[REPLAY] Morgan Housel – The Psychology of Money (Capital Allocators, EP.155)

22:47And so I tell two stories in the opening of the book of people who basically have that background. A no one, a guy who was a janitor and a gas station attendant who, when he died, ended up having a huge fortune that he left to charity versus I compare that to another guy who had went to Harvard and got an MBA from University of Chicago and was a vice chairman at Merrill Lynch and went bankrupt around the same time that this bumbling country bumpkin gas station attendant left his fortune to charity, this guy with an MBA from University of Chicago went bankrupt and lost his homes and told the bankruptcy judge that he had absolutely nothing left.

23:23And the juxtaposition of those two stories is important because it does not happen in any other field. It's impossible to think of someone with no education, no background, performing open heart surgery better than a Harvard trained cardiologist. That world would never, ever exist. It's impossible to think of someone with no engineering background, building a hundred story skyscraper just on their spare time. It's impossible. It would never happen. But that does happen in finance. On one hand, you could say, well, that happens because there's luck involved. People who have no idea what they're doing can do well because they got lucky.

23:58Sure, that's true. I think the more important explanation though is that that happens because what matters in finance is not what you know. It's not your IQ or your intelligence. It's just how you behave. That's the most important. It's not the only thing that's important, But the most important part of finance is your relationship with greed and fear and who you trust, knowing and understanding your own personality, your own goals. These soft things that have nothing to do with how we traditionally teach or think about finance, but make all the difference in the world in terms of their real world outcomes.

24:28There is always this question of the degree that luck plays into success and careers. I know you tackle that talking about both luck and risk in the book. So I tell the story about Bill Gates, two sides. There's one side of this that may be a little bit well-known, but the other part is less well-known. But Bill Gates went to the only high school in America that had a computer. And the computer that they had was more advanced than most of the computer programs had at the top universities. He had that from the time he was 14 years old, the only high school in America that had this. And he makes no qualms about what that meant.

25:02He gave the graduation speech at his high school, his former high school in 2005. And he said, Lakeside is the name of his high school. He said, if there were no Lakeside High, there would be no Microsoft. The only reason Microsoft came to existence and Bill Gates became the computer genius he was is because of the dumb luck of where he happened to be born, where he lived, and his parents' ability to send him to this private school that had the only computer in the country. It was a dumb luck set. And of course, that does not mean that Bill Gates is not genius and one of the hardest working, brilliant corporate executives.

25:34He is all that. But there was a massive element of luck that got him to where he is. On the other hand, while Bill Gates was in high school at Lakeside, as he describes it, his best friend, a guy named Kent, was just as interested in computers as Bill was. As Bill describes him, he was smarter, not just about computers, but about business. He was just a higher level of intelligence than Bill was. He was more ambitious than Bill was. He always had this idea of how to build a great company. And Bill describes it that he and Kent had planned to go off to college together and probably start a computer business together.

26:09But before they graduated high school, Kent died in a mountaineering accident. He died when he was 17 years old. That is, Bill Gates' success is driven by luck. It doesn't mean there wasn't hard work, but he had this element of luck by going to Lakeside School. And his friend, Kent, who had just as much tenacity and genius as Bill did, experienced risk. He died in a freak accident and didn't get to experience anything. So luck and risk, as I said, are like the opposite sides of the exact same coin. They're both just this idea that there are things that happen in our life outside of our control that can have a bigger influence on our outcomes than anything that we intentionally do.

26:46That's true for both sides of the equation. And what's hard about luck and risk is that they're very hard to measure. Luck is really hard to measure because it almost seems insulting. I've tried to measure my words here because if I say Bill Gates is lucky, it makes me look like I'm discounting his hard work, like I'm jealous of him. And it's not that whatsoever, but it's just hard to look at someone who is successful and say they had luck. Most successful people don't want to admit that their success was due to luck and outsiders look like jerks if they express luck on someone else. So luck kind of gets swept under the rug.

27:19Risk is also the same because if someone fails, it's easy to say, well, that person didn't make the right decisions. We usually look at success and failure as binary. If you are successful, you made the right decisions. If you weren't, you made the wrong decisions. But when you realize that, like we're all just trying to make probabilistic decisions of let's say, you know, the odds of success are 80 % in your favor, let's say. That means that 20 % of the time you're gonna make the right decision where the odds were in your favor and still end up with a bad outcome. Or let's say the odds of success are 10 % in your favor.

