Morgan Housel: The Psychology of Money (EP.128)

Dec 10, 2020

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INSIGHT

Behavior Trumps Intelligence In Investing

Investing success depends far more on behavior than on intelligence or credentials.
Managing fear, greed and staying calm during crises drives long-term returns.

ADVICE

Copy Big Lessons, Not Tactics

Learn broad, timeless lessons from legendary investors instead of copying technical specifics.
Avoid trying to emulate their exact trades because luck and era-specific tactics distort outcomes.

ANECDOTE

Bill Gates' High‑School Plan Altered By Luck

Bill Gates planned a company with high school friend Kent Evans who many thought was smarter and harder working.
Kent's death in a mountaineering accident shows how luck can redirect historical outcomes.

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As author and financial expert Morgan Housel explains this episode, "people don't make financial decisions on a spreadsheet. They make financial decisions at the dinner table." Today we chat to Morgan about his key insights into financial decision-making — many of which are captured in his book, The Psychology of Money. Our conversation opens with an exploration of how investing success has less to do with what you know and more to do with how you manage your behaviour. We then look into the dangers of emulating top investors and how luck can fuel success. Reflecting the theme that people invest according to their unique circumstances, Morgan shares why he prioritizes endurance as an investor by minimizing his debt and having high cash reserves. After hearing his take on debt and whether young people should use leverage, we dive into how financial expectations impact investing and the importance of deciding what 'enough' means to you. We discuss the virtues of saving like a pessimist and investing like an optimist before looking into the role that financial advisors play in guiding their clients. In the latter part of the end of the episode, Morgan touches on active versus passive investing, the purpose that bonds serve in your portfolio, his top lesson from 2020, and why he's empathetic toward people who sell their portfolios during a downturn. Throughout our discussion, Morgan shares his clear understanding of how our psychology affects our relationship to money. Tune in and benefit from his incredible perspective.

Key Points From This Episode:

Introducing today's guest, financial author Morgan Housel. [0:00:15]
Morgan shares his view that succeeding in investing has little to do with how you behave. [0:02:31]
Hear about the problems that can arise from trying to emulate top investors. [0:05:02]
Exploring the impact of luck on your success. [0:07:37]
The differences between being conservative and having a margin of safety. [0:08:35]
Insights into Morgan's personal investing strategy. [0:09:48]
Morgan's thoughts on leverage and how debt impacts behaviour and peace of mind. [0:10:31]
Stepping off the hedonic treadmill and the importance of defining your financial expectations. [0:14:02]
The link between money, independence, and having a high quality of life. [0:16:44]
What it means to be wealthy and what motivates the drive to be rich. [0:19:18]
Morgan's advice to save like a pessimist and invest like an optimist. [0:21:34]
Why no one makes perfectly rational investing decisions. [0:23:54]
The role of financial advisors in guiding clients towards their investing decisions. [0:26:22]
Why Morgan has embraced the simplest investing strategy available to him. [0:29:02]
How you should be thinking about fixed income in your portfolios. [0:31:20]
Why financial advisors can be priceless when understanding your finances and goals. [0:33:44]
Life is surprising; hear why this is Morgan's top takeaway from 2020. [0:36:29]
Morgan's thoughts on the FIRE Movement and retiring early in life. [0:38:53]
Hear Morgan's predictions on the next big financial innovation. [0:41:49]
Why Morgan is empathetic towards people who sell their portfolios during a downturn. [0:43:50]
The tendency for people to embrace more extremist views during times of financial crisis. [0:47:34]
We ask Morgan how he defines success in his life. [0:50:25]