Modern Wisdom - #151 - Morgan Housel - What Has Covid-19 Done To The Economy?

Episode Date: March 16, 2020

Morgan Housel is a writer and investor. Markets are down 25% and the biggest single day market move in recent history was due to the Coronavirus Outbreak. What does this mean for the global economy? Expect to learn Morgan's advice for trading and holding assets during this time, why the markets have reacted in this way, what the signals would be that things are improving, how you can financially prepare for the coming months and much more. Extra Stuff: Follow Morgan on Twitter - https://twitter.com/morganhousel Buy Morgan's Book - https://amzn.to/2xAHWXD My first episode with Morgan - https://youtu.be/91TgP1D0Kps 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

Hello friends, welcome back. My guest today is Morgan Housel, and that should be a name that you're familiar with, as I published an episode with him only a couple of weeks ago, one of our top ever played in modern wisdom history, so why is he back on? I brought him back because the current state of the financial markets and the global economy is really confusing. I have no idea why the market is 25% down and whether it's as bad as the Great Depression from 1928 or the financial crash of 2008 or whatever

it is, I needed someone who knows what he's talking about and Morgan is the man who has taken that task on his shoulders. So today, expect to learn just what is going on with the financial markets, why prices have dropped. Just how this does compare to previous financial crashes, what some of the signals would be that the market is at least starting to calm down in terms of volatility. Also, at the very end of this episode, I give my best advice for how to be anti-fragile during this situation. If you are under containment, if you are potentially in lockdown or there's some social distancing procedures that you have to follow where you can't leave the house as much, stay until the end to find out mine and Morgan's best suggestions on how to not only avoid boredom, but perhaps even

flourish and develop yourself and your family slash home during the process. In other news, I know that this is the second in seven days of podcasts regarding the coronavirus. I promise you that this is not going to become the COVID-19 podcast, but I do think that as someone with a platform and an audience who is prepared to listen to long form in-depth discussions and also someone who has access to the kind of guests that I do, there is a little bit of a duty for me to try and provide the best quality of information that I can.

The episode we talked about, I'll do from last week, which you should definitely go and check out if you haven't already, teaching us about the virus and what it actually does to the human body, et cetera etc., etc. It is the most played of all time. And I think that that is because people are desperately searching for information at the moment. And if I can in some way help to create some signal through the noise that's going on at the moment, then, yeah, it feels like a pretty good use of my time. That being said, I also appreciate that giving you interesting and different topics, which

actually help to distract you and remind you that there is a world out there, aside from the virus which is running rampant across the globe, I'm going to do that as well. So normal service will be continue to be resumed soon, but for now, please welcome the wise and wonderful Morgan House. Oh yeah, PS, if you enjoyed this episode with Morgan, you will love his new book The Psychology of Money and it is available for pre-order now by following the link in the show notes below. Ladies and gentlemen, welcome back. Morgan, we said we weren't going to have to speak until you knew book comes out at the end of summer. And look at us now, two weeks later and we're talking again.

That's how fast the world changes. And I think that's, I mean, we just jump right in, I think that's been the interesting thing of what's happened in the last two weeks is how it's not what happened. It's how fast it happened. But if you look at the long history of stock markets, markets falling 25% is not uncommon at all. It's something that on happens, appends every four years or so, going back to the last 100 years.

For it to happen this fast is unprecedented. This is literally the fastest it's ever occurred. So that to me, if there's anything that's shocking that's happening the last couple weeks, from a financial perspective, the health perspective is a different, is a different topic altogether. But from an investing perspective,

it's the speed in which this is a curve that's amazing. What are the headlines? What's the headlines in terms of financial activity over the last two weeks? What has happened? Well, here's, let me start by saying this. In a normal recession, in a bad recession, you might have sales in certain industries down 5%, 10%, maybe if it's a really bad recession in a specific industry, 20%, that's bad. What we're dealing with here is a different magnitude.

You have entire geographic regions where sales are down 80%. There's really no modern precedent for that because it's not like a recession where people pull back a little bit. This is just shutdown. And it's almost like the only precedent for that in recent somewhat recent times is literally like World War II. Now I don't want to equate those in significance, but in terms of just an economy shutting down, just stopping overnight, you know, that's not really something that we have much experience with. And I think it's important to say that since we don't have

a lot of precedent for what's going on, no one knows what's gonna happen next. There's really just, there's not a playbook that we can learn from history that's gonna tell us what a lot of what's gonna happen next. We always say the next recession is never like the last one. And when we say that, we always feel like,

well, it's gonna be a little different. But all recessions kind of have a similar trajectory and whatnot. But this is just a different, a different thing altogether. And of course, we don't even know what's going to happen next in terms of shutdowns and lockdowns, let alone what the recovery afterwards might look like. So we're recording this March 13th. Yesterday on the 12th, was that the biggest move that we've seen so far was that the largest market move from top to bottom? Yes. In percentage terms, the US stock market fell just about 10%, which the only other single day that was worse than that was 1987, the crash of 1987. And some days during the Great Depression in 1929. In 1987, I think the market fell 22% in one day.

And in the Great Depression, you had about three consecutive days where it fell 10 to 15% each day. But other than those two episodes yesterday was the worst. So if you've lived through it and you survived it, congratulations, this is what, this is the big leagues now. Wow. Yeah, that is squeaky bum time, I think, as my dad, as my dad would call it. So real deal. Yeah. So we've talked there about what's actually happening in terms of some of the businesses, right? So the economy within countries and the market move as well, which one of these is going to have the biggest economic impact, do we think?

and the market move as well, which one of these is going to have the biggest economic impact do we think? I think you would have to say, well, it's interesting because here's the two sides of it. China just because of its political structure was able to effectively create firm lockdowns across a very large swath of its country. 50 million people were on 100% lockdown more or less. So that's going to be the biggest economic hit because everything just came to a stop. And you have these statistics like gambling revenue

and Macau was down 90% month over month. And Chinese car sales were down 90% in February from the previous year because everything just came to a stop. So I think China's going to have the biggest hit, but they also might have one of the fastest recoveries because they kind of took their medicine really quick and now they got the curve under control and now maybe they can start going back to something that looks like normal. Whereas in the United States where and Italy and other countries in Europe where just because of the how the politics are structured, how the government is structured, you cannot just come in and shut the economy down and tell

people to stay in their houses and you'll be arrested if you leave. At least that does not happen yet. Therefore, the short term hit that we might take might be less, but I have a feeling it's just going to be a much more dragged out process to both experience the downturn and then a slowness in the recovery afterwards. I think one analogy for that is also, people are familiar with the Great Depression of the 1930s. And what was bad about the Great Depression was that it was not only deep, it was very long.

