Modern Wisdom - #142 - Morgan Housel - How To Create & Manage Your Personal Wealth

Episode Date: February 13, 2020

Morgan Housel is a writer and investor. Understanding the basics of money management is something none of us are taught but all of us need. Today we get a fantastic run down by a guy who's spent most of the last decade thinking about what wealth can do for us, how we can attain it, and more importantly how we can keep it. Expect to learn... What is wealth? Why do rich people go bankrupt? Should I invest in Bitcoin? How can I maximise my wealth? What are the most important rules in trading? And much more. Extra Stuff: Follow Morgan on Twitter - https://twitter.com/morganhousel Check out Morgan's Website - https://www.collaborativefund.com/blog/ Take a break from alcohol and upgrade your life - https://6monthssober.com/podcast Check out everything I recommend from books to products - https://www.amazon.co.uk/shop/modernwisdom - Get in touch. Join the discussion with me and other like minded listeners in the episode comments on the MW YouTube Channel or message me... Instagram: https://www.instagram.com/chriswillx Twitter: https://www.twitter.com/chriswillx YouTube: https://www.youtube.com/ModernWisdomPodcast Email: https://www.chriswillx.com/contact Learn more about your ad choices. Visit megaphone.fm/adchoices

Oh yes, hello friends. Welcome back to Modern Wisdom. Strap yourself in for today. I'm sitting down with Nono that then Morgan Housel. X, right, of the Motifull Wall Street Journal. He's spent more than a decade thinking, reading, writing, and interviewing about how to manage your money. And I've strapped him to a chair, put a microphone in front of him, and asked him, how do I create wealth in my life? The basics of money management are something that none of us at all, but all of us need and today is, it's just crazy. I'm so impressed with Morgan. I knew that he was going to be great,

but this just blew my head off. It's one of those episodes that I've already gone back and listened to a number of times and I'm confident that you will as well. You will have a friend who you know is absolutely awful with managing their money and I implore you, I am on my knees begging you to send them this podcast so that it stops them from spending their money on useless crap that they no longer require. There will be a lot of new listeners tuning in today. Maybe one of your friends are sent to you, don't take it as a fence. They don't mean that you're bad with money. They just mean that you could be better. And if you are new here, hit the subscribe button. You get one episode every Monday and every Thursday with the

most fascinating humans on the planet delivered directly to your mobile device. But for now, please welcome the wise and wonderful Morgan Housel. Oh yeah, PS, there's a couple of connection dropouts in this episode. I've worked my absolute hardest to try and clean them up for you, but you may notice a little bit of signal change here and there. Apologies in advance. Mr Morgan Howell in the building, how are you man? I'm good, thanks for having me, excited to be here, thanks Chris. Yeah, me too, me too. We're talking wealth today, right?

Everyone, everyone wants it, but I don't know how to get it It's it's very elusive and it's not that people don't know how to get it I think it's a lot of people don't even think about defining what it is or what it's gonna mean to them or what it could do for them Or why they want it? I think I love there's just a natural urge to want more of it But answering the question why it seems like a funny question to a lot of people. Of course I want to be wealthy. Why would you even ask? But you start getting these more philosophical questions of like, why do you want to be wealthy? Is it a status thing? Is it because you want more stuff? Is it because you want more control over your time? Is it because you think it's going to erase problems

and you know that you currently have in your life if you had more money, those problems would go away? And I think there's a lot erase problems and that you currently have in your life if you had more money, those problems would go away. And I think there's a lot of different elements to that. And I think at the highest level, what I've thought about in terms of wealth, and that I really believe in terms of wealth and studying this stuff for so many years and studying other wealthy people

and thinking about money myself, is I think what wealth can really do for you that will legitimately make most people happy, is to the extent that you can use wealth to control your time, to give yourself options, to let you do what you want, when you want, with who you want, for as long as you want to. That is wealth's great power that I can do for us. But that's usually not what people think about wealth wanting to do for them. Usually what they think about it is more stuff, bigger house, nicer car, better clothes, maybe some travel, and there's nothing wrong with that. I like fancy

cars, I like big homes, I like it all. But we just have so much evidence. It's almost cliché at this point to say, buying the bigger house and the fancy car won't make people happy. We have a lot of evidence on that, that there's this hedonic treadmill that people, when they're anticipating getting the Ferrari, that's really exciting. But then they actually get it and they say, yeah, it's just a car. It's just got a steering wheel and whatnot. And there's a lot of different elements to that. I think what's really, and this is something I learned when I used to be a valet at a fancy hotel in Los Angeles when I was in college. These people would come in driving their Ferrari's. And I would look at that, I would look at the car and be like, wow, wouldn't it be cool if I had that car?

Wouldn't it be cool if I was driving that Ferrari? And it took me a while to realize the irony of that thought, which was that those people drove in, and I never said, wow, that driver, the guy driving the Ferrari, he is really cool. He must be impressive. As an observer, I just said, I wanna be in that car. I didn't care about the driver. All I just said, I want to be in that car. I didn't care about the driver.

All I did is I imagined myself driving his car. But the guy driving in, when he's driving the Ferrari, he's probably thinking, everyone thinks I'm cool. And they did it. The valley on the curb was thinking, I want to be in, I don't care about you. I just want to imagine myself sitting in that seat. And I did, it was just like this irony of like, no one cares about the guy in the car, but

everyone wants to be the guy in the car. And to the extent that you want to buy a Ferrari, and a Ferrari is like, of course, the extreme example. It doesn't need to be that luxurious, but the extent that you want wealth to buy you stuff because you think it's going gonna bring you respect and admiration and prestige think it you know there's probably some of that that has a good signaling effect but to a lot of that is just stuff of this conception about you think people are thinking x but they're

actually thinking why i think that's a big reason why the perception of being wealthier seems like all of the so much happier when i'm wealthy but if you look at the statistics about how happy wealthy people are there just they're not that much help they're be so much happier when I'm wealthy. But if you look at the statistics about how happy wealthy people are, they're not that much help. They're not that much happier than the rest of us. Of course, there's a minimum level of meeting your daily needs and comfort and whatnot. But after that, a lot of the status wealth, it's propensity to make people happy is really

not there. But I bring that up because what we know does make people happier, has a legitimate lasting, long-term impact on their happiness, is when they can control their schedule, when they own their time, when they can do what they want, when they want, when they can wake up every single morning, seven days a week, and say to themselves, I can do whatever the hell I want today.

