Financial Lessons From History Anyone Can Use to Get Rich

Mindy:
Today we are talking with perhaps the most notable thought leader in personal finance Morgan Hausel. While you may know him as the author of The Psychology of Money, his new book Same as Ever, is Even Better. Scott certainly thinks so. It’s

Scott:
So good. Mindy, today’s conversation is a rare opportunity to get a glimpse into how Morgan’s mind works. Take a deeper dive into some of the themes he spent his entire career studying and learn what he personally is doing with his own money.

Mindy:
Hello my dear listeners and welcome to the BiggerPockets Money podcast. You are in for a treat today. My name is Mindy Jensen and with me today is my co-host Scott Trench. How are you doing, Scott?

Scott:
Same as ever. Mindy, same as ever. How are you doing? I

Mindy:
Knew I was walking right into that as soon as you said that.

Scott:
Alright, we’re here to make financial dependences less scary, less just for somebody else to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.

Mindy:
Morgan Hausel, welcome to the BiggerPockets Money podcast. I am so excited to talk to you today.

Morgan:
Thanks for having me. Nice to see you guys.

Scott:
Morgan, you’ve had amazing career in the personal finance world over the years and decades in it and building an incredible reputation, helping lots of folks. I’ve told folks that have listened to the BiggerPockets Money podcast that I’m such a nerd that I devoured psychology of money on my honeymoon and I was super excited to have you on today to talk about your second book, same as Ever, which has recently come out and which I think is even better than the Psychology of Money. So can you tell us a little bit about Same as Ever and then I would love to kind of unwind and go through your career.

Morgan:
Well Scott, thanks so much for that intro. I appreciate it. And Mindy, thanks again for having me. This was great. Same as ever was interesting for me. I have been a financial writer for my entire career. I was hired by the Motley Fool while I was still in college, so it’s all I’ve ever done is written about finance and the first couple years of doing that was I was writing about the stock market in particular and even early on I was writing about individual stocks. So the idea of writing about something a little bit different had always appealed to me because as the years went on I realized I’m definitely not a stock picker. And even after that I was like, look, I enjoy the stock market because it’s interesting, but I’m interested in so much more than that. Psychology of money was my first like, Hey, I’m really interested in behavioral finance.
I couldn’t really care less about where people think the stock market’s going to go next or what you think GDP is going to do in Q4. I’m not interested in that and I think no one’s really good at that anyways, but I’m very interested in what is going on inside of people’s heads when they’re making financial decisions. Same as ever though was a little bit different. It was like I’ve as many people are, I’m an amateur student slash fan of history and it had always been so astounding to me when I would be reading something about history, whether it was the history of economics or business or war or politics or science, whatever it would be, and you read something that took place a hundred years ago or even 500 years ago and you realize to yourself you’re like, that’s exactly what happens today. And the scene is different, the characters are different, the set is different so to speak, but so many behaviors about how people behave and respond to life, greed and fear and risk and uncertainty and opportunity never change.
It’s the same today that it was hundreds of years ago and that was really important for the second part of why I wrote this book, which was kind of my cynicism about how bad the entire industry was at forecasting the financial industry, forecasting the next recession or the bes and bear market like you guys know as much as anyone else, nobody can do it. That’s kind of an exaggeration, but it’s close enough to accurate to say nobody can do it. And so with that you can either become more of a cynic and say nobody should ever try to predict the future or you can take the observation that there are all these behaviors that never change and realize that if something was true a hundred years ago to the same extent that it is today, it’s probably going to be true a hundred years from now. I have no idea when the next bear market’s going to come, but I know how people are going to respond to it whenever it comes because that’s never changed and I have no idea who’s going to win the next presidential election, but I know how people are going to respond to it regardless of what happens because that sense of tribalism has never changed. That was really the basis of it. Yeah,

Scott:
There’s so many great nuggets in there. The biggest lesson I think I took away from same as ever is long-term compounding slow, unremarkable progress is made every year adoption of new technologies, better health outcomes, those types of things, but that the short run is always full of risks that are unknowable. There’s just no one predicted the pandemic, no one predicts any of these things that are by definition surprises to everybody else. And so the game, my big takeaway is for my personal financial position is to build a strong enough financial foundation and trajectory to be able to play that long-term game, but then also to couch that with knowing myself and trying to know myself and predict how I would react when the whole world seems to be collapsing, the market doesn’t just go down 30%, something else happens that creates that 30% and that’s where that fear comes in. How am I doing in takeaways? Is that kind of what you wanted a reader to take away from the book?

