Wisdom from Morgan Housel

Morgan Housel is the author of The Psychology of Money and the new book, Same as Ever. He joined me to discuss timeless lessons from human behaviors that never change. Morgan, you've offered us the gift of so many stories over the years. I'd like to begin with one you may not have heard of before. Andrew Carnegie was once the richest man in the world. Coming from a poor background, he loved making money and he loved spending it. Yet he felt guilty sometimes about loving it so much.

In December of 1868, at the age of 33, Carnegie sat at his desk at the St. Nicholas Hotel in New York and wrote a memo to himself. He had a net worth of $400,000. and received an annual income in dividends of $50,000 from his holdings in 16 companies. He wrote, but spend the surplus each year for benevolent purposes. Cast aside business forever except for others. Man must have an idol. The amassing of wealth is one of the worst species of idolatry.

no idol more debasing than the worship of money. To continue much longer, overwhelmed by business cares, and with most of my thoughts wholly upon the way to make more money in the shortest time, must degrade me beyond hope of permanent recovery. He vowed to retire in two years. By 1901, he was easily worth over $250 million. What lessons do you take away from the story?

I think Carnegie is an interesting example because of all of the mega rich, the robber barons or people today, Musk and Bezos and whatnot, Carnegie seems to be like the only one who truly felt. a level of guilt over the wealth that he had accumulated. And the others, it's almost the opposite. If obsession is not the right word, it's close to that. That's why they are so wealthy.

Now, there are, of course, and maybe it's not an obsession with money, but obsession with their business, which Carnegie was too. I think, you know, is Musk obsessed with money? I don't think so. I think he's obsessed with his businesses. Same with Bezos, same with Gates. They were obsessed with their businesses and the money was.

a product that came from it. Now, I think it's so interesting with Carnegie too, because I think even though he did give away the bulk of his fortune, I'm not one of these critics, but a lot of people have criticized him that the way in which he gave it away.

could have been done much better. He was not alleviating poverty or trying to cure malaria. He was giving it away to libraries and art museums, which is fine and created a massive benefit for society. But I think that level of what do I do with it next? afflicts a lot of wealthy people. And just like Carnegie first felt that paying of guilt when his net worth was $400,000 and he went on to become a centimillionaire, I think for a lot of people today, it can occur.

If your net worth is a million dollars and you live in a society where so many people cannot afford healthcare, adequate housing, college education, whatever it might be, you can start feeling those pangs of guilt. Now, I'd also say that obviously... What Carnegie did to deserve that wealth and what JP Morgan did to deserve his wealth and Rockefeller and Vanderbilt was to create a society that benefited virtually everybody. And so much of...

Let's just a specific example. The skyscraper revolution that transformed the skyline of every city in the world could not have taken place without Andrew Carnegie and what he built just in terms of creating steel that benefited everybody. I heard this great quote recently that Charlie Munger said not too long ago. I don't know if Munger said this or if he's quoting someone, but he says, capitalism is a way to take care of people that you don't know.

And I think there's a lot of truth to that. So Carnegie should not have felt guilty about the wealth he accumulated because the businesses and the products that he built were benefiting other people. I think you could even say this about a hedge fund manager, that even if some people would look at it and say, you're not actually making something that contributes to society. Well, to the extent that your LPs are foundations and pension funds, you absolutely are.

So I think if everyone is doing their best to get ahead, the level of guilt, unless you are a shady business person. and taking advantage of unsuspecting people in your business, I don't think there should be much guilt at accumulating wealth. And even if you are the kind of person who is going to, you're not going to give that much of it away. You're going to spend it. You're going to live the high life and have 10. homes and 50 cars and three private jets.

That's also contributing to the economy as well. And maybe there would be a better use for it, but that's subjective. So I'm not the kind of person who thinks really anyone should feel guilty about their wealth as long as it was made in a humane and moral way.

I think in 1889, Carnegie wrote an article called The Gospel of Wealth in which he touched upon this. This is what he wrote. This then is held to be the duty of the man of wealth, to consider all surplus revenues which came to him simply as trust funds. which he is called upon to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community. The millionaire's wealth was not his to spend, but his to wisely give away.

Rich men should be thankful for one inestimable boon. They have it in their power during their lives to busy themselves in organizing benefactions from which the masses of their fellows will derive lasting advantage and thus dignify their own lives. Yeah. And I think he did that. The one family of that era that sticks out to me as kind of fumbling the ball were the Vanderbilts. Now, the decisions that they made were theirs, but the Vanderbilts...

You know, the Rockefellers and the Carnegies donated the vast majority of their funds to the betterment of society. The Vanderbilts more or less, I'm exaggerating, but they more or less put the equivalent of $200 billion in a pile and told their heirs to have a blast. And it's amazing what happened after that, which was...

In three generations, all the Vanderbilt money was gone. It lasted three generations. And all three of those generations for whom inherited the equivalent of tens of not a hundred billion dollars each in those generations, they were all miserable.

Every single one of them were miserable because they were not born to say, oh, you're going to take over the family business. Let me teach you the values of entrepreneurship. They were born to say, you are a socialite. Your job is to have a bigger house and other people in town. And they were all miserable for it. it. So it's astounding to watch that much wealth be generated and have the actual byproduct of what that wealth did for society be.

purely a net negative on your family. Very interesting little anecdote here. I've written about this before. The first Vanderbilt heir who did not get a trust fund, the first heir for when all the money was exhausted was Anderson Cooper. of cnn the cnn anchor his mother was gloria vanderbilt she was the last one to get a trust fund and anderson cooper is by far

the most successful, and I think the happiest Vanderbilt heir in 150 years. And he's talked about this. The reason that is, in his estimation, is because He's the first one who had to make a name for himself. He was the first person in his family in 150 years who could not just fall back on a trust fund and fall back on a name. Obviously his, his mother was a Vanderbilt. So his, so Anderson is Cooper is Vanderbilt's not in his name.

