Morgan Housel on Investing, Wealth, and Financial Freedom for Entrepreneurs | Finance | YAPClassic

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25:02Don't wait and protect your privacy. Build your brand and get your complete business identity in just 10 clicks and 10 minutes. Visit northwestregisteredagent.com slash yapfree and start building something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com slash yapfree. Okay, so your book, Psychology of Money, came out in 2020. It was a huge hit. And you say in the book that money has little to do with how smart you are and a lot to do with how you behave. So let's start there. I think it's a good foundation of the book. Can you shed some more color on that and give us examples of how behavior can actually trump smarts?

25:39Well, here's how I always define it. If you are the smartest financial mind in the world, you have a PhD in finance from Harvard, you know all the numbers, you won the Nobel Prize in economics, but you don't have control over your behavior, you don't have a control over your greed and fear or patience or temper, you can and very likely will go broke. And the flip side of that is if you have no financial education, you don't know anything, you didn't graduate high school, you're a country bumpkin who knows nothing, but you do have control over your greed and fear and patience and temper, you have everything you need to become wealthy.

26:16Just yesterday, there was a news story that came out about this guy who lived in the middle of West Virginia or something like that and lived in a trailer. I heard this. He recently died and he left$4 million to his town. Yeah. That's the perfect example. He does not have the pedigree. He does not have the degree from Harvard. He did not work at Goldman Sachs. But he was clearly patient, not greedy, et cetera, et cetera. And because of that, he became very wealthy. So there are very few fields in which that's the case. If you did not go to medical school, you do not know how to perform open heart surgery, full stop.

26:51But it's not like that in finance. You don't need the education to do well as long as you have the behaviors. So because it's one of the few fields that's like that, it's easy to overlook what you need. And most people, if they're like, I want to become a good investor, they're like, great, I'm going to go get a degree in finance. I'm going to memorize all the formulas. And by and large, that's not what you need. What you need is the behavior. Now, for a lot of people, that behavior is nature instead of nurture. They're born understanding. Their brain is wired in a way that lets them do it. And some people are the opposite of that.

27:26But just understanding what you need and what you don't is, I think, the most important thing of doing well with money. And just to dig in on what you said, you also say in your book that we learn traditionally about finance like it's physics, right? It's rules. there's laws, but you say we should look at it more like psychology with emotion and nuance. Can you dig deeper on that? In math and in physics, there's one right answer for everybody. So if I say, what is two plus two? It's four no matter who you are or where you're from or where you live or how old you are. But in finance, it's not like that.

27:59Because if I say, how should you invest your money? Well, what works for me might not work for you and vice versa. Everyone listening, we're all going to come to a different conclusion because our risk tolerance is different. Our social aspirations are different. Our time horizons are different. Everything is different. So it's much closer to taste in music. And if I said, what's the best music? There's no one answer for that. It just depends who you are and what you like and how old you are. Music that I liked when I was 15 would be atrocious to me now. So you're going to change throughout time.

28:29That's most of the nuance in finance is just realizing that there is not one right answer. And I think the majority of the time in finance, when people are arguing with each other about how should you spend your money? How should you invest your money? They're not actually arguing. They're not actually debating. It's just people with different experiences and different risk tolerances talking over each other. And it's the equivalent. If I think X and X is good for me, you might think X is terrible because it would be bad for you. That's the biggest issue with financial debates. So this reminds me of something that you were just mentioning, the fact that you and your wife have basically stayed at the same goalpost all these years.

29:09You drive the same car, you live in the same house. You haven't really increased the amount of money that it costs to live your life, but you've both increased your income. So you're able to save more. Talk to us about this importance of knowing what your own goalpost is and why that matters. The first thing I think is important is we live a great life. We live in a great house in a great neighborhood and we take great vacations. We are not the kind of people, like the guy who's living in the trailer and is leaving all this money. There is obviously some balance to it. But I think the idea that if your expectations grow faster than your income, you will never, ever be happy with your money is one of the most important and powerful realizations in finance.

29:49That there are hedge fund managers who make$100 million a year and feel like they're falling behind because their buddies make$200 million a year. There is no cap to that. Elon Musk displaced Jeff Bezos as the richest man in the world. I don't know this to be the case, but maybe that bothered Jeff Bezos because now he's only worth a quarter of a trillion dollars while Musk was worth a third of a trillion dollars. There's no end to financial comparison. And so, yes, it's important if you want to do well with money to grow your income, invest your money, grow your net worth. But it is equally important and very easy to overlook that you also need to go out of your way to manage your expectations and just be happy with what you have, knowing that if you get the bigger house or the nicer car, it's going to feel cool for like four minutes.