That makes people happy. So if you can use wealth to generate that, to own your schedule, and for ordinary people, maybe that's taking a job that doesn't have a long commute, or you're working in a job that pays less, but it's doing something that you love or something like that.

Or if it's at a higher level retiring early, just retiring when you want to, or retiring when you're 32, which is like a big movement these days, stuff like that does make people happy. When you can control your time, that's a lasting impact. So when I think about wealth, it's like the highest,

the fundamental level. The first question is, what do you want it to do for me? And for me, personally, it's just a level of independence. It's a level of waking up every day and saying, I can do what I want now. That's what, that's the goal of wealth for me. I get it, man. I've got a million doorways open in my mind.

One of them being Being rich might not make you happy, but being poor will make you miserable Like I love I love that quote and it really is it really is very very true Anyone that you know, it's what I call diet brain You know, you're on a diet and the only thing that you can think about is food It's the same that precisely the same as that if you have money worries. There is nothing that happens that is not framed by, but I don't have enough money, but what happens about the next paycheck, but about my bills. Right, my mother-in-law brought up an example years and made me a decade ago now that I really, I really thought was really insightful. She said camping is fun, being homeless is

miserable. The difference between those two is one is a choice and one is being forced, but you're sleeping in a tent outdoors But rich people and I say I really have to choose my words carefully and not you know And I really I try to to really empathize with people who are homeless But that's I think it's a great way to frame the extreme ends of it Is that it's not even like the absolute conditions that we're in. It's whether we have a choice to do it or not. If you're forced to do something that's against your will, you don't want to be homeless, you don't want to be out sleeping in the cold.

That is miserable. But if you're camping, it's kind of a thrill to it. Some of that is because you can't fall one night. You're not doing it all the time. But I thought framing that as just the difference between whether you want to do it or not makes all the difference in the world. There's this great story about FDR, Freken Delano Roosevelt, where his mom was talking about, I think FDR was like 10 years old at the time.

He complained to his mom that he was unhappy in life because his entire day was structured in a really strict regiment. At 7 a.m. you do this, at 8 a.m. you do that. He came to his mom and he said, all these rules make me unhappy. So his mom said, okay, for one day you can do whatever you want. It's all up to you. And his mom wrote in their diary that night that during that day when FDR could do anything he want, he followed his own route to his old routine. He did the same thing. He put this 7 a.m. and then he did his homework at 8 a old routine. He did the same thing. He did his homework at ADM, but just the fact that he was doing that on his own will, rather than someone telling him to do it, made him feel better. So it's like, people know what to do. And even if they

get to do what they, if they're doing what they want to do on their own terms, they still might do the same thing, but they're doing it on their own terms. They're camping, they're not homeless. That's such a good distinction. That agency, the allowance to make a choice. Another thing is, while you were talking about the guy in the car, and it makes me think about the Navale Rava can't quote, which is, you cannot take part of someone's life, you have to take the whole. It's like, you look at the guy in the car and you think, fuck, that car's cool. the whole. It's like you look at the guy in the car and you think, fuck, that car's cool. But what's the price he's had to pay for that car? Not $250,000. Like what are the sacrifices he's had to make? Like how many relationships has he destroyed? How many or she decided

not to have four-go children so that she can make it to 40 years old and be the CEO of some company. You don't know what the price that someone has had to pay to acquire that wealth is. And I think it comes back to what you said before. It appears to be that it's very, very essence. What wealth gives someone is freedom, agency, control of their on-time control of what it is that they get to do what they have to do. And that's a much more holistic way of looking at it than like Dan Bills' area in it. That's not say that the Dan Bills' area in approach isn't a good thing, but you get what I mean. Of course, you know, at the back to your point, when you see the Ferrari, you don't see what went on to getting that Ferrari.

All you see are the shiny wheels and the big, growling engine. You don't see working till midnight. You don't see, you know, never getting to hang out with your kids. Not that everyone who drives a Ferrari is in that boat, but there's a sacrifice that you don't see working till midnight. You don't see, you don't never getting to hang out with your kids. Not that everyone who drives a Ferrari is in that boat, but there's a sacrifice that you don't see. But the person driving that Ferrari, they're acutely aware of it. They know how hard they had to work for that thing. So there's a big difference between what you see and what actually, what it takes to get that stuff.

And that, I think, is another reason why the perception of wealth feels a lot better. The dream, the day dreaming of wealth feels better than actually having it. Because when you actually have it, you realize all the costs that are associated with it. I think there's this thing, too, that once you've gained wealth, a lot of people get paranoid about losing it. And you don't, it's not easy to think about that before you have it. When you're sitting here thinking about, if I won the lottery, what would life be like? You think about all the fun trips you're going to take and all the beautiful house and the

beach and everything. A lot of people don't, it's very hard to conceptualize until you're there. What it's going to feel like to think to yourself, what if I lose all of this? What if I make a bad decision? What if I spend it all? What if the huge annual bonus that I got last year? That was a one-time fluke. I'm not going to get that again.