Morgan:
I agree a hundred percent with that. I mean I dedicate the book to the reasonable optimist. I’ll tell you what that is in a second. But part of the reason I did that is because psychology of money was dedicated to my wife and my parents and my kids. I ran out of people to dedicate it to. So same as ever. I said the reasonable optimist, which this is my own definition, I made this up, which is if you are somebody who thinks the future is going to be great, that’s not optimism. That’s complacency. Reasonable optimism in my definition was you are very confident. You have the utmost confidence that things are going to be better in your own life and for society in the future, but you are equally confident that the path between now and then is going to be very hard. It’s going to be very surprising, it’s going to be challenging, it’s going to throw you off course.
That’s reasonable optimism, steadfast confidence of where you’re going and realistic view about how hard it’s going to be to get there. And so I think that really ties into what you just said of the way I phrase it in the book is save like a pessimist and invest like an optimist. Save your money with the idea that life’s hard, careers are hard, families are hard, recessions happen, pandemics happen, wars happen, but invest your money with the idea that if you can endure all of that, the rewards for those who stick around tend to be great if you can stick around. And the amazing thing about investing is that you do not need to make that many great decisions if you can stick around. You don’t need to be a genius trader. You don’t need to even have tremendous foresight. What you get paid for in investing is the ability to put up with and endure uncertainty. And if you can do that, the rewards can be amazing. The rewards can be greater than the people who did by luck or skill forecast exactly what the market’s going to do this year. I think that’s always been very appealing to me as an investor.

Mindy:
We’re off to a quick break when we’re back. Morgan Hausel will reveal why he believes that what you do to gain wealth will not necessarily help you in keeping it.

Scott:
And we’re back. We’re talking to Morgan Housel about his own money journey and why he thinks most people don’t change their money habits.

Mindy:
You’ve mentioned habits don’t change and you can predict reactions based on past reactions. Yet we keep hearing this statistic over and over. Most people in this country do not have an extra thousand dollars to spare if an emergency arises. So what you’ve learned from writing two books and blogging about finances for almost two decades, what do you think most people, why do you think most people will die without ever having built wealth?

Morgan:
I think there’s a couple of answers to this question. One could be that the most important word that you just said in that sentence was wealth. Well, how are we going to define that in financial values? I mean there are literally people in this world for whom a billion dollars is not that much money. Chris Rock, the comedian, made the joke where he said, if Bill Gates woke up with Oprah’s money, he jumped out the window. And it’s a joke, but it’s true. It’s all very relative. And so one of the chapters in Psychology and Money is about how our expectations have changed. And it’s very common throughout history in all kinds of nations that over a long period of time over the generations average wealth increases or increases substantially, but expectations increased by even more. I’m making this up, but you can imagine if you someone today who was like, they are a retired 87-year-old and their net worth is $5,000, you and I might say not good, dangerous living on the edge 200 years ago adjusted for inflation.
Someone would be like, they’re rich, they’re filthy rich. You got $5,000. Even if you adjusted for inflation, you’d be like, you’re doing great. A lot of that’s just because our expectations have changed. It was not that long ago in all of our parents’ generation, if you go back to the 1950s, even the early 1960s, the vast majority of Americans worked until they died. There was no expectation of that. Every person, every hardworking person was going to have 20 years where they didn’t have to work and still had a dignified financial situation. That’s a very new concept. And so I think if you even went back to our grandparents’ generation for sure, if you said like, oh, most people don’t have enough money in retirement, the response would be retirement. What? What’s that? You work until you die. Your retirement party is also your funeral. That’s how it worked until not that long ago.
So I guess the answer to your question, Mindy, is the reason it keeps happening, at least one of the reasons is society’s expectation of what counts as wealth is always inflating. There’s an expectations inflation. That’s part of it. But I think that’s just one answer. I guess we can almost devote the entire episode to this one question. I’ll give you one other little element to it. I do think life is so competitive that it’s never going to be a situation where everyone, or even the majority of people, I mean there’s a Charlie Munger quote where he says the iron rule of math is that only 25% of people can be in the top quartile. That’s another of just like he’s trying to be sarcastic here. But if you ask a broad question, and a lot of people do ask this of the tools are there, why can’t everybody be rich? It’s like, well, it’s a competitive game and the reason that there is opportunity for some people is because other people are going to lose. It’s not quite that zero sum, but I think that’s at least part of it here. It’s just like theres not, there’s never going to be amazing opportunities for every single person. Part of the reason the system works is because there is an embedded element of inequality in which not everyone is always going to win. That’s a much deeper philosophical political point, but I think there is some truth to it. Yeah,

Scott:
There’s only so much beachfront property in this country, for example, and prices just reflect the fact that it’s scarce and that everyone is competing for that same beachfront opportunity. Speaking of competition, I want to connect this theme if we can to another component. Another theme that you opened up the psychology of money with where I think you used two examples, I forget the second guy’s name, but the first one was Ronald Reed, a janitor who died with $8 million in net worth and the other was this hotshot who went bankrupt. And your point there was something along the lines of, and only in finance can a guy like Ronald Reed beat a Harvard educated NBA executive in the sport of money in here. You’d never see that happen in a doctor do open heart surgery versus there’s no way this janitor could have done that job the same way, but money and finance is different from that game. And so how do I bridge this dynamic of, hey, there’s this competitive dynamic where you never have an edge yet people like ordinary people can sometimes win in this game. How do we combine those themes into a takeaway?