It lasted for several years from about 1929 until 1933 or 34, if things started turning around. There was also another depression in 1920 in the United States. And basically it was where one had just ended, we were kind of switching the economy from wartime footing to normal footing, and then there's a lot of disruption. So there was a very bad depression in 1919, 1920. And it was extremely deep. It was actually deeper than the Great Depression by some measures, but it was fast. It was two or three quarters of a big, big hit, but then things kind of bounced back really quickly. And since it bounced back pretty quickly, like it didn't make history,

like the Great Depression did, because what was so bad about the Great Depression was the length. And maybe that's an appropriate analogy for maybe China goes through something like our 1920 depression. And maybe for other people, I do not think that we're going to be looking at something that's equitable to the Great Depression. But maybe that's a similar analogy that it's going to be maybe not quite as deep as China's, but just more drawn out. And the other thing that's so different about what we're dealing with right now, relative to past recessions,

is that this is being caused by biology. It's not being caused by business problems, which is very different from all past recessions that we've been through. If you think about 2008, a lot of the reason that the recovery after 2008, you know, as we got into 2010, 2011, 2012, a lot of the reason it was so slow to recover and there was not just a fierce bounce back was because the 2008 was caused

by business problems. Whereas this, what we're going through right now is being caused by biology. And so that also, it brings an element that I think people who study these things just don't really know what, you know, what's going to happen now because we don't have a lot of experience with that. But it also means like that let's say and I'm not a doctor or a biologist so I have absolutely no authority to say this but let's say that in the next four months, six months, one year, whatever. There is some effective treatment or even a vaccine if we're looking out the next year, year and a half. There was no equivalent of a vaccine in 2008. We just had to grind through it. We just had to take the medicine and just have to listen, okay, we just got to do this. But you could see that if there is an effect and again, I need to preface this so hard with, I have no idea what I'm talking about here. But let's just say in three months, there's a headline that says, so and so laboratory

has discovered an effective treatment or that, you know, a vaccine is looking really, is looking really good. That could bring back so much economic activity because the problems right now are not business, they're not economic as biology. So I think this has a potential to spring back faster than previous recessions that we've been through. And I say potential because I don't know if that's exactly what's going to happen, but it has potential that did not exist in 2008 for this to be more severe than 2008, but also recover quicker and faster than we did in 2008.

Yeah, everything that we're saying just has to have a million caveats behind it, doesn't it? Because it's so unprecedented at the moment. That is the word, right? Economically unprecedented. So you you've touched on it there just so we've got it definitively. Are you saying that there's essentially nothing that's that analogous to the situation we're in right now that's ever occurred? I think it's probably pretty close. The only thing that would be similar again, and it's very different, of course, but I think it's probably pretty close. The only thing that would be similar again, and it's very different, of course, but I think the only thing similar is probably World War II, where in a relatively short period of time, you had pretty much the entire global economy,

just shifted immediately, and just the regular order of life was completely disrupted. Now it was very different, and I don't know, I have no idea, you know, 80 million people died in World War II. I have absolutely no clue what's going to happen here. But I think in just in terms of the severity of the change to the regular order of life, that is probably the closest analogy. Because you think of the other major recessions in 2008, in 2001, 1974, 1980. Just a very different set of circumstances that we were dealing with.

People had money problems, but they were not afraid to go to the restaurant. Maybe they could not afford to go to the restaurant, but once they had money, they were not afraid to go to the restaurant. We're now looking at a situation where people are afraid for their health. There's another big thing here, which is that in 2008, the consequences of getting caught up in the tragedy of 2008 was you're going to lose your job. That's a big deal. I do not want to minimize that.

Now the consequences of getting caught up with coronavirus is you might die. And that's just a completely different psychological set of circumstances. The stakes have been raised, haven't they? The stakes have been raised so much. And again, I don't want to minimize the trauma of losing your job, particularly if you're a working parent or something. But the stakes are just much different now. I think whenever you say the word die, then people's propensity to react. And I don't even want to say overreact because an overreaction might be the rational thing, but you're going to get to get a much deeper reaction than we have for people who are used to studying how recessions play out. So it's just a totally different set of circumstances

here. But let me also say one thing. And I don't know if this is a good analogy or not, but I was speaking with a friend right before this, and we started talking about something that I thought was very interesting. And maybe this is something that you know more than me about. But I was talking about the London Blitz in World War II in 1941. London was being bombed by the Germans night after night after night and it was an absolute tragedy of course. I've read stories to the effect of this. In the early days, everyone was completely petrified, did not want to leave their homes, hunkering down in their bunkers as you would expect of course. And then as the days and weeks went on, at least for some people, there was a growing

sense of, look, we have to just move on. We cannot live in shelters our entire lives. We just have to go about our lives and accept the risk of what we're facing. I'm probably over generalizing that. I want to be sensitive to the situation that I did not experience. But I was speaking with a friend and I said, I wonder if that's an appropriate analogy that right now we are in the panic phase, pretty much across the world.

But I wonder as the weeks and maybe months go on, that even if things do not get in better and this keeps spreading, I wonder to the extent, to what extent are people just gonna say, look, I cannot live in my basement, washing my hands 40 times a day anymore. We have to just accept the risk and go back up with our lives.

I don't know if that's true, but I think there is precedent for, at some point, people just start getting a custom to their risk in their life, even if those risks are very large. I want to say get accustomed to them. Once those risks are not new anymore, then they're willing, more willing to just say, look, this is risky. Some of us are going to die. Like, that's true. But we need to go about our lives. We just need to go do this. I don't know if that's the case, but it's an interesting thing to think about.

