Long-term success in investing is about much more than just picking good stocks.

There are several lurking landmines that could wreak havoc on our long-term investment returns. Emotional and unconscious biases often convince us to buy or sell great companies at exactly the wrong time. Ecstatic bubbles can pop and create panic-laden recessions, causing broader-market sell offs that torpedo entire sectors. And while they may be seldom-discussed and underappreciated, the cousins of risk and luck have an undeniable impact on the success of businesses and on investment portfolios.

In short, it’s a crazy world out there. The more we can do to acknowledge and course-correct against the strong current of factors working against us, the better off we’ll be as investors. It was Napoleon who once said “a genius is the man who can do the average thing when everyone else around him is losing his mind.”

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To help us navigate the ever-changing map of long-term investing, we’ve brought in one of the world’s brightest financial captains.

Morgan Housel is a partner of the Collaborative Fund and has spoken about behavioral finance at conferences all across the globe. He is also the author of The Psychology of Money, which shares several lessons about long-term success in investing and in life. Napoleon’s quote is prominently displayed on the very first page of his book.

In an exclusive interview with 7investing, Morgan brings a goldmine of advice and information to help investors. We organize a wealth of knowledge into 7 themes (it had to be 7!), where Morgan provides his overall thoughts, cites several historical examples, and provides the most important investing takeaways. 7investing CEO Simon Erickson also spots Morgan up with an investing-related question for each of the seven themes.

We also recommend having 7investing put up the buy-in for Morgan to join the World Series of Poker (you heard it here first), question his likeness to a character on Game of Thrones, and offer advice for younger investors. And as a closing finale, Morgan answers seven questions that were submitted on Twitter by our 7investing followers!

Interview timestamps:

00:00 – Introduction to Morgan and the “7 Themes”

01:09 – Theme 1: “The Psychology of Money”

08:02 – Theme 2: “Think Longer Term”

15:38 – Theme 3: “Luck and Risk”

23:27 – Theme 4: “Long-Tail Optionality”

30:22 – Theme 5: “Necessity is the Mother of Invention”

35:46 – Theme 6: “Bubbles and Recessions”

43:38 – Theme 7: “Influence”

49:01 – Bonus: Morgan answers questions from our 7investing Audience

Publicly-traded companies mentioned in this interview include Alphabet, Amazon, Berkshire Hathaway, ExxonMobil, Microsoft, and Netflix. 7investing’s advisors and/or guests may have positions in the companies that are mentioned.

This interview was originally recorded on October 16, 2020 and was first published on October 20, 2020.

Transcript:

Simon Erickson

Hello, everyone, and welcome to 7investing where it is our mission to empower you to invest in your future. I’m 7investing founder and CEO Simon Erickson, and I’m extremely excited to introduce my guest today, who I truly believe is one of the smartest minds in the financial world. Morgan Housel is one of the partners at The Collaborative Fund.  He has been a presenter at conferences all across the world, and he’s also an author of his new book, “The Psychology of Money.” Hey, Morgan, nice to chat with you, and thanks for joining us at 7investing.

Morgan Housel

Happy to be here, Simon.  You know, you and I worked together for several years. It’s good to it’s good to be back here chatting with you.

Simon Erickson

It sure is nice to talk with you again, Morgan. Now your book is a gold mine of information. It’s very, very good. I just read through it. And to kind of make this fun and interactive, I’ve gone through, and I pulled out 7 themes that I think kind of represent what you’re trying to get across in the book. It had to be 7 because we’re 7investing, of course. But I wanted to pitch each of those to you and see if you could talk about each one of those, and then I’ve also got some examples from the book and an investing related question for each one of those. Does that sound okay? And are you ready to get started, Morgan?

Morgan Housel

Let’s do it. I’m ready.

Simon Erickson

Okay, the first theme is what I’m calling the psychology of money, which is actually the name of your book itself. This is the idea that investing is really a personal thing. And there’s so much number crunching and data that goes on out there. But at the end of the day, you want to be able to sleep at night, and it’s really meant to fit your own lifestyle. Can you tell us a little bit about kind of what the psychology of money was written for?

Morgan Housel

I think it’s I mean, a broad point that I make in the book, as you mentioned, is that everyone is different. And we try to think of investing – we tend to be taught investing, like it is something like physics, or something like math where two plus two equals four for me and for you and for our ancestors, and for our children. Tt’s always going to be the same for everyone everywhere. And I really think investing is not like physics at all. It’s a much more personal endeavor, where I think maybe the closest analogy is something like relationships. Whereas look like, are there common denominators, are there universal truths of what makes a good relationship? Sure. People want nice people, empathetic people who are going to listen to them, help them out, etc. But everyone’s different, what people are looking for is different, their goals are different, their incentives are different, what they find appealing or unappealing is very different. And that’s true for investing as well. Like I love the quote from a financial advisor named Tim Maurer who says “personal finance is more personal than it is finance.” I think that sums up so much what we do in investing, and actually a lot of the debates that we have in investing, but when we are debating, is this a good stock to buy? Yes or no? Is this a good asset allocation to have?  Yes or no?  And when two people disagree on that topic, a lot of the times, I think even most of the time, they actually it’s not that they disagree. It’s that they are viewing the world through a slightly different lens, because they have different goals, different incentives, they want different things out of their money, which leads them to different outcomes, different strategies. And so I think the idea that people who are equally smart, equally informed, can come to very different conclusions is something that’s really important in investing, because it’s really important for individuals to realize that just because someone else disagrees with you, or because what you’re doing with your money maybe doesn’t make sense from what you read in the finance textbook. If it works for you, if it works for your goals. I think that’s great. I think that’s perfect. That’s the best you can hope for. One of the points I make in the book is that we actually should not aim to make purely rational financial decisions. There’s this idea I think that people should make like we want to be rational is this financial decision rational, that’s when you should do it. And I don’t think that’s right, because people are not machines, they’re not spreadsheets. And rather than trying to be rational, I think people should just aim to be reasonable. And even if the decisions that you make with your money cannot be explained perfectly in an Excel spreadsheet down to the fifth decimal point, if they work for you, if they work for what you want your money, then that’s great. That’s the best we can hope for. So “The Psychology of Money” is just moving away from the idea that investing is not physics. It’s actually something closer to psychology, sociology, a softer science, where there are not a lot of hard, firm analytical truths.

Simon Erickson

Yeah, and one of the things I like that you really brought up, Morgan, within your book was that, and you just mentioned, again, is that we have different goals, and we’re playing different games. And that will actually influence the price that we will pay in this giant online auction that is the stock market these days, right? It depends if you’re a stock trader that’s trying to get in and out in the day like a day trader would be versus someone who’s saving for retirement, that might mean different things. It kind of influences the prices of assets out there, right?