27:51That's a terrible bet. 90 % chance you're gonna fail, but 10 % of the time you'll get the right result. So the power of luck and risk and the difficulty in measuring them and accepting them has a big impact on how we think about finance, how we think about investing business and life. And I think one of the biggest outgrowths of that is that it's very hard to pick who we should admire, who are our role models and how do we look at other people and say, well, Bill Gates did this, so I should try to emulate that. In a good, in an innocent way, that might be really important. But if you don't, if you can't recognize how much luck that you might not have, that he did have that sent him to his path, it's difficult.

28:29Like, how do you admire them? How do you take away an example for them? One of the examples I use is Mark Zuckerberg was offered a billion dollars to sell Facebook to Yahoo in, I think, 2006, which at the time, it was like getting a billion dollars for your two-year-old social network. You're going to be crazy not to take this. And of course, he turned it down. And people look at that as a genius. He saw the future. He turned down this big offer. What, you know, good for him. He's so smart. He saw the future. A couple of years later, Yahoo was offered, I think,$50 billion to sell to Microsoft and they turned it down too.

29:03And in hindsight, we say, you idiots. I can't believe you didn't sell to Microsoft. How could you not? They were offering you so much money. Why didn't you take it? So what is the takeaway from that? We obviously admire Mark Zuckerberg for turning down the offer and we ridicule Yahoo for turning down the offer. We look at it binary, but both those decisions may have been the same. You can easily imagine a world in which we look back, let's say Facebook failed, and we look back at Mark Zuckerberg as this idiot 22-year-old who turned down a billion dollars. Or we look back, let's say Yahoo did sell to Microsoft for$50 billion, and we just looked at them and say, they were so smart for selling because their future was obviously nothing.

29:44So it's really hard to judge people and outcomes when we don't know how much luck and risk were involved. We're looking at almost like the beginning of the story and the end of the story, and then talking about outcomes. And there are a lot of the stories in the book are somewhere in the middle. So one of them, obviously, with emotions is greed and this notion of people could be successful and lucky and then try to keep going. The story that I tell about Raj Gupta and Bernie Madoff is just the concept of enough. And what's so interesting about Bernie Madoff, a lot of people don't realize this, but Bernie Madoff had a legitimate business, not a fraud.

30:20He was a legitimate market maker. And by most accounts, he was making tens, maybe a hundred million dollars in a legitimate, legal, perfect way. Like he had so much wealth and success legitimately, but it was never enough for him. The legitimate success, tens, maybe hundreds of millions of dollars that he made legitimately was so inadequate to him that he had to keep pushing all the way to breaking the law, ruining people's lives. His two sons, of course, one of his sons ended up committing suicide. Like he went so far in, like it was never enough. Raj Gupta is similar in terms of, he was the leader of McKinsey and he was so successful.

30:57At a later point in his life, his net worth was over$100 million. Like massive success by any definition. and as some people who knew him described in it, it was never enough. He didn't want to be a hundred millionaire. He wanted to be a billionaire. So he pushed and pushed and pushed and the story of this happened around 2008 had to do with insider trading around Berkshire Hathaway's deal with Goldman Sachs that he tipped off some hedge funds about and ended up going to prison. And it's so fascinating that these guys had everything. They had respect. They had tens of millions of dollars and it was so inadequate to them that they ruined their lives.

31:31And there's this great quote from Buffett where he says, If you risk something that you need in order to gain something that you don't need, that is foolish. And there's so much of that. The takeaway from these stories is just how important it is to have a concept of enough in finance rather than pushing for more and more and more and more. No matter where you are on the spectrum, you have to have a level where you say that's enough. Because if you keep pushing, A, you're just not going to be satisfied or happy with your money. But if you take it to the logical conclusion, like if you push, push, push, you're gonna end up pushing too far.

32:04And whether too far means you end up going bankrupt or you go to jail like these guys did, like there has to be a point where you say, I'm not gonna push any further. What's difficult in finance is that the kind of personality that makes you a billionaire hedge fund manager is not the kind of personality that is likely to say, okay, that's enough. I don't want any more. The people who have done really well can balance those two, that barbell personality, but it's rare and it's difficult. A lot of people will just, they'll keep pushing until they realize they ran off the edge and it's too late.

32:34You mentioned Buffett and Buffett certainly always comes up in stories. And one of those, which I know is near and dear to your heart, is the power of compounding. In terms of Buffett, the story that I told was, look, his net worth today, when I wrote it, it was$90 billion. If you just look at the trajectory of his life, 95 % of that came after his 65th birthday. I think he's 89 years old right now. 95 % of that amount came after his 60th birthday. 98 % of his wealth came after his 50th birthday. It creates some really weird things for us to think about, including this idea of like, so Buffett, he started investing when he was 11 years old.

