Sam and Shaan sit down with Morgan Housel, author of The Psychology of Money, The Same as Ever, and The Art of Spending Money. They discuss Warren Buffett’s compounding returns, the power law in investing, using money for independence rather than status, how to spend wisely, and why behavior matters more than knowledge in finance.
Speakers: Sam Parr (host, co-founder of The Hustle), Shaan Puri (host, investor and former Twitch product lead), Morgan Housel (guest, author of The Psychology of Money)
Intro [00:00:00]
Sam: Today we’re talking about money with the guy who’s been studying money for the last 10 years. He’s the author who sold more books about money than pretty much anyone on earth. It’s Morgan Housel. He wrote The Psychology of Money, The Same as Ever, The Art of Spending Money. And we talked to him about Warren Buffett, about the behaviors that drive people to either make money or lose a bunch of money, about spending money, about how much money is enough. It’s just a good honest conversation between a bunch of dudes about money. What more do you want?
Buffett’s Insane Compounding [00:00:40]
Shaan: Morgan, you tweeted out something that broke my brain. In fact, I thought it was like an AI deep fake. It’s like when Luca got traded and people were like, “This must be fake news. There’s no way this is possible.” You said that your favorite Buffett stat is that Berkshire Hathaway could lose 99% of its value tomorrow and still have outperformed the S&P 500 since Buffett took over.
Morgan: And the truth is I was understating it. It’s actually like 99.6% or something like that.
Shaan: How is that even possible? You know we don’t do public math here, but that sounds mathematically impossible.
Morgan: His was about 20% annual and I think the S&P nominal with dividends is probably like 11 or 12. So maybe it’s eight or nine percent outperformance, but he did that outperformance over 60 years. And so the cumulative performance, I’m pretty sure — if I’m getting this a little bit wrong, I’m sorry — but I think the S&P 500 is up 35,000% since Buffett took over. And Berkshire’s return was 5.5 million percent. And so even if it’s only “quote unquote” nine percent per year over 60 years, it just gets incredible, insane, preposterous.
And you know, Buffett’s current net worth is I think $130 billion, but he’s given so much away to charity that if you count that in, it’s something like $500 billion — that if he hadn’t given money away to charity, he’d be worth $500 billion.
Shaan: He’d be the richest man alive by far.
Morgan: And he started with $10,000 and turned it into half a trillion. But I think the biggest lesson here, and this is the most important for ordinary people, is that you can’t pick stocks like Buffett. You can’t analyze businesses like Buffett. He’s smarter than you and he operated in a different era than all of us. So don’t try to emulate that.
What you can emulate, especially for young people of course, is the most important and powerful thing that he did — he was a good investor for 80 years. It’s just the time that he was doing it for that made all the difference in the world. I pointed this out in my first book: if you look at his net worth, 99% of it came after his 60th birthday. So if he had retired when he was 60, when he was worth a couple hundred million bucks — pretty good — you would have never heard of the guy. The whole reason he became so famous and so wealthy is that he started investing when he was 11 and he retired last week when he was 95.
What Made Buffett Different [00:03:20]
Sam: You’re very lucky that you get to talk to all these amazing successful people. And investors are really cool because it’s not always about investing that you’re interested in. It’s about, like you said, behaviors. That’s why Shaan and I love talking about investors. We had Howard Marks on — it was one of our favorite things ever. We don’t know anything about bonds with Buffett. Is that the attribute — other than time in market — what other attributes separated him from the hundreds or maybe even thousands of equally smart people? What other attributes allowed him to be who he is versus the rest who are pretty good?
Morgan: I think there’s quite a bit. One is what Berkshire did, what Buffett did for 60 years, is on one hand so unbelievably simple and on another hand almost impossible to replicate. And it’s hard to kind of square those two. But what it required was an unbelievable amount of patience, an unbelievable amount of goodwill in terms of the trust that he had among all other businesses, among his investors, among regulators — because everybody around him just left him alone to do his thing because they trusted him. And I think that’s an overlooked part of this. Any other hedge fund manager, private equity fund manager would not have the trust among their investors, among portfolio companies, anybody to let them do what Buffett did. That was huge.
Sam: Explain that a little more. What’s a thing that Buffett did that others might not have had the leash to do?
Morgan: He had the track record and the narrative that if you sell your business to Berkshire, it is not going to molest it and rip it apart and sell it for parts. It’s going to nurture it and let it grow forever. And I think if you compare that to Blackstone, KKR, all the other private equity shops — their stated purpose, and I’m not saying this is wrong — but their stated purpose is, “We’re going to maximize IRR and we’re going to do whatever is necessary to get there.”
Whereas Berkshire was, “We are intentionally not going to maximize returns. We could easily flip this company next year for more than we paid for it. We could easily lay off half the staff and squeeze more net income out of it. We’re not going to do that. We’re going to keep this as it is.”
And because of that, you had businesses that would sell their company to Berkshire for less than they could have gotten from Blackstone or KKR. Because if you were particularly a family business who built your business up over the years and this was your baby, did you want to sell it to Blackstone for an extra $10 million and have them rip it to shreds, or sell it to Berkshire for a little bit less and know that he was going to nurture it for several generations?
Buffett as Steward [00:06:10]
Sam: A common thread of the people that I’ve grown to admire is that they’re stewards. I’ve loved reading about George Washington. He was one of the only presidents ever where he had unilateral support from both sides of the aisle. And when people were interviewed, they said, “Why do you trust George Washington?” And they go, “Because I know that he is willing to put the union in front of himself.”
