Morgan Housel: Are We Really the Same as Ever?

0:04Hello, I'm Anthony Scaramucci and this is Open Book, where I talk with some of the brightest minds out there about everything surrounding the written word, from authors and historians to figures in entertainment, neuroscientists, political activists, and of course, Wall Street. Sorry, I can't resist. Before we get into today's episode, if you haven't already, please hit follow or subscribe wherever you get your podcasts and leave us a review. We all love a review, even the bad ones. I want to hear the parts you're enjoying or how we can do better. you know I can roll with the punches, so let me know.

0:38Anyways, let's get to it.

0:48Today on Open Book, we have our first returning guest, Morgan Hassell. His first book, The Psychology of Money, is one of the best and most useful finance books of recent times. Nearly four years later, I still recommend and give it to people. He's now back with a new book, same as ever, and it's just as brilliant. Mr. Hassel doesn't need any more of an introduction. So let's go to the conversation.

1:17Okay. So my next guest on Open Book is Morgan Hassel, international bestselling author. He's a partner at the Collaborative Fund, and he's a brilliant guy. And I told him backstage, I'm actually flattered that he's still coming on my podcast. So I want to say thank you because you are a big deal now. Okay. And always for you, Anthony. And let me tell you something, this book, same as ever, timeless lessons on risk opportunity and living a good life. What a companion book to the psychology of money. And I just want to remind my listeners, I got a copy. I got an advanced copy from your publisher of psychology of money, read the whole thing.

1:54I said, my God, this is unbelievable. This is going to be a bestseller. And it was okay. You, you, I don't know how many books you sold, but it had to be in the hundreds of thousands, if it's not a million. Not to brag. Yeah, please. Just crossed four and a half million. Mazelot. I mean, that is phenomenal. You know what? I hope it goes to 10 million. I give it out to people. I give it out to people for gifts. I have a stack of those books. When young people come to my office, Morgan, I hand them the psychology of money. I'll now be handing them the timeless lessons, the same as ever timeless lessons.

2:23I got to tell you, these books are phenomenal reads. And every time I talk to you or I listen to you or you're writing something, I'm learning something. So I want to start there. I want to start with what is it about you and your five senses that you can see something that I'm looking at and see it totally differently than I'm looking at it and give me a new appreciation for it. It's almost like you are an art critic of money and you're an art critic of life and the observation of life. And you're able to provide insight to people that are looking at the same thing. How are you able to do that, sir?

2:56Well, thanks, Anthony. It's always good to be back here. My wife put this together a couple months ago where she said, and she said this is a joke, but I think there's literal truth to this. I'm not smart enough to make money matters complicated. I don't have the mental horsepower to build a complicated model, to price options, to think that I can beat the market. I'm not smart enough. But because of that, I tend to focus on stories. That's as high as my mental horsepower goes, is focusing on a good story. There's also a point here that I've been a financial writer for 17 years, and you can only survive as a writer and keep people's attention for that long if you are focusing on stories.

3:31If your financial writing is, here's what I think the Dow is going to do over the next six months, you're done. You're done. Because nobody can do that and there's 100 ,000 people trying to do it right now that you have to compete with. But if you can tell a good story that might capture someone's attention, you have a fighting chance of surviving in this industry. So I think it's those two things that kind of breeds it. Well, and it's well said, but let's talk about attention for a second. Nobody has it anymore. Everyone's suffering in various levels of attention deficit, it, yet I felt like your book is digestible, it's manageable, and I felt like a champion in your book.

4:03Can I tell you why? Because when I read, even though I love books, I have to admit this, I'm a little bit of a slow reader because I'm trying to absorb everything. And when I get to the end of the chapter, I feel accomplished, but you're whipping me. I've got one chapter after the next. I've got one thought after the next. So tell us about that because I think everyone is going to go to the Morgan Housel writing style. I think that's the only way people are going to pay attention. How did you get there ahead of us? Well, it's true. Everybody knows the thing with nonfiction books that the majority of nonfiction books could have been a long article.

