The Exchanges

Q All right, Morgan, a couple of questions to ask you. What is the best money you've ever spent?

A Oh, I don't think I've ever told this story. My wife and I met when we were young, and she was 19, I was 21, met in college. We started dating in May, which was important because we started dating, and she was like, hey, I'm moving to England this summer. We've been dating for two weeks. I get back in September. Let's just see how it goes then. I was so in love with her already that I didn't like that answer, and I was like, I'll see you in London in two weeks. I didn't have a lot of money back then, but I was like, I'm getting on a plane, and London is where we actually started dating. I almost guarantee if I didn't do that, if I said, I'll see you in September, we would have gone our separate ways. And that was more than 20 years ago. We're still going strong.

AI assessment note: “I'm getting on a plane, and London is where we actually started dating.”

Q What are some of your favorite stories and lessons from the book?

A This is one that has nothing to do with money, but when I heard it, I'm like, that's one of the best stories I've ever heard. Kevin Costner, great actor. This was back in the late 19 eighties, probably. He had a friend who was homeless at the time. And because he was homeless, Kevin Costner, who was still kind of a budding actor at the time, he and his wife invited them into his house. You're homeless. You can sleep in the basement. Come on in. And his friend is a writer. So when he was living with Kevin Costner, he was constantly writing manuscripts all day long. And he would tell Kevin, please read this. Please read this. This is the best thing I've ever written. Kevin's, no, I don't want to read your manuscript. Go away. Here's a smelly guy in my basement. Finally, he lived there so long that his wife said, he's got to go. He's got to get out. And the guy left and continued to be homeless. He was back on the streets. As he's out on the streets, he's calling Kevin, please read my manuscript. It's so good. You're going to love it. Out of desperation, Kevin was like, fine, I'll read the damn thing. Send it. He sends it over and the manuscript is titled Dances with Wolves and completely changed Kevin Costner's life. Of course, one of the greatest novels that turned into the movie. And so Kevin Coffner used it as this example. You never know where talent's going to come from. You…

AI assessment note: “One of the takeaways that I had from that is the luckier you are”

Q miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now, back to the show. So you set in your mind of expectations of the market to drop a 50%, and for other people, that would seem like a wildly bad drawdown. What is your view of expectations of what will happen in the world over a decade?

A My expectation is that on average, the world will break once per decade. Break in the sense of you wake up one morning and you realize that a lot of what you thought was true is no longer true. But the other common denominator there is That breakage is always a black swan. It's things that virtually nobody saw coming before it happened. So let's look historically. COVID, Lehman Brothers, Nine-Eleven, collapse of the Soviet Union, Pearl Harbor, Great Depression. Keep on going down the list. Once per decade, there is an oh shit moment. And the common denominator there is it was not in any analyst forecast, no macroeconomic outlook until the moment that it arrived. I think it'll be like that going forward. It's not exactly every 10 years, but on average, that's what it might be. And look, in the last 20 years, there's been three of those events. Nine 11, Lehman Brothers, and COVID. And those are massive events that fundamentally changed how things work. And those three events were more momentous than virtually all of the other news stories put together combined during those periods. I think it'll be like that going forward. And you can state pretty confidently that the biggest economic news story of the next year and the next decade are things that nobody is talking about today. And you can state that confidently because it's always been like that. I don't think there's ever been …

AI assessment note: “My expectation is that on average, the world will break once per decade.”

Q So I know it's not your natural instinct. I'm going to have to pull it out of you, but who are some of those people that you've met that you would not have met before?

A So two that stuck out, I had emailed a little bit with Howard Marks before the book came out. He had been a reader on my blog. I've looked up to him for so many years, as everyone has, and having gotten to know him a little bit better and had dinner with him in person, he is one of the nicest, humblest, down to earth people you'll ever meet. Despite his success. If you did not know who he was, or how successful he's been, and you met him, he comes across as a pretty normal guy. And that's very rare for someone in his situation. But he might come across as normal, but you start to talk to him, and the amount of wisdom he has, and his ability to articulate it, is almost unparalleled. He's just an incredible individual. And other people who I can't name, but I've done some consulting for extremely high net worth households, and Many of them, what they want me to do is go talk to their kids, talk to their grandkids to try to instill some money values in them for people who have very unique resources. And I met a couple of families, one in particular, the family's net worth was eight billion dollars liquid. If you search their name, nothing comes up. You cannot find any information about this family. They have gone out of their way with God knows what kind of legal resources to scrub their presence from the internet. They've done this very intentionally because they want people in s…

AI assessment note: “two that stuck out, I had emailed a little bit with Howard Marks”

Q All right. But what happened from when we did that podcast?

