How to Get Rich in American History

0:01Rich Lumulleau:So from the George Washington administration until Michael Jackson's Thriller album, dividends were 90-something percent of returns, and price movement was very little of a gain. And since then, I think well over 70 percent of our investment returns come not from dividends, but from price elevation.

0:27Joseph S. Moore:That was historian, investor, and author Joseph Moore discussing his new book, How to Get Rich in American History, 300 Years of Financial Advice that Worked and Didn't. I'm Motley Fool producer, Matt Greer. My colleague, Rich Lumelo, recently talked with Moore about all of that financial advice and about some timeless lessons for today's investor. Enjoy. Welcome to Motley Fool Conversations. I am Motley Fool contributor Rich Lamello. Our guest today is someone who brings a rare combination of perspectives to the world of investing. Dr. Joseph Moore is an author, historian, and investor who didn't start out believing in the American dream, but through his own experience in the markets, he's come to see it as not only real, but also achievable.

1:12Joseph S. Moore:In our conversation today, we're going to explore the strategies, decisions, and lessons behind his investing success, including some surprising approaches that paid off and others that didn't. We'll also dig into what history can teach us about markets today and how everyday investors can apply those insights in a practical way. Dr. Moore, welcome to The Motley Fool. I'm so glad to be here. Thank you, Rich. Great. Well, you have just published a book called How to Get Rich in American History, 300 years of advice that worked and didn't. And so I look forward to, you know, kind of jumping into the, you know, the thoughts around that and, you know, kind of pull out some anecdotes and some, you know, investing wisdom for our full investors.

1:52Joseph S. Moore:But before we do that, why don't you just give us a couple of minutes of, you know, kind of your background?

1:56Rich Lumulleau:Yeah, thank you. So I was getting a PhD in American history. I came from a very rural working class family in the South, right? My mother was brought home to a house with no flesh toilet and she was the sixth child, right? So on my father's side, these were, they were active resistors to capitalism, as it were. These were mill strikers who had, the communist party had sent activists down South to teach people to, you know, dumb rednecks to read the communist manifesto. Those rednecks were my great grandparents and they like, you know, charge the mills and these kinds of things. So like my dad growing up would vote communist for president.

2:30Rich Lumulleau:So I did not enter through the door of believing in capitalism. And so I was getting a PhD in history and I did all the same things that all that you hear professors do. I assigned Karl Marx on day one, all the, you know, but not Adam Smith. But for some reason at that time, it's 2005, someone said, well, the lesson of history is clear. You need to buy a house. And instead of thinking about that for a hot second, I just nodded my head. We bought a house. We're graduate students, right? I mean, this is the no verification loan world that a friend of ours was going to lead a financial class at the local church.

3:02Rich Lumulleau:He was like, would you come? I said, absolutely not. I'm smart. I don't need this stuff. Plus, it's all a scam anyway. And he said, would you just do me a favor? Because I'm scared I'm going to be embarrassed if only like two people show up. So we went to help a friend and they make us do a budget. We go home, we fill it out. And my wife falls asleep and I stayed up literally all night. It was like, who gave us a mortgage? We have no money. And so we put our house in the market on, I think, a Friday or Saturday. It sold the next Saturday in a bidding war. Our neighbor put her house on the market the following Saturday.

3:33Rich Lumulleau:It never sold. we were the last people off the 2008 Titanic. And I was floored and humbled and embarrassed that I thought I knew so much history. And a friend's class in a church basement had taught me more than any book I was reading. And I thought there has to be a history here. And so I set out on a quest to understand like, what were people told to do with their money? For 300 years, Americans have been told, this is how you get ahead. But what were they being told? Was it always the same thing? Did it change? And what I discovered, the longer I explored it was actually people really did get ahead, which I was actively in the process of teaching students you couldn't do.

4:07Rich Lumulleau:And that seemed like a problem, right? And so then I started experimenting with these various things. I thought, well, if people did it in the past, I'm going to try it in the present. And the only line that was drawn in the sand was my wife saying, under no circumstances. Like if we hit that line, then I would back off. But I Airbnb'd all the rooms in my house because that was the primary mortgage payoff strategy in the 1800s. I shorted all of Jim Cramer's stock picks because there's an economics paper saying that there's this thing called the Kramer bounce. But over time, I started to realize, oh, actually, people can get ahead.

4:35Rich Lumulleau:And this was quite embarrassing for someone who's arguing the opposite. And so now I've created what I hope is a very helpful history for people. This is what people were told to do in the past. And these are the things that work. These are the things that didn't. And hopefully we can apply those today.

