Read the full transcript of The Knowledge Project Podcast episode titled “What You Need to Master (And Avoid) to Get Rich, Stay Rich, and Build Wealth” where host Shane Parrish interviews Morgan Housel.
Listen to the audio version here:
TRANSCRIPT:
SHANE PARRISH: I want to start with a bit of a paradox. The less money we seem to have, the more risks we’re willing to take. Can you explain that to me?
MORGAN HOUSEL: Daniel Kahneman said something along the lines of, when all your options are bad, your willingness to take a risk explodes because you’ve got nothing else to lose. And I think you see this in a lot of areas in life. One that I see it all the time in, that is a big news story in the United States, I don’t know if it’s the same in Canada, but in America we spend something like $100 billion a year on lottery tickets. $100 billion, it’s massive that people spend on lottery tickets. And if you dig into who’s buying it, it’s almost exclusively poor people.
They buy the vast majority of lottery tickets. And the poorer you are, the more lottery tickets you buy. And these are some people for whom they literally can’t buy food, or they might be homeless. And whatever little money they have, they go into a 7-Eleven and buy some scratcher tickets. And you might look at that and say, you idiots, what are you doing? This is the dumbest idea I’ve ever seen. And maybe that’s the right answer. Maybe you could just stop there.
But in Kahneman’s framework, I think it starts to make a little bit more sense. If you have someone in a situation like this, who in their mind at least, they think, I can’t get a raise. I can’t build a career. I can’t get promoted. I’m kind of stuck in minimum wage job. But then buying a lottery ticket might be the only time in their life where they can say to themselves and believe, this is my literally ticket out of here. This is the only chance that I have to get ahead. And so it starts to make a little bit more sense in that situation.
And maybe you contrast that with someone who has a very high net worth. They might be like, look, I can just put all my money in treasuries and just live for the rest of my life to solve the interest. And when you have so much, you don’t need to take the risk. It comes down to perspective, right?
SHANE PARRISH: So if I could see what you see and feel what you feel, that decision would be rational.
MORGAN HOUSEL: Yeah, there’s so many things in life where you can look at other people and the decisions they make, not just in money, but for politics, their health decisions, whatever it might be, and fiercely disagree with it. But what’s easy to overlook is that if I were in your shoes and had experienced what you had, had the same family dynamic that you do, the same DNA that you do, I would do the exact same thing. This is a more important question to ask yourself.
Like, what financial decisions would I make differently if I were born in a different era, born to different parents, born in a different country? And I think you can’t answer that question, honestly, because you don’t know. But you know there would be a lot of things different that are completely outside of your control. Where and when you were born would have a massive impact.
You and I should not pretend that if we were born in the 1960s in Nigeria, that we would have the same views about investing in the stock market over time that you and I do today. This kind of gets to the topic of luck. And a lot of people, when you bring up luck, they will say something that sounds smart that I fiercely disagree with. They say like, oh, you should increase the surface area of your luck. You should like, oh, the harder I work, the luckier I get. It’s like some variation of that. And I’m like, no, if you can do something that changes your odds of an outcome, it’s not luck by definition. Luck to me, the biggest are where and when you were born. Bill Gates couldn’t control it. Elon Musk couldn’t control it, but it has a massive impact on where you’re going to go in life. That to me is what luck is. It’s what you truly have absolutely no control over.
And then there’s also the, not only the country you’re born into, but the socioeconomic households you’re born into, the schools that you go to. How much of this is nature versus nurture versus chosen nurture? The stat that I think is so astounding is that income among brothers is more correlated than height or weight. So basically that means if you have a brother who is rich and tall, you are more likely to also be rich than you are tall. It’s more correlated than the literal DNA that you’re sharing with each other. Look, is it a perfect correlation? No. Is it possible to be raised by a poor family and become rich? Of course. Is it possible to be raised by a rich family and end up in the streets? Of course. But there’s a very strong correlation between those two.
I think people get really, can get kind of testy when you talk about luck. Because if I say that you got lucky, I look jealous. And if I say that I got lucky, I feel diminished in what I’m doing in life. So it plays a massive role, but it’s very easy to ignore the impact that it has in the world.
Lessons from Warren Buffett
SHANE PARRISH: How do we break down that contribution between luck and skill or what’s repeatable on our part?
MORGAN HOUSEL: Rather than saying, what is luck?
SHANE PARRISH: I think that’s fascinating, right? Because when we look at Buffett, what we want is the outcome. And what we don’t think about is all the things that go into creating that outcome. So you’ve done it from buying net-net Ben Graham stocks all the way to buying great businesses all the way to the patience to do nothing and then once every 10 years deploy a whole bunch of cash. What is consistent across that period in your mind?
MORGAN HOUSEL: Two of the big ones. We could come up with dozens of things that are consistent with someone like Buffett, but the two big ones are endurance and maybe tied to that, capping a downside risk that allows him to stick around for longer than anyone else. I think that’s a great way to illustrate of wanting to keep going longer than anyone else.
I use a stat in my book that 99% of Buffett’s net worth was accumulated after his 60th birthday. The vast majority of people, including me and maybe you, if we became a billionaire at age 60 would be done. He’d move to Florida and buy a private island and live happily ever after. For him to be that successful and to keep going full blast for what’s now another 33 years stronger than ever is a very unique characteristic that plays a massive role in his success.
If Buffett had retired at age 60 or 50 like a normal person would have in that situation, you would have never heard of him. The whole reason he’s so successful is just the endurance. Again, there’s a psychological and a financial component to that. Never getting wiped out financially and the psychology that will allow him to keep going full blast
The Difficulty of Patience
SHANE PARRISH: That sounds academically correct but in temperament incredibly difficult because I see my friends getting rich off like Bitcoin or something and that makes me want to change the patience that I have. I know how to get wealthy over time. We know historically that what’s worked is saving money being very patient letting it compound decade after decade and then all of a sudden you wake up with a ton of money. Financial independence. But if I see my neighbor getting richer quicker than I am it makes me want to accelerate that timeline and my lack of patience sort of changes the outcome.
MORGAN HOUSEL: Not having FOMO is the single most important financial skill. I think it’s so important that you cannot ever imagine accumulating significant wealth over your lifetime if you are susceptible to FOMO. If there’s literally one thing, one trait that you want that’s going to allow you to accumulate wealth, it’s the lack of FOMO. Particularly in modern markets that can get so crazy with social media and Reddit and Twitter and everything.
If you are susceptible to FOMO there’s no hope for you over time. I really don’t think that’s an exaggeration and that being able to see your neighbor get much richer than you and not being impacted by it is so incredibly critical and easy to overlook these days. I don’t have that many financial skills. I could never be a stock picker. I could never be a trader. I don’t have the intellect or the horsepower to pull that off. But I feel like I’ve never been at least that susceptible to FOMO. It doesn’t bother me in the slightest to watch other people getting rich.
Brent Beshore, our mutual good friend, had a quote that I love. He said, “I am perfectly happy watching you get very rich doing something that I would never want to do.” I think that’s a great way to frame it. I don’t get jealous or anxious to watch other people get richer than I am over time.
My investing strategy is to own index funds for as long as I possibly can, to be average for an above average period of time. And I think that will actually lead to an incredible outcome. Not only will it achieve the financial goals that I have for my family, but I think over a long period of time it will put you in the top decile at least of people who are compounding money over time. I think that’s really hard to appreciate that what’s short-term optimal and what’s long-term optimal are often two different things.
Long-term Investing
SHANE PARRISH: Completely different things.
MORGAN HOUSEL: Howard Marks talked about this investor that he knew who, in any given year, he was never in the top half versus his peers. He was never in the top 50% of other investors. And over a 20-year period, he was in like the top 4%. Because everyone else who was beating him in a given year couldn’t keep it going. And so, like, what’s your ultimate goal? So much of investing is just to find the game that you’re playing. And I don’t look down upon or criticize people who are short-term traders.
Maybe that’s their game and for their investors or for their, like, it makes sense for them. My game is different. I think your game is different. Most people’s game might be a little bit different. And what’s important is that if your game is to invest for the next 20, 30, 50 years, that you’re not taking your cues from people who are playing a different game of trading for the next quarter. And that’s where a lot of danger in investing comes from.
SHANE PARRISH: You’ve changed my capital allocation strategy. Our conversations, our walks, totally, yeah. How so? What did you used to do that you don’t anymore?
MORGAN HOUSEL: We used to do a lot more private investments. And now it’s mostly index funds. And as things sort of roll in through dividends or whatever, it just gets reinvested in index funds. But it’s our conversations that change that.
SHANE PARRISH: Well, great. That makes me happy and nervous that I’m having influence. One thing that some people will just talk about index funds is like, what is the guarantee that this is going to work for the next 50 years? Okay, I understand it works in the past 50 years. And our response is always like nothing. There’s no guarantee that this is going to work.
It’s very possible that it doesn’t work out for whatever reason. And there have been periods from the late 1920s to 1950s where the returns were terrible. Or even from 2000 to 2010, you had basically 0% real returns in index funds. So it’s not perfect in the slightest. Nothing guarantees that it’s going to work or be satisfactory over time.
But I think when you adjust it for the effort that is put in, the lack of effort that’s put in, basically zero effort to do this. And you adjust it for the fees, which round to zero now. When you adjust for all those things, it’s a very appealing way to invest over time.
Morgan’s Investing Strategy
SHANE PARRISH: If I was to look at your balance sheet, what is your capital allocation strategy?
MORGAN HOUSEL: I’m trying to think what the percentage wise. It’s probably something like 15 to 20% cash, the house that I live in, and then the rest index funds and shares of Markel where I’m on the board of directors. And that’s it. Those are my only assets. Cash, house, index funds, Markel stock. That’s it.
SHANE PARRISH: Which index funds?
MORGAN HOUSEL: Vanguard Total Stock Market Index, Vanguard Value Fund, and a little bit of an international fund.
SHANE PARRISH: Why do index funds work so well?
