Welcome to Flyover Stocks, where we research quality companies that are often ignored by Wall Street. Join host Todd Winning as he delves into the stories behind often overlooked businesses and shares his thoughts on topics that matter to long-term investors.
References to charts can be found by visiting flyoverstocks.com, where you can also sign up for the latest Flyover Stocks content. Speakers may own shares of the companies discussed. Nothing in this episode should be considered financial advice. Please enjoy this episode of Flyover Stocks.
Hi everyone and welcome to a very special episode of the Flyover Stocks podcast. Today we're joined by Morgan Housel. Morgan and I worked together at The Motley Fool about 18 years ago or so, and it's been amazing to watch his rise as a financial writer. And I don't think it takes much arguing to say he's one of the finest financial writers of our era, if not the finest. So, we're very lucky to have him on. Morgan wrote a number of books, including The Psychology of Money, which has now sold over 10 million copies worldwide and has been translated into dozens of languages. He's also written a book called Same as Ever, and his most recent book is called The Art of Spending. I really wanted to have Morgan on for a while now, and I was very appreciative of his time to come and talk to us about managing money specifically in our 40s. How do we prioritize spending? How do we prioritize saving? So without further ado, here is my conversation with Morgan Housel.
So Morgan, last time you were in Cincinnati a couple years ago, we had dinner and we were talking about the good old days at The Motley Fool where we crossed paths for the first time, and you had a good line. I think it was you, maybe I forget who brought it up actually, but The Motley Fool was very much like the Substack of the era, where people were given a chance to write who may not have had a chance otherwise and gave themselves a platform. And both of us really benefited from that. And I was wondering, you know, since your career has gone off to such great heights, was there an article or something at The Fool that happened where you thought, 'Hmm, this is something I can do for a career'?
I don't know, looking back, that there was any single article or even any single year where I felt that to be the case. Mainly because anyone who has posted content online, whether that was a blog back in the day or social media today, knows how much feedback you get. Some of it's positive, most of it is negative. And just the most basic psychology in the world: if a hundred people praise your content and one person criticizes it, you spend all of your mental bandwidth on that one piece of criticism. It's like everybody will do this. And so even at The Motley Fool, if I wrote a piece that I was really proud of and got a lot of positive feedback, but five people said it was the worst thing they've ever read that week, it would just ruin my entire day, ruin my entire week. And so the first couple of years of writing at The Motley Fool were very emotionally challenging for me because of that. I was so young. I didn't have any experience as a writer. Early on, I really don't think I was any good at it at all. And I was getting negative feedback all day. It was brutal for me. And so maybe to the opposite of your point, not only was there... I can't think of a time when I was like, 'Oh, I can really make a go of this.' It was constant like, 'What am I doing? I can't believe I'm doing this.' And I've talked a little bit about this before, but I started at The Motley Fool in 2008, which was of course the Great Recession. Everyone in finance was blowing up, laying people off. And so for the first couple of years, I didn't do it because I enjoyed it or I thought I was good at it. I did it because I needed a paycheck, period. That was it. Now it changed after that, and I did start enjoying it and whatnot. But that was tough at first. I think if there was any kind of moment in my career where I thought I can really make a go of this, it's when I stopped trying to write the same things that everybody else was writing, which was here's what the stock market's doing, here's what stocks you should buy. Not that that's bad, but there's so many people doing it. And when I started being like, I'm going to throw all that away. I'm interested in behavior and psychology, and I like telling stories. And even if people don't want me to do that, it's what I like doing for better or worse, and I'm just going to run at this thing. I had lunch with Jason Zweig in probably 2012, let's say, around that time, and he gave me one piece of advice that I took very seriously. He was like, 'Figure out a style of writing and a beat, so to speak, that nobody else is doing, and just grab a hold of it and don't let go of it. You have to find a way to do it on your own terms. And if you write the same stuff that everyone else is writing, it's never going to work.'
Yeah. Why do you think your writing, and it's exceptional, I'm just kind of curious from your perspective, why do you think your style has appealed to now tens of millions of books being sold?
