The Great Money Psych: Wealth, Greed, and Happiness with Morgan Housel

0:04I'm Anthony Scaramucci and welcome to Open Book where I talk with some of the most interesting and brilliant minds in our world today. In this show, I'll bring on guests in business, politics, entertainment, and more to go deep into a piece of their work, whether it's a highly anticipated book, an in-depth feature story, or an opinion piece that has captured my attention. We'll dig into why it matters to you and how their work is shaping our future.

0:38money money money we all need it and most of us want it but why what's caused our obsession and what can our relationship with money tell us about ourselves and how we operate my guest this week is morgan hassel he wrote the award-winning book the psychology of money it's one of the best finance books out there and Morgan answers all those questions and more on today's show.

1:10Your book is incredible, by the way. I think that you have a groundbreaking book. It's important to understand this relationship that we all have with money. I was born in 1964, so I'm going to totally date myself. I wasn't alive during the Kennedy assassination, although that would make me really old. Grew up in a blue collar family. We had a terrible relationship with money because we didn't have any money. And so there was always fights going on in the house. And there was always a tremendous amount of anxiety. So by anybody's stretch, and this probably sounds like being braggadocious, I'm not, but by anybody's stretch, if you looked at my bank account, you'd be like, okay, the dude has a little bit of money.

1:47You know, he's been on Wall Street 35 years. But yet when you start out broke, Morgan, you always feel that money anxiety. So you're shaking your head. So my first question to you is, why is that? Well, first, thanks for having me, Anthony. And it's an honor to speak with you again. Why is that? I think it's true that everybody is a product of their earliest years, particularly, I'd say, your teens and 20s. Your young, impressionable years where you're learning how the world works, but you're smart enough to actually start connecting the dots. When you're five years old, you can't really connect the dots.

2:17When you're 15, you can start to figure out, oh, this is how the world works. And I think the scars that those leave, whether they are good, positive scars, negative scars, stick with people forever. There's this quote that I found. It's from the New York Times in the late 1920s, the roaring 20s leading up to the Great Depression. And the quote was, the more you are snubbed when you are poor, the more you want to show off when you are rich. And I think that's really true. That was true in 1928 or whatever when they wrote that. And it's true today. Whether it's not you are showing off or you are hiding it, the idea that people are just being shaped by their past is so true.

2:49It's always been true. I think it always will be true. I am shaped by my past. You just very eloquently explained how you are. And what's important though is I commend you for acknowledging that because most people don't. Most people view finance like they're dealing with physics, like it's just math and equations and data. And if you have the data and if you know the equations, you get the answer and then we're all set. We can go home. It's just not how it works. It's so emotional and it produces anxiety and it's so much more than the spreadsheets that we often view it in. So I think just the acknowledgement alone, like forget the explanation because that's a much more harder thing, but the acknowledgement alone is a step in the right direction.

3:23And everyone should do that because every single person in a different way is shaped by their past. All right. So let's flip the switch though. Let's go to the other extreme. It's 180 degrees an antipode away from me. Somebody that grows up entitled always having money around. How does that affect? There's this great quote that I really like from Will Smith, the actor. And this is in his biography, which came out, I don't know, a year or two ago. And he says, when he was poor and depressed, he had some hope because he could say, if only I could get rich, then all my problems would go away. But then when he was rich and depressed, he had no hope.

3:57He could no longer say, if only I had more money, things would all be okay. And it took away his sense of hoping and dreaming about the future. When he got rich, it's this irony that, of course, you don't feel that bad for him. But it's like, that's an interesting thing that if money is just like oxygen to you, it's just you need it, but it's always there. It's always in abundance. It's always there. Then it's hard for you to imagine a world in which that is going to increase your happiness. And I think, look, the idea that rich people are unhappy or not happier than poor people, I think is generally debunked.