And I think there's a lot to say for that, that, you know, for if you are a wealthy person, who's just going to say, I'm going to create a family dynasty. The history of that is not great and not promising. If you are someone who says, I'm going to use this family wealth, yes, to give my heirs a good, comfortable life to the extent that they need, but the majority of this is going to go to the betterment of society. There are a lot of very great and happy success stories that come from that.

The Carnegie's, the Rockefeller's, the Gates's so far. So I think, you know, and again, we don't have to be talking about centibillionaires here. I think anyone with a net worth of a million or $10 million can fall into this category as well.

Before Adam Smith wrote The Wealth of Nations, he wrote the theory of moral sentiments, which provided the ethical and philosophical underpinnings to his later work. Let me quote something that he wrote from that book. People do not work so hard in order to supply the necessities of nature, that is to obtain food, clothing and shelter, because the wages of the meanest labour can afford them.

Rather, they want great wealth because of the attention it brings them. It is a vanity, not the ease or the pleasure which interests us.

The disposition to admire and almost to worship the rich and the powerful and to despise or at least to neglect persons of poor and mean condition is the great and most universal cause of the corruption of our moral sentiments. All that leisure all that ease, all that careless security, which are forfeited forever when one attains great wealth, and all that toil, all that anxiety, all those mortifications which must be undergone in the pursuit of it.

The rich man glories in his riches because they naturally draw upon him the attention of the world, while the poor man goes out and comes in unheeded, and when in the midst of a crowd is in the same obsecurity. The superior stations of society are suffused with vice and folly. presumption and vanity, flattery and falsehood, proud ambition and ostensation greed. A lot of what you write is echoed in this passage and is still just as interesting today as it was 260 years ago.

Right. And I think if I'm going to be brave enough to challenge the great Adam Smith, I would say that... I would somewhat disagree with the fact that wealthy people are kind of like reveling in their wealth while poor people are aspiring to it. I think some people in society who have the most ambition to get more money. who wake up mentally tortured to say, I need to get more money are the richest people.

That's why they're rich is because they have this personality of a tortured sense of needing more because it's become part of their identity because they're just a type A personality. That's what it is. So I don't think it's the case that poor people wake up and say, I need more and rich people say, I have enough.

It's almost the opposite. If there's any generalization, it's the opposite. And that's why so many rich people are rich because they have such an insatiable desire to have more. I also don't, I also think it's great. at the society level, that we live in a world in which no matter how successful people are, most people wake up in the morning saying, I need more.

Because the fundamental driver of that need or how they're going to get that no more money is we need to innovate. We need to become more productive. We need to become more efficient. We need to communicate better with our customers and our clients and our competitors. And that's how the world gets better over time. So I think, and that anxiety, I think will never go away. If humans don't wipe themselves out and we're still around in 500 years, you can imagine a world in which...

Life expectancies, medical technologies, economic wealth is so vastly superior than it is today. And you also know that in that world, people will still wake up every morning saying, I need more. We need to do a better job. We need more technology, more innovation. That's great. That's a wonderful thing. And of course, that was kind of the core of Adam Smith's message. But I think it's also really telling that he wrote that 200 years ago. And it's as true today as it was then.

And my takeaway from that is that it will very likely be as true 200 years from now than it is today. It's just a timeless fact of how people work.

You once wrote that having more than you need can be a liability, mass creating as an advantage. Ambition often leads us over the edge. How do we cultivate a sense of enough? Money can be very similar to a drug in the sense that drugs used appropriately can be great.

You get surgery at the hospital and they give you painkillers that take it, but it's done very responsibly at an appropriate level. And it's great. But also drugs, of course, if no amount is enough, are disastrous. And some of the... greatest ills of society. I mean, the most magical drug in the hospital when you're getting surgery is fentanyl. If it's used correctly, it's an absolute miracle drug. You get surgery, you don't feel anything. It's also...

One of the top three, if not the number one societal ills today of killing 100,000 people a year on the streets. And I think money is kind of fits in that analogy of like used appropriately. It is the greatest tool. that exists to living a better life, a life of independence, a life of purpose for helping other people, a life for building a business that is putting your creativity and your values to work. Amazing. It can also be...

Just like fentanyl, if it's used to a dangerous amount or becomes an obsession in which nothing is ever enough, it can completely throw you over the edge. And I'm really, I wrote about this in Psychology of Money. To me, one of the most fascinating stories. of all investing history, but all money history, is Jesse Livermore, the great trader who was back in the 19-teens, 1920s. He became the equivalent of a billionaire.

and then went broke, I think, four separate times. And during the crash of 1929, he was short. He made the equivalent just for inflation of $3 billion in one day, became the richest man in the world that day. And five years later killed himself because he was broke yet again. And so it's really interesting. There's the Buffett quote, you know, that you only need to get rich once. And I've always been really interested in people who are very good.

at getting rich and have no ability whatsoever of staying rich. Livermore was the stark example of that. But to me, I think at the core of that is just... they are treating money like the equivalent of a drug addict does fentanyl no amount is ever enough it's never going to satiate what you have because livermore's story was when he was on a hot streak and doing well and a multi-billionaire in his own right his

confidence increased more than his ability. And he just kept taking bigger and bigger and bigger bets. There was never an amount of like, Hey, we've made a lot of money. Maybe we should like. try to stabilize things here a little bit. It was never in his personality that after he made a billion dollars, he was going to put into muni bonds and live happily ever after. It was always in his personality. The only thing he knew how to do was more, more, more, more. And he ended up killing himself.

because it was never enough. This is where like the analogy between drugs and money like comes straight into it. Like fentanyl in the hospital when you get surgery, amazing. It can also kill you very quickly. And so, you know.

