196 - 10 Timeless Lessons for Crypto Investors With Morgan Housel

Welcome back to Bankless, Morgan Housel. Morgan has written "The Psychology of Money", and most recently "Same As Ever" which discuss the dynamics and psychology around money and markets. In this episode Morgan drops lesson after lesson that you can apply to your own investing strategies and life broadly. It's a masterclass that is sure to have you reflecting on the decisions you make as we enter what may possibly be the next bull market. ------ ✨ DEBRIEF | Ryan & David unpacking the episode: https://www.bankless.com/debrief-morgan-housel ----- 🏹 Airdrop Hunter is HERE, join your first HUNT today https://bankless.cc/JoinYourFirstHUNT ----- 🌎 Linea DeFi Voyage https://bankless.cc/Linea-defi-voyage ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q2 https://%E2%81%A0https//k.xyz/bankless-pod-q2 ⁠ 🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING ⁠https://bankless.cc/MetaMask ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum https://%E2%81%A0https//bankless.cc/Arbitrum ⁠ 🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/Toku 🦄UNISWAP | ON-CHAIN MARKETPLACE ⁠https://bankless.cc/uniswap https://%E2%81%A0https//bankless.cc/uniswap 🔗 CELO | CEL2 COMING SOON https://bankless.cc/Celo ------ TIMESTAMPS 0:00 Intro 6:49 History Always Repeats 11:44 Can We Break The Cycle? 16:49 THE BEAR MARKET 21:20 Psychology Of Investing 26:45 The Value Of Hard Things 29:26 Attaching Identity To Ideas 36:52 Markets Have Memory 42:23 The Key To Being Happy 47:27 Competing Against Yourself 55:32 Our Relationship With Money 58:51 The Power Of Incentives 1:04:48 Don't Try Too Hard 1:11:19 Investing Strategies 1:15:09 The Value of Imperfection 1:20:43 Optimism and Pessimism 1:24:41 Crypto's Barbell Thesis 1:27:53 Good Things Happen Slow, Bad Things Happen Fast 1:33:27 Final Bit Of Advice ------ RESOURCES Book: https://www.morganhousel.com/ Morgan: https://twitter.com/morganhousel Morgan Last on Bankless: https://youtu.be/9VflkmluTVQ ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠ https://www.bankless.com/disclosures%E2%81%A0

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Look, I'm a very optimistic guy, but the answer is no, there's absolutely no hope whatsoever. I would bet, I would bet so heavily that 100 years from now, we're going to have bubbles that would look exactly like they did in 1999, exactly like they would have during the housing bubble. Like, pick your bubble, 100 years from now, 200 years from now, that's going to be the case.

• 0:23Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Chon Adams, and I'm here with David Hoffman, and we're here to help you become more bankless. Guys, a lot has changed in crypto throughout the cycles, but some things haven't. We're here to talk about the things that haven't changed. We've got timeless investing wisdom applied to crypto from writer and investor Morgan Housel on today's episode. So a few different things you need to know for different parts of the cycle. We've got lessons for the bear market, lessons for the bull market, and lessons for the apathy market. A few takeaways for you. Number one, why the bear market was painful, necessary, and yet good.

• 1:04Ryan Sean Adams?

  Number two, why those that survived the bear market now have an advantage. Number three, how to manage your brain during a bull market when things get frothy. Number four, how to actually be happy, no matter how much wealth you have. Number five, the traps that you're going to fall into during the bull market, unless you know how to spot them well in advance. Number six, optimism versus pessimism, how to balance them to become a better investor. David, I could have even, like, listed 10 more of these because I feel like the insights per minute on this episode today were absolutely off the charts. We put in the title 10 timeless lessons for crypto, but the truth is, there's probably like 100 here. There's like too many to count, and we didn't really count them.

• 1:48Ryan Sean Adams?

  What's the significance of this episode for you?

• 1:50David Hoffman?

  I think the most significant thing about this episode is the timing in which Morgan's book just happened to come out, along with all of the bullishness that's coming out of the crypto space. We are about to enter a time in which the bull market beer goggles are on. And we need advice like this to merge into our brain and have deep understanding of as we navigate that bull market because this is when the time in the market in which this advice is the hardest to follow, yet it is going to have the most ROI if you can follow it. This is like trying to flex your own discipline as an investor. And so like, listen to this episode, write notes, listen to it twice, do something that you need to do

• 2:35David Hoffman?

  to merge this information into your brain because it will save you multiples of your portfolio as you navigate the bull market. It is timeless wisdom. It's wealth generation strategy. It's wealth preservation. And it's also, I would say, just like the perfect Ryan and David episode, one part investing, one part psychology.

• 2:53Ryan Sean Adams?

  So good.

• 2:54David Hoffman?

  And then, like I said, just the timing of it all, I think is perfect.

• 2:57Ryan Sean Adams?

  Yeah. The wise investor wins. The disciplined investor wins. This isn't true. I think this is even truer in crypto than it is in traditional markets, actually, David. And so we hope you enjoy this episode with Morgan Housel. We're going to begin in a minute, but before we do, we want to thank the sponsors that made this possible, including the venue in which you could practice all of this timeless crypto wisdom. That's Kraken, which is our number one recommended exchange for 2023. If you don't have an account, what are you waiting for? Go create one.

• 3:25David Hoffman?

  Kraken knows crypto. Kraken's been in the crypto game for over a decade. And as one of the largest and most trusted exchanges in the industry, Kraken is on the journey with all of us to see what crypto can be. Human history is a story of progress. It's part of us, hardwired. We're designed to seek change everywhere, to improve, to strive. And if anything can be improved, why not finance? Crypto is a financial system designed with the modern world in mind. Instant, permissionless, and 24/7. It's not perfect, and nothing ever will be perfect. But crypto is a world-changing technology at a time when the world needs it the most. That's the Kraken mission, to accelerate the global adoption of cryptocurrency so that you and the rest of the world can achieve financial freedom and inclusion. Head on over to kraken.com/bankless to see what crypto can be.

• 4:10Ryan Sean Adams?

  Not investment advice. Crypto trading involves risk of loss. Cryptocurrency services are provided to US and US territory customers by Payward Ventures. Eek. PVI. Doing business as Kraken.

• 4:17David Hoffman?

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• 5:01David Hoffman?

  Cello is the mobile-first, EVM-compatible, carbon-negative blockchain built for the real world. And now, something big is happening. Introducing the Cello Layer 2. It's a game-changing proposal that's going to bring Cello's rapidly-growing ecosystem home to Ethereum. Vitalik has shared its excitement for the Cello Layer 2 on the Cello forum, so has Ben Jones from Optimism. But why? The Cello Layer 2 will bring huge advantages, like a decentralized sequencer, off-chain data availability, and one-block finality. What does all that mean? Rock-solid security, a trustless bridge to Ethereum, and more real-world use cases for Ethereum without compromise. And real-world adoption is happening. Active addresses on Cello have grown over 500% in the last six months. With the Cello Layer 2, gas fees will stay low, and you can even pay for gas using ERC20 tokens.

• 5:45David Hoffman?

  But Cello is a community-governed protocol. This means that Cello needs you to weigh in and make your voice heard. Join the conversation in the Cello forum. Follow @celloorg on Twitter and visit cello.org to shape the future of Ethereum.

• 5:58Ryan Sean Adams?

  Bankless Station, Morgan Housel is a writer and investment partner at The Collaborative Fund. We had Morgan on a year ago to talk about the principles in his book called The Psychology of Money. I got it right behind me on the bookshelf. I don't know if you could see it, guys. It's one of the best investing books that I've read in the last decade. And that episode is my recommendation for one of our top 10 must-listen-to episodes for crypto investors, particularly if you're starting on the bankless journey. But today... Morgan brought some new timeless advice for us because he's just published a new book. It's called The Same As Ever, and this is a guide to what never changes. It's a series of 23 punchy stories, timeless truths about people, societies, and how to live. This, my friends, is important wisdom as we go into the crypto bull market.

• 6:43Ryan Sean Adams?

  Morgan, welcome to Bankless. Welcome back, I should say.

• 6:47Speaker 00

  Yeah, Ryan, David, thanks for having me. Looking forward to it.

• 6:49Ryan Sean Adams?

  All right, man. Let's start with the theme of this book. Why are you focusing on stuff that's the same? Isn't the same stuff boring? Like, why not new things?

• 6:57Speaker 00

  It is boring, which is why we don't pay attention to it, but that's always at our own detriment. And so I've been a financial writer for going on 18 years now. And a big part of that journey and what I've written about was just how frustrated, cynical, disgruntled I became at how bad the entire industry was at forecasting. The next bear market, the next recession, like anything, no matter what it was. I mean, here's one little example of this that I was just thinking about this morning. I remember, I'm pretty sure it was in Fortune magazine. It was one of the big business magazines. They published an article in 1999 that was 10 stocks for the decade ahead. And it was like 10 safe, blue-chip stocks that you can count on for the decade ahead. And I swear, it was Enron, AIG, Kodak.

• 7:42Speaker 00

  It was like, go down the list of the companies that went out of business. So this is one, like, everyone knows how bad the community is. Not just the media community, but economists, financial advisors, analysts, portfolio managers, at predicting what's going to happen next. So there's two things you can do with that realization. You can become even more angry about it, and just a fatalist and say, nobody knows anything. Don't even try. Or you can say, okay, what does never change? We have no ability to predict what is going to change. That's probably too blanket of a statement, but it rounds to that for most people. But if you look across economic history, and not just economic history, but a lot of history. It's the same behaviors over and over and over again.

• 8:23Speaker 00

  It's like how we respond to greed and fear and risk and uncertainty that never changes. And if you read about financial crises from 100 years ago, 200 years ago, it's the same. It's the same thing. It's the same thing over and over and over again. So then I was like, okay, well, let's just focus on that. Let's just focus on what we know is never going to change. I have no idea when the next bear market is going to come, but I know exactly how people are going to respond to it and what they're going to think about it and how they're going to feel because that's never changed. So that was, that was kind of where it came into play for me was just starting with a frustration and then saying like, okay, well, what's the positive way out of that observation rather than just becoming more of a cynic?

• 9:00David Hoffman?

  Morgan, if I can make a prediction about the content that we are about to discuss, there's that old quip of one fish swims past the other and says, how's the water? I think like the, the fish replies like, what's water, right? Implying that like, there are so many things that happen so frequently that we just can't identify it. I think the bankless version of this was like our first few episodes was about identifying money because it's such an invisible force that we never really approach and attack head on. That when you do, your kind, your, your brain opens up and all of a sudden there's a world that's expanded to you. I feel like that's about what we're about to get with you in a variety of different lessons.

• 9:40David Hoffman?

  There are so many fundamental truths about the way that the world works that we just are not awoke to because of how like default they are, how common denominator that are. That's, that's my prediction about this.