I think similar to what we just said, I think there was a point in which I said I don't care what anyone else thinks what I write. And similar to the comments in the first answer, I stopped caring about the people who said this article sucked. I stopped caring about that and I said I'm going to now write for an audience of one, and that is me. I don't care about what else is what they want to hear or what they think of it. The sole litmus test that I'm going to have when writing is, do I like this story? Do I like this topic? Am I satisfied with that sentence that I just wrote? And if the answer is yes, we've checked every box that I need to. And I think that was... I have this theory that almost everybody in the world is a very good writer when they write in private. And so if anyone listening to this were to write a diary that nobody else would read, they would write beautiful prose and tell a great story and be very insightful about the topic that they're thinking about. But as soon as I start thinking about other people's eyeballs on it and trying to appease everybody and write in a way that's going to get the least amount of criticism, everyone turns into a crap writer at that point. You're just trying to pander to the lowest common denominator and it turns out exactly like you would think. And so the moment that I said, I don't care what anyone thinks of this. This is just me and I'm going to pretend that this book that I write is like my private diary. That's when it started. I think it really started to click for me.
And maybe I think the only thing that I've done slightly different, and it's not even that different anymore, a lot of people do it now, is most finance content is an analytical lecture. It's analytical in terms of like here's the formula and the data, and it's a lecture of basically saying, even if it's indirect, saying this is the right way to do it, and if you're not doing it this way, you're an idiot. And people don't want to hear either of those two things. If instead you can deliver an empathetic story. Here's a story of someone dealing with risk and uncertainty, and you reader go figure out what that means in your own life. I'm not going to tell you what to do. I'm not going to lecture you and tell you you're wrong. Here's an interesting story about risk and uncertainty. Go figure out what to do with it for yourself. I think that's what I've tried to do. And I think that is somewhat unique in financial content. I think in the age of AI, human stories will continue to be such an attention getter. And yeah,
even though AI can spin its own story, it can create fiction, what people really care about is other shared experiences with humans, right?
I'll give you two examples of exactly what you just said that I've been thinking about lately. To me, one of the most amazing AI products that I've come across was probably two years ago, and the product is Google NotebookLM, which is a product where you can have it craft a custom podcast for you. So, you can tell it any topic you want. Tell me a story about the fall of Rome. Tell me a story about Berkshire Hathaway valuation. And it'll spit out a perfectly crafted, narrated 10-minute podcast for you. You can upload a 100-page scientific PDF and say, 'Explain this to me like I'm five.' And it's perfect. I remember when I saw that two years ago, I was like, 'This is the end of podcasts. Everyone's just going to listen to their own custom podcast.' And how many NotebookLM podcasts have I listened to since then? 0.0 of them. Because the truth is, I would much rather listen to a fellow human give an imperfect rambling of their life than I would a perfectly grammatically correct, error-free NotebookLM podcast. And another similar example of this that I've thought about, one of the best business books written in the last generation, I think, is Phil Knight's Shoe Dog, the story of Nike. It is such an unbelievable... I'm sure everyone listening to this has read it before. Everyone in business read it and it's such a good book. And it's so well written. After I read it and fell in love with it, I learned, and this was not hidden at all, but I learned that it was ghostwritten, and not that big a deal. A lot of business books are ghostwritten and it was not hidden. This is not a scandal, but I learned it was ghostwritten. In my mind, 80% of the magic of that book evaporated once I learned that this was not Phil Knight that I was reading. Yes, this was his life and it's fact-checked and it's accurate, but this is someone else's language. I'm like, oh, okay. Well, it was a good book, but it's not magical anymore. And so I think to your point, people want human connection that AI will never be able to replicate. It can do a lot in there in terms of like helping people become better writers and whatnot, but people still want to try to connect and empathize with another person who's going through life like they are.
That's right. I agree with that. I think we are social creatures, right? It's in our DNA. We want to find common ground with fellow humans and experience the greatness and the tragedy and everything that comes in between. We want to feel like we're part of something, right? And yeah, and AI helps in some ways maybe in offering different perspectives, taking outside perspectives, but I think what we really care about are inside perspectives, right? Getting close to people and understanding what makes them tick and, you know, how we can improve their lives and improve our own and what makes them so special. I remember about a year ago we were going for a walk in a local park and we stumbled across the most amazing treehouse that I've ever seen. It was just like an architectural wonder how amazing this thing was. And I think a lot of what's amazing about that is you look at that and you're like someone cut every one of these boards and measured it perfectly and nailed it into place. And you're never going to get that by looking at like an AI-generated piece of art. You're like this is just a computer. Like no one actually did that. It's just a computer. That thing was crafted by hand. And it's amazing. So, people are always going to love that.
