And I think at the highest level, what I've thought about in terms of wealth, and that I really believe in terms of wealth, and studying the stuff that's on the years and studying other wealthy people and thinking about myself, is I think wealth can really do for you that will legitimately make most people happy. Is to be excited that you can use wealth to control your time, to give yourself options, to let you do what you want, when you want, with who you want for as long as you want to. That is wealth's great power. Mr.
Morgan Hausle in the building, how are you, man? I'm good. Thanks for having me. Excited to be here.
Thanks, Chris. Yeah, me too. Me too. We're talking wealth today, right?
Everyone, everyone wants it, but I don't know how to get it. It's very elusive. It's not even that people don't know how to get it. I think it's a lot of people don't think about defining what it is, or what it's going to mean to them, or what it could do for them, or why they want it.
I think there's just a natural urge to want more of it. Answer the question why? It seems like a funny question to a lot of people. Of course, I want to be wealthy.
Why would you even ask? But you start getting these more philosophical questions of, why do you want to be wealthy? Is it a sad thing? Is it because you want more stuff?
Is it because you want more control over your time? Is it because you think it's going to erase problems, and you know, they can currently have your life, and you have more money than problems go away? And I think there's a lot of different elements to that. And I think at the highest level, what I've thought about, in terms of wealth, and I really believe in terms of wealth, and studying this stuff for so many years, and studying other wealthy people, and thinking about money myself, is I think wealth can really do for you that will legitimately make most people happy.
Is to be sending you a wealth to control your time, to give yourself options, to let you do what you want, when you want, with who you want, for as long as you want to. That is wealth's great power that you can do for us. But that's usually not what people think about wealth and what they think about it is, more stuff. Bigger house, nicer car, better clothes, and some travel, whatnot.
And there's nothing wrong with that. I like fancy cars. I like big homes. I like it all.
But we just have so much evidence. It's almost cliche at this point to say, buying a bigger house in the fancy car, what make people happy. We have a lot of evidence on that. That there's this huge amount of treadmill that people, when they're anticipating getting a Ferrari, that's really exciting.
But then they actually get it and say, yeah, it's just a car. It's just kind of steering wheel and whatnot. And there's a lot of different elements to that. I think this is something I learned when I used to be at a valet at a fancy hotel in Los Angeles and I was college.
These people would come in driving their Ferraris. And I would look at that. I would look at the car and be like, wow, that's really cool. I had that car.
What do you call? I was driving that Ferrari. And it took me a while to realize the irony of that thought, which was that those people drove in and I never said, wow, that driver, he got driving the Ferrari? He's really cool.
He must be impressive. As an observer, I just said, I want to be in that car. I didn't care about the driver. All I did is I imagined myself driving his car.
But the guy driving in, when he's driving the Ferrari, he's probably thinking, everyone thinks I'm cool. And they did it. The valley on the curb was thinking, I want to be in it. I don't care about you.
I just want to imagine myself sitting in that seat. And I think it was just like this irony of like, no one cares about the guy in the car. But everyone wants to be the guy in the car. And to the extent that you wanted to buy a Ferrari, it's like of course the extreme example doesn't need to be that luxurious.
But the extent that you want wealth to buy yourself because you think it's going to bring you respect and admiration and prestige, there's probably some of that. It has a good signaling effect. But a lot of that is just a misconception about you think people are thinking, actually, I think that's a big reason why the perception of being wealthier seems like it's so much happier. And if you look at the statistics about how people are just not that much happier, then the rest of us.
Of course, there's a minimal level of meeting your daily needs and comfort and whatnot. But after that, a lot of the status wealth, it's propensity to make people happy is really not there. But I bring that up because what we know doesn't make people happier. It has a legitimate lasting long-term impact on happiness is when they can control their schedule, when they own their time, when they can do what they want, when they want, when they can wake up every single morning, some days a week and say to themselves, I can do whatever the hell I want today.
That makes people happy. So if you could use wealth to generate that, own your schedule. And for ordinary people, maybe that's taking a job that doesn't have a long commute, or you're working a job that pays less, but it's doing something that you love, or something like that. Or if it's a higher level retiring early, just retiring when you want to, or retiring when you're 32, which is like the big movement these days, stuff like that does make people happy.
You can control your time. That's a lasting impact. So when I think about wealth, it's like the highest, the fundamental level. The first question is what do you want it to do for me?
And for me, personally, it's just a level of independence. It's a level of waking up every day and saying, I can do what I want out. That's the goal of all for me. I get it, man.
I've got a million doorways open in my mind. One of them being rich might not make you happy, but being poor will make you miserable. I love that quote. And it really is very, very true.
Anyone that you know, it's what I call diet brain. You're on a diet, and the only thing that you can think about is food. It's the same, precisely the same as that, if you have money worries. There is nothing that happens that is not framed by, but I don't have enough money.
But what happens about the next paycheck? But about my bills. Right, my brother, my brother, I was an idiot a decade ago. Now that I really, I was really insightful.
She said, camping is fun. Being homeless is miserable. The thing between those two is one is a choice and one is being forced. But you're sleeping in the tent outdoors.
But rich people, and I really have to cheat my words carefully, not, you know, and I really try to really empathize with people who are homeless. But I think that's a great way to frame the extreme ends of it. It's not even like the absolute conditions that we're in. It's whether we have a choice to do it or not.
And if you're forced to do something, that's against you will. You don't want to be homeless. You don't want to be out sleeping in the cold. That is miserable.
