Bankless - 137 - The Psychology of Crypto with Morgan Housel

Episode Date: September 19, 2022

Morgan Housel is a Partner at the Collaborative Fund, financial writer, and New York Times Best Selling author of, “The Psychology of Money.” He’s an avid student of markets and psychology. And Morgan articulately blends these two perspectives (and all of the many crypto parallels) together to give us timeless lessons on wealth, greed, happiness, and how to invest. This is another classic Bankless fundamentals episode that you won’t want to miss. ------ 📣 Swell | Liquid Staking for the People https://bankless.cc/swelldiscord  ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: 🌱 LENS | WEB3 SOCIAL PROTOCOL https://bankless.cc/Lens  🚀 ROCKET POOL | ETH STAKING https://bankless.cc/RocketPool  ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  🦁 BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave  🌉 JUNO | BRIDGE FIAT TO LAYER 2 https://bankless.cc/Juno  ⚡️ ZKSYNC | THE LAYER 2 SCALING ENDGAME https://bankless.cc/zkSync  ----- Topics Covered 0:00 Intro 4:49 Morgan’s Background 6:25 Crypto Investing Isn’t Unique 8:31 Psychology of Investing 15:22 Toxic Relationship with Money 22:14 Is it Bad to Talk About Money? 24:34 Nothing is Free in Crypto 34:05 How to Adapt to Volatility 39:45 No One is Crazy 45:52 Luck vs. Risk 51:38 Have Enough 55:25 Freedom 1:00:34 Compounding 1:04:24 Getting vs. Staying Wealthy 1:08:50 Reasonable vs. Rationale 1:13:28 People Change 1:15:33 Pessimism 1:19:33 Closing & Disclaimers ------ Resources: Morgan Housel on Twitter https://twitter.com/morganhousel  The Psychology of Money: Timeless lessons on wealth, greed, and happiness https://www.amazon.com/Psychology-Money-Timeless-lessons-happiness/dp/0857197681/  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. 

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Sean Adams. I'm here alone today. David is off at a wedding, and I'm here to help you become more bankless. Bankless Nation, really exciting episode today with Morgan Housel. The Psychology of Crypto is what we're calling this episode. The goal is to help us hack our minds in order to become better crypto investors. And I think people don't realize that there are two tribes in crypto. There's kind of the get rich, quick tribe, the people who are looking for overnight wealth, high API, they're chasing pumps. And I have no disrespect for this tribe because a lot of us started here. In fact, I probably started here in one way, shape, or form. And then there's also the get rich slow tribe. And those are the people who stick it out through multiple cycles of crypto. They're here for like a multi-decade time horizon. They're long-term holders. I do. definitely consider myself in that camp, one of the settlers, not one of the crypto tourists. This episode in particular is probably for the Get Rich Slow Tribe. So if your Get Rich Quick

tribe, this advice might not land, but I think someday, maybe after you're burnt, maybe after you have a cycle or two under your belt, you'll come back to this episode and get some value and it'll land. David is at a wedding. He couldn't make this episode, so it's just me and Morgan today. And I think that's kind of weird because I've never done an episode without but also at the same time, it's kind of fun because I wanted to see if I could do an episode without David, and I think this episode came out pretty well. So you tell me what you think. A few takeaways and benefits to look for. Number one, why crypto isn't special. I talk about this with Morgan. The same rules of investor psychology apply to traditional financial markets

and crypto, and we talk about what those rules are. Number two, why people in crypto have this toxic relationship with money and how to fix it? And number three, we get into practical advice. There's 10 things every crypto investor should know about wealth, greed, happiness, and how to survive and thrive in crypto, because that is what we're here to do at bankless. Guys, we're going to get right into the episode with Morgan, but first, I want to tell you about these awesome tools to help you go bankless.

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Bankless Nation, I am super excited to introduce you to our next guest, Morgan Housel, he is a partner at the Collaborative Fund. He's a financial writer. He's also a student of markets and psychology. And he blends both of these perspectives to give us timeless lessons on wealth, greed, happiness, and how to invest. I don't think this is so much financial advice as it is life advice, maybe a combination of both. Morgan, it's great to have you. Welcome to Bankless. Thank you so much for having me. I appreciate it. Thanks, Ryan. Hey, so I recently read your book, and I had not caught it when it first came out, but I'm glad I read it. I just want to thank you for maybe writing one of the best crypto investing books

I've ever read. Inadvertently, maybe. Yeah, I mean that seriously, because that's kind of what I thought when I read it is, oh my God, 100% of this applies very directly to crypto. And these are lessons, I think, that a lot of crypto investors being kind of new to the scene, being new to money management in general, being new to wealth allocation in general, they forgot to learn along the way. What do you think about that? I mean, has anyone in crypto said that this is a fantastic crypto investing book? Well, it's interesting for me, you know, my background I've always been very upfront with, I have never and don't own any crypto assets at all. I'm not ruling out that I won't one day, and I'm not against it. I am not the crypto bearer who says it's all a joke. I just kind of

think it's fascinating to watch and maybe it's my own naive kind of understanding about what's going on. But I consider myself a very neutral observer, but I do not own any of it. What I think is so interesting, the point that you brought up, though, is how much all of finance and financial history and whatever asset you are investing in, it tends to just be a repeat of the same behaviors over and over and over again. And so much in this industry is focused on what's going to change, particularly at the tech level, the VC level, the crypto level, what's changing? What's the new technology? Where are we going to go next? That's all really important. But to me, what's always been most fascinating part of economic history and investing is what never changes. What were people doing

a hundred years ago that they will be doing 100 years from now? And definitely, I think to your point, you can see a lot of the behaviors positive and negative in crypto over the last several years that are a direct echo, like identical to what was going on during other bouts of both like crazy market action and new product and company innovation. Even though it's a brand new product and new technology, the behaviors that underline how people respond to those things, those never change and I think never will change. Yeah, I think that is the most salient observation, you know, from this book for me, and I think for investors to just hammer in their head in general. And that's the thesis, I think, of your book that, hey, good investing is just good psychology.

And people have to level up. I mean, we're always obsessed with kind of the external skills or more information that we can kind of bring to the system, when the real battle or journey in investors' life is kind of an internal journey. I know some munger quote out there who talks about investing being more like a temperament. And I think that's a crucial piece of the puzzle that crypto investors could stand to learn. So the first thing I want crypto listeners to hear is that, hey, Morgan is saying, and Ryan is saying, crypto is not special. Okay?

It just falls into the patterns of every other market that's always been. here. And the reason for that is we're all running the same human operating software that we were 150,000 years ago. And crypto is not any different in that respect. But the second lesson I think you're here to kind of tell us is that good investing is good psychology. That seemed to me a big takeaway from your book. So can you talk about that? Why is psychology so important in the investor journey? Yeah, me take both of those questions because those are really important. The first in terms of psychology, I've always just made the point that you can be the smartest financial mind in the world. You can have a PhD in finance from MIT. You know all the data, all the formulas.

You are just an absolute financial savant. You can still lose everything in the market if you lose control over your sense of greed and fear. And that's not hypothetical. Like that happens all the time. The hedge fund that blew up in 1998, long-term capital management, they had Nobel laureates, people who won the Nobel Prize in finance working at the company. And they lost everything. They went bankrupt during a bull market. It's the craziest thing ever. Because even though they were the smartest financial minds in the world. They had no sense of their own limitations. They had no sense of greed and fear. They were massively overconfident. And those things that I just mentioned, those are not financial topics overconfidence and knowing the limits of your intelligence. That's all

psychology. That's really what it is. The flip side of this is that you can be someone who has no financial education, no background, no experience, no connections. But if you are patient, if you do not lose your mind during bouts of greed and fear, if you're just kind of a long-term patient, buy and hold investor, you can do amazing. You can do incredible. And every couple years, we hear these stories about like a country bumpkin, like gas station attendant janitor who dies with $10 million in the bank that they leave to charity. And these are people who have like the lowest education and experience you can imagine, but they were absolute masters at patience and endurance and keeping their head on straight when it mattered most. And that's all

that matters in investing. And I think the important part is that there are almost no other industries where that's the case. It's not true in medicine that a country bumpkin who has, like, good behavior can perform open heart surgery better than a Harvard trained doctor. That will never happen. That cannot happen. But that equivalent does happen in investing. It just shows how much psychology really under-roots all investing success, all of it, not just some of it, but I honestly think all of it. To the point about crypto not being special, the only crypto take that I've ever made publicly was I had this kind of tongue-in-cheek jerk tweet a couple of months ago where I said, if you do not find some of crypto fascinating, you're not paying attention.