I definitely think some people are wired to have a sense of enough and some people are not. I think a lot of this on the nature-nurture spectrum, a lot of it is nature. But I also think that if you gain your respect and admiration... in life.

from your humor, your intelligence, your wisdom, your capacity for love, your ability to be a good parent, a good partner. If that is your identity and that's where you gain your respect from other people, that's great. I think to some people, if they are un- able to do that, if they cannot gain admiration through their love, wisdom, humor, intelligence, whatever it might be, the only lever they have left to pull is look at my money.

And you'll respect me for that, right? You're not going to respect me for my humor and my wisdom. So let me gain your respect or try to get your respect with my money and my car and my house. And my jewelry. And so I think, look, it's not black and white. There are a lot of people who have like chasing money who are very good, awesome people. But I think there is a pretty big subset of those people who are chasing money that the reason they're chasing it is because.

They cannot gain love and respect and admiration through other avenues in their life. And I think if you have the opportunity, would you rather gain your respect through your humor? And because people actually love you or because they like how much money you have. It's when you frame it like that, it's obvious which one you should want. Buffett talks a lot about this, that he knows billionaires and he says nobody loves him.

The family doesn't love them. Their spouse doesn't love them. Their community doesn't love them. And Buffett's talking, I'm paraphrasing here, but he's like, no amount of money is going to make you happy at that point.

Buffett's definition of success is when the people who you want to love you do love you. That's the only definition of success. And you can have all the money in your world, Buffett talks about. You can have hospital wings named after you, whatever it is. If people don't love you, you're miserable. And so that's like, if there is one thing that I wince a little bit when I see people.

blindly chasing just insatiable pursuit of money. I think for at least some of them, deep down, it's trying to fill a deeper hole that has nothing to do with money. The hole they're trying to fill is people don't love me for any other thing than my money. So let's chase that. In The Psychology of Money, you wrote, more than I want big returns, I want to be financially unbreakable.

And if I'm unbreakable, I actually think I'll get the biggest returns because I'll be able to stick around long enough for compounding to work wonders. I understand what you mean subjectively, Morgan, but... how do you objectively achieve that like could you perhaps contextualize and quantify for us in greater detail i might i might change the word from from unbreakable to just like

very stable. Like nobody is unbreakable, even financially to say nothing about your health. So unbreakable may have been the wrong word that I use there, but. For me, like my investing strategy, I've been pretty open about this. I dollar cost average in index funds, not because I think I or other people can't do better, but because I think it gives me the highest opportunity, the highest odds. of maintaining that strategy for 50 years. And if I can earn average returns for 50 years,

The returns relative to other people are astronomical. If you can be average for an above average period of time, you will end up in the top decile, even the top percentile of your peers. So much about investing is not asking the question, how can I earn the highest returns? It's what are the best returns that I can sustain for the longest period of time?

Now, once in a while, you get a hedge fund that earns very high returns for a very long period of time. And of course, that leads to absolute magic. PIMCO back in the day had this phrase that I love. They called it strategic mediocrity, which meant that in any given period of time, they were not going to be in the top half against their peers. But over every 10-year period, they're always going to be in the top decile. And I love that. It's just like...

pick your strategy. If your strategy is we're going to earn the highest returns every single year. Okay. Some people can do that. That's one strategy. Another strategy that I think is just way more feasible for a greater number of people is We're going to earn good returns, but we're going to do it for an above average period of time. And so that's why to get back to your question of like, why do I want to be unbreakable?

The only variable that I want to maximize for in my investing strategy is endurance. I don't care if I underperform people this year or next year. What I care about is that during the next financial crisis, during the next recession, during the next... personal tragedy that I face, whatever it might be, I'm not forced to sell.

That's it. It's the Charlie Munger quote. The first rule of compounding is to never interrupt it unnecessarily. That's the first and most important rule of compounding is that you never have to stop. And so that's what I do for myself. So for me, what does that mean in practical terms? I have absolutely no debt. I have a higher percentage of my assets in cash and liquid treasuries than most people would recommend. Not because I'm pessimistic, but because I am so adamant on...

on being unbreakable. That's what it means for me. It's just shifting the focus from returns to endurance. I like that. Adam Smith writes in The Money Game, the end object of investment is serenity. And serenity can only be achieved by the avoidance of anxiety. And to avoid anxiety, you have to know who you are and what you're doing. Have you found serenity then?

I think this is a great topic because on the idea of does money buy happiness, people have been debating that forever and they come up with all the different answers. I think key to this debate is that happiness is the wrong word. The word that you want to be looking for that money can do for you is contentment.

to just be content. That's the best. Happiness is always a fleeting emotion. But if you can be content with what you've achieved, that's, I think, the best that you can do. Now, getting back to what we talked about earlier, a lot of the most successful people, the reason they are not...

The reason they are successful is because they're never content. They wake up every single morning saying, we need to do better. We need to do more. I'm so glad that those people exist. But if you're someone like me, who's just saying, I want to use money as a tool.

to live the happiest life that I can, the best life that I can. Then I think what you want to chase is just being content. So in my, I know people watching this are going to have vastly different levels of success, but in my humble level of success. Am I happier today than I was five years ago? Not really. Am I more content?

Do I have a higher level of independence and autonomy? Yes. And that's great. That's worth pursuing, but it's not happiness whatsoever. So I would say to agree with Adam Smith that you quoted. that as my net worth has gone up, my anxiety has gone down. That's not the case for everybody, but that has been the case for me. And that is very distinct from saying I'm happier. But I think in general, people with more money, they don't necessarily have...

more happy days, more better days. They probably have fewer bad days than people. Not zero bad days, but fewer than the single mother who's struggling to pay rent, so to speak. But you're probably not going to have more better days, more happy days than that person.