It couldn't agree more yet. It's, it's like a reverse hedonic adaptation, isn't it? Exactly. Yeah. Like, I've got used to this new, the last podcast that we did was talking about people getting accustomed to their new levels of wealth, NBA players who this and the other, whereas now it's almost the opposite of that. One way in which I can see this situation being very different to the blitz in terms of people's response is that you going outside and putting your own life in danger during the blitz did not endanger the lives of anybody else. Whereas the, um, and silly, analogous kind of the, the orthogonal problems that you're going to come up against by leaving. Let's say that you leave the house because you're just going to get on with your day, but you get infected, then bring it back, then infect the rest of your family. That,

I think, is playing on so many people's minds. You know, like the social costee, what is it that Naval says where he talks about privatized gain versus socialized loss? And that's what? That's what the person who decides to go to work just so that they can continue to get money despite having a cough. That is the situation that we're playing ourselves with. And there's no, you're totally right, the UK and America, there's no martial law implemented. There's nothing stopping me if I get a dry cough.

And I think, no, it'll be fine, I'll be okay. I could do it with making some money this week. I'm just gonna crack on and go to work. If I decide, if I I could do with making some money this week. I'm just gonna crack on and go to work. If I decide to do that, that's putting other people unnecessarily at risk. And that is a great point. I think that's where the difference lies. Yeah, totally.

I think that's totally true, especially when the biggest risk that you're gonna be, if you go out and catch it yourself, and then you come home and you're with your spouse and your kids or your parents, your in-laws, whoever it is that's living with you. It's like the people you're gonna put at risk are the people who are closest to you

and you love the most, which is adds a different element to this. Very vicious. Very vicious. It is, it's different in that sense, yeah. Yeah, so I wanna talk about the markets and sort of how and why they've responded in this way. We've spoken about the fact that they've moved. What did you say? 25% down? Is that right?

That's that's Ruthera. It was it was 27 this morning and now we had a big update. So yeah, let's let's call it 25. Okay, cool. Yeah. We'll even out a night around 25% in the red. Why is that happened for people who maybe have an only basic understanding of economic theory, have investors just said, I'm gonna pull my money out what they're doing. Is it sitting in the bank account at the moment? Are people deciding are they literally going out and trying to buy bars of gold?

Like what's happened? Well, let's keep two things in mind here that I think are important. Is that one, whenever there's been a tremendous amount of selling very quickly, very vicious selling, like we've seen in recent weeks, there's several kinds of investors that might be causing that.

One is that I think is really important, that has grown in importance over the last 10 or 20 years, are these computer algorithms that are literally just automated programs. It's not a person typing in cell orders into their e-trade account. It's literally these computer algorithms that are making the trades by themselves,

by the knowledge that is invested in the algorithm. And a lot of those algorithms can, especially during very volatile times, can go kind of haywire. And so how much of what's been going on in the last couple of weeks is not necessarily human fear, but just computer saying, this isn't right, sell, sell. No, no, that's not right.

This correlation looks weird to me. So sell, sell, sell. We don't know, but I suspect it's quite a bit. We don't know what the measurement of that is, but there's that element. And to interject there, Morgan, that's the first time that we'll have had such a proliferation of And to interject there, Morgan, that's the first time that we'll have had such a proliferation of expert advisors slash algorithmic trading, right? In 2008, 2009, we would have had some, but it's now going to be ratcheted up even more so. So this is again another parameter, another variable that is affecting the current economic market, which we haven't seen before. market, which we haven't seen before. I think that's probable. It was actually fairly large in 2008, but you're right that it is bigger.

I think it's definitely more sophisticated today. Sophistication, I might put in air quotes because often times, rather than sophistication, maybe the word is complex. And complex can lead to some weird outcomes when we're getting wild in these times like we have right in today. So it's important to realize that when there's a tremendous amount of selling, it doesn't necessarily mean a human is scared. It's just someone is selling out there. The other thing is, look, these are different economic times, like the numbers that we've put around about in China car sales down 90%. And who knows what it's going to be in the United States. I've spoken with some

friends who are small business owners who their sales are down 50, 60, 70% in the last week. So there is just a ratcheting down of economic expectations relative to where we were three weeks ago. Public companies are not going to be as profitable over the next year, maybe more than they were three weeks ago. So there's that. And then there is also another thing to keep in mind here, kind of the counter to all of this, which is that it's very often to look at the headlines or to watch CNBC and come to the conclusion that investors are panicked. People are panicked and they're selling, which is true, but there's a very important caveat,

which is that what you're seeing is just the marginal transaction. And what's important is that during these times, the huge vast majority of investors in the high 90% are not doing anything. So one of my favorite statistics was the last time we had kind of a big, crazy 20% sell-off was a summer of 2011. A lot of people don't remember that-off was a summer of 2011. A lot of people don't remember that anymore, but in summer of 2011, it looked like we were heading back

into financial crisis 2.0, that we were going to head back into the great recession, and a lot of people, and it got really dicey for a while. Stock markets fell about 20%. During that period in August 2011, when markets fell 20%, 98% of Vanguard investors, Vanguard being the largest investing platform in the world, did not make a single transaction, 98%. So it's so easy to look at that period and say, everyone's panicked.

And the answer is no, a very small percentage of people are panicked and they're making transactions, and those transactions are having an influence on the going price of stocks. But 98% of people are not a way I'm doing anything. A lot of people aren't even paying attention. Like trillions of dollars out that is invested in the market is for people that invest in their company 401ks and every paycheck, they put a couple hundred bucks into their 401k. And most of those people don't even know the password to their brokerage account. They're not paying any attention to what's going on. So to me, that's always like an important context when I think it's easy to say everyone's panicking. No, they're not. Some professional investors are panicking and some individuals are too. But the majority of people are just going about their day right now. That's always important

to remember when things are getting crazy. Yeah, we see the scenes from Wall Street, right, with the guys shaking those pieces of paper in the air and we think, oh my god, like that's a microcosm, which is, they're the representative for so many other people around the world. And you're totally correct, especially when you're dealing with a global pandemic. People are thinking about, how can I make sure that me and my family are safe? Have I got enough food in the house? What's going to happen to my kids and my kids going to be sent home from school? You're totally right. They're not thinking about the finer points of of trading and bits and pieces like that. I've got a note

that I made during the weeks since I knew that we were going to do this. You made an analogy that I think was a tale from your grandma where she said the difference between camping is fun and being homeless is miserable. And it was, it was talking about that. And I realized this week that a meditation retreat is fun, but house arrest in Italy is also miserable. And that's just a perfect, a perfect analogy, you know, you know? Like there's people who decide, oh, I'm gonna spend a little bit of time at home with the family this week.