33:10So now we can do some alternative scenarios here. Let's say that Buffett, instead of starting to invest when he was 11, let's say he started investing when he was 25, like a normal person. You graduate college, you get some money. He started when he was 25. And then let's say he retired when he was 65, like a normal person. And during that time, let's assume he earned the same average annual returns that he did throughout his career, 22 % per year annual returns, amazing returns. What would his net worth be if he started investing at 25 and retired at 65? And the answer is about $10 million, not billion, but million.

33:44You would have never heard of him. He would have never been a household name. The reason that he is successful, the reason that he is the icon of global investing and one of the richest men of all time is because of time. It's not necessarily his investing returns. It's because he started investing full-time at age 11 and at age 90, he's still going at it strong. Of course, he is a good investor, but his secret is time. And even for a lot of successful investors, it's hard to wrap their heads around that because if you go on Amazon, there are 2 ,000 books devoted to how has Buffett done what he's done?

34:17What are his secrets? And they go into grand detail about how he thinks about moats and management and sizing up business and market volatility, which are all great, important things. But we know with just the simple arithmetic, he's done what he's been able to do because he's been investing for 75 years. That's it. That's 99 % of the explanation. So the only book describing Buffett's success, if you want to emulate that success, is the title of the book should be, this guy's been investing for three quarters of a century. That's the explanation. You don't need to talk about the moats or anything else.

34:48That's it. So I think that's one of those things that is so simple and basic that it's easy for professional, educated, experienced investors to overlook that. They want to dig into the details about how he did it when the explanation is actually shockingly simple. It's just a lot harder. And that's actually an important point too, is that to be able to do something like Buffett's done, of course, it has to be ridiculously hard. It shouldn't be something that is easy to emulate. And starting at age 11 and working full time through your 90s is got to be the hardest thing that you can do that almost no one can and emulate.

35:20And that's why people have not been able to achieve the kind of success that he has. So I love the corollary that you used. You said Buffett's maybe call it worth$90 billion, and Jim Simons at Renaissance is worth a lot, but a lot less. Yeah, I think he's worth maybe like 10 billion. Of course, a ridiculous amount. So Buffett's average annual lifetime returns that he's earned as an investor is, I think, 21 % per year. Jim Simons is, I think, 66 % per year. So I went back in the book and I said, what if Jim Simons had been investing for as long as Warren Buffett and he had earned 66 % annual returns from age 11 to age 90?

35:54What would his net worth be? And it was a number that I didn't even know existed. It's quintillion, quintrillion, quinbillion. It's a number that I had to find a special calculator online to give me this number. It's a truly just like out of this world figure, this ridiculous number. Because Jim Simon is a much better investor than Buffett in terms of annual returns. But Buffett is much wealthier just because of the amount of time he's been doing it for. It just drives home the point of how something like time can lead to not just improve your results, but explain 99 % of the results in investing.

36:29And of course, the irony in all this is where does all of our attention go into the investing industry? Most of us will say we are long-term investors. We want to be long-term investors. But all of the attention in the media and people's actions is a quarter to quarter, maybe year by year thing. It's just very hard to think in terms of decades and generations when we have so much information coming at us to begin with. About a decade ago, I went to a conference where Jeremy Siegel was presenting. Jeremy Siegel is a known longtime bull. He's always been bullish. And his book is called Stocks for the Long Run.

37:02Someone in the audience pointed out that at the time, I think this was 2010, 2011, they said, bonds have outperformed stocks over the last 10 years. So doesn't that contradict all of your arguments? And Jeremy Siegel said something to the effect of, I'm not interested in what happens over a 10-year period. That means nothing to me. He was like, I'm interested in what's going to happen over the next 50 years. And then so we often come to these conclusions that one person is wrong and the other person's right, when it's actually they think the same thing. They're thinking in very different time scales.

37:30One of the other things you mentioned about Buffett is obviously he's been at it for so long and he hasn't really had hiccups so long the way. But you told the story of Buffett's third partner. So obviously the duo of Buffett and Charlie Munger is well known. They are the investing business duo of the last half century. But if you go back to the 1960s, there was actually a third member of the group, a guy named Rick Gurren, who was part of the Buffett-Munger investing mafia. He was kind of an equal part of that group. Charlie Munger tells a story about when Buffett and Munger interviewed the CEO of Seas Candy before they bought the company.