Morgan:
I think that is part of why finance can be so confusing for people and also why so many people kind of get ripped off by professionals is that in every other endeavor of your life that has very high stakes, you need to seek out the advice of experts because novices cannot even do it. I use example like open heart surgery. If you need open heart surgery, go find the best, most qualified cardiologist and if the person is not a certified cardiologist, do not talk to that person or take their advice. And so that’s how most things in life work investing, it’s just not like that. And in fact, there are not only some, but literally millions of novices who have no education, no experience, no background, they are just dollar cost averaging into their 401k and they forgot their password and they will literally smoke the majority of hedge funds.
And that doesn’t happen in any other field. And so for me, the takeaway for psychology and money was that doing well in investing was not about what, it’s not about how smart you are, it’s not about where you went to school, it’s just about how you behave. And there are quite a few people who have no education but have mastered their behavior and there are lots of people who have the best education and have no control over their financial behavior. And the former of those people will do great, they’ll do great financially and the latter will do very poorly. I think a lot of this was kind of influenced by my own parents who are smart, wise, educated people who have no financial training or background or really interest. They’re both very smart people, but they’ve dollar cost average into Vanguard funds for 40 years and never sold a single share. And if you look at their performance, it stacks up with the absolute greatest people out there. I mean they’re literally in the top 5% of money managers of their generation and A, they don’t even know it. And B, they didn’t even try. They put in no effort to doing it and that doesn’t exist in any other field. And that was always really fascinating to me. So I think a lot of it was just digging into how my parents did it. Okay.

Mindy:
So why do you think so many people are afraid of investing when it isn’t about how smart you are and it isn’t about when you went to school and it seems to be to those of us who know about investing, it seems to be so easy and such a no brainer. Why are people so afraid of this?

Morgan:
I think it’s two reasons. One, because the stakes are so high, the majority of the investing industry is based off of two life events, retirement and sending your kids to college. That’s what the majority of people and where the majority of capital is investing for. And both those things, the stakes are really high. Don’t screw this up or else the entire trajectory of your life is going to be in jeopardy. That’s really scary and there aren’t a lot of other things that are like that. The only other thing that is that in life is maybe health where it’s like, Hey, don’t screw this up. It’s hard to have a good life unless you get this one thing right. You want to be healthy, you want to take care of your body, but in health there are qualified experts to seek out, you go to the doctor.
It is pretty straightforward in investing. I think what has made it intimidating for a lot of people, and this sounds kind of cynical, but I think the vast majority of investing professionals are good, honest, well-meaning people, but it’s also true that they can make a lot of money in the investing world. There’s a lot of money to be had among investing professionals and a lot of it is in order to justify your fees that the financial professional is charging, they make it seem really complicated. And again, I think that’s done with good intentions. A lot of it is the people who work in finance are very smart people and they want to put their big brains and their big degrees to work. So if you are a big brain, well-educated financial advisor, a lot of ’em do not want to say dollar cost averaging index funds and just let it rip over time.
They don’t want to say that. They want to say like, look, if I’m charging you a high fee and by the way Mr. Financial advisor, I have a 180 IQ and I went to Harvard, blah blah, blah. They want to put that intelligence to use by making it a little more complicated. And I think part of the reason that is very well-meaning is because also there’s so much opportunity in investing. I mean global financial markets are worth something like $300 trillion. And so if there is an opportunity to earn an extra two basis points of return, it’s a lot of money, it’s a ton of opportunity. So there is just an enormous amount of brainpower in there that is devoted towards picking up small pieces, pieces of opportunity because a small opportunity on a $300 trillion opportunity base is dynastic wealth. I think that’s a lot of reasons where this happens. It’s a combination of the stakes are high and the incentives to make it seem more complicated than it is are enormous.

Scott:
I want to go back to something you said earlier. You talked about how your parents were so successful as investors over a long period of time, and you’ve talked a lot about your father and his perspective in your books and in other interviews. Can you tell us a little bit about your upbringing with money and how that molded you into this really wise, I think leader, thought leader in the personal finance world?