4:36And maybe that's true for some of the stuff that I read as well. But to me, the only way to battle against that is a bunch of short chapters where you're like, make a point, try to make it a good point, tell a good story, and then be done. Don't sit here and ramble for another 30 pages with another 20 examples of this point. The best example I've seen of this is a historian named Eric Larson. He's written many books. He's a mega bestseller. his chapters are literally one page, one page. His last book is called The Splendid and the Vile. I think it's literally 200 chapters. Okay. So that was about Winston Churchill.

5:04Just so everybody knows, it was a phenomenal book. He wrote a book about the Lusitania. He wrote a book about the early emergence of Chicago. Every time he writes a book, and he's got one coming out about the pre-Civil War in April. Every time he writes a book, I'm salivating. He's a lot like you in the respect of history, but you're a contemporary writer. You're capturing, you're using history. You wrote some great stories about the past and you plugged them into the future and to the present. But there's a genius to you that I have to applaud. You are identifying for us what we need to do to be happy and what we need to do to create some responsibility over our own wealth.

5:46And so let's say we're in the elevator together. We're just meeting each other for the first time. And I said to you, I don't have a lot of money and I want to be happy and I want to be financially secure. Morgan, what do I have to do? Use whatever money you have to try to gain some sense of independence in your life. Independence doesn't mean you're going to retire tomorrow necessarily. It just means that you're using your money to control the time that you're going to have tomorrow. Because what's actually going to make you happy in life is not how much money you have. It's the relationships with your spouse, your kids, your friends, your family, your health, your clear conscience, your ability to sleep eight hours a night, that's what's going to keep you happy.

6:20And if you can use your money to gain a sense of independence, where you're doing something every day because it's what you want to do, spending time with the people you want to spend with, that's the biggest sense of using your money as a tool to gain happiness. And I would contrast that with most people's knee-jerk reaction, which is, how can I buy a bigger house, a nicer car, nicer clothes, all of which I love. I'm a sucker for nice houses and Ferraris. But if you're actually going to use this as a tool to make yourself happy, it's much closer or two using it for independence rather than a way to gain more resources.

6:49You have written about this. And so I have to ask you this, but I'm going to re-synthesize it for me with an observation. I'm turning 60 in January. Come on. No, no. Come on. Bullshit. There's a lot of work going on here. We're talking about tremendous Botox, lots of hair dye. When you get a little older, I'll teach you all my secrets. Okay. But there's a tremendous amount of work going on here. Okay. I'm not quite Joan Rivers yet, but I'll get there. But here's the thing I want to say about you. I was having this conversation with my wife. We have a decent amount of money. We live in a decent house.

7:22We're blessed with these things. Started out poor. And I had what Ace Greenberg said, a deep desire to be rich. But I also recognized maybe it was my religion, maybe it was the grounding from my parents that you didn't have to overreach. I don't have to prove to people I can live in a big house. I don't have to have more than you to like one up you or anything like that. Yet I live and work on Wall Street and we both know these people. We know miserable billionaires and miserable millionaires. And they're here on Wall Street with us. And it makes me think that there's something wrong with our brains when it comes in contact with money.

7:58Definitely something wrong with our brains when it comes in contact with power, right? It's like what Lord Acton said, the power corrupts. So what is it about the human brain on money? I think it's people are wired to seek status and not necessarily happiness. And money is such a universal yardstick of your status and your success that people are chasing it just for the sake of accumulating more. And they think intuitively, if I have more money, I'll be happy. But they're not accumulating the money to be happy. They're accumulating it to increase their status. And the problem with this is that at the tippy, tippy top even, there's always going to be someone who's richer than you or more successful than you.

