We Study Billionaires - The Investor’s Podcast Network - TIP172: The Art of the Good Life by Rolf Dobelli (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. So this past Christmas, I was pleasantly surprised to get a package in the mail from a good friend, Guy Spear. After opening the gift, I discovered it was a new book that was just released in November of 2017, and the title of the book is The Art of the Good Life by Rolf de Belly. Now, I hadn't heard of the book before receiving it, but considering the person who sent it to us, Stig and I determined it was something that we definitely needed to cover on the show. The thing is, Guy Speer and Monash Pa Bri are very close friends and are clearly in a competition to see you can read the most number of books in a lifetime. And I say that kind of jokingly but serious at the same time.

Starting point is 00:00:39 And so when one of those guys recommends a book, let alone mails it to you, we take that very seriously and we know that this is something that we needed to cover. So without further delay, this is our book review of the art of the good life. I hope you guys enjoy. to the investors podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. All right. How's everyone doing out there? So Stig and I are really excited to talk to you about this book that we just finished up. And the name of the book is The Art of the Good Life. And this is by Rolf de Belly. And the subtitle for this is 52 surprising shortcuts to happiness. wealth and success. So as soon as I read the subtitle, it really piqued my interest. And I started

Starting point is 00:01:41 flipping through this. And I said, you know, I shot a message off the stick. I said, dude, we've got to read this book. This looks really good. And so Stig took a look at it. And you replied back to me, correct? Stig. Hey, let's do this. Just the title of the book was like, if this comes from Guy, I mean, I don't even need to look at the table of content. We just know that if this has been useful for a guy with his background, it will probably be useful for us as well. Yeah. So my initial perception was this is going to be good. After reading it, I can honestly say this is a fabulous book.

Starting point is 00:02:12 And I liked how short the various chapters are. Like he doesn't go on meandering on about each little point. He kind of gets right to the chase. Like each little chapter is probably what, four pages to like six pages long and straight to the point, really elegant the way that he writes. And overall, I just really liked it. And the book has 52 chapters in it. So they're not long, but they're well constructed.

Starting point is 00:02:34 I like that. Did you have anything else that you wanted to highlight Stig before we plow into our top points for the book? No, let's do it. Okay. So what we're going to do is I got the top five points that I pulled out of the book. Stig has his top five points that he pulled out of the book. We don't know each other's points. So we're hoping that they're not overlapping, but they might be.

Starting point is 00:02:54 So we'll find out here. So Stig, why don't you start off with your point? So the very first one I have that is the mental accounting. And basically the concept of mental accounting means that we are treating money differently, depending on where we got it from. So if I found money on the street, I would probably be more careless that if it was something that I would inherit. You can document that if people inherent money, they would typically be used more for donations. You can also see that they would typically invest more in bonds and stocks.

Starting point is 00:03:27 So it's actually very interesting that even though a dollar might be a dollar, it's definitely not in the light of mental accounting. And mental accounting is something that we also talked about before in the past here on the show because it's something that's very relevant for stock investors. So in this example where we bought a stock at, say, $10, you are more likely to sell that if it reached $15 than if it went down to $5, regardless of intrinsic value. because your mental accounting says that you bought it for $10. And that's really what you remember, even though that the stock doesn't care. So what he's talking about whenever he's saying mental accounting, how to use that to your advantage in your daily life, it's about how living a good life is interpreting facts constructively.

Starting point is 00:04:18 So he comes up with this example with a pocket ticket. The way that I guess all of us look at pocket tickets is it's something that we don't like. It's something that frustrates us and it's definitely something we like to be without. So what he has done in terms of his mental accounting is that he has set aside a fixed amount of money every year or donations. So regardless of whatever that is, he will give it away by the end of the year. And then if we have expenses like pocket tickets, he will take it from that pool. So he's already written it off. Like his mental accounting always says that you're actually not paying this money.

Starting point is 00:04:56 It's not something that you'll touch anyway. And you can actually use this mental accounting trick in different ways. A way that he's using mental accounting to cut back on his expenses is that he's always adding his income tax to that price, which is about 50%. So he's saying if something cost $20 at a restaurant, I always say to myself, it's $30 because that's how much money I would need to make to pay for that meal. So I just have one more example. This is actually very relevant to the episode we just did with the power of moments, where whenever you go on vacation, you always remember the high point and the end of the vacation.

Starting point is 00:05:37 And he knows that too, and he says that too. So basically what he's doing is he always prepays as much as he can before going on vacation. Because he knows that his brains will trick him into saying, well, it's probably been a better vacation because at the very end, you won't pay anything. I like that. I don't really have anything else to add on that one. You hit pretty much everything that was covered in the book. So let me go on to my point.

Starting point is 00:05:59 So this kind of came near the end of the book. And the title of the chapter was read less, but twice. And this one really surprised me because I'd never thought about reading this way. And so the way he starts us off, he says, if you had a punch card, and I think he stole this idea from Warren Buffett, because Warren Buffett talks about having a punch card when he invests. But he says, if you had a punch card that you could only punch 50 times, which books would you pick? And how would you pick them that you could only pick 50 books?

Starting point is 00:06:32 And so I really like this idea because we read a lot on the show, obviously. And I think a lot of people out there that listen to the show are hardcore readers as well. And what he's getting at is make sure that you optimize what it is that you're reading and just don't waste your time. and he talked about his own library having like he had like 3,000 books in his library and he said that he probably had only read about one third of them. And of the one third that he's actually read, he couldn't really say that he remembers too much from a lot of the different books.