But if you're camping, it's kind of a thrill to it. Some of that is because you can't rule one night. You're not doing it all the time. But it's just like, I thought framing that as, you know, just the difference between whether you want to do it or not makes all the difference in the world.
There's this great story about FDR, freaking down the road, Roosevelt, where his mom was talking about, I think FDR was like 10 years old and he complained to his mom that he was unhappy in life because his entire day was structured in a really strict regimen. It said, I'm going to do this. And he came to his mom and he said, all these rules make me unhappy. So his mom said, OK, for one day, you can do whatever you want.
It's all to you. And his mom wrote in your diary that night that during that day when FDR could do anything he wanted, he followed his own route to his own routine. He did the same thing. He did the same thing at the end.
And then he did his homework at the end. But just the fact that he was doing that on his own well, rather than someone telling him to do it, they could feel better. It's like people don't know what to do. And even if they get to do what they want to do on their own terms, they still might do the same thing, but they're doing it on their own terms.
They're camping. They're not homeless. That's such a good distinction. That agency, the allowance to make a choice.
Another thing is while you were talking about the guy in the car and it makes me think about the Noval Ravikant quote, which is, you cannot take part of someone's life. You have to take the whole. It's like, you look at the guy in the car and you think, fuck, that car's cool. But what's the price he's had to pay for that car?
Not $250,000. Like, what are the sacrifices he's had to make? Like, how many relationships has he destroyed? How many or she has she decided not to have with forgo children so that she can make it to 40 years old and be the CEO of some company.
You don't know what the price that someone has had to pay to acquire that wealth is. And I think it comes back to what you said before. It appears to be, it's very, very essence, what wealth gives someone is freedom, agency, control of their own time, control of what it is that they get to do, what they have to do. And that's a much more holistic way of looking at it than like Dan Bilzerian it.
That's not say that Dan Bilzerian approach isn't a good thing, but you get by me. Yeah, and that's a question. Back to the point, you see Ferrari, you don't see what went on together. Obviously, shiny wheels and big rally engine.
You don't see working until midnight. You don't see, you don't get to hang out with it. Everyone drives a Ferrari is in that boat, but there's a sacrifice that you don't see. But the person driving that Ferrari, they're acutely aware of it.
They know how hard it had to work for that thing. So there's a big difference between what you see and what it takes to get that stuff. And that I think is another reason why the perception of wealth feels a lot better. The dream, the daydreaming of wealth feels better than actually happening.
We actually have it, you realize all the costs that are associated with it. I think there's this thing too that once you gain wealth, a lot of people get paranoid about losing it. And it's not easy to think about that before you have it. When you're sitting here thinking about it, if I wasn't a lottery, what would I be like?
You think about all the fun trips you're gonna take and all the beautiful houses of the beach and everything. A lot of people don't, it's very hard to conceptualize until you're there. What's gonna feel like to think to yourself, what if I lose all of this? What if I make a bad decision?
What if I spend it all? What if the huge annual bonus that I got last year, I was at one time fluke, I'm not gonna get out again? And then so, before maybe I don't wanna spend, maybe I wanna hoard this? It's hard to really think about those feelings until you're in the trenches.
I think this imagine those feelings. But those are real feelings that happen. If you have people doing this. Don't be able to have quote, I heard him say this a long time ago, but I have not been able to define the source from this.
So I'm paraphrasing what he said. But it was something to the effect of now that he's the richest man in the world. His biggest, his only money thought was not losing what he had. It was not growing more.
He had more than he had. It was just not losing it. And how many people who are thinking about Bill Gates as well, his money, my friend, think that he's saying a whole word about losing what he has. He's got more than, it's absurd, but that's what goes through his heads.
And I think that it's a really common thing that comes up when you hear very wealthy people talk about the psychology of their own money. The internal amount of losing what they have is a big thing that comes up. And that's a stress that's hard. Of course, there's a big point of this where it's like boo-hoo.
Yeah, there's someone who's living on the poverty line that's like, oh, yeah, it sounds really hard. Exactly. But there's also a sense that this is not a popular statement, but first world problems are real problems. Like anxiety in your head is real no matter how wealthy or how certain it works to someone else.
Anxiety is real. High blood pressure is real no matter how crazy it works. And a lot of people, you know, situations have issues that you cannot stab them until your energy is. Yeah, I was talking to James Altucher the other day who is like the patient zero, for make it lose it, make it lose it, make it make it again.
And also as well on that kind of relativistic worldview, I remember this really early memory with my mum and I was walking down the street and she, I was complaining about something, something small. I was cold or it was wet or it was whatever. And she turned and said, I was only 10 at the time. She turned and said, Christopher, look, like there's bigger problems in the world than you being cold or wet.
And I remember turning to her and saying, yes, but this is my world. This is the biggest problem in my world right now. We're not absolute beings, we are relative beings. Right, I mean, one person in the world right now is suffering more than everyone else.
Their suffering is just real. Right? It's always like, and it's all on a spectrum. And everyone, no matter where you are in that spectrum, like someone is probably, there's only one person who was suffering more than anyone else.
Everyone else, it's just an out of perspective. And we all live on that. I mean, I wrote a piece many years ago that a lot of people did not appreciate, but it was during, it was in 2011 during the Occupy Wall Street protest, if you remember that, where there was a big public backlash and a lot of it was just about against the 1%. And it was the 1% versus 99%.