A When we had done that podcast, the first print run of psychology of money was 5000 copies because we earnestly thought that's what it would sell. And if you understand the book industry, selling 5000 copies of a investing book is really good. If you could do that, you did a great job to get 5000 people to pull out their wallets for content they're used to getting for free. It's not easy. And we're now at about four and a half million, three and a half years later. So to say that it exceeded expectations, Look, we printed 5000 cause that's what we thought it would sell ever. And now it sells about 5000 copies per day. Look, one of the chapters in the book is about tails, tail event distributions. And one of the things about tails is that you really can't see them coming. If you're a VC and you make a hundred investments, you know that most of your returns are going to come from three, but you don't know which ones those are going to be. It's very hard to see it coming. I think it's like that for the book too. When I said that to you, oh, you're going to jinx me. It's not going to sell. That's really how I felt at the time. I really didn't see this coming. But it's been fun to experience.

AI assessment note: “we're now at about four and a half million, three and a half years later.”

Q How did you find your way into writing?

A So this was a summer of 2007. After investment banking, I got a job at a private equity firm. I was still in college. It was an internship. And this was a summer of 2007. And everything started breaking. The economy started breaking. The financial market started breaking. And if you work at a private equity firm that needs to borrow a lot of money to do your deals and credit markets just froze literally overnight. No exaggeration. It was Wednesday. They were fine. Thursday, everything stopped. I really liked private equity. I thought it was great. My plan was to stick around there full time, but they came to me in late 2007 and said, there's not going to be room for a full time junior analyst. The firm was not doing okay. And then, so I needed something else to do. I was just about to graduate. I graduated in 2008. Not a good time to graduate in college if you're looking for a finance job. So I needed something to do and I didn't know what it was. And I was at kind of a point of desperation because investment banking, my dream didn't work. Private equity, my backup didn't work. I'm like, yeah, what do I do now? And I had a friend who was a writer for the Motley Fool at the time. Motley Fool, I think I was familiar with it, but never really spent any time in it. And he said, Hey Morgan, You need a job. You are interested in finance. Come write about investing for The Motley Fool…

AI assessment note: “Come write about investing for The Motley Fool.”

Q How about your biggest pet peeve in the investment world?

A There's something in psychology called the false uniqueness effect, which is assuming that just because you are good at something, other people are not. And this is really true in investing where you'll have a lot of people say, I'm really good at modeling. I'm really good at data analysis. I'm really, and you might be, you might be really good at those things, but what really matters is not that you are good at those. It's that other people are not because you can be good at modeling, but if a 100,000 other people are just as good at modeling, it doesn't make any difference in the world. And I think this explains a lot of why beating the market is difficult. It's not because people aren't good. It's because a lot of people are good. And so to be really a standout in investing, you have to find something that you're not just good at, but that other people are bad at, which is a very different thing than just figuring out your own skill. The other just like technical quirk, but that feel like this is a big deal. That's a pet peeve of mine are journalists who cite historical market returns without adjusting for dividends. Because over time, the dividends make up the vast majority of the returns, and it's not that difficult to adjust for them. And when they don't doing it, they're doing such a disservice, particularly like one stat that is all over the place is that after the cras…

AI assessment note: “That's a pet peeve of mine are journalists who cite historical market returns without adjusting”

Q How did you coalesce on to call it a theme or maybe it was a beat for the fool in the content of your writing?