Starting point is 00:07:04 And so this made me think about my library at the house and how much I've retained from the various books. And I felt the exact same way that he felt where the one example that kind of came to mind when I was thinking about this was the book that Stig and I read on Starbucks, Howard Schultz's book. And I couldn't really remember. Like, I'm curious, let me ask Stig this. How much do you really remember from that book, Stig? And I mean, we did an entire podcast about this book, but it really wasn't for me, this really

Starting point is 00:07:32 wasn't a great book. But I'm curious, how much of that do you really remember? I remember him talking a lot about melted cheese. I had the exact same thought. That's like the only thing I really remember from the book. He went through a lot of things. things and he talked about how much he was revamping things and how the focus was on the coffee. But in general, I really didn't take away too much more from that book other than those

Starting point is 00:07:54 themes that I just blurted out. And so his point here about reading less but twice and being more thorough and focusing on the books that are really good, I completely agree with whenever I look back at some of the books that we've read and how much I've actually retained. And to give you an example, he said, if I read a book one time, I'll retain 3%. This was his own estimate. He said, I'll retain 3% of what I read. If I read the book twice, I'll retain 30% of what was read. So his estimate is that he's understanding 10 times more by reading the book a second time. And so what his technique is, is he picks up a book,

Starting point is 00:08:31 he kind of skims through it for about five minutes. He said, I don't give any book more than five minutes. And if it doesn't seem like something that he would want to punch his card for of the 50 books, then he puts it down and he doesn't read it. But if it is something that he feels like is going to be completely worth his time, not only is he going to read it, but he's going to read it twice or maybe even three times. And I found this really an interesting way to look at reading because it's very different than anything that I've ever done. Now, he had four points that he talks about with this. He said, if the book leaves no trace on the mind, then it was a total waste of your time. So that goes back to his point. The second point that he has,

Starting point is 00:09:09 this is obviously not for crime novels because once you read a crime novel, you know who the suspect is. It's totally worthless when you're dealing with fiction. This is really only for nonfiction. He said that his expectation, and I know he used the example with a 50 book punch card, but he said that his objective for the next 10 years is that he's going to read 100 books, which means he's only reading 10 books a year. That's it. So like less than one book per month, which isn't a lot, but he's going to read those books. two or three times. And what he's really getting at here is immersion. He wants to immerse himself in the book so that it really becomes a part of him and not something that he's just kind of

Starting point is 00:09:49 quickly going through and then forgetting everything that was talked about. One other final point that I think is really, really important, especially if you're a young listener and you haven't read a lot of books or you're under the age of 30 or 40 years old. He talks about the secretary problem. Let's say that you were going to hire a secretary. And you knew that you are going to have 100 people come for the interview. How do you know when to just stop? Because the time that you spend interviewing 100 is different than if you interviewed 30 people and you just made a selection. You're wasting your time by interviewing another 70 people. So what is the best point to cut off the interview and just make a selection if you had 100? And there's a mathematical solution to this and

Starting point is 00:10:34 the answer is 37. And so, you know, if you're going to interview 10, then you should, you know, interview about three or four people to then make your selection. Because you've seen enough that you now understand what the population looks like to make an informed decision. There's a whole lot more written about this. You know, there's a really good book called Algorithms to Live by by Brian Christensen and Tom Griffiths that gets into this extensively, this idea of the secretary problem. But to just make it short here and apply to what we're talking about. What he recommends is you should read as much as possible up until the age of 30, 35 years old, something like that, depending on how early you started, obviously.

Starting point is 00:11:15 But assuming you've been reading your whole life, you should stop reading a barrage of books by about 30 or 35 years old. And at that point, you should become very focused and read only things that you think are going to be highly influential and read them twice or three times. And I found that to be a really profound thought and something that I really valued in this book because it was something I'd never heard. So that was my point. I'm curious. Was that one of your points, Stig?

Starting point is 00:11:39 No, it was actually not. It was shortlisted, but it didn't make the cut. No, I really like his point about why you should reread the book, like exponential learning. You will also make it one of your principles. You know, it's so easy to read a book and say, oh, that's a great book. Or, yeah, it was a somewhat good book, but he did talk a lot about melted cheese or whatever you got out of it. But if you can find principles that you can adapt and absorb into your daily life, I mean, isn't that really one of the reasons why you read in the first place,

Starting point is 00:12:14 especially books like we're reading here on the show, you want to get smarter. All right. Well, let's hear your next one, Stig. So my next one is the negative side of the good life. And he says the best way to look at this would be to look at something like tennis. And what he says is that whenever you're playing tennis with an amateur, it's all about avoiding mistakes because amateurs tend to aim too long or too high or too short. So that is the way to win.

Starting point is 00:12:46 Now, if you're playing against the pros, you have to take on a bit more risk and you have to hit winners. If you don't hit winners against the pros, you're probably going to lose eventually. And he says that looking at the good life, it's actually very similar. because it's not so much about what it guarantees, but more what prevents it from happening. So he has this list about what would make you unhappy. You know, you have poverty, drug addiction, loneliness, a long commute, being like a victim, a lot of great points.