Morgan Housel

Yeah. I mean, if you are a day trader, then you know, if you were to ask is Netflix a good stock, all you care about is whether its stock price is going to go up between now and lunchtime. It’s just based off of momentum or technical analysis. So the answer for you might be yes, it’s a great stock. But if you are a long term shareholder, and look, this is nothing against-I’m just using Netflix as a bland example. This is not my opinion of the company. But if you are a long term shareholder, the answer might be no. So people are playing different games. And it’s often it’s intuitive to think that there should be one correct price for a stock like is the stock a good buy? Yes or no? It depends on who you are. So think about if you go back to the 1999 and you know, Cisco and Yahoo and Dell were trading at ridiculous multiples, ridiculous valuations, but the value like so if you’re trying to answer the question, how did that happen? Why did that happen? Why did investors bid the prices up that much? I think at least part of the explanation is that prices were being bid up by short term traders who were chasing momentum in a reasonable way that you can’t fault them for it, they were playing that game, they were playing the momentum game, and it worked for them. So they didn’t care that Yahoo was trading for 7 billion times earnings, or whatever it was, that was not the game that they’re playing, they were chasing daily momentum. The problem, the issue is when long term investors looked at that, and said, “oh, maybe these people know something I don’t,” they’re bidding the price up, maybe that’s the right price. That’s the price I should buy it at. And then long term investors started taking their cues from the short term traders that bid the price up. And the real problem with bubbles happens when you have long term investors who take their cues from short term investors, and they’re the ones who get left holding the bag. Because when the bubble went out, the day traders were gone, they cashed everything out, they were gone. The bag holders, the people who were left cleaning up the damage, who suffered the most damage, were the long term investors who took their cues from those people. So I think just the the realization that it may be intuitive to think that we’re playing the same game in investing. And most of many of us are not, we’re all playing on the same field. There’s only one stock market, but we’re playing very different games with different goals, different strategies. And it’s important to realize the game that you are playing and only seek information and advice from people who are playing the same game as you are

Simon Erickson

Very true, and we’ll double click on the bubbles that you just mentioned a little later on here in the conversation. But Morgan, my my investing related question for this first theme of the psychology of money is, and there’s been tons of studies on this, but what are you think the one or two psychological factors that are playing a part in our investing every day that we are actually unaware of?

Morgan Housel  I think it’s in two. Here’s the thing about behavioral finance. People read about and learn about the biases of people and almost everyone to a tee, the natural reaction is to assume that those biases apply to other people, but not you. And that everyone, that’s the thing, like you read about behavioral finance, and it’s so fascinating, because you’re learning about how flawed other people can be. And if you’re not looking yourself in the mirror and realize that when you are learning about all these things, you are learning about yourself. And there’s almost no exceptions to these.  People have different propensity by different susceptibilities to these, but everyone is going to be a is going to be impacted in some way or another by these. So I think like one of the biggest biases is like this meta bias of assuming that you’re not bias that everyone naturally has. I think everyone naturally has it, because it’s hard to go about your day if you know that you are a flawed thinker. Everyone has to kind of justify their own mistakes in their head, in order to go about the day in a in a coherent way to have the the optimism to go out in the world and make decisions about your career and your family and whatnot. You have to think that the decisions you’re making are right, and that your thought process in your head is clear and coherent. Even for almost none of us it perfectly is. So I think just the the like under estimating your own biases is probably the largest bias.

Simon Erickson

That’s fantastic. Morgan. Let’s move on to the second theme of the book, which I think it’s kind of self explanatory with the title here, but I’m calling it think longer term. You know, this is basically the impact of compounding on investment returns, you bring up the example of Warren Buffett starting example, starting to invest when he was 10 years old, still going strong, as he is almost up to 90 now. How important is compounding for investment returns?

Morgan Housel

If you look at someone like Buffett, the point I made in the book is that 99% of his net worth came after his 50th birthday. And something like 97% came after his 65th birthday. So if you look at some like Buffett, is he a great investor? Yes, of course, period, end of story. He’s a great investor. But the real secret, the reason that he got rich is not because he’s a great investor in the sense that he’s earning high annual returns. The reason he got rich is because he’s been investing consistently for 80 years. And I make this point that you can do the math, you know, hypothetical world where Warren Buffett started investing at age 25, rather than age 10. And he retired at age 65, like a normal person rather than investing through now he’s age 90 in that hypothetical world. And let’s assume that he earned the same average annual returns, but he just started investing at 25 and quit at 65. In that world, his net worth would be something like $12 million today, not $90 billion. $12 million. So just as a simple calculation, you can tie 99.9% of his net worth just to the amount of time he has been investing for. And I think this is important because when a lot of people want to learn from Warren Buffett, emulate his success, how did he do it? They go into great depth and research about how he thinks about moats and business models and market cycles, management teams which is a great thing to learn-this is not to poopoo any of that, but it’s easy to overlook that actually the reason that his net worth is is what it is today is just because he has been investing for 80 years, and if he had quit at a more reasonable age, you would have never heard of him. (If) Warren Buffet retired at 65 you would have never heard of him. And I think this is a a lot of the reason that he did not really become a household name until like his 70s, as you go back to the 1970s, and the 1980s, he was famous within investing circles. But he was not kind of the household name that he is today because it took until his 80’s or 90’s before he became a multi deca billionaire, because that’s just how compounding works. So I think there are a lot of things with compounding that even if you’re a smart person (and) you understand the math, it’s never intuitive, like the power of compounding is never intuitive. You always have to take a step back, and your jaw kind of hits the floor when you see the numbers. And because it’s not intuitive, it’s easy to overlook the actual cause of a lot of the outcomes that we aspire to. We tend to, you know, make it more complicated than it is when the answer is often right in front of us. It’s just has to do with the amount of time that’s in front of us. And the single most important thing that any of us can do as investors to improve the odds of success in our investing endeavor is just to increase the amount of time that we are investing for.

Simon Erickson

Let me put a different spin on that too, Morgan, because you know, Buffett has come under fire in recent years. Berkshire Hathaway has actually underperformed the S&P 500 over the last 5 and 10 year periods. A lot of people are saying that a lot of that is because Buffett hasn’t kept up with technology. Something else you brought up in your book was Daniel Kahneman, you know, the behavioral finance professor. And you mentioned that he in conversation with you had said  that he really has no sunk costs. He’s adaptable, he’s flexible, he changes his mind when the data changes for him. And that’s very different than the approach of Warren Buffett kind of going with what he’s known for 80 years in his investing style. How do you balance out kind of long term compounding focus with the ability to be flexible and adaptable and recreate ourselves every day as an investor?