• 9:51Speaker 00

  And, and here's what I love about this. I've been pretty open. I'm not a crypto investor. I'm not, I'm not a crypto, uh, you know, completely negative. It's, it's all going to hell. It's all a joke. I'm not that person either. But here's why I think that doesn't matter in this. And this is same for psychology and money. The overlap between the behaviors among a crypto investor versus an index fund investor versus a mutual bond, like a bond, like a municipal bond investor. There's a lot of overlap there. How people respond to greed, fear, risk, uncertainty, it's all the same. And so much of what I've loved about the kind of research that I get to do is I'm a financial writer, but I actually don't read or research that, that much about finance. I love reading about all kinds of different history, all kinds of different fields

• 10:36Speaker 00

  and recognizing when those behaviors in medicine or military or like physics or any, take, take any field and seeing how, how they respond to these topics applies perfectly to investing.

• 10:49Ryan Sean Adams?

  Morgan, can I, can I ask you, so another, another thought I have, you were talking about your frustration, you decided to channel that frustration with all of the, you know, noise in the finance industry into, into a book, The Psychology of Money, and now, and now kind of this book. I still predict that people like you, people like me, maybe people like David, people who are listening to this advice and this wisdom and actually applying it, will still continue to be frustrated. Because I think we are still in the minority of people who are actually applying these lessons. So I'm zooming out, crypto is probably about to enter a next bull market. And Morgan, I guarantee you, we are going to make many

• 11:30Ryan Sean Adams?

  of the exact same mistakes we made in the previous bull market. And we're going to do it over and over and over again. And that frustrates me. For folks that have been through many market cycles, it's just you're looking at this and you're like, it's going to happen again, isn't it? We're going to do the exact same thing. Is, is there any hope in this book of breaking us out of that cycle? Or does, does that just, is the hope only at the individual level? That an individual can kind of wake up and be like, hey, I don't have to do this. I can see all the other dumb humans repeating the same mistakes, but I don't have to do it. Or is there, is there hope that we could actually break this cycle as kind of a society, as an industry, as a, you know, a market?

• 12:10Speaker 00

  Look, I'm a very optimistic guy, but the answer is no. There's absolutely no hope whatsoever. I would bet, I would bet so heavily that 100 years from now, we're going to have bubbles that would look exactly like they did in 1999, exactly like they would have during the housing bubble. Like, pick your bubble, 100 years from now, 200 years from now, that's going to be the case. You can state it confidently for a couple of reasons. One of which is that the bubbles of 99 and 2007 are exactly how they played out 100 years ago and 200 years ago. It's the same, it's the same thing over and over again. And I think to say, to make a statement along the lines of, we will learn our lesson and never have another bubble, is equivalent to saying, we've learned our lesson and we'll

• 12:52Speaker 00

  never have another war. Like, it's, it's very, it's very fun to think about. It's very, just like, oh, wouldn't that- Future be great. And of course, we should learn our lesson because after every war, there is some sense of like, God, that was so dumb. Like, why? How could we have possibly done that? We'll never do that again. But you will. Of course you will. And it's the same for finance, particularly with bubbles. There's a chapter in Same As Ever what that talks that talks about calm plants the seeds of crazy. And it's really just like the origin of boom and bust. And I love there's a story about this economist back in the 1960s named Hyman Minsky. And during the 1960s, there was a lot of like scientific optimism across all scientific communities. Like we had just landed on the moon and like eradicated polio. So there was this big surge of like,

• 13:36Speaker 00

  if smart people put their heads together, we can solve any problem in the entire world. And a lot of economists back in the 60s came together and said, it's time to eradicate recessions. We need to figure out the science of monetary policy and fiscal policy to make sure that we will never have another recession again. And honestly, when you've just landed on the moon, it doesn't seem that crazy to think that you can avoid two recessions of negative G or two quarters of negative GDP. Sure. Like, it doesn't seem like that big of a deal to try to figure this out. Hyman Minsky said, bullshit, it's never going to happen. You're never, you are never ever going to eradicate recessions. And he came up with this idea called the financial instability hypothesis. And very briefly, what it to grossly generalize it, it basically says, if you never have a recession, people get very optimistic.

• 14:22Speaker 00

  When they get optimistic, they go into lots of debt. And when they go into lots of debt, you're eventually going to have a recession. So he was like, look, the lack of recessions is what creates the next recession. So if you like, if you eliminated recessions, you would just guarantee a massive recession in the future. And the same thing applies to investing markets, stock markets, crypto markets. If if the stock market never went down, there would be no risk. If there's no risk, you would very rationally bid valuations up very high. And when valuations get very high, you're going to have a crash because the market is so fragile to uncertainty at that point. So I think that's like, that's the, that's why we will never learn from these. Calm plants the seeds of of crazy. What what Hyman Minsky said was stability is destabilizing.

• 15:07Speaker 00

  The more stable something becomes, the more it is pushed towards destabilization. And so During every market bust or recession, there's always a finger pointing like, who screwed up here? Whose fault was this? Because you broke the system. And to some extent, that's usually true to some degree. But when you really take Minsky's ideas to heart, you realize like, no, this is just a normal functioning of any capitalistic society. And so, and like, to me, the takeaway from that is you're never going to get rid of it. You're never going to get rid of it because if you try to get rid of it, it literally just makes it worse. So that's, that's, that's why I'm an optimistic person. But to answer your question, there's no hope whatsoever.

• 15:47Ryan Sean Adams?

  Yeah, it's interesting. I noticed the very beginning of your, your book, you kind of addressed it to for the reasonable optimist. Maybe that's what you are, Morgan, is a reasonable optimist. And anyone who's reasonable, maybe they come to the conclusion that you have, which is, we're never going to break out of this cycle. So let's stop trying. And we've certainly seen our periods of calm, and we've certainly seen our periods of crazy in crypto. And there are 23 different lessons in this. I don't think we'll have time to touch on them all. But what I want to do is I want to break this into three different kind of sections of the conversation for different lessons, different advice that applies to every single, every single one of these three sections. The first is bear market advice. So when we're feeling low, when we're in the bear market,

• 16:30Ryan Sean Adams?

  some of the principles from your book that spoke most to me. And then bull market advice. When things are going really well, when things are exuberant, what lessons should we be listening to most then? And then the advice when you're in between is neither bull nor bear. We call it the build market or maybe more accurately, the bore market when things are just really boring and you feel like you want to do something. So let's start with the bear market because that has been impressed upon everyone listening at Bankless. Certainly crypto has been in a bear market recently. The last time you were on, it was September 2022. And we were already in a bear market in crypto, Morgan. And then we saw a lot more shit happen. Okay? Because two months later, FTX happened and that was November 2022.

• 17:14Ryan Sean Adams?

  And I think a lot of people who are, who are listening to Bankless and crypto investors, they got a massive dose of humility at that point. We now are coming out of this. We have wounds. We have scars. It's actually the last chapter of your book is called wounds heal and scars last. Can you, can you talk about the value of scars? Is there any case that some of this pain was actually good for us? What would you say about that?

• 17:40Speaker 00

  I won't even frame it as good or bad, but it's just the idea that everybody has their scars from life. And therefore, everyone, based off of the personal experiences that they've had, I view the world differently than you do. Even if we're roughly the same age and same education, we'd read the same information, I've lived a different life than you have. And to everybody, everyone is like that. So everyone thinks that they are looking at the world objectively and trying to figure out the world objectively. But everyone is just like a set of mirrors reflecting what they've experienced in life. And I use the example in the start of that chapter of if you drive past the Pentagon in Washington, DC, there's no sign whatsoever of 9/11. They rebuilt the building, they put the trees

• 18:22Speaker 00

  all back. There's not a single mark that a plane hit that building 22 years ago. But if you go one mile down the road to Reagan Airport, the scars of 9/11 are everywhere. Take your shoes off, take your belt off, take your liquids off. When you're going through security, the scars of it are everywhere. And I think that is a lot, that idea applies to so many things of like the Great Depression. Look, by the 1940s, it was done. It was gone. We're back at new highs. But the scars of the Great Depression lasted through today. There are still people who, if your parents lived through the Great Depression, they taught you and told you X, Y, and Z about how you can lose your money so easily. And

• 19:01Speaker 00

  that is influencing behaviors at this moment. Even if the scars or the wounds of the Depression are done, the scars are still lasting. So the idea that just everyone is a reflection of the experiences that they've had, and since everyone has had very different experiences, we all view the world completely differently. And look, as I said earlier, I am not a crypto investor. I couldn't really tell you why that is. I couldn't be able to articulate X, Y, and Z of why I'm not. But I bet if you put me on the therapist's couch for a couple hours, we would tie it back to some experience that I've had in my adult life that said, I would rather invest the way that I do. Today, then invest the way that you do. It's not because we disagree with each other.

• 19:46Speaker 00

  It's because we're different people talking over each other. I think that's a big point, particularly with an asset class like crypto that tends to be controversial, loud, hand wavy. It's easy to miss that every financial debate where you have people disagreeing with each other. Nine times out of 10, the people don't actually disagree with each other. It's people with different risk tolerances, different time horizons, different goals, talking over each other. And so that's, I think it's really, it's very common in financial markets to look at other people making other decisions and say, you're crazy. You're dumb. Why are you doing that? You should be doing this thing that I'm doing. Without this idea that there is no right answer in finance, we're all just kind of mirrors of the scars that we've been put through in life.

• 20:30Speaker 00

  And so I always talk about like, what's a thing that I've changed my mind about in investing? I think 10 years ago, I was much closer to the idea of, no, there is one right way to invest. It's the way that I do it. And if you're doing it differently, you're doing it wrong. I think that's, that's kind of what, that's kind of how I believed. And now I'm just so far of just like, whatever works for you, just do that. Just do that. There's a million ways to do it. There's this great quote from Keanu Reeves where he's like, I'm too old to argue with people. And even if they say two plus two equals five, like if it's working for you, like just have fun, man. If it's working for you, just go do it. I'm too, I'm too old to argue with people. And I feel like I, because of my belief that everyone is kind of scarred in their

• 21:13Speaker 00

  own way, I think I, I am the equivalent of that with financial matters.

• 21:17David Hoffman?

  I want to see if I can underhand you something because I think you'll be able to take it and run. You and I, Morgan, have shared an interest in psychology and I bring this up basically any given moment I can on the Bankless Podcast. I want to talk about this specifically, the way that like lessons and memories are formed in a negative perspective with the, with parts of the human brain, which is the amygdala, which is the fear center of the brain, the fear and stress and trauma center of the brain, where like emotions get spawned. And then the hippocampus, which is where memories form. And these things are really, really close. Negative memories get encoded into people at like 10x the rate as any other type of memory, because humans have this very strong aversion to fear.

• 22:00David Hoffman?

  How does this component, how does this property of like the way that we encode lessons, this very strong aversion to fear and pain? How does this like work its way into your lesson?

• 22:10Speaker 00

  Well, let me tell you how it works for me as a writer. I'm sure you guys can relate this to being being in media. One good review, kind of, kind of just like, like, just waves over you, you know? It's like, oh, that was a good review. They liked the podcast. They liked the book. Okay, great. I forget about it three seconds later. A negative review, a negative comment, can stick with me for a month.

• 22:28Ryan Sean Adams?

  Oh, my God, Morgan. Have you, have you ever read YouTube comments? They're the absolute freaking worst.