30:34and then you're going to get used to it and it's not going to feel any different. And so look, we live in a nice house in a safe neighborhood, all of that checks all the boxes. But there is this thing of, yeah, but if we got a bigger house, we wouldn't be any happier. And we might actually spoil the expectations of our kids who think that that bigger house is now the norm. So this is something that like we always battle with because even for us who believe this and live it, the expectation of, ah, maybe we should get a Range Rover. It's always there. That feeling, that drive is always there. But then just taking a step back and be like, well, is there something else we could do with our money?

31:11Would the vacation make us happier? Would donating it make us happier? That battle is always there. But whenever we've experienced it, and when you go out of your way to keep your expectations low too, then your drive for a better life moves away from what's the next car, what's the next house. Actually, what makes us happier is spending more time with our kids, going for walks with my wife. So like, hey, can we use our money to do that? Use our money to free up our time so that we can spend more time with our kids and with each other? Because that's definitely going to make us happier. But the Range Rover probably won't.

31:43That's the debate that we always have in our heads. Yeah, and as I get older and make more money, I feel like I'm actually becoming smarter about the way that I spend my money because I realize how much I have to work for a certain amount of things. This reminds me, it was Thanksgiving yesterday, so I saw my family. And my sister-in-law has never worked a day in her life just carrying a$6 ,000 bag. Meanwhile, my company made$5 million last year. And my most expensive bag is like$3 ,000. It made me realize how much different people's priorities are and how people like spend their money and manage their money is so varied in terms of what people believe success looks like in terms of how much they want to save.

32:28And it's so, so varied across the spectrum. It's so varied. And this is one thing that I've kind of tweaked my views on in the last couple of years is that the$6 ,000 bag for your sister-in-law, maybe that is the best use of her money. Yeah. Maybe it's not. But for some people, it would be. Even if for my wife and I, or maybe you, it would not be to each their own. And there are a lot of people who will look at how my wife and I spend our money, particularly the few of our friends who would know our income and then look at how we spend. We'd be like, what are you guys doing? Like you are missing out on so much.

32:59And I don't think we are. I think we're pretty cognizant of what we're doing and how we spend it. And we're doing the best thing for us, which to me, all that matters. I've never wanted to become the mansion Lamborghini guy. I've always wanted to become the independent guy who can just do whatever he wants any day. And no one's going to tell me what to do or when to do it. I'm not like a, I reject all authority kind of guy. I'm not like a hardcore libertarian, but for money stuff, for work stuff. I'm going to have the most fun and do the best work if it's on my own terms. So the fact that I can write what I want when I want, and the reason I can do that is because I have some sense of financial independence.

33:38I don't need to work for the salaried company. That is the best use of money for me by far. I want to talk a little bit more about the purpose of money. You've been alluding to it, but talk to us about why independence and autonomy is really the purpose of gaining wealth? I think back to what we said of everyone's different and maybe the$6 ,000 handbag is right for you, but not for me. But if there is one common denominator of which almost everybody from every culture and every age is going to get benefit from, it's independence. People by and large do not enjoy being told when to work, how to work and what work to do.

34:16They do that because they have to. They need the paycheck and that's the way to do it. But when most people, the first taste of independence they have, they're like, oh, that's good. That's the one I like. And even if you are working for a salaried company, if you have a boss and in a position that gives you independence and autonomy, not only is it more enjoyable, you're going to do better work. The quality of your work is going to go up if you're doing it on your own terms. It's such a universal driver of happiness. And maybe that's actually the wrong word because independence doesn't necessarily make you happy, but it removes unhappiness.

34:49That's an important nuance, but it's really important. People who are wealthier, by and large, do not wake up happier. Happy in the sense that they wake up smiling every morning. It's not that. But I think they have fewer bad days. And that is a huge life advantage. To remove uncertainty and misery from your life is massive. It's one of the few things in money that tends to be universal. And it's also very easy to overlook because particularly for young people, and particularly young men, The knee-jerk reaction of why do you want to become rich is so I can have nice stuff, so I can have a big house and a fancy car.

35:24And it's easy to overlook what's actually going to bring you the most joy is using it to give yourself independence. I love that. So let's talk about emotions and money. What are some of the common emotional pitfalls that a lot of us fall under when it comes to handling our finances? The two biggest that come to mind, one from personal finance and one from investing. In personal finance, it's social comparison. And there is no such thing as an objective measure of wealth. Everything is just relative to what other people have. You look at your house, your car, your bank account, and you say, what do I have compared to that person?