Morgan:
Well, the first is everyone, me, you and everyone listening is shaped by their childhood. I mean, that’s just part of how humans works. What gets in early, what you will learn early sticks around. And so it wasn’t until I was older and I was an adult that I started thinking about the trajectory of my childhood from many different areas, but also financially how it worked. And mine was very, it pretty interesting because my dad, this was in psychology money. He started his undergraduate college when he was 30 and had three kids. That’s when he started his bachelor’s degree and he became a doctor when he was like 44 and had three teenagers. So it was a very different trajectory. I’m the youngest of three. He started his undergraduate college I think a month after I was born and it became a doctor when I was in third grade, something like that.
And so growing up I saw two very different sides before third grade. So I dunno how old you were in third grade, 10, something like that. From age birth to 10, we were extremely poor. My parents were students. I think they got a little bit of residual money from student grants enough to buy us Top Ramen and live in a cheap apartment. I had a very good childhood with two loving parents who took us out and we did a lot of things, but we were completely broke. I didn’t really know it as a lot of kids. I was happy. But then when I was in third grade, my dad became a doctor. Now he’s an ER doctor, which is among the lowest paid of the doctor are different kinds of doctors. We were not rich by any standpoints, but relative to where we were, it was like this sudden shock of we used to be like bonafide poor and now we’re upper middle class and it literally happened overnight.
And so it was jarring because during that period we bought a house and we bought nice cars, we went on vacations. And so I think seeing that, I think most people, maybe this isn’t true, maybe this is just my assumption, I think most people’s financial childhood tends to be in one bucket. We were always poor, we were always rich. It’s usually pretty standard. Mine was very clearly separated in 19 93, 19 93, everything changed. And so I think seeing both sides of that was really interesting. The other important thing is that the frugality that was demanded of my parents when they were poor, we didn’t have any money. They had to be frugal. They had to stretch every dollar that stuck around with them, even when they started making a lot more money. So we lived a better life, but my parents were very big savers all throughout my later childhood and teenage years, and I think for a long time in my teenage years, I looked down upon them for that.
It was especially as I became an older teenager, 16, 17, 18, and I started realizing, I was like, I know how much money you make and you’re not spending very much of it. You guys are saving a lot of this and we could be living a better life if you had spent more. That was kind of my view. And then this wasn’t even that long ago, this was 2011 that this happened. My dad retired many years earlier than I think he anticipated because as an ER doctor, it’s absurdly stressful among the hardest professions. It’s literally people dying in front of you every day and you’re working night shifts and whatnot. So after doing it for like 20 years, he said, I’m ready to retire way earlier than he expected. And he was able to do that, just retire on a whim ahead of schedule because he had saved so much.
He was such a big saver over time and that really stuck with me of his frugality was he was actually buying independence. Every dollar that he saved was not idle money, it was buying something very important, which was independence and the ability to just live the life on his own terms. So now he’s been retired for, I dunno, 12, 13 years, and he’s happier. He’s happier than he’s ever been. My mom’s happier than she’s ever been because of the independence that they had and they only had independence because they were living so far below their means. That really stuck with me. Yeah.

Scott:
Here at BiggerPockets Money we’re all about the personal financial independence and that’s what I’ve kind of thought about all these years is I’m buying financial independence instead of whatever artifact or good or house or whatever it is on that front, what are you motivated by there? Is it financial independence? Is it something else? You talk about rational optimism and risk. Is fear in there at all for you as an emotion with the way you build your money?

Morgan:
Definitely early on, very much motivated by fear. Even maybe this is somewhat contradictory to what I write, but I’m very much a worst case scenario thinker, and I think worst case scenario about virtually everything, particularly after I got married and then had kids, all of a sudden as every spouse and parent can relate to, all of a sudden it’s not about you anymore. It’s not just about you, particularly after you have kids, you’re like, I don’t matter. It’s just these little ones are all that matter and there’s a lot of pressure on my shoulders to make sure I do things right and provide for these children. That was a fear motivator that is still today. Now, as time has gone on, I think it has moved from fear as the motivator and then it was independence as the motivator and then maybe even after that, it’s like the motivator is like, well, do I really want to be doing this if I don’t need to be working as hard as I can just for the paycheck, do I really enjoy the work that I’m doing and I want to make some money on top of that?
But do I really enjoy, do I have intellectual freedom outside of financial and time freedom? That’s always been really important for me. Morgan,

Mindy:
You’ve talked about how getting money and keeping money are two different games. Can you explain what the difference