For example, the idea of a two-term president — George Washington created that. That was so crazy when he had been president for two terms and he was like, “I’m now done. It’s better off that someone else does it.” Or the US Constitution, which he helped formulate — it was one of the very first self-amending rule books where we acknowledge that the rules might be wrong, but we are going to work together to fix them as we go. And it was modeled in part because of George Washington’s attitude of being a steward. And that’s really interesting that you’re talking about Buffett that way. You’re saying he was basically a steward of goodwill.
Morgan: I think that’s true. And a lot of it was not altruism. He knew that he would be able to get the best terms and the best deals if he had that level of trust. So a lot of it was morals of just doing the right thing, but a lot of it was that this was going to accrue to him personally and to Berkshire over time.
Sam: Sure.
Morgan: And I think that’s where you get the best results — when everybody’s winning. The companies that would sell to him were like, “This is where we want our baby to go,” and Buffett himself was going to get it at better terms and have better deal flow than anyone else doing it.
The Power Law [00:08:00]
Morgan: Also important to point out — this should not take away from any of his success, but it’s important to point something like this out. Buffett once pointed out that over the course of his career he has purchased 500 stocks and he made the vast majority of his returns on 10 of them. And Munger once pointed out that if you look at all of Berkshire’s deals over the 50 or 60 years that it was doing it, if you remove the top five, its returns fall to average.
And so this is true for almost any endeavor that you look at. Whether it was Berkshire buying whole companies or Buffett as basically a hedge fund manager back in the day, the huge majority of the success comes from a very small minority of what he did.
How to Action the Power Law [00:09:30]
Sam: How do you action that power law — the observation that it’s all about these power laws, that a few things will account for the majority of your success and your returns?
Morgan: I think there’s probably two takeaways from it. One is the idea that if you’re in a game like that where you don’t have a perfect success rate — like if you’re a pilot, you should have a perfect success rate, every flight should land, it should be 100% every time — if you’re an investor, it’s not like that. You have to be very comfortable with a lot of things not working. And a lot of investors are not. A lot of investors, it will destroy their ego, their soul, or the trust among their investors if they’re like, “Hey, we picked 10 stocks and three of them went bankrupt and four of them did okay, but one did really well.” Even if on average it works out, a lot of people just can’t handle that kind of volatility. So coming to terms with the idea that it’s always going to be a tail-driven business — just the psychology of that is important.
The other, I think more important, takeaway is the humility of how hard it is to emulate this. It would be one thing to learn how to be a pilot and learn the mechanics of an airplane and aerodynamics and figure out how you can land the plane every time — you can teach that skill. It’s another to be like, “Man, if you’re a great investor and you’re so smart and you know everything, you’re right five and a half times out of 10.” And that’s if you’re good. It’s a very humbling statistic just to put people in their place, I think, in a good way, of how difficult this business can be.
Don’t Cut Your Flowers, Water Your Weeds [00:11:10]
Shaan: I asked the same question to Mohnish Pabrai, who is a value investor. He was a kind of Buffett disciple, friends with Charlie Munger type of thing. And I said, “What’s the takeaway from that stat — that Buffett himself admits it’s a dozen decisions out of 500 that really charted the difference between them being who they were versus being average?”
And he said you can’t control — you don’t know upfront which of those decisions is going to be the big winning decisions. But he said Buffett was able to circle the wagons, meaning once he bought one of those companies that was the long-term compounder that was just going to keep paying dividends out for them, he didn’t sell too early. He held them for the long term. He circled the wagons around those core assets. He just never let anything attack those core assets.
Buffett is famous for having called Peter Lynch once and said, “Hey, I love this phrase you said. Can I steal it for my annual letter?” And Lynch was like, “Yeah, what did I say? I don’t even remember.” And he goes, “You said don’t cut your flowers and water your weeds.” Meaning, don’t sell your winners to take profits and then put those into less good investments, because that’s going to destroy your ability to get returns. It’s so hard to find these winners. When you find them, you got to circle the wagons around them.
Morgan: And I think that’s the only thing you can do after you’ve made the good decision — let your winners ride for a longer period of time.
Venture Capital and Unpredictable Winners [00:13:00]
Shaan: Yeah. And this might get back to a little bit of what we said earlier. So I joined the fund in 2016, but I’m not an investor. But I’ve been able to watch and observe a top-tier venture capital fund operate. And what’s very interesting to me is, true to all venture capital companies, a small minority of the companies we’ve invested in account for the vast majority — virtually all — of the returns.
Sam: Who are the big winners for Collab?
Shaan: Lyft, Beyond Meat, Impossible Foods, Upstart — those are the vast majority of returns. That’s probably right. And what’s interesting about it is if you go back to 2016 when I joined, the companies that were going to be our obvious winners weren’t, and most of them don’t exist anymore. And the companies that did just explode — Upstart and those — were companies that were like, “Oh, that’s a cool company. They’re doing some cool things.” But never in a million years would we have thought this was going to be it.
So not only is it a small minority of companies that are your winners, but similar to what Mohnish said, you don’t even know which ones those are going to be. It’s very difficult to know in real time.
Psychology of Money: The Unpredictable Bestseller [00:14:30]
Sam: Well, that was the case with your book. I think you said you printed 5,000 copies of The Psychology of Money. You’ve sold 10 million. I’m not sure how many books have sold 10 million, but you are in the freaks amongst the freaks in terms of numbers.