I wrote a piece that said, look, in the United States, no, in the world, if your income is over, I think it was $32,000 per year. You're in the top 1% of the world. And how many of the people in the United States saying the 1% are unfair and ruining it, they are actually part of the 1% of the world. And I didn't mean it.
I just wanted to add some perspective. I wasn't saying that they're protestable wrong. I just wanted to say it's all about our perspective. And we're all set on this spectrum.
And we all kind of think that we are, where we sit is the baseline, the foundation, but it's not. Your foundation is like the top of the mountain for other people. That sphere of awareness is so biased, right? Like, it's not the 1%.
It's not down with the 1%. It's down with my 1%. Down with the 1% that I see, the 1% that's close to me. 1%.
Yeah. That's what it is. Yeah. There's also a point that I want to make too, is that when I say something like that, I'm not saying you people are out of touch.
Because everyone lives in their own world. Everyone, like, and again, your problems, whether you are, like, build this problem, or someone else, anxiety is anxiety, fear is fear. We're losing sleep, it's losing sleep, no matter how wealthy you are. It still hurts the same the next morning.
So like, it's wrong to say, hey, because it can make $32,000, you're no more sense of, you should feel wealthy, shame on you for not, that's not the point whatsoever. The point is just, you know, we all live on this spectrum. And it's almost a matter of perspective. And I think the bigger point is realizing that people who are on a much higher spectrum, it's not that if you're on a lower spectrum, you should feel thankful.
It's that people who are on a much higher spectrum, they also hurt, they hurt as well. And sometimes it's not a popular view, I get that. But I think to me, the bottom line is like, no matter what your wealth is, the psychology of money, and what it does to our feelings and our wellbeing, and the lack thereof, is pre-universal. Absolutely.
So let's get into it. Let's talk about the basics of wealth creation. What is wealth? Is there a difference between being wealthy and rich?
And how do I get it? I think if there is a difference, of course, this is just semantics. This is not, you know, this is something I've made up. But my definition of rich is you have a big income, being relative to your peers around you.
So of course, that's a big range as well. But if you have an income higher than most of people around your peer group, you can call yourself rich. Wealthy is much different. As wealthy as you have assets in the bank that you can spend in the future.
And that's very different from being rich. Because a lot of people have a large income this year, but they're not saving any of it. They're on the razor's edge of insolvency. They're blowing for all those cool ways they can.
And those are, there are a lot of people who are rich in that sense, but not necessarily wealthy. Years ago, Chris Rock, one of my favorite Indians, made, it was in one of the skits. And he was talking about the difference between rich and wealthy. He says, and I have to preface this thing.
This is Chris Rock, I'm not taking credit for any of the social dynamics on this. But he said, he said, Shaq is rich. The guy who sides his Shaq is wealthy. That's the difference between, like that's, and I think that was a great way to put it.
And the thing is like, no Shaq is like, he's got an empire. But that was a great way to frame it. That applies to a lot of the two. Because there are people who make $40,000 a year and that save a lot of it.
And they're wealthy. And there are people who make $5 million a year and that spend 6 million a year. And they are on the razor's edge of poverty. So it's just a big relative thing that doesn't like, rich has to do with your income, but wealth has to do with your savings rate.
And savings rate is totally independent of your richness, of your annual income. And we've seen this in a big way in the last decade when the fire movement, financial independence, retire early movement came along. We have people who are making $40, $50,000 a year. Some of them are sometimes more 100, $200 a year.
They live a very low key lifestyle. And they save 50% of it or more. And those are people whose incomes are not that impressive, but they're wealthy. And you can compare that to a lot of people that we've heard of, I'm writing about, I'm writing a book on psychology right now that starts the story about.
It's what we made a tremendous amount of money on annual basis and blue and all, and bankrupt. And so I think we all very often think that wealth is just how much money you make. And there's a lot of evidence that that's not it. It's a personal lifestyle choice more than it is anything to do with the number of zeros in your annual income.
And so to me, it's just been about less how much money you make or what your investment returns are and more just the decisions that you make about how you're going to spend your money and what you value in life. Do you value a big car? Do you value fancy clothes? Do you value value jewelry?
Going out to dinner? Why do these people, probably what could it be? Some of those answers are yes, I do value those things. But the other things I really don't value it, to build wealth.
And that wealth that you save is what people don't see. So it's like, what is the Ferrari that you did not buy? It's the car you did not buy. It's the square footage that you did not buy.
It's the first class that you did it buy. And I think that's like, of course, that's what it is. What is what you don't spend. It's the wealth, it's the money that you saved up.
The problem with that is that when you and I, everyone else is trying to look at the world and see how other people are managing the money. All we see is what they spent. We don't see what they didn't spend. I see the car that you drive.
I see the house that you're in. I don't see the house that you could have afforded but you did not buy. And that house that you could have afforded the life that you're offering right now. The car that you put up that you did, that's your wealth.
But I never see that. And that's why I think a lot of people have this misconception of wealth because we don't see it. And I'm using an algae of like, when people exercise, they get into good shape and being in good shape is something that you can see. You can see muscles, you can see, you know, things that you can see that.
You can see the opposite of exercise. It comes in, obesity and whatnot. And then therefore, everyone else viewing you, I can look at you because I say you look like you're in good shape. I can see that you can see that you exercise because I can see it.
But I have no idea what your net worth. I can't see your bank account. I think something like exercise is something that it's not very comfortable. Like people understand what it is.
They have role models, they have anti models. Wealth is totally different. For wealth, there's people who live from you. Then you know, I think almost everyone knows someone who is 10 times wealthy than you think.
