Morgan Housel: The Hidden Reason You May Never Feel Rich

Good to see you guys. Thanks for having me.

It's just about 10 million. It's actually more difficult to track than you would think because the international sales have such a lag on them. A lot of the international publishers will maybe give you an update once a year or something like that, but it's just about 10 million total now.

I've heard this from other authors as well, that there's usually a couple of countries that are huge standouts that you can't really put your finger on any rhyme or reason. So, for me it's India and Brazil that I sell a disproportionate number of books in relative to other countries. And this year I'll probably sell more copies of Psychology of Money in Brazil than in the United States. There's a couple of things like that. And my second book, Same As Ever, sold I think three times as many copies in South Korea as it did in the United States. There's all these weird things that you can't really explain. I actually think it's a good topic because I truly think that 90% of virality in any endeavor is luck. It's not 100%, but it's 90%, let's say. I'm making that figure up, but I think that's what it is. And so, your question was how do you explain the disproportionate sales in these random countries? You can't. I don't think you can. And I don't think any product, any app, any company, whatever it might be, that explodes, you usually can't put your finger on exactly why that is. And it's a good level of humility going forward that like I can't explain why it is. So, then how do I expect to replicate that in the future? There's an important level of humility to have here when you talk about these things.

It's not a bad explanation.

Mark Manson tweeted something the other day where he was like, 'Poor people pretend that they're rich, and a lot of rich people will pretend that they're poor, and they're both doing it for the same reason, to be accepted by other people.' I do think there for everybody, there's a level of net worth at which above that, if people know how much money you have, friends, family, kids, community, co-workers, whoever it might be, there's a social liability that comes from it. That every dollar after that, it's not going to change how you live in terms of a nicer house, a nicer car, and that stuff will mean virtually nothing to you at that point in terms of increasing the ability. But the level of people who start thinking of you differently, friends who expect you to pay for dinner, kids who expect an inheritance, neighbors who expect you to donate to their charity, whatever it might be, is a real social liability. And that is the ultimate tiniest violin for half the country living paycheck to paycheck to say something like that. But I do think it's important even for low-income people who are aspiring for a level of wealth, it is so easy to overestimate what money's going to do for your happiness. That is not to say that it cannot make you happier. It can, of course, full stop. But it's easy to overestimate it, and it's almost impossible for lower-income people to realize that there is a level at which you might literally look back and say, 'I was happier back then.' There's a great quote, a lot of this got me thinking, one of the best business books I think ever written is the biography of Harvey Firestone, the tire magnate, Firestone Tires. He wrote it in 1926. It's so well written, it's so good. And he makes this observation that he was like, 'Every single one of his rich friends, every single one, the first thing that they did when they got a lot of money was I bought a gigantic house.' And he said, 'Every single one of them considers it a burden. Every single one is like, I was happier when my family and I lived in a nice little cottage, and life was so simple. And now I have this 25-bedroom mansion that requires a staff of 40 to keep up, and the roof is always leaking, and this is just a pain in the ass for him.' And afterwards, he was like, 'I did it, too.' He's like, 'It's impossible that once you get to a level of wealth, you're like, well, I have to live this lifestyle, even if that lifestyle is a pain in the ass, and you don't enjoy it, and you preferred the simpler life.' And I brought that up in the book cuz I think that's probably one of the easiest things to overlook when you are a lower-income person or middle-income person, whatever, aspiring for more, is yes, money can do a lot for you, there's a lot it cannot do for you, and there's a level at which it actually spins in reverse. One of the old-school hedge fund managers, I won't say Soros cuz that's too triggering in today's political world to mention him, but someone like a Soros, they'd asked him, one of the reporters is like, 'You know, you love wine. Why don't you have a big wine collection?' And he was like, 'Cuz then I would have to think about it. Like I would have to devote mental resources to these thousand bottles or all these other bottles. Do I need insurance? Are they going bad? Which ones do I have? Which one should I get?' He's like, 'It's not worth the cost.'

I have no idea what I'm looking at right now.

I got to be careful with my name tags at the next conference, but I wore it out into the crowd, and people came up, and they're like, 'Morgan, amazing speech.'

