Episode 290 - Morgan Housel: Same as Ever

23:29So I think it's always going to be the case that people will cling to the best story, even if the answer to that story that's being told is wrong. And so you see this all the time in politics, the majority of a nation clinging to a disastrous idea because it was a very compelling story. That's always been the case and always has been. And it's led to enormous tragedies throughout humanity of investors clinging to stories that sounded very good, but in hindsight, were either over promises, if not outright frauds. That's always been the case and always will be. And I cling to stories that make a lot of sense to me that are compelling to me.

24:02And you do too. Everybody does. And most of those we're not really aware of. The stories that are most compelling to us are synonymous with truth. That's why they're so compelling to us. I think a lot of it is just how impatient people can be. So to really think down and think about the mathematical, technical, scientific truth about a topic takes a lot of horsepower and patience versus just a story that sounds good about, hey, that person's to blame, or this person's got the answer, way more compelling. You see this during something like COVID, where people who have no medical background whatsoever believe something on either side of whatever you want to believe.

24:41They either perfectly accept, just wholesale accept what this expert says, or they wholesale accept what this pundit says, because the stories made perfect sense to them. I think most of the time, whenever the stakes are the highest in anything, you're in the middle of a war, in the middle of a recession, middle of a pandemic, that's when people's willingness to believe captivating stories is the highest. Because the stakes are so high and it's like, you don't want to go through the thought process of calculating the odds of this or that. You just want someone to tell you what's going to happen in the future.

25:12And that story of, I mean, it gets back to wanting certainty instead of probabilities. If someone during COVID said, this treatment will cure you, period, that's a good story. And again, it's certain, so you're going to cling to it. Or someone says, this scientist is a fraud, period. There's no uncertainty there and it's a good story. You can cling to it. So the higher the stakes get, the more people are likely to cling to certain stories about what is or is not going to happen in the future. Why are things that can't be measured important to how we think about the future? I think it's just an observation of how imperfect people are, everybody, that people are not maximizing spreadsheets, just calculating the right answers.

25:51They're emotional and hormonal and they have incomplete information and they're seeking vengeance. They're doing all these things that don't make rational sense, but they're going to do them anyway. This has been happening forever. And there's always, in every decision that gets made a big decision, there's usually at least some element of factual truth and some emotional human level part of that decision. And if you are the kind of person who thinks the world works perfectly rationally, and you're just going through and it's just like, look at the numbers, do what those say, It's generally not how things work.

26:24And whether it's in wars or recessions or whatnot, there's always some element of people are going to do crazy things that make no sense, but they're going to do them anyways. Part of this is just understanding people's incentives. So if you look at the financial crisis, the housing bubble of 15 years ago, whenever it was now, it's easy in hindsight to say, why in the world would Lehman Brothers package all these subprime mortgages made to people who stood no chance of repaying those mortgages? And sometimes if you phrase it like that, you're like, well, they were greedy, they were evil, they were short-sighted, all of which might make sense and have some level of truth.

26:59But a lot of it is just the incentives of the people doing it. If you are a subprime mortgage broker in 2006, and let's say you are a good, church-going, honest, well-meaning person, but you have a job as a subprime mortgage broker, and your boss says, if you package these subprime bonds, we'll give you a$2 million bonus this year. Even if you know those bonds are garbage, you're going to do it. Nine out of 10 people would do it. And so even if in hindsight, you can say it made no sense. Why would people do that? It's because they were incentivized to do something. And more important, that good, well-meaning person packaging those bonds can convince themselves that it's the right thing to do.

27:35And so people, I think, underestimate the boundaries of their own morality based off of the incentives that they have. You might say like, I'm a moral person. I would never do X, whatever it would be. But I think most people underestimate that actually, if your incentives were to do X, you would be happy to do it. You would gladly do it and you would rationalize it in your head. And you would tell other people that it's the right thing to do. All of us have some version of that. Some people live with varying degrees, but we all have that. And so there's always these times where big decisions are made, either from society as a whole or yourself, that don't look rational, don't make any sense.

28:10But people still do that because there's this human element that's just trying to follow incentives in life. How does calm plant the seeds of crazy? I read about this years ago about this crazy economist back in the 1960s named Hyman Minsky. And Hyman Minsky, he was at the University of St. Louis, and most of his work was around the 1960s. And if you go back to the 1960s, there was this huge burst of scientific optimism because we were landing on the moon and we had just eradicated polio. There was this more so than any time this ever existed. I think the 60s were the time where people said, if smart people put their heads together, we can literally do anything.

