This Will