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Hi, I'm Jim O'Shaughnessy and welcome to Infinite Loops.
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Sometimes we get caught up in what feel like infinite loops when trying to figure things out.
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Markets go up and down, research is presented and then refuted, and we find ourselves right back where we started.
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The goal of this podcast is to learn how we can reset our thinking on issues that hopefully leaves us with a better understanding as to why we think the way we think and how we might be able to change that to avoid going in infinite loops of thought.
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We hope to offer our listeners a fresh perspective on a variety of issues and look at them through a multifaceted lens — including history, philosophy, art, science, linguistics, and yes, also through quantitative analysis.
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And through these discussions help you not only become a better investor, but also become a more nuanced thinker.
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With each episode we hope to bring you along with us as we learn together.
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Thanks for joining us, now please enjoy this episode of Infinite Loops.
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Disclaimer: Jim O'Shaughnessy is chairman and Co-Chief Investment Officer of O'Shaughnessy Asset Management, where Jamie Catherwood is an associate.
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All opinions expressed by Jim, Jamie and podcast guests are solely their own opinions and do not reflect the opinions of O'Shaughnessy Asset Management.
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This podcast is for informational purposes only, and should not be relied upon as a basis for investment decisions.
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Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.
2:03
Jim O'Shaughnessy: Well, hello everyone, it's Jim O'Shaughnessy with another edition of Infinite Loops.
2:07
I'm very excited today to have as my guest, a friend, Morgan Housel, who you might have heard of, I don't know.
2:16
He's the author of the Psychology of Money, which is at one million, 1. 1 million.
2:22
What are we at now, Morgan?
2:23
Morgan Housel: I think we're at about one and a half now.
2:25
It's always a little bit- Jim O'Shaughnessy: One and a half.
2:28
Morgan Housel: It's always a little bit difficult because the international sales, which is a big portion of the sales, there's a big delay on the data that we get from them.
2:34
US sales, we have like up to the day information.
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Sales in India and China, we get like once every six months, so the data's little...
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But roughly one and a half in that neighborhood, yeah.
2:44
Jim O'Shaughnessy: So fucking cool and it couldn't happen to a nicer guy, I'm delighted to hear that.
2:50
You are also a partner at the Collaborative Fund.
2:53
At what point are they just going to say Morgan, we can't afford you anymore?
2:58
Do you think that will happen or will they keep you?
3:01
Morgan Housel: No, that won't happen.
3:02
Collaborative Fund is such a gift to me.
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I honestly can't see any situation in which why I would want to leave.
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They give me total free rein to write what I want when I want about whatever I want with no constraints.
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You'd be like why would I ever leave that?
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Work with a group of people who I really like and admire.
3:22
It's like that's the perfect setup.
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I learned this about myself, I don't know, 10 years ago.
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I'm not proud of this, this is not bragging, this is a personality flaw. I'm not a good employee.
3:32
I can do good work but I'm a very bad employee.
3:36
It's hard to find a place like Collaborative Fund that will just give you complete free rein to kind of paint my own canvas and do what I want to do.
3:42
Jim O'Shaughnessy: That's fantastic and it's another thing we share.
3:46
I generally think of myself as unemployable, other than by myself.
3:52
Sometimes even I don't want to hire me because I'm such a pain in the ass for everyone involved.
3:58
But that's a really cool situation to have and at least my impression is that your colleagues understand the new world we're in.
4:04
By that, I mean like some lawyers get when Patrick wanted to do, invest like the best.
4:05
They were like, "Yeah, but this isn't OSAM business."
4:06
Morgan Housel: Of course, it is.
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It's a key integral OSAM business.
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Jim O'Shaughnessy: Exactly.
4:09
Morgan Housel: People don't understand.
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The quirk that people don't understand about what I do in Collaborative Fund too, is I never write about things we do at Collaborative Fund.
4:12
I never say here's the deals that we did, here's why we're so much better than everything else.
4:15
I could, I have those stories that I genuinely believe but nobody wants to read that. That's the truth.
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People don't want to read what is clearly marketing but they will want to read and share with their friends and forward onto their coworkers an article about something that has to do with investing or history or psychology.
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I just want to write things that people will want to share.
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If I do that and gain the largest audience, cast the widest net, people will learn through osmosis about what Collaborative Fund is.
4:46
That is so much more effective than force feeding them by saying here's why we're so great, here's why we're so great.
4:51
I feel like a lot of asset managers that have finally woken up to we need to have a blog, we need to have a podcast.
4:58
They still do it wrong because what they write about is how good they are and why you should give them their money.
5:03
Nobody wants to read that.
5:04
Jim O'Shaughnessy: I could not agree with you more.
5:07
Luckily, Patrick and I are so simpatico on this.
5:10
It's just like you know what?
5:11
Nobody gives a fuck about you.
5:13
Really if they do, they want to know how can you help them?
5:19
How can you give them something that's interesting that might not be in their toolkit?
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You've got to be useful and the way to be useful, in my opinion, is to be an honest broker.
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About hey, have you thought about this, this or this?
5:34
So whenever, for example, when I'm commenting on anything about OSAM, I always lead in with talking my book.
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I want people to know with that line, I'm going to throw a little marketing at you here. Morgan Housel: Totally.
5:52
There's the old phrase about mutual funds that people do not buy mutual funds, they're sold mutual funds.
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It's the same with marketing.
5:57
There's a reason that advertisements, commercials are forced upon you.
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No one goes out and seeks it.
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No one wakes up and says, "I want to go watch some commercials on TV.
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Where's the YouTube channel that just gives me advertisements?"
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Nobody wants that, they force them upon you.
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So if you can and take the same benefit of marketing yourself but do in a way that people actually seek out.
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That people wake up and say I want to read Morgan's blog, I want to listen to Jim's podcast.
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I want to listen to Patrick's podcast.
6:22
That's when it's just like exponential opportunity.
6:24
Jim O'Shaughnessy: Totally and the hard part about that for some people, at least is transparency.
6:34
You've got to be an honest broker.
6:37
If there's something that you're benefiting from, you better acknowledge that you're benefiting from that thing.
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The reason I think you have such wide sway and people read you so widely and you've sold a million and a half copies of your books, you're an honest broker.
6:58
You are very clear that you don't have an agenda.
7:01
You don't have an agenda for Collaborative Fund.
7:03
You don't have an agenda for...
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There's no Morgan Housel Fund.
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You're not advising on Morgan's 10 great ideas.
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There's so much of that goes on in our industry.
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I just think that the world has changed so much that those old models they don't work anymore. Morgan Housel: Totally.
7:25
Here's what's interesting to tie us back to the book.
7:26
When my book came out, Jason Zweig, who is a great friend of mine.
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One of the best finance writers of all time for Wall Street Journal.
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I asked him, I said, "Jason, you've written several books, this is my first real book.
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How should I market this?
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So tell me what I should do."
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He said, "Let me give you some advice.
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If the book is good, you don't need to market it.
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If the book is bad, no amount of marketing will help."
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So he was like, "So here's my advice.
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Don't worry about it, it's already done.
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It's already set in stone whatever's going to happen. It's already done."
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I think that was like 20% tongue in cheek.
7:59
I think there is some honesty, some that is true.
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But it's only like mostly true, it's not 100% true but I loved it.
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I feel like it's true for companies as well.
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Some of the greatest companies in the world actually don't advertise that much. Apple, for example.
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There are a couple Apple billboards but not that much.
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Apple sells because it's a good product and the flip side of that is there are some really shitty products that stuff marketing down your throat.
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They sell a little bit but not like the great products.
8:27
The best marketing hack is make a product that people want and need.
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Jim O'Shaughnessy: Very simple.
8:31
Morgan Housel: That's the marketing hack.
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Jim O'Shaughnessy: Very simple.
8:34
Morgan Housel: I feel like this is true for all forms of content. If it's good...
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I would say like for new bloggers when they're like how can I get noticed? How can I get big?
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I would say blogging and the content space is a pure meritocracy.
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If you're good, you'll get noticed.
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It might take a couple years but you will get noticed.
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If you're not good, you're never going to get noticed.
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That's it, that's the hack.
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That's the marketing hack of how to break your way in.
8:57
I remember Nick Maggiulli, who is fairly new at what he does.
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I think he started his blog I want to say maybe 2017 in that neighborhood if I'm getting it wrong by a couple years but it's around that time.
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When he started blogging and he was at the time a nobody.
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I knew, I remember reading his blog, and being like this guy's going to be big.
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Writing is a meritocracy and he's one of the best and he will get noticed as he has. Jim O'Shaughnessy: Yeah.
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So Nick worked for us in OSAM for a little while before moving over to Ritholtz.
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It was as a convenience, we knew he was going over there, and they were one of our bigger clients.
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He wanted to move east earlier than his employment started there.
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So got to know him really well, love Nick.
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I have his book that's coming out and endorsed it and it's really good.
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I did tease him about that he was going to have an inside metric that no one else was going to have.
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He's like, "What's that?"
9:55
We were at lunch in New York.
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I said, "Dude, the title of your book is Just Keep Buying." Okay, I think that's it. Am I wrong? Yeah, Just Keep Buying.
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I said, "When the next bear market comes, you need to have a histogram of the number of people who tell you that you're an idiot, a moron.
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Look at what's going on here."
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I said, "When that peaks, you are going to be within a week of the bottom."
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He's like- Morgan Housel: That's true, yeah.
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Jim O'Shaughnessy: "Holy Shit."
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I went, "You got to share with me, though."
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Morgan Housel: Here's what's interesting.
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If you just judge a book by its cover, you might think that Nick's book, the message is the stock market always goes up.
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It's actually the opposite.
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It's just keep buying even when there is hell and fury and depressions and bear markets, which there will be and are.
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Then that's when you have to just keep buying. So people will... I know and you're right.
10:54
I think this is your point, people are going to use it as an indicator of like someone wrote a book called Just Keep Buying as a stock market was at some crazy high.
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This is the next DOW 36,000.
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It's actually the opposite.
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His point is that the market is going to crash and you need to just keep buying.
11:09
Jim O'Shaughnessy: Exactly.
11:11
It's like I experienced this when I was doing Net Folio, which was kind of my early version of what we now call Canvas.
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Mine was a little early, it was in 2000, and we really didn't have the tech.
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But our whole thing was personal funds, not mutual funds, different world then.
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Most people didn't index, most people used active funds.
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So our take was you should be able to customize your portfolio down to your specific likes and dislikes.
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So we came up with the idea of calling what was generated a personal fund.
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We felt that if we were going to have this huge marketing blitz on personal funds, that was essentially taking aim at mutual funds.
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I still have the ads, I should send them to you. They're hilarious.
11:59
We hired a great ad agency. So anyway, we sold...
12:02
We had a mutual fund family and we sold it in the United States.
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We thought the conflict between our new focus on personal funds and mutual funds was going to have a conflict.
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Well, even our mutual friend, Jason Zweig, took me on, and took me to the wood shed.
12:25
Everyone viewed it as me abandoning the strategies.
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Of course, I wasn't doing that, I was doing the other.
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In fact, we were retaining every strategy even more so.
12:40
But perception is reality.
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But I think that's a potential edge, which we're going to talk about later.
12:49
So I know what it feels like.
12:53
So literally everybody but I was getting bashed in the mainstream press.
