The Tim Ferriss Show
#576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor
Episode guests
Podcast summary created with Snipd AI
Quick takeaways
- Slow and steady wealth accumulation through long-term investing can outperform fancy and complex strategies.
- Maintaining a responsible and prudent approach to personal finances is crucial, avoiding excessive risk-taking.
- Finding a balance between accumulating wealth, enjoying life, and potentially leaving a legacy prompts reflection.
- Leaving enough money for children to have opportunities without fueling entitlement is important.
- The downfall of the Vanderbilt family's fortune highlights the unhappiness experienced by heirs.
- Believing in one's ability to learn and adapt, even with a basic education level, is essential for personal growth.
Deep dives
Career Path: From Denny's to Collaborative Fund
After working at Denny's as a greeter and then as a valet, I pursued a career in finance. Initially, I tried investment banking but found the cutthroat environment wasn't for me. I then moved to private equity, which I enjoyed. However, in 2007, as the financial crisis hit, my position ended. It was during this time that a friend from The Motley Fool suggested I try writing for them. I initially saw it as a temporary gig, but over time, I found my passion for writing and telling stories about investing. It took several years of learning and honing my skills before I felt confident in my writing abilities. Eventually, I joined Collaborative Fund, a venture capital firm, where I continue to write and speak about investing and related topics.
Board of Directors at Marquel Corporation
Marquel Corporation, a mini-Berkshire Hathaway, is an insurance company that uses its profits to acquire whole industrial businesses. In the 1930s, Marquel operated solely as an insurance company, but it later evolved to become an investor alongside its insurance operations. Today, Marquel is a $17 billion company with approximately 20,000 employees. It owns several industrial businesses and follows a long-term holding strategy. I have had the honor of being appointed to the board of directors at Marquel Corporation, and I greatly admire the company for its approach and accomplishments.
Finding Autonomy and Independence through Writing
While my transition from finance to writing was initially out of desperation, it turned into a passion. I started as a writer for The Motley Fool, and over time, I developed my voice and honed my skills. Joining Collaborative Fund allowed me to continue writing about investing and share my insights. Writing gives me the independence and autonomy I value, allowing me to express my views, tell stories, and connect with readers. It was not a conventional career path, and there were uncertainties, but I have found happiness and fulfillment in pursuing this unconventional journey.
Building wealth through consistent long-term investing
The story of Ronald Reed, a janitor who invested every spare penny into stocks and left a multimillion-dollar estate to charities upon his death, illustrates the power of slow and steady wealth accumulation through long-term investing. Despite lacking a college degree, training, or formal experience, Reed was able to outperform many professional investors by holding onto his stocks for decades. This highlights the importance of being consistent and patient in investing, rather than pursuing fancy or complex strategies.
The contrasting approaches to money
The story of a technology multi-millionaire who flung gold coins into the ocean for fun and later went broke serves as a sharp contrast to the story of Ronald Reed. This anecdote highlights how some individuals view money as a plaything and engage in reckless behavior without considering the long-term consequences. It underscores the importance of maintaining a responsible and prudent approach to personal finances, valuing substance over ostentation, and avoiding excessive risk-taking.
Balancing wealth accumulation and enjoying life
The contrasting stories of Ronald Reed and the profligate technology multi-millionaire raise questions about the balance between accumulating wealth and enjoying life. While Reed's frugality and long-term investing strategy resulted in a sizable estate, it is worth considering whether he prioritized enjoying the wealth he created during his lifetime. This prompts a reflection on finding a personal balance between financial security, enjoying one's resources, and potentially leaving a legacy for future generations.
The Importance of Balancing Wealth for Kids
The speaker discusses the importance of leaving enough money for their children to have opportunities, but not giving them so much that it becomes a fuel for entitlement.
The Vanderbilt Heirs and the Destructive Power of Wealth
The podcast explores the downfall of the Vanderbilt family's fortune and how it affected the heirs. It highlights the unhappiness and lack of personal fulfillment experienced by the heirs who were constantly living in the shadow of their grandfather's wealth.
Managing Risk and Embracing Bolshet in Writing
The speaker shares their writing process, emphasizing the importance of not forcing ideas and being willing to abandon articles that aren't working. They highlight the value of exploring ideas during walks and the importance of dealing with a certain amount of 'bolshet' in life.
Alternative Education Experience
The speaker discusses their unconventional high school experience, where they were given work packets to complete at home and received a high school diploma without much academic work. They explain that their teenage years were solely focused on skiing, which was a common experience among their friends as well. They later went on to attend college, starting at a junior college before transferring to several other institutions before finally obtaining their degree from USC. The speaker shares that their decision to go to college was initially motivated by a desire for wealth and success in finance.