I think what comes at the root of what you're saying is another thing you wrote in The Psychology of Money, which I think is one of the greatest lines. Like everything else worthwhile, successful investing demands a price. but its currency is not dollars and cents. It's volatility, fear, doubt, uncertainty, and regret, all of which are easy to overlook until you're dealing with them in real time.

Yeah. When they're dealing with volatility or uncertainty, they view it as the market's broken or I made a mistake. My advisor, my portfolio manager made a mistake. That's why we're dealing with this.

Nine times out of 10 though, you're just paying the cost of admission. This is why you're going to earn high returns over time is because you're dealing with this kind of bullshit in the markets. That's what you're paying for. That's why you get the higher returns. And if you're not willing to pay those, that cost of admission. you can earn the mega return that you deserve in treasury bonds and cash. And so I think just changing it from...

A fine. A fine means you did something wrong. Like you're in trouble. Here's your speeding ticket. That's a fine. To a fee. A fee means you're not in trouble. You didn't do anything wrong. You're just paying the cost of admission. And volatility and uncertainty and doubt and fear. is the cost of admission in investing. I think this is true whether you are the most astute hedge fund manager or the most basic mom and pop investor, that putting up with variance in volatility and uncertainty.

is exactly why you're going to earn high returns in the future. You dedicate your new book, Same as Ever, to the reasonable optimists. How do you define what's reasonable? I would contrast this with what I would say is... just the pure optimist, which is someone who thinks everything's going to be great in the future. I'm an optimist. We're all going to be great in the future. To me, that's not optimism. That's complacency.

If you think everything is just going to be better in the future and you stop right there, you're just being complacent about how fragile and dangerous the world can be. In my definition, reasonable optimism is someone who, yes, thinks that the future is going to be better than it is today.

We'll be wealthier. Our life expectancies will be higher. We might even be a little bit happier. But the path between now and then is going to be a constant chain of surprise and setback and disappointment and recession and bear market and pandemic and terrorist attack between now and then.

And so the reasonable optimist is someone who thinks that if you can have enough endurance to put up with all of that, then the rewards at some distant point in the future will be very superior to what they are today.

So I dedicated my first book to my parents, my wife, and my kids. So I kind of ran out of people to dedicate this to. So I wanted to dedicate it to The Reasonable Optimist, which is something that I aspire to be. I don't want to be a complacent optimist, and I don't want to be a pessimist either because there's so much evidence against that.

I just want to be a reasonable optimist. The best financial plan you write is to save like a pessimist and invest like an optimist. Aren't those conflicting skills? It's hard to realize there's a time and place for both.

They're completely conflicting skills, which is why they are rare. And very few people can actually put them to use in real time. I'll tell you a great... real-life example of this is Bill Gates as a CEO, who when he started Microsoft in the 70s, he took the biggest optimistic swing that any entrepreneur has ever taken.

He said, every desk in the world needs a computer audit. Massive, massive optimism that he took. At the same time, in the same day, he managed Microsoft in an incredibly conservative way. He said that he always wanted enough cash in the bank that he can make payroll for one year with zero revenue. Like the most conservative way to run a business at the same time that he is making the biggest optimistic swing anyone's ever taken. And I think getting those two things to coexist.

optimism and pessimism at the same time. That's why Microsoft has been so successful for 50 years, at least one of the reasons. The fact that they're conflicting skill really throws a lot of people off. A lot of people are either optimistic or they're pessimistic. They're either taking big leverage swings.

or their doom and gloom, hiding in gold kind of thing. And I think the people who can get both of those to coexist are the ones who do well over time, who are optimistic enough, invest like an optimist so that... you're actually letting compounding and like the benefit of society accrue to you over time, but they're saving like a pessimist so that when the world breaks as it does on average, once a decade, they're not going to be forced out.

They're going to stay in the game. So saving like a pessimist, investing like an optimist, this is another thing where from the most astute hedge fund manager to an 18-year-old managing money for the first time, it's like it's applicable to everybody.

You'd write it this way. You can only be an optimist in the long run if you're pessimistic enough to survive the short run. You also point out, Morgan, that there's a most convenient... time horizon, somewhere around 10 years or more. That's the period in which markets nearly always reward your patience. So if you go down the list of historical investing blunders.

you also argue however that no less than 90 percent of them are caused by investors trying to compress this natural most convenient time horizon why is the long term harder than most people imagine Well, I think it's very natural that if you look at the history of the stock market and you're like, look, over a long period of time, you can do very well. Very natural that people look at that and even subconsciously say, that's great. How can we get it faster?

I don't want to double my money in 10 years. I want to double my money in two years, three years. Very natural for people to think that. So once you take that natural time horizon of what the market has done historically, by the way, I'm talking about buy and hold investors here. This is not going to apply to everybody. But once you take that natural time horizon and say, I just want to compress it, you're trying to cheat it.

You're trying to use a coupon when you're paying your cost of admission in investing. One of the things that you get paid for in investing is patience and endurance. And when you say, I don't want to be patient, I want to earn my returns in two years instead of 10. you are trying to bypass the cost of admission. And capitalism doesn't like it when you try to use a cheat code. It's going to punish most of those people.

in that situation. So I think it's very normal and natural to do, but the huge majority of investing mistakes are for people who want to take the natural, either time horizon or risk tolerance. or rate of growth that the economy and the market will offer you and just saying, let's compress it. And so once you just...

At least for me, it's always been, okay, let's not compress it. Let's make the fuel of my success be endurance. I'm going to do the opposite. I'm going to do the opposite of compressing it. You can earn great returns in the market over 10 years. I'm going to say, let's invest for 50.

What does compounding look like if I do that? And of course the answer is, it's very likely going to be ridiculous. Positive ridiculous, good ridiculous. And so that's what it is. It's just, I think this really afflicts a lot of businesses too.

