Prof G Markets - How FOMO, Doom, and Ego Impact Your Money — ft. Morgan Housel

Episode Date: June 13, 2024

Morgan Housel, New York Times bestselling author of “The Psychology of Money,” joins the show to break down some of the worst traits an investor can have. He also discusses the difference between being wealthy and being rich, how to deal with uncertainty in the markets, and how he thinks about giving money to his kids. Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

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That's how much the guitar John Lennon used to record helped sold for at auction. True story. Yoko and John, in order to get their little boy to eat, would say, give peas a chance. Welcome to Prop G Markets. Today, we're speaking with Morgan Housel, the New York Times bestselling author of The Psychology of Money and Same as Ever. But first, here with the news is PropG Media analyst Ed Elson. Ed, did you notice my tie? Yeah, I did.

What is that for? You know, I don't like to talk about this kind of stuff, Ed, but since you asked, I was at the Yale CEO Summit virtually and I spoke after and before. So I felt very young So I felt very young. I felt very young. But am I speaking out of school here? I guess I'm not supposed to say what happened. Anyways, very impressive group of people. We were talking about social media and regulation and all of the legislation that's come down the pike from our great leadership.

None. Absolutely none. What was the spark notes on what you said? Well, as you can imagine, I only get invited to stuff to speak about tech and AI and regulation or lack thereof. And anyways, I'm trying to respect the fact we're not, it's Chatham House rules, whatever the fact I call it. So anyways, I just want everyone to know that I'm very important. That is what I am really. Sorry, Chatham House Rules, you can't say what you said? Is that the rule? Chatham House Rules is it's all kind of off the record, I think. I think that's right.

So your advice to the world is top secret, basically. It's actually like more nuanced than that. Chatham House Rules is something kind of funky. Oh, you can attribute, you can say who was there, but you can't attribute anything to them. Something like that. I don't know. I don't know. Chatham House. Well, hold on. Now I got to look it up. Hold on. What are Chatham House rules? The rule, okay. When a meeting or part thereof is held under the Chatham House rules, participants are free to use the information received, but neither the identity nor the affiliation of the speaker. Okay. So I have done exactly the wrong thing. So you got it mixed up.

So I disclosed the identity, but not what anybody said. Okay. So I am literally get kicked out of Chatham House. By the way, did you ever see Cider House Rules by John Irving, or did you ever read it? It's a fantastic book. It's about a home for unwed mothers who get pregnant. And it's by John Irving, who is an outstanding author. It's one of my favorite. I'm having this moment where I'm going back and looking at the books that really moved me in high school and college, like the first books I read. And John Irving novels, The World According to Garp, they were so strange. Do you know these books or these movies?

I know The World According to Garp. I've read that. Yeah you know these books or these movies? I know World According to Garp. I've read that. Yeah. One of my favorite books, yeah. Yeah. I remember these books really, they give you a sense for, oh, maybe I'm not that weird.

There are so many strange people out there. Yeah. Then maybe I'm not as odd as I think I am. Then maybe odd is the normal. Maybe odd is the control group. Anyways, fantastic. Also made into a movie. I think Paul Rududd was in it it

was with michael cain uh charlie serran was in it and then the kid from spider-man really good film yeah why are you talking about this we're just i have no idea yeah because i went from chatham house rules to cider house rules because i can't got. Because it's my podcast. Anyways, get to the headlines. Let's do it. Now is the time to buy. I hope you have plenty of the wherewithal. Elliott Investment Management has built a stake of nearly $2 billion in Southwest Airlines.

The firm is now one of Southwest's largest investors and is calling for the replacement of the CEO and an overhaul of the board. Southwest shares rose 7%. Apple unveiled a new AI system called Apple Intelligence at its Worldwide Developers Conference. It will offer a personalized version of generative AI to users and automatically connect with ChatGPT for advanced requests. The stock was down almost 2% following the announcement. And finally, former media executive Edgar Bronfman Jr. has expressed interest in buying Sherry Redstone's National Amusements, which controls Paramount. Alongside Bain Capital, Bronfman could offer up to $2.5 billion for the company, which is currently in advanced

negotiations to sell Paramount to Skydance Media, which we discussed last week. Scott, any thoughts on those three headlines? The most interesting thing here is the Southwest story. And I got the deck that Elliot put together. I mean, it is striking. Southwest has just done so poorly. Since 2019, the enterprise value has declined 44%, while its peers are basically flat down an average of 5%. The firm is on pace for its fifth straight year of negative stock returns. And it's revised its

guidance down seven times in the last 17 months. Elliott's looking to replace Southwest leadership. This guy's now on the green mile. I went through this deck. I'm like, Jesus Christ. Even they had his quotes where he kept saying, I'm proud of our progress. And then it would show that the stock was off 12% after the earnings call. And I mean, he's not only been a disaster, but he feels like he's in total psychosis or totally delusional, like sticking his head in the sand, just kind of whistling past the graveyard. So I think that Elliott typically doesn't come out swinging. And the fact that in their first missive, they have said that they're looking for a change in leadership, I think he's cooked. I think this incredible, incredibly underwhelming performance, nobody has a buy, almost nobody has a buy rating on the stock. It's such an incredible legacy brand with big assets. Right now, my favorite stat that you guys assembled is that the enterprise value on the company is less than the market value of the planes they own, meaning that the company, the market has said