Morgan Housel

I think it’s it’s a difficult thing. I don’t know if I have any good answers to that question. Like there’s this quote from Munger that I love what he says “the first rule of compounding is to never interrupt it unnecessarily”. So inherent in that is like, don’t interrupt it, like don’t change. It’s kind of like some some perspective, that’s not his words. I think there’s some flavor to that in that advice. And it’s it’s difficult. On the other hand, there’s this thing that’s really interesting, where Buffett has, quote, unquote, like you said, not kept up with technology. True, of course, however, just because in dollar terms, not percentage terms, but in dollar terms, I think Berkshire has made more money on Apple than any other investment in the history of the investment business. He’s made like 100 billion dollars in profit on one investment. Like I honestly don’t think anyone in the history of investing has made more money than Buffett has made in tech. No other-he is the most successful technology investor of all time in dollar terms. So you get these weird things with Buffett just because he’s dealing with such large sums of money. But it’s it’s true. I mean, it prior to his investment in Apple that’s turned out so well, it is it is kind of jarring to think that his big bet during the era of technology of the last 15-20 years, his big tech bet was IBM. (laughs)

Simon Erickson

Right?

Morgan Housel

Like, that’s, that’s the one thing that he went all in on. So you do look at that, and it’s and it’s kind of different. It’s, it’s, it’s, it’s interesting. But look, when you’re worth $90 billion, you can afford to make some mistakes. (laughs)

Simon Erickson

Yes, fair enough. And now my somewhat related question on this topic, Morgan, which is an interesting one, is the titles of that we kind of assigned to types of investors. We like to call people that they’re a value investor, that they’re a growth style investor, you have opinions on those titles? Are those just ridiculous?

Morgan Housel

I don’t think they’re ridiculous. But I think anytime that you really tie yourself to an identity, then it’s very difficult to step away from that identity. If you look over historically, there are periods when value investing has done very well, and then periods where growth did very well.  Early in the 2000’s, growth was a joke and value investing was beating the pants off of everything. You didn’t want to own the tech stocks, you wanted to own Exxon Mobil, that’s what was doing really well. And now in the last 15 years, it’s been the opposite. Like, if you own value, like value in the last 15 years, you might as well put your money in an FDIC insured bank account, like it’s been a joke and growth has just blown everything to shreds. And like, look, that baton will pass again, I’ve no idea when. But that baton will pass again, it’s passed all throughout history. Same with if you look at the difference between US stocks and international stocks, European stocks, that too, like that baton is passed back and forth. In the early 2000s, US stocks did not do very well. European stocks did phenomenal. Different you know, stocks from from from other countries around the world beat the pants off of US stocks, and the last 15 years has been the opposite. So I think to the extent that you pigeonhole yourself by saying, I’m a value investor, I’m in emerging markets investor, I do this. There’s some benefit in there and the expertise that you might gain in that sector. But you are signing up for it. I think you have to be aware that you’re signing up for periods that might last a decade or more, where what you’re doing is not going to be in favor. And if you can put up with that, if your investors can put up with that, then more power to you. But a lot of them can’t look if you are a pure value investor, and you’re running a value investing hedge fund/mutual fund (for) the last 15 years, the odds that a lot of your investors have just quit, left, and redeemed their money? Pretty high. The odds that you yourself might start second guessing your intelligence after you’ve underperformed the market for the 15th year in a row, the odds that you yourself are going to look in the mirror and say, “do I really know what I’m doing?” Pretty high. So as long as you know what you’re signing up for, if you are pigeonholing yourself as a different flavor of investor, then it’s okay. But to me, it’s been, it’s been a better bet, I think, to either be flexible in what you do – more of a jack of all trades, even though you don’t get the benefit of specialization, or to be just more diversified in what you do. And rather saying, I’m only doing this and only doing that, you’re gonna have a little bit of everything of all the different flavors mixed into it.

Simon Erickson

It makes a lot of sense. The the third theme that I want to get to is, is called luck and risk. This was the second chapter in your book, Morgan, it’s actually my favorite chapter of your entire book. And you describe this as the reality that every outcome in life is guided by forces other than individual effort, perfectly stated, you bring up the example of Bill Gates, who is one of the million to actually have access to a computer so early in life. But then his partner, of course, Kent Evans, who could have been a household name for all of us, in the founding of Microsoft, and everything that transpired after that it was an accidental death in the mountains later on, what’s the role of luck and then also of risk in the outcomes that we see?