Morgan: And nobody saw that coming. I didn’t see it coming. The publishers didn’t see it coming. I’ve said this a million times before, but every US publisher turned it down. Every single US publisher rejected it. And I don’t fault them. It’s impossible to know what’s going to work before it comes out.
Sam: About how many non-fiction authors have sold 10 million copies of a book? Could you guys book a table at a restaurant? I kind of feel like it’s got to be like a dozen.
Morgan: Yeah. It’s hard to know because there’s not a lot of — if you’re looking at the last 10 or 15 years, there’s pretty good industry data that you can compare across time. But if you go back a hundred years, you’re dealing with data sources that are all over the place.
Sam: Okay. Well, how many in the last 15 years?
Morgan: Not many. I don’t know. Probably five, something like that.
Sam: No shit. How cool is that, man? Five people plus one to the dinner.
Why the Craziest Ideas Win [00:15:50]
Shaan: Well, isn’t that interesting? You said you wrote, I think you said 8,000 blog posts. You’ve written three books now that have been huge hits. And yet you are telling me that predicting what will be popular in terms of content, particularly in writing, is impossible. I don’t like that as someone who’s making content, right?
Morgan: No, I think I’m being very honest. And of the 4,000 blog posts that I wrote, there’s like three or four that stood out that were an order of magnitude bigger than the others. And all four of those, before I hit publish, I was like, “Should I — I don’t — this is crazy.”
Shaan: This is insane. Like, “I don’t even know if I want — this is crazy.”
Morgan: And there’s literally one of them that I published but I hid it from our blog’s feed because I was like, “I just want to have a link that I can show some people, but I don’t know if I want people to see this yet.”
And so if there is any metric that you have some feel for, it’s that before you publish it, you’re like, “This is the craziest shit I’ve ever said in my life.” And I’m embarrassed to hit publish. But I think almost — that’s what you need to make it work.
And so when we pitched Psychology of Money to all the big publishers, a lot of it wasn’t just basic rejection. A lot of it was like, “There’s no way that that would ever work,” because it was a weird idea. I was like, “Look, there’s no central thesis to this book. It’s just 19 random essays.” And they’re all about behavioral finance-ish, but there’s no other cohesive theme. That is so antithetical to what a publisher wants. A publisher wants one big idea weaving its way throughout the entire book. And I’m like, “No, I don’t have that. Sorry.”
And so it wasn’t just that they didn’t believe in me as a writer. The whole structure of the book was the opposite of what they were looking for. But I think you need that in order to stick out. And how could it be any other way — in order to have a non-normal result, you have to have a non-normal idea. That’s true for entrepreneurs. It’s true for any endeavor that you take. You have to be an oddball in order to stick out.
Money as a Tool vs. a Measuring Stick [00:18:00]
Shaan: Can I give you a couple of quotes from your book that I’ve loved that I just have in my Kindle highlights? I just kind of want you to talk about them. I’m just going to throw them at you.
Morgan: Yeah, let’s do it.
Shaan: Okay. The first one is a useful one and then I have a fun one right after that. The useful one is this. You said something like there are two ways to use money. Number one, money as a tool to improve the quality of your life. And number two, money as a measuring stick to measure your self-worth. That one hit me hard and I now can’t unsee that. Whenever I see anybody, whether they come on this podcast or just somebody in real life, it’s so black and white to me to understand who’s using money in which way.
Morgan: No, it’s tough. And I think I’ve always wanted to write about problems I have in my own life. So a lot of this was just kind of looking in the mirror and being like, “What is my desire for more money? Am I using it as a tool to make my life better and my wife and kids’ lives better, or is it just a measuring stick of how well am I doing in life and where do I sit on the social hierarchy?”
And if I was honest with myself, it was a lot of the latter. And I think we’ve done a pretty good job spending money on the things that we like and whatnot, but a lot of the desire was just like, “What’s the scorecard look like?” And maybe that’s not bad because I enjoy that game.
Sam: Yeah. Why is that bad? Because like for example, you’ve sold 10 million books. We just use that as a measuring stick, and 10 million books correlates exactly to money. That to me means your ideas are impacting so many people for the better, and I want you to measure your life by getting to 20 million books because I think your book helps people.
Morgan: I think you’re right there. But here’s where it can really go astray. Money is so quantifiable and book sales are so quantifiable that they become — we overestimate their importance. What I mean is, if you said, “What’s important in life? I want to be a good husband, a good dad, a good friend, a good citizen. I want to be funny, I want to be healthy.” All those things are so important and they’re very hard to quantify. How do I quantify whether I’m a good dad or not? I don’t know. It’s potentially the most important thing to me in the world. And there’s no score. So it means everything to me, but it’s easy to kind of ignore because it’s this mushy topic.
But what is my net worth? How much did my income go up last year? What are my returns versus the S&P 500? You can measure those down to the millionth of a basis point. And so because they’re so easy to track and it’s apples to apples — my net worth versus yours — how do I compare my social citizen score or my dad score or husband score from me to you? You can’t. There’s nothing.
But income — we can sit here and compare our net worth all day. And so I think using it as a scorecard metric is both really good and can be a lot of fun and used for good. I love that game. I’ve been playing that game since I was a teenager and I’ll keep playing it the rest of my life. But you have to understand the limitations of it and how much power there is towards it just because you can quantify it, not because it’s necessarily going to give you a better life.