• 22:33Speaker 00

  I, I try not to because I know it's gonna be there. It's a cesspool. And, but, but, but even if you read the YouTube comments, if there's a guy saying, hey, Ryan and David, love your podcast. So great. I guarantee you, you guys forget about it 10, 10 seconds later. Right? It does like that process that blows right over you. And I think so that just aversion to bad news, or just like you take bad news so seriously. And good news is like, all right, like, whatever, just, just move along. I think it's, I think that idea, like socially with the comments, applies to investing as well. So the idea that, you know, the very comments, this is almost like cliche to say that losses hurt more than gains feel good. So doubling your money, like, cool, feels great. Like, okay, cool, double my money. Awesome. Losing 50%, like, you'll remember that for the rest of your life.

• 23:16Speaker 00

  And a lot of that is just because of like, you're investing to make money. So when you make money, you're like, yeah, that was the point. That was why I'm doing this. That was my expected outcome. But losing money, you're like, no, I invested to have more money and now I have less. What the hell happened here? So I think a lot of it is just even just at the knee jerk, like, soul level. You're like, this was not what I intended to happen. And then I think the bad behavior comes into play when you say, oh, I like, I, I'm trying to make money, but now I have less. I need to change what I did. I need to cha, I need, I need a different strategy. I need to turn, turn the dials and pull the levers to do something differently. And that intuition is the cause of the majority of bad investing behavior. Where because you're experiencing run of the mill volatility, you're experiencing a normal amount of volatility,

• 24:00Speaker 00

  but you think you need to go do, do something differently now. That, that's the core of bad investing behavior. And I think it all stems from the fact that you're gonna experience the, the, the pain of loss so much more vividly than you do the joy of gain. There is one twist on this. If there's like a devil at, like devil's advocate to this. I, I, I think it's really interesting. I, I've been reading a lot lately about nostalgia and just the, the science of nostalgia and whatnot. And a lot of it is because we remember the past not as it was, but as it should have been. So if you, so you look back, a lot of people look back at their childhood and be like, oh, it was so great. So much fun. Played with my friends. Great house, loving parents.

• 24:39Ryan Sean Adams?

  The 1990s were great. I'm just saying.

• 24:41Speaker 00

  See?

• 24:41Ryan Sean Adams?

  Fantastic.

• 24:42Speaker 00

  There's this, well, here's, there's this, as comedians usually do, they sum it up perfectly. Jon Stewart says, "The only reason you think the world was better during your childhood is because you are a child." And that's, I think, I think, I think there's, there's a lot of that, too, but we remember the past as like, as how it should have been. So when you were a kid, you, when you're an adult today, you look back and you're like, "I was a kid. I had no responsibility, no mortgage, no bills. I just got to hang out with my friends and eat junk food and I never gained weight and everything was perfect." But I guarantee you, like, as a kid, you were actually, everybody, myself, everybody, was stressed about what was going on at school. And you had the stress of this and the anxiety of that. And it's like, but you remember it because it should have been good, even if it wasn't. I had this experience recently with my wife about, 10 years ago, before

• 25:25Speaker 00

  we had kids, we had this amazing apartment in Bellevue, Washington, and it overlooked the lake and it was in downtown, great location. We didn't have kids, so we could sleep in and like, go out to brunch and like, everything was perfect. And, and I told her, I said something along the lines of like, "God, life was like, that was perfect. That was the perfect life." And then she reminded me, and she was right. And she said, "Morgan, during that period when we lived there was a period that I was the most anxious, the most maybe mildly depressed that I've ever been. But I remember it as good because it should have been good, even if it actually wasn't." So that's, that's the other twist on like, negative versus positive, is I think a lot of times we look back at even the, the economy of the 1990s and think, "Oh, it was great. It was a perfect bull market." No, it wasn't. There was a real estate crash in the early

• 26:10Speaker 00

  90s. There was a interest rate surge in 94. The global financial system damn near fell apart in 1998. Like, in hindsight, we think it was great, but it wasn't. It wasn't. Like, that's, that's not what people were actually experiencing during that time.

• 26:23Ryan Sean Adams?

  So the pain is always worse on the downside then, and that's what people in, like, feel during the bear market most acutely. You said that, you know, scars are just kind of a story. They are what they are. They're neither good nor bad. But yet, you also wrote a chapter called "It's Supposed to Be Hard," and the subtitle of this chapter is called, "Everything Worth Pursuing Comes With a Little Pain." Can you tell us about the value of, of hard things? Like, should we, in order to reap the gains of future bull investing markets, should we be satisfied with this pain? What is the value of hard things?

• 27:01Speaker 00

  Well, I think in investing, it's really clear that what do you get paid for? You get paid for dealing with and putting up with uncertainty and volatility and periods of decline, periods of no gains. That's what you're getting paid for in the long term. So, yes, you can make a lot of money investing, no matter what asset you're investing in. But why? Like, the world is not so kind that's just gonna give you dynastic money for doing nothing. You have to, like anything else in life, there's a price that you have to pay.

• 27:26Ryan Sean Adams?

  So, the pain is the cost of entry, basically?

• 27:29Speaker 00

  It's the cost of admission for getting this. But I think the knee-jerk reaction when you're experiencing pain is, I or somebody else did something wrong in my investing process. Either I screwed up or the Fed screwed up. It's usually one of those two things, is what people, usually how it's framed. And sometimes that might be the case, but run-of-the-mill volatility, which is what you experience 98% of the time, is the cost of admission for doing well. There's also this other thing, this really applies to crypto. There's this quote from Shamaat that I love, where he said, "However fast any investment can double in price, that's the half-life for how quickly it can decline." So, if you wanna own an investment that can double in a year, you also own an investment that can easily lose 50% in a year.

• 28:12Speaker 00

  You wanna own an investment that can go up 5X in a year, you also own an investment that can lose 80% of its value in a year. And so, I think that's really true. And you see that a lot in crypto, of course. Like, this is an asset that can, and sometimes has, gone up 10-fold in a year. Don't be surprised when, off of very little news, it can fall 80, 90% in a year as well. Or, in the case of a lot of shitcoins, 100%. That's what you're getting. That's what you're getting. And so, don't be surprised, because that's what you signed up for. That's the cost of admission that you're paying. Like, if you want, like, an amazing vacation, don't be surprised when you get a massive credit card bill. That's what you signed up for. So, I think just acknowledging what that cost is, makes a lot of difference in people

• 28:54Speaker 00

  just understanding what they're getting into, and also making that volatility just a little bit more palatable when you experience it.

• 29:01David Hoffman?

  I think transferring this into the crypto context, I think, is just only too easy. The classic meme of someone that comes into crypto is that they come in for their first time in the middle of a bull market, like halfway through, and then they think that there's a lot more bull market ahead of them than there actually is. And then they quickly find themselves on the other side of the curve, and then they're in the bear market, and then they're experiencing the full length of the bear market, and that's all of a sudden when it gets hard. And then we have some, like, more than half of those people leave. And this is where me and Ryan talk about, like, congratulations, you are now a settler, not a tourist, but also you have, like, one more year of bear market to, like, grind your teeth. And yes, it is hard.

• 29:46David Hoffman?

  And so, like, there's the outside perception of crypto people of, like, you guys had it so easy, your assets just went up. But then everyone in crypto understands, like, you don't understand what I had to That was so terrible. go through to get here. It was so hard.

• 30:00Speaker 00

  Yeah. I mean, one thing that comes to mind here is that I think any time in financial matters, when you are, when you can complete the sentence, "I am a blank," it doesn't matter what it is, "I am a value investor, I am a crypto investor, I am a bond investor," you are, almost by definition, attaching your identity to how you invest your money. And to some extent, unavoidable. I do this, everybody does it. But it really gets dangerous when, during the bull market, you complete that sentence by saying, "I am rich, I am smart, I am a genius, I am savvy." But then what do you do during the bear market? What do you say?

• 30:36David Hoffman?

  It's the opposite of those things, yeah.

• 30:38Speaker 00

  "I'm a bag holder, I'm poor, I'm an idiot." And so that's when it really, it's a dagger to your identity, because you built your identity based off of market movements, most of which was just like beta. It wasn't even you, it was just the market movements. And then you tie that to your identity, and then on the way down, it can be hard to, the easiest way to deal with it is to just not even check, just not even think about it. Don't even open your brokerage account, don't even open anything. It's just like, because you don't want to complete the sentence of what you are now. And so that's why, like, attaching your identity To how you invest or like this applies to a lot of things attaching your identity to your politics. This is like a very dangerous thing because of all those things are outside of your control.

• 31:21Speaker 00

  And by by definition, they're going to go in a different direction at some point than you want it to. No matter what your politics are, somebody on the other side is going to win some election. And if your identity is I am a blank like it's going to hurt you. It's going to it's going to hurt. So that's why there's the like, it's a classic Paul Graham quote. Keep your identity small. You want to have very few things in your life where you say, I am a blank. You know, I like saying I am a father, I am a good spouse like those I like, but I kind of I push back personally at attaching my identity to any kind of investing strategy.

• 31:55Ryan Sean Adams?

  I think all of this reminds me what David was talking about, the difference between settlers and tourists of this quote that you put in from Harry Truman. And he says this, "The next generation never learns anything from the previous one until it's brought home with a hammer. I've wondered why the next generation can't profit from the generation before, but they never do until they get knocked in the head by experience. Nothing is more persuasive than what you've experienced firsthand." That is a subtitle of one of your chapters, and that's certainly something that we see in crypto. It's basically there's a set of crypto people who've been through multiple cycles, you know, kind of the crypto OGs. They're basically bomb proof and these are like oracles for our space.

• 32:35Ryan Sean Adams?

  But every single time they observe newbies, people who are entering crypto for the first time, making the exact same mistakes. And I guess the value of coming through a bear market and holding on to your conviction and going through all of this pain is that you get to join their ranks. You get to become a veteran, you get that hard fought experience firsthand. But why do we always have to learn the hard way, Morgan? That's kind of a question we have, like, why can't we just learn from the OGs and not repeat the same mistakes? Why is it always this next generation has to be hit in the head with a hammer?

• 33:14Speaker 00

  I think it's it's because, as I say in the book, nothing is more persuasive than what you've experienced firsthand. So I can, look, I'm I'm a, I'm a, I'm a history buff and I, and I really like military history, but I've never served in combat, never served in the armed forces, never in a million years, no matter how many books I read about what it was like, will I understand 1% of what it's actually like to be shot at in combat? None, never in a million years will I come remotely close to it. And there's a lot of research on this, like, there's a lot of, uh, like, stories like from World War II about in training, a lot of the, a lot of the soldiers would come out with full of bravado. I'm, I'm gonna go in there and I'm gonna blast them down like that. And then they actually get to the front lines, they get shot at, and they're absolutely terrified. It's a complete, it's completely, nothing, you don't understand anything until you've experienced firsthand.

• 33:59Speaker 00

  And so in financial matters, if you've never lived through a 50% decline, it's very easy to study when that's happened in the past. And by the way, because you're studying it with hindsight, you know how the story ends. You know how, you know that the story did end, that that bear, bear market did end and you had a rebound. So when you're studying it, if you've never been through a bear market and you study one, they all look like opportunities. You always look at the, you always look at it and you're like, gosh, if I owned tech stocks in 2002, that was when you, that was when you should have bought, made all your money. Everyone should have bought stocks in 1932, that was when, and of course in hindsight, but during 1932 and during 2002, people didn't know it. If you don't know how the story ends, you assume it's gonna last indefinitely. And there's also some like downside of this as well.