Morgan:
Is? I’d always been astounded by the story of Jesse Livermore, who is on one hand one of the greatest investors who ever lived. He was around in the early 20th century, made most of his money in the 1920s and the 1930s, and I think at three separate occasions he became the inflation adjusted equivalent of a billionaire. And after the crash of 1929, which he was short the market just before that, he became by some accounts the richest man in the world. He made during the crash of 1929, the equivalent of 3 billion by shorting the market. That’s one side of Jesse Livermore’s story. The other side is that he went bankrupt, I think four times and eventually committed suicide the last time he went bankrupt. So here you have someone who is better at getting rich than literally anyone else in history and is among the worst people in history at staying rich.
He could not stay rich. It was like every time he became wealthy, he just kept taking bigger bets, bigger bets, bigger bets until it would blow up in his face. That was all he could do. So that to me is what motivated the concept of getting rich versus staying rich. And once you have that little framework, you see it everywhere. There are actually a lot of people who are very good at getting rich in the stock market and in business it’s a totally different skill to stay rich because getting rich requires being an optimist. It requires you to take a risk, be optimistic on yourself, be optimistic about the economy. Staying rich is almost the exact opposite. It’s a completely contradictory skill. It requires that while you are taking a risk and being an optimist, you’re also a little bit paranoid, a little bit pessimistic.
You acknowledge you own faults, your own flaws. You are keenly aware of how fragile the economy can be, and you need both of those feelings to coexist, to do well over time. Most people view optimism and pessimism as black and white. You’re either an optimist or a pessimist. And I think once you understand getting rich versus staying rich, you realize that you need both optimism and pessimism to coexist at the same time. And the cognitive dissonance of like I can explain my very optimistic view of the future, I can also switch gears instantly and explain my very pessimistic view of the future and the ability to hold both of those thoughts together and be like, yep, that’s my philosophy. The forging of those two things is a really important skill financially, and I think there are also a lot of people who are very good at staying rich but not good at getting rich. I know that’s an oxymoron, but people who are only pessimistic, only conservative, they’re just putting their money into FDC insured savings account, they’re never going to get rich. They’re always going to keep their principle, but they’re never going to get rich. And the opposite of that is the YOLO trader or the crypto trader in 2021, very good at getting rich, zero skill at staying rich. I think you see it everywhere.

Scott:
Where do you get all of these anecdotes from? How did you find out about Jesse? What is the process you undertake to learn about the history of all these stories that you have interwoven into your works so thoroughly?

Morgan:
It’s the entire, I mean, I first say there is no strategy is the strategy is you just have to view it as just let your curiosity take you where it is. And at least for me, anytime that I’ve tried to put a structure around it, even a structure as mild as saying like, oh, I want to read more about this topic. I think the whole thing breaks down. It’s only fun for me, and I only learned if I could just have no structure, just be like, oh, I heard about this topic and it seemed interesting. So I read more about it. And I think at least for me, if you always have this seed in your head of how does this story relate to finance, then you see it everywhere. And then when you’re reading about evolution, when you’re reading about science, when you’re reading about politics, when you’re reading about militaries everywhere you look, you’re like, oh, that’s exactly the behaviors that impact investors.
Once you look for it, it’s impossible not to see it everywhere. And so the huge majority of my day for the last 17 years has been casual reading with no structure. I actually spend very little time writing. It’s usually maybe one day a week that I’m actually typing on a keyboard. The rest of the time is just sitting around reading. And it’s been hard to convince my wife that when I’m sitting on the couch in my sweatpants reading a book, I’m working very hard. This is the core of my work. It is taken me a long time to convince her of that, but that’s really what it is now. I would, well, you invested in this great office, so I got to use it with that. I think I’ve been able to pull that off because I’ve always worked from home for 17 years. I’ve never worked.
I’ve never worked in an office and because of that, I’ve been able to pull off that I’m going to sit here and read, and that’s my most productive work. If you work in an office, if you’re a journalist in the New York Times, by and large, you can’t do that. Your boss wants you at your desk typing, moving the mouse in your nice business suit, sitting at your desk looking productive. I think that’s part of what’s worked for me is that the fact that nobody is watching me has allowed me to do things that do not look like work, but actually in hindsight are the most productive things that I could possibly be doing. That

Mindy:
Sounds a lot like Warren Buffet and Charlie Munger. They get up on stage and talk about how all they do all day long is read newspapers and chat with each other. I think,

