The Tim Ferriss Show - #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor

Starting point is 00:00:00 This episode is brought to you by Tonal. Imagine having an entire gym's worth of equipment in a device smaller than a flat screen TV. Something that could fit potentially even in a closet. Fits in my closet. By eliminating traditional weights, Tonal can deliver 200 pounds of resistance with a sleek design that can fit nearly anywhere. It's like having an entire gym and personal trainer right in your home. Tonal's patented digital weight system senses your strength and adjusts the weight automatically in real time so you can get the most out of every workout. I have a number of friends, including competitive athletes, who have doubled their strength in short order in a lot of exercises. And part of the reason that's possible is it

Starting point is 00:00:39 uses a revolutionary system of dynamic resistance powered by electric motors for strength you can feel. You can also do things like eccentrics. Over time, Tonal learns from your body and automatically increases the weight exactly when you can handle it. Tonal also uses 17 sensors to provide real-time feedback on your form and technique, allowing you to get the most effective workout every time. It's a strength training machine with adjustable arms that provides more than 170 exercises for a full body workout. And that can include squats, deadlifts, bench presses, overhead pulls, bicep curls, and more. So check it out. Try Tonal, the smartest home gym for 30 days in your home. Tonal is so confident that you'll love it. They offer a full money back

Starting point is 00:01:22 guarantee. You can now get Tonal from $63 per month at 0% interest over 48 months. Visit www.tonal.com and for a limited time, get $100 off when you use promo code TIM100 at checkout. That's www.tonal.com, promo code TIM100, T-I-M-1-0-0. Tonal, be your strongest. This episode is brought to you by Allform. If you've been listening to this podcast for a while, you've probably heard me talk about Helix Sleep and their mattresses, which I've been using since 2017. I have two of them upstairs from where I'm sitting at this moment. Helix has gone beyond the bedroom and started making sofas. They launched a company called Allform, A-L-L-F-O-R-M, and they're making premium customizable sofas and

Starting point is 00:02:16 chairs shipped right to your door at a fraction of the cost of traditional stores. So I'm sitting in my living room right now, and it's entirely All form furniture. I've got two chairs, I've got an ottoman and I have an L-sectional couch and I'll come back to that. You can pick your fabric. They're all spill, stain and scratch resistant. The sofa color, the color of the legs, the sofa size, the shape to make days and you can assemble it all yourself in a few minutes. No tools needed. I was quite astonished by how modular and easy these things fit together, kind of like Lego pieces. They've got armchairs, love seats, all the way what I did, because I can turn my L-sectional couch into a normal straight couch, and then with a separate ottoman in a matter of about 60 seconds. It's pretty rad. So I mentioned I have all these different things in this room. I used the natural leg finish, which is their lightest color, and I dig it. I mean, I've been using these things hours and hours and hours every single day. So I am using what I am sharing with you guys. And if getting a sofa without trying it in store sounds risky, you don't need to worry. All form sofas are delivered directly to your home with fast free shipping and you get 100 days to

Starting point is 00:03:35 decide if you want to keep it. That's more than three months. And if you don't love it, they'll pick it up for free and give you a full refund. Your sofa frame also has a forever warranty. That's literally forever. So check it out. Take a look. They've got all sorts of cool stuff to choose from. I was skeptical and it actually worked. It worked much better than I could have imagined. And I'm very, very happy. So to find your perfect sofa, check out allform.com slash Tim. That's A-L-L-F-O-R-M.com slash Tim. Allform is offering 20% off all orders to you, my dear listeners, at allform.com slash Tim. Make sure to use the code Tim at checkout.

Starting point is 00:04:10 That's allform.com slash Tim and use code Tim at checkout. Optimal minimum. At this altitude, I can run flat out for a half mile before my hands start shaking. Can I ask you a personal question? Now would have seemed the perfect time. What if I did the opposite? I'm a cybernetic organism, living tissue over metal endoskeleton. The Tim Ferriss Show. Hello, boys and girls, ladies and germs. This is Tim Ferriss, and welcome to another episode

Starting point is 00:04:42 of The Tim Ferriss Show. I've been looking forward to this episode for a while. My guest today is Morgan Housel, H-O-U-S-E-L. You can find him on Twitter at Morgan Housel. He is a partner at the Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal. He serves on the board of directors at Markel Corporation. He is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers, winner of the New York Times Sydney Award, and a two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism. His book, The Psychology of Money, has sold more than 1 million copies and has been translated into more than 30 languages.

Starting point is 00:05:19 Morgan, welcome to the show. Thanks so much for having me, Tim. Happy to be here. So I have just an embarrassment of riches in front of me in the form of tabs open in this browser. And one of them is a Google document that contains my Kindle highlights from your book, and that is The Psychology of Money. And I have 18 pages of Kindle highlights. I wanted to share that because- That's a whole book.

Starting point is 00:05:50 It's a whole book. Yeah. Your book was recommended to me several times, and I'm not going to lie, The Psychology of Money as the title I thought would be different in terms of content than it ended up being. So the subtitle, Timeless Lessons on Wealth, Greed, and Happiness, which is a great subtitle. I had read books before, I think, attempting to explore certain facets of psychology as related to money. And the conclusion usually was spend money on experiences, not possessions. And I was like, okay, after the 17th round on that, I get it. I understand the takeaway. And I was extremely impressed with how many, not just anecdotes, but reframes in the book caught me off guard or were totally unknown to me or were hiding in plain sight, as I'm sure we could explore in multiple examples. So I thought we would begin, and this is actually not where I was planning on starting, but since I'm blathering on, I'll just go there.

Starting point is 00:06:50 Could you speak to comparing Warren Buffett and Jim Simons? And just give a little context on who Jim Simons is. Most people will recognize Warren Buffett, but my brother and I were speaking about this because I recommended your book to him, which is a huge reputational risk on my part. He is, for all intents and purposes, a quant, PhD in statistics, also very literary, high bar for books. And he also very much enjoyed your book. And this is one of the illustrations that stood out to both of us. So if you wouldn't mind just kind of filling in the color on this, and then we're going to bounce all over the place. Well, Tim, it starts with the question, which seems like a really straightforward question of just asking who's

Starting point is 00:07:34 the greatest investor of all time. It doesn't seem like a hard question to answer. It should be an analytic answer. It's just like a number who's had the best performance. But then you can split this different ways. So who is the wealthiest investor of all time? That answer is Warren Buffett. Who's the greatest investor of all time in terms of long-term average annual returns? It's Jim Simons by a mile. And it's not even close. Warren Buffett's long-term average annual returns are about 21% per year. Jim Simons are like 66% per year after his ridiculous fees. He's like in a different universe. But Warren Buffett is like way wealthier. And Jim Simons is like a deca-billionaire himself. And this is like a crazy to say like, he's not as rich,

Starting point is 00:08:16 sounds crazy. But to parse that out, the reason that Warren Buffett has earned one third of the returns, but he's like 10 times as wealthy, because Warren Buffett has earned one third of the returns, but he's like 10 times as wealthy because Warren Buffett has been investing for 80 years. And so even though he's not the greatest investor of all time in annual returns, he has so much endurance in terms of what he's done that by a mile, he's the wealthiest, which to me, that gets into a really interesting point, which is how do you become a great investor? And most people, when they hear that, what they think of is like, how can I earn the highest returns? What are the highest returns that I can earn this year and over the next five years or the next 10 years? And that's not bad. That can be

Starting point is 00:08:51 a great thing to do. But to me, if the goal is to maximize the dollars that you have, what's a way that I can maximize the amount of dollars I accumulate over the course of my life? Then the answer to that question, the huge majority of the time is not earning the highest returns. It's what are the best returns that you can earn for the longest period of time, which usually aren't the highest returns that are out there. Because maybe you can earn, maybe you can double your money this year, but can you do that for 50 years in a row? Probably not. But could you earn 10% annual returns for 50 years? Yeah, you can totally do that and generate an enormous sum of wealth. All compounding is, is returns to the power of time. Time is the exponent. And so that's to me what you want to maximize. And that's why Warren Buffett is, in my mind, and it seems like an easy

Starting point is 00:09:36 answer, the greatest investor of all time, even though his returns are probably not even in the top 20% of annualized returns among professional investors. And for people who want to explore Jim Simons further, I mean, he's a mathematician by trade, so to speak, but fascinating character. There's a book about him. I think the title is The Man Who Solved the Market, which covers Renaissance technologies and also tiptoes around a number of other similar, I would say, firms that are very, very secretive for the most part, but fascinating exploration. Also like watching Memento. Sorry, folks. But the experience of COVID also showed me how trained a skill it is and trainable a skill it is to think about exponential growth curves and compounding, right? So for instance, most of the folks who actually the people who alerted me first to COVID in January of 2020 and the people

Starting point is 00:10:46 who followed it the closest were in my circles, all investors, right? All active investors. And sort of a good metaphorical way to explore this would be if you tell somebody there's a pond, it's a large pond. And every day, there is a small growth of algae that doubles in size. And at day 30, the entire pond is covered. At which point on which day is it 50% covered? And the day is number 29. It's sort of counterintuitive to think about. And just to connect that to what we were talking about, this is the other thing that I suppose should have been obvious, but it was kind of hiding in plain sight. And that is the percentage of Warren Buffett's wealth, his total, let's just call it net worth, that he has accrued since what, age 50, age 65? How does it work out roughly? I

Starting point is 00:11:43 know I'm asking you to kind of memorize your book, which is not fair, but do you recall offhand? The math behind it is 99% of his wealth was accumulated after his 50th birthday and 97% came after his 65th birthday, which is a really obvious thing if you think about how compounding works. It's always in the extreme later end of years that the numbers just start getting ridiculous. Compounding is just like, you know, it starts slow and then it's boring. And for 10 years, it's boring. For 20 years, it starts to get pretty cool. And then 30 years, you're like, wow. And then 40, 50 years, it's like, holy, like it just explodes into something incredible. There's a friend of mine named Michael Batnick who once explained compound growth. And I think the most easy way

Starting point is 00:12:21 to comprehend, which is if I ask you, what is eight plus eight plus eight plus eight? You can figure that out in your head in three seconds. Anyone can do that. That's no problem. But if I say, what is eight times eight times eight times eight times eight, your head's going to explode trying to think about it. All compounding is never intuitive. And that's why if we look at someone like Buffett, we in the financial industry have spent so much time trying to answer the question, how has he done it? And we go into all this detail about how he thinks about moats and business models and market cycles and valuations, which are all important topics. But we know that literally 99% of the answer to the question, how has he accumulated this much wealth,

Starting point is 00:12:59 is just that he's been a good investor for 80 years. It's just the time. And if Buffett had retired at age 60, like a normal person might, no one would have ever heard of him. He would have been one of hundreds of people who retired with a couple hundred million bucks and moved to Florida to play golf. He never would have been a household name. He would have been a great investor, of course, but there's a lot of great investors out there. The only reason he became a household name is just his endurance and his longevity. That's it. And that's why if you go back to even the late 1990s, not that long ago,

Starting point is 00:13:33 Warren Buffett was known within circles, within investing circles. People knew who he was. But he didn't become a household name until the early and mid 2000s, which is that's when the compounding took his net worth to become worth $20 billion, $50 billion, $100 billion where he is right now. It's just the amount of time he's been doing it for. Let's take a closer look at Warren Buffett and Charlie Munger. I know you are certainly a fan of Charlie Munger, probably Warren Buffett as well. What do people get wrong about the two of them? I would just love to know what you think people misinterpret or over-interpret aside from the longevity piece, just the tally of years involved with compounding? And let's just start with that broad question. I think one of the things that's easy to minimize is that Buffett is a very good communicator. He's a very good writer. He's a very good speaker. That's a big part of why he became a household

Starting point is 00:14:23 name. When he writes his annual letters, when he goes on CNBC, it's easy to understand. Anyone can understand it. And that has created the impression that what he does is really simple. And I think it's led a lot of people to be like, oh, I can go out and pick a good business and read a balance sheet and I can do all this too because it sounds so easy when Warren does it. And it's not. There's so much nuance and I think gut feelings that have just accumulated over 80 years of doing this that has made, particularly in the early and mid 2000s, value investing was very popular. It's not in this era, but in the last era, it was. And there were a lot of people, a lot of fund managers, a lot of investors who would read a

Starting point is 00:15:01 couple of Warren Buffett annual letters and be like, I could do this. I could totally do this. And they go out and try to do it. And there's a reason why quoting Warren Buffett is easier than being the next Warren Buffett. It sounds so simple when you're like, oh, be greedy when others are fearful. It's so simple. And then you go out and try to do it. And October 2008 rolls around and you're like, oh, this is actually way harder than I thought. So I think it's very easy to oversimplify what he's done. And that's why there are hundreds of books titled some version of how to invest like Warren Buffett. And it's all so overly simplified when actually what they do is really complex. And even if it's not complex, they're just at a... They being Berkshire and Buffett and Mugger are at a size now where they can do things that other people can't. Whether it's just picking up the phone and calling the CEO of Goldman Sachs to get a special preferred

Starting point is 00:15:48 stock investment, that kind of stuff. There's things that other people can't do. The other thing that's, I think, easy to overlook is that Berkshire is now a $600 or $700 billion company, something like that. So the odds that they are going to achieve market beating returns in any significant way, I think, round to zero. And it's a casualty of its own success that when Berkshire was a tiny company in the 70s and 80s, they could go out and buy small cap companies and do things that now, you know, Berkshire's largest investment now is Apple. And I think there's two reasons for that. One is because it's a great company. And it's, of course, it's a great company. Two is that the number of publicly traded companies that can actually move the needle in Berkshire's portfolio is probably like 10. There's probably like 10 companies that

Starting point is 00:16:28 are actually investable that he could actually look at and say, we can put some money to work there. And Apple just happens to be one of them. So I think the odds that Berkshire will outperform over the long term are very slim. And if it does outperform, it's going to be minuscule. That's okay. There's nothing wrong with that. But I think a lot of people have been disappointed because Buffett became famous in the mid-2000s, and a lot of people started buying Berkshire stock and becoming part of that cult. And the stock since then has not done very well. And I think that's almost inevitable at the size that it is, that it's not going to outperform anymore. That's true with a lot of things, right? I can't remember where I first heard this expression. I want to say it's somehow associated with collaborative fund, actually, but I don't know where it began, which is the size is the strategy. spot where somebody is not in asset accumulation mode just to earn their management fee. They're

Starting point is 00:17:25 not going to be able to buy that amazing $50 million mansion in Miami on the management fees just yet, right? So they're still out there to beat the world. So the size of the fund or the size of the company or the size of the fill in the blank kind of becomes one of the main parameters for picking. I think you see that actually in a lot of fields. There's this thing in evolutionary biology called Cope's rule. It's not a law because it's not very universal, but Cope's rule basically says that organisms get bigger over time. So if you look at the evolution of humans, we used to be half of our height that we were. As we evolved over the years, you get bigger. And you went from little worms that turned into boa constrictors. Most species get bigger over time.

Starting point is 00:18:05 So then the question is, why aren't all species just enormous? If getting big is better because you are a better hunter, you can hunt more prey, why aren't we all huge? And the answer is because there's huge downsides to being big. You can't hide from other prey. You need an enormous amount of food to keep yourself going. There's always a sweet spot in evolution of big helps, but only to a certain point. One of the areas that this really became clear that size helps you, but it also has huge downsides were banks in the early and mid 2000s, where the economies to scale to

Starting point is 00:18:37 banking are enormous. When you're a big bank, you have a lower cost of capital, you can raise money, you have regulatory capture, you own the politicians, et cetera. You want to be a big bank. That's the sweet spot. But then there's this really interesting thing. We all know what happened to the banks in the mid-2000s. But one of the most fascinating stories that I remember is Citigroup in the mid-2000s had this product on its balance sheet. I forget what it was called. It was like a CDO putback. Basically what it meant in layman's terms was CDO had all of these collateralized debt obligations, these junk bonds. And there was like a little footnote in them that, hey, if the value of these bonds declines,

Starting point is 00:19:12 if these investments go sour to these clients who are selling them to, we, Citigroup, will buy them back at par, at full price. And when the mortgage market imploded, Citigroup was obligated to repurchase like tens of billions of dollars in these junk bonds. And that was a big part of what sent them over the edge and nearly bankrupt the company. The interesting thing about this is that Robin Rubin, excuse me, Robert Rubin, who was a former treasury secretary and a partner at Goldman Sachs, like one of the most astute, sophisticated, experienced financial minds in the world was on the Citigroup board of directors at the time. And he afterwards said that he had never even heard the name of this product.

Starting point is 00:19:49 He had never even heard of it. This product that could nearly bankrupt the entire company, had the ability to almost bankrupt the company. The guy who sat on the board had never even heard of it before. So that to me, like you can criticize Robert Rubin for that, but that to me, it just showed that Citigroup was just too big to manage. There's too much going on for any sane person to understand what was going on. I actually empathize with a lot of those too big to fail bankers. And look, sure, they have lost all their wealth, of course, but there's no way that anyone at Citigroup or JP Morgan or Wells Fargo or any of those banks can honestly say that they know what's going on inside of them. They're just too damn big to understand it. Part of what I enjoy about your mind and commentary is that it spans from the macro to the intensely personal. So I'm going to come back to Buffett

Starting point is 00:20:39 and Munger, but I'm going to take a detour for a moment, lest people think we're going to get too into the weeds on banks for the next hour, which we might get into a bit more of it. But I want to go to a piece that you wrote some time ago. And this is financial advice for my new son. You wrote this October 13th, or you published it October 13th, 2015. So that's, let's just call it six years ago, a bit over six years ago. And your son had been born the week before. And you listed out a number of different, I wouldn't say rules, but bits of financial advice. And one that stuck out to me that I particularly enjoyed, I'm just going to read it here, because it's one of those things, again, that is obvious once you've heard it, obvious in retrospect, but the framing is very helpful. And I hadn't read it presented in just this way. So number one,

Starting point is 00:21:32 you might think you want an expensive car, a fancy watch, and a huge house. But I'm telling you, you don't. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does, especially from the people you want to respect and admire you. Here's the paragraph that stuck out to me. When you see someone driving a nice car, you probably don't think, wow, that person is cool. Instead, you think, wow, if I had that car, people would think I'm cool. Do you see the irony? No one cares about the guy in the car. Have fun, buy some nice stuff, but realize that what people are really after is respect and humility will ultimately gain you more of it than vanity. Now, the last sentence has some

Starting point is 00:22:06 counter examples, maybe. But the point that we rarely look at the person in the cool car and say, wow, that person must be cool, rather we apply it to ourselves is, I think, a very profound observation. What would you add to this list? And people can certainly find this. We'll link to it in the show notes so people can find it easily. But is there anything you would add to this list? And people can certainly find this. We'll link to it in the show notes. People can find it easily. But is there anything you would add to this list now, six years later, or that you would change in any material way? Well, first, let me give some insight into that man-in-the-car paradox, as I call it. When I was in college, I was a valet at a high-end hotel in Los Angeles.

Starting point is 00:22:43 So I was in my early 20s, and there were people coming in in Ferraris and Lamborghinis and Rolls Royces, like the whole thing. And it dawned on me one day that when those cars pulled in that I had really admired, I'm a car guy. I'd love that. Never once did I look at the driver and say, that guy's cool. What I did is I imagined myself as a driver and I thought people would think I'm cool. And this was like, I was in my early twenties, but I'm just thinking like, that was my first kind of light bulb into how wealth works, that everyone thinks that they want to be the driver, but no one actually is paying attention to the driver. They're imagining themselves. People think about themselves way more than they think about other people.

