#576: Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor

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Mar 2, 2022

Morgan Housel, a partner at Collaborative Fund and author of the bestselling "The Psychology of Money," shares his insights on wealth and investment philosophies. He contrasts the strategies of Warren Buffett and Jim Simons, emphasizing the power of compounding wealth. Housel also discusses the stark differences in financial habits between a savings-focused janitor and a wealthy executive. He touches on the psychological aspects that drive financial decisions and the importance of simplicity in building wealth, offering a fresh perspective on financial success.

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ANECDOTE

Buffett vs. Simons

Warren Buffett has lower returns than Jim Simons but is wealthier due to his longer investing career.
This highlights that time, not just high returns, is crucial for wealth accumulation.

INSIGHT

Time in the Market

To maximize wealth, prioritize time in the market over chasing the absolute highest returns.
Consistent, long-term returns compound significantly over time, leading to greater wealth accumulation.

INSIGHT

Late Bloom

Compounding gains accelerate significantly in later years.
Most of Warren Buffett’s wealth accumulated after age 50.

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Fortune's Children

The Fall of the House of Vanderbilt

Jerry E. Patterson

This book explores the creation and dissipation of the Vanderbilt family's wealth, tracing their history from Cornelius Vanderbilt to later generations. It provides insights into the lives of America's elite during the Gilded Age and beyond.

The Great Depression, A Diary

Benjamin Roth

Only Yesterday

None

Hayao Miyazaki

Bringing Down the House

The Inside Story of Six M.I.T. Students Who Took Vegas for Millions

David Hoberman

This book tells the story of a group of M.I.T. students who, using advanced card counting techniques, managed to win millions of dollars in various Las Vegas casinos. The narrative delves into the strategies they employed, the risks they took, and the consequences they faced as they challenged the casinos' systems.

Ready Player One

Trivia-on-Books Staff

In 'Ready Player One', Ernest Cline introduces Wade Watts, an 18-year-old living in a dystopian future where people escape their harsh reality through the OASIS, a vast virtual reality world. The story revolves around Wade's quest to find an Easter egg hidden by the OASIS's creator, James Halliday, which would grant the finder immense wealth and control over the OASIS. Wade, known as Parzival in the OASIS, must compete against other 'gunters' and the corporate-sponsored Sixers to achieve this goal. The novel is filled with 1980s pop culture references, adventure, and social commentary, making it a deeply engaging and nostalgic read.

Buffett

The Making of an American Capitalist

Roger Lowenstein

This book provides a comprehensive and detailed account of Warren Buffett’s life, from his early days to his ascension as one of the most successful investors in history. Written by Roger Lowenstein, the book is based on three years of research and includes interviews with Buffett’s family, friends, and business associates. It explores Buffett’s investment strategies, his long-term philosophy of buying undervalued stocks, and his role in transforming Berkshire Hathaway into a highly successful corporation. The book also delves into Buffett’s personal life and the influences that shaped his investment approach, including his mentor Benjamin Graham and his partnership with Charlie Munger.

More money than God

Hedge Funds and the Making of a New Elite

Sebastian Mallaby

More Money Than God provides the first authoritative history of hedge funds. The book tells the inside story of hedge funds, from their rebel beginnings to their current status as powerful financial entities. It covers key figures and institutions, such as A.W. Jones, George Soros, Julian Robertson, and Long-Term Capital Management, and explains how hedge funds have shaped the financial landscape. Mallaby's work is based on extensive interviews and provides a balanced view of the industry's impact on finance and the global economy.

Your Money and Your Brain

How the New Science of Neuroeconomics Can Help Make You Rich

Jason Zweig

The science of fear

Daniel Gardner

Daniel Gardner's "The Science of Fear" explores how our perceptions of risk are shaped by emotions, biases, and the media. The book delves into the psychology of fear, examining how fear can distort our judgment and lead to irrational decisions. Gardner uses real-world examples to illustrate how fear-mongering can manipulate public opinion and policy. He argues that understanding the science of fear is crucial for making rational choices and navigating a world filled with uncertainty. The book challenges readers to critically evaluate their own fears and to make informed decisions based on evidence rather than emotion.