I'm gonna decide that I'm gonna, oh, I might go and decorate the house. I might do a few other bits and pieces, but when that's mandated by your government because there's a pandemic running riot outside in the streets, it's a lot less fun. Absolutely, I think that's true. I'll give you my personal example.

This past Christmas break, I took about 10 days off of work and we didn't travel anywhere, we stayed home and it was really bad weather. So I didn't do anything outside. So I spent about 10 days on the couch listening to podcasts, reading books and it was so much fun. I loved it. It was just a great 10 days of just leisure and reading and learning. But you're absolutely right that if I, if we went into lockdown here and then it was, I have to spend the next 10 days or two weeks or whatever sitting on the couch reading books, I'd probably be miserable just because it's against you. Yeah, because it's not your decision. It's not your decision.

Yeah, well, we can talk about that. Right. Okay, so I want to know what you have changed your mind on in the last few weeks, anything that comes to the forefront of your brain that you've changed your mind on or a new perspective that you've gained over the last couple of weeks. I don't I don't want this to sound flippet, but I don't I don't think the answer is anything. And maybe there's two reasons for that. One is that I just don't know enough yet. Like maybe as in the next month, I'll learn something else that's going on about the progress of the disease or the new infatality rate, whatever it is that will make me change my worldview. But the other reason I don't think I've changed my mind about is because all of my investing philosophy, starting well before this has been the case for years, more than a decade,

has been based around the concept of survival. Just if I want my investing strategies to be based around endurance, so that I can put up with upheaval. And kind of inherent in that is that I am always expecting and prepared for major upheaval. I don't know what's going to cause it or when it's going to come or how severe it's going to be or how quickly it's going to come. But I'm always prepared for stuff to hit the fan,

so to speak. So, and I think that's not true for a lot of investors. A lot of investors, when they experience a 20% decline, they never expected it. Or even if they, in theory expected it, they kind of thought it would never happen. And so they're really taken off guard when it happens, whereas I'm, and maybe this is just indicative

of my personality, I'm kind of a worst case scenario, warrior, but I'm always under the impression that stuff like this is gonna happen. And I've written about this before, I keep a much higher percentage of my assets in cash than most people of my age would. And the reason is because I think I'm always worried about stuff like this.

And once stuff like this happens, I wanna make sure that my endurance is in place so that I can not have to freak out. Man, I've got a question here from someone on Twitter who DMed me and said, Morgan once alluded to the fact that he basically hordes cash as a security blanket, fully knowing it is damaging

long-term and diluting his returns, but protects him in situations like that. Is he still that way today? I guess you've just at least in one form answered that. It's, the answer is yes. And I would actually add to that in terms of not, you know, to get personal about my situation here, but my, my wife is a stay-at-home mother. I have two young kids on the sole bread winner. If anything, I've probably gotten more paranoid because everything in my whole family's stability is on my shoulders here.

So if anything, I've gotten more paranoid. And I, but I'll tell you, it does not bother me a single bit. Even let's rewind the clock to a month ago and markets were at all time highs. Of course, I could go back and do the calculation and say, hey, if I had invested some of this more cash in stocks over the past 10 years, my net worth would be X percent higher, does not bother me in the slightest. I've always said, and this is not, I don't expect this to be the case for everyone.

So I'm not saying everyone should do this, but I do not manage my money to achieve the highest returns. I manage my money to get the best night of sleep. And because of that, it does not bother me in the slightest that I'm giving up some returns. I should also say when I say I have a lot of cash, it's not, it's not crazy amount. It's not like I'm 90% of my money in cash or anything. Yeah, it's not a mattress full that you and your Mrs. asleep and I haven't a rearrange each night because the hundreds are under her head this week and so or anything like that. It's not a mattress full that you and your Mrs. are sleeping. I haven't a rearrange each night because the hundreds are under her head this week and so do yours.

Yeah. It's nothing like that. I mean, it depends how you measure it as a percentage of our assets or percentage of our equities. But, you know, it's probably something like, you know, we have five times as much stock as we do, as we do cash. So like 20% of the portfolio, something, it's something, it changes based on a lot of different variables or however you want to measure.

But it's not a crazy percentage. It's just higher than most people in my situation would. But it's because, and I won't even say it's because I'm conservative or I don't want to take a risk. It's that I value endurance more than any other investment variable. Because once you have endurance and once you have just rock solid

endurance, that's when you can really let compounding work over long periods of time. Because when you face a period like we have over the last month, you're not going to get knocked on your butt and get knocked over. You're going to say, look, I have the cash to withstand this. I can put up this. I'm just going to full speed ahead. Let's go. And once you say that, that's really when compounding works miracles over a very long period of time. Once you have the endurance to not get knocked down during these headwinds, it's so much more powerful to do that than it is to really maximize for ROI and have all of your cash invested in stocks.

And then you hit a bad period where maybe you get laid off or whatever happens, the normal banana peels of life that people slip on. And during a market, during the market decline, you suddenly say, you have to panic sell at the bottom or something like that. That is a situation that's going to dent your returns far more than having a big slug of cash during a bull market. Yeah, it's choosing to make a little bit less over a long period of time versus risking losing a lot in a short space of time. Right. There's a financial advisor named Carl Richard who writes about this. And he, I'm paraphrasing here.

I might butcher this, but he says, you know, it's, it's, it's about exchanging this, but he says, you know, it's about exchanging the opportunity to make a killing in exchange for making sure that you don't get killed. Yeah. That's really what I'm going for. I just want to make sure I don't get killed as an investor. And I'm willing to exchange, not making a killing in order to make sure that I never get killed. I wonder how many people will be learning that lesson right now. You know, people who have had a lot.