13:02
You haven't really experienced it.
13:03
There's one thing if angry Earl one, two, three on Twitter who has 14 followers is yelling at you.
13:13
It's quite another thing when the Wall Street Journal is writing a story, talking about how you suck.
13:19
Morgan Housel: Feels different.
13:22
Jason, he might not want me telling the story but I'm going to tell it anyways.
13:26
Before my book came out and he...
13:28
No, I want to make sure I get this right.
13:31
It was somebody else asked him to review his book, their book.
13:35
Jason said, "I will do it but I'm going to warn you, I'm going to be honest.
13:39
You might not want me to review it."
13:42
So something along those lines, I'm paraphrasing that story.
13:44
But that's what makes Jason great, is just his ability to call it like he sees it.
13:49
But you're right, that perception becomes reality for a lot of these stories.
13:55
It's hard to write publicly as I do and you do.
14:01
To mean one thing and for it to be perceived as another.
14:03
I'll tell you one story from my book that I regret, the biggest regret that I have from the book.
14:08
This is in the introduction of the book, which is most people don't finish books.
14:12
But hopefully, you read the first three pages.
14:14
I tell the story about a guy named Ronald Reid, who was a janitor and a gas station attendant.
14:21
Then he died and he had $7 million and he left it to various charities.
14:25
A lot of people, the feedback was Morgan, you portray this guy as a hero.
14:29
This was a guy who was a gas station attendant and died the richest man in the cemetery.
14:35
That's my idol that I'm supposed to look up to?
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My thing is like no, actually you're right.
14:41
I actually don't idolize what he did.
14:43
My point was that it's possible to become rich, even if you are a gas station attendant.
14:48
But I did not want to sanctify this guy's lifestyle, that wasn't the point.
14:53
But I understand why it was so easy to do that.
14:56
Here's what's interesting.
14:58
For a lot of the blogs that I write, more than half, sometimes days, weeks, even months after I write them, I go back and update it.
15:05
I realize hey, this point that I was making came across differently than I thought it would.
15:10
So let's just go in and update it and change it. A book you can't update.
15:12
Once it goes to a printer, you're done.
15:14
It goes, it's out there, you're done.
15:18
So that's what's hard about it being out there and being unable to change it.
15:22
Jim O'Shaughnessy: So that's a perfect lead in to what I wanted to do today.
15:27
You and I chatted via text and I thought I loved seeing you on all the most important podcast like Tim Ferriss.
15:36
Getting interviewed in the most important publications.
15:40
I thought to myself I know Morgan and I know he's an incredibly thoughtful guy.
15:45
I bet he has learned a ton from just the feedback that you've received from the book.
15:54
So what I wanted to do today was look at that because in my experience, What Works In Wall Street was a bestseller, not like your book, obviously.
16:06
But I had a ton of feedback on it and a lot of it was really good.
16:12
In other words, I was wrong.
16:15
The feedback that I got made me think I was probably wrong about that, I should do some more research.
16:22
A classic example was in the first version of the book, I said that price to sales was the king of value ratios, rookie mistake.
16:31
So I forgot it depends on what end date we're looking at.
16:36
So if we went forward five years it might be PE or price to cash flow.
16:42
But it gave me really, really good ideas.
16:45
So I guess my first question for you is you have all of the various items like no one's crazy, you really want freedom.
16:56
You don't want never enough attitude.
16:59
Are there any of your main points in the book that when you interacted with people, you're like no, that isn't what I meant at all, that's not it at all?
17:11
Morgan Housel: Yeah, good question.
17:15
I don't know if like other than the Ronald Reid thing that I just shared, of like it came off.
17:20
I understand this is not like a misreading, it totally reads like I was saying like Ronald Reid is the hero.
17:25
That wasn't what I meant.
17:28
There are parts of the book where it's like I do think that living a low key life where you value independence over material things is the fastest way to happiness.
17:40
But Ronald Reid was such an extreme oddball on that side.
17:44
That's I don't want to push that towards it.
17:48
One thing that a common piece of feedback that I got, that I understand.
17:51
But it's still just kind of doesn't disappoint me because I understand why it happens.
17:55
I just think it's interesting is I've always been open about how I invest.
17:59
I'm a passive index investor.
18:01
I've got almost my whole net worth in Vanguard where I'm going to leave it for the next 50 years.
18:06
There a lot of feedback on the book.
18:08
So I wrote that in like one of the last chapters it's called confessions and it's here's what my wife and I do with our money.
18:13
I want to lay it out on the table.
18:14
This is what we do personally.
18:16
A lot of people said I love the book until I got to the last chapter.
18:20
I found out that you just invest in index funds and it ruined everything up and to that.
18:24
They said, "How do I take you seriously now if you're just an index fund investor?"
18:29
Again, I understand that why people would associate that with someone who doesn't know what they're doing.
18:36
What they wanted is in the last chapter, like here's my ridiculous day trading strategy that's made me a zillionaire. That's what they wanted.
18:43
That's the knee jerk reaction.
18:45
I just think it's fascinating because the numbers in my head are look if I can dollar cost average into index funds for 50 years, I'll probably end up in the top maybe 1% of investors.
18:58
Definitely the top 5% of investors, maybe even the top 1%.
19:03
The fact that people read that and they're like that's too bad, Morgan doesn't know what he's doing.
19:08
He's only going to be in the top 1% over time.
19:10
That I think is fascinating to me.
19:13
So that was probably the strongest piece of negative feedback, including the people who they were so strong that they said that they can't take the rest of the book seriously because of how I invest.
19:24
I think that's interesting.
19:25
Jim O'Shaughnessy: It's like so I'm fascinated by a human operating system because we all run it.
19:32
We consistently make the same mistakes time and time and time again.
19:38
Intellectually knowing about them doesn't matter.
19:41
It's like this is one of my sadnesses because like I was very early in on the behavioral finance stuff.
19:48
The first paper I wrote, which was horribly written.
19:50
Thank God my Summa cum laude in journalism wife started showing me some kindness and editing my work.
19:58
But it was all psychology, it was all behavioral finance.
20:02
They didn't call it behavioral finance in 1986 when I wrote the paper.
20:07
But then it became huge, Danny Kahneman, who I've met and is a very charming guy.
20:15
I think Danny would even admit this.
20:17
The challenge is and I know Jason would, for example.
20:21
The challenge is, as I see it, that we can intellectually understand something.
20:28
Everything you write about in the book is like to me and I think probably to you, common sense.
20:35
It's like, well, yeah, of course, you're going to do this.
20:40
But then what happens is all of that intellectual understanding gets thrown out the window, right when markets are shitting the bed.
20:54
Again, Jason had a great metaphor for it and that was there's a big difference between showing somebody a picture of a snake and throwing a live snake in their lap.
21:06
He goes that latter one is what's going to happen to you.
21:11
I've had a long career on Wall Street and I have seen this time and time and time again.
21:18
So what are your thoughts?
21:21
Is there some kind of like...
21:23
So my solution to being a human being and having the same programming as everyone else was to become a rules-based quant investor.
21:32
You're a rules-based investor too, kind of. Morgan Housel: Yeah.
21:36
There's a venn diagram of how you and I invest, is very overlapped.
21:39
Jim O'Shaughnessy: Yeah, exactly.
21:43
Is there a way, in your opinion, that you can get through to those people?
21:50
Is there a way for you to come at it a different way so that they understand or is it just impossible?
21:58
Morgan Housel: No, I think it's obvious too and I'm happy to admit this.
22:03
There's nothing new or groundbreaking in the slightest in the book.
22:06
The book's message is like don't be greedy, compound interest is awesome, save some money.
22:11
This is not rocket science stuff.
22:14
But if I think why it may have connected, it's because I tried to tell a story around that.
22:20
A thing that I really believe is true for all, everything in the world is that the best story wins.
22:25
It's not the best ideas, it's not the right ideas, it's not the complex ideas.
22:28
It's just the best story wins.
22:29
I've used this example before of Ken Burns, the documentarian.
22:34
His documentary on the civil war came out in 1990.
22:37
When it came out in 1990, it was such a success.
22:40
More people watched the civil war documentary in 1990 than much the Super Bowl that year.
22:44
It was just like a ridiculous blowout success.
22:48
This is a documentary on the civil war, which is like one of the most documented.
22:53
How many books are there on the civil war? Thousands and thousands.
22:56
There is nothing new in Ken Burn's documentary, nothing new.
23:01
This is not like he was the guy to uncover Gettysburg.
23:05
There's nothing new in there, he just told a really good story about it.
23:08
An amazing story with captivating music and amazing editing.
23:13
Because of that, he took an event that everyone had known about, and everyone has known the detail about.
23:18
He got more Americans to tune in than watch the Super Bowl that year.
23:21
I think there's so many examples of that, of things that everyone knows, have been discovered for centuries.
23:27
Nothing's new but if you can tell a good story about it, you'll get people's attention.
23:31
That is what I think a lot of academics, in particular, miss.
23:34
Is that they have all the right answers but they are the worst storytellers.
23:39
I think a lot of the times they go out of their way to be bad storytellers.
23:43
They want to use big words to fit in with their colleagues, to fit in with the academic tribe.
23:49
I think there's so much room to take what academics know and explain it to a layperson in a story that they're likely to remember and likely to hook onto.
23:58
There's so much room doing that.
24:00
I think you could also write a book, not just Psychology of Money but you could write the Psychology of Medicine, the Psychology of Politics, the Psychology of Sports, the Psychology of Relationships.
24:08
Just talk about things that people intuitively know and tell a story around it in a way that would really connect with them.
24:14
So that's what that I've always tried to do in my writing.
24:17
Is like I don't have the intelligence, the brain power, the education to discover new things in finance.
24:24
Even for the people who do, I think there's probably not that much to discover left.
24:29
We've overturned almost all the rocks but I think there's still a lot of room to be made and progress to be made.
24:35
Connecting with these people by just doing a better job telling the story. Jim O'Shaughnessy: Yeah.
24:41
So I used to say and again, I'm a quant, right, so everything is numbers.
24:46
But I used to begin a lot of presentations with I'm going to tell you a story about why you shouldn't make investment decisions using stories.
24:54
Morgan Housel: That's good.
24:56
Jim O'Shaughnessy: But the dominance if you study evolution, we have been readers for a couple of blinks of the eyes.
25:08
We have been watchers and interacters on massive networks for what is the shortest nano second, right, in terms of evolutionary time.
25:18
So the pull of a story and a narrative it's in our DNA.
25:24
Morgan Housel: Yeah, it's huge.
25:27
Jim O'Shaughnessy: So we use and misuse them, obviously.
25:33
Kind of one of the funny things that you notice if you're on the quant side is actually narrative follows price, not the other way around. Why is that important?
25:47
Well, it's important because if you are going to build a narrative, say around AMC and GameStop, people are going to love the David and Goliath story.
26:01
I mean, it just screams, "Ooh", that's catnip, right? Morgan Housel: Yes.
26:06
Jim O'Shaughnessy: "Ooh, we love it that David is sticking it to Goliath."
26:10
The problem is it's not true.
26:12
The problem is that anyone who does what I do knows that there were all sorts of associates, of hedge funds in those Wallstreetbets chat rooms.
26:24
Morgan Housel: Yeah, every hedge fund was reading it last year.