8:34And you can think, there are people who are worth$100 billion and they are ranked number 10 or number 15 on the list. There's probably some of those people who are thinking about how did this guy get even richer than I am. There's no limit to that. And I think what's important here is that really what it is, is a competition with other people. And if you have a billion dollars, but the other guy has a billion and one, then he wins. And then so once you identify that game, that it's just a competition with other people and you realize how stupid that game is. it's a very natural game that's been inbred in us over the years.

9:04But then if you're thinking about like, look, I just want to use this as a tool to live a better life. How can I use it to spend more time with my family? How can I use it to help my community, give some of it away and have some nice toys for myself, but they're toys that I enjoy rather than toys that are going to show off to other people how successful I am. Let me push back for a second. By the way, I agree with everything you said, and I'm certainly trying to live that and your books are helping me live that, but we treat rich people differently. You see, I don't, I think F. Scott Fitzgerald was wrong in that he said that the rich are different than you and me.

9:34I don't believe that they are. They have to get up in the morning. They have anxiety. They have health issues. They have all that different stuff. But we treat them differently, Morgan. We had a Secretary of Commerce, Wilbur Ross. He was worth$700 million. He overstated his balance sheet by $2.5 billion because he wanted people to think he was a billionaire. When he was asked why, he got treated better. He was perceived differently. Why do we do that as human beings? But well, it's back to the seeking of status. Now, pretty much everywhere psychologists look, the correlation between status and happiness and like a quality of your life is very strong.

10:10If you want a higher quality life, seek status. But there's a couple of ways that you could seek it. You could do it like Wilbur and try to cheat your way and like lie about your net worth. Maybe that's too strong of a word, but - No, but it's not too strong of a word. No, he exaggerated it. Trump exaggerates it. And then you have other people that are understating it, because they're trying to get out of the spotlight. Or you can do it legitimately and legitimately make money and use that to buy a Rolls Royce that you're showing off your status. Or the other way is you can do it through your love, your wisdom, your humor, your ability to help people.

10:41That will gain you respect and admiration and status as well, particularly from the people who you want to respect and admire you. Now, I think most people down in their soul, they want about 10 people to love them. They probably want their spouse, their kids, their parents, their siblings, their close friends to love them. and everyone else is kind of like an ancillary thing. Right. And you're going to gain the respect and admiration. Not in the beginning, because I have young kids. One of my young kids walked in before we started recording. A hundred percent. Totally agree with that. Right. They get upset.

11:06They want everybody in their class to like them. Calm down. They're not going to all like you. See, there's definitely a thing where early in your career, I think you should wave your arms as wildly as you can to gain people's attention for that, to make a name for yourself. There's a limit. There's a right way to do it. But the older that you get, you're going to narrow down the number of people who you actually want to love you. And I think that's a big thing here that I completely understand why a 22-year-old would want really nice clothes and Rolex because they're trying to seek a boyfriend, a girlfriend, a spouse, whatnot.

11:36From our perspective, as we get a little bit older, and you're not 60, I don't believe that, but as we get a little bit older, then I think the narrowing of that really changes how you're going to seek attention and respect and status. All right. Well, you can Google my fat ass, okay? I was born on January 6th, 1964, and it goes by very quickly. And so maybe you can write a third book called The Psychology of Time and underneath it, where the hell does it go, okay? Yeah, I like it. Let me get back to these critical, vital things, okay? Love, greed, envy. You write with such brilliant observation of those three words.

12:14Let's start with the word love. I mean, that's what everybody wants. The Warren Buffett definition of success, of just life success, is when the people who you want to love you actually love you. And he contrasts this with all these billionaires that he knows, and I know you know some of them too. And Buffett says nobody loves them. They have all the money in the world. They have hospital wings named after them. They have mansions, they have jets, and nobody loves them. Their kids don't love them. They act like assholes. They're rude. They're condescending. They're know-it-alls. They're chiselers.