And I think there are a lot of people who, because it’s so easy to quantify, chase it as the ultimate metric and solution to everything in your life. And everything else — your friendships, your relationships, your health — that are more important take a backseat just because you can’t measure them.
The Freedom Number [00:21:30]
Shaan: Let me give you an example of this, because I think usually when we talk about “money is not going to make you happy” or “money could be a tool to improve your life or a measuring stick” — this is usually rich guy problems. So it’s like you already have money and you keep chasing more money and you’re facing this existential “what is enough?” You’ve talked about this word “enough.” Sam, I know you’ve talked about it — like “enough is just twice what I have,” always, right?
Our buddy Andrew Wilkinson wrote a book called Never Enough. And I kind of reject the premise, and I’ll give you an opposite example.
When I was 21 years old, I graduated from college. I graduated from a good school — I went to Duke. And when you go to a good school, everybody you know goes and gets a job in finance or consulting or they go become a lawyer or a doctor or whatever. But the people who get jobs, they go get high-paying jobs at companies you’ve heard of and that sounds really good. I would see one friend gets $100K, one friend gets $120K, one guy got $200,000 straight out of college. That is incredible.
And I faced that problem you were just talking about, Morgan, which is that’s a number that I can compare myself on. And I made a decision because we were trying to start a startup, so nobody was going to pay me any money. The company was a company nobody’s ever heard of because we just created it three days ago when we filed the LLC.
So what am I going to do? What I did was I tried to think about money as a tool to improve my life. Specifically, I said, “What is the minimum amount of money I need to make this year so that I can live and have the maximum of time to go pursue this project and travel and do these other things?” And so I calculated what I called the freedom number. I don’t remember what it was exactly. I think it was something like $15,000 or something like that. It was a very low number. Less than minimum wage if you just work at a McDonald’s or whatever.
Sam: So like $1,200 or $1,500 a month?
Shaan: Yeah. We were splitting a two-bedroom apartment, three friends. And we slept on air mattresses. We got all our sofas for free off Craigslist. We ate the minimum stuff at home. We didn’t go out — we drank at home and then we would go out. We didn’t buy drinks at the bar. Little stuff.
And I realized I could make that number if I just — I was tutoring three or four college kids in statistics, which I wasn’t even good at. I had a C in statistics, but they had an F. So in the land of the blind, the one-eyed man is king. And then I coached a basketball team of middle schoolers at a school for autistic children. That was my job. Two basketball practices a week, two or three tutoring kids. And I had all this free time that none of my friends who had hedge fund jobs or banking jobs in New York had.
And it was the first time I got a taste of this concept you’re talking about, which is you need to create your own scoreboard and your own metrics.
Morgan: If you want to live life on your own terms.
Shaan: If you just take the metrics life hands you, you’re going to live the life that those algorithms want you to have or society wants you to have, and you’re not really going to have life on your own terms.
Money and Independence [00:24:40]
Morgan: The only thing I ever wanted out of money was independence. I just wanted to live life on my terms and do what I wanted to do. And I’ve known this about myself for a long time — that I can do good work, but I’m not a good worker. I’m not a good employee. I’m not good at all when a boss says, “Here’s what I want you to do. Here’s how I want you to do it and when I want you to do it.” I’m a shit worker under those terms. But if I’m left to my own devices and somebody says “just go do your thing,” then I can really accomplish something.
I just wanted to be fiercely independent in everything that I do. And I think every single person has unbelievable talents if they can be left to their own devices. But a lot of people, once they’re under the pressure of other people’s goals, other people’s ideas, other people’s financial incentives, are pushed down a notch. And that’s unavoidable. I’m not saying everybody should go be an entrepreneur, of course.
But I think if you can use financial independence to work at the company that you want, to live where you want, to live in an area that gives you a lower commute, to retire when you want, whatever it might be — I’m not anti-materialistic at all. I love nice things. But using your money for that is, I think, the highest ROI by tenfold. If you can use it for independence rather than as a material social peacock showing other people, “Look how successful I am.” Using it more inward to just be like, “I just want to wake up every morning and say I can do whatever I want today.” That to me was always the ultimate goal.
The Koch Brothers Wine Story [00:27:00]
Sam: We should talk about spending in a second, but Shaan, what are the rest of your quotes?
Shaan: Well, one of them was this story. Speaking of using money for status — it was the story about the Koch brothers’ wine collection.
Sam: Can you just tell the story? Shaan, have you heard the story? I think it’s awesome.
Morgan: There was — one of the Koch brothers was an unbelievable wine collector. Not tens of thousands of bottles — the rarest, most amazing wine that’s ever existed. And he had two or three bottles that he purchased — I forget the exact price, it’s in the book — but an unbelievable amount of money. And they were Thomas Jefferson’s wines from his estate that he bottled from his estate in Virginia. And he paid —
Sam: I’d break 10 years of sobriety to drink that.
Morgan: Well, this is where the story gets good. They were fake. They were forged.
Sam: Shit.
Morgan: He hired a private investigator to audit his entire wine collection and be like, “Give me a rough estimate of how much of what I’d bought over the years is fake.” And this is a multi-million dollar wine collection. A very uncomfortable percentage of what he had purchased for tens of millions of dollars was all forgery.
And once you dig into it, the wine forgery business is off the charts because you have very rich collectors and no way to authenticate what’s there. It’s sort of like the dog vitamin business. It’s like, “Does it work?”