Yeah. One of the things I love to do is go to a museum or a library and just think about how each of those paintings or each of those books took someone to get over themselves, right? Had to take these huge leaps and say, 'I have something I want to share,' right, from Dead Poets Society, 'I have a verse I want to contribute.' And they had to get over themselves and take that bold risk, right, and be vulnerable. And that's I think what makes going to an art museum so beautiful. I mean you could recreate things with AI. But it's not the same. It's not the same as a human. And of course I have to disclose that I am very much talking my own book here to be like AI is not going to put authors out of business. I very much have a vested interest in this. But I'm saying that not as a writer but as a reader that I have no interest in reading AI-generated work because I can't empathize with the person who supposedly wrote it.
Yeah. That's right. So I brought you on today, and you're so gracious to accept, because I really wanted to talk about the experience of personal finance in your 40s. Most personal finance books are written for early ages, right? 20s, 30s. Here's how to save, and then in retirement, here's how to manage your retirement, make sure you don't run out of money. But there's this weird phase, and I think we're both kind of around the same age, maybe a couple years younger than me, but we're about the same stage. Our kids are about the same age, but you know that the 40s are such a weird period. You could have someone who's a grandparent. You could have someone who's just having their first kid or starting, you know, losing their job in their peak earnings years, right? I've had that experience. It's brutal. And just trying to sort out how to survive and hopefully thrive at that period. And so I posted this question on Twitter a couple years ago, and probably the most succinct answer I got was, hey, you just got to survive and stay employable, and that's the best general advice that I had heard. But since you had written such a great book about, you know, The Art of Spending, which I thought is kind of essential to this period when we're spending so much money, we're making money hopefully, but we're also spending a lot, whether it's housing and kids and trying to keep ourselves employable, you know, how do you begin to think about approaches for spending and saving and managing finances when there's so many different things that are pulling on us in our 40s?
Well, here's one theory about people's 40s and 50s. It's been documented very many for a long time and across different societies that happiness over the course of your life is shaped like a U. That people tend to be pretty happy in their 20s and then it declines and it troughs in about your 40s and 50s, which is the most unhappy period of your life, and then it climbs. And so people in their 70s tend to be fairly happy as well. There's a lot of theories for why this is. One of my theories about this, and it's no more than that, it's Morgan's theory, not some data-driven thing, is that in your 20s, most of you and your peers tend to be very alike. You know, nobody has a job when you're 20 years old or like a steady job. Everybody has acne. No one is married. Nobody has kids hopefully at that point. Like you're like most people, the distribution of outcomes is very tight in your 20s. In your 40s that you just alluded to, it's extremely wide. Some people are broke and unmarried. Some people are absolutely thriving in their careers. Some people are divorced. Some people are aging very rapidly. Some people still look like they're 22. Huge range of outcomes, and it makes it so in that period, no matter how well you're doing, there is a peer who is doing much better than you, no matter what you're doing. And then as you get into your 70s, lifestyles tend to converge again because yes, there's a big difference in money and whatnot, but everybody has arthritis, everyone is nearing the finish line, and so those outcomes tend to go again. And a lot of unhappiness comes and a lot of jealousy comes not when you see people who are doing better than you, but people who you presume at least to be peers are doing better than you. I am not jealous or envious of LeBron James because there is no world in a million years that I could have done what he did. There's no reason to be jealous. But if I come across an author who sold more books, I can look at that author and in that author I see the life that I could have lived. I say that could have been me if I tried a little harder. There's no world of that with LeBron. And so I think in your 40s you are constantly surrounded by people that you look at and you say that could have been me. I could have had more kids. I could have had a better marriage. I could have had more money. Whatever it might be, and so that tends to be a very difficult time. It's also I think people tend to fall into two buckets in their 40s. They either say I didn't achieve the dream that I had when I was 22. When I was 22 I thought I was going to be X, Y, and Z and I'm not and that sucks. Or they say, 'I achieved it and it doesn't feel as good as I thought it would.' I was having a conversation with a guy yesterday who this year will reach pure financial independence. He said this year he'll earn the last dollar that he's ever going to spend. Everything from here on out is like for his heirs. And he said like, 'I got to tell you it doesn't feel like anything. It is the most numbing feeling I've ever had.' And it's like, yeah, kind of disappointing, isn't it? And so I think it's usually one of those two outcomes of that. And so, it can be a difficult time when like you're done forming your identity to some extent, like most of your identity is formed. And for a lot of people, they can reach a point where they're like, is that all it is? Is that all there is now? But at the same time, for me and you and a lot of other people, I've got kids, young kids. My kids are six and 10. So, they're still very much kids. But my 10-year-old, I know in a blink of an eye is going to be off to college and forming his own life and identity and whatnot. And so the pressure on parents at that age to like, this is the time for me to work my tail off and save as much money as I can for the betterment of my family. That pressure is enormous. This is also a very self-serving comment, but I think the world is in many ways run by people in their 40s and 50s. It tends to be governed by people in their 70s and 80s. But I think if you actually look at who's making the big consequential decisions at companies, it tends to be people in their 40s and 50s. That's true across industries. So the amount of pressure on them is unbelievable at that age.