Morgan Housel

I think we tend to think of them as total opposites, luck and risk, really, we don’t often pair those together in the same sentence.  They are completely different topics, but I actually think they’re the same thing. Luck is the idea that there are things that happen in the world outside of your control that have a bigger influence on your outcomes than anything that you did. And risk is the idea that there are forces in the world that have a bigger impact on outcomes than anything that you did. They’re both I think, I think, as I say, in the book, they’ll be opposite sides of the same coin. But they’re really the same thing. Now, here’s what’s important for investors. Investors are keenly aware of risk. They talk about risk all day long, risk adjusted returns, higher a risk manager, like we’re managing first risk is like the central concept in investing, but they rarely talk about luck. Rarely, if ever, do they talk about luck, even if those two things are the same. Like you have investors who will report and adjust risk adjusted returns. It’s like a big concept in finance. Have you ever seen someone to report luck adjusted returns, or hire luck manager like a net, but they’re the same thing. So we know, without any shadow of a doubt, that luck exists in investing. It’s not to say that you can’t be skilled. That’s not the point that I’m making. But we know that it exists in pockets. But here’s the thing. If I were to say, Simon, you’re just a lucky investor, I look like a jerk. And if you if I am to say, Morgan, I’ve just been lucky investor, that’s hard for me to swallow as well. It’s much easier to sweep luck under the rug. Because if you ascribe it to someone else, you look like you’re bitter or jealous. If you ascribe it to yourself, it’s a blow to your self confidence. So we tend to ignore luck, even if we know that it absolutely of course exists. And I think it’s  important. To me, one of the big takeaways from this is that when we are looking at our investing role models, whoever they might be, it’s important to realize that particularly for the extreme successes, the people who tend to idolize that the bigger than success, the higher the odds that there was a level of luck involved that you cannot emulate. Doesn’t mean they’re totally lucky. Is Bill Gates skilled and successful? Of course. Is he hard working? Oh my gosh, it’s probably one of the hardest working guys of our era. Is Warren Buffett’s skilled? Yes, like that’s not the point that I’m making. But were those guys lucky as well in a way that is going to be almost impossible for me or you to emulate? Yes. And that’s an important thing to take away when we’re trying to learn from the people who we are aspiring to be. The other thing is that very often the line between luck and risk, or the line between bold and reckless is very thin, and a lot of people who we might idolize because they had an extreme success. Well, the same behavior is the same decisions that can lead to extreme success are the same behaviors and decisions that will lead to extreme failure as well. One of the examples I use in the book is of Cornelius Vanderbilt. One most successful tycoons of all time, his net worth adjusted for inflation was like $250 billion. If you go back and read how he did business, how he became the most successful businessman of our time, he was breaking the law flagrantly left and right This was his business strategy. The reason that he didn’t have many competitors is because his competitors were following the law and he wasn’t. This is like the key to his strategy, which is giving the middle finger to the law and look, it worked for him. He got it done, he was able to escape jail and it worked for him. It worked out, but you can so easily imagine a world where it didn’t work out and rather than becoming the richest man in the world, he ended up in jail, and the story that we think of about Cornelius was not the tycoon who was so successful, but as the criminal of the 1800s. Like, it’s so easy to imagine that story happening. Like,  it’s something else that I think is interesting is that in 2006, I think it was maybe 2007, Yahoo offered to buy Facebook for a billion dollars. And Mark Zuckerberg turned them down. He said, I’m going to keep Facebook myself. I’m not going to take it. He is praised for that decision. So, so insightful ,he saw the future. Good job from making that great decision for turning that down. Like a year later, Microsoft offered to buy Yahoo for $50 billion. And Yahoo turned them down. They made the same decision that Mark Zuckerberg made. And of course, it was a terrible decision. They should have taken it, got bought out for $50 billion, it would have been so smart for them to take that deal. Because what did Yahoo become? It became next to nothing. Look, they made the same decision. But one ended up on one side one ended up on the other. So this is the line between bold and reckless, you usually only know in hindsight, and what is the takeaway from that? That Mark Zuckerberg’s decision ended up so well for him, and Yahoo’s decision ended up so poorly for them? What are you and I suppose to learn from that? To me, I think the takeaway is just recognizing that bold and reckless, live very near each other. Luck and risk live very near each other. And maybe it’s just like a plea for a little bit more humility, of when we are looking at trying to analyze our own successes and failures, other people’s successes and failures, and what we can learn from that to try to make better decisions ourselves.

Simon Erickson

I think that’s a great takeaway, especially looking at the extremes, like you said in the book that, you know, you’ve got the people that are worth billions of dollars making decisions in history, write stories about them, whether it’s the Vanderbilts and the Rockefellers or the guys at Enron. Those are very different outcomes that were a similar strategy, the beginning, my investing question for you on this Morgan is accounting for that there is luck, and that there is risk that factors into investing returns and decisions, how do you recommend incorporating a margin of safety into investing?

Morgan Housel

I think margin like the best way for margin of safety is just this idea that you don’t have a margin of safety. If there’s only one version of the future that works for you, you have no margin of safety. If you say, look, in order to do well, the economy has to grow by 4%, and my portfolio has to grow by 15%. Like if that’s if that’s the only situation in which you meet your goals, you’re in trouble. But if you can say, look, if my portfolio returns 15% a year, great. If it only returns 4% a year, I’ll do fine. I’m okay. Like I think that’s when this one when you can, when you can do okay, in the widest range of outcomes, you’re situating yourself, you’re putting the odds of success in your favor. Versus if there’s if there’s only one, one version of the world that works for you. The odds of success are probably not in your favor, you might do very well if that version happens to hit, but the odds of it happening or not are less great versus look if you can do okay. In most situations, you still might hit the great you still might hit the jackpot, but you’re gonna do okay in the others that I think is not-it’s easy to view that as being conservative. And I don’t think that’s the case. I think a lot of things that people that seem to look conservative, like you’re not taking a lot of risk, actually what those people are doing is increasing the odds of success to fall in their favor, and they still might hit the jackpot, but they’re going to do much better in most situations than someone who is more highly levered taking more risk is going to fall on their face for.

Simon Erickson

Morgan I’m from Texas. So I’m a big Texas Hold’em fan. Do you ever play cards or Texas Hold’em?

Morgan Housel

No. Does that does that make me less?  Would I not be allowed in Texas because of this?

Simon Erickson

We will actually let you into the state even though you don’t play but I’m just thinking that you would be a very good card player knowing and explaining everything that you just did. I think that we might have to buy you in to get into the tournament. Go kick some butt out there.

Morgan Housel

I’ll do it. I like it.

Simon Erickson

Duly noted. Okay, so keep that in mind that, you know, if we put Morgan out there for Texas Hold’em, we’re gonna buy him in for 7investing, so we can go out there and take some money. Fourth theme is his long term optionality. I’m sorry, long tail optionality is what I’m calling this one, which is the idea that a very large percentage of outcomes can come from a very small number of inputs. And this is something that I really like that you dug into in the book, also, Morgan, you talked about kind of how history is governed and written by long tail events. There are big events that happen in the world, like World War Two, that had a huge impact impact on all of us, the lunar landing, the internet, all of those are long tail events that come from long tail projects, also, whether that’s Manhattan project, the Apollo program, DARPA net, and the internet, or anything like that, and these are staffed by long term thinking people who are also on those long tails as well. And this, these are careers, people that really embrace that they’re kind of out on the fringe and doing crazy things and extremes. And I guess I’d like you to talk a little bit about kind of how 1) this has changed over decades ago, to embrace the venture capital kind of mindset. And also, you know, technology is, are huge companies. Now the largest companies in the in the stock market are the Googles and the Amazons of the world. How do you think about them, putting out the moon shots and the crazy ideas that they come up with every year?

