Morgan Housel on the New Way We Think About Money

23:36And because of that, I think when you have half the country that doesn't understand what the other half went through, that also leads to an era of like, I don't trust the numbers. I don't trust the statistics. I don't trust the politicians because what this guy is saying is so counter to what I experienced in either direction. And I think that also just leads to an era of hyper-partisanship of like, if you're saying that about the economy, how disconnected are you in a way that we really haven't dealt with? And a lot of the reason that a lot of the policies during the Great Depression, the New Deal, got through in a semi-bipartisan way is because the Great Depression impacted everybody.

24:112008 was, I think, similar to that as well. Like, everyone was going to be screwed if the banks went down. So it makes it easier to push through policy. This is also my theory of why people care more about inflation than the unemployment rate, because if you personally haven't lost your job, it's hard for you to sort of envision, Oh, unemployment is at a multi-decade low, but you can definitely see egg prices at your local grocery. Everyone can see those. And so it seems like it becomes a much bigger talking point. But, okay, let's talk about a bright spot, which is I guess we can now earn 4 % or 5 % on a bank account or a certificate of deposit.

24:47That seems great. Yeah, and it's weird. There's almost a point when if you're buying a one-year CD right now, you can get 5.5%. It almost feels like you're robbing the bank. You're like, really? You're going to pay me that much? When you've had 15 or 10 years or whatever of Zerp, it's a wild thing to deal with. But both of you know this. Historically, this is normal. I think that's what's hard to wrap your head around is that historically, what we're dealing with is not the anomaly. This is the completely normal part. And I think everything would be better if we live in an era, if we never go back to Zerp, everything would be better.

25:22If we have an era where there is some sort of anchor on speculation and people can earn a decent return on their cash with some level of risk, I think that's so much healthier in every aspect. So one of the weird things, though, just on that point was, you know, earlier this year when interest rates on bank accounts were starting to creep up, we actually didn't see that many people who seemed to actually be moving their money into higher yielding bank accounts or money market funds. It didn't really happen, I guess, until March when we had the SVB drama. But what do you think accounts for that?

25:55Is it just it takes people a while to realize this is something available to them? Well, I mean, I think there has been quite a bit that have moved into money market accounts. I mean, what are money market accounts now? Five trillion dollars or something. So there has been money that's moved over. I think the average American just doesn't think about it that much. And maybe if you don't have a very high level of savings, there's kind of a why bother mentality. Yeah. Whereas I imagine most of the high dollar amount accounts have moved pretty quickly. And it's a wild thing if you think about, you know, anyone's guess of future stock market returns is as good as anyone else's.

26:25But if you think like at valuations, stocks return like maybe six to 7%, something like that, then my guess is as good as anyone else's. So let's say stocks return six and you can earn five and a half percent in a money market account. All of a sudden, you're like, for the first time in 20 years, it's a really, it's not an easy decision to make. Yeah, I have to say, so I think this has come up a few times on the show. And the first couple of times we discussed it, I'm like, yeah, 5%. Have you finally been rate-pilled, Joe? Yeah, it's like, it doesn't really seem worth it to move it over. But now, after a few months, it's like, actually, yeah, that is meaningful.

27:05And as you say, if historical returns on the stock market are maybe 6.5 % or something like that, and now you can get 5 % like truly risk-free. On a money market account? Yeah, that's like pretty good, isn't it? But I think that's the world you should live in. There should be some anchor against speculation. There should be some temptation for your money that is not just a YOLO mentality. Do you think, like it doesn't feel right now in September, 2023, that the speculative fervor that we saw that really peaked in 2021, like it still feels like there's still like some embers of that, right? You still see meme stocks.

27:41It's not much, but it still exists. Bitcoin's still$25 ,000. And I think it's wrong to just associate speculative frenzies with interest rates. You've got to remember, in 1999, the peak of the dot-com bubble, interest rates were higher than they are today. So you can have a crazy bubble with interest rates. I'm sure it plays a role. But I think just explaining it as every 10 to 20 years, people collectively lose their minds financially. Like, irrespective of what interest rates make it easier to do it. But you could have a giant speculative bubble with interest rates where they are today. So it wouldn't surprise me, even with the hikes that we've had, if there's a new crypto bubble, a new meme bubble, like whatever it would be.