Yeah. Yeah. And I don't, there's no shade in front of me. I feel bad for those people, but it's a lesson that a lot of people will learn. Well, another, so some Harris tweeted one of the cleverest things I've seen so far, which is totally not to do with finance, but is analogous to what we're talking about here where he said, the mortality of this virus, it's between two and four percent ish, we can say it's between there. This is a dry run for something that's a lot more vicious and has shown us just how poorly

prepared we are for it and the interconnectedness and fat tail probability and all that stuff, all the reasons as to why it's been able to spread so quickly. But imagine if this was murs or Ebola with mortality of 30% or 50% but the infection rate was still people being able to infect Or there's whilst being asymptomatic and it dragged out over a long period of time and blah blah blah, you know that would be that you're talking existential like end-of-humanity type stuff. So again with that, you know one of the things that people can take it does not many positives to take from this situation, but one of them is it could be worse. There are by a number of parameters that this could be worse. Just looping back as well to what you said there about your survivability and that long-term thing, I'm just going to start to read from something

you tweeted earlier on today, which I absolutely love. And it's Charlie Munger in 2009 asked being asked how worried he was that stocks had fallen by 50%. And this is his quote, zero. This is the third time Warren and I have seen our holdings go down top tick to bottom tick by 50%. I think it's in the nature of long-term shareholding of the normal vicissitudes of worldly outcomes of markets that the long-term holder has his quoted value of his stocks go down by say 50%. And essentially, if you're not willing to react with equanimity to the market price decline of 50%, two or three times a century, you're not fit to be a common shareholder and you deserve the mediocre result

you're going to get. Oh my God. Yeah. It's got balls of steel. It's known for his, he's known for his blunt language. But I think that gets back to another kind of point what I was saying is that these major hits and they always, they always look different and come in different forms, come from different areas. But to take a major hit to lose 30%, 20%, 50% of your money, is something that you, as if you're a long-term investor,

you should expect with 100% certainty that that's going to happen. These are not, these should not be surprises. It's not to say that they're fun when they occur, but you should not expect the whole reason that stocks are capable of producing great long-term returns is because these things happen. If you don't want to deal with this,

then you can put your money in a savings account and earn half of 1% and you don't have to deal with any ups and downs. But if you want to earn 10% a year on your money over the long haul, you need to put up with the fact that every couple of years you might lose 20 or 30 or 50% of it for a somewhat short period of time who knows how long and then it'll come back. That's the price of admission to the markets. It's unfortunate, of course, when people are reminded, or they learn the cost of admission

after they've entered the theme park, so to speak. But this is the cost of it. This is the payment that the market requires that you pay in order to go on this glorious ride over 10 or 20 or 30 years. If you're not willing to pay it, you're going to have a real hard time. Well, I mean, for the people who haven't heard my first episode of Morgan, it will be linked in the show notes below. And I employ you to go back and listen to it because so many of the lessons which you gave us then apply.

Now, what was it that we talked about? We spoke about the fact that so few people in the West have at least one month salary in the bank that they're living paycheck to paycheck. People are very highly leveraged through talking about the fact that you need to ensure that you earn more than you spend on a consistent basis. And all of these things right now, this is the situation. This is where you get down to brass tax and you see who has that in reserve. And those lessons, if people had heated those lessons for the last 10 years, they'd be fine.

If people who haven't he did those lessons for the last 10 years are going to be a little bit less fine. So I wanted to talk about, you can't give Morgan Housel's how to survive a financial apocalypse. But have you got any tips for what people can do, even if they're just mental strategies rather than financial strategies, how would you go about it? I mean, it's so different for everyone because everyone's got a different financial situation, a different job situation, different family needs and whatnot. I mean, I can just tell you

how I'm coming in from it for my own perspective. Sure. I'm, you know, I've, well, I mean, the first thing I did was just to have a lot of preparation for this event. Now that's not advice for someone who did not prepare for this, but I have a lot of cash. We have some flexibility. A lot of the stuff is just unique to our financial situation. It's not going to be that applicable to other people. The other thing, and this is a different personality as well, too, but my family can live very, very cheaply and still have a good time. We can have a good time going for a walk, going to a park, going to a library and checking

out books. We do not, we're not a big low and a big high maintenance family. And that becomes such an important asset if economic times get rough because if you have to, this gets back to the camping versus homeless thing. If you are forced to cut back your lifestyle, it hurts. If you're forced to do it. If you want to drive the nice car, but you can't afford it anymore, that's a painful thing if you're forced to do it. But if you have the kind of situation where it's like, no, honestly, if my wife and I, if my family and I,

you know, were billionaires and we would never will be, but if we were, we would still spend our Saturday going for a walk down by the river. It's just what we enjoy doing and it doesn't cost any money. So I think to the extent that people can find hobbies that do not cost any money, that it sounds, it sounds trite, but that's probably the best thing that you can do during a tough economic time.

I know that that sounds silly, that's not exactly financial advice, but I think it's honestly the most powerful thing you can do. It's to keep your expectations low, but do it in a way that it doesn't feel like you're being forced to cut back. You're just finding new hobbies that don't cost a lot of money, if that makes sense. It couldn't agree more. I think that that resetting of the hedonic set point, you know, I wonder how many people in this situation will actually be given renewed vigor,

I mean, renewed love for simpler pleasures, you know? Like it's rare. Some of the things I've been thinking about, which don't really touch on finances that much, but it's very rare that globally, everybody is dealing with something, you know? Like it doesn't even rain everywhere in the world at the same time. Am I raining countries at the same time, but it doesn't even

rain. So I was thinking earlier on, like, you'll have seen this, the world cups on or the Olympics are on or some reality TV's on or whatever it might be, when people in the modern world have the opportunity to band together behind a common experience that all of them are having, you get an incredible sense of unity and a very unique opportunity to actually see what happens bizarrely when people are brought together. And I can't remember, it's one of the ex-American presidents who was talking about how we would all be united if we were against a common foe that was from a different planet, you know like the divisions the divisions between countries and territories would be forgotten almost instantly and this is kind of it, you know, there's some people out there who want to blame China and almost be I suppose racialized the virus against the east but really everyone's just going look we're all in this together. Fuck, like I feel so bad for Italy. I feel so bad for Wuhan. I feel so bad for this country.

Shit, like, you know, we need to do our bit and we need to do this and any other. And it is in the strangest way possible. There's a bringing together of people under this catastrophe that seems quite rare. I think that's, I think you're 100% right. That was, that was, I was said very well. And it's, it's, it's true. Now, if there is, you know, a devil's advocate to that and you sort of alluded to this,

it's still if you watch the cable news outlets, it's finger pointing left and right. I think that's not going to go away. But you're right that I was actually thinking today, and I didn't, I didn't tweet this, but I'm going to say it on the podcast anyways, because it might be wrong. I'm not, I'm not, you know, claiming this, but I think this might be the biggest global events in World War II. Is that? Is that very well-known?