38:04Rick Gurren was kind of the main guy who was leading that conversation. He was part of that group. And Rick Gurren's still around. He's still an investor, but obviously he's not the multi-billionaire trio. So years ago, a guy named Monish Pabrai won the annual auction to have lunch with Buffett, where you get to sit down and have lunch with Warren. And Monish Pabrai asked Buffett, he said, what happened to Rick Gurren? I've read about him in the past as being part of the group, but where is he now? And as Warren explained it, he said, look, Buffett and Munger always knew that they would be rich.

38:35They knew it was going to happen. It was just a matter of time. So they were in no hurry to do it. They were patient about how they were going to get there. They had no desire to rush it. So they were just investing, doing their thing, letting compounding work. But Warren said Rick Gurren was a little bit more impatient. He wanted to get rich faster. So he was buying Berkshire Hathaway stock. I think this was in the mid 1970s on margin with leverage. and then the 1970s bust happened in the stock market and he basically got wiped out. He basically got margin calls. Buffett actually bought the Berkshire stock from Rick Guerin to kind of bail him out.

39:07And that in terms of investing, that was kind of what wiped Rick Guerin away. When Buffett and Munger were still compounding year after year after year, Rick Guerin kind of got wiped. So here's another thing of like, Rick Guerin was just as smart as Buffett and Munger, had just, they had the same investing skills, but he was a little bit more impatient than Buffett and Munger was. and it made all the difference in the world. It wasn't a little bit different. It was he effectively got wiped out in the 1970s while Buffett and Munger just kept going and going and going. So here's another thing of like, we dig so deep into the details of investing, the technical aspects of it, when something literally just like patience, and I guess you could call it greed, is what actually moves the needle over time and actually matters.

39:46Well, one of the things you talk about, and you can go back to the Bill Gates example, people think of Warren Buffett this way, is this notion that the tails more than sort of a steady state compounding are really what drives returns. Yeah. I mean, that's true in any investing portfolio, whether it's an index fund or a concentrated group of stocks. Over time, the majority of your gains will come from a minority of the stocks that you own. That's always going to be case, that it's just me driven by tails. Even in an index fund, I talk in the book about the Russell 3000 index. 3000 companies, just a basic index fund.

40:23If you look at how it's actually performed over the last 30 years, 40 % of the companies, the components within that index went out of business. They were gone, not because they merged, but because they failed. And 7 % of the components of that index among the 3000, just 7 % of them account for virtually all the return. And that's in an index fund. That's in a passive strategy. And if you look across business, across investing, That's always how it works, that just a few of the investments that you make will account for the majority of your returns. And it's hard to wrap your head around that because if you go out and you make 100 investments and 40 of them or 60 of them don't work, it's hard to take that as anything else but a failure.

41:02But you have to see that that is a normal path of how things work. Buffett mentioned years ago at a Berkshire Hathaway meeting that he has owned 500 stocks over the course of his investing career. And in percentage terms, he has made most of his money on 10 of them. So that's how it works for everyone. This was true for someone like George Soros as well, who kind of prides himself as having a very low batting average. He's going to be wrong 80 % of the time, but the 20 % of the time that he's right, he's ridiculously right. And that's all that matters over time. It's true for businesses as well.

41:31If you look at like Amazon, Amazon has toyed with so many different product lines over the years, whether it was the Fire Phone, they've tried all these different things. Whereas only two products that it's made over time move the needle, which is AWS and Prime. They've tried everything. They've thrown everything at the wall. Same with Apple that's tried tons of different products. The iPhone is what has made the entire company. So virtually everything in business and investing is like that, where a small percentage of what you do actually makes all the difference in the world. How do you think about that in the context of diversification, like diversified portfolios?

42:06But does it become someone's ability to predict the tail that ends up being the driver of success? You can't predict what the tails are going to be. And that's why diversification is so important. Look, for me, working at the collaborative fund, which is venture capital, obviously where it's driven by tails, of course. If we make 100 seed stage investments, five of them are going to drive all of the returns and 60 % of them won't work at all. So we've seen those tails happen a lot. And what's interesting, now that we've been in business for 10 years, if you look back at how we talked about our portfolio company five years ago, We would say, oh, these companies in our portfolio, these are going to be the big, these are the shining stars.

42:46This is what's going to drive the return. And if you look at what it is today, it's complete opposite. Those companies that we thought were the shining stars, a lot of them went out of business. And the companies that we were paying no attention to, we invested in them, but we're like, I don't know what they're doing. They're just kind of went on to be the big winners. That's always how it is. If you went back 10 years ago or 15 years ago, and you looked at the S &P 500 and you said, what are the winners going to be? You probably would have said ExxonMobil, General Motors. You would have never said Amazon.