35:58That person is usually your friends, your neighbors, your coworkers, but also just people on social media. That is the fuel to move the goalpost. Because even if you are doing well, you're going to start looking at people who are doing better than you, and you're always going to feel inadequate. And it's very hard to break that cycle. Social media makes this so ridiculously difficult because now the people who you are comparing yourself to is like the curated algorithmic reel on TikTok and Instagram that knows exactly what's going to make you anxious. They know exactly which posts are going to make you feel inadequate because that's what's going to get you to stare at it the longest and be like, why don't I have what he or she has?

36:36That's like a really difficult trap to break. In investing, the pitfall is FOMO. It's fear of missing out. It's similar to social comparison. That person is getting richer than me, and therefore I need to take more risks or try to copy that person in order to catch up to him. And the danger in that is that just like in gambling, everyone on social media talks about their wins, never their losses. So the people who look like they are getting so much richer than you, A, probably are not. Like it's probably some sort of mirage. But because you don't know that, you're going to start taking risks that you shouldn't and can't afford to take.

37:13In 2021, when there was like the Robinhood explosion in investing, it went supernova at that point because you had all these 19-year-old people who were like, I just made$20 ,000 on Robinhood and you should be able to double your money every week. A, most of that was bullshit. And B, the people who looked at that said, I need to go start trading options too. And you know how that ended. For the vast majority of them, it ended in tears and losses. And so all of that is driven by FOMO, the idea that someone else is getting richer than you and you need to catch up. And so if you can break away from that and realize that there are always people who are either look like or actually are getting richer than you, and that's fine.

37:55That's totally fine. It's unavoidable. You don't need to catch them. You just need to play your own game and do what works for you is really important. Yeah, I feel like everything you're saying is reminding me of this bag story from yesterday. That's kind of why I brought it up is because at first I felt bad. I was like, man, she's got a$6 ,000 bag. I work so hard. I don't have a$6 ,000 bag. And then I realized, well, I could have a$6 ,000 bag. These are just not my priorities. So to your point, everybody has different goalposts. And just because somebody looks like they have a lot of money doesn't mean like behind the curtain that they actually have much going on at all.

38:29I would actually take it a step further with nothing to do with your sister-in-law. Yeah, nothing to do. I love my sister-in-law. I'm sure she's wonderful. Yeah, it's just the example. But yeah. When you see somebody driving a$100 ,000 car, the only thing you know about their finances is that they have$100 ,000 less than they did before they bought the car. You have no idea how much money they have. And I learned about this when I was in college. I was a valet at a nice hotel in Los Angeles. And these people would come in driving Porsches and Ferraris and Lamborghinis. And then if you get to know them and talk to them, you realize they're actually not that successful.

39:01They just spent half of their salary on a Lamborghini lease payment. The vision that they had, the identity of, oh, this guy's driving a Lambo. He's clearly super successful. No, you actually don't know that at all. And it's the classic millionaire next door of like a lot of the people who are very successful are actually driving F-150s. They're actually driving Toyota 4Runners. And you would never know it because that's why they're rich is because they actually invested their money instead of spending it on a car they couldn't afford. Yeah, I love it. So related to this, You say that keeping money and getting money are two very different skills.

39:37You actually say that if you could summarize money success in a single word, it would be survival. So talk to us about how we can actually keep our money and the main ways that people tend to lose their wealth. It's just this idea that getting rich and staying rich are two different skills, and they're often conflicting skills, which means it's hard for people to do them at the same time. Getting rich requires taking a risk, being optimistic about yourself, being optimistic about the economy and the stock market. That's what you need to get rich. And staying rich is almost like the exact opposite.

40:06You have to be a little bit paranoid, a little bit conservative, scared of risk, cognizant of risk in order to make sure that you're not taking big enough risks to throw yourself over the edge. I think one way to summarize it is save your money like a pessimist and invest your money like an optimist. Save your money with the idea that the world is risky and dangerous and fragile. And there are always recessions and bear markets and pandemics and terrorist attacks and wars and political mess ups that you need to be able to endure financially. But if you can, if you can keep your head on straight during those periods, the rewards for those who stick around are incredible.

40:45I've been investing for 20 years. 2004 is about when I started investing. During that time, there has never been a single moment in which you couldn't point to a dozen things going catastrophically wrong in the economy. Every single moment, stock market's overvalued. Companies aren't doing very well. Unemployment's too high. Inflation's too high. Interest rates are too low. At any moment, you could have pointed to a dozen things. And during those 20 years, the stock market is up fourfold. That's how investing works. You have to save like a pessimist to endure all of those dozen things to point at.