It's either of those two events within countries. There have been Rwanda Janice, you can go down the list, but global in terms of something that's like happening to almost everyone at the same time. This might be the biggest things that's world war two. I didn't, I didn't, I didn't, I didn't tweet that because I might be wrong about that. So if there's a listener who says, Hey, no, you're forgetting this. I'm, I'm open to being wrong, but I think it's close to that. It's definitely going to be up there, man. Yeah, and it is, it is bizarre to sort of think about what does this mean because the

virus is a very unique equalizer. Doesn't care whether you're rich or poor, doesn't care where you live, what country you're in, doesn't care who your mom and dad are. If you get it, there's different strains, but the effects are exactly the same. You're in, you know, you're in the same place from the king and his castle to the pauper in the street. They're all in the same position. Now, that's, that's a hundred% true, which is very different from like Vietnam in the United States, where rich people could more or less, by their way, out of the draft, where there were ways to

get around it. If there is a caveat to that, especially in the United States, unfortunately, is that health care does is bias towards income. So whether you, whether you, whether you catch the virus might not be. And for some people actually is because if you don't have paid time off work, you're more inclined to go to work if you're not, if you're getting paid, you might be more, as you know, susceptible to getting it. But then healthcare afterwards is so bias towards income in the United States. It's a, it's a big, it's a big problem. But I think you're totally

right that in terms of something that Americans and Italians and Iranians and Chinese and British, everyone French, just we're all in the same boat together. And it's like, I'm not any expert on this either. But my understanding is that China very quickly posted the genetic sequence of COVID online, like globally to anyone, like open source, like let's just try to figure this all out together, you guys.

So that's a cool thing, like it's too early to be looking for silver linings of this, which is not yet. But it's not unfathomable to think that a year from now, two years from now, we look back and say like that was actually a really cool thing that we all did together. It's not to minimize what might happen, but I think you're totally right. Yeah, you are correct. There could be some great ways to transcend the suffering and the catastrophe that comes from this virus by the learning, by the models that we have, by extra preparation as we move forward. I can't remember what it was I was listening to

the other day, but it's something like, I think 20 million N95 masks could be made for the price of one tenth of a fighter jet. I think the US are desperately trying to get like half a million and it would make some huge change or whatever it might be. One other question I've got with regards to finances, do you think that the market has fully priced in how the epidemic can go yet or is it still just reacting daily? I think it's priced in a tremendous amount of what might happen. Like by any measure, a 25% decline is big. It's pricing in a lot of bad news. But no one, not a single person knows what's gonna happen next.

So it's possible that we've already way overreacted. That's possible. It's possible that we've barely scratched our surface or what's gonna happen. I don't know and nobody knows. So I don't think markets are not being complacent. Whenever there's a 25% decline in 10 days. There's no complacency, but there's still just a big question mark.

We just got to see what's going to happen. What was it? If someone tells you they know what's going to happen, you know, ask them for their forecast one year ago that said a virus called COVID was going to ruin the world. You know, if you didn't see this coming a year ago, you have no right telling you what's going to happen over the next year. Man, what a quote. Yeah, I absolutely love that. What was it that you were saying? I saw, I think it was a graph, a graph of perhaps the FTSE 200 and you'd highlighted on it

about when the different forecasts were made all the way along it. And then there's just this bit where the coronavirus gets released. And then there's just this bit where the current of our risk gets released. And you were like, no, but anybody that tells you what they have an idea about what's going on is so far wrong here. Yeah, you know, the biggest risk, this is always true. This is not unique to the last couple of months. The biggest risk that we face is always what nobody

is talking about. And by definition, we have no idea. And then it's funny whenever, when I said that in the past, I've had interviewers would be like, okay, so what is nobody talking about right now? And I'm like, no, nobody including that nobody is talking about, it's something that we cannot envision.

And just like if you went back six months from now, not a single person on the entire planet could have said, well, there's gonna be this coronavirus that's gonna, like no one could have said that. That's always the case. Wasn't it? You go to highlight all of the different people that we're talking about whether or not a cutting interest rates or a change in employment law was going to make a difference.

And then coronavirus just comes in and shakes the extra sketch and wipes everything off. Yes. We spent 10 years debating, who's going to cause an extra session? Is it Barack Obama? Is it Ben Bernanke? Is it Donald Trump? Is it Jenny? No, it's a virus. It's not those things. It's this little tiny virus. So that's I think if that doesn't give you humility and your forecasting, then nothing will. So that's when it's not a comfortable answer. I get this, but no one knows what's to happen next. And my proof from that is no one knew that this was going to happen to begin with. I couldn't agree more, man. So a lot of the questions that I got have been from people talking about, right, when, when do we react? When is it a good idea to invest in big companies that we hope

will recover? What are the signs that are going to show that they're recovering and stuff like that. Is it even possible to model at this stage? Well, the important thing, and this is always true, and I know this will be true this time around too, is that the stock market is going to rebound well before the real economy rebounds. That's always how it happens. The stock market bottomed and then started rebounding in March of 2009 after the financial crisis. The real economy really didn't start getting better until early 2010, even

due to 2011. So the stock market always happens way before that. So if people wait for businesses to start recovering, the stock market's arguing going to have been recovered. That's always the case. That will be true this time. So my recommendation for that is to say, look, you should really think hard about how much cash and liquidity that you need. Everyone's different, they have different job prospects, different job security, different cost structures, et cetera. But think about how much cash you need.

And then once you have that secured, I just dollar cost average into the market. That's always what I do. And I don't think that's gonna change. So that would would be my advice to people is it gets dangerous if you say, I'm going to look for signs that businesses have bought them. That's not a winning investment strategy. You got to get it well before that. And the only way you're going to get in before that is just kind of make it systematic and just say, I'm going to invest X dollars every month. And then that's it. Just keep it simple like that. So you just piece into the market slowly over time, is that right?

Just slowly over time. That's it. Yeah. And I have my cash on the side that keeps me safe. It's my security blanket at night. And after that, it's just dribbling in consistently over time. That's it. I get it. So is that I saw a comment someone had, it was Anton Creel actually. So Anton Creel had tweeted the other day that he'd been asked How does he feel ethically about making money in a situation like this? And I wondered what you and potentially some of the people that you're exposed to your friends if they ever have an Ethical consideration, you know This is any movement in the market is an opportunity for people to make money. And drastic movements in the market, drastic opportunities for people to make money.