Morgan:
Yeah, I mean most of us, and I would venture that the vast majority of people listening to this have what I would call thought jobs. Their job at work is to make a decision with their brain, and I’d contrast that to working with your body if you are digging a ditch or whatnot. So more and more people in the modern economy have thought jobs, and if your job is to use your brain, then I think the most productive thing that you can be doing most of the time is thinking, and most thinking doesn’t look like work. You’re not typing, you’re not moving your mouse. Most people will recognize that their best ideas, regardless of what their profession is, does not come when they’re sitting at their desk. The best ideas come when they’re in the shower or on the treadmill or walking their dog or doing the dishes or folding the laundry.
That’s when you get aha moments. And the reason why is because when you are folding the laundry, you’re probably thinking, you’re not typing an email, you’re thinking, and so one of the great ironies of the information age is that so many of us have thought jobs, and we don’t give ourself any time to think. Our employers don’t allow us to think and even we don’t allow ourselves to think. And so if you’re in a situation like me where nobody’s watching you, then I think you actually have a fighting chance of using your precious time during the day to think.

Scott:
I think it’s fantastic. I completely agree. And I think a substitute for, if you feel like you can’t think, a great substitute for that is to turn on an audiobook and same as ever. And let Morgan do the thinking for you and absorb some of those thoughts and do that 500 times over the course of 10 years, and you’re going to start making a lot of connections that you would never have predicted across a lot of different disciplines. So completely agree with that. And sometimes I’m not ready to think so I just passively absorb. And now a quick break when we’re back, we’ll be talking to Morgan Hausel about his investment strategy.

Mindy:
We are back and we’re talking to Morgan Hausel about his biggest money regret, but before that, we’ll hear about how he invests and why he chooses to continue investing simply.

Scott:
Alright, so I want to transition here. You spend all this time thinking, you spend all this time researching. You’ve studied money as exhaustively as anybody around. What do you do personally with your money? Has your investment strategy evolved? For example, since writing psychology of money with the pandemic or anything like that? What are you doing today?

Morgan:
Hasn’t really changed that much in years. I went through a period of change in my early mid twenties. I started investing when I was 19 as a day trading penny stocks as many people do because that’s appealing. But I think I learned very quickly that was one thing. In hindsight, I’m so glad that I day traded penny stocks for a month and then said like, oh, this seems dumb. But then there was a good 10 year evolutionary period for me of trying different things before I finally settled where I am right now, which is a dollar cost average into index funds. I have a pretty high percentage of my over assets in cash and treasuries, and I always have to say, I’m not recommending other people do that. You just have to figure out what works for you. And my wife and I really value the simplicity of it.
And also the variable that I want to maximize for is endurance and longevity. And so if in my view by owning index funds, the simplicity of it and the blamelessness of it increases the odds that I can stick with it. So if having this boring, basic investing strategy means that it increases the odds that I can stick with it for 50 years, then it’s the right thing to do. So I really haven’t changed that in probably a decade. The composition of our net worth is, I mean, our entire net worth is this house Vanguard funds, cash, treasuries, and shares of Markel where I’m on the board of directors, and that’s it. Really nothing else other than that. Awesome.

Scott:
What percentage, how many months or years of your annual household expenses do you keep in cash? Months or years?

Morgan:
It’s a lot. It’s quite a bit. I mean, some of that is just because our household expenses are not terribly large relative to our net worth. It’s also, I think as a writer, I have most writers, this is probably going down a little bit different avenue. Most writers do not have 30 year careers. A lot of it is like it’s not quite as fickle as an athlete where even pro athletes can have two year careers. Maybe it’s not that fickle as an author, but no author, no matter, unless they’re JK rallying or Stephen King, no one should expect that. Like, oh, I can keep doing this and earning this money for 30 years. So because of just the natural reality of the business I’m in, I keep more cash than might seem advisable to other industries. A lot of it too is just my personality. I value sleeping well at night and particularly because like I said, I have a worst case scenario mindset. I would never want to trade a bad night’s sleep because I think I could get an extra three basis points of return from my stock. It’s not worth it for me. And now that you can earn five and a half percent on your cash, it’s like, oh, it doesn’t even feel like there’s that much of a trade off anyways, so it’s quite a bit most people, is

Scott:
It years?

Morgan:
It’s years, yeah, for sure. I have two friends who are CFPs certified financial planners who I’m very open with about our finances, and I think it’s really important, even if you consider yourself a financial expert, bring somebody else into the fold who doesn’t have your emotional baggage. So I have two friends who know every detail about my wife and i’s money, and both of them at first glance, they’re like, why do you have so much cash? I don’t really get it. And I explain our reasonings and at the end I was like, okay, maybe it makes sense for you. But so there’s lots of it where it’s like, I am not recommending you do this. I don’t think that’s the right amount of cash for you necessarily, but it works for

Scott:
Us. Morgan, I have a question for you here that I want to get to before we run out of time, which is around real estate. You owe no real estate outside of your primary residence, and I’m wondering kind of what your viewpoint is on real estate investing as a strategy, where and when you think it might make sense as a tool and just your general views on it. Since we’re here at BiggerPockets, that’s what we’re all about.