4:26I think in general, they tend to be more satisfied with life, even if they're not necessarily happier. But the idea that it can take away a sense of hope of dreaming about the future is real. And if you grow up where money is just, you never have to think about it, I think that can be a detriment to people. To me, the most fascinating real world example of this, the family of this that comes to mind are the Vanderbilts. The Vanderbilt family is one of the most fascinating families in the history of money. And it has very little to do with the fact that how much money they made and it has to do with how they thought about money and how they spent it.

4:52Most of the mega wealthy families like the Rockefellers and the Morgans and the Carnegies gave most of their money away to philanthropy. The Vanderbilts with rare exceptions like Vanderbilt University didn't give much away. They basically put the equivalent of like$300 billion in a pile and told their kids to have a blast with it. That's effectively what they did. And what happened after that were three generations of Vanderbilts for whom money was limitless. They had, like I said, the equivalent of$300 billion. And it was just a generational pissing contest to see who could build the largest house, who could spend the most money, who could throw the most lavish balls.

5:23And if you read the history of these three generations, every single one of them, without a single exception, is miserable. Every single one of them is miserable. They have no purpose. They have no skills. They have nothing that they're striving for other than I am a Vanderbilt who inherited a lot of money and I'm going to spend it. The most fascinating part about the story though, is that the first Vanderbilt heir who did not inherit any money is Anderson Cooper. Anderson Cooper is the first Vanderbilt relative who didn't get a trust fund. And I think he is without a doubt, the most successful Vanderbilt heir in 200 years and probably the happiest.

5:51And he's talked about this, that the reason he's successful in his own way and happier than his relatives is because he was the first relative in his family in 200 years who had to go make a name for himself, who had to earn his own money. And so I think that's easy to overlook as well. You see that? I mean, this is the stuff, the reason why your book is so successful, because your insight into this stuff is fascinating. I'll tell you this quick story. I want to get your reaction to it. I'm 23. I am closing titles for a real estate attorney out in Southampton. I'm in my first year at Harvard Law School, the summer intermission into my second year.

6:23I took that job because it was very high paying. You were getting$75 to close a mortgage. You were getting tips. I mean, my buddies were on Wall Street making$1 ,500 a week, which was a lot of money back then. I was making$3 ,000 in Southampton driving around at a 1986 chocolate brown Crown Victoria LTD Ford. I'm just setting the scene for you. I love that. So I'm a Guido out in the Hamptons about to get a Harvard Law degree, but I'm closing titles. I'm with the real estate attorney who's living in a fancy pants house. At least I thought it was based on where I grew up in Southampton. He's got a swimming pool.

7:00I'm behind the house at the swimming pool drinking a beer with him, a Budweiser. He says to me, you know, I grew up poor. I got a little bit of money now. All I want to do is cook some pasta, eat the pasta, watch television and go to sleep. I thought the money was going to solve all my problems. The truth of the matter is I have still very many of the same problems. It haven't solved shit. And you know what I said to him, Morgan? I said, oh, that's because you have money. I don't have any money. I'm hustling. I've got school debt up my ass. I don't have any money. But once I get the money, it's going to solve all my problems.

7:33I don't know what the hell you're talking about. Now, you know that this man, the late, great, and now deceased Dick Pelican, he was a great guy, by the way, and a good mentor. You know he was right. You know he was right. And I know he's right. Why, though? Why? Because I went from poor to not being poor. Shouldn't that be enough? Well, let me answer that by asking you a question. Do you think you are happier? And let's focus on that word happier. Are you, Anthony, are you happier today than you were when you were driving around the chocolate brown car in the Hamptons making$3 ,000 a week? Are you happier today?

8:06Remember, so we have to be somewhat philosophical. I had my youth at that time. I had my boundless energy, still very energetic guy, but I had a future ahead of me, which is different from my future today at age 59, right? I mean, I was up and coming on my way going. So yes, I was very, very happy and very idealistic about my life. I do think I'm more secure financially and I have less anxiety today than I did 30 or 40 years ago. And so in some ways I am happier, but I want to be relativistic. I'm happier with money as opposed to not having money, but it hasn't cured the ills, Morgan. Whatever the ills are, whatever Marcus Aurelius would say about the human condition, our lives, our trials and tribulations, whether you're rich or poor, whether you're a Vanderbilt or a Doe, a John Doe, you're going to experience tragedy in your life, the death of loved ones, your own death, which I see as a tragedy.