But you don't know that because you can't see it. But there's no one who is 10 times heavier than you think. That doesn't make this. As you can see it.
So I think the fact that it's just hard to see wealth makes it very difficult for people to rather head around and learn about it. Absolutely. Again, I can tell that I'm currently spending a lot of time researching a viral rather account because every quote I'm coming out with is his, but the forefront of my mind. And he has a thing where he talks about socialised rewards versus internalised rewards.
And he talks about the gym being a socialised reward, meditation being an internalised reward. And that's precisely the same dichotomy that we've got going on here. And even the wealth that some people have that is being shown outward, as you've identified, it's not real wealth. I absolutely love that quote.
Your wealth is the Ferrari that you didn't buy. It's the square foot of your house that you didn't choose. I think that's such a great heuristic for people to use. And again with that, this is the sort of message which I think helps to educate people about what wealth is.
We are mimetic beings. We just look around and see what other people are doing. That guy's got money. That guy's got a fancy car.
What's he doing with his money? It must be fine. And you just, oh well, I'll take that. We don't learn about how to become wealthy in school.
So I'll just learn by proxy of what other people do that have money. But you don't know if that guy, as you say, that guy's just on that absolute raises edge. Next year he's going to be finding for bankruptcy. So do you- Sure.
And here's the thing. There are, of course, there are a lot of people who drive for us who are legitimately well. But the only thing you know about their wealth is that they have $250,000 less than they had before they had the car. That's all you know about.
So there is a lot of people driving on a civics, driving on a court, driving toilet carries that are very, very wealthy. You would never know it. So we just don't know how to size these people up. And we don't know how to size themselves up.
Most people have a lot of misconceptions, just a lot of distorted thoughts about what wealth is and how it's generated. That is, I think, why this topic is so difficult and sets people on a people pattern. Got you. So fundamentals is wealth just what you don't spend?
Is that it? Or is it more about things that generate money on their own? Or is it money in the bank? Is it if I've got assets that are earning passively?
How does that all fit together? I think it less about that. It's more just what you've chosen out spent. Take the most extreme example of the world, Jeff Bezos, Bill Gates.
They both worthless around and said they're both worth about $100 billion. They could have spent that money in the past. Jeff Bezos could have sold all his Amazon stock in 2001 and gone down with everybody. He left it there.
So his wealth is what he did not spend. It's true for everyone at every income level. So to me, it's less about how much you're earning on that wealth, whether it's cash in the bank earning no interest at wealth. Stock's an in the next one, that's wealth.
Even the equity in your home, your real estate, that's wealth. You know, it's not liquid wealth, but it's still wealth. It's just what you have not spent. Because I think anything that you could spend, but you have not spent as well.
That's what it is. If you have the option to spend it and you choose not to, that's to me, that's a definition of wealth. I love it. So how do I go about, I just need to spend less.
I need to have money in the bank account. Are there any real fundamental principles about how I can maximize my wealth, how I can make the most of it? The easiest way Chris is just be born to a wealthy parent. That's the easiest way.
Yeah, yeah, yeah, dynasty money. That's what I want. Of course I say that, Tom, it's a big question. That's honestly, I think people very often overlook not the money that they necessarily inherit from their parents, but how much, how many doors are either open or close for you based on what your parents are.
That's what I'm saying. I'm saying that the best part is under. Who has shown that income among brothers is more correlated than height or weight. So literally, if you have a brother that is tall and rich, you are more likely to be rich than you are tall.
It's more correlated. It's more, the income among brothers is more hereditary than height or weight. Because those brothers probably had the same educational opportunities, they probably had the same doors over by their parents in terms of, hey, I can get your job or I can't get your job. I can send you to a good school or I can't send you to a good school.
So it's not, like it goes both ways. The income is correlated on the downside and the upside. And it's easy for a lot of people to overlook how powerful that is, some people are just born on a very different base. And it's no one wants to, I think if you are very successful, you don't want to say, well, I just got lucky.
Successful people don't want to say that. And of course it's true, it's always true. I've read before something really minor that might not seem like a big deal, but to me it's just extraordinary. Bill Gates went to the only high school in America that had a computer.
Like you think about that. And it's just like, of course he was lucky. That's not to say that he's not talented, he's not smart, he's not motivated, he's all those things. But look where he started.
And he had no input on that. He went to this high school, it's called the high school I believe the story was because he was kind of, he was very smart and not doing well at his old school because he was so much smarter than the other kids. So his parents put him in this private school late, so I was like, yeah, that happened to have a computer. And he found it.
And who else was at the school was Paul Allen. The other, you know, Paul Allen was at the same school and they started working on the computer together. And then, and Microsoft came out of it. That's not to say that Bill Gates would not be an honestly successful anywhere else, but he would not be Microsoft Bill Gates.
He might be attorney Bill Gates or Dr. Bill Gates, very successful, after Bill Gates, but not a hundred billion dollar bill Gates. Like that part was a luck. And he's admitted it.
He said, this is not a direct quote, he said something to the effect of, without Lakeside, they were not being Microsoft. That might actually be a direct quote, but I don't know, it was very close to that. So he's not in the aisle about this. I think there's not for everyone.
I have had a certain, you've had a certain, everyone has a certain amount of luck and misfortune. Don't get to have a certain amount of misfortune. Bill Gates is not too much on this, but when Bill Gates was in school, he had his best friend was in his last name. But his name was Kent.