MORGAN HOUSEL: Two reasons. One is it’s always going to be the case that a very small number of stocks account for the majority of returns. So recently it’s been Fang plus NVIDIA. If you didn’t own those stocks, Fang plus NVIDIA over the last decade, your odds of outperforming are very, very low. It’s not zero, but it’s incredibly hard if you didn’t own those few. And even if you look at an index fund that owns a thousand stocks, let’s say, you’re going to get the majority of returns from probably fewer than 20 of them.
And it’s always been like that. Back in the 90s, it was AOL and Cisco and Microsoft and Dell and those kind of companies. In a previous generation, it was General Electric and Intel and those kind of companies. It’s always the case that it’s very tail-driven, the distribution of returns.
The Difficulty of Predicting Winners
MORGAN HOUSEL: And owning the index just guarantees that whatever is going to be the next driver, I own. Because it’s extremely difficult to know what those are going to be. If you had gone back to 2004, 20 years ago, and tried to predict what are the big winners going to be over the next 20 years? Well, by the way, some of those companies didn’t even exist yet.
Facebook didn’t even exist yet. Google was still a private company, or maybe it had just gone public in 2004. The big winners are, I think, extremely difficult to know with any foresight what it’s going to be. And if you had suggested even three years ago that NVIDIA was going to be one of them, you would have been like, what? It would have sounded absurd. So you’re guaranteeing that you’re going to own the oddballs that account for the majority of the returns over time.
The other is, I think, the lack of effort that goes into it that is needed. Investing is one of the very few endeavors in life where the harder you try, the worse you’re probably going to do. And yes, there are exceptions to that. Renaissance Technologies, of course, you can name the exceptions for people who tried very hard and did very well. But for the vast majority of people, there’s going to be a negative correlation between the effort you put into it and the results that you got out of it. And so the leave it alone aspect of investing in index funds is very important.
One little stat I love about this is that if you look at both the Dow and the S&P 500, those are not static indexes. They change over time. There are new constituents that are added, companies go out of business, or they merge, and then new companies are added to that. If you were to look at the Dow, I think one of the studies showed over the last hundred years, if rather than adding a new company when one of the original components went out of business or merged, if you just left it alone, don’t add anything else, don’t take anything out, just literally take the original components and leave them alone, you would have done better than the companies that were added and removed, added and removed.
Like any activity that goes into it tends to be detrimental over time. That’s I’ve always thought is very fascinating. It’s literally like there’s very few exceptions in the index world to where the more effort you put into it, the better you’re going to do over time.
SHANE PARRISH: Do you think we find it boring and that’s why we don’t want to do it?
MORGAN HOUSEL: It’s a combination of boredom and just the counter intuition of the less effort, the better we’re going to do. Because any other endeavor in life, whether it’s your physical fitness or whatever it might be, there’s a positive correlation. If you want to become in better shape, you exercise, you put more effort into it. In most endeavors in life, the harder you try, the better you’re going to do, and investing is just not one of those, and it’s so not intuitive that people end up over themselves.
I would also say to that I am not against active investing in the slightest at all. I have so much respect and admiration for the people who do it well, and the staff that gets thrown around that are true that, you know, 90% or more of mutual funds will underperform the benchmark. My response to that is always like, of course, that’s how it is. You should not expect to live in a world in which everyone who tries to beat the market can do it.
Of course, that’s how it is. And the people who can do it are enormously talented, and I have so much respect for them. Two of them are sitting behind our shoulders here. And other people, I know people, you know people who have been and I think will continue to be successful at this. So I’m not a passive zealot in the slightest. I just think for myself and many other people, it’s probably the smartest way to invest.
Balancing Goalposts and Wealth
SHANE PARRISH: How do you keep your goalposts from moving as you accumulate and compound wealth?
MORGAN HOUSEL: A, I think everyone’s including my and my wife’s have not stopped moving, nor should they. I don’t personally aspire to live in a world where if I’m lucky enough for my net worth to go up, 100% of it just accrues to savings over time. That’s not the life that I want to live. I want to have a great life with some great material possessions and travel with my kids and live well over time. If your net worth grows 10%, but your expectations grow 12%, that’s when you get into trouble.
It’s just the gap between the two. And so look, I’m making this up. This is not an actual analysis, but I bet over time if my net worth has gone up by 10% per year, our goalpost has grown by 5% per year. I’m making those numbers up, but it’s something like that.
So yes, my family lives a better life materially today than we did 10 years ago, but we still saved lots of money during that period. I think that’s all that matters over time is that, you know, and even Buffett and Munger, who are known for being true. Buffett lives in the same house he bought when he was 26. He also flies a private jet and had a beautiful beachfront house in Laguna Beach.
You guys are not living like paupers over time. And that’s what I think is really important. It’s just making sure that there’s a gap between your net worth and your expectations.
Housing Affordability
SHANE PARRISH: It seems one of the things that we inherit from society is that the house you live in is your prime financial asset.
MORGAN HOUSEL: Yeah. That seems really recent as well, maybe the last 30 or 40 years where that’s become the vast majority of wealth for Americans and Canadians. I know in the United States, real home prices for most of modern history in the 20th century were flat as a pancake. Robert Schiller of Yale did a lot of analysis on this.
Tracking U.S. home prices since the 1800s and in real terms from probably the 1940s through the 1990s were flat as a pancake on average across the United States. And then in the last 20 years, starting with the housing bubble that started around 2003, they exploded higher.
And of course we had the housing crash in 2008 and people thought that was the end of the bubble. But then they’ve exploded higher even more. And real home prices in the U.S., I’m sure it’s the same in Canada, are much higher today than they were at the peak of the bubble in 2006 on average. Of course there’s many variables going into that. A lack of building of new homes that didn’t keep up with generational growth.
And it makes it, it kind of bifurcates the world in terms of if you have owned a home for any period over the last 20 years, you’ve probably done very well. And if you are looking for your first home today, it’s harder than it’s ever been. Particularly now that interest rates in the U.S. are 7 or 7.5% for 30-year fixed rate mortgage.
Combine that with home prices that are just absurd, particularly in the metro areas that people want to live in. It’s completely bifurcated because if you own a house for the last 10 years, you can sell that house and take the equity that has grown in that house to buy a new one. To use for your down payment on the other house whose price has been inflated. But if you’re trying to break in for the first time, it’s a joke. It’s a complete joke.
So that’s a very difficult thing. I would not I have a lot of sympathy for the first time home buyer today who does not have parental support, which is the vast majority of them. It’s harder than it’s ever been.
And there are a few things that make you feel like you are stable in your adult life than owning the house that you live in. And I think it plays a huge role in a lot of things in life. A lot of people, this would have been the same for my wife and I, don’t want to start having kids until they own their home. They want to have that sense of stability before they start having kids.
So I think the lack of housing affordability has an impact on demographics. I’m having kids over time that will echo for the next 50 or 70 years. So it plays a huge role in what’s going on in society.
Optimizing Financially vs Psychologically
SHANE PARRISH: There’s also sort of a difference between what’s optimal financially and what’s optimal psychologically. We’ve had this conversation before where you told me you paid off your mortgage.
MORGAN HOUSEL: Yep. And that makes no, very little financial sense because you had one of those crazy, like really low mortgages. Like I’m going to tell you, it was 3.2% fixed for 30 years and we paid it off, which I’d say is very true. It’s the worst financial decision we’ve ever made, but it’s the best money decision we’ve ever made. And the difference between the two is like, look, on a spreadsheet, it’s terrible. I’ve done the math. I’m like, what if I had just invested that money instead? How much would I more money would we have today? It’s a lot.
It’s a lot of money, but nothing that we’ve ever done in our financial life has given us more happiness paying that off. And a lot of that is unique, maybe to my personality. This is not advice for other people because maybe you and other people don’t have that personality. I’m a worst case scenario thinker. I also have a career that can be fickle. And I’m the sole breadwinner in our household. My wife is home with our kids.
So with all of those, my personality, my career and whatnot, it made perfect sense. And when we did it, I was nearly in tears with joy when we did it. Knowing full well that it was a dumb financial decision. So I think once you stop viewing money as just trying to make the spreadsheet happy and you view it as a tool to live a better life, a lot of things change. And in that situation, it was a tool that improved the quality of my life and my family’s life, I think dramatically, even if it was the dumbest thing that we’ve ever done on a spreadsheet.
And a lot of people when I say this, they’ll still push back and be like, well, walk me through why it was rational. I’m like, it’s not rational. It’s not rational at all. I can’t explain to you on a spreadsheet. It was dumb to do, but it made me really happy. And is there any worth? Is there any value to that for you? It made me happy. We can just stop right there. I don’t need to prove it anymore.
SHANE PARRISH: But doesn’t that make it rational? You’re playing a different game, right? If you’re trying to optimize every penny over the long term, maybe that doesn’t make sense. But if you’re optimizing for happiness and longevity, maybe it does make sense.
MORGAN HOUSEL: Yes. And so I think the qualitative factors of money are hard for people to wrap their head around, particularly in a field that has been taught as an analytical field. If you get a degree in finance or get your CFA or whatever it be, it’s purely numbers. That’s not totally accurate. There’s some in there, but the vast majority of how they teach finance is just numbers. And so it can be hard for a lot of people to wrap their head around why you would do something where the numbers don’t make sense.
The Lie Money Tells Us
SHANE PARRISH: What can money do for us and what can it do for us? What’s the lie it tells us? What’s the thing that we feel like it can do for us, but it can’t?
MORGAN HOUSEL: The lie is that a lot of people in life, if they’re unsatisfied with how their life is going, it’s a very quick and easy answer to say, if I had more money, things would be better. And that can be true. It can solve a lot of your problems.
But I think what a lot of people want in life, not everyone, I don’t want to completely generalize this, but what I want that I think is reasonably common for people is I want independence and I want to spend time with the people who I love, my family and friends. And that’s pretty much it. And can you use money to do that? Of course, money is kind of the oxygen of independence.