Morgan Housel

Here’s what’s really important about this. I think most people intuitively know the idea that like the majority of your gains will come from a small minority of what you do. If you if you invest in 30 companies, most your gains are going to come from a few of them. If you are a business person, you come up with 10 product ideas, you know, maybe one or two of them will work for you. I think that idea is easy to wrap your head around what is less intuitive, even though it should be be obvious when I say it is that the the counter to that, the inverse of that,  if 10% of what you do accounts for the majority of what of your returns, the inverse of that is that 90% of what you do is not going to work. And that is very hard for people to wrap their heads around. Because it is more intuitive to think that if you put your effort into something, if you do a lot of diligence on a company, if you work your butt off to create a new product for a company, start a new company, invent, you know, if your venture capitals backing another company, if you put your effort into it, it should work. There should be a correlation between I put my effort in this, I need a return on it. So understanding that your gains will come from a few things is one thing, understanding that, you know, 90% of what you do is going to suck, that’s hard to deal with. And it can be really discouraging for people. If you are a stock investor, you know, like, even if you look at a bland index fund, I’ll use the example in the book of the Russell 3000. Just like a basic diversified index fund. If you look at it over time, 40% of the components in the Russell 3000 individual components lose money, the vast majority of which go to zero, go bankrupt, 40%! Over I think it was a 30 year period. And virtually all of the returns from the index came from 7% of components that had huge, huge gains. People associate that was like venture capital, like venture capital, you make a bunch of investments, a lot of them fail, a couple of them do well. But it’s true.  Everywhere you look, it’s true in a large cap index fund. It just takes more time, but it’s the same thing. And within those companies, you know, so who are the few companies that do well? You know, one of them is Amazon. Within Amazon, Amazon is experimented with dozens of different products. But over the years, only two of them matter: Prime and AWS. They’ve experimented with the Fire phone and like all kinds of stuff, like none of that matters. All that matters is Prime and AWS, that’s what moved the needle. Or something like Google, they’ve tried all kinds of different things. What worked is paid search. That’s all that’s what works. For Microsoft, you know, for many years, it was it was Office and Windows like that’s, it’s just a couple of things, amid dozens or hundreds of thousands of attempts that work. And you can even say like, who is working at Google and Apple, it’s the top 1% of Stanford Business School or Harvard Business School. Like, even within the tail companies, they’re driven by tail products of tail workers working on like, it’s always the case that the big outcomes come from a very small minority of tries. It’s just hard to wrap your head around that. And I think that the takeaway is that investors and business people, and everyone, its just true for a lot of fields, need to get more comfortable with the idea of failure and learning how to fail well. And I think companies like Amazon do, like when the Fire phone for Amazon, when that failed, Jeff Bezos gave like a press conference of sorts. And rather than saying, “oh, I’m so sorry, it didn’t work, we’ll try better.” He gave him a conference. And he said, Look, if you think this is a failure, there are a lot bigger failures to come. This was nothing, you ain’t seen nothing yet. I think that attitude is why they’ve been so well, like the ability to fail well, and be okay with your failures is what sets you up to enjoy, and benefit from, the very few things that are actually going to hit the jackpot and compound over time.

Simon Erickson

And that makes a lot of sense for somebody that’s leading a large organization like a Larry Page or a Jeff Bezos like we just described. How about for investors? In my investing question for you on this one, Morgan, is how patient should investors be with underperforming stocks? As long as we’d like the management team, and they’re in place? If it’s not going anywhere, should we hold on to those? Or should we cut our losers and move elsewhere?

Morgan Housel

This is a really tough, if there was an easy answer to that we’d all be a lot richer, because you have to recognize that there’s a difference between patience and stubbornness. Patience is just giving your strategy the time that it needs to work and enduring with the downtimes that you know it’s not going to work all the time. So you got to be patient in times. Stubbornness is this idea that look, the world does change. And there are some things where there are paradigm shifts. Where we’re never going back to the old age. And if you stick with the old age, you’re just being stubborn, you’re not being patient, you’re being stubborn. How do we know which is which? I mean, I think the answer is hindsight. And I don’t mean that flippantly. I think, for a lot of things, that is the only way that we know. If there were an easier way to know that, you know, let me give you like the current example, which is value investing, which, by and large has not worked for 15 years, let’s say 12 years, something like that. It hasn’t worked? Are we in a new paradigm where value investing doesn’t work anymore? Ever? It’s never gonna work again? Probably not. But is it the case that maybe even if the concepts of value investing are still valid, maybe some of the strategies that used to work, buying stocks at less than two times book value, buying stocks for less than 10 times P/E ratio, making all this up, maybe those used to work and they don’t anymore, and they might not ever again. That’s been the case. Throughout history, there are strategies that used to work in the 1930s, in the 1950s and 1970s. That don’t work anymore. And if you are just clinging to the past and assuming that everything will be in revert, then I think you’re probably going to you’re probably closer to stubborn than you are patient. So I think, I I wish I had a clean answer that’d be able to tell you which is which, but that’s one of the art of investing that I think is gonna make a big difference in outcomes. And there’s not a lot that we, you know, if it were easy, then the outcomes wouldn’t be as prosperous potential that they do.

Simon Erickson

Yeah, absolutely. And not to mention that we have much more complete information about companies now than we did 20-30 years ago with the internet and giving just that to our fingertips now. Fifth topic and fifth theme for this one, Morgan, is what I’m calling necessity is the mother of invention. Where technology lives to serve the needs of humankind, and people are actually in society are kind of pushing companies to do more innovative things, because that’s where the demand is coming from. You brought up a great point in the book about the oil reserves, and how America’s oil reserves really got unlocked because of hydraulic fracturing to serve a higher price per barrel of oil.

Morgan Housel

Yes, I mean, if you go back to 2007/2008, a lot of people, including myself, by the way, believed in this, you know, commodity supercycle that oil was going to go to, you know, it got up to $140 a barrel, but it was on its way to $250. And then it was on its way to $500, that we had run out of oil in the world. And there was nothing we can do about it, like it was the sky was the limit for prices. Like I bought into that too. By the way, this is not a criticism of other people. And I think what I missed, that’s only obvious now in hindsight, is that the cure for higher prices is higher prices, because here’s what happened, as soon as oil was $140 a barrel, and all these other complicated drilling techniques like fracturing and and hydraulic drilling that were not viable at $20 a barrel. Suddenly, when oil is $150, a barrel, $140 a barrel, it was like, oh, now we can go spend a ton of money to drill this well and spend all this money on fracking technology, and invest all this money in figuring out how to get this money, this oil out of the ground. Because prices are so high, we can make so much money if when you drill this, that began like the high prices of 2008 that scared so many of us silly, and we thought was going to be the end of you know, of civilization, because we had run out of oil. Those high prices are what sparked the fracking boom, the fracking technology would incentivize the fracking technology that eventually brought oil prices down to earlier this year, negative $45 per barrel, whatever it was earlier this year. So the cure to higher prices being higher prices is something that’s not intuitive, particularly in the moment. Like maybe it’s obvious in hindsight, but in the moment, it’s never that, that intuitive. That is what happens. And look, maybe a current example of this is that 2020 is what will go down in modern history is one of the worst years that we faced. I don’t think that’s an exaggeration of what’s gone on this year is just horrific. And not only of more than a million people die, but the economic carnage is just horrendous. If there is one silver lining to this, though, is that the amount of scrambling innovation, panic induced innovation that is occurring right now, in laboratories and in businesses, which are discovering new ways to run their business, creating new efficiencies just to survive. That if we if we if we learn anything from history is that that will pay off in a huge way. This is true, during the Great Depression, where the necessity to innovate, the necessity to become more efficient, paid huge dividends over the coming decades. It was true for World War Two where the huge panicked necessity to innovate, to try to defeat the Axis Powers, created a lot of new technologies that pay dividends for decades that we’re still benefiting from today: nuclear energy, rockets, jets, etc, penicillin, all these things that came out of this panic of World War Two that paid benefits. I think we’re probably almost, we’re almost certainly in something similar to that today in 2020. Where, look, it’s horrendous, of course. But if there’s a silver lining to that, it’s that people are frantically trying to figure out problems, and they will learn things from that they’ll be discoveries that come from that that will be paying off dividends for the rest of our lives.