And if you don't find most of it absurd, you're not paying attention. And by the way, I think that, I mentioned that specifically to crypto. But back to things not being special, that is true for every new industry that has ever existed. In every new industry where the technology is big and world changing and it's attracting a lot of investors and it's making waves, it's always been the case that 90% of it is absurd and not going to work. That's the normal path of a new industry. And the example I always use, if you go back to the early 1900s, there were 2,000 car companies in the United States, 2,000 car companies that wound up with three, GM Ford and Chrysler, two of which ended up going bankrupt, by the way. But that's the normal funnel of new

innovation, is like people try a thousand different things, almost none of which work, but the ones that do end up working completely changed the world. So you can see that happen. with crypto in the last year, but that's not unique to crypto at all, at all. Computers, airlines, car companies, every new industry went through this exact same phase. And the other thing that kind of underlines it, that is always the case. It's never not been the case, is that optimism about a new technology exceeds the potential of that technology. That has always been the case. Another example of this that I've always found so interesting is that like the technology that probably changed America more than anything before or since was railroads. That's what changed us

from just a sloppy agrarian society to an industrial, amazing world-class nation. Railroads, that's what did it. And the crazy thing about railroads when they really started coming into use in the mid and late 1800s is that virtually all investors, not 100%, but virtually all investors lost all their money on railroads. This is the world-changing technology that is the key to the future that is going to completely transform society. And let's say 90% of investors lost everything. Now, there were a few Robert Behrens that ended up making dynastic fortunes from that. But there's a big difference between a technology that can change the world and making

investments that will pay off on that technology. The more recent example is what percentage of investors who are betting on the internet changing the world lost money in the late 1990s? Like, it's safe to say all of them. Like, it's not actually all of them, but it rounds to all of them. And so I think that too is like that's always. been the case, and I think it always will be the case. And so if you were to apply that to crypto today, it should not be surprising. You know, there's been many quotes of like, oh, 90% of crypto projects

will fail. Or you open up the news every day and you see something else that's imploded and something else is blown up. It is easy to view that as, oh, a problem with the industry. Oh, this industry is rife with fraud and overconfidence. My view whenever I see that is like, yeah, that's par for the course for a new industry. And if you don't have the stomach and the risk tolerance to understand that, this is not the place for you. And I can say that with crypto, but again, I would say that for every new industry that's ever existed. You know, I think that's extremely well said. And it's part of our thesis on bankless too. It's definitely part of the bankless thesis. And I would even, you know, increase those numbers from 90% in crypto failures. 99% maybe? I mean, crypto is kind of like this might be a

theme we come back to in the episode, but crypto is like traditional markets and traditional market psychology, except on steroids. And so we might be dealing with a market that is like 99% scam, 99% going to zero. And then people will see that and they'll dismiss the entire thing. But that's not what's important. The important thing is 99% of these projects are vapor, are meaningless, our scams are going to zero. But 1% of them will absolutely fundamentally change the world, shake the world. I believe that. Yeah. But people, I think, due to psychology limitations, this human operating system, they have a hard time holding those two ideas in their head. Totally. Yeah. I mean, this is the thesis.

for the episode, right? So good investing is good psychology. Crypto is not anything special. And so some of the lessons that we can learn that you've brought out in your book about kind of traditional financial markets investing, they apply 100% to crypto and maybe even more so because crypto is just traditional markets on steroids. One other thing I want to cover before we get in the practical is this. I think that just having been in crypto for a while and seeing many people come in and out of crypto. I think that many people in crypto have a toxic relationship with money, like a very unhealthy relationship with money. And here's what I mean, Morgan. I think you talk about this a little bit in your book about, you know, generally everyone, lots of people have a bad

relationship with money. But once again, I feel like in crypto, it's like that except worse. We have the same condition everyone else has, except we have it worse. And why? I think think it's because we have these higher highs, we have these lower lows, it's just like existing markets except the volatility is like 5 to 10x. And so we have these different kind of participants in crypto. They'll be like the get rich quick tribe. So this is the group that thinks, I'm joining crypto, I'm going to become an overnight millionaire, and what do they end up doing? They buy the tops and they sell the bottoms every freaking time, every time we see this cycle play out. Then we have the YouTube traders where they think they enter crypto and they think they're part of that

elite five to one percent who can outperform holding and just like trade. And so, and it goes well for a while. And then boom, they get completely wiped out. Then we get another tribe of like developers and technical evangelists who are like, don't talk about price. This whole money thing has like corrupted crypto from its foundation. So let's not even talk about price anymore. Let's ignore the wealth creation games. And then we have like the flashy NFTs that people are showing for status rather than kind of the cars and the penthouses. We've got people who feel bad about 5x gains because someone on Twitter is showing off their 10x gain and they're feeling bad about their, and then we have like the pumpers and scam artists. And I just want to ask maybe the general question we can

extrapolate to crypto. Why do you think people in general have a toxic, unhealthy relationship with money? Well, I think what's interesting about new technologies is that it is usually at battle with whatever it's trying to replace. And you can see this with, like I said, the car. There's some really fascinating old newspaper clippings when the car was coming into use in the early 1900s about how much indignity it was putting on horses and people were fighting back against cars. Washington, D.C., this is true. You can look it up. Banned cars in, I think, 1903 because they thought they were in dignity to horses. They were trying to protect horses.

And it was the same thing. Like when the airplane came about, that was at direct battle with trains for transportation. And it was the same thing. People are like, you should not, like airplanes are a joke. Like, trains are how you transport things. Like, get out of these flying machines that you have. You need to get in the train. I think that's always been the case.

But crypto is probably that to a different degree because it's fighting against something that is much more fundamental, at least the monetary side of it, which is traditional money. Like, money is obviously such of a bigger deal and more ingrained and government controlled than horses or trains were. It's just a much more entrenched thing. It's like you're going to battle now. with like a nuclear power that's like very, it's like, this is a big, big battle. This is not a little street, you know, brawl. This is a big time war here. And I think that could be really

dangerous. When your view shifts from not how can I build a new technology, but how can I win the battle against the incumbent, that gets pretty dangerous. And I have seen, everyone has seen some arguments that have been put forth in the crypto world against the US dollar and against fiat currencies that I think are absurd and just so easily falsified. And just so easily falsified. And that's not to say that they're all wrong or it's not to say that the dollar is the most greatest in the world. It's not that at all. But when you are at war with something, it is easy to exaggerate your opponent's faults and

view your opponent as something that it's not. I mean, I'll give you a perfect example of this that many people know. I don't mind calling this person out because they did it publicly. But Jack Dorsey, this was two or three months ago, tweeted, and I'm paraphrasing, this might not be verbating, but he said, when did the U.S. dollar lose its reserve currency status? That was a tweet. And I followed up by saying, do you realize the U.S. dollar relative to other reserve currencies is the strongest today than it has been in 45 years? Like, are you talking about losing?