A So essentially when I started at The Motley Fool, they said, you need to pick a sector to cover. Every writer had to be a sector specialist. And I said, I don't really have a sector that I'm interested in. Like, what do you want me to do? And they said, great. Well, no one is covering banking for us right now. You can be our banking writer. And I said, cool. Like, great. I'll cover banks. And again, this was 2007. So by 2008, my first full year of writing, all the banks imploded. I got this sense of anxiety because You know, I was covering, let's say, 10 banks throughout 2008. And by late 2008, only like four of them existed anymore. They were the rest were gone or merged. That just gave me a window into the financial crisis. Of course, that was a story of the banks. So then I just got really interested and covering full time the great financial crisis that ensued after the panic of 2008. And over time, I realized that the explanations for what was going on From 2008 to 20 12, you know, let's call that the financial crisis. You could not find in a finance textbook and you could not find in the economics textbook. The decisions that people had made and were continued to make just, you could not explain through the normal field of finance. It wasn't in those books, but you could find it. You could find the explanations for what was going on in a psychology textbook and in a histo…

AI assessment note: “they said, you need to pick a sector to cover.”

Q Why don't we just start with how you got from your last book, Same as Ever, to writing The Art of Spending Money?

A I've always been a believer that you cannot force creativity. You cannot sit down at your desk and schedule and be like, I'm going to come up with the next great idea. It always hits you In the shower, when you're going for a walk, when you're walking your dog, and you're like, oh, I got this idea, and I so remember the moment. This was probably twenty-twenty-one, and I was on the treadmill at eight p.m., and it just hit me out of the blue, The Art of Spending Money. Very similar with The Psychology of Money. One day, I remember just walking down the street in New York, and I was like, The Psychology of Money. Oh, that'd be a good. So it always starts with just the title. The reason that I really liked The Art of Spending Money is because I realized, I think everything I write starts with introspection about my own life. I'm trying to figure out my own problems, my own flaws. Five years ago, I realized that I could talk to you for hours and hours and hours about my investing philosophy and why I do it. But then I, one day I asked myself, I was like, what is my spending philosophy? Which is something that you and I have talked about in my personal life for years. Why do we do the things we do? And I couldn't tell you. I couldn't tell myself. I never really thought about it that much. And then it also struck me as I started thinking about this, that there are tens of thousands of…

AI assessment note: “I was on the treadmill at eight p.m., and it just hit me”

Q The combination of that incentives and tribal behavior, I think a lot of people gravitate to Doing what other people are doing, right? You think consensus behavior. Then you have these outliers. You take like an Elon Musk or someone who, for whatever reason, is wired in such a way that they're just going against the crowd. And we'd love to hear your thoughts on someone like that.

A I think it was our friend Patrick O'Shaughnessy who brought up this idea that a lot of people like that, the very successful type of entrepreneurs, Patrick said the phrase that he would use to describe their personality is not driven by It's not ambitious. It's tortured. They wake up every morning tortured that they are not more successful, bigger, richer than they are. And I think that's true for virtually all these people, Musk, Bezos, Gates, all these people, I think woke up tortured every single morning. And that's what's driving them. I'm so glad that those people exist in the world because they give us so many incredible products and innovations. It's equally important though, for me, and I think most people to look at that and say, I'm glad you exist. And I would not want to be you. Musk had this interview just a month ago where he was like, people might think they want to be me, but they don't. I think the phrase he used was, my mind is a tornado, not in a good way. I think he's tortured. And I think one thing that comes from this is almost without exception, people who are very good at one thing tend to be very bad at another thing. It's like your mind only has enough bandwidth for a certain amount of thought and action. And if you are a kind of person who's crazy successful, At this business or this investing strategy, that has probably taken up so much of your mental…

AI assessment note: “Patrick said the phrase that he would use to describe their personality is not driven”

Q How do you think about applying that in a market context?

A I think you can think about someone like Buffett, and I think an underappreciated contributor to his success is that for his entire life, he's been such an effective communicator. I don't know if I'd say storyteller, but a very effective communicator. In the hedge fund partnership days, that gave him, I think, a more stable base of capital than other hedge fund managers who would have. For a lot of hedge fund managers, send me the monthly statements. They judge you on your performance. Now, Buffett had incredible performance, but what he's always had as well Is trust from his investors. And the reason they give him trust, by and large, is because he's communicated so damn well with people. And that has carried on through today. His ability to tell a story about what he's doing, why he's doing it. I think you can even say, look, Berkshire's performance over the last 25 years relative to the S&P has been okay. And by and large, I think Berkshire investors don't care. They've gained so much respect and admiration for Buffett. And that respect and admiration only in part comes from his Analytical success. And a lot comes from just his ability to explain what he's doing, why he's doing it. The folksiness. Munger falls in that category as well. He was the most quotable investor who's ever lived. And because of that, it's not his success. It's just his ability to tell a good story abo…

AI assessment note: “I think you can think about someone like Buffett, and I think an underappreciated contributor”

Q As you've been talking to people about this book, people have found you and your writing and wisdom over the last couple of years. What are some of the most interesting and important lessons you've learned along the way?