And you've seen this in the last couple of years when there is just so much money in venture capital, where a lot of businesses, it's like, look, we have a good product that people like, and we can make this work. But the natural growth rate is X, whatever that would be. But because we raise so much money, we need to increase that growth rate to 3x, 5x, 10x. And then, of course, you run yourself over a cliff.

And a lot of even high profile businesses have done this. Starbucks was in a very bad position in the mid 2000s, 2005, six, seven. And the postmortem of what happened, of course, they made it through and are doing better than ever now. But the postmortem of this period was...

Their natural growth rate was maybe, you know, 10 to 20% per year and management and the board said, no, we need 30%. We need 40%. And they just ran it over. They were just, it was just way, the expansion was way too fast. They lost control over the product, the quality of the product.

And so for every business, there's a natural growth rate. And so many business problems happen when you just try to exceed it. So understanding where that growth rate is, which is a problem in itself, but also having the mentality that says,

Not only do we not need to, we do not want to exceed that natural growth rate is really critical to doing well over time. You might underperform your peers in any given year when you're doing that, but over a 10-year period, you're going to wallet them every single time.

You once asked Robert Schiller, who won the Nobel Prize for his work on bubbles, about the inevitability of the Great Depression. He responded, well, nobody forecasted that. Zero. Nobody. Now, there were, of course, some guys who were saying the stock market is overpriced.

But if you look at what they said, did that mean a depression is coming? A decade-long depression? No one said that. I have asked economic historians to give me the name of someone who predicted the depression, and it comes up to zero. You're right. Two things can explain something that looks inevitable but wasn't predicted by those who experienced it at the time. One, either everyone in the past was blinded by delusion or two, everyone in the present is fooled by hindsight.

We are crazy to think it's all the former and none of the latter. What's at the heart of this? I think that whenever you look at a major big event, the Great Depression, World War II, 9-11. COVID it's never one thing that causes it. It's always this, you know, these like 10 or more variables.

happening and compounding in a perfect way that sets it off. So I'll give you an example for the Great Depression. I think part of the reason that nobody saw it coming, as Schiller pointed out, is because the Great Depression was a stock market crash. It was a dust bowl. It was a banking crisis.

It was poor management. You can go on down the list of everything that caused it. And there were some people who could say the stock market is overvalued. That was one thing. But who said the stock market is overvalued and there's going to be a Dust Bowl?

And this is how politics is going to play out. And there's going to be a banking crisis that starts in Vienna that spreads overseas and all these things. All of those variables are much harder to predict. I think you can say it with COVID as well of like, you know, Bill Gates gave a TED talk in 2015 where he said.

the biggest threat society faces is a viral pandemic. So it's not that nobody could have seen this coming, but the chain of events that happened of there's this new virus and then it gets out. And you know, that, that in itself, maybe not be that that happens all the time, but then you have.

politics and maybe even media suppressing it. So then there's this delayed response to it. You have politics not wanting to respond to it. It happens in an election year. So it instantly becomes a partisan issue. You have the fact that we haven't had a major pandemic in the United States. years. So nobody knows how to deal with it. Nobody knows what the right response is to do. Everyone's kind of shell-shocked from it. And like all these things happening.

kind of at once, like breeding together. And I guess my point is both in the Great Depression and World War II and COVID, it could have turned out very, very differently. It could have turned out much better than it did. It's not hard to imagine a world in which Adolf Hitler is assassinated in 1939 and there's no World War II. You don't have to be that creative to think of that. So because all the dots make sense in hindsight and they all tie together, of course this is what was going to happen.

In foresight, though, when you tie the dots together of what needed to happen for this thing to occur. you realize that it's a way lower probability event than could have happened. The Great Depression easily could have just been a mild recession. World War II could have been a small regional skirmish. COVID could have been a localized...

stuffy nose illness. And not only for all those events, not only could they have been that, I think that was the most likely scenario. And that's what they would have been. So the fact that they ended up so much worse than they did, I think is...

If you connect the dots with foresight looking forward, it's like, gosh, this is a crazy out of the blue event. Even if in hindsight, all the dots align perfectly. The tricky bit is that even if we were in the thick of it, it was difficult to see through, right? I mean, so...

The Great Depression began in 1929, and when the well-informed members of the National Economic League were polled in 1930, as you point out, as to what they considered the biggest problem of the U.S., they listed in order, one, administration of justice, two, prohibition. Three, disrespect for law. Four, crime. Five, law enforcement. And sixth, world peace. And an 18th place, unemployment. A year later, in 1931, a full two years into what we now consider the Great Depression.

and employment had moved to just fourth place, behind prohibition, justice, and law enforcement. All the Wall Street journals and barons from 1929 to 1933 kept saying the outlook is favorable, a sustained recovery is on its way, and so on.

And that's kind of what made the Great Depression so awful, right? A bigger part of this is the idea that coming to terms with how limited our view of what's happening in the world can be. And brings to mind one of my favorite investing or just quotes purely by my friend Dylan Grice, who said, The future is always uncertain. It's only the extent of our self-deception that changes over time.

I so agree with that. Could not agree more. There have been these attempts to measure and quantify uncertainty, these uncertainty indexes. And what's always been so astounding to me is that most of those indexes, if you look at them, how they portray uncertainty. in recent times will say that the economy was the most certain, uncertainty was the lowest in 2007, just before the financial crisis, or the economy was very certain in 2019.

just before COVID. And you're like, no, in hindsight, that was actually the most uncertain period that we had ever been in. We just didn't know it. We were all blind to it. So I think, yes, I totally agree with that quote, that the economy is always, I think, in equal degrees of uncertainty. The amount of uncertainty I think never changes. All that changes is our level of complacency or fear.

And so, yeah, it's humbling to think that, that our future is as uncertain right now at this moment than it was in March of 2020 when we were in the peak of COVID panic. That's true. But I think we are just more complacent or we were more panicked then relative to each period. So it's uncomfortable to come to terms with, but I think that is undoubtedly true.