28:48So a lot of economists back in the 60s put their heads together and said, we should be able to eliminate recessions, which didn't seem like that crazy of an idea back then. If you're walking on the moon, of course, you should be able to eliminate recessions. It doesn't seem like that big of a deal. Hyman Minsky came forward and he said, you guys are all crazy. We'll never be able to do it. It's impossible to eliminate recessions. And he came up with this idea called the financial instability hypothesis. And to grossly summarize it, he basically said, if there are never any recessions, people rationally become optimistic.

29:20If they become optimistic, they go into debt. And when they go into debt, the economy becomes unstable. And when the economy is unstable, you have a recession. So his idea was like a lack of recessions guarantees the next recession. And the longer you've gone with that recession, the worse the next recession is going to be. And so his idea was just like calm plants the seeds of crazy. And I think it's the same in the stock market, where if the market never fell, if there was no volatility, people would rationally put all of their money into it because it's all upside, no downside. When they do that, valuations get very high.

29:54And when valuations get very high, you have a crash eventually. So the lack of crashes guarantees the next crash. I think just that observation of the natural guaranteed cyclicality of things like the economy or the stock market, it's actually a great thing to observe and actually a pretty comforting thing to observe. Because when you go through the next recession or the next bear market, you're less likely to say, somebody screwed up. My advisor screwed up. The president screwed up. I screwed up. And more likely to just be like, yeah, this is what happens. This is just a guaranteed function of how these things work.

30:29I think it's a much healthier way to think about volatility and variability in recessions. And it also makes you more prepared for them. Because if you think a deep recession is only going to be caused by somebody screwing up, you're going to underestimate how common they are when you realize that they're actually caused by just guaranteed cyclicality of how the system works. So understanding that calm plants the seeds of crazy, I think is one of the most comforting realizations in investing and in finance, because it just makes you so much more prepared and understanding of why the next crash is going to happen.

31:00And further to that, Morgan, why does success plant the seeds of its own decline? For so many people, individuals and companies, the reason you're successful is because you wake up scared and wanting to grind. True for people, true for companies. It's like your own paranoia of failing is what's causing you to work hard and succeed. And the reason you're doing it is because you think in your head that at some point in the future, you're going to become successful. And then you can justifiably take a deep breath and exhale and know that you've won and relax and take a nap. You've now won. But once you do that, the thing that made you successful is gone.

31:40So, so many people, the reason they're grinding is so that one day they don't have to grind. But once they don't grind, then they've lost what made them successful. And of course, they're going to start to decline at that point. And so, I think if you look at the people or the people or the companies or even the countries who have been successful for a very long period of time, the common denominator is a constant, never-ending sense of fear and paranoia that never goes away no matter how successful they are. And the people who I think don't want to experience that quit while they're ahead. So whether it's an individual, like a lawyer who says like, I've done enough, I'm going to retire now, or Bill Gates or Jeff Bezos saying, I've run this company for 20 years, but it's time to pass the baton.

32:22Those are the kind of people who can have very enduring careers. And you contrast that with all kinds of companies that had incredible competitive advantages at one point that lost it. So I use the example in the book of Sears, where it's hard to think about this today, but Sears from the 60s to the 80s had probably the strongest moat that's ever existed in any company. Nobody could compete with Sears. It was impossible and they completely lost it. I think they're technically still in existence, but they're dead for all intents and purposes. And I think if you look or just generalize what happened, the fear and paranoia that made Sears so successful was totally lost because they were so dominant.

33:01The ego of the managers in the 90s was so great that we can do anything because we are Sears. Every decision that we make is great because we are Sears. The ego of that is what caused their decline. And it's the opposite of what made them great. And so I've always really admired people who quit while they're ahead. It's a weird thing to admire because you want people to achieve all the greatness that they can. I was using the example of Jerry Seinfeld, of somebody who was on top of the world when he decided to pull the plug on his show. And General Electric, which owned NBC at the time, was going to pay Jerry Seinfeld$100 million for one more season.

33:42Him personally would get$100 million for one. And he said no. And later, there's a book called Seinfeldia. That's a great book on the history of the show. And Jerry says at one point, he says, the only way to know where the top is, is to experience the decline. And I had no interest in that. So even though the show was on top of the world, he's going to quit while he's ahead. So he never has to experience the decline. I love that. I have so much admiration for that. And again, Jeff Bezos, Bill Gates, people who were the absolute best at what they do. and we're still by all accounts at the top of their game and they pass the baton.

34:19They say, I'm done, I'm gonna move on to something else. I think at least one of the reasons they do that is because they don't wanna experience the decline. And it's a really admirable trade that I've always looked up to. What problems come from investors trying to squeeze too much too soon out of their investments? It's always a case that, okay, if you're a novice student of investing history and you say, historically the stock market has returned about 10 % per year. Great, that's awesome. The obvious knee-jerk question then is, how do I get it faster? How do I get more of it? How can I just speed that up?