• 34:44Speaker 00

  Marc Andreessen's talked a lot about the reason that, at least one of the reasons that you had a new tech boom beginning in the early 2010s is because that's when you had a new generation of people coming to Silicon Valley who did not remember the dot com bust of 2000. And before that, it was very hard to have a new tech boom in 2004 because all those people were scarred from 2000, they were all still around. And it wasn't until you had young people who didn't understand it, um, come in. And I think it's, that's true for a lot of things and politics and war where it's like, you know, there's that saying like, science progresses one funeral at a time. It's hard to, once you've been ingrained, if not indoctrinated with one view of how the world works, it's hard to push that aside and, and keep going. So. The other danger about this is that even if you've lived through multiple bear markets,

• 35:29Speaker 00

  the next one's not going to be the same. It'll be the same in the sense that you're going to lose a lot of your money, but what's going to cause it's going to be completely differently. What the government's response is going to be is going to be is going to be different. And so a lot of people had said, you know, hey, we went 35 years without ever seeing a sustained rise in interest rates. But there's a lot of responses to that. You could push back at that and be like, well, so what? Like, even if you lived through the interest rate surge of the early 1980s, the one that we're dealing with today is not the same. It's different in all kinds of different ways. So even if you have experienced these declines, it doesn't necessarily make you better prepared for the next one because the next one's going to play out totally different. I mean, compare what we went through in 2008 with what we went through in the early days of COVID.

• 36:15Speaker 00

  They were both massive market declines, but 2008 was screw those greedy bankers. And 2020 was, am I going to die in the next week? How do I get my kid to school? Just like the emotional reaction to it could not have been more different, even if you had experienced losing half your money, even if that was the same, how you did it was totally different.

• 36:34David Hoffman?

  The way I try and teach friends coming into the world of just like investing and finance that I have to share that's relevant to this is I try and tell them that markets have memory because markets are just collective consciousness of their participants. And if their participants all have the same scars, for example, then in a particular market, in a particular sector of a particular asset, if those people that own that asset or are investing in that vertical have all the shared memory, a shared trauma, if you will, about something, then that market will react in that particular way. One thing I've noticed in the crypto markets that are happening recently is there seems to be like a...

• 37:16David Hoffman?

  Time is a flat circle element happening right now in the crypto markets where a lot of the same assets that appreciated significantly at the very early stages of the last crypto bull market are the same crypto assets that are appreciating very early in this part of the phase as well. And so there's just like, I'm getting a lot of just like deja vu about my first bull market because a lot of that is happening because it's the same market participants. And so like the idea of just like markets themselves as our collective human consciousnesses have memories in stored in them and they will react to their environment in very similar ways.

• 37:54Speaker 00

  Yeah, definitely. And a lot of it is like, as a generation, you go through experiencing the same thing. If we're all roughly the same age, like, we experienced 2008 the same way. We experienced COVID in roughly the same way, just because we were at the same phase of life. And we're versus our parents experienced, not only they experienced things that we didn't, like, the inflation of the early 1980s, but when they experienced 2008, they were at a very different phase of their life. A lot of them were kind of in their late careers, early retirement years. Whereas if you were graduating college into the financial crisis, or if you were in college during the financial crisis, you experienced it totally different. So a lot of it is like, every generation kind of goes through as a cohort with understanding risk in their own way. And I mean, a stark example of this is like, if you were a young adult during the Great Depression, that stayed with you forever, for the rest of

• 38:39Speaker 00

  your life. If you were a kid during the Great Depression, maybe you had some influence by what your parents told you. But you were, but like, even if you were alive during that time, it's going to scar you in a very different way than it did those who were young adults. There's a lot in psychology where what you experience as a young adult, let's call it age 15 to 30, is so influential, because you are young enough for your mind to still be have be kind of malleable. You can form new ideas about the world, but you're old enough to have responsibility, where it's like, it's like, I really need to figure out how the world works, because I've got bills to pay, and I've got people that I need to socialize with. And so what happens during those, that 15 year period, is very influential for the rest of your life. And it makes it so different generations don't

• 39:23Speaker 00

  really understand the financial views of another. We really saw this after 2008, when gold for a period of time became very, very popular. And who it was popular with were the baby boomers. It was not millennials, it was boomers who it was popular with. And I think at least one of the explanations is that is that boomers lived through the inflation of the early 80s. That the millennials didn't. Either they weren't alive or they were too young to know what was going on. And so during that period, boomers by and large, like to generalize, were like gold, gold, gold. And millennials are like, what the hell are you talking about? Why would you want to own gold? So every generation has that. For sure, within the next 20 years, you know, our kids, you know, 20, 30 years from now, will be looking at the three of us being like,

• 40:07Speaker 00

  I don't understand why they believe X, Y, and Z about the economy. That's definitely going to happen. And they'll be saying the same thing about their old millennial parents. And that happens every generation.

• 40:18Ryan Sean Adams?

  Yeah, that's so true. I mean, the young adults that kind of grew up during the depression, 1920s, 1930s, those are the original bankless adults. Let me tell you, those people did not trust banks. All right, this is like the grandpa in later years who kept all his money in tin cans underneath his basement floorboards, right? So it leaves an impression in terms of your asset allocation and your preferences. So Morgan, we've talked about the bear market season and we've drawn some lessons out of it. But it looks like crypto might be entering a bull market season. Of course, there's no way to know for sure, but early signs of this, like Bitcoin, Ether, you know, prices going up.

• 40:58Ryan Sean Adams?

  And when that happens, because we've been through bull market cycles before, things get absolutely crazy. People lose their minds during bull runs. And I think your book has some advice for us during bull runs. I want to actually start here, though, and this is maybe an odd place to start, but I think it's the right place to start. A lot of people blamed the bear market on greed in crypto. And I actually don't think it was greed, at least not precisely greed. I actually think the worst behaviors in our industry were caused more by envy than greed. And this is what one of your chapters talks a little bit about.

• 41:38Ryan Sean Adams?

  But it's basically this observation that I think everyone has seen in crypto, where our assets are up like.

• 41:46Ryan Sean Adams?

  10x, 20x, 50x, 100x. Like, the price of ether went from double digits to, uh, what, 4,500? In like, you know, 18 months, 24 months. And people still weren't happy. They still weren't happy about that. And the reason is because they were looking over at someone else's portfolio, or they were looking at some other asset that was pumping even harder. And of course, social media amplifies all of this. But there's a sense that, like, it's never enough unless I have more than the other guy. This is, this quote is, "Envy is the thief of joy." And I want to ask, as we're getting prepared for maybe this, this next bull market season, how could we actually be happy with what happens?

• 42:30Ryan Sean Adams?

  Because if we do get a bull market, our, the, our wealth is going to increase. But if our happiness doesn't increase, like, what's the point? Can you tell us, like, what is the key to actually being happy? What is the key to being content? What have you learned about this?

• 42:47Speaker 00

  Well, here's, here's, this is very similar to what we talked about earlier. At the broad level, at the macro level, we will never be able to get over this. The idea that, like, your expectations are going to rise in lockstep with your circumstances. At the societal level, we'll never get over it. You can easily imagine, um, and it's almost, it's almost guaranteed, not guaranteed, but you can easily imagine a situation in which our grandchildren are earning twice as much money as we are, adjusted for inflation. Their medical technology is unfathomable compared to what we have today. Their life that they, they live in, like, general peace, like peaceful times. And they're no happier for it.

• 43:20Ryan Sean Adams?

  And by the way, the reason we can imagine that is because that's precisely the condition we find ourselves in.

• 43:25Speaker 00

  It's exactly what's happened.

• 43:26Ryan Sean Adams?

  It's so much better than it was 100 years ago, or like 300 years ago. Or imagine being a feudal peasant on some lord's fiefdom and just slaving your, your days away in the field.

• 43:36Speaker 00

  If John D Rockefeller, or Andrew Carnegie, or JP Morgan had a time machine and could see how the median American family lives today, they would faint with how amazing it was. Particularly things like medical technology. You know, John D Rockefeller was worth almost half a trillion dollars just for inflation. He never had penicillin, he never had Advil, he never had chemotherapy, he never had... All of these things that by and large, ordinary people can benefit from today, he didn't have. But ordinary people don't necessarily think that they're living, or they definitely don't think they're living better than Rockefeller, because those, what would have seemed like luxuries to him, just become necessities for us. Your expectations rise in lockstep, so Advil doesn't feel like magic anymore. It just feels like something that everyone's entitled to. And I think at the broader

• 44:18Speaker 00

  level, what, like if envy is the negative connotation to that idea, I think what really happens is that people look at other people and say, "Well, if they can have that, not only can I have it too, but I deserve to have what they have." And this is really what gets into bear markets. It's like, if I see you making a lot of money, it's not just that I want that money too, but I deserve it. Because people have a natural, I think, push towards equality, in terms of if, like, you're not any better, you're not smarter than me, you're not working harder than me, so if you have more than me, well, I deserve it too. And that, and then it's very easy to take the jump and be like, "Well, if I deserve it, I should go out and acquire it through any means necessary. Through leverage,

• 45:00Speaker 00

  through taking wild risks, because I deserve what you have, so I shouldn't need to work that hard for it. Because you didn't work hard for it, so I deserve it too." That feeling is what makes bull markets run out of control. And I think that's always been the case. But now in the social media world, where you're not only sharing with how you're doing, but you're exaggerating, if not lying about how you're doing, in terms of the life that you're living, and how happy you are, and like, you know, how beautiful the vacation pictures are going on.

• 45:27Ryan Sean Adams?

  Or the NFTs that you flex, Morgan. That's what our industry was doing last cycle.

• 45:31Speaker 00

  That too. Or it's like, this has been the case forever. Like during a bull market, everyone talks about the winners, nobody talks about the losers. That's always, it's always the case of how it works, just like gambling. And so, because of that, it's easier than ever to look around and be like, "Other people are happier than me, other people have more money than me, other people are prettier than me, and I deserve what they have." And that's, that's the trigger for bad behavior. And so I think that that happens in every bull market, but it's just more potent now, and it's faster now. You know, the the dot com bubble was a eight year endeavor. Really started in earnest in 93 and really came undone in 2001. It was actually like by by crypto standards, that's a long.

• 46:13David Hoffman?

  That's like two.

• 46:14Speaker 00

  That's half of our life. Yeah. Yes, because now we have now you can have a full cycle in 12 months, in 12 months. And even the the housing market was the housing bubble was a a six year endeavor. You know, 2001 to 2007. And so I think I think largely because of social media, things just play out much faster now. And so you have much more rapid gains and much more rapid busts than we have in the past.

• 46:39David Hoffman?

  And crypto especially operates so dominantly on Twitter where people will flex as much as possible. Their victories in the bull market and they'll never really disclose their losing trades. They'll mostly just only talk about their winning trades. And so.

• 46:54Speaker 00

  That's what I do, David.

• 46:55David Hoffman?