43:15No one would have said Amazon. What, that bookstore? They're selling books? Is that what they do? No one would have ever said it. So I think it's never foreseeable. When you think that it's not foreseeable, but it's always going to happen. It's always going to happen that you're going to have tails that drive the returns. That's just when diversification becomes obvious. I write about this. I'm pretty open about this. I dollar cost average into index funds. That's how I invest. And about a week ago on Twitter, I was writing about the success of Amazon. Amazon stock is, you know, how much has gone up in the last 10 years.

43:44And someone said, if you know that individual companies can do so well, why are you an index fund investor? And I said, no, I'm an index fund investor because I want to ensure that I own the next Amazon. I'm not an index fund investor because I don't want to own Amazon. I'm an index fund investor because I want to ensure that I do whatever the next one is. I want to make sure that I own it because the components or the drivers of the S &P 500 or any basic index fund in any given year or period of time usually rely overwhelmingly on fewer than 10 companies. Like in the last 10 years, it's been Amazon, Apple, Google, Microsoft, Facebook, Netflix, that's everything.

44:19And if you are a stock picker and you did not own those companies, if you just didn't own those and you put in all your effort to finding what are the other great companies outside of FANG, the odds that you've outperformed over the last decade, it's not zero, but they're very low. The odds that you could beat the index without owning those few out of the 500 or 3 ,000 companies is low. So when I just think about it in those terms, it's like the only way that I can guarantee that I'm going to own the companies that matter is by owning all the companies. That to me is the argument for indexing.

44:48There's a lot of principles in the way that psychology affects people negatively that the market efficiency theories and say, oh, well, if a rational investor would behave this way, And we know now that people aren't rational. So are there ways that you could think of that you could turn that on its head and say, okay, understanding how we behave, and we're not going to be fully rational, how can we use the way we behave to be better longer-term investors? I make this argument in the book that people should not aim to be rational with their money. And that sounds counterintuitive, but there's too much emphasis on making rational decisions.

45:26Rational being the numbers all add up in the spreadsheet and you can explain it elegantly with math. And I just think that's not how real financial decisions work. People don't make financial decisions in a spreadsheet. They make them at the dinner table with their spouse, with their family, where all these emotions and nuance comes into play that moves the needle in a way that you can't really summarize neatly in Excel. So rather than trying to be rational, I think people should just try to be reasonable with their money. Just try to do things that try to make sense within the context of your own goals, your own personality, your own risk tolerances, your own flaws and what you're good at, that is just reasonable.

46:00So here's one example that I'll use in finance. There's a well-known home bias among investing. Investors from the United States own US stocks. Investors in Japan own Japanese stocks. It's not rational. We should be more diversified globally. But the home bias is actually a very reasonable thing. Even if it's not rational, it's reasonable because people are more familiar with the companies from their home country. They understand them better. It's going to make it easier for them to make the leap of faith of dumping their life savings into these companies if they're more familiar with them. I probably have a home bias as well, investing in US index funds.

46:35It's not because I don't like Japanese companies or Chinese companies or Brazilian companies. It's just that I'm more familiar with US companies. If I'm going to put all my money into these, I need to be able to be more comfortable with it so I can sleep better at night, have a better grasp on what's actually happening. So that's an example of something that I think is not rational, but very reasonable. The other that I write about in the book is paying your mortgage off, which these days is like the worst thing you could do with your money. You can get a 30-year fixed rate mortgage for less than 3 % these days.

47:04Paying off your mortgage is ridiculous. But I actually think it's a wonderful thing for people who can do if you can do it, just to give yourself that added sense of stability and safety and know that no one can touch your house. Your house is yours. Bank can never take it away. Bank can never tell you what to do with it. This is yours. And no matter what happens in life, you lose your job. You have a medical emergency. Your house ain't going anywhere. That feeling is something that you cannot put into a spreadsheet, but it is so important for people, for some, not for everyone. It's so important for a lot of people, I would say, in terms of just using their money to make them happier rather than trying to maximize their utility in a spreadsheet.

47:40At the end of the book, you do, and you mentioned this a little bit just now, you do talk about your own personal investing and how you apply sort of what you've learned and what you thought through. Is it that simple? Is it just, oh, it's so complicated. You love thinking about it, but at the end of the day, you want to own everything. You don't want to miss them. You want a dollar cost average. So just own index funds. Is that it? For me, that's what it is. It's important for me to say, I am not a passive investing zealot. I have a lot of respect for active managers. I know some who do it very well.