And Bill and Kent were the two computer geeks. And they did everything together. They were inseparable best friends. They were equals in terms of their computer program ability.
And Bill Gates said, this was in the docnet, it's on Netflix. Yeah, Ken, I'm sure we would have gone to college together. And we would have worked together. Ken, a bit co-founder Microsoft, but he died in Mount Mary, he was like 18 years old.
So that's the other side of Bill Gates, but he's extraordinarily lucky. Kent got extraordinarily unlucky. And that's like risk and luck about other than are the opposite sides of the same coin. They're both this idea that our outcomes in life are influenced by more than just the effort that we put into life.
And people know that, of course, but it's so easy to underestimate how powerful those things are. And then so to bring all this back, when you said, how do I get wealth? I'm saying it's how many cheap, there's a really true statement in here, like you don't have to be born lucky, but my gosh, does it help? And no one should pretend that, you know, a college educated white male in the United States is on the same plains as a child born Somalia.
And of course, that's an extreme example. We have that everywhere within there, there's a very powerful spectrum. And so that's a huge part of the building wealth that we shouldn't overlook. And then so that's the first point I want to make.
The second point is so much, and we talked about this earlier, so much of building wealth is just the lifestyle that you choose to lead. And this is true about all incomes groups, but living below your means is everything. At any income group, at any income level, choosing to lead below your means is the single most important thing to do to build wealth. And a lot of what that is, and what living below your means is, is just suppressing your ego.
To say, I could spend X, I could spend 10, but I'm only gonna spend eight. And the difference between the two is like, my ego going down, like, I could have a rhizocarb, but I'm not gonna do it. I could have more clothes, but no, I'm not gonna do it. It's that gap that you're pushing against, that's really meaningful.
I had a point that I made recently about really getting a benefit from exercising, is after you exercise, and you're very hungry, because you just burn 500 calories, and saying I'm not gonna replace those calories with a cheaper. I'm not gonna replace that burger. You say, no, I'm gonna suppress that burger. That's the benefit of exercise.
It's suppressing, that really helps you. Even though you feel like you've earned it, right? You feel like you've earned the cheeseburger. You feel like you've earned the money.
The money is in your account. I work hard for this money. I should be able to spend it. But you have to really say, I could and I deserve it, but I'm not going to.
And it's not, it's not the earning. It's that pushing down that is what wealth is. And that to me, I think is really important. Just to act like a fireroom, people who make 50 grandiurvents that say half of it, they just have tremendous propensity to keep pushing down, down, down.
And because of it, and because of wealth, they have control over time, they can tie early, they do whatever the hell they want, and they're happy for it. How much of someone's set point, their materialistic set point, do you think is predetermined and how much is in our control? I'm fascinated by thinking about this. I very fortunately have a low set point for materialism, right?
I don't take, it doesn't take much materialistically to make me happy. I like nice things, but like a new Nike t-shirt, which I'm currently wearing, or you know, like whatever. Like, you know, I'm not, I don't have huge, huge materialistic goals, but I can imagine in some other iteration of the world. If my mum and dad had been more like keeping up with the Joneses when I was growing up, and that your, what you wore was a marker of your worth, and other things like that.
I can imagine a very different me. How much of that do you think they can kind of be learned and unlanded? I think you're on something really powerful. I think a very extreme example of this, that we see very often are people who come from very poor backgrounds and become professional athletes.
And they might go from literally from food stamps to making $20 million a year. And I think those people have a much higher propensity for flash for the biggest homes and fences cars, because it's like a chip on the shoulder from the past, and showing like, I've, like, I used to be there by now and up here, whereas if you were born with a certain level of wealth, I think there's less just trying to prove yourself. You just kind of like, this is me. And look, I'm really, I don't have much to prove, this is just who I am, who it's who I've always been.
So I think you're onto something really, really important, which is kind of how you're, not just how you're raised, but your social status in life is really important. My wife, I say this with my wife a lot of you, no matter what clothes I'm wearing or car I'm driving, if that were not the case, if I did not get as lucky with my spouse, and I had a spouse who was really adamant that I drive the pants to start, I might have a much higher propensity to spend than I do today. So has my spending been influenced by the way in which my spouse loves me absolutely. And that's, I can't say, it's easy for me to say, I'm frugal, I don't spend that much money, and therefore you should too, when things that are outside of my control, like a spouse that I happen to get lucky, has a big influence on my spending.
And that's why there's really no one size fits all advice. And sometimes I really get upset with, not upset, but I don't like financial pundits or financial advisors who say you should do this. It's different for everybody. And so I think if you can add context about how people think about wealth and try to add different perspectives to think about it, but then say now that maybe helped you think about it, you gotta go figure out what works for you.
It was kind of the way to do it, because we're all in such a different, we all have different goals, we all have different aspirations, we've come from very different backgrounds, we see the world, we're totally different ones. So no fault of our own. It's not because I'm smarter than you or you're smarter than me, it's just we've seen the world in a different area, through different lens. So people have very different views on what's important to them.
Yeah. And that's a big influence on spending. One of the things that I tell the guys that work for us, we have a lot of formative years, the adult formative years as I call them, 18 to 21, big group of university students who come and work for us, it's their first professional position, it's the first time they've earned even a moderate amount of money, usually. And I'm talking to them about the way that they spend their money and I'm like, look man, like you have two choices here, you can choose to keep some back and then spend on the summer holiday or whatever it is, or you can continue to spend as you earn as it comes in.
