[REPLAY] Morgan Housel – The Psychology of Money (Capital Allocators, EP.155)

Morgan Housel is a partner at Collaborative Fund and one of my favorite writers about investing. Morgan recently released his first book, The Psychology of Money, and I'll go on record and predict it will be a best-seller in short order. Our conversation starts with Morgan's non-traditional education, his path to writing, and his process for writing each week. We then turn to the book and discuss some anecdotes about luck and risk, greed, compounding, patience, and tail events. We close with two of Morgan's personal stories – one about his own investing and the other, which seems inconceivable as you listen, about his lifelong challenge with stuttering. Learn More Follow Ted on Twitter at @tseides https://twitter.com/tseides?lang=en or LinkedIn https://www.linkedin.com/in/tedseides/ Subscribe to the mailing list https://capitalallocators.com/ Access Transcript with Premium Membership https://capitalallocators.com/signup Editing and post-production work for this episode was provided by The Podcast Consultant (⁠https://thepodcastconsultant.com⁠ https://thepodcastconsultant.com/)

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

• 0:05Ted Seides?

  Hello, I'm Ted Seides and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can keep up to date by visiting capitalallocatorspodcast.com. My guest on today's show is Morgan Housel, a partner at Collaborative Fund and one of my favorite writers about investing. Morgan recently released his first book, The Psychology of Money, and I'll go on record and predict it will be a bestseller in short order.

• 0:48Ted Seides?

  Our conversation starts with Morgan's non-traditional education, his path to writing, and his process for writing each week. We then turn to the book and discuss some anecdotes about luck and risk, greed, compounding, patience, and tail events. We close with two of Morgan's personal stories, one about his own investing and the other, which seems inconceivable as you listen, about his lifelong challenge with stuttering. Please enjoy my conversation with Morgan Housel.

• 1:24Ted Seides?

  Morgan, great to see you, bud.

• 1:26Speaker 01

  Good to see you too, Ted. Thanks for having me today.

• 1:28Ted Seides?

  We're going to go all the way back and just start with your background. So why don't you talk about what was most important to you in your school years?

• 1:39Speaker 01

  If there's anything unique about my school years, I grew up around Lake Tahoe. And from an early age, I started when I was around 10 or 12, I became a ski racer. And I wanted to be the next Olympic champion. I wanted to be the next world champion. I was like a lot of people in sports and whatnot. It was just, I wanted to swing for the fences, go to the top. And I became a ski racer, became more competitive in my teenage years, so much so that I didn't go to a traditional high school. I had more or less bypassed high school altogether, did an independent study program for high school that was designed For juvenile delinquents. It was like the last resort. The kids who had been expelled from every other school. Which that was not me. But I and a lot of my friends went there because it was the easiest way to check the box of high school without actually doing anything.

• 2:22Speaker 01

  So when I was 16, I got a quote unquote diploma. It's not a GED, it's a real high school diploma, but I did nothing for it. I took a couple of tests that proved that I could like add single digit numbers and spell my name and tie my shoes. And they said, okay, here's a diploma, get out of here. So I pretty much for all intents and purposes, I have an eighth grade education. I was just skiing. I lived in Lake Tahoe. I was on the Squaw Valley Ski Team. I was skiing competitively. Six days a week, 10 months a year, all throughout the world, ski racing around, and it was great. I mean, obviously skiing is something people do for fun, for vacation, to go hang out with their friends. So to be able to do it full time, 10 months a year. We got used to it. We didn't wake up every morning thinking, oh my gosh, this is so amazing. I had to ski every day.

• 3:04Speaker 01

  But it was pretty cool. We also just had, and when I say we, I mean about a dozen of my peers. We were teenagers during this time. We had a lot of autonomy from our parents who let us do this and the coaches that were just kind of hands off for us. Even though the coaches were almost like our parent figures because we were with them six days a week. They just kind of let us go, you know, especially when we were 16, 17 year old boys. So when you've got a group of 17 year old boys that is traveling around the world with autonomy. It was as wild and crazy as you can think. I always joke that everything we did from those in those years should have either gotten us killed or arrested. And it's only like a little bit of an exaggeration. It's, I can't believe we made it through, but it was great. So I think to bring this back to your first question, I substituted a traditional education for that.

• 3:50Speaker 01

  Rather than sitting in a high school and memorizing the periodic table, I was traveling around the country and around the world with my friends, getting into trouble. Not that much trouble, just a little bit of trouble, but that to me was, as I look back, I didn't know this at the time, but that was a better education. Of just learning how the world works, figuring out real life skills versus the academic, sit in your chair and memorize this formula skills. So that by the time that I got, when I wanted to go to college, the time when I was like, now I want to learn, now I want to. Sit at the desk and learn the formulas. I feel like I was better prepared because I was older. And the maturity difference between an eighteen year old boy and a twenty year old boy is huge. Even though it's two years, it's a, the fact that I started college when I was twenty, I think, made a big, big difference.

• 4:34Speaker 01

  And I was just going, not because it was the traditional path that someone told me to do. I threw out all the traditional paths in my high school route. So by the time I got to college, I was there because I wanted to be there, not because someone told me I needed to be there. But it was like, this is what I'm ready for and I want to do it. So looking back, I can't believe my parents let me do that. But I'm so glad that they did. It all worked out. I would say, though, for a lot of my friends who were on the same path, it didn't work out. They got off the traditional path and they never got back on any sort of productive path. That's the risk in it. I think it more or less worked out for me, but it's a lot of risk. I don't know if I would do that same thing for my kids or recommend that anyone else to do it. But it was, I appreciate my own background in the education sense, given how crazy it was.

• 5:20Ted Seides?

  And so then, when you went to college and were more conscious that you wanted to be there, did you have a sense of what you wanted to study?

• 5:26Speaker 01

  I wanted to work in investing. I knew that from even in my late teens, that it had always fascinated me. My parents do not work in finance, but it just fascinated me. The stock market fascinated me, investing. So when I went to college, my only plan, plan A, B, and C, no alternatives, was I want to be an investment banker. And just like when I was skiing, I wanted to be the next Olympic gold medalist. When I was investment banker, I wanted to be the next investment banking tycoon. And this was the mid two thousands when investment banking was kind of at its peak. In terms of allure to people like myself, young men looking at it. Investment bankers had the most prestige, the most power, the most money. I think after that hedge funds kind of took, took the baton and then private equity took the baton after that.

• 6:08Speaker 01

  But in the mid two thousands, investment banking, at least from my perspective at the time, as someone in their early twenties, was like, that was what I wanted to do. So that was all I wanted to do. I wanted to go to a good school, get a degree in economics and go be an investment banker. I was very self-conscious at the time because everyone else around me went to, had a high school education. It feels ridiculous to say that, but a lot of them went to good. Private schools, they were so much academically smarter than me. And so I really was very self-conscious. Deep down, I didn't think that I could do it. I didn't think that I could actually had what it took to go be an investment banker. But that was my dream and that was my goal. We can get into what happened. I got an internship as an investment banker in my junior year. And on day one, I said, screw this. This sucks. I'm out of here.

• 6:52Speaker 01

  It's the most miserable profession I could imagine. And it was instant within like, within 10 minutes of getting there. That the whole purpose of an investment banking intern was to haze them. And to beat them up. And to take out the aggression that the senior managers had built up because their lives were so miserable. They wanted to take it out and give it to someone else. By making their lives miserable. And I just, it was so antithetical to my personality where I only thrive in an environment where it's like I have the freedom to think and to take my time and to talk with my friends. And to do things on my own schedule. And investment banking at the junior years is not that at all. It is sit in your desk and build your model and shut up and go home at 3am. If you're lucky. So I was out of there really quickly.