48:11Of course, it's hard. Of course, most won't succeed at it. That's how it should be. But I have nothing against active managing at all, which a lot of index fund proponents would not say that. What makes me feel good, what makes me sleep well at night and feel good about my finances is keeping it as absolutely simple as possible. So Ted, my entire net worth is a house, a checking account, the Vanguard Total Stock Market Index, and a couple of shares of Berkshire Hathaway. And that's it. There's nothing. And I love that it's so simple. I can just wrap my head around it in two seconds. I know where everything is.

48:42I know how everything's valued. It's so simple for me to think about. That simplicity has a lot of value to me. And then for other people, it wouldn't. For some people, that's like their nightmare to have something that simple. So people just gotta find what works for them. But for me and my family and for my wife and I, all that matters for us, I have no desire to be the world's greatest investor and I never will be, so that's fine. But it's not a goal of mine. I just wanna use my money in order to gain control over my time. Like if I can invest in a way and have enough savings that I feel like I can wake up every morning and just say, I can do whatever I want today.

49:16I can keep working. I can go do something else. I could retire early. I could find another career. As long as the money that I have gives me that option, I've checked every box that I need to have checked. And now look, again, there are a lot of people who are more type A and that's not them. They want to swing for the fences. But so this works for us. And a lot of people would say, well, how do you rationalize paying off your mortgage and stuff? I can't. I'm not going to try to rationalize it, but it works for us. Even if it might not work for you, it's what works for us. I want to talk about two other things before we turn to a couple of closing questions.

49:45The first is almost anyone listening probably already follows you on Twitter. How do you use Twitter? Too much. It is my drug of choice in life. I'm not proud of how addicted I am to Twitter. And addiction is the right word. You know you're addicted to it when you wake up in the morning and before you've even opened your eyes, you're reaching for your phone trying to see what tweets you've missed. But I think Twitter is like the greatest communication device ever created. I don't think anything else comes close to it. So how do I use it? I used to follow a lot more people than I do now. I've been kind of shameless about unfollowing people.

50:18It's not that they were doing anything wrong. It's just, you got to manage your feed. The people who get overwhelmed with Twitter were not managing their feed appropriately. They're overwhelmed. They're following 4 ,000 people and they open up their feed and it's just like a waterfall constantly. You can't do that. Don't be afraid to unfollow people. And there have been times when I want to follow like hardcore journalists who are breaking news, times when I want to follow more people who are like philosophers. Like it just changes all the time. So my relationship with Twitter is always changing in terms of who I follow, but it's where I get the huge majority of everything that I read.

50:53I read the Wall Street Journal, the New York Times and Bloomberg, but 90 % of what I read, I discover on Twitter. And that's why I think in terms of just a communication device, not just talking to people, but sharing information with people, there's nothing else out there that's even close to it. So there's a string through skiing early in your life and wanting to be the best skier and then thinking you wanted to be the best investment banker, turning into writing and this deep dive on writing of you're just tackling something and wanting to maximize it. I think it would probably shock almost anyone who's listening that you weren't always so effusive verbally as a public speaker.

51:35And so why don't you tell the story of tackling a stutter? So stuttering as a child is very common. About 20 % of children under age five will stutter. And for the vast majority of them, it goes away. By the time they're 10 years old or something, most stutters have gone away. Mine didn't. I stuttered very severely as a child and it never went away. But to the time when I was in my early teens, late adolescence, I could barely talk. I I could barely hold a conversation with anyone. It was a very severe stutter. I dealt with it even when I was a kid with denial. I never wanted to go to speech therapy.

52:07I just wanted to bury my head and pretend it didn't exist. In my early, let's call it early teen years, I pretty much talked to no one else except my parents. Didn't really talk to anyone at school. Didn't really talk because my parents were the only ones who understood it, who understood why I'm a smart kid, but I can't talk. I can't get a sentence out. I can't finish a sentence. Stuttering is a rare disability too. I've always used the example that if someone has, let's say, Down syndrome, 99.9 % of people, when they see that person, instantly know this person has Down syndrome. You don't make fun of them.

52:41You treat them with respect. You understand their disabilities. Stuttering is very different where it's so rare that even if good-hearted people come across a stutter and hear someone stutter, it's very common to make fun of that person. They don't mean any harm, but it's just so rare to people that when you see someone stutter, the common reaction is, what the hell was that? I'd have never seen that. So because of that, stuttering is a very often teased disability, which makes it very tough as a child, especially. Adults can deal with it a little bit better. But as a child, I'll give you one example, and I don't mean to be political about this, but the most common argument against Joe Biden right now is the guy can't finish a sentence.