8:59Sophocles maybe wouldn't agree with me, but I see it as a tragedy. And so therefore, you can't escape rich or poor. We all have the same conclusion to our story and that's death. So what is it? What is the germ of what I'm describing? It's so easy and so common, like you mentioned, to imagine a world in which you have more money and then your problems go away. And there are some problems in which money will help prevent, of course, but there's so many that it makes no difference whatsoever. And the things that money has no influence over are some of the most important things that are going to give you happiness or unhappiness in your life.

9:34So rich people, relative to poor people, might still argue with their spouse. That will make you unhappy. They might still be disappointed or worried about their children. That'll make you unhappy. They're still susceptible to cancer and heart disease. That'll make you unhappy. All these things in which no matter how much money you have makes no difference whatsoever are major drivers of your happiness or unhappiness in life. So of course, to take this to the extreme, would you rather be a billionaire who has metastatic cancer or a broke person who's healthy as a horse? It's such an easy question to answer.

10:02I'm not going to name the names of these people, but I have a friend that's probably worth a half a billion dollars. And during COVID, he was suicidal and he hung himself. Now, the good news is one of his family members saw him hanging in the rafters of his garage and got the UPS guy that cut him down. And he went into therapy and thank God he's still with us. He's a lovely man, but this guy is worth a fortune, has yachts and homes all over the world. And so it's like, okay, what the hell is that all about? You know, like if I had that kind of money, I'd be going for colonoscopies every five minutes, try to stay alive longer.

10:34I'd be, I'd be taking the statins more in, you know, my point is, I think some of it is our genetic makeup. Some of it is our feelings about life, maybe the way we grew up, the traumas that we've experienced. But what I love about your book is that anybody can pick up your book, your book. If you're O positive, you're like the universal donor. You can give blood to anybody. Your book is like the O positive book about money. I don't think any person can pick up the book and not see themselves in the book, okay? Or not reference themselves or have the aha or gotcha moment and say, okay, I have to turn the page and hear what Morgan's going to set.

11:08How did you get that? How did you get that clairvoyance? How did you get that kismet, that touch? Well, thanks again for those kind words. I don't know if it was anything that intentional other than I think I've had a unique job for my whole career because I'm not a journalist. I'm not covering a beat and calling up sources like a journalist. And I'm not a portfolio manager. I'm not a financial advisor. I've always just considered myself someone who just kind of sits back and wants to observe what's going on and then gets to write about it. And I've always been really interested not in the question of what stock should I buy?

11:35What's the economy going to do? What's GDP going to do next quarter? That's never interests me in the slightest. I've always been really interested in the question of like, what's going on inside of people's heads when they're thinking about risk and greed or reward? just that's what I'm, that's always been interesting to me. And I think if you just take that perspective and you don't have the career incentives and biases of a journalist on one hand or the portfolio manager on the other, then you could just try to just sit back and watch and try to piece the things together. That's always been really interesting to me.

12:01And I think another thing that I really found helpful for my career was if you only view money through the lens of finance and economics, you're missing 99 % of it. Money and investing and personal finance, all that stuff is just a study of how people behave with money. It's not the numbers of money, it's how people behave. And behavior is such a broad topic that applies to everything. And behavior about how people think about greed and fear, you can learn about that through the lens of politics, sociology, biology, chemistry, history, military, like all of these topics that have nothing to do with money teach you about behavior.

12:33And the most important part of money is behavior. So once you start viewing and learning about money through the lens of other fields, A, it's more fun. It's more interesting. And it gets you closer to the truth of what is actually going on and how people make decisions with their money. One example of this that I came to recently that is very similar to what you're talking about in terms of having a lot of money, but you still don't feel like it's all there. I recently hung out for a little bit with an NBA player, Harrison Barnes, who now plays for the Sacramento Kings, but he used to play for Golden State Warriors and won a championship with the Warriors.