Starting point is 00:13:19 And it's actually very interesting that he reached this conclusion that if you invite all these things that will make you miserable, the upside countercare itself. And I can't help but relate this again to stock investing and to Benjamin Graham to Warren Buffett. Whenever they're talking about, if you only care about the margin of safety, about all the risk you can incur, the opposite really tends to care of itself. And I never really thought about that in terms of how I'm living my life, always thought about what can I do to make me happy. and I guess not as much trying to mitigate what makes me unhappy and get the indirect effect. So that was definitely a life hack that I think most of us can take away from this chapter. Okay, so the next one that I had Stig was a chapter, this is chapter 25, and it was called hedonism and eudamonia.

Starting point is 00:14:14 And this is all about how meaning can compensate for enjoyment. And I loved this chapter. This is something I'd never thought about. I kind of felt kind of strange reading this and thinking to myself, wow, how have I never thought about this? Let me just give the people that are listening here this scenario. So he starts off this chapter and he asks yourself, how enjoyable and the keyword is enjoyable are the following activities for you.

Starting point is 00:14:39 And you got to put them on a scale from zero to 10, zero being not enjoyable at all, and 10 being extremely enjoyable. And so these are some of the things on his list. He says eating chocolate, fighting for your country in a war, spending time on your hobby, raising children, funding hospitals in Africa, preventing global warming, watching the World Cup. And he gives a bunch of examples like this. And so then I'll just pause and you think about, you know, if something's really enjoyable, make it a 10. If it's not enjoyable at all, make it a zero. And think about what your results are.

Starting point is 00:15:15 Okay. So now you've kind of thought through that. Now, here's another question. How meaningful are the same activities when you think about them? Okay? And so what he talks about is that people, when they look at it from an enjoyment standpoint versus a meaningful standpoint, the list actually changes. The numbers on the list change.

Starting point is 00:15:38 And what he's getting at is really kind of like, when you're talking about enjoyment, you're talking about something that's short term, like something that doesn't require a lot of effort, but you get a lot of enjoyment out of it. Whereas the other is something that's more involved and requires like a sense of pride because you put a lot of hard work into it. And then it has meaning to it. And I like this because it made me think, wow. So, you know, like whenever I think about this show, like it's very meaningful to me.

Starting point is 00:16:05 It's a lot of hard work. I mean, sitting down and reading and recording and programming and working with the team and everything, it is a lot of hard work. But to us, it's very meaningful work, whether people want to believe that or not. But for us, it's very meaningful work. But I wouldn't say that it's just enjoyable. Like for me, going out with my kids and going to like an amusement park, that's really enjoyable. Like I have fun when I do that.

Starting point is 00:16:30 And so he talks about this difference between is something enjoyable, is something meaningful? And then he talks about so which one is it that you should be trying to acquire in your life? And I think intuitively, whenever I started reading this, I started thinking to myself, like the answer is you want to do meaningful work because that's going to be last. and everything else. And that wasn't what he actually concluded in the chapter. And I liked that.

Starting point is 00:16:52 What he concluded in the chapter is that you have to have balance between these two things. The person who goes out and is just trying to do things that are meaningful all the time, they're going to burn themselves out. They're not going to have any type of enjoyment in their life or sense of fun or anything like that. But the person who's just on the opposite spectrum that's just trying to go out and have fun all the time and they never do anything meaningful, they're going to be incomplete as well. Well, and so he said, you've got to strike a balance between these two things. And he says, avoid the extremes.

Starting point is 00:17:25 And he said, the reason why is because let's say you enjoy watching TV. But if you watch TV for 12 or 14 hours straight, you kind of have this feeling. The marginal utility, he explains, isn't there. It decreases the further that you wander away from the fringes. So you've got to keep this balance and check. And I completely agree with this. This was a fantastic chapter. It was something that I'd never really thought about in my life.

Starting point is 00:17:50 And I was really happy to kind of stumble upon that in this book. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord. And every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history.

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Starting point is 00:22:13 So the next one is called the circle of dignity. A circle or imaginary circle you have around you that includes all your non-negotiable principles and preferences that need no justification. For him, it would be never post pictures of his cats on social media. Or it could be he would never do anything for money that he would. wouldn't do for a tenth of that sum. Regardless or not, if you agree with him, the strengths from having this circle of dignity really comes from he doesn't care. It's okay if you want to post all the pictures of your kids that you're on social media. It's okay if you would like to

Starting point is 00:22:52 do whatever for whatever kind of money. It's your principles. It's your circle of dignity. And what he says is that the smaller circle of dignity is the better, because if you put more things into that circle, the more that they can conflict. So regardless, if you think that this is a silly example, if you think that his principles are good to live by, I think it's a very good way of living because at the end of the day, he will offend and disappoint people no matter what you do with your non-negotiable. But if you really think about it, it's a very superfluous question because things that are invaluable, by definition, have no price. And the circle of dignity is really you and you have no price. I know that this conversation might be a bit abstract,

Starting point is 00:23:45 but I think it's important that you don't have to rethink every time you find a tempting offer. Because at the end of the day, it will erode your self-respect and reputation, which will make you even more vulnerable for future offers. And that's probably a vicious circle for you to enter. You know, I think one of the important things that you talked about in the book was you've got to at least have the list of what your non-negotiables are. And I think for most people out there, myself included, I don't know that I could show anyone what that list is.