4:48Joseph S. Moore:As you embarked on this, you didn't have a history of investing. Sounds like far from it. What were some of the initial principles that you kind of started looking into that started to guide your investing? Because it's kind of fascinating. You start going down all kinds of different paths. You mentioned Short and Kramer. I mean, you invest on the moon, you start to play crypto, you start to kind of dabble in a lot of different things. Is this the academic in you kind of thinking, you know what, I'm going to throw stuff at the wall, 30 different things and just see what works and what doesn't work.

5:15Rich Lumulleau:Yes. I wanted to test all the assumptions. And that was where academia came in very handy, is there is a baseline system of saying, this is the proposition. Can we test the thesis? And I wanted to test it in two ways. In one way, I wanted to test it by saying, did this work for people in their real lives? And then I wanted to see if I could do it in the present and see if it still worked now. One of the conclusions that really struck me the more I did the work was how many things we think are old that are actually very new and how many things we think are very new are actually very old. So to give an example, we think that everyone always got ahead by using compound interest.

5:50Rich Lumulleau:Right. This is if you just walk into your generic financial advisor, the message will be compound interest is the magic superpower that's going to get you where you want to go. I argue in the book that's actually a very new phenomenon, because if you go back through most of American history, compound interest is not how people actually got ahead. Compound interest depends on two things. Time. 99 percent of Warren Buffett's wealth, I think the stat goes, was made after his 65th birthday. That's a birthday most Americans never lived to see. So time was not on their side. And secondly, most of their wealth was in land, which doesn't compound.

6:26Rich Lumulleau:So, you know, we all get this experience of going into the financial advisor, right? And they slide across what I call the chart. And, you know, it doesn't matter when you go. It's always the same chart. The dates have changed. Mine was 1929,$10 ,000 invested in 19... The guy said a mere... I remember him saying a mere$10 ,000 invested in 1929 would today be worth more than$10 million. And he slides this across to me, expecting me to be blown away. And I looked down and I thought, okay, a house did not cost$10 ,000 in 1929. So you're telling me that someone invested their life savings. They lost 80 % of it in the crash.

7:02Rich Lumulleau:They fought Nazis, feared nuclear Holocaust, saw double digit inflation, cried when Ross and Rachel got back together. And not once did they touch that money. Like that's not the real world people were living. So compound interest does work. I'm not saying it doesn't work. I'm saying how powerful it is is actually fairly new to our experience. Things like crypto, we say are very new, are actually very old. So we've had self-issued currency in America for most of our history. At the dawn of the Civil War, there were 10 ,000 separate currencies privately issued in America. My favorite example of this is there's a runaway slave named William Wells Brown.

7:38Rich Lumulleau:He gets out of Kentucky. He makes it as far as Michigan. He gets stuck. and a local landlord takes sympathy on him and says, he, look, I'll rent you this space in my shop and you can start a barber shop, which is a fabulous idea with just three problems. Number one, he has never cut hair in his life. Number two, he does not own scissors. And number three, no one in town has enough money to pay him. So he, number one, doesn't tell anybody he's never done it. Number two, he borrows some scissors. And then he goes to a printer's office and says, will you print money for me? And it's basically money good at my barber shop.

8:10Rich Lumulleau:and then he goes around town and he uses this money he says i'll give you this kind of coinage at my barbershop and you give me food and lodging and within a year this runaway slave's money is circulating through monroe michigan as legal tender or valid tender to everyone else because he's like oh you can always use it for a haircut and so after about a year it's so trusted he's able to start exchanging it for better gold back dollars and that's how he eventually makes it to new york and freedom but by the way all of his money goes to zero and that's one of the lessons of history is that all self-issued currencies eventually will go to zero.

8:44Rich Lumulleau:So many things that we think are new, they're very old. And many things we think are old are actually pretty recent. Yeah.

8:49Joseph S. Moore:At what point did kind of the switch get flipped and you realize either A, wow, I'm pretty good at this, or B, man, did I find a strategy? I can't wait to tell people about this. But when did the gears kind of start to shift a little bit in your head on that front?

9:02Rich Lumulleau:Yeah, well, first I almost went broke. So that's, you know, there's nothing, I think it was Samuel Johnson that said, there's nothing that so clarifies the mind as knowing you're to be hanged in a fortnight. And I literally got up against the edge of bankruptcy because one of the strategies that became very popular in the 60s and 70s, because inflation was taking off, was to buy real estate with no money down. I know your audience is not necessarily real estate investors, but I tried this and very nearly had to declare bankruptcy because as it turns out, buying real estate with no money down is very hard to pull off.