It's stronger than it. And it's been in almost half a century today. Right. And so that's when I'm like, I just don't understand. But I also go back and I look and say like, look, if you are a Bitcoin, you know, a big proponent of Bitcoin, you are. We call them, we often call them Morgan Bitcoin maximalist. Maximus. Okay, thank you. I've heard that phrase. Thank you for reminding me. If you are a Bitcoin maximalist,

you might view yourself at war with the dollar. And therefore, I think you can have these views about what the dollar is or isn't that in my perspective from an outsider seem completely detached from reality. Now, other people, if Jack was on here, I'm sure he would disagree with me and he would put forth an argument that I would probably agree with at least part of. So this is not black and white. But I think it does get dangerous when you are at battle with something because it turns it from like a technology and like let's just focus on like how we can get ahead. It turns into how can we pull the other side down. I just think that's it's inevitable. Like I said, that's been going on for hundreds of years. It's to me one of the most fascinating parts. And that to me is why I think so many investors in

new industries end up losing their shirts because it's not about investments and getting ahead. It's how can I win this battle against this crusade against the other side. I think there's an important lesson there for crypto listeners not to make their bags, right? Their investments. a religion. And this is very important. And I do think that you're probably responding to some of this kind of almost religious level of zeal that you're seeing that is just kind of non-rational from some in the crypto communities, getting too attached to the assets such that they're making like falsifiable claims about it too early. And I think you're definitely responding to that. One other true. Let me tell you on that point, though, what's so hard is that in any new industry

when you are fighting an incumbent, you need religious zeal to get ahead. Sure. If Bill Gates was just a software like passive like oh it might be it might be kind of a thing it never would have taken off you needed a zealot like bill gates to be like screw you pound the table computer on every desktop in the world it's going to happen all the naysayers get out of my way your morons you need that religious zeal to get ahead and so that's what's so hard about this is that it's easy to push back against zealots in any industry but frankly with a new technology that's going to change the world you need them at the same time that's what's so hard about it i think we're going to talk a little in more detail about some of the other tribes that I mentioned as we get to some of the

lessons that you emphasize in your book that I want are bankless listeners to hear about, you know, talking about the get rich tribe and, you know, everyone trying to trade this asset class. But one other tribe, I'd like you to sort of address at the outset. So as I was saying, like a whole bunch, like there is a group in crypto who has just come to the conclusion that we shouldn't even think about price at all. We shouldn't even talk about price. It just makes people greedy, you know, turns them into scam artists, price pumpers, you know, shilling, that sort of thing. And they almost get like this unhealthy relationship with money. And I'm wondering if you've seen that in your studies of markets and psychology, kind of this notion that it's bad to talk about wealth.

It's bad to talk about money. Money is the root of all evil, that kind of a sentiment. What are your thoughts on that? I feel like that's kind of the argument that we'll put forth after you've lost a lot of money. Say, oh, well, price doesn't matter. That sounds like like no one's saying that on the way up. They say that on the way up. They say that on the way down. And look, I think maybe the distinction there is, are you doing this for the technology and the products or are you doing this to get rich? But there's no shame in saying if you're an outside investor. I mean, if you are a coder working on these projects, then you can say, we're in this for the technology. But all outside investors are doing this to earn more money. There's no shame in that.

That's why I invest. That's why other people invest. So I think to say price doesn't matter. Again, I think that's more or less a justification after prices have fallen 50%. But I do think, like, the unhealthy drive for like constantly earning more money in a new industry like you've mentioned several times on this podcast something that's really smart which is that crypto is like a normal market in overdrive on hyperdrive and that's really true which also means like hyper volatility and if in the smp 500 normal volatility is going down 10 or 20 percent maybe in crypto normal volatility is down 50 to 80 and then if you have this unhealthy connection to like i'm investing in crypto to double my money every year or whatever it might be that's not realistic

Losing 80% of your money every couple of years is realistic. That's what you need to get. So it's the people who are attached to the constant profits that end up in trouble. Absolutely. Well, Morian, what I want to do in throughout the rest of this episode, I think, is get real practical with people because you've identified some psychological tips, tricks. I think maybe the best way to characterize these is as lessons that people can learn, because your temperament for investing can actually be improved. if you kind of observe and you listen to sort of the advice of the ages. And I want to try to go through at least 10 of these with you because I think they are highly relevant for crypto. And while we're on

the subject, why don't we just start with one of them? And you have an entire chapter on the subject of volatility in crypto, as I think the chapter is entitled, Nothing's Free, something to this effect. And you call volatility the price of admission. And maybe this for bankless listeners is lesson number one from a psychology perspective. Nothing is free in crypto. What do you mean by this? It's just the idea like anything worth pursuing in life that has a benefit has a price attached to it. That's pretty obvious. Like the world is not so great that's going to give you great rewards and ask nothing in return. Okay, let's start there with that to set it up. So then the question is, in investing, what is the cost of admission? You want great returns. Everyone knows that you can earn great returns in investment markets over time.

what is the cost of admission? A lot of investors cannot really answer that or they will say something like the management fee that you pay to your advisor, your broker. That's not the cost to investing. The cost of investing returns is putting up with and dealing with and enduring a never-ending chain of volatility and uncertainty and setback and disappointment and crash. That's the cost of admission. And this is so important because most investors, when their portfolio goes down 20, 30%, they view it as a fine. and a fine means you did something wrong. A fine is like a speeding ticket. You're in trouble.

Shame on you. Don't do it again. That's what a fine is. The better way to view it, though, is a fee. It's a cost of admission. You're like, look, I need to put up with my portfolio declining 20% once a year or something like that in order to do very well over the long term. That's what the world is asking me to give up in order to get something on the other side.

Everyone in the other parts of the world, in other areas of the world, understand that good things have a cost attached to them. You want a nice vacation. It costs money. You want a good relationship with a spouse, well, like, some relationships end in tears. That's the cost of admission to finding a great relationship. Everyone understands the cost in other areas, but in investing, it tends to go out the window. And we view the cost of admission as a fine. There's never been a bear market where stocks fell 20%, where the huge majority of people viewed it as either politicians

or their advisor or themselves screwing up. It's always the case. Everyone views it as like, who should I blame here? I always view it as just the normal path of growth. growth over time. And if you have that subtle shift and mindset, I think dealing with these declines, like we've seen with stocks over the last year, with crypto over the last year and a half or whatever, is like rather than viewing it as somebody screwed up or I screwed up, just because it's like, this is the normal path of growth over time. And if you have that mindset shift, it makes these declines just a little bit more palatable to deal with. Rather than saying like, how can I screw up and how can I avoid this in the future? That's the dangerous takeaway. Rather than having

that, you can just say, like, look, I don't enjoy this. It's not fun. But I know that This is what I need to be willing to give up to do well over the next 10 or 20 years. It's so simple what I just said, but I think it's actually a pretty rare mindset. Most people view it as a mistake and a fine. I think it is a rare mindset. And I really want listeners to hear that. So the cost of admission is a volatility. That is the price of admission.

And so in crypto, you don't get the 10x, 20x, 30x gain, and then get Scott free. It never goes down from there. you also have to suffer the 90, 95%, 99% loss in some cases and plan your portfolio accordingly. I'll just give you sort of an example of this, Morgan. So ether, the price of ether as an asset in 2016, 2017, we're talking about $10 or so, right? Folks rode ether all the way up to $1,400 in February of 2018. That was the high. Okay.

And so what is that in terms of a gain, right? I mean, we're talking like a lot, a lot, right? It's what's known as a shitload of money. A shitload of money. And like so, but after that, after we topped in 2018, what we then suffered over successive months was a 95% drop in ether asset price. Another crypto assets saw this too, Bitcoin, et cetera, but 95%. So rode that thing down back to double digits from $1,400 highs. the way down to 80. Okay? A lot of investors in ether as an asset felt the pain during that time,

and that was the price of admission. Now, of course, prices have recovered since. We're talking about a price of ether of $1,500. It's gotten as high as $4,500. I think the point you're making, Morgan, is that a lot of investors, they sign up for the upside, and they forget about the price of holding, and the price is legitimate psychological pain. Go feel a 95% drawdown in your asset. Feel what that's like, especially if maybe you've overextended yourself. It's a bad way. It's like the way your friends look at you. Oh, I'm such an idiot. In the depths of a bear market, you think you're going to ride this thing down to zero too. I'm so dumb. Why didn't I sell? Everyone was telling me I should have sold and I didn't. It's like it almost gets physically painful that level of

psychological pain. And that's what you're talking about. That is the cost of admission. Totally. I mean, there's this great quote that I love from Shemath where he said, however fast an asset can rise, that's the half-life of how quickly it can be destroyed. And the takeaway from that to me is like, if you want an asset that has a potential of going up 10fold in one year, you need to, like, don't be shocked when it loses 80% of its value in a year two. Those things come hand in hand with each other. One other example from this, because my world is more focused on stocks, but Netflix stock from 2002 to 2018 rose 600 fold. From 2002 to 28, 600 times your money. Like ridiculous return. Everyone's dream. But during that period,

during that period of ridiculous success, it lost 70% of its value three times. It lost half of its value on seven separate occasions. And that's during this cherry-picked period of insane growth at every one of those major declines. All the, like virtually every investor, I should say, second-guessed what they were doing, virtually out. And that's why the number of investors who will hold a stock like Netflix during that period rounds to zero. It's not actually zero, but it's damn close to it. It's not intuitive to think that on your way to earning 600 times your money, you're going to lose 70% of it three different times. That's not intuitive at all. But when you see it happen in Netflix and in crypto, you realize that's the wisdom behind what Shemah said.