41:18But if you can stick around, you look back over a 20-year period, and you're like, man, I made four times my money during this period. It's incredible. That's always how it works. Saving like a pessimist, investing like an optimist. So Bill Gates started Microsoft and Bill Gates actually is more of a pessimist. Talk to us about how he's used his pessimism to set up Microsoft for success because even in 2023, Microsoft is a huge company that's growing and leading the AI charge and everything like that. Well, I think Bill Gates is the best example of someone who has gotten optimism and pessimism to coexist because when he started Microsoft in the 70s, he took the most optimistic swing that any entrepreneur has ever taken.

41:57When in the 70s, he said, every desk in the world needs a computer on it. That was the craziest idea in the world. Crazy optimism. At the same time, from the day he started Microsoft to the day he left in 2000, he ran it as conservatively as you possibly could. He said he always wanted enough cash in the bank so that he could run Microsoft for one year with no revenue. Like the most pessimistic way to run a business. I think that's why they've done so well. It's not that they're always optimistic or they're always pessimistic. They realize that if you can survive all the uncertainty and all the upheaval, then you have a fighting chance to actually compound for 50 years as they have.

42:35And very few businesses are actually like that. If you have a very optimistic CEO, they're like, let's bury ourself in debt and invest every penny that we have and swing for the fences. And nine out of 10 of those businesses are eventually going to go bankrupt, probably pretty soon. But also if you're too pessimistic, then those businesses become obsolete. So it's getting both of those at the same time that is so rare, but that's really the key to doing well over your entire career, over an entire lifetime, is getting optimism and pessimism to coexist.

43:06Young end profiters. I know there's so many people tuning in right now that end their workday wondering why certain tasks take forever, why they're procrastinating certain things, why they don't feel confident in their work, why they feel drained and frustrated and unfulfilled. But here's the thing you need to know. It's not a character flaw that you're feeling this way. It's actually your natural wiring. And here's the thing. When it comes to burnout, it's really about the type of work that you're doing. Some work gives you energy and some work simply drains you. So it's key to understand your six types of working genius.

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44:12I don't like it when people slow me down. I don't like hand-holding. I like to move fast, invent, rally people, inspire. But what I do need to do is ensure that somebody else can fill the enablement role, which I do have, Kate on my team. So Working Genius helps you uncover these genius gaps, helps you work better with your team, helps you reduce friction, helps you collaborate better, understand why people are the way that they are. It's helped me restructure my team, put people in the spots that they're going to really excel. And it's also helped me in hiring. Working Genius is absolutely amazing.

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47:48Learn how you can get more out of your.com from a Framer specialist or get started building for free today at framer.com slash profiting for 30 % off a Framer Pro annual plan. That's 30 % off in 2026. Again, that's framer.com slash profiting for 30 % off framer.com slash profiting. Rules and restrictions apply. And I know that you are a strong proponent of having patience. And in your book, you've got a chapter called Tales You Win. And you talk about how sometimes it's that one Picasso painting that an art investor acquires that makes up for all the ones that they don't. So can you give us some examples of long tail strategy and why that's important?

48:27The painting example is one that I love. It's there were all these art collectors in the last 50 years and a very small number of families ended up with these ridiculous art portfolios. They had Picassos and Monet's and like Renoir, like the top paintings ended up in the hands of very few number of people. How did those art collectors know what was going to become valuable? Because when Picasso was alive and painting, he was not the Picasso who he is today. Most artists become famous after they die. How did these people know what was going to be big? And they looked at their art portfolio and the explanation was, those collectors did not know who was going to be big.

49:06What they did is you had a couple of collectors would go out and buy every painting they could possibly get their hands off of. If any painting was for sale, they scooped it up. And they ended up with thousands or tens of thousands of paintings. And within that portfolio ended up by chance, some Picassos and some Monet's and some Renoir's, but they didn't know in hindsight what it was going to be. Or with foresight, they didn't know. It was only in hindsight that because they collected so many, a couple of them ended up being worth a zillion dollars. And investing is exactly the same. You have no idea which companies are going to be the next Tesla, the next Apple, the next Amazon.

49:43Nobody knows. And people who say they do know are fooling you. But if you own an index fund that owns 3 ,000 companies in it, then you know that whatever is going to be the next Tesla is in there, whatever it might be. Always in investing, if you own an index of 100 companies, Over a 10-year period, you're going to earn most of your returns from five of them. A very small portion is going to return most of them. And since you don't know what those five are going to be with foresight, the best idea is just own all of them, knowing full well that whatever is going to be the winner is going to be in your portfolio.