Another line I like from your new book is the evaluation of every company is simply a number from today multiplied by a story about tomorrow. Some companies are incredibly good at telling stories, and during some eras, investors become captivated by the wildest ideas of what the future might bring. If you're trying to figure out where something is going next,

you have to understand more than its technical possibilities. You have to understand the stories everyone tells themselves about those possibilities because it's such a big part of the forecasting equation. The greatest storyteller right now is NVIDIA CEO Jensen Wang. What do you think of the story being told about AI?

See, I would take my response to this was going to be, I heard someone else phrase, this is not my idea, that the greatest product that Elon Musk has ever made is not a Tesla car. It's not a SpaceX rocket. It's Tesla stock. It's Tesla ticker. TSLA is the greatest product he's ever created because what he did is he has told a better story than perhaps literally anyone in the history of capitalism about what Tesla is going to be in the future and about his own skills that has created.

a company that is doing way less business than Toyota or Honda, but is valued at almost a trillion dollars at this point. And it's an incredible thing to watch. And it's based purely off of his... This ability to tell a story. AI is really interesting because there's a very long history in new innovations, whether it is the car or the airplane or the computer or the internet that when they first kind of come on to broad public use.

A, there could be a lot of skepticism about this is a toy for rich people, but also even the insiders have no idea where it's going to go. I mean, one of my favorite examples of this is the Wright brothers themselves did not think that there would be any commercial use for the airplane.

They spent all of their time pitching it to the Department of War, which is what we used to call it, because they thought the only use for the airplane was going to be you could strap a machine gun onto it and use it in war. But the Wright brothers themselves did not envision a Boeing plane taking you to vacation in Hawaii.

They didn't envision that. And I think that's true for a lot of new technologies. It was very similar with the car. When the car first came about, it was same thing. Let's sell this to the military. We can strap a machine gun on top of this and maybe turn it into a tank. Nobody envisioned.

Companies themselves early on did not envision that what this is actually going to do is let people live in the suburbs and then commute into the cities. Nobody envisioned that. And so I think even if you look at the wildest AI optimist today. History would tell you that even they have no idea where it's going to go. And that's really cool to contemplate.

I think this is true for the internet as well. Did, you know, the early forerunners of the internet, you know, Marc Andreessen creating the browser in the early nineties. I don't think he had any clue.

that the internet would look like it does today? Did he envision that you and I would be having this call over Zoom? Like maybe, I don't want to, like maybe the answer is yes, but I think even the wildest optimist cannot really foresee where it's going to go. And then what's also interesting about AI is that... It's very rare.

in the history of technology that the first time you use a product, you instantly see its value add. And in my life, the first time I used AOL Instant Messenger in, I don't know, 1997 or something, it was like within one second, you're like, oh, this is magic.

I'm talking to my friend on the other side of the world. This is magic. But most products, the first time you use it, you're like, I don't really get it. I don't really see what the point of it is. AI is one of the products where the first time you use ChatGPT. which came out a year ago, you're like, oh, I get it. Instantly, of course, this is going to change the world. No question about it. Very rare that you have a product like that. And it makes it...

pretty staggering. I think the best way to measure a product's potential is how terrified people are of it. And I think there are more people, there's more angst about AI right now than there is optimism. And I think that's because people intuitively know how disruptive it's going to be. Now, for most of technology history, disruption is a positive thing. It's an amazing thing. But you understand that.

I mean, the other thing that's really interesting about it is that some of the people who are most vulnerable to being disrupted by AI are the people who have the most job security and the cushiest jobs today. Consultants, programmers.

bankers, insurance companies, they are the ones who are earning some of the highest salaries today. So of course they're shaking in their boots. Those are the people who are going to be disrupted. It's always so interesting that for the last decade, we have talked about...

technological disruption as, oh, it's going to put truck drivers out of business. That's what it's going to be because we're going to have self-driving cars, like all the truck drivers, they're going to be the ones who are first employed.

And I think we're now seeing in the last year, it's like, no, actually, I think the first people are going to go are the pundits, the consultants. Like those are the people who are making fun of the truck drivers are actually, they themselves are going to be the first ones to go. So, you know, I.

I don't know where AI is going to go, but that's kind of my point. I don't think anybody does, but it's one of the very few technologies. There's probably only been three or four technologies in the last hundred years. that are instantly apparent from day one that this is going to be incredible. And the history of all of those previous technologies is we have no clue where they're going to take us over the next 20 years. What is the first rule of happiness?

Charlie Munger, rest his soul, just died two weeks ago. He has this quote where he says, the first rule of happiness is low expectations. And he says, look, the world is not driven by greed. It's not. The world is driven by envy. The world is driven by, you know, that's what's driving a lot of the anxiety in the world is looking at other people and say, well, that guy has more than me. Even if I have a lot and I have enough, I have everything that I need to be happy. Well, he has more than me.

Montesquieu said this 300 years ago. He said, if you only want to be happy, that can be easily achieved. But most people want to be happier than other people. And that is much more difficult to do. And that was true 300 years ago. And so of course it's as true as it is today. Now, this gets back to something we were talking about earlier of like, I am so glad that most people wake up every morning anxious that they are not achieving enough.

that they desire more. That's what drives progress forward. But if you wish to be happy, then you need to seek some sort of contentment where you are going to wake up and have lower expectations.

and say, look, I'm perfectly happy and content with what I have today. And maybe I still have ambitions to do something else. I want to pursue art. I want to pursue hanging out with my family. You're not going to wake up and do nothing. But I think if you don't have some ability to be satiated in your success.

and satiated with your money, it is a truth that I think you're never going to find any level of happiness or even contentment. And so Munger's point was low expectations because if your expectations rise in lockstep with your wealth. it's never going to feel like it's enough. I think at the societal level, this is what's happened where average real incomes have doubled since the 1950s. Median real incomes have doubled since the 1950s. And on average, I think we're a little bit less happy.