But if you drill this materialistic lifestyle now, and you don't break that habit, it's gonna be number one, hard for you to do later in life. And number two, if you still have a materialistic habit, when you get to be in your later adult years, you'd better hope that you've got an amazing job. Because if you don't have an amazing job and you've still got this materialism trigger going, like you are in for a very, very tough time because you're never gonna feel good enough. You're never gonna feel like you're earning enough.
Yeah, I think that brings back to another analogy about athletes. I've never hearing a football player who said, a lot of former NFL players are very obese, so just more of the obese. And the reason why that occurs is because after their football careers are over, their eating stays the same, but their exercises are fun. And I think it's, I really, I mean, that's not true.
That's the case, if you get used to eating 10,000 calories a day, that's just your baseline. This is what you do, you wake up and you eat at a seven net and that's what you do. But you go for working out four hours a day to one hour a week or whatever it is, that's gonna make a big impact. And I think it's very similar for income and spending.
Well, if you're making a great income and you're spending a ton of money, you set your baseline about what, that's like your baseline for eating. It's like, I only feel good from spending acts or having eating acts. And then if your income falls for whatever reason, I think everyone will go through a period in the life of their income falls at some point, some worse than others, but everyone will go through that at some point. You better hope that you're spending is in line with whatever your new income is.
It's very difficult to go down. Going down in life is so difficult. Going down one inch is so difficult and going up 10 feet can feel like just okay. No one ever wants to go down.
If you have to downsize your house against your rail just because it's what you get forward, that's gonna have a big impact on your wellbeing. So to me it's just like creating a gap between likely future scenarios turn my income of my income going down and what I'm spending today and just making sure that you're asking yourself, if my income fell by 5%, 10%, 50%, what would I do to my spending right now? And maybe something like 50% is too extreme to think about for some people, but for a lot of people it's not. And I think just looking at your habits in life and saying like, maybe this works right now, but let me think about alternative scenarios in the future.
And I think the biggest guardian of your happiness, your wellbeing is having the biggest gap in between what you need to spend to be happy and what could happen to your income in the future. Why are that gap is the better you're gonna be? Because you're decreasing the scenarios in which you're ever gonna have to push your spending level down. Indosating, isn't it?
Indosating, if you can have a situation where your income can fall for 50% and you still have to change your spending, you're probably in terms of financial happiness wellbeing, you're probably gonna be set for life. If you're in a situation where if you take a 3% pick up and you had to sell your car, and that's not an extreme, that's not a crazy scenario that's proposed, you're gonna have a really hard time of life. I think setting these things that you have to control about how much money you spend. A lot of people, how much money you make is not necessarily that in your control, they're too racist.
But how much you spend is much more in your control. And I think it's the more important part of the equation that how much money you make in terms of financial wellbeing. I love it. Going back to the point that you mentioned about people getting lucky, this is like hyper-cliche now, right?
Of that guy that we all know that put $1,000 into Bitcoin 15 years ago, and just through sheer ridiculous market return, now it doesn't need to do anything. You know, that's a perfect example that I've just sort of had in my head about that. One of the questions that I got off of Matt from podcast notes, this is specific to Bitcoin. I might be some people listening who think, like crypto currency, I've heard I can make my fortune on that.
There's this guy on the internet, 50 cent wants made a whatever, and then he sold it a bit more, whatever it was. The question is, is there any reason it doesn't make sense to invest 1 to 5% of your net worth into Bitcoin? I think it makes sense for a lot of people. It does not make sense.
If the math that you're doing is by saying, oh, I can only put 1% in, but Bitcoin is gonna go up 10,000 fold. So that 1% is still gonna make it rich. If that's your calculus, I think it's just set of your expectations. The Bitcoin's gone up a lot in the last decade.
What does that mean for a going forward? No one has any idea. I really don't think anyone has any idea. It's not to say that you shouldn't own it.
A lot of very smart people that I know and who's thinking and decisions I really respect on more than 1% of their money in Bitcoin. I think if you're looking at it as a flyer in terms of, this is probably not gonna do anything, but there's a small chance that it's gonna do well. That's fine. I think it's also fine that I have 1% of your money in Bitcoin.
If you just think it's intellectually, anyway, you like the math behind crypto and prodigy, it's really interesting to you. I think that's great. We don't have to make our portfolios based off of, you know, the perfect academic portfolio of how we have maxed on your turns. I think if your portfolio is interesting to you, intellectually, I know to you and helps you sleep at night and keeps you engaged with your money versus just forgetting about it and ignoring it, I think that's a great thing.
So I don't personally own a big coin, but a lot of people wear respect. That's kind of like a Patreon for content providers, right? It's like, I've got my favorite YouTuber and I'm gonna put some money towards it making this thing. So I really love blockchain.
So I'm gonna put some money into something that contributes to the blockchain and now I feel like I'm apart. Right. Yeah, that's a big part of it. And people feel good about that.
The biggest variable in terms of how well you will do in your investment portfolio, this is true whether it's stocks or real estate or Bitcoin or anything is your ability to maintain those investments when times get hard, when there's a bear market, when Bitcoin's gone down and your stocks are gone down, if you can still just hold on during those periods and hold on and hold an asset for 10 or 20 or 30 years, that's the variable that's gonna really determine your success. And if you love an asset, you love Bitcoin, you love Google stock, you love it, whatever it is, if you love it and the fact that you love it means that you're gonna be more likely to hold on to it for long run, that's a good thing. That's a great thing. So a lot of people, there are a lot of investors who will say it was like, as a badge of honor, I'm not attached to my investments.