50:16And that's why you have the statistics about what percentage of active stock pickers outperform index funds. It's very, very low, particularly if you adjust it for fees and for taxes. over a 10 or 20-year period, it rounds to zero. Warren Buffett recently said that in his life, he's met 10 people who he thinks can consistently outperform the stock market, consistently pick the right stocks, 10 people that he's ever met in his entire life. And everyone listening to this podcast, you are not one of them. I'm sorry to say. Yeah, good luck. And so I think that's the only anecdote to that. And it's the easiest, cheapest anecdote to that is index investing.

50:54It's just own all of them knowing that you're going to have the winners in there. And speaking of Warren Buffett, in your book, you say if he had retired at 60 years old, he might not be the Warren Buffett that we know today. That's like such like everybody thinks of him as like the most successful investor. It's because he's been investing for 60 years or whatever it's been. Yeah. If you look at his net worth, 99 % of his net worth was accumulated after his 60th birthday. So he's 93, I think he is now. And 99 % of the money came after he was 60, which means that if he had retired when he was 60, like a normal person may have, he was a billionaire when he was 60, you would have never heard of him.

51:32The whole reason he's so successful and the whole reason he's now a household name is because he's been, yes, he is a good investor, but the secret is that he's been a good investor for 80 years. And it's just the amount of time he's been doing it for that generates all of that money. He also started investing when he was 11 years old. That's why he's so successful because he's been doing it nonstop from 11 to 93. That's actually the biggest takeaway that ordinary people can take from him because I and you and anyone else cannot pick stocks like Warren Buffett. But can we try to emulate his patience?

52:04Is that something that we could maybe copy from him? You have a fighting chance of replicating his patience than you do replicating his intelligence. Just understanding why he's wealthy and using that as a takeaway of what we can do and copy him at is really important. So this is a concept that I think is from your next book that we're going to talk about. But what we're talking about is reminding me of this. I know that you actually don't really pay attention to daily news when it comes to changing your stock strategy or picking your stocks. You don't just follow like, here, something's hot and then buy it, right?

52:38So talk to us about how you actually decide what stocks you're going to invest in for the long term. So your last point, I keep it as simple as I can. I own Vanguard index funds. I've owned for a long time. It's probably all I will own for a long time. I'm not recommending other people exactly do that. You have to figure out what works for you. And as we talked about earlier, there are definitely people for whom picking stocks is the right strategy for them, even if it's not the best for my wife and I. But one little quirk I would say is I actually do follow financial news every day. Every day I know what the market did.

53:10I read the Wall Street Journal every day because I think it's intellectually interesting. I think it's a fascinating window into how people behave. But the important thing is that I don't read the Wall Street Journal and then say, I need to go out and buy and sell these specific stocks. It doesn't influence my behavior. I just think it's a fascinating window into how people behave. But my personal investing strategy is as simple and basic as you could possibly be. My entire net worth is this house, a checking account, Vanguard funds, and shares of Markel where I'm on the board of directors. And that's pretty much it.

53:42And where do you park your cash? What's your strategy for cash? It's spread out over many different accounts. And actually quite a bit of it is now in treasuries because you can earn a great return there. Spread out over different bank accounts, different brokerages accounts. Yeah. You know, and the money that I have in short-term treasuries, I consider that cash. That's cash-like to me. Got it. Okay, let's move on to your new book. It's called Same As Ever. It covers a lot of the ideas that we've been discussing and much more. So talk to us about why you wrote this book and how it expands on your first book, The Psychology of Money.

54:15So same as ever is about what never changes over time. I think in many ways, psychology of money is about the behavior of you, the individual. And same as ever is about the behavior of us, the collective. Like what do we, the collective society, keep doing over and over and over again? And I've always been a student of, I think, two things. One is investing and the other is history. I like the intersection of that, like investing history and economic history I've always been so fascinated in. And one of the things that will really stick out when you're studying any kind of history is it's really interesting to see what has changed over time.

54:49What do people used to do that they don't anymore? That's interesting. But to me, way more interesting and way more common is when you see what has not changed at all. And when you're studying the history of Americans 100 years ago or Europeans 1 ,000 years ago or Chinese 5 ,000 years ago, you see all these kinds of behaviors that would fit in perfectly today that have not changed whatsoever. So how people respond to greed and fear and uncertainty and opportunity, that is the same today in the United States as it was in any culture a thousand years ago. And it hasn't changed at all. And because of that, we know that it's going to be part of our future for the rest of our lives.