• 7:35Speaker 01

  And then that kind of derailed my plans because I didn't have any alternatives after that.

• 7:39Ted Seides?

  How did you find your way into writing?

• 7:41Speaker 01

  So this was a summer of 2007. After investment banking, I got a job at a private equity firm. I was still in college, it was an internship. And this was a summer of 2007. And everything started breaking. The economy started breaking, the financial markets started breaking. And if you work at a private equity firm that needs to borrow a lot of money to do your deals. And credit markets just froze literally overnight. No exaggeration. It was Wednesday, they were fine. Thursday, everything stopped. I really liked private equity. I thought it was great. My plan was to stick around there full time. But they came to me in late 2007 and said, there's not going to be room for a full-time junior analyst. The firm was not doing okay. And then, so I needed something else to do. I was just about to graduate. I graduated in 2008. Not a good time to graduate in college if you're looking for a finance job.

• 8:24Speaker 01

  So I needed something to do and I didn't know what it was. And I was at kind of a point of desperation because investment banking, my dream didn't work. Private equity, my backup didn't work. I'm like, God, what do I do now? And I had a friend who was a writer for The Motley Fool at the time. The Motley Fool, I think I was familiar with it, but never really spent any time in it. And he said, hey, Morgan, you need a job. You are interested in finance. Come write about investing for The Motley Fool. And it had zero interest to me whatsoever. Because of my lack of high school background, I had no writing experience at all. I studied economics in college, which you don't need to write very much. It's taught as a very math-based field. I had no writing experience, zero, since eighth grade, let's say. So I thought, look, they're never gonna hire me.

• 9:08Speaker 01

  And I don't even wanna do this, but I'll apply. And lo and behold, they actually hired me. And I thought, oh my, this is a joke. I have no idea what I'm doing. But I ended up loving it, not just thinking like, oh, this is a job I can get by. Almost from day one, I was like, I love this. I love writing. I've always been fascinated in finance. But to sit down and think about a topic and research it, and then get to tell other people about it, who are gonna read it and comment on it, I'm like, it was instant. It was as instant as investment banking was unappealing to me. As soon as I wrote my first article at The Molly Fool, it was like, this is it. This is what I wanna do. It was so obvious to me that I loved it. And then so I thought, even at the time, early on, I thought, I'll do this for six months until I find another private equity job.

• 9:51Speaker 01

  But I ended up staying at Molly Fool for 10 years. And I wrote over 3,000 articles while I was at The Molly Fool. That's kind of where I learned how to do it. And just completely fell in love with, with writing in general, but particularly, my first love is finance and investing, particularly in public markets. And then I'd love the fact that I can just wake up every morning and learn about investing. And then the fact that I got to write about it and tell people. And then I fell in love, secondly, with the process of writing. Writing is a really great way to clarify your thoughts. And the vague ideas that you have in your head, the gut feelings, to be able to sit down and put them to paper and clarify your thoughts, for better or worse. Sometimes when you put them on the paper, you look at it and you say, oh, this gut feeling that I have is actually ridiculous. When I put it into paper, I don't, I don't have a clarified view of what I'm thinking about.

• 10:35Speaker 01

  And sometimes this vague idea that you have in your head, when you put it into paper, then you say, oh, now I understand it better. Now that I've forced myself to articulate it, I understand it better and I can do something useful with it. So I just fell in love with the writing and that's what I've done ever since.

• 10:49Ted Seides?

  How did you coalesce onto?

• 10:53Ted Seides?

  Call it a theme, or maybe it was a beat for the fool in the content of your writing.

• 10:58Speaker 01

  So it's interesting, when I started The Molly Fool, they said, you need to pick a sector to cover. Every writer had to be a sector specialist. And I said, I don't really have a sector that I'm interested in. Like, what do you want me to do? And they said, great, well, no one is covering banking for us right now. You can be our banking writer. And I said, cool, like, great, I'll cover banks. And then, again, this was 2007. So by 2008, my first full year of writing, all the banks imploded. I got this sense of anxiety because I was covering, let's say, 10 banks throughout 2008. And by late 2008, only like four of them existed anymore. They were, the rest were gone or merged. That just gave me a window into the financial crisis. Of course, that was the story of the banks.

• 11:37Speaker 01

  So then I just got really interested in covering full time the great financial crisis that ensued after the panic of 2008. And over time, I realized that the explanations for what was going on from 2008 to 2012, let's call that the financial crisis, you could not find in a finance textbook. And you could not find in the economics textbook. The decisions that people had made and were continued to make, just you could not explain through the normal field of finance. It wasn't in those books, but you could find it. You could find the explanations for what was going on in a psychology textbook, in a history textbook, in a sociology textbook. People have been acting around greed and fear and scarcity and opportunity in the same ways for millennia.

• 12:22Speaker 01

  And it's explained in, it was just clear to me that the explanations were not financial. They were psychological and historical. I became a lot more interested in the historical and psychological approach to investing. You can call it behavioral finance. I've always viewed it more along the lines of the intersection of psychology and history. So what is the history of how people have behaved around greed and fear and risk? And what can we learn from that history that helps us make more sense of our current world? And can think about our investments in a more productive way with that? So the quote unquote beat that I came to cover, that I think I still do today, it's evolved over time, is that's the intersection of investing history and what we can learn about the softer psychological,

• 13:04Speaker 01

  the behavioral side of investing history in order to make better sense of today's world.

• 13:08Ted Seides?

  Talk a little bit about what's happened from when you left The Fool to penning this book.

• 13:13Speaker 01

  I love working at The Motley Fool, and I still do. I look back fondly. I think it's filled with a lot of great people. It was a wonderful company to work for. And my plan was so good that my plan, if let's go back to 2015, 2016, not that long ago, my plan was I was gonna work in The Motley Fool forever. That was the plan. We bought a house. My wife and I bought a house a half mile from the headquarters in 2016, not that long ago. And my plan was I was gonna be there forever. And then I kind of got this, I started working there when I was a junior in college. If I work there forever, and I work there until I'm 60 years old, well, I regret only having worked at one company, seeing how one company works. And the answer I came to was, yes, I would regret that.

• 13:53Speaker 01

  The other thing is that writing, to me, is an art. And since it's an art, just like a painter or a sculptor, it's kind of a one-man show. And I didn't want anyone else telling me what to write, or how to write it, or editing it, or getting their, I wanted to own 100% start to finish of the writing process. And I just realized that the only way that I was gonna get to do that was to be at a smaller organization. So I met Craig Shapiro from the Collaborative Fund around 2015. And he and I just got to know each other, became friends. And he asked one day, he said, "Why don't you come work for Collaborative Fund and keep writing? It's all you." And so I just made this pitch that it was like, okay, that's what I want to do. And working at Collaborative Fund for four years now has been amazing. It's been great. And the whole writing process is, for the articles that I publish, is 100% me.

• 14:38Speaker 01

  The idea is mine, the writing's mine, the editing is mine. And I love that because the successes and the failures, I own personally. Like, if you work for a big organization, a big media organization, and you have an editor telling you what to write, how to write it, they're gonna put their fingers in there and get their hands on it. Then when the article does really well, you don't know if that was you or not. Did it do well because of what you wrote, or because of what the editor wrote? Or if it fails, if it doesn't do well, you can say, "Well, that wasn't my fault. It's because this editor told me." I love that it's the successes and the failures are all mine. It's a good way to learn about writing. Just everything that happens with the articles ties back to me, the positive and negative, which is really important.

• 15:19Ted Seides?

  How do you go about the process of putting pen to paper?