Challenges of Writing and Learning
The speaker reflects on their lack of academic preparation during their high school years and the difficulties they faced in learning to write while in college. They recall a friend pointing out multiple grammar errors in their writing and the realization that they did not know the difference between 'then' and 'than' at the age of 21. Despite these challenges, the speaker mentions that they started to gain confidence in their writing skills, even though it required heavy editing in the beginning. They emphasize the importance of believing in one's ability to learn and adapt, even when starting from a basic education level.
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Morgan Housel (@morganhousel) is a partner at the Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal. He serves on the board of directors at Markel Corporation. He is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers, winner of the New York Times Sidney Award, and a two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism.
His book The Psychology of Money has sold more than one million copies and has been translated into more than 30 languages.
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Warren Buffett vs. Jim Simons. [06:43]
What do people get wrong about the partnership between Warren Buffett and Charlie Munger? [13:45]
The size is the strategy. [16:59]
Six years after writing his “Financial Advice for My New Son” article for The Motley Fool, are there any points Morgan would add or amend? [20:27]
While there’s no way of knowing what kind of adults our kids will grow up to be, how might we instill in them the value of money and the ability to control how it affects their lives? [23:43]
What unorthodox career decision did Morgan’s father make in his 30s, and how did the family’s life change as a result? How did earlier lessons of frugality give Morgan’s parents more options later on than their more steadily affluent peers? [28:28]
How Morgan’s career path meandered from Denny’s greeter to investment banker to reluctant writer. [34:18]
After finally hitting his stride as a writer at The Motley Fool, what compelled Morgan to join the Collaborative Fund team? [42:15]
What’s a Markel and how did Morgan get involved with it? What was it hoped he could bring to the table there? [49:07]
How does Morgan approach risk? [56:32]
What “fin tweet” game is Morgan playing, and what are the rules? Who are the top players in this space, and what makes them worth your attention no matter the medium? [58:59]
Investors Morgan respects — even if he wouldn’t try to emulate them. [1:03:33]
Don’t beat yourself up too badly if you’ve ever been gamed by the market. Even Warren Buffett still makes mistakes. But would his younger version have made the same decisions he makes today? What made the early days of the pandemic such an uncertain time for even the most seasoned investors — Buffett and Housel alike? [1:09:37]
Sometimes it’s the counterintuitive bets that elevate an investor into deity or demigodhood in the pantheon of the money-minded — whether it’s Benjamin Graham, Walt Disney, or Michael Moritz. [1:19:11]
Notes on leverage and the “buy, borrow, die” approach to investing, and making sense of conflicting, diametrically opposed advice from seemingly intelligent, rational parties with differing opinions. [1:28:37]
Sometimes peace of mind matters more than profit. [1:33:44]
Is it better to be an antediluvian penny pincher who dies rich, or a high-roller who casts fistfuls of dollars into the sea only to pass away penniless? Maybe the middle ground is healthier than either extreme. [1:36:01]
How does Morgan recommend someone of means ensure their children don’t grow up to be horrible, entitled, and generally useless to society? [1:40:13]
Biographies and memoirs Morgan recommends (and what they can teach us about current events). [1:48:19]
How can you increase the likelihood that you will not respond in moments of panic by doing what cripples you financially? Morgan weighs in. [1:52:26]
In Morgan’s experience, how does someone who comes into money effectively allow themselves to enjoy it without succumbing to the all-too-common temptation to sink it all under a mountan of status symbols nobody really cares about? For his own part, what does his financial comfort allow him to enjoy, and how does he scratch the itch when he’s pestered by such temptations? [1:57:27]
Preparing for financially bumpy long hauls, and “understanding the difference between a fee and a fine.” [2:07:15]
A handful of journalists and writers Morgan would choose as trusted informants in a world without Twitter or in-depth news sources. [2:10:37]
Morgan’s hall of fame for books about investing and finance, and how Dan Gardner’s book The Science of Fear has made him think about fear. [2:17:02]
Morgan’s advice for helping someone (like me) regain a regular cadence of writing if COVID or other life interruptions have derailed such efforts, and a glimpse into what his own writing process looks like. [2:19:18]
Tolerance for petty annoyance as a valuable life skill. [2:25:48]
How did training as a competitive ski racer prepare Morgan for USC and, eventually, a world-class writer for The Motley Fool? [2:30:53]
What does Morgan think is true, but is actually just good marketing? [2:39:17]
What looks unsustainable, but is actually a new trend we haven’t accepted yet? [2:40:57]
What has been true for decades that will stop working, but will drag along stubborn adherence because it has such a long track record of success? [2:43:50]
Which of our current views would change if our incentives were different? [2:45:46]
What are we ignoring today that will seem shockingly obvious in a year? [2:48:11]
Money is not spreadsheets. It’s dopamine and cortisol. [2:49:06]
Thoughts on near-future innovations both frightening and fascinating. [2:50:10]
Websites Morgan thinks are worth your while. [2:55:23]
Stories or points in The Psychology of Money Morgan wishes people paid more attention to. [2:57:39]
Parting thoughts. [2:59:02]
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