A One thing that's interesting from both books is that people's favorite chapter is so different. Usually in any book, if the book is 20 chapters, there'll be one chapter where you're like, I got 80% of the benefit from this chapter. And even within that, I think you could say within this chapter, these three sentences were the light bulb moment for me. It's interesting to me that people have come up with very different chapters from psychology and money. Some people will say the chapter on compounding, that chapter changed my life. And as someone else will say, I thought your chapter on compounding was completely wrong, and you got X, Y, and Z wrong, and the book would have been so much better if you left that out. There's so many examples of that. There are books that I will say, that book changed my life. And then I go back and read it, and I'm like, honestly, it's not that good. But what it was for me is that at that moment in time when I read it, it was a missing puzzle piece for me. And I think that's true for why you get such a wide variety of people saying that was my favorite chapter. I think for whoever it is, That chapter, that paragraph was a missing puzzle piece, but for someone else who already has that piece in their quiver, it's just rambling nonsense or it's trite, whatever it might be. You see that with blogs as well. It's really hard to understand what people a…

AI assessment note: “One thing that's interesting from both books is that people's favorite chapter is so different.”

Q All right, Morgan, I got a couple of closing questions I didn't ask you a couple of years ago. What is one fact that most people don't know about you?

A I've tried to be a pretty open book, but maybe one is that I think I have intentionally For financial matters, try to come off as a little bit Zen. Ted, you know this because you're a good friend of mine. I tend to have a more anxious personality and I'm a worst case scenario thinker. Sometimes to some extent, not fully, but to some extent, what I write is who I want to become, but it's sometimes not who I am. It's who I wish I was. I'm not ashamed of that. I think that's a fine thing. I think everyone is broken in their own unique way. And it gets really dangerous when you look up to someone and you're like, oh, that person has it all figured out. Nobody has it all figured out. We're all just making it up as we go.

AI assessment note: “I tend to have a more anxious personality and I'm a worst case scenario thinker.”

Q the market efficiency theories and say, oh, well, if a rational investor would behave this way. And we know now that people aren't rational. So are there ways that you could think of that you could turn that on its head and say, okay, understanding how we behave and we're not going to be fully rational. How can we use the way we behave to be better longer term investors?

A I make this argument in the book that people should not aim to be rational with their money. And that sounds counterintuitive, but there's too much emphasis on making rational decisions. Rational being the numbers all add up in the spreadsheet and you can explain it elegantly with math. And I just think that's not how real financial decisions work. People don't make financial decisions in a spreadsheet. They make them at the dinner table with their spouse, with their family, where all these emotions and nuance comes into play that moves the needle in a way that you can't really summarize neatly in Excel. So rather than trying to be rational, I think people should just try to be reasonable with their money. Just try to do things that try to make sense within the context of your own goals, your own personality, your own risk tolerances, your own flaws, and what you're good at. That is just reasonable. So here's one example that I'll use in finance. There's a well-known home bias among investing. Investors from the United States own U.S. stocks. Investors in Japan own Japanese stocks. It's not rational. People, we should be more diversified globally. But it's actually, the home bias is actually a very reasonable thing. Even if it's not rational, it's reasonable because people are more familiar with the companies from their home country. They understand them better. They're more fa…

AI assessment note: “rather than trying to be rational, I think people should just try to be reasonable”

Q people maybe listening, fall in between not having enough money for their basics and, oh, there's so much money on the side that you can just clip a coupon from US Treasury and have everything you want. For that group of people in the middle, how do you think about the trade-off of achieving contentment or autonomy or freedom with incremental income that might get you that in the future?