And then so therefore maybe I don't want to spend, maybe I want to hoard this. It's hard to really think about those feelings until you're in the trenches. I did just imagine those feelings, but those are real feelings that happened and if you have the people doing this, Bill Gates had a quote, I heard him say this a long time ago, but I've yet, I have not been able to define the source from this. So I'm paraphrasing what he said. But it was something to the effect of now that he's the richest man in the world. Like his biggest his only money thought was not losing what he had. It was not growing more. He already has more than he could have. It was just not losing it. And how

many people who are thinking about Bill Gates as well, his money, my, and frame, think that he's saying at home worried about losing what he has. He's got more of that, like, it's absurd, but that's what goes through people's heads. And I think that it's a really common thing that comes up when you hear very wealthy people talk about the psychology of their own money. Dean Paranoid about losing what they have

is a big thing that comes up. And that's a stress that is hard. You know you know of course there's a big point of this where it's like boohoo yeah there's someone who's living on the poverty line that's like oh yeah it sounds really hard exactly but there's also a sense and this is not a popular statement but first world problems are real problems like anxiety in your head is real no matter how wealthy or how absurd it looks to someone else anxiety is real high your head is real no matter how wealthy or how absurd it looks to someone else. Anxiety is real. High blood pressure is real no matter how crazy it looks. And a lot of people in those situations have issues that you cannot fathom until you're in their

shoes. Yeah. I was talking to James Altichet the other day who is, he's like the patient zero for make it lose it, make it lose it, make it again. Also as well on that kind of relativistic world view, I remember this really early memory with my mum and I was walking down the street and she, I was complaining about something, something small, I was cold or it was wet or it was whatever. And she turned and said, I was only 10 at the time, she turned and said, Christopher, look, like there's bigger problems in the world than you being cold or wet. And I remember turning to her and saying, yes, but this is my world, this is the biggest problem in my world right now. We're not absolute beings, we are relative beings. Right. I mean, one person in the world right now is suffering more than everyone.

And everyone else, their suffering is just, is all just real, right? It's always like, it's all on a spectrum. And everyone, no matter where you are on that spectrum, like someone is probably, there's only one person who is suffering more than anyone else. Everyone else is just a matter of perspective. And we all live on that. I mean, I wrote a piece many years ago that a lot of people did not appreciate, but it was during, it was in 2011 during the Occupy Wall Street protests, if you remember that, where there was a big public backlash, I think a lot of

it was justified against the 1%, and it was the 1% versus 99%. And I wrote a piece that said, look, in the United States, States, in the world, if your income is over, I think it was $32,000 per year, you're in the top 1% of the world. And how many of the people in the United States saying, the 1% are unfair, they're ruining it, they are actually part of the 1% of the world. And I didn't mean it unless I just wanted to add some perspective. I wasn't, I wouldn't saying that their protests were wrong. I just wanted to say like, it's all in that perspective. We're all sit on this spectrum. And we all kind of think that we are where

we sit is the baseline, the foundation, but it's not. Your foundation is like the top of the mountain for other people. That sphere of awareness is so biased, right? Like it's not the 1%, it's not down with the 1%, it's down with my 1%, down with the 1% that I see, the 1% that's close to me. Yeah, that's what it is. And so. Yeah, there's also a point that I want to make too,

is that when I say something like that, I'm not saying you people are at a touch because everyone lives in their own world. Everyone, like, and again say something like that, I'm not saying you people are at a touch. Because everyone lives in their own world. Everyone, like, and again, your problems, whether you are like Bill Gates' problems or someone else, like anxiety is anxiety. Fear is fear. Losing sleep is losing sleep no matter how wealthy you are. It still hurts the same the next morning.

So like, it's wrong to say, hey, because if you make $32,000, you in the 1% so you should feel wealthy shame on you for not that that's not the point whatsoever the point is just you know we all live on this spectrum and it's all just a matter of perspective and I think the bigger point is realizing that people who are on a much higher spectrum it's not that if you're on a lower spectrum you should feel thankful it's that people who are on a much higher spectrum they also hurt they hurt as well. And sometimes that's not a popular view, I get that. But I think, to me, the bottom line is like,

no matter what your wealth is, the psychology of money, and what it does to our feelings and our well-being and the lack thereof is pretty universal. Absolutely. So let's get into it. Let's talk about the basics of wealth creation. What is wealth? Is there a difference between being wealthy and rich and and how do I get it? I think if there is a difference of course this is just this is just semantics. This is not and you know

This is sort of something I've made up but my definition of riches you have a big income big relative to your peers around you So of course that's a big range as well But if you have an income higher than most of people around your peer group you can call yourself rich wealthy is much different is wealthy is you have assets in the bank that you can spend in the future that's very different from being rich because a lot of people will have a large income this year but they're not they're not saving any of it they're on the razor's edge of insolvency they're blowing through all of it as quickly as they can. And those are, there are a lot of people who are rich

in that sense, but not necessarily wealthy. Years ago, Chris Rock, one of my favorite comedians, made, made, it was in one of his skits. And he was talking about the difference between rich and wealthy. And he says, and I have to preface this thing. This is Chris Rock joke. I'm not taking credit for any of the social

dynamic service but he said shack is rich the guy who signs this check is wealthy that's the that's and i think that was a great way to put it and that the and the thing is like no shack is well shak is like he's he's got an impact but i thought that was a great way to frame it that applies to a lot of us too,

because there are people who make $40,000 a year that save a lot of it, and they're wealthy. And there are people who make $5 million a year that spend six million a year. And they are on the razor's edge of poverty. So it's just a big relative thing that doesn't like, rich has to do with your income, but wealth has to do with your savings rate.

And savings rate is totally independent of your richness, of your annual income. And we've seen this in a big way in the last decade when the fire movement, financial independence, retire early movement came along, where you have people who are making 40, 50 grand a year, sometimes more 100, 200 grand a year. They live a very low key lifestyle and they save 50% of it or more. And those are people whose incomes are not that impressive, but they're wealthy.

And you can compare that to a lot of people that we've heard of, I'm writing a book on psychology and money right now that starts with a story about someone who made a tremendous amount of money on an annual basis and blew it all and went bankrupt. And so, I think we very often think that wealth is just how much money you make. And there's a lot of evidence that that's not it.

It's a personal lifestyle choice more than it is anything to do with the number of zeros in your annual income. And so, to me, it's just been about, you know, how much money you make or what your investment returns are, and more just the decisions that you make about how you're going to spend your money, and what you value in life. Do you value a big car? Do you value fancy clothes? Do you value jewelry? Going out to dinner? A lot of these people, for a lot of people, including me,

some of those answers are, yes, I do value those things, but there are other things I really don't value whatsoever, and I would rather save money to build wealth. And that wealth that you save is what people don't see. So it's the, like, wealth is the frory that you did not buy. It's the car you didn't buy. It's the square footage that you did not buy. It's the first class seat that you didn't buy. And I think that's, like, of course, that's what it is.