Morgan:
Yeah. Well, I would very clearly separate investing in investing properties versus your primary residence. And mostly that’s because when you have a rental, you have a cashflow, you have money coming off of it versus your primary residence, you’re kind of just crossing your fingers that the real inflation adjusted value is going to increase over time, and a lot of people do, and they do that with a lot of leverage. Now, Robert Schiller from Yale won the Nobel Prize for many things, but one of which was putting together this historical series of US home prices since I think the 18 hundreds. And if you look at it in real terms, adjusted for inflation. For the vast majority of US history, US home prices adjusted for inflation are flat as a pancake like property prices, with the exception of the booms of the last 10 or 20 years, property prices will keep up with inflation every year, and that’s it.
And so it gets dangerous when people assume that their primary residence is going to go up by leaps and bounds and they’re like, oh, that’s my retirement. I’ll just buy a home and hold on, and then I’ll sell it. And by and large, historically that’s not been the case. There are periods when that works well if you’re in the middle of some sort of real estate boom. But I think investing, if you’re like, oh, I went out and bought a duplex to rent it out, great. Now I would say great. I wouldn’t say like, oh, that’s the best way to do it, because there’s a ton of everyone who has done that knows the broken toilets, the cracked windows, the missed rent payments. It is not an easy way to make money at all. And if there is any alpha so to speak, in that of like, oh, you can make more money than you could in the stock market doing that, it’s because you have to work for that money. You have to earn that money with sweat and labor and stress. I’ll

Scott:
See that point and I’ll raise you the hundreds of hours of self-education to actually learn about the mental models that you’re either going to do upfront before you invest or you’re going to do after you invest while you’re bleeding money.

Morgan:
Yes. So I’m not for or against it. I just think that to me, the biggest thing that I would be against is the diehard assumption that your primary residence is going to make you rich. I think that’s a dangerous mindset. If you can keep up with inflation, amazing, and that’s great, but the reason that I own a house is because it’s a great place for my family, not because I think it’s going to make me money over time.

Mindy:
Yeah, I love that. And another thing that I would say I am absolutely against is people investing in real estate because they feel like they have to. There are so many things you can invest in that I am not invested in. I don’t invest in, well, I don’t consider an investment, but I’m not in Bitcoin, I’m not in bonds. There’s a lot of things I’m not invested in and I don’t feel like I’m missing the boat. There are so many people who are like, oh, well, I feel like I really have to get into real estate, so I’m going to, well, that’s when you’re probably going to lose the most money you could possibly lose because you’re not going to be educated, like Scott said, you’re not going to be into it. It’s not going to be something that you’re going to want to do, so you’re not going to give it your best. It’s a real business. It’s a real lot of work.

Scott:
I’ll just chime in and say I agree with everything Morgan said. There is potentially alpha to be made in real estate, and one of the things that the rewards of real estate for me is an index fund like Vanguard might deliver a one and a 5% dividend yield and a rental property that’s paid off might produce income at a five to 6% cap rate, and I just feel better spending that cashflow and feel like it’s an inflation adjusted return on my lifestyle, and that’s the end result of the real estate investing for me. That makes me like it. But yeah, I completely agree. It’s not better, especially not unlevered than the stock market. It’s worse if you’re throwing darts at the wall and picking average duplexes out, for

Morgan:
Example. I love Mindy’s point about the feeling that you just need to do it. Brent Beshore has a great quote where he says, I am perfectly fine watching you make a lot of money doing something that I have no interest in. I think that’s an important financial skill to do. It’s a lack of fomo that is such an important financial skill, and the danger is that you see your friends making a lot of money in real estate and then you say, I have to get into this as well, just because you have the FOMO of what they’re doing. That’s tough. I

Mindy:
Love that.

Scott:
Morgan, is there anything else you want to leave us with before we ask a final question here?

Morgan:
No, this has been fun. This is good. This is

Scott:
Good. Alright, our last one here is are there any financial regrets that you have or big mistakes that you have that you take back in your personal story?