26:29
Jim O'Shaughnessy: Yeah, and they were what an old timer would call, "Painting the tape."
26:33
In other words, they were making statements that may or may not have been true, but they were creating that narrative and creating it intentionally for one, that really sang.
26:52
I completely agree with you about the power of stories, but you've got to caveat it right about that some stories are really, really powerful, but they're wrong, right? Morgan Housel: Yes.
27:08
Jim O'Shaughnessy: And so that gets us into a lot of troubles.
27:12
I'm a huge Douglas Adams fan and he has this great quote, I'm going to botch it up, but it's like, "Human beings who are uniquely able to learn from the experience of others are also incredibly disinclined to do so."
27:32
One of the things that I believe is that I can learn from others and that's why I read so much and look at sort of classic blunders and how they apply to what I do.
27:46
Do you think that that kind of way of approaching, like you yourself said, it's very simple, "Save money, be reasonable, not rational."
28:03
You offered a lot of time tested ideas in your book, but I'm trying to get at this question in another way, how do you think we can actually make the end reader or listener to this podcast, how can we get through to them that they're suddenly like, "Oh my God, I am my own worst enemy", right?
28:29
Morgan Housel: Yeah, I've often thought that 10% of society does not need any help with their money, they just get it intuitively, they're born understanding it.
28:39
Another 10% cannot be helped with their money, there's compulsive gamblers, no matter what you tell them, say to them, they're screwed.
28:46
I think 80% of society wants and needs good advice, and if you can push them in the right direction, point them in the right direction and show them like, "Hey, this is what is intuitive to think, but here's what actually works and here's some data that might change your...
28:59
", you can actually move the needle.
29:01
The problem, as you pointed to earlier, is the difference between learning during a bull market versus experiencing a bear market is night and day, completely night and day, and there's a lot that's in the book that leads to that.
29:13
We are products of what we've experienced in life, not what we've read about, not what we think about.
29:18
We're products of what we have lived through personally.
29:21
I do think there's a lot of truth about that, so I write this book during the bull market and it's like, "Hey, there's a price to success in the stock market if you're willing to put up with volatility."
29:32
It's one thing to read that during a bull market and say, "Oh yeah, that makes sense, I get it" and then the bull market happens and you're like, "Oh shit, this feels differently than I thought."
29:39
I think there's so much in finance, all the important things in finance, you can't understand until you've experienced them.
29:45
That's actually a big part of the book in chapter one.
29:49
But I think if you can experience these events with a little bit more insight, with a little bit more knowledge and wisdom about what you're experiencing, it helps.
29:58
So much of what matters in investing, this has been true for me personally, for everyone personally, it's just being introspective about how you think about risk and greed and in the heat of the moment when you're like, "Oh, here's the decision I want to make.
30:11
Well, why am I making that, and is that different than what I used to think and whatnot?"
30:15
It's just becoming introspective of your own feelings and emotions during the heat of the moment.
30:21
That's really what matters in investing, is what you do 1% of the time, when the market is either going crazy up or crazy down, how you behave during that 1% of the time makes all the difference in the world over the course of your life.
30:32
You just need to know yourself about who you are and how you're going to react.
30:37
So if this book and other pieces of content, your work, everyone's else's work can push you to become more introspective during those moments, that's how I think you take the 80% of society who wants and needs good advice and just nudge them in one direction.
30:53
I think it's similar to medicine, everyone knows, "Eat a good diet, exercise, sleep eight hours" but when there's a Twinkie in front of you, you're probably going to eat it, but if you could just have a little bit of insight, what you're supposed to do so that you're not just fully reacting on your caveman instincts, your impulse instincts all the time, you just have some information in your head to try to nudge you in one direction.
31:14
I think that's the best that we can do, even if it's imperfect.
31:18
Jim O'Shaughnessy: Yeah, I agree.
31:20
The thing that I was always proudest of over the course of my career was the fact that I never let an emotional feeling make me override our models. Morgan Housel: Yeah.
31:35
Jim O'Shaughnessy: And literally being calm is a superpower.
31:42
My co-chief investment officer, Chris Meredith at OSAM told me not too long ago, he goes, "Hey, remember during the global financial crisis" and I went, "Vaguely, what?"
31:48
and he goes, "Did you notice that I looked into your office every morning to say good morning, and that I hadn't been doing that in the past."
32:00
I went, "Actually, Chris, I didn't notice that, but that was very kind of you."
32:04
He goes, "No, no, no" he goes, "I was doing it for a specific reason" and I went, "Okay" and he goes, "If you were calm, I knew that we were going to make it through this" and I'm like, "Okay, well, what if I didn't- " Morgan Housel: Just to screw with them one day, you should have started pulling your hair out and throwing pictures against the wall.
32:27
Jim O'Shaughnessy: Yeah, setting my hair on fire.
32:30
Well, so I agree completely that one's disposition, one's emotional disposition, it creates the lion's share of whether you're going to succeed or not.
32:43
I love your 10% and 10% example, but there's another thing that you and I share that I think is required if you really want to be able to become introspective and that is you've got to write about what you think. Morgan Housel: Yeah.
33:03
Jim O'Shaughnessy: Because right before we went on, I was going through an old journal of mine and I'm always being called a liar in my own handwriting, which is fantastic.
33:13
Our brains, I think, do these what they perceive and obviously I'm anthropomorphizing our brain, they don't perceive it that way.
33:24
But a kindness is we update memories to make them consistent with what we believe now, and we do this unconsciously.
33:33
I wouldn't believe that if I hadn't 30 years of journals to prove that that's what we do. Morgan Housel: Yeah.
33:40
Jim O'Shaughnessy: And so I think that if you can't write something out, and I know you believe this, you don't understand it.
33:48
So my first step always is, in my opinion, writing is thinking, right?
33:55
One of the things that people fall prey to all the time is they don't do that, right?
34:05
They're going to fall prey to all of the behavioral biases.
34:09
Kierkegaard said, "Life can only be understood backwards, but we have to live it forwards." Morgan Housel: Yeah.
34:17
Jim O'Shaughnessy: I think that writing is integral to getting people to do that.
34:24
You write every day, is there a trick for non-writers out there that you could share?
34:30
Like, "If you just do this" like you said, "You're going to be in the upper 5% of all returns by the time you're my age probably."
34:41
Morgan Housel: I don't know if there's a trick other than just saying you should write, everyone should write.
34:45
Even if it's just a journal that no one else is reading, but you, it's good, because writing is what transfers gut feelings into the real world.
34:54
Everyone has gut feelings where you're like, "I know this is true, I know this is the right answer, I know this is it" and then if you go down, if you force yourself to put it into words, one of two things happens.
35:05
You either see that gut feeling, you're like, "Oh, now I understand it better, now I really get it" or you put it into words and you're like, "Wait a minute, that's ridiculous, that doesn't make any sense."
35:15
Or even you try to put it into words and you're like, "I can't put this into words because it's so ridiculous I can't even force the words onto paper."
35:24
That's what writing really does to you.
35:26
It's a way to bring gut feelings into the world in a way that I think is really important.
35:31
One of the big flaws, this is true for everyone who's ever written a book, it's easy for the reader to think, "Wow, this person had all of this insight in their head before they wrote the book" and writing the book was they just downloaded their brain into the paper.
35:46
There has never once in human history ever been the case. Jim O'Shaughnessy: No.
35:50
Morgan Housel: Every book that's ever been written is an author who had an idea for a book and then they're like, "Okay, let me grind the gears in my head and try to figure this topic out as I go" is always what it is, and so that's the price of it.
36:03
So maybe the author had a bunch of gut feelings about what they thought should be true in the world and then in the process of writing it, they converted those gut feelings into words, and that process is so enlightening and powerful for everyone.
36:16
This is why journaling is so great, because you're just taking the emotions and the hardships and the ups and downs of everyday life and not only recording them for posterity, but also actually codifying them into the world and being like, "Here's what this actually means, here's the rules of what I've dealt with in a way that I think is really powerful."
36:34
Now, if you're a professional writer, then you're forced to do it anyways.
36:38
I always feel like my blog for the last 15 years has just been a running show of what I'm thinking about that week, so I feel like that's just my emotions just put out there, but I think everyday journaling, which it sounds like you've been doing for a long time.
36:53
I don't do that, but I wish that I would, and had done that because I think that's a really powerful way to understand what you're thinking.
37:00
Jim O'Shaughnessy: Yeah, and the challenge is getting in the habit, right?
37:05
So like James Clear, I had on the podcast, you should read his book, Atomic Habits, because if you can habituate something, it just becomes so much easier than if you can't.
37:19
The first 25 days might suck, you might not want to do it, I actually did a thread on Twitter about how to create habits, because they're just easier.
37:31
If you're not thinking about it and you're just doing it, it just becomes part of your day and it's not a big deal.
37:38
I want to get back to the book though, because the example of the janitor was misinterpreted, misperceived, I'm surprised about the people who get to the end of the book and they see that you're a rules-based investor in indexing, and then just like, "Whoa, fuck this guy, I wanted to see the whatever."
37:58
That surprises me, because I'm a believer in what I do, but if people don't want to do what I do, the next thing I recommend is to index your money because it's very, very simple and it works.
38:13
Is there anything that jumps out at you, and this is kind of an impossible question, but when people come up to you after a talk or podcast people after the recording part has stopped, is there some kind of common question and/or statement that you just heard again and again and again?
38:42
Morgan Housel: I think one thing that I hear fairly often, and we spoke about this earlier in this podcast is people who say something along the lines of like, "That's what I've always believed, but you put it into words" which just gets back there's absolutely nothing unique in this, this is not the new trading strategy.
38:59
It's just everyday common sense that I hope to try to put into a way that you'll remember, because it's told in a story and understand better because I explained it simply, that's all I've ever wanted to do.
39:11
I think that's a common takeaway from there as well.
39:16
I do think there's also something interesting with the book.
39:19
This is a slightly different topic, but the feedback over time, I think has gotten better, which is interesting because it's the same book.
39:28
When it first came out, the feedback was "Oh, this is like, it's okay, it's fine" and then it's gotten better, because I think that's like the classic halo effect in psychology of once people read it with this sense of like, "I'm supposed to think this book is good" and when you start it with that lens, then it's easier to say, "Oh yeah, you're right, I like this too, because everyone else liked it."
39:49
Same thing can happen in the other way with companies where you're like, "I'm supposed to hate this company because everyone else does."
39:54
So I think that's been interesting as well and that's true.
39:58
That's a powerful thing in life with people, with companies, with books, with blogs of, "Other people told me to like this, so now I'm going to like it automatically" I think is a really powerful...
40:09
That's always been interesting to me to see the feedback get better over time for the exact same book.
40:14
Jim O'Shaughnessy: Well, so that's momentum and mimetic desire, that's what's causing both of those and it's fascinating to me because it leads to the halo effect.
40:27
I kind of knew that going in, I knew that I had to write What Works on Wall Street because you had to be an expert and the only way back in the '90s to be an expert was to have a book and back then you had to get through the gatekeepers and now younger people, they don't have to necessarily.
40:47
I think there is still a distinction between having a publisher like we do and self-publishing something, but I think that the bias against that is lessening as we speak.
40:58
Morgan Housel: I think it's almost not there in the slightest.
41:01
David Goggins who wrote a book that sold a zillion copies, that's effectively self-published.