And if you can use your money to spend more time with your friends and family, you and I went out to a lovely dinner last night with each other. That costs money. Thank you for buying, by the way. And we had a great time with each other. Now, if you and I went for a walk that would have been free, it would have been great too. But using money for to spend time with whom you want, when you want for as long as you want, waking up every morning and saying, I can do whatever I want today, even if what I want to do is go to work and be productive is absolutely critical. And that is different from the knee jerk of just, oh, if I had more money, I can buy more things, nicer things.
But what you actually want in your soul is to like you want independence and to spend time with people who you love. Money can do those things, but it’s not as direct as people think. One example of this is like, will having a nicer house make you happier? It might, but the reason it’s going to make you happier is because it makes it easier to have friends over. It makes it more convenient to hang out with your kids in a big, nice, glorious living room.
So it’s not that the house will make you happier, but the house can make it more conducive to do things in your life that those things will make you happier.
SHANE PARRISH: I was reading Rich Dad, Poor Dad with my youngest, and we come to the concept of a house. And if I get this right, it was sort of your house is a liability and not an asset. So don’t think of it as like a financial asset that’s going to grow and acquire wealth for you. Think of it as liability. This is just a sort of table stakes for playing the game if you want or living life and having stability and all these other things. And I thought it was really interesting.
And as we talked about it, I was like, you know, it’s what the house is effectively. It’s a container. And what matters is what happens inside that container, the house in and of itself. Who cares?
Just recently, just last month, I traveled with my son to the town that I grew up in, and I stopped by the house that I grew up in for the majority of my childhood. I hadn’t been there in 20 years. We pulled in the driveway. Of course, there’s people who live there now, so we just sat in the car. But I sat there for 10 minutes, just kind of reminiscing about as soon as you pull in the driveway, all these memories start flooding back of the things that happened in that house, good and bad, fun and sad, like so many memories in there from my childhood.
The Intangible Value of a House
MORGAN HOUSEL: And of course, you can go on Zillow and see what that house is worth. It’ll give you a very specific dollar figure for what the house is worth. But what the house is worth to me and my parents and my siblings is invaluable. You can’t put a price tag on those kind of memories.
And I think that’s common for most people. There’s a tangible financial value and there’s this intangible that you can’t put a price on. That’s true for vacations. It’s true for a lot of things in life. There’s a financial value. If I asked you and said, what is this house worth? Again, you can go on Zillow and say, but what are the memories built inside that house worth? You can’t put a price on that.
SHANE PARRISH: When you’ve reached financial independence, is that the ultimate when you’re spending money, but it’s not a matter of the money. You’re not quantifying it in sort of a dollar figure. You’re quantifying it in a feeling.
MORGAN HOUSEL: I think it’s when you start using it as a tool to become happier. Now, what’s going to make people happy is very different. Having an incredible Ferrari collection might make you happy. So, it’s not to say that the things will make you happy are not material, that you should just use this for experiences. That, I think, is a step too far.
I think a lot of people have hobbies that cost a lot of money that are material that really make them happy. So, it’s like, great. There are a lot of people out there who would say, you know, who would really promote frugality and be like, you don’t need a big house. You don’t need a nice car. Well, big houses and nice cars make some people really happy. Other people, they don’t. It’s whatever you can use money as a tool for to live a better life versus I think a yardstick of status and success to compare yourself against other people. That’s what gets dangerous, is when you’re just using it as a score card to compete with other people.
The Status Game
SHANE PARRISH: How do we catch ourselves in a status game where we’re playing a status game, but we can’t see it because we’re in it?
MORGAN HOUSEL: It’s unavoidable at the economy level, especially at the broad macro level. It makes sense from an evolutionary perspective that people compete with each other. There’s limited resources. If I want the food, if I want the mate, whatever it would be, I need to compete with you. That’s always what it is.
So, it’s so natural. It’s never going to go away. This is truly the same as ever. People are always going to be keeping up with the Joneses. You can imagine a world in which our kids and our grandkids are living way better lives than you and I are and living longer and have better material access than you and I do, and they’re no happier for it because they’re just competing with other people who have even more than that. That’s always been like that.
If people 100 years ago could see how you and I are living today, they’d be completely dumbfounded with virtually everything we have in our life, but I would also wager that you and I are not that much happier than they are. There’d be some aspects of life. We’re healthier. We don’t have to wake up worried that we’re going to die from the flu next week, but people just adjust their expectations to whoever is around them.
A lot of this is like a DNA thing. Some people are just way more susceptible to wanting to keep up with others and other people could just care less what other people think about them. There’s probably six people in my life who I really desperately want their love and respect. My parents, my wife, my kids, a handful of friends, and everyone else. It’s not that I could care less, but after those six or maybe eight people, it drops dramatically.
The vast majority of people on Twitter and whatnot, I could care less what you think about the decisions that I’m making. I think if you define that, it’s whose love and admiration do I want in life? Defining who those people are and what do I have to do to earn their love and respect? The love and respect of my wife and my kids and my parents. That’s what I want to use money to do in my life. Spending time with my family, taking them to cool places and whatnot. There is a financial aspect to this, but once you define that personal game you’re playing, a lot of these decisions clear up.
I think a lot of people don’t actually think about what game they’re playing. They look at other people and from my lens, you should be doing something different, but that really comes because we’re optimizing for different things. I bet if you and I sat down and deeply compared our lives, there would be things that we do very differently. You spend a lot of money on this and I don’t. I spend a lot of money on this and you don’t. It’s not a disagreement. It’s just we’re different people.
Even if you and I are about the same age, same education, there’s probably a lot that is just like, yeah, but we’re different. I think most financial debates, whether it’s an investing debate or a saving or spending debate, people are not actually disagreeing with each other. They’re not actually debating. It’s people with different personalities talking over each other. Once you come to terms with that, there’s not one right answer for any of this.
Lessons Learned from Parents
SHANE PARRISH: There’s so many things that we inherit from our parents, like invisible rules about money or practices around money. I remember these moments in my childhood where my parents had to decide between fixing the roof and fixing the car and they couldn’t afford to do both. I remember they worked for the military and the military sent them a financial advisor.
I remember listening to the conversation they had with the financial advisor and how out of the loop they were with what was happening with the severance pay that my mom was getting and what was happening. They had no knowledge of it. I was like, I never want to be in this position. What are the lessons that you learned from your parents that really stick with you today that defined how you think about money?
MORGAN HOUSEL: The two things that stick out from my parents’ upbringing. My dad started undergraduate college when he was 30 and had three kids. I’m the youngest of three. He started undergrad when I was a month old, something like that. He became a doctor when I was in third grade.
My early childhood, my parents were very, very poor. They were students and maybe they had some student grant that allowed us to buy groceries and live in a tiny little apartment. We were very happy. I had a great childhood but they were very, very poor. My dad became a doctor when I was in third grade. It was an immediate shift towards very poor to upper middle class, literally overnight when I was in third grade. My sibling, my brother and sister were teenagers at that point. I got to see both sides of the spectrum.
I remember the year 1993 is the year everything changed in our family. What sticks out from that is that the frugality that was demanded of my parents when they were poor stuck with them after they started making more money. Even after my dad became a doctor, we were very frugal. We lived a much better life than we did when we were poor because we were living in abject poverty for most of my childhood.
After that, they had a very high savings rate. We were not spending money like my dad’s co-workers were. You would expect a normal doctor too. There was nothing close to that. I think I looked down upon my parents for that. I was like, we could be living in a nicer house. I know how much money you make. We could be living in a better house and driving a better car but we don’t because you’re cheapskates.
That was my view for my teens and early twenties. My dad was an ER doctor which is a very stressful field. It’s literally people dying in front of you in your arms every day and working night shifts. It’s a very stressful field. After about 20 years or so, he had just had enough.
Well before I think he intended to retire, he more or less woke up one day and said, I’m done. It was a little more planned than that but that was close to it. Because he had saved so much, he could do that. He had the independence to wake up one day and say, I’m proud of what I did but I’m going to go do something else now. And a lot of his peers could not do that because they spent like doctors. They lived in big houses and sent their kids to private school and drove fancy cars. So when they wanted to quit, they couldn’t. They wanted to retire. They were tired and they wanted to quit but they couldn’t do it.
And that was such a profound shift in my thinking. This was not that long ago. I don’t know, 12 years ago or so of when I was like, oh, that’s why you were saving so much. It wasn’t because you were cheapskates. It’s because you wanted to become independent. And now you are. You want to quit so you could quit. That’s why you were saving. That was a profound shift for me of like, you’re not saving because you’re just scared to spend. You’re saving because you want something different, which is independence. And independence is going to give you so much more pleasure than the big house ever would. That really stuck with me.
SHANE PARRISH: How did they talk to you when you said, hey, you’re just being cheapskates, let’s do this thing or let’s get this bigger house?
MORGAN HOUSEL: If they heard what I just said, they would say, yes, in hindsight, that’s all true, but we didn’t know we were saving for independence. My parents are very interesting. They have dollar cost averaged in the Vanguard index funds for more than 40 years and never sold anything, ever. They would be literally in the top, probably 2% of investors during that period without any financial education, no financial skill, no nothing like that.
So I think a lot of the decisions they’ve made have worked out well, but it hasn’t really been conscious. So I think back when I said you’re cheapskates, I’m sure they just kind of shrugged and, you know, okay, well, this is what we’re doing. But I don’t think they actually had a plan for what they were doing. It was just, again, the frugality that was demanded of them. My parents also met on a hippie commune in the 1970s. Not exactly the breeding ground for like good saving skills.
And so for their entire adult lives, for literally decades, they had zero money. They had absolutely nothing. So they learned how to be poor. And they’re also very happy and have a great marriage. If you can learn how to be poor with dignity, that skill will just like stick with you forever. So when they started making money, I think it’s probably true that they didn’t exactly know what to do with it because they were so used to being poor. But whether it was conscious or not, it created this thing that has given them so much happiness and pleasure, which is independence.
Rich vs. Wealthy
SHANE PARRISH: What’s the difference between being rich and being wealthy?
MORGAN HOUSEL: The definitions are my own, so I’m just making this up. But I think rich is when you have enough money to make your mortgage payment, make your car payment. You can pay off your credit card bill every month. You can afford the things that you’re buying, technically.
