe in my heart that are just not true. Yeah, it's a somebody asked me, what are your blind spots? And I was like, I'm not sure I can answer that by definition, definition, you can't see them. Next one, what looks unsustainable, but is actually a new trend we haven't accepted yet? I think it's it's accepted by many now, but a lot in crypto probably falls in that camp. The thing about crypto that's so interesting is that every new technology going back for hundreds of years has started in with a dynamic that is completely unsustainable. And very oftentimes it then it then collapses and like just in there, but it still stays around like was was the internet in the late 1990s a bubble? Yes. And in the sense that the market fell 90% and 99% of the companies went out of business, but the internet was of course a real thing. It was that was not a fake thing. That was that was the wave of the future. And every new industry is exactly like that. Like in the early 1900s, there were 2000 car companies in the United States, and that whittled its way down to three, two of which went bankrupt eventually. I think there's a big difference between is something like, like growing at an unsustainable rate in terms of like the market cap or whatnot. And is this technology a way for the future? I think there's probably a lot in crypto that falls in that bucket. You I don't know if you wrote about this, if I read it somewhere else, but there's an example you could tell me. I read looking at historic gas prices. It's hydrocarbons. And somebody had written some time ago that as we look at the remaining stores of oil, the price is going to get to be so absurd that we're going to run out of supplies by this point in time and all these disasters are going to be fall us. I think China, it was looking at Chinese consumption of oil. But what wasn't taken into account, of course, was how innovation and incentives would drive new behaviors as the price, the dollars per barrel got higher and higher and higher. It's all of a sudden things like fracking or going to certain far-flung locations to drill or offshore drilling or whatever became financially feasible as the prices got more and more absurd and stratospheric. Maybe that's not the most appetizing example. One other example is from Thomas Malthus, who of course wrote this essay many years ago, I don't know when that was 200 years ago, something that humans are all going to starve to death eventually. Like famine is the future because population growth is growing faster than we can generate new food and therefore famine is the future. His calculations were accurate, but what he didn't take into consideration is that we would become better at growing food and more effective, more efficient at growing food. There's a long history of that of the calculations can make sense, but you underestimate people's ability to adapt and to come up with new ways, new technologies to create more. It's also easy to underestimate self-regulating systems. I remember reading the lessons of history by Will and Ariel Durant and they talk about what is its famine, war, and pestilence. You have too many humans, don't worry. They'll take them out. Yeah, case study, COVID, which was a warning flare more than anything else, looking at the consequences that could have been. Let's look at some of these other questions, which I encourage people to check out. It's a fun thought exercise if nothing else. What has been true for decades that will stop working but will drag along stubborn adherence because it has such a long track record of success? What comes to mind for you? There's a lot within value investing that falls in this camp. Value investing will always work in terms of if you buy an asset for less than it's worth, you'll probably do pretty well over time, but the actual formulas that you use to determine value, those have always evolved and always changed. The formulas that people use, whether it's price to book value, the PE ratio, whatever formula it is that may have worked at one period of time, those always evolve. That's always been the case. I think it always will be the case that there will be people that will be stubbornly attached to the metrics and the formulas and the valuation techniques that worked perfectly in the previous era that are now outdated and outmoded. I was chatting with someone during COVID. I thought a lot about investing and spoke to a lot of people about investing before making some of my decisions. It seems like value investing took some serious body shots beginning in kind of, I don't want to say across the board because there are success stories of course, but 2013-2014 as certain tech stocks and impressive rates of growth of said tech stocks began to really pull the indices. Does that make any sense? Where all of a sudden the S&P 500 and others are being increasingly driven or I don't want to