Well, this is what you don't spend. It's the wealth, it's the money that you didn't buy. And I think that's like, of course that's what it is. Well, this is what you don't spend. It's the wealth, it's the money that you saved up. The problem with that is that when you and I and everyone else is trying to look at the world and see how other people are managing their money, all we see is what they spent. We don't see what they didn't spend. I see the car that you drive.

I see the house that you're in. I don't see the house that you could have afforded, but you did not buy. The car that you, the W, that you could have bought, that you didn't, that's your wealth. But I never see that. And that's why I think a lot of people have this misconception of what wealth is, is because we don't see it.

And I've used the analogy of like, you know, when people exercise, they get into good shape. And being in good shape is something that you can see. You can see muscles, you can see thinness, you can see that, and you can see the opposite of exercise. It comes in obesity and whatnot. And then therefore, so everyone else viewing you, I can look at you, Chris, and say, you look like you're in good shape. I can see that you probably, I can see that you exercise because I can see it. But, but I have no idea what you're not worth it. I can't see your bank account. I can see it. But I have no idea what you're not worth it. I can't see your bank account.

I can see your physique, but I cannot see your bank account. And that's why I think something like exercise is something that it's not very controversial. Like people understand what it is. They have role models, they have anti-models. Wealth is totally different. For wealth, there's people who live that you know. I think almost everyone knows someone

who is 10 times wealthier than you think, but you don't know that because you can't see it. But there's no one who is 10 times heavier than you think. That just makes it. As you can see it. So I think the fact that it's just hard to see wealth makes it very difficult for people to wrap their head around and learn about. Absolutely.

Again, you can tell that I'm currently spending a lot of time researching Neval Ravakant because every quote I'm coming out with is his, but the forefront of my mind. And he has a thing where he talks about socialized rewards versus internalized rewards. He talks about the gym being a socialized reward, meditation being an internalized reward. And that's precisely the same dichotomy that we've got going on here, right? And even the wealth that some people have that is being shown outward, as you've identified, it's not real wealth. I absolutely love that quote that your wealth is the Ferrari that you didn't buy. It's the square footage in your house that you didn't choose. I think that's

such a great heuristic for people to use. And again, with that, this is the sort of message, which I think helps to educate people about what wealth is. We are mimetic beings, right? We just look around and see what other people are doing. You're like, that guy's got money. That guy's got a fancy car. What's he doing with his money?

It must be fine. And you just, oh, well, I'll take that. We don't learn about how to become wealthy in school. So I'll just learn by proxy of what other people do that have money. But you don't know if that guy, as you say, that guy's just on that absolutely raises edge. And next next year, he's going to be filing for bankruptcy. So do you? Sure. And here's the thing.

There, like there are, of course, there are a lot of people who drive for us who are legitimately wealthy. The only thing you know about their wealth is that they have $250,000 less than they had before they had the car. That's all you know about it. So there is a lot, and there's also a lot of people driving Honda Civics, driving Honda Accords,

driving Toyota Camrys that are very, very wealthy, but you would never know it. So we just don't know how to size these people up. And when you don't know how to size someone else up, most people have a lot of misconceptions, just a lot of distorted thoughts about what wealth is and how it's generated. That is, I think why this topic is so difficult

and sets people on a painful path very often. Got you. So fundamentals is wealth just what you don't spend? Is that it, or is it more about things that generate money on their own, or is it money in the bank? Is it if I've got assets that are earning passively? How does that all fit together? I think I think less about that. It's more just what you've chosen not to spend take the most extreme example in the world

Jeff Bezos Bill Gates they both worth let's just round and say they're both worth about a hundred billion dollars They could have spent that money in the past Jeff Bezos could have sold all of his Amazon stock in 2001 and gone gone out and whatever, but he didn't. He left it there. So his wealth is what he did not spend. It's true for everyone at every income level. So to me, it's less about how much you're earning on that wealth, whether it's like cash in the bank earning no interest.

That's wealth, stocks in the next one. That's wealth. Even the equity in your home, your real estate, that's wealth. It's not liquid next one, that's wealth. Even the equity in your home, your real estate, that's wealth. You know, it's not liquid wealth, but it's still wealth. It's just what you have not spent, because I think anything that you could spend, but you have not spent, is wealth, that's what it is. If you have the option to spend it and you choose not to, that is, to me, that's a definition of wealth. I love it. So, how do I go about, I just need to spend less, I need to have money in the bank account.

Are there any real fundamental principles about how I can maximize my wealth, how I can make the most of it? The easiest way Chris is just to be born to a wealthy parent. That's the easiest way. That would be very, yeah, yeah, dynasty money. That's what I want. And of course, I say that tongue in cheek, but there's that's honestly, I think people very often overlook not the money that they necessarily inherit from their parents, but

how much how many doors are either open or close for you based on who your parents are, a very good economist named, um, Bashkar Mazender, who has shown that income among brothers is more correlated than height or weight. So So literally if you have a brother that is tall and rich You are more likely to be rich than you are tall It's more correlated. It's more like the income among brothers is more hereditary than height or weight Because those brothers probably had the same educational opportunities They probably had the same doors open by their parents in terms of hey, I can get your job or I can't get you a job, I can send you to a good school or I can't send you to a good school.

So it's not like it goes both ways. The income is correlated on the downside and the upside. And it's easy for a lot of people to overlook how powerful that is. That some people are just born on a very different base. And it's no one wants to, I think if you are very successful, you don't want to say, well, I just got lucky. Successful people don't want to say that. But of course, it's true. It's always true. I've written for something really minor that might not seem like a big deal, but to me, it's just extraordinary. Bill Gates went to

the only high school in America that had a computer. Like, you think about that. And it's just like, of course, he was lucky. That's not to say that he's not talented. He's not smart. He's not motivated. He's all those things. But look where he started.