9:33Rich Lumulleau:And so I was on quite the rollercoaster ride there. But eventually what happened both in real estate and with paper investments and with other things was the light that went off for me, somewhat Buffett-esque, was I need to think about this not as investments, but as a business. I am running Me Incorporated and I have got to treat Me Incorporated, or I used to actually call it Us Incorporated because my wife, one of the biggest pieces of financial advice in history is marriage advice, believe it or not. You would find marriage advice in young men's business manuals and then the next chapter would be how to factor an interest rate table, right?

10:06Rich Lumulleau:So Us Inc. was when I thought, I've got to run this like a business and I'm going to treat my profits, my losses, the way I see time horizons, the way a business should be treated. And when I began to run it like a business, that's when things began to turn around. And so that's one thing I do encourage most people to try to wrap their mind around. Don't see yourself as sitting back investing because most of that type of advice is about solving you and your problems, right? Like, oh, well, should I drink lattes or should I invest it or should I buy this thing or that thing? Those are solving your problems.

10:39Rich Lumulleau:You make the biggest money solving someone else's problems. And that's what businesses do. And so I started to think about how can I use this money to do what the market rewards by solving the problems that need to be solved.

10:51Joseph S. Moore:And I'm curious with specifically with regard to stocks, although we could look at other investments too, but specifically regarding stocks. did you find yourself having more success with kind of a buy and hold strategy or? Yes. You did. Okay.

11:05Rich Lumulleau:Well, we've lived through a particularly wonderful time to be a buy and hold investor, right? So I'm not so sure that's always going to continue, by the way. I don't know that the lesson of history is that because buy and hold has worked well for the fast few decades, therefore it will continue to work well. Because, and here's one thing that I really took away from experimenting with stock market investing, was the stock market that I'm buying in today is different than the stock market my grandfather would have bought into in a different generation. He was buying, so from the George Washington administration until Michael Jackson's Thriller album, dividends were 90 something percent of returns and price movement was very little of a gain.

11:43Rich Lumulleau:And since then, I think well over 70 % of our investment returns come not from dividends, but from price elevation. So our grandfathers would have been buying a share of future profits at today's prices. I'm buying a share of future buyers at today's prices. Because in essence, I am assuming more people will want this in the future than want it now. And so when you wrap your mind around that, you start to see how the index fund revolution is pouring trillions of dollars into this system. you start to realize that it is more the volume coming in that I'm betting on and betting that the volume isn't about to turn around and go out, that that's really rising my boat.

12:27Joseph S. Moore:Interesting. And were there, as you were going through, you know, kind of these myriad investments, were there any investments that either investment singular or, you know, kind of multiple that surprised you with, you know, kind of outsized returns?

12:39Rich Lumulleau:Best bet I ever made. And I want to make sure everyone understands that when you're a history professor, you are not rolling in cash, right so it's not like i'm stroking massive check these are all like play money i don't have a lot of money to lose or play with but i would play with that money to try out these strategies best bet i ever made was when i read an article in the economist about this new thing called artificial intelligence and llms that were being experimented with and i went and watched the very first this is how old this is this is the very first video i think it's anthropic no not anthropic it's um open AI, they did like a let's make hangman video.

13:16Rich Lumulleau:This is the very early iteration of LLMs. And they're like telling it to basically make the game hangman. And it did it. And I thought, huh. And between the economist article on that, I thought, okay, what's the thing? You know, what's the old principle? Don't try to mine for gold, try to sell pickaxes. And I was like, okay, what is the pickaxe here? And it's compute. And so I didn't know it would be a video. I just thought, well, there's only so many companies that make compute. So like, let's go buy all of those and to see what happens. And that proved to be a relatively, you know, broken clock is right enough times a day that that worked out.

13:51Rich Lumulleau:That was more me saying, let's try to figure out where the direction is going to go and not pick the winner. And the reason I tell people to avoid traffic, the one stock that's going to win, as opposed to like try to pick the thing that in general is going to move in the right direction in the next era is because everybody wants to go buy Microsoft in 1984, right? Like at the IPO. But I tell them, if I actually took you into the stock market in 1984, and I said, go buy the computer future, there's Atari, Commodore, Lotus, MIPS, Wang, and all of them are gone now. But it's not clear to anybody in 1984 that this one with an M is going to be the one that wins, right?