Do you ever think like, oh, God, like, you know, there's some friends that you'll have in there that will have been rubbing their hands together because they've been able to play the stock market in a good way and this opportunity has come to them? Do you think that people have a little bit of guilt in that? I don't know. Well, I think there's two in that? I don't know. Well, I think there's two separate things. I don't know, and this is not what you're referring to, but there's a story today about a guy

who went around to every Costco he could and bought out the Chlorox wipes and he's selling him for a hundred times market. Like that's a profiteering that I would feel morally corrupt about, of course. But I think if you were just saying this stock is cheap and I'm gonna buy it, because I think it's gonna go up, no, I think there's absolutely nothing more

on guilt in that because especially markets going up to the extent that you are a buyer and you are doing your marginal part to help markets go up, that affects a huge swath of the population. That's not just rich people. That goes down to pensions and endowments that affect a large chunk of the population. So I don't think there should be any moral guilt about buying when stocks have plunged. And if anything, I'd say you can see other way around. It's almost like, look, this is not your full patriotic duty, but I do think there's a patriotic duty to pay,

like, you know, to play your part in keeping the financial system together. A big part of that is not participating in a bank run, which we don't have many of anymore, because we have insurance on our deposits. But that bank run is an example of how you can be going against your patriotic duty to keep the financial system together.

So, and look, if people need to sell their stocks, I don't think they should feel guilty about that either. You gotta take care of your own needs, and a, if people need to sell their stocks, I don't think they should feel guilty about that either. You've got to take care of your own needs and the market is a market. You can buy or sell whenever you want. But no, I definitely don't think people should feel guilty about it. Particularly if their wealth is going to help them secure their family's future, their family's foundation, I think it's a wonderful thing that we should be proud of.

I get it. So, is this an opportunity for somebody who has a solid amount of liquid cash to make money over the next few years? I would, I would say yes, but I would put a caveat on the last part of what you said, which was over the next year, next few years, I don't know. I don't know if this is going to clear up next week. I don't know if this is going to take 10 years. I don't know.

Yeah. As a long-term investor who's looking at truly the next generation, I'm investing for the next 30 years. I hope to pass along assets to my children. You know, when that is my time, range, then I don't necessarily care whether this is going to take six months or a year or 10 years. It's not really a factor that's going to materially change how I invest. So, that's the only caveat I would put on to that. I think this is an opportunity as long as you have a very flexible time horizon in front of you.

Yeah. And it's also not to say that even though this might be an opportunity today, that does not, that does not say that this might not get much worse from here. Those are two separate things. It might get much worse from here. There's just so many unknowns, isn't there? You know, like, I... Yeah. And having a known is so, like, having a very bad known thing does not hurt as much as having a little bit of uncertainty, if that makes sense. Like, I mean, here's an example. I'm just making this up. If I punch too hard in the leg right now, it might hurt, but it's just like it's a known thing and it's over.

Whereas if I said Chris at some point in the next 24 hours, unexpectedly, I'm going to punch you with medium strength in the leg. That would bother you more than if I hit you really hard really quickly and just got it over with. Like having an unknown and question mark is so much more painful than a known pain. And so it's hard for everyone. And it really affects your long term thinking. It's hard to, it's hard to think about the next year when the world, as you know, it changed in the last 48 hours. Very difficult to do that. So it's like that amount of uncertainty just means that when people are looking ahead in their future, it used to be, if you were back two months ago, people had, you know, I think most people

had a pretty good view of what their next year would look like. They know that they're going to do this. They're going to live here. They're going to work there. And now people are like, I don't know what's going to happen. And like, are we going to be on lockdown tomorrow? I don't know. I just have no idea. So that uncertainty is very hard, is mentally to deal with. Does that Larry Summers Court which you tweeted the other day, which was a good rule of thumb for many things in life holds,

that things take longer to happen than you think they will, and then happen faster than you thought they could? And there's that other one. I can, the other one floating around, which is it takes decades for nothing to happen, and then sometimes decades happen in no time at all. Exactly. There's another quote from, from Tallah who says, history does not crawl. It leaps. And that's true. The biggest events of history had happened overnight. And I think that happened in the last week. And that's true. The biggest events of history had happened overnight. And I think that happened in the last week. And it's really interesting.

So, back to Larry Summers quote, no one predicted that the economic expansion, the bull market, would last this long. Nobody had lasted much longer than anyone thought. And it has now come to an end faster than anyone thought as well. It's, man, from an economics perspective, this must be a fascinating thing to study and will be a fascinating thing to study. For a significant amount of time, I'm going to guess. It's true, but I can tell you for myself as someone who's studied these things more or less for a living.

Of course, I'm, you know, is it fascinating? Sure, but I'm worried about my parents' health. I'm worried about my family's health. So there's, it's this weird thing of like, yes, this is fascinating, but it's also like, it's a scary time for everyone, you know? Yeah, it is. And that's, I think both of me and you have today said a lot of things with trepidation and kind of tried to tread carefully on the ice because we know that it's a traumatic and difficult time for a lot of people. And yet in the same sentence,

it's also fair to say that it's an opportunity for growth, it's also an opportunity to make money. It's also a time that we should be studying. There's also some potential good things which should come out of it. And I think I haven't seen much yet online of people being called out for being insensitive to these sorts of things. I do believe that people are actually a little bit more attuned to the nuance of some of

these arguments at the moment, which actually makes me feel really confident. I'm glad that it's the case that people aren't jumping down each other's necks about this. You are right. There is some finger pointing, but not. I don't think this as much as there could be. It does feel like people are banding together. There's a great book written by an author named Sebastian Younger. The book is called Tribes and it's a very short book. You can read it in two hours and just talks about kind of the social consequences of being in a tribe. And tribes take very different forms. There's Native American, like tribes where there's also just like colleges

as a tribe. Your co-workers are part of your tribe. A point that he makes that really stood out to me is like, when a tribe goes through a shared trauma, as I think we are right now, there's a very long history of people banding together and being like, look, we're all in this together, we're going to suffer together, we're going to find a solution together and we're going to walk out of this together, arm and arm. That happens a lot. Back to the London Blitz, which I think you probably know more about than I do, but I've heard stories along the similar lines. Like everyone was in a terrible situation, and there were stories of people just be like, look, we're in this together, we're going to rebuild together, we're going to do this together. So those stories can be really inspiring. It's

something that minimizes the trauma that comes from that. But it's probably something that is easy to overlook when you and I are sitting here right now trying to contribe the next year in front of us. It's probably easy to overlook the benefits and the upside of what happens when people band together against a shared enemy. I get it. Right. I got a couple of questions.