• 15:23Speaker 01

  For me, it's spending 90% of the job, reading and thinking and going for walks and thinking about what I've read and trying to connect the dots between, oh, I read this, what does that remind me of? Oh, this thing, this anecdote I read in this book reminds me of this theory that I read about from this field, which reminds me of this other thing. And oh, actually, how does, what does that remind me about in investing? It's just trying to doing a lot of reading and a lot of dot connecting. So, reading and walking, how much of my time do I actually spend at my computer in a Google Doc, writing? Maybe 5% of the time. Like, if I write one article a week, the actual writing usually only takes me a couple hours. But thinking of the idea, piecing it together, thinking of the examples, takes

• 16:07Speaker 01

  the rest of the week. So for me, it's just always that. It's usually waking up Monday morning in like a state of panic of like, what am I gonna write this week? Sometimes I'll have a couple of ideas on the docket, kind of like got the next couple of weeks teed up. But usually, it's this kind of panic and just start piecing things together to try to make it work. And then usually publish about once a week. What's true for me, that I think is true for almost any writer, is if I'm writing 50 articles a year, about one a week, at the end of the year, I will be really proud of like, five of them, even three of them. And then there'll be 20 or so that I'm like, eh, it's okay. And then 30, the majority of them, I'm like, nah, I didn't like that. That didn't work out. I think that's gonna be true for any writer. So, and that can be tough on a weekly basis

• 16:52Speaker 01

  when you spend a week writing something. And even when you publish it, you're like, eh, that's not very good. But the three times a year where you feel like you nailed it and people liked it, that makes up for it.

• 17:02Ted Seides?

  Do you find there's a consistency when you put it out between what you think might be one of those three and what ends up being one of them?

• 17:08Speaker 01

  The opposite. I have no idea. No clue. Even doing this for 13 years now, and I've written thousands of articles, like my ability to predict what's gonna do well is pretty poor. I've spoken with other writers about that, too. I think it's just the formula for what's gonna work. The first thing I would say is, I think 90% of virality, if your article does really well and it's, you know, doing well on social media, 90% of virality is luck. The other 10%, like it needs to be good, but you can write something that is very good, that doesn't take off, because virality is when one person retweets it, and then it got seen by another big person. It's like this chain of luck that you can't really predict. So if there is any formula to it, well, there's two things. I would say people really

• 17:52Speaker 01

  love when you write something that they already know. They intuitively know this idea. They just never put it into words because then when they see it in words, they instantly think, yes, you're right. Of course you're right. I've always felt that, but I've never seen someone say it. Rather than coming up with this crazy idea that they've never heard of before, because then they gotta rack their brains and say, well, is that really true? What about this? Like, I'm trying to understand what you're trying to say. Versus if it's something that they feel in their gut and you put into words, that's when people just say, I love this. That's what it is. And so the takeaway from that is a lot of times what does really well are the really basic articles where when you're writing it, you're like, this is so obvious. No one's gonna think this is interesting. It's so obvious.

• 18:34Speaker 01

  But the obviousness, if that's a word, is what people love about it. It doesn't take a lot of bandwidth from their brain to get the point you're making. Whereas if you're writing something that is not obvious, then from the impatient reader's point of view, they're like, what are you trying to say? I don't really understand it. I'm outta here, bye. So obvious things do well. The other thing I would say as a writer is the best articles are very easy to write. They just fall out of your head. You just smash the keyboard for 20 minutes and then it's done. You hit publish. And the reason it is so easy to write is because the idea is very clear in the writer's head. Whereas if you're struggling to write something and you're just like, ah, I gotta start this over. I don't know where this is going. I've been working on this for two days. I'm still only halfway done. The reason it's hard to write is usually because the idea you're saying

• 19:19Speaker 01

  isn't right. You have this like conflict in your head. And the reason it's hard to write is because you know in your head that what you're saying does not make any sense. Versus if it's easy to write, it's just like, here's what I wanna say, done. And it's good. So whenever I'm working on something and it's hard, it's just, I've been typing away at it for hours and I'm not making any progress. I always try to stop and say, This is probably not the writing. It's probably the idea. The idea is probably wrong.

• 19:44Ted Seides?

  Have you found anything consistent in those stories where you were able to uncover something that felt obvious, but somehow you stated it in a way that really resonated with people?

• 19:57Speaker 01

  I think if you can take something that is obvious, like at the analytical level, but then phrase it in a human story, that's someone else dealing with that. That's how you make the jump from a formula that people might just kind of, it's in their head, but it doesn't really mean anything, to a story that's really going to change how they think. Once you personify it, then it makes it much easier for people to relate it to their own lives. Like, an algebraic formula, you can't relate to your own life. But someone dealing with risk in a way, and telling their story about the consequences of their risk, is something that people can read and say, oh, I instantly can tell how that would apply to me, in a way that the quadratic formula never will, you know? So I think if you can take an academic topic and explain a story about it that's easy

• 20:41Speaker 01

  for people to grasp, it's also just more interesting and fun if it's presented as a story about a person rather than just a data dump of formulas and whatnot. It's just much more interesting for people. And it's more fun as a writer for me to get to explore stories, the human side of it. I think that's what I'm interested in, is the human side of investing. Not the spreadsheet side. Other people do that well and do it so much better than me. I want to dig into and explore the human side of what we're doing, which is why the book is the psychology of money. And I say in the introduction of the book, it's not a book that tells you what to do with your money. It's a book that tries to tell you what happens in your head when you do things with money. So just what is the human side? I think the word behavioral finance is probably overdone, and it means different things to

• 21:26Speaker 01

  different people. I'm just interested in, let's just call it the human side of investing. Like, people's stories about how, not the formulas, but what people do with the formulas, for better or worse.

• 21:35Ted Seides?

  So there's a great segue into the book. It's very exciting for me to make the prediction that I think this is going to be a bestseller.

• 21:41Speaker 01

  Did you just jinx it? It's not even out yet.

• 21:43Ted Seides?

  Well, by the time this comes out, it'll be out. It might already be on the New York Times Bestsellers. I'm going to say it anyway. You're not saying it. You'd be jinxing it. Let's just dive into some of it. I love the way you framed the beginning of the book. Talking about these two stories of two stereotypical people that had a little bit different outcomes in their lives.

• 22:02Speaker 01

  In finance, you can be someone who has no education, no background, no experience, and vastly outperform someone who has the best education, the best background, the best experience, which doesn't happen in any other field. So you can be someone who's never been to college, never worked in finance, but if they dollar-cost average into low-cost index funds and leave them alone for 40 or 50 years, they're going to do phenomenally well. And they might not even have known what they were doing. They didn't even know that that was the right thing to do, but they did it. And they were patient, and they had control over their emotions, and they just left it alone, let compounding do its thing. On the other hand, you can have a PhD in finance from MIT and have worked at Citadel Capital

• 22:43Speaker 01

  and been a partner at Goldman Sachs and go bankrupt. And so I tell two stories in the opening of the book of people who basically have that background. A no one, a guy who was a janitor and a gas station attendant, who, when he died, ended up having a huge fortune that he left to charity, versus, I compare that to another guy who had, went to Harvard and got an MBA from University of Chicago and was a vice chairman at Merrill Lynch, and went bankrupt. Around the same time that this bumbling, country bumpkin gas station attendant left his fortune to charity, this guy with an MBA from University of Chicago went bankrupt and lost his homes and told the bankruptcy judge that he had absolutely nothing left. And the juxtaposition of those two stories is important because

• 23:26Speaker 01

  it does not happen in any other field. It's impossible to think of someone with no education, no background, performing open-heart surgery better than a Harvard-trained cardiologist. Like, that world would never, ever exist. It's impossible to think of someone with no architect, you know, engineering background, building a 100-story skyscraper just on their spare time. It's impossible. It would never happen. But that does happen in finance. On one hand, you could say, well, that happens because there's luck involved. People who have no idea what they're doing can do well because they got lucky. Sure, that's true. I think the more important explanation, though, is that that happens because what matters in finance is not what you know. It's not your IQ. Your intelligence, it's just how you behave.