53:19Go on any news, that's what they say about him. Joe Biden has had a lifelong stutter. That is well known. Of course, he can't finish the sentence because he stutters. Like if he was paralyzed from the waist down, no one would say, oh, the guy can't stand up. Just say, look, he's paralyzed. Don't make fun of him for that. Like, come on. But stuttering, like it gives people, since it's so rare, it gives people this license they feel like to belittle it in almost an innocent way. So my stutter in my teens was really bad. And I really thought, and I want to say I thought I knew it was going to prevent me from having any sort of successful career, particularly as I want to say, oh, I want to be an investment banker.

53:55What terrified me more than anything, and it's almost hilarious to say this now, is I just knew that I could not get through a job interview. Like forget the actual work, forget like doing a deal. I just said, hey, the one hour job interview, I'm physically incapable of doing it. And then so I had a lot of low moments during my ambitious years of like, oh, I'm going to be a partner at Goldman Sachs. Oh, wait a minute, I got to do a job interview? Well, that's never going to work then because I just can't get my way through it. It wasn't until I was in my early 20s that I felt like I started getting a grasp over my stuttering.

54:27And there's no cure for it. It never goes away. My stuttering is as severe today as it was when I was a kid when I could barely get a sentence out. There's two sides of this. And I've written about this in a little bit more detail. There's two sides of overcoming stuttering. One is anticipating before you speak what words are going to trip you up. You have this dialogue in your head. You know the next sentence you're going to say, and you need to anticipate, oh, that word is not going to work for me. So once you can learn to predict what's going to be a problem for you, I figured that out by the time I was probably about 14, being able to predict what's going to be a problem ahead of time.

55:03And then the second skill is when you know, okay, that word's going to be a problem for me. Okay, so get rid of that word and swap in another word that has the same meaning. That's how I've gotten over stuttering. I am as bad of a stutter now as I was before. And still, when I'm talking to my wife and my parents, I stutter all the time because I don't feel the need to swap words out. I just let it flow. If you would hear me talk, I'm a different person when I talk to them. So I really didn't feel like I had overcome it in any significant way until I was like 30. I'm 36 now. So this is a fairly recent thing.

55:35And a couple of years ago, I was asked to start speaking at financial conferences. I was probably 31, 32. two. So this is really like a couple of years ago. And I was so scared. So I've never been as nervous as I've been to do this. And it was a tiny conference. It was like 20 people watching. And I was just petrified. And my fear was that I was going to, you know, 10 minutes into it, I was just going to have to say, folks, I'm sorry. I tried. I can't do this. Thank you for your time. It went well. I got it done. And I've often equated to this as like, if you were paralyzed your whole life and then you got your legs back, you would just want to run all day, Just making up for lost time.

56:12And since I couldn't speak for most of my life, now that I can, I just wanna talk and talk and talk. So speaking at conferences became a big thing that I do. Pre-COVID, I was speaking at 30 conferences a year all over the world. And every time I walk off stage, it's this, holy shit, I can't believe I did this. And it hasn't hit me yet because it was just so ingrained in my personality that I can't talk. So once you can not only do it, but speak in front of 2000 people, Like it's amazing. And it's what I'm most proud about in life. All right, let's turn to some closing questions. What's your favorite hobby or activity outside of work and family?

56:50To give you one that's maybe obscure and not obvious, I love, and I don't do this very often, I don't wanna say this is like a common hobby, but I love reading old newspapers. And particularly when I lived in Washington, DC, going to the Library of Congress, where they have every newspaper going back in history, I loved opening up the New York Times from 1927 and just scanning it and reading it. And it was so fascinating to me because I love history, but most history books are talking about the big events. We're talking about the standout events, the tales, World War II, the Great Depression. I just wanted to say, what was just a random Monday like in 1927 or 1862?

57:28Just pick a time. What was average life then? And I love, it's such a fascinating window into normal life. Just the advertisements and how people talked, that to me has always been so fascinating. My favorite historian is a guy named Frederick Lewis Allen, who writes about history, or he did, he died in like 1950s, but he wrote about history through the lens of just average mediocre life. Not the big events, just what was the average American's life like in 1910? And I love that. There's so much fascination in the mundane average day of a life that I love. What's your most important daily habit?

58:04Maybe this is kind of a non-answer, but I really don't have any. I don't know if that's good, but the structure of my day is always loose and open and there's no sky. I almost never have anything on my schedule. And how every day plans out is very different. Some days I wake up and I'm like, I'm just not in a writing mood today. So I'm just not going to do much work today. I'm going to read and go listen to some podcasts. So I think since writing is an art, you can't systematize it. You can't say, okay, I'm going to do X and then do Y. You just got to let nature take its course and just however it comes out.