13:00We were talking about what it was like to win the NBA championships, the pinnacle of any professional athlete's career to win the championships of your career. And he said, look, that evening, it was great. Champagne, bubbly, everyone's screaming, having a good time. Amazing. He woke up the next morning and walked outside and he realized that the rest of the world had moved on. That the rest of the world, that he walked outside and there are people commuting to their jobs. Everyone was just walking down the street like nothing else had happened and the world moved on. And he realized that it was great.

13:26It's the pinnacle of his career. He's proud, et cetera, et cetera. But everyone else just kind of moved on from it. And then there was not much else to talk about. And then the next morning, it was like, all right, back to training for next year. I think that analogy is really true for a lot of people with money as well. That if they have a big windfall, they sell their company, they get a big bonus, whatever it is. It's cool for like a day. It's cool for a day. And then you wake up the next morning and you're like, oh, I have a disagreement with my spouse. I'm worried about my children. What's this lump in my throat?

13:51The world goes on and all these other worries that have nothing that money can't impact are still there with you the next day. That's a big part of this. We're in total agreement. We're in this age of great uncertainty. Great uncertainty. Does that affect the youth the way they think about money? I would take some quibble with that statement. I don't think we're in the age of great uncertainty. I think it's always been uncertainty. And it always feels like the future in front of us is uncertain. But the reason that is, is because the past makes sense in hindsight. So we look back and we're like, oh, of course the market did this last year.

14:21Of course, interest rates went up. Of course, inflation is high. That's 100 % hindsight. And it always looks more uncertain than it is in the future. I think what changes in financial markets is not the level of uncertainty. It's people's ignorance of the topic of uncertainty. And there are periods like 2007, maybe 2021, where it feels like uncertainty is low. But all that is, is just people are ignorant of potential risks that are staring at you down the pike. That's really all it is. So I think it feels very uncertain. But the world's not more uncertain today than it was five or 10 years ago.

14:49I think people are just more aware of risks than they were, which is a good thing. Being cognizant of risks is a great thing. And we're closer to reality and making better financial decisions as a whole today than we were one year ago. That's what the feeling of more uncertainty is. I'm a young guy. I have no money. What am I going to get out of Morgan Housel's book? I want money though. I would say it's the same thing that an old rich guy would get at, which is hopefully just being more introspective about who you are, what you want out of life, and what money can and cannot do for you. And whether you are 19 and broke or 92 and a billionaire, I think those lessons and that introspection can be just as powerful and helpful.

15:25There is no advice in the book. There's not a single place, I don't think, in the book where I say you should do X. If you want to be happy with your money, you need to do Y. There's none of that in there. I purposely tried to make it no advice, no recommendations. But hopefully, it helps people, regardless of how old or rich you are, to step back and say like, oh, how do I think about, for my personal life, how do I think about risk and greed? Are there moments when I've been shaped by my past? Do I discount how powerful compounding can be? Am I being too impatient? So, it's less about giving people advice and like, what can you get out of it?

15:55and more like, can I just nudge you in a direction where you start thinking about yourself and what you want individually versus me pretending that I know who you are and giving you advice. So that's what I hope it would be for anyone is just a greater sense of introspection about what you want in life. Let's talk about Buffett for a second. 99 % of Warren Buffett's net worth was accumulated after age 50, 97 % after age 65. So there's still hope for me, which is why I'll continue to take the statins. This guy was qualifying for social security and he made himself 40, 50, 60 plus billion dollars.

16:29What does that tell you? What's the secret there? Here's what's interesting. I actually, when I wrote that in the book, that 99 % of his net worth came after his 50th birthday, 97 % came after his 60th birthday. I actually understated that substantially because that does not include the roughly$80 billion that he's given away to charity. If you add that back into his net worth, then 99%, 99.9 % of his net worth came after his 60th birthday. It's staggering where all the money came from. And the takeaway from that is that you can really piece together this hypothetical story of saying, let's say Warren Buffett, like a normal person might, retired at age 60, like a normal person might.