• 24:08Speaker 01

  That's the most important. It's not the only thing that's important, but the most important part of finance is your relationship with greed and fear and who you trust, knowing and understanding your own personality, your own goals. These soft things that have nothing to do with how we traditionally teach or think about finance, but make all the difference in the world in terms of their real world outcomes.

• 24:29Ted Seides?

  There is always this question of the degree that luck plays into success and careers. I know you tackle that, talking about both luck and risk in the book.

• 24:39Speaker 01

  So I tell the story about Bill Gates, two sides. There's one side of this that may be a little bit well known, but the other part is less well known. But Bill Gates went to the only high school in America that had a computer. And the computer that they had was more advanced than most of the computer programs had at the top universities. He had that from the time he was 14 years old, the only high school in America that had this. And he makes no qualms about what that meant. He gave the graduation speech at his high school, his former high school in 2005. And he said, Lakeside is the name of his high school. He said, if there were no Lakeside High, there would be no Microsoft. The only reason Microsoft came to existence and Bill Gates became the computer genius he was, is because of the dumb luck of where he happened to be born, where he lived,

• 25:21Speaker 01

  and his parents' ability to send him to this private school that had the only computer in the country. It was a dumb luck set. And of course, that does not mean that Bill Gates is not genius and one of the hardest working, brilliant corporate executives. He is all that, but there is a massive element of luck that got him to where he is. On the other hand, while Bill Gates was in high school at Lakeside, when his, as he describes it, his best friend, a guy named Kent, was just as interested in computers as Bill was. As Bill describes him, he was smarter, not just about computers, but about business. He was just a higher level of intelligence than Bill was. He was more ambitious than Bill was. He always had this idea of how to build a great company.

• 26:02Speaker 01

  And Bill describes it that he and Kent had planned to go off to college together and probably start a computer business together. But before they graduated high school, Kent died in a mountaineering accident, died when he was 17 years old. That is, Bill Gates's success is driven by luck. It doesn't mean there wasn't hard work, but he had this element of luck by going to Lakeside School. And his friend Kent, who had just as much tenacity and genius as Bill did. Experienced risk. He died in a freak accident and didn't get to experience anything. So luck and risk, as I said, are like the opposite sides of the exact same coin. They're both just this idea that there are things that happen in our life outside of our control that can have a bigger influence on our outcomes than anything that we intentionally do.

• 26:46Speaker 01

  That's true for both sides of the equation. And what's hard about luck and risk is that they're very hard to measure. Luck is really hard to measure because it almost seems insulting. I've tried to measure my words here because if I say Bill Gates is lucky, it makes me look like I'm discounting his hard work, like I'm jealous of him. And it's not that whatsoever, but it's just hard to look at someone who is successful and say they had luck. Most successful people don't want to admit that their success was due to luck. And outsiders look like jerks if they express luck on someone else. So luck kind of gets swept under the rug. Risk is also the same because if someone fails, it's easy to say, well, that person didn't make the right decisions. We usually look at success and failure as binary. If you are successful, you made the right decisions.

• 27:30Speaker 01

  If you weren't, you made the wrong decisions. But when you realize that, like, we're all just trying to make probabilistic decisions. Of, let's say, you know, the odds of success are 80% in your favor, let's say. That means that 20% of the time, you're going to make the right decision where the odds were in your favor and still end up with a bad outcome. Or, let's say, the odds of success are 10% in your favor. That's a terrible bet. 90% chance you're going to fail, but 10% of the time, you'll get the right result. So the power of luck and risk and the difficulty in measuring them and accepting them has a big impact on how we think about finance, how we think about investing, business and life. And I think one of the biggest outgrowths of that is that it's very hard to pick who we should admire. Who are our role models?

• 28:13Speaker 01

  And how do we look at other people and say, well, Bill Gates did this, so I should try to emulate that? In a good, in an innocent way, that might be really important, but if you don't, if you can't recognize how much luck that you might not have, that he did have that sent him to his path. It's difficult, like, how do you admire them? How do you take away an example for them? One of the examples I use is Mark Zuckerberg was offered a billion dollars to sell Facebook to Yahoo, and I think 2006, which at the time it was like, getting a billion dollars for your two-year-old social network? You're gonna be crazy not to take this. And of course, he turned it down. And people look at that as a genius. He saw the future. He turned down this big offer. What, you know, good for him. He's so smart. He saw the future.

• 28:57Speaker 01

  A couple of years later, Yahoo was offered, I think, 50 billion dollars to sell to Microsoft, and they turned it down too. And in hindsight, we say, you idiots. I can't believe you didn't sell to Microsoft. How could you not? They were offering you so much money. Why didn't you take it? So how, like, what is the takeaway from that? We obviously admire Mark Zuckerberg for turning down the offer, and we ridicule Yahoo for turning down the offer. We look at it binary, but both those decisions may have been the same. Like, you can easily imagine a world in which we look back, you know, let's say Facebook failed, and we look back at Mark Zuckerberg as this idiot 22-year-old who turned down a billion dollars. Or we look back, let's say Yahoo did sell to Microsoft for 50 billion dollars, and we just looked at them and say, that was, they were so smart for selling,

• 29:42Speaker 01

  because their future was obviously nothing. So it's really hard to judge people and outcomes when we don't know how much luck and risk were involved.

• 29:50Ted Seides?

  We're looking at almost like the beginning of the story and the end of the story, and then talking about outcomes. And there are a lot of the stories in the book are somewhere in the middle. So, you know, one of them, obviously with emotions, is greed. And this notion of, you know, people could be successful and lucky, and then try to keep going.

• 30:08Speaker 01

  The story that I tell about Raj Gupta and Bernie Madoff is just the concept of enough. And what's so interesting about Bernie Madoff, a lot of people don't realize this, but Bernie Madoff had a legitimate business, not a fraud. He was a legitimate market maker, and by most accounts, he was making tens, maybe 100 million dollars in a legitimate, legal, perfect way. Like, he had... So much wealth and success legitimately, but it was never enough for him. The legitimate success, tens, maybe hundreds of millions of dollars that he made legitimately, was so inadequate to him that he had to keep pushing all the way to breaking the law, ruining people's lives. His two sons, of course, one of his sons ended up committing suicide. Like, he went so far, and like, it was never enough.

• 30:51Speaker 01

  Raj Gupta is similar in terms of, he was the leader of McKinsey, and he was so successful. At later point in his life, his net worth was over a hundred million dollars. Like, massive success by any definition. And as some people who knew him described in it, it was never enough. He didn't want to be a hundred millionaire, he wanted to be a billionaire. So he pushed, and pushed, and pushed. And the story, this happened around 2008, had to do with insider trading around Berkshire Hathaway's deal with Goldman Sachs, that he tipped off some hedge funds about, and ended up going to prison. And it's so fascinating that these guys had everything. They had respect, they had tens of millions of dollars, and it was so inadequate to them that they ruined their lives. And there's this great quote from Buffett where he says,

• 31:33Speaker 01

  "If you risk something that you need in order to gain something that you don't need, that is foolish." And there's so much of that. The takeaway from these stories is just how important it is to have a concept of enough in finance, rather than pushing for more, more, more, more, more. No matter where you are on the spectrum, you have to have a level where you say, "That's enough." Because if you keep pushing, A, you're just not going to be satisfied or happy with your money, but if you take it to the logical conclusion, like, if you push, push, push, you're going to end up pushing too far, and whether too far means you end up going bankrupt, or you go to jail, like these guys did, like, there has to be a point where you say, "I'm not going to push any further." What's difficult in finance is that the kind of personality that makes you a billionaire

• 32:16Speaker 01

  hedge fund manager is not the kind of personality that is likely to say, "Okay, that's enough. I don't want anymore." The people who have done really well can balance those two, that barbell personality, but it's rare and it's difficult. A lot of people will just, they'll keep pushing until they realize they ran off the edge and it's too late.