28:20I think all of that is detached from interest rates. It feels to me like social media is also the, I don't want to say new, because we had message boards in 1999 and 2000 where people were talking up stocks. But it feels like that's sort of added fuel to that dynamic where people are chasing bubbles rather than running away from them. Yeah. And it turns into like a tribal mentality, particularly in the crypto space where your willingness and your ability to buy certain kinds of crypto is your identity. And I think that also existed in the 1990s. Like I'm a tech stock trader. That's your identity.

28:55And I think any time in finance where you say I'm a blank, whatever it is, even I'm a value investor. Anytime you get that kind of tribal identity, you're like outsourcing your thinking to the madness of crowds. I think it's a really dangerous way to invest. Is there a way like to deprogram that from, you know, deprogram someone or deprogram yourself? Because like that lock-in effect where like some way that you invest, you know, I think even like professional, like professionals have this all the time. Like it seems really hard. Just changing your mind. It's really tough. Is there a way, like, have you, In your research, are there tools or like ideas that actually work to like get better at changing our minds?

29:36I don't know if there's tools or ideas, but I think some people are just much better at being independent thinkers than others. Even if, like I said, if you said, I'm a value investor, it seems so conservative and so benign. Yeah. But Josh Brown has made this joke that a lot of value investors just end up owning like typewriter companies for 20 years. And it's like, even if you lock yourself into that tribe, it's not safe. But even like, you know, I was thinking too, like, you know, in the beginning, like, and just still have this fight. It's like setting aside even investment to like team transitory or like team person, like when we were debating inflation, it's hard to change your mind.

30:09Really hard. Even with new data. I think social media makes that really hard too, because now there's like a timestamp on every call that you've made in a way that there wasn't before. And people would much rather be consistent than be right. And the reason that is, is because I think when most people are looking at a pundit online, they want their pundit to be consistent. And most people, like if you tell people what they want to hear, you can be wrong forever without penalty. So if you want to be pessimistic and you listen to Peter Schiff for 10 years saying the dollar is going to collapse next month, even if it doesn't, he told you what you want to hear.

30:41And you're going to buy his newsletters and keep on going. So in the punditry business, that's the right way to do it. Even if it's like from an economic point of view, it's terrible. Well, we're very good at avoiding consistency on this podcast, Joe. We don't have that problem. We change our minds all the time. No, wait. You mentioned value investing. And it does feel like at least up until 2020 and maybe even beyond it, the big money was in chasing momentum. What does that mean? Because we're talking about the fallacy of groupthink. But on the other hand, if you have a really good handle on a certain narrative or what's going to attract people to a particular investment, it feels like an advantage.

31:23Yeah. Yeah. There's a great George Soros quote where he says, whenever I see a bubble, I rush in to buy it. And it seems so counterintuitive. Like, why would you want to buy a bubble? I think his, I don't want to put words in his mouth, but I think his thinking is he understands that a bubble is very likely to grow bigger than you think just because everyone else is going to watch their neighbor to get rich and they're going to come in, which is exactly what happens every single bubble. So I think that like the chasing of momentum, yeah, it has a huge behavioral component behind it. Now, the hard thing is like getting out before everyone else, what someone like George Soros can do, but virtually no one else can.

31:54So it's like that has no appeal to me whatsoever, because the idea that you're going to get out before everyone else when you're chasing their behavior to begin with is, I think, the wrong thing.

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34:08Is setting aside like the speculative frenzy or investing or meme stocks, do you think what we've experienced over the last three years will like meaningfully change how people consume going forward in some ways, like just general consumption patterns, savings patterns? I think it's not necessarily the last three years in terms of COVID being the last three years. I think it's the last 10 years of social media that just massively changes it. It's always been historically that there's no objective level of wealth. everything is just relative to the people around you your neighbors your co-workers and you're like relative to that person here's how much money i have but it's like you always hear people say things like oh well like compared to like a a king in the 1800s you're so rich it's like yeah great but my neighbor has like a big screen everyone just looks at the people around you yeah but now it's the people around you is instagram and it's a curated highlight reel like everyone around the world someone said recently it went from keeping up with the joneses to keeping up with the Kardashians.