Starting point is 00:24:18 And I think that's a really important point of maybe that's not a bad exercise, pull out a piece of paper and say, what are my non-negotiables? Like, what is it that I hold very close and dear to myself that I'm not going to negotiate on or waiver on? And let me put those down in writing and then start acting on that so that that's something that I will never cross that line. You know, maybe it's time you spend with your family or whatever that is. I think it's important for people just to recognize the importance of writing down the list, let alone going any further than that. So the next one that I had was the dogma trap. and I really like this one because it gets to a kind of a theme that Stig and I hopefully hit on whenever we're talking about investing.

Starting point is 00:25:01 And he starts off this chapter with a really intriguing question. He says, if I asked you how a zipper works, what would you say your understanding is? On a scale from 1 to 10, 10 being you really understand how a zipper works and one being you don't understand it at all. And how would you respond? And so you kind of probably have a number in your head of how well you understand what a zipper is. And then he said, now, if I was going to give you a piece of paper and then really explain to me, how does a zipper work? Explain like the engineering behind it, all the mechanical pieces and everything. How much could you actually describe on how that actually works, how it clasps together, how it's pulled apart, all that stuff.

Starting point is 00:25:45 And what I think a lot of people will recognize is that they actually understand very little as to how a zipper actually works. And maybe that's just me and maybe my lack of understanding of the engineering on it. But I'd guess that most people really couldn't give too much of an explanation other than, oh, it zips up my clothes, you know? And so his point on this and what he calls this is the knowledge illusion and that most people think that they understand things at a much more great. granular level than they actually do. So then the next thing he steps to is, so think about how profound and complicated a problem is when you ask something like this. How much immigration is good for a country in the long term? And when you think about the complexity of that question, it is extremely profound, has so many different variables, so many different variables that we

Starting point is 00:26:39 think we understand, but we actually know nothing about. And what he's really getting at here is sometimes you just shouldn't have an opinion and that you should maybe throttle back how quickly you'll provide an opinion. It wasn't in this chapter, but in another spot in the book, he talks about this idea where your mind is constantly pumping out an opinion about everything and anything. And basically turning that down, turning the knob down on how you should be basically providing an opinion on things. And sometimes it's very liberating just to say, you know, I just don't know.

Starting point is 00:27:14 or I don't have an opinion on that. Like, how many people do you go up to and say, hey, what's your opinion on X, Y, and Z? And the person actually responds back and says, you know, I just don't have an opinion on that. Like, that is so rare. That is so insanely rare that you just don't ever see it. And what he talked about in that chapter,

Starting point is 00:27:32 which wasn't even the chapter I'm referring to here, he said, that's a form of intelligence when a person says that. When a person just spouts out anything, that's a lower form of intelligence. So I completely agree with that. Now, where he goes with the rest of this chapter is he starts talking about ideology. And he starts talking about don't fall into the trap of just following any kind of ideology. And he says, this is how you can tell if you're falling into the trap of an ideology.

Starting point is 00:28:00 He says, ideologies explain everything. They're irrefutable and they're obscure. That's the three-pronged test of whether you're falling into an ideology or not. And he says, be especially wary when speaking in public about an ideology, which is something Stiggin I do every week, because you will likely be prone to beat it deeper and deeper into your mind. And I can tell you that is a true statement. So what he says is imagine you're on a talk show anytime that you're spouting something off.

Starting point is 00:28:34 And that when you're on this talk show that you're publicly proclaiming something that you need to be wary of the way that you come across, whether it's a really strong opinion. Anytime you have a strong opinion, you need to be very careful. What he's saying here is, if you can't argue the opposite side of the opinion as well as your own opinion, then you really haven't earned your opinion yet. And he's obviously pulling that from Charlie Munger, I'm assuming, because I think Charlie's the one who has come out and said that. So that was my third point.

Starting point is 00:29:04 I really liked his discussion on this. It was quite fascinating. It was very, very profound and very, very liberating that you can just say, I don't know. And it really creates this bond of trust with that person, even though you might think it probably shouldn't because you just said you didn't know anything. I mean, think about how much you respect to a politician who were running for whatever kind of office. The journalist would ask him or her a tough question and that person would be, I don't know. I need to go back and start this more. I'm really sorry.

Starting point is 00:29:35 I will send you an email with my response. I'm just not knowledgeable enough. I mean, I would probably work for a petition like that. I've never seen it so far, but hopefully one day it will happen. So my fourth point is if you run your own race, you can't lose. And it has the tagline, but general knowledge is only useful as a hobby. And I really like this point, partly because I don't necessarily agree with it, but also because I still find it very, very profound.

Starting point is 00:30:03 The way he starts out this chapter is he's talking about how back in the Stone Age, hunters and gatherers more or less did the same. There were definitely tasks that men did and tasks that women did for antelical reasons. But aside from that, they were more or less all generalists because they had to be, partly because often people died and you really needed someone who could step in. But the way that they lived, you have to be a generalist. most efficient way of living. And he says that it's very different today. We basically know more and more about less and less. And the reason is that winner basically takes all in a

Starting point is 00:30:48 globalized and territorial world. We have so many issues today. So you shouldn't be intimidated by this, why this is suddenly a global competition. Because it also means that you can specialize in more fields. And as long as you can win in your own field, you don't try to win another one's race. This is actually a very good thing for most people. And the way to think about this is something like the Kentucky Derby or any other kind of sports. I mean, the winning horse is not twice as fast number two, but he might be making 5x the prize money and sponsorships afterwards.