say overweighted, but driven by tech stocks that get harder and harder to defeat, although the pendulum swings both ways. So I have something that I thought about for a period of time in conversation with a number of friends of mine. Which of my current views would change if my incentives were different? This is very apropos of the moment we live in right now. I was thinking about this the other day because I get sent all sorts of stuff related to science and vaccines and this, that and the other thing. And I have friends across the entire spectrum and they're like, "What do you think of this? What do you think of this? What do you think of this?" And my general response to a lot of it is be very cautious about people who develop a brand for themselves that they are compensated for, whether it's financially or reputationally, maybe it's just vanity and they get a lot of YouTube views. Or having a certain position, strong position, because they cannot, or they're probably unwilling to change that position. Like they've just put themselves in a position where they feel like they cannot change their stated position. And that's a very dangerous place to be for a whole lot of reasons. But how would you answer this for yourself? Personally, if I was paid per page view on the blog, I would write the blog differently. I don't know how, but I know it would be because right now it just never comes to mind. It's just not part of the equation. I just want to write what I think is good. But if it was like, "Oh, I'm only going to get paid if this goes viral, if it's shareable on Twitter," I would write headlines totally different. The article is probably be much shorter, much punchier than they are now. So I think that's a big part of it. If I was paid selling products by commission, if I was a financial advisor selling by commission, I would probably be much more into active investing and activist strategies than I am right now. I think because I'm not a financial advisor, I'm not giving people advice. I can just kind of view it as an outsider and be like, "Well, this is what makes sense to me. So that's what I'm going to do." Whereas I know that if I was in the trenches, so to speak, and had to make a living doing this, I know I would have very different views about what strategies you should pursue. And I know that the strategies that I would lead towards would be higher fee, higher commission. I think just think that's the reality of it. Most people who work in finance are good, honest, noble people. Not all of them, but most of them are. But to the extent that there is bad advice that gets perpetuated, I really just think it comes down to the incentives that are in the industry. I mean, the perfect example of this is that the only firm that's really been able to make a good business out of selling passive funds is Vanguard and they've done it by becoming a nonprofit. That's the only way that you can do it. You can't make a good business out of selling the lowest fee funds that are out there. You just can't do it. And so I know that if I had a different compensation structure, I would think differently as an investor. Last question from this list. What are we ignoring today that will seem shockingly obvious in a year? It's probably something about COVID and it's either going to be that we're way too scared or not nearly enough scared. I don't know what that is, but I think that's what comes to mind when I think about that. That we'll look back a year from now. As we look back a year, one year ago today and a year before that is like, oh, it was obvious that this is where we're going to get always obvious in hindsight. What's going to happen? So I have a feeling it'll be something around COVID, but I won't venture a guess which direction. What else? Anything else come to mind? I think it'll be obvious that the 2022 election is going to be a disaster in one way or another. I won't even again, I won't try to guess which way that's going to go or what the details are going to be. I have a feeling that there will never be a clean, uncontested election for the rest of our lives. Once you set the precedent of chaos, it's hard to put that genie back in the bottle. I was thinking about, and I think I actually saw this and I interrupted you so we should probably mention you're discussing books and then you mentioned Jason's WAGUE and I took us off the reservation somewhere. Actually, do you want to finish that thought and then I'll add something to that because I think it was actually a tweet. It may have been a tweet that he retweeted that I saw which leads me to a thought about what might be obvious in a year that is perhaps not immediately obvious. Were you into reference a book that Jason wrote? Jason's book, Your Money in Your Brain, which came out in probably 2005, 2006, and it was one of the first behavioral finance books out there.