41:06
He used a publisher that does the admin work for you, but he effectively self-published that.
41:12
You're a big reader, I'm a big reader, I've never picked up a book and been like, "Oh, this looks great and I heard it's great, but who's the publisher?
41:18
Oh, I don't want to read it anymore."
41:20
Nobody does that, no one's ever done that, and if you ask what are your favorite books of all time and if I said, "Name the publisher from those books" nobody cares.
41:28
I think particularly in a world where you can drive your own distribution through social media, I love my publisher Harman House, they're wonderful people, but I think the publisher's value in the world, it's not zero, it's there, but it's diminished from what it used to be now that an author can have their own audience, their own distribution.
41:48
Jim O'Shaughnessy: Yeah, we're doing a series called The Great Reshuffle about all the changes that are happening and that's one of them.
41:57
The tools that are now available to people online are simply staggering when you look at what it took me to found O'Shaughnessy Capital Management in 1986 was incredibly expensive.
42:13
I had to go to the regulator's office, I had to go to a marble query and find the piece of marble that I wanted a photograph taken up for my brochure.
42:24
I mean, it was like stone age and now all of these tools are available.
42:30
So if you want to write a book, you want to start a company, you want to do any of that, you can basically do it all online and it's become a lot easier.
42:40
I'm like really in favor of a lot, now there's a bunch of bad stuff that might happen too but the idea of meritocracy is never, in my opinion been clearer.
42:51
Morgan Housel: Yeah, this is not a good age for middlemen. Jim O'Shaughnessy: No.
42:56
Morgan Housel: That's not a blanket statement because there are some that still add a lot of value and will continue, whether it's like regulatory capture or they're just actually really good at what they do but in general, not a good age to be just someone who sits in the middle capturing someone's value, not a good time to be it.
43:13
I'm not a crypto guy myself, I'm not against crypto, but I think that's the central message of crypto, it really comes down to cut out the middlemen, whether it's the middleman who's censoring or who's just skimming off the top, cut them out, and I think that message in general, that's been going on for a decade or two, but I think that's an important, powerful message as well.
43:35
You see it in books, music, movies, like everything, is just not a good age for middlemen.
43:40
Jim O'Shaughnessy: Yeah, I couldn't agree more and they're not happy about it because there is a lot of middlemen.
43:46
Morgan Housel: A lot of them, a lot of them make a really good living doing it, so they're going to go out kicking and screaming.
43:52
Jim O'Shaughnessy: Yeah they are, and you can see them having their tantrums right now.
43:56
You mentioned crypto, so you're not a big crypto guy, do you foresee any time where you would deviate from your standard allocations to the Vanguard funds and include a broader group of assets or no?
44:12
Morgan Housel: I don't rule it out in the slightest, I don't rule anything out because I know how much I've changed in the past, so to assume that I'm not going to change in the future is ridiculous.
44:22
So I don't rule anything out, including that I might completely dump all the Vanguard funds and do something totally different.
44:27
I don't think it's likely, but I don't rule it out at all.
44:30
It's the same with crypto and my views on crypto are not paused, I just come firmly down the center of like, I think it's fascinating to watch.
44:38
I think if you underestimate the number of very smart people going into it, who are trying to solve problems and build companies around this, if you're just viewing it as the price action and like, "Oh, tool of bubble" I think you're missing how much innovation is taking
44:52
place and if you just focus on the innovation, if you're just focusing on how much is due, then you're missing how much insanity and outright fraud is going in that can suck the life out of the industry through regulation and otherwise. That's both the two sides that I come down, of course it's fascinating to take something
45:06
That's both the two sides that I come down, of course it's fascinating to take something that didn't exist a decade ago and now it's worth trillions of dollars.
45:13
That in itself, if it just ended right there, is just staggeringly, fascinating to watch.
45:18
I also think from a psychology perspective, a lot of the arguments that get put forth around it, for it, pro crypto, I feel like you could drive a truck a mile through them, and so it's always going to be the case that whenever you have a group of people who have made dynastic fortunes over the course of a year or two are going to think crazy things about the assets that they own.
45:42
I think that's always been the case and always will be the case, so I understand why it happens.
45:45
I think it's just interesting to watch.
45:47
Jim O'Shaughnessy: Yeah, as do I, I'm pretty much in that same category.
45:51
We made some investments, I'm a big skin in the game believer, because I'm not going to really pay attention unless I have some skin in the game and so we actually, after Patrick's Hash series, we were in a lobby at a family event and I looked at him and we had a half an hour before the bus came to pick up the entire family and I'm like, "All right, in a half an hour, explain crypto to me."
46:14
He actually did a really good job, this is in 2017, and so I'm like, "Should I'd be looking at this?"
46:22
And he goes, "Yeah, you definitely should be looking at this" and so we made an investment in actually a crypto hedge fund because I like the idea that as far as I could tell, crypto was pure momentum play.
46:38
So a hedge fund that can short the bad shit coins and go long the other ones, so anyway, the funny thing that happened was literally a month after we made the investment, we got the statement, it had lost 50% of its value in one month and I'm like, "So my first learning on this is it's very volatile."
47:05
It ended up being fine, but I wanted to ask you about volatility because I've seen you say in a number of posts that you've done and in a number of interviews that you've done that volatility, you don't view volatility as risk and I do.
47:22
So, explain to me why you don't view it as risk?
47:26
Morgan Housel: Well, I think it is risk if the volatility is forcing your behaviors into doing something that becomes risky, primarily selling, then it's definitely a risk.
47:37
I think it's possible to view volatility in a way that is not risk and I think it's possible to view it as the cost of admission to doing well over time, which is if you want an investment with no volatility, that exists, you can get an FDI assured savings account and there's
47:52
zero volatility, you have no risk and you have zero upside, and if you want upside, you have to pay the price, the cost of admission, which is volatility, but it definitely is risk if the volatility forces you to sell, and a lot of people, it does. That's why volatility is taking place, is because people are selling.
48:06
That's why volatility is taking place, is because people are selling.
48:10
I think there's probably actually more common ground between what you and I believe than people think and it's easy for me to say, "Don't view it as a risk, view it as a cost of admission" and I think some people once that's explained like, "Oh, okay, I kind of get it," but this is again a thing where it's like you have to just live through a period of your portfolio falling 30 or 50% to see what it does to your psyche and what it does
48:32
to your confidence and what it does to your social behavior of your spouse thinks differently of you because they used to think you were an investing guru and now all of a sudden you're down 50%, so that has a big impact on people that I think until you've lived
48:47
through it and see how it might affect you and push you to decisions that might be risky is a totally different thing than just writing about it. Jim O'Shaughnessy: Well, there's an old saying on Wall Street
48:54
Jim O'Shaughnessy: Well, there's an old saying on Wall Street and that is that during bear markets, stocks return to their rightful owners.
49:02
Morgan Housel: Exactly, yeah.
49:04
I'm curious, Jim, can you explain why it is risk?
49:08
Is there actually a difference between what you and I think?
49:11
Jim O'Shaughnessy: No, actually, well, there's a slight technical difference, but the majority of the points you made is mine and that is volatility makes people do things that they ultimately regret deeply. Morgan Housel: Yes.
49:29
Jim O'Shaughnessy: Because they've made emotional decision making and their fear drove them out or greed drove them in, and so the inherent difficulty of withstanding volatility is something that I do not take lightly, and I have seen, because I've been around, and so I was there for the '87 crash, I was there for the '97 default of all the emerging country debt, the dot bomb, the great financial crisis.
50:06
Morgan Housel: You were there during the civil war, the revolutionary war, the big bang, you were there the whole time.
50:12
Jim O'Shaughnessy: Exactly, I have been a vampire, I was turned, I think about 1,500 years ago if I'm correct, but see the interesting thing is that's my message, the last sustainable edge is to arbitrage human nature.
50:31
One of the points that you make, which I totally agree with, but I have a slightly different take on, is that studying history is a great guide, not because that's going to happen again, but because humans are going to react the same way again. Morgan Housel: Oh yeah.
50:48
Jim O'Shaughnessy: Like all innovations, humans acted exactly the same way.
50:54
In 1900, there were 200 car manufacturers in America, right? What?
51:00
Are there two or one now?
51:01
I guess, Tesla is still considered one.
51:04
You write about the Wright brothers.
51:06
I love that piece by the way, but what I love about it is nobody paid any attention to it.
51:13
I mean, literally one of the greatest discoveries ...
51:13
I mean- Morgan Housel: Nobody cared for years. For years.
51:20
Jim O'Shaughnessy: Arguably. Nobody cared.
51:22
Morgan Housel: Nobody cared. Nobody cared.
51:24
Jim O'Shaughnessy: They didn't.
51:25
Morgan Housel: They didn't write about it in the newspapers.
51:26
There was even a period where the Wright brothers were, when they went back to Dayton, Ohio where they're from, and they're flying over people's houses through the middle of Main Street, and nobody cared. Nobody cared.
51:33
They did the same thing with the car, the same thing with the computer, the same thing with antibiotics of, like there's never been an invention that was fully respected and fully appreciated for what it would become when it first came out.
51:49
Never, and there never will be.
51:50
To get to your point about- Jim O'Shaughnessy: It's the opposite, right? Go ahead please.
51:53
Morgan Housel: It's the opposite.
51:54
It's so easy to make fun of it when it comes out.
51:55
Jim O'Shaughnessy: Exactly.
51:56
Morgan Housel: This quote that I've used a thousand times, I don't want to keep using it forever and ever, but I think it's great from Voltaire who says, "History never repeats itself, but man always does." Jim O'Shaughnessy: Yes.
52:06
Morgan Housel: The details of history will never repeat themselves. They never have.
52:10
They never will, but human behavior is just ingrained in stone.
52:13
It's going to be the same.
52:14
Jim O'Shaughnessy: Yeah, yeah.
52:15
Morgan Housel: I'm actually ...
52:15
My next book is on this topic.
52:18
It's about the behaviors that never change over time.
52:20
Jim O'Shaughnessy: Oh, I love that because that's my sort of saying, which is ...
52:24
and I marry it to the fact that we're deterministic thinkers, but basically, so that one is we're deterministic thinkers living in a probabilistic world, and generally, hilarity or tragedy often ensue, but then that married to markets change second by second, human nature barely budges millennia by millennia. Where is the disconnect?
52:53
Prioritizing human nature is your last sustainable edge, but now, you've got me really interested in this next book.
53:02
So, can you give away a little bit about the next book?
53:06
Morgan Housel: No, that's pretty much it.
53:09
It's about the human behaviors that never change.
53:10
What was true primarily in business and investing but also just other areas of life, what was true a hundred years ago that will be true a hundred years from now?
53:18
That's just an ingrained part of how people behave and the things that they do and the big kind of models of how the world works that you can't break.
53:27
Jim O'Shaughnessy: Right.
53:28
Morgan Housel: I think we focus too much on what's going to change.
53:32
What are the new technologies?
53:34
Who's going to be the next president?
53:35
Where's the economy going? That stuff's good.
53:38
It's not that I think it's bad, but I think we need to focus more on what does not change because the things that change are almost impossible to predict, but we know with 100% certainty how people are going to respond over the next 50 years and the things that they're going to fall for, for better or worse.
53:55
We know what those things are going to be with 100% certainty.