34:50And that's the cause of 99.9 % of investing mistakes. It's taking what the market will just give you for just par for the course and trying to squeeze it into a shorter time period. And I think for a lot of things in life, there is a normal speed, a natural speed, a natural size, a natural return that if you are trying to speed it up or make it bigger above that natural side, you are liable to fall way below it. So it would be interesting. It would be great if the market returns 10 % per year and you're going to try to do better than that. If you're lucky, you'll do better than that. But the downside scenario is you're still going to earn 10 % per year.

35:28You're just going to fall to average. That would be great. But it's almost never the case. It's the people who are trying to earn 15 % per year. Most of them will end up earning 5 % per year. They're going to do worse than the average. And so most things in life, if you try to compress the natural size, the natural speed, the natural return, you're going to end up lower than you would have if you just tried to go for the natural normal speed. I think the same philosophy is true for a lot of businesses, that there is a natural growth rate and a natural size of your business. And a lot of problems are just trying to become bigger and faster than that normal natural size.

36:02So I'll tell you one example where you see this a lot in is people on social media that are trying to increase their following by doing what the algorithm tells them is the right thing to do. And they come up with some of the most cringeworthy content. And they're just trying to grow as fast as they can and do what's going to get the most likes and the most retweets. And they're going to burn their audiences out at some point. There was one point where they're making great content, but then they're just like, I need more followers. I need to grow, grow, grow, grow, grow. And they lost what was actually making them great.

36:32And they're going to end up lower than where they were before. And so many businesses that are like, look, the natural growth rate of your business is 5 % per year, but you have a CEO who says, we have to grow by 20 % per year. Well, you know where that's going to end up eventually. Anytime you're trying to exceed the natural rate of whatever you're doing, you're liable to fall well below that rate. And a lot of things in life, including investing, it's like, A, know what that natural size is, know what that natural growth rate is. And B, realize that anytime you're trying to exceed that, you're actually likely to fall way below that normal line in the end.

37:08How do you think you know what the normal growth rate is? How would you advise people to think about that? In investing, I think just looking at the average historical return is imperfect, but the best way to look at it. So in the United States, it's been 6 % per year after inflation, 6 % real returns. Anytime you have a portfolio manager or an economist who's saying, I can get you better than that, especially way better than that. You have someone who's saying, I can get you 20 % real returns. They are trying to go so far above the normal natural rate of returns that the risk imposed there is enormous.

37:43It's not to say that nobody can do it. It's just understanding what the delta is between the normal rate and what you're trying to achieve is really important. The other thing is in the stock market, you can say there is a natural time horizon in which you should be willing to invest before the odds of earning a positive return are squarely in your favor. And historically, it's about 10 years, where historically, if you are investing for 10 years, there's an extremely high chance you're going to end up with a positive return. And anything less than that, you're relying on luck. And so if your time horizon is one year or three years or five years, there's a decent chance you're going to end up with a negative return at the end of a two-year period or a three-year, five-year period.

38:23And so if you are the kind of person where you're like, I need to retire in three years and I can't lose any money. You're trying to go outside the boundaries of what the historical norm is. So I think just the Bayesian odds of what's happened in the past using that as the quote unquote normal, it's very imperfect, but I think it's the best way to do it. I mean, there's all these other examples of businesses that tried to grow way beyond their customer base. And that's a much more of an art than a science of measuring what it is. But anytime that I think you are trying to use any kind of marketing tactics to fool your customers into believing that your product is better and more useful and more valuable than it actually is.

39:00Most of the time, what you're actually doing is trying to exceed the natural growth rate. Your customers are telling you, we are willing to grow this business by 5 % per year, but the business that has to grow up by 10 % per year, the only way they're going to achieve 10 % growth is by fooling their customers into believing that the product is more valuable than it is. And just like all these examples, once you try to exceed that level, you're much more likely to of actually fall below it because of the cost and the consequences of that. Interesting. What role do stress and adversity play in individual and societal success?

39:34It all gets back to incentives. Everyone is driven by incentives. So if things are good in the economy and the world is peaceful and the world is great, then you as an entrepreneur might say, if I create this new product, I might get rich. And that's a great incentive that might get you into gear and gets a lot of people into gear. But then there's all these different incentives. At some point, if the economy is really doing poorly, you could say, I need to stabilize my business or else we're going to go bankrupt. And that's an even bigger incentive that will really get you into gear for figuring things out.