Money is dopamine and cortisol (02:50:30)

Behavioral finance is pretty popular and ubiquitous today, but back then, not that long ago, it wasn't. His book was a bold look at money is not spreadsheets, it's dopamine and cortisol. I would say today that's not a very profound statement, back then, it was. I think he was brave to write that book and it really changed my view of what matters in investing. That was one of the first, "Oh, okay, this makes sense to me. It's not about excel. It's about just how you think and how you behave." I am going to try to find this. Here it is. It is a tweet from Jason. A few years ago, a few years ago, Nival, Raffkont, and I were having a conversation on the podcast and he talked about the asymmetric costs of offense and defense in a world where drones are weaponized. Meaning, if you have a drone or a bunch of tiny drones that are weaponized, and this is being developed all over the world, of course, you have sophisticated attacks where they can be coordinated with software to say all land on a given tank and explode at once. They can be used in more ad hoc improvised ways. But I have been tracking this space because a number of my friends are involved. Some of them design in manufacturer predator drones, for instance, a drone that would sort of kill or capture other drones and they use netting that is shot out like Spiderman to catch drones and they're used by different major league sports franchises because that's a non-trivial threat to say an arena would be drone attacks. Jason has a tweet. This is from December 7th, 2021. Saudi Arabia is running out of the ammunition to defend against drone and missile attacks from rebels in Yemen. I can't pronounce the Houthi. I'm sure I'm pronouncing that incorrectly. Rebels in Yemen is appealing to the US and it's golf and European allies for resupply. This is in the Wall Street Journal and the lead or at least the teaser sentence that I see presented by Wall Street Journal is Saudi Arabia's defense against the rebels drones pits $1 million missiles against $10,000 flying lawnmowers and quotation marks. I remember that. Yeah, that's a great way to phrase the problem that you're dealing with and who has the edge here. It's crazy. Yeah, I mean, the future of warfare is here, right? Not to beat poor William Gibson's quote to death, but the future is already here. It's just not evenly distributed. But this is something that I've been watching very closely because the consequences are so... The potential consequences and the implications are so terrifying. Not to end on that. But I only saw that tweet today from Jason and it served as a reminder to me that I think in a year, particularly with the technological development cycles that we're seeing, how compressed they are and innovations that we're seeing from drone manufacturers.

Future innovations (02:53:35)

I recently had some interactions with the newer drones and drones with FLIR technology and infrared tracking capabilities. It is incredibly impressive. Compared to drones from even 18 months ago, I mean, they are like worlds apart. It is shockingly impressive. Here's what's scary to me about that too, is that when the nuclear bomb came about, there was obviously fear that this is the future of war and knock on one figure's cross. It has not since 1945 because the consequences of a nuclear war are so catastrophic that everyone who has them up until this point, I said, it's not worth using them because the consequences are so severe. I mostly drone war is the opposite, where it's like there's no skin in the game. You're not sacrificing any soldier's lives. You're sacrificing civilian lives, of course, on the other side. But there's so little skin in the game and it's so easy to just flip these things up in the air and go for it that it makes starting a war, progressing a war so much easier than it's ever been. It's the opposite of what happened with nuclear war over the last eight years. Yeah. If people want to make an attempt at looking around some corners also from a technical perspective with respect to AI and cyber warfare, I highly recommend listening to my recent podcast with Eric Schmidt. It is mind-boggling. What else? I think that within a year, we will have things like GPT-3 at a point where we can generate probably, I would say within a year might be aggressive, but within 18 months, with figures who have enough audio online that you can really deep fake effectively, you'll have sort of synthetic interviews with people alive and dead that are convincing enough that they can't be distinguished from live interview. I could see that being graspable in the next 12 to 18 months. And that just torpedoes trust even more than it's ever been. You hear a quote from Tim Ferriss and you're like, "I don't even know." That's probably not even Tim's, I don't even take it seriously anymore. There's no trust anywhere. Oh, election cycle 2022. It's going to be exciting. I got my son in Oculus for Christmas and there's a thing where you can do a tour of the White House with Barack and Michelle. It was filmed back then. And just sitting at a table in VR, having a conversation with Barack Obama, it was so shockingly realistic. And you know where that's going, that the VR headsets that we have 10 years from now are going to make this look like a complete joke. If you mix that with the ability to deep-fix it, we're heading into a world that's going to be so wild. A couple of final questions for you. I would also just recommend, it's a fun film as well. People could read the book certainly, but ready player one, people should take a look at that. It's coming a lot sooner than people think. A lot sooner than people will expect. And websites, there was a site that came up in your conversation with Shane.