Simon Erickson

That is my question for you, Morgan on this one is where… Okay. So to backtrack a bit, we’ve gone through kind of the super cycles of manufacturing, of energy companies, of internet companies, where do you think that the need for innovation in the world is the greatest right now?

Morgan Housel

I think it’s good question. And it’s not, you know, sectors are not my expertise. But if I just had to think about what’s going on this year, you know, during World War Two in the Cold War, the big technologies that we came through, were kind of aerospace, everything from jets to, to rockets, to GPS, that kind of stuff like that was because that was where the battle was. And that’s where a lot of the biggest innovations took place. The battle today is with viruses. It’s in medicine, it’s in laboratories, it’s in therapeutics, it’s in vaccines. So it since that’s where the battle is, I suspect that’s where the breakthroughs will take place. I think that that seems pretty. That seems pretty clear to me, I don’t know where it’s going to be I I can’t give you names of pharmaceutical stocks to buy. That’s not what I do. But if you just assume that where the battle is, is where the innovation will take place, then I would be, I would be optimistic about what’s going to come out of the biotech space over the coming years and a lot of that, by the way, we won’t even recognize for another 10 or 20 years. I think there are things that are taking place right now, today, that are huge, important breakthroughs that you and I will not recognize for another 10 years. That’s another common theme in history, is that it takes a long time for innovations to be recognized. There, like almost nothing is recognized immediately and overnight. Things take years or decades to figure out. But I have a feeling, Simon that in 10 or 20 years, we will look back and be like, hey, this amazing thing that has made a huge difference in our lives and our kids lives, happened because of COVID-19. I think the odds of that happening are very, very high.

Simon Erickson

I agree with you on that one, Morgan. I think it’s the next decade is a decade of healthcare and the decade in medicine. Sixth topic that I’d like to talk about, let’s call it bubbles and recessions. Again, another great chapter in your book here is kind of the idea of how does euphoric and panic conditions influence the markets in these extreme situations. We saw one earlier this year with COVID, market completely sold off in March. And just to tee you up on this topic, you actually put a quote from Napoleon, at the very beginning of the book that you wrote, which says “genius is the man who can do the average thing when everyone around him is losing his mind.” What do you think about euphoria and panic in the markets?

Morgan Housel

I think for individual investors, and not just investors, but anyone dealing with money, you need to realize the difference between getting rich and staying rich. Getting rich requires optimism, you got to swing for the fences, you got to believe that people can solve problems, you got to look ahead, you got to put yourself out there take a risk. That’s what you need to get rich. Staying rich is just as important. And it’s a completely different skill set. A completely different skill set. Staying rich requires the opposite, requires pessimism, paranoia, conservatives not wanting to take a lot of risks, being paranoid of debt, realizing that the world is going to be a constant chain of recessions and bear markets and pandemics and breakages and things going wrong, poor political climates, etc. and realizing that even if the short run is going to be filled with problems, it does not preclude long term growth. I think if you summarize, like any period of history, in any country, you can summarize it by saying the short term was a constant mess, never ending chain of bad news. But if you zoom out, it all took place amid this backdrop of progress and growth. That’s the that’s the basic story of most of civilization is how it takes place: a lot of chaos and problems and decline and collapse amid a larger picture of growth. And I think in a shorter timeframe, if we’re looking at just not over 100 years, but during our lifetime, it will be the same. Like I’m highly confident, highly, highly confident by the by the time you and I are 80, we will look back on our lives and to see tremendous progress, huge progress that took place, that made our lives better, and improve the quality of our life and our health care that will, on average, and society, be way richer than we were when you and I were growing up. Very confident that. But I’m equally confident that every single year, every month, every week for the rest of our lives, there’s going to be something horrendous going on in the news, something that is so easy to look at, that will impact us personally, that’s going to have an impact on our assets, our net worth, that is something we could look at and say there’s a reason to be pessimistic. It’s always going to be the case, even if there’s going to be a lot of progress over the long term. I think it’s hard to wrap your head around that it’s not again, it’s one of these things that’s just not intuitive to think that on your way to doing so well, you’re constantly going to be falling on your face and dealing with bad news. But that’s kind of the course of history that we say,

Simon Erickson

Well, that was something that I should talk about too, Morgan, it’s kind of it, it makes it easier to sound smart when you’re being pessimistic and you say, oh, there’s gonna be a market sell off, or there’s bad news on the horizon, versus saying, hey, long term, there’s a lot of optimism out there. I want to take this in a little bit, maybe different direction to talk about volatility, because so much of that pessimism, and so much of those headlines are influencing stock prices. And we see stocks go up and down. They’re pretty volatile. These days, you seen a lot of days, the market as a whole is up or down 5% in a single day. And this is kind of something that you describe as the admission price of getting into the stock market. You have to pay the price of volatility, knowing that your stock prices might go up and down in the short term if you want to get the long term gains out of the stock market. But a lot of times people are kind of averse to this right? They don’t want to pay the price. They don’t want to have the pain of losing money. They only want the upside from it. How do you think about the balance between kind of we’re we don’t want to take the bad feelings that come from that admission fee or I’m sorry, mission fine, if you will, but we also need to pay it if we want to get those long term benefits in the stock market.