40:05And that's when you're like, we need to lay people off. We need to invent a new product. That's a much stronger incentive than I might get rich. And then you have these other incentives like the world faced in the 1940s when it was like, if we don't figure out new technologies and new military strategies, if we don't figure it out today, Adolf Hitler is going to take over the planet. That was the incentive that people faced in the 40s. And that incentive sparked the most innovation and the biggest problem solving that has ever existed, I think, in humankind. The stakes were so high in the 1940s that the amount of technology and the amount of new innovations that we got is completely off the chart.

40:41And in this little six-year period during World War II, we got nuclear energy, rockets, jets, That's penicillin, microwaves, what started like rockets and satellites. All these things happened because people were so terrified. And it's the same during the Great Depression of the 1930s. The 1930s were the most productive era in US history because every business owner in the 1930s during the Great Depression, they woke up every morning saying, if we don't get more efficient and figure out how to cut costs, we're going to go out of business tomorrow. And because of that, they created all these new business technologies.

41:17and everything from the supermarket to the laundromat were invented in the 1930s of people just desperately, frantically trying to solve economic problems. So if you look historically, what innovations happen when the economy is strong versus what happens when everyone is scared out of their minds, the fear and the stress of recessions and wars and pandemics massively exceeds the innovation that comes when everybody's happy. It's way too early. But you could say this about COVID too, that it's very likely that we will look back in 20 or 30 years and say, because of COVID, not in spite of, but specifically because of COVID, we created and discovered all these new medical technologies that have improved everybody's life.

42:00And just in the way that, look, World War II was crushing and devastating, but it left us with rockets and satellites and nuclear energy and penicillin and all these things that we would not have had if we didn't have the war. It's just a case of like, that's what gets people innovated and moving. It's not comfort, it's stress. That part of your book really got me thinking. What do you think at the individual level? Do you think eliminating stress and adversity from an individual life is a good life objective? It's always a balance because at one end, you can say, look at the trust funder who never has to work a day in their life.

42:35Do they have a good, happy, fulfilling life? Nine times out of 10, no, it's the opposite. They become neurotic. They become lazy. They don't really have anything to be proud of. But then you could say the single mother living in poverty and working three minimum wage jobs, she has all kinds of stress and adversity. Is that good for her? No, it's terrible for her. She would have a much better life if she could remove some of that. So it's always some balance in between. I think it's hard for a lot of people to find what that balance is of like, what is the balance between enough stress to get you going and motivated, but not so much that it's just going to become crippling.

43:07Here's what's interesting. In World War II, did a lot of new technologies come out of Europe? No, not necessarily. A lot of them came out of the United States. Because I think in Europe, for most of Europe, the stress was so crippling. It was death and bombs. It was not the kind of thing where it's like, oh, let's go to the lab and figure out a new technology. But in the United States, we were scared out of our minds. But it was not such immediate day-to-day stress that we were incapable of creating all these new things. So I think that's where the balance lies in there. Why is being a little bit inefficient generally a good thing?

43:39I think if you appreciate the uncertainty of the world, then you realize that you need room for error in your life and able to do well. For a lot of people, what this comes down to is most of us today have thought jobs where we are working with our head. What we are doing in our jobs is making decisions with our ideas rather than with our bodies of like digging a ditch, whatever it would be. And in that world, it seems so obvious that you need time to think. You need time to just let your mind wander and think about problems and talk to other people. Like, of course, that's what you should need.

44:13If you have a thought job, you need time to think. But very few workers do. What their bosses want them to do is sit at a desk and type and keep moving and do things that look like work. Even if what would actually be the best thing for you in that position is to sit on the couch and think, or go for a walk and think, or even just go home for the day and just ponder the problem that you're dealing with at work, that would make you more productive. To most people, that doesn't look like work. It looks like laziness. And because of that, what looks very unproductive is actually the most important thing that you can do.

44:46And so I think leaving time in your room, leaving time in your schedule to do things that look unproductive, unscheduled activities is incredibly important. And it's like, it's also true at the business level. And it's interesting what happened in the last couple of years where for most of the last 20 or 30 years, the push in manufacturing around the world was become more productive, more efficient, more efficient, just-in-time manufacturing, squeeze all the inefficiency out of the system. And they did that. It was well-meaning. It was like, that's how we're going to maximize profits is to have no room for error, no inefficiency in the supply chain.

45:21And then when COVID hit, everything broke. Like in 2021, all the supply chains were completely broken down and cost$25 ,000 to ship something to China. Everything just fell to pieces. And it was because of supply chain, all the efficiencies had been rung so tightly out of the system that when there was even a small hiccup, everything just fell to pieces. And all these companies would have been so much better off if they had 10 % or 20 % inefficiency in their supply chain, more inventory sitting in the warehouse, more excess capacity sitting around. that would have hurt their earnings in 2019 and saved the company in 2021.