The intelligent investor

Jason Zweig

Benjamin Graham

Written by Benjamin Graham, 'The Intelligent Investor' is a seminal work on value investing that has inspired millions since its original publication in 1949. The book emphasizes the importance of distinguishing between investing and speculation, calculating the intrinsic value of companies, and maintaining a margin of safety. The revised edition includes updated commentary by Jason Zweig, who provides modern examples and insights to help readers apply Graham's principles in today's market. Warren Buffett, a disciple of Graham, has praised the book as 'the best book about investing ever written'.

The snowball

Warren Buffett and the Business of Life

Alice Schroeder

This book provides an unprecedented look into the life and investment philosophy of Warren Buffett. Written by Alice Schroeder, who gained unparalleled access to Buffett and his inner circle, it delves into the complexities and paradoxes of Buffett's life. The book covers his work, opinions, struggles, and triumphs, and highlights key principles such as intrinsic value, margin of safety, and long-term perspective. Buffett’s legacy is not just his wealth, but the principles and ideas that have enriched people’s lives.

The Behavior Gap

Carl Richards

Carl Richards' "The Behavior Gap" explores the psychological factors that hinder investors from achieving their financial goals. It highlights the common mistakes investors make due to emotional biases and lack of discipline. The book emphasizes the importance of understanding behavioral finance principles to bridge the gap between knowledge and action. Richards provides practical strategies and tools to help investors overcome these challenges and make better financial decisions. Ultimately, the book aims to empower readers to take control of their financial future by aligning their actions with their knowledge.

The big change

America Transforms Itself, 1900-1950

Frederick Lewis Allen

The Big Change is a comprehensive history that charts the progressive evolution of American life over the first half of the twentieth century. The book covers significant events such as World War I, the Progressive Era, the Great Depression, World War II, and the early Cold War. It details the impact of technological advancements, mass production, organized labor, and social changes on American society. Allen also explores the growth of a strong, centralized government, the expansion of the middle class, and the widespread economic prosperity that emerged by the end of the period[3][4][5].

The Man Who Solved the Market

How Jim Simons Launched the Quant Revolution

Greg Zuckerman

This book tells the gripping story of how Jim Simons, a world-class mathematician and former code breaker, mastered the financial markets. Simons' firm, Renaissance Technologies, achieved unprecedented success with its Medallion fund, generating average annual returns of 66 percent since 1988. The book, based on unprecedented access to Simons and his team, details how Simons hired mathematicians, physicists, and computer scientists to develop algorithms that identified deeply hidden patterns in market data. It also explores how Simons' success extended beyond finance, influencing scientific research, education, and politics. The narrative highlights the collaborative nature of Renaissance Technologies and the significant impact its methods have had on various industries and society at large[2][4][5].

The Subtle Art of Not Giving a F*ck

Mark Manson

In this book, Mark Manson argues against the typical self-help advice of constant positivity, instead suggesting that life's struggles give it meaning. He emphasizes the need to focus on what truly matters and to accept and confront painful truths. The book is divided into nine chapters and uses blunt honesty and profanity to illustrate its ideas, encouraging readers to find meaning through values they can control and to replace uncontrollable values with more meaningful ones.

The Psychology of Money

Timeless Lessons on Wealth, Greed, and Happiness

Morgan Housel

In 'The Psychology of Money,' Morgan Housel delves into the psychological and emotional aspects of financial decisions. The book consists of 19 short stories that illustrate how personal history, worldview, emotions, and biases influence financial outcomes. Housel emphasizes the importance of behavior over knowledge in managing money, highlighting the power of compounding, the dangers of greed, and the pursuit of happiness beyond mere wealth accumulation. He advocates for a frugal lifestyle, long-term perspective, and a balanced approach to investing, stressing that financial success is more about mindset and discipline than about technical financial knowledge[2][3][4].

Atomic Habits

James Clear

Atomic Habits by James Clear provides a practical and scientifically-backed guide to forming good habits and breaking bad ones. The book introduces the Four Laws of Behavior Change: make it obvious, make it attractive, make it easy, and make it satisfying. It also emphasizes the importance of small, incremental changes (atomic habits) that compound over time to produce significant results. Clear discusses techniques such as habit stacking, optimizing the environment to support desired habits, and focusing on continuous improvement rather than goal fixation. The book is filled with actionable strategies, real-life examples, and stories from various fields, making it a valuable resource for anyone seeking to improve their habits and achieve personal growth[2][4][5].

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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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