35:01That's what social media did. It went from now you're comparing yourself to the highlight reel of everyone's life. So I think expectations of what people's definition is of a good life just exploded over the last 10 years. I can see it with my seven-year-old son who spends time on YouTube and what his definition is already at age seven of what success looks like. If you watch Mr. Beast all day, success is like driving a Lamborghini and throwing$10 ,000 at strangers. And I think there's an element of that in social media. Is there something skipping gold coins? It turns into that. But it used to be when you compared yourself to your neighbors, it was much more mundane than comparing yourself to Instagram.

35:37So I think that's the biggest change in consumption. It's just an inflated expectation. And it's the Louis C.K. joke of everything's amazing and nobody's happy. If your expectations grow that much, then even when there is great economic growth and the stock market's doing well, it never feels like it's enough because you're comparing yourself to something crazy. I mean, listening to that, it sounds kind of dire in the sense that I don't think social media is going away anytime soon. What does that mean? Like for the long term, is there a way for people to break out of that mindset? I don't think there is.

36:07And of course, social media is not going away. So it would not surprise. I'm not a forecast kind of guy, but it would not surprise me. In the next generation, we have very good economic growth, very good stock market growth, and no one is even a morsel happier for it. I think that that's already happened over the last generation. I mean, that's almost the whole history of economic growth, like great growth, but everyone just gets accustomed to it. And there's parts of that that's great. That's what keeps people wanting to push harder and innovate more is because it never feels like it's enough.

36:37So a lot of that is a great thing. But if you're looking at, it's easy today to think, oh, our grandkids, their real income is going to be double or triple of ours. And that means their life is going to be so great. It's like the second part of that is where people make mistake. There's a good chance that our grandkids, their real income will be double or triple of ours. And I would bet heavily that they will not be any happier for it. Right. They'll be like, that guy over there has a bigger spaceship than I do. It's always exactly what it's going to be. Yes. That guy's been to Mars. Yeah. I've only been to the moon.

37:09Well, what do you do like in your, in your personal life or with your family or how you like think about these things to like escape some of these traps that are very hard to fall into? It's not, it's not easy to do. I think my wife and I who's in the room right now are, pretty good at just being like, this is what makes us happy and we're not going to let a lot of external influences let us in. But it's hard for everybody. No one can escape the comparison game. I think it's just a natural part of how humans behave is just compare yourself to your peers. So it's not an easy thing to do. I think there is something to say for the idea that nobody is thinking about you as much as you are.

37:44So everyone is like, oh, I got to get the nicer clothes so that people will be impressed with me. They're not impressed with you. They're thinking about themselves. No one's thinking about your car. Nobody's thinking about the size of your house. They're all busy thinking about themselves. Once you understand that, then I think your aspiration for showing off like plunges. And that's what you need to be like, I'm just happy with this, hanging out with my family, going for a walk with my kids. I don't need to show off to people who aren't paying any attention to me. But some people can do that better than others.

38:12We've been talking a lot about how human beings respond to change and the idea that maybe we're going from an environment of low interest rates to one of high interest rates. You have a new book coming out. My understanding is it's all about change. Is that right? It's about things that never change over time, which I think is the more important. I got the idea many years ago. There's a Jeff Bezos quote that I'll paraphrase. He said, people always ask me what's going to change in technology. And a better question is what is never going to change. And he said, you can never imagine a future at Amazon where customers don't want low prices and big selection.

38:45So because you can't imagine that future, you can invest all of your money into that, knowing it's going to be just as important 50 years from now as it is today, which you can't say about most other technologies. Most other technologies have a shelf life of a year or two, and then they're obsolete. So it was the idea that part of this started for me with just the observation that both of you know, most economic predictions and stock market predictions are very bad. Our ability to predict what the stock, it's not very good. And I think part of that reason is because we focus, we try to pay attention on what's going to change.

39:16And if we can instead pay attention on what we know is not going to change, how people pay attention and respond to risk and greed and fear. Let's just focus on that, knowing for certain that's going to be part of our future, rather than pretending like we can predict what might change in the future. Well, it's funny, like even on the stock market, like our friend Sam Rowe, like who has a great newsletter, tkr.com, his whole thing is like stocks usually go up. Yes. And, you know, we could talk all about, oh, what's going to happen with like, you know, if the Fed doesn't hike, you know, the Fed hikes in November and the Fed hikes twice, et cetera.