I want to ask you first about what would be some indications that the market on a whole is either getting better or worse, and then we're going to have one final question after that. I think, so let me, as I'm sitting here right now, this will be data when this podcast comes out, but I'm sitting here right now, the Dow Jones is up 1700 points. You might think that's great, big rebound, maybe we're back. I would be cautious about that. A massive up day is just as unstable as a massive down day.

So what would make me think that the market is kind of stabilized? It's not that it stops going down. It can still go down, but I want to see it go down by 100 points, not 2,000 points. And I want to stop seeing it go up 1,700 points. I want to stop seeing it go up 1700 points. I want to see it just go up 100 points in a day. So once the daily percentage movements become more in line, I'll be more confident that it's stabilized.

But even when it's up 1700 points, that to me is not good news. That to me is a sign that no one has any idea what the hell is going on. So that would be what I'd be looking for is just, but by the way, in the last minute, now it's up 2000 points. Oh my God. Wow.

And that's the thing we're about to see market clothes right on a Friday evening and then when this podcast will go out on Monday, so you know, on Monday, people will be watching this podcast. And they might very well might look and it could be down, it could be down more than that 1700, right? He could have reversed all of today's games and more. Of course, I mean, it was down 2000 yesterday and now up 2000 today.

So there's net no change. It's just what's happened in between has been pure another chaos. Okay, and final thing we've touched on Nassim Talab today and he's got a concept called anti-fragile which is things which gain from disorder. I've got a couple of suggestions and I wondered if you had about how people can become anti-fragile during this period. Perhaps they're going to be under containment, perhaps they're going to be under some form of lockdown slash house quarantine slash at least at the very least restricted movement. So one of the suggestions which I've got is to buy

a couple of bits of DIY equipment and maybe some paint and do some home decorating in that room in the house that you've been intending on doing for the last 10 years. And now you've finally got it. Love it. I think that's great. I think what I was gonna say along those lines was, hey, if you're on lockdown, you got some free time for whatever, great time to listen to some podcasts, read some books. That's what I'm not gonna do.

Like to subscribe in the show notes below. Press subscribe here, modern wisdom every Monday, every Thursday, Morgan House, or in the building. There it is. Yeah, I think most people, I think I run into a lot of people that say, I want to read more, I just don't have time. Well, you might be about to get some time, so take advantage of it. Exactly.

Well, we're going to see just how much you actually want to read more when you do have time. But yeah, I couldn't agree more. You know, like, antifragile industries, podcasting, definitely, the episode that I parted at the start of this week with Eric Ding is now second only to my episode with you after five days of all-time plays, because obviously people are interested in that. Books, you know, like anything online, Netflix, I can't imagine how many more Netflix things. Have you seen the point? Have you seen that PornHub Premium has given all people in Italy free access.

I did. I did. It was brilliant marketing on their part. That was it. That was a smart decision. Pornhub is now a public service. I have no comment on that, but I'm not going to disagree. I'm not going to disagree. How about that? Yeah. We were talking earlier on about how having a girlfriend or that having a partner is Pretty anti fragile because the dating market is definitely going to suffer over the next couple of years That's what no one's talking about Morgan I need you to start tweeting about the fuck the the price of Apple and fuck the Dow Jones

I want to know about the dating market and. I think my my two prized assets right now are maybe, oh, no, no, I shouldn't. I shouldn't. I was going to say, I don't want to frame this as asset, but I was going to say, I'm lucky to have a spouse right now that I can hang out with and enjoy a lot of free time that we didn't have before because we're kind of on lockdown now. So, you know, I travel a lot for work and now of course all that is canceled. So I'm about to embark on the longest uninterrupted stretch with my children that I've ever had, which is great, right? What, you might be great or you might lose your mind.

So we'll... Yeah, exactly. Other anti-fragile bits of advice that I've got for you by probably not secondhand, or if you do buy secondhand disinfect it, a musical instrument, you've been thinking about starting a musical instrument for ages, perhaps that's a way to do it, definitely books, like buy a Kindle,

like, you know, if, if you've got to prepare for the absolute worst and potentially Amazon shipping becomes reduced. Buy a Kindle, it's like 79 pounds, probably less than $100 and you'll just have essentially unlimited books, get an audible subscription as well, Netflix, maybe get an Xbox or a PlayStation or something like that, Amazon Prime for movies, you know, a kettlebell, a kettlebell, a couple of resistance bands, and a couple of cheap dumbbells from anywhere. And that's, you know, like, what else do you need? I don't know what else you need. That's me happy. I'd be happy living like that for you.

You're intellectual health. You got your physical health. What more do you want? Couldn't agree more, man. Look, Morgan, I genuinely, genuinely don't want to have to speak to you again until your book comes out, because if we genuinely, genuinely don't want to have to speak to you again until your book comes out because if we do, it's because there's another financial crisis. I'll try not to take that as an insult, but it sounds good. It's been so good. Twitter.com slash MorganHauselHOSEL will be linked in the show notes below. I implore you to go and follow Morgan for some good updates about what's going on

with the market. Final thing, where would you suggest people go, Morgan, for a bit of news if they want some accurate, sort of nonsensationalist news with regards to the current state of the financial market and economics? Is there anywhere that you'd suggest that they go? That's a great question. I don't know if I have a good answer.

Other than, I think you can tell who's being sensational and who's not very quickly. And I don't know if I have a good answer for that. Just, there's some people who I follow on Twitter and some of them seem to be taking a rational stance and some of them seem to be just hyperventilating about all this stuff. But, you know, there's a very good dashboard put out by Johns Hopkins, I believe, that just has a world tally of coronavirus known carriers deaths, recoveries, where they are a map of the world. There's a really good dashboard to follow,

just to kind of track the progress of what's going on. That's really interesting. Awesome. Morgan, thank you so much, man. I really appreciate it. Everything that we've spoken about linked in the show notes below, you know what to do. Like, share, and subscribe. If you've got any questions, feel free to hustle Morgan on Twitter

or me wherever you follow me. Morgan, thanks, man. This has been fun. Thank you.