And he had no input on that. He went to this high school. He's called Lakeside School in Seattle. I believe the story was because he was kind of he was very smart and not doing well at his old school because he was so much smarter than the other kids. So his parents put him in this private school lakeside Seattle but it happened to have a computer and he found it and who else was at the school was Paul Allen. The other you know he would Paul Allen was at the same school and they

started working on this computer together and then, and then Microsoft came out of it. That's not to say that Bill Gates would not be enormously successful anywhere else, but he would not be Microsoft Bill Gates. He might be attorney Bill Gates or Dr. Bill Gates, very successful entrepreneur Bill Gates, but not a hundred billion dollar Bill Gates. Like that part was a luck. And he's admitted's admitted this he said this is not a direct quote But he said something to the effect of without lakeside there were there were not be Microsoft that might actually be a direct quote But I don't know is very close to that so he's he's not in denial about this But I think there's a doubt for everyone I

Have had a certain amount of luck you've had a certain everyone has a certain amount of luck and misfortune. Delgate's had a certain amount of misfortune. Delgate's not to harp too much on this, but when Delgate's was in school, he had his best friend was in Kent. I'm forgetting his last name, but his name was Kent. And Bill and Kent were the two computer geeks, and they did everything together. They were like inseparable best friends. They were equals in terms of their computer programming ability. And Bill Gates said, this is in the documentary that's on Netflix, Bill Gates was reminiscing

about Kent and he said, yeah, you know, Kent and I, I'm sure we would have gone to college together and we would have worked together, Kent may have been the co-founder of Microsoft, but he died in an amount in an amount of nearing accident when he was like 18 years old. So that's like, that's the other side of Bill Gates how extraordinarily lucky can't got extraordinarily unlucky. And that's like, risk and luck, of all I said, are the opposite sides of the same coin. They're both this idea that our outcomes in life

are influenced by more than just the effort that we put into life. And that, I think people know that of course, but it's so easy to underestimate how powerful those things are. And then so to bring all this back, when you said, how do I get wealth? I'm saying it tongue in cheek, but there's a really true statement in here of like,

you have to be born lucky. You don't have to be born lucky, but oh my gosh, does it help? And no one should pretend that a college educated white male in the United States is on the same plane as a child born in Somalia. And of course, that's an extreme example, but we have everywhere within there. There's a very powerful spectrum.

And so that's a huge part of building wealth that we shouldn't overlook. And then that's the first point I want to make. The second point is so much, and we talked about this earlier, so much of building wealth that we shouldn't overlook. And then, so that's the first point I want to make. The second point is so much, and then we talked about this earlier, so much of building wealth is just the lifestyle that you choose to lead. The you choose to lead. And this is true about all incomes groups, but living below your means is everything at any income group, at any income level, choosing to live below your means.

It's the single most important thing to do to build wealth. And a lot of what that is of what living below your means is, is just suppressing your ego. To say, I could spend X, I could spend 10, but I'm only going to spend eight. And the difference between the two is like, my ego going down, like, I could have a nicer car, but I'm, no, I'm not going to do it.

I could have more clothes, but no, I'm not going to do it. It's that gap that you're pushing against that's really meaningful. Point that I made recently about when you really get a benefit from exercising is after you exercise and you're very hungry because you just burned 500 calories and saying, I'm not going to replace those calories with a cheeseburger. My body is saying, hey, you're hungry, Chris, you're hungry because you just exercise, go eat a cheeseburger and you're saying, no, I'm going to suppress that hungry. That's the benefit of exercise it's the

suppressing that really helps you even though you even though you feel like you've earned it right you feel like you've earned the cheeseburger you feel like you've earned the money the money is in your account I worked hard for this money I should be able to spend it but you have to willingly say I could and I deserve it but I'm not going to. And it's not it's not the earning, it's the it's that pushing down that is what wealth is. And that to me I think is really important. It just gets back to like the fire movement of people who make 50 grand a year but that save half of it. They just have a tremendous propensity to keep pushing down, down, down. And they're wealthy because of it. And because they're wealthy they have

control over their time, they can retire early, they can do whatever the hell they want, and they're happy for it. How much of someone's set point, their materialistic set point, do you think is predetermined and how much is in our control? Because I'm fascinated by thinking about this. I very fortunately have a low set point for materialism. Right? Like, it doesn't take much materialistically to make me happy. I like nice things, but like a new night t-shirt, which I'm currently wearing, or, you know, like whatever.

Like, I'm not, I don't have huge, huge materialistic goals, but I can imagine in some other iteration of the world, if my mom and dad had been more like keeping it with the Joneses when I was growing up and that your what you wore was a marker of your worth and other things like that, I can imagine a very different me. How much of that do you think can kind of be learned and unlearned? I think you're onto something really powerful. I think a very extreme example of this, but that we see very often are people who come from very poor backgrounds and become professional athletes. And they might go from literally from food stamps to making $20 million a year.

And I think those people have a much higher propensity for flash, for the biggest homes and the fanciest cars, because it's like a chip on the shoulder from their past and showing like, I've, like, I used to be there, but now I'm up here. Whereas if you were born with a certain level of wealth, I think there's less just trying to prove yourself. You're just kind of like, like, this is me. And look, I'm, I'm where I, I don't really have much to prove. This is just who I am and who it's who I've always been. So I think you're on to something really, really important, which is kind of how you're right, not just how you're raised, but your social status in life is really important. My wife, I say this with confidence, my wife will love me no matter what clothes I'm wearing or car on driving.

If that were not the case, if I did not get as lucky with my spouse and I had a spouse who was really adamant that I drive the fancy a scar, I might have a much higher propensity to spend than I do today. So has my spending been influenced by the way in which my spouse loves me absolutely? And that's, you know, I can't say, it's easy for me to say, I'm frugal and I don't spend that much money

and therefore you should too when things that are outside of my control like this spouse that I happen to get lucky has a big influence on my spending. And that's why there's really no one size fits all advice. And sometimes I really get upset with, not upset, but I don't like financial pundits or financial advisors who say you should do this. It's different for everybody.