Starting point is 00:23:18 But we all think that everyone's looking at us. I think that's like a universal thing. Everyone thinks, oh, this person's looking at me. They're impressed with me. By and large, they're not. They're thinking about themselves and how other people might want to be impressed with them. So that was some insight into that view. What I would add today, now that my son is six and we have a two-year-old daughter as well, and I think I knew this before becoming a parent, but until you're a parent, it's just hard to fathom how powerful it is. It's just, you have no clue who your kids are going to grow up to be. And I saw this, especially when my daughter was born. And now that my daughter is two, they are so different from one another. My son and daughter, completely

Starting point is 00:23:54 different, despite growing up with the same parents, in the same house, with the same means, everything, they could not be more night and day. Now, of course, they're four years apart and they're different genders, of course, but the personality differences are so stark. And that just makes me think, whenever you want to picture or imagine who your kids might be someday, it's like you have no clue what they're going to grow up to be. It's intuitive to think that my kids will grow up similar to my wife and I, because I'm going to instill in them the values that my wife and I value, but they're so starkly different from one another. And I'm so different from my brother and sister. We went so

Starting point is 00:24:30 completely different ways in life that it's so hard to give your kids advice when they're young, when you have no clue where they're going to end up. So people have asked me this question going off of that article, what would I teach them now? Or how am I teaching my son about money now that he's old enough to start to get the basics of it? And the truth is I'm really not because I don't know. Maybe when he's a young adult, he wants to be a partner at Goldman Sachs. Maybe he wants to work for Greenpeace. Who knows what he's going to be? And therefore, I can't give him or anyone universal financial advice and say, this is what you should do. This is what you should value. This is where you should go because we're all so incredibly different in our goals

Starting point is 00:25:09 and our talents and our aspirations. Are there not traits or characteristics that you could cultivate that would be somewhat agnostic in the sense that, I know this is a study that's come under some scrutiny if you want to even call it a study, but the marshmallow test, right? So are there not ways of not necessarily improving their financial IQ or investment IQ, but cultivating certain characteristics that may be helpful, right? And I'm looking at a piece by Jason Zweig. Am I pronouncing that correctly? Yeah. Fantastic writer. This is a, I should say a journalist, and this is a great piece discussing your book. Do you know the difference between being rich and being wealthy?

Starting point is 00:25:51 And one of the lines that I like in this is investing isn't an IQ test. It's a test of character. So could you speak to that? I think if there is a universal trait of money that's true for not 100% of people, but let's say 90% of people, is that what people really want in life is independence and autonomy. I think no matter where you're from, what you do, what your aspirations are,

Starting point is 00:26:12 that's a common denominator. That people just want to wake up every morning and do what they want to do on their own terms. And whether they're able to do that, whether they can actually do that today, or that's a goal, I think that's a universal trait among people is just independence and autonomy. And so to the extent that we can use money to gain

Starting point is 00:26:28 that, to gain independence and autonomy, that is, I think, as close as it comes to a universal want and thing that we can use money for. The interesting thing to me is that huge numbers of people, educated people, financial professionals, the purpose of money is to buy stuff. It's to accumulate more stuff, bigger house, nicer car, whatever it might be, which is great. I love all that stuff too. But to me, the most powerful thing that money can do and the most universal benefit that it can bring us is systematically overlooked. Using it for independence and autonomy is so overlooked. That to me has always been kind of a sad thing that we are so accustomed and attuned to just wanting to use kind of a sad thing that we are so accustomed and attuned

Starting point is 00:27:06 to just wanting to use our money, whatever money that we have, whatever savings that we have to go out and buy more stuff when we could be using it for freedom and autonomy. And then when you come to a period like in March and April of 2020, or October 2008, when millions of people lose their jobs, and you see during those periods, like the early day of COVID, how many people are just on the razor's edge of insolvency. And it does not take them much, one or two weeks of unemployment to be in a really bad financial spot, whether that's for an individual or a small business, it does not take them much to be thrown over the edge. And you realize how dependent so many people are on their jobs, their salaries, their customers in a short period of time. And there's just not a lot of room for error throughout most of the world.

Starting point is 00:27:48 And I think for the huge majority of people, not everyone, but for the majority of people, there could be a lot more. And the reason that they don't want to have more savings is because to them, the knee jerk reaction is why would I just keep my money in the bank or even invest it? The purpose of money is to go out and buy more stuff to enjoy my life. I get that. even invest it. The purpose of money is to go out and buy more stuff to enjoy my life. I get that. I understand it. But it's usually once every five or 10 years that people realize how important independence and autonomy is. And having that wealth that you have not spent, having the money that you haven't spent that was just laying around doing nothing

Starting point is 00:28:17 becomes the most valuable thing in the world when it lets you gain control of your time and just wake up every morning and say, I can do whatever the hell I want today. I think that's as close as it gets, Tim, to a universal financial law. All right. We may come back to the kids, but I'm going to leave the kids alone. I'm going to go to your parents instead. What did your parents do professionally? To answer the question, my dad was an ER doctor. My mom was an ER nurse. They're both retired now, but they got to it in a really interesting way. My parents met on a hippie commune in the 1970s in Tennessee. And my dad started his undergraduate college when he was 30 and had three kids. And he became a doctor when he was like 43 or something like that and had three teenagers.

Starting point is 00:28:55 So he had kids after he began his undergrad in his 30s? Well, I'm the youngest of three. And I think he started undergraduate the month after I was born. That's when he started undergrad. And then he became a doctor when I was 12 or something like that. And my brother would have been 18 at that point. So he got a very late start, which is a very... When he started, everyone, I think from his parents to the professors were like, what are you trying to do? You're going to become a doctor. You're out of your mind. But he did. He ground through it and did it. And what's interesting about that financial story is that we grew up me we'd be my whole family when i was a young kid very very poor my parents

Starting point is 00:29:31 were students we were living off of grants and like low-income houses like we were poor we had a great childhood but we were very poor and then my dad became a doctor when we were in our early teenage years and then had a comfortable upper middle class life from there. But the frugality that was forced upon my parents when they were poor stuck around. So my parents had a very high savings rate. We lived a great life. We had a nice house, drove fine cars. We went on some cool vacations.

Starting point is 00:29:57 It was not living poor at all, but my parents had a very high savings rate. They lived well below their means because that's how it was forced upon them for decades of living like that. And then when this is like, now, if we fast forward to the last 10 years, my dad, after working in the ER for 20 or 25 years, which is probably one of the most stressful fields of medicine you can go into because people are literally dying in your arms every day. It's a very stressful profession. So after 20 years, he just kind of had enough. And since he had a high savings rate, he could, as soon as he got to the day where he decided he had enough, he just left, he quit. And he could do it on his own terms when he wanted to. And he had all these colleagues who for years had been living a much better life than him, bigger houses,

Starting point is 00:30:38 nicer cars, sending their kids to better schools, all that. And they wanted to quit and they couldn't. They were just as burned out, but they needed to put in another 10 years of doing it. And I think watching that, watching my dad just getting to a point where he said, I don't want to do this anymore. So I'm going to leave tomorrow. It was like, ah, that clicked with me. Like, that's why you were so cheap growing up, which I looked down upon you for when I was young saying, why don't we spend more money? But now I get it. He has pure independence and autonomy. And the happiness that he and my mom got from that, I think exceeds the happiness that he would have gotten from driving a Porsche or living in a bigger house a hundredfold,

Starting point is 00:31:15 literally a hundredfold. He's been so happy over the last decade, just doing what he wants to do, particularly retiring as he slows down, as his body and mind slow down as he aged, to just be able to do what he wants. I literally think it's a hundred times happier than he would have been if he lived a better material life when he was young. So that was a really profound takeaway for me watching that. What type of hippie commune did they meet on in Tennessee? It's called The Farm. It's still in existence. It's a tiny, tiny fraction of what it used to be. But back in the 1970s, it's a hippie commune called the farm. And it was huge. It was like thousands of people. And it truly was a commune. You were not allowed to have your own financial

Starting point is 00:31:53 assets. You couldn't have your own bank. When you joined the farm, when you got there, you had to forfeit all your possessions, all of your money, all of your assets had to be donated to the farm. And everyone worked together. They were farmers. My dad flew a crop dusting plane. He was a pilot before he moved to the farm. And everyone worked together. Now, of course, the punchline here is it failed. It fell apart eventually, as you would imagine. But my parents, I was talking about it just last week. They have nothing but incredible memories from it. They were in their early and mid-20s when they were doing it. And their best friends still to this day are from it. They were in their early and mid-20s when they were doing it. And their best friends still to this day are from there. They have nothing but great experiences from it, even if the whole thing fell apart. The 70s, of course, was like peak baby boomer.

Starting point is 00:32:34 It was a really cool thing to do, to live on this hippie commune back in the 1970s. So your dad, after let's call it 20, 25 years of working as an ER doc, decides to walk, just call it quits, retire. He's able to do that, as you pointed out, for a number of reasons. Freedom and autonomy, I have found and observed, not perhaps surprisingly, carries with it a lot of responsibility. And it seems that sometimes people who are frugal for a very, very long time then have extreme difficulty spending money on themselves to sort of improve their quality of life or experience of life post, let's just say, retirement in this case, how have your parents, how has your dad used

Starting point is 00:33:26 this freedom and autonomy, right? Because it's a lot of hours in the day. How is that panned out? First, let's say they're the happiest that I've ever seen them now in the last couple of years. They bought a piece of land on the coast in Northern California, and they are just like small-time farmers. They're vegetarians. They've been vegetarians for 45 years, and they grow like two-thirds of the food that they eat. So they spend all of their day in their little personal farm doing it and they love it. They don't need to do that, but they absolutely love it. They have a tractor and they got all these cool tools and they'd absolutely love doing it. And it's all in their own terms. They take naps every day. They go for

Starting point is 00:34:00 bike rides along the coast. They have a lot of fun doing it. That's amazing. So they've come full circle in a sense from the farm to the farm, it sounds like. Including during the doctor's years, my dad looked like a professional and now he's back to full hippie, long gray ponytail. It all goes full circle. It all comes back. All right. So we might dig further into your dad's career decision to go to undergrad at, let's say,

Starting point is 00:34:24 30 and then pursue medicine. But I want to talk about your trajectory since you'll have presumably more detail and insight there. You also, and I should give credit where credit is due, for some of this due diligence, I listened to Shane Parrish's interview with you on The Knowledge Project, I believe it is. Yep. So that's where I'm pulling this from. But so your illustrious career began as a greeter at Denny's. That did not pan out, was not your vocation, it turned out.

Starting point is 00:34:57 I was crushed, but yes, that's correct. So Denny's out, enter stage left, valet, as I understand it. And that continued for eight or nine years, something like that. So Denny's out, enter stage left, valet, as I understand it. And that continued for eight or nine years, something like that. Yeah, something along those lines. I did it all throughout college before and after. All throughout college. Yeah. And your major was econ?

Starting point is 00:35:16 That's right. Was that your major? Okay. Major's econ. Then you try investment banking. And if you don't come in to work on Saturday, don't bother coming in on Sunday. Ha ha, wink, wink, not really joking. Hyper-competitive cutthroat environment was not for you. You moved to private equity, which you did enjoy. And you did this deep dive

Starting point is 00:35:39 study of companies buying and presumably at some point selling entire companies, things like this. But that was roughly 2007, if I'm getting the timing right, or I guess it came to its end in 2007 where the parting conversation was, you're not fired, but you can't work here anymore. That's a verbatim statement. I remember sitting there thinking, I'm pretty sure you just fired me, but thank you for being polite about it. So I'm very curious to know, I have to ask, was that a very clever way of trying to circumvent severance? Or was it just a weird way of firing you and then giving you severance? How did that pan out? Most private equity firms in the summer of 2007 knew they were in deep shit. It was a

Starting point is 00:36:21 really tough time for people when you're borrowing a ton of money to lever these low quality businesses up. That was a tough time. They saw the writing on the wall and I think they were just trying to scale back as quickly as they could. The idea was, so I was a summer intern at the time. And the idea was I was going to stick around full-time after college and become a full-time employee, which would have been that fall. So that was the plan. It was kind of all sketched out. Like, here's what I'm going to do. I'm going to stick around. And then just before I was going to start full-time is when they said, hey, there's not going to be a spot here for you. So I'm sure their wording was not intentional, but that wording of you're not fired, but you can't work here anymore was funny.

Starting point is 00:36:56 I remember walking out and being like, so do I come back tomorrow? I don't know. How does this work? Yeah. Very confusing delivery. I don't know. Is this the Tao Te Ching? Or like, what are we doing here, people? So my question to you then, after that, as if my memory is serving me, which I hope it does, because I listened to this episode with Shane a few hours ago,

Starting point is 00:37:16 you ended up having a conversation with a friend who I believe was writing at The Motley Fool at the time and asked you if you'd be interested in sort of kicking the tires and writing for a bit. You did not have a background as a writer per se, although I imagine you did some writing. We're going to come back to the high school education in quotation marks, which we can explore. But you ended up trying that, thinking it was going to be a short experiment, and then you stuck with it. And now you've written, I would have to imagine at this point, what, 4,000 plus articles or 3,000 plus articles.

Starting point is 00:37:50 And my question for you is, iBanking, private equity, that is the meandering, not meandering, but the kind of winding path of one who might aspire to be one of the masters of the universe, right? And then you choose writing and you stick with writing, which has a very different financial payoff profile than the finance track. Why were you comfortable doing that? Or how did you make that decision? I wouldn't say I was comfortable. I wouldn't even say it was a decision. It really was in the summer of 2007. So I graduated in 2008. So as everything fell apart, I thought I wanted to be an investment banker. And then I realized I don't, it's the culture of it was not for me. And then I thought, great, so I'll go into private equity. And then all those positions just disintegrated before my eyes. I just needed something to do.

Starting point is 00:38:41 I just needed a job. And like you said, I had a friend who was a writer at The Motley Fool who said, Morgan, you should apply. You're interested in investing, just apply. And I thought, A, they're not going to hire me. And even if they do, maybe I'll do it for six months before I find another private equity job. So it was really just out of desperation that I became a writer. That's the right word for it. It was not a plan. I didn't even enjoy it. I wasn't excited about it. It was just like, I need a paycheck. And then I would say the first year of that too was not very much fun because I really had no writing background at all. I was an econ major in college where it's heavily math-based. So there's not much writing. As long as you can write your name at the top of the test, that's all that's required of you.

Starting point is 00:39:19 And so I had no writing background. And then so the first year was really hard because I had no idea what I was doing, both on the investing front because I had no idea what I was doing, both on the investing front, like I had no idea what I was talking about. And on the writing front, I just didn't know how to write a good paragraph. And it was tough, particularly as anyone in online writing or even social media knows, if you say something wrong online, people will tell you about it in no uncertain terms. So I was just, you know, as part of my job, I was just getting torn to shreds day after day. It just wasn't any fun. But after I would say a year or maybe two years, I felt like I started to get the hang of it. And I started to be like, I understand investing better. And I feel like, oh, I can start telling a little bit of a story that people might enjoy. And rather than just

Starting point is 00:39:57 being a capital J journalist and just like throwing numbers on the page and hitting publish, maybe I can tell a story that will resonate with people. And if I twist the phrases this way, and if I try to be funny in this way and tell a tale in this way, then I can stick out in this financial media world that is so competitive. And there's so many other people who are writing about the same stocks that I do, that if I can tell a story, it's more fun and it catches people's attention. And even after that, so now we're in like 2009, 2010, I would say it wasn't until probably 2014 or 15 that I felt like I really started hitting a stride of like, oh, I can kind of figure out what I'm doing here. And I kind of feel like

Starting point is 00:40:35 I've cracked the formula of what works in a finance article. And so it was really five to seven years of just kind of hacking my way through, trying to put the pieces together to figure it out before I really started, A, enjoying it and felt like I had some aptitude of doing a good job at it. Just a quick thanks to one of our sponsors and we'll be right back to the show. This episode is brought to you by Athletic Greens. I get asked all the time what I would take if I could only take one supplement. The answer is invariably AG1 by Athletic Greens. If you're traveling, if you're just busy, if you're not sure if your meals are where they should be, it covers your bases. With approximately 75 vitamins,

Starting point is 00:41:17 minerals, and whole food sourced ingredients, you'll be hard-pressed to find a more nutrient dense formula on the market. It has a multivitamin, multimineral greens complex, probiotics and prebiotics for gut health, an immunity formula, digestive enzymes, and adaptogens. You get the idea. Right now, Athletic Greens is giving my audience a special offer on top of their all-in-one formula, which is a free vitamin D supplement and five free travel packs with your first subscription purchase. Many of us are deficient in vitamin D. I found that true for myself, which is usually produced in our bodies from sun exposure. So adding a vitamin D supplement to your daily routine is a great option for additional immune support. Support your immunity, gut health, and energy by visiting athleticgreens.com

Starting point is 00:42:01 slash Tim. You'll receive up to a year's supply of vitamin D and five free travel packs with your subscription. Again, that's athleticgreens.com slash Tim. In the vein of sort of career crafting, whether by of your own volition or via desperation or chance, I suppose we're all a combination of probably those things on some level. You've written for a number of different outlets. How did you end up, and I'd like to know both of these, a partner at Collaborative Fund, which is a venture capital firm, and how did you end up on the board of directors of Markel Corporation? And you should also probably explain what Markel Corporation is and what they do. This is not a small company. So I want to know,

Starting point is 00:42:44 I would love to know the answers to both of those. Okay. Let's start with Collaborative Fund. At the time I was at the Motley Fool, at the time being about, let's go back to 2015. I was at the Motley Fool and my plan was I was going to stay at the Motley Fool for life, including my wife and I bought a house half a mile from Motley Fool headquarters in Virginia. The plan was we're going to stay there forever. One day a guy named Craig Shapiro emailed me and said, Hey, I'm Craig. I run this tiny venture capital firm called Collaborative Fun. I read your stuff. Let's grab lunch. And normally, if someone sent me that email, I would just delete. I wouldn't even respond to it. I would literally just delete it. That's a personality flaw of mine, but that's

Starting point is 00:43:18 how I respond to those kinds of things. But I was in New York that day where Craig is from, and someone had just canceled a meeting. So I had some free time. So I get this email from a guy in New York who says, hey, let's meet. And I said, great. I'm two blocks away. Let's meet right now. So I met Craig Shapiro and he just turned out to be, he's one of those people, and I'm really being sincere when I say this. I'm not just blowing smoke because he's my boss. He was one of those people who right away, I was like, ah, this guy, he and I see eye to eye on how the world works. We disagree here and there, but in the broad strokes of how to live a good life and how investing works and where the economy is going, Craig and I really see eye to eye on the big

Starting point is 00:43:54 picture stuff. And that was clear right away. So it was probably about a year after that, that he said, hey, you should join Collaborative Fund and just keep writing about the things that you do. And I said, Craig, thanks, but no, I'm really happy at The Motley Fool. I'm going to stay here forever. Not interested in it. And he just kind of kept chipping away. And it took me a long time to figure out that I really see the vision of what he's trying to build. And I like it. I like the brand. I like him personally. He's a great guy. And I also knew that he was going to give me complete autonomy to write about whatever I wanted, whenever I wanted, and just make the blog

Starting point is 00:44:30 my own little canvas that I could paint on. That was really important to me. And it was clear that he was going to let me do that. So then I joined Collaborative Fund, which is a venture capital firm, private equity firm, kind of invest in lots of different asset classes now. And my whole job is to write and speak and not even write about venture capital or not even to write about our portfolio, just write about things that I see where the world's going, things that I think are important for investing, investing history and investing behavior. The idea for it, the idea for having a writer like that at a venture capital firm by and large is, look, if you are a venture capitalist, money is fungible. So if your only

Starting point is 00:45:06 asset as a firm is we can write a check, you do not stand apart at all. A lot of people can write a check. You stand apart in the private investing world by having values and a view of the world that is differentiated in some way. And those values that view do not matter at all unless people know about them. So you need to be kind of going out there, showing the world how you think, what you think, who you are, waving your arms. That's the purpose of hiring someone like me to be a writer. You can call it marketing if you want, although nothing I write about is saying, here's why we're great and here's why we should do this. I do that intentionally because I don't

Starting point is 00:45:40 want it to sound like marketing. Even if it is, no one wakes up every morning and says, I want to read a marketing article. They just want to read something that's interesting and thought stimulating that they can share with their friends. So that's what I do. And that's what I've done for the last six years is just writing about all the different things that I think are interesting and trying to do a bunch of reading and thinking and talking to friends, trying to learn something and then sharing it with the world. That's how I got started at Cleverphone. Yeah. Kudos to Craig. We're going to come back to Markel in a moment. He was very prescient in that chess move of his with the persistent recruiting to get you on board.