39:50But like history seems pretty clear, like in the long term, they just, the line basically goes up. There's another version of that, Derek Thompson from The Atlantic. I think he wrote this in like 2015, 2016. He said, you know, since 2008, there have been hundreds of thousands of articles written about the economy and what's going to happen. And you can summarize all of that period by just saying things got better slowly. That's all the economic news you needed to know during that 10 year period. And so I think there's a lot of truth. I love talking about all this stuff, but every once in a while, I'm like, it's just sort of fun, but I don't know if anyone...

40:22No, I think that's an important topic. I've been open about how I invest. I dollar cost average into index funds, but I pay attention to the stock market every day. I read all the economic news. I read the Wall Street Journal every day because I think it's interesting. I think markets are interesting and you don't need to take that news and become a day trader with that news. But I think markets are such a fascinating window into human behavior. And there's no other window that shows how people think about greed and fear and risk, which are such important topics in all areas of life. But you see it in finance in a starker way than any other topic.

40:55Morgan Housel, so great to finally have you on OddLots. Thank you so much. This was a really fun conversation. Yeah, the perfect person for our first personal finance episode, I think. This has been fun. Thanks, Jason. This was great. Thank you so much. Thanks, guys.

41:21I'm so glad we finally had Morgan on. That was great. That was fantastic. And I'm looking forward to the new book for sure. I also thought the summary of markets and economics as like, it's not really about the line going up or down, but it's about the human beings involved in it, the emotions, the sort of like intellectuals. intellectual rigor around these ideas, that's the perfect way of summing it up. Yeah, I totally agree because I basically am of this view. It's like the economy will probably over time grow and the stock market over time will go up. And I don't want to just leave it at that because I do think all this stuff is my job.

41:59I want people to pay attention. But every once in a while I'm like, okay, why do we pay attention? And I think that Morgan captured it. And as you said it right there. It's like, it's interesting. We learn a lot about how people think and how people behave. It doesn't necessarily mean like it makes sense to like try to like trade to like Morgan Stanley or Goldman's like S &P year-end price target or something. Right. I also thought the point about like one of the things that happened in COVID was the fracturing of people's experiences. I thought that was really interesting because I think the knee-jerk reaction to a global event like that is to think, oh, well, we all went through this big, you know, history making thing.

42:36But actually, as Morgan said, individual experiences varied widely. And I think it makes sense that that might be one reason why people now are much more distrustful of what they're hearing on a sort of collective basis. That was such a good point. That was like a light bulb because I guess on some level it's like maybe that seems obvious, but like that It was really well put. And I remember July 2020, and I was like, oh, things don't seem very good. But then I did, I would follow these tech people. They're like, oh, I had closed another deal today over Zoom. And I was like, wow, this is like - Yeah, I'm working from home, and my personal wealth just went up by 10%.

43:14Yeah, that bifurcation is really striking. I also thought this idea of we had three in the span of less than 20 years. 9-11, 2001, the great financial, Lehman, 2008, and then COVID. So less than 20 years, three pretty earth-shattering moments of one way or another. You see how cumulative we just begin to expect, oh, this is the norm. No, totally. And I think people also react to those in different ways because some people might think, well, I need to save a ton of money because I never know when there's going to be a great recession coming up next and I'm going to lose my job. And other people might just think, you know, screw it.

43:53None of this matters. Even if I accumulate all this wealth, put it in an index fund, maybe another 2008 happens tomorrow and it doesn't matter. So I'm going to buy an NFT instead. Right. Am I going to be happy with the 5 % on the CD? Or, you know, like I always think, you know, about the Chinese economy, which does seem to have this same phenomenon of high savings rate. But as you've written a lot about like some of the most intense speculative culture in the world, like people like day trading, like iron ore futures and stuff like that. Yeah, exactly. All right. Well, shall we leave it there?

44:25Let's leave it there. OK, this has been another episode of the All Thoughts podcast. I'm Tracey Allaway. You can follow me at Tracey Allaway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our guest, Morgan Housel at Morgan Housel. Follow our producers, Carmen Rodriguez at Carmen Armin and Dash Bennett at Dashbot. And check out all of our podcasts at Bloomberg under the handle at podcasts. And for more OddLots content, go to bloomberg.com slash OddLots. We have transcripts, a blog, and a newsletter. And check out our Discord, discord.gg slash OddLots, where listeners like yourself are chatting 24-7 about all of these topics.

45:02And if you enjoy OddLots, if you want us to do more personal finance episodes, then please leave us a positive review on your favorite podcast platform. Thanks for listening.

45:20Thank you.

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