55:31And a lot of why I wrote this book was because I kind of got disgruntled at how bad we were as an industry at predicting what's going to happen next. Predicting the next recession, the next bear market. Nobody can do it. Nobody has any ability to do it. And so with that, you can either say, nobody knows anything, don't even try to predict. No one has a clue, just kind of become a cynic about it. Or you can say, okay, we don't know what's going to change, but we do know what's not going to change. We do know what behaviors are going to be part of our future, regardless of where the future goes.

56:02So let's put all of our emphasis on that. And so same as ever is 23 very short little stories about little facets of human behavior that I think have always been with us and always will be. And no matter where your future goes or where society's future goes, you know that these little bits that I write about are gonna be part of the story. I love you have it in your book that you say, if you travel 500 years back or 500 years forward, the world will look much different in terms of technology and medicine and even language. But human behavior doesn't change much over time. It's so fascinating. It's so true.

56:37It takes, I think, thousands and thousands of years for us to, like our brain biologically to actually change or evolve. So we're the same human that we were thousands of years ago, even though so much has changed. And one of the things that doesn't go away for humans is risk, right? This is something that we're gonna enjoy to the end of time is this concept of risk. and we touched about risk a little bit earlier, but in your book, you write, the biggest risk is always what nobody sees coming. So talk to us about these blind risks. There's a great financial advisor named Carl Richards who has this quote, one of those quotes that just knocked me off my feet.

57:13The quote is, risk is what is left over when you think you've thought of everything. So you can spend all day trying to predict the next risks in your personal life or in the economy and for society. And that's great, you should do that. But then when you are done with that exercise, the thing that is not on the list is what's actually the biggest risk that you're going to face. So think about what the biggest risks we've dealt with in the United States over the past couple of generations. Pearl Harbor, September 11th, and COVID are probably the three biggest societal shocks that we've dealt with in America.

57:47And the common denominator of all three of those is that nobody, certainly no ordinary Americans saw those coming until the day that they happened. In all those situations, there was no economic outlook. There was no analyst forecast. There was nobody on the news warning you about these things that in one day utterly transformed the world that you lived in. And so the biggest risk is what you didn't see coming. And the fact that people didn't see coming is what made it dangerous because they were not prepared emotionally, financially, logistically. They were not prepared for these things to happen.

58:19So when they hit, it was like red alert. What do we do now? And it's always like that. I think in any given year, it is like that. What is the biggest worldwide news story in 2023? It's probably, I hope it's going to end up, hopefully nothing bigger than it happens, will be Israel and Hamas, will be the biggest story of 2023. Of course, there has been tensions, to say the least, in that region, for literally thousands of years. But how many people in January of 2023 predicted that that would be the biggest news story? Maybe there were some people who were on the ground and had a greater sense, but by and large, ordinary people watching the news, it was not on their radar whatsoever.

58:53Same with in 2019. If you were looking at the biggest risk for 2020, nobody said a viral pandemic that's going to close down the schools. Nobody said that. 2001, nobody sees 9-11 coming. You can play that game all day long. And so because of that, you can state with a lot of confidence that the biggest risk over the next year and over the next 10 years is something that you and I and none of us are even thinking about because it's always been like that. To your point, I'm Palestinian and I didn't even see it coming. I was just like, wait, what happened? These big stories, they blow you away by surprise.

59:27How can we prepare for these risks? If we don't know what they're going to be, how can we prepare accordingly? By definition, you can't. But that in itself, that realization and that mindset is really powerful in itself because you stop pretending that you can predict. There's a great quote from Nassim Taleb where he says, invest in preparedness and not in prediction. So one way that I think about that is, think about earthquakes in California. California knows that there is going to be a major earthquake in the future. But everybody also knows that you can't predict when it's going to come. It's impossible to predict what day it's going to happen or what year it's going to happen.

1:00:03So because of that, you're just always prepared. They build buildings that can withstand it no matter when it comes. They don't like, you know, oh, an earthquake is going to come in December, so let's retrofit the buildings then. You're always prepared for it. And I think that's how you should think about economic risks, recessions and bear markets and job losses. You have no idea when it's going to come. So don't try to think, oh, once you see a recession coming, then you'll start to save money. No, it could happen tomorrow. So always be prepared for it. I think that idea of having expectations instead of forecasts is the only way to really survive in that world where risk is what you don't see.

1:00:38Yeah, that makes sense. And another key concept that you talk about in terms of human behavior is pushing too far too fast. Now you say that this is something people do in investing. You say it's also something people do with their companies. So can you talk to us about that? Yeah. Whenever you have something good, you have an investing strategy that works or a company that's going well, the very normal knee-jerk reaction is great. Let's make it go faster. Let's make it bigger. Let's milk it. Let's push it as hard as you can. You do it with noble intentions. You're like, I don't want to leave money on the table.