Wealthy, I think, is when you have a degree of independence and autonomy. The weird thing here is that wealth is the money that you don’t spend. Wealth is like the homes you didn’t buy and the car you didn’t buy. It’s money that you saved and invested that is going to give you independence. That’s a hard thing for people to wrap their head around, that wealth is what you don’t see, because I can see your house. I can see your car. I can see your clothes, but I have no idea what you’re not worth.
I can’t see your brokerage account. I can’t see your bank account. Wealth is always hidden. It throws a lot of people for a loop because if I was looking for a role model of physical fitness, well, I can see your fitness. I can see your weight and your muscle tone and whatnot. It’s all visible. But when you’re looking for a financial role model, who do you look up to? And a lot of people, particularly young people, will look up to the guy in the mansion with the Ferrari.
But that guy, for all you know, is living paycheck to paycheck. A lot of those people are. And the person who is actually wealthy and independent might be the person in the modest house, driving the modest car that you would actually want to be. If you want to be wealthy instead of just rich, you want to be independent instead of just making your monthly payments. The people that you actually want to look up to are some of the hardest people to identify in society.
SHANE PARRISH: Who do you look up to? In general, who I look up to?
MORGAN HOUSEL: People who do whatever they want and people with independence. And there’s a huge range of that. I think there are people whose net worth is, you know, in the low six figures who are independent. There’s a guy named Mr. Money Mustache who kind of started the fire movement, I don’t know, 10 or 15 years ago. And his story was when his net worth was $600,000, not that much money. He retired and lived a great life on it.
And there’s other people, you know, obviously Jeff Bezos and Elon Musk are independent, but I would venture that more than half of Elon Musk’s day is doing things that he doesn’t want to do. It’s like there’s piling on all these things that, you know, he’s still driven to do them and get them done. And of course he could quit tomorrow, but doing things that he doesn’t necessarily want to do. So anyone who can wake up every day and say like, I can do whatever I want today. If you have independence that’s my personal goal. So the people who have that at any income level are the ones I look up to.
SHANE PARRISH: Why are so many people who have money, I think the answer is sort of maybe embedded in the last one, but why are so many people who actually have a lot of objective wealth or money, if you will, unhappy?
MORGAN HOUSEL: Andrew Wilkinson, our friend, had a saying where he says like a lot of people, I’m paraphrasing him, but a lot of people who are very successful are just walking anxiety disorders harnessed for productivity. And I think it was Patrick O’Shaughnessy who said the single word that he would use to describe a lot of very successful people is not driven, it’s not passionate, it’s tortured. They wake up every morning tortured about like, I’m trying to solve this problem, I have to get ahead, I have to hit this goal. And they are really, they wake up very anxious and depressed and like just tortured about achieving their things.
Elon Musk a couple months ago gave an interview where he said you might think you want to be me, as in like the richest person in the world, richest person in history, but you don’t. And he was like, I think he said something like it’s a tornado up here. It’s a mess inside of this head. You do not want to be inside of this head.
The Cost of Success
MORGAN HOUSEL: I think that’s really true. I think that’s a profound truth that you might think you want that kind of life, but there is a cost to that life. And the reason he’s successful is because he’s probably woken up tortured for his entire adult life trying to solve these problems. I am so glad and grateful that people like himself exist because they made the world a better place, new technologies that we can all benefit from.
But there’s a big difference between saying I’m glad you exist and I would want your life. Those are two very different things. It’s almost like we’re looking at the outcome. We’re like, I want the outcome. I don’t want all this stuff.
SHANE PARRISH: We do this with athletes too, right? Like, I want the gold medal. I don’t want the 5 a.m. practices seven days a week. I don’t want that.
MORGAN HOUSEL: I think it was Naval who said you can’t just pick and choose bits of someone’s life and say, I want his physique and her net worth and I want his house. You have to take the whole package and a lot of the great things in anyone’s life. There’s a cost that came with that, whether it’s their career success that they had to put into it.
There’s stories that Bill Gates worked, I think it was 25 years without ever taking a single day off. And most of the days he’s working, it would be like he came home at midnight and crashed on the couch for four hours and went back to work. I’m so grateful that he exists, but I would not want that for myself. That’s not my definition of the life that I would want.
Our friend David Senra, who runs the podcast Founders, has profiled I think now probably 350 founders over time. And he says, I don’t want to put words in his mouth. I’m pretty sure he said the only founder that he has ever read their biography and thought I want his life is Ed Thorpe. And everybody else that he reads it, I think he comes to the same conclusion that I do. I’m glad they exist. I would never want to live their life because there’s always a hidden cost that when you dig into it, you’re like, yes, he was very successful because he sacrificed a million things that would be very important to you and I.
Balancing Success and Saying No
SHANE PARRISH: Let’s talk about that a little bit. You’re incredibly successful. Your books have sold well over 5 million copies now. The inbound to you for requests of your time, your speaking, your presence, hop on the phone for 15 minutes must be off the charts. How do you keep your service area small or keep doing the things that you want to do?
MORGAN HOUSEL: Well, the only way to manage that is to say no to virtually everyone and that sucks for me for two reasons. A. I don’t have any assistant. I’m personally saying no to them. I don’t want it off to anyone else. And I don’t like I don’t like making making people that when you blow someone off or even respectfully say no, they’re going to be hurt a little bit.
I vividly remember. I’m not going to say who, but names of you and people would know that I reached out to early in my career and said, Hey, can I please pick your brain for 15 minutes? And they said no. And I was hurt. I still remember it. I still remember the emails.
I remember reaching out to a couple of authors probably 15 years ago and saying, My name is Morgan. I’m an aspiring author. I’m trying to try to do this. I so admire you. Can I please ask you just 10 minutes on the phone? And some of them didn’t respond. And I still remember that.
So if anyone who remembers that gets in that same position themselves would have to say no to a lot of people. It sucks, but there’s no other way to handle it. There’s no other way to manage it.
The Seeds of Success and Destruction
SHANE PARRISH: It seems like success and we’ve talked about this before, but success shows the seeds of its own destruction. How do you think about that? In what ways does it do it?
MORGAN HOUSEL: The biggest is just that it allows you to become lazy, and it’s going to degrade the thing that made you great. What made you what made you like literally you, um, successful is probably like some degree of like waking up and feeling feeling feeling inadequate, waking up and being like, I know I’m capable of doing more than I’ve achieved already, and I got to go do it.
And it’s pretty common like whether that was driven by lack of self self esteem, like whatever it was, you’re waking up, you’re like, I need to achieve more than I have today. And once you achieve some level, it’s easy to be like, well, I’ve already done that. And then the thing that made you successful, that drive you had is diminished using some companies and in people.
And the other thing that’s really powerful is when you are lower, lower on the totem pole, it’s very easier for everyone around you to tell you what you’re doing wrong. And the higher you gain, particularly when you get up to the very high levels, no one wants to tell you doing wrong because you’re probably paying those people to be surrounded, you know, to surround you with advice, and they don’t want to tell the emperor he has no clothes. That happens to a lot, lots of people, lots of companies and whatnot. The thing that made you great is degraded, the more successful that you become. And some people fight this very well, but a lot of people don’t.
It’s a tough thing. I think the laziness aspect of it, of once you become more financially independent, you’re not driven. For most of my career, I was writing because that was how I fed my children. I have to do this. Yes, I love it. Yes, I enjoy it. But I absolutely have to do this.
Once you get to a point where it’s like, look, I still love to do this. I don’t have to do it anymore. Is my motivation lower than it used to? I think the answer is yes. I don’t like to admit that, but I think the answer is yes.
Now, I’m still as motivated. I’m still very motivated to keep writing because I love doing it. And I think there’s a part of it that I enjoy more now that I’m not doing it to feed my children. I’m doing it because I just love the art of writing rather than just the business of writing. But people’s motivations change over time. Now, part of that is great. I don’t want to be 60 years old and having to work to feed myself this week, but you shouldn’t pretend that it’s going to not impact the thing that made you great.
Defining Risk
SHANE PARRISH: I want to come to writing later on. I got a lot of questions about your process around that. But before we get there, what is risk?
MORGAN HOUSEL: You can have a million different definitions of risk. I think broadly, it’s anything that’s going to prevent you from achieving the goals that you want. That’s a very basic answer, but I think that’s what it is. And the reason that’s important is because take volatility in the stock market. Is that risk? Well, it could be.
If you’re a day trader, then yes, the market goes down tomorrow. That’s a risk for you. If you’re going to retire in 50 years, it’s not whatsoever. So just defining it in personal terms is, I think, the most important. But a lot of finance is not that. They define risk as volatility, whatever it might be, recessions, all these different things. But it’s a very personal answer. What is risky for me might not be for you and vice versa.
And this is what gets back to most financial debates are people with different time horizons talking over each other. There’s a quote I love that is personal finance is more personal than it is finance. That is really important for everyone. You and I should not pretend that risk for renaissance technology is going to be the same for you and I within our personal households, like completely and utterly different.
So anything that pulls you away from whatever goals you personally have is what I would define as risk.
Getting Rich vs. Staying Rich
SHANE PARRISH: You had to break down the skill differences between accumulating money, keeping money and spending money. How would you do that?
MORGAN HOUSEL: I’ve often defined it as getting rich and staying rich are completely different skills. And there’s not that many people who are equally skilled in getting rich versus staying rich. There’s, you know, a sliver of society that’s very good at getting rich that has no ability to stay rich. And there’s some people who are very good at holding on to money, but much less talented at building it and growing it over time.
When you have both skills combined, it’s a very special thing. Buffett is obviously that Bill Gates is that there’s a handful of people who are extremely good at getting rich and have stayed rich very well. The example that I always use is Bill Gates when he started Microsoft took the most audacious entrepreneurial swing that maybe anyone’s ever taken of saying every desk in the world needs a computer on this. And he’s saying this in 1974 whatever it was crazy amount of risk, crazy bold vision.