this actual company, the organization, the people, the brand, the customer base sitting on top of these aircraft have absolutely no value. They're negative value. What are your thoughts? One of the criticisms I appreciated was they were saying that the management team has been pushing for incrementalism versus making actual changes. Some of the initiatives they've been working on, larger overhead bins, better Wi-Fi, in-seat charging docks. And Elliot's point was well actually i'll just quote them they said these do not deliver strategic evolution they are a normal part of running the business totally agree my issue though is that the recommendation from elliot and i feel like

from basically most activist investors i mean we saw this with uh nelson as well the recommendation is always the same and that is change the board, change the CEO, pretty much every time, which, I don't know, it just feels too simplistic to me, or kind of lazy. At the same time, Elliot has an incredibly impressive track record, they're incredibly successful as an activist firm. Maybe that really is a good strategy, just change the guy who's in charge. But I'll throw it back to you who has been an activist investor. Is this strategy of just get rid of the board, get a new one in, get rid of the CEO, get a new one, does that actually work? Well, first off, you have more than one issue. We could fill up an

entire podcast with your issues. That's good. I barely listened to what you were saying because when you started with saying, well, my issue is I couldn't wait for that joke. Anyway, yeah, that's what shareholders do because you can come up with ideas. You can say we should be doing the following and you can suggest certain financial engineering like a share buyback or a dividend or renewed focus. But kind of generally speaking, you can't dictate strategy from the cheap seats as a shareholder or even on the board. At the end of the day, the board is really there for two things. One, to hire and fire the CEO, and two, to decide if and when to sell the company. And the performance here is just so awful. I just

didn't think there's any getting around it. It's time for a change. The CEO has his fault, not his fault. Some of it is his fault, and ultimately the buck stops with the, and it sucks to be a grownup, if you're going to pay yourself 10, 20, 100 million or $250 million over David Zaslav, despite cutting the stock in half, means that at some point you might just get kind of mercilessly shot in the head. And that's okay because you'll recover on a bet of money. They always get a huge parting golden parachute, whatever the term is, huge severance. But after you read this deck, I just don't, yeah, they need more independent board members with more domain expertise, and they need a new CEO.

Just reading, I thought the most damning things were his statements. I want to be clear, I don't think he's lied, but his statements were like, we're so proud of the progress we're making. It's like, boss. What progress? Upgraded Wi-Fi and larger overhead bins. The first sentence in all of your earnings calls should be, I'm disappointed to announce earnings that are really substandard, and this is unacceptable, and this is what we're going to do

to address the situation. And instead, it's just a bunch of jazz hands and excuses. Now, granted, I've read Elliot's deck. I haven't read the response, but I would argue this guy's already on the green mile. And for three, four years in an industry where everyone else is continuing to perform with those assets, I don't know, I think he should have been able to figure out. And even if he is figuring it out, the fact that the market has lost so much confidence in him that every time he opens his mouth, they take the stock down. This guy is like the roaring kitty of the airline industry right now. By the way, that was a good metaphor. Did you watch the roaring kitty YouTube video and every minute the stock was going down three minutes? It was going down 3%. I thought that was hilarious.

So look, right or wrong, fair or unfair, that's not it. Fair isn't a word that should be used with CEOs because it's just not fair how much money they have made. So don't talk about – or we shouldn't talk about fair. The bottom line is the market has lost confidence in this guy, and shareholders probably don't have the patience nor should they to wait for the two or three years for him to renew the market's confidence in him and figure this out. He should, in my view, the board should pretty crisply come to some sort of accommodation with Elliott. Because if they go to the shareholder meeting with this type of stock performance, I think they're going to win. And also, the thing that's dangerous here is the panic sometimes forces an unnatural act. And that is he'll announce an acquisition or put in place a poison pill or he'll try and all of a sudden it's, you have insulted my honor,

you know, pistols at dawn and they start doing really stupid shit. So this is, unfortunately, when you say you're out, it, the male ego just takes over. This is no longer for the CEO about doing the right thing or adding shareholder value. It's about saving his honor. This is, this is about his manhood. The good money here is, you know, this is, you know, Mike Tyson versus, I don't know, name a, you know, a really mediocre boxer. The good money here is on Elliot. Apple. So in our notes, it says the stock dropped 2%, but it's up 10 bucks today. It's up 5% today. I think it's probably on the day. I feel like that always happens. It drops a little bit on the announcement and then it recovers the next day.

And recovers. It's more than recovered. I think it just hit an all-time high. I can't figure out, I wonder if this is sort of kind of sly genius in the sense is, so let's talk about AI. Most AI, most product launches are like, wow, this is going to be a person and this person is going to clean your launch. And you're like, okay, could this person also put a gag ball on me and murder me? I mean, the AI stuff is so sci-fi and scary and unreliable. And then they roll out these demos using someone's voice they're not supposed to use or something that immediately people go, okay, it's giving us the wrong answers. They decided to go to Zig when everyone else was zagging and say, okay, don't even call it AI. AI has already developed sort of a weird, unfortunate, insecure, anxious brand. We're going to call it Apple intelligence,