1:01:10If I have this golden goose, let's keep milking the goose. It happens all the time. In investing, people who are doing well start using leverage, or they start making bigger bets, more concentrated bets. In businesses, when it's going well, it's like, let's raise more money and grow faster, faster, faster, faster. And it is such a common story that those investors, those entrepreneurs, or even in your own individual career, you eventually realize that there was a natural speed limit to what you're doing. And if you go over the speed limit, you're going to get in trouble. And you only know where that speed limit is in hindsight when you've gone past it and you get a speeding ticket, so to speak.

1:01:45And so you see this with every successful business. The example I use in the book was Starbucks 15 years ago. And maybe most people don't remember this now, but there was a period in the early and mid 2000s where Starbucks was opening a new store on every street corner, like every couple of hours. It was just like this absolute proliferation of Starbucks stores. And because of it, the quality of the coffee and of the food plunged. The company's only goal was to grow, grow, grow, grow, grow. And the quality of the stores just disintegrated. And Starbucks had a really rough period because of that.

1:02:17And in hindsight, they talked about, they're like, look, the natural growth rate that we could sustain the quality of the product, we way exceeded. We pushed it way too hard. And because of that, the business broke for a period of time. There's so many examples of that, of like, you have a good, legitimate business that is working and customers love you and they will pay you. But if you try to take that and just say, let's try to make it go twice as fast, it's probably going to break. So understanding the natural speed limit and size of whatever you're doing is a really critical aspect of what you are doing.

1:02:50Any guidance for us to understand like, hey, this is a red flag that I'm pushing too hard and that I should just calm down a bit with what I'm doing. Let's use the Starbucks example. The reason people love Starbucks was not necessarily because it was on every corner. It was because they liked the quality, the food, they liked the taste. And once your ability to scale takes precedence over that, then you know exactly what's going to happen. So understanding, I think this is such a basic comment, but it's so easy to overlook. Understanding why you are successful is the key to doing this. And a lot of people, they don't actually understand why consumers like them or why their boss appreciates them.

1:03:28And because of that, they overlook what is actually needed to keep this going. Once you have an honest assessment of customers like me because of X, then you realize any deviation away from that. And of course, you're going to lose what made you special to begin with. I don't think it's any more complicated than that. Yeah, I think that's great advice for all the entrepreneurs tuning in. So something else that you talk about in the book is stress. You say that stress focuses your attention in ways that good times can't. Talk to us about why stress sometimes can be a good thing. We look back historically, the biggest periods of innovation and new technology and productivity growth, without exception, happened during periods when the world was on fire, so to speak.

1:04:12The most productive economic decade that's ever occurred is the 1930s during the Great Depression, when the economy was the biggest train wreck it had ever been. Because every business in America woke up and they're like, if we don't find ways to get more productive and get our act together, we're going to go out of business tomorrow. And that as a motivator, that fear as a motivator creates the biggest productivity boom we've ever had. The other was World War II and the Cold War. The incentive to figure things out was so extreme because if we didn't figure things out, Adolf Hitler was going to control the world next year.

1:04:49And that kind of incentive created this technology boom of the likes the world has never seen. What do we get out of World War II? We got nuclear energy, rockets, jets, penicillin, microwaves, radar, eventually with the Cold War, satellites, all of these things that benefit you and I today that happen specifically because of the stress and anxiety of the war. And you can maybe be able to say this with COVID in hindsight too, like as tragic and deadly as it is, if it unleashes the scientific boom as it has, that maybe 20 years from now is going to benefit us in ways that we can't even fathom today.

1:05:26Using the phrase silver lining to COVID is a step too far because it's killed like 10 million people. I'm not saying like, oh, that's a great thing. But it's always the case that you look back and you're like, hey, despite that tragedy, we got this incredible new innovation because of it that's making life so much better today. So everybody wants a world in which everything goes great and there's no uncertainty, there's no bad times. Of course, that sounds like a great world, but in that world, the incentive to improve would diminish greatly. And it's always the stress that creates the biggest improvements.

1:06:00I love this concept because it's so true. Constraints, deadlines, even if you think about your own self, if you know that you have a deadline tomorrow, your procrastination releases and you can just get your shit done because you know the deadline is tomorrow. It really helps you become more creative, helps you step on the gas in terms of completing whatever you need to complete. So what you're saying totally makes sense in terms of big disasters in the world and how it can actually foster lots of innovation and creativity because our backs are against the wall. We basically have no choice but to get it done now.