I think it's in my experience at least, I'm sure it's a shared experience, but what you feel in your early 40s for the first time is time. It's this sense that I'm not that young anymore. You know, when I talk to my college students and I say, you know, here's what your savings track should be if you start saving when you're 20 and here's what you'll have when you're 65. And I say, you know, you guys, you don't think that you're going to have forever to do this and one day you're going to wake up and go, I got 20 years left before I hit the traditional retirement age. And whether or not I'm in control of my employment at that point is a different story. But I have to start saving. Time is running out. The time to compound is running out. And I think there's a sense when you look back, like you were saying earlier, I don't have what I thought I would have, right? And trying to figure out how do I get myself back on the track that I was hoping for. And it might be a well-informed goal, right? It might be I had hoped to have $2 million saved by the time I was 40 and I'm now at 500,000, right? I'm way behind where I thought I would be. How do I begin to right that ship and get back to where I would like to be? So, how would you approach that sort of issue?
I've often viewed too as I get older too, the extent to which it's obvious to me that I believe that if your family's in good health and you have a good marriage and your kids are thriving, earning more money is probably not going to do that much for you. And if you're not in good health, if your marriage is not in good shape, if your kids are not thriving, earning more money is not going to do that much for you either. And so, look, I am and have been a money guy my whole life of just like I even felt it when I was like 17. I was like, I think my purpose on this world is to work and support a family. I just felt that like in my caveman soul at the time. But the older you get, the more that you realize. And the more like very wealthy people who you come across and meet who are not nearly as happy as you thought because they're in poor health and their family situation is not what it is, is a big thing. I was asked the other day for like advice for graduating college students. And one of the things that I thought about was be very careful who you admire because it's often the case that the person who you admire for their success or their wealth made sacrifices that you are unwilling to do. They made sacrifices and the reason they're so wealthy and successful is because their entire life has been a singular focus on work and it came at the expense of everything else at home and in their physical health and whatnot. And a lot of those people are not happy because they turn 40 or 50 and they realize it. And so it's very easy for people who have some level of financial success and independence to say it doesn't matter. Focus on your family. But it is so common for parents to just be like, my purpose is to provide right now and that's what I want to do. I think I've struggled with that a little bit myself. I won't pretend that I'm any kind of expert in this topic because every cell in my body since I've been 17 has said your purpose is to work and strive and provide. But now, of course, when I'm traveling for work, I just miss my kids. I just want to hang out with them. Like, how do I square that away? I'm not quite sure what to do with it from there. But I also think no parent should feel guilty about sacrificing tremendously for the betterment of their family and work and money is a huge part of that. And so I think back to the stratification of people in their 40s right now. I see a lot of people who had really good social lives in their 20s. They partied hard. They were always going on road trips with their friends. And for someone like myself in my 20s who I did nothing but work basically, I was envious and jealous of them at the time because they not only looked like they were having a much better life than I was at the time, but every single one of those people who lived large in their 20s is now 42 and not where they ever expected to be. And I don't think they would admit this because it's too hard to admit, but I think they regret what they did. And so I don't think there's any solid takeaway other than the boring answer of the balance that you need in life. If you look at the two extreme ends of financial planning, you have like the YOLO mentality on one end and the FIRE mentality at the other. Like one is live for today and the other is just like the entire purpose of life is to save for tomorrow. Either end of that spectrum has a higher chance of leading to regret where at some point in the future you're going to look back and be like, I was too extreme. I wasn't balanced enough. And so I think it's... I read this in a tweet this morning. I can't take credit for this, but like a really important life skill is learning the consequences of the math of... Let me make sure I get this right because it was a really good one. I'm going to pull this up for you.