A So much of this is be careful who you socialize with, because they will absolutely indisputably set your expectations. I grew up in the woods outside of Lake Tahoe, and this was before San Francisco tech money invaded. So when I grew up in Tahoe, it was a poor little mountain town. By my childhood expectations, normal people drove old pickup trucks and rich people drove new pickup trucks. That was the stratification of wealth. If you had a new F one 50, you're like, that guy's rich. And then I went to college in Los Angeles. In Los Angeles is the opposite. The definition of wealth is sky's the limit. There are people in LA who are like, oh, my Bentley's two years old, so I'm poor. That felt like the mentality in LA. And I think honestly, if I think about it, people were way more content in Tahoe because they were socializing with people where the stratification of wealth was so much narrower that if you were a middle manager in Tahoe, you're like, great, you're doing awesome. And you're raising your kids. Everything's great. Whereas in LA, it was like, oh, you're not a billionaire. Why? What happened to you? So I always say, like, be careful who you socialize with. Be careful where you live, because that is absolutely going to set your expectations. One example of this, the minimum wage in professional baseball, by any definition on the national stage and definitely the world s…

AI assessment note: “So much of this is be careful who you socialize with, because they will absolutely indisputably set your expectations.”

Q reconciliation, trading, compliance, and more. In the AI era, asset and wealth management firms moving to Ridgeline gain a decided advantage. That's why customers call it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now, back to the show. What did you come to think is true about Envy as it relates to people spending money?

A The author, James Clear, he's the most successful nonfiction writer of the generation, or maybe several generations. The book has sold over twenty-five million copies. Unbelievable. Dramatically more successful than I am as a nonfiction writer, and we're about the same age, somewhat similar topics. I do not have one single molecule of envy in my body for James, because he is so likable. He is the nicest guy you'll ever come across. You will never meet someone as successful and humble as he is, You will never meet someone who wants to help other people more than he. He's just an awesome guy. So it's impossible for me to envy him. He inspires me. I want to do more like he does, but I don't envy him. And I think it hit me that if occasionally, this is a character flaw of mine, if there are other authors who I envy, it's because I don't like them personally. They have a quirk of their personality that rubs me the wrong way. There's a difference between being inspired by someone's success and being envied about what they have. And usually if you are struck With a bout of envy, as all of us will be from time to time, it's usually because you say that person has something that I don't, and they didn't deserve it. That's usually where it comes from. And I bring that up because it's so common now in the age of social media. If you see someone with a nicer house, nicer car, nicer plane, …

AI assessment note: “if you think they didn't deserve it, it's very common to fall into the trap of envy”

Q When does that translate from an emotion to spending?

A It's all over the place. Some people are obviously much better at this than others. This is not a black and white thing. But how much of the modern consumption economy is based off of some form on the spectrum of envy? Tremendous. Huge. Particularly for young people, particularly for young men, I would say. Who are desperately trying to put themselves on the social pecking order. If they're early in their career, trying to figure out where they sit in the order, trying to fork it to show people and to broadcast their talents, tremendously common in that aspect. So some people are much more influenced by it than others. There's two ways to use money. One is as a tool to give yourself a better life. The other is as a yardstick of status to insert yourself on the social pecking order. I think it's extremely common. That's always been the case. That was true a hundred years ago. It has gone supernova in the last 15 years with social media, because no matter how well you're doing, no matter how much you make, no matter where you live or how successful you feel, there is somebody on Instagram who looks prettier, happier, smarter, more successful than you are. No matter what you're doing, the comparison group that everyone compares themselves to has grown from what used to be probably 10 or 15 people in your personal life To seven billion people on social media. And I think it's impac…

AI assessment note: “how much of the modern consumption economy is based off of some form on the spectrum of envy?”

Q I'm going to ask you a couple of closing questions relating to spending. Before that, though, what's your over-under on the number of sales this book's going to jump?

A I've been a very poor judge of that, as you know. I don't try to think about it that much. Back to it's a seed stage startup. If you were a founder of a seed stage company that incorporated yesterday, and you said, how much is your company going to be worth in 10 years? You're a fool to answer that question, because the answer is probably zero. But if it hits, it could easily be a hundred billion. And so, somewhere between one and ten million copies. I think this is an important topic. People don't like the word luck because it makes it feel like you're bitter of their success. So rather than luck, the phrase you should use is what is repeatable? And the truth is if you sell ten million copies of a book, it's probably not repeatable unless you're like J.K. Rowling. It's just not repeatable.

AI assessment note: “somewhere between one and ten million copies.”