• 32:34Ted Seides?

  You mentioned Buffett, and Buffett certainly always comes up in stories. And one of those, which I know is near and dear to your heart, is the power of compounding.

• 32:42Speaker 01

  In terms of Buffett, the story that I told was, look, his net worth today, when I wrote it, it was $90 billion. If you just look at the trajectory of his life, 95% of that came after his 65th birthday. I think he's 89 years old right now. 95% of that amount came after 65th birthday. 98% of his wealth came after his 50th birthday. It creates some really weird things for us to think about, including this idea of like, so Buffett, he started investing when he was 11 years old. So now we can do some alternative scenarios here. Let's say that Buffett, instead of starting to invest when he was 11, let's say he started investing when he was 25, like a normal person. You graduate college, you get some money. He started when he was 25. And then let's say he retired when he was 65, like a normal person.

• 33:27Speaker 01

  And during that time, let's assume he earned the same average annual returns that he did throughout his career. 22% per year annual returns, amazing returns. What would his net worth be if he started investing at 25 and retired at 65? And the answer is about $10 million, not billion, but million. You would have never heard of him. He would have never been a household name. The reason that he is successful, the reason that he is the icon of global investing and one of the richest men of all time is because of time. It's not necessarily his investing returns. It's because he started investing full-time at age 11 and at age 90, he's still going at it strong. Of course, he is a good investor, but his secret is time. And even for a lot of successful investors, it's hard to wrap their heads around that.

• 34:10Speaker 01

  Because if you go on Amazon, there are 2,000 books devoted to, how has Buffett done what he's done? What are his secrets? And they go into grand detail about how he thinks about moats and management and sizing up business and market volatility, which are all great, important things. But we know with just the simple arithmetic, he's done what he's been able to do because he's been investing for 75 years. That's it. That's 99% of the explanation. So the only book describing Buffett's success, if you want to emulate that success, is, the title of the book should be, "This guy's been investing for three quarters of a century." That's the explanation. You don't need to talk about the moats or anything else. That's it. So I think that's one of those things that is so simple.

• 34:52Speaker 01

  Basic that it's easy for professional educated experienced investors to overlook that. They want to dig into the details about how he did it when the explanation is actually shockingly simple. It's just a lot harder. And that's actually important point, too, is that to be able to do something like Buffett's done, of course, it has to be ridiculously hard. It shouldn't be something that is easy to emulate. And starting at age 11 and working full time through your 90s is got to be the hardest thing that you can do that almost no one can emulate. And that's why people have not been able to achieve the kind of success that he has.

• 35:24Ted Seides?

  So I love the corollary that you used. You know, you said Buffett's maybe call it worth $90 billion and Jim Simons at Renaissance is worth a lot, but a lot less.

• 35:33Speaker 01

  Yeah, I think he's worth maybe like 10 billion, of course, or ridiculous. Now, so Buffett's average annual lifetime returns that he's earned as an investor is, I think, 21% per year. Jim Simons is, I think, 66% per year. So I went back in the book and I said, okay, what if Jim Simons had been investing for as long as Warren Buffett and he had earned 66% annual returns from age 11 to age 90? What would his net worth be? And it was a number that I didn't even know existed. It's quintillion, quint trillion, quin billion. It's a number that I had to find a special calculator online to give me this number. It's a truly just like out of this world figure. This is a ridiculous number. Because Jim Simon is a much better investor than Buffett in terms of annual returns. But Buffett

• 36:16Speaker 01

  is much wealthier just because of the amount of time he's been doing it for. It just drives home the point of how something like time can lead to not just improve your results, but explain 99% of the results in investing. And of course, the irony in all this is where does all of our attention go into the investing industry? Most of us will say we are long-term investors. We want to be long-term investors. But all of the attention in the media and people's actions is a quarter to quarter, maybe year by year thing. It's just very hard to think in terms of decades and generations when we have so much information coming at us to begin with. About a decade ago, I went to a conference where Jeremy Siegel was presenting. Jeremy Siegel is a known longtime bull. He's always been bullish and his book is called Stocks for the Long Run.

• 37:02Speaker 01

  Someone in the audience pointed out that at the time, I think it was 2010, 2011, they said, bonds have outperformed stocks over the last 10 years. So doesn't that contradict all of your arguments? And Jeremy Siegel said something to the effect of, I'm not interested in what happens over a 10-year period. That means nothing to me. He was like, I'm interested in what's going to happen over the next 50 years. And then so we often come to these conclusions that one person is wrong and the other person's right, when it's actually they think the same thing, they're thinking in very different time scales.

• 37:30Ted Seides?

  One of the other things you mentioned about Buffett is obviously he's been at it for so long and he hasn't really had hiccups so long the way. But you told the story of Buffett's third partner.

• 37:41Speaker 01

  So obviously, the duo of Buffett and Charlie Munger is well-known. They are the investing business duo over the last half-century. But if you go back to the 1960s, there was actually a third member of the group, a guy named Rick Guerin, who was part of the Buffett-Munger investing mafia. He was kind of an equal part of that group. Charlie Munger tells a story about when Buffett and Munger interviewed the CEO of C's Candy before they bought the company. Rick Guerin was kind of the main guy who was leading that conversation. He was part of that group. And Rick Guerin's still around. He's still an investor, but obviously, he's not the multi-billionaire trio. So years ago, a guy named Monis Pobry won the annual auction to have lunch with Buffett, where you get to sit down and have lunch with Warren. And Monis Pobry asked Buffett, he said,

• 38:24Speaker 01

  what happened to Rick Guerin? I've read about him in the past as being part of the group, but where is he now? And as Warren explained it, he said, look, Buffett and Munger always knew that they would be rich. They knew it was going to happen. It was just a matter of time. So they were in no hurry to do it. They were patient about how they were going to get there. They had no desire to rush it. So they were just investing, doing their thing, letting compounding work. But Warren said Rick Guerin was a little bit more impatient. He wanted to get rich faster. So he was buying Berkshire Hathaway stock, I think this was in the mid-1970s, on margin with leverage. And then the 1970s bust happened in the stock market, and he basically got wiped out. He basically got margin calls. Buffett actually bought the Berkshire stock from Rick Guerin to kind of bail him out. And that, in terms of investing, that was kind

• 39:09Speaker 01

  of what wiped Rick Guerin away when Buffett And Munger were still compounding year after year after year. Rick Gurren kind of got wiped. So here's another thing of like, Rick Gurren was just as smart as Buffett and Munger had just had the same investing skills, but he was a little bit more impatient than Buffett and Munger was, and it made all the difference in the world. It wasn't a little bit difference. It was he effectively got wiped out in the 1970s while Buffett and Munger just kept going and going and going. So here's another thing of like, we dig so deep into the details of investing, the technical aspects of it. When something literally just like patience, and I guess you could call it greed, is what actually moves the needle over time. It actually matters.

• 39:46Ted Seides?