17:04He was worth a couple hundred million dollars at that point. Let's say he just retired to Florida and played golf. In that situation, you would have never heard of him. He never would have become a household name. He never would have accumulated literally 0.01 % of what he actually did. So then you can easily piece together, if you're trying to answer the question, how did Warren Buffett do it? A, you can say, well, it's because he's a great investor. And that's a good answer. That's part of the answer, of course. But the real secret is that he's been a good investor for 80 years, more than 80 years at this point.

17:31That's 100 % of, that's where the money came from. It's not his annual returns. It's his endurance and longevity is where all the money came from. And I use the example of the book of a hedge fund manager named Jim Simons, whose average annual returns are like three times higher than Warren Buffett's. His average annual returns of like 66 % per year for more than 20 years, just like in a league of his own for returns. His net worth is like a half or less of what Warren Buffett's is because he has not been investing as long as Buffett. So the takeaway for the average, ordinary non-billionaire like myself listening to this is most investors want to answer the question, how can I earn higher returns?

18:06And that's like, it seems like the obvious question that you want to answer as an investor. And most of the time, that's actually not the most important question to answer. The most important question that you want to answer are, what are the best returns that I can sustain for the longest period of time? Which in any given year tend to be not the best returns that you can earn in any given year. I learned recently that PIMCO, the bond trading firm, they used to have this phrase 20 or 30 years ago called strategic mediocrity. And what that meant is that in any given year, they were probably not going to be far outside of the top half.

18:33They're never going to be top 5%, 10%. They're just never going to happen. But if you looked over a 20-year period, they would always be in the top 5%. Even if in any given year, they were not that exceptional whatsoever. And I think that's really the case. If you can just earn average returns for an above average period of time, you're top 5 % in investors. If you can earn index fund returns for 30 years, you will be in the top 5 % of all investors at the end of your career. It's just not intuitive to think that because most people are trying to answer the question, how can I earn higher returns?

19:00But time is where all of the wealth generation comes from, not just for ordinary people, but someone like Buffett as well. I think these are all brilliant statements. This is why I love speaking with you. My old boss once said to me that everybody is a long-term investor until they have short-term losses. The minute they have short-term losses, they set their hair on fire, they run around in a circle, they call their financial advisor, they call you at the collaborative fund and they start yelling. Why? Why can't people see through the near term? What is the anxiety? I think even if people say I'm a long-term thinker, I'm a long-term investor, the long-term is just a collection of short runs.

19:35And so even if you're like, oh, I'm investing for the next 20 years? Well, the next 20 years is 21-year periods, each of which has to be experienced and endured and you have to survive it and whatnot. So saying I'm a long-term investor is kind of like pointing to the top of Mount Everest and saying, that's where I'm going. You're like, okay, that's great. But now you have to go do it. Now's the hard part. You have to figure out what's your strategy for actually getting there. For a lot of people, it's two things that prevents them from actually doing that. One is that people have a false view of what the long-term should mean.

20:02Most investors say they're long-term investors, but then if you ask them, what does that mean? What's the definition of long-term? A lot of investors will tell you one year is the long-term. And by the way, what is the IRS's definition of a long-term capital gain? It's one year. For a lot of investors, that is the long time horizon in front of them is 365 days, which is crazy in the history of investing where a pretty good definition of what long-term means, particularly in the stock market, is five or 10 years, at least, if not 20 years. That's what long-term is. So I think a lot of people just have a false view of what the long-term is.

20:31The other thing that gets in people's way is that even if you are a long-term investor, That does not necessarily mean that your spouse is, or if you're a financial advisor, that your clients are. If you're a fund manager, that your investors are. And so you have to have everyone on board at the same time. I think there are a lot of market strategists, financial advisors, fund managers, who themselves know in their hearts, what's the right thing to do? Market fell 10%. It's not that big a deal. We're long-term investors. But they can't run a business doing that. They have to kind of meet the emotional needs and faults, I would say, of their clients, of their investors, of their spouses, whatever it might be.