Shaan: One of the tells of what they were doing when they were investigating this was literally this Thomas Jefferson wine — the label was stuck on with Elmer’s glue that was invented 50 years ago, kind of thing.
Sam: That’s awesome.
Shaan: Turns out Thomas Jefferson didn’t even bottle wine.
Morgan: But even when you open the bottle and drink it, you still can’t tell. So it’s this ultimate forgery business. But was he less happy once he found that out?
Shaan: That’s the point. I think there is a thing where you do these things because they’re cool and they make you feel good. And so if you have a fake Louis Vuitton purse — what should make you happy is the quality of the purse, the feeling of it, the durability.
Sam: No, dude. I so disagree. The story can matter. Like for example, we were just talking about — I’m into Japanese denim. It’s just a weird hobby. And there’s some weird story about how this small company in Japan, they remake the jeans in this crazy stupid way, but it’s awesome to a very small group of people like me. If I found out that wasn’t true, that would bum me out because I wanted to participate in this journey.
Morgan: I don’t disagree with that. But I think there is an interesting thing where brands gain their prestige based off of quality over time. There was a period when Louis Vuitton was just a startup bag company and they gained their brand and their prestige based off of quality. And there comes a point where it’s like, if a fake has that exact same quality — I totally understand the point about the history and the story of it. A friend of mine just started a men’s skincare company and I love supporting him and the product is great, kind of thing. So the story behind it matters.
But I think it’s interesting when the prestige of something disconnects from the quality of it.
The Deserted Island Test [00:30:10]
Morgan: To me, I think there’s always been this litmus test that I think about, which is: if I was on a deserted island with my family, and nobody could see how we lived — nobody could see our house, our cars, our clothes — it was completely invisible to every other eyeball except for our own. How would we choose to live?
And I think for some people, the answer might be exactly as I do right now. I’d have the same house, the same car, I’d wear the same clothes.
Shaan: But definitely not most people.
Morgan: And I think for a lot of people they are living a life of performance. And that’s okay. But you have to perform for the right people. I want to perform for — and that’s a silly way to do it — but I desperately want to impress my wife, kids, parents, three or four of my friends, because I really want their love and attention. Once you start into the realm of “I want to perform for strangers and get their attention,” that I think is a completely fruitless game.
Does Your Family Care About Your Work? [00:31:20]
Shaan: Okay, but let’s test that. Do you think your kids and wife care about the books you’ve been spending years of your life writing? Right. They’re not impressed by that. But you’re doing it. So there’s got to be some other motivation.
Morgan: No, there’s been an interesting thing. I wrote my first book when I was married and had two kids, and so all of this came after that. Does my wife love me more? No, she loved me enough back then. Do my kids — does my six-year-old daughter love me more now? No.
Shaan: So is there a part of you trying to impress some other group with the books, or is there just some other motivation altogether, if you’re being honest? What is that?
Morgan: Yeah, it’s a good question. I’ll try to give you an honest answer. I think it’s a combination of — I genuinely love writing. I think it’s a lot of fun. And if I’m looking at it from a financial point of view, I like the game. I like the game of earn as much as I can, invest it as well as I can, compound it for as long as I can, use that money to both live a great life right now and pass it along to my heirs and charity at various points in the future. I love that game. I freaking love it and I would be sad if I stopped playing that game. So I think that’s the main motivator.
The Legacy of Hard Work [00:33:00]
Sam: Shaan, you’ve posed that question to me and you sort of posed it to me — you were teasing me where it was almost like a gotcha. Like, “See, they don’t care.” And I actually reflected on that and realized the answer was they don’t care right now, but —
Shaan: Like your kids, you mean?
Sam: Yeah, my kids or family members. The people —
Shaan: And I think the context is you were saying, “I really want my kids to see me working hard and going for something.” I think that’s kind of how you’ve said it, right?
Sam: Yeah. And that stuck with me, and the reason it stuck with me is because you and I have talked about our parents on this podcast. And the things that we talk about are the things that they did when they were 18, 19, 30 years old — when we were before we were born or when we were small enough that we didn’t care then.
But we look back and we think, “How badass was that? How great was that?” And so I think the answer, potentially Morgan, for you — it is for me — is they don’t care today. But how wonderful will that be when your son or daughter is 25 or 30 years old and they’re like, “Look what my dad did. He had this concept. No one believed in him. It took off and he kept at it.” And how wonderful is that? Therefore, if I want to do something, I want to a) be proud of my name and carry this on, and b) “if my dad can do it, I can do it.” And he’s my model on perseverance.
Shaan: Yeah, you’re absolutely right in the abstract. It’s like they might not care about the newsletter or about Hampton or about this podcast or the specific projects we do. But when I was with Jesse Itzler in that last episode, he goes — he said, “Think about this. When you go back and you tell your kids, ‘Hey, daddy took a long trip to go and try to better himself.’ Like, he saw someone who might know something and he was willing to go out there and try to learn it so that he could become better. What a powerful lesson you could teach your kids about identifying — maybe there’s something out there that I could go learn — and then being willing to go get on a plane and go chase it, knowing it might not work out, but it might.”
And I came back and I actually did tell my kids because they were like, “Where’d you go?” And always when they say “Where’d you go?” I say, “Atlanta.” As if they — they don’t even know what Atlanta is. “Daddy has work.” And to them, work is just something that gets in the way of daddy spending time with them. They don’t really understand the purpose of it. In fact, I give it quite a negative association. I’m not showing them some wonderful example. They just associate it with, “It’s this thing that we don’t get to have daddy because he has to go do something that’s bad because he’s not here with us doing the fun things that we like.”