Starting point is 00:46:16 And we've seen, I mean, certainly this word bothers me, but I can't think of a better term because it's multimedia, but the sort of content aspect of differentiation by venture firms. We've seen First Round Capital do a pretty good job of this, I think, and there are others now. But the timeline that you're laying out would have placed Craig and Collaborative Fund very early, right? Paddling for the right wave early in that respect. How did you think about giving up the masthead, so to speak? I mean, presumably the offer was also a good offer, right? The actual sort of compensation and deal, as it were. We don't need to get into the specifics of that. But I'm asking in part

Starting point is 00:46:56 because I've thought about paying journalists, and I spoke with actually Nick Thompson about this when I had him on the podcast, very, very super competitive per word rates to do long form pieces on my blog. But the problem with the Tim Ferriss blog is that the Tim Ferriss blog does not carry the same cachet, perhaps, as the newspaper of record self-described or other outlets. So how did you think about the, if any, long-term career consequences of swapping the masthead in that way? It worried me at the time because I had been at The Motley Fool for 10 years and I felt like I built up an audience there and I had no idea if any of them would travel with me. And if I went somewhere else, did I have to start at square one and build myself up from zero?

Starting point is 00:47:47 That was terrifying. Or was that audience going to be somewhat portable? And I think the answer is like somewhere in the middle, but I think it felt okay to me because I think this is obvious now, but it wasn't obvious,

Starting point is 00:47:58 you know, five or 10 years ago that people don't necessarily read the New York Times. They read by and large, certain writers at the New York Times. I don't read the Atlantic. I read Derek Thompson. I don't read the New York Times. They read, by and large, certain writers at the New York Times. I don't read The Atlantic. I read Derek Thompson. I don't read The Wall Street Journal. I read Jason Zweig. It's all about those people. Now, there's some nuance to that. There's some places like The Economist that have no bylines. It's just like you're reading

Starting point is 00:48:19 one voice. But I think, by and large, people want to read certain writers. They want to make it personal. One example of this is most corporate Twitter accounts do not do very well. They don't get any engagement. They don't do very well. But personal Twitter accounts for people like yourself can do very well because people don't want to interact with a company. They want to interact with a person. And I think so leaving the masthead, so to speak, that actually didn't bother me that much because I didn't want to be a Wall Street Journal writer or even a Motley Fool writer. I wanted to be Morgan Housel. I just wanted to be, I wanted to build the name. That's very selfish, but I think it's true. I think it's true for a lot of people.

Starting point is 00:48:53 The URL of your blog is tim.blog. It's your name right there. I think branding that after yourself and being explicit about that is the right way to go in content these days because people want to interact with a person. So that didn't bother me. It's good if you're in it for the ultra long haul, i.e. to the end of your life. If you're building a media brand to sell, it's problematic to have it named after you or it can be complicating, certainly. But that's not my plan. So it's not a concern for me. So Tim.blog it is for the time being. Markel, how did Markel happen? I'm sure there's listeners who don't know what Markel is. The easiest way to describe Markel is a mini Berkshire Hathaway in the sense that it is

Starting point is 00:49:35 an insurance company that uses the profits from the insurance company to buy whole businesses, industrial businesses that it plans on holding forever, which is exactly what the Berkshire Hathaway model was. And that's really what Markel was as well. Markel started in the 1930s as an insurance company, and it was that for many years. Now, every insurance company in the world does investments because you use the proceeds from your insurance premiums to invest. Most insurance companies will just do that in bonds, maybe some index funds, pretty boring. And it's not until you have a company like Berkshire that's like, hey, we got all this money laying around. Let's go buy some amazing businesses. That's how Berkshire Hathaway and

Starting point is 00:50:11 Warren Buffett became what they are. And Markel started doing that really around the 1990s when they realized that you could become a great business and a great, incredible company if you are not just a good insurer. That's really important. But if you can be a good insurer and a great investor with those insurance proceeds at the same time, you can be an incredible company. If you are not just a good insurer, that's really important. But if you can be a good insurer and a great investor with those insurance proceeds at the same time, you can be an incredible company. So now if we fast forward today, Markel is a $17 billion company with 20,000 employees. They own about a dozen industrial businesses of various sizes. And it's a really cool company. It's a company that I've admired for a very long period of time. I'll tell you a little quirky story here. When you join The Motley Fool as an employee, they give you a small sum of money to invest in any stock that you want. They want every

Starting point is 00:50:51 employee to be an investor. When I became an employee in 2007, I got my little allocation and I invested every penny in Markel at the time. True story. Because I really admired what they were doing. The guy who is co-CEO, runs the place, Tom Gaynor, I really think is one of the great investors of our time. And so I've admired it for a long time. And then about a year ago, I got a call from the company and this asked if I would be interested in joining the board of directors. And I said, yeah, yes. I admire them so much, of course. So what the hell did they say? I'm just so curious. How does that happen? Because I looked at the website. I was like, well, let me see if there are like 75 people on the board of directors.

Starting point is 00:51:28 There are not 75 people. It's reasonably small. So please fill in the gaps here. I really wish the story was more interesting, but that's really it. They called me up. I had never spoken with them before at all. No communication. And they said, would you like to join the board? Once that phone call ended, began a year of meeting everyone, discussing everything, flying out to meet them, them flying to Seattle to meet me. A long process, as you would expect any big corporation would have. I think very similar to Craig, Tom Gaynor, who's a co-CEO, and I see the world through a very similar lens of just like, what does an investing company or an investor need for long-term success? Having just those big macro values aligned, I think was really important. So it was an obvious answer for me. And then getting to know the rest of the board over the last 12 months has been really interesting. It's a very diverse board, diverse in terms of gender, race, and also just background. So it's a really diverse set of views and set of opinions within the boardroom.

Starting point is 00:52:23 And then I joined the boardroom just about six weeks ago. Oh, it's very new. Fairly new at this. Yeah. So I have to imagine that there are thousands of people who would claim to have similar macro views or worldviews to people who are on the board of Markel. Nonetheless, they're not getting the invitation to join the board. So how did they explain what they hope you to contribute? One thing that's interesting, I do think there is some misconception about what a board member does. And the important thing is explaining what a board member does not do, which is run the company. And a board member's job is not to micromanage the company, or it's not even to set the grand strategy for the company. It's really to be an overseer of

Starting point is 00:53:10 the company and to kind of be the boss of the executive team, to hire the CEO, fire the CEO, and pay the CEO. That's the biggest job of the board. Those are huge responsibilities. They're huge responsibilities. There's a great quote from a guy named Lawrence Cunningham, who says that being on the board of a large company is corporate America's highest honor and heaviest burden. It's easier to focus on the first part and ignore the latter part. But yeah, it's right. Those are huge burdens. But I think, and again, I'm speaking with six weeks of experience here. I'm not going to pretend like I have lots of war stories to share with you about this because I don't. But I think seeing eye to eye on the big picture of where the company is going and what it needs to do it right,

Starting point is 00:53:48 and just having experience for myself as an investor, as someone who thinks about risk, and I've done that for my entire career, is important. What I do not have is experience running an insurance company, experience running a company with 19,000 employees. Those are things that I do not have. But I think I do bring to the table both a generational diversity of... If you look at the boards of all public companies, you're looking at an average age of something like in the mid 70s, something like that. It tends to be an older group that came of age during a similar time and I think sees the world through a similar lens that is not exactly the clearest lens of where the world is going next. So I think having a generational diversity has been important. That was explained to me. And I think just having a view about risk and about what matters in

Starting point is 00:54:33 investing as well, that's really it. It's been an interesting experience for me. It was not a job that I thought was going to be coming my way, but it's a cool job to have that I know has a very heavy burden. It's cool to put it on your resume and talk to your friends about it. But I think like a lot of things, there's a great quote from Jeff Immelt, who's a former CEO of General Electric, who says, every job looks easy when you're not the one doing it. I think that's a great quote that applies to a lot of things. And I think that's true for sitting on a board as well. It seems like a great position and a fun kind of cushy position. In many ways, it is. But you realize, even from day one, my first meeting, the burden that is on you for making the right decisions. And if things go wrong, realizing the spotlight's going to be on you,

Starting point is 00:55:16 and you deserve that. Well, congratulations. I have to say, I mean, there's responsibility and there's the potential burden of making a poor decision or being blamed for a poor decision. But it strikes me as nothing but upside potential for you. I mean, it seems like a pretty fantastic experiment. So congratulations. Thanks. I do think, like I said, I was appointed six weeks ago.

Starting point is 00:55:37 I've been to one meeting. But even in that one meeting, I would say, Tim, it's obvious from the get-go, the burden, the responsibility that you have. And there is a little bit, I think this would be true for anyone in this position, a little bit like of an oh shit moment of like, I realize the decisions that need to be made. There's a good friend of mine named Brent Beshore who says every successful business is a loosely functioning disaster. Every single successful business in the world, that's as good as you can get. That's the highest peak is a loosely functioning disaster. Every business is just a mix of

Starting point is 00:56:09 personalities and emotions and imperfect information. And you're just trying to hold the thing together and do the best that you can. And you really see that when you're on the inside of any company that exists in the world. So that's always apparent for me, just as an outside investor, looking at any company or on the inside as well. All businesses are tough and challenging, and you need to make tough decisions and imperfect decisions to get ahead. When you say risk, viewing risk in a similar or the same way, how do you view risk? Or if you were to explain it to a class with respect to how you view risk in investing, let's say? How would you define that or begin to explore it or misconceptions thereof?

Starting point is 00:56:52 Let me start with a short story that I was talking with a friend of mine last week, Derek Thompson of The Atlantic. He and I did a podcast together and he asked me if I thought inflation would be transitory, which is a very common question that a lot of people are talking about right now. And I said, well, what does transitory mean? By transitory, do you mean it's going to be gone in a week? Do you mean it's going to stick around for 10 years? All these little weasel words that don't have any agreed upon definition, you can really get into a lot of trouble there. Because I think inflation is transitory. But by that, I mean, it's probably not going to stick around for five years. If your definition of transitory means it's going to be gone next week,

Starting point is 00:57:26 then no, I don't think it's transitory. And I bring that up because I think that's the same with risk. And there are a lot of people that will define risk differently by and large based off of the time horizon. So if you were to ask me if the stock market fell 20% and stayed there for three years, is that a risk? A lot of people would say, yeah, that's a huge risk. That's an enormous catastrophic risk. I personally would say that's not a risk at all. And the reason is because my goals lie 50 years in the future. So what's going to happen in the next three years? I could honestly care less. That's really how I think. But that would not be my answer if I was a 90-year-old retired widow on a fixed income. Then I'd have a very different answer for you.

Starting point is 00:58:05 So I think summing all that up, risk is just the odds that something will prevent you from achieving your goals. But the nuance is that everyone has very different goals and aspirations and time horizons. So everyone thinks about risk differently. The takeaway from that is most investing debates where people are arguing with each other, is this a risk? Is that a risk? Should I buy this stock? Is the market going to go up next week? By and large, those debates are not

Starting point is 00:58:29 actually debates. It's people with different risk tolerances and different time horizons talking over each other, talking over one another. And that's why. So I think to me, the most important part about risk is that the definition is different for everyone. My definition is going to be different from yours, which is different from anyone else who's listening. And it's not because we disagree with each other. It's just because we're different people with different goals and different ages and different family situations, et cetera, et cetera. So risk is a very personalized calculation for everyone, rather than that's in investing or other areas of your life. One of the illustrations I enjoyed for your book, I think you used Google as an example.

Starting point is 00:59:03 I was a somewhat arbitrary example, but you highlighted the different questions or considerations you might have if you were considering buying Google based on different time horizons, right? 10 years, two years, six months throw around very loosely, like risk. very good investor. I'll leave his name out of it for now, but I asked him if he had any questions for you. So his map of reality, I'm paraphrasing here, is as a journalist slash historian being paid to write interesting things related to investing. So the questions that he has are more related to being a skilled content creator in this new tech world. So here's one question, and this is related to observing that you are very active on Twitter. So zooming out, what is this FinTwit game that you're playing and what are the rules? Here's how I think about content in general, whether this is Twitter or writing an article, writing a book. I call this selfish writing. I'm writing for an audience of one, and that is me.

Starting point is 01:00:22 The only thing that I write, the only thing that I tweet, the only thing, the articles that I write, the books that I write, I just write through the lens of, do I personally think this is interesting? And if the answer is yes, I make a leap of faith that other people might think it's interesting as well. And I think a lot of writers get into trouble by asking themselves, what does my audience want to read? What will other people think is interesting? And I think that leads to kind of like this bastardization of finance where it's like, oh, this tweet got a million likes. Like, yeah, but it's so corny. It's so salesy. Even if it did really well, like you can't tell me that you actually, the author, think this is interesting. I know it performed well, but you don't think it's interesting. And also when you, the writer, are most interested in, when I'm only looking through

Starting point is 01:01:04 the lens of, do I, Morgan, think this is interesting? That's when you do your best work, of course, because that's when it doesn't feel like work. It's like, I'm writing this article because I think this topic is really interesting and I would want to read it written in this way. That's the game that I play is just trying to be really selfish in that endeavor and just ask, what do I think is interesting? And if I think it's interesting, other people will as well. Okay. Let's take a closer look at the playing field. So Twitter is one medium that you engage with very heavily, one arena. Who would you consider, I'm picking an arbitrary range here, but like three to five of the top players in FinTwit, financial Twitter, who you pay attention to and why you pay attention to them.

Starting point is 01:01:46 I will expand that slightly out of FinTwit, but two that really stick out, and these are very well-known names. One is James Clear, who wrote a book called Atomic Habits, and the other is Mark Manson, who wrote the book, The Subtle Art of Not Giving a Fuck. Both of them do something that I think is really rare, which is that they don't tweet very much. They maybe tweet once a day, but it's very good. It's very thoughtful. It's thought-provoking. And they tweet one away and then they back off until the next day. That's also something that I've tried to emulate. And I think the people that just kind of flood the feed with every little brain fart that might come into their head and just dump it into Twitter and hit publish,

Starting point is 01:02:21 some of them are interesting and entertaining, but it can get old after a while. I think the people who have done really well that I've admired have a level of restraint on Twitter of only putting out things that they think are really worth reading. I think Naval is also pretty good at that in terms of just putting out something maybe once a day, maybe he's like twice a week at this point, but it's good. Like it's really, when he tweets, you're like, oh, I got to, I got to look at this. This is interesting. So James, Mark and Naval, I think, in my view, played the game really well. Josh Brown, he quit Twitter about a year ago, but I thought he was the king. Who's Josh Brown?

Starting point is 01:02:54 He is the CEO of Ritholtz Wealth Management. He's on CNBC almost every day. And he was someone who would tweet probably 20, 30 times a day, but he's so funny and he's so insightful and so smart that it was worth reading every time. So it was a loss for Twitter to see him go. I think Derek Thompson from The Atlantic, I've mentioned him a couple of times as someone who I really admire as just being a really multidisciplinary thinker. And whenever he puts something out, it's from completely different fields. He had a podcast recently on autocracy in Belarus. And then the next day he could be writing about Omicron. He'd be writing about the stock market. He's so well-rounded in his thinking that it's always interesting.

Starting point is 01:03:28 It's always fresh. You never know what's going to come from him. Those are just a few people who I really admire here. So let's take a lateral move to some maybe related territory. And I remember my promise earlier to people that we would come back to Buffett and Munger. So I have not forgotten for those who are like, God damn it, Ferris. I have not forgotten. I take notes as we do these things. So who are some investors you respect the hell out of, but would never try to emulate? Are there any people who come to mind? I mean, definitely Buffett and Munger, for one, just them in general. Here's kind of the twist on this. I'm not sure there's any investor who I admire that I would try to emulate. And I think the reason that is, is because I admire

Starting point is 01:04:10 them because they have a really unique skill. And by definition, most people, including myself, don't have that skill. Another thing is that a lot of people who are really successful at investing were successful in one era, but maybe not necessarily this era. So you can really admire what they did and how they thought and the risks that they took in that time, but it would never work today. Benjamin Graham, the great investor who wrote the book, The Intelligent Investor, he's like the godfather of investing. If you tried to put Benjamin Graham's techniques to work today, you would fail so incredibly hard, so miserably. If you were putting together the actual formulas that he laid out in his book,

Starting point is 01:04:45 you would fail miserably. So there's really not anyone that I would really try to emulate. I'm a fairly passive investor. And John Balgo, who started Vanguard, I think is probably the most admirable because it was so selfless what he did. Vanguard, a lot of people don't even know this. Vanguard is owned by the people who own Vanguard Mutual. There's no Vanguard shareholders. There's no profits. There's no dividends that are played to the owners. Vanguard was made for the benefit of the people who own the ETFs, the people who own the mutual funds. And John Bogle did not make that much money for himself because of that. And you could almost think that Vanguard's low fees is like the amount that you saved in fees is money that could have gone to John Bogle

Starting point is 01:05:25 and John Bogle's estate that didn't. He's like this undercover philanthropist of finance that I really admire just because there's so few other people like that. And I think someone like James Simons, who we mentioned earlier, I think in every field, there's only one person whose claim to fame, whose competitive advantage is I'm smarter than everyone else. In tech for 20 or 30 years, that person was Bill Gates. And I think in finance for the last 20 or 30 years, that person has been James Simons. The only person in the field who can say, if you ask them the question, what is your competitive advantage? They can say, I'm just smarter than everyone else. Only one person can say that and it's James Simons.

Starting point is 01:06:03 If you look at what Renaissance technology has done, and just the results that they've accumulated and the consistency of what they've done, it's like LeBron James times Michael Jordan times Tiger Woods to the power of Michaela Schifrin. It's just such a different universe compared to what anyone else has done that it's astounding to watch. For a fun and fascinating romp through different investing styles and very big personalities, the book More Money Than God by, I want to say, Sebastian Malaby. Am I getting that right? Yep. That's right. Something is very entertaining. Also, not a whole lot of styles you would want to try to emulate

Starting point is 01:06:41 unless that is your sport and you are in there. Any other investors besides Jim Simons come to mind and the names you've already mentioned, who you think are truly exceptional? Now, I will expand investor to mean capital allocator, so it could also be a CEO of a company, but I'll let you pick who you may pick. There's a value investor named Monish Pabrai, who is not very well known. He's a fairly small investor. He's capped the size of his fund at a fairly low level. So he's not a household name. He's like, even within investing circles, not many people know who he is. His returns are incredibly good. And he's just the nicest, wisest, fun to be around guy that I've met in a long time. Like I really look up to him, not just as an investor, but just as a person, just how he's situated his life, what he aspires to be, how he lives his life as someone

Starting point is 01:07:29 who I've really looked up to for a long time. Someone who lots of listeners will be familiar with, Brent B. Shore, who's very active on Twitter as well, is an incredibly successful investor. He won't say that, he will deny that, but he really is. And he too is just one of the nicest, kindest, funniest people who I've met. And most of the time when he and I talk, it's nothing to do about investing. We just talk about life and our kids and our spouses and whatnot.