I'm very on emotional about investments. And I'm proud of that. I often thought that's not gonna be a product. I think you wanna love your investments because if you love it and you're more likely to stick around with them when they get hard, if you don't love your investments, and then you own some stocks and they have a bad year and you're like, I don't love these, I'm just gonna get rid of them, just sell them.
That has been an impact your performance in a huge way over time, whereas if you love your investments and even in the bad year, you say, look, Google stock's down 30%, but I love Google, I'm sick of it, that's gonna pay off in the long run. Why? I think because in any asset, the value of what it is, you get paid to deal with uncertainty. That's where paychecks come from any investing world.
Like people don't often ask a question of, you can make a lot of money in investing. Why? Who's giving you this money? Why are you making money?
You have to give something up, it's not free. What is the cost of returns? There's an admission price that you have to pay, and the price that you have to pay for any investment is dealing with uncertainty. It's dealing with, say, I'm gonna put $1,000 in the stock and it might go down and it might go up.
It might flatline, but over time, I think it's gonna do well. And dealing with that uncertainty is what you get paid for. So if you can stick with an asset when it's out of favor, when it's going through a period where it's not doing well, if you can stick with that rather than saying, oh, if it's not doing well, I don't want it anymore. Your ability to stick with it and put up with the hard times is what you get paid for in investing.
That's where the money comes from. That's the price of admission. And I think people who only want the upside and are not willing to put in the downside, or when the downside comes in, say, I don't want this, I don't want to only stocks anymore. Those are people who are trying to sneak into a Disneyman.
They're not paying the cost of admission. They don't want to pay the price. And I think if you're willing to pay the price, the rewards are great. So if you can just put up with the downside and view the downside is this is why I'm gonna get made.
This is not a punishment, but this is the specific reason that I'm gonna do well with the time. And if you don't want to pay that price, there are other assets that you can go with that have certain returns, that cash. The return on cash is very predictable. You're not gonna lose money on your cash.
You're gonna earn 1% a year is very predictable. But it's a low return. If you can take a very poor return on certain returns, that's where the bigger word comes from. So I think just viewing it as a cost of admission, rather than a fine for doing something wrong, is a really important way to view volatility no matter what your investing is.
So lovely way to frame it, it's the same as going to the gym. The discomfort in the gym is the growth. That is precisely what's triggering the growth. If someone said I don't like exercising, or someone said exercising doesn't work that's the point.
You're tearing your muscles and it hurts and it will roll back bigger. That's the whole forget point. And I think for people that make sense and investing, and they don't worry about it for exercising, I should say. And they almost like, oh, I'm so sore the next day.
It was a good workout. They get it. But no one says, oh my broken count is down 30%. This is a good, the same thing.
So we've spoken there about the successive people who were able to predict things that are coming forward, there's all Forex signals online. And a number of websites who can give you advice about what stocks to buy for this year and stuff like that. But I know I've read some stuff that you've got about the relative successive investors who've actively played the market versus those who've just put them into a fund or an index and just left it. Do you have some examples of that?
I think that basically in general, just as a starting comment here, the history of the accuracy of economic forecasting and investing forecasting is very, very bad. Even the smartest people with the most information, the ability to truly predict what's going to happen next in the economy and the stock market is horrendous. This is true across generations, across around the world. It's just not something we're very good at.
There's two ways to look at that. You can say, one, we're just not smart enough. We're not looking at the right data. We're doing this wrong.
And that's why we're not very good at predicting what's going to happen next. I don't really think that's the case. I think people, if we know what events we're looking at, and we have the data, I think people actually are pretty good at predicting what's going to happen next. But we're still not good at forecasting because we can't predict.
We cannot analyze. We cannot forecast events that we can't even think about because they're complete surprises that don't know what to think about. Recently, in this current example, the biggest story in global economy and the global economy right now is the coronavirus. How many people, if you go back three weeks ago, not saying 10 years, but like three weeks ago, when every Wall Street analyst was putting out their 2020 forecast, here's what to expect in the global economy for 2020, how many people said coronavirus?
Zero. None of them said that. And I think that's, that example is true all the time. But the biggest news story is what no one's talking about.
And what makes a big story is specifically that no one's talking about because they can't prepare for it. So it's not that we're bad at forecasting economy because we're not doing the right calculations. It's that we can't calculate things that are unknown. And the unknowns are always all losing the most.
If you go back historically, September 11, huge impact on the economy. And on September 10, no one except the terrorists who were involved in it could have known that it was coming. No one, it was not that our models did not accurately know, didn't actually analyze what was going to happen on September 11. They just did not know what was going to happen.
Pearl Harbor is another example. Are there even brothers not being able to find a buyer in 2000? These are all things that no one the day before could have known. It would have happened.
And things that are surprising are always the biggest risk because people have a very good ability to prepare for things that they see coming, which is why I think another kind of good analogy from this from nature is that earthquakes tend to kill more people for event than hurricanes. And the reason why is because earthquakes come out a little nowhere. You can't predict it. They just go there here.
Whereas hurricanes, a lot of people in the modern developed world, at least, can have a one-week warning before it comes. So they can bore other ones. They can evacuate because that's not a blanket saying because there's people in the hurricane dream where we just didn't know we could not have that way. We could not have that people.
So it's not a blanket saying. But earthquakes are deadly because no one can come in and no one can prepare for them. And that's what makes them so dangerous. The specific fact that they are surprises is what makes them dangerous.