  Well, one of the things you talk about, and you can go back to the Bill Gates example. People think of Warren Buffett this way, is this notion that the tails, more than sort of a steady state compounding are really what drives returns.

• 40:01Speaker 01

  Yeah, I mean, that's true in any investing portfolio, whether it's an index fund or a concentrated group of stocks. Over time, the majority of your gains will come from a minority of the stocks that you own. It's always going to be case that it's just me driven by tails. Even in an index fund, I talk in the book about the Russell 3000 index. 3000 companies, just a basic index fund. If you look at how it's actually performed over the last 30 years, 40% of the companies, the components within that index went out of business. They were gone, not because they merged, but because they failed. And 7% of the components of that index, among the 3000, just 7% of them account for virtually all the return. And that's in an index fund. That's in a passive strategy. And if you look across business, across investing,

• 40:47Speaker 01

  that's always how it works, that just a few of the investments that you make will account for the majority of your returns. And it's hard to wrap your head around that. Because if you go out and you make 100 investments and 40 of them or 60 of them don't work, it's hard to take that as anything else but a failure. But you have to see that that is a normal path of how things work. Buffett mentioned years ago at a Berkshire Hathaway meeting that he has owned 500 stocks over the course of his investing career. And in percentage terms, he has made most of his money on 10 of them. So that's how it works for everyone. This was true for someone like George Soros as well, who kind of prides himself as having a very low batting average. He's going to be wrong 80% of the time, but the 20% of the time that he's right, he's ridiculously right. And that's all that matters over time.

• 41:30Speaker 01

  It's true for businesses as well. If you look at like Amazon, Amazon has toyed with so many different product lines over the years, whether it was the Fire Phone, they've tried all these different things. Whereas only two products that it's made over time, move the needle, which is AWS and Prime. They've tried everything. They've thrown everything at the wall. Same with Apple, that's tried tons of different products. The iPhone is what has made the entire company. So virtually everything in business and investing is like that, where a small percentage of what you do actually makes all the difference in the world.

• 42:00Ted Seides?

  How do you think about that in the context of diversification, like diversified portfolios? But does it become someone's ability to predict the tail that ends up being the driver of success?

• 42:12Speaker 01

  You can't predict what the tails are going to be. And that's why diversification is so important. Like, look, for me, working at the collaborative fund, which is venture capital, obviously where it's driven by tails, of course. If we make 100 seed stage investments, five of them are going to drive all of the returns. And 60% of them won't work at all. So we've seen those tails happen a lot. And what's interesting, if you, now that we've been in business for 10 years, if you look back at how we talked about our portfolio company five years ago, we would say, oh, these companies in our portfolio, these are going to be the big, these are the shining stars. This is what's going to drive the return. And if you look at what it is today, it's the complete opposite. Those companies that we thought were the shining stars, a lot of them went out of business. And the companies that we were paying no attention to,

• 42:55Speaker 01

  we invested in them, but we're like, I don't know what they're doing. They're just kind of, went on to be the big winners. That's always how it is. If you went back 10 years ago, or 15 years ago, and you looked at the S and P 500 and you said, what are the winners going to be? You probably would have said ExxonMobil, General Motors. You would have never said Amazon. No one would have said Amazon. What, that bookstore? Is it, they're selling books? Is that what they do? No one would have ever said it. So I think it's never foreseeable. When you think that it's not foreseeable, but it's always going to happen. It's always going to happen that you're going to have tails that drive the returns. That's just when diversification becomes obvious. I write about this, I'm pretty open about this. I dollar cost average into index funds. That's how I invest.

• 43:36Speaker 01

  And about a week ago on Twitter, I was writing about the success of Amazon. Amazon stock is, you know, how much has gone up in the last 10 years? And someone said, if you know that individual companies can do so well, why are you an index fund investor? And I said, no, I'm an index fund investor because I want to ensure that I own the next Amazon. I'm not an index fund investor because I don't want to own Amazon. I'm an index fund investor because I want to ensure that I do whatever the next one is. I want to make sure that I own it. Because the components or the drivers of the S and P 500 or any basic index fund in any given year or period of time usually rely overwhelmingly on fewer than 10 companies. Like in the last 10 years, it's been Amazon, Apple, Google, Microsoft, Facebook, Netflix. That's everything. And if you are a stock picker and you did not own those companies,

• 44:22Speaker 01

  if you just didn't own those and you put in all your effort to finding what are the other great companies outside of FAANG? The odds that you've outperformed over the last decade, it's not zero, but it's they're very low. The odds that you could beat the index without owning those few, added to 500 or 3,000 companies is low. So when I just think about it in those terms, it's like the only way that I can guarantee that I'm going to own the companies that matter is by owning all the companies. That to me is the argument for indexing.

• 44:48Ted Seides?

  There's a lot of principles in the way that psychology affects people negatively that the market efficiency theories and say, oh, well, if a rational investor would behave this way. And we know now that people aren't rational. So are there ways that you could think of that you could turn that on its head? And say, okay, understanding how we behave and we're not going to be fully rational. How can we use the way we behave to be better, longer term investors?

• 45:17Speaker 01

  I make this argument in the book that people should not aim to be rational with their money. And that sounds counterintuitive, but there's too much emphasis on making rational decisions. Rational being the numbers all add up in the spreadsheet and you can explain it elegantly with math. And I just think that's not how real financial decisions work. People don't make financial decisions in a spreadsheet. They make them at the dinner table with their spouse, with their family, where all these emotions and nuance comes into play that moves the needle in a way that you can't really summarize neatly in Excel. So rather than trying to be rational, I think people should just try to be reasonable with their money. Just try to do things that try to make sense within the context of your own goals, your own personality, your own risk tolerances, your own flaws and what you're good at. That is just reasonable.

• 46:01Speaker 01

  So here's one example that I'll use in finance. There's a well-known home bias among investing. Investors from the United States own US stocks, investors in Japan own Japanese stocks. It's not rational. People, we should be more diversified globally. But it's actually, the home bias is actually a very reasonable thing. Even if it's not rational, it's reasonable because people are more familiar with the companies from their home country. They understand them better, they're more familiar. It's gonna make it easier for them to make the leap of faith of dumping their life savings into these companies if they're more familiar with them. I probably have a home bias as well, investing in US index funds. It's not because I don't like Japanese companies, or Chinese companies, or Brazilian companies. It's just that I'm more familiar with US companies. If I'm gonna put all my money into these, I need to be able to be more comfortable with it

• 46:46Speaker 01

  so I can sleep better at night, have a better grasp on what's actually happening. So that's an example of something that I think is not rational, but very reasonable. The other that I write about in the book is paying your mortgage off, which these days is like the worst thing you could do with your money. You can get a 30-year fixed-rate mortgage for less than 3% these days. Paying off your mortgage is ridiculous. But I actually think it's a wonderful thing for people who can do, if you can do it, just to give yourself that added sense of stability and safety and know that no one can touch your house, your house is yours. A bank can never take it away, bank can never tell you what to do with it. This is yours. And no matter what happens in life, you lose your job, you have a medical emergency, your house ain't going anywhere. That feeling is something that you cannot put into a spreadsheet,

• 47:28Speaker 01

  but it is so important for people, for some, not for everyone. It's so important for a lot of people, I would say, in terms of just using their money to make them happier rather than trying to maximize their utility in a spreadsheet.

• 47:40Ted Seides?

  At the end of the book, you do, and you mentioned this a little bit just now, you do talk about your own personal investing. And how you apply sort of what you've learned and what you thought through. Is it that simple? Is it just, oh, it's so complicated. You love thinking about it, but at the end of the day, you want to own everything. You don't want to miss them. You want a dollar cost average. So, you know, just own index funds. Is that it?