Starting point is 00:31:24 Like that specialization is just so important. Same with entertainers. And the way that he conveys that into useful advice for the reader is that if you are applying for a job or if you're trying to post up your resume, don't see how many different credentials you can take. See what is necessary and then do that very, very well. I had a point that kind of piggybacks off of what you're saying there is do the thing that you're really good at. I don't remember where this was at in the book, but he made the quote, he said, if you're going to give to a charity, He said, give money. Don't give anything else other than your money.

Starting point is 00:32:04 And when I read this, I was like, that sounds like really bad advice. And then he goes a little further and he says, and I know this is more from a utility standpoint that he's saying this. I think that there's a lot to be said of giving to a charity with your time and there's a lot of other values to be had. But he's looking at it purely from a utility standpoint. He said, the most you can give to a charity is through your money. because think about it.

Starting point is 00:32:29 If you're really good at carpentry, you need to be building things. In that case, like if you're doing Habitat for Humanity, maybe giving your time would be the best thing that you could give. But for most people, they're not a carpenter. Maybe they're a computer programmer or they're this or that. If they focus on that thing that they're really good at and they make money, giving that money to the charity is going to provide the most utility to the charity than anything else. because if you continue to work at your job, you're able to produce more and whatnot.

Starting point is 00:32:59 But it kind of gets at sticks point. Focus on the things that you're really good at and just knock them out of the ballpark. So I guess where I might disagree with this is that I think general knowledge is really helpful for you, not only to grow as a human being, but I actually think general knowledge can also help you specialize. And I think, you know, if you're just talking about merging two different fields, someone like Hahnemann, who we've talked about multiple times in the show, like he comes from a background to psychology.

Starting point is 00:33:30 And I think the reason why it's been so useful, not just for people in psychology, but also in finance, is because he took the best from both of those worlds. I previously talked about reading Radalia's book principles. And there's a very interesting chapter where he talks about how nature can really explain a lot of things in investing. into action with the people and how just looking aside the window can really help you understand the world. It's a very indirect way of having success, not just financial success, but also personal success, if you understand the world. And I think general knowledge is what you need.

Starting point is 00:34:09 So I think that's probably where I disagree with him, but I can definitely see that it might just be me twisting it because his advice about how to specialize in doing what you do. best is definitely valid. Okay, so the fourth point that I have is called the focusing illusion. We talked about this a little bit when we had Robert Chaldini on the show, and this idea was brought up by Daniel Kahneman, and to just kind of paraphrase Daniel Kahneman, he says, nothing is more important than what you're thinking about right now. And so let me provide an example of what he's talking about and why this is a profound idea.

Starting point is 00:34:44 If I was to ask you whether you wanted to live in Miami or live in Buffalo, how would you respond to that? Or what would you enjoy living more in one of those two locations? And most people will immediately come back and say, well, I would be much happier if I lived in Miami. And what people almost immediately are doing is they're comparing the weather when they're making that decision. They're focusing on one aspect of the question, which is the weather. and they know that if they're down in Miami, it's hot and warm and they don't have to go through the winter, where if they're up in Buffalo, they will. And so what he talks about here is the focusing illusion is providing this perception that you're going to live a happier life in a different location. And this could be applied to anything.

Starting point is 00:35:33 This is just one example. And what he says that when you think about what's actually happening, when you go down to Miami, you have a job. You live in a certain area in Miami, which might be good or bad. You have a long commute that might be really short or it might be really long. You have all these factors that are also at play. And so what you might find is that you'd be exponentially happier in Buffalo than you would be in Miami, depending on all those other circumstances. Maybe you're not making any money down in Miami and you're working paycheck to paycheck

Starting point is 00:36:08 and you don't have any excess money to go out and enjoy yourself. Like there's all these other factors that people just lose sight of because maybe they're so fixated and so focused on that one thing. And so I guess what he's trying to get at here is a person needs to take a step back and they need to understand this bias, this focusing bias, this focusing illusion that exists in almost any single person because the more that you think about that one thing that just keeps driving your thought process, the more that you're ignoring all those other things that are out. out there that might actually create a lot of value or a lot of happiness for you. And they're nowhere in sight because you're so focused on the one thing, which might be, I've got to move to Miami. I don't like this weather. I've got to move to Miami. So the recommendation that he provides is, you know, get out a piece of paper. Write down all the different factors that are at play with a decision to broaden your scope and broaden your perspective so that you don't get sucked

Starting point is 00:37:07 into this illusion. And I found that to be very profound. I see this all the time. You know, my daughter is little. She's three years old. And I see this focusing illusion at play all the time. Even my son, you know, they get this idea in their head. I want this toy. And until they get that toy or they get that thing, they just cannot get it out of their head. They're totally fixated on it. And it drives their entire emotions. It drives everything because they can't take a step back and say, oh, well, you know, there's five other toys sitting over here. I guess I could go play with one of those or whatever it might be. And you see this in adults, you see this in kids, you see it in everybody.