Not true for the economy as well. So every of the smartest people will say, what is the biggest economic risk for 2020 or 2019? I think the right answer is always, no matter what year it is, is the biggest risk is what we're not talking about. And we can't talk about things that we don't know.
It's always the case. And a lot of people think that's kind of a bullshit answer, but that's always the case. The biggest risk is what we don't see. I've got an article clipping here from Richard Schotten, who's a past modern wisdom guest, and he tweeted this out recently.
And this is just pure Morgan Housel. It's got your name written all over it. AJ Bell, the investment platform, found that the 10 shares in the FTSE 350 index with the highest proportion of cell ratings from analysts had generated a positive return on average of 28.9% last year. That was greater than the 23.2% return generated on average by the 10 FTSE 350 stocks with the biggest proportion of buy ratings.
Yeah, no, that kind of analysis too, whole industry that we need to take. It's almost always the case. It's a massive thing. I think people are not doing that, right?
That's a different story. But I think a lot of what's going on here is just classic control. I think when there's some things going on, we're going to say it's contrarianism, because they had so many things to stock for cheap, because they were cheap. They went on to do well.
I think that's partially true. A lot of it though is that the narratives that makes sense that a lot of it are inherently saying, this stock is a sell because X, Y, and Z, because the industry is contracting, because it's management teams not very good. A lot of it is narratives that makes sense, and are comfortable for analysts and smart analysts that put out there, or not actually with drive stock prices at the time. It might make sense that if this industry is contracting, the stock's going to perform poorly.
But there are so many other variables that influence stock prices that don't fit those really clean areas. If the stock market as a whole is going up, then even if that company's industry is going down, the stock's going to go up too, because everything is kind of moving. For every individual stock, there's three general dynamics that will move it around, up and down. There's the movement of the overall stock market.
There's a movement of that industry, and then there's movement of that individual company. And a lot of times we're analyzing a company, we're just thinking about the news that affects that company, or maybe just that industry. But there's also these other forces that have nothing to do with the company or with the industry that have a big influence on stock prices. If this is late 2008, every stock went down.
It didn't matter if the companies were doing well, if they were in an industry that was recession-proof, everything with them. And if this is 2019 or 2013, everything with them. I'm speaking very generally, that's not 100% true, but it's very broadly true. Just because there were other macro forces that were independent of the company that influenced price.
So I think that's part of the reason why the correlation between analysts, estimates, and ratings, they're based off of these narratives that might make a lot of sense. Don't have that much relationship between what the stock to actually do over the next year. Do you ever get really frustrated having to swim through articles of people who are constantly saying that they know what's going to happen in the future financially or economically? No, because I don't swim in that pool.
I just go to a different pool. I don't swim there. I just don't read that stuff. It's just not relevant to me.
And I need to be clear that I'm not saying that it's bad, it's worthless. That's not what I'm saying. But it's not relevant to the game that I'm playing. Some people, if you were a day trader, then a lot of that news might be relevant to you.
But for me, someone who's trying to invest for the next 40 or 50 years, it has no relevance whatsoever. It's not going to influence my decisions. It's definitely not going to cause me to take an action. So I'm not going to read it.
And I think it's really important for people to realize that investors play different games. We're not all playing the same game. Some people are day traders. Some people are trying to manage for the next quarter.
Some people are trying to manage for the next 100 years. And because we're playing different games, we should not pretend that all the information is equally relevant to us. And so something that is relevant to one person, it's not that I can say that's bad information. It might be good for someone.
It's just not right for me. And so I just try to figure out what is relevant to me. And that's all I want to read. And everything else, I'm not going to be able to do it.
I suppose one man's signal is another man's noise. That's it. That's exactly it. And this is the time is very often.
I think it happens a lot on financial TV, where someone says, is this stock goodbye? And the right answer is like, well, for who? For a 22-year-old day trader or a 97-year-old will? Those are like, we shouldn't pretend that those are the same people.
So it's a good buy for who? That's a really important question to ask. You must realize in what game you're playing. And only paying attention to information that is relevant to your game.
But you get a lot of danger when we're all in the safe field, right, into each other. And we think we're playing the same game, but we're actually totally different things. Then that is a big cause for investor confusion and the sake and regret is taking the cues from people who are playing different games in you. So you own Google stock and it falls after earnings.
And you might think, oh, maybe these people know something that I don't, because they're selling stock. I mean, I should sell too. But maybe the people who sold it are day traders. And you're a long-term investor.
So it might have made sense for them to sell. And for you to hold. That's not a contradiction. That's not a difference in you.
It's just a reflection of different games. I love it. Morgan, we made it, man. We made it.
We made it to the end. We got through wealth. We got through the market. We got through Bitcoin.
We made it. So where can we go? People want to hassle you? People want to check out your stuff?
Where should they head online? The biggest area that I did online is Twitter. My handle is my handle is my first and my first and my first and my first and my first and my first and my first name. And that's where I spend most of my time online.
That's where I've been most active online. And then my blog is called the front.com slash blog. That's where I'll write it. Amazing.
Man, thank you so much. I'd love to have you back on to some point in the future. We can see how this year or later in the year has gone down. Let's do it.
And later this year my book and my book's coming out is going to be available for sales at 10 or 7. So maybe one application is doing another. We'll book it in. Let's get it.
Let's get it locked in already. I know what your schedule is like. So I'll reserve myself a date now. That's fine.
I like it. Yeah. This is a lot of fun. Really enjoyed it.