And so once I reframed that, I started to see them act different. And they would say things in their own day of how they came back from school where they’ll use this language where I’m like, “That’s the thing I told them two weeks ago that sounded kind of cheesy, but hey, it’s just the three of us in the car and nobody’s here to judge me.”
Money, Parenting, and Self-Worth [00:36:20]
Morgan: Yeah, I both completely agree with what both of you just said. And I also think you can be a filthy rich terrible parent or a parent who makes $45,000 a year and is an unbelievably good parent. And so I think this gets back to the quantification of money just becoming the ultimate metric getting in the way.
I wrote about this in my last book. I have a good friend of mine — I’ve known him for more than 20 years. One of my favorite people in the entire world. He’s so funny. He tells such good stories. He’s so much fun to hang out with. I can’t wait to see him every time we hang out. And among our friend group, he by far earns the least amount of money by far. And it really bothers him and it makes him feel inferior. And he says this.
And I had to tell him one day, I was like, “Look, if you are who you are — a good husband, a good father, hilarious, so much fun to hang out with — you’ve probably earned nine and a half out of 10 friend points that I’m willing to give you. If you also happen to be a successful entrepreneur, I might bump you up to like 9.7 out of 10 from 9.5.” But don’t pretend like it makes that much difference. And I know — I’m sure you know — many rich entrepreneurs who are the most insufferable, arrogant people that you don’t want to spend five minutes with. Those people exist too.
The “Total Man” [00:38:00]
Sam: We call it being the “total man.” You know, we’ll have people on the podcast who are successful, but we’re like, “I don’t want to be like them.”
Shaan: But then we’ll have other people who are successful and also they’re a good husband and also they’re fit and also they’re fun to be around and also they’re polite and kind. And we’re like, “That’s the total man.” And that’s what we mean. I think a lot of people — like the salt of the earth of just like you’re a fireman and you coach the little league team and you’re a great dad, great husband, you fix your cars, you help the community. People love that persona.
Sam: Are you just describing your dream hunk?
Shaan: You got a sick jawline, a little salt and pepper hair. But people love that — you know, from Foo Fighters, “There goes my hero. He’s ordinary.” I think you don’t have — I think the idea that you’re only exceptional if you are earning more than X dollars per year has done a lot of damage to society, especially among young people.
People Morgan Admires [00:39:10]
Sam: Can you give us a curated list of people who are known, so people who me and Shaan can go and copy — so we can go and read the people who you’ve read about, who you’ve talked about, who have a public presence? Maybe a list of three or five people who have had the biggest impact on you or who you think we should go learn from and follow.
Morgan: James Clear is — if you want to talk about book sales, he’s in a completely different league than I am for non-fiction. Of the five or whatever people who’ve sold more non-fiction books, he’s at the top. And he’s one of the nicest, humblest people you can ever meet. One of the most caring people you can ever meet.
James and I have only met in person maybe three times. I would be lying if I said he’s one of my closest friends. But whenever I have a question about books — and this goes back to before I wrote Psychology of Money and he was a big dog and I was a nobody — I would send him a text and he would write me back a novel. He would spend half a day trying to help me figure out the title of my next book, kind of thing. So nice, so humble, and so unbelievably successful.
Atomic Habits has sold over 25 million copies and is still going stronger than ever. And I think he had this saying one time that I loved. He said, “I’m not an author. I’m an entrepreneur and a book is one of the products that I launched.” And he thought about Atomic Habits in that way. He is an incredible author, of course, but the way that he thought about how to launch it, how to market it, how to structure it, how to write the table of contents in a way that would get your attention — he’s the most scientific thinker about this, that led to an unbelievable amount of success, a generational level of success, and still culminated with the humblest, nicest guy you can possibly imagine.
Shaan: I had to do the math on that. 25 million books times $25 — $625 million of book sales.
Morgan: Right? Yeah. I mean, it’s a bonkers level. And he also started the Atomic Habits app that exploded. There’s a whole ecosystem around it.
And look, there’s a lot of people — tech entrepreneurs, whatnot — who made a fortune and are very talented and deserve to be praised. And that level of success turned them into insufferable monsters. And I actually have a lot of sympathy for that. I think it’s not uncommon for people to do that. Particularly if you were snubbed when you were a child, if you were bullied when you were a kid, and then at 25 you’re worth a zillion dollars — it’s very easy for that insecurity to come out as being an insufferable prick. I think that’s not uncommon. And most of the time, it’s a compensation for your lack of self-esteem before you became rich.
Mohnish Pabrai and Keanu Reeves [00:42:00]
Sam: Who else is on your list other than James?
Morgan: Mohnish Pabrai is someone who I started following in probably 2005, when he was just starting to get a little bit of notoriety in the value investing community. And people instantly started gravitating towards him because he’s a very good communicator, and that is rare in the investing world — that somebody can not only have a track record of success but can explain it to anybody.
So at the time I was in college and reading his books. He published I think three books back in the day, and those were some of the foundational books of when I was like, “Oh, I’m really starting to understand how this investing thing works.” And for that to come from someone who has a great level of success himself — I’ve met him a few times. He’s also just an incredibly nice, humble person.