• 48:03Speaker 01

  For me, that's what it is. It's important for me to say, I am not a passive investing zealot. I have a lot of respect for active managers. I know some who do it very well. Of course, it's hard. Of course, most won't succeed at it. That's how it should be. But I have nothing against active managing at all, which a lot of index fund proponents would not say that. What makes me feel good, or makes me sleep well at night and feel good about my finances is keeping it as absolutely simple as possible. So Ted, my entire net worth is a house, a checking account, the Vanguard Total Stock Market Index, and a couple of shares of Berkshire Hathaway. And that's it. There's nothing, and I love that it's so simple. I can just wrap my head around it in two seconds. I know where everything is. I know how everything's valued. It's so simple for me to think about. That simplicity has a lot of value to me.

• 48:49Speaker 01

  And then for other people, they want it. For some people, that's like their, that's their nightmare to have something that simple. So people's got to find what works for them. But for me and my family, and for my wife and I, all that matters for us, like I have no desire to be the world's greatest investor, and I never will be. So that's, that's fine, but it's not a goal of mine. I just want to use my money in order to gain control over my time. Like if I can invest in a way and have enough savings that I feel like I can wake up every morning and just say, I can do whatever I want today. I can keep working. I can go do something else. I could retire early. I could find another career. As long as the money that I have gives me that option, I've checked every box that I need to have checked. And now, look, again, there are a lot of people who are more type A, and that's not them. They want to swing for the fences. But so this works for us.

• 49:32Speaker 01

  And a lot of people would say, well, how do you rationalize paying off your mortgage and stuff? I can't. I'm not going to try to rationalize it, but it works for us. Even if it might not work for you, it's what works for us.

• 49:41Ted Seides?

  I want to talk about two other things before we turn to a couple of closing questions. The first is, almost anyone listening probably already follows you on Twitter. How do you use Twitter?

• 49:50Speaker 01

  Too much. It is my drug of choice in life. I'm not proud of how addicted I am to Twitter, and addiction is the right word. You know you're addicted to it when you wake up in the morning and before you've even opened your eyes, you're reaching for your phone, trying to see what tweets you've missed. But I think Twitter is like the greatest communication device ever created. I don't think anything else comes close to it. So how do I use it? I used to follow a lot more people than I do now. I've been kind of shameless about unfollowing people. Who, people who, it's not that they were doing anything wrong, it's just you've got to manage your feed. Like, the people who get overwhelmed with Twitter were not managing their feed appropriately. They're overwhelmed, they're following 4,000 people, and they open up their feed and it's just like a waterfall constantly. You can't do that.

• 50:33Speaker 01

  Like, don't be afraid to unfollow people. And there have been times when I want to follow, like, hardcore journalists who are breaking news, times when I want to follow more people who are like philosophers. Like, it just changes all the time. So my relationship with Twitter is always changing in terms of who I follow, but it's where I get the huge majority of everything that I read. I read The Wall Street Journal, The New York Times, and Bloomberg, but 90% of what I read, I discover on Twitter. And that's why I think in terms of just a communication device, not just talking to people, but sharing information with people, there's nothing else out there that's even close to it.

• 51:07Ted Seides?

  So there's a string through skiing early in your life, and wanting to be the best skier, and then thinking you wanted to be the best investment banker, turning into writing, and this deep dive on writing, of you're just tackling something and wanting to maximize it. And I think it would probably shock almost anyone who's listening that you weren't always so effusive verbally as a public speaker.

• 51:35Ted Seides?

  And so why don't you tell the story of tackling a stutter?

• 51:39Speaker 01

  So stuttering as a child is very common. About 20% of children under age five will stutter. And for the vast majority of them, it goes away. By the time they're 10 years old or something, most stutters have gone away. Mine didn't. I stuttered very severely as a child and it never went away. To the time when I was in my early teens, late adolescence, I could barely talk. I could barely hold a conversation with anyone. It was a very severe stutter. I dealt with it even when I was a kid with denial. I never wanted to go to speech therapy. I just wanted to bury my head and pretend it didn't exist. In my early, let's call it early teen years, I pretty much talked to no one else except my parents. Didn't really talk to anyone at school, didn't really talk, because my parents were the only ones who understood it.

• 52:20Speaker 01

  Who understood why, like, I'm a smart kid, but I can't talk. I can't get a sentence out. I can't finish a sentence. Stuttering is a rare disability, too. I've always used the example that if someone has, let's say, Down syndrome. 99.9% of people, when they see that person, instantly know this person has Down syndrome. You don't make fun of them. You treat them with respect. You understand their disabilities. Stuttering is very different, where it's so rare that even if good-hearted people come across a stutter and hear someone stutter, it's very common to make fun of that person. They don't mean any harm, but it's just so rare to people that when you see someone stutter, the common reaction is, what the hell was that? I'd have never seen that.

• 53:02Speaker 01

  So because of that, stuttering is a very often teased disability, which makes it very tough as a child, especially. Adults can deal with it a little bit better, but as a child, I'll give you one example. And I don't mean to be political about this, but the most common argument against Joe Biden right now is the guy can't finish a sentence. On any news, that's what they say about him. Joe Biden has had a lifelong stutter. That is well-known. Of course, he can't finish a sentence because he stutters. Like, if he was paralyzed from the waist down, no one would say, oh, the guy can't stand up. They'd say, look, he's paralyzed. Don't make fun of him for that. Like, come on. But stuttering, like, it gives people, since it's so rare, it gives people this license, they feel like, to belittle it in almost an innocent way.

• 53:42Speaker 01

  So my stutter in my teens was really bad, and I really thought, and I want to say I thought I knew, it was going to prevent me from having any sort of successful career. Particularly as I want to say, "Oh, I want to be an investment banker." What terrified me more than anything, and it's almost hilarious to say this now, is I just knew that I could not get through a job interview. Like, forget the actual work, forget like doing a deal. I just said, "Hey, the one-hour job interview, I'm physically incapable of doing it." And then, so I had a lot of low moments during my ambitious years of like, "Oh, I'm gonna be a partner at Goldman Sachs. Oh, wait a minute, I gotta do a job interview? Well, that's never gonna work then, because I just can't get my way through it." It wasn't until I was in my early twenties that I felt like I started getting a grasp over my stuttering.

• 54:27Speaker 01

  And there's no cure for it, it never goes away. My stuttering is as severe today as it was when I was a kid, when I was, I could barely get a sentence out. There's two sides of this, and I've written about this in a little bit more detail. There's two sides of overcoming stuttering. One is anticipating, before you speak, what words are gonna trip you up. You have this dialogue in your head, you know the next sentence you're going to say, and you need to anticipate, "Oh, that word is not gonna work for me." So, once you can learn to predict what's gonna be a problem for you, I figured that out by the time I was probably about 14, of being able to predict what's gonna be a problem ahead of time. And then, the second skill is when you know, "Okay, that word's gonna be a problem for me, okay, so get rid of that word and swap in another word that has the same meaning."

• 55:11Speaker 01

  That's how I've gotten over stuttering. I am as bad at a stutter now as I was before, and still, when I'm talking to my wife and my parents, I stutter all the time, because I don't feel the need to swap words out, I just let it flow. If you would hear me talk, it's, I'm a different person when I talk to them. So, I really didn't feel like I had overcome it in any significant way until I was like 30. I'm 36 now, so this is a fairly recent thing. And a couple of years ago, I was asked to start speaking at financial conferences. I was probably 31, 32, so this is really like a couple of years ago, and I was so scared, so, I've never been as nervous as I've been to do this. And it was a tiny conference, it was like 20 people watching, and I was just petrified.