and it's going to be battle-tested. It's going to be incremental. It's just going to make your life easier. And some of the stuff that they talked about, looking at your contacts, looking at your calendar, helping you set up lunch or find a place for lunch with mom with the right permissions. This to me, I wonder, okay, is this like sly, you know, are these guys dumb like a fox, so to speak? And I wonder, in my view of AI is instead of generative AI, I think we should be talking about integrative AI, which I want to coin, hashtag Scott Galloway, trademark Profiteer Media. But integrative AI would just say, okay, let's take all of your assets and just try and make your life a little bit easier. And there's two companies in the world that should have the most assets to feed into Apple intelligence or an LLM or AI, whatever you want to call it, and that is Apple and Alphabet. So I wonder if this is Apple pulling their second mouse strategy where they show up, they aren't on the leading edge, but they make stuff usable and show how it practically... I mean, to a certain extent, Apple created the most valuable company in the world on one theme. Just make it simple. Just make it simple, right? Make it such that when people pull a computer out of the box, it's already charged. Like that was one of their innovations or that they hit the on

button. It says, press here and it fires up and you don't need to install any software. And they only have the computer and a charger and that is it. And this is, here's some simple ways it's going to help you. Not a lot of fanfare. And I think that moves shareholder value. So just processing and talking about it, I kind of give this a thumbs up. It's the boring shit that moves shareholder value, Ed. What do you think? Yeah, I mean, I can't see how I'm going to use it that much. You know, there's a writing tool

that helps you rewrite emails. Change tone, right? You're sending an email to me like, wait, kiss his ass. I need to kiss his ass yeah i know i already know exactly how to do that i don't think so i challenge you on that i challenge you but you don't think make make my emails more i don't know more friendly i don't know i sort of just trust myself to do that i mean if it's really good i guess that's the question is it going to be yeah

is it going to kiss your ass really well? Then maybe I'm down. It is interesting. They literally refuse to say the word AI while everyone else is doing that, which is respectable. You sort of breezed over the Bronfman paramount situation. Here's a question. Is there anything more American than what has happened with this Paramount situation? Is there anything more American than three separate children of billionaires fighting for control over a washed-up, failing Hollywood production studio? here now. You've got Sherry Redstone, the billionaire daughter of a billionaire media magnate. You have David Ellison, the billionaire son of the billionaire tech lord who created Oracle. And now you've got Edgar Bronfman Jr., who's the billionaire grandson of the heir to the Seagram liquor empire. And yeah, this is the same Edgar Bronfman whose sister was convicted of funding an underground sex trafficking ring for disaffected hippies. This only happens in America, I feel like. This does not happen, I would argue, anywhere else. But here we are, we've got three billionaire kids basically just deploying their billions to win control of a failing media company. Is this not kind of like the perfect encapsulation of what's happening in this country right now?

God, I love that. That is a fantastic insight. I hadn't thought about that, you know. But America is a meritocracy. Yeah, look, this feels like it should be happening in Europe. One of the things we like about America or claim to like about America is that most billionaires are self-made. I think I hadn't thought about that.

I think that's really striking. I think that's really interesting. Now, the observation, though, is that we used to have a set of tax policies where you didn't have this. You had a fairly significant death tax, no trust to hide money and create dynasties. We're about making your own money, trying to create a set of tax laws that are reward entrepreneurship, reward work, and let people get rich, but we don't like dynasties. It's not dynastic wealth like Europe, it's entrepreneurship. And two-thirds of billionaires in the United States are self-made. This speaks to something else that's not good, all right?

This is, okay, the only people who can show up with this kind of money are rich kids. Now, having said that, in some ways, it reflects a disbursement of wealth because generally what you find is that, all right, granddad made billions. His kids were douchebag idiots who were entitled and didn't understand business and basically took the family fortune almost to zero. And then usually it's the third generation or the grandkids that make it back because they look at dad and what an idiot he was, and they look at granddad and what a baller he was, and they actually mimic the granddad. Wealth usually skips a generation. And the nice thing about this type of wealth disbursement is that typically the kids fuck it up. And I would argue

this is a perfect example. This isn't Elliott. This isn't, I mean, I guess Apollo's smart, but they're being pretty disciplined about what assets they want. This is nothing but billionaires turning their family, in my opinion, into millionaires going after trophy assets. And that is usually not a good strategy for maintaining dynastic wealth. In other words, if I were their kids, I'd be like, dad, go buy some fucking boring company. Bobby wants a Range Rover and a cocaine habit. Don't waste my money on these vanity assets. We'll buy your way into the Academy Awards. We'll be right back after the break with our conversation with Morgan Housel. Fox Creative.

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Welcome back. Here's our conversation with Morgan Housel, partner at the Collaborative Fund and bestselling author of The Psychology of Money and Same As Ever. Good to have you on, Morgan. Thanks for having me, Ed. So I just want to start by telling you a little bit about who I am, because I think I'm a somewhat decent proxy for many of our listeners. So I'm 25 years old. I'm college educated. I live in New York City. I rent an overly expensive apartment in Brooklyn. I make a good living around six figures a year, and I want to get rich or at least economically secure. What should someone like me be thinking about when it comes to investing? I would, and this is a very semantic difference, but I would talk about the difference between rich and wealthy. And these definitions are my

own, so I'm just making these up. But rich in my definition means you have enough money to make your monthly bills, your rent, your car payment, you're going out, you're having fun, you're living a great life. Then you can consider yourself rich. Wealthy in my definition means you have a level of independence and autonomy. You have a level of savings built up that can allow you to do what you want, when you want, with whom you want. Those are very different things.

And the biggest difference to me is that wealth is unseen. I can see your car. I can see your house. I can see the clothes that you wear. I have no idea what is in your brokerage account. I have no clue whatsoever. It might be a lot. It might be nothing.

It might be negative. And so, and I think at their core, everybody's different. This is not a one size fits all solution, but at their core, I think most people would rather be wealthy than rich. It's fun to be rich. I want to have nice toys too. I'm not against it in the slightest, but what I really want is to be wealthy. I want to be independent. I want to work where I want, when I want, I want to retire when I want, you know, and just do it all on my own terms, not somebody else's terms. And so I think that if I look back to when I was 25, here's what's interesting. If I look back at my life, I'm 40. If there's one difference I could make, it would be that I would choose to

live in New York for a couple of years in my early twenties. So good for you for doing that, checking that box that I wish I had checked. But if there was a philosophy looking back that I would want to pay more attention to, it's the difference between rich and wealthy. Don't you think some of that, I mean, quite frankly, isn't the difference, isn't one of the ways that you get wealthy is that you suppress the desire to be rich?

And that is you start focusing on quiet wealth as soon as possible? Yeah, I think that's right. If there's one phrase there that I might push back on a little bit, it's suppressing your desire. I think once you suppress your desire, then you are almost a victim of your money. You are a slave to it. Because you're saying, I want to do X, and you're saying, well, your money is telling

you, no, you can't do that. You want to go on a vacation, but you can't do it. I think people should really follow what their personality leads them to do. My wife and I have a very high savings rate, but we don't deprive ourselves of anything that we want. I just think that what we want is spending time with our kids, going for a nice walk, going kayaking. That's what we've always wanted. And so I do think there's a thing that if people have a very high material desire, they should probably take a step back or look in the mirror and ask why that is. Who are you trying to impress?

I don't mean that in a negative way, but a lot of people spend a lot of time and energy trying to impress people who are not paying attention to them. And that can be a big problem for a lot of particularly young people. I think particularly young males really fall into this trap. If only I had a Lamborghini and a Rolex, people would respect me more and pay more attention to me. And the answer is no, they probably want it. And so look, for my own life, I desperately want the love and attention of my wife, my

kids, my parents, two or three of my friends. And that's pretty much it. And it's not that I don't care about what other people think of me. Of course I do. But I think you should go out of your way to figure out who are you trying to impress and what is going to impress them. Getting a nice new car is not going to impress my wife. Being a good father might. So I should spend more time on that than trying to impress people who aren't paying attention. So I'm desperate. It's very important for me to get

the love and affection of total strangers. My kids and my wife, not as much. Morgan, not as much. Yeah. See, Scott, I really respect that. And you're highlighting the idea that people are very different. Well, you use the word suppress. Okay. So let's find a different word. Maybe not suppress, but discipline. And I'm going to sound boomerish here, but I wonder if that word discipline requires more attention from a fairly young age, even in high school, because now these young adults are facing an economy of technology where 210 times a day on their phone, my second year in college or something like that. So my generation, your generation, went through our teens and 20s without social media. I cannot fathom how much harder it would be to do it today. It was hard enough. And my friends weren't on golf streams when I was in my 20s.

Yeah. But it was, I mean, it was just back when I was a kid, I feel so old saying that phrase, but when I was a kid, you compared yourself to your neighbors and 10 of your friends at school, and maybe some people on MTV and maybe People Magazine, and that was it. And now it is a curated highlight reel of a billion people's lives with the smartest minds of the generation, creating an algorithm that is going to give you the most FOMO. And I can't imagine how much harder it is now. I can always see it with my own kids. My oldest, my son is eight. And I can already see what Mr. Beast has done to his definition of wealth. I think Mr. Beast is a great guy, by the way. But when every episode is, oh,

the person who stays in the circle the longest wins a million dollars. It's a completely skewed view of what wealth is to him. And we actually explained this to him the other day. I said, you know, if your first job, maybe you're making minimum wage, you're making seven, eight bucks an hour. If you work 40 hours per week, here's how much you're going to make per month. And he just didn't believe it. He just didn't believe that if someone works that much, that's all they're going to make. Because I think social media has skewed his view of money more than it did for our generation. One of the newest trends, I don't know if you've seen this, but one of the newest trends in personal finance is this thing called doom spending, which is basically where you deal with economic stress and economic anxiety by spending more money. And according to Bloomberg, 27% of Americans are doom spending right now. I'd love to get your thoughts on this new trend, but specifically, like, how do you psychologically prevent against that? And it goes to what you were saying

about people of my generation. Like, I agree, I shouldn't want to buy a Rolex. I shouldn't want to have a Lamborghini. But the reality is I see one and I kind of just do. So what are some, like, psychological safeguards I can put in place to prevent myself from doom spending or just generally spending too much? What's so interesting to me about it is that it's the polar opposite of kind of the generation who came of age during the Great Depression in

the 1930s. What they were afflicted with was doom saving for the rest of their life. And it really impacted them. And maybe it actually makes sense that now we have doomed spending because if you came of age during the YOLO meme coin years, it was the opposite of the Great Depression. The Great Depression was everything is going to hell and no one's going to have a job and we're all broke. And from 2020 to 22, it was actually the opposite. It was like everything goes straight up and it's easy to become rich overnight. It was kind of the mentality that was given to these people during an era where they were at home, not in school, just scrolling their phones all day. So maybe it makes sense from there. I do think in both of those situations, the polar opposite, the doom saving and the doom spending, Daniel Kahneman had this great phrase where he said, the most important financial skill is having

a well-calibrated sense of your future regret. What are you going to regret 5, 10, 50 years from now? If you have a good sense of that for yourself, I think a lot of these decisions become much easier. And look, if I, heaven forbid, were on my deathbed tomorrow, would I regret the fact that I've had a high savings rate for my whole life? I'm very confident the answer is no. I would take a lot of pleasure knowing that my wife and kids are going to be taken care of. So I think if you can kind of forecast yourself five years in the future,

10 years in the future, 50 years, and no one can do that perfectly accurately, I think that's the best you can do to try to prevent these massive swings on one end or the other.

And one end or the other is probably going to lead to the highest sense of future regret. If you're a massive saver or a massive spender, you're increasing the odds that 20 years from now, you're going to look back and say, I wish I didn't do that. So what are some practical best practices for people my age who are seeing Mr. Beast giving out a million dollars, who are seeing Andrew Tate's on Instagram flashing their

Lamborghinis. What should we be doing to get wealthy versus just trying to be rich and show off our money? This is boring advice, but spend more time in the real world. Don't get off of Twitter and go drive in your downtown area, wherever it might be. That's the real world. Once you realize that the smartest minds of our generation work at Facebook and Instagram and Twitter, creating an algorithm that's just designed to give you FOMO, it's designed to make you feel anxious and it's designed to make you feel lower than everybody else. That's at its core what it's designed to do. And it's very, very good at it. The people who in another generation sent people to the moon are now

just delivering FOMO to people. And they're as talented as it, as the people who sent us to the moon. And so once you realize that, like how fake the mirror on your phone is, then you want to spend more time in the real world. My wife and I always comment on this. If we're in an airport or in a Costco surrounded by hundreds or thousands of people,

we make comments and this is slightly disparaging, but we make comments of like, hey, this doesn't look like Instagram. Like this is the real world. These are real people. It doesn't look like our Instagram. And that is a really, I think, important realization to come to that what you're looking at your phone is not the real world. You should spend more time in the real world. So you talk about, you had this fantastic thing, sort of the traits of a bad investor. Can you walk us through those? The worst investor would be someone who is driven by nothing but FOMO. Someone who just opens up their social media account, their Twitter account, their brokerage

account, and sees other people getting richer faster than them. The odds that you're going to make a good decision in that situation round to zero. I think it was Andrew Tate. I don't follow him on Twitter, but I saw this tweet, I think, two days ago because it was just ripped around Twitter. He said something along the lines of, the stock market is rigged at every single level. And I'm not going to respond to Andrew Tate, but if I did, my response would be, the stock market is rigged against people whose ego causes them to think that they are the second coming of George Soros and causes them to think that they can trade and get ahead and they're smarter than everyone else. It is rigged in the favor of people who have the appropriate humility to say, I should buy a low-cost diversified portfolio and hold it for 30 years. It's rigged in your favor if you're doing that. And so it's one of the few endeavors in life where your intelligence can really get in the way and it favors the people who are humble enough to know what they are incapable of doing. And so I think the worst investors are people who are

driven by FOMO and ego. It's those two traits. And that is so prevalent across the field. I wrote in the last chapter of my first book, how I invest. And I made a point of saying, I'm not recommending other people do this. This is just for me. I dollar cost average into low cost Vanguard funds. And that's it. It's effectively all I do. Could you explain what dollar cost averaging is for our listeners?

I basically invest the same amount come hell or high water every quarter for me. Every quarter, basically, I say, okay, I'm going to invest X dollars, no matter what the economy is doing, up, down, doesn't matter, I'm going to do the same thing. And a lot of people viewed that as an admission that I didn't know what I was doing. They would have been much more impressed if I said, here's my day trading strategy. And to each their own, everyone has a different view of this. But to me, and of course, I'm kind of talking my own book here. But to me, once you have experienced the gauntlet of investing, the highest level is coming to terms with the fact that you should just dollar cost average into index funds. For the vast

majority, like literally 98% of people, there are some people who do have the skill and the talent and the information to do very well, but it's probably 1% of people, something like that. Yeah, dollar cost averaging. I mean, it's really just an acknowledgement that you can't time the markets. You had also said that, or you had a couple other things that are dangerous financial traits, demanding certainty when none exists, impatience, and gullibility. Can you speak to those? Yeah, I think it's very common for people to want certainty when none exists because having uncertainty in your head is so

painful. It's such a painful mindset to admit that you don't know what's going to happen in the future. And so a lot of people will demand it even when they know it's not there. And people demand certainty. They crave certainty when it is the least existent. So when the world is falling to pieces, March of 2020, COVID lockdown, stock market falls 50%. That's when people are most likely to cling to a pundit who says this is what's going to happen next, even if that is when the world is the most uncertain. The day after 9-11, the day after Pearl Harbor is when people become the most gullible. And so I think once you view uncertainty as the cost of admission in investing, like your ability to handle the humility of saying, I don't know what's going to happen next. Your ability to grasp that is the cost of admission for doing well over time.

And there are investments that don't have uncertainty, FDIC insured savings account. There's no uncertainty and there's no upside. And so once you view dealing with that burden of uncertainty as that's what you're getting paid for, that's why you're going to become wealthy over time is to deal with that. And so I hope to be an investor for the next 50 years. And I know with certainty that during that 50-year period, there's going to be a dozen or more major negative surprises,

wars, pandemics, terrorist attacks, recessions, assassinations, going down the list. That's definitely going to happen. And I have no idea when they're going to happen. I have no idea how problematic they're going to be. And accepting that is why I think there's a very good chance that I'll make money in the stock market over the next 50 years. If the best thing we can do is sort of cover our eyes, not pay attention to the noise and dollar cost average into low cost index funds, like, you know, just invest in the S&P,

which by the way, I and we generally agree with on this podcast. If all of that is true, why should we actually be paying attention to the markets at all? Like, why should I read the Wall Street Journal? Why should anyone listen to this podcast? So yeah, I'd love to hear your view on that. What do you think is the actual benefit of learning about markets despite the fact that what you believe we should really be doing doesn't require much knowledge at all?

So I think there's two answers to that. One is I don't think you need to pay that much attention. I think some of the best investors of the world are people who forgot the password to their brokerage account and haven't checked it in seven years. And they've dollar cost averaged through their 401k and they've actually beaten 95% of hedge funds doing it. So I don't think you do. I do personally, because I think markets are a window, a fascinating window into human

behavior of how people think about greed and fear and risk and reward. There's no higher turnover window into that aspect of humanity than markets. And it's incredible to watch people, how they invest in on social media, fall for the traps of risk, greed, fear, uncertainty. And being able to watch that, I think it's just fascinating. But even though I check my brokerage account every day, I watch the stock market every day, it doesn't influence my behavior. It doesn't influence my activity. I'm not watching that and going out and buying this and selling that. So I think if you use it, if you're following the markets because you find it intellectually stimulating, it's phenomenal. I think there's no other window into that aspect of life.

If you are watching it and it's constantly influencing your behavior, you heard someone on social media say, go buy this stock, go buy that meme coin. That's when it gets dangerous. We'll be right back. Support for this show comes from Constant Contact. You know what's not easy? Marketing. And when you're starting your small business, while you're so focused on the day-to-day, the personnel, and the finances, marketing is the last thing on your mind.

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Go to ConstantContact.ca for your free trial. ConstantContact.ca We're back with Prof G Markets. I saw this report yesterday that said that the cost of owning a home in the U.S. has increased 26% since 2020. Meanwhile, the cost to buy a house is at a record high. It's like basically unaffordable. Genuine question for you that people in my generation are asking, are we ever going to be able to afford a home? If we come to our senses and start building more homes, absolutely, which is what other generations did. There was a huge housing shortage after World

War II. You had basically no construction in the 1930s during the Depression or in the early 40s during the war. And then you came home and you had 16 million GIs, all of whom wanted to start a family and buy a home. And there was a huge housing shortage. And we dealt with it in the 50s and 60s by just building homes hand over fist. And I think by and large, what we're dealing with today is an echo of the housing bubble of 2005, 2006. The bursting of that housing bubble so decimated the home building industry, which used to be dominated by mom-and-pop home builders, the vast majority of whom went out of business after the housing bust, and they went out and found other occupations to do. Combine that with a nimbyism, inability, unwillingness to build.

The town that I live in, in Washington state, had a five-year moratorium on new construction for no good reason. And sure enough, home prices doubled during those five years. And it's insanity to look at, particularly when you view housing as social policy. For a lot of people, if they can't buy their first home, they're not going to want to get married. They're not going to want to have kids. It echoes, it spreads throughout other parts of your life and society. So viewing housing policy, not just as economic policy, but social policy, I think is incredibly important. Now, most shortages not only end, but end spectacularly. I think it's a Nassim Taleb quote where he says, every shortage ends with a glut eventually. And like, will we eventually get there where like we come to our senses and not only start building homes, but build too many? Probably. This is a question, does that take two years, 10 years? And I have no answer there. Last time we talked, you discussed the idea that risk is what you don't see. You're a student of the markets. What do you think are the risks that people aren't seeing right now in the markets? Well, I think by definition, you can't answer that question.

The biggest and most dangerous news story of the next 10 years, let's say, is something that nobody is talking about today. And even envision. Because it's always been like that. It's a 9-11. It's a Pearl Harbor. It's a COVID. Something that if in 2019 you said you were writing your economic outlook and you said there's going to be a pandemic that's going to shut down the global economy for 12 months,

they would have locked you up. That would have been the end of your career. It would have been the last report you ever wrote. And so the things that actually happen are not only unpredictable, but would have sounded completely absurd before they happened. And so I think dealing with that, like accepting that is too painful for a lot of people to bear. They want to say like, no, no, let's talk about the risks that we see in front of us, even if it's always been the case and always will be the case around talking about money and getting alignment with your partner or recognizing or coming up with behaviors that maybe bridge a different approach to spending. I'm a little bit of a fatalist on this in the sense of I think if you and your spouse need to be constantly talking about, hey, you're spending too much. You're not like you have disagreements in there. It's very difficult to make it work. I would almost equate it to you have two spouses. One is an atheist. One is Orthodox Jewish. It's like, it's very difficult to bridge that gap

through conversation. And money being one of the, you know, two or three topics in a relationship that you absolutely have to see eye to eye on. Money, religion, kids. It's hard to bridge major differences in that. And so I think, you know, one way to think about this is I think early on when you are in your 20s and you're in your like looking for a spouse kind of mentality, I think it's incredibly important to have that early on as something that like a box to check. We see eye to eye on money. And I think my wife and I probably got lucky. That's the right word. Because it was never like, hey, let's sit down and talk about our spending habits. Let's talk about our budgets. Oh, like we disagree on this. Let's try to bridge

that gap. It was never that whatsoever. It was just, it just kind of worked. We just kind of naturally had the same, you know, just kind of grew together financially. But I think for a lot of people, it's, you know, of course, it's one of the leading causes of divorce is just different views on how hope they should think about money. I'd love to get your general thoughts on how to teach your kids about money, how you have designated that with your wife, and also about giving them money in your will. I think one big, not change, but maybe just insight into kids and money that I've gotten is from the book Die With Zero. And it makes a very subtle but important point that if you're going to leave money to your kids, don't wait until you die when you're 92 years old to give them the money. Give them the money when they need it the most, which

is probably in their 20s, 30s, and 40s when they're trying to establish life. Help them with a down payment on a house, pay for their college, whatever it might be. That's when it's going to make a difference in their life. Don't make them wait until you die when your kids might be 70 years old themselves before they get your money. That had a big impact on me. And look, our kids are five and eight. So we're not thinking about that quite yet. But I really like that idea. The other thing that I didn't know when I wrote those letters to my kids when they were born is how different they would be. And even at age five and eight, a five-year-old daughter, eight-year-old son who have the same parents with the same values, they're utterly different people.

And I think every parent who has multiple kids can see that. So how do I create a framework of, I want to teach my kids X, Y, and Z when those kids I know are going to be very different people. One might want to be a partner be very different people. One might want to be a partner at a law firm. One might want to work for Greenpeace. Who knows? And so I think this is true for politics as well. You don't have to sit down and tell your kids what your political views are. They're picking up on it through osmosis. They're listening to the subtle comments you make and who you watch on TV. And I think it's true for money as well, that the best you can do is just lead by example. If you try to sit down and drill lessons into them,

particularly when they're teenagers, they're just going to rebel anyways. They're going to try to do the opposite of what you tell them. So I think just leading through good example with good behaviors is the best you can do. And would you, you know, you mentioned like the down payment on the house, would you give them that money in the form of a trust or wait for when they ask it and send them the money? How would you practically do that as a parent? I know you're not at that point yet, but I'm wondering how you're thinking about that. I think it's so kid dependent. I can imagine a world in which hopefully my kids are, I'm just making this up, 32 years old, married, first kid on the way, great career. And then

helping them with the down payment would be amazing. You could also imagine a world in which they are completely wayward and in drugs and just going nowhere fast. And in that situation, buying them a house might be one of the worst things you could do for them. It just makes it easier for them to double down on their bad behaviors. And so it's so situational dependent that I don't think at this stage of my life I could come up with a framework of like, oh, here's when we're going to do it and how we're going to do it. I just have to see how they're doing. When your kids get out of college, assuming they're good kids and they want to live in New York and LA and they couldn't afford to live there, would you give them money? Would you

continue to support them? Probably. I think that situation that I crossed my fingers and hoped for, that my 30-year-old children are doing great in life, happy, well-grounded, great career that they're working hard at, they're ambitious, and that giving them money at that point would be leverage on their good life. But the opposite is true in the other way. I think just giving your kids money is leverage. And leverage when you're doing well is amazing. Leverage when you're doing poorly is a disaster. And, you know, and so it's so, it's so dependent. I think one of my biggest fears actually is that one of my children is doing great and giving them money would be positive leverage.

And at the same time, another of my children is doing very poorly and giving them money would be negative leverage. Because then how do you deal with that? How do you keep it equitable to say, I'm going to buy my daughter a house, but not my son? How does that work? That doesn't work. You can't do that. So these are very complicated topics that I don't think really fall for a one-size-fits-all solution. So just to wrap up here, you are a student of the markets. And I think in 2022, for the first time, all of Bloomberg's economists were unanimous about one thing, and that is the market or the economy was going into a recession in 23.

And of course, it didn't happen. Just as someone who's a historian or loves the markets, if you were to say, this is what this feels like to me, or if you were to look at different parts of the market and say, this feels like teen spirit, or this feels like, you know, 07 or whatever, any just general observations, recognizing it's not financial advice that we're going to keep dollar cost averaging into low cost index funds, but just as a bit of an informal or economic historian, what do you see? What are your observations of a bystander regarding the markets right now? Well, if I take a longer view

on this of like the 20 or so years that I've been paying attention to the stock market, at every given moment in the last 20 years, you could have plausibly made the argument that the market was overvalued, that the economy was heading off a cliff, that debt was unsustainable at every single moment. Just watch CNBC for an hour. They'll make the same points. Yes. There's never been a time when that was not the case. And during those 20 years, the S&P 500 is up fivefold during that period. And so I think that's the course of markets. I could sit here and tell you why the economy is unsustainable, the national debt is blowing up. I can make all those points and be very candid about them and honest about them.

And I would preface that by saying, and over the next 20 years, the market's probably going to do very well. And so that's how I view it. I think you need to get optimism and pessimism to coexist. Very optimistic about where we're going in the next 20 years, and very realistic about how hard it's going to be to get there. I think that's always been the case in markets. That 20 years from now, very likely the market will be much higher than it is today. You can imagine Dow 100,000, whatever it would be. And also during those 20 years, there's going to be four or five recessions and some terrible events and wars and pandemics. Those are not mutually exclusive. I think that's the only take that I have on long-term investing.

To finish, just a more personal question. What do you think is the best financial decision that you've ever made in your lifetime? I think maybe at the high level, it's not trying to impress people who I don't love. There's a great Warren Buffett quote where he says, the definition of success is when the people who you don't love. There's a great Warren Buffett quote where he says, the definition of success is when the people who you want to love you do love you. And there's a lot to unpack there, but one variation of that is not trying to impress people

who you don't love. And so much, I think, of the modern economy is that. It's people spending their money and their time and their energy trying to impress people who are not paying attention to them to begin with. And you're just on the hamster is that. It's people spending their money and their time and their energy trying to oppress people who are not paying attention to them to begin with. And you're just on the hamster wheel then. You're just trying so desperately for people to be like, hey, look at me, and no one's looking at you. So I think that's one thing that I'm glad that I've done is there are people in my life who I desperately want to love me, but it's a small

group of people who are around me rather than trying to impress strangers. I think that's probably the best financial decision. I love that. What are you working on, Morgan? What's your next thing? I'm working on a book right now. It's called The Art of Spending Money, hopefully a self-explanatory title. Oh, I can't resist, right? We're going another two minutes. Yeah, let's do it. A 59-year-old guy, decent economic security, atheist, arrested adolescence.

How do I spend my money better, Morgan? Give me some tips. Well, just like my first book, Psychology of Money, does not tell you how to invest. It just tells you what happens in your head. Don't be so fucking mature. Should I buy a boat or not? Buy the boat.

Buy the boat, Scott. He wants a Gulfstream. He needs a yes. Buy the boat, buy the plane. You're going to have a good time doing it. What this book really digs into are things like keeping up with the Joneses and social aspirations and things like that, rather than telling you, here's how to do it. Because nobody can say, here's how you should spend money to be happy because we're all so different. I guarantee you, Scott, that how I spend money would not make you happy and vice versa. Not because one of us is

smarter or wiser than each other, but we're very different people. And so I think once you accept that, then the best we can do is just say, here's an exploration of what happens in your head when you're trying to spend money and taking it from there. I tell you, Morgan, just before we let you go, I always get a great insight from you

every time we speak to you that I try and cement in my wet matter. And that one today was regarding kids, because I'm thinking about it a lot, because I have 13 and 16-year-olds. Give them money when it's leveraged to the upside and avoid giving them money when it's leveraged to the downside. I think that is genius. I never thought of it that way. I really like that. Read us out, Ed. Morgan Housel is a partner at the Collaborative Fund. He's the New York Times bestselling author of The Psychology of Money. And same as ever,

his books have sold more than 5 million copies and have been translated into more than 50 languages. And when is your next book out, Morgan? I guess it's fall of 2025 is kind of the target. Okay. Well, we'll have you back on at some point then to tell us about that. Thank you for joining us. This has been great.

Thanks, Morgan. Thanks, Morgan. Thanks, guys. Algebra of wealth. Scott, we were talking off mic with Morgan about the role luck has had in his success. And it reminds me of something you say, which is, quote, recognize that much of your success is not your fault. Could you say more about that? My narrative up until the age of 40 was raised by a single immigrant mother who lived and died a secretary, you know, public schools all the way through graduate school,

and overcame these obstacles to become a baller, you know, check my shit out. And that's very much a West Coast thing. People brag about their family and their wealth and their heritage on the East Coast. They brag about not having money on the West Coast. And then as I got older, I realized that being born a white heterosexual male in California in the 60s was hitting the lottery. And that access to near free education, coming of professional age during the dawn of the internet. I mean, all of these amazing things were basically things out of my control kind of lifted me up by the scruff of my neck and literally flung me forward into the future. And then, and the thing that always, I was kind of carry with me and I think about it a lot is that my freshman roommate was very similar to me, good friends. And, you know, I'm here with you living a life in, you know living a wonderful life in London

and he's dead of AIDS at 33 because through no fault of his own or no decision of his own, God reached into his soul and decided that he was gonna be gay. So I have a strong sense now of the fact that I'm incredibly blessed or a lot of my success is not my fault.

And to not recognize that I think is obnoxious and makes you more vulnerable to a big fall. You are never more vulnerable to a big mistake than after a big win. Because over the long term, statistically speaking, over the long term, eventually all luck is symmetrical. And that is the amount of bad luck is going to match the amount of good luck. So if you've had extraordinary luck for a while, investing or whatever it might be, or promotion to your job, realize a lot of it's been luck and you just might want to pull in your horns a little bit. And unfortunately, your emotions get the better of you and you start thinking, oh, it's not the market, it's not luck, it's me. And this happened

to me a lot. Whenever I had a big win, I'd double down and start a bigger company and put more of my own capital into that company thinking, well, I'm just such a baller, not recognizing a lot of it, boss, was just luck. The same is also true on the converse. And that is when you get laid off, when someone doesn't return your affection romantically that you're interested in, when you have an investment, get cut in half. Also realize a lot of that is not your fault and try and forgive yourself. So a mix of recognizing the symmetry of luck over time and that market dynamics will always trump individual performance such that you can stay one humble in good times and also forgive yourself when things go poorly.

Luck has played an extraordinary role in my life, and I'm trying to manage it by not putting myself in a position where a certain amount of bad luck could really hurt me. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producers are Jason Stavis and Catherine Dillon. Mia Silverio is our research lead. And Drew Burrows is our technical director. Thank you for listening to Profit to Markets from the Vox Media Podcast Network.

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