And so maybe that’s the common denominator that I keep bringing up. I have so much admiration for people who have an outsized level of success and fame, and it clearly not only did not go to their head — if anything, it dropped their ego.
From what I understand — obviously I’ve never met him — the actor Keanu Reeves is one of those people. Absolutely tippity-top A-list celebrity, and from what I understand, the nicest, most helpful person you’ll ever meet. Shuns the paparazzi, kind of thing. Just wants to live his own humble life. And so that’s who I admire the most — people who can live that kind of life.
What You Admire Says Something About You [00:43:50]
Shaan: Isn’t it funny how we each have — what is it that you admire? Obviously your type of the thing you look for is that combo that’s rare to come by, right? Extreme success, and then probably the second layer is able to communicate or teach that success. I think as a student of the game, you appreciate that — whether it’s James communicating as an author or Mohnish communicating as an investor.
And then the last one — not only did success not ruin them, they became sort of more humble and even more approachable. And that makes it all the more rare, that those things go together.
It’s so funny that that’s your type. And then Sam — you have almost a type like this as well. I’ll throw out a couple. Maybe you could correct it, but Sam, I feel like for you —
Sam: Tall, dark, and handsome. Oh. Oh, yeah. Sorry. Go ahead.
Shaan: There’s some level of being a maverick or a rule breaker in a way. I think doing non-technical things — things that are of the real world or in the middle of America or just manly in some way, like some masculine aspect to it. Feel like I’m missing a third. What would a third one be?
Sam: For a long time — yeah. Stayed on track. And I think all of these are things that we fear ourselves going wrong. So we really admire the people who did it right.
Shaan: Like for example, I’m not a naturally focused and patient person. Therefore, I admire that most.
Sam: Right.
Shaan: Do you have one, Shaan?
Sam: Yeah. The traits for me are people who are having fun while they’re doing it. So when I meet them, they just have this — they’re funny, they’re laughing a lot, they have a zest for life. They talk to the waiter and the driver as much as they’ll talk to the other fellow keynote speakers. You know what I mean?
I remember when we were at our Hoop Group event, Alexis Ohanian, who was the founder of Reddit, was there, right? And on all the car rides, Alexis would always be chopping it up with the Uber driver, the security guard, the doorman. He paid as much attention and importance to them as the other mega-VIP guests that were at this event.
And contrasted with — I won’t name names — but there were other people at the mega VIPs who literally were scanning the room for who’s got a few more billion than me. “Let me get at their table, that’s where I want to sit, that’s who I want to talk to.” And if I don’t immediately grok how you are the man, I’m going to eject out of this conversation. I will visibly be disinterested.
And so that trait is very appealing to me — where the person is so almost secure in their success that they are not chasing. They don’t give off this desperate chasing energy.
How to Spend Money [00:46:30]
Shaan: Can I ask you a question about spending? Your last book is on spending and I think it’s pretty cool, because you’re like there’s a ton of books on how to get rich but not on how to spend. And I know that you hate formulas. You talk about it — it’s hard to say, for example, a common question is “What number is enough?” And you’re like, “I can’t give you that number.” So you don’t really like formulas, but is there a filter where if it passes this filter, it’s likely a good idea to spend money on this in order to make your life happier?
Morgan: I don’t know if there’s any formula to get that. I think if there is something that’s almost formulaic, it’s that what’s going to make me happy is not what’s going to make you happy. And so I think most people spend money on things that society tells them they should like, that marketing tells them they should like — which is cars, homes, clothes, and the fancier, the more expensive, the better. That’s the basic model that we’re taught.
And I think the truth is everybody has very different likes and wants, and price is not always a good indication of how much value you’re going to get out of it. I think the people who have done the best job spending are people who completely tuned out any kind of social influence or what other people thought of their spending and just said, “I’m going to go do my own thing.”
And within that, you’re going to find people — if we’re looking at a wealthy person who spends way more on this item than you would think they would and way less on other items than you would think — Ramit Sethi is a perfect example of this. He personifies what I’m talking about. His thing is he loves clothes, so he spends a lot on clothes and he dresses incredibly well and that’s so important to him. He’s not a car guy. And I hope I’m getting this right, but I think he drives a Honda Accord and he’s just like, “I couldn’t care less about cars or what anyone thinks about it.” But he’s going to be dressed to the nines everywhere he goes. That’s his thing.
Even if you do the exact opposite, it doesn’t matter what your thing is. What I love is he’s like, “That’s what makes me happy.” And the money that he saved on cars, he can spend on clothes.
Shaan: He calls them his “money dials.” He goes, “I think carefully about what my money dials are in order to live a rich life.” And his money dial is clothing. “I love fancy clothes.” And I think he said, “Up until recently, I drove a Honda Accord or Honda Civic.” And he wanted to try — I forget — is it Lucid? He tried a Lucid and he was like, “It was way too complicated. I hated it. I went and got another Civic.”
Morgan: It’s the opposite of frugality. It’s “I love clothes so I’m going to mercilessly cut everything else in order to have a higher budget for clothes.” And encouraging everyone to figure out what their thing is.
My wife and I figured this out in the last six months, at least at this phase in our life with two young kids. Travel’s not for us. It’s just — we realized that after the last four vacations we took, the best part of the trip was coming home. And after having that feeling for the fourth time, we were like, “Can we just admit maybe we should do less of this right now?”