45:58It's always a case that once a decade, the world kind of breaks. And during that year, during that period, once a decade when the world breaks, the inefficiency that seemed like it was a headwind during the rest of the time is your most valuable asset that you've ever had. And so whether it's your individual life or in a company, having 10 % or 20 % inefficiency in your life on purpose, time to think, or just room for error to deal with the next surprise is absolutely vital. That speaks to your point earlier about having more cash than you think you should. Most of the time, what looks like a drag and looks like it's hurting your returns, it is once per decade, let's say, it's going to completely save your butt and become the most important asset that you have.

46:40How much hassle and nonsense do you think people should be prepared to deal with on the path to becoming successful? This is a very similar topic of, I'm making these numbers up, but I've often thought like almost everything you do in life, you should have a 10 to 20 % allowance for just nonsense and in your life. Your flight's going to get delayed. There's going to be traffic. The waiter is going to screw up your order. Your customers are going to complain more than they should. Just an allowance for things not going according to plan. I remember years ago, I was on a flight and the flight was delayed and then they changed our gates.

47:13And I think they changed our gates twice maybe. And there was this guy on the flight who was a CEO of a company. And I know that because he told everybody in the gate area that that's what he was. He was one of those kind of guys. He lost his mind at the gate agent. Profanities left and right and screaming. And I remember thinking to myself, how do you become that successful as a CEO of a company with no tolerance for inefficiency, no tolerance for hassle? How does that possibly work? The answer is probably that he doesn't even know how inefficient things like. People just don't bring him bad information.

47:46But Brent Beshore, a good friend of mine who runs basically a private equity firm that owns lots of small, medium-sized businesses, he has this quote that I love. He says, every business is a loosely functioning disaster, and some of them happen to be profitable. And I think that's really what it is. You have to have a huge allowance in life for just things not working, and for messy people and for bad decisions and for untrustworthy people. If you don't have that allowance, both in your actual day, but also in your psychology for things going wrong, you're going to have a very hard time in life.

48:20You need that allowance for bullshit in your life. Can you talk about how the timescale tends to differ for how good news and bad news materialize? Most bad news happens very fast and most good news happens very slow. There are exceptions to both of those, but most of the time, that's how it works. Bad news is something that happens in an instant. Royal Harbor, September 11th, COVID, these things that literally one hour, everything's fine. In the next hour, the world's completely changed forever. There's almost no equivalent to that for good news. What would the good news equivalent be of September 11th, where the entire world woke up and everything was fine, and by 9 a.m., the world was falling to pieces?

49:03There's no equivalent to that with good news. Most good news is slow compounding. The example I use on the book is the massive improvement in heart disease fatality over the last 70 or 80 years has saved tens of millions of lives, but we almost never pay attention to it because what happened is heart disease mortality improved by about 2 % per year. Now, if you compound 2 % per year for 80 years, the result is extraordinary, which is what it's been. But in any given year or any given month or any given news cycle, nobody's paying any attention to it. You're never going to see a news headline that says, breaking news, heart disease mortality improves by seven basis points.

49:41You're never going to see that. What you're going to see is breaking news, there's a terrorist attack. Breaking news, plane crash, things that happen very quickly, it's always what gets your attention. So I think the difference between the speed in which these things occur, it really plays into why pessimism is more common and more captivating than optimism. To be an optimist, you have to believe in slow compounding good news. Where to be a pessimist, you just have to turn on the news and see what happened very quickly yesterday. Obviously, if you are a student of history too, you should be an optimist.

50:14For most of history, things get better for most people most of the time. But if you are just paying attention to what's on the news, it's mostly going to be bad news because that's what happens so fast that you can't take your eyes off of. How do you think people should be combining optimism and pessimism to make good long-term decisions? I dedicated the book to the reasonable optimist, mostly because I dedicated my first book to my wife and kids and parents. I ran out of people to dedicate it to. So I was like, I'm going to dedicate it to the reasonable optimist, which as I define it, it's my own definition.

50:44But if you are somebody who thinks the world is going to be great, the future is going to be great. That's not optimistic. That's complacent. It never works like that. To me, a reasonable optimist is somebody who thinks in the future, Things are going to be much better than they are today. But the path between now and then is going to be a constant chain of landmines and obstacles and setbacks and disappointments and recessions and bear markets. If I have the fortitude to endure all of that, then the payoff is going to be great. I should be optimistic about the payoff, but let's not fool ourselves about what the path between now and then is going to be like.