It's like, however fast it's going to grow, that's the half-life for how quickly it can turn around and spin back on you. And this is also why, like, look, if you're investing in treasury bonds or bank accounts, there's virtually no volatility in that. That's the other side of this. So much of these things, like, just follow the very simple rules of finance. Like, you want bigger returns, you get more volatility. Clear as day. It's always been like that. It always will be like that. But like you hinted to, it's so easy to either be ignorant of that on the way up or just be dismissive of that on the way up. And during a bull market, everybody thinks that they have a high risk tolerance. Everyone thinks like, oh, if the market fell 50%, I would view that as an opportunity to buy

more. And some people actually will. They actually have that. But it's so difficult to contextualize what it's going to feel like, what it's going to do to your personality, what it's going to do to your social aspirations. And it's not just that you're going to feel bad, but your spouse is going to look at you differently. Your friends will look at you differently. It really, it really has a major, like you said, physical impact on people. This is not just psychological, like a physical impact of what it will do to you. And I think it's impossible to understand that until you've lived through it is really what it gets to. So in a new asset class that's drawn in a lot of new investors, a big portion of those investors do not understand what it's like to lose 90% of your

money. Now, the investors in Eath from 2018 on, they do. They were there. But there's a lot of new investors, both in stocks, like the Robin Hood era of 2021 and in crypto over the last couple of years, for whom this is their first rodeo. It's like that meme of like the guy on the gallows and it says first time. It's just like that. It's exactly what it is. is. And I think we've seen that in the last six months, both in stocks and in crypto of people who are here for their first time. And they say, oh, shit, this is not what I expected. But there's part of me that's like, it's for the young investors who are doing this. And crypto investors tend to be younger. The Robin Hood investors tend to be younger. There's part of me that's like good for you for learning about

risk when you are young versus 44 and trying to put your kids through college. Like learn about the downside of risk when you're 19. This is the time to do it. Well, I guess on that, before we leave this lesson, because I think this is so valuable. So what do we do with this? recognizing that, you know, this pain is the price of admission. What do we do with this? Do we become sadistic and just like, ah, I like the pain. Yeah, 95% down. Like, let's give it some more. Or is there some way to become zen about this level of volatility? Like, what's your advice on how to not feel this? And, you know, we made the assertion earlier that this can manifest as almost like physical pain. Like, I feel sick. I need to get out of the office. I need to go for a run. But at some level,

it's not the same as physical pain, right? As long as you have not put in more than you can afford to lose, which of course is like the investing adage, hopefully you're still going to have a bed, a place to sleep, you're going to have your basic Western needs met, you're going to have three meals a day, that sort of thing. It's not actual pain. It's just, isn't it just numbers on a screen? So how do we adapt to this high volatility environment? I think there's a small percentage of investors who really do have iron stomachs and they can lose 70% of their net worth and be totally fine with it. But it's a small percentage. Bill Miller, the famous investor, I think he's one of them. Like, his net worth can fall 80%, and I think he legitimately doesn't give a shit. It just does not give. But that's this

very small percentage as it should be. It shouldn't be difficult. The majority of people do not have that mentality. And if you don't, like, be honest with yourself, and it's fine. By the way, I don't have that mentality. If I lost 80% of my net worth, I would feel bad. I would not like it at all. I would not want to deal with it. So I just accept that. And my asset allocation is more conservative than someone like Bill Miller's might be. And that's fine. By the way, he's going to do much better than me over a long period of time. I'm okay with that as well. I have no FOMO about chasing something like that.

I think it's so important to be introspective about who you are as an investor. And like I said earlier, you cannot know who you are until you've experienced a calamity. And a lot of crypto investors have or they're experiencing right now. The important thing is to understand that however you feel during a calamity is almost certainly how you're going to feel the next time. All the evidence we have in behavioral finances, like people do not learn from their mistakes. that the same emotions that cause you to be stressed or to panic or to sell during the last meltdown

will come roaring right back during the next one. And therefore, you should just accept who you are. If you were not sleeping well at night and if you did panic sell, not everyone did, but if you did, just accept that that's who you are and have a more conservative acid allocation. It's fine. It's totally fine. There's nothing to be ashamed of and you will do much better over time if you're honest about who you are rather than chasing somebody who you think you want to be. And like I said, it's always going to be the case that people like Bill Miller are like, that's like 1% of investors, maybe. Maybe it's like one-tenth of one percent.

Who can actually pull that off? Most people want to think that they can do that during the bull market, but they can't. Like everyone thinks there that they are the next Warren Buffett during the bull market. And then everything goes out and you realize like it's way easier to quote Buffett than it is to be Buffett. Yes. Yes, so choose wisely. Pick a lane.

I think is some of Morgan's advice there. So lesson one is nothing's free. The rewards come at the cost of volatility. Juno is bringing crypto-friendly banking straight into your tracking account. With Juno, you can send money from your Juno checking account straight onto a layer two, like Polygon, Optimism, Arbitrum, and they have ZK Sync and StarkNet support on their way. You can skip the ACH wait times, you can skip all the gas fees, and go straight from your checking account to an Ethereum layer two in seconds.

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Lens Protocol is an open-source tech stack for building decentralized social media applications. It is the new era for social media. We all have toxic relationships with our Web 2 apps. We want to break up with them, but we can't. These applications own our digital lives and all the relationships that we've made. We need to break through to a new paradigm of social networking applications that we control, rather than them controlling us. Lens isn't a social media app.

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Enter that code word in the Google Forum links, and you'll be well on your way to entering the world of Web Free Social. The second lesson, I think, was great for me is your first chapter around realizing that no one's crazy in what they choose to invest in how they view money. And kind of the byline is that

your personal experience with money maybe makes up 0.000,000,000, 1% of what's happened in the world, but maybe 80% of how you think the world works. And it's interesting, you talk about these different generations, how they sort of approach different investment, classes, for example, like difference between, you know, Great Depression generation would never,

would be very wary of stocks. They might even be wary of putting their money in the bank. And so, you know, great grandpa with a wad of cash under his mattress sort of idea. And that's very different than the boomer generation, for example, who grew up at a time, invested at a time when stock was booming. Can you tell us about this? No one's crazy lesson? I think there's two sides of it. One is that, like you just mentioned, we are all prisoners to our own past, particularly the dumb luck of where and when we were born. And our view of the world is so heavily influenced by that dumb luck of where and when we were born. And if you and I were born in Africa in the 1700s, we would not have the same views about the world today that you and I do right now.

It's just, this is the dumb luck of where we ended up in life that shapes our view of the world. The other side of that is how ignorant we can be to other views of the world and other people who might disagree with how we are investing or what we're doing with our money. If we were in their shoes, it would make a hell of a lot more sense. This was like shoved in my face a couple years ago when I saw this stat that 75% of lottery tickets in America are bought by the poorest desile of Americans. The poorest Americans who can like barely feed themselves literally are buying the overwhelming majority of scratcher tickets from gas stations. It is so easy for someone like me or you or most people listening to this to hear that stat and say, those people are crazy. They're nuts. They're out of their mind.