• 55:54Speaker 01

  And my fear was that I was gonna, you know, 10 minutes into it, I was just gonna have to say, folks, I'm sorry, I tried, I can't do this. Thank you for your time. It went well, I got it done. And I've often equated to this as like, if you were paralyzed your whole life, and then you got your legs back, you would just wanna run all day, just making up for lost time. And since I couldn't speak for most of my life, now that I can, I just wanna talk and talk and talk. So speaking at conferences became a big thing that I do. Pre-COVID, I was speaking at 30 conferences a year all over the world. And every time I walk offstage, it's this, holy shit, I can't believe I did this. And it hasn't hit me yet, because it was just so ingrained in my personality that I can't talk.

• 56:36Speaker 01

  So once you can not only do it, but speak in front of 2,000 people, like, it's amazing. And it's what I'm most proud about in life.

• 56:44Ted Seides?

  All right, let's turn to some closing questions. What's your favorite hobby or activity outside of work and family?

• 56:50Speaker 01

  To give you one that's maybe obscure and not obvious, I love, and I don't do this very often, I don't wanna say this is like a common hobby, but I love reading old newspapers. And particularly when I lived in Washington DC, going to the Library of Congress, where they have every newspaper going back in history, I loved opening up the New York Times from 1927 and just scanning it and reading it. And it was so fascinating to me because I love history, but most history books are talking about the big events. They're talking about the standout events, the tales, World War II, the Great Depression. I just wanted to say, what was just a random Monday like in 1927 or 1862? Just pick a time. What was average like life then?

• 57:31Speaker 01

  And I love, it's such a fascinating window into normal life, just the advertisements and how people talked. That to me has always been so fascinating. My favorite historian is a guy named Frederick Louis Allen, who writes about history, or he did, he died in like 1950s, but he wrote about history through the lens of just average mediocre life. Not the big events, just what was the average American's life like in 1910? And I love that. There's so much fascination in the mundane, average day of a life that I love.

• 58:02Ted Seides?

  What's your most important daily habit?

• 58:05Speaker 01

  Maybe this is kind of a non-answer, but I really don't have any. I don't know if that's good, but the structure of my day is always loose and open and there's no sky, I really almost never have anything on my schedule. And this, how every day plans out is very different. Some days I wake up and I'm like, I'm just not in a writing mood today. So I'm just not going to do much work today. I'm going to read and go listen to some podcasts. So I think since writing is an art, you can't systematize it. You can't say, okay, I'm going to do X and then do Y. You just gotta let nature take its course and like just however it comes out. So because of that, I really have no daily habits whatsoever, for better or worse.

• 58:41Ted Seides?

  What's your biggest pet peeve?

• 58:43Speaker 01

  As a writer, and this is something that I try to do for myself as a writer, but my biggest pet peeve are people who explain in 250 pages what could have been explained in 300 words. And the huge majority of books, and I'm not saying I do this perfectly either, but the majority of books that could have been magazine articles and the majority of magazine articles that could have been blog posts and blog posts that could have been tweets. I think the best writing is the person who says the most in the fewest words. So I love just really concise, pithy writing and I get annoyed when it's not.

• 59:15Ted Seides?

  How about your biggest pet peeve in the investment world?

• 59:18Speaker 01

  There's something in psychology called the false uniqueness effect, which is assuming that just because you are good at something, other people are not. And this is really true in investing where you'll have a lot of people will say, I'm really good at modeling. I'm really good at data analysis. I'm really, and you might be, you might be really good at those things, but what really matters is not that you are good at those, it's that other people are not. Because you can be good at modeling, but if 100,000 other people are just as good at modeling, it doesn't make any difference in the world. And I think this explains a lot of why beating the market is difficult. It's not because people aren't good, it's because a lot of people are good. And so to be really a standout in investing, you have to find something that you're not just good at, but that other people are bad at, which is a very different thing than just figuring out your own skill.

• 1:00:03Speaker 01

  The other just like technical quirk, but that feel like this is a big deal, that's a pet peeve of mine, are journalists who cite historical market returns without adjusting for dividends. Because over time, the dividends make up the vast majority of the returns and it's not that difficult to adjust for them. And when they don't doing it, they're doing such a disservice, particularly like one stat that is All over the place is that after the crash in 1929, the market did not exceed its previous high until 1956, which is true if you don't include dividends. If you do include dividends, the right answer is 1936. You're in a different lifetime. So that's always a pet peeve of mine.

• 1:00:39Ted Seides?

  What's your biggest mistake you've made and what did you learn from it?

• 1:00:43Speaker 01

  I don't know if this was a mistake because it ended up working out well, but something that was just, I look back and it's like I was, I was misguided then in a way I've tried to learn from is like, I wanted to go into investment banking like we were talking about because I wanted to get rich and powerful. That was it. I was not interested in deal making. I wasn't interested in like actually like modeling. I wanted a big paycheck. I wanted a house in the Hamptons. I wanted a Bentley. That's why I wanted to do it. And look, I was 19. I don't fault myself for that, but it's so the opposite of how I think about these things today. So I don't, I don't regret that, but I look back at that as just, man, that was a dumb thing.

• 1:01:17Ted Seides?

  What teaching from your parents has most stayed with you?

• 1:01:20Speaker 01

  You know, talking about my lack of high school upbringing, my parents are both educated. They value education, but never once during my teenage years, did they sit me down and say, hey, you should think about college. You should go to college and here's important and here's how you apply and we got to study for your SATs. Never, never, never, never came up once. And it wasn't because they didn't value college or didn't think I should go to college. It was the opposite. It was they valued college so much and they knew it was so important that they knew I was only going to maximize it if I went on my own terms. So they never pushed me. I think they intuitively thought, look, he's going to go. He'll go someday. He'll go when he's ready. He'll go when he wants to. And when he, because he's going to go when he wants to, he's going to take it more seriously.

• 1:02:02Speaker 01

  They did the same thing for my brother and sister. I thought that was such a good thing for them to do. And I don't blame the parents who, when their children are 15, who say, hey, we got to start taking SAT prep courses and do that. I got nothing against that, but my parents did the opposite approach and I think it worked out really well for myself and my siblings.

• 1:02:19Ted Seides?

  All right, Morgan, last one. What life lesson have you learned that you wish you knew a lot earlier in life?

• 1:02:24Speaker 01

  I wish I could go back and tell myself that things are going to be fine. Doesn't mean it's going to be easy, doesn't mean there's not going to be problems. It doesn't mean there's not going to be terrible years that I go through and problems, but it's going to be fine. Everything's going to be fine. And a lot of times in my life, when I was so worried about something happening, if this happens, that's terrible. And then that happened. Like I was right to worry. That did happen, but you get over it. Everything's fine. And look, some people turn out not fine. It's like, knock on wood, it's all worked out. But I just look back at how much I've worried throughout life and realize like, has any of it mattered? Was any of it necessary? I spent so much time worrying, so many sleepless nights, like, why? Everything's fine. That's what I wish I could tell myself, is that everything's fine.

• 1:03:05Ted Seides?

  All right, Morgan, well, thanks so much for doing this. Good luck. I'm really excited to see what happens with the rollout of the book.

• 1:03:10Speaker 01

  Thanks, Ted. This has been fun.

• 1:03:13Ted Seides?

  Thanks for listening to the show. To learn more, hop on our website at capitalallocators.com, where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more. Have a good one and see you next time.

• 1:03:36Speaker 03

  All opinions expressed by Ted and podcast guests are solely their own opinions and do not reflect the opinion of Capital Allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Capital Allocators or podcast guests may maintain positions in securities discussed on this podcast.