53:59
If there is something in the economy that we could forecast with a hundred percent certainty, that's really powerful, but when the next recession is, it's not something that we can predict with a hundred percent certainty or 20% certainty, but there are all these behaviors that I would bet 100% will replay over the course of my life and your life.
54:20
So, if you could focus on what those behaviors are, what they mean, how to see them coming, how to react when they happen, I think that's the best that we can actually do to forecast.
54:31
So, kind of the core of the book, I don't make this explicit, but kind of the theme is here is the way that you can actually forecast the future.
54:39
It's like, do you want to actually see the future?
54:42
There's only one way to do it, and it's focusing on the behaviors that you know are going to repeat, not the details that you pretend you can see coming.
54:48
Jim O'Shaughnessy: Exactly.
54:51
You've just outlined all of the things that I have tried to recalibrate on understanding human OS.
54:58
That's what I work on because you're absolutely right.
55:02
You had a great quote somewhere where it was like we judge innovations generationally.
55:10
Why are we looking at the companies making those innovations quarterly?
55:14
I love- Morgan Housel: Yeah, that was a story from Larry Fink, the CEO of BlackRock, who many years ago, he said he had lunch with the CEO of a large sovereign wealth fund.
55:23
The CEO of the sovereign wealth fund said, "We measure our ..."
55:23
He said, "Our goals are generational.
55:30
We're investing money for the next generation and the generation after that."
55:32
Larry Fink said, "That's great.
55:34
How do you measure your returns?"
55:35
The CEO said, "Quarterly."
55:38
I think that disconnect between things has a lot to do with just how the world works.
55:43
I would also say too, it's easy to poke from at that story, but I understand why returns are measured quarterly.
55:49
It's hard to hire an asset manager and just say, "Go do whatever you want.
55:53
You want to lose money for the next 10 years, go have at it. I don't care.
55:56
I'm a long-term investor." That's just not ...
55:57
That's not a practical way to do things.
56:00
I think short-term returns sometimes are the only way to make sure that the fund manager that you've hired or you're investing your money with is not just full of shit.
56:09
Jim O'Shaughnessy: Right.
56:10
Morgan Housel: That's what's imperfect about investing, and that's why saying I'm a long-term investor is easier said than done particularly if you are having someone else invest your money.
56:19
So, I understand why it happens, but I also think it's just easy to point out the absurdity of it, but like a lot of things in life, things are never going to be perfect.
56:28
There's always going to be a big disconnect between the ideal and what actually works in practice.
56:33
I think that's just one of them.
56:34
Jim O'Shaughnessy: I mean, with all of your success, and obviously, you've done very well financially with the book and with other things, have you changed at all, or are you still the same Morgan?
56:50
Because I'm going to tell an out-of-school story, and I can remove it if you don't want people to know this, but do you remember the car ride we took together about four or five years ago?
57:00
I was trying to convince you to like, "Hey Morgan, you got to bet bigger.
57:05
You got to swing for the fences."
57:07
Morgan Housel: [ crosstalk 00:56:19] Yeah.
57:08
Jim O'Shaughnessy: Do you remember that?
57:09
Morgan Housel: I know we've had a couple of these conversations where you try to convince me to not be a tightwad anymore.
57:15
Jim O'Shaughnessy: Right, but you were very consistent in your answer, which I respected.
57:22
I thought your self-awareness was at a very high score for such a young person.
57:30
Have any of the events or ...
57:30
Now, I know you have two kids now, and you own your house and you don't have a mortgage on it, and Gretchen doesn't work, but any changes from before?
57:44
Morgan Housel: The only thing that's changed is we have a bathtub filled with $100 bills, and I soak in it every morning.
57:50
That's- Jim O'Shaughnessy: Well, yeah.
57:52
Who doesn't have that though?
57:53
Morgan Housel: I'm kidding.
57:54
No, I would be lying if I said there were no changes, but they've been pretty subtle.
57:59
So, I think if you look at our household spending today versus before the book, yeah, it's up there.
58:07
It's grown but not in any major significant way.
58:10
We were very happy and content before the book.
58:13
It's not like we were just itching to get our big payday, and then we would go out and do the things we wanted to do.
58:18
We did everything we wanted to do before the book, and the house, we bought before the book and all those things.
58:24
To me, the biggest point here is that what makes people happy ...
58:24
The biggest things that make you happy really have nothing to do with money.
58:31
It's like, do you get along with your spouse?
58:32
Are you raising good kids?
58:33
Are you in a job that gives you the ability to be creative and have fun?
58:39
Can you spend time with your friends?
58:40
Are you getting enough sleep?
58:42
Do you have time to exercise?
58:44
That's what actually makes you happy, and those things don't make any difference at all whether you've had some windfall or not. Jim O'Shaughnessy: Yeah.
58:50
Morgan Housel: So, I think we focus on that a lot.
58:52
I'll tell you, there have been times after the book where I'm like, okay, let's go spoil myself and go buy X, Y, and Z.
58:59
I know this is going to happen, but I'm ultimately disappointed with what comes from it.
59:05
It's important to remind yourself of that once in a while, to remind yourself that you are actually not holding back from something that's going to make you happy.
59:14
It's important to test the boundaries too of like there are some things that you spend money on, and they actually do make you happier, whether it's like, oh, you're going to take your friend out to a nice restaurant.
59:22
You're really going to enjoy that.
59:23
That's well worth the money.
59:24
You're going to enjoy it.
59:26
So, it's important to test your spending once in a while to just make sure that are not holding back from it, but in general, we live the same life that we did before in the book.
59:35
I think that'll last for a while.
59:37
The one thing that we had not done before the book at all ...
59:37
and I wasn't proud of this.
59:43
I just hadn't really figured it out, is philanthropy that we've started dipping our toes into in a way that I think will grow.
59:49
I think that's something that will give us a level of happiness that we've yet to experience as well. Jim O'Shaughnessy: Yeah.
59:55
I think it does, I've been doing that for a long time, but honestly, kind of selfish reasons, I do it because it makes me feel good.
1:00:07
I think if you're willing to just admit that and don't say, "Look at how virtuous I am," that's going to actually make you unhappy but if you would [crosstalk]- Morgan Housel: Yeah.
1:00:19
I think the reason that philanthropy is such a big thing is because it makes the donor feel so good. Jim O'Shaughnessy: Yep.
1:00:24
Morgan Housel: I think that's fine. That's fine to admit.
1:00:26
There's nothing wrong with that. Jim O'Shaughnessy: Yeah. Yeah.
1:00:29
I'm reminded of Tolstoy's quote in all happy families are alike in exactly the same way.
1:00:35
All unhappy families are unique. Morgan Housel: Yeah.
1:00:39
Jim O'Shaughnessy: So, that's an interesting thing, but I think that implies that we can learn things from a certain segment of people.
1:00:56
I happen to believe that it revolves around self-awareness, realization that happiness is not an end state in itself.
1:01:07
It is a byproduct of doing interesting things that you enjoy in your life, being with interesting people whom you love and respect, and this idea that, oh, I want to be happy, and this will make me happy, that's wrong. No, it won't.
1:01:26
Morgan Housel: Yeah, yeah.
1:01:28
The thing that people miss about happiness is that it's always a fleeting emotion, and the example I like is if I told you the funniest joke in the world, you've never heard a funnier joke, you're not going to laugh for 20 years straight.
1:01:41
You're going to laugh for about 30 seconds, and then you're like, "Okay, I get it."
1:01:45
If I repeated that joke to you every day, you'd be like, "Stop. I get it. It's not funny anymore.
1:01:50
I've heard this a million times."
1:01:51
It's the same with happiness.
1:01:52
It's a very fleeting emotion.
1:01:54
It's not to say that you can't find it, but you have to understand that it's fleeting and the things that you're going to do- Jim O'Shaughnessy: So- Morgan Housel: Yep.
1:02:00
Jim O'Shaughnessy: I got to tell you one story though that negates what you're saying a little bit. Morgan Housel: Okay. All right.
1:02:05
Jim O'Shaughnessy: My daughter, my youngest daughter, Lael, is a standup comedienne, and she ...
1:02:06
Did you ever see the movie This is the End with Seth Rogen and that whole crew?
1:02:17
Morgan Housel: I don't think so. No. Jim O'Shaughnessy: Okay. Okay. So, it's hysterical.
1:02:22
You should watch it because it's the end of the world.
1:02:24
It's the Book of Revelations.
1:02:27
The Satan walks the Earth and everything.
1:02:30
There is a line from that movie that he records after being violated in ways that you can't imagine by a demon, and he's doing a self-recording.
1:02:45
He opens it by looking up at the camera and saying, "So, something not-so-chill happened last night," and literally, my daughter knows that if she says that to me, even if I'm in the worst mood in the world, I will start laughing so- Morgan Housel: Yeah, but see?
1:03:04
I think this is actually my point because you did not wake up this morning thinking of that story.
1:03:08
Jim O'Shaughnessy: No, I did not.
1:03:09
Morgan Housel: So, I think with a lot of things that make you happy too, if you have good, successful, happy kids, if you force yourself to think about that, you might be like, "Ah, that's great. I love it.
1:03:19
I'm so proud of them," but by and large, you kind of have to force those thoughts in a way.
1:03:26
It's not just going to stick with you 24/7 in the way that you don't laugh about that joke 24/7.
1:03:29
Jim O'Shaughnessy: Right. Right.
1:03:31
Morgan Housel: I think that's what people miss about it.
1:03:32
There are ways to that you can situate your life ...
1:03:32
I think this is kind of the detail here.
1:03:39
I read a little bit about this in a book.
1:03:40
A lot of happiness is removing the bullshit from your life.
1:03:44
It's not necessarily adding the nirvana.
1:03:45
It's just subtracting the bullshit.
1:03:47
I think people like Bill Gates, Jeff Bezos, those guys, I think they probably have fewer bad days than your average middle class American, but I don't think they have more good days. That's important.
1:03:58
Subtracting the bad days is great because Bill Gates doesn't have to get the oil changed on his car. He doesn't have to ...
1:04:03
Just subtract the bullshit, but I think all of those guys do not have a greater number of good days than your average typical, typical middle class American. Jim O'Shaughnessy: Yeah.
1:04:16
That's a great way to look at it too because it's so many people get tripped up on this hedonic treadmill.
1:04:24
If I just work a little harder, I'm going to be able to get that car, and that car's going to make me feel good. No, it's actually not.
1:04:32
So, this idea of things making us happier, I think, is really wrong.
1:04:43
I've said that to people, and they're like, "Oh, well, easy for you to say, Jim.
1:04:49
I sure would say that if I was driving X car or had this amount of money."
1:04:54
I'm like, "You're missing the point here.
1:04:57
The point is you're right.
1:05:00
I do have that really nice car, and you know what?
1:05:02
It doesn't make me happy.
1:05:04
You know what me happy is my family and my grandchildren and my friends and interacting with them and experiences." Right? Morgan Housel: Yeah.
1:05:13
Jim O'Shaughnessy: So, even Danny Kahneman would say there's the experiencing self and the remembering self, and he would be like, if you want to be really happy, do things that the remembering self is going to love and I- Morgan Housel: Even experiences though can get kind of quirky because most of the happiness that you get from experience comes from anticipation. Jim O'Shaughnessy: Yes.