They can't feed their children and they're buying lottery tickets. the hell are they thinking? I had this friend. He's now a very successful financial advisor, but he grew up in abject poverty. He was homeless as a child. And he told me the story one day that he remembers being a child when his refrigerator was empty and his mom had $3 in the bank. And he said, look, $3 is not going to fill the refrigerator. It's not going to make a dent. But $3 will buy you three lottery tickets that has the potential to fill the refrigerator. And he said, until you understand that math, you don't understand like where these people are coming from. that the poorest decile people,

some of it may just be their maniacs and they don't understand it, but I think a lot of it is purchasing a lottery ticket when you are in that much financial destitution is your only ticket, so to speak, to getting to the other side. It's the only thing in life

that's going to give you a little bit of hope about getting to the other side that people like you and I might view like, oh, we need to foster our career opportunities if we want more money. If you feel like you're trapped in that level of society,

then a lottery ticket feels like your only way out. And so it's just one of the thing. it's like from my initial needrick reaction was you people are maniacs and after i heard his explanation i was like oh i kind of get it i kind of get why you would do this and i think that's a really important thing that most of the time most financial debates and arguments and disagreements are not actually people disagreeing with each other it's people with different circumstances different risk tolerances and different time horizons talking over one another and they just don't understand where the other person's coming from and that's the huge majority of financial debates

in the stock market and in crypto it's not even that people disagree with each other because I guarantee you that if you take two people that fiercely disagree about crypto, if you were to get those two people in the room and have them talk about algebra or chemistry or meteorology, they would agree on everything. But in crypto, they have different time horizons, different risk tolerances, different views of the world from their own upbringings, and they're not actually arguing with each other. They're talking over each other. Like these are reasonable people who would agree with each other in every area of life otherwise than where they have a different risk tolerance and time horizon.

So that's really important. And to me, the takeaway from that, the practical takeaway is twofold. One, it's like, be less judgmental about people who manage their money different than them. Like I said earlier, I don't own any crypto. I'm not against it, but I don't own any. And the number of people who look down upon me for that, it doesn't bother me, but I think it's fascinating that someone would say, if you're not investing your money like I am, you don't know what you're doing. And I just like that's, it's based on this view that everyone has the same risk tolerances, the same social aspirations, the same career aspirations, the same family situations. Of course we don't. Everyone is completely different. So of course,

we manage our money differently. The other side is like you need to be more introspective about yourself and what you want and what your goals and aspirations are rather than chasing everyone else's dreams or assuming that there is quote unquote one right financial way to invest your money when actually there's a dozen ways to skin a cat and a million ways to invest your money appropriately, just depending on what works for you. Yeah, well said. And there's so many ways to apply this to crypto, maybe on the less judgmental piece of it. I mean, you mentioned lottery players. And I think some old school crypto veterans get frustrated every cycle when a whole bunch of new entrants come to the space and they bet on dog coins, for example, just dumb, meme assets that are clearly not

based on anything, clearly have no fundamentals behind it. But I think they're really viewing the crypto asset purchase as a lot of ticket. And maybe the OGs and the veterans shouldn't be so judgmental about that. At least they're kind of in the industry and starting to learn, but recognize that they're coming from a completely different perspective. And I also think there's a lesson for us as, you know, every generation of crypto investor has entered at a different time. You know, like Eric Voorhees, we've had him on the podcast. He bought his first Bitcoin at $3. Of course he doesn't care if Bitcoin drops from $30,000 to $20,000. Why would we expect... He's not... He's not phased at all by a $10K drop, okay? And that's very different.

if you maybe bought your first Bitcoin at $50,000. So bringing these perspectives to bear, I think is very important. But let's go to maybe the third lesson, which is another chapter in your book. It's never as good or as bad as it seems. And to me, this was a chapter about luck and about risk and trying to understand the difference between the two. What lesson were you communicating in this chapter? What's interesting to me is that investors are very aware and keen and focus on the concept

of risk. and we have risk-adjusted returns and we hire risk managers. Everything about investing is like risk, risk, risk, risk, risk. We almost never talk about luck. Luck is almost like it feels rude to talk about. If I said you got lucky, I look like a jerk. And if I think I myself got lucky, I don't want to admit that. So luck is ignored.

But luck and risk are like the exact same things, just in opposite directions. My definition of risk is there are things in the world that can happen that have a bigger impact on outcomes than anything you can do intentionally. That's what risk is. And what is my definition of luck? It's that there are things in the world that can happen that have a bigger impact on outcomes and anything you can do intentionally. That's what luck is too.

There's the exact same thing, just in other directions. And I think it's a problem when we obsess over risk and we completely ignore luck. And if I were to say, hey, Ryan, there are 10 million investors in the world. With your understanding of statistics, would you expect, let's say five of them to become billionaires based off of luck alone? Of course, yes. Just statistically it's inevitable. But then if I said, okay, name those investors, like tell me their names, most people would be like, I don't want to get that. It makes me look like a jerk. I don't want to get into that. Or the billionaire investors I know I really admire their thought process and whatnot. So even if you know luck plays a role here, people just don't want to think about it. And why that's a problem is because I think we look up to and aspire to a lot of investors and try to emulate what they've done. And I can look up to and aspire to Warren Buffett and what he's done. And I can try to emulate his

time horizon. I can try to emulate his thought process, to emulate his wisdom, learn from those things. I cannot, and nobody can emulate his luck. I cannot replicate Bill Gates's luck. I can't replicate Elon Musk's luck. Nobody can. And therefore, I think a lot of people like chase these false things in life. They're chasing something that they have absolutely no potential of getting. And I use the example in the book, just one kind of throwaway example that Bill Gates went to the only high school in America that had a computer. Just like ridiculous stroke of luck. One in a million odds that he would end up in the school that he did. And by his own telling, he's the one who said this in a speech. If he did not go to that specific high school, lakeside school outside of

Seattle, there would be no Microsoft. Like, is Bill Gates smart and hardworking and a visionary genius? Yes, 100% full stop. But did he have this ridiculous stroke of luck that underwrote all of that? Yes, totally. And everyone who was looking up to Bill Gates or Musk or whoever it might be can't emulate those kind of things. And so it's so important when you were looking at your role models in business and investing, other areas of life, that you are looking up to them for things that you actually have a fighting chance of emulating yourself. And so often we do not do that. And that's why, again, there's one Warren Buffett. And it's easier to quote him than this to actually do what he's done. It's such a good point. There's kind of this survivorship bias, I think, at work. And one example

in crypto is probably if we had done this episode six months ago with you, there would have been a top 10 crypto trader and fund on the list called Three Errors Capital. Yes. Suu, Kyle Davies, these individuals were treated like crypto gods, basically, traders that everyone wanted to emulate, or investors that everyone wanted to emulate. And a few months ago, they went from being billionaires, literally, to zero. The entire fund blew up. And so now we see some of the strategies that they were using, you know, trading on margin,

doing all of these irresponsible things, and their success was very short-lived because it wasn't based on any kind of long-term fundamentals. And yet the crypto industry, I think, a lot in crypto-twitter community, put these people on a pedestal, so much so that other crypto-lending banks were willing to give $600 million of unsecured loans

to Three Eras Capital, based on reputation alone. So we have to be very careful who we put on the, pedestals. And I think the same token, what you're saying is not measure ourselves against maybe what is actually just lucky survivorship bias. We can't be too hard on ourselves either. It's just, I think another takeaway is just like everyone that you look up to as a God is actually a human. And like I don't believe in gurus. I think there are some people who are smart and talented

and have taken big risks that paid off. But everyone is human. Everyone puts their pants on one leg at a time in the morning. I heard this thing. This was like 10 years ago. So some of this might feel a little outdated, but it was this quote that, maybe this was 2012, 13, something like that. And they said, last year, the three most admired men in sports were Lance Armstrong, Oscar Pistorius, and Tiger Woods. Wow. And all three of those guys came crumbling down. Tiger Woods has come back.

It's not aged well. But Lance Armstrong, you know, did have his thing with doping, Oscar Pistorius. I think he was charged with murder. Is that right? I don't want to- that can be yes. I don't want to misquote that. But I'm pretty sure that's what it was. And then Tiger Woods had his career collapse, even though he's come back a little bit.

But that's just like, A, be careful who you admire and what you admire them for. And also realize that everybody, even the Mount Rushmore people who you put on a pedestal, are humans as much as you are. Okay, let's go to number four. And I love this. Just two words. Have enough. Have enough.

I came up with that idea. And I know you can't see it, but this poster behind me on my shoulder right there is the story that I'm about to tell. And it's told in the New York or several decades ago. It was many decades ago, two famous authors, Kurt Vonnegut. and Joseph Heller were having lunch at the house of a famous hedge fund manager in the Hamptons. And Kurt Vonnegut turned to Joseph Heller and he said, Joseph, do you know that the hedge fund manager who owns this house makes more money per month than you have earned in your entire lifetime? And Joseph Heller said, that might be true, but I have something that the hedge fund manager will never have. And that is enough money.