Absolutely. And a lot of people, of whom I might be one of them, where travel as an experience is okay at best. And so many vacations, my wife and I always say like the best part of the trip was coming home. And we're like, but other people are like, 'Travel's the best thing in the world.' I'll tell you two areas where I kind of got that idea. I think it started in investing when it became really clear to me that the way that I invest, which is dollar-cost averaging in index funds, is not right for everybody. I think it's right for a lot of people, but I'm not a passive zealot who says everybody should do it like this, and if you don't, you're an idiot. I don't think that's true at all because I have a different risk tolerance, I have different goals, I have different skills, I have different objectives, like it's completely different. Not only that, but over the course of my life that will change. I don't know if I'm going to be investing like this 30 years from now. Maybe I will, maybe I won't, but I'm going to change. So, the idea that anyone would say, 'Here's how to invest. Here's the right way to do it, and here's the wrong way to do it.' I just don't think that exists. Everyone There's a million different ways to do it that's right for you. It started with that. I use this at the start of the chapter that you're referencing. I used to live in Washington, D.C. and I loved going to the Library of Congress where they have There's a section there where they have for about a dozen newspapers every single edition going back to the early 1800s on microfilm. You can go in and like and search and I love going in and finding like a random newspaper from 1907 and just seeing like what were people talking about back then. And because I'm an investor, I was like, 'What were people saying about the economy?' And so I could go in and find all these newspapers from 1929. And what's cool is that unlike a history book, there's no hindsight bias in that. They did not know what was about to happen. So this is people's real thoughts at the time. Thought it was so interesting. And I found this column in the Washington Post in 1929 from a columnist named Robert Quinlan. And the title of his column was, 'The more you are snubbed while poor, the more you enjoy displaying being rich.' And I think he had an intuition for something that was later confirmed with studies, which is like the poorer you grew up, the higher your propensity to want to show off your wealth with fancy cars, fancy homes, fancy jewelry, whatever it might be because you're trying to scratch this emotional itch that you had. And so I think to somebody who grew up dirt poor, a Lamborghini is the ultimate measure of success that you overcame your earlier struggles. If you grew up wealthy, a Lamborghini is like the most gaudy, egotistical, gross thing you could have. And there's no right or wrong answer. Like I think what I'm getting at is there's always a psychological, emotional story for how people spend their money. Like we're all shaped by our experiences, my childhood, your childhood, the generation that we were in. And a lot of it is like some form of psychological scarring that you have of what you're trying to be, your level of self-confidence, your level of ego, whatever it might be. Who are you trying to impress? Trying to impress yourself, trying to impress others. I had this family friend who grew up very, very poor. He was homeless for most of his childhood. And he became a pretty successful businessman. And when his daughter was applying to college, he told her, he said, 'Pick the most expensive school that you get into.' And the reason he said that is because it made him as a father feel so good to go from homeless as a child to sending his daughter to the most expensive school. And in his mind, he was like the more expensive the better. And this is where like the psychological scarring, the holes of our spending come in. It's not so simple as just like nice stuff, not so nice stuff, fancy stuff. There's always a story behind it. And because my story is different from your story, there's no right way to do it. I was for a lot of my adulthood, I've loosened up a little bit, but my wife and I were pretty frugal. And the truth is we didn't want that much or we didn't really know what would make us happy. We've loosened up, but I had friends, but this is not that long ago. This is maybe five or six years ago. And I had a lot of friends that would give me so much grief about it. But the truth was we were perfectly happy. But it absolutely made sense for us. We liked our simple, frugal little life. And it always kind of I never really understood when my friends were like, 'Oh, you should get a different car. You should spend more on this.' And I was like, 'But we're totally happy. Like why would I change it if we're happy?' And so I think piecing all those together, the only logical conclusion is like there's no right way to do it. You have to figure it out for yourself. And even within yourself, you're going to change throughout the course of your life and figure different things out. I was thinking about this the other day when people would talk about something like, 'How could you possibly buy a $10,000 watch or something?' But I'll talk to my friends who are like watch people, I'm not, but you watch them light up as they're talking about just like how it's designed, where it came from, going to visit the factory. It's actually the mastery and intricacies of building it. Like to them, it's actually like the most interesting topic in the world. And historically, people would say, 'Ugh, he's just signaling.' Well, like well, maybe, maybe not.

That's such a good analogy. But also the polar opposite of that is very wealthy people for whom material stuff is completely disposable. There's a show on MTV 20 years ago and they had Master P on, Master P the rapper. And he mentioned that in the show. No, it was not Cribs. I was going to say that, but I don't think it was. But he mentioned that he never wears a pair of shoes more than once. He wears them once and throws them out. Whether that's true or not, at the opposite end of the spectrum is completely disposable. But here's what I think is interesting. I bet Vic got more pleasure out of the fishing pole that he never used than Master P gets out of the shoes that he uses once and throws them away. But all of this This is not to say either of them are doing it right or wrong. It's just like it's so different for everybody depending on who you are, where you've been.