Starting point is 00:37:46 And I think it's a much more profound idea than people really realize. And it's funny when we were talking with Robert Chaldeini, he brought up the story where Daniel Conneman was asked, what's the most important thing that you think is out there that a lot of people don't understand? And Daniel Conneman actually said the focusing illusion, even though this wasn't what he had won his Nobel Prize for anything. This was a completely different idea that something that didn't even make him that famous that he brought up as the most important thing. Let's take a quick break and hear from today's sponsors.

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Starting point is 00:41:22 investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income funds prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. What I really thought about whenever I read through this chapter about the focusing solution was really the feeling of gratitude and how we are typically not grateful enough. Let's give you an example.

Starting point is 00:41:48 So a few weeks ago, I had a cold. And I remember complaining a lot about having a cold, like the timing was bad, like I was very busy with the company and a ton of other things. So I had no time to be sick. I don't know when you ever have time to get sick. But that was kind of like the narrative for me. Yeah, I had a call for like three or four days or whatnot. But whenever I think about me today, I have not thought one second about how grateful I am that I'm not sick. The only days during the year when I think about that is when I'm sick. And I guess that's probably the same thing for most people. So that was not necessarily what this focus and illusion was about, but I kind of

Starting point is 00:42:28 like to bring that example to the table as a related topic. And it's also my segue really to my fifth and final point, which is the less you expect, the happier you'll be. And this is not the same thing as not setting goals. One of the things that we learn in the book is also that it's important to set goals. And if you achieve goals, you become a happier person. This is very different. actually. This is in many ways also the same is not falling into the focus fallacy. The way he frames this is he is comparing the utility, the happiness of a silver medalist compared to a bronze medalist. And you might be thinking if you come in, I guess a runner-up, you would be happier. But you won't because the silver medalist compares himself to gold. That was his benchmark typically. Whereas if you get a bronze,

Starting point is 00:43:23 are thinking, well, I'm up here on the podium, at least I get a medal, there are so many other people's and they feel they didn't get one, and gold was pretty far away. So, it will make you happier. Expectations in many ways are good and they're helpful in your day to life. You would expect the sun to set and rise like it always does. You don't need to spend your time and focus on energy on that. But it can also work against you. We're recording this one of the first days here in 2018, New Year's Eve is typically the most disappointing day over the year because that is the time where people have the highest expectations. It's not to sell the words night per se, but it's where people have the high expectations

Starting point is 00:44:05 and whenever they've realized what they're going to do, it's typically not as good as what they hoped. Similar narratives about birthday, holidays with the families, in-laws, a lot of other things, but especially New Year's Eve, should be the top day here. And basically his advice is that we should draw a clear distinction between desires, necessities, and expectations. And you shouldn't make your want your necessities. It's very dangerous to say, I have to be the CEO or I have to have cats. Basically, you don't. And the way he provokes the reader is by saying, you know, aside from breathing, eating, sleeping, and drinking, you don't really have to do anything.

Starting point is 00:44:49 Instead, it's a lot healthier in terms of sending expectations to say, my goal is to become the CEO, my goal is to have kids. Because these necessities will basically make you unhappy. And as he stated, it will make you act like an idiot around other people. And the way that he wants you to test this is he saying, how important is this for the quality of life? And he says, consider your lifespan. and start to rank this. Serra being, you consider this a disaster, and 10 being this is the live stream.

Starting point is 00:45:25 And then you should probably deduct this with two, whatever kind of desire you have, to avoid the focus fallacy. And it takes 10 seconds. He even says that he does this on a daily basis in terms of putting things into perspective if there's something that you just would like to have. And I think this was very profound in many ways because it's, It's not a question about not being ambitious. It's not a question about not pursuing your goals.

Starting point is 00:45:51 It's more a question of how do I limit my downside? How do I make sure that if I reach my goal, if this and this would happen, I will just be happy. And if it doesn't, I will still have a good life. All right. So the last one that I had was called Inner Success. And you actually hear Warren Buffett talk about this one a lot, which is the difference of your outer scorecard and your inner scorecard. and this was the last chapter in his book.

Starting point is 00:46:16 I really like this idea. And he starts off by talking about Warren Buffett specifically saying that Buffett had won the ovarian lottery. And what he means by that is that Buffett was born at a certain point in time in the United States. He was blessed with a strong mathematical mind into a family that gave him opportunities that he could leverage, et cetera, et cetera. And what he's really getting at is Buffett was lucky that he had all of these things that were completely outside of his control lined up that afforded him the opportunities that he was able to take on. And when you look across the world and all these other people that aren't given those same luxuries at birth, they don't have the same luck that Buffett had to start off. So comparing yourself to a guy like Buffett, if you're trying to compare them based off of net worth, which is only one tiny little mess. metric that you could compare him to. But if you're using that as your outside scorecard to

Starting point is 00:47:17 compare yourself to him, you're going to continue to be disappointed in yourself. And that's what he's really getting at with this, is don't compare yourself on the outside, but compare yourself on the inside with yourself of getting better each day. And so he brings up this example with John Wooden, who's one of the most successful basketball coaches in American history. And Wooden has a quote. He said, success is peace of mind, which is a direct result of self-satisfaction in knowing you made the effort to do your best, to become the best that you are capable of becoming. Success in this sense isn't winning titles or collecting medals. Instead, it's an attitude. And he goes on to say, make each day your masterpiece. And so what this really is,

Starting point is 00:48:07 is what is it that's important to you on the inside, not what are people around you seeing on the outside? What is important to you that you become a great parent, that you're there for your family, those kind of things that are most important? And then what are you doing each day to get better at those things that you truly value from the inside and that you've got to keep trending in that direction?