Abnormal returns. I've never heard of this site. As I understand it, it is basically a news aggregator, human curated. I don't know who runs the site. I've never been to it. But what is abnormal returns? Are there any other websites that you think might be interesting for folks to explore as resources? Yeah. So abnormal returns is run by a guy named Tadas Viscontas. And he is a financial professional himself. And he runs, but I think is the best financial news aggregator. He is just an absolute machine. He reads every financial article that's been published in the previous day. And he aggregates the top 20 of them or so every single day. He's been doing it since 2006, I think. And he's the best sets out there. That's a site that I visit every single day. Because I know that whatever the best financial article that was written the previous day, he's going to have it right there. I don't need to spend hours sifting. He's got it right there. And I can go to his site. It's like a one-stop shop. Tough life he's signed up for, keeping that up for years and decades. But I appreciate it. He's done it. Appreciate the effort. He's never slowed down either. I don't think he's ever missed a day that I've seen. And he's been doing it for, I don't know, 15, 20 years. It's incredible. Wow. Keep up the good fight. That is incredible. Any other websites that stand out for you that people might not be familiar with? There's a site called, It's run by this guy named Blas Moros. He's a really cool guy. And he reads more than anyone I've ever seen. I think he must read two books per week, something like that. And then he makes a fairly detailed summary of every book that he's ever read. And they're not quick summaries. Some of them are like five-page PDFs. But you can just go in there and he's summarized hundreds and hundreds of books into a five-page PDF with the key points, the big takeaways. And he does a better job at it of any other book summary service that I've seen. And it's all free. It's just his private blog that's out there. I can get lost in his website for hours just finding these little nuggets in these obscure books that I've never heard of. And he has all the highlights right there. That is a great recommendation. We'll link to that in the show notes, everybody. What stories or points do you wish people paid more attention to in the psychology of money?

Closing Remarks

Pay more attention to these (02:59:07)

If anything, what do people gloss over here? Like, God damn it, you missed the point. Sure, not everybody. But... There's one point like one thing that doesn't irk me, but I just think it's interesting, is when I talked about that we don't have a mortgage and I know that was a dumb decision, but here's why we did it because it makes us feel good. A lot of people, I get emails that are like, "Yeah, but look at the spreadsheet that I made. The numbers don't add up." And I'm like, "I know, I'm trying to explain. The idea I need to be rational instead of just reasonable and using money to give me a better life, I still like that still didn't land with some people. Maybe that's my fault as a writer of not explaining it well. That's one point. To me, I think the most important part of the book that I think a lot of people got, but I feel like it's the single most important thing is just this idea that everyone is different. They have different goals, different personalities, different risk tolerances, and therefore we should not expect any of us to come to the same conclusion about what's the right thing to do with our money. And I think that can be hard for people, because you still have these financial debates of like, "This person's investing their money this way and that's wrong. They should be doing it a different way." It's like, "Well, we're all so different that like what works for me might be terrible for you and vice versa, even if we're just as smart as one another, same education, same information, we're always going to come to different conclusions. We just need to accept that." Yeah. But before you start sprinting headlong towards winning the game, making damn sure that you've defined very clearly what your game is and what your game is not is very, very, very, very helpful. Morgan, people can find you on Twitter at Your website is, I believe,, which we'll link to. Is that right? Yeah, I'll say the website to go. It's going to It just has my email address. I would say the website is just the collaborative funds. That's where everything I write is. All right. So we'll link to the collaborative fund as well. So anything else you'd like to say any closing comments, requests of the audience, things to point them to complaints, anything at all that you'd like to share before we wrap up? Tim, I've admired you for a very long time and it's an honor to get to do this. So thank you for having me. Oh, I really appreciated my your work as well. This book is on my to repeat read list. That's why I've gone through the notes multiple times, which I did before we ever ended up scheduling this conversation. And I recommended it to a lot of friends. And I don't do that lightly, right? There is a reputational risk. Books take some time to read. So I generally will will withhold my recommendations unless I am absolutely sure. But the reframing and the perspectives and the hypotheticals and the thought exercises. And this is true of your articles as well. I've seen this. I find to be very powerful because you're not just sharing opinions. You're not just giving a prescription based on your own experience, but you're you're doing your best to help someone look at their own situation or at a generalized situation differently. And I think that that provides a universal cognitive and psychological toolkit that people can then apply to their own individual circumstances. So I applaud that. And I have to imagine that it was not easy to get the book to the place where it ended up in final form. I know that that was probably very challenging. And I really, really enjoyed it. And I expect to continue to enjoy it. So thanks for taking the time today. Well, thank you. And I enjoy your work just as much. I've learned just as much. So let's end with that mutual high five. Mutual high five. And everybody listening, we'll put links to everything discussed in the show notes at You can just search Morgan. And it'll pop right up. And until next time, thank you for tuning in.

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