Morgan Housel

I think you just have to recognize that the stock market can provide you huge benefits and rewards and like anything else in life that doesn’t come for free like no one’s just giving that to you because they’re nice and they want to give you you know, a huge reward and huge net worth. You have to give something up for that. But but the Find the the the cost of admissions and investing like the cost of Nice car is obvious, there’s a price tag on it and you pay the price and you’re done. It’s really clear. But the price of admission, the cost of investing is not clear. There’s no price tag that you pay, there’s no, you know, we’re not talking about quarterly management fees. The price you have to pay is putting up with uncertainty and volatility and putting up with the client. Now, what’s important about this is that you kind of you you hinted at this, a lot of people, it’s more natural, it’s more intuitive to view volatility as a fee. And the difference between a fee and a fine is you’re not supposed to be if you pay a fee. You know, if you pay a fine, you did something wrong, you were speeding, you got a ticket, you’re in trouble, you got to pay your fine, because you did something wrong, don’t you ever do it again, that’s what a fine is. A fee is like you want to go to Disneyland, it costs 80 bucks to get in or whatever it costs. And then you’re fine paying that you’re fine paying 80 bucks, because you know, there’s something great on the other side that you are willing to pay for. I think if you just have a subtle change in your mindset as an investor, that volatility, even a lot of volatility, your portfolio goes down 30%, if you view that as not a fine, you didn’t necessarily do anything wrong, don’t get mad at yourself. There’s not a lot of lessons to learn here, you know, don’t beat yourself up. That’s the cost of admission that you have to be willing to pay in order to do well over time. I think if you can have that subtle shift in mindset, then dealing with volatility and look, dealing with volatility we had in March where my portfolio and a lot of people’s fell 35%. It’s not fun. It’s not that I enjoy it. But I think if you can just have a shift in mindset and says, look, this isn’t fun. But this is the cost of admission. The bills coming.  I have to pay the bill, I have to pay my utility bills for my long term returns, and I know it’s gonna pay off over time. I know this fee is worth it. So I’m willing to pay it to do well over the long term. I think if you can shift it just a little bit, it goes a long way to being able to endure market volatility in cycles that we’re all gonna have to.

Simon Erickson

Yeah, fair enough, Morgan. Now I read a lot of headlines out there that that fee to get into the mission of the market is getting kind of expensive. Right now everyone’s calling tech stocks overvalued, the market as a whole overvalued. Do you think that there’s any anything behind that? Or is that just a headline grabber to try to get people scared like we were talking about before?

Morgan Housel

No, I think there easily could be truth to that. But here’s the thing, if you and I were talking in 2013, 2012, 2010, if you and I were talking 10 years ag/o, we could have said the exact same thing. 2010, we could have come on here and said P/E ratios are looking really high. We came back two years later, 2012, we would have said, “ah, it’s getting crazy. Things are getting really expensive”. Like the difference between seeing something that looks unsustainable, or identifying something that is unsustainable, and knowing when it’s going to turn are very different. So you can look at tech valuations today and say, look, are they expensive? Yes. Like, yes, they’re expensive. But what do you do with that information? Does that mean you should sell? Like, I don’t think so? I don’t think so, I don’t mean, you should sort of short them like probably not. Those are two very different things, which getting just gets back to being able to put up with the volatility. You know, if you are bullish on tech stocks, in terms of their business, in terms of ability to innovate and create new products, then you should just be willing to own those companies for a long period of time and put up with the volatility. And if they are over, you know, if they are overvalued today, is there a chance that Netflix will fall more than 30%. at some point in the next 10 years? I think the odds of that are close to 100%, close to 100%. At some point in the next 10 years, Netflix just using as an example, will fall more than 30%. If you just use that as your baseline scenario, your baseline assumption, but you’re still very bullish on Netflix the business, their ability to grow, grow profits, whatnot, then you should just put up with that and view that as the fee, the fee that you have to pay to deal with it. So even if you’ve identified that stocks are expensive, it’s not it’s not even clear that you should do anything about that most of the time, for most investors, I should say.

Simon Erickson

That’s great Morgan. Now, final thing I have for you. The seventh theme is what I call influence, which is that our decisions are shaped by the events in our life and how they impact us and how they’re relevant to us whether or not they’re mathematically the greatest returns or anything else. It’s more of the investing is personal story. And kind of the impact of macro events that are taking place out there. It’s 9/11, whether it’s a housing boom, whether it’s the housing bust, whether it’s a COVID crisis, whatever it might be, it still is the influence of all those on our on our personal experience, that influences our investing. You brought up the stock market returns are very different if you were born in the year 1970, much higher than if you were born in the year 1950. Or inflation, if you were born in 1960, would be three times higher than if you were born in 1990. How do our personal experiences have an impact on the decisions that we make as investors?

Morgan Housel

I think we all have like a view of how the world works in our head. Like I have a model in my head of this is how the world works according to Morgan. You have it according to Simon, we all have this. And those models are not based off of reading about history, reading about how the world works, by and large is based off of just what we’ve happened to experience. And of course, what I’ve experienced is different than you’ve experienced Simon, and what you and I have experienced as white males in America is very different from what the majority of the world has experienced. And therefore we are going to see the world through a different lens. Not because one of us is smarter than one another just because  we’ve had very different experiences. And what we’ve experienced firsthand is way more influential on our mind than what we can read about secondhand. Like, I can try to be open minded and read about what it’s like to be a soldier on D-Day. But I don’t have the emotional scar tissue of someone who actually did it. And somewhat like as much as I read about it, and try to be open minded, it’s not going to impact me in the slightest in terms of someone who actually did it. So we all become kind of slaves to our own past, prisoners to our own past, that we have not a lot of influence over. And I think this is always going to be the case, no matter how open minded you try to be, you’re always going to anchor to your own individual unique history that you did not have a lot of control over in terms of the generation you’re born into the values that were instilled in you, by your parents. These big important things that people don’t have control over those that you don’t control, when you were born, where you were born, it has such an impact on you. So I just think it’s important to realize that there’s a lot that can happen in the world, that will not make sense to you, because it does not fit the model that you have in your head. Because the model that you have in your head is based off of a tiny, tiny, infinitesimal sliver that you have seen in the world, versus what’s what’s the potential to come out there are a lot of these things to take away is just a greater sense of humility, that your life is probably going to play out in very different ways than you think. Not because you’re not smart enough to figure it out, just because the world is much bigger than the lens that you and I and all of us look through.

Simon Erickson

That’s a great point, and in addition to life events influencing us, also our understanding of finance as a whole influences our investing too. Something as you brought up in the book too Morgan was at consumer debt, you know, mortgages and credit cards didn’t really catch on until after World War Two. Index funds are less than 50 years old hedge funds are less than 25 years old. The 401k didn’t come into play until 1978 and a Roth IRA until 1998. So if you’re from a different generation, you might be thinking about investing as a whole completely differently as well.