And so I think if you can add context about how people think about wealth and try to add different perspectives and think about it. But then saying, now that I've maybe helped you think about it, you've got to go figure out what works for you. It's kind of the way to do it. Because we're all in such a different, we all have different goals, we all have different aspirations.

We've come from very different backgrounds. We see the world through a totally different lens through no fault of our own. It's not because I'm smarter than you or you're smarter than me, it's just we've seen the world in a different area, through a different lens. So people have very different views on what's important to them. Yeah, and that is a big influence on spending. One of the things that I tell the guys that work for us, we have a lot of formative years, the adult formative years as I call the 18 to 21, big group of university students who come and work for us, it's their first professional position.

It's the first time they've earned even a moderate amount of money, usually. And I'm talking to them about the way that they spend their money, and I'm like, look man, like you have two choices here, you can choose to keep some back and then spend on the summer holiday or whatever it is, or you can continue to spend as you earn as it comes in. But if you drill this materialistic lifestyle now and you don't break that habit, it's going to be number one, hard of you to do later in life. And number two, if you still have a materialistic habit, when you get to be in your later adult years, you'd better hope that you've got an amazing job. Because if you don't have an amazing job and you've still got this materialism trigger going, like you are in for a very, very tough time because you're never going to feel good enough.

You're never going to feel like you're earning enough. Yeah, I think to bring us back to another analogy about athletes. I remember hearing a football player who said a lot of former NFL players are very obese, so just morbidly obese. And the reason why that occurs is because after their football careers are over, their eating stays the same, but their exercise is a bunch. And I think that's, I really, I don't even have to do it, I'm sure that's the case. If you get used to eating 10,000 calories that's, and it's, I really, I mean, that does. I'm sure that's the case. If you get used to eating 10,000 calories a day, and that's just your baseline. This is what you do. You wake up and you eat a seven egg online. That's what you do. But you go from working out four hours a day to one hour a week or whatever it is. That's

going to, that's going to make a big impact. And I think it's very similar for income and spending as well. If you're making a great income and you're spending a ton of money, you set your baseline about what you, that's like your baseline for eating. It's like I only feel good from spending X or if I'm eating X. And then if your income falls for whatever reason, I think everyone will go through a period in their life with their income falls at some point, some worse than others, but everyone will go through that at some point. You better hope that your spending is in line with whatever your new income is, and it's very difficult to go down. Going down in life is so difficult.

Going down one inch is so difficult, and going up 10 feet can feel like just okay. No one ever wants to go down. If you have to downsize your house against your will, just because it's what you can afford, that's gonna have a big impact on your well-being. So to me, it's just like creating a gap between likely future scenarios to turn my income

of my income going down and what I'm spending today. And just making sure that asking yourself, if my income fell by 5%, 10%, 50%, what would that do to my spending right now? And maybe some like 50% is too extreme to think about for some people, but for a lot of people it's not. And I think just looking at your habits in life and saying like maybe this works right now, but let me think about alternative scenarios in the future. And I think the biggest guardian of your happiness and your well-, is having the biggest gap in between what you

need to spend to be happy and what could happen to your income in the future. But why do that gap is the better you're going to be because that's your you're decreasing the scenarios of what you're ever going to have to push your spending level down. In Bill safety net, isn't it? In Bill safety net, if you can have a situation where your income can fall 30 or 50 percent and you still don't need to change your spending, you're probably like in terms of financial happiness well-being, you're probably going to be set for life. If you're in a situation where if you take a 3 percent pay cut and you've got to sell your car and that's not an extreme exam, that's not a crazy scenario that I just proposed. You're going to have

a really hard time in life. So I think setting these things that you have control about, how much money you spend. A lot of, for a lot of people, how much money you make is not necessarily that in your control to a great extent. But how much you spend is much more in your control. And I think it's the more important part of the equation that how much money you make in terms of financial well-being. I love it. Going back to the point that you mentioned about people getting lucky, there's this hyper cliché now, right, of that guy that we all know that put a thousand dollars into Bitcoin 15 years ago and just through the sheer ridiculous market return,

now it doesn't need to do anything. That's a perfect example that I've just sort of had in my head about that. One of the questions that I got off map from podcast notes, this is specific to Bitcoin. There might be some people listening who think, like, Cryptocurrency, I've heard, I can make, make my fortune on that. There's this guy on the internet, 50 cent once made a, like, whatever, and then he sold it to Bitmin, whatever it was. Question is, is there any reason it doesn't make sense to invest one to 5% of your net worth into Bitcoin? I think that can make sense for a lot of people. It does not make sense if the math that you're doing

is by saying, oh, I can only put 1% in, but Bitcoin's gonna go up 10,000 fold, so that 1% is still gonna make me rich. If that's your calculus, I think it's 1% in, but Bitcoin's going to go up 10,000fold, so that 1% is still going to make me rich. If that's your calculus, I think it's just setting your expectations. Look, Bitcoin's gone up a lot in the last decade. What does that mean for it going forward? No one has any idea. I really don't think anyone has any idea. It's not to say that you shouldn't you shouldn't own it. A lot of very smart people that I know and who's who's thinking and decisions I really respect

own more than 1% of their money in Bitcoin. I think if you're looking at it as a flyer in terms of, this is probably not going to do anything, but there's a small chance that it's going to do well. And fine. I think it's also fine to have 1% of your money in Bitcoin. If you just think it's intellectually stimulating, you like the math behind crypto and cryptography, it's really interesting to you. I think that's great.

We don't have to make our portfolios based off of the perfect academic portfolio of how we get a maximum of your returns. I think if your portfolio is interesting to you, it intellectually stimulating to you and helps you sleep at night and it keeps you engaged with your money versus just forgetting about it and ignoring it. I think that's a great thing. So I don't personally own any Bitcoin, but a lot of people wear respect to. That's kind of like a Patreon for content providers, right? I've got my favorite YouTuber and I'm going to put some money towards him making his thing. So I really love blockchain. So I'm going to put some money into something that contributes to the blockchain and now I feel like I'm love blockchain. So I'm gonna put some money into something that contributes to the blockchain.