Starting point is 00:48:29 And something that I like that he talks about in the book, he says, there's no way that anyone's going to read this and immediately say, oh, you know what, I'm just going to focus on my end. inner scorecard and they're going to completely ignore their outside scorecard. But what he says is you should try to trend in that direction. It's not that you're making a complete flip and you've got to kind of have both in your life. But what he's saying is if you can trend in the direction where you slowly start to focus more

Starting point is 00:48:54 on your inner score card than your outer scorecard, you're going to be much happier. You're going to be much more successful in your own right. And that's what he's really trying to get out with the entire book. And that's why he's saying 52 surprising shortcuts to happiness. wealth and success. Great point, Preston. And I also think a very nice way to round of the book. Did you have anything else here? No. Okay. Let's go into the next segment. All right. So this is the point in the show where we take a question from the audience. And this question comes from Tim Davidson. Hi, my name's Tim and I'm from Australia. I live in Thailand

Starting point is 00:49:27 with my wife who's a dentist. And we listen to your podcast all the time and have learned so much from you both. Keep up the good work, guys. Before the Bitcoin Protocol, there really hasn't been any major technological innovation in money. Bitcoin is essentially just a piece of software. It's a technological innovation because it's uncorrelated as a potential asset with anything else, in my opinion. Thus, it doesn't matter what the Fed Reserve is doing. It doesn't matter what's going on politically.

Starting point is 00:49:55 Bitcoin's price is set by the people in a free and open market. But what happens if shares crash globally like they did in U-2000? What do you think will happen to the price of Bitcoin and the thousand other alt-coins? does the average investor in Bitcoin inadvertently think of their coins as a share or equity in a company? Because a lot of people do own stocks. So my question is, in the event of a correctional crash on global share markets, will the average investor follow suit and also sell their cryptos? And finally, I just wanted to say the road might not be straight up,

Starting point is 00:50:29 and Bitcoin might not be the one at the end of the shakeout over the next five to ten years. But I believe there will be a cryptocurrency that will be. will become mainstream. And learning about it now and maybe investing in some old coins could be the best trade of one's lifetime. And with all this in mind, are the two asset classes discussed above uncorrelated in the mindset of the average investor or are they indirectly connected? Thanks very much. So Tim, that's a cool question. And Thailand is a beautiful country. I've been there one time and it was really neat. So I just wanted to throw that out there. But I like this question.

Starting point is 00:51:02 I think it's an important discussion to talk about what happens during a lot. large credit contracting event first. And then maybe we can talk about some of the hypotheticals of what could happen with Bitcoin. So when we talk about a credit event, what's happening is all the credit in the system is drying up and then it's contracting down to its monetary baseline. And so let me explain this for anyone who doesn't understand what I mean by that. You first have to understand how a fiat currency works.

Starting point is 00:51:33 So a Fiat currency has what's considered a monetary baseline component, and then it has a credit component. The credit is made up of the fractional reserve banking that happens. And if you don't understand what fractional reserve banking is, I'd tell you to Google that, learn a little bit about that how when a central bank puts more monetary baseline into the system, how the banks can then expand that and basically create credit around that. once that credit expansion reaches a limitation and it starts to basically get super saturated as the way I like to call that, it starts to contract and it has a tendency to accelerate as that contraction occurs.

Starting point is 00:52:13 And what it's doing is it's accelerating back down to its monetary baseline. So just for simplicity, let's say that $20 is the monetary baseline and then another $80 is credit making up a total for the entire economy of $100. Once that gets to the $100 limit and it gets super saturated at 100, then it starts to contract back down. It goes to 80. It goes to 60. But that $20 component of the monetary baseline does not dry up. Only the credit part of that dries up.

Starting point is 00:52:43 So when you think through this example, if you're valuing everything, commodities, you're valuing stocks, you're valuing bonds with this money that's in the system, the $100. as that contracts, the value of everything else is going to go down right with it. So the price of gold, if you go back and you look at gold during the credit contraction of 2008, and this is really from kind of like the summer period up until maybe Christmas of 2008, you actually saw the price of gold go down, I want to say by 20 or 30 percent during that period of time. And the reason you saw the value of gold go down is because all that credit, all that Fiat credit was drying up. And so since gold is somewhat fixed in the amount and the quantity that exists in the world, if you're using these dollars to value that and those dollars are contracting and disappearing,

Starting point is 00:53:35 you're going to see the value of gold go down right with it. So with all of that said, and let me just add to that, as soon as that credit event contracts, okay, and we saw this go full contraction back in the last credit cycle, I would say, what would you say Stig February to March, somewhere in there of 2009 is when you probably saw credit. I think that's about when the timing was. Is that right? Yeah,

Starting point is 00:54:00 it sounds about the bottom. And I think gold even like from the year end was like 24%. Just shut up. Yeah. Yeah. And so you saw gold even front run that a little bit. Gold hit its complete contraction. I want to say around Christmas of 2008 and then it started going up.