Shaan: Maybe in five years when our kids are a little bit more stable, it’ll be different. But for other people, they’re vagabonds. They can’t wait to travel. Good — figure out what your thing is and what your thing is not, and go for it from there.
Sam: When I travel for work a lot, I travel very well and spend a lot on travel that other people would find wasteful. But I love it. So you have to figure out what your thing is and work from there.
And I think most bad financial decisions and most bad financial behavior comes not from making bad decisions. It’s when you’re trying to follow somebody else’s path and be like, “Well, that worked for them. Maybe I should do that.” So people listening to this might be like, “Oh, maybe I should try Ramit’s thing. Maybe I should go spend a lot of money on clothes and drive a beat-up Honda Civic.” Like, no — maybe that’s for you, but it’s probably not. You have to figure it out. It takes a crazy amount of independence and looking in the mirror and trying to figure out what works for you.
Personal Finance Is More Personal Than Finance [00:49:50]
Shaan: You said, “Personal finance is a lot more about the word ‘personal’ than about ‘finance.’” And I thought that was a good way of putting it.
Morgan: And same for investing. What’s interesting to me — maybe it’s not surprising, but it was interesting — is that at the end of my first book, The Psychology of Money, there’s a chapter about the psychology of my money. I just kind of laid out everything that I believe. There’s no numbers in it, but it’s like: here’s how I save, here’s how I invest, here’s how I spend, here’s my personal philosophies. And in that, I said, “Look, I dollar-cost average into index funds. I had a 3% mortgage that I paid off early” — which is a terrible financial decision, but I loved doing it because it made me feel good.
And I laid it out, and there are so many people who wrote — I can’t tell you how many emails I got of people saying, “I loved the book until I got to that chapter, and now I can’t take you seriously anymore.”
And I think it’s interesting that even after laying out in the book — being like, “Look, there’s no formula. You just have to figure it out for yourself” — people looked at the decisions that I made and said, well, they basically said to themselves, “I would have done it differently, so therefore you must be wrong.” And I think that’s the disconnect that people have.
Sam: And they’re also — because I always troll people with this premise that I think owning a home is a stupid financial decision. And then I always say, “But if it makes you happy, you should do it.” And that makes it wonderful. And people get angry at that.
And then paying off your mortgage and whatever else you said — it’s interesting that I study investing and I like all these investing people, but I don’t even invest. And I’m oddly not terribly into money. But what I’m interested in is the stories and the behaviors of it. And money is everywhere. And if you think of every story that you see — “what’s the money angle here?” — you find really cool stories. There’s this huge connection of story and money and our personal behaviors. It’s just everywhere.
And when you say to someone a real estate thing or something, it changes — it makes them question their identity. Because a lot of people’s financial decisions are tied deeply to their identity.
Morgan: You also said that if someone has been saving and saving and saving for 65 years, they’re 66, they’re retired, oftentimes they don’t spend. They don’t spend because they can’t change their identity, and that’s too hard. It’s interesting how it’s very challenging to change your investing and spending habits because that’s just what’s underneath the money surface level. It’s really like, “What is my identity?”
It’s such an important part of society, and there’s so much uncertainty to it, that I think a lot of times when people are having a fight about money — they’re debating about money, two investors who have differing views — nine times out of 10, the people are not actually debating. They just have different preferences and they’re talking over each other. And what they’re saying is, if I believe X and you believe Y, a lot of times it’s like, “I view your opinion as a threat to me because I know my views have a lot of uncertainty and they may or may not be right. And if you believe something different, that’s like an indication that I might be wrong, and that makes me really uncomfortable.”
Shaan: It’d be like me calling you an idiot for preferring vanilla.
Morgan: That’s exactly it. Yes. And people understand with food — “I like Mexican food. You like Italian food. Great. To each their own.” But with money, there is this feeling that there should be one right answer. And if your answer is different than mine, one of us must be wrong. I think that’s why finance can be more contentious than other fields like food, where it’s just “figure out what works for you and go do it.” But we don’t make that leap with finance.
The 60-Second Summary [00:51:00]
Sam: So based off everything that you’ve read and everything that you’ve written so far, if you only had the next 60 or 120 seconds to kind of summarize it in a couple sentences —
Morgan: All that matters in finance is it’s not about what you know. It’s not about how smart you are. It’s not about how much information you have. It’s just about how you behave. And there’s almost no other field where that’s the case. Where somebody with no education and no experience and no background can massively outperform the person who has the highest education and the highest background.
And there’s no other example of fields where a country bumpkin who didn’t go to school and doesn’t earn that much money, but does have the right investing behavior, can invest and maintain and hold it with patience for 50 years and build a fortune — while at the same time the Harvard-educated Goldman Sachs MBA blows himself up with a complicated derivatives trade. That kind of thing by and large doesn’t happen in other fields.
So finance is a very unique field where it’s not that behavior is important. I think the behavior part is everything. And behavior is very difficult to teach. It’s hard to teach even to very smart people because you can’t distill it down to a formula that you can memorize. It’s unique. It’s individualistic.
And so I think maybe the message, the takeaway, is you have to spend a lot of time thinking about the soft skills of patience, ego, greed, fear. And you have to spend a lot of time thinking about how those topics apply to you individually — to you and your family — and figuring out your own goals, your own benchmarks, even if they’re different from the people that are around you.
Shaan: We appreciate you so much.
Sam: Thanks for coming on, man.
Morgan: Thanks, guys. This is fun.
Shaan: That’s it. That’s the pod.