Nothing is as persuasive as what you've experienced first hand. And so if you started investing in 2008 or in 2007, you lost half your money in 2008, that's something like reading about it does not do any justice to experiencing it. And so your lived experience, even if we can all be amateur historians and try to imagine what it was like to live through the Great Depression or live through the inflation of the '70s, I didn't. I felt a lot of this pretty strongly. I think a lot of people did. When COVID economically, but also health-wise in the early months of 2020, it was like there was no amount of lived experience that could have prepared you for what that would be like until you actually went through it. And even if in hindsight parts of it were overreaction, a lot of it was overreaction. Like there were moments in March of 2020 where it was like you could have never imagined what that would be like. And to read about the flu pandemic of the early 20th century, like there was no amount of doing it. There's a great story in World War II who talks about this a lot that there would be so many new soldiers coming out of boot camp. And out of boot camp, they would be like full of bravado and gung-ho. They're like, 'I can't wait to get to the front lines. I'm going to get those Germans. Can't wait to get there.' And then as soon as they're at the front line and they hear the first bullet, they're scared shitless. As I would be, too, and as you would be, too. Like you don't know what it's going to be like until you've actually been there doing it. And I also think like you and I have these investing beliefs that you and I have written about and shared with people forever, but let's not pretend that if you and I were born 20 years earlier or if you and I were born in Germany or South Korea or whatever, that those beliefs would not be completely different if not contradictory to what we believe now. And so we're all just kind of prisoners to the era in which we were born into, the things we've experienced in life.

Japan for 30 years. Yeah, slightly related topic. But I remember back seven or eight years ago when Bitcoin was just really starting to ramp up, it was a poll I'm making these numbers up, but this is it was something like this. It was like when Bitcoin was at $3,000, 80% of people surveyed thought it was a bubble. And when it was at $10,000, 20% people thought it was a bubble. Like a complete different of those Like once you've experienced something, your view of it is going to completely change.

I think this is true for a lot of aspects of life is that whenever you say I am a blank, you've been holding yourself to an identity that's going to take control of your thought process. So, it could be anything. I am a Democrat, I am a Republican, I am a gold bug, I'm what whatever you use that phrase, you're almost saying I have outsourced my critical thinking to my tribe. And for even something as completely innocent as I am a saver, for a lot of people what that has done to them is they've said like there could be ways that they could spend money to make themselves and their family happier, but they won't do it because they've told them so they have this thing in their head and like I save money. That's what I do. And they take it as just axiomatic, it's just like their religion at that point. And if you talk to a lot of financial advisors, they will tell you that one of the most difficult things they do in their practice is getting people who have saved plenty of money for retirement to actually spend it. Because those people have been so conditioned for their entire life of I save money every month. And then to switch gears and be like, 'No, we're going to start drawing it down. Your net worth is going to go down every year and that's totally fine. You have more than enough.' And they can't do it. They've been so ingrained and I think at that point money is a psychological liability. It's a financial asset and a psychological it's controlling you at that point. It's not a tool to live a better life. It has full grip on your personality and I think that is not uncommon. There are a lot of people like that. I think I may have had bits of this. I think I write about it cuz I've been trying to fight against that in my own life of like A, not associating net worth with self worth and B, not saying I am a blank like this is how I think about money. I just want to use it as a tool.

What's true too, Meb, is like what I want out of money for myself and I think this is pretty common is I just want independence. I want to wake up every morning and say I can do whatever I want today. I want independence. And you get independence financially when you just have a ton of idle savings sitting around. Like that's the oxygen of independence. And so, for a lot of my earning years as an adult, I've had a very high savings rate, but that's not because I'm too afraid to spend and I don't think it's because I have an identity as a saver. It's I have this goal that to me it is like a material goal of independence. And the more that I spent on cars, homes, clothes, whatever it would be, the less independent I was going to be and less independent I was going to feel. So, there is a level like it's not black and white. I think there are people who are huge savers and even when that savings is part of their identity, they're doing it for a cause that is actually going to make them happy.

I think it's almost impossible to force, but when it needs to happen, it will happen for most people. For me and probably you and I think a lot of people can relate to this, the moment that my son was born, my first child, it was like a light switch, all these philosophies in my head instantly changed. The moment they were born. So, like when you need to have a philosophy shift, you usually can. But I think for a lot of these where they are detrimental, whether it's in politics or finance, it's like the Paul Graham quote of keep your identity small. And once you form an identity, they're very easy to form, nearly impossible to break. If you have been a hardcore partisan on either side for the last 10 years and you've been public about it with your friends and on Facebook and people know, oh, you think that way, you can't go back from that even if you want to. There are so many things to that. My wife and I have loosened up with our spending in the last couple of years and it wasn't easy. It wasn't an easy thing to do because I think big time saver was part of my identity. I think that's why I wrote about it. I could see the trouble that it was going to do. I could identify a couple areas where it was like, 'I actually think we would be happier if we spent more on this, but it's really hard for me to do it.' And once we finally did it and loosened up, it was like, 'Oh, this is great. It's not scary at all.' And I don't regret that we didn't do it earlier cuz like we had to learn the hard way. But I think we were also able to do it because it was on things that we were not tied to between friends and families, you know, knew that we didn't spend money on this. It was easy for us to break away and do something different because our identities among people we knew were not tied to that. But once you formed a public persona, not even public, but just among your friends, even among your spouse, whoever it is, it's very difficult to move away from it.