1:05:34
Morgan Housel: You're going to get more joy out of anticipating your vacation than you do actually when you're there because- Jim O'Shaughnessy: Yes. Morgan Housel: ...
1:05:39
when you are anticipating it ...
1:05:39
If you anticipate going to Hawaii next week, you are like, "Oh, I can see myself sitting on the beach, soaking up the sun with a margarita, just enjoying it," but then when you actually get to the beach, you're like, "Oh, all the umbrellas are taken, and I got sunscreen in my eye.
1:05:56
I got heartburn from the meal last night, and my kids are yelling at me, and I stubbed my toe."
1:06:02
The context of what it actually is like means it's always going to feel less than you anticipated of what it would be.
1:06:08
Jim O'Shaughnessy: What's really funny is you're absolutely right, so it's the anticipation of the trip.
1:06:16
When you actually are on the trip, you're not really terribly happy, but when it's done, you erase all of those, the bugs and the umbrellas not being there and the kids fighting. Morgan Housel: Yeah. You kick it all away.
1:06:29
Jim O'Shaughnessy: You kick it all away, and you ...
1:06:29
Oh, boy, that trip was so fun.
1:06:32
Morgan Housel: Some of the dumbest thoughts I've ever had in my life is when I'm on vacation, and I think about how great it's going to be to come back.
1:06:41
I'll be literally in the middle of a trip, and I'll be like, "God, next summer, I get to come back here, and that's so cool."
1:06:49
I'm like this is the dumbest thought that's ever crossed my mind, but I think that's how people are wired.
1:06:54
I think that's how it works.
1:06:55
A lot of the science behind that is dopamine is the anticipatory hormone.
1:07:00
It's just getting you to want more of whatever you experience, not to enjoy what you're experiencing.
1:07:05
It's to get you to be like, I want more of this.
1:07:06
I want more and more and more.
1:07:07
Jim O'Shaughnessy: Yeah, yeah.
1:07:08
Morgan Housel: That's why when you're in Hawaii, you dream about coming back to Hawaii.
1:07:10
Jim O'Shaughnessy: Right.
1:07:11
Morgan Housel: It's the craziest, the craziest thing.
1:07:13
You can't help but laugh about how dumb you can be in that moment, but it's true. That's how people think.
1:07:17
Jim O'Shaughnessy: Robert Anton Wilson has a great quote.
1:07:22
He was 50 years ahead of his time, but his quote goes along the lines of, "If you, for even a moment, wonder if you're just a big cosmic schmuck, you are for that instant and that instant alone, a little less of a cosmic schmuck." Morgan Housel: How true. Yeah. Yeah.
1:07:42
Jim O'Shaughnessy: So, it's like the ...
1:07:42
Getting back to what you've learned, et cetera, is there something from the book that after all the feedback, after all that kind of stuff, other than the janitor thing, is there something from the book that you were like, "God, damn it.
1:07:59
I really would've loved to have said this instead of that"?
1:08:03
Is there anything glaring or no?
1:08:05
Morgan Housel: I don't know if there's that much.
1:08:09
I almost wish I had left out the part about how I invest because it sucks that people took that as a way to negate everything else that they read, although there's a part of me that's like, no, that's the argument for making sure it's there. Jim O'Shaughnessy: Yeah.
1:08:23
Morgan Housel: If people think that that cancels out everything else, well, that says more about them than me. Jim O'Shaughnessy: Yeah.
1:08:29
Morgan Housel: No problem, but I think other than the janitor thing, I don't know if there's that much.
1:08:34
I think here's one thing that I know is going to be true, is that if you and I have this conversation 20 years from now, half the book, I'll disagree with or half of it, I'll be like, "Oh, here's what I was missing."
1:08:46
I don't know which half it's going to be- Jim O'Shaughnessy: Right. Morgan Housel: ...
1:08:50
but I know that's going to be the case.
1:08:51
I think that's true for almost anyone who writes a book.
1:08:54
If 20 years after you write a book, you still think it's great, you're not being introspective enough.
1:09:00
You're not learning enough.
1:09:01
Jim O'Shaughnessy: Right.
1:09:02
Morgan Housel: I know there's going to be things that I learn about myself and learn about the world and learn about investing.
1:09:06
There's going to be news stories and events that happen over the next 20 years that I can't foresee, but when they happen, I'm going to be like, "Oh, maybe I wasn't appreciating this and that enough."
1:09:14
I don't know what that's going to be, but I know that's going to be the case.
1:09:17
So, the book's been out for 18 months, so I don't know if there's that much yet, but I know with certainty that in 20 years, there's going to be parts that I'm like, "Ah, that's not relevant anymore. I was overlooking this.
1:09:28
I was underestimating that." Yeah.
1:09:30
Jim O'Shaughnessy: So, that leads me to a question that I get asked a lot, and I'm interested in your answer. You have two kids.
1:09:38
Have you and Gretchen put any thought in the way you're going to be raising them, what you're going to do in terms of money, in terms of getting them to understand the whole spectrum?
1:09:51
Have you given that thought?
1:09:53
Morgan Housel: Here's what's hard about that because the answer is yes, but here's what's really hard about that, is that we don't know who they're going to be when they're young adults. Jim O'Shaughnessy: Yeah.
1:10:02
Morgan Housel: It's possible that my daughter wants to become president of the United States or a partner at Goldman Sachs.
1:10:08
It's possible she wants to be an English teacher in Guatemala.
1:10:12
It's just impossible to know what your kids are going to be.
1:10:15
It's impossible that our kids, I hope not, knock on wood, turn out to be not-so-great adults that cannot be trusted with some amount of money.
1:10:23
All of those options are possible, and therefore, I think making a plan ...
1:10:23
There's a line I used in the book.
1:10:28
The most important part of a plan is planning on your plan not going according to plan.
1:10:33
Jim O'Shaughnessy: Right.
1:10:34
Morgan Housel: Our kids are two years old and six years old, so if I were to make a plan about here's how much money I'm going to give you when you're this age, I think it's just not ...
1:10:39
I think it should be left flexible and left open.
1:10:44
I definitely, I've spoken about this before like the Buffett quote of give your kids enough money, and so they can do anything but not so much that they can do nothing is great.
1:10:53
So, it's like I don't want to be a propellant for them.
1:10:56
I'm not just going to say, "Here's some money.
1:10:58
Go live a great life," but if I can be the world's best safety net, cool. That's I want to be.
1:11:05
If I can be a reckless venture capitalist and invest money in your business that's never going to work, I'm probably fine doing that, so things like that.
1:11:15
I want to make sure my kids are never going to fall too hard on their face.
1:11:18
I'll let them fail a little bit, but they're never going to be in a point where they're like, "My life is miserable because I don't have enough money to afford this necessity."
1:11:25
I'll make sure that they're never at that, but other than that, they got to find their own way.
1:11:30
I think that's really important- Jim O'Shaughnessy: Right. Morgan Housel: ...
1:11:32
to make sure that you're not just spoiling your kids and inadvertently turning them in into little shits because they never had to learn the hard lessons on their own.
1:11:40
Jim O'Shaughnessy: Oh, that's why I think you and I get along so well because when I was raising our kids, my wife and I talked about it a lot.
1:11:49
We had similar thoughts that you just mentioned.
1:11:52
We have no idea what they're going to be like when they're adults.
1:11:57
So, we decided on a rule that negated a ton of things that I thought at least were not the right way to parent.
1:12:07
The rule was we want our children to be great adults. Morgan Housel: Yeah.
1:12:13
Jim O'Shaughnessy: So, essentially, when you say my goal is to raise children who become great adults, your behavior becomes much more limited.
1:12:23
You can't say things like because I said so.
1:12:26
You can't say my house, my rules.
1:12:30
You have to engage with the child and say, "Well, why do you want to do that?
1:12:38
And okay, well, do you have a reason for that?"
1:12:40
It worked out pretty well.
1:12:44
I'm very lucky in the three kids that I'm super proud of.
1:12:50
The other thing that I always did was I always tried ...
1:12:50
We didn't have Google when they were younger, so they used me as Google and like, "Dad, why is this ..."
1:12:54
I always pointed at the bookcase, and I said, "Look it up in there."
1:13:05
So, those two things worked out pretty well, but I so agree with your statement that you don't know.
1:13:19
It's hard for a parent to even entertain the idea that- Morgan Housel: Yeah. Jim O'Shaughnessy: ... that, oh. Morgan Housel: ...
1:13:25
including, I would say, and everyone who's listening who has multiple kids will agree with this.
1:13:29
This is nothing insightful, but my two-year-old daughter and six-year-old son could not be more different. Jim O'Shaughnessy: Oh.
1:13:35
Morgan Housel: Could not be more different in their personality, in their desires.
1:13:37
It's completely night and day.
1:13:39
I think everyone who has multiple kids would say that, so that's when it's like I think I would shake my head if someone was like, "Here's the exact format for how I'm going to give money to my kids and help my kids." No, no, no.
1:13:50
That doesn't work like that. Jim O'Shaughnessy: Yeah. We used to joke.
1:13:54
We have three, and so Patrick's the oldest.
1:13:56
We had him when we were 24.
1:13:58
So, I used to joke that when people asked me why I was so young when I had my first child, I was like, "I wanted to be able to ...
1:14:02
him to like the same music I liked and feed me all the new stuff."
1:14:09
Morgan Housel: For your generation though, 24 was not young.
1:14:12
That was like the normal time.
1:14:13
That was like you were a late bloomer for that generation, right? Jim O'Shaughnessy: Yeah.
1:14:18
Well, that's a whole different discussion because there's a guy, Jonathan Pontell, who's a demographer who basically makes a really solid case for the fact that even though I'm included as a baby boomer, I'm not really a baby boomer.
1:14:31
Morgan Housel: You're like a junior boomer.
1:14:33
Jim O'Shaughnessy: Yeah, exactly and so ...
1:14:33
but by that time, it was young even at the time. Morgan Housel: Yeah.
1:14:42
Jim O'Shaughnessy: People were like, "Whoa."
1:14:43
Morgan Housel: Because I definitely know for, what's it called, the greatest generation, the boomers' parents, if you were not married by 19, it was like, what are you doing with your life?
1:14:51
Jim O'Shaughnessy: Exactly.
1:14:52
Morgan Housel: It was a very ...
1:14:52
and if you didn't have kids by 21, it was like, well, so you're a failure. Jim O'Shaughnessy: Yeah.
1:14:58
Well, and that, your observation about the kids having very different personalities, Patrick and my daughter, Kate, exactly the same. Very different.
1:15:10
We used to joke because there was seven years difference between our final child, Lael and Kate, and people were like, "Oh, so you can have another child," and it's like, "Why?"
1:15:21
We're like, we want to see if they truly are polar opposites, Kate and Patrick.
1:15:27
Then, of course, Lael came along, and she was a mix of the two, which is very, very funny, but I do think that what I love about you and your message is that be self-aware, don't over-complicate.
1:15:44
I mean, if I could give anyone advice, it would be, know yourself because so few people...
1:15:55
because that's not necessarily a comfortable exercise and we all have like Tony De Mello says, "If you want to know what your own faults and flaws are, look at what annoys you in other people." Morgan Housel: Yeah. Completely. I so agree with that. Yeah.