Starting point is 01:07:53 So I think most of the people who I really admire as investors, it's more that I admire just how they've lived their lives and their general life philosophies. And their investing philosophy stems from that. That's true for Buffett as well. Actually, there's an interesting thing about Buffett, which is that it was so easy to admire him and still is. But when the book, The Snowball came out, which is a biography written about Buffett by an author named Alice Schroeder, and it came out, I want to say 2009, something like that. It really makes clear the case that Buffett has not lived a perfect life by any means. And in a lot of instances, his family life has been a disaster. I think that's the right word to use. It's kind of rude to say that, but I think it's really true. In some ways, that's good to hear that, that like

Starting point is 01:08:35 everyone puts their pants on one leg at a time in the morning. Everyone is human. Everyone deals with the ups and the downs of living a life and that he's a human. And also that a lot of the reason that his family life was troubled at times is because he had a singular devotion in life, which was picking the best stocks. And everything else came second to that. Everything from his family on down came second to that in a way that a lot of people, including myself at one point, said, I want to be Warren Buffett. I want to be the next Warren Buffett. But then you read about what it took to get there. And I'm like, no, I want to stay 10 miles away from that. That's a really important insight to learn is that a lot of these people who you admire, the reason that you admire them is because they're so successful. And that success that they had,

Starting point is 01:09:16 had enormous costs associated with it that are easy to ignore. And when I look at that, it's like, I can look at pieces of Buffett's life that I admire and pieces of Jim Simon's life that I admire, but I don't want to be them. Because that mega success had so many costs attached to it that I want to avoid in my life. That's been a really important observation too for me. There's also a slippery slope. I shouldn't say slippery slope. There's an ease with which you can conflate skills and attributes with investors very easily. And what I mean by that is no one looks at, say, Michael Phelps and says, all right, I just need to swim more so I can grow taller and get more flexible ankles and

Starting point is 01:09:57 huge feet like Michael Phelps. They know that's not going to happen. Those are not trainable attributes. Those are things you are born with. And similarly, you might look at, say, a Buffett and you're like, oh, that looks like a normal guy, right? Looks like a grandpa. Aw, shucks, right? I could learn to do what grandpa does. But when I read, I have not read The Snowball, but I read an earlier biography, unauthorized as I think they all were, by Roger Lowenstein or Stein, I never know how that's going to be pronounced, The Making of an American Capitalist. And I read this decades ago, but the story that really stuck out to me, and I'm probably

Starting point is 01:10:35 getting this wrong, but someone on the internet will correct me. I remember his meeting, Warren's routine was to work at the office and then come home and basically just walk straight upstairs and begin reading S1 filings or annual reports of one type or another, quarterly reports. And that was his routine. And one day, he came home after work. And I want to say his son, but one of his kids was like splayed out at the bottom of the stairs and had clearly like fallen down the stairs. And he just stepped over this child and walked up to his office to read reports. Like it didn't even register to attend to his child. And I was like, okay, I am not programmed that way. Like that is different, out ofof-the-box hardwiring that I will not be able to train myself

Starting point is 01:11:25 to possess in the same way that a lot of the mistakes that I've made in investing have been actually almost all of them have been selling at the wrong times, which is why I find a lot of these risk assessments that might be given to you by a broker or a wealth manager or who knows, somebody who's hopefully got your best interests at heart. And they say, you would feel comfortable with a 15% decrease in your portfolio's value in one quarter, 5%, 1%, 20%, 30%. And you just have no fucking idea until it happens. Because I remember I had, at the time, this was 2007, 2008, there were a few decisions that I'd made beforehand. I had bought my first home in San Jose with, oops, an adjustable rate mortgage, 2007. And I had also

Starting point is 01:12:16 a few years before plowed a ton of my net worth at the time into Amazon. And I had very high conviction around it. I don't remember the price. I mean, somebody could look it up, you know, 2006, 2000, late 2005, something like that. And I got hammered in the housing market. And then when the sky started falling, intellectually, I knew that I shouldn't sell. Does that make sense? Like I'd read the books. I was like, longitudinally, things are going to be okay. The fundamentals of the business haven't changed. I feel like I have a pretty good read on the technical or technological trends. I'm living in Silicon Valley. Everyone I know

Starting point is 01:12:56 is using Amazon more and more with each subsequent year. But every time I turned on the news, it was chicken little and the sky was falling. And eventually I was like, these people seem smart. I'm a kid. What the fuck do I know? And then I sold the Amazon. It was not the right decision. I tell that story just to draw the contrast between what I did and what I suspect Warren Buffett would have done had he been in my position. He would not have behaved the same way. And it wouldn't have been arrived at purely through logic. The guy is just built differently. Well, here's one counter to that. You're generally right, but here's the counter to this. February of 2020 rolls around. There's a new virus that's going to rile the world economy.

Starting point is 01:13:38 What did Buffett do? Do you know the answer to that? What he did? You tell me. You're going to have a better read on this. He dumped his entire portfolio of airline stocks at a huge loss. That's what he did. Yeah. And here's what's crazy about this. Two weeks before that, maybe it was a week before, it was a very short period of time before he went on CNBC when it was starting to look like maybe the market was getting toppy. And someone asks him, like, Warren, what would you do if the market starts falling? And he says, he laughs and he says, I'll tell you what I'm not going to do. I'm not going to sell. Two weeks later, he sold all of his airline stocks when this virus hit. Now you can say that that was actually not a mistake, even though the majority of them have regained almost all of their value.

Starting point is 01:14:16 You can say that was not a mistake because the possibility of a complete catastrophic wipeout, particularly in airlines with COVID was there. So you could say like, that was actually the right thing to do. But even Buffett in this situation, when the world's starting falling apart, he panicked and he did not buy anything of significant value with big numbers during that huge market decline. Even for him, I'm saying it's much easier said than done. I had my own story about this in the early days of COVID. Morgan, can I ask you to bookmark that? Don't lose your place. But I want to interject with the question, and that is, do you think that earlier career Buffett would have also sold?

Starting point is 01:14:54 And the reason I ask is that I saw an interview with Munger from, I don't know, a year or two ago. Maybe it was actually more like two or three years ago. And he said, too many people have their entire life savings and are depending on Berkshire, which seemed to imply, and I'm paraphrasing, that that was, in a sense, leading them to behave in ways or make decisions that they would not have made earlier in their careers. What do you think? Here's what's so interesting about what happened in March of 2020, in the early days of COVID, which is that if the government had not done trillions of dollars in stimulus, if the Fed had not done trillions of dollars in stimulus, if there was not a vaccine, you can go on down these possibilities that were very realistic possibilities. I think we would honestly be

Starting point is 01:15:37 looking at something that would be worse than the Great Depression right now. I don't even think that's a bold statement. It had the potential to be absolutely catastrophic. So when you have Buffett selling and not buying because he wants to bank up more cash, I actually get that. I think if you were to make the 10 most likely outcomes of COVID, I think economically, we ended up with absolutely the best one. And it's easy for us in hindsight to look back and say, oh, you should have bought in March of 2020. And it actually was not that obvious back then that that's what you should have done. That's one thing. The other thing that's so different about it is that, you know, Buffett has probably invested through, I don't know, 10 recessions, something like that. But all of those were financial recessions. There were things

Starting point is 01:16:17 going on in the economy that caused recession. This was a biological disaster. It was a completely different set of fears that people didn't really know what was going to happen next. So I don't think there was any real playbook that even something or somebody who has 80 years experience could really look at and say, oh, here's what you do whenever there's a pandemic that's threatening the global economy. There's not really much insight into what to do with that. So I think in different recessions, the other thing that's important too is that even in 2008, during the financial crisis, Buffett did do some buying, but actually not that much. He actually didn't put that much capital to work even in 2008. The last time that the economy

Starting point is 01:16:54 completely lost itself and Buffett put a lot of money to work was like the 1970s. That's a true statement. It's been quite a while since he's put tons of money to work when the economy fell apart. Some of that is just how his style has evolved over time. Rather than being like a tactical asset allocator, he just wants to buy good businesses and hold them for a long time. And the idea of buying when there's blood in the streets has less relevance to him today than it did 50 years ago.

Starting point is 01:17:19 So that's part of it. But I think for everyone, and Buffett is human, that when you get to a situation like this, it's so easy to respond to risk in ways that you never thought you would. And I'll tell you my personal story from this. My wife and I were, for a long time, the plan was we were going to sell our house in Virginia in April of 2020. Well before COVID, that was the plan. Now in March of 2020, I woke up one morning at two in the morning and I went, holy shit,

Starting point is 01:17:43 there might not be a market to sell our house in April. The market just might not exist. All the banks might go bankrupt. The world just might not exist. And if that's the case, it's going to make our move to Seattle where we live and how much trickier. So I called up our real estate agent and I said, hey, I know the plan is to sell the house in April, but I want to put the house on the market today. Today. I want to put the house on the market right now. And he said, Morgan, don't panic. And I interrupted him and I said, oh, I am panicked. You are looking panic in the face right now. This is panic. I am totally panicked. And I am someone who does this stuff for a living and write about not panicking for a living. And look, the sale all worked out and I didn't sell stocks. It didn't feel like a panic,

Starting point is 01:18:22 but it's so easy when the world is going well and everything is all butterflies and rainbows to imagine to yourself, to answer the hypothetical question, how would you feel if the market fell 30%? And when the world is going well, you answer that question by imagining a world in which everything is the same except stock prices are 30% lower. And in that world, you're like, oh, that would be great. That would be an opportunity. But that's not what happens in the real world. In the real world, the market falls 30% lower. And in that world, you're like, oh, that would be great. That would be an opportunity. But that's not what happens in the real world. In the real world, the market falls 30% because there's a terrorist attack that no one saw coming, or Wall Street is about to collapse, or there's a virus that might kill you and your family. And in that context, you think completely differently. And that's why people's ability to say, I will be greedy when others are fearful

Starting point is 01:19:03 is so much greater than most people's ability to actually do it. be greedy when others are fearful is so much greater than most people's ability to actually do it. That's true for me. It's true for you. I think it's true for Buffett as well. Absolutely. A couple of footnotes on several of the names that have come up. So I believe you wrote about this in your book and it was something I did not know. So Benjamin Graham, if not a deity, certainly a minor deity in many of the investing circles, certainly the self-described sort of value investing side of things. Is it true, am I recalling correctly, that a bulk of his sort of career returns came from concentration in Geico? Am I getting that right?

Starting point is 01:19:43 That's true. The last page of Benjamin Graham's book, The Intelligent Investor, tells this little tale about an investor who earned basically his entire career success off of one investment. And that one investment broke every rule that this investor had laid out. And then in the last paragraph on the last page of his book, he says, by the way, that investor is me. And if you look at Benjamin Graham's track record, his career track record is incredibly good. And if you remove Geico, it's average. And like I mentioned, Geico, by Graham's own saying, breaks every rule that he just laid out in that book to buy it. And so that's an interesting, a really interesting thing is like, not only was it one company, but it's one company that broke

Starting point is 01:20:24 all the rules. So if you're reading that book and looking for rules to follow, by definition, you are not going to achieve Benjamin Graham's success. So I think that's really telling. And I don't know what the takeaway from that is. If you could say, well, then clearly he's just lucky. If all of his success was due to one company that broke the rules, you could say he's just lucky. The other thing you could say is that's just how capitalism works. And that's true for Buffett. It's true for a lot of people that if they make a hundred investments, you're going to make the huge majority of your money on probably five of them. That's true for anyone. That's even true if you're investing in an index fund, that within the index, most of the games are going to come

Starting point is 01:20:59 from 5% of the companies that you invest in. That's always the case. I think it just kind of changes how people view success though. If your view of success is that every stock that Warren Buffett or Shamath or Jim Chanos or all these big name investors, that every time they make an investment, then it's clear that that company is going to be a winner. And that's just not how this success plays out at all. Even among the top names, the best investors over time, the majority of the picks that they make do not do very well. And the reason that they're so successful is because one or two or maybe five investments they've made are ultra home runs. People associate that with venture capital. That's how it works in VC, but it's actually true in all stages of investing. The stat that I'll share with you here

Starting point is 01:21:45 is that if you look at the Russell 3000 Index, which is an index of large public stocks in the United States, over time from I think 1980 to 2010, 40% of the stocks in this large cap like mom and pop index, 40% of the companies went out of business. Not merged, not bought, but they went bankrupt, 40% of them. But the index did very well because 7% of components were huge winners. It was like Amazon, Microsoft, Netflix, those companies. So even in a boring old index fund, almost half the companies are going to go out of business, but you'll still do well because a few do very well. And so that was true. And I think the more successful you are, the more you see that. Even at a company like Apple or whatnot, what percentage of Apple's success is the iPhone?

Starting point is 01:22:29 It's enormous, but they've experimented with dozens of different products over time. Amazon has experimented with the Fire Phone, which is a total flop. And they've done things in music, which were flops. They've done all these flops, but they've also done Prime and AWS, which matters more than anything else. So almost anywhere you look, you will see that a tiny number of activities apply for the majority of success. And it's so hard to wrap your head around that when you're trying to emulate these people who you look up to and admire. Yeah, you really got to pay attention and look at the underreported analyses. I remember learning at one point, this is just a few years ago, and please correct me if

Starting point is 01:23:07 I'm getting this wrong. I heard it from someone I consider a very reliable source, but he told me that Munger effectively has three concentrated or primary positions. It's Berkshire Hathaway, Costco, and then money with a Chinese fund manager who has derived a lot of his returns from tech investments in East Asia. And I don't know what that pie chart breaks down to, right? In the sense that if it's 99% Berkshire, I don't know how much you can infer or conclude from what I just said. In the same way that if someone's like, well, so-and-so like Peter Thiel invested in my company. And I'm like, how much did he invest? Because if you put in 25K, that's literally like dropping a penny on the street for Peter. Maybe it was done through his office and who the hell knows, like the signal may not be very strong,

Starting point is 01:24:00 but the disproportionate sort of tail risk, or I should say like asymmetric return reward and punishment is a big deal. One example of this too that I love is from Walt Disney, who back in the 1920s and 30s was making all of these cartoons that people loved and they were great, but they were all losing money. They were all commercial failures. And he was on the verge of bankruptcy. And his whole career was going to be over and shut down the studio. And then Snow White and the Seven Doors came out. And it was such a huge mega blockbuster success that all of a sudden he had enough money to keep the studio open and to make more films.

Starting point is 01:24:35 But if you look at Walt Disney's commercial success in those years, the early decades, and you take out Snow White, it's a disaster. Even among the highest talents in any field that we look at like that, you're going to see that tails drive everything. It's just so hard to wrap your head around that when you're trying to emulate these people. I imagine a lot of people listening are going to say, well, fuck, this sounds kind of like a hopeless task, right? Because if you're betting on or hoping to emulate someone who found a golden Willy Wonka ticket. I don't know how to form a strategy around that. But I would imagine there are certain base principles you can take away

Starting point is 01:25:10 if you're looking at whether it's very successful venture capitalists who have been successful for a long period of time. Because you can get really lucky and hit the Midas list and look like a genius for a short period of time. But people who have just for decades been successful, and there is a selection bias because the best tend to then see better and better deals first. But just putting that aside, you also see the same thing in, say, a book like Bringing Down the House by Ben Metrich. I apologize, Ben, I've forgotten how to say your last name, which was later made into 21, about this team out of MIT that developed a system for counting cards in blackjack. And one of the underlying principles slash rules was having sufficient bankroll to continue playing through a string of improbable bad luck. So in terms of bet sizing, there are certain principles perhaps, that's the best word

Starting point is 01:26:17 I can come up with right now, that you could pull from a Disney or one of these other examples that could be translated to some type of investment approach that people could begin to wrap their heads around. Anyway, I'm just thinking out loud as we go through this. No, I always think when you have these idols in any field, it doesn't have to be in investing, you just want to ask, what can you emulate? And for all of them, you can't emulate their luck. You probably can't emulate their super special talent or intellect, but there are things among them that you can emulate. For Buffett, I think the thing that I've tried to think about that's been so successful for him, the driver to his success,

Starting point is 01:26:53 that hopefully I can have some chance of repeating is just time. It's just the time horizon. That's something I can't mimic his intelligence. I can't mimic the market conditions that he had, but if I can stay invested for the next 50 years, that's as close as I'm going to get to actually learning something from him that I can take away. There's this great interview with Michael Moritz, who is the head of Sequoia. And he was asked by Charlie Rose, he said, why has Sequoia been so successful? And how have you succeeded for 40 years, which is the amount of time that they've been winning in this industry? And what he said was, quote, we've always been scared of going out of business. We've always been paranoid.

Starting point is 01:27:32 We've always thought that what we've earned yesterday is not guaranteed tomorrow. And this is for someone who is a multi-billionaire, who has the most success of anyone else in the history of this industry. And that's what he's thinking about every day is paranoia and fear. If there's one person in the industry that deserves to be cocky about their skill, it's someone like him. And it's the opposite. He's terrified. He's paranoid. I think that idea of only the paranoid survive is another thing that you and I, Tim, can learn from that. Even if we don't have the deal flow of Sequoia, that you and I can take something away from that.

Starting point is 01:28:03 So I think just whenever you're looking at these people, that's something to do, particularly when you go back to what we were talking about earlier of like, I don't want to be Buffett. Even if I could, the life that he's living is not appealing to me in the slightest. So when I'm looking at someone like that and trying to learn or trying to copy them, it's like, well, I actually don't want to be them. So what is something from their life that I can kind of pick and choose that I have the chance of replicating myself that is still going to align with the life that I want to live? And that's much different than what most of what goes on, which is just like blind copycatting of investors who are out there. You know, the fear of going broke or going out of business, let's double click on that for a

Starting point is 01:28:43 second. So I remember getting advice from a very successful investor at one point who I think would put himself squarely in the value investing camp. He's been very successful for decades, does not care about the glitz and the glam and the flash of the latest crypto fill in the blank, has absolutely zero interest. So very much a student of an acolyte of the Buffett monger side of things. And he said, just do not take short positions. Do not short and do not use leverage. He's like, if you just avoid those two things, chances are you're not going to go totally out of business.

Starting point is 01:29:18 You're not going to go totally bankrupt. There's this quote from Buffett where he's talking about leverage. And he said, if you're smart, you don't need it. And if you're dumb, you shouldn't be using it. That's a good way to summarize what leverage is in investing. Then you have, and I'm bringing this up because I think it's very hard for people to parse fact from fiction or signal from noise in the financial press or even just financial discussion, right? Who to listen to is a difficult to answer question for a lot of people. It's difficult for me too sometimes, right? And I've just realized

Starting point is 01:29:49 that if you read anything, like you should skip to the bottom and just read the disclaimers first because they're just like shilling their position, you know, talking their book and shilling their position. Then you want to know that before you read 10 pages. But on the flip side, then I read this piece in the Wall Street Journal that was sent to me by someone which had the headline, buy, borrow, die. Are you familiar with this at all? The buy, borrow, and die approach? I'm not familiar with it, but I think I can put it together. You just go into a bunch of debt and then die? Is that what it is? Yeah, basically that. It's like a sort of dynastic approach to wealth transference

Starting point is 01:30:26 whereby you basically get everything that you need and want through leverage, right? I mean, obviously you have risk of margin calls and things like that, as we saw to dramatic effect during COVID, certainly. Some people were just overextended and got their faces ripped off, including some very, very famous families I won't name. But how do you make sense of conflicting, diametrically opposed advice from seemingly intelligent, rational parties on both sides? I think you have to parse the difference between what works on a chalkboard and what works in real life.

Starting point is 01:31:03 Many years ago, there was a study put out by a group of researchers at Yale. And what they showed is that their advice was everyone, every single investor should use 100% leverage in their 401k. They should lever up as much as they possibly can in their 401k. And they showed historically that that was the right thing to do. Because even if you got completely wiped out, even if your portfolio went to zero because of your leverage, as long as you picked yourself up the next day and bought stocks with two times leverage, over time, you would earn like an extra three percentage points of return. And they were dead serious in this report. And the math all works out. It works on the chalkboard, on the spreadsheet. They're right. It's the right thing

Starting point is 01:31:40 to do. In the real world, people would not worry. There's no real world in which someone would watch their retirement portfolio go to zero and then the next day keep doing the same thing. That's just not how people's heads work. And so there's a lot of things in finance that look smart and sound smart and the numbers add up and it's just completely opposed to how the real world works. I write in the book that the difference between being rational and reasonable. And there are a lot of things that investors do that are not rational, but I think they're perfectly reasonable and they align with how people's heads work. One of which I would say is there's this well-documented home bias in investors where by and large, people who live in America only own US stocks and people who live in Germany only own German stocks and Japan,

Starting point is 01:32:21 so on. People own the stocks that are closest to where they live, which is not rational at all. It's not rational to think like the best stocks are the ones that are closest to your house. That's crazy, but that's how people invest. And it's not rational, but it's actually very reasonable. If taking the leap of faith of investing your life savings in these companies, if it's easier to do that when you're most familiar with them, that's totally a reasonable thing to do. And so I think that difference between reasonable and rational is really important. I read about in the book too that my wife and I don't have a mortgage on our house, which is the worst financial decision we've ever made. And I would never try to justify it on a spreadsheet because I can't.