12:41But this gets back to my thing of like, how do you gain your respect? You can do it with your house and your car or your plane, or you can do it through your love, respect, wisdom, humor. Humor is maybe the biggest one. If you learned that your famous comedian was actually broke, you probably wouldn't care. You're like, I respect and admire you because you're funny, not because of your bank account. But if you are looking at a private equity tycoon, a hedge fund manager, and they go broke, you're like, that was kind of all I admired you for was your bank account. And I just think it's such a more durable, fulfilling way to seek your status from those internal things rather than your money.

13:13Now, a lot of this money can be connected to it. I, as a parent, you as a parent, I want to take the best care of my children and my wife and my family. And money is a big part of that. I want to give them the comfortable life that money provides. So it's not that money doesn't play a role here. You have to understand the root of what you're getting or what you're trying to get is their love and respect and attention from those few people who you want to love you. Well, here's something I want you to think about as a parent, okay? And this is actually from your books and it's integrated with my life's observation.

13:43You have to provide space for your children to fail. And it's very, very important as a parent that your children see you failing. A lot of this has been accidental for me. Of course, when I got blasted from the White House, it was a very public failure, but it had this weird effect on my kids, Morgan. It allows them to see, wow, their dad who they, you know, because your kids look at you differently. Like I watch these billionaires and they try to tell their kids they do everything perfectly and their life is going up in a 45 degree straight line. I read these memoirs and memoirs of perfect thinking and perfect life and perfect career ascent.

14:18And you're not providing any space for the imperfection of life for your children. And you're casting this weird shadow over them and they all end up in like medical mental trauma units. You know what I mean? It's important for me to show my kids, hey, hey, I'm vulnerable, I'm weak, I make stupid decisions. It's important because your kids are going to learn about that anyways. I think every child views their parents as like a superhero because they are to them. They provide everything. It's also important to let your kids fail, not just to watch you fail, but to let them fail. The stark example to me was the Varsity Blues, all the people who are paying to get their kids into college and cheating the system to get them in.

14:55And one of the stories that came out of that is most of those kids did not know that their parents were cheating to get them into college. The kids thought that they were doing it on their own talents and their own skills. And the kids were just completely devastated when they found out that their parents were cheating because the parents did not believe in them. So letting your kids fail and making it a meritocracy for your kids, that's incredibly important. So really, really great insight here. Let's go to the word envy. Envy, of course, this is the Charlie Munger thing. It's like, it's the worst of the sins because you can't have any fun with it.

15:26The other sins of gluttony and whatnot, at least you're having fun doing them. Envy is just, I think there's a big difference between admiring someone's skills and saying, I want that for myself and envy. I think the difference is when I admire your skills and I say, I want to be more like that, it's a positive thing. Envy is, I'm jealous of you, so I hope you fail. It has nothing to do with boosting myself. It's just pulling other people down. I think it's always a case of when there is some sort of inequality in the world, whether it's wealth inequality, racial inequality, whatever it is, there's two ways to go about it.

15:56You can promote the underdog or you can denigrate the person who's ahead. And sometimes it seems like you're getting to the same spot, but it's a very different way of getting there. And it's the same thing with looking at other people's success. You can admire that and try to chase it, or you can envy it and try to tear it down. And there's actually a lot of the latter in the world. You see this quite a bit with the Schadenfreude on social media when people fail. It's not looking up to your heroes. It's rooting for the decline of other people who you think don't deserve their success. It's interesting.

16:25So, you know, this word Schadenfreude or Schadenfreude, the German word is hot and cold, right? Schadenfreude. And it is, you go hot and cold, you get pleasure from other people's pain and you get pain from other people's pleasure. You have to think about this as a human being, this is the atavism of our brains. This is the primordial nature of our survival mechanism. So, if your cave was bigger than my cave and your wife was prettier than mine. I went over to your cave, hit you in the head with a rock and took your cave and your wife. Okay. And that's what we did 50 ,000 years ago. We don't have to do that anymore.