I love that. That's why it's framed on my wall behind me. I think it's such an, like that word enough is probably the most important word that exists in all of personal finance. And having enough money does not mean you have no aspirations for more. That's not what it means. It doesn't say like quit today and you never want another penny. That's not what enough means because I want more money. Everyone should.

I'm not saying be like a monk here. But having enough to me just means that your expectations do not grow faster than your income. That I want my income and my net worth to grow, but I want to make sure that my expectations remain below those with the idea that happiness and any kind of value that you get from something is the gap between your expectations and your income. It's the most basic thing in the world. I'm not coming up with those concepts. people have been saying that forever, but it's so hard to do in practice. And I'll tell you,

like, another extreme example of this that I found so, so fascinating was that if you go back to the 1980s before Bernie Madoff started his Ponzi scheme, before the Ponzi scheme began, Bernie Madoff was earning by some accounts $30 million a year from the legitimate side of his business. Not his fraud, not his Ponzi scheme, his real actual legitimate business as a market maker on Wall Street, he was earning $30 million a year. Incredible. Honest to God, he was one of the most successful businessmen in the country before the Ponzi scheme. And what is so amazing to be is that despite that he wanted more money so badly that he was willing to start the scheme that destroyed everything, destroyed him, destroyed everyone around him. And it's like if you are broke and you have a starving

child and you rob a grocery store, you could wrap your head around that. That makes sense. I understand that kind of crime. But when you are one of the most successful businessmen in the world and you want more money so badly that you start this fraud that ruins everything around you. That is like, that's so fascinating to me. And of course, he is a, Madoff was a sociopath. He's like, he's the extreme example. But I think everyone has a little bit of that in us. That if we are lucky enough to have rising income, rising net worth, but our expectations for more rise by more than our income and net worth, it's never going to feel like enough. And the practical example of this for people is not Ponzi scheme that's going to ruin everything. The practical example are

people who have no sense of enough who take more risk, more risk, more risk, more risk, more risk, and then it blows up in their face. And these are people who could have had all the money that they could ever need to be happy, but they just kept on taking more risk until it blew up in their face. Maybe three arrows is a perfect example of that. They could just be on their yachts enjoying life right now, but they took more risk, more risk, more risk until it exploded in their face. And so that story happens all the time to good, well-meaning people where they don't have any concept of enough and they learn what is enough in hindsight when it's too late. This is the reason, as we said earlier, why people in crypto can't be satisfied with the 5x when they see someone else with the 10x. It's kind of this phomo. But if you listen to what Morgan is telling us and you adopt this mindset of having enough, why are you playing for the top score, right? Like get your score. Get a decent score. Be happy with that. Have enough. Super important. I think this relates to maybe the next lesson, which I think we're at number five here, Morgan. So we're getting halfway through the lessons. Freedom.

Find out why you're here. My co-host, David, often likes to say, crypto isn't here to make you rich. It's here to make you free. And I think we're talking about wealth from that perspective, freedom being wealth and also having greater autonomy and control over your actual money, taking custody of it via private keys. That's kind of a crypto ethos. But can you talk about freedom? Because I think people who make the last mistake, who don't have enough, are playing a different game. and maybe it's a game they shouldn't be playing. Maybe they're playing a game for status or approval or who has the biggest yacht in Singapore, hello, three hours capital.

And really the game they should be playing is freedom. Can you talk about that? I mean, I think I got that from Charlie Munger, who he had this quote many years ago where he said, no, he is a multi-billionaire. He is filthy rich. But he said, I never intended to be rich. I just wanted to be independent. He just wanted to wake up every day and just do whatever the hell he wanted to do.

And what he loved doing, what he was good at, was. investing. That's how he became a multi-billionaire. But just I think that idea can apply to virtually everything. And I think that is really a core of what makes most people happy. It's not necessarily the nice things, the nice cars, nice homes. I like those too. It's just can you wake up every morning and do it on your own terms? The counter to this that is really fascinating to me are the CEOs who might make $20 million a year, $30 million a year, but they have no control over their time. Every second of their day is dictated by someone else's needs, somebody else's demands. And that in itself is like its own unique form of poverty. They are like cash rich and time broke.

And that to me is like that's not happy at all. I would rather be time rich and cash broke than the alternative. I mean, ideally I'd rather be somewhere in between. But give me the choice of one or the two. I would want control over my time and a moderate amount of money than a shit ton of money and no control over my time. Every day of the week, that's what I would choose. And so rather than just like wanting money for more things, I want independence. I just want to wake up every day and say, I can do whatever I want. Now, how you get that, and this is what throws people off, is I want to build up wealth, not money to spend on a new house or a new car. I just want assets sitting around in the bank because that's what gives me independence and autonomy, or not the bank,

but my brokerage account, investments, that I might never spend. So then people ask, like, what the hell is the purpose of money if you're not going to spend it? And they say that in, like, a gotcha way. They think it's like such an obvious question. And I'm like, oh, there's a very real thing that unspent money does and investments do, which just gives you freedom and independence. It just makes it so that you can, during the next recession, during the next bear market, or if you want to quit your job or when you want to retire, it's all up to you. You're not reliant on the kindness of strangers and other people's goals and aspirations to dictate how you're going to live your life. It's just the freedom and control to do whatever you

want. That to me is like the biggest benefit that money and wealth can provide you. This is part of getting into a healthy mindset. And I said earlier that a lot of people in crypto have kind of a toxic, unhealthy relationship with money. But the healthier mindset is, as Navalovacan talks about using money as a tool, using it as a tool to gain your freedom, you actually talk, I think, in your chapter about, like, just some basic stages of wealth freedom here. Right. So like, maybe you go from paycheck to paycheck to paycheck to the ability to pay a month's expense, for example. Well, you've just earned a little bit more of your freedom. You're no longer kind of... That's a little bit of freedom. Yeah, a little bit of freedom. You're no

longer a paycheck slave, right? And then maybe you eliminate your credit card debt and you sort of get out of that level of slavery. And then maybe you graduate to a point where you have six months of savings. So you have the ability next time your boss tells you to, like, stop spending time with your family and get on a plane, go on a business trip. You have the ability to say no. Why? Because you don't need that job because you have six months of cushion. And the ability in the U.S. anyway, to withstand a health emergency. What kind of freedom does that buy you? And ultimately, there's another stage of things where you could get to the point of wealth where you have kind of the FU money, which is basically like you get to do whatever you want to do. You wake up in the

morning and you pursue kind of your life goal and your ambition. To me, this is the purpose of wealth if you're approaching it in a healthy way and not as kind of a virtue signal competing for a high score way. Yeah. And I think the important part, you just hinted to this is that FU money exists on a spectrum. And before you get to FU money, there is like, no thank you money. And then there's like, there's like absolutely not money. And there's like, get out of my face money. Before you get to FU, It's all a spectrum. And every dollar that you save is just a little bit of your future that you own. And the reverse is true.

Every dollar of debt that you have is a piece of your future that somebody else has a claim to. And so just think about it in those simple terms, I'm just like, I want to be independent. That's all I want. And look, I have material aspirations too, of course. But my main goal by far with every dollar that I earn and save is just independence and autonomy. Okay. Here's the next lesson. This is a vitally important one.

Everyone who's listening to this, their monkey brain, My monkey brain, your monkey brain, Morgan, sucks at compounding. We do not understand exponentials. We don't think in exponential logic. And therefore, we don't understand the core principle behind investing and the math mechanics behind it, which is compounding interest. Can you talk about that a little bit? Just the idea that like if I were to ask you, Ryan, if I said, what is 8 plus 8 plus 8,

you can figure that out in three seconds. Like, that's simple. But if I said, what is eight times eight times eight times eight? Even if you are mathematically inclined, you're going to be like, that's a tough one. I'm going to need to think about this for a second. We are not wired to think about exponential growth at all. And even if you are a very smart person in finance, you understand the math, you understand the formulas, it is so easy to underestimate the power of compounding.

The example I use in the book is that Warren Buffett's net worth, he's worth $100 billion. 99% of that was accumulated after his 60th birthday. 99% of that came after his 60th birthday. And this is so important because that's the key to his success. Is he a good investor? Yes. But the whole key is that he's been a good investor for 80 years. That's what makes all the difference in the world.