At the same time he said that he always wanted Microsoft to have enough cash in the bank to make payroll for one year with no revenue, which is the most conservative pessimistic way to run a business. So he’s like very risk taking and very conservative paranoid at the same time. Very good at getting rich, very good at staying rich at the same time. This is very unique to have both of those acting at the same time.
And I think at the individual level you can have it too. My net worth you’d say is like is very barbelled, like a lot of cash that’s the paranoid conservative side and stocks that I hope to own hold for 50 years. That’s like incredibly audacious that this is actually going to work out over the next half century. And I don’t think that’s any contradiction. It’s just trying to get both of the skills of getting rich and staying rich work at the same time.
The Vanderbilt Fortune
SHANE PARRISH: Speaking of staying rich, one of the stories we talked about last night was the Vanderbilts and how they basically blew a $400 billion fortune. What happened?
MORGAN HOUSEL: If you look at all of the robber baron, very wealthy families, the Carnegies, the JP Morgans, the Fords, the Rockefellers, the Vanderbilts, I think virtually all of them did well or did a decent job at managing that dynastic money except the Vanderbilts. The Vanderbilts completely and utterly botched it.
The status, you know, when Cornelius Vanderbilt died, his net worth adjusted for inflation because he died in the 1800s was the equivalent of $400 billion. And in three generations, there was nothing left, which is an astounding thing to think about. And in between there’s that three generations who just blew money in the dumbest ways you can imagine. And the reason you could say it was dumb is because I don’t think any of them were happy. I think they were pretty much all miserable.
If you dig into the biographies of these three generations, a lot of the other robber baron families taught their children, taught their heirs to run the business or to become good philanthropists, whatever it was. The Vanderbilts effectively told their heirs your job, your sole purpose on this planet is to spend more money than anyone else. And so they did it.
They built the biggest houses that were so big they didn’t even want to live in them because they were too big. They threw parties that were so extravagant. They were just burdens on themselves. They were you like their sole financial metric is can you spend more money than the other social life? And they were all miserable for it.
And the story that a lot of people know now is that the first Vanderbilt heir to not get any money when all the money was exhausted. The first heir where there’s nothing left was Anderson Cooper of CNN. His mother is a woman named Gloria Vanderbilt was she got kind of the last trust fund in the family. And Cooper is not only the most successful Vanderbilt heir in like 180 years, he’s probably the happiest. And he’s talked about this, that money that you are given, that you inherit, can be a burden to your ambition, a burden to your identity of building a name for yourself.
The Burden of Inherited Wealth
MORGAN HOUSEL: And he was kind of the first Vanderbilt heir who was like relieved of the burden of having to carry on this thing of like, I’m a socialite, I’m a Vanderbilt. And he’s just like, I need to build my own name and my own career. And I’m sure because his mother was Gloria Vanderbilt, there were doors open to him that would not be open to anyone else. But he pretty much had to build it for himself for the first time in 150 years.
SHANE PARRISH: Do you believe that money should be able to pass between parents and kids?
MORGAN HOUSEL: Well, able, sure, it’s your decision. But there are obviously downsides. And I’m sure, I hope it’s a long time for now that I’ll leave my kids some money, not a lot. I love the Buffett quote where he says, “leave your kids enough money so they can do anything, but not so much money that they can do nothing.” And that I think is really important.
I want to use whatever money I’ve saved to give my kids the best opportunity of building the life that they want, but not so much money that they are forced to live the life that I want for them. I have some families who are very wealthy and wealth becomes like a personality burden of because I inherited this much money, my job is to just be an heir of my grandfather, an heir of my parents, rather than finding out who I am and discovering who I am for myself.
That’s true at like the very high levels, but you don’t want the wealth that you pass your kids to burden them into a lifestyle that they don’t want for themselves. You just want to be like, here’s enough money so that you can have the leverage and the tools to find out who you want to be and live the life that you want, but not so much that it’s going to burden you into like forcing you into a direction that you don’t want to be.
The Burden of Wealth
SHANE PARRISH: It’s almost like there’s a geometric progression of surface area here where the more houses you acquire, the more staff you need. The more staff you need, the more managers you have. The more managers, you know, as you, I was talking to Sam Zell, we were supposed to record a podcast, and it never happened because he unfortunately passed away. But when I was talking to him, he just wanted two houses, right? He didn’t want 10 houses. He didn’t want all of these things, like I can just rent them. I don’t want the hassle. I don’t want the burden that comes with that. Do you think that we lose sight of that?
MORGAN HOUSEL: And then there’s sort of like a natural entropy to wealth, right? Like it starts to expand and you actually have to apply a lot of energy to keep it small.
Yeah, it’s obviously not the case that the more money you have, the less happy you’re going to be. That’s obviously wrong. But I think if you have more money, you can have a more complicated life and complication can lead to a lot of unhappiness. That’s definitely true. And I think this is mostly true for people who are like middle wealth. If you’re like extreme upper wealth, you can just hire out every decision. People can take care of it for you.
It’s people who have enough money to buy a second home, but they have to manage it themselves. That’s when things get like really complicated in your life. Many years ago, I did this consulting session with a group of NBA rookies. Some of them were 19, 20 years old and they’re now making millions. And a lot of them grew up in like inner city poverty. They grew up very, very poor. And when they are teenagers, they sign contracts for millions of dollars. It’s like such a stark movement for them.
And the purpose of this conversation was to talk about money to try to prevent the very well-known path of athletes going bankrupt. A very significant percentage of these people who make millions of dollars are bankrupt by the time they’re 30. So like, how do we prevent that? And one of these athletes who was, I think he was 19, said something that I thought was so profound and wise. He said, when you grow up in inner city poverty and then you make millions of dollars once you’re still young, that’s not just your money. That is mom’s money. That is brother’s money. That is cousin’s money. That is neighbor’s money.
You can’t just tell everyone back at home, good luck to y’all. I got my money. I’m going to go live in the mansion. You stay in this level. You can’t do that. And he said, the reason so many athletes go bankrupt is not because they bought themselves a mansion. It’s because they bought their fifth cousin a house and they felt so much pressure to do it that they had this like social burden that came with the money.
And I think at many different levels, that’s an extreme example. But at a lot of levels, there is social debt that comes with money. So if you, at every level of net worth, like if your net worth grows by $1, with that comes a couple pennies maybe of like social debt where you are like incentivized or like pushed towards to increase your lifestyle or to take care of other people in ways that might be great but might be a burden, might be a debt that comes with it. And at some point, I think that social debt explodes.
I mean, people who are worth, you know, 50 or a hundred billion dollars, there’s not that many of them, but their social debt to use that money wisely and to donate that money wisely is off the charts. It’s enormous, the pressure that they have to use that money well to not end up like the Vanderbilts. You know, how much pressure does Jeff Bezos and Bill Gates have to donate their money effectively? And no matter what they do, no matter what causes they give to, people are going to say, well, that’s not a worthy cause. This was more worthy than that. Enormous amount of like invisible social debt that comes with that.
Social Debt and Expectations
SHANE PARRISH: Talk to me more about that. Like, I love that concept. I don’t want to talk about the extremes where like Bezos and Musk and that, but the social debt, like almost like you go to a wedding and you have to give more because you have more. Is that what you-
MORGAN HOUSEL: Or you go out to, if your friends know that you have money, you go out to dinner, you’re forced to pay kind of thing. Or like, oh, I heard this guy just got a huge bonus last year. Let’s see what he gets me for Christmas kind of thing. There’s a lot of that that comes with it. And of course it’s a good problem to have. You should not have sympathy for people who made so much money that they now have social debt. Like boo-hoo, you know, you deal with it.
But it’s a real thing. And a lot of it is just the incentive on yourself or within your own family to be like, oh, we have more money now. I guess we should buy more stuff. It’s like this pressure to do something that you may or may not actually want.
One other like weird oddball story that I’ve thought about here, on the Amtrak train from Washington DC to Boston is where it goes, there is always a quiet car. It’s one section of the train where you’re supposed to be completely quiet if you want to get some work done or whatnot. And always what happens, you go there for peace and serenity. But everyone on the quiet car is so anxious and upset. Because on the quiet car, if someone so much as whispers or if your phone accidentally goes off, people lose their minds because they have this expectation that it’s going to be completely quiet. And so the slightest little sound sets them off.
And like the irony is you go there for serenity, but you’re just so angry while you’re there because if anyone’s making any noise, it drives you crazy. And it’s this thing of just like, if your expectations shift, then the littlest thing can make you upset. It’s like when you go to the quiet car, yes, it is quieter, but you also have this like sound debt that comes with it, you could say. This invisible sound debt that is a liability now. I think it’s so true with money as well that the more money you gain, the more pressure you have to live a better life that may or may not actually make you happier.
Will Smith, the actor said that when he was poor and depressed, he could tell himself, if only I had more money, all my problems would go away. And then when he became rich and he was still depressed, he couldn’t say that anymore. He was still depressed, but he was like, I can’t say that if I had more money, I would be happier because I already have more money that I could ever spend. So he said what happened when he became rich is it just removed the hope that he had. When he was poor, he had this hope like, I got to make more money and then I’ll be okay.
When he was rich, he lost all the hope. He was still depressed. It’s very inspiring to think, if I have more money, my problems will go away. But then once you have that money and you realize that you still have just as many problems, maybe even more problems than you had before, that could be a tough thing for people to wrap their heads around.
Challenges of Wealth
SHANE PARRISH: We were talking about that a little bit last night in the sense of people who have money can’t really talk about money either because they have all the same problems that everybody else has, but they don’t feel like they can openly converse about it. Because it’s like boo-hoo. And it’s true. They are boo-hoo problems. There are much bigger problems in the world. If you can’t afford health insurance, you’re homeless, whatever, there are much, much bigger problems. But first world problems are real problems in people’s heads. And you’re right that they’re, by and large, can’t talk about them.
MORGAN HOUSEL: It’s very interesting when you get together a group of wealthy people into a room where they can all start. In that safety zone, they can talk about the problems and they all have the same problems. How do I not spoil my kids? How do I do this? Things that they can’t talk about with anyone else in their life because those problems are so different from the other like very real material health living problems. But there are lots of things that are very difficult to figure out when you have a lot of money.