1:06:33Yeah, I think for writing books, one of the biggest benefits that a publisher provides is a deadline. It's not necessarily that they're going to help you write the book, so to speak, but they're going to tell you you have to turn in your manuscript on this date and that will get your ass in gear. Okay, so one of the last ones I'm going to ask you about this book is incentives. So you've got a chapter in it in your book where you quote Benjamin Franklin, who once said, if you would persuade, appeal to interest and not to reason. So talk to us about incentives, what we need to watch out for in terms of how incentives can trick us into doing things that we already know are wrong.

1:07:07I think there are, it's very often the case, not always, this is not black and white, but it's often the case that if you see somebody doing something that you find morally wrong or just something that you disagree with, you are probably underestimating the odds that you would do that exact same thing if you had their incentives. And I saw this firsthand during the financial crisis of 2008, when a lot of Americans rightly pointed at Wall Street bankers and said, those greedy bastard bankers will ruin the economy. And maybe that was not necessarily the wrong criticism, but I think what people overlooked is that if you worked at Bear Stearns in 2006 and they said, hey, package these subprime bonds and we'll give you a$6 million bonus, you would have done it too.

1:07:48You would have done the exact same thing if you had that incentive dangled in front of your face. And so I think we underestimate the boundaries of our morality when we don't understand the power of our incentives. Everyone thinks, oh, my moral boundaries are right here. But if you had different incentives, you'd be like, oh, maybe I can shift them out a little bit. And you don't even know you're doing it. It's subconscious. Everyone is so influenced by these incentives. And at every level, when you're looking at World War II, how could the Germans possibly have acted like this? I think when you look into what the 1930s were like for them, the incentives, the incentives to go along with it, the incentives to not want to be an outsider, the incentives to do what you're told, it's not to justify anything in the slightest.

1:08:29But if you're looking for an answer of how can people do that thing, whatever that thing would be in business, in wars, whatever it be, the answer is usually some sort of incentives. And it's not even a financial incentive. There are social incentives. There are tribal incentives. There are political incentives to do things that you would otherwise find repugnant, but you do it because the incentives push you to do it. That's super insightful. The last question I'm going to ask you about your book in terms of a concept is you talk about permanent and expiring information. And I love the distinction that you draw between these two.

1:09:03And I hope today's interview is going to be permanent information for our listeners. But can you explain what you mean between the difference of the two? I mean, one way, as someone who writes books, let's say one of the best advice that I've ever heard is, if you want to write a book that people will read 20 years from now, write a book that people would have read 20 years ago. Make sure that what you're writing about is timeless. And I think we can say that about this podcast. I think if we had a time machine and someone listened to this podcast in 2003, 99 % of what we said would be relevant.

1:09:33So you have to understand what kind of information is expiring. If you're watching the stock market, oh, Microsoft missed quarterly earnings by one penny per share. That's expiring information. I'm not going to say it's irrelevant, but it's expiring. It has a shelf life. But if you're talking about how people respond to greed and fear, that's permanent. That never changes. And that will be as relevant 20 years from now as it is today. So you should put more of your emphasis in learning permanent skills, knowing that they're going to stick around rather than drowning yourself in expiring information that might be relevant for a week or maybe even a year, but it has the shelf life of something that's going to expire.

1:10:10I totally agree with that. Well, Morgan, thank you so much for your time today. I feel like this podcast was filled with so much timeless wisdom about finances. So I end my show with two questions that we ask all of our guests. The first one is what is one actionable thing our young and profiters can do today to be more profitable tomorrow? Go out of your way to define your game and realizing that your game might be very different from your co-workers game, even your co-founders game, your siblings game. Everyone is different. And don't assume that because society tells you that you should have X, that that's actually what you should be chasing.

1:10:45Back to the goalposts we were talking about before. What is your goalpost, young and profiters? And what is your secret to profiting in life? And this can go beyond business and finance. Realizing that there are probably 10 people in life who I want to love me. My wife, my kids, my parents, maybe three friends. And it's not that I don't care about the opinions of anyone else, but I think it's really helpful to have people in your life who you don't want to disappoint. Just a few people who are, it's like, that's your North Star. I'm like, am I doing this for the benefit of those 10 people? Would they be proud of me?

1:11:20Is this going to help my relationship with them? I think it's just a very strong guiding light. What really matters? And if you're on your deathbed, are you going to care about your net worth or the square footage of your house? Or are you going to be proud that you are a good spouse, you were a good parent, you were a good friend, you helped your community. Like it's obvious what's going to be more important to you. So like, let's keep that as the focus. I love that. That's great advice. Well, Morgan, thank you so much for joining us on Young and Profiting Podcast. Thanks so much for having me.