58:37So because of that, I really have no daily habits whatsoever for better or worse. Now, what's your biggest pet peeve? As a writer, and this is something that I try to do for myself as a writer, but my biggest pet peeve are people who explain in 250 pages what could have been explained in 300 words. And the huge majority of books, and I'm not saying I do this perfectly either, but the majority of books that could have been magazine articles and the majority of magazine articles that could have been blog posts and blog posts that could have been tweets. I think the best writing is a person who says the most in the fewest words.

59:09So I love just really concise, pithy writing, and I get annoyed when it's not. How about your biggest pet peeve in the investment world? There's something in psychology called the false uniqueness effect, which is assuming that just because you are good at something, other people are not. And this is really true in investing where you'll have a lot of people say, I'm really good at modeling. I'm really good at data analysis. And you might be. You might be really good at those things. But what really matters is not that you are good at those, it's that other people are not. Because you can be good at modeling, but if 100 ,000 other people are just as good at modeling, it doesn't make any difference in the world.

59:46And I think this explains a lot of why beating the market is difficult. It's not because people aren't good, it's because a lot of people are good. And so to be really a standout in investing, you have to find something that you're not just good at, but that other people are bad at, which is a very different thing than just figuring out your own skill. The other just like technical quirk, but I feel like this is a big deal. That's a pet peeve of mine are journalists who cite historical market returns without adjusting for dividends because over time, the dividends make up the vast majority of the returns and it's not that difficult to adjust for them.

1:00:18And when they don't doing it, they're doing such a disservice, particularly like one stat that is all over the place is that after the crash in 1929, the market did not exceed its previous high until 1956, which is true if you don't include dividends. If you do include dividends, the right answer is 1936. You're in a different lifetime. So that's always a pet peeve of mine. What's your biggest mistake you've made and what did you learn from it? I don't know if this was a mistake because it ended up working out well, but something that was just, I look back and it's like, I was misguided then in a way I've tried to learn from is like, I wanted to go into investment banking, like we were talking about, because I wanted to get rich and powerful.

1:00:57That was it. I was not interested in deal-making. I wasn't interested in actually modeling. I wanted a big paycheck. I wanted a house in the Hamptons. I wanted a Bentley. That's why I wanted to do it. And look, I was 19. I don't fault myself for that, but it's so the opposite of how I think about these things today. So I don't regret that, but I look back at that as just, man, that was a dumb thing. What teaching from your parents has most stayed with you? Talking about my lack of high school upbringing, my parents are both educated. They value education, but never once during my teenage years did they sit me down and say, hey, you should think about college.

1:01:32You should go to college and here's important and here's how you apply and we got to study for your SATs. Never, never, never, never came up once. And it wasn't because they didn't value college or didn't think I should go to college. It was the opposite. It was they valued college so much and they knew it was so important that they knew I was only going to maximize it if I went on my own terms. So they never pushed me. I think they intuitively thought, look, he's going to go. He'll go someday. He'll go when he's ready. He'll go when he wants to. And because he's going to go when he wants to, he's going to take it more seriously.

1:02:02They did the same thing for my brother and sister. I thought that was such a good thing for them to do. And I don't blame the parents who, when their children are 15, who say, hey, we got to start taking SAT prep courses and do that. I get nothing against that. But my parents did the opposite approach. And I think it worked out really well for myself and my siblings. All right, Morgan, last one. And what life lesson have you learned that you wish you knew a lot earlier in life? I wish I could go back and tell myself that things are going to be fine. Doesn't mean it's going to be easy. Doesn't mean there's not going to be problems.

1:02:30It doesn't mean there's not going to be terrible years that I go through and problems, but it's going to be fine. Everything's going to be fine. And a lot of times in my life when I was so worried about something happening, if this happens, that's terrible. And then that happened. I was right to worry. That did happen. But you get over it. Everything's fine. And look, some people turn out not fine. It's like knock on wood. but it's all worked out. But I just look back at how much I've worried throughout life and realized like, has any of it mattered? Was any of it necessary? I spent so much time worrying, so many sleepless nights, like why?

1:03:02Everything's fine. That's what I wish I could tell myself is that everything's fine. All right, Morgan. Well, thanks so much for doing this. Good luck. I'm really excited to see what happens with the rollout of the book. Thanks, Ted. This has been fun. Thanks for listening to the show. To learn more, hop on our website at capitalallocators.com where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more. Have a good one and see you next time. All opinions expressed by TED and podcast guests are solely their own opinions and do not reflect the opinion of capital allocators or their firms.

1:03:43This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of capital allocators or podcast guests may maintain positions and securities discussed on this podcast.