  Of course, that's what I only ever have winning trades. Everyone knows this. And so like, I think especially in crypto, which kind of has like an unhealthy relationship with wealth flexing in a bull market on Twitter where we all live 24 7 during a bull market. We are especially susceptible to this. And we we use this meme on Bankless that when the bull market started, we've done a few of these. We put on our bull market goggles, like there are our beer goggles, there are drunk goggles. As the bull market goes on, like you are deeper and deeper into the party and you are getting less and less sober as time goes on. And so I think like my, the way that I would try and like give advice for crypto people entering the cycle is don't look at your neighbor in envy.

• 47:37David Hoffman?

  Do your best to be grounded and look at your past self and look at your net worth or your investing successes based on past expectations of yourself, which is your anchor, rather than your neighbor on crypto Twitter, who just flexed their really good trade or their really valuable NFT.

• 47:55Speaker 00

  The thing, the thing though, David, like what you just said is 100% true and I agree with every word of it. It's ridiculously hard to pull off in practice. Because just just like from an evolutionary perspective, if you're competing for resources, competing for spouses, competing for food, competing for land, it doesn't matter how much I have. All that matters is I have more than you. That's the only thing that matters. So when you look at other people getting rich, the New York Times article, everyone's getting hilariously rich and you're not. That very intentionally, very skillfully is, is, is just like a dagger of, of inferiority to the people who read it. And even as someone who's, who I, I don't, I'm not going to say I'm immune to bubbles, but I think I'm close to it in terms of, I have very little FOMO.

• 48:37Speaker 00

  Not zero, but I have, I feel, I probably have a below average amount of FOMO. But even there's periods during those, those booms where I look at it and I'm like, I don't know, am I missing something here? Like, am, am, am I the idiot here? It's, it's very easy to second guess everything that you believe about markets when people around you, who you are, even if it's just implicitly competing with, are doing much better than you. It's a hard thing to sit back and watch.

• 49:02Ryan Sean Adams?

  So Morgan, I just want to tie this, this off because it's so important. I look around me in crypto and I see a lot of wealthy people and so few of those people are actually happy, even in crypto, right? So like, why is that? How, what is the key to happiness? Is it this idea of lowering our expectations? Like it's, uh, how can, you know, hopefully if we're investing well and doing these things well, we will be more wealthy than we were previously. That doesn't equal happiness. How do we get off this envy, um, this envy treadmill here, the trap that we fall into all of the time?

• 49:38Speaker 00

  So there's a book written about 10 years ago by a guy named Dan Harris. The book is called 10% Happier. And the book is about meditation and how medication, how meditation can change your life. And he called it 10% happier because he got tired with all the bullshit about meditation will make you like, turn you into the Buddha, completely and utterly transform your life. And he was like, no, meditation is great, but if you do it right, you might become 10% happier. Like keep like, let's, let's be real about what this is like, how much the needle is going to move here. And I think you could, you could make a, I think you could write a very good book about money called 10% happier. Because can money buy happiness? Yeah, of course. Can it make you happier? Of course it can. Can it remove anxiety and uncertainty? Yes. But maybe that's 10% of what's actually going to make you happy. Because what, like the calculation for happiness includes like,

• 50:24Speaker 00

  Are you in a loving relationship? Do you have good friends? Are you healthy? Do you have a clear conscience? Do you sleep eight hours at night? Do you like all these other things that have nothing to do with money? And so there's a great quote from Rick Rubin, the music producer, where he says, "You cannot become truly depressed until you achieve your dreams, because then you realize that you feel no different than you did before, and then you're filled with hopelessness." So it's easy when you don't have a lot of money to say, "If only I had more money, all my problems would go away." But then if you get more money, you're like, "No, I feel the same. I'm just as anxious and depressed as I was before." And then you and then you're hopeless because you're like, "I used to have a sense of hope that money would make it better, but now that I have the money, I feel the same, and I realize it's not doing anything for me."

• 51:09Speaker 00

  So I think money can make you 10% happier. Like, having a lot of money can make you 10% happier. A lot of the very wealthy people who are unhappy, a lot of that is cause and effect, because what made them wealthy is an absolute fanatical relationship with entrepreneurism or investing or whatnot that has come at the cost of a lot of other things. It's come at the cost of their social life, their sleep, their health, all kinds of other things that's going to come, you know, directly at the expensive. And so I think that's true. It's a combination of those two things. It's like, you know, I think what most people really want is a is a simple life. They want independence and they want simplicity in their life. But they seek, what they're actually seeking is like high status. They're not seeking happiness. They're seeking status is what they're actually chasing, whether they know it or not.

• 51:54Speaker 00

  And status is a game that like, A, can't be won, because there's always somebody who is richer and prettier and happier than you are. So if your goal is to just be happier and richer than the people around you, you're never going to win that game. So and two, it's like the people who are the most fanatical about doing it are living just an inherently unbalanced life that's going to come at the expensive. So I think that's a lot, and maybe to the question of like, what can we do about it? I mean, this, I think some people are more naturally inclined towards not needing to impress strangers. And others, whatever the deep rooted sense of insecurity is, is there. Every day they wake up, and even if they're not saying these words explicitly, the feeling is like, how can I show off to gain the attention of strangers in the world?

• 52:39Speaker 00

  And so I think that's, that's a big part of it. And other people are like, have more of that than others. But to me, the biggest financial liability. Is needing to impress other people. And if you can tamp down on that, that's the biggest move that you can make towards using money to actually make yourself happier.

• 52:57David Hoffman?

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• 53:41David Hoffman?

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• 54:26David Hoffman?

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• 55:10David Hoffman?

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• 55:35Ryan Sean Adams?

  I don't know if this rings true for you guys, but I feel like I am at my healthiest with respect to a relationship with money when I'm using it as a tool to enhance my freedom. And the status trap that you're just talking about, Morgan, that is not freedom. That's just another exhausting game that has no end. It's like ultimate levels. You can't level up high enough. You're just on this other type of treadmill. And so I'm not always there, but when I'm at my healthiest with respect to relationship to wealth and money, it's just a tool. It's just a tool so that I can live my life. Now, this doesn't answer the question of, if you have that freedom, what do you do with it? You have to find your happiness within those bounds. And after that, it's probably not going to come from more money.

• 56:20Ryan Sean Adams?

  Does that ring true for you?

• 56:22Speaker 00

  Everyone's definitely different here. And the way that I would say is like for those people, it's not only is that those high expectations not making you happy. I would frame it as social debt. Like, it's a form of debt that you're buried in. So a lot of people might be, their assets, they're billionaires, but they have more than that in this intangible social debt that's holding them down about needing to impress other people, needing to put on a certain flashiness about who they are, and then attaching their identity and their value to that is really tough. I think at a broad level, there's two things you can do with money about how it can help you in life or what you can use it for. You can use it as a tool to make yourself happier, or you can use it as a measurement for other people to value you at.

• 57:08Speaker 00

  And mostly strangers of like you want other people, you're using it as a scorecard for other people to look at you and be like, oh, Ryan's clear successful because he's driving this car, he's living in that house. And when you frame it like that, it's obvious what you should be, what most people should be doing. Using it as a tool to make yourself happier rather than showing off. A way, like a really succinct way that somebody explained this one time is that a high-end Toyota is a nicer car than an entry-level BMW. Because the high-end Toyota is filled with things that make driving pleasant for you. Really nice seats, really nice sound system, moon roof, whatever it is. The entry-level BMW is just bragging rights. It's actually not that great of a car, but you get, but you get the decal to show off to other people. And I think a lot of things in life are like that.

• 57:53Speaker 00

  It's true for houses, it's true for clothes, it's true for like all kinds of things. It's like you can use it to make yourself happier, or you can use it to show off to other people. And almost every dollar that we spend falls into one of those two buckets. And I think when you think about that, it pushes you naturally towards of like, okay, by the, like, by the way, those people aren't even paying attention to you. The people who you're showing off for are not even paying attention to you. So why bother doing that? Let's just try to do something that's actually going to make you happy.

• 58:19Ryan Sean Adams?

  Morgan, during the last bull market, the incentives for this entire industry got real bad. And that led to some bad things. And I think, again, everything's a fractal, everything kind of repeats. That's going to happen again. There's going to be some bad incentives at play yet again. You wrote in the subtitle of one of your chapters, "When incentives are crazy, the behavior is crazy. People can be led to justify and defend nearly anything." And boy, did we see that last cycle in crypto, people justifying and defending all of these bizarre things, you know, literal Ponzi schemes, if you will. I'm curious, from your perspective, Morgan, what can you tell us about the power of incentives? What wisdom do you have for us on this topic?

• 59:04Speaker 00

  So for me, you know, kind of starting my investing career in the aftermath of 2008, a lot of that period, particularly like the Occupy Wall Street period around 2010, a lot of it was a lot of Americans saying, "Screw those greedy Wall Street assholes." The people at Goldman Sachs, the people at Lehman Brothers, like, "You guys ruined the economy." And I'm not saying that that narrative is wrong. To some extent, there was like, at the edges, of course, there was very bad behavior. I think what people missed is the people who could easy, who could sit there and say, screw those bankers were underestimating the odds that if they themselves were, had a $7 million bonus dangled in front of their face, they would have packaged the subpride bombs just like everybody else did, just like everybody else did. So

• 59:46Ryan Sean Adams?

  And if they say they want, they're probably lying.

• 59:49Speaker 00

  They're full of shit. People don't know the boundaries of their morality until they've been put in those, that kind of incentive situation. I mean, to put this in like a completely different context, Chris Rock has a skit where he says, men are as faithful as their options. And of course, it's not, that's not, that's like, like most Chris Rock, like most comedy, it's like, it's designed to be like, to be provocative. But I think for a lot of things in finance, like morality is bounded by your options. And when your options change, your morality is going to change too.

• 1:00:20Ryan Sean Adams?

  David, what do you and I often say is like crypto is just like an acid test for your character, both the bear cycle and the, and the bull cycle, that remains true.

• 1:00:28David Hoffman?

  Yeah, the, the rate at which you are presented with like moral and ethical considerations in crypto is like faster than any other domain that at least I've experienced in other walks of my life.

• 1:00:39Speaker 00

  Yeah. And it's really hard during a bull market because all of the signals and all the people around you, even when you are doing terrible things, all the signals are, no, that was the right thing. And look, this is not to

• 1:00:49David Hoffman?

  Congrats on the good trade.

• 1:00:50Speaker 00

  Congrats on the good trade. And this is not to justify any of the behavior whatsoever, but I would not be surprised that if in September 2002, Sam Begman Freed went to bed thinking, I'm doing the right thing. This is, this is the right thing. This is, this is all working out.

• 1:01:06David Hoffman?

  Now, there's this, there was this one guy in the, who made, he made out, it's this famous tweet on Twitter where he makes this tweet where he says, I engaged in what I thought was a highly profitable trading strategy. And later he was arrested for this by the CFTC for market manipulation. And he made this public tweet, it was just a profitable trade.

• 1:01:28Speaker 00

  Like incentives can be like really blinding to you. And I think even the people who in hindsight say, I know what I did was wrong and I admit to doing it. In the moment, the incentives can get you to believe almost anything.

• 1:01:40Ryan Sean Adams?

  So what's the lesson here? Do you have to just like be aware of the incentives or just understand what incentives that are at play to, and understand how that can affect distortions of reality?