And everyone in the industry, including myself, go through all this detail, trying to answer the question, how is he so successful? And we look at how he picks stocks and how he thinks about business models and moats and market cycles. All that's like really important. But 99% of the answer to the question, how did he do it, is longevity and endurance. That's it. That's how compounding works. It's just the longer you stick around, the crazier the numbers get. And there's all these scenarios where you can think of where it's like, if Buffett had retired

in his 60s, like a normal person might, you would have never heard of him. Never would have become a household name. Never would have accumulated literally 1% of what he has. It's all just the amount of time he's been doing it for. And that is so counterintuitive. And it's also so boring to say like, oh, Buffett's just been, he's successful because he's been doing this right of here. It's like, end of story.

It's so boring to think about that it's more intellectually stimulating. to go through the details of how he did it, even if the big major takeaway, that by the way, someone like me and you might actually be able to emulate back to like what we can learn from our heroes is just the endurance of how compounding has worked. And so I think that's never going to be intuitive just because our brains are not wired to handle those kind of absurdities. But that's how, like it's so easy to underestimate how big a company can get. Like if you had said 15 years ago that Google would be a trillion dollar company, like everyone would have been laughed at the room. even if the math behind it was actually pretty simple, it's just easy to underestimate how big the numbers can get if something can compound it 20% a year for a decade. Even if you're a smart person, it's just that you're always going to underestimate what that final number is. So compounding is the most important force in investing, and it's the easiest to underestimate.

So Morgan, how old is Buffett now? He's in his like early 90s? He's 92. He's 92. Okay. So 13 years ago, he would have been like just about his 80th birthday, right? 13 years ago, the birth of the crypto industry, like Warren Buffett was about 80 years old. And I don't think that because the industry is so young, I don't think that most are entering crypto with a Buffett-like mindset to this asset class. It's only been around for 13 years. But I think that most people who do enter should approach crypto as I want to be a Warren Buffett of crypto. Buy and hold long-term investing strategies. This is the way to do well, and it's about time in the market beating timing the market. I think that's a Buffett quote as well. It's funny that we bring up Buffett because I know he famously hates crypto, but I think Munger and Buffett's principles apply very well to the space with a long-term orientation. Let's go to the next one, which is the difference between getting wealthy versus staying wealthy. What is the difference? Morgan. They're almost completely opposite skills, which is what throws a lot of people off,

because getting rich, getting wealthy, requires being an optimist, swinging for the fences, taking a risk. That's what you need to get rich. Staying rich is almost the exact opposite. You need a degree of like conservatism and paranoia about what's going on in the world, like low risk tolerance. That's what you need to stay rich. And so they're conflicting skills. And the people who have done very well over time and generated a lot of wealth over time, learn how to get those skills to coexist with each other. There are a lot of people who are good at getting rich and some people who are good at staying rich, having both of those at the same time, which is ideally what everybody wants, is that

that's a much harder combination. So I think having this barbell personality of like, one of the way I phrased it is saving your money like a pessimist and investing your money like an optimist, that's the barbell mentality that you need to have of like, I am a scaredy cat of the short run and I know the short run is always going to be a constant chain of setback and disappointment and surprise and bear market and pandemic and recession. But if I can survive all of that and endure it financially, if I can stick around long enough, I'm a huge optimist about the next 20, 30, 40, 50 years, just because I think that most people wake up in the morning trying to solve problems

versus wake up in the morning trying to pull us all down. So I'm like massively optimistic about the long run and I invest my money accordingly. And I'm pretty pessimistic or just have a big question mark about the short run. And I'm, save my money accordingly. Getting those two things to coexist, I think, is difficult for some people, but you need it to do well over time. Morgan, can you tell us the story of the third partner of Warren Buffett's and Charlie Munger? I think his name is Rick. Yeah. Yeah. What happened to Rick, because people don't talk about him. So if you go back to like the 1960s, the famous investing duo of Warren Buffett and Charlie Munger, there was a third partner's name was Rick Gurren. And if you go back to this era, like the three of them

invested together and they interviewed CEOs together, they were like a trio of great investors during this period. And then Rick Gurin more or less fell off the map. If you're a hardcore value investor, like you probably know who he is, but Warren and Charlie became household names, and Rick Gurin kind of disappeared. Now, about a decade ago, a hedge fund manager named Monash Prabri was having lunch with Warren Buffett. And Monash Burry asked Buffett, he said, hey, what happened to Rick Gurren? And Buffett told him the story of what happened to him, which is back in the 1970s, Rick Gurin had invested pretty heavily on margin to buy more Berkshire Hathaway stock. He was so bullish about it. He went out and borrowed a bunch of money and bought Berkshire.

And during the bear market of the 1970s, he got flushed out. He got a margin call. He lost everything. And I'm pretty sure he had to sell his Berkshire stock back to Warren. That was like how he closed out his margin debt. Might be getting some of those details wrong, but I'm pretty sure that's right. And Buffett's point was that he told Prairie, he said, Charlie and I always knew that we would be rich.

So we were not in a hurry. We knew it was inevitable that we were going to get wealthy. So we were not in a hurry. And he said Rick Gurin was just as smart as them, just as intelligent. as Warren and Charlie were, but he was in a hurry. He wanted to get rich quick. So he took this margin debt to speed up the process. And it ended up with him being kind of getting flushed out of the system. Now, I'm pretty sure Rick Gurin had a bit of a revival and he became a successful fund manager after that, but nowhere near the success of Warren and Charlie. And that was always

really fascinating to me of like Warren and Charlie got rich because they were not in a hurry. And that's like specifically how their success was built. And the people who were in a hurry got flushed out. And that story, of course, repeats itself time and time again. Warren has this saying that I think is really funny about investing on margin. He says, if you're smart, you don't need it. And if you're stupid, you shouldn't be using it. This is like no one should use margin under any circumstances full stop. I think that's more or less right. I think this applies exactly the same, except maybe again, once again, on steroids and cryptos, the game of crypto investing is survival. You have to survive. And that does require, like, no margin. Like, why are you using margin,

not investing more than you can afford to use. Also, like, there's some, you know, psychological tricks, I think that people can use. Like, just lock your crypto in a ledger, don't check prices, and go look at it 10 years from now. You know, it's that kind of thing. But this goes, maybe this is a segue into lesson eight that you have, which is the idea that being reasonable is better than being rational with your investing and with your money. And I think the approach I was just talking about was just don't check prices, lock your crypto in a ledger, throw away the key, and then come back 10 years later, that's not necessarily the most rational investment strategy. But maybe for some people, it's the most reasonable investment strategy because they know if price 10x is they'll sell,

and that might be selling too low. They know if they lose 90 percent, they'll sell, and that's obviously selling on a crash. Now the time you want to sell. Talk about reasonable rather than rational. What does that mean? It's just this idea that people are not on emotional machines and people do not make financial decisions on a spreadsheet or on the chalkboard. They make them at the dinner table where all these emotions and flaws and hormones and messy family situations come into play. And therefore, we should not expect ourselves or other people to constantly be making

quote unquote rational financial decisions. If we can just be reasonable with what we do, even if there are things that we do with our money that are flawed, if we're being reasonable about it, that's the best that any of us can do. And there are things that I do with my money that I cannot explain on a spreadsheet. And if you said, like, explain to me why you do this weird thing with your money. Like wouldn't you earn higher returns if you did X, Y, and Z? I would say, yes. But I'm not a fully rational.

I'm an emotional person. And doing this reasonable thing helps me sleep better at night than if I was, quote, unquote, rational. And so this is why I think if there's any disservice that academic finance has brought to the world, it's the assumption that people are rational or the guide that they should aim to do rational things. I just think it's unrealistic. If you can just be reasonable, that's the best we can do. I use the example in the book of like having a fever when you're sick is a very rational thing because a fever helps fight illness. It helps fight the virus, fight the bacteria. Fever is good. Fever is rational. But everybody, including doctors, fight fevers like they're a nuisance. And if you get a fever,

it's like, oh, take Tylenol to get rid of it, make your fever go away. And the reason that they want it to go away, even if it's rational, is because fevers hurt. They suck. They're miserable. No one likes having a fever. So even if having a fever is rational, it's not reasonable to want to be uncomfortable. So we treat them. We're just like, get rid of them. It's the same thing in finance. There are the equivalent of fevers in finance where it's like, hey, that's a rational thing

to do, but it hurts and I don't like it. So let's get rid of it. And so the example that I used was, and I used this in the book of my wife and I paid off our mortgage when we had a 3% mortgage rate. That is not rational to do. It is honestly the dumbest, it's the worst financial decision that we've ever made, but it is the best money decision that we've ever made. Nothing has given us more peace of mind, more comfort, more sleeping at night, more stability

for our children than the quote-unquote worst financial decision we've ever made. And so that's why, even if it's not rational, I think it was completely reasonable and made us and increased our quality of life. And everyone has something like that. Or it's just like, don't aim to be rational. Just be pretty reasonable with the things that you do. That's the best we can do. I think crypto people really need to hear that.