And at least one of the reasons that that has occurred is because expectations have more than doubled. Real incomes double, but expectations go up by 120%. You know exactly where you are. you're worse than you were before. So this, it's not just an individual thing. I think at the societal level, this happens too. And rare is the person who can actually keep their expectations very low.

I think most people can become cognizant of them. I mean, there's a lot in meditation where you can't fix your problems, but just identifying your thoughts is a massive step into having a calmer mind, just identifying what your thoughts are. And I think this is true for expectations too.

Even if you can't actively lower your expectations, that's a very difficult thing to do. Just being cognizant that all of happiness is the gap between your expectations and your circumstances. Just acknowledging that I think is a huge step into being a little bit more content with your money.

You're right. We spend so much effort trying to improve our income, skills, and ability to forecast the future. All good stuff worthy of our attention. But on the other side, there's an almost complete ignorance of expectations. especially managing them with as much effort as we put into changing our circumstances. How do you manage your expectations?

I think I've kind of always been wired to live inside of my own head without giving much of a damn what other people think about. I think my wiring is I really care and I really want. about six people to love me my parents my wife my kids one or two friends and everyone else it's not that i give a damn but their opinions don't really mean that much to me i'm much more of a

internal scorecard than external scorecard kind of person. But I think I've been like that since birth. One thing that helped me was realizing That nobody's thinking about you as much as you are. Nobody cares about you as much as you do. No one is thinking about your success as much as you are. Nothing is more important to you than what is going on inside of your own head.

Then you're like, oh, your aspirations to show off to other people plummet. Once you realize that those people are not even paying attention to you, they're worried about themselves, then it falls dramatically. And this gets back to the six people who want to love me. Those six people.

My parents, wife, kids, two or three friends, they hopefully are paying attention to me. They are watching to me. They are thinking about me as much as I am, but everybody else isn't. And even if you are the top of your game. CEO of a very successful company, it's very easy to think all eyes are on you. And maybe to some extent at some like...

modest extent, that is true. But by and large, most people are busy thinking about themselves. And any kind of success that you have, they're not giving you the attention that you think they are. I think everybody falls for this trap. If you can do that, then I think your aspirations for having enough.

or your ability to have enough and your aspirations for more attention can be managed much more effectively. I heard this anecdote just yesterday that kind of stopped me in my tracks. Do you remember the show on MTV called Jackass in the early 2000s? There was a guy on that show called named Steve-O.

And his job, this was kind of the theme of the show, was to put himself through the most absurd amounts of pain that you could do. And they did this for entertainment. We had a sicker sense of humor back then maybe. But he would just torture himself in the show, put himself through incredible amounts of pain. He was on a podcast.

week. And they asked him, they said, do you just have an abnormal tolerance for pain? And he said, no, absolutely not. He said, but my need for attention has always exceeded my desire for comfort. And I just remember being like, oh God, that's so, not only is that so tragic, but I think that's actually more common. He's an extreme example of it, but I think most people's need for attention exceeds their desire for.

peace and comfort and happiness. And when you hear someone say it out loud, you're like, gosh, that is so tragic. But I think it's actually more pervasive in society than we think. Oliver Wendell Holmes said,

a mind that is stretched by new experience can never go back to its old dimensions. And this is me quoting you from your book. It's why the generation who lived through the Great Depression never viewed money the same afterward. They saved more money, took on less debt, and were wary of risk for the rest of their lives. Frederick Lewis Allen quotes a Fortune magazine article in 1936. The present-day college generation is fatalistic.

It will not stick its neck out. It keeps its pants buttoned, its chin up and its mouth shut. If we take the mean average to be the truth, it's a cautious, subdued, unadventurous generation. contrast this with what's happening today. So what can we say about the generation who lived through the pandemic? I think it's less about the pandemic.

And it's more about the generation who has grown up with social media. Now, so if I look at my generation, I'm 40 years old. So social media really came out. Facebook came out when I was in college. And which meant that I and my generation and you, we were adults when social media came around. We had already formed most of our identity and our social groups. But you look at the younger generation, Gen Z, who grew up with social media. It's all they've ever known.

That group is, I think, very much socially scarred, socially poisoned because their level of social comparison is an order of magnitude greater than it was for us. And you see this in the statistics, their level of depression, anxiety, suicide, self-harm is way higher than even our generation was not that long ago. And that's what I think it is. It's like the generation that grew up with unlimited social comparison to people who they're comparing themselves to people who had.

you know, they're putting forth the curated highlight reel of their life. Not the real experience of their life, but just the highlight pictures of when their life looks beautiful and happy and serene. That generation, I think that the younger generation, we don't know the consequences of it.

other than what we already know in the statistics, that they are more depressed, more anxious, feel worse about themselves than any other generation. I think the generation who went through COVID, which of course is everybody at this point, I think it's COVID mixed with...

2008, the financial crisis. Because after 2008, I think it was very easy to say, look, this sucks. This is a terrible event. This was a catastrophe, but it's a once in a century event. You should not expect this to happen very often. And then in 2020, when in many ways what happened was much worse than 2008, at least for a brief period of time, the economy was worse than the Great Depression, but it just didn't lie. It was like that for six weeks or so.

After that, it becomes much easier to say, this is just how the world works. Every 10 years, the world breaks. And any kind of long-term perpetual optimism should not exist because whatever… prosperity you think you have today can be taken away from you tomorrow. I think that was the lesson between 2008 and COVID that honestly is probably a more accurate representation of how the world actually works than this idea that everything should always be great.

That gets back to my definition of complacency. So I actually think that most people's view of risk is much healthier and more realistic after COVID. I don't necessarily think that people are... at least the majority of people, are abnormally pessimistically scarred from it. I think they have a much healthier view of risk than, I think you could even look back and say, the 80s and 90s gave people a false sense of prosperity and stability.