• 1:01:51Speaker 00

  I think, I think one of the lessons is that we underestimate how crazy the world can get. Because most people that you know, and then I know, or just my general understanding of how humanity works, is I think most people are inherently good. Not everybody, of course, but most people are inherently good. But what people miss and underestimate is that good people with wrong incentives can do some terrible, terrible things. And therefore, we underestimate the odds of all kinds of craziness. Whether it's, whether it's a Holocaust or a bear market. We underestimate the odds of a large group of people making what are, and definitely are in hindsight, really, really bad decisions about what they're doing. Because in those right decisions, in those right circumstances, you and I may have done the exact same thing.

• 1:02:34Speaker 00

  And we would be, we'd be fools to think that the people who we criticize, that they are less moral than we are versus they were just in a different incentive situation than we are. So, A, yes, of course, be careful with incentives that are around yourself, but that's hard to do. I think B, more broadly, is like, expand the boundaries of what you think humans are capable of, in positive and negative ways. Because with the right incentives, people can do amazing things as well. One of the chapters in Same as Ever is about how the biggest technolog, the biggest technology booms come when the world is on fire. It comes during wars and recessions because the incentive in the 1940s is, "We have to figure out nuclear energy today."

• 1:03:14Speaker 00

  Because if, because if we don't figure it out in the next three months, there might not be any more United States of America. That incentive will supercharge technology like you've never seen before, because the incentives are right. So, not all of the incentive discussion is about the bad things people can do. There can be great incentives that really push people towards getting everything right. And a lot of the best, the most well-run companies are like this too. It's not that they're smarter than everybody else or have better information. It's like, they just have a better incentive system for pushing people towards doing the right thing. Charlie Munger always talks about, I think it was at FedEx, of like, they used to pay the people who loaded the trucks by the hour. And they were slow, because they were just like, "We're getting paid by the hour," just like, like, and then they started paying them by like,

• 1:03:57Speaker 00

  "Hey, when the, when the truck is full, you can go home. The full day's pay." And they just got, like, productivity tripled overnight, just because they came up with a better incentive system. So, I, I think that, I think that explains a lot of, like, really good notes in business. It's just a better incentive.

• 1:04:11Ryan Sean Adams?

  Yeah, and I think it explains many collapses that we saw last bull cycle in crypto, including one Terra Luna, you may have heard of this, an algorithmic stablecoin, right? The incentives behind that system were massively skewed, very bad incentives went into that, and we ended up with a massive collapse. So Morgan, another bull market lesson, David and I just dispensed on an episode we've recorded this morning, some of our bull market advice, and it was summed up in this phrase, "Do nothing." That's the best thing you can do during a bull market is actually nothing. You've got this chapter called "Trying Too Hard," and you have this quote, "There are no points awarded for difficulty."

• 1:04:51Ryan Sean Adams?

  You don't get any extra points for doing something the harder way, for complexity. Can you tell us what you meant in this chapter? What is the problem of trying too hard? And how is that a hazard for us when we approach investing, particularly in a bull market?

• 1:05:08Speaker 00

  Yeah, particularly in investing. I mean, in most fields in life, there is a correlation between effort and outcome. Like, if you want to get better at sports, or you want to get in better shape, like, you need to work harder. That's usually, that's the solution. And in investing, I just think it's not the case, that if anything, it's the opposite, that there's a lot of evidence that the harder people try, the worse they're going to do. Because they, I think at its core, it's a misunderstanding of what you have control over. And particularly for average, ordinary, individual investors, even high net worth investors, what you have control over is very little. Outside of your own behavior, it's virtually nothing that you have control over. So you want to think that, like, "Oh, if I work a little harder and do more diligence and turn over more rocks and like, have more decimals in the spreadsheet, then you're going to do better."

• 1:05:53Speaker 00

  Because if you were training for a marathon, like, the harder you worked, that correlation would exist. But investing, it just doesn't. And so, look, you talked about during the bull market, "Do nothing." I think in the bear market, too.

• 1:06:05Ryan Sean Adams?

  Yeah.

• 1:06:06Speaker 00

  To me, I mean, this is how, this is how I invest. I'm a, I'm a long-term dollar-cost average investor. So every month, I invest the same amount into roughly the same investments, and I plan to keep them there for 50 years. No matter what we're doing, no matter whether it's a 1999 boom or a Great Depression bust, I plan on doing the same thing. And, look, whether it was the 2019 boom, or the March of 2020 bust, I was doing the same thing. Like, it didn't change whatsoever. And I think when you realize like how influenced your behavior can become by the emotions of the ups and downs, to the extent that you can mechanize your investment strategy of just saying, I'm going to do X this many times for this many years, no matter what's

• 1:06:47Speaker 00

  happening. To me, it's very hard to beat that. I mean, there's a paper published a couple of years ago, and the title was something along the lines of even God cannot beat dollar cost averaging. And it was based off of this idea that they did all these backtests where they're like, look, even with hindsight bias, let's try to come up with a strategy, like an asset allocation strategy, in a backtest that will beat dollar cost averaging. And it's hard to do it. You can't come up with like a reasonable strategy that actually beats it, because taking the emotions out of the equation of trying to pick the bottom, trying to pick the top, this is so ridiculously hard.

• 1:07:22David Hoffman?

  Morgan, I want to throw, see if I can throw a fastball about this particular angle here, because there's something that I'm not sure like about that advice that resonates with specifically crypto markets. Last bull cycle, we, I did not see the whole like NFT phenomenon coming. And to our detriment and to our entertainment, crypto bull markets are like 10,000 little doodads and widgets showing up around your desk and spinning all over the place like, ooh, look at me, I'm going up in price. Ooh, I'm a new thing over here. There was one time we all speculated on JPGs of text for like three weeks straight that went from zero to a hundred thousand dollars and then back to zero. And the thing is like, for at least for us as content producers in this space, we actually kind of had to

• 1:08:06David Hoffman?

  like focus on like, why it was called loot? Why did this loot phenomenon even happen at all? We had to like kind of diagnose it. Like, why did that happen? Like, why are NFTs, these little widgets that just appeared out of nowhere that went up to like a million dollars and then back down, but not to zero? Like, why is that happening? And so like, to some degree, we actually have to focus on it. It's a part of the story and evolution of crypto. So if you just dollar cost average into BTC and ETH, you would miss a lot of the story of what makes crypto crypto. What would you say to that?

• 1:08:40Speaker 00

  I would say you're totally right, and that's true in the stock market as well. Here's how I'd frame it. I read stock market news every day. Every day I know what the Dow did. Every day I read the Wall Street Journal. I understand. I'm aware of all of it, but it never influences my behavior. I pay attention to it every day because I think it's intellectually stimulating. I think it's fascinating. I think markets are a window into human behavior that I enjoy. But if every day I turned on CNBC and watched Jim Cramer and said, I need to go buy this and sell that, that is almost certainly going to be a detriment to your long-term success. Most certainly. So here's the other thing. I'll say for the 10th time on the show, I'm not a crypto investor. I follow all of it. I'm aware of the narrative. Do you find it entertaining, at least, Morgan? Do you find it entertaining?

• 1:09:24Speaker 00

  I wouldn't use the word entertainment. I would say intellectually stimulative. Because entertaining is almost like taking pleasure at other people's emotions. Sure. But I think it's fascinating. But even if I'm not taking action on it, I'm paying attention to it because I think you are right, David, that like, understanding the narrative of why these things happen is incredibly important. And I think one of the ways that I am able to be a long-term buy and hold investor is because I know that the disconnect between narratives and long-term economic growth can be so detached. But I would not understand that unless I was studying them all day, every day. So to your point, this is really important. A lot of long-term investors are just like, oh, I'm investing for the next 20 years. I don't need to pay attention to the short run.

• 1:10:09Speaker 00

  No, no, no. The long-term is just a collection of short terms. And you need to experience and endure and survive them in order to get to the long-term. So to say that you can just dismiss the short term, I think is wrong. That's what derails a lot of long-term investors, is that they think they can ignore it. But like, no, you have to pay attention to it and understand what's going on. Even if your understanding is, this is absurd and it's crazy and you're all going to lose your money. That's an understanding that you need to pay attention to.

• 1:10:35Ryan Sean Adams?

  Yeah, I think the way I take away the lesson from this, the trying too hard thing is the classic kind of mid curve type meme, right? Which is like, if you look at, if you look at so many bull markets, the best thing you can probably do is buy like an index of crypto assets or buy some of the blue chips, buy Bitcoin and Ether and then just, just kind of hold and just ride it. Whereas the mid curve approach is like, oh, this asset's pumping, I gotta go research that. Let me do this, you know, hours of analysis every week and research the best possible tokens and allocate it there. I bet the vast majority of those types of crypto investors did not perform a simple buy and hold strategy

• 1:11:14Ryan Sean Adams?

  of a crypto, you know, top 25 indices or just a straight Bitcoin Ether investment. That's what you mean by like trying too hard.

• 1:11:24Speaker 00

  Yeah, I'm curious too, because it's obviously very popular in stocks. But do you guys know, are there crypto investors that dollar cost average into Bitcoin and Ether?

• 1:11:32Ryan Sean Adams?

  A hundred percent. That's our program. That's what we do.

• 1:11:35David Hoffman?

  I'm pretty sure you're looking at it. I mean, I'm more of a lump buyer, but Ryan's a big DCA guy.

• 1:11:41Ryan Sean Adams?

  Oh, DCA for life. Just because it's psychologically, it's so much easier and that's.

• 1:11:45Speaker 00

  And what, and what, what percentage of those investors like you have, like what, like, how, like, where would you sit on the spectrum of traders? You've outperformed 90%, 95% by doing that versus the research.

• 1:11:58Ryan Sean Adams?

  Like, I don't think any, you know, good studies have come out about this, although there are like, you kind of, you could look at Bitcoin Ether performance over time. I will say, everybody who has been through crypto in multiple cycles that I know who has gotten extremely wealthy, that's their approach is just simple buy and hold. I know very few traders. In fact, the, the traders that many in crypto put on a pedestal last, last cycle, some of them are in jail right now. Some of them have blown up their hedge funds, right? And so like case in point, you can make money as a trader, but like 95% of people can't.

• 1:12:37Ryan Sean Adams?

  And 99.9% of people listening to this podcast are going to fail at that relative to a simple dollar cost average into blue chip assets strategy.

• 1:12:49Speaker 00

  I think it's probably harder psychologically to do it in crypto because the FOMO during the bull market is more extreme than it would be in the stock market. So in the stock market, a dollar cost average investor is going to earn, let's just say, 8% per year. And the meme stock investor is earning 20%. Like, it's more, but it's not absurdly more. Whereas I think in crypto, the DCA investors, you know, during the bull market is making 30% per year. But the shitcoin guy is earning 17,000% per year.

• 1:13:15Ryan Sean Adams?

  Exactly what happened.

• 1:13:16Speaker 00

  And so the FOMO between watching that is, it makes it harder to maintain that.

• 1:13:22David Hoffman?