Starting point is 00:54:16 But in general, you'll see everything contract, even commodities that have like a fixed supply of those commodities, they'll contract up until that point where the central banks then do their expansion again and they start in the last cycle, it was all this quantitative easing. They started pumping more dollars into the system. They started buying bonds off the market at any price and they started fueling the system with more fiat into it, which expanded the monetary baseline. And then the credit came after that. And I fully expect to see something like that play out again whenever the next credit event happens.

Starting point is 00:54:48 I don't necessarily expect a credit event happening here at Christmas time of 2017, but you never know whenever these things could hit and what might trigger it. I mean, you could have some type of global event, call it a war, something that could maybe cause a credit event to start trickling down and kind of compounding on itself. You don't know when that's going to happen. So when all that happens and you look at Bitcoin specifically, which is I know where your question was at, Bitcoin, in my personal opinion, will be treated as a fixed supply just like gold.

Starting point is 00:55:19 That's my opinion. Other people might have an argument against that. But my opinion is that it'll be just like gold. And so my expectation for that first part of that credit event or that credit contraction whenever it happens is that the value of Bitcoin will go down just like any other stock or bond or anything. Now, once that kind of bottoms out and in the past, the bottoming has happened pretty quickly because central banks had interest rates to play with.

Starting point is 00:55:45 if they dropped interest rates, they were able to expand the credit supply very quickly, like within six months, nine months. And then you saw a very abrupt rebound in things like gold and commodities that had, you know, a fixed supply or a fixed supply to demand ratio there. And so I would expect to see the kind of a similar thing to play out in Bitcoin this time around. Where that might be different is if somehow maybe Bitcoin is part of the reason for the meltdown, which, you know, I think that might be a way far off.

Starting point is 00:56:15 reason, but I mean, it's definitely in the realm of possible. That could maybe make my whole underlying assumption of all this stuff false. So at the end of the day, I have no idea, but I hope some of those ideas and it's kind of that thought process of how credit events kind of work help you think through what solution you think might occur. So I'm curious to hear what stick thinks on all this. So what we know, at least based on history, is that if a crash should occur, you have the contraction that Preston talked about before, and then you're just going to see the fat start pumping out with funds of liquidity.

Starting point is 00:56:49 One thing that you'll see is likely that they will lower the federal funds rate, which is basically a rate that's maintained by the federal reserve, and that is the cash that flows in and out. You can look at it in terms of deposits between the banks, and if that rate is high, they will have more incentive to hold onto that cash, but if it's low, they will have more incentive to push it out into the market to get the production going. So I'm pretty sure you will see something like that. The Fed has also recently high rates, probably because they would like to have some ammunition if we see a crash.

Starting point is 00:57:25 The other thing, at least what we saw last time, was they started with quantitative easing. They started up almost right at the gates, buying up $600 billion in mortgage-backed securities and agency debt. So who knows if you might see something similar to that. But when it comes to Bitcoin, I think this is very exciting because I just talked about how you will put outboard equity. Preston talked about a fixed monetary baseline. I'm not sure that is what investors will think if this should incur. I think that investors would say, I find gold to be safe. I'm not sure they will make the analysis because it has a fixed monetary baseline.

Starting point is 00:58:06 That's usually not how people talk to each other. But it would seem like, oh, so if the state is pumping out of funds one way or the other and gold cannot, like how that goes to inflation, I think it's all about safety at that point and time more than anything else. So the question is really, will people perceive Bitcoin to be safe whenever that happens? And I think that is really going to be the big question mark, because we've never seen anything like that for Bitcoin. If you think about, it came out in 2008, I think.

Starting point is 00:58:37 And it was very, very small, you couldn't really use that for anything. I think that the potential upside is huge. But again, the downside, we don't know about that. One other thing that I want to piggyback on what you were saying there is we have seen it in Cyprus, and we have seen it in a couple other locations where they have had basically a meltdown in the fiat of the domestic currency, and Bitcoin has done extraordinarily well in those locations for obvious reasons. But I'm not necessarily saying that's what's happening in the next quarter.

Starting point is 00:59:07 credit event. I think it could, but I think it's something that people need to be aware of. And Stig lightly hit on this as well. It's like, what does the Fed do if they don't have much interest rate to play with and the market starts to contract in a major way? Well, you know, I'm of the opinion. They're going to definitely go to quantitative easing and they're going to go to in a massive way. And that's going to be interesting to see how that all plays out and whether that's going to be enough to stimulate the economy as fast as it did during the last credit event. But, you know, they've replaced a lot of credit with dollars. And I think they're going to do that again. So we'll see what happens. But those are some of our thoughts. We definitely do not know what the heck's going

Starting point is 00:59:45 to happen. As far as I'm concerned, it's 50-50 as far as it going up or going down. I have no idea. But I think those are some of the important things to consider when you're thinking through what might happen. All right. So Tim, thank you so much for submitting your question. For submitting your question, we're going to give you free access to our intrinsic value course, which is a paid course on our TIP Academy website. And we just really thank you for doing that. If anyone else listening to this wants to get your question played on the show, go to Asktheinvestors.com. You just click on a little button there. You can record your question. And if we play it on the show, you get a free course. All right, guys. That was all that Preston and I had for this

Starting point is 01:00:19 week's episode of BMS podcast. We see each other again next week. Thanks for listening to TIP. To access the show notes, courses, or forums, go. to TheInvesterspodcast.com. To get your questions played on the show, go to AskTheinvesters.com and win a free subscription to any of our courses on TIP Academy. This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP network.

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