Or even just a modest amount of money that you can’t talk about even with some of your closest friends. I am sure you do have friends who have less money than you and I do. And you can talk about, with those friends, you can talk about anything else in life. Problems with your marriage, problems with your health, whatever it might be. And there’s all these other things that you’re like, I can’t talk about the things that are actually giving me anxiety right now.
SHANE PARRISH: It seems like the meta skill to think about right now throughout this conversation is how do we learn to manage our expectations? Maybe this is how we started the podcast. I don’t want my expectations to never move. I want them to just grow a little bit slower than my wealth over time. I want it so that in 50 years, I hope that I’m living a better material life to some degree. I just want that level to not exceed my net worth over time. Once your aspirations exceed the growth of your wealth, that’s when people, they take too much risk, they go into debt, whatever it might be.
Raising Kids with Wealth
SHANE PARRISH: You hung around, spent time with a lot of wealthy families. Are they giving talks or individually? The problems are the same. How do they deal with not raising spoiled children? How do they, what have you learned from that?
MORGAN HOUSEL: I’d say most of them, how do they deal with not raising spoiled children is they don’t deal with it well. It’s a very hard thing to do. I had a conversation recently with a guy who was, his father is a billionaire and they’ve lived like billionaires his entire life. He’s roughly our age and he’s a very down-to-earth, grounded, polite guy. And so I asked him like, how did you grow up in private jets and mansions and not become a spoiled little prick because he’s such a nice guy?
And he said, despite having that much money and living like a billionaire, his parents never taught him, never told him that because we have more money, we’re better than anyone else. And they told him quite the opposite. And he said something that I thought was really important. He said, the reason that so many kids grew up spoiled is because the parents are obsessed with money. That’s why the parents are rich is because they’re obsessed with money. But it naturally grows into this thing of like, you are better than other people if you have more money and if people have less money than us, then we’re not, they are not equal to us.
And it’s so basic and almost cliche. But if you are very wealthy, but you’re still teaching your kids good values, that will stick with them. And the opposite is true too. If you raise your kids, even if you have a lower income, but you raise them with an obsession with money, to like, that’s the scorecard of measuring other people. It’s like, well, what’s your net worth? What’s your salary? That’s what I’m going to measure you by and rank you by. That’s when you get spoiled little jerks as children.
SHANE PARRISH: How do you and Gretchen talk to your kids about money?
MORGAN HOUSEL: Well, our kids are four and eight, so not that much yet. The other thing that I’ve noticed, I’m sure it’s the same for you and other people who have multiple children, is that my kids could not be more different in their personalities. And of course, they’re raised by the same parents. They share, they share, have their DNA. Like, it’s the same house, the same rules, the same upbringing, and they’re utterly different people.
Teaching Kids About Money
MORGAN HOUSEL: So you can’t create one philosophy, one parenting philosophy for that. The other thing is, if I know my children today, I don’t know who they’re going to be when they’re adults. Does my daughter want to be a partner at Goldman Sachs? Does she want to work for Greenpeace? Does she want to be a kindergartner? You have no idea what they’re going to do and the different, you know, rules are going to be different for them.
I also think that what’s true is that the more you try to tell your kids, this is what you should do, the more they’re going to rebel against that, particularly when they’re teenagers. But the more that you can just lead by example, like, A, they are going to pick up on it. You don’t need to sit your kids down and say, let me teach you about money. And in fact, if you do that, most kids are going to yawn and say, I’m not interested in this. But they are definitely paying attention to every time you say, we can’t afford this, they’re making a mental note of it. Every time you say, that’s too expensive. Every time you say, I value this, I don’t value that. They’re forming a model in their head that’s going to stick with them forever.
And so I think just leading by example with them is what we try to do rather than trying to say, this is what I want to teach you. These are the values I want to instill. Back to my own parents. I don’t think they ever sat near my siblings down and said, let me teach you about money. But I, I learned profound money lessons for them by just observing when I was eight years old.
SHANE PARRISH: Well, let’s invert it. Well, we can go from parenting and then maybe the money broader. But like, what lessons don’t you want your kids to learn about money? What would be the worst thing they can take away from you about money?
MORGAN HOUSEL: Don’t think that all poverty is due to laziness and don’t think that all wealth is due to hard work. It’s not. If you are just ranking people by their net worth and ranking their value by the net worth, that’s probably the most dangerous thing you can do with money. It’s the most profoundly wrong takeaway from money. And yes, a lot of wealthy people earned it, of course. And a lot of wealthy people or a lot of poor people made some very bad decisions.
But once you just use it as a yardstick to measure people’s value by, you’re making a huge mistake. There are a lot of wealthy people who I cannot stand. And some of my best friends don’t make that much money. And I think you can only have that in your life if you divorce someone’s salary and net worth from their personal worth in life.
SHANE PARRISH: What else? Keep going.
MORGAN HOUSEL: I think what’s interesting, I don’t know if this is the lesson, but what’s interesting is that if you ask most parents, what do you want for your kids? Almost every parent will say, I just want them to be happy. I just want to raise happy kids. And if you said, do you want your kids to be rich and successful? Well, sure, but I just want them to be happy. I just want them to be happy. So figuring out how to use money as a tool to make you happier rather than just a tool to pile on to become wealthier is really important. There are for sure people who earn 30 grand per year that are so much happier than people who earn $3 million per year. And understanding that value of money, I think is really important.
The Risk to Capitalism
SHANE PARRISH: What can money do to make you happier? Because there’s no other purpose. There’s nothing else that you should even think about other than that. What do you think is the biggest risk to capitalism?
MORGAN HOUSEL: I think it’s always going to be the case. It is inevitable. And it is actually ideal that there is some level of inequality in the world. It’s not only inevitable, it’s ideal. The opposite of that is a nightmare. But it’s also the case that you do not want a third of society waking up every morning and saying, this doesn’t work for me. This system doesn’t work for me. So once you get to some critical level, maybe it’s not 30%, whatever it is. But if enough people wake up in the morning and say, this sucks. This system doesn’t work. Then it’s going to reverse itself. And there’s a very long history of that.
So the balance of you want inequality because people’s skills are unequal. You want that to be the case. But there is some barrier at which it starts to reverse itself. And it becomes a pitchforks in the streets kind of scenario. That reverse.
Now, in the history of the United States, it’s happened several times. The 1920s and the Great Depression. I’ve been thinking what we’ve dealt with in the last couple of years. There’s always a pendulum between labor and capital, workers and investors. And it kind of swings back and forth of who’s taking the lion’s share of the spoils in this economy. In 1920s, it was capital. From the 19, probably 50s to 70s, it was labor. And since then, it’s been capital. And it kind of shifts back and forth.
Now, just in the last three or four years, there’s been a huge growth. The segment of society whose incomes have grown the most tends to be the lower incomes. We’re still kind of attached to this narrative of the rich get richer and the poor get poorer. But in the last couple of years, it has kind of flipped around, at least to a degree that we haven’t seen in a very long time. Is that the pendulum shifting towards another 30-year trend? Maybe, I have no idea. But that pendulum is always there to kind of keep itself in check. And I think if it gets too extreme, you can get very extreme outcomes.
We don’t remember this now. But in the 1930s, during the Great Depression, the words dictator and authoritarian and even fascism were not the dirty words that they are today. A lot of people during that era, it was not uncommon for people to say capitalism and even having a big democracy, this doesn’t work. The Great Depression in their minds proved that it didn’t work. And people’s push to say, hey, look at all these countries in Europe that are going towards fascism. Maybe we should try that because this didn’t work. I think that’s the danger when you get too unequal in society is that too many other people can be tempted to saying, that didn’t work, let’s try something even more extreme.
SHANE PARRISH: It’s almost like, I feel like I don’t have opportunity. The minute I feel like I don’t have opportunity, and it’s almost like we want equal opportunity and we’re okay with unequal outcomes.
MORGAN HOUSEL: Yeah. It’s a really tough thing. And I would not, I think you and I, if we felt that we were trapped, that there’s no way, no matter how hard we work, if we felt, whether it’s true or not, that we were trapped in a low-income job, you and I would be prone to some extreme views too.
SHANE PARRISH: Oh, totally.
MORGAN HOUSEL: There’s this thing I love that it was from a Russian poet who spent a lot of time in the Gulag. And he says, man becomes a beast in two weeks. If you have two weeks of deprivation, two weeks without food, two weeks in solitary confinement, a refined, kind, polite person becomes an animal. So if you put someone in an extreme scenario, they’re going to be prone to extreme views, extreme outcomes.
Understanding Compounding
SHANE PARRISH: Do you think most adults understand compounding?
MORGAN HOUSEL: I think it’s not intuitive to virtually anyone. Michael Badnik, a good friend of mine, has a saying that’s so simple, but I think sums this up the best. He says, if I asked you, what is eight plus eight plus eight plus eight? You can figure that in your head in five seconds. If I said, what is eight times eight times eight times eight times eight? Even if you’re a math genius, you’re like, I don’t know. It’s such a huge number. I have no idea what it is.
Basic linear math is very intuitive, very easy. Compounding math is just, it’s so unintuitive for even people who understand it. And it’s everywhere. Compounding is not just in your bank account, your brokerage account. There’s compounding in nature. There’s compounding for social trends. And it’s easy to underestimate how big something can become because compounding is so counterintuitive.
You see this with COVID, which was compound interest at its prime. Like this virus that in the early days is, you know, doubling every day, whatever it would be. And that’s how you go from, oh, three people are infected in March of 2020 to today. Like I don’t know anyone who’s not had COVID. And so it goes from literally three people to the entire world in the blink of an eye when it’s doubling that quickly.
SHANE PARRISH: How would you explain it to kids or adults? Like what is the best way to teach people the power of compounding? It’s like the one formula. I tell my kids this when they’re in math and they’re learning this in sort of grade eight, grade nine, they learn about compounding. And I’m like, your teacher’s never going to tell you this, but this is the most important formula you’re probably going to learn in your math class.