Starting point is 01:32:57 It's a terrible financial decision, but it's been the best money decision that we've ever made. It's given us more joy and pleasure than anything that we've done with our money, even though it's the worst financial decision we've ever made, just because it gives us a sense of independence and security. And particularly when we're raising our kids, this is our house. It's not the bank's house. This is our house. I cannot rationalize that, Tim, on a spreadsheet. I can't, but it makes me happy. That difference between the spreadsheet and the real world is so important. Everyone thinks about it a little bit differently, but I turn my nose a little bit at the academics

Starting point is 01:33:30 who just live inside of Excel and think that's how the world works. And I respect a lot more the kind of gritty people on the street that understand how the real world works, how people's brains works, what makes them tick, and how things actually play out. Yeah. I should also volunteer that maybe four years ago, five years ago, I was having a conversation with a very financially successful friend of mine who's also done a great job of crafting an unusual, I'm just trying to think of how to tiptoe around some of his adventures, exciting life for himself that is just quintessentially him, right? It's like unapologetically non-consensus. And he seems to just have a great time in life. And he's made a lot of very deliberate decisions.

Starting point is 01:34:17 And I wanted to get some advice from him about something. And he asked me to lay out what my current kind of balance sheet looked like. And I laid it out and he said, why do you have this mortgage left or this amount left on your mortgage on your house? me to lay out what my current kind of balance sheet looked like. And I laid it out and he said, why do you have this mortgage left or this amount left on your mortgage on your house? And I said, well, blah, blah, blah, blah, blah. And I gave him the kind of spreadsheet justification, right? Like interest rates are low. It's basically free money, blah, blah, blah, blah, if I can take that money and do blah, blah, blah. And he said, just pay it off. He said, just having the peace of mind that no matter what you have a house that cannot be taken away is going to do more for your ability to sleep at night than anything else. He's like, it doesn't make sense mathematically, but pay off the mortgage. And he was right.

Starting point is 01:34:55 Psychologically, the payoff was tremendous. And I guess if we think of investing or one way to think of investing being allocating capital to improve your quality of life, then it is a good investment, right? To pay it off. I'm not recommending that for everybody. This is just my own story, but I ended up in the same place as yourself for that reason. I also know a lot of people for whom that would be a terrible decision. They could not live with themselves if they knew that they were leaving money on the table. So it works for me and my wife and you, it sounds like, and other people, it wouldn't. And that's where I get down to like, all of this is just personal and whatever works for you. And there's something about money where that can irk people. Like there's some people when I tell them I don't have a mortgage,

Starting point is 01:35:36 they get angry at it because it's such a bad financial decision. And in a way that like other things in life don't work like that. If you said, I like classical music, I might say, cool, that's great. I don't, but that's fine. I don't think any less of you. I'm not going to argue with you about it. That's your taste. This is mine. But for financial decisions, people really don't like that. And I think those are people who only view it as a spreadsheet endeavor versus using capital to give yourself a better life, like you mentioned. Let's hop back to Jason Zweig's piece. This is from August 7th, 2020, discussing your book. And I want to pull out a contrast in styles and explore this a little bit. You'll recognize this, of course. So the first example, this is person A, Ronald Reed. I'm guessing that's how you say his last

Starting point is 01:36:28 name. To Ronald Reed, however, money was a possibility. So I'm reversing the order here. Mr. Reed spent decades pumping gas and working as a janitor in Brattleboro, Vermont. After he died in 2014 at the age of 92, his estate was able to give more than $6 million to local charities because he had scrimped and put every spare penny into stocks that he held for decades. No college degree, no training, no background, no formal experience, no connections. Nonetheless, massively outperformed many professional investors. All right. So I'm going to leave Mr. Reed at that for now. The contrast is something you saw yourself. A technology multimillionaire handed a hotel valet thousands of dollars in cash to go buy a fistful of gold coins at a nearby jewelry store. Sorry, this story is just, I can see it. I can see it in my mind's eye. The executive then flung the coins,

Starting point is 01:37:13 worth about $1,000 a piece, into the Pacific Ocean one at a time, skipping them across the water like flat rocks, quote, just for fun, end quote. To that man, money was a plaything. And then in parentheses, he later went broke. Yes, totally true story. It was the craziest thing. There's this guy, I won't say his name, but he was very well, he was worth several hundred million dollars. And he was just a complete maniac. And his relationship with money was astounding. He used to carry around this stack of $100 bills that I swear was four or five inches thick. And he would just walk up to strangers and pinch a little bit off the top would just walk up to strangers and pinch

Starting point is 01:37:45 a little bit off the top and just hand it to them just to see the reaction on their face. And he did this all the time. And he had all these crazy things, including the story I tell in the book. He told us one day, he pinched off a thick stack of $100 bills and he said, go to the jewelry store and get us some coins, some gold coins. One of my colleagues did it. And he came back and him and his friends just sat there skipping them into Pacific Ocean, just cackling to each other, like who can make it the farthest? And they're throwing $1,000, $1,000, $1,000. And they just thought it was the funniest thing in the world. And then years later, I found out that this guy went broke. He went bankrupt. And that's not surprising, but it was just astounding to watch how some people,

Starting point is 01:38:21 really smart, successful people deal with money. So one lesson we could take from that. I mean, there are many lessons we could take from this, right? If you're a valet, take the money and run. I'm kidding. It's a joke. But one lesson we could take is slow and steady wins the race, right? Substance over smoke and razzmatazz, that would be one moral of the story, that you can build wealth very effectively without doing anything fancy, without being Jim Simons, simply by being consistent and holding for a long period of time. I think that's a good way to summarize it, yeah. Yeah, that's one. Now, I think for purposes of the contrast, it makes sense that you would have these two extremes.

Starting point is 01:39:07 But there's a lot in between. And so one question that comes to me when I hear a story like this also is, would Mr. Reed have considered his life better lived had he taken some of that money and used it to enjoy himself or do something while he was still above ground or not at 92. Yeah. This is probably one regret that I have from the book is that I kind of framed it like Ronald Reed was my idol. And I didn't mean to make that point at all, because someone who lives a very impoverished life and is mopping the floors at a gas station and then dies with millions of dollars.

Starting point is 01:39:48 I don't aspire to that. That's not the life that I want to live. To me, the whole point was the skills that you need to generate wealth are not the Ivy League education and becoming a partner in Goldman Sachs. This janitor was able to do it, but I don't personally admire the life that he lived. I want to live a good life and buy the things that I want and have a nice house and a nice car and treat my kids well and go on good vacations and travel, the whole nine yards. The whole point of that was just showing that the skills that you need do not come from the traditional sources that we associate financial success with. Got it. All right. So I have a question for you as a researcher, professional observer. I don't want to say of finance because it's more than that. But I imagine, including the example of these guys handing a stack of money to go buy gold coins, you've observed wealthy people, whether directly

Starting point is 01:40:32 or through reading and so on, for a while now. And I'm going to lead into this with a recent conversation I overheard. It was two wealthy people were having a conversation about basically how much to save for how long. And both of them had been born into very moderate circumstances, like lower middle class or even poor. And one was saving everything kind of until the very end to hand off to future generations. And the other person said, well, you might want to consider spending or using more of that money now because there's only so much, you can't take it with you. And there's only so much money you can give to your kids before you ruin them. And I'd never heard it quite put that way. But I grew up on Long Island as a townie in the Hamptons. So I worked restaurants as a busboy and just various low status, low paying jobs

Starting point is 01:41:40 in a resort town where you get to see the best and the worst, but mostly the worst of Manhattan, the kind of C&B scene crowd. There are some great people. Many of my best friends are in New York City, but nonetheless, saw some really horrible behavior. And so this is a very roundabout way of asking. If you scan over your experiences observing the wealthy and so on, if you look he wants to leave his kids enough money that they can do anything, but not so much money that they could do nothing. I think that's really the key. And that's how I think about my own kids who are very young. But when my wife and I think like, how do we want to use whatever savings that we have

Starting point is 01:42:38 to benefit them? Giving them a safety net, but not a fuel is, a, that's what my parents did for myself and my siblings. When I was a teenager and in my early twenties, I always knew they would be there. If I fell on my face, I would never just completely fail. I'd never be homeless. I'd never, they'd always catch me, but they were never going to be a fuel. They're never just going to give me money just to, just to make my life better. That was never going to be the case. So knowing that they were going to be there, but knowing that I had to make it on my own was so important for me. That's what I want to do for my own kids. I think if there's

Starting point is 01:43:08 anything that's like that, I think that rule is probably the closest that you get to having very wealthy kids who are not cunts, as you put it, which is a great way to put it. Not to get too technical. There's a great book that I read a couple of years ago. I reread it last year. It's one of my favorite books. It's called Fortune's Children. And it's about how the Vanderbilt heirs spent their money and blew their fortune. And Cornelius Vanderbilt was the richest man in the world. If you adjusted for inflation, he was worth like $400 billion. And within, I think, three or four generations, there was nothing left. They spent everything.

Starting point is 01:43:44 And they actually didn't give that much to charity either. They did not do that much philanthropy. They just blew that money. And a couple of things stick out from the book. One is that virtually every heir, I don't think there's a single counterexample to this. They were all miserable. They were all depressed. They were all anxious. None of them really lived lives that anyone would want to read and say, oh, I wish I could live that life. They were all miserable. And I think another part of this is that none of them were allowed to become their own people. Their job in life was to be a Vanderbilt heir. And they were never allowed to have their own personality, to really have

Starting point is 01:44:20 their own pursuits. Or even if they did their own pursuits, it was never going to live up to what their grandfather did. And therefore, why even try? And all of them were just living in the shadow of this era that they had, this ancestry that they had. And so I think when I look at that, it's like, you really see how money can ruin people. I thought about this myself with my kids of like, let's say my wife and I go out and buy a Porsche. We don't have one, but let's just use that hypothetically, but we buy a Porsche. And then let's say that my daughter wants to be a kindergarten teacher and she's driving a Toyota Corolla because that's what she can afford as a kindergarten teacher. Is she always going to feel like she's in the shadow of her parents? Like she

Starting point is 01:44:57 did not eclipse what her parents did, even if she has a more noble job than I do and a job that benefits society more than I do? Is she going to feel like she never reaches that point because of how my wife and I decided to live our lives? I don't want to do that as a parent. And I think about that a lot too, is like, how can I live a good life and have a good house and nice stuff, but make sure that I'm not leaving the bar too high for my children if they go into another career that doesn't pay as well? That's a tough thing. I don't know if there's any easy answers to that, but I think about that a lot of like, how can you become a safety net, but never a fuel? And I'll tell you something that I didn't really realize a couple of years ago was

Starting point is 01:45:35 that the instinct to be a fuel when you are a parent is really strong. The instinct to say, hey, I'm fortunate enough to have some savings. How can I use it to benefit my kids and open doors for my kids and push them along and put them on third base is tough to fight against that because every cell in your body as a parent says you should do that. I was really hoping that the book you're going to recommend would be called How to Raise Kids Who Aren't Cunts or something really on the nose. That's book number two. It's coming. Please, someone write that book. You can have the nose. That's book number two. It's coming. Yeah, please, someone write that book. You can have the title.

Starting point is 01:46:06 Just write something kind in the acknowledgments. Fortunes airs, I have to ask. Okay, 400 billion or so after adjusting for inflation. How in holy hell do you spend or blow that much money? What did they do? A lot of it was homes. I mean, the Biltmore, which is still around, you can go visit

Starting point is 01:46:25 it. It's 140,000 square feet. And that was just one. And that's one of like 10 homes. That's absurd. That's like Chelsea Pier. That's the craziest thing. Here's what's crazy about it too. This just shows how dumb their lives were. So Biltmore is 140,000 square feet. George William Vanderbilt, I mean, it was William George. No, George Washington Vanderbilt was his name. He hardly ever visited it. It was the biggest house in the world. I think it still is. And he hardly ever went there. He spent most of his time in his apartment in Manhattan. So even when they built these ridiculous mansions, it was just for a pissing contest of these cousins and of these siblings of who can spend the most money. And it really did not give them. It was just like a social race that they could not win because

Starting point is 01:47:08 when you have these heirs, whether it was the Vanderbilts, the Rockefellers, the Carnegies, the whole Gilded Age heirs, all of their goal was to one up each other and they basically had unlimited money. So in that situation, you're never going to win that game. The game where everyone loses. Everyone loses. And so they spend a lot of it on homes. And all of these homes would have a staff of 300 people working at the home that they never went to. So it was just like that. Here's what's really interesting too. The first Vanderbilt heir that I think has actually lived a pretty cool life and seems pretty happy. Do you know who it is?

Starting point is 01:47:41 I do not. Anderson Cooper. No shit. Wow. Anderson Cooper's, his mother is Gloria Vanderbilt. Gloria Vanderbilt's father was Reggie Vanderbilt, who was the last Vanderbilt to have significant money. Reggie Vanderbilt inherited a ton of money, blew every cent of it. His daughter, Gloria, went on to have a child named Anderson Cooper, who went on to, of course, build his own life with his own talents, not with his family's money, and seems like he's a pretty happy guy. Everyone else in the book before him seems miserable, including his mother, Gloria. I think that's pretty telling that

Starting point is 01:48:14 Anderson Cooper is like the first Vanderbilt who did not have money, and he seems like he's the happiest one. Good for Anderson. Wow. I had no idea. I had absolutely no idea. I'm going to ask you some journalism and book questions. Biographies you have recommended most to other people or given the most to other people? Or just recommended or gifted? It doesn't have to be recommended the most. named Benjamin Roth, who in the 1930s kept a very detailed diary during the Great Depression. And every day, it was just his personal diary, but he just wrote about what was going on in his town. He's from Youngstown, Ohio. And he just wrote about what his neighbors were going through, how many businesses were going bankrupt, what that did to people's personalities. And his son published it in 2010. It's called A Great Depression, A Diary. And I think it was unintentionally the best economics book ever written. For sure. It explains what went on during the Great Depression in a way that no one else has, because there's no hindsight bias in it. Every other book on the Depression is hindsight bias.

Starting point is 01:49:12 We know how the story ends, and that colors our view of what happened. But Benjamin Roth was writing in real time. Every single morning, he woke up and he wrote a thousand words on what was going on in the economy. And it's so fascinating to read. And one of the things that sticks out to me that's so interesting is that half of the book, if you change the date from 1932 to 2008, it fits right in. The psychology of what happened back then, of how people were thinking, how people thought about risk, what they thought about government policy, completely

Starting point is 01:49:39 repeated itself in 2008. And Benjamin Roth actually talks about in 1932, he's like, oh, what's going on today was exactly what happened in 1878. It's like all these things repeat themselves so commonly and so frequently. That's one that is not a very well-known book, but I've read it several times and I just think it's fascinating. A Great Depression. I know you're also a fan of, you call him your favorite historian in the book, Frederick Lewis Allen. Yep. Spent his career depicting the life of the average median American.

Starting point is 01:50:09 I know you've spoken about this before. People could definitely listen to your conversation with Shane Parrish for more on this. But some of those books are The Big Change, Since Yesterday. What is the third? The Big Change, Since Yesterday, and Only Yesterday. Only Yesterday. And I suppose there's maybe a bit of hindsight bias, but it's describing a period that he lived through. And therefore, I suppose it's just more, how would you summarize why you find his work

Starting point is 01:50:36 interesting? You hinted at this earlier, but most history books, 99% of them are about the big figures, the presidents, the generals, the Hitlers, the Stalins, the FDRs. That's most of history. Frederick Gullis Allen was just interested in how the average ordinary American lived their life. And he wasn't writing about any specific events. He just wanted to write about what was life like? How did life change during this period from 1900 to 1950? His crowning book is called The Big Change. It's just how American life evolved from 1900 to 1950. And the evolution was enormous because 1900 was horse and buggy, and 1950 was like rockets and atomic bombs. The amount of progress that took place during that

Starting point is 01:51:16 period is way more than what we've dealt with over the last 50 years. And he just wrote about what life was like for people who lived through that, ordinary people. One of the things that sticks out from that too, that comes up again and again, is just the extent that no one saw what was coming. No one saw it coming. What actually happened, no one saw that coming. And even if you look at like the dawning of these big events, like World War II and the Great Depression, nobody saw them coming. It seems so obvious to you and I today, if you research what happened during the 1920s and what happened in 1929, like the glorious roaring 20s and the stock market bubble, it's easy to be like, of course it all ended in calamity. But people were not saying that at the time. And the few people who did say, hey, this was probably dangerous were completely pushed aside.

Starting point is 01:52:02 Same with the period right before World War II and the aftermath of World War II and the technologies that came out of the Cold War. Again and again, the repeating theme among the story is that people didn't see it coming. And that just gives the reader so much humility when you're looking at today, that you and I and everyone else and the smartest people that we know have no clue what's going to happen over the next 10 years. That's always been true, and I think it always will be true. One of the sections in the book that I really enjoyed, I mean, maybe enjoyed isn't the right word. You'll see why in a second, but found illuminating and worth contemplating. You'll have to help me with the specifics here, but it was looking at, I want to say in

Starting point is 01:52:46 brief, how misleading or incomplete averages can be. So you might look at something that says at some statistic, like from, I'm making this up, from 1950 to 2000, the S&P 500 averaged, whatever it happened to average, 7% per year. I have no idea what the actual number is. But then you go further to explore how lumpy and volatile that actually is. It's not this nice, clean incline like a ramp for wheelchairs or something. And you list off all of the calamities and disasters that took place over that period of time, and that the sort of psychological experience of living through

Starting point is 01:53:34 the years that ultimately result in that average is very different than what most people would expect. So feel free to correct or elaborate on that in any way that makes sense. But my meta question is related to how terrible people are at actually buying and holding, right? They tend to panic and sell. So even with the knowledge that all this shit is going to happen, that the one guarantee is there's going to be a bunch of unmitigated catastrophe that is totally unexpected. How can you increase the likelihood that you will not respond in moments of panic by doing what cripples you financially? So two parts of this.

Starting point is 01:54:17 One is that even if you look at the periods that in hindsight, we think were the greatest that existed, which for most Americans is the 1950s and the 1990s. That's what we remember as like the golden age of prosperity and happiness and peace. Even if you look at those periods, like in the 1950s, kids were doing nuclear bomb drills under their desks. And there was a lot of pessimism and negativity. Even if we know in hindsight, it was great at the time, by and large, they did not know that. Maybe it was like it was good economically, but there was a lot to be worried about in the 1950s. Same in the 1990s, which today is like, oh, the booming 1990s, the bull market. But even people forget in 1994, there was a big interest rate calamity where a bunch of bond

Starting point is 01:54:58 for interest rates rose and the stock market crashed. And then in 1998, a big hedge fund went out of business and almost took the whole global economy down with it. There was a lot to worry about during these periods. So how do you protect yourself from that? How do you actually become buy and hold? I think there's one thing to do here. There's a friend of mine named Carl Richards, who's a financial advisor. And he has a quote where he says, risk is what is left over when you think you've thought of everything. That's the definition of risk is whenever we're done planning and forecasting, everything that's left over that we haven't thought about, that's what risk actually is. And the takeaway from that, the actual practical takeaway is that

Starting point is 01:55:32 if you are only planning for risks that you can think about and you can envision and you can imagine, then 10 times out of 10, you're going to miss the biggest risk that actually hits you. The biggest risk is always something that nobody sees coming, including something like COVID. It's actually not fair to say no one saw it coming, but by and large, it's like in financial circles, not a single investor in 2019 in their economic outlook had a viral pandemic as something that they were worried about. Not a single one. Or 9-11 or Lehman Brothers going bankrupt, like all the big events that actually mattered. It's pretty much true to say no one saw them coming. I think that's generally true. And therefore, the takeaway is you have to have a level of savings in your asset allocation that doesn't make sense.

Starting point is 01:56:14 You have to have a level of conservatism that seems like it's a little bit too much. That's the only time that you know that you are prepared for risks that you cannot envision. And if you are only prepared for what you can imagine, again, you're going to miss the biggest risk every single time. Whenever people look at my asset allocation, if I share that with them, it looks a little bit too conservative. And they say, God, you could be taking a little bit more risk. And they're right. I probably could, but I want to be prepared for the risks that I can't imagine or the risks that is possible, but I don't want to even think about it. It's too painful to think about. That's the only time that you can be prepared for the surprises in life.

Starting point is 01:56:50 And I think most people, not all investors, but the majority of investors are not conservative enough. And I know whenever I say that, they kind of shake their head like, come on, why don't you want to take risk? And once a decade, you learn why. Once a day, whether it's COVID or 9-11 or 2008, once per decade, you're like, okay, I get it now. I didn't see this coming. It was a calamity. And I either ground myself into the floor and I got wiped out or I had a little bit of extra savings that got me through.