51:16That to me is reasonable optimism. And that's also balancing optimism and pessimism at the same time, getting themselves to coexist. This is great. quote that I love from Admiral Stockdale, who was a US Admiral who was a prisoner in Vietnam. He was the highest ranking prisoner during Vietnam. And he was talking after the war. I'm paraphrasing here, but he said, you know who did the worst as a prisoner? The people who just lost it, couldn't make it. It was the optimists. Because what the optimists would say as they're sitting in prison would say, we're going to be home by Christmas. I know it. We're going to be home by Christmas.

51:48War's going to be over. And then Christmas would come and go and they would be crushed. They would lose all hope once that happened. And he said, the people who did the best were the people who balanced optimism and pessimism. They would say, we are going to go home someday. I'm going to see my wife and kids again someday, but we're not going to go home by Christmas. This war is not going to be over by Christmas. Those are the people who actually made it. They were combining optimism and pessimism at the same time. And I think that's an extreme example of what needs to occur in a lot of life. I'm highly confident that the economy that my kids will work in is going to be better and more prosperous and have more opportunity than we have today.

52:23But I also know the path between now and then is going to be a disaster, constant chain of bad news. And so those two things don't cancel each other out. I think a lot of people are either optimists or pessimists. It's one or the other. And you see this a lot in social media. It's either the tech optimist who just says, AI is going to be so great, no one's going to have to work in three years. Or it's the pessimist of like dollars going to zero, put all your money in gold. A lot of it is one of those two things. I think the people who actually do well over time, are the people who get it to coexist.

52:53It's the Stockdale's of the world. We are going to have a great future, but it's going to be a mess between now and then. So why is it so hard to predict the impact of future innovations? Most innovations are not just somebody invents something and it goes on to change the world. It's all the different permutations of what it could become that actually goes on to do something great. Here's one example of this. When the Wright brothers created the airplane, they themselves did not think it would be that useful for anything other than maybe the military. A lot of people who are trying to create planes were just doing it because they thought it was cool.

53:28And the people who are really optimistic about it, like the Wright brothers were like, hey, we could strap a machine gun onto this and the military is gonna be very interested. Nobody, including the Wright brothers themselves, envisioned that what this is actually gonna do, the biggest impact this is gonna have is creating a really big version of this and basically making it a school bus that you can take people all around the world in this thing. Nobody saw that coming. When you create something great, what other people are going to do with that invention and the different ways that they're going to twist it and add other inventions to it, that is what different inventions can eventually become.

54:01One other example that I think about is Thomas Edison did not invent the light bulb. What he did, there were other people who invented things, who had made things and looked exactly like the light bulb that Thomas Edison eventually became famous for. What Thomas Edison did is he augmented the filament because all the other light bulbs that other people had invented were way too bright. They would blind you by looking at them and they could only last for five or 10 seconds before they burnt out. What Edison did is he created a filament that was not blinding and could last indefinitely. That was what he did.

54:35And that was incredible. He deserves all the credit for that. But let's acknowledge that what he actually did is take a bunch of other people's inventions and twist it and tweak it and turn them into what he did. And every other invention is like that. Jeff Bezos was recently giving this interview and he was like, look, when he created Amazon in the 1990s, he did not need to create a payment system. It already existed. It was called Visa. And he did not need to create a delivery system. It already existed. It was called UPS. In a very real way, what Bezos did is he took all these inventions from other people and he combined them and twisted them and augmented them into a company called Amazon.

55:10And every invention is like that. So when somebody creates Visa, it's very easy to just look at and say like, oh, that's a payment network. That's great. It's very hard to look at the creation of Visa and say, this is eventually going to lead to Amazon, which is eventually going to lead to same day shipping of anything that you want in the world. It's hard to fathom what any invention is going to become because you can't fathom all the ways that other people are going to use that invention in their own unique way to create something new. Why do people often think that the grass is greener in other people's lives or other people's businesses?

55:43It's always been like this, but it's so much more common now with social media where there's this great phrase that I like from Jonathan Haidt of NYU, where he said, social media is not a place where people go to communicate. It's a place where people go to perform for each other. That's really what it's a performance. It's true for me. It's true for everybody. I post pictures of my kids on Instagram having a good time. I don't post pictures of them having tantrums. You go to show the highlight reel of what you're doing. It's a performance of here's how great and wonderful my life is. I have not been able to find who said this, but it's such a brilliant quote.

56:14They said, the grass is always greener on the side that's fertilized with bull. It's such a beautiful 10 out of 10 quote. I love that. It's true for a lot of things in life that if you think that this person is happier, this company is better to work at, this person is smarter, most of the time, not always, but most of the time it's because you're not getting the full picture of what's actually going on. And I think we've seen some pretty stark examples of this in recent years where I'm from Seattle and there was no greater king and queen, maybe of any city, than Bill and Melinda Gates. Bill Gates created the technology of his generation, became the richest man in the world, gave it all the way to cure malaria, literally a fairy tale life.