MORGAN HOUSEL: Yeah. I don’t know. I don’t have this up right now. I’ve not thought about this. I don’t know how I would explain it, but just growth fuels, more growth. It’s like the more you grow, the more fuel you have for more growth. That’s not a very good explanation for it, but that’s, that’s the thing to wrap your head around is like, it’s, it’s not what you start with. It’s just like how long you’re doing it for. And it’s not even the growth. It’s the duration that matters.
SHANE PARRISH: Yes.
MORGAN HOUSEL: So I said this earlier, how I think about my own investing philosophy. If I can be average for an above average period of time, that leads to a way above average result. It’s not, it’s not about like, what are the returns that I can earn this year? If I can earn 8% returns for 50 years, the results are ridiculous. The results are absurd. And so maximizing the variable that matters, which is time and endurance, you know, all compounding is effectively is returns to the power of time. And so if you understand math, the exponent there is what’s doing all the heavy lifting, like maximize for that.
But where is all of the effort in the investing industry? It’s in the smaller number. It’s in returns. How do I increase my returns this year? But I think when you understand like, no, all the power, all the wealth, all the leverage is in the endurance. Just focus on that before you think about anything else.
SHANE PARRISH: That’s a really powerful way to think about it.
Reading Habits
SHANE PARRISH: Let’s switch gears and talk about reading and writing. How do you select what you read?
MORGAN HOUSEL: I heard this idea. I think it was from Patrick O’Shaughnessy many years ago who said you want a wide funnel and a tight filter. I will start reading any book on any topic that looks even mildly interesting to me, but I will slam it shut without mercy and move on to something else. If it’s not working for me, a lot of the reason that people don’t like what people don’t read as much as they should, or if they say, I’m not a big reader, a lot of the reason is because they feel like morally that they need to finish every book that they start.
And we realized that the majority are, but there’s 4 million books for sale on Amazon. I bet 3.9 million of those are not meant for you or for me. They’re meant for other people, but they just don’t work for what we want out of them. And if you force yourself to finish every book you start, of course it’s going to be a miserable experience.
But when you are willing to try anything, but have a filter that just has no mercy to move on if you don’t like it, that’s when you find the great books. Because if you only stick to books that you know you’re going to like about topics that you’re interested, you are missing so many other topics out there that you don’t even know that you would like. You have to try a million different things, but then cut it off very quickly if you don’t like it. So that’s how I try to read. If it’s even slightly interesting, if someone has said, this is a good, I will start reading it.
By the way, Kindle samples are free. You have no excuse to not try any book and then just mercilessly cut it off. If it’s not working for you,
SHANE PARRISH: I find this really interesting because with my oldest who reads a ton, I just put books on his nightstand. And, some of them I think he’ll like some of them I don’t think he’ll like. And he randomly he’ll pick them off. But he read like an immune system textbook last year. And loved it.
MORGAN HOUSEL: I think there’s a lot of like that. If you ask me right now, would I like to read a book on the immune system? I don’t know. not really. But there are so many topics like that over the years that I never would have thought that I would like that. So I start reading, I’m like, this is incredible. Or it’s working for me in that moment.
It’s a missing puzzle piece in that moment. There are a couple books that have always been on my go to books that I recommend to other people. Oh, this is one of my favorite books of all time. A couple of those books, I went back and reread. And I’m like, they’re really not that good.
But at the time that I read them, it was a missing puzzle piece that it was like perfect for me in that moment. Even if when I read it now, I’m like books kind of very basic, not that well written. And so I think that missing puzzle piece is true for a lot of people. And that’s why I like you need to read a lot of books because what other people think are good may or may or may not be the book that you need at that moment.
SHANE PARRISH: Are you a Kindle reader?
MORGAN HOUSEL: Mostly I’d go back and forth. I’m in a Kindle kick right now. And I’ve been in physical books before.
The Benefits of Kindle
SHANE PARRISH: What I love about Kindle is so easy to highlight and go back and search, which for me as a writer is really important when I’m writing. I’m like, what was that quote from this book? I need to go find that really hard to do that in a physical book. Where’s Kindle? It’s just so easy.
MORGAN HOUSEL: Do you take them out of the Kindle or just leave the highlights on the Kindle?
SHANE PARRISH: I use the ReadWise app. And so everything that I highlight, whether it’s in a blog post or on Twitter, or it goes all into that. David Senra is the one who said his ReadWise feed of all of his highlights is his smart Twitter feed. Twitter can be filled with so much garbage and noise, but ReadWise you can flick through. I think David Senra said he has like 28,000 highlights. And he can sit there and scroll it of these amazing quotes and anecdotes that he’s highlighted over the years.
Memorable Passages
SHANE PARRISH: Are there passages that stick with you or haunt you that you’ve read that you can’t stop thinking about?
MORGAN HOUSEL: This might seem a weird one, but because I’m a writer too, as you are, I’m a sucker for just a well-crafted phrase. But there was one, I forget who wrote this and I’m sorry, I can’t tell you who wrote this, but it was a book about D-Day. And it was talking about this one group, this one company of soldiers on D-Day of whom many of them died. And the passage was, all of them were prepared to die that day. And all of them did die that day. And that was something, it’s such a beautifully crafted sentence. And it’s also just haunting in its own way. I’m such a sucker for that. It’s not like, I always say the best story wins. You could phrase that fact that they all died a million different ways, but how, whoever the author was phrased that always really stuck with me.
SHANE PARRISH: Why do you think the best story wins? What’s behind that?
MORGAN HOUSEL: What we’re trying to do when we read a lot of times is just contextualize whatever fact or story that was within our own lives. And it’s much easier to contextualize a story than a statistic because there’s a human element to a good story. And I also, it’s just so much easier to remember and stick with you. I don’t remember any of the formulas that I was forced to memorize in school, forced to memorize the night before the test. I remember a single one, but every good story that I was told from when I was six years old, I still remember.
So because it’s just so much easier to remember a story than a statistic, and it’s easier to contextualize it within your own life. And because there’s so much emotion embedded in it, stories are like leverage for good statistics. If you just felt like there’s some statistics, like I just said, if I said first platoon of company E all died on D-Day, that’s a statistic. But if you phrase that, if you put a name or a face to it, it becomes a completely different thing.
I always use the example of Ken Burns, who makes the best documentaries about U.S. history. And the vast majority of what is in his documentaries are already known. The documentary about the Civil War or World War II, you know how it ends. You know what happened. There’s not that much new in there, but he is a better storyteller than I think any historian has ever been in history. He can tell a story about the Civil War that will literally bring you to tears, even if you know what happened. You knew what happened, but when you hear the story and see the face and hear the music in the documentary, it will literally bring you to tears.
And Ken Burns has talked about how important music is in his documentaries, the background music. And he said that he will literally edit the script so that when the narrator says a specific emotional word, it matches up with a beat in the background music so that the emotion and the music is literally aligned like that. No other historian is doing that. No other historian does that. And that’s why he can create, he has the leverage by telling, by talking about the Civil War, that no other of the historians who are writing about the Civil War can recreate.
Tips for Storytelling
SHANE PARRISH: Take a few seconds and think about how you would teach me to tell a better story. You’re one of the best storytellers of our generation. Teach me how to tell a story like Morgan Housel.
MORGAN HOUSEL: I think it’s two things. One is write for an audience of one, which is yourself. Don’t think about other people. Don’t think about who’s going to read this. Don’t think, don’t ask yourself, how is the reader going to interpret the sentence? Write a sentence that moves you, that makes you, when you read it, you’re like, ooh, I like that, without thinking about anyone else. I think once you start thinking about who is my audience and what are they going to like, you start to pander. And you start to perform for them in a way that is very hard to create a good emotional story about, just write for yourself.
The other is don’t forget how impatient everyone is. So this is a sense where maybe you are thinking about the reader, everyone is so impatient when they’re reading that you just always have to ask yourself, what is the point that I’m trying to make? Make that point and get the hell out of people’s way and move on to another point. And most storytelling, you lose it once you lose the reader.
Mark Twain, he said at one point that when he would edit his work, he would read it aloud to his family. He’d read the story aloud. And when he saw them getting bored, he would make a note, all right, cut that part. They’re clearly dozing off here. And when he would see their eyes bug up, he’d be like, oh, this is a good part. And I think Mark Twain was the one who said, “leave out the parts that readers tend to skip.” That’s the key to good writing. Leave out the parts that people tend to skip. I think that’s important to keep in mind too, is just write for yourself in a way that you like and get to the point and get out of people’s way after that.
Learning to Write
SHANE PARRISH: How did you learn to write? You didn’t even go to high school.
MORGAN HOUSEL: When I was at The Motley Fool for 10 years, that was a 10 year period where I was sometimes writing three posts per day, three articles per day, doing that every day for almost a decade. I wrote thousands and thousands of blog posts. And when you write online, people are merciless about the feedback they give you. The readers in the comment sections or on Twitter will tell you in no uncertain terms, this article was shit and you did a terrible job. Or they’ll say, this was really good. I really enjoyed it.
So having that level of constant feedback and doing that thousands of times over a decade will turn anyone into a much better writer than they were when they started. So that was really what it was for me. It’s a combination of quantity and fierce, unvarnished feedback from readers.
SHANE PARRISH: Do you test ideas?
MORGAN HOUSEL: I think in some ways you test ideas in Twitter. And if they work, you can turn those ideas into a blog post. And if the blog post works, you can turn it into a book idea or book chapter. That’s kind of the natural progression for a lot of these things. And just like it’s very true in comedy too. Even the best comedians, the world-class comedians don’t necessarily know what’s funny until they’ve tested it. And this is why George Carlin, Chris Rock, Jerry Seinfeld, they test their new jokes in tiny clubs. Because even Chris Rock does not know what’s funny until they’ve tested it, until he’s tested it.
And I think it’s true for writers as well. I’ve had a lot of experience with, I’ll write a blog post and I’m like, this is good, this is some of my best work. And it flops, no one else likes it. And the opposite is true too. The biggest, most popular blog posts I’ve ever written were always ones where when I was writing and I was like, I don’t think this is any good. This is so obvious, it’s so boring. It’s too personal, no one else is going to care about this. That does well.