Starting point is 01:57:20 That's how I think about how to stay in the game in a long-term history where history is a constant chain of surprises. That's the only way to do it. Yeah. Let me read one of my 17 million Kindle highlights. Thank you to your publisher for not throttling the number of highlights that I could actually read after the fact. That is extremely annoying when that happens. So thank you, publisher. Who ended up publishing the book? It's a group in London called Harriman House. And so we may or may not get a chance to dig into this, but one of the bullets I have here is every major publisher rejected the book. That seems just stupid, especially just based on the fact that my understanding is it began as a popular blog post. It seems like the most obvious indicator of interest imaginable, but what do I know about publishing? We may come back to that, but let me just read something here that I ended up highlighting. So for people who are wondering

Starting point is 01:58:19 about my process, I highlight on the Kindle. In this particular book, I actually read in a way I had not read any book before, and that was I bought it on Kindle. That prompted me to buy the Audible version. And then I listened to the Audible inside the Kindle app so that I could, while going for, say, a hike with my dog, be listening, listening, listening, hit a point where I would want to make a highlight, stop, and it would be tracking simultaneously in the Kindle. And I could then make my highlight and then continue hiking and listening. So I digested the book very, very quickly. Here's a section that I then ended up bolding because I take those highlights, which you can access on

Starting point is 01:59:05 desktop through your Amazon account, and I drop them into a Google document. And then I will go through them a second time and I'll bold the section that I want to pay particular attention to. And my friends, some friends and I will share our Kindle highlights from different books that we have read so that we can determine if we want to end up reading the entire book. So here's a section, and it's from a much larger context, of course, but I think it kind of makes the point. Say cash earns 1% and stocks return 10% a year. That 9% gap will gnaw at you every day, but if that cash prevents you from having to sell your stocks during a bear market, the actual return you earned on that cash is not 1% a year. It could be many multiples of that, dot, dot, dot, and it goes on.

Starting point is 01:59:48 And this leads me, and I am going to come back to the journalism question. I haven't forgotten that. But since we're on a bit of a thread here, I will say I ended up with a tremendous cash reserve, in part because I got my nuts kicked into my throat in 2007, 2008. Both self-inflicted wounds in the case of selling Amazon and then in the housing market. And I was very conservative after that point. Or I should say I took a barbell approach of sorts, so Nassim Taleb talks about this. But I was in the Bay Area. I felt like I had an informational advantage if I wanted to really commit time to trying to become well-versed and well-networked within technology. So I decided to begin angel investing. That was the highly, highly speculative, potentially high return investing side of things. And then the rest was basically in cash. I mean,

Starting point is 02:00:40 the equivalent of being in a mattress. I mean, I didn't even have the guts to put it into an index. And I missed some tremendous, tremendous growth as a result of that. It didn't bother me though. At the time, at least, I was still sleeping pretty well. I was enjoying learning what I was learning in tech. And then in January, I began tracking COVID. This is of 2020. And I was able to deploy a ton of my cash reserves basically end of March, beginning of April. So it did well, but one could very, I think, convincingly argue that I would have made more money just by having it play in the market for a longer period of time. But I think that would have made it hard for me to sleep at night having just had my face ripped off. I know I'm mixing a lot of metaphors, face, balls, you get it, but it was unpleasant. It's the point I'm trying to make.

Starting point is 02:01:33 And I'm going to bring this back to how you think about success in investing. And I hate that word, so I'll parse it out a little bit. But I want to read something from a blog post that you wrote or an article. I'm not sure which you prefer. This is on the Collaborative Fund website, internal versus external benchmarks. And let me just read these two paragraphs. The most important point may be this. Internal benchmarks are only possible when you have some degree of independence. The only way to consistently do what you want, when you want, with whom you want, for as long as you want, is to detach from other people's benchmarks and judge everything simply by whether you're happy and fulfilled. I want to bold that in your mind. Judge everything simply by whether you're happy and fulfilled, which varies person to person. This next paragraph

Starting point is 02:02:16 I circled because I just thought it was really worth reading over and over again. I recently had dinner with a financial advisor who had a client that gets angry when hearing about portfolio returns or benchmarks. None of that matters to the client. All he cares about is whether he has enough money to keep traveling with his wife. That's his sole benchmark. Quote, everyone else can stress out about outperforming each other. He says, quote, I just like Europe, end quote. Maybe he's got it all figured out. So I just love that because it's highly subjective, meaning it's personal, but it's also very objective. It's an absolute measure. And it's an example of, unless he gets a lot of lifestyle bloat and wants to have a yacht in the Mediterranean or something, it is a goalpost that won't move. All right. So you talk about the

Starting point is 02:03:01 importance of the goalposts not moving. In my experience, with people who have gone from very, very moderate circumstances, not having much money growing up to being very, very successful, offhand, I'm sure there are some examples, but 99% of the people who come to mind who are smart, I think good people who are very much students of life, the goalposts have always moved. And so I want to know what you've seen work or not work in that specific domain and how you think about it for yourself. I think it's the single most important topic in money, in investing, in finance,

Starting point is 02:03:46 and it's the hardest thing to actually make work. Those are both true statements. It's the same for me. I can write about this and say what people should do, but it's the same for my wife and I. We struggle with this as much as anyone else about getting the goalposts to stop moving. I think if there is one thing that has helped me, and I would say helped, not fixed, just like I helped a little bit around the edges, is something that we talked about earlier, which is that just the idea, the observation that no one is thinking about you as much as you are. And therefore, so much of people's willingness and their desire to spend more is just a social signal to show people how

Starting point is 02:04:18 much money you have, whether that's the bigger house, the nicer car, whatever it is. You just want to show other people. And once you realize that people aren't thinking about you that much, they don't care about you that much, they're thinking about themselves and how much people care about them. Once you realize that, then you're like, okay, I can see what the game is. It's a game that I can't win, so I'm not even going to try to play it. I just want to focus on the internal of what's going to make me happy? What do I want? What's actually going to give me pleasure? And let's just do that. And I don't want to think about anyone else. What's that for you?

Starting point is 02:04:47 What's the happy and whatever the other thing I bolded, which I promptly forgot. But what are those things for you? I want to wake up every morning and hang out with my kids and I want them to be happy. And I want to do it on my own schedule. If it's a Wednesday morning and I don't want to work, then I'm going to sit on the couch all day and watch Netflix. And if it's a Sunday and I got a good idea, I'm going to spend all day working. It's all my own schedule on my own time. Whatever I want to do, it's that independence and autonomy. Can you not do that right now?

Starting point is 02:05:16 Yes. Yeah, I can. There was a point when I couldn't. And that's why I feel like I'm pretty happy. And I feel like I've done a decent job of doing that. Now, I do have, as a lot of people would, a tendency to be like, oh, what if I got that Porsche? What if we got the bigger house? What if we did this? What if we did that? And it's fun to think that because I love nice cars. I love all of that. It's just so easy to realize. There's a great quote that I love that's, the grass is always greener on the side that's fertilized with bullshit. I think that's really what it is. That's the accurate phrasing of that well-known quote. And I think that's really what it is. The idea that all that nicer stuff is going to make you necessarily happier,

Starting point is 02:05:54 I think is just so easy to disprove, especially once you've experienced a little bit of it yourself. And that actually what is going to make people happy is that independence and autonomy that once I remind myself of that, I'm like, okay. And then the game of earning more just becomes a game. It's less about like, oh, if I have more money, I'm going to be happier. No, if my net worth is 10X what it is today, I'm not going to be any happier. That was not true at one point in my life, but I think it's true today. It's probably true for you right now. It's true for a lot of people listening. And therefore you can admit that a game is fun and a game is fun to play, but just admit that it's a game and it's actually not going to make you happier.

Starting point is 02:06:26 I think I may have a solution for you. I think that all of that experience as a valet could come back to serve you. If you took like a Saturday shift as a valet and took a few Porsches for a joyride, I think you could scratch that itch without the expense or the guilt and karma associated with buying one. You can also buy one, certainly. But see, actually, I don't think I've ever talked about this before, but I actually do scratch that itch when I rent a car. When I'm traveling, I rent a car. I always get the extreme upgrade, the highest upgrade that they have.

Starting point is 02:06:58 A lot of times, Enterprise will have a Porsche or something sitting around. And whatever the price is, I'm doing that. That's how I scratch the itch without actually buying it. That's a great way to do it. Because you can rent a Porsche from Enterprise for like 300 bucks a day. It's not cheap. It's not 60 bucks a day, but it's a lot different than buying the damn thing. Okay. So let's talk, well, we're going to talk a little bit more about scratching the itch because the question that I asked a while back was, how can people fortify themselves against their lesser instincts when shit goes sideways? Because it's always going to go sideways, right?

Starting point is 02:07:31 So if they know I need to be in this for the long haul, let's just call it long haul, at least 20, 30 years. But in the meantime, a lot of things are going to happen. I remember, I think this was in the book. Maybe this was in a conversation that I heard of yours where if someone has the impulse, the unbridled passion and impulse to trade or pick stocks, that's fine as long as you cordon off a small amount of your money as play money in the same way that you might scratch the itch by renting the Porsche at Enterprise. So that would be one way, theoretically, again, maybe easier on paper than it is in practice, to handle some of the damage control. Could you speak to other ways that people can kind of philosophically, psychologically prepare themselves for a long haul that is going to be very bumpy? And one of the discussions in the book

Starting point is 02:08:22 was, and I'm going to get the wording off here, but related to accepting the prices you will have to pay upfront with a commitment to such a strategy, right? And the fees that are involved. Could you speak to that? Yeah. And the way that I phrased it in the book was understanding the difference between a fee and a fine, which seems like they're really similar, but there's a very important difference, which is a fine means you did something wrong. Like shame on you. Here's your speeding ticket. Don't do it ever again. You're in trouble. And a fee is just a price of admission that you paid to get something better on the other side.

Starting point is 02:08:54 Like you go to Disneyland, you pay the fee, and then you get to enjoy the theme park. You didn't do anything wrong. It's just, that's the fee. If you could situate your life to where you view a lot of the ups and downs, not all of it, but a lot of the volatility in investing, a lot of the volatility in your career as a fee instead of a fine, then it just becomes a little bit more palatable. And when the market falls 30%, it's not that you enjoy it. You don't think it's fun, but you're like, okay, I understand this is the fee that I have to be willing to pay in order to do well over a long period of time. Most investors don't do that. When their portfolio falls 30%, they say, I fucked up. I did something wrong. I clearly made a mistake. And how can I make sure this

Starting point is 02:09:28 never happens again? And that's the wrong way to think about it. And I think if you view it as a fee instead of a fine, it's much more enjoyable. It's much more realistic to deal with. I said earlier that there are some areas in life where it's like that. If you're talking about a death in the family, a divorce, there's things that it's like, no, that's just a straight negative, like no silver lining to some of these things in life. So I want to be careful at parsing that. But particularly in investing, the huge majority of the pain that people go through and put themselves through is just the fee for earning superior returns over time. And if you're not willing to pay that, then you're probably not going to get the reward on the other side. That's why you can see so many people who at the first experience with being uncomfortable

Starting point is 02:10:10 in investing with a loss, they view it as a screwed up and then they want out. They want to move on to something else. And of course, they're not going to get the rewards over time. Nothing in life is going to give you those rewards for free. There's a cost to everything. And just identifying what the cost is and realizing that the cost is not on a price tag. You're going to pay for it with stress and anxiety and dopamine and cortisol. That's how you pay for these things. I think that's the only way to deal with those big ups and downs. Journalistic question. Twitter doesn't exist. Parallel universe called much more peace of mind, less doom scrolling and hatred and neighborhoods online where people throw potted plants at your head as you walk down the sidewalk.

Starting point is 02:10:52 So parallel universe, Twitter doesn't exist. And the way you consume your news is the following. You're allowed to read the cover of a handful of newspapers. That's it. Can't flip to any interior pages, but you can kind of scan a handful of newspapers. That's not the part I want to ask about, but that's part one. Part two is you get to choose, and let's limit it for now to finance, investing, or business, broadly speaking. You get to choose a handful of journalists, writers, and you basically have an RSS feed to their articles and you get those automatically. But that's it. On those subjects, that's how you get your information. Who are some of the people you would choose? Okay. One would be, and I'll try to give some names that are not

Starting point is 02:11:44 that well-known. They're not under the radar, but they're not the biggest of the big names. One is a guy named Nick Maggiuli, M-I-J-J-I-L-U-I. I'm probably butchering that, but he's on Twitter. He writes a blog called Of Dollars and Data. And I think he's a young guy. He's maybe in his early thirties and he's one of the smartest, most insightful and good writers that I've come across in years. I'm good friends with him now. And he's one of the smartest, most insightful and good writers that I've come across in years. I'm good friends with him now. And I tell him the story that the first time that I read his blog, maybe 10 years ago, I read one paragraph. And after one paragraph, I stopped and I was like, this guy's got it. That's all you needed to read to be like, this guy is smart and

Starting point is 02:12:18 he can write and he's got it. It was so clear early on. He's one of them. Josh Brown, who I mentioned earlier, who is the CEO of Ritholtz Wealth Management, he's well-known. He's on TV all the time. He is one person that I think is as funny as he is smart. And to put those two together in one package is really rare. And that humor is important for understanding the context of these. So much of it is just like, he understands the human side of investing better than almost anyone. I mentioned Derek Thompson earlier of The Atlantic. He's one of the smartest humans that I know. And he's also maybe like 32 years old, something like that. He's definitely on that list. I think Jason Zweig, who we mentioned earlier, is probably the greatest financial journalist of modern times. I don't think

Starting point is 02:12:57 that's an exaggeration. Carl Richards, who I mentioned earlier too, he used to write for The New York Times. He doesn't anymore, but he has a way of taking really complicated thoughts and making them just so easy to understand in a way that you thought you understood it before. But once you read Carl's work, you're like, oh, okay, now it really makes sense. He would definitely be on the list. What is Carl's beat or what does he write about? He was a financial advisor. And then he wrote for the New York Times for a long time, basically on behavioral finance. His book is called The Behavior Gap. So he wrote about behavior finance for a long time. And now he's just on his personal blog, his personal newsletters. He's definitely on that. There's a financial advisor named Blair Ducanet, who I think is incredibly smart and a great writer. I wish he wrote more,

Starting point is 02:13:37 but whenever she does, it's just always very well put together and very thoughtful. If you gave me more time, I could probably list 10 more, but off the top of my head, that's the Mount Rushmore in my mind. Are there, you said, I'll leave off some of the bigger names. Are there any of the bigger names you would care to mention? I mentioned earlier, James Clear, Ryan Holiday, Mark Manson, you, Tim, I don't want to blow too much smoke, but I'll just leave, I'll just drop that there and then move on. I think those people like that, that have a lot of success and a lot of followers have earned it. Like content is a meritocracy.

Starting point is 02:14:09 And for people who have sold a zillion books and have a million followers and get this, by and large, they've earned it. And so a lot of those people who are big names and almost cliche to mention, I think are very insightful people. James Clear and Ryan Holiday are two that really stick out as just really

Starting point is 02:14:25 thoughtful, almost philosophers in a way that can be off-putting to some people, but I think they are just so smart. And a funny story about this. In 2018, some friends of mine rented a house in Omaha for the Berkshire Hathaway shareholder meeting. And a guy came over who I had never met before. And I said, hey, who are you? And he said, oh, hi, I'm James Clear. And I said, what do you do? And he said, I'm an author. I'm writing a book right now. I said, what's it called? He said, it's called Atomic Habits. And I didn't say this, but at the time I was like, that sounds like a dumb name. I don't know. Of course, I didn't say that to him, but in my head, I'm like Atomic Habits, that sounds cheesy.

Starting point is 02:15:01 And but he explained it. He was a really nice guy. I liked talking to him. But for those who don't know, I think Atomic Habits has now sold five or six million copies. It's probably the best-selling book of the last five years. Yeah. Yeah. Blockbuster. Yeah. Ryan also, I'll just speak to Ryan since I know Ryan quite well, and I've known him for a very long time. He really walks the walk and makes every effort to walk the walk. So I have tremendous respect for Ryan also, because there's such congruency, at the very least, incredible effort put into congruency between the words and deeds, if that makes sense, because that is not always the case.

Starting point is 02:15:40 You know who comes to mind for me also is Matt Levine. I have to guess it's Levine. I don't know if it's Levine, but Matt Levine of Bloomberg. I have no idea how he manages to put out the volume with the density of insight and humor that he does. He has some hilarious, hilarious, hilarious stuff. It's so good. And he writes every day. He puts out a letter five days a week and they're long posts. And every one of them is great. There's almost never a dud. He gave an interview last week where he talks about his process. And he said his process is like he wakes up at 6 a.m. and panics until there's something written, which I think that's a great thing to admit that writing is hard.

Starting point is 02:16:23 It's not even for the people that make it look easy, it's almost always a daily panic attack of like, oh shit, what am I going to do now? What am I going to write about now? The other observation I make about all these people, Matt Levine, James Clear, Ryan Holiday, all those people, is that their skill is very universal and their observations could be applied to other fields. If Ryan Holiday wanted to become a writer of astronomy or soccer games or a medical writer, he would be one of the best medical writers. If James Clear wanted to write about early childhood education, he would be the best childhood education writer. They're just great observers of how the world works and great communicators of putting those observations onto paper. What's your personal hall of fame, just for you? Favorite

Starting point is 02:17:06 books on investing, finance, behavioral finance, any of that kind of stuff, decision-making? One that's not that well-known, but I wish was. It's not a behavioral finance book per se, but it's a behavioral book. It's a book by a guy named Dan Gardner who wrote a book called The Science of Fear. The title is basically self-explanatory. It's not a deep science book. I would say it's more of a pop science book, but I don't mean that in a derogatory way. It's very digestible. You can understand it. But that book really changed how I think about fear and just observing fear in a pretty profound way. I've read that several times. What else? I mean, obviously, The War from Jason Zweig. So let's bookmark Jason Zweig. How did it change how you think about or relate to fear?

Starting point is 02:17:47 I think what that book really showed me and put into words in a way that really stuck with me is the difference between your slow, thoughtful process of thinking about future risks and the, oh shit, like heat of the moment, how am I actually going to react? In the book, it's framed as head versus gut. Years later, Daniel Kahneman, the great psychologist, framed it as system one, system two. I think that's really important. And particularly in investing where we've talked about in this podcast, it's so easy to sit back in your armchair and be like, oh, if the market fell 20%, I would do X, Y, and Z. And then when it actually happens, you don't. You think something totally

Starting point is 02:18:21 different. It's a very different experience. The difference between what you think and what you actually do can be 10 miles apart. That book really explains that quite well. Now, how does that affect your... You said you've read it several times. How does that affect your planning or behavior? A, I think a big part of me of just taking this off the table for me that relieves a lot of pressure is I have no desire to become the world's greatest investor. And I respect people who do, but I'm not one of that. So if I can just compound my money passively for 50 years, I'm going to achieve every goal that I have and then some.

Starting point is 02:18:55 So for me, the idea of, well, how can I take the greatest advantage over the next market crash? How can I maximize more portfolio? I'm just not playing that game. And once I become more introspective about my own personality, about what I want and how I react, how I think, how I interpret stress, how prone I am to stress, that kind of thing. It's like, once you become more introspective about yourself, I just took that pressure off my shoulders in a way that was very relieving.

Starting point is 02:19:19 I would like some writing advice. I just turned this into an even more self-indulgent conversation for myself, self-gratifying maybe. What made me think of this was actually flashing back on COVID because I'd committed to getting back on the blog and writing regularly right before COVID hit. I had built up a bit of momentum, had hit publish a handful of times, and then COVID hit, and I was like, okay, that's not a priority at the moment, right? I want to figure out how to keep my extended family as safe as possible and marshal resources and plan for contingencies and have not gotten back on the saddle since, even though I've drafted a few things here and there, haven't hit publish, I would like to get back into some regular cadence of writing. And I'm wondering if you have any

Starting point is 02:20:11 advice or would care to describe your writing process, if you think it might be helpful. I don't know if I really have a writing process other than I really don't try to schedule it or say, okay, like Monday is writing day and I'm going to sit down and do it. I know a lot of great writers who would come on this show and say that that's the way to do it, that your routine is so important. For better or worse, it's never been like that for me. I just kind of take as a leap of faith that maybe twice or three times a month, I'll come up with an insight where I'm like, oh, that would be pretty cool. And here's a story that I could tell,

Starting point is 02:20:48 but I don't try to force it at all. Every good idea that I've come up with has come when I'm not trying to force it at all. It's like in the shower or going for a walk or going for a run that you just all of a sudden, you're like, oh, I got it. Here's the idea. And so the process for me is no process.