56:56And then they get divorced a couple of years ago. And you very suddenly overnight realize that it was not as happy and fairy tale-esque as it looked. I'm not picking on them because there are so many examples of that. I'm pretty sure you and many people in this industry have been a lifelong admirer and fanboy of Warren Buffett and still am. But the book, The Snowball, which is the most deep biography about Buffett, really goes into detail that is well-known, didn't make Buffett very happy about the more unpleasant parts of his life, his personal life, his family life, his wife left him, his relationship with his kids and whatnot.

57:34There are so many aspects of his life. I still consider him one of the greatest men to live in modern times. That's how I would phrase it. But if you're only looking at what is public, his wealth, his fun little quips, giving the money away, that is the grass is greener on the side, it's fertilized with bull. If you take the whole picture of what his life is, all of his relationships and whatnot, it's good, but it's not as great as you would think it is. And so I think when we always have an incomplete view of people's lives, my life, your life, everybody's life, it's so easy to say that person has a better life than I do because you are keenly aware of all of your problems and skeletons and flaws.

58:14But all I tend to see are the things that you're good at. It's easy to say, I have all these flaws that nobody else does, which is almost never the case. Whatever you're suffering from, there's a billion other people who are suffering from it as well. By comparison, it just makes it easier to think that other people are better and happier than you are when it's usually not the case. What is the difference between permanent and expiring information? Most people listening to this look at a lot of financial information. If you come across a headline that says Microsoft beats earnings by three cents per share, I'm not going to say that's irrelevant information, but it's expiring information.

58:49Because even to someone for whom that is relevant to today, if you ask them in 10 years, How important was it that Microsoft beat earnings by two cents in Q1 2024? It was not important at all. It's expiring information. But if you understand how people respond to greed and fear, that topic will be as important 100 years from now as it is today because it was important 100 years ago. So it's important to segment the information that you come across as permanent versus expiring. And sometimes you find permanent information in the news. The big events that shake history, to repeat it for the 20th time on this, World War II, ooh, 9-11, COVID, that is permanent information because those events will change the world forever.

59:29It's not just so easy to say if it's in the news, it's expiring information versus if it's in like a psychology textbook, it's permanent information. It tends to be like that. It's important to understand what you're coming across to ask yourself, is this permanent or expiring? And the symbol litmus test is when I read the news or read a book, read anything, is to ask myself, will I still care about this in one year? Will I still care about this in five years or 10 years? And 99 % of the time, the answer is no. And a lot of times it's still, it's intellectually stimulating. It's fun. I still want to read it.

1:00:01It's like gossip news. And I'm like, oh, I'm still going to read this, but understand that you're not going to care about it in a year. And that's really important because most people I think would want to gravitate towards information that doesn't expire, that will still be just as useful 10 years from now as it is today. That's what's really useful in the world. But if you don't go out of your way to ask yourself what it is, you're going to find yourself drowning in expiring information. And you think you're making yourself smarter, but you're actually just like burying yourself in all these information that has a shelf life.

1:00:29I think related to that, why are complexity and length so appealing? As a book writer, every reader knows that most nonfiction books do not need to be as long as they are. And this is true for my books as well. I'm not going to say that I'm exempt from this. It's often so odd that virtually every nonfiction book is about 230 pages. You would not think that these topics that vary so wildly all need to be the exact same length. But we do. We've kind of just settled on that as the appropriate length. And everyone who is a reader will tell you some version of the quote, this book could have been an article.

1:01:09But the thing is, if you write a 20-page book, even if readers say, that's what I want, If you write a 20-page book, most people's reaction is going to be, you didn't try hard enough. You don't know what you're talking about. You don't have all the information. And if you write a 900-page book instantly without reading a single page, most people are going to say, this guy's an expert. He knows exactly. Look at this. He wrote 900. He put so much effort into this thing. So a lot of times, length is the only thing that signals effort. Even if it's a very imperfect signal, it's what people are going to do.

1:01:40And same, if you hire a consultant to solve a problem in your business, even if the actual solution to that problem could be explained in one paragraph, what that consultant is going to do is deliver a 400-page white paper on what you need to do about it. Because if they give you one paragraph, how can they justify their feat? Or how can they claim to be an expert if it's so simple? So that's why length and time given to something is always what people are going to lean toward, particularly if they're getting paid for an opinion, just because it's the only signal that they can show that they have put effort into this.