And now I feel like I'm a part of it. Yeah, that's a big part of it. And people feel good about that. The biggest variable in terms of how well you will do in your investment portfolio, this is true whether it's stocks or real estate or Bitcoin or anything, is your ability to maintain those investments

when times get hard. When there's a bear market, when Bitcoin's gone down, your stocks have gone down. If you can still just hold on during those periods and hold on and hold an asset for 10 or 20 or 30 years, that's the variable that's going to really determine your success. And if you love an asset, you love Bitcoin, you love Google stock, you love real estate, whatever it is, if you love it. And by the fact that you love it means that you're going to be more likely to hold onto it for the long run, that's a good thing.

That's a great thing. So a lot of people, there are a lot of investors who will say almost like as a badge of honor, I'm not attached to my investments. I'm very on emotional about my investments, and they're proud of that. And I'm often thought that's not something to be proud of. I think you want to love your investments. Because if you love them, you're more likely to stick around with them when they get hard.

If you don't love your investments, and then you own some stocks and they have a bad year, and you're like, I don't love these, I'm just going to get rid of them, just sell them. That is going to impact your performance to a huge way over time, whereas if you love your investments and even in the bad year, you say, look, Google stocks down 30%, but I love Google, I'm sticking with it.

That's going to pay off in the long run. Why? So I think because in any asset, no matter what it is, you get paid to deal with uncertainty. That's where paychecks come from in the investing world. Like, people don't often ask a question, like, you can make a lot of money in investing. Why?

Who's giving you this money? Why are you this money? Why are you making money? You have to give something up. It's not free. What is the cost of returns? There's an admission price that you have to pay. And the price that you have to pay for any investment is dealing with uncertainty.

It's dealing with saying, I'm going to put $1,000 in the stock. And it might go down. It might go up. It might flatline. But over time, I think it's going to do well. And dealing with that uncertainty is what you get paid for. So if you can stick with an asset when it's out of favor, when it's going through a period where it's not doing well, if you can stick with that rather than saying, oh, if it's not

doing well, I don't want it anymore, your ability to stick with it and put up with the hard times is what you get paid for and investing. That's where the money comes from. That's the price of admission. And I think people who only want the upside and are not willing to put in the downside, or when the downside comes in to say, I don't want this. I don't want to own these stocks anymore. Those are people who are trying to sneak into Disneyland. They're not paying the cost of admission. They don't want to pay the price. And I think if you're willing to pay the price, the rewards are great.

So if you can just put up with the downside and view the downside as this is where I'm getting, this is why I'm going to get me. This is not a punishment, but this is the specific reason that I'm going to do well over time. And if you don't want to pay that price, there are other assets that you can go in that have certain returns, like cash. The return on cash is very predictable. You're not going to lose money on your cash.

You're going to earn one per cent a year. It's very predictable. But it's a low return. If you can take a variable return on certain return, that's where the big rewards come from. So I think just viewing it as a cost of admission, rather than a fine for doing something wrong, is a really important way to view volatility

no matter what you're investing in. To lovely wait a frame it's the same as going to the gym right. The discomfort in the gym is the growth that is precisely what's triggering the growth. If someone said I don't like exercising or if someone said exercising doesn't work because my arms hurt after I do bicep growth. Like you're supposed to hurt. That's the point. You're tearing your muscles and it hurts

and then they'll grow back bigger. That's the whole freaking point. And I think for people that make sense and investing and they'll, or for exercising I should say. And they almost like it. Like, oh, I'm so sore the next day. It was a good workout. They get it.

But no one says, oh, my brocage account, in my brocage accounts, down 30%. This is a good, it's the is a good it's the same thing it's the same thing the more that you can view investing volatility through that lens the better you can do over time I get it so we've spoken there about the success of people who were able to predict things that are coming forward you know there's all Forex signals online and a number of websites who can give you advice

about what stocks to buy for this year and stuff like that. But I know I've read some stuff that you've put out about the relative success of investors who've actively played the market versus those who've just put their money into a fund or an index and just left it. Do you have some examples of that? I think the biggest thing, in general, just as a starting comment here, the accuracy of economic forecasting, investing forecasting is very, very bad. Even the smartest people

with the most information, the ability to truly predict what's going to happen next in the economy and the stock market is horrendous. This is true across generations, across around the world. It's just not something we're very good at. And there's two ways to look at that. You could say one, we're just not smart enough. We're not looking at the right data. We're doing this wrong.

And that's why we're not very good at predicting what's going to happen next. I don't really think that's the case. I think people, if we know what events we're looking at and we have the data, I think people actually are pretty good at predicting what's going to happen next. But we're still not good at forecasting because we can't predict, we cannot analyze, we cannot forecast events that we can't even think about because they're complete surprises that no one would ever think about. We're just giving you this current example.

The biggest story of the global economy right now is the coronavirus. How many people, if you go back three weeks ago, not saying ten years, come back three weeks ago, when every Wall Street analyst was putting out their 2020 forecast, here's what to expect in the global economy for 2020, how many people said coronavirus? Zero! None of them said that. Here's what to expect in the global economy for 2020. How many people said coronavirus? Zero. None of them said that. And I think that's, that example is true all the time. But the biggest news story is what no one's talking about.

And what makes a big story is specifically that no one's talking about because they can't prepare for it. So it's not that we're bad at forecasting economy because we're not doing the right calculations. It's that we can't calculate things that are unknown. And the unknowns are always or moves the needle the most. If you go back historically, September 11th, huge impact on the economy and on September 10th, no one except the terrorists who were involved with it could have known that it was

coming. No one, it was not. It was not that our models did not accurately analyze what was going to happen on September 11th. It did not know what was going to happen. Pearl Harbor is another example. Lehman Brothers not being able to find a buyer in 2008. These are all things that no one that day before could have known that were going to happen.

And things that are surprising are always the biggest risk because people have a very good ability to prepare for things that they see coming, which is why I think another kind of good analogy from this from nature is that earthquakes tend to kill more people per event than hurricanes. And the reason why is because earthquakes come out of the middle of nowhere. You can't predict them. They just build their hair. Whereas hurricanes, a lot of people in the modern developed world at least, can have a one week warning before it comes. And they can bore up their windows.