Starting point is 02:21:03 It's just like wander aimlessly around life and then it'll eventually come to you. The actual writing for me, I would say too, I go for a lot of walks. I walk several times a day just around my neighborhood. And 90% of the quote unquote writing takes place there. I don't think that well when I'm sitting at my computer in front of a Google doc typing, but when I get up and move around and go for a walk, then I'm like, oh, here's how I can write that paragraph. Here's how I can do it. Like, oh, actually that sentence, here's a better way to phrase it. All that takes place when I'm

Starting point is 02:21:32 walking, never when I'm sitting. And so for me, whenever I feel like an article is not going well, or like I'm stuck a little bit, it's like, okay, let's go for a walk. And then most of the time, I'll figure it out there. The other thing that I've come to realize about myself is that the majority of the time that you have writer's block, it's not that you have writer's block. It's that your idea sucks. And that's why you can't figure out a way to write it. Good ideas are very easy to write and bad ideas are hard. Like that's, that's pretty easy. So a lot of, a lot of writers, when they get writer's block, they're like, oh, how can I muscle through this and figure it out? And I think nine times out of 10, you're like, no, let's take a step back. And maybe it's hard to put this into words because the idea that you're trying to get across is wrong. And that's

Starting point is 02:22:12 why it's hard. So I've tried to do that with myself of just quitting pretty easily. Even if I'm halfway through an article and I'm like, oh, I can't figure out how to phrase this. It's like, well, maybe that's because my idea is wrong and I should just move on to something else. How do you distinguish between a block that is due to an impotent idea versus performance anxiety slash pressure that is preventing you from moving forward? Does that make sense? Like if your standards for yourself are too high, the idea may be good, but you're just expecting Tolstoy to roll out. And then you're like, this isn't Tolstoy, fuck. And then you can't write. I think that I end up there a fair amount because I'm clearly not Tolstoy to roll out. And then you're like, this isn't Tolstoy, fuck. And then you can't write. I think that I end up there a fair amount because I'm clearly not Tolstoy.

Starting point is 02:22:48 It's definitely the case if you are writing for a big publication and you have a deadline, like your deadline is like 3 p.m. on Friday, you need to turn your article in, then you have to do it. If you are away from those handcuffs and you can just kind of publish whenever you want, that to me is the best setup for a writer. Because the truth is, even if you are one of the big name writers, if you miss a week, no one's going to hold it against you. No one's going to care. What they want is good content. If it takes you an extra week to come up with the next good idea, just do that. So I publish on random days. Sometimes I publish once a week. Sometimes it's twice a month. It's just whenever I come up with something that I

Starting point is 02:23:23 think is worth writing about that I do. So freeing yourself from that timeline, if you can, is the only way to do that for me. I think if there's one thing I've gotten a little bit better at over the last 15 years of doing this, it's having a little bit better sense before I sit down and write, whether it's going to work or not. I think in the past, a lot of times I would work on something for five hours before I realized like, no, this isn't working. Now I feel like within 10 minutes of writing, I'd be like, nope, nope. This is not going anywhere. Good. Let's just quit this and move on to the next idea. And that's fine. There's also a lot of times where you write half an article that doesn't work out, but there's some story in that scrap of an article that's going to work a year from now

Starting point is 02:24:00 or six months from now. So saving all those scraps is really helpful. And maybe you told a great story in this article that didn't work out. And so you just leave that in your drafts. But then a year from now, you're like, oh, I got this story. Where do you save that? I have a Google doc called Scrapped Bits. That's where it is. It's like 50,000 words. It's over 10 years of just the paragraphs that I cut from articles. And I get a lot of material in future articles from that scrap bits that didn't work in the past. Could you give an example of a recent story or article and where the idea occurred to you and then what the next steps were right after that?

Starting point is 02:24:38 One article that I wrote fairly recently is called How This All Happened, which is a very short history of how the US economy evolved from the end of World War II through today. And I don't want to write a complete history, that's too ambitious, but just what are the connecting dots from how we got from here, or from the end of World War II to today? What's the narrative of how this all happened? I just wanted to connect the dots between all those. And it started actually years ago when I said, how can I write the history of the US economy basically in tweets? What is the shortest that I can do this? And just write a couple of sentences of like, okay, after World War II,

Starting point is 02:25:14 this happened, and then that happened. And the whole article is like 10 sentences. I wanted to challenge myself to summarize it that quickly. So that was, I don't know, eight years ago that I wrote that piece. Then I realized, hey, that was actually a cool format, but there's obviously a lot to expand on there. So rather than writing the history of the US economy in single sentences, what if I just put it together in each block, each chapter is like 300 words, which is a length in which you can go into a little bit of detail, but it's quick. You can breeze through it. So just putting that together in that format was like a challenge, but I was pretty happy with how it turned out. Let's grab another one, just because I think that format-wise is maybe atypical, maybe not.

Starting point is 02:25:54 But what would be another example of an A to Z single piece that you could tell the story of, like the Genesis story of like, all right, the idea, you don't have to have the exact time and place, but like when you have this idea, what happens next? Do you start drafting it in your mind as you're walking? Or are you like, oh shit, here comes the muse. Let me get back to my computer so I can start brain vomiting everything that comes to mind down. I would say that the majority of the time that I start writing an article, I have no idea where it's going to go and no idea how it's going to end. And the actual act of writing is

Starting point is 02:26:29 kind of what gets the brain moving. And you write one sentence and then you're like, oh, that reminds me of this other thing. And then you write a paragraph and you go, oh, that reminds me of this thing I read five years ago to pull it in. And so it's really, I think that's the art of writing is you don't have any idea where it's going to go. It's true for articles. It's true for entire books. When I started writing my book, I didn't really know what the format was going to be. I didn't know what the chapters were going to be. It was just, let's start putting this together and see where it goes. I think a lot of writers do themselves a disservice by writing as you're taught in school, which is like, have your outline,

Starting point is 02:27:01 have it all outlined before you start writing. It's like, no, that takes away the creativity and the art of exploring as you go. That's been really interesting for me. So it often starts with just one little tiny nugget of like, oh, that's really interesting. Tim, I'll give you one example that I got from your show not too recently. You had Steven Pressfield on your show and he was talking about a time when he lived in a mental institution. He was not a patient himself, but he lived there and he starts talking to all these people. And he made this comment that a lot of the common denominators of these people who lived in a mental institution was they were not crazy. They just could not handle or put up with the bullshit of life. They just couldn't deal with it. And that was kind of why they ended up in the mental institution.

Starting point is 02:27:41 He said, all these people were the smartest, most creative people who he had ever met, but they couldn't put up, they had no tolerance for the bullshit of the real world. And that to me just brought up this idea that there's actually an optimal amount of bullshit to deal with in life. If your tolerance for bullshit is zero, you're not going to make it at all in life. Yeah. The lesson I took from that was maybe I should live in a mental institution. Please continue. But that was, I listened to that and it was like, oh, see, these people could not function in the real world because they had no tolerance for bullshit. The second step from that is there is an optimal amount of bullshit to put up with in life. And that was where this article, the optimal amount of hassle came from. And I was on a flight many years ago and there was this guy

Starting point is 02:28:24 in pinstripe suits who let everyone know that he was a CEO of some company. And I was on a flight many years ago and there was this guy in pinstripe suits who let everyone know that he was a CEO of some company. And the flight was like two hours delayed and he completely lost his mind. He was dropping F-bombs to the gate agents and just like completely making an ass of himself because the flight was delayed. And I remember thinking like, how could you make it this far in life and have no tolerance for petty annoyance, like a delayed flight? And I just think there's a big skill in life in terms of just being able to deal with some level of bullshit. And a lot of people don't have that. There's another great quote that I love from FDR, who of course was paralyzed and in a wheelchair. And he said, when you're in a wheelchair and you want milk, but they bring you orange juice

Starting point is 02:29:04 instead, you learn to say, that's all right, and just drink it. The ability to put up with that kind of stuff is, I think, really important and often lost in this age where we want perfection. We want everything to be perfect, and it never is. So just to track the trajectory, the birth cycle of this article you wrote, the optimal amount of hassle. Is that right? Yeah. And I actually remember I was going for a run listening to your podcast with Steven Pressfield. I heard him talk about the story of the people in the mental institution could not

Starting point is 02:29:34 put up with it. I stopped and I sent myself an email, which is how I take notes. And I said, optimal amount of hassle, Steven Pressfield. And then I put the timestamp in your podcast. That was it. And then I kept running. And then I came home and then I just had that nugget the next day, just that I had no idea where I was going to go. But let's start with that and see where it takes me. That was the genesis of that article. All right. Thank you. It's like tomato, tomato. Everyone has a different approach to this. There's no consensus whatsoever, because then there are folks i mean people are probably long-time listeners sick of hearing me mention this name but like john mcphee and you read draft

Starting point is 02:30:09 number four and like he has the structure anatomically decided to such a level of precision that it is almost unbelievable yeah but you know before he gets going most of the time, right? Like he has everything. It's like a NASA space shuttle launch. I mean, there's nothing left to chance or very little. I'm pretty sure Ryan Holiday is like that as well. He talks a lot about routine is so important to his writing. And for me, it hasn't. And my takeaway is not that I'm right or he's right. I just, it is different for everyone. And maybe I would be a better writer if I had more routine, but for better or worse, I've just kind of slapped it together haphazardly over the years. So you were a junior Olympic ski racer. I want

Starting point is 02:30:56 to bring this up in part, and we may or may not have time to get into this right now, but I really recommend people read The Three Sides of Risk, which is a piece you wrote, which I read, which is an extremely heart-wrenching and poignant piece. So thank you for writing that. But you were, I mean, skiing was life for a good stretch of your childhood and adolescence, and you were a very, very serious athlete in training. I have a bullet here, because I'll let people see behind the curtain here. I will often ask guests

Starting point is 02:31:36 if there are any particular topics or questions they think might be interesting, fun, productive, fill in your adjective to explore. And one of the bullets that you said was, I have no formal high school education. Could you please say more about this? Well, I grew up as a competitive ski racer, as you mentioned, in Lake Tahoe. And ski racing is one of the only sports that it was pretty common for people in my group, in this competitive ski racing group, to view high school as a nuisance that got in the way of our skiing. And the way that we got around that, because we were skiing

Starting point is 02:32:10 six days a week, we just viewed it as we didn't have time to go to school. And so the way that we got around that was there was an independent study program that was designed for juvenile delinquents who had been expelled from every other school school that was kind of like a homeschooling. It was like a guided homeschooling system where we didn't have to go to a high school. We had like, they gave us some work packets to fill out that we did. And then when I was 16 years old, they sent a diploma in the mail. It's not a GED. It's a real high school diploma, but I did nothing for it. I don't have any memory of actually doing academic work during these years doing it. They had some work packets where it's like, can you spell your name and tie your shoes is basically like how I remember it. It was just

Starting point is 02:32:52 like the most basic bare bones stuff. And then I got a diploma for that. So I really had no high school education. I spent my entire teenage years just skiing. That was the sole focus. And everyone else in my cohort, all of my friends around me did the exact same thing. So it felt normal to me. It wasn't until I was a little bit older that I realized that like, hey, everyone else went to four years of high school and they actually learned something that I didn't. Where did you end up going to college? I got my degree from USC, but I kind of slipped my way in there since I had no high school education. Well, I was going to ask, how the hell did you get into USC? Yeah. So I had to start at, because I basically had an eighth grade education up to that point.

Starting point is 02:33:28 So I started when I was 19 or 20. So I was a little bit older than others to begin with. And I started at the local junior college in Truckee, California, where I lived. And I tried to start at the most remedial math that exists. It was basically eighth grade math that I had to start. And I was 20 at the time. And it was really like, okay, how to simplify fractions. It was really starting at that exists. It was basically eighth grade math that I had to start and I was 20 at the time. And it was really like, okay, like how to simplify fractions. It was really like starting at that level. So I was in junior college for a year or two. And then I transferred to the University

Starting point is 02:33:52 of Nevada, Reno. I was living in Lake Tahoe at the time. I went to UNR for a year. And then I went to another junior college in Southern California and then I transferred to USC. And I was there for three years and then got my degree there. So my whole college experience was, I don't know, like seven years or something because I had to start at the very bottom. This might sound like a silly question, but why did you go to college? Why go through that trajectory versus taking a different path? I think there was a period when I didn't think I was going to when I was 18 or 19 and I wanted to be a ski racer. Now, every ski racer at that level knows the odds of you making the US ski team and going on the Olympics. It's 0.0001 that you actually go there. So I knew that I was not going to become the next Lindsey Vonn, but I really enjoyed it.

Starting point is 02:34:38 I thought, oh man, I'll probably go on to be a coach. That'll probably be what I'll do for the rest of my life. And I think working as a valet at a nice hotel in Tahoe, that was my first experience to very wealthy people. First time I had seen very wealthy people coming in in their Ferraris and their Lamborghinis and the Rolls Royces. And it was the first time in my life that I was like, oh, I want to be that. Which is funny thinking now because the guy in the Rolls Royce is like, definitely don't want to be that guy now. But at the time I was like, whatever you're doing, I want to do it. Whatever I got to do to get there, this guy is so cool. I want to do it. And most of them were working in finance, I learned. So I was like, cool,

Starting point is 02:35:12 I'm going to Wall Street. That's what you did. That's what I'll do now too. To answer your question, I did it because I wanted to become rich. That's not how I think now. It's funny to say that, but I think in my 19-year-old mind, that's why I went to college. I want to college. I want to dig into this question of writing because how on earth do you learn to write if you were not doing coursework to speak of during high school? You got to college, but as you mentioned, more math-focused once you got to econ than writing-focused. So why did your friend think you had a snowball's chance in hell of getting a gig at Motley Fool? Or was there just no downside so it didn't matter? He was like,

Starting point is 02:35:50 hey, you throw a thousand monkeys into a room and let them bang on typewriters, eventually they'll come up with Shakespeare. I mean, what was the grist for the mill behind any ability to write? I'll give you one little story about the level at which I was at. And I was probably 21 at the time when this happened. I wrote a paragraph, I forget what, but a friend of mine looked at it. It was just like a note that we wrote at work. And he said, he was a good friend of mine and he was a smart guy himself. And he said, hey, Morgan, do you know the difference between then and than, T-H-E-N and T-H-A-N. He said, because you used it wrong in this paragraph three times.

Starting point is 02:36:25 You said then, but you meant then. He said, do you know the difference? I said, no. Now that I think about it, I don't. I could not explain to you when to use each one. That was when I was 21 years old. I just say that to the level I was at was so basic. I really had an eighth grade education, 90% of which I had forgotten at that point. To go from that and then try to become a professional writer when I was an econ major that didn't have any writing, it was terrifying. It really was. And the first year, like I said earlier, was bad. I was really self-conscious about what I was writing and it needed heavy editing on behalf of these angel editors at

Starting point is 02:37:01 The Motley Fool that were walking me through it. But the answer to that question was I didn't think I could do it. I had no self-confidence. It's incredible that they let me do it. I would say if there was one point to this, the first article that I wrote for The Motley Fool, I wrote a draft and I sent it to a coworker. I was at the private equity firm at the time. I sent it to the coworker and he said, hey, this is really good. This is actually really well written. And I was like, really? Is that true? And when I go back and look at it now, it's not that good. But I think early on, I did have some aptitude of putting a little story together, even if it was really pretty bad back then. But I had some little seed of like, maybe I do have some skill at trying to do this,

Starting point is 02:37:39 even if it was really hard grinding through it. Jeez, what an adventure, man. It's like if you just think about all the chance encounters and random occurrences, the kind of blessings and disasters also. You want to hear about chance encounters, about where this all led to. I mentioned my friend who was a writer at The Motley Fool who got me into this. His name is Sham Gadd. He's still a great investor, great writer out there. And I came across, Sham and I became friends because he wrote a blog. And in his blog post, he had a personal blog. And in a blog post, he had a typo, an error that drove me crazy. And I emailed him. He was a complete stranger. And I said, hey, you got this error. You need to fix it. And he wrote back and he said, hey, thanks. I'll correct it. By the way,

Starting point is 02:38:27 I see from your email address that you go to USC. I'm going to be at LA next week. Do you want to meet up for dinner? Complete stranger who I just wrote a nasty email to. And I said, great. Yeah, let's meet up. And Sham and I met. And during that dinner, he said, hey, I don't have a place to stay tonight. Do you know of any hotels around here? And I said, do you want to sleep on my couch? And he said, that would be great. Thanks. So this complete and utter stranger who I was writing to tell him that he was wrong, the next day he's sleeping on my couch. He and I became good friends and that's how I got into writing. He introduced me to The Motley Fool. So it was like, if he didn't have that typo in his blog post that I was a jerk enough to write at, to email him and say, this is wrong, I wouldn't

Starting point is 02:39:09 have had this career that I've had. There's so many little serendipitous accidents in life that are like that. Yeah. Isn't that the truth? So I want to start to bring us to a close. You're being very generous with your time, but we're going to come up on three hours shortly. So let me bring us to a recent piece that you wrote, very recent, and it's titled, I Have a Few Questions. And it's really, I don't want to minimize by saying just, but it is a list of questions. And it starts with, they're relevant to everyone and apply to lots of things, colon. And then there is a whole list of questions. And I would like to ask you some of them. I encourage people to check this out. We'll put it into the show notes as well. But I want to throw a few of these at you. So one is, what do I think is true, but is actually just good marketing? And I'm

Starting point is 02:40:01 wondering if anything comes to mind that you suspect may fall into that category. I try to keep them to myself and I don't write or tweet about this, but I have my political views. And I'm sure a lot of that is just catchphrases and talking points that I have over the years been like, oh, I like that. That makes sense to me that I've run with. That has been persuasive to me. And it's just someone came up with something that's not really true, but sounds really good. There's also probably some investing beliefs that I have that sound good that are very simple. Maybe it's around passive investing. Maybe it's around my admiration for Warren Buffett. I don't know what it is, but it sounds really good and it's easy to explain, but it's actually not how

Starting point is 02:40:41 the world works. So I think by definition, I don't know the answer to that question, but I know that there are things that I believe in my heart that are just not true. Yeah. I remember somebody asked me, what are your blind spots? And I was like, I'm not sure I can answer that. By definition, you can't see them. Next one, what looks unsustainable, but is actually a new trend we haven't accepted yet? I think it's accepted by many now, but a lot in crypto probably falls in that camp. The thing about crypto that's so interesting is that every new technology going back for hundreds of years has started with a dynamic that is completely unsustainable. And very oftentimes it then collapses and like disintegrates, but it still

Starting point is 02:41:19 stays around. Like was the internet in the late 1990s a bubble? Yes. And in the sense that the market fell 90% and 99% of the companies went out of business, but the internet was of course a real thing. That was not a fake thing. That was the wave of the future. And every new industry is exactly like that. In the early 1900s, there were 2000 car companies in the United States, and that whittled its way down to three, two of which went bankrupt eventually. There's a big difference between, is something growing at an unsustainable rate in terms of the market cap or whatnot? And is this technology a way for the future? I think there's probably a lot in crypto that falls in that bucket. I don't know if you wrote about this or if I read looking at historic gas prices, right?