16:59And it's so much just like viewing everything as a competition. Everything is a competition. That's all evolution. It's just a competition for resources. Exactly. And when you view it through that lens, then all these things kind of make sense. But yeah, I think you could also, we have the intelligence now as humans to take a step back and realize how dumb that game is and realize that it's going to maybe increase your status maybe, but it's not going to increase your happiness in the slightest. We have to override that. We have to override that. Okay. So unfortunately, because these are short podcasts and you are a brilliant guy and I could talk to you all day, let's talk about greed.

17:33It's right up there with the envy. Yeah. It's not knowing the boundaries of your skill is most greed. Now, I think most people, not all, but most people who engage in greed have no idea that they're doing it. The actions that they're taking seem to make perfect sense to them. Of course, there are exceptions to that, but I think most of the time in investing, when in hindsight, you're like, oh, that was just greed. It looked like the right decision for that person in their head in that moment. So I think it's just knowing the boundaries of your skill, of your risk tolerance. That's probably the biggest one, knowing the boundaries of your risk tolerance.

18:02Most people in hindsight, when they got caught up with greed, they look back and they assume that they could accept a 50 % decline or whatever. And then they experience it and they realize they couldn't. And in hindsight, they say, if only I was less greedy and taking less risk, I could have put up with that kind of loss. Interesting. So Morgan, the magic of investing is found in two words. I'm going to say the two words I want you to react. You ready? Compound interest. That's it. But it's too simple for smart people to take seriously. And the magic of it is not intuitive. So go ahead, sir. You're going to educate me.

18:38I'm not that smart, but actually you really have to educate the super smart people because they're always trying to out trick the market where Buffett tells you, relax and just ride the whole thing. But go ahead. I mean, here's the trick behind it. If you are an investor, the knee jerk question that you want to answer is how can I earn the highest returns? That seems like the intuition. Of course, that's what I should do. And it's not. What you want to do is figure out the best returns that you can sustain for the longest period of time. Because earning 20 % in one year is cool. Earning 15 % for 20 years is magic.

19:07doing it for 50 years is ridiculous. If you can be an average investor for an above average period of time, you'll end up in the top 1 % of all investors. And that's not intuitive. So this is, I think, part of why indexing can make sense. If the simplicity of indexing allows you to stick around as an investor for 20 years, 30 years, 50 years, you're going to crush it. You're earning average returns for an above average period of time because that's the math of compounding. The exponent in the equation is time. That's where all the heavy lifting is done. It's not in returns. It's just how long can you keep this going for?

19:40Yeah, amen. All right, well, you're hitting my sweet spot and love everything about you. I didn't realize we almost had a fascist overthrow of Franklin Roosevelt. Had to read that in your book, same as ever. And boy, we have this interesting, amazing country that we're both growing up in and learning in. I'm down to the last part of my podcast and it is more words. Okay. So what I do with all my authors, my production team and I, Holly and I, we pick five words and then it's sort of a Rasha test. I'm going to ask you the word. You're going to respond to it. Ready? Let's do it. Time. The most underappreciated driver of investing returns.

20:18Tell me why. Because that's, again, that's the exponent in compounding. The bottom number is not doing the heavy lifting. The exponent is. You can be average for an above average period of time. You win. You win everything. So you got to be patient. Time to me in investing is patience, right? High quality. That's it. Shut up and don't do anything. Risk. Different for everybody, but everyone wants to distill it to some sort of formula that works for everybody. My risk tolerance is different from yours and it's different from everybody's. Everyone has to figure it out for themselves. Opportunity.

20:48Rare. That's the one word. We don't live in a world in which every single person who wants to beat the market can do it. Of course not. Opportunities are going to be rare. Probably like a once in a decade thing are you going to have big opportunities in the economy? Wealth. Way more than just a number, much closer to the quality of your relationships, your friendships, your children, your health. That's the biggest factor of wealth. And money can help those things, but the core of wealth are those things to begin with. I want to expound on this because I was with a guy, he was in Abu Dhabi. This guy's a contemporary of mine.