I'm not going to butcher the quote. Okay. The best math you can learn is how to calculate the future cost of current decisions. Really, really good line. I love that. And I think a lot of people that had extreme financial plans on either end of the spectrum failed at that math. They didn't understand the cost that they would pay in the future for the decisions that they made at that period of time.
Yeah. I think you've said elsewhere and I've heard you say is you work out of the house at least most of the time when you're not on the road and you know you get to see your kids pretty much every day and that's a financial gift, right? And being able to provide that lifestyle is a gift as well, right? Being able to have a job that enables you to do that has financial benefits. And there's also benefits other ways too, right? There's people who work like crazy and make a good living and they give their kids whatever they need, right? Get them into the best schools, but they never see their kids, right? And so it's a very difficult balance for a lot of parents. And a lot of it comes down to the career you chose and the life you chose. And it's hard to have it both ways, right? And I think what's true what I said earlier about you should never feel guilty about working hard to provide for your family, right? The definition of you have provided there is probably much much lower than you think. And at a certain point, what your kids want is not a bigger house or a new pair of Nikes. What they want is your attention and your empathy and like they don't. And so that's a difficult balance for a lot of people in their 40s when they're probably at or near the peak of their earnings potential and whatnot. And so the incentive to be like, hey, if you work an extra 20 hours a week, you can really knock it out of the park this year is there. And it's easy to grab and maybe in most situations you should grab that. I think in those situations I do. But balanced with like your kids are already probably taken care of to some standard that is fulfilling the vast majority of their material needs and what they really want right now is you.
Right. And we were talking before we got started here just the increasing cost of entry into let's say a middle class, upper middle class lifestyle. You know, we'll talk about housing in a minute, but first I want to talk about the second biggest expense most of us have and that's our kids, right? Being able to provide them with experiences and investing in them. I think a lot of parents spend on their kids, right? Either consciously or subconsciously thinking about them as investments, right? We want to make sure they have at least as much as we did, at least the same opportunities that we did. And I told you about an analogy I thought of earlier today when I was driving around, which is like youth baseball. It's a great microcosm for the changes, right? When we were growing up in the 80s playing baseball, we had a canvas bag full of gloves and shared bats that everybody had and everybody played in the same league. There were no club teams there or no special teams. And now, you know, there are travel teams where you pay $10,000 for your 11-year-old to play and they've got six bats they're carrying around collectively $1,200. And it's extreme. And so I feel like a lot of parents in the middle to upper classes feel that pressure and it's social too, right? It's this ability to connect with other parents, right, of your economic class and your social class. And just having to pay so much to be involved in this way has gone up significantly over the years.