Like that was the anomaly. The 80s and the 90s were the anomaly. Of course, things weren't perfect back then. You had the currency crisis of 1998 and whatnot. I think in general, that was the anomaly. And what we've experienced in the last 20 years is closer to what you should expect in the future. 9-11, 2008, COVID. in a 22-year period, I think that's closer to realistic than a 20-year period where everything goes great.

But what do you think of the idea from the psychologist Sheldon Solomon, you know, this idea that the awareness of death and our fear of it drives much of our conscious and subconscious behavior. So when mortality is front and center, as it was during the pandemic. People turn to money for security. They want to feel safe, and money is a proxy for safety. For some people, the acquisition of money is a death-denying fetish, says Solomon. It's why retail trading exploded.

reinforced by the frictionless appeal of zero commissions trading i mean for a lot of people you know the millennial demographic they entered into market in march of 2020 and april of 2020 right um there's something about culture at that time How do you think about that? Yeah, I think this has always existed. Maybe it shows up in people's desire to die with a lot of money in the bank. And maybe that desire is because it's the less tangible thing that can like...

keep your legacy alive after you're gone. I'm going to pass along money to my kids. So I think a lot of that fear of death manifests in people trying to become immortal in different ways. I heard this great story from Richard Feynman, the great physicist of like, When he was on his deathbed, he was talking to a friend and Richard said, look, I'm about to die, but...

I've told so many great stories in my life and those stories will live long after I'm gone that like, I'm not actually dead, which reminds me of like, I forget who said this, but it was a great philosophy that everybody suffers from two deaths. One is when you die.

and your body's put into the ground. The other is when your name is spoken for the last time, which for some people is going to be a week after they die. For some people, it's going to be a century after they die or a thousand years after they die or more. And so, you know... I'll tell you how I think about my own mortality like this. So I'm, my kids are four and eight. If I were on my deathbed tomorrow.

I would feel very positively about the money that I've saved up and the net worth that I've built up knowing that my wife and kids are going to be fine after I'm gone. So much of the fear of death is not actually that you fear yourself dying. You fear...

leaving family and friends worse off, people who needed you and relied on you, that they're going to be worse off. That's actually what you fear, which is why I think a lot of people, if they're in their nineties and their kids are stable adults, don't fear death.

But if you are a parent of young kids, you are terrified of it because you know your kids are going to be in a very bad position once you're gone. So maybe to the extent, I'm kind of rambling here, but maybe to the extent that like you can use money and savings to...

create some level of this perceived immortality is kind of why we chase after it. But I think that's rational in a sense. I think I do that right now because if I die tomorrow, I want my family to be taken care of. What is something tiny and magnificent about your life?

I think I've always, I've tried to, I don't know if I've done a perfect job of this, but I've tried to be very true in my writing in terms of not pandering to people. It's very easy to take the writing advice of know your audience. to turn that into pander to your audience and tell them what you think they want to hear. Whereas I always say that I write for an audience of one, which is myself. I'm just writing things that I find interesting.

And I try to tell a story that I think is unique and captivating. And then I take a leap of faith that hopefully other people, some other people might be interested in it as well. That's a really small thing, but I think that can apply.

to almost anyone's career. That if you're just being genuine to who you are, rather than trying to pander to what you think other people want, that's when almost everyone's going to do their best work. There's a question you pose at the end of your book, and I'd like for you to try to answer it. What are we ignoring today that will seem shockingly obvious in the future? The reason I included this is because by definition, nobody can answer it.

You can't. You can't do it. But you know it's something. It's always the case that society can look back at where we were 10 or 20 years ago and say, how could we have been so dumb? How could we have not have seen this coming? But the common denominator for all of those things is go back in time. Nobody could have seen it coming. Gets back to Schiller's point about, you know, the smartest economic minds in 1929 did not see the Great Depression coming. We look back today.

at the excess of the twenties and say, anybody could have seen this. How could you have been so blind? Always the case so that it's not, that's never how it works. And I mean, another example of this is the collapse of the Soviet Union that you can look back and say,

I can't even believe it lasted this long. Anyone could have seen this coming. Well, if you go back to see what the smartest geopolitical strategists were saying in the early 80s and whatnot, they were not predicting, at least at the timing and speed in which it occurred.

So that's what I think is so interesting about this question is that it cannot be answered, even if we're going to look back, not just as a society, but in your own personal life. How could I have not have seen this flaw that I had? How could I have been so blind? And maybe the purpose of the question is just to...

offer like a little bit of humility, that there are a lot of things in society and our own life that might be true to others and are definitely true in hindsight that are so painful that we are like intentionally blind to them. We intentionally ignore them because they're too painful to accept. As a final question, Morgan, imagine there are infinite number of ways your life could have played out and you just happen to be living in this specific version.

What is the one thing you would wish be true for you in every imaginable version of your life? Not just this one. I think the biggest one, because it is so... fundamental to your life success is that you're born to good parents. Now, of course, it's possible to be born to terrible parents and still go on to be very successful yourself, but a lot harder than it is. I think it's easy to underestimate, even if you think you had bad parents, how they shaped you.

And there's almost nothing you can do. And of course, that's completely outside of your control. Nothing you can do about it. You do not pick the parents you were born into. You don't pick the era or the region or the generation or the country that you were born into. But all those things have a profound impact on who you are.

you're going to become. That would be if there's like one variable that I could, that I could pick like, okay, I know my life's going to be different, but I want to pick one thing. Like make sure that I'm born to parents who love me and love each other as well. Let's end with a quote. From Khalil Gibran, money is like love. It kills slowly and painfully the one who withholds it, and it enlivens the other who turns it on his fellow man. Thank you, Morgan. I love it.

So good. Thank you so much for having me.