  I think that one of the big problems, I would say, in crypto is that you mix what we were talking about earlier with Envy, with the shitcoin investor who can randomly get like a 10,000x, mixed with what I would kind of say about the entire industry. Me and definitely Ryan are just like, we're bad at hitting the sell button. And like, if you're a DCAer, you don't really need to as much. That's actually kind of the point of DCAing. But like, for me, I'm like, I'm a DCAer on one side, but I will totally ape into that meme coin just because it's funny. And also I'm hoping for the 1,000x. And then I'll get the 1,000x and then I won't sell it. And then it won't really matter.

• 1:14:00Ryan Sean Adams?

  Watch it.

• 1:14:01David Hoffman?

  I would say like, we're, as an industry, kind of bad at hitting the sell button.

• 1:14:05Speaker 00

  And if you're doing that, if you're aping into the shitcoin with a small percentage of your money, then like, it's great. Like, back to what we started this podcast, the Venn diagram of stock market investors and crypto investors of how they behave is very overlapped. Because so many stock investors will be like, hey, 90% of my money is going to be dollar cost averaging to Vanguard. 10%, I'm going to have fun with. I'm going to trade and I'm going to buy, I'm going to pick the tech stocks that I think are going to boom over the next five years. And I think that's a perfectly healthy way to invest. To be like, look, this is the core of what's going to drive my retirement. But this is the intellectual itch that I need to be itched in order to stay engaged with the game. And it's fun and I learn about investing.

• 1:14:46Speaker 00

  So I think like that, that's a perfect parallel with what has always existed in the stock market with what now exists in crypto.

• 1:14:51Ryan Sean Adams?

  So Morgan, I'm a bit of a perfectionist. I'm wondering if you can kind of like walk me off that ledge? Because you have a chapter. That talks about the huge advantage to being imperfect. And maybe I'll tie this to the bull market that we've just been talking about, too, which is I see many investors, and I don't do this anymore, but I remember a time when I was newer and used to do this, where I would obsessively try to perfectly time the top and the bottom. So, right, so like, I just want to buy at the very bottom. This is before my dollar-cost-average day. And I just like, look at the chart, like, is it the bottom yet? Well, it could go lower. And I'm trying to like perfectly time that.

• 1:15:32Ryan Sean Adams?

  But you talk in your book about the value of imperfection. Tell us about that. What is the value of imperfection?

• 1:15:39Speaker 00

  Well, for most things in life, it's just acknowledging how powerful room for error is in a world that's uncertain. If you're always trying to be perfectly efficient, what perfectly efficient means is no room for error, which during the periods of surprise is going to wipe you out every single time. I mean, we saw this with a lot of like car manufacturing, where for the last 30 years or so, the push has been become, let's be as efficient as we can, just-in-time manufacturing, like as low inventory as we can hold. And then you have a period in 2021, where the demand for cars explodes and supply chains break, and they're all screwed. During this period where the demand for new cars has never been higher, they couldn't supply them because they had no room for error in their supply chain. And you can imagine a world in which they had 10% room for error.

• 1:16:24Speaker 00

  And for most of the last 30 years, their earnings were marginally lower. But in 2021, they could have cleaned up. They could have just gotten all of it. So it's like, having that room for slack, it feels like a dead weight lost. It feels like an opportunity cost in nine out of 10 years. And then one out of 10 years, you make all of it up and then some. I think that's really important. To the point about picking the bottom. I mean, it's always been the case in the stock market that more money has been lost trying to avoid bear markets than just enduring them. And a lot, a tremendous amount of money is lost in investing by people who are saying, I need to sell before stocks fall, or I need to buy in before. Like, just that trying to pick the perfect point is why they lose money. And the people who are imperfect.

• 1:17:08Speaker 00

  Perfect, like the dollar cost average investors who I'm saying by definition, I'm going to buy at the top. By definition, because I'm going to buy every single month. There's going to be a month when I buy stocks and that's not efficient at all. But by doing that, you're actually going to end up with the best outcome. Because you're not engaging in the crazy behavior of trying to pretend that you know when it's going to peak, when it's going to bottom. So I think there are a lot of things where it's like, you look at it from the outside and you say, you should be able to do better than that. I can spot all this inefficiency, but it's actually the realization is like, that's actually the best that you can do. Is being a little bit imperfect in a world where there's uncertainty. In an uncertain world. Having anything that is perfectly efficient is, is like by definition, you're saying that the future is uncertain.

• 1:17:51Speaker 00

  But I know what the future is going to hold. It's like, it's like incredible amount of ego that's wrapped up with. The, the idea that you don't need room for error in your portfolio. So acknowledging and appreciating the value of room for error and imperfection is a, is a big part of this.

• 1:18:05Ryan Sean Adams?

  I feel like I need to apply that personally a little bit too. Like get, get that perfectionist personality out of my life a little bit like that. That can be hazardous as well, although it's all those two edged sword, because it can also be good for, for certain things as well. But Morgan, we've, we've talked.

• 1:18:21Speaker 00

  It can't be just, I, I say one other area where this comes up a lot is how people schedule their day.

• 1:18:26Ryan Sean Adams?

  Yes.

• 1:18:26Speaker 00

  And you, like, everyone knows, like, the Instagram influencer who was like, I wake up at three forty five and at three forty seven, I'm, I'm doing squats.

• 1:18:33Ryan Sean Adams?

  Yeah.

• 1:18:34Speaker 00

  And but, but if you actually study like very successful people, by and large, their day is filled with unstructured free time. And that looks, that looks inefficient. And but what they do is like that unstructured free time gives them time to think. Gives them time to be creative, gives them time to ponder, which is like, that's how they actually solve problems. And the guy on Instagram who has scheduled every second from the time he wakes up to time he's going to, he has no time to be creative. No time to think. So that's where like, like a schedule that looks inefficient is actually the best that you can do over time.

• 1:19:04Ryan Sean Adams?

  Right. I'm a, when I am at my best is when my calendar is empty and I'm banging out like three articles a week for the newsletter. Sounds like I haven't been able to do that in a while, but I'm still, still putting around or maybe like once every two weeks, which is pretty good.

• 1:19:18Speaker 00

  This is something that Buffett talks a lot about. His schedule is empty almost every single day. He goes out of his way, like no scheduled meetings, no scheduled phone calls, because he's lived his entire life just waking up and letting his mind run free. What's the problem I'm trying to solve today? Let's just try to be creative and like really think this through. And you can't do that if you're scheduled every second.

• 1:19:38Ryan Sean Adams?

  So Morgan, we talked about the bull market and advice you'd have for that. We talked about the bear market and advice you'd have for that. There is this in-between place that we actually spend probably the majority of our time in crypto, which is like this kind of boring place. And I think that has probably been maybe the last, the entirety of 2023. It's just been a little more boring. Like the worst happened in 2022 and 2023 has been a little bit boring. And I want to ask you about that part of the cycle because I think you have some advice there. In particular, one of your chapters is "Juxtaposing Optimism and Pessimism." It's called "Elation and Despair." And I find during these like kind of boring periods of time, I find myself wrestling with these things.

• 1:20:21Ryan Sean Adams?

  Sometimes I'm like, oh, wow, humanity, things are going great. Like everything's amazing. The internet is, couldn't be better. Look how much like value it's bringing. Crypto is going to absolutely change the world. Other times I'm like, wow, look at this industry. Like what, I can't believe what's going on. Like what an absolute waste of human potential. You know what I mean? So I flow between these areas of optimism and pessimism. What is the most healthy way to be? Is it, what have you learned, I guess, about optimism and pessimism? Should we always be optimistic? Should, is there value in pessimism? Are we trying to find the balance here?

• 1:21:00Speaker 00

  Well, I would first say that these like, these periods of mediocrity, of like periods of flatlining that we're going through maybe now or the last year in crypto, those can actually be the most dangerous periods. Because it's like the saying, the opposite of love is not hate, it's indifference. And that's what tends to happen here. So, look, if you're in the financial journalism media space, you know there is nothing better for your page views than a bear market. Everybody's paying attention during the bear market. And so that's when you're actually, you're hyper-engaged. It's during the flat period that everyone abandons the game. And so I, I, I don't have this data, but I would bet that more crypto investors left in 2023 than left in late 2022. In 2022, they were glued to it all day in 2023. Like, ah, it's boring.

• 1:21:42Ryan Sean Adams?

  It's, it's the apathy market. That's another term for it.

• 1:21:44Speaker 00

  It's the app. That's what does it. Same with relationships. When you hate someone, you're thinking about them all day. You only abandon them when you don't care about it anymore. And so, and I think that that's really true. With optimism and pessimism, the thing that's hard to wrap your head around is that you need both of them to coexist at the same time to do well over time. And if you are just a pure optimist or a pure pessimist, both of those will run you off the cliff at periods of time. You need to be optimistic that, well, I would say you need to be pessimistic that what lies in front of us in the next 12 months, in the next five years is going to be tough. It's going to be a constant chain of surprises and setbacks and disappointments and bear markets and terrorist attacks and wars and pandemics.

• 1:22:26Speaker 00

  But if, but, but, but if you can endure those and make it through those, then the rewards for those who actually stick around can be great. So that's like, like I've always said, save your money like a pessimist and invest your money like an optimist. And you need to do that at the same time. You need to invest with the idea that the short term is going to be a mess, but if you can survive it, the long term is going to be great.

• 1:22:46Ryan Sean Adams?

  What does that mean practically, Morgan? Does that mean like making sure that you have enough, like you have padding, you have a certain amount of months saved up so that you can pay your bills and that kind of thing? And then everything else you're kind of investing like a wild optimist?

• 1:22:59Speaker 00

  I, I love the barbell asset allocation. I think Nassim Taleb talked about the extreme version of this, which is definitely not a recommendation for most people to do this. But he said, and I, I might be paraphrasing here, this might not be exactly what he said, but he was like, a perfect investing strategy is 95% treasuries and 5% way out of the money put in call options. It's like the, the black swan portfolio, but it's like very barbell. And that is, that portfolio is very pessimistic on, on the short term and very optimistic about the long term. It's kind of what that, that gets you. Again, not a recommendation, but I think my portfolio is like the, the, the, the wuss version of that. It's like, I have a lot of. A lot of cash. I have a lot of liquidity. I have absolutely zero debt because I'm a pessimist about the short term.

• 1:23:44Speaker 00

  But I also have a very large chunk of my assets in stocks that I hope to own for 50 years. Cause I'm wildly optimistic about the long term. And I think getting those two things to coexist is actually very hard for people. They're they're either the doom or gloom or put everything in gold. Everything is going to go to hell. Or they're the wild YOLO investor of just like leverage up to the eyeballs and like, let's, let's go for it. That that tends to be more common. But I think in any endeavor in business and investing in in anything in sports. Getting optimism and pessimism to coexist is really what you need to do well over time.

• 1:24:18David Hoffman?

  I think as first cyclers, first cyclers who are going to come into crypto for their first full cycle. So they came in like in the middle of the last bull market and didn't get to see a full cycle. They they will tend to, if I'm like, this is how I did it. Lean all like wholly optimistic in terms of exposure to crypto. Because like, okay, I got a taste for what the cycle is last time. Now I'm going to enter fresh at the very beginning of this bull cycle. So I'm just going to fully expose myself to crypto and going to ride the whole entire thing up. And I I that that's what I did worked for me and like doesn't work in the future guaranteed. But then crypto people, I think, tend to find their barbell strategy.