They can evacuate. Of course, that's not a blanket statement because there's people like Hurricane or wherever we just didn't, we could not evacuate. We did not evacuate people. So it's not a blanket statement. But earthquakes are deadly because no one can see them coming and no one can prepare for them And that's what makes them that's what makes them so dangerous the just the specific fact that they are surprises is what makes them dangerous And that's true for the economy as well. So every the smartest people will say what is the biggest economic risk for 2020 or 2019?

I Think the right answer is always no matter what what year it is, is the biggest risk is what we're not talking about. And we can't talk about things that we don't know. That's always the case. And a lot of people think that's kind of a bullshit answer, but I think it's always the case. The biggest risk is what we don't see.

I've got an article clipping here from Richard Shotton who's a past modern wisdom guest. And he tweeted this out recently. And this is just pure Morgan House, so it's got your name written all over it. AJ Bell, the investment platform, found that the 10 shares in the FTSE 350 index with the highest proportion of cell ratings from analysts had generated a positive return on average of 28.9% last year. That was greater than the 23.2% return generated on average by the 10-foot C350 stocks with the biggest proportion of buy ratings. Yeah, that kind of analysis too, hold on to the United States, that's almost always the case. But I think a lot of what's going on here is just classic country. I think there's several things going on here. We could just say it's contrarianism

and because they had cell readings of stocks were cheap and because they were cheap, they went on to do well. I think that's partially true. A lot of it though is that the narratives that make sense, that a lot of it there, and analysts will say, this stock is a cell because X, Y, and Z, because its industry is contracting because its management team is not very good.

A lot of those narratives that make sense and are comfortable for analysts, even smart analysts, to put out there are not actually what drives stock prices over time. It might make sense that if this industry is contracting, this stock is going to perform poorly. But there are so many other variables that influence stock prices that don't fit those really clean narratives. If the stock market as a whole is going up, then even if that company's industry is going down, the stock still might go up too, just because everything is kind of moving. For every individual stock, there's kind of three general dynamics that will move it around up or down. There's the movement of the overall stock market,

there's a movement of that industry, and then there's movement of that individual company. A lot of times when we were analyzing a company, we're just thinking about the news that affects that company, or maybe just that industry. There's also these other forces that have nothing to do with the company or with the industry that have a big influence on stock prices. If this is late 2008, every stock went down. It didn't matter if the companies were doing

well, if they were in an industry that was recession proof, everything went down. And if this is 2019 or 2013, everything went up. I'm speaking very generally. That's not 100% true, but it's very broadly true. Just because there were other macro forces that were independent of the company that influence price. So I think that's part of the reason why the correlation between analyst estimates and ratings that are based off of these narratives that might make a lot of sense. Don't have that much relationship between what the stock to actually do over the next year. Do you ever get really frustrated having to swim through articles of people who are constantly saying that they know what's going to happen in the future financially or economically?

No, because I don't swim in that pool. I just, I go to a different pool. I don't swim there. I just, I don't, I just don't read that stuff. It's just not relevant to me. And I, and I need to be clear that I'm not saying that it's, it's bad, that it's wrong, that's worthless. That's not what I'm saying, but it's not relevant to the game that I'm playing. Some people, if you are a day trader, then a lot of that news might be relevant to you. But for me, someone who's trying to invest for the next 40 or 50 years, it has no relevance whatsoever. It's not going to influence my decisions. It's definitely not going to cause me to take an action, so I'm not going to read it.

And I think it's really important for people to realize that investors play different games. We're not all playing the same game. Some people are day traders, some people are trying to manage for the next quarter, some people are trying to manage for the next 100 years. And because we're playing different games, we should not pretend that all the information is equally relevant to us. And so something that is relevant to one person,

it's not that I could say, that's bad information. And that's, it might be good for someone. It's just not right for me. Yeah. And so I just, I just try to figure out what is relevant to me. And that's all I want to read and everything else. I'm just, I'm not going to pay any attention to it. So I suppose one man's signal is another man's noise.

That's it. that's exactly it. And you know, this, this, this, this happens very often. I think it happens a lot on financial TV where someone says, is this stock a good buy? And the right answer you need to ask is like, well, for who? For a 22-year-old day trader or a 97-year-old widow? Those, like, we shouldn't pretend that those are the same people. So it's a good buy for who? That's a really important question to ask. You're just realizing what gave your

playing and only paying attention to information that is relevant to your game. But you get a lot of danger when we're all in the same field, running into each other, and we think we're playing the same game, but we're actually totally different things. That, I think, is a big cause for investor confusion and mistake and regret is taking the cues from people who are playing different games in you. So, you know, you own Google Stock, and it falls after earnings. And you might think, oh, like, maybe these people know something that I don't, because they're selling stock. Maybe I should sell, too. But maybe the people who sold it are day traders, because they're selling stock. Maybe I should sell too.

But maybe the people who sold it are day traders, and you're a long-term investor. So it might have made sense for them to sell and for you to hold. That makes, that's not a contradiction. That's not a difference in view. It's just a reflection of different games. I love it.

Morgan, we made it, man. We made it. We made it to the end. We got through wealth. We got through the market. We got through Bitcoin. We got through financial forecasting. We've completed it. So, um, where can we go? People want to hassle you. People want to check out your stuff. Where should they head online? The biggest, the biggest area that I live online is Twitter. My, my handle is Morgan Howeswell.

My first name, my first, first of last name. And that's where I spend most of my time online. That's where I'm the most active online. And then my blog is collaborative fund.com slash blog That's where all my writing is amazing. Man, thank you so much. I'd love to have you back on at some point in the future We can see how this this year or later in the years gone down Let's do it and you know later this year might look at my books coming out It's gonna be available for sale September 7th. So maybe when that's the case. Let's do another episode We're booked in let's get it. Let's get it locked in already, man. I know what your schedule's like, so I'll preserve myself a date now.

Ha ha ha. That's smart. I like it. Yeah. This has been a lot of fun. I really enjoyed this. Awesome, man. Thank you so much. you