You know, one example is, Morgan, I've read 15 page reports. academic reports on the value of lump sum investing versus dollar cost averaging in and like different arguments on both sides. But the conclusion of this particular report was lump sum investing has the highest EV expected value. And so you should do lump sum investing. And that just overcomplicates things, doesn't it? So say you have $2,000 that you want to deploy. What's going to make more sense for you psychologically? Just putting it all in now and forgetting about it or dollar cost averaging in hundred dollars a month for the next 18 months or so whichever works for you do that thing yeah and then just forget about it like stop trying to like rationalize it make it all make sense on a spreadsheet because

to your point people are not spreadsheets and the point of like yeah like that academic study might be right to say it has a higher EV to do a lump sum investing but people do not invest based off of expected value right they invest they expect based off of like what they're going to regret in the future. It's based off of like, if I make this decision, am I going to regret it in six months? Regret minimization. That's exactly it. And if people, if someone lump summed their windfall and the market went down 30%, even if it had a higher EV to begin with, they're probably going to regret doing that. And they're going to feel like an idiot and they're going to say, I'm never doing this again. I don't trust my advisor again, et cetera, et cetera. So that's why it's like even if lump sum is a higher

EV, like a dollar cost averaging probably makes more sense from a psychological perspective. Number nine is one, I felt like I needed to apply to my personal life. And that is this concept of people change. You, bankless listener, will change. Your goals for the future, your strategies, the things you're saving for, the things you want to buy, all of that will change. And change is okay. I think that's what you're telling us in your book. So Morgan, people change. What can we learn from this? There's this concept in psychology called the end of history illusion, which basically says everyone is keenly aware of how much they've changed in the past. If you look at who you are today, Ryan, versus when you are 14, you have different

goals, different outlooks, you're wiser, you're smarter, you have different friends, different values, and you're keenly aware of that. But if I were to say, Ryan, imagine who you're going to be when you're 60 years old. You probably think you're not going to change that much. You think you'll have the same values, the same goals, the same priorities, but you won't. You're going to change just as much between now and 60 as you did between now and age 14 or whatever. And it's so hard for people to understand that or to accept that. Same for me. Like, I think I'm going to be the same person 20 years from now that I am today, but I know I'm not. There's no way I'm going to do. And so people underestimate how much they're going to change. And this has a big

impact on their financial goals because particularly for like long-term goal setting, if you're like, oh, over the next 20 years, I want to achieve X, Y, and Z. Well, 10 years from now, you might be a totally different person with different goals and different outlook, different experiences. Maybe you get divorced. Maybe you get married. Maybe you have kids. Maybe you have a medical emergency. You have no clue who you're going to be 10 or 20 years from now. So the takeaway from me was like, avoid the extreme ends of financial planning, either the massive hyper saver or the Yolo spend everything today. The more that you can avoid those ends, the less likely you are going to regret what you did when you inevitably change in the future. That's, I think, the best that we can get in this area.

As I get older, I'm seeing more and more value in kind of the moderate positions around things like that. And I think a moderate position around kind of short-termism and long-termism is the right approach, recognizing that you're going to change. Last lesson for us, Morgan, is a lesson on pessimism. And I think this is particularly salient to you folks in crypto right now because the mainstream and the crypto industry writ large has once again turned pessimistic on crypto. And you make this really astute observation in your book

in the chapter about pessimism. Just like pessimism sounds smarter. It sounds more realistic. But then you also follow that up by saying like, pessimism is actually, even though it sounds smarter and more realistic, it's often wrong more than it's right. And so you're kind of like, don't be pessimistic. Be long optimism. Talk about pessimism for a minute. Or at least getting your optimism and pessimism to coexist, so to speak. But the idea that I brought up was like pessimism sounds smarter and it sounds like somebody trying to help you,

whereas optimism often sounds like a sales pitch. If I were to say, hey, I have a stock idea, this thing's going to double in the next six months. This isn't like I'm trying to sell you something, which is probably true. But if I were to say, hey, there's this threat chasing you down, there's going to be a recession in the next six months, you're like, oh, tell me more about that. It sounds like I'm trying to help you avoid this catastrophe. And so like those incentives, like all those come from evolution of like we are wired to respond with more urgency to threats than opportunities. That's how you survive in terms of like how we've evolved to get here. But one of the quirks here is that there are no overnight miracles, but there are lots of overnight

tragedies. So bad news tends to happen very fast and good news tends to be a slow compounding over time. So like look at the really bad news over the last 100 years. It's like the crash of 1929, Pearl Harbor, JFK's assassinated, 9-11, COVID. All those things happened literally in the blink of an eye. They were just instantaneous. They did not exist one instance and then the next second they just destroyed everything in their path. So bad news happens very fast. But the good news is almost inevitably, it is always a slow grind over time. So since the 1950s, in the United States, mortality from heart disease has declined 90% since the 1950s. 90% decline in heart disease mortality because we have blood pressure medications. We're much better at treating

heart attacks when they occur. And that has saved literally tens of millions of lives just in the United States. But we never think about it. We never talk about it because that progression over time was basically 2% annual improvement for 70 years. Now, if you compound 2% for 70 years, the results are extraordinary, save tens of millions of lives. But in any given year, It's 2% growth. Nobody cares. Doesn't make any headlines. You're never going to see a headline in front of the New York Times that says heart disease mortality improves by another 1.8%. Nobody cares. It's not exciting. But over 70 years, it's ridiculous. It completely changes the world. So the speed in which optimism and pessimism happen in the world just draws our attention to bad news, even if the good news over time is way more powerful. I think well said, if you had gone back in time probably 10 years ago and told people in crypto, hey, you know, 10 years from now, this asset class is going to be worth over a trillion dollars. Their minds would have been blown away. Yes. It would have been beyond the moon excited. What a success. This thing has been transformational beyond our wildest dreams and expectations. And yet now we're looking at a $1 trillion market cap of crypto and we're mad about it because it fell from $4 trillion, you know, a few months ago. go. And so now we're listening to the critics again who said there's nothing in this industry that the asset class doesn't matter. It's always been vapor. It's always been pointless. It's always been

stupid and dumb and full of Ponzi games and schemes. This is what you're talking about here is these incremental gains and how they don't tend to be magnified. What tends to be magnified is the pessimistic side. Always. It's always been the case and it always will be the case. That would never change. Morgan, this has been incredible. I think super insightful for those new to investing and investing in crypto on their journey. I just want to thank you so much for joining us. If you have anything to kind of sum all of this up, maybe summing up your book, summing up the psychology of money, why this is important for investors to know, what would you say to us in parting? I think the biggest thing is that doing well with money is not about what you know. It's not

about how smart you are. It's all about how you behave. And for a lot of people, that's boring or it's not intuitive. But I think in every successful financial outcome, you will see that. That it's not about intelligence. It's just how you behaved over time. Bankless Nation. This has been Morgan Howsell. Morgan, thank you so much for joining us. Thank you. This is a bit fun. Thanks for having me. Action items for you today. Of course, read the book. I've got it right here. The Psychology of Money. It's one of the best books on crypto investing I've read. I'm serious about that. I think every crypto investor should listen. I listen to it on audio as well. Should either listen to it on audible or something like that or read the book. And of course, got to end with risk and disclaimers.

None of this has been financial advice. Maybe a little bit of life advice sprinkled in. Crypto is risky. Defi is risky. So is Eith and Bitcoin. You could lose what you put in. We are headed west. This is the frontier.

It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot.