The Prof G Pod with Scott Galloway - Conversation with Morgan Housel — Behaviors that Influence our Money Decisions and Habits

Episode Date: November 16, 2023

Morgan Housel, a partner at The Collaborative Fund, and the bestselling author of “The Psychology of Money,” joins Scott to discuss his new book, “Same as Ever: A Guide to What Never Changes.” They get into topics including what to think about when buying a house, how to make healthier financial decisions, and the role money plays in our happiness.  Scott opens with his thoughts on the importance of the US and China’s relationship. He also discusses why thinks the new AI wearable on the market will be a thud.  Algebra of Happiness: focus on exercise.  Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. Episode 276. 276 is the area code serving west virginia in 1976 apple was founded by steve jobs and steve wozniak and the concord a supersonic passenger airliner began its first commercial flight so it could travel at twice the speed of sound true story i was on the concord and the pilot forgot that the mic was still on and said wow i, I could really use. So true story. I saw a Buddhist yesterday walk up to a hot dog stand and say, make me one with everything. No relevance to anything we're talking. I just like it. Go, go, go. Welcome to the 276th episode of the Prop G Pod.

In today's episode, we speak with Morgan Housel, a partner at the Collaborative Fund, a network of fund managers investing across asset classes, and the best-selling author of The Psychology of Money. We discuss with Morgan his latest book, Same As Ever, A Guide to What Never Changes, which explores how we, the collective, behave and what we keep doing over and over again. Okay, what's happening? Oh, by the way, I really like Morgan. He understands money.

But more than that, he's just sort of a thought leader. I think this guy is one of those people who has such a great way of framing things and has such, I don't know, puncturing insight that he could be talking about anything. He could be talking about restaurants. I just get the sense that we tune into that guy. Okay, what's happening? The dog is heating up the track. That's right. He's a greyhound this week. He's going to Formula One F1 in Vegas. You had me at Vegas. I love Vegas. I used to go to Formula One in Montreal, not because I love Formula One, but because I love Montreal. And I went up there with a bunch of guys every year. And Montreal is just such a wonderful city, especially the first week in June. Comes alive, great food. Most European city in North America, I would argue.

And just fell in love with Montreal and would go out, go to the race for one day, and just have a great time. And this is the first time that F1 has been in Las Vegas, and I'm just super happy to go. I'm going to meet with a bunch of friends from college and just have a great time. F1, Formula One, has been just this outstanding role model for other leagues in terms of cross-media promotion. I think they did this show called Drive to Survive, and it's international, and it's fabulous, and it's hot people, and they do a great job of categorizing. They have grandstand seats, and they have all these different levels. It reminds me of that Fraser episode where they keep going to a higher and higher level, and then they finally end up out on the street. But

anyways, going to F1, stand at the win, stand at the win. Then I go to New York for a few days. Then I go to Miami. So it's going to be a great two weeks in the great old U.S. of A. I would say that I hate to be leaving London, except I don't, because it is dark here. The sun comes up and says, hey, it's me behind a cloud. And then it goes away an email from someone who is an advisor to the prime minister who said, we'd like, would you be interested in going on some sort of advisory board around technology or media? And I've said, well, of course I would. I mean, I'm quite busy, you know, I'm quite busy with my podcasts and traveling around the world and the Arrested Adolescents World Tour, but I'll make time to come down to 10 Downing. So I put on a suit, which I have not done in a long time. Was really excited to, you know, get in, even though in the app, in the Uber app, I put in

the address. I'm like, 10 Downing Street, please. I just wanted to say that over and over. I told my boys that I was going to 10 Downing Street, that I had been invited. And even they kind of looked up for a brief moment and asked why. That's the best I can hope for my boys now is a monosyllabic response. It went from too many words to one word to they usually don't interact with me at all. But they're like, why are you going to attend Downing? I'm like, well, the prime minister and one of his advisors is interested in talking to me. And I had to come home today and tell them that I got there, cut through this big line and said, I have an appointment and they couldn't find my name. And then I checked down and looked

at my text messages and said, I got a message from the special advisor or I don't know what her title is saying. Oh, we're so sorry. There's news today. I guess David Cameron is back in government and they sacked the home secretary and we need to reschedule. So I'm sitting outside and I did not get to go inside of 10 Downing, of 10, of number 10, whatever they call it. So the good news is, is I'm running in the right circles. The bad news is, is I'm clearly the expendable invite. I've sort of, I don't know what that is. I'm like, what is that? I'm the worst of a good lot.

I don't know how to feel about that. Although if I do get knighted, they'll call me cirrhosis. I like that. Get it? Because I drink a lot. Okay, what's happening? What's happening? Let's get on with the news.

President Biden and Xi Jinping are expected to meet in person this week in San Francisco for the first time in a year that these world leaders will be meeting face-to-face. If all goes as planned, the meeting will have happened by the time you hear this episode. An administration official told the Wall Street Journal that the goals are really about managing the competition, preventing the downside risk of conflict, and ensuring channels of communication are open. Ian Bremmer, one of our favorite geopolitical experts, actually maybe our favorite, I like Ian, he drinks with me. He's very smart, runs a great firm, and he'll drink with me, wrote in his newsletter that Taiwan and technology are the two big issues of confrontation. China does not want the U.S. to support Taiwan's

formal independence, and a breakthrough here is not expected. Also, we've been holding back the most sophisticated chips, which is about as aggressive as you can be in terms of economic warfare. China also wants the U.S. to say it will not start a new Cold War, nor will it suppress China's economic growth. Treasury Secretary Janet Yellen says the United States has no desire to decouple from China. A full separation of our economies would be economically disastrous for both our countries and for the world. The Biden administration also noted that it wants to reopen military-to-military communications that have largely been suspended after Speaker Nancy Pelosi visited Taiwan last

August. That's essentially, they want to make sure they have like a bat phone to call each other and say, hey, your carrier strike force accidentally sunk one of our frigates. So before we launch World War III, we just thought we'd check in with each other and make sure there was a mistake. Look, I think Sino-U.S. relations are just incredibly important. And I'm actually looking at a company called Shein. And I would really like to invest in it or get involved. One, because I think it's super interesting. And there's some supply chain and sustainability issues that people are concerned about. But I think the supply chain there, zero inventory, is totally fascinating. It's going to go public, or supposedly going to go public this year. But more than that, I want to get involved in a

Chinese company. Specifically, I think the biggest tax cut the world would register is if the largest and the second largest economy kissed and made up. Sort of American innovation and intellectual property coupled with Chinese manufacturing might creates products for the entire world at a lower cost. Also, also, a lack of communication, a lack of connected tissue economically results in a greater likelihood that we see less downside if we get into a shooting match, if we're not communicating with each other, see above military to military communications. I think that the U.S. and China's re-embrace is probably or could be the most important thing that happens over the next year, maybe with the exception of MBS pivoting towards capitalism. I'm a big believer that capitalism wins. The economy is like a shark.

If it doesn't keep moving, it starts to die. What we have here in this instance is a dead shark, or specifically two sharks that are no longer getting along. So I really hope, and I'd like to be a part of this, that China and the U.S. kind of kiss and make up, if you will. The goal of the meeting is to de-risk, not de-couple. I like that. The U.S. and China are the world's largest economies. In 2022, China GDP was $18 trillion, whereas the United States was $25.5 trillion. Can you believe that? That's amazing. China holds around $1 trillion of U.S. debt.

Companies in the S&P 500 generate nearly 8% of their revenue in mainland China. You want to talk about a company that's dependent upon China? I think about, I think something like 15% or 20% of Apple's revenues come out of China, but 90 or 95 percent of its products are produced in China. I'll tell you, if China wanted to go gangster on the U.S. and granted, it would hurt them a lot if they just basically put, you know, put the hammer down on Apple and said, you can no longer operate or manufacture here. Keep in mind, in some ways, the CCP, the Chinese Communist Party, has to be more responsive in some ways to their populace. The demo and democracy is not alive there. But there is no two-party system there, meaning in the U.S. we vote out the party. We don't like throw the bums out, we put in the Republicans or the Democrats. means revolution and members of the CCP end up dead or worse. So they have to be responsive in some ways to the fortunes or the well-being or the prosperity of the people. Also, China is

running into economic problems that make anything we're talking about here, whether it's inflation or threats of a recession or income inequality, look like literally a fucking Easter brunch or the best potato salad you've ever had. Oh, my God. You think our problems are bad? Well, where else would you rather be? Seriously, where else would you rather be? And over time, we've decided that China is our enemy. And among U.S. adults, 36% think that China is our enemy. Among Chinese adults, only 16%.

So we have kind of, we seem to be more threatened by them than them by us. All right. All right. Enough of that. What else is happening? Former Apple designers behind the AI firm Humane are trying to replace the smartphone. Good look at that. Humane announced a pricey 700 wearable pen that requires a $24 a month subscription with T-Mobile. Humane is calling this little gadget the first artificially intelligent device. Gets pen to your shirt and allows you to make calls and texts and search the web via voice. It also has a laser display that gets projected onto the palm of your hand. Humane has raised, get this, $230 million, a quarter of a billion dollars from investors including OpenAI CEO Sam Altman and Salesforce CEO Mark Benioff. The New York Times writes, open quote, to tech insiders,

it's a moonshot. To outsiders, it's a sci-fi fantasy. So I don't think this is going to work. This will probably be in my predictions deck that this is going to be a big thud. I just don't think wearables work, whether it was a Nike Fuel Band or Mood Rings or Google Glass or Meta's headset. By the way, my son just got the brand new Oculus. I forget what it's called, the $1,000 one. I tried it on. It's amazing. It's incredible. And used it once. Also, I started feeling a bit nauseous. And I think it's more, what's the term? I don't know. I don't know. It's like when you go to King's Island or something like that, or one of those second tier, or Magic Mountain. Great, great amusement park. You go once, you go on the crazy roller coaster rides,

you go on the spin thing, you throw up, and you're like, okay, that was great, but I don't need to go back again for a long, long time. Wearables, I don't think they work. I think we have one wearable, and it's called our smartphone. And people say, what about the Apple Watch? Well, I would argue the Apple Watch is the second screen for your iPhone.

Well, what about AirPods? Fair enough, you win. That's another wearable that works. Although I would argue it's not a wearable. What I would argue is it's the most popular, best-selling piece of jewelry in history. I think it makes you look cooler. And also, it's so util and so incredible. I walk around with AirPods in everywhere I am. One, because I like just tuning out. I don't enjoy people much, especially my kids after they've had some sugar, which is what happens when I take them out of the house. I take them to a great place and they go crazy and they start arguing and I just turn up the Beck's morning phase and I just tune out. Is that wrong? Is that wrong? Anyways, AirPods are amazing, but I don't think you can point to very many wearables. This is an attempt to sort of couple artificial intelligence with what I think is spatial computing.

My sense is this will be like Google Glass or the Hermes Apple Watch. It'll get a bunch of press, and then no one's going to actually buy this thing. I just don't get it. I think the AI, who's going to clean up an AI? You know who, quite frankly, might come in and be the next big company to add a couple hundred billion dollars in AI? Apple, or as I like to call them, the second mouse. Apple's never been first at anything. They weren't first in object-oriented computing, MP3 players, desktop computers, laptop computers, the phone. Remember BlackBerry? I was addicted to that thing. True story, I bought three iPhones, returned them all to go back to my BlackBerry because I

just missed those luscious, those luscious, what are they called? Raise keys. And then finally on my fourth iPhone, my fourth iPhone stuck. But anyways, Apple is known for kind of watching, listening, just kind of hanging back and then striking when they can make something sort of more consumable, more consumer-friendly, more elegantly designed, figure out what works, what doesn't. They are definitely the best case study of innovators don't add the most shareholder value. And innovators are really the first. They're never the first. They're the second or third. They just do a better job and use their brand and their capital to come in and kind of say, thank you, smartphone market. We'll take that. Thank you,

MP3 market. We'll take that. And I think they're going to do, I think it's going to be really interesting to see what kind of spin on AI they come up with. Will it be an AI for creatives? Will it be specific AI around relationships or health? I think anything that Apple does has permission from the consumer. If Apple comes out with a car, I don't care what it looks like, it could look like a Chevy Citation. If it has an Apple logo on it, I'm getting on that list. I'm shocked they haven't come out with a car yet, but they will likely, I think, come out with some sort of more robust LLM or learning generative AI, whatever the right term is. And that's, I think, what's going to move the needle there again, if you will, again. But back to humane. I don't think this thing works. I don't

think people want wearables. I think they want something that either keeps them warm, adds tremendous utility, such as enables them to read or survive or makes them more attractive to other mates. And I don't think this does any of those things. We'll be right back for our conversation with Morgan Housel, the author of The Psychology of Money and Same as Ever, A Guide to What Never Changes. Morgan, where does this podcast find you? I'm home in Seattle right now. Let's bust right into it. You have a new book out, Same As Ever, A Guide to What Never Changes. In a tweet, you said that psychology of money was about how you, the individual, behaves. Same As Ever is about how we, the collective, behave and what we keep doing

over and over. Unpack that for us. Well, I think a lot of this came for me as I've been a financial writer for my entire career. And I think I became kind of disgruntled and jaded about how bad the industry is at forecasting, forecasting the next recession, the next bear market, politics, whatever it is, just abysmal forecasting record. And then so from there, you can either do one of two things. You can just be a grump about it and be cynical about how bad we are at forecasting. Or you can say, look, we're actually very good at forecasting things except for the changes, except for we're actually very good at forecasting things except for the changes, except for those surprises.

But what are the things that we do know are never gonna change, that we know are gonna be part of our future? And let's put all of our emphasis in that. One of the aha moments that really struck me for this, there's a really good book called A Great Depression, The Diary. It was a diary written by this lawyer in the 1930s

who was just very observant of society, watching what's happening during the Great Depression, The Diary. It was a diary written by this lawyer in the 1930s who was just very observant of society, watching what's happening during the Great Depression. And as I was reading it, this post, this diary entry from 1932, I was thinking to myself, if you change the dates on this to 2008, it would fit in perfectly. Everything that happened in 1932 is exactly what happened in 2008. And then like three pages later, Benjamin Roth in 1932, he writes, if you change the dates from 1932 to 1894, it fit exactly in. And 1894 is exactly what happened in 1874. So it's just like these financial crises, it's the same story over and over and over again for literally centuries. The details kind of change, the characters change, but it's the same behaviors. It's the same greed, the characters change, but it's the same behaviors.

It's the same greed, fear, uncertainty that happens over and over again. So it's like, okay, rather than trying to assume that anybody can predict the market, which nobody can, let's just put all of our emphasis in how we know people respond to greed and fear and uncertainty, knowing with certainty that that's gonna be a part

of our economic future, regardless of how the details might change between now and then. So, but the hard part is sometimes we have head fakes around going into a depression, and then we look back and say, oh, this was similar to another time, right? What psychology of money, to use your words, do you see right now? And what might that tell us about what might be in store for us? I think what's definitely happened in the last couple of years is obviously there was just about two years, two or three years of very easy money and easy money. Fast money is fragile money because when people make a ton of money in crypto, they make a ton of money in tech stocks.

The emotional burden of letting go of that money, spending it or blowing it on some other dumb investment is very low versus like old money. If you've worked really hard for years or decades to accumulate your money, you're going to be very careful with how you spend it, very careful with how you invest it. And so I think it's just we're now and for the last couple of years have been in this phase of money came very quickly, very easily with almost no effort that had to be put into it, no sacrifice put into it. And then so a lot of the financial decisions that come of that are very poor, not just at the individual level, but the institutional investing level. Money in venture

capital and private equity was so easy for years that a lot of the investments were made were just garbage. And so I think that's just what we're seeing right now. You can almost see too, there's an interesting thing going on in the housing market where interest rates have gone from 3% to 8% mortgage rates. And by and large, prices have not gone down at all. By and large, that's true. That is very likely just like a mark-to-market failure, where people are assuming that their house is still worth what it was worth in 2021. But there's just no market. There's no actual transactions to market to. So you have this like almost Wile E. Coyote moment where very easy money, a lot of bad decisions, but a lot of consequences really haven't been paid so far in terms of the downside of paying that back. That's kind of where it feels like we are right now. So is one of those things denial that the housing market, it feels like we're in a standoff. I mean, the housing market is just so strange right now. These interest rates where people are locked into their homes, a lack of housing permits. I mean, I think I've read that the average American house has gone from $290,000 to $410,000 pre to post COVID. And when interest rates go from 3% to 7%, it just means young people can't buy a home. So let's start there. What would you advise most people, you know, in their late twenties, early thirties, start thinking about a home? How would you advise them to think about money and saving and what else they might want to be considering?

One is I would distinguish a home from a good investment. And if you are buying a home because it's right for you and your family and it's a safe neighborhood and it's a great, it checks all those boxes, awesome, great, good for you. If you're doing it because you have some sense of FOMO, that rent is quote unquote throwing your money away and you just want to get on the housing bandwagon, that's the red flag that you want to avoid. The second thing I would put, particularly for young parents, young couples, young families, by and large, you probably have an urge to buy a home because you have this caveman sense of like, I need to provide shelter for my family. Very natural, very ingrained in human behavior. You want to take care of your family. That's the core of this. Well, what's one of the

worst things that you could actually do for your family and your young kids? It's being financially extended and over leveraged is one of the worst things that you could do. So if your urge is to take care of your family, the worst decision you're ever going to make is to buy a house that you can't afford, even though you're buying that house because you want to provide some sense of care for your family. So if I were a young person looking for my first house today, I would look solely through the lens of what is going to be good for my family, not what is the best financial investment, not what is the FOMO, not what is the comparison to rent. If it was in the neighborhood that was better for my family and the house

situation that was better for my family, I would do it, which is what I did when I bought my first house. I would just be very cautious at any sort of FOMO that might be floating around right now. And it's always there. That right there is a human behavior, a paternal and maternal feel, the caveman feel, right? And I think the National Association of Realtors has done a great job trying to convince us that we're not a real man or a real woman or real parents or real Americans until we own a home. And I quite frankly, I think it's bullshit. I think there's a lot of instances where you're just a smarter, more responsible thing to do is to rent. What are some of the other kind of key attributes or behaviors, emotions that you see emerging in what is kind of a weird time right now and how it's impacting the economy and the way people

think about investing and approach their financial life the economy and the way people think about investing and approach their financial life. One of the chapters in my book might be one of my favorites is the idea that risk is what you don't see. Risk is what you're not thinking about. Carl Richards, a financial advisor, has this amazing quote. He says, risk is what is left over when you think you've thought of everything. That's what risk is. So you can, as an individual, as an analyst, as an investor, spend all of your time looking at the risks in front of you, analyzing the risks in front of you. Great, you should do that.

But then when you're done with that exercise, the thing that is not on your list is the actual risk that's going to throw you for a loop. So in the last 20 years or so, it's been 9-11, Lehman Brothers, COVID, of course. The common denominator of those is not just that they were big, it's that nobody saw them coming until the moment that they happened. And so I do think we are, particularly millennials, my generation is in this weird spot right now where I graduated college in 2008, teeth of the financial crisis. It was very easy during that moment to say,

2008, the financial crisis is bad. This sucks. This is miserable. But this is a one-off event. This doesn't happen all the time. It was easy to tell yourself that. And then after 2020, after COVID made things at least temporarily even worse than they were in 2008, the economy shut down, 25 million Americans lose their jobs, stock market falls 40%. That I think left people with this idea that like, no, maybe this is just how the world works. Every couple of years, the world breaks. And I think because of that, you always have, like, there's always been this pessimism porn that exists online of it's so popular to forecast doom and gloom. And if, if you are an optimist, you look like you're a detached, aloof moron. And I think that's more, it's easier to do that today than it's ever been

just because we've had all these surprises. One of the things I've learned as an investor, I think, is to unlearn what I think I've learned. And what do I mean by that? I find that every time I listen to my emotions, not every time, half the time they're right, half the time they're wrong. My emotions don't know any more than a coin flip. Every time I listen to my emotions, not every time, half the time they're right, half the time they're wrong.

My emotions don't know any more than a coin flip. So when Donald Trump was elected president, I thought we're fucked and I sold everything. And the market skyrocketed. When COVID broke out, I sold a lot. I'm like, oh, my God, it's a national, it's a global pandemic. And stocks did go down. I'm a genius. And then they ripped up and had some of their best.

I have a temptation now, Morgan, to sell everything. I mean, we're due. We're due for a huge correction. And I'm just not going to do it. I'm going to stay diversified and try and ignore the catastrophizing and my own emotions and my own pessimism. What are your thoughts about, I'll start there, ignoring your emotions when it comes to investing. Your thoughts. I think any way that you can mechanize your investing strategy is the right way to do it. Just to make it mechanical and to just say, this is the strategy and I'm going to do it come hell or high water. My friend Nick Maggiuli has a great book. The book is titled Just Keep Buying.

It's kind of promoting dollar cost averaging. Because when you dollar cost average, when you just say, I'm going to invest $1,000 on the first of every month forever, no matter what the economy is doing, I'm going to do it. You're taking the emotion out of the equation. You're not saying, I'm going to do it when I think GDP growth is going to be above X percent, whatever it is. It's just taking it out to the extent that you can actually pull that off, which is another thing. It's harder to dollar cost average than it is to say you're going to do it, to actually do it in time. There's almost no investing strategy, even with hindsight bias that you can create, that's going to do better than that. I've seen these studies where people put together

these back tests that you would think would be so logical to say, look, let's backtest with hindsight bias and say, we're only going to invest when the P.E. ratio is below this amount, when the economy is at the bottom of a recession with hindsight bias. And even still in those studies, it doesn't be dollar cost averaging. There's a study that I think is titled, Even God Cannot Outperform Dollar Cost Averaging. And the crazy thing about it is that it's the easiest thing to do. It takes no effort. It takes no analysis. You don't need to watch CNBC. You don't need to do anything. You just set it and forget it. So not only is it the easiest, it's the best over time. So it's not to say it's perfect. It's not to say

it's infallible. But especially when you adjust it for effort, there's almost nothing else that will beat it. Yeah. I mean, it's really interesting. One of the things, another lesson I'd like to think is, and it's kind of disappointing, is after being exposed to some of the quote-unquote brightest minds in the history of investing, my takeaway is that nobody knows. And that we all like to think that we're tapped into some proprietary resource or knowledge or that we have a better gut or we listen to someone with a better gut. And what I found is at the end of the day, nobody knows. You said something that really struck me, and that was invest in preparedness, not in prediction.

What did you mean by that? That's a quote from Nassim Taleb. And I love it that I use in the book. Rather than saying, I'm going to predict the next recession and it's going to occur in Q4 2024, making that up, a much better way to think about risk is just to say that my asset allocation, the cash and bonds that I have, the flexibility and room for error that I have in my finances would be able to endure a recession whenever it happens. One of the ways to think about it is, how does California think about earthquakes? Well, you can't predict earthquakes. You can't

say it's going to occur next quarter. It's going to occur at this point next year. There's no earthquake CNBC with people like pundits predicting when it's going to happen. But you say it's going to occur next quarter. It's going to occur at this point next year. There's no earthquake CNBC with people like pundits predicting when it's going to happen. But you know it's going to happen. So when you are building your homes, when the firefighter or EMS crews are training, they're always prepared for it to occur at any given moment because you intuitively know that you can't predict when it's going to happen. I think thinking about recessions and bear markets in the same way is the best that we can do.

So there's a difference between a forecast and an expectation. A forecast is saying there's going to be a bear market in February. That's a forecast. An expectation is historically the market has declined 20% three times per decade. And I expect that to be the case going forward. And psychologically and financially, I'm prepared for that to occur at any given moment. Because as we've seen with like all of the other 20% declines, they occur when you don't expect them to happen. And as you pointed out, the 20 to 50 to 100% surges occur when you don't expect them to happen. So quit the BS of like, assuming that you know when this is going to happen. And let's just set yourself up, like put yourself in the game so that whatever happens, you're going to benefit from it as long

as you can endure and stick around for long enough. Yeah. Sort of the basis of scenario planning is not trying to predict the future, but predict a series or a course of action that performs best across a number of scenarios. Isn't that kind of what you're saying? Yeah. I mean, so much of this is like realizing what bet you're making. Like what is the bet that you're making when you invest? And I think a lot of people, even professional investors can't really answer that question. If you stuck it to them, they wouldn't really have a formalized answer. This is the bet that I'm making because they're following an intuitive hunch, like a knee jerk reaction of, oh, well, GDP is falling. So I think the market's

going to fall too. Is it really, that's the bet you're making when you verbalize it like that? It sounds pretty silly, doesn't it? I think the bet that I'm making as a long-term dollar cost average into index fund invest, kind of investor is similar to what you said. I'm making a bet that over the next 50 years, the economy will become more productive, that the economy will grow. We're going to have more people who are better at solving problems 50 years from now than we do today. And that that benefit is going to accrue to myself as a shareholder. That's the bet that I'm making. And one of the other things that happens when you verbalize the bet that you're making is you realize all the other people who are making different bets are playing a different game than you. And therefore, the information that they're looking at and the

punditry that they are speaking about on TV, it doesn't apply to you. It's not to say that it's wrong, but it's a different game than you're playing. So once you really like crystallize what you're doing and the bet that you're making, it can do one of two things. You instantly realize once you say it out loud that you really, it's a silly bet that you really have no idea what you're doing. And two, it really hones your focus on the kind of information to pay attention to and the people who you should pay attention to as well. Your book, I mean, it's interesting, Maureen. I think of you more as like a life coach and a financial advisor

because whenever I read your stuff, I think you're using finance and investments as a lens to look at how to lead a more rewarding life. Your book is described as a masterclass on living one's best life. How can understanding, you know, the constants in your life lead to a more successful and fulfilling life beyond just financial comforts? Well, I feel like all investing is, is the study of how people behave with money. So let's start there and recognize that it's a behavioral topic. Well,

everything else in life is behavioral. Relationships are behavior. Your friendships, your career is behavior. Politics is behavior. Everything falls under the behavior umbrella. So there actually is a lot that we can learn from other fields that teach us about investing and vice versa. The first chapter of psychology of money is called the greatest show on earth, because I thought that finance is one of the starkest windows into how people behave in life. Because it's like the stakes are so high, the emotions are so raw, there's so much quick feedback in the stock market that you can learn so much about behavior in investing that you can therefore apply to other fields. So for one, it's just a giant window into how people behave that you can apply to other things.

The other is like, well, what is money? Money is a tool that you can use to give yourself a better life. And the reality, though, is that a lot of people use it as a tool to foster some sort of addiction, to climb the social ladder, to give other people a scorecard for which to measure themselves by. Like, there's a lot of different things that you can do with money, some of which are great, others can be disastrous. So I think all of these fall under some sort of generalized life advice

because what else are we trying to get rich for if it's not to lead a better life? But you just said something that I think is really interesting, and that is your approach to money probably somewhat indicates your approach to other relationships. I mean, as someone who's taking outsized risk financially, do you find that that carries over that they take outsized risks or, or poor, you know, they're too risk aggressive with their relationships or their approach to their own health? Or do you think that sometimes people bifurcate their behaviors when it comes to the relationship with money versus their relationships with other parts of their lives? I think what maps here and what's definitely true is that what everybody wants out

of life is respect and admiration, particularly from the small subset of people who they want to love them, their friends, their close friends and their family. And there's many ways that you can gain respect and admiration. You can do it through your wisdom and your love and your humor and your friendship and your ability to listen and your empathy. Or one other way to do it is by showing off your car and showing off your house and showing off how wealthy and successful you are. By and large, if you can gain your respect and admiration through the former and the small subset of people who you want to love, you love you because you are smart and wise and funny and empathetic and etc., then most people will seek it there. If you cannot get your respect and admiration from there,

then it's very easy to default to saying, I want to be rich and have a Ferrari and have a huge house. So people will look at me and say, that guy's great. That guy's cool. I think that tends to be not for everybody, but that tends to be what happens here. So I think there are a lot of people who have a very strong desire to become rich so that they can have a lot of big, fancy, flashy toys because deep down, they think that that is their ticket to get respect and admiration from other people.

But I think it's just a much more lasting and enduring way to seek your respect and admiration from the people who you want to love you through things that by and large have nothing to do with money. It's interesting. I think I'm just, you know, Morgan, these podcasts are just an excuse for me to talk about me. addicted to money. And I also think that I have this need to sometimes demonstrate my success financially for affirmation from strangers. And I think a lot of it is so deep-rooted as an instinct when you want other men to respect you, you want women to be attracted to you. These things are really deep-rooted. And in addition, when you're in America, as a man, I believe you're largely evaluated, you're worth the amount of respect you deserve, the amount of love you deserve is largely correlated in a capitalist society,

specifically in America, with how much money you make as a man. I mean, I just think it's so hardwired into us. One, and I think some of that is probably good, but it's trying to figure out when and where you should modulate it. What are your thoughts? I think we can respect both ends of the spectrum here and say, look, it is this deep-seated caveman emotion that we have. And let's not pretend that we can just turn that, like flip a switch and turn that off. You can't. Because you have it, I have it.

Everyone, I think virtually everyone has that deep-seated desire to show off how successful they are. And it's a very natural thing. But I think if you acknowledge that and recognize the game and how it's being played, then you can also, you can still chase that and still realize that actually what you want is respect and admiration. And what you're going to

gain it from is not by showing off your car, even if you're still doing that, what you're actually going to gain it from are things like, do you have a loving and caring spouse? Do your kids respect and admire you? Are your kids well-balanced and happy themselves? That's what's actually going to make you happy. The place I would maybe push back a little bit is that I think it is hard to maintain healthy relationships if you don't attain, as a man, a certain level of financial security, which is getting harder and harder in this economy. That distinctive, what we would like to believe, that when a woman starts, a woman in the relationship, in a heteronormative relationship, and I'm not saying this applies to every relationship,

but that when the woman starts making more money than the man, the data shows, unfortunately, the likelihood of divorce goes way up. And that regardless of how many subscriptions to the Atlantic or the New York Times or how evolved we'd like to think we are, that men are still, their attractiveness to their spouse is unfortunately and disproportionately predicated on their ability to be a good provider. And while I get that we should focus on the love in the relationships, without a certain level of financial security as provided by you, the man, and I realize this sounds sexist, but I think there's data to show this. It's going to be difficult to maintain those relationships. What are your thoughts?

I think you're right. I don't know if I have much pushback. I would distinguish between financial security for your family and being rich. Those are very two, however you want to define rich. I have a good friend of mine who makes maybe 50 grand per year. And he has, he has two kids. He's married a great relationship, but he's, he's, uh, he's self-conscious about the money that he makes because some of his friends make considerably more. And I told him one time, I said, look, you are a great dad. You're a great husband. You work hard. You provide three solid meals for your

kids. You're going to help your kids out with college someday. By that alone, you're a great husband, you work hard, you provide three solid meals for your kids, you're going to help your kids out with college someday. By that alone, you have already achieved 90% of the respect that I'm capable of giving you. And maybe if you are a very successful entrepreneur and you did this creative thing, that respect would go from 90% to 95% or something like that. But I think that's really true. And you can flip that around and say someone who's providing enormous financial security, who is very rich and wealthy, but they're not there for their kids. They're on their fifth divorce, whatever it might be. I wrote about this last week. Among the 10 richest men in the world, there are a cumulative 13 divorces. And so that's, you know, I think for most people,

if you said, would you rather make $100,000 a year, which for in most places, you can provide financial stability for your family. And in that situation, let's assume you have a spouse who loves you, well-balanced kids who admire you, good health, good friends, eight hours of sleep, or you can make a million dollars a year and have none of those things. It's obvious which 95% of people should pick in that scenario, but we still have the caveman instinct to push for it as much as we can. I know wealthy people. I know you do, too. And on average, they are not any happier than people who are just doing okay. They're happier than people who are poor, but are they happier than people who are—are people who make $10 million a year happier than people who make $100,000 a year? On average, absolutely not. And I think if anything, it leans the other way. The people who are crazy financially successful got that success because they work 100 hours

a week. And because of that, they don't have good relationships with their spouse or their kids. They're not well adjusted. They sleep four hours a night, et cetera, et cetera. But I want to think that that's kind of my North Star. It's like, I want to be very financially successful. I want to be more financially successful than I am now. But none of that is going to mean a damn unless I'm spending adequate time with my kids and my wife and my health and my own sleep and my own sanity.

I'd like to think you're right. But my gut is saying the reality is in today's economy, happiness is becoming more correlated with wealth and how much money you have. You talk about the relationship between happiness and expectations. I like that part of your writing. Talk more about that. Well, it's just this idea. And this is a great segue to what you just said. I don't disagree at all with what you just said. And I think to summarize my point here, I can easily imagine a world in which my grandkids earn, adjusted for inflation, double what we earn today. And they're no happier for it. And the medical technology that they have is exponentially better than you and I have

today. And they're no happier for it. And all of these things. And I think that has been the common path of history. That's one of the chapters of Same As Ever is about expectations and reality, where there's no such thing as an objective measure of wealth. The average middle class, median American today lives a life that is way better, materialistically way better than the average rich person did in the 1950s.

I always say John D. Rockefeller never had penicillin, Advil, sunscreen, go on down the list. Most of John D. Rockefeller's life sunglasses had not even been invented yet. And so the average American has access to these things that the wealthiest people could not even fathom. But you cannot say that the average American should be happier or feel like they're living better than Rockefeller because everybody just looks at their neighbors and their co-workers and measures themselves relative to them. It's always a relative value. And social media just like dumps gasoline on the fire because it used to be. And when I say used to be, I mean, like five or 10 years ago that you compared yourself to your neighbors and your coworkers.

Now you're comparing yourself to an algorithmic curated list of people. Yeah. Someone phrases, I forget who I need to give credit to here, but it was so brilliant. They said, we went from keeping up with the Joneses to keeping up with the Kardashians. That's exactly what it was. We've always been keeping up with the Joneses, but now it's this fake highlight reel. And everybody knows, every single person knows the person whose Instagram feed, the close friend whose Instagram feed looks like butterflies and rainbows. Here's how happy my family is. But if you actually know that person, you know, their life is a disaster and they're depressed. They're on the verge of divorce, et cetera. And so even like the highlight reel that you're seeing is so fake. And that I,

I don't think we understand the consequences of what that's going to be. I can already see it in my own kids. My son is eight and watches a fair amount of YouTube, watches Mr. Beast, which I think is like wholesome stuff. But because of that, when I was growing up in the 90s, my definition of a rich person was the people who bought new pickup trucks. And a normal person was a person who drove a used pickup truck. And now my son's definition of a rich person is a private island and a golf stream and seven Lamborghinis. And Mr. Beast, who gives his friends a million dollars because it's funny, that's his definition of like, I wouldn't even say successful.

That's his definition of like status quo. It's so hyperinflated from what even his parents had. So what is that going to do when the generation who's eight years old right now and is growing up with YouTube, growing up with Mr. Beast, becomes 30 years old and they need to buy their first house and have their first career and they start having kids of their own? I don't think we know what it is, but you can piece together that it's probably not going to be pretty. It's not a situation that's going to lead to a lot of happiness around society. We'll be right back. Have you thought about the way that the way you're raised impacts your relationship with money as you get older? There's a quote that I love from Josh Wolf where he says, chips on shoulders put chips in pockets of like, if you grew up poor, you're going to be more driven.

Statistically, though, the opposite is true. There's this like jaw dropping research from this economist named Bakshar Mazander, who says, who has shown that income among brothers is more correlated than height or weight among brothers. So literally, if your brother is rich and tall, you are more likely to also be rich than you are tall. That's what his research has shown. Like so much of like, yeah, like the quote, of the only way that you can predict with any sort of accuracy anybody's income, what it correlates the most is your father's income. And so once you look at those statistics of just economic mobility, it's lower today than it's been in a very long time. It used to be substantially higher, like your ability to be born poor and then become rich.

By and large, though, statistically, you're probably not going to venture that far. Of course, there are many exceptions. But on average, that tends to be how it is. I saw this chart yesterday that showed the percentage of people who get a very high SAT score based off of the decile of their parents' income. And it's exactly what you would think. If your parents are poor, the odds you're going to have a good SAT score are very low. If your parents are billionaires, there's like a 30% chance you're going to be in the top 5% of SAT scores because you can afford the best tutors and whatnot. So that just like getting locked into your socioeconomic group is huge. And to deny that and ignore that, I think, is a problem. To say that, you know, anybody can make it to the top is just statistically not true. It's just so much harder to do

than if you grew up. I honestly think the sweet spot is growing up in a middle class family. Like you have enough money to give you some opportunities. You're going to go to a decent public school. Maybe you can afford a cheap SAT tutor, but it's not so much money that it's going to ruin your driving ambition. And Buffett has this quote. I don't know if he's actually pulled this off with his kids. He says, give your kids enough money so that they can do anything, but not so much money that they can do nothing. And I think that's the sweet spot. I'd say a lot that if I had what my kids have, I wouldn't have what I have.

And so that sets up my question to you. You have kids. And there's so many blessings that come with having some professional and financial traction. On the whole, you take it all day long. But one of the issues you face as a parent, if you have some financial success, is how do I instill the characteristics that not only made me financially secure, but the money is great. But what is really rewarding is that I earned it and I have it and I accomplished it and I built it with someone, a partner that loves me and I love, and we built something together. Have you thought about how you're going to instill that level of grit such that your kids have that grit? I mean, we all think we're going to, you know, I'm going to cut my kids off. All my friends say that. None of them do it. None of them do it.

None of them do it. None of them do it. I think a lot about this. My daughter is four. And in theory, my wife and I want to raise kids who are not spoiled. Of course, of course, that's what we want to do. But my four-year-old daughter, I think she already knows if she flutters her eyes and pouts her lips, I'll buy her anything she wants. And so if it's like that at four, what is it going to be like when she's 16? In theory, I don't know if I can actually pull this off. My kids are four and eight, but I would like to think that I could be a safety net, but not a fuel in terms of, look, because of the money that your parents have made, we're never going to let you fall flat on your face. You're obviously never going to be homeless. You'll always have a backstop and not a hammock. You're going to get the best education money can buy, but under no circumstances are we just going to give you an allowance when you're an adult. Absolutely not. Not in a million years. And I hope we'll be able to pull that off. And I hope it therefore benefits them that they have this.

And I think that because I think my parents actually did that for myself and my siblings. We always knew that if we got into trouble when we were 22, they'd be there for us. And from the time I was 16, it was like, if you want to do anything other than eat a basic diet, you need to go work. And I worked full time all throughout college because I had to. But I always knew that they were there for me if anything happened. And that was a big thing. That was huge. Because I think if I did not have that, I would not have taken some of the risks that I did in my career. If that wasn't there, I might have said, I need the stable corporate job. I can't go out and take a risk and try to become a writer. So I think having that there was great.

And that's what I aspire to pass on to my kids. Morgan Housel is a partner of the Collaborative Fund, a network of fund managers investing across asset classes. His book, The Psychology of Money, has sold over 2 million copies and has been translated into 52 languages. His latest book, Same As Ever, A Guide to What Never Changes, is out now. He joins us from his home in Seattle. Morgan, I think your books should be required reading in high school because in a capitalist society where money has an unfortunate,

unfair correlation to your well-being, you should be a component of health class in high school. I think you have such a pragmatic, healthy approach, an emotionally balanced approach to financial security and ultimately well-being. I think you're doing great work, my brother. Keep it up. Thanks, Scott. I so appreciate it. As someone who has admired you from afar for many, many years, that means a lot coming from you. Thank you. Algebra of Happiness. I went in for one of these total body scans where for just a modest $7,000, I sit in a tube, a claustrophobic tube, which I don't mind because I got to listen to Tom Petty. And for 45 minutes, hear all these strange sounds. I guess it's magnetic resonance imaging,

no radiation. And then I did the same thing for my heart. And then they took blood, urine, fecal matter, and then a radiologist and a doctor take me through absolutely everything. And the bottom line is they said, you know, I was in very, very good health. I asked them on a scale of one to 10, and I'm boasting now where I'm at, and they said a nine and a half because they've never given a 10. Some of it's genetics. I'm blessed that way. But people, generally speaking, genetics, people inflate the role genetics plays in their health. They say that, or they like to believe that because then they can sort of absolve themselves of any responsibility. Well, Uncle Joe smoked till he was 95, and that gives them an excuse to treat their body like shit. Number two is lifestyle. Simply put, don't smoke, don't be obese, and that gives them an excuse to treat their body like shit. Number two is lifestyle.

Simply put, don't smoke, don't be obese, and then I'm going to come back to what you should do. And then how social you are, how engaged you are in people's lives tends to be or is proven to be the number one predictor of how long you live. You'd rather smoke and have friends than not smoke and have no friends. Anyway, so what I'm going to talk about here is that the three legs of the stool, according to doctors Atia, Peter Atia, and Andrew Huberman, who I'm obsessed with, are one, sleep. That's kind of table stakes. Hard to be healthy if you don't get good sleep. Two, nutrition. And three, exercise. My sleep is good. It's gotten less good as I've gotten older because I have to pee all the time and I just have a more difficult time sleeping. But I find that's just getting older, but my sleep is pretty good. I prioritize it. My nutrition is where I fall down. I eat out a lot, a lot of salty, sugary, fatty food,

and I drink way too much alcohol. And that's what's always worried me, that I'm going to find that my liver is registering cirrhosis or that alcohol is just shitty for you and can pop up in a bunch of ways. But I believe the reason why I have been able to overcome just okay sleep and nutrition that is just okay and, according to my doctors, be exceptionally healthy, is I have worked out four times a week for the last 40 years. And every study I have read, the cadence of research over the last 40 years is all one way, and that is there is only one youth serum. There's only one real kind of fountain of youth, and that is exercise. And if you're listening to this podcast and you're in your 20s and 30s and you haven't figured out a way to work out three or four times a week, just keep in mind, it's not about living to 80 versus 90. Oh, I'd rather live to 80 and not have to put up with this bullshit called exercise. It's about the last 20 years

of your life are going to be much different if you just put in a small amount of effort and work out. Whether it's a nap, whether it's joining a gym where you can go stare at other hot people, whether it's a trainer that shows up and yells at you, whatever you need, whatever it takes, the best investment, the best investment in terms of ROI you can make your whole life in terms of the ability to get just okay sleep, just okay nutrition, and still be really healthy and still be able to do all the things you want to do, you know, hang out with your kids, run with your kids, drink, feel okay the next day, not great, just okay, and still be in relatively good shape, they're finding it kind of all comes back to one place, and that is a decent amount of sleep, decent nutrition, but outstanding exercise. Push yourself. Push yourself. You should be able to

walk into any room and know if shit got real that you could kill and eat everybody or outrun them. One of those two things. Get on it. This episode was produced by Caroline Shagrin. Jennifer Sanchez is our associate producer, and Drew Burrows is our technical director. Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice, as read by George Hahn, and on Monday with our weekly market show. Oh, chicken schnitzel for the dog.