14:30Rich Lumulleau:And so, but if you had bought all of those stocks, including Microsoft, and then over time started to realize who was winning this race and begin to concentrate there, then you're probably going to do a lot better than closing your eyes and throwing the dark.

14:42Joseph S. Moore:If you're early in your career and looking for insight, inspiration, and honest advice, listen to the Capital Ideas podcast. Hear from Capital Group professionals about leaning into the differences that make you unique, making decisions that last, and what it means to lead with purpose. The Capital Ideas podcast from Capital Group, available wherever you listen. published by Capital Client Group, Inc. Going back to when you were kind of trying all these different investments, was there anything that just didn't work? Well, I'm sure there were many things. So many things. Was there anything where your takeaway was, wow, avoid that at all costs?

15:18Joseph S. Moore:Not just, I did it wrong the first time. This is not the answer. I mean, it's not going to be real estate, but something like, yeah, don't touch this or don't touch that.

15:26Rich Lumulleau:So, wow, I could go into so many directions here. I can tell you, don't buy land on the moon. it doesn't pay. I actually own, I own an acre of land on the Sea of Serenity because there was this big movement in the 1930s to be like, whoever can own the moon will own the future. And so believe it or not, these things are still around. So it was advertised as having phenomenal earth views and zoned for tourism. And I was like, well, yeah, it makes sense because if it was zoned for heavy industrial, then the phenomenal earth views would not be as good. So let me pivot to something maybe a little more practical for your audience.

15:55Rich Lumulleau:Here's what I tell people, and this does get me in some hot water. You can beat the market. Trying to beat the market is a waste of your time, though. Because back to my original idea, so many different things can work well, that if you individualize success for yourself, instead of trying to beat the other guy, if you can actually invest your way into an incredible life. But if you try to beat the market, you might actually do it. And that might be the worst outcome. So when I read the economics paper, the Kramer bounce, it basically says under this very strict set of criteria and only under that set of criteria when jim kramer on his show mad money suggests buying a stock that stock will bounce for 50 to 55 days and then come back to earth and you can short it so i'm like great we're gonna make tons of money doing this right and so i start glued to the television for three months of my life waiting for all these factors to align so i can go you know short a stock and take advantage of someone else in his audience.

16:53Rich Lumulleau:Technically, my trades beat the market. But while I was having Jim Kramer yell at me like I was a child, I heard my wife scream, come quick, she's doing it. And I missed my daughter's first steps. Right? I beat the market. It wasted my time. So there's a good paper on this that shows that asset managers with$600 billion or more do indeed beat the market by about one half of 1 % a year. Now, if you got$600 million, that's good money. But if you take the median 401k balance and you do what those asset managers do, spend four years of tuition at Yale, do a free internship, and then work 70 plus hour weeks, you're going to take the median 401k balance and you're going to eke out an additional 500 bucks a year.

17:39Rich Lumulleau:So you can get one extra hotel night in Miami, but would that really be worth your time? I tell people like, don't focus on feeding the market. Focus on using the market to get where you want to go. And you can do that all day long. And people have been doing it for 300 years.

17:55Joseph S. Moore:And as you were kind of going through this over the past, you know, kind of 15, 20 years, are there certain habits that you identified? Like, you mentioned having the discipline, the floor and, you know, the willingness to kind of lever. Are there certain habits that you realized, okay, this is something I definitely, you know, as I'm writing this book, I definitely want to highlight to people.

18:12Rich Lumulleau:Well, I think first and foremost, committing yourself to a path where you kind of understand, it's very dangerous to invest in things you don't understand. I think that is so in the book, I label out 25 things that always worked and seven things that didn't. One thing that fails pretty regularly in history is novice investing in a thing you do not understand, like not taking the time to get a true education in that thing. We have the bankruptcy rec. So people don't know this often. We did not get bankruptcy until about halfway through American history. So you literally, if you failed, you were done.

18:43Rich Lumulleau:And there's one exception to that. Well, there's two exceptions to that. 1840 to 1842, there's a brief experiment with bankruptcy law in America. And we have those records. And so we're able to go back through and say what worked and what failed. And then of the people that failed, what did they do differently and did that succeed? And what we find is that one of the most common threads of people failing as investors was they rushed out into something they didn't really understand that they'd heard was a hot ticket versus taking the time to study underneath somebody else who really understood that.