1:02:13They're trying to signal that they know what they're talking about. How does personal experience shape how people see the world? In such a profound way, the idea that nothing is more persuasive than what you've experienced firsthand. So you can try to be empathetic and open-minded, and I can try to understand the life that you have lived, but nothing is more persuasive than the life that I have lived. Because of that, we're all just mirrors of what we've experienced in life and the people who we've met in life, the vast majority of which are outside of our control. Because most of what you've experienced in life has to do with when, where, and to whom you were born.

1:02:49All three of those are completely outside of your control. And let's not pretend that if you or I were born in Somalia in the 1800s, that we would have the same views about the world that we do today. Of course, we would not. We would not have the same religious views. We wouldn't have the same political views. We wouldn't have the same economic views. All of it would be different. And it would be different by something that we have no control over whatsoever. So just realizing that the experiences that you've had in life are the core of most of what you believe. And those experiences have been mostly outside of your control.

1:03:21I think it's really important just in terms of being humble, just the humility of, I think the world works this way. But the only reason I think that is because I've experienced it through that lens. All three of us have experienced the world through the lens as white males. Let's not pretend that if we were different than that, we would not have different views on the world. It's not our fault because everyone anchors to who they are. In finance and investing, you do not know what your risk tolerance is until you have lived through a recession, until you've lived through a bear market. It's very easy to say, oh, if there was a bear market, I would view that as an opportunity.

1:03:57I would go out and buy. You're only allowed to say that if you have lived through multiple bear markets and you actually did it because you don't know what it's going to feel like until you are actually in the trenches, so to speak. In the trenches is a great way to frame it because there's so much evidence that in boot camp and in training, there are so many soldiers that are full of bravado. And they're like, man, when I get out there on the battlefield, I'm going to go run up guns blazing. I'm going to go get the... And then as soon as they get to the front lines, they're terrified. Not a criticism because you and I would probably do the exact same thing.

1:04:30This is not to criticize their bravery, but it's impossible to know how you're going to feel until the bullets are being fired at you, so to speak. And I think there are versions of that in everything in life, in business and investing, in entrepreneurship. It's very easy to assume you're going to be one person, but you have no idea until you've actually experienced it firsthand. Lots of great lessons in this book, Morgan. When you step back and think about it from a personal finance perspective specifically, what do you think of the big lessons? I think the biggest from both of my books, Psychology, Money, and Same as Ever, Two really stick out.

1:05:04One is a plea for humility. Don't pretend like we know what the future is going to hold. We don't. We can focus on these behaviors that never change, but the common denominator of all history in any country, in any topic is surprise. History is the study of people being surprised. And the irony is that they use history as a map to the future. Even if what history is, is the constant chain of people being surprised. So one of it is a plea for humility. And the other in both books, I think, in personal finance is trying to understand who you are individually and recognizing that what is good advice to me might be bad advice for you and vice versa.

1:05:40Even if you and I are same age, same education, whatnot, we're different people. We have different risk tolerances, different social aspirations. We have different families. And so there's no one right answer in finance or investing. Everyone just has to find out what works for them individually. And people tend to understand that in other aspects of life. With your taste in food or your taste in music, people know like, oh, you like this and I like that, but neither of us is right or wrong. It's just taste. But with finance, people want to say, what is the right answer? What is the right way to invest?

1:06:12And I think it's actually closer to your taste in music. It's like, just find out what works for you. And if you like doing that, if that helps you sleep at night, just do that. Even if it's wrong for somebody else, or even if other people tell you that you're doing it wrong. Those are the two big takeaways, I think, from both books. Those are the common themes in both of them. What's the most important lesson that you learned from writing, same as ever? I think everything that I write, it's not that I have this information and I'm trying to teach other people. Most of what I write is two things.

1:06:39One, I'm trying to write about my own problems. So rather than being like, oh, I've witnessed other people having this problem, I'm like, no, this is a problem that I have myself. This is my own flaw. So I feel like my writing is very much like a diary. And the other thing is, I think this is true for every author. With the exception of like an autobiography, when authors sit down to write a book, they don't know all the information in that book. The process of writing is what teaches them. So it's not like, oh, you have all this information in your head and you just need to sit down and spit it out.

1:07:07Most writing for most authors is you write a paragraph and you're like, oh, that reminds me of this. Or like, oh, there's a flaw in my argument. I need to go do more research. The process of writing is what actually teaches you, the writer. I've always felt like that with my writing. It was like that was same as ever too. I didn't know any of this before I started writing it. It was just the process of writing is what got me thinking about it. It's a great book. Same as ever. I loved it. It was this past Christmas, the book that I gave to my kids for Christmas. So that's how much I enjoyed it.

1:07:36So Morgan, great to see you and thanks for joining us. Likewise. Thanks so much for having me guys. Thanks Morgan.

1:07:50Transcription by CastingWords