Yeah. I think one big theory that I'm reminded of here is the basic idea that I think we did a lot of harm to society. We as a whole society over the last 30 years or so when we basically, not explicitly, but we basically told every young person that they can be in the top 10%. Or even the top 5%. Because what is the expectation of almost everyone in their teens and 20s these days? It's that you're going to go to college and get a bachelor's degree and graduate into a job that pays maybe low six figures with health insurance and a 401k that gives you a good work-life balance, that gives you fulfillment, and that allows you to buy a nice three-bedroom house and two cars and take a summer vacation. What I just described there is a top 5% outcome, right? But we told 100% of young people that that's what they should expect. And so inevitably when 100% of people think that they belong in the top 5%, this is basic math, 95% of them are going to be really disappointed. And I think part of that is in the 1970s, I think if your children were C students who were a mediocre player on the little league team and who ground their way through high school and then went to work in a GM factory. Great outcome. Phenomenal outcome. You did great. There's no issue with that. And a hundred years before that, if half of your children survived like scarlet fever and then went on to become farmers, great outcome, amazing outcome. And today, I don't think it's an exaggeration. That's like my children, not mine specifically, but the general vibe is like my children need to graduate near the top end of their high school, go on to a top 10% college, graduate into a six-figure job that has a high level of income and prestige. And so, everybody wants what is now basically a top 1% outcome. And so, in that world, the little league is not for the child's enrichment. It's for the parent to fulfill like, 'Hey, little Jimmy, you need to go on to achieve these huge dreams. You need to be a top 1% student or else I'm going to feel like a failure as a parent.' And so there's been some really good books written on this recently where a lot of the pressure that is placed on modern teenagers to get ahead and get into a good college specifically is not for the kids' enrichment or benefit. It's for the parents just to make themselves feel good that they are a good parent. And everything got hyper-competitive. A lot of that hyper-competition is just because the world is so much more connected now. So it used to be that in the pre-internet days, if you were a mediocre attorney or a mediocre CPA in your town, you had a great business because you had the capture of everyone in your town who had to go to you because even if you sucked, you were the only CPA in town. And now look, my CPA lives in Texas. I live in Seattle. I'm talking to an estate attorney who doesn't live anywhere near me. So, when everything got flattened out in the sense of there's no more room for mediocre anybody's anymore. Nobody wants to read mediocre writing or listen to mediocre music in the way that they would have 100 years ago. And so, your competition just went from your neighborhood to the entire world. And of course AI is just going to dump kerosene on that fire. It's going to get a million times worse with that. So I think those two things combined massively increases the expectations that you have for your children and the competition that your children are competing with in a way that makes...
Parenting way more high stress, high pressure than it was in previous generations.
Yes, that's absolutely true. I think every parent in the middle upper class certainly feels that way, and maybe all classes feel that way. I'm just speaking from my own experience, but you know, thinking about how we spend on our kids. I mean, I've got a daughter in ballet, I've got a son in baseball, basketball, things like that. I mean, how do you think parents, or maybe you can just speak for yourself, depending on how you want to approach it, but how do you think parents should balance investing in their kids, spending on activities that will make them more globally competitive and help them realize their clear value to the world versus spending, right, discretionary for themselves, right? It requires maybe a little self-consciousness, but thinking about how do I balance between here are my priorities on how I want to invest in my kids versus how I want to spend on them. If that makes sense.
I think it's a very difficult thing for parents to do. But the difference between the child genuinely wanting to do it versus the parent wanting the child to do it, that is a huge, huge thing. My parents and I, I don't know how intentional this was, but my parents in the 90s for myself and my two siblings, they have such a unique background. They met on a hippie commune in the 1970s. And so they were such free spirits that when they were raising us, they were like, 'Do whatever you want and we'll support you financially and morally, or you know, we'll give you all the support that you need, but do whatever you want.' And so both myself and my siblings had very untraditional education backgrounds for both high school and college. And my parents were like, 'Yeah, whatever. Like, you don't want to go to college at 18? Like, it's fine. Do whatever you want. I don't care.' And when we wanted to go, they're like, 'Oh, great. Totally supportive of you. What do you need? We can help you.' They were very supportive, but they were also very much like, 'Go figure out your own life for yourself. We're not going to push you in any direction.' And that idea of like, 'I will support you, but I'm not going to mold you,' I think was very important. And back to like the little league example, like what percentage of kids in youth sports are doing it not because they love it? The kids actually don't like the sport, but they want to please their parent, and their parent wants to have the star baseball player for themselves, right? And so I think that's a big part of it, that the kid has to be in control of their own life. And when they don't want to do it, it is your duty as a parent to step back and say, 'Okay.' Including if I remember, I'll actually say the name because you and I know him, Jeff Fischer from The Motley Fool. When my wife was pregnant with our first, with our son, she was probably about eight months pregnant. We had dinner at Jeff's house with his wife, and we were first-time soon-to-be parents, and we said to Jeff and his wife, 'Hey, any advice for us as first-time parents?' And Jeff's wife had a great line that I still think about today. She said, 'Love the kid that you have, not the kid that you want.' And I think that's what this comes down to for a lot of the sports is like if your kid doesn't want to be a sports star, you have to love that kid. And you can't force them to be the kid that you wanted because they're always going to be themselves.