So even after doing this for so many years, I don’t know if my ability to find a topic and say like, ooh, that’s going to turn into a good post is really that good, which is why you kind of have to test ideas over time.
SHANE PARRISH: It’s so interesting because podcasts are like that too. I’ll record an episode and I’ll be like, oh my God, that was mind blowing. And then three months later, I’ll check at the stats and I’ll be like, what? And then I’ll record a podcast and I’m like, oh, I wasn’t that engaged. And I look at the stats and it’s like off the charts.
MORGAN HOUSEL: Yes, the most popular blog post I’ve ever written by far, by like an order of magnitude was a post in 2017 that I wrote about, I grew up with and still have a stutter. And when I was a child and teenager, I could barely speak. It was a very severe stutter when I was a child and I couldn’t really overcome it to where I can talk to you like I do now until I was 30 years old.
And so I wrote a post about this trial. It’s called Overcoming Your Demons. And it was the most popular post I ever wrote. And when I published it, I literally hid it from our blog feed because I was like, no one’s going to be interested in this. I was literally hidden. Like the link was out there, but it wasn’t even on the feed because I was like, I’m so embarrassed about this that I would just be writing about a personal thing. No one else cares about this. And I really felt that way. And it turned into the most popular thing I ever wrote. It’s hard to tell.
SHANE PARRISH: Do you think you were scared to put it out there?
MORGAN HOUSEL: Combination of scared, also the point of the post was overcoming your demons that I started with this like profound disability that had such a big impact on my childhood. And I overcame it. And now I speak on stage and do these kinds of podcasts. And I felt like it was to look at me, look at me, look at me. I didn’t want that. But I think everyone has their demons. You do. Everyone has something where they’re like, I’ve got this problem in my life.
And a lot of those are hidden. People don’t talk about them because they’re embarrassed. They don’t want to talk about it. It’s too personal. And I think when you are vulnerable and open, people love it. Because even if you don’t stutter, you’re like, oh, I have this similar, I have this issue, whatever it would be. And like, thank you for telling me that your life is not perfect. Thank you for being open about the struggles that we all have in our lives. I think people like that.
But it’s a fine balance between that and being too personal, which we’ve all seen online, or being too braggy, egotistical about like, look how much I overcame. I’m so important. I’m so special. It’s a hard, it’s a balance.
SHANE PARRISH: It’s almost like a, some people use vulnerability strategically.
MORGAN HOUSEL: Yes, you can tell. There was that viral LinkedIn post a year or two ago of, it was a founder, and he said, I just had to lay off half my company. And he included a picture of him with like tears running down his face. And people are like, that’s terrible. You’re like, shame on you for just trying to like pull at the heartstrings and say like, oh, I’m so empathetic that I cry when I feel like, it’s actually a hard balance between. Like why did my stuttering post work? But that picture was just universally panned. It’s a balance, but I think it’s hard to know where you crossed the line there.
Lessons from Comedians
SHANE PARRISH: I want to come back to comedians for a second. What did they know about telling stories that we should learn from them?
MORGAN HOUSEL: I forget who says this, and this is not a direct quote. I’m paraphrasing it. I’m going to do a much poor job paraphrasing it, but it’s like comedy is a way to show you’re smart without being arrogant, something like that. That’s not the quote. I’m doing such a bad job paraphrasing this, but I honestly think that the best comedians are some of the smartest people in society.
They understand psychology. George Carlin understood psychology, I think better than Daniel Kahneman did. That’s a bold statement, but I think that is actually true. They are so smart at understanding how the world works, what makes people tick, how people think, but they’re doing it in a way where they don’t want to just impress you with their intelligence. They want to make you laugh. What could be better than that?
I’ll give you one example, my favorite George Carlin line. He says, “have you ever noticed that everyone driving slower than you is an idiot, and everyone driving faster than you is a maniac?” A, it’s funny, but B, it’s like, God, if you think about it, that’s profound, and understanding relative views of other people and whatnot. I think they’re absolute geniuses, but they want to deliver it in a way rather than using big words to say, look how smart I am. They just want to make you laugh.
They are also, because particularly for a young comic, if they are not making you laugh quickly, they’re going to get booed off stage. They are the epitome of one-liner, just so succinct in their delivery, so succinct in their writing, because they don’t have the luxury that a lot of authors do of like, let me write a 7,000 word chapter. A comedian on stage is like, if you don’t make me laugh every 10 seconds, you’re going to get booed off.
SHANE PARRISH: It’s interesting because you mentioned psychology there. They’re keen observers of human nature and psychology, and all we’ve talked about today, we’ve talked about it through the lens of money, but it’s basically psychology.
MORGAN HOUSEL: I think a lot of things in life fall under this umbrella of how do people make decisions around uncertainty, risk, and lack of information, and that is health, that is politics, that is friendships and marriages, and it’s also money. A lot of things fall under the same umbrella. There’s a study of how do people behave, and one of the things I think is important here is that you can learn so much about money by studying and reading fields that have nothing to do with money.
I think you can learn more about money by reading about politics, military history, biology, sociology, than you will by reading a finance book, because you’re just trying to figure out how do people make decisions, how do you make decisions, and how do other people make decisions, and by and large, you’re not going to learn that in an economics textbook, but you will learn about it by reading all these other fields that have nothing to do with money.
Writing Process
SHANE PARRISH: What’s your process for writing?
MORGAN HOUSEL: I don’t think this is good advice, so if you’re a writer out there, I’m not saying this is the right way to do it, but one of the things that I do that I think is not common is I write, by the time I get to the bottom of a post, it’s pretty much the final draft, not because I can write a final draft in one shot, but because I, by and large, don’t move on to the next sentence until I’m satisfied with the previous one. Most writers, most very good writers, will do the opposite. They say, your first draft should just be a brain dump, and then you go back and edit it.
For whatever reason, it’s never really worked for me. So, the other thing is, I think I get too anxious and jittery sitting for too long, so a lot of times, I’ll write one sentence, when I’m satisfied with it, I’ll get up and go do the laundry, and I’ll come back and write two more sentences, and then I’ll go do the dishes or walk my dog or something. So, it’s very sporadic like that, and I think that contrasts with a lot of writers who are like, oh, I sit down, I can dump 5,000 words on the page, and then I go back and edit it. That is probably the best advice. That’s what you should do, and for whatever reason, it’s never really worked for me. What you should do, what works for you. I guess that’s it, but most writers that I look up to, I think are much better writers than I, do it the opposite.
Hooking Readers
SHANE PARRISH: How do you hook people? You’re one of the best at sort of, you and James Clear, the two people who, the first sentence to your paragraph, and sort of like the first part of your story, really pulls people in. What would you, what do you think you do differently?
MORGAN HOUSEL: I think it’s a constant reminder of how impatient people are, and if you don’t hook them in five seconds, you’re gone, and I know that because I’m a big reader, and if you don’t hook me in five seconds, I’m probably gone, unless you are like an author who I really know that I will give you a little bit more leeway to be like, okay, I don’t know where your article is going, but I’m going to stick with you, because I like you.
If you’re not that, you’ve got five seconds to catch your attention, or else you’re out of there, and I think that is, it’s easy to overlook that, that it’s not just being succinct, you know, in the core of your article, but it’s almost like an inverted pyramid, where it’s like, people are most impatient in the first two sentences, and so you would think it would be the other way around. They would get impatient after they’ve worked their way through your article, they were getting bored, like no, they’re most impatient at the top, and there’s a lot of data that can be very disheartening for authors.
There was a mathematician who looked at Kindle highlight data, and he used highlights as a proxy for how far people make it in a book, and the assumption was, when people stop highlighting in Kindle, they probably stop reading, and he showed that even among best-selling books, the most popular books, the average reader makes like a quarter of the way through. That’s in the best sellers, that’s in the good books, a quarter of the way through, and they’re done, and so just always reminding yourself how impatient people are. It’s just like, what’s your point? Make your point and get the hell out of people’s way.
I also think Twitter has made people better writers, because the character count limitation has forced people to be like, you have two sentences to tell me your idea, and that’s all you get. That’s actually, I think that’s been a great thing overall, for making people more succinct.
SHANE PARRISH: What makes a good hook?
MORGAN HOUSEL: It could be a lot of things. It could be funny, it could be profound. I think we were talking about this last night about, I forget who said it, that good writing fits one of the acronyms of like, OMG, LOL, something like that. It should be shocking, or funny, or profound, or scary, something like that that’s going to invoke some emotion.
SHANE PARRISH: Yeah, something like that.
Parting Advice
SHANE PARRISH: I want to end with two questions. One being, you can leave everybody some parting wisdom on money and life. What would it be?
MORGAN HOUSEL: I think the most important is to realize how personal it is, and therefore, you’ve really got to be careful taking your cues from other people. You and I, again, same age, same, going down the list, you and I are very similar people, probably have very different views about what to do with money, and that is fine. Just like you and I might have different views about food. You like this food, I like that. It doesn’t mean that you’re wrong. It’s got different tastes and whatnot.
People understand that with food, but there is a common sense with money that there is one right answer for everybody. I think you really have to be introspective and look in the mirror and just say, what works for myself and my own family? Even if there are holes and flaws and other people disagree with that, if it works well for me, that’s as good as you can do. That’s an important thing.
SHANE PARRISH: Final question, what is success for you?
MORGAN HOUSEL: I think Jim O’Shaughnessy said that his goal as a parent was not to raise good kids, it was to raise good adults. He wanted to be the kind of father that when his kids became adults, they were well-balanced. That’s different from raising good kids. You want to raise good adults. That would be a big, maybe the top box to check in my life is looking back and being like, my wife and I did our best to raise kids that became good, self-sufficient, well-balanced, polite, happy adults.
SHANE PARRISH: That’s excellent. Thank you very much, Morgan.
MORGAN HOUSEL: Thanks, Shane. Thank you.
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