Morgan Housel

Yeah, and there’s like, because those things are so young, you know, the Roth IRAs, 22 years old, there has not been like a generational knowledge transfer, where your great grandparents taught your grandparents or grandparents taught your parents, your parents teach you, it just hasn’t taken place, because a lot of the things that we’re dealing with, like saving for your own retirement is one generation old. So we just haven’t really figured it out yet. I don’t think you can blame people for not saving enough for retirement, by and large, because it’s such a new thing that we’re dealing with. And, you know, I would suspect that if you were to look ahead 100 years, you could see 100 years from now, people would will probably be better at investing just because we’ll have generational knowledge transfer that we have not of last hundred years. So I think that’s that’s always the case. And maybe that’s just like a plea for having a little bit more empathy for people that do so poorly financially. Just because this is all a new game for like, we’re all trying to figure out how this works. We’re all new to this.

Simon Erickson

Well, we’re gonna check back in when we’re 80 Morgan, and so on that my last question for you is that knowledge transfer, you know, we come back 40 years in the future and talk again, what would be one thing that you would say today to individual investors, just one piece of advice to help them get better returns in the stock market.

Morgan Housel

I think the holy grail of finance 90% of finance is live below your means and be patient. That’s it sounds basic, it sounds trivial. But the fact that it’s basic and trivial means that people discount it, they ignore it more than they should because it’s not exciting to talk about. live below your means and be patient and the odds of success fall into your favor. If you can do those things, you’ll probably be just fine.

Simon Erickson

Well, thanks very much again, Morgan Housel, one of the finest minds in finance. Here’s his book, The Psychology of Money. I highly recommend it. I’ve read it once. I’m going to read it again. Morgan, there’s a just a goldmine of wealth of information in your book. Excellent job on that. Thanks for joining 7investing here this afternoon.

Morgan Housel

Thanks so much, Simon. This has been fun.

Simon Erickson

And thanks for tuning in to this episode of our 7investing podcast. We are here to empower you to invest in your future. Thanks very much and until next time.

Simon Erickson  

Okay, so now we’re going to move along to some questions from our audience they asked us at 7investing to pass along to Morgan, in a lightning round really quickly here at the end.

Simon Erickson  

Morgan, the first question comes from Ram. He has two questions for you actually. The first question he wants to ask is, “What dimensions have you improved the most in during the last decade, in your research process?”

Morgan Housel  

I looked at the research process, but I’ve probably just become more patient and more cognizant of the role of time and patience in investing success. I think that’s been probably the biggest breakthrough that I’ve had during the last 10 years as an investor.

Simon Erickson  

Okay, the second question is, “What are one or two books that you would recommend to get better at writing and investing?” We’ve already got one of them right here. But if you can give us a couple other ideas?

Morgan Housel  

There’s a book by Steven Sressfield called “No One Wants to Read Your Shit.” It’s the best book on writing I think I’ve ever read. And the title explains it. You want to become a better investor? No one wants to read your shit. Cut out the parts that are not very good that people are going to tend to skip. Get to your point and get out of people’s way. I think that’s the best you can do.

Simon Erickson  

Short and sweet. Twitter’s probably helped us a lot on that one. Third question is from Irnest Kaplan. He says, “What’s your favorite time management tip, Morgan?”

Morgan Housel  

I try to keep my day as unstructured as possible and let myself ramble and wander intellectually and physically, going for walks. So I’m the last person you want to ask for time management. Because I like to waste as much time as possible in the pursuit of creative ideas.

Simon Erickson  

Fourth question for you is from Scott Bates, @ScottOntario. He says he thinks that Morgan, you once mentioned that you had gotten a black belt in karate, when you were younger. Do you still practice martial arts?

Morgan Housel  

No, no. I got I got my second degree black belt when I was 17. That sounds right. And then quit shortly thereafter. And I’m now 36. So I’m a good two decades outside of this. I’ve never been in a fight. But maybe I can hold my own if it will happen. I’ve lived with a 20 year gap…maybe I could, maybe I couldn’t. Who knows?

Simon Erickson  

Does that have any impact on your investing?

Morgan Housel

Karate? I don’t think so. I was still young. I started when I was six and I quit when I was 17. So I was so young. But I think a lot of the life lessons from karate are discipline, self awareness, like physical self awareness. I think there are a lot of lasting life lessons that come from it.

Simon Erickson  

That’s fantastic. Fifth question is from Neeraj Kapoor. He’s asking why is financial literacy not taught in every school and college curriculum as mandatory teaching? Is there anything we can do about this?

Morgan Housel  

Why isn’t it? I think maybe one of the reasons is this: If you are looking at a classroom where there’s probably a big divergence in people’s financial well being within the classroom. Within a classroom, you’re going to have some kids from rich parents and kids from poor parents, even within different school districts. You’re going to have a variety, and it gets a little bit harder to teach good financial skills versus teaching chemistry or teaching algebra where it’s the same for everyone. That’s not an excuse. But I think that’s something that makes teaching finance a little bit more complicated than we would assume. But should it change? Yes, it absolutely should change. And I hope it changes.

Simon Erickson  

Yep. Good one. Sixth question is from Thien Phuc. He asks, “Morgan, has anyone ever told you that you are beginning to look like High Sparrow from the Game of Thrones?”

Morgan Housel  

No, never. No, he’s the first. But I don’t know, is that a compliment or an insult? I don’t even know. Which means it’s probably an insult.

Simon Erickson  

I think it’s a compliment, right?

Morgan Housel  

Is it?

Simon Erickson  

He was a leader in the show. He’s a really smart guy. I mean, I think it’s a good comparison.

Morgan Housel  

Okay, I’ll take it. I’ll take that if it’s a compliment. I’m cool with it. Let’s just run with it.

Simon Erickson  

We’re gonna assume that was a compliment. We’re gonna pass that along to you Morgan. The last question of the lightning round of questions here is actually one coming from me. Morgan, we used to be neighbors up in Alexandria, Virginia. You would be out – I believe it was your your son that was born first, if I remember. You would be out with your wife walking him and I would be out with my dogs at the same time. So I would like to ask you, “What is a piece of advice that you would give to your kids?”

Morgan Housel  

I think I brought this up earlier that you’ve got to realize…you have to realize in life where you are lucky. The parts that you are lucky in, and realize that if you are successful because of that luck that you should be careful judging yourself and other people. Realize that not all success is due to hard work. And not all poverty is due to laziness. And keep that in mind when you’re judging yourself and other people. Is, I think, a really important piece of advice.

Simon Erickson

That’s great. Thanks very much for answering our audience’s questions at 7investing, Morgan.

Morgan Housel

This has been fun. Thank you.