Morgan:
I made plenty of mistakes, but I would not call those regrets. And I mentioned earlier I started as an investor day trading penny stocks. Was that a mistake? Of course. Was it a regret? No, because I’m so glad I learned that lesson when I was 19 versus 46 and trying to put my kids through college. Everyone’s going to have to learn some tough financial lessons. Nobody goes through their life doing everything perfect. I actually really am grateful that I learned those lessons young and I learned them quickly. And so we could sit here for another five hours talking about mistakes that we’ve made. But I feel like because we’ve learned from them, my wife and I don’t consider them regrets at all. I think if there might be some, and this was so common for people of my generation and hundreds of millions of other people during the aftermath of the financial crisis in 2008, I was just overwhelmed with career anxiety of because nobody was hiring.
Unemploy rate was 10% and it really took a toll on me. It was a really big stress in life, and it was during the area where I was trying to figure out my own writing career, can I be a writer? How do I be a writer? I look back at that and I don’t regret that because I think fear is a motivator, but I wish I could go back and just say, it’s all going to be okay. It’s not going to be easy. It’s not going to be flawless. It’s not a straight path up, but it’s all going to work out eventually. I think that’s something that I think about financially that maybe this comes full circle to where we began of like, you’re going to be better over time, but don’t fool yourself into thinking that it’s going to be easy. I think coming to terms with both of those realities and grasping them with both hands is a really important part of doing well financially.

Mindy:
I love the distinction between regrets and mistakes. That is such an important lesson that people need to learn. Morgan, this has been so much fun. Seriously dream come true. I am so excited to have had this opportunity to listen to you and to talk to you. Where can people find you online?

Morgan:
Well, my two books, same as ever in the Psychology of Money are out there. Most of my time is on Twitter. That’s for better or worse where I’ve chosen live my digital life. So on Twitter, my handle is Morgan Hausel, my first and last name. Awesome.

Scott:
Yeah. And thank you for writing two great books. The second even better than the first in my opinion out there. So everyone needs to go check out. Same as ever if you haven’t got a chance yet.

Morgan:
Well, I mean I was a little book inside baseball. Amazon is roughly 90% of book sales, so I know that’s where you’re going to get it anyways. But other than that, it’s pretty much in all bookstores. There’s just not many of them left except for Amazon.

Mindy:
Okay. The book is same as ever by Morgan Hausel, and it is an awesome read if you have not picked it up yet. Alright, Morgan, we will talk to you soon. Thank you. Thank you. Oh my goodness, Scott, I hope my fan girl didn’t show too much. That was Morgan Housel and that was so much fun. I know I say that at the end of episode, but this one was seriously my favorite episode that we have ever done. I loved specifically at the end, Morgan’s distinction between regrets and mistakes. What a brilliant piece.

Scott:
Yeah, I think he’s one of those people that has spent so much time building up his mental models and has a framework for all of the things that are related to personal finance. You feel like we could have fired random questions at him for 10 hours straight and every single response would’ve had a well-rounded answer to it. And it’s probably not just true in personal finance, it’s probably true in a great body of related and other areas of life because of the amount of time he spends thinking, reading, and writing. And I have true admiration for that and hope over the course of the next 50 years, if I’m so lucky to live that long, I can get somewhere close to that.

Mindy:
You said that we could just fire questions at him and he kept answering. And there were several points in this interview where I was like, oh, that’s just like Warren Buffet, that’s just like Warren Buffet. He’s just like Warren Buffet. I see a lot of similarities and it’s underlined the amount of time that they both spend reading and consuming. And it isn’t just pump out all this content. It’s absorb information as well. And you’re absolutely right. We could have spent the next nine hours. I happily would’ve spent nine hours talking to Morgan. This was just an absolutely fabulous interview. I had such a good time. I’m so excited it

Scott:
Worked out. I want to leave a speculative question here because I think Morgan is one of those minds that if he had decided to spend his career trading and investing like Warren Buffett, maybe he would’ve been one of those few exceptional people who could have actually delivered those outsized returns. And instead he chose to put his mind to work in this capacity and he’s going to create 10 times that amount of wealth, or a hundred times that amount of wealth for the people who absorb his information and thought leadership instead. And it’s like, I wonder about that. So that’s as high a compliment as I can give to somebody around there and saying, the guy has just absolutely mastered these frameworks and has really made a dent in the world. Yes,

Mindy:
He has really made a dent in the personal finance world. If you are not currently reading his blog, if you are not following him on Twitter, make sure you go and do that. Alright, Scott, we get out of here.

Scott:
Let’s do

Mindy:
It. That wraps up this fabulous episode of the BiggerPockets Money podcast. Of course, he was Morgan Hausel, that guy. There is Scott Trench and I am Mindy Jensen saying, got to hit the road, little Toad.

Scott:
If you enjoyed today’s episode, please give us a five star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpockets money.

Mindy:
BiggerPockets Money was created by Mindy Jensen and Scott Trench, produced by Kaylin Bennett, editing by Exodus Media Copywriting by Nate Weintraub. Lastly, a big thank you to the BiggerPockets team for making this show possible.