• 1:25:00David Hoffman?

  Not necessarily with fiat or treasuries or dollars or cash. But with real estate, with a different kind of hard asset, one that doesn't like rug out from under you. If the developers decide they're done with the project. And so like, I think the crypto, because we love hard assets in crypto. The crypto barbell is like, you know, maintain your crypto exposure because we're crypto people. That's what we love to do. And buy yourself a house. Once your optimism has paid off. Because that's your that's your conservativeness. That is your pessimism. If crypto goes to shit, you have somewhere to live. You have a bed. That's how I would like articulate our version of like the barbell thesis. How do you take that?

• 1:25:41Speaker 00

  I think that's great. I think it's great. But it's also very rare that you would have someone who is very bullish on crypto and say, I want to own my house outright because I'm scared of the short term. It's hard to like, it's hard to get those things to coexist. But any successful entrepreneur, I think you see this. One of the things that's so interesting about Microsoft as a company is that no company has been more optimistic about technology for the last 50 years, almost, that they've been around. It started in 1970s. And very few companies have been run as conservatively as Microsoft in terms of just an absolute mountain of cash held on the balance sheet at all times. And Bill Gates has talked about this. He did that intentionally. He said, from the day he started Microsoft, he always

• 1:26:26Speaker 00

  wanted to have enough cash in the bank so that he can make payroll for one year with zero revenue. And he said, even when he left Microsoft as CEO in 2000, it was still like that. It's still managed like that today. A lot of the tech companies are. And when Gates was asked about this back in the 90s, he was like, look, if you understand the history of technology, tomorrow is not guaranteed. Even if you're on top of the mountain today, you can be out of business tomorrow. It just changes so fast. And he was like, look, look what happened to IBM. They were from the most powerful tech company in the world to a shell of its former self. That could happen to Apple. That could happen to Amazon, of course. And so like, understanding how fragile the world can be pushes you towards this level of conservatism on one end. But if you're operating in a world that you're wildly optimistic

• 1:27:09Speaker 00

  about, you can still be crazy optimistic optimistic about getting there. You just want to make damn sure that you have enough liquidity in order to stay in the game long enough to actually reach that mountaintop.

• 1:27:19Ryan Sean Adams?

  Morgan, I think one of the hardest things about the boar market, maybe let's call it the apathy market, which we've been in. Maybe we still are. Maybe we haven't hit full bull market yet. But in this apathy market, it's just, everything feels like it takes so long. And we like stair step our way upwards. So it's a little bit forward and then back, back to like, you know, a few steps back. And it's, it's this stair step type of thing. And there's that old finance expressions, assets take the stairs up with the elevator down. And that certainly seems to be our experience in crypto. You've got this chapter called overnight tragedies and long term miracles. And I think the theme of it is, good things happen slow, bad things happen fast. Can you answer why?

• 1:28:02Ryan Sean Adams?

  Like, why is that the tendency in markets, in just in life in general? Why do good things take so long? And why do bad things? Why are they just catastrophic? Like, why is it immediate?

• 1:28:14Speaker 00

  It's true for almost anything. I mean, you know, it takes three to five years to build a skyscraper and 10 seconds to tear it down. It's true for a lot of things fall into this, this idea. I think it's because good things come from compounding. Compounding is by its nature like a slow, a slow process that it's, it's really driven by the amount of time it's being done for. The longer, the better. Whereas damages are caused by single points of failure, breaking that tend to be catastrophic immediately. And so this is, it's easy to become pessimistic about the economy because the good news happens slowly, but the bad news happens instantly. So like the two biggest negative news stories of the last hundred years were, in my view, Pearl Harbor and 9/11.

• 1:28:57Speaker 00

  Those are the news stories where it's like, oh, this is, this is bad. This is terrible. Like, the world's fundamentally different in a bad way now because of this. Both of those events from start to finish were less than one hour. It just, it just happened instantly. But think about the good news that's happened in the last hundred years. The decline in mortality for certain diseases, the increase in life expectancy, all of those are very, very slow. So I use the example in the book about the improvement in heart disease survivor rates over the last 80 years has saved literally tens of millions of lives. It's been this incredible boon to society that, you know, back in 1950s, there were no blood pressure medications. And if you got a heart attack, you were dead. Even if you went to the ER, there, there's no bringing you back. Whereas we've made so many improvements in that field that saved tens of millions of

• 1:29:42Speaker 00

  lives. And most people don't know about it because what actually happened is that the heart disease mortality rate improved by 2% per year for 80 years. Now, if you understand compounding, growing at 2% for 80 years is incredible. It gives you an amazing result. But in any given year, you're never going to see a news headline that says, breaking news, heart disease mortality increases by 10 basis points last month.

• 1:30:04Ryan Sean Adams?

  So boring.

• 1:30:05Speaker 00

  Nobody cares. Nobody cares. So over the lifetime, it's, it fundamentally changes everyone's life. And in any given moment, everyone's oblivious about it. Now, compare that with nine eleven. How many people are oblivious to nine eleven? Zero. Everybody knows it happened. Everybody remembers where they were when it happened. So the way that optimism and pessimism play out, the speed at which they play out, pushes you towards being pessimistic about the future. Because at any given point in time, you open up the newspaper and the thing that's being written about nine times out of 10 is negative. Because that's what happens. Car crashes, plane crashes, those things are always going to be... Once in a while, there is a new breakthrough in mRNA technology, CRISPR, Ozempic, whatever. Sometimes there is like breaking news, this is amazing.

• 1:30:50Speaker 00

  But even with that, how it actually plays out is, tends to be pretty slow. So, you know, solar energy, the discovery of that, I don't know this, but I imagine when they first discovered solar, it was like, this is incredible. This is amazing technology. But it took literally 100 years for it to actually catch on, to where people actually started putting them on their roofs. So even when you have a major breakthrough that is newsworthy, for that to actually benefit your life usually takes a very long period of time. And there's just no comparison with that, with negative news.

• 1:31:20David Hoffman?

  It seems like that's almost like a fundamental truth because of physics, right? Like, objects will lean towards entropy, will lean towards chaos when they're in a state of order, right? It's just easier for things to fall apart than they are to spontaneously put themselves together. In fact, they don't do that. It takes labor and effort for things to come together. And then they will by default fall apart, no matter what.

• 1:31:45Speaker 00

  But you're absolutely true. And so even if the path is towards entropy, it's going to lead towards chaos. What is equally true is that the labor of putting that back together and growing and innovating and solving problems is more powerful. So even if you live in a world where everything seems like it's going to hell all day long, over the course of 100 years, the progress that you've made in terms of the average quality of life for the average person is completely incomparable. And so, it's true in the economy. Like, I've been investing for 20 years, since 2004. There has never been a single moment during that period when there wasn't 100 things that you could point to that was going wrong in the economy. And going wrong in the stock market. And during that period, this market's up fourfold.

• 1:32:27Speaker 00

  Four X during a period when every single day you could have listed 100 things that were terrible.

• 1:32:32Ryan Sean Adams?

  There's always a reason to be bearish.

• 1:32:34David Hoffman?

  Always.

• 1:32:34Speaker 00

  There's always, always, always. And we talk about the glorious 1990s, but as I said earlier, it's the same. If you were an investor in 1994, you could list 100 things that were going terrible with the economy. Even in 1999, in Y2K, everyone was worried about, you know? There's always something to point to, even if over time, the path tends to be towards not just growth, but because it's compounding, it's incredible growth.

• 1:32:56David Hoffman?

  Well, Morgan, I found this conversation immensely helpful and also just the timing of this for where we are in the market cycle. There's just so much activity going around in the crypto markets right now that like a lot of people that have listened to Bankless for their very first time are about to enter a phase in the market cycle that they were not able to see because they came in mid-cycle last time. And so they're able to apply these lessons in a full scope fashion. So I just want to thank you for coming on. And I think you're also just like you're the perfect guest, not just for the timing, but also to scratch Ryan's itch of just being investing focused and my itch of being psych minded. The timing of this, I think, is just perfect. If we just had time for just like one last bit of advice as maybe your personal favorite, or you think the one that crypto people need

• 1:33:40David Hoffman?

  the most, or whichever one just comes to mind first, like what would be the last thing that you would leave us with?

• 1:33:47Speaker 00

  To me, the most powerful chapter of Same As Ever, at least that was to me personally, that I think about in my own personal life, is that if your expectations grow with your income, you're never going to be happy with your money. And we talked about this earlier and how at the society level, it will always be like that. But I think about that with my own household finances. If you're lucky enough to have a rising net worth and a rising income, and you don't go out of your way with just as much emphasis to keep your expectations in check, you're never going to be happy. And if you want to be happy, and of course, everybody does, you have to go out of your way. And it's very difficult to do, but to do that, to be grateful for what you have, and to think about to compare yourself not to somebody else right now, but compare yourself to yourself five years ago. Who

• 1:34:29Speaker 00

  were you five years ago compared to that person? By and large, me and you and a lot of people listening to this are doing great today. Even if they opened up Instagram and they feel inferior to everyone, to everyone else, relative to who you were at some point in the past, you're probably doing great.

• 1:34:43Ryan Sean Adams?

  What a perfect way to end this episode with the word gratitude. And I am, I'm certainly grateful to be in crypto. I'm grateful for everyone who listens to this podcast. And Bankless listener, I'm hopeful at the end of this episode, you can think about some ways that maybe you're grateful. If you're listening to this, you're probably a settler. You probably have some net worth in crypto. You're probably doing quite well, at least relative to the rest of the world. And that's something to be incredibly grateful for. This, this time that we're alive, a lot of us missed the boom days of the internet. And yet here we are with the kind of the second internet with crypto. And what a fantastic set of opportunities. Morgan, I feel like the Bankless listener is now an all-weather investor. We talked about bull, we talked about bear, we talked about the apathy markets.

• 1:35:27Ryan Sean Adams?

  And I just want to thank you once again for these incredible insights. It's been a lot of fun.

• 1:35:31Speaker 00

  Thanks, guys. This has been fun. Let's do it again in another year. We'll talk about what hasn't changed.

• 1:35:35Ryan Sean Adams?

  You coming out with another book in another year? Morgan?

• 1:35:38Speaker 00

  It might be, it might be a little bit more than a year, but there's more coming, yeah.

• 1:35:41Ryan Sean Adams?

  Well, guys, you got to read Morgan's new book. I've got it right here, actually in front of me. It's called The Same As Ever. We'll include a link in the show notes to that. And also through the archives, Morgan's first appearance on Bankless, The Psychology of Money. That is an absolute must-listen to as well. Morgan, thanks so much for joining us. This has been, this has been great.

• 1:35:59Speaker 00

  Thanks, guys.

• 1:36:00Ryan Sean Adams?

  Guys, David and I are about to go record our debrief episode, where we unpack this episode, the episode that we just had with Morgan Housel. If you're a Bankless citizen, you already have access to that. That's in your premium podcast feed. That includes links to bonus episodes, no ads. If you do not have access to this feed, you can go activate it on bankless.com. Risks and disclaimers. Of course, we always end with this. You got to know, none of this has been financial advice. Maybe some life advice sprinkled in is definitely a life advice episode. But crypto is risky. You could lose what you put in. We are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.