Starting point is 02:42:09 So hydrocarbons. And somebody had written some time ago that as we look at the remaining stores of oil, the price is going to get to be so absurd that we're going to run out of supplies by this point in time and all these disasters are going to befall us. I think China, it was looking at Chinese consumption of oil. But what wasn't taken into account, of course, was how innovation and incentives would drive new behaviors as the dollars per barrel got higher and higher and higher, right? It's all of a sudden things like fracking or going to certain far-flung locations to drill or offshore drilling or whatever

Starting point is 02:42:52 became financially feasible as the prices got more and more absurd and stratospheric. And maybe that's not the best example, the most appetizing example. One other example is from Thomas Malthus, who of course wrote this essay many years ago, many, many, I don't know when that was, 200 years ago, something that humans are all going to starve to death eventually. Famine is the future because population growth is growing faster than we can

Starting point is 02:43:15 generate new food, and therefore famine is the future. His calculations were accurate, but what he didn't take into consideration is that we would become better at growing food and more effective, more efficient at growing food. There's a long history of that, of like the calculations can make sense, but you underestimate people's ability to adapt and to come up with new ways, new technologies to create more. It's also easy to underestimate self-regulating systems, right? I remember reading the lessons of history by Will and Ariel Durant and they talk about famine, war, and pestilence, right? Like, yeah, you think you have too many humans, don't worry.

Starting point is 02:43:48 And they'll take them out. Yeah. Case study, COVID, which was sort of a warning flare more than anything else, looking at the consequences that could have been. All right. So let's look at some of these other questions, which I encourage people to check out. It's a fun thought exercise, if nothing else. What has been true for decades that will stop working but will drag along stubborn adherence because it has such a long track record of success? What comes to mind for you? There's a lot within value investing that falls in this camp. Value investing will always work in terms of if you buy an asset for less than it's worth, you'll probably do pretty well over time. But the actual formulas that you use to determine value,

Starting point is 02:44:29 those have always evolved and always changed. And the formulas that people use, whether it's like price to book value, the PE ratio, whatever formula it is that may have worked at one period of time, those always evolve. That's always been the case. And I think it always will be the case that there will be people that will be stubbornly attached to the metrics and the formulas and the valuation techniques want to say across the board because there are success stories, of course, but 2013, 2014, as certain tech stocks and impressive rates of growth of said tech stocks began to really pull the indices, right? Does that make any sense? Yeah. Where all of a sudden the S&P 500 and others are being increasingly driven, or I don't want to say overweighted, but driven by tech stocks that get harder and harder to defeat, although the pendulum swings both ways. So that was something that I thought about for a period of time in conversation with a number of friends of mine. Which of my current views would change if my

Starting point is 02:45:48 incentives were different? This is very apropos of the moment we live in right now. I was thinking about this the other day because I get sent all sorts of stuff related to science and vaccines and this, that, and the other thing. And I have friends across the entire spectrum and they're like, what do you think of this? What do you think of this? What do you think of this? And my general response to a lot of it is be very cautious about people who develop a brand for themselves that they are compensated for, whether it's financially or reputationally, maybe it's just vanity and they get a lot of YouTube views, for having a certain position, strong position,

Starting point is 02:46:28 because they cannot or they're probably unwilling to change that position. They've just put themselves in a position where they feel like they cannot change their stated position. And that's a very dangerous place to be for a whole lot of reasons. But how would you answer this for yourself?

Starting point is 02:46:45 Personally, if I was paid per page view on the blog, I would write the blog differently. I don't know how, but I know it would be because right now it just never comes to mind. It's just not part of the equation. I just want to write what I think is good. But if it was like, oh, I'm only going to get paid if this goes viral, if it's shareable on Twitter, I would write headlines totally different. The articles would probably be much shorter, much punchier than they are now. So I think that's a big part of it. If I was paid selling products by commission, if I was a financial advisor selling

Starting point is 02:47:12 by commission, I would probably be much more into active investing and activist strategies than I am right now. I think because I'm not a financial advisor, I'm not giving people advice. I can just kind of view it as an outsider and be like, well, this is what makes sense to me. So that's what I'm going to do. Whereas I know that if I was in the trenches, so to speak, and had to make a living doing this, I know I would have very different views about what strategies you should pursue. And I know that the strategies that I would lean towards would be higher fee, higher commission. I just think that's the reality of it. Most people who work in finance are good, honest, noble people. Not all of them, but most of them are. But to the extent that there is bad advice that gets perpetuated,

Starting point is 02:47:49 I really just think it comes down to the incentives that are in the industry. I mean, the perfect example of this is that the only firm that's really been able to make a good business out of selling passive funds is Vanguard. And they've done it by becoming a nonprofit. That's the only way that you can do it. You can't make a good business out of selling the lowest fee funds that are out there. You just can't do it. So I know that if I had a different compensation structure, I would think differently as an investor. Last question from this list. What are we ignoring today that will seem shockingly obvious in a year? It's probably something about COVID. And it's either going to be that we're way

Starting point is 02:48:22 too scared or not nearly enough scared. I don't know what that is, but I think that's what comes to mind when I think about that, that we'll look back a year from now, as we look back one year ago today and a year before that, as like, oh, it was obvious that this is where we're going to... It's always obvious in hindsight what's going to happen. So I have a feeling it'll be something around COVID, but I won't venture a guess which direction. What else? Anything else come to mind? I think it'll be obvious that the 2022 election is going to be a disaster in one way or another. Again, I won't try to guess which way that's going to go or what the details are going to be, but I have a feeling that there will never be a clean, uncontested election for the rest of your and my lives. I think that's probably... Once you set the precedent of chaos, it's hard

Starting point is 02:49:04 to put that genie back in the bottle. I was thinking about, and I think I actually saw this and I interrupted you, so we should probably mention you were discussing books and then you mentioned Jason Zweig and I took us off the reservation somewhere. Actually, do you want to finish that thought and then I'll add something to that because I think it was actually a tweet. It may have been a tweet that he retweeted that I saw, which leads me to a thought about what might be obvious in a year that is perhaps not immediately obvious. But were you going to reference a book that Jason wrote? Yeah. Jason's book, Your Money and Your Brain, which came out in probably 2005, 2006. And it

Starting point is 02:49:40 was one of the first behavioral finance books out there. Behavioral finance is pretty popular and ubiquitous today, but back then, not that long ago, it wasn't. And his book was kind of a bold look at like, hey, money is not spreadsheets, it's dopamine and cortisol. I would say today, that's not a very profound statement, but back then it was. So I think he was brave to write that book and it really changed my view of what matters in investing. That was one of the first, oh, okay, this makes sense to me. It's not about Excel. It's about just how you think and how you behave. I am going to try to find this. Here it is. It is a tweet from Jason. So a few years ago, a few years ago, Naval Ravikant and I were having a conversation on the podcast, and he talked about the asymmetric costs of offense and defense in a world where drones are weaponized. Meaning, if you have a drone or a bunch of tiny drones that are weaponized,

Starting point is 02:50:41 and this is being developed all over the world. Of course, you have sophisticated attacks where they can be coordinated with software to say all land on a given tank and explode at once. They can be used in more ad hoc improvised ways. But I've been tracking this space because a number of my friends are involved. Some of them design and manufacture predator drones, for instance. So a drone that would sort of kill or capture other drones. And they use netting that is shot out like Spider-Man to catch drones. And they're used by different major league sports franchises because that's a non-trivial threat to, say, an arena would be drone attacks. And Jason has a tweet. This is from December 7th, 2021. Saudi Arabia is running out of the ammunition to defend against drone and missile attacks

Starting point is 02:51:33 from rebels in Yemen. I can't pronounce the Houthi it might be. I'm sure I'm pronouncing that incorrectly. Rebels in Yemen is appealing to the US and its Gulf and European allies for a resupply. This is in the Wall Street Journal. And the lead, or at least the teaser sentence that I see presented by Wall Street Journal is, Saudi Arabia's defense against the rebels' drones pits $1 million missiles against $10,000 flying lawnmowers, in quotation marks. Yeah. That's a great way to phrase the problem that you're dealing with and who has the edge here. It's crazy. Yeah. I mean, the future of warfare is here, right? Not to beat poor William Gibson's quote to death, but the future's already here. It's just not evenly distributed. But this is something

Starting point is 02:52:20 that I've been watching very closely because the consequences are so, the potential consequences and the implications are so terrifying. So not to end on that, but I only saw that tweet today from Jason and it served as a reminder to me that I think in a year, particularly with the technological development cycles that we're seeing, how compressed they are, and innovations that we're seeing from drone manufacturers. I mean, I recently had some interactions with the newer drones and drones with FLIR technology and infrared tracking capabilities. It is incredibly impressive. I mean, compared to drones from even 18 months ago. I mean, they are like worlds apart. It is shockingly impressive.

Starting point is 02:53:09 Here's what's scary to me about that too, is that when the nuclear bomb came about, there was obviously fear that like, this is the future of war. And knock on wood, figures cross, it has not since 1945, because the consequences of a nuclear war are so catastrophic that everyone who has them up until this point has said it's not worth using them

Starting point is 02:53:24 because the consequences are so severe. I almost think drone war is the opposite where it's like there's no skin in the game. You're not sacrificing any soldier's lives. You're sacrificing civilian lives, of course, on the other side, but there's so little skin in the game and it's so easy to just flip these things up in the air and go for it that it makes starting a war, progressing a war so much easier than it's ever been. It's the opposite of what happened with nuclear war over the last 80 years. Yeah. If people want to make an attempt at looking around some corners also from a technical perspective with respect to AI and cyber warfare, I highly recommend listening to my recent podcast with Eric Schmidt. It is mind-boggling.

Starting point is 02:54:06 What else? I think that within a year, we will have things like GPT-3 at a point where we can generate probably, I would say within a year might be aggressive, but within 18 months, with figures who have enough audio online that you can really deep fake effectively. You'll have sort of synthetic interviews with people alive and dead that are convincing enough that they can't be distinguished from live interview. I could see that being graspable in the next 12 to 18 months. And that just torpedoes trust even more than it's ever been. You hear a quote from Tim Ferriss and you're like, that's probably not even Tim's. I don't even take it serious anymore. There's no trust anywhere.

Starting point is 02:54:49 Election cycle 2022, it's going to be exciting. I got my son an Oculus for Christmas. And there's a thing where you can do a tour of the White House with Barack and Michelle. It was filmed back then. And just sitting at a table in VR, having a conversation with Barack Obama, it was so shockingly realistic. And you know where that's going, that the VR headsets that we have 10 years from now are going to make this look like a complete joke. If you mix that with the ability to deep fix, we're heading into a world that's going to be so wild. A couple of final questions for you. I would also just recommend, it's a fun film as well. People could read the book, certainly, but Ready Player One. People should take a look at that. It's coming a lot sooner than people think, a lot sooner than people will expect.

Starting point is 02:55:38 And websites, there was a site that came up in your conversation with Shane, Abnormal Returns. I've never heard of this site. As I understand it, it is basically a news aggregator, human curated. I don't know who runs the site. I've never been to it. But what is Abnormal Returns and are there any other websites that you think might be interesting for folks to explore as resources? Yeah. So Abnormal Returns is run by a guy named Tadas Viscontis, and he is a financial professional himself. And he runs what I think is the best financial news aggregator. He is just an absolute machine. He reads every financial article that's been published in the previous day, and he aggregates the top 20 of them or so every single day. He's been doing it since 2006, I think. And he's the best that's out there. That's a site that I visit every single day because I know that whatever the best financial article that was written the previous day, he's going to have

Starting point is 02:56:32 it right there. I don't need to spend hours sifting. It's just, he's got it right there and I can go to his site. It's like a one-stop shop. Tough life he's signed up for, keeping that up for years and decades, but I appreciate the effort. He's never slowed down either. I don't think he's ever missed a day that I've seen, and he's been doing it for, I don't know, 15, 20 years. It's incredible. Wow. Keep up the good fight. That is incredible. Any other websites that stand out for you that people might not be familiar with? There's a site called Blas.com, B-L-A-S.com. It's run by this guy named Blas Moroz. He's a

Starting point is 02:57:03 really cool guy. And he reads more than anyone I've ever seen. I think he must read two books per week, something like that. And then he makes a fairly detailed summary of every book that he's ever read. And they're not quick summaries. Some of them are like five-page PDFs, but you can just go in there and he summarized hundreds and hundreds of books into a five-page PDF with the key points, the big takeaways. And he does a better job at it of any other book summary service that I've seen. And it's all free. It's just his private blog that's out there. I can get lost in his website for hours, just finding these little nuggets in these obscure books that I've never heard of.

Starting point is 02:57:37 And he has all the highlights right there. That is a great recommendation. We'll link to that in the show notes, everybody. What stories or points do you wish people paid more attention to in the psychology of money, if anything? What do people gloss over where you're like, God damn it, you missed the point? Sure, not everybody, but... One thing that doesn't irk me, but I just think it's interesting is when I talked about that we don't have a mortgage, and I know that was a dumb decision, but here's why we did it because it makes us feel good. A lot of people, I get emails that are like, yeah, but look at the spreadsheet that I made. The numbers don't add up. And I'm like, I know I'm trying to explain like the idea that I should, I need to be rational

Starting point is 02:58:17 instead of just reasonable and using money to give me a better life. I still like that, that, that still didn't land with some people. Maybe that's my fault as a writer of not explaining it well. That's, that's one point to me, I think the most important part of the book that I think a lot of people got, but I feel like it's the single most important thing, is just this idea that everyone is different. They have different goals, different personalities, different risk tolerances, and therefore we should not expect any of us to come to the same conclusion about what's the right thing to do with our money. And I think that can be hard for people because you still have these financial debates of like, this person's investing their

Starting point is 02:58:48 money this way. That's wrong. They should be doing it a different way. It's like, well, we're all so different that what works for me might be terrible for you and vice versa. Even if we're just as smart as one another, same education, same information, we're always going to come to different conclusions. We just need to accept that. Yeah. And before you start sprinting headlong towards winning the game, making damn sure that you've defined very clearly what your game is and what your game is not is very, very, very, very helpful. Morgan, people can find you on Twitter at Morgan Housel. Your website is, I believe, morganhousel.com, which we'll link to. Is that right? Yeah, I would say the website to go, it's good. Morganhousel.com is just like,

Starting point is 02:59:32 it just has my email address. I would say the website is just the Collaborative Fund. That's where everything I write is. So we'll link to the Collaborative Fund as well. Is there anything else you'd like to say? Any closing comments, requests of the audience, things to point them to, complaints, anything at all that you'd like to share before we wrap up? Tim, I've admired you for a very long time, and it's an honor to get to do this. So thank you for having me. Oh, I really appreciate and admire your work as well. This book is on my to-repeat-read list. That's why I've gone through the notes multiple times, which I did before we ever ended up scheduling this

Starting point is 03:00:14 conversation. And I've recommended it to a lot of friends. And I don't do that lightly, right? There is a reputational risk. Books take some time to read. So I generally will withhold my recommendations unless I'm absolutely sure. But the reframing and the perspectives and the hypotheticals and the thought exercises, and this is true of your articles as well. I've seen this. I find to be very powerful because you're not just sharing opinions. You're not just giving a prescription based on your own experience, but you're doing your best to help someone look at their own situation or at a generalized situation differently. And I think that that provides a sort of universal cognitive and psychological toolkit that people can then apply to their own individual circumstances.

Starting point is 03:01:10 So I applaud that. And I have to imagine that it was not easy to get the book to the place where it ended up in final form. I know that that was probably very challenging. And I really, really enjoyed it. And I expect to continue to enjoy it. So thanks for taking the time today. Well, thank you. And I enjoy your work just as much. I've learned just as much. So let's end with that mutual high five.

Starting point is 03:01:34 Mutual high five. And to everybody listening, we'll put links to everything discussed in the show notes at tim.blogs.com. You can just search Morgan and it'll pop right up. And until next time, thank you for tuning in. Hey guys, this is Tim again. Just one more thing before you take off. And that is five bullet Friday. Would you enjoy getting a short email from me every Friday that provides a little fun before the weekend? Between one and a half and 2 million people subscribe to my free newsletter, my super short newsletter called Five Bullet Friday. Easy to sign up, easy to cancel. It is basically a half page that I send out every Friday to share the coolest things I've found or discovered or have started exploring over that week. It's kind of like my diary of cool things. It often includes articles I'm reading,

Starting point is 03:02:21 books I'm reading, albums perhaps, gadgets, gizmos, all sorts of tech tricks and so on that get sent to me by my friends, including a lot of podcast guests. And these strange esoteric things end up in my field, and then I test them, and then I share them with you. So if that sounds fun, again, it's very short, a little tiny bite of goodness before you head off for the weekend, something to think about. If you'd like to try it out, just go to Tim.blog.com. Type that into your browser, Tim.blog.com. Drop in your email and you'll get the very next one.

Starting point is 03:02:55 Thanks for listening. This episode is brought to you by Allform. If you've been listening to this podcast for a while, you've probably heard me talk about Helix Sleep and their mattresses, which I've been using since 2017. I have two of them upstairs from where I'm sitting at this moment. Helix has gone beyond the bedroom and started making sofas. They've launched a company called Allform, A-L-L-F-O-R-M, and they're making premium, customizable sofas and chairs shipped right to your door at a fraction of the cost of traditional stores. So I'm sitting in my living room right now, and it's entirely Allform furniture. I've got two chairs, I've got an ottoman, and I have an L-sectional couch, and I'll come back to that.

Starting point is 03:03:34 You can pick your fabric. They're all spill, stain, and scratch resistant. The sofa color, the color of the legs, the sofa size, the shape to make sure it's perfect for you in your home. Also, Allform arrives in just three to seven days and you can assemble it all yourself in a few minutes, no tools needed. I was quite astonished by how modular and easy these things fit together, kind of like Lego pieces. They've got armchairs, love seats, all the way up to an eight seat sectional. So there's something for everyone. You can also start small and kind of build on top of it if you wanted to get a smaller couch and then build out on it, which is actually in a way what I did because I can turn my L-sectional couch into a normal straight couch and then with a separate ottoman in a matter

Starting point is 03:04:13 of about 60 seconds. It's pretty rad. So I mentioned I have all these different things in this room. I used the natural leg finish, which is their lightest color, and I dig it. I've been using these things hours and hours and hours every single day. So I am using what I am sharing with you guys. And if getting a sofa without trying it in store sounds risky, you don't need to worry. Allform sofas are delivered directly to your home with fast free shipping, and you get 100 days to decide if you

Starting point is 03:04:40 want to keep it. That's more than three months. And if you don't love it, they'll pick it up for free and give you a full refund. Your sofa frame also has a forever warranty that's literally forever. So check it out. Take a look. They've got all sorts of cool stuff to choose from. I was skeptical and it actually worked.

Starting point is 03:04:55 It worked much better than I could have imagined. And I'm very, very happy. So to find your perfect sofa, check out allform.com slash Tim. That's A-L-L-F-O-R-M dot com slash Tim. All Form is offering 20% off all orders to you, my dear listeners, at allform.com slash Tim. Make sure to use the code Tim at checkout. That's allform.com slash Tim and use code Tim at checkout. This episode is brought to you by Tonal. Imagine having an entire gym's worth of equipment in a

Starting point is 03:05:25 device smaller than a flat screen TV, something that could fit potentially even in a closet. Fits in my closet. By eliminating traditional weights, Tonal can deliver 200 pounds of resistance with a sleek design that can fit nearly anywhere. It's like having an entire gym and personal trainer right in your home. Tonal's patented digital weight system senses your strength and adjusts the weight automatically in real time so you can get the most out of every workout. I have a number of friends, including competitive athletes, who have doubled their strength in a short order in a lot of exercises. And part of the reason that's possible is it uses a revolutionary system of dynamic resistance powered by electric motors for strength you can feel. You can also do things like eccentrics. Over time, Tonal learns from

Starting point is 03:06:09 your body and automatically increases the weight exactly when you can handle it. Tonal also uses 17 sensors to provide real-time feedback on your form and technique, allowing you to get the most effective workout every time. It's a strength training machine with adjustable arms that provides more than 170 exercises for a full body workout and that can include squats, deadlifts, bench presses, overhead pulls, bicep curls and more. So check it out. Try Tonal, the smartest home gym for 30 days in your home. Tonal is so confident that you'll love it they offer a full money-back guarantee. You can now get Tonal from $63 per month at 0% interest over 48 months. Visit www.tonal.com and for a limited time, get $100 off when you use promo code TIM100 at checkout.

Starting point is 03:07:00 That's www.tonal.com, promo code TIM100, T-I-M-1-0-0. Tonal, be your strongest.

The Tim Ferriss Show - #576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.