1:16:14
And there's a lot of times I think that self-awareness of when somebody annoys you rather than being like, "I can't stand that person."
1:16:22
Think deeply about the times when you have done that exact same behavior, the highest of which I think the most prevalent of which is when people brag.
1:16:31
I want to vomit, I can't stand it. It's so gross.
1:16:36
And then I think like, "Do I brag?" Yeah, I probably do.
1:16:39
And I should really cut down on that.
1:16:42
That's what I try to do the most.
1:16:43
Because it's so unappealing and nothing is more appealing than humility.
1:16:47
Jim O'Shaughnessy: Right.
1:16:48
Morgan Housel: And here's the thing for most people, if you are successful, if have great traits, people will learn about them on their own and learning about them on their own is going to be so much more beneficial to you than if you force those traits down their throat.
1:17:00
Jim O'Shaughnessy: And the other thing is, if you're truly honest, what you learn is all of the events of your life teach you humility.
1:17:12
Because I've been so wrong about so many things that one of my most common lines is, "I don't know." Right? Morgan Housel: Yeah.
1:17:23
Jim O'Shaughnessy: And so the go-to for many people is, "My opinion is this and that's a fact.
1:17:33
And anyone who disagrees with me is wrong."
1:17:37
And that's all emotional.
1:17:40
And so we're getting a little long here.
1:17:44
I have a couple more questions about the book.
1:17:46
Then I have the final question.
1:17:48
If somebody hired you and they're like, "Morgan Housel, we loved your book.
1:17:56
We want you to come and spend a weekend with our kids." Is there a list?
1:18:02
Do you have a go-to list that you would talk to kids or adults?
1:18:07
It doesn't have to be kids.
1:18:09
It can be, "My brother, Tim is fucking awful on money. Will you come?
1:18:16
I'll pay you and everything."
1:18:17
But is there like a program? Morgan Housel: Yeah.
1:18:20
I've done this a couple times with high net worth families that hire me to come talk to their kids. I love it.
1:18:25
It's so much fun, but I don't prep what I'm going to say, because back to everyone's different.
1:18:30
I feel like you just have to get to know the person and do it that way.
1:18:34
The other thing is that nobody wants a lecture, but everyone likes a good conversation.
1:18:38
Everyone likes a good story.
1:18:39
So, if you can, particularly with young kids, if you can sit down with them, and this is like, "Hey, this is not a classroom session.
1:18:45
This is not a chalkboard.
1:18:46
And I'm going to lecture you. Let's just chat."
1:18:48
Let's just say, "I want to get to know you.
1:18:50
And let's just have a conversation." That opens up people.
1:18:53
One analogy that I use, the best way to interview someone for a job is to take them for a walk and just talk to them, not to interrogate them from the other side of the table.
1:19:03
It's just be like, "Hey, you want to grab a coffee? Go for a walk?"
1:19:05
That's how you get to know somebody.
1:19:07
And so that's what I try to do when I've done this a couple times is just like, "How can I get to know this person?"
1:19:14
And it's almost like a therapy session.
1:19:15
I'm not a therapist, of course, but it's almost just like, "Hey, tell me what you're thinking."
1:19:19
And as I say it, sometimes I'll interrupt and be like, "Hey, you know what, you said, this, let me tell you about this little thing.
1:19:24
Let me tell you a story about this."
1:19:25
And then I let them keep going from there.
1:19:27
I just try to like interject here and there to try to push them in a different way.
1:19:31
That's the only way you're going to get through particularly young people, rather than, "Hey, your grandparents hired me to lecture you for the next hour."
1:19:38
That's never going to work you.
1:19:39
Jim O'Shaughnessy: If you want to kill it, you would say that. Morgan Housel: Right.
1:19:43
Jim O'Shaughnessy: I could not agree more.
1:19:44
And almost all of my best ideas I had when I was out on a walk and- Morgan Housel: Always, this is actually, there's science behind that about your brain is more alert because you have to make sure that you're not tripping over logs and you have to make sure that the cars aren't going to hit you.
1:19:59
Whereas when you're sitting at your desk, your brain can shut off because there's nothing threatening you right now.
1:20:05
So, your brain just goes in to idle. Jim O'Shaughnessy: Yeah.
1:20:08
And so Patrick does it, my son and Patrick does it all the time, that's his way.
1:20:12
If he wants to talk to anybody, whether they work for us or we're considering that they're going to work for us, or we're considering an investment in their company, that's the way to do it.
1:20:26
And what's really interesting is that it also naturally relaxes most people.
1:20:33
And I don't know whether you watch Succession, on HBO.
1:20:36
Morgan Housel: No, I'm not familiar with it, but I've never seen it.
1:20:41
Jim O'Shaughnessy: So, one of the things is that the father is old and he's had some health problems.
1:20:47
And so he goes with a guy who's like, "Let's take a walk."
1:20:51
And of course it was the worst thing because he was dying near the end.
1:20:59
But the point is, is that because it underlines, what I think comes naturally to you, which is you've got to assess the situation on the ground when you get there, right?
1:21:12
Morgan Housel: Yeah, totally.
1:21:13
Jim O'Shaughnessy: So- Morgan Housel: It's like the more prep you do, the worse you're going to do.
1:21:17
Jim O'Shaughnessy: Precisely.
1:21:18
Morgan Housel: I think that's probably true for job interviews.
1:21:21
That might be terrible advice.
1:21:22
Maybe you should prep, but I think it's going to come off better when it's just an actual conversation.
1:21:29
There's this funny quote that I like from this Twitter meme account called Goldman Sachs elevator.
1:21:33
And he says, "Just be yourself is good advice for maybe 10% of people."
1:21:39
But I think it's actually, as funny as it is.
1:21:43
I think it's actually true.
1:21:45
Whenever I do a thing where it's a fireside chat event where it's like, "Hey, let's come have a conversation."
1:21:50
A lot of groups will be like, "Hey, I want to prep out every question and I'm like, "No, I wanted to show up and have a chat and have it come off as a chat."
1:22:01
That's when you're going to get the best conversations versus a forced structured like, "I've prepped every question."
1:22:08
And we're just reading from a transcript at that point.
1:22:11
That never leads to a good conversation.
1:22:12
Jim O'Shaughnessy: It's totally a waste of time in my opinion, I've had a few times in my life where people tried to script me and it was horrible.
1:22:18
Morgan Housel: It doesn't work.
1:22:20
Jim O'Shaughnessy: Absolutely.
1:22:21
It just doesn't work and I was awful.
1:22:24
I'm like, "I've realized that."
1:22:27
Because I was thinking, "Wow, I was so bad."
1:22:34
And I realized, wow, because I was scripted. Morgan Housel: Yes.
1:22:39
Jim O'Shaughnessy: If you want, that's what my goal with this podcast was it was like my dinner with Andre.
1:22:45
What I'm going to do is have fascinating smart people on and talk to them.
1:22:49
Morgan Housel: I might be wrong about this.
1:22:51
I'm only like 80% confident, this story's true, but I'm pretty, the origin of Patrick's podcast was he had lunch with Jeff Graham and at the end of the lunch, he said, "I wish we could have recorded this."
1:23:01
Jim O'Shaughnessy: It is.
1:23:02
Morgan Housel: And that's where it came from. Is that true? Jim O'Shaughnessy: Yes.
1:23:05
Morgan Housel: I'm pretty sure that's true. Jim O'Shaughnessy: Yeah.
1:23:07
Morgan Housel: And it's true.
1:23:08
A lot of people when you're having a private lunch, you're like, "This was such a great conversation."
1:23:11
And of course that private lunch is not scripted.
1:23:12
You're just talking to each other.
1:23:14
Jim O'Shaughnessy: Exactly.
1:23:15
Morgan Housel: Recreating that magic anywhere you can is important. Jim O'Shaughnessy: Yeah. I totally agree. Okay.
1:23:23
So, the last question I want to ask about your book and ties in with the book you're writing is have you in a clutch, have you ever panicked?
1:23:40
Morgan Housel: I've told this story before, and this was pretty recent.
1:23:46
This is two years ago, which is that my wife and I had a long standing plan to sell our house in Virginia in May 2020.
1:23:52
We made that well before the pandemic, it was like, "Okay, May is when we're going to sell our house." We got a realtor.
1:23:57
I'm like, "Okay, we're going to list this house in May."
1:24:00
In March 2020, as the world is collapsing.
1:24:02
And we were really staring at Great Depression, 2. 0.
1:24:04
I woke up one night and I was like, "There might not be a market to sell in May.
1:24:09
The market might not exist."
1:24:10
I remember talking to one of my really smart macro friends.
1:24:13
And he said, "Hey, non-bank lenders, which make 60% of mortgages.
1:24:16
They're all going out of business in the next month."
1:24:18
Because all the mortgage payments were stalled or were paused.
1:24:22
And the non-bank lenders were not getting any help from the treasury they're gone.
1:24:27
And he was like, "When that happens, that's 60% of mortgages, the whole real estate market stops."
1:24:30
So, I woke up one night and I was like, "We might not be able to sell our house in May."
1:24:34
And I called our realtor the next day. This was in March 2020.
1:24:37
And I said, "I want to list our house tomorrow.
1:24:40
Just put it on the market today.
1:24:41
And you can cut the price. I want it sold today."
1:24:44
And he goes, "Morgan, don't panic."
1:24:45
And I said, "I'm panicked.
1:24:46
You are looking panic in the face right now.
1:24:49
This is what panic looks like."
1:24:51
And look, the house sold for more than we listed before.
1:24:54
It was no problem, it turned out.
1:24:56
And I don't regret that in the slightest.
1:24:57
I think that was the right thing to do.
1:24:58
But the takeaway for me, and I knew this before, but once you experience it, it feels different is like, "You never know how it's going to feel in the moment."
1:25:07
Because look, what went through my head when I woke up at 2:00 in the morning, thinking about this was if we don't sell our house in Virginia, it's going to be really hard to buy our house in Seattle where we live now, we're already under contract for that.
1:25:18
"Okay, if we don't sell our house, I'm going to have to sell these stocks at a 50% discount."
1:25:23
I was running through all these scenarios and it was like "This is not good."
1:25:29
And there are times when it's like, so I actually don't think it was panic, but it was just all of a sudden I was like, "Okay, I thought I was going to do X, but I need to immediately do Y to make sure that I'm taking care of my family." So, I don't regret it.
1:25:41
And it all worked out, but that was as close as it's come to be like, "I didn't think I was going to have this emotion, but it's here." Jim O'Shaughnessy: Yeah.
1:25:51
So, I think that brings us back to Jason's idea.
1:25:57
You can show lots of pictures of snakes, but it's not until you throw the real live snake in their lap that you're going to see how people are going to do.
1:26:06
And so one of the things that I have through my long career found, and that is I have come to understand the fragility of your average human being and acknowledge that I'm a human, we're all humans.
1:26:23
And if you just give people a little more room, give them a little more ability to breathe, right.
1:26:33
You're probably making a better decision than if you're like, "You can't do that. You must do this."
1:26:40
It's like your whole idea.
1:26:41
It's like, "I hate that."
1:26:44
People will say, "Jim, give me your five reasons or five best investment ideas."
1:26:50
And I'm like, "No, I can't do that."
1:26:52
It's like they'll be different four months from now.
1:26:58
And that's why I get triggered by these 10 things entrepreneurs do in the morning, bullshit, it's all just a lie.
1:27:07
And what bothers me- Morgan Housel: You know it's a lie because none of them include going to the bathroom in the morning.
1:27:12
So, then you know, it's that bullshit from the get go.
1:27:14
Jim O'Shaughnessy: Exactly. Right. I love that.
1:27:18
Well, you want to really know what I do when I get up?
1:27:21
Morgan Housel: You want to really know, it's not pleasant.
1:27:24
Jim O'Shaughnessy: Well, Morgan this has been fantastic.
1:27:27
When is the new book coming out?
1:27:28
Are you working on it right now?
1:27:29
Morgan Housel: I'm working on it right now.
1:27:31
I would say that there is a very good chance that it's for sale one year from now.
1:27:38
I'd put 75% confidence in it's for sale one year from now. Jim O'Shaughnessy: Yeah.
1:27:42
So, I had Tim Urban on who I love and he's the biggest procrastinator in the world. Morgan Housel: Yeah.
1:27:49
Jim O'Shaughnessy: And Tim, when's the book coming out?
1:27:53
"Don't ask me about the book."
1:27:55
Morgan Housel: Here's what publishers do that sets this up for someone like me and Tim is when you sign a contractor with the publisher, they're like "Great.
1:28:02
We need the manuscript in two years."
1:28:04
And then I'm like, "Great.
1:28:05
So, I'll start working on it in one year and 11 months."
1:28:08
That's when I'll start thinking about this thing.
1:28:10
Jim O'Shaughnessy: I learned.
1:28:11
Morgan Housel: I need tight deadlines.
1:28:13
And if you give me a long leash, I'm going to eat it up. Jim O'Shaughnessy: Yes. Same with me.
1:28:17
And I learned that with the only really commercial book I did called, How to Retire Rich.
1:28:22
And they gave me a big advance for it.
1:28:24
And I was all like, "I got this big advance."
1:28:29
And then I was like, "Holy shit now I've got to produce." Morgan Housel: Yeah. Write a book now. Jim O'Shaughnessy: Yeah. You got to write a book.
1:28:38
And so in that particular instance, it was nerve wracking.
1:28:43
So, I definitely think that being able to have that amount of time is great.
1:28:51
So, my final question is different than Patrick's, Patrick's is always about the kindest thing that anyone has ever done for you.
1:29:02
And when I was- Morgan Housel: What's the shittiest thing's ever done to you?
1:29:04
Jim O'Shaughnessy: What's the shittiest thing.
1:29:05
Morgan Housel: People should start asking that question.
1:29:07
You'd get some good answers out of that.
1:29:10
Jim O'Shaughnessy: Who do you want to name and shame?
1:29:14
So, the one that I like is that we're going to wave a wand, we're going to make you the emperor of the world for one day. You can't kill anyone.
1:29:25
You can't incarcerate anyone.
1:29:26
Morgan Housel: [crosstalk] In that case.
1:29:27
Jim O'Shaughnessy: I know that's why I always put those two pre vises in there, but you can incept them.
1:29:33
You can have a little magic microphone that you speak into and everyone wakes up the next morning, but they think it's their idea.
1:29:42
They don't think it came from you.
1:29:45
They just, "I just had this great idea to?"
1:29:49
What two things are you going to incept in the world?
1:29:52
Morgan Housel: I would, because this is the magic wand.
1:29:55
I'll make this ridiculous.
1:29:56
I would show people exactly in their life when the things that they admired about themselves were actually due to luck.
1:30:05
And I would show everyone a movie of like, "Hey, this point in your life that you think you did this."
1:30:10
Actually, here's what happened behind the scenes.
1:30:12
You didn't know about that actually led to that thing.
1:30:14
I think that would instill a degree of humility in people that would be so beneficial.
1:30:19
It would help, it would not depress them.
1:30:21
It would be so beneficial to know.
1:30:22
And also I would, so this is a magic wand.
1:30:24
I would show them every one else in the world's movie too.
1:30:27
I'd be like, "Here's all the areas where Jim got lucky and Morgan got lucky."
1:30:31
And then they would stop idolizing people for just some level of success.
1:30:37
And they would look at individual actions that led to what actually they did on their own volition to actually get to where they were.
1:30:48
Because I think one of the biggest problems in the world, not one of the biggest problems that's exaggerating, but a problem in the world is that we underestimate the role of luck in a massive way.
1:30:59
And even there's that saying of like, "The harder I work, the luckier I get."
1:31:02
I think that's bullshit too.
1:31:03
I think luck is just luck.
1:31:05
And I think if you are working hard to become luckier, then that's actually a skill, luck is just luck.
1:31:12
For you and I, you and I are white American males born in the latter, half of the 20th century, that's just luck you.
1:31:18
You and I did nothing to do that, it's just what happened.
1:31:22
And I think everyone has some story like that they under appreciate.
1:31:27
And to make them aware of it would be a huge help in the world. Jim O'Shaughnessy: Yeah.
1:31:32
The exercise that works really well there is Rawls, Veil of Ignorance, where you ask people, you're going to design society, but here's what you don't know.
1:31:43
You don't know if you're going to be a boy or a girl.
1:31:45
You don't know whether you're going to be rich or poor.
1:31:47
You don't know whether you're going to be dumb or smart.
1:31:50
You don't know whether you're going to have a handicap.
1:31:51
You don't know any of this and wow do people change the way they design a society with that.
1:31:59
Because I in fact, I wrote a thread about luck because of something you had up.
1:32:05
And the first thing I was like, "I'm the first person to admit that I was born sliding into home plate."
1:32:12
And those are things I didn't control.
1:32:17
But I also totally agree with your last statement, which is, "If you keep an eye out and learn the skill of trying to see a lucky situation and then taking advantage of it."
1:32:29
You're right that is a skill.
1:32:30
And I've been on both sides of that.
1:32:32
I've been on taking advantage, but I've been not taking advantage and boy that one's smarts.
1:32:39
Morgan Housel: Yeah, no, there are a lot of people who say, "The harder I work, the luckier I get."
1:32:43
And I think that's just a false humility.
1:32:46
If you actually did take an action, that skill.
1:32:49
Luck is just luck for everyone.
1:32:51
It's just like you're changing the definition of luck if you think you can do something to improve the odds of getting it.
1:32:59
Jim O'Shaughnessy: What's interesting is that, I tell a joke that half the people I tell it to get literally angry.
1:33:06
Morgan Housel: Yes, totally.
1:33:07
Jim O'Shaughnessy: And the joke is this, there's a guy who's been given 50 folders on applicants for a job.
1:33:15
And he's just pissed off about it.
1:33:18
His assistant brings them in and he says to his assistant, "Hey, pick 25 at random and throw them away."
1:33:26
And the assistant looks at him and he goes, "Why would you do that?"
1:33:28
He goes, "I don't like unlucky people."
1:33:31
Morgan Housel: That's good.
1:33:33
That's like I'm off now as well, but that's a good story.
1:33:36
Jim O'Shaughnessy: There you go. I know. Exactly. Okay.
1:33:41
So, number two, you're going to show people their luck.
1:33:42
What do you got for number two?
1:33:43
Morgan Housel: I would make people aware of what it's like to live in the bottom 1% of society around the world.
1:33:51
And I think that's something that everyone, everyone who's probably listening to this is in the fortunate layer of society.
1:34:00
And I think there's no amount of empathy that I can have, you can have, anyone can truly comprehend how some people live in this world.
1:34:06
And to make you aware of what it is like, would increase empathy exponentially.
1:34:13
If you could actually feel what it's like to live in destitute poverty that so many people in the world do, that might be the second thing I would do.
1:34:22
So, I would instill humility and empathy by those two things.
1:34:26
Jim O'Shaughnessy: Those are two great ones.
1:34:29
And the thing that I would add to the second one is that's why I'm such a strong proponent of traveling as much as you can. Morgan Housel: Yes.
1:34:39
Jim O'Shaughnessy: So, Africa, I saw bone crushing poverty when I was in Nairobi and we were near the slum.
1:34:48
It was just like, " Holy shit."
1:34:51
And that wasn't even me experiencing it.
1:34:54
That was just me seeing it.
1:34:56
And I think that one of the reasons why I believed so much in travel is it takes you out of yourself and reminds you that there are all sorts of different people in the world, there's all sorts of different cultures, there's all sorts of different things.
1:35:11
And you should know a little bit about that because it's going to make you more tolerant.
1:35:17
It's going to make you understand how...
1:35:20
One what of the things that I do.
1:35:21
When I take a hot shower, I have been doing this for five years.
1:35:26
Whenever I take a hot shower, I say, "Thank you."
1:35:28
Because not only did I see how many people in Africa didn't have that luxury, but then you think about history, man.
1:35:36
It's like, "Do we realize how lucky we are to be alive right now?"
1:35:44
150 years ago, a cut on my hand could kill me. Morgan Housel: Yes.
1:35:50
Jim O'Shaughnessy: And so the shower thing happened when we were actually in Africa and we were in the bush and there was no hot showers.
1:36:01
And when I got back to the camp and there was, I was just shouting to my wife, "I have never, ever understood how much I should be rejoicing that I get to take a hot shower." Morgan Housel: Totally.
1:36:15
My wife had a similar experience.
1:36:17
She did a medical mission in Nicaragua a decade ago.
1:36:20
And for seven days, she ate nothing but rice and beans, cold rice and beans for seven days.
1:36:25
And she came home and she was like, "I will never view food the same way ever again for the rest of my life." Jim O'Shaughnessy: Yeah.
1:36:31
And to be aware of that and to notice that I just think makes you a better person, because it opens your eyes to A, are you kidding me?
1:36:43
Stop complaining and stop with all of your bitching and moaning and look at the fact that I won the cosmic lottery man.
1:36:53
I thank God for that every day.
1:36:55
Well, listen Morgan, this has been amazingly fun.
1:36:59
I can't wait to read your new book and keep on, keeping on, man. I admire you.
1:37:09
And I love the fact that you are becoming the voice of your generation, which is awesome because your messages resonate with me.
1:37:23
It's funny because we do things completely differently, right? Morgan Housel: Yes.
1:37:27
Jim O'Shaughnessy: I'm [inaudible] and active manager, all of those things.
1:37:30
But if you remove all that, we really have the same message.
1:37:35
Which is have a rule based plan. Don't get emotional. Morgan Housel: Yes.
1:37:39
This is actually very similar. Jim O'Shaughnessy: Yeah.
1:37:41
Morgan Housel: What you and I do.
1:37:42
I think there's a lot of that in finance where you think it's different, but we're actually going on the same principles.
1:37:47
You're just doing it a little bit differently. Jim O'Shaughnessy: Yeah.
1:37:50
And so look forward to seeing you when you're next in New York and Seattle loving it?
1:37:56
Morgan Housel: Yeah, Seattle is great. My wife grew up here.
1:37:59
She and I lived here for a couple years after college.
1:38:00
So, it's nothing new to us and we love it here.
1:38:03
This is where her family is and yes, Seattle is great.
1:38:07
I's great here we love it.
1:38:08
Jim O'Shaughnessy: Perfect.
1:38:09
Well, thank you for coming on my friend and I look forward to seeing you when you're next in New York.
1:38:14
Morgan Housel: Thanks Jim. Take care. This has been fun.