Talk Your Book: How to Spend With Morgan Housel

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0:52Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

1:22Morgan, how are you? I'm doing well. Nice to see you guys. Thanks for having me. Okay. you're welcome. Great to see you too. All right. So I read the book and I enjoyed the shit out of it. I kind of thought, I was like, eh, I know Morgan. I know how to spend money. I don't need to read it. I know how to spend money. But I enjoyed it. It's a great book. Cool. Thank you. Thank you. I appreciate it. Okay. I want to start here. He doesn't tell you how to spend money, right? That's the whole premise of the book, right? We'll get there. Okay. You wrote, I think bragging is the inverse of how satisfied you are with life.

1:56It's one of the most reliable psychological formulas around. So I saw, there's this person on the internet who, it is Twitter bio. It shows his net worth down to the penny. Have you seen this? No, but that's a great - I know those people exist though, right? So his pinned tweet is what no sleep, no family vacations, and no exercise does to a man. And it shows his portfolio down to the body. That's his pinned tweet. And credit to him. It's over 10 million. It's a lot more money than I have. It's a lot of money. But somebody who does that, I would put an 85 % chance that they Photoshop that. If you're willing to do that, if you're willing to look that ridiculous, of course, you're willing to just make the entire number up to begin with.

2:41I mean, it's crazy behavior. But I don't know if you started the book this way, but one of your big things, which I do genuinely ascribe to, is you have no idea. You only have like some information on somebody's life. How did you phrase it? Yeah. I mean, so the idea is like all behavior makes sense with enough information that you can see how somebody is responding, how they're bragging, how they're scared, how they want to show off. Like all those different values. and there's always a story behind it to where at the surface level, you can criticize and make fun of them. And as we do, and it's fun to do, but there's always a story behind that.

3:17No, it's sad. It is kind of sad. And the person who posts their net worth online without even knowing them, and it's always like a different story, but there's probably some story there of like lack of self-confidence has been snubbed in the past and has this idea of like, I'll show them. They snubbed me in the past, but look at me now. Look what I accomplished. and whether it's to show other people or just to prove to yourself, look what I did. So I wrote in the book, I have a close family member who grew up homeless and in and out of the foster system, like as poor of a child as you can imagine, and then became a very successful businessman when he became older.

3:52And when his daughter applied for college, he told her, he said, please pick the most expensive school that you get into. And the reason, it was like in his mind, not even for other people, but for him, the idea that he could send his daughter to an expensive school was the ultimate trophy of what he had overcome. And it was in his mind, it was like the more expensive, the better. And again, it wasn't even to show other people. It was like this internal trophy. And I think we all have some of those. So maybe that guy who's posting his$10 million net worth, whatever it is, is like that's his internal trophy from a period of his life 20 years ago or whatever, when he just felt absolutely terrible about himself.

4:27It doesn't absolve your crazy behavior or obnoxious behavior. But I think like no matter what the behavior is, if you dig deep into it, you're like, okay, it sort of makes sense why you would do that. And maybe if I was in the same situation, I would do it too. So I deal with this all the time at kids' sporting events. You have the one parent who brags about all of their kids, their accomplishments. Oh, my kid scored five goals today and they scored 20 points in basketball, whatever it is. And the other parents are rolling their eyes because no one wants to hear about your children's accomplishments.

4:55And I told my wife this last week, I said, the reason they're doing this is because some deficiency in their life. They're trying to compensate. And once you see it through that lens, it changes the way you think about it. Obviously, some people are just living vicariously and that, but yeah, it totally changes the equation. I remember the opposite of this. I have so many stories from when I was a valet back in college. And one of them was a guy, his name was Jimmy Kwok. And he was one of the founders of Volcom. Remember Volcom, the clothing brand? It was like a surf clothing brand, really popular in the early 2000s.

5:26Made an absolute fortune for himself. And he drove an old pickup truck and was the nicest, humblest, most helpful, most complimentary person you will ever meet in your life. And he's one of the richest guys in town. And I mean, it's like, that's the opposite. I think if you are totally fulfilled at home and at work and you feel great about yourself and you're happy with your accomplishments, you're happy with your kids, you have no desire whatsoever to be like, I'm going to show up and talk about how good my kid is. I'm going to post my net worth online. It wouldn't even cross your mind because you're already getting all the attention and admiration and respect for more durable things already.

6:00I have a valet one for you because this is, and I've been meaning to bring this up to Michael, but my son plays football, and I drop him off and pick him up from practice twice a week, and one of the other kids on the team, his dad drives a bright orange Lamborghini. Okay, so he picks him up in, I mean, we're talking football, it's tackle, so it's football pads, helmet, and his dad picks him up in a Lamborghini. And you know, of course, the kids all run and look at this thing, and oh my gosh, it's amazing, and when he pulls out, he drives really fast, and it makes this really loud noise. and obviously you don't buy a Lamborghini unless you want to be seen, right?

6:33But I also think my views of that, so if you would have asked me this 10 or 15 years ago, I would have said, okay, this guy is obviously showing off. I don't know what he does or where he gets his money from. He's all right. You know, he's a middle-aged guy. He's got a young kid, and he drives a Lamborghini. Doesn't seem very, you know, like helpful when you have kids for that kind of car, but I also think, like, no one knows what his financial situation is or what got him to that point where he has to show it off. And so I think I'm actually a little more forgiving of that fancy of a purchase these days than I would have been in the past.

7:06I would never do that personally, but I almost like, I don't know. I don't know what his situation is, if he sold a business, if he has an inheritance that he got or what it is that caused him to spend this much money on a car and obviously want to show it off. But I don't, I'm a little hesitant to judge as much on that as I would have been in the past. Yeah, there's always a story behind it. And the story's not always bad. I remember this guy back in my valet days that I met. He had, this was like mid-2000s, and he had a Ferrari Enzo, which is like the super-duper tippity-top Ferrari. I think today they cost millions and millions of dollars.

7:39And he never drove it on the road. He was like, it never left his garage. Because he was just like, I just love the engineering. I love the art. I love looking at it. I love kind of like polishing it up. And I was like, that's actually a great reason to own a Ferrari. He was like, it's the opposite of getting people's attention. to him. It was just a beautiful piece of art that he loved to, to sit there and like fondle and, and, and, and look at it. And like, that's great. Fondle it, rub it, whatever you're doing with it. And so that was, I think that's like, that's a great reason. So like the message here is not don't buy fancy things, don't buy nice cars, don't buy clothes, but you have to like them for the right reason.

8:13And if your reason is I will get other people's attention, they will turn their heads and say, look at him. He's so great. He's so cool. I should admire that person, you're fooling yourself. It's not going to happen. And, and, but, but there's, there's also a point of like, the reason you're doing that is because there's some wound, there's some hole that you're trying to fill in there that's being filled. So I too, most of the time I see that I, there's a point in my life when I would admire that. And then I kind of went from looking down upon it and having like pity for that person. I'm just like, ah, you, you idiot.

8:43Um, but, but now it's like, it's more often a sense, a sense of empathy of just like, oh, that, that person's going through something. They, they, they have, they have a, they have a deep scar that they're trying to fill right now. All right. So there's, there's so much to unpack with the car specifically. Um, and I think it comes down to what type of person you are, but I want to put a pin on this real quick. I was a Valley Parker for years. I don't have any stories now. Is that true for a dude? I, I Valley parked for years. Now I was a Valley Parker on the South shore of Long Island at like restaurants.

9:10And, uh, I don't know. I have not a single and a golf course. I'm not a single story, not one unless except for me getting fired. I have no story. I did it for four years and I feel like I could write a book. I have a friend who's done it for 20 years. He's still there. And he was like, I could do an entire HBO series on what I've learned as a valet. And maybe it was the time, it was in Los Angeles in the mid to, like during the housing bubble, when in Orange County, which was like the epicenter. It was the HQ of every subprime lender during this era. So there was literally trillions of dollars of fake money just blowing through Orange County during this era.

9:43I think that had a lot to do with it. Well, Ben, why did you think of me? Hmm, what are you talking about? Was that the story that you had that you thought of me or you saved it for the show? No, I said I was going to tell you and I said I wanted to save it to talk about this. So two days ago, I saw somebody driving a – dropping their child off at the elementary school. And like most people, my thought was what a douche. And I don't know this person. And he tried to go around to park a bus that was letting kids off. and the guy taking the kids off the boat was like, are you insane? What are you doing?

10:20And me and Rob were like laughing. Like, could you believe this guy? Like, I was like benefit of the doubt sort of guy. I don't know this person. I don't know this person. Maybe he's a wonderful guy. I really don't know. But here's the thing about people with cars and symbols and judging. There's like the other extreme of rich people that you know are rich driving a piece of shit car. To me, that's like maybe even worse. We can get into that. But don't you think it comes down to what type of person this is? Now, I'm not talking about strangers because a stranger most often is going to look at somebody driving a and say, what a douche.

10:50Okay. However, if you're my friend and you're just an awesome human being and you have the right values and you're a good person and you're generous and you're kind and you worked your ass off and you bought yourself, I want to give you the biggest hug in the world. I think there are incredible people that don't have these insecurities, maybe a little bit, that just like nice cars. and I think about this all the time. I mean, and then another part is like, do you want your kids knowing? Do you want your kids driving around with you in a Range Rover? What if you love a Range Rover? I love a Range Rover, but I don't want simultaneously, I don't want strangers thinking, oh, look at this fucking asshole, this bald loser driving around.

11:29What is he compensating for? The people who buy these, they're never in their head as much as we are though. They don't even think about it, right? Those are the people that like - I think they're just doing whatever their animal instinct tells them to do and wants to do it like that. Yeah, I think that's usually the case. But I guess I'm just saying like, Like it doesn't auto, just because you have a nice car does not mean that you're a giant D. No, I think the way that you did it where you drive a powder blue Lamborghini is a way to do it. Like it's not that flashy the way that you did it. Well, I keep that in the garage board.

11:59Okay, so I have a, I want to run this by and see what you think because I talking to Josh earlier today about how there's a million books about how to buy stocks and there's like no good, there's no classic books about how to use sell stocks, right? There's some areas that are maybe just too hard or people don't. And I think the same is true of first personal finance books. There's a ton of great personal finance books about how to save and how to be frugal and how to invest. And I think personal finance people as a whole, if I'm generalizing, aren't very good at giving you spending advice. Like they don't know how to have that.

12:29They don't know how to get once you save and pay off credit card debt and stuff. They're really good at that. But then when it comes to actually prioritizing what you want to spend on, they don't have that other gear to go into. And I feel like Like there's a huge hole in the personal finance arena in this space where we keep running into people constantly who cannot flip the psychological switch and make themselves spend. Even though they know they want to, they can't figure out how to do it because for their whole life it's been save, save, save. And now how do I spend? And I think this is a big hole in the personal finance genre.

13:02Yeah, I think it's true. I think that was – for me, that was a lot of the origin of this book. Whereas if you asked me five years ago, what is my investing philosophy? You, I, and you guys, we could talk for hours about, oh, here's how I think about risk. Here's how I think about volatility. Here's how I think about long-term. Like we could talk forever. And there's 10 ,000 books written about that. But then I realized like, this is like four or five years ago. I kind of asked myself, I was like, what is my spending philosophy for my wife and I? And I was like, I have no idea. I spent so much time thinking about how I invest and how to grow wealth.

13:36and had not spent one second thinking about the psychology of spending it. Why do I spend this way? Why do I save this way? Who am I trying to impress? Whose attention am I trying to get? What actually makes me happy? What actually makes me content? Like the psychology of envy, the psychology of greed and jealousy and whatnot. There was like a total blind spot. I think part of that is because people intuitively think nothing needs to be said about this topic. That you just go out and spend. And if you can spend more, that's better than spending less. And that's it. That's all you need to say. But the three of us know that investing, you can just say, oh, just dollar cost average and hold for the long-term.

14:11And that's not wrong, but you're like, yeah, but it's 800 million percent more complicated than that and messier than that. And I think it's true for spending too. So like the idea like, yeah, you can spend a lot of money and have a great life, but it's a lot more complicated than that. You need to understand why you want to spend that way, what your motivations are, like where you want to sit on the social aspiration hierarchy, what is going to make you content? what's going to make you envious of others, what will make other people envious of you. There's so many things that come down from that.

14:40And so putting the same lens that we've put on investing of let's try to understand the psychology of why people make these decisions. I think you could do that for spending as well. You write about future regret and why you should minimize it. I want to push back a little bit because I generally, generally agree with some of that philosophy, but I don't know that what really matters is all that matters. And thinking about things that you might regret in the future, why is 75-year-old Michael more important than 40-year-old Michael? Like, what if I am doing things that I might look back on 35 years from now, 40 years from now and regret more important than some of the things that I enjoy today?

15:20Now, again, there's like, all right, well, I'm just going to do reckless things because who cares about the future? You got to strike the right balance. But I think it's complicated. I don't know that I care about my future regrets as much as I care about enjoying today. You know, Michael, there's always the phrase like live in the present and most people can't do it. I am the most present person in the world. A lot of people live in the past or the future. You are a very present person. Like you're in a very narrow band, I feel like. No, but I feel like in that situation, 75-year-old Michael wouldn't regret it.

15:49He would look back and be like, I'm glad I blew a lot of money on that powder blue Lamborghini because I got a lot of joy out of it. And so you wouldn't actually regret it. but there might be things that you would regret. And so I've brought this up several times, this wonderful book called 30 Lessons for Living, where this doctor interviewed a bunch of like 90 to 100 year old Americans and just said like, tell me what advice you have on life. You're 97 years old, you've been through everything. What do you think? And not a single one of, he interviewed a thousand people. Not one of them looked back and said, I wish I made more money.

16:19But almost every single one of them looked back and said, I wish I spent more time with my kids. I wish I was nicer to my friends. I wish I was more forgiving of myself. That's like nearly universal. And so I think it is important when we are not old yet, the three of us are getting there very quickly, but not old yet to be like, look, there's like statistically, there are things that we are very likely to look back and have a sense of regret. And it's spending time with our family and being nicer to people and being more forgiving of who we actually are. And there's things that we are almost certainly not going to regret, which is how hard we worked and how much money we saved.

16:52Just like the base rate of what happens to people, that's usually the case. And so I think, I think Michael, it's still, I, I, I, the idea still holds of like having a good sense of your future regret, but I think because you are more present minded than most, you are probably less susceptible to having regrets than others. I'm sure you'll have some, but less than others. And I think I look at like investing itself as this regret minimization thing. Like it's all, the whole thing is just trade-offs all the way down. Right. And I think that's the thing that makes more sense as you get older is you, you figure out.

17:23And having kids has completely changed my mind. Like the spending philosophy you said, I never had one before either. For me, it was always save, save, save, spreadsheet, spreadsheet. And then you have kids and it totally changes your mindset. We had a friend who one time our kids were all four years old and she was like, listen, how many more summers do we have with these kids before they're gone to college? And we started doing the math like, oh my gosh, like when you put it that way, it doesn't. And that whole thing has completely changed. I feel like Michael and I have more conversations about stuff we're spending money on than ever before, more so than like investing, because we see that these kids are in the sweet spot, and we know what's coming eventually.

18:00And you talk to parents with kids that are older, and you can feel it when they turn into teenagers, and they're hanging out all the time, they're leaving you, or then they go to college, you don't seem as much anymore. And all those things as a parent totally has flipped a switch for me for what I prioritize. And I think that's the most important thing, because you talk about, I think in the first chapter of the book, you say, like, you can't tell someone how to spend their money. It's everyone has their different priorities. But the point is, you have to figure out what those priorities are.

18:25That's the thing that that's how you figure out like when to spend money is, okay, all this other stuff I don't really care about. Like for me, it's that I'm an A to B guy with cars, I could never be the Lambo person. I just I want a decent car that's going to be high quality and get me from place to place. But I want to spend on other things. And I think that's the whole point is is putting all the other stuff to side and then really spending on the things that matter to you. That's the hard part for people to get around, wrap their head around. Right. And I think, and that'll continue to change in the future.

18:51Like, I imagine if the three of us are doing this podcast when we're all 87 years old, if we are still talking about long-term compounding, like, like shame on us at that age, like hopefully at that age where like, how can I live and like help, help my kids and my grandkids and help my, you know, my local town and whatnot. Hopefully that's what we're talking about. But it made perfect sense that 10 years ago, the three of us were just talking about long-term compounding. That's the phase of life we were in. That's what we should have been doing. And so that's also another point of like, there's no formula on how to do this.

19:19Not only are individuals different, I'm different than you are, but we're all going to be different over the course of different phases of our life. And so when you try to just box everything into, here's how to do it, here's the formula, it screws it all up because I'm the same way. My son, my oldest just turned 10. And the idea that like, we are well past halfway as parents with him. Like if he leaves at 18, we're more than halfway there. It's crazy. And there are a lot of things that can stem from that. But spending money is like, is part of that too. I was like, I can't, like this is what every parent will say.

19:51I can't believe how fast it's gone. I feel like he was born yesterday. And so the trips that I need to take with him, like apps, like we need to prioritize that immediately because snap your fingers, he's going to be going up to college and that's it. And so like, but that's not a view that I could have really understood eight years ago or 10 years ago. And there's going to be views 10 years from now that I and you and all of us can't understand today. And so that's the idea of like, you can't be too rigid in these beliefs. It's going to change throughout your life. Speaking of like the priorities shifting, one of the things that I've been thinking about a lot that the, the, the thing that all personal finance people say, and there, there's a huge degree of truth to this.

20:25It's just that spend on experiences and material possessions won't make you happy. Cause you get that initial dopamine hit from buying material possessions. And I feel like I've totally changed my mind on that. I think there are certain material possessions that can actually, that can, that can make you happy. I, well, Well, here's a small one. I love buying clothes. And if I buy a nice sweater and I get the dopamine hit from buying it and waiting for it to come, but then every time I wear it, it makes me feel good. I think that kind of material possession, it seems like it's so stupid in a way.

20:57But even that kind of thing, I feel like can, if you have the right attitude, and you're not just blowing your money constantly, but it's something that you actually enjoy. I think that's like, it's okay. You don't have to be policed about spending on that stuff, as long as it's something that you actually get some enjoyment out of. Right, and I think another, I totally agree with that. And another version of that is the idea of spend your money on experiences can be taken way too far as well. So my wife and I, this is just in the last six weeks or so, we finally admitted to ourself that like, hey, of the last four vacations we've taken, the best part of the trip was coming home.

21:30The most relaxing and enjoyable part of the trip was finally getting home back to like where we knew where like all of us, rather than being cramped in a hotel room and stuff. And so we're like, can we just admit to ourselves that at least at this phase of our life with two little kids who suck at traveling, maybe traveling is not the right thing for us to do right now. But it's hard to get there because there is so much like everyone tells you, travel, travel, travel, experience, experience, experiences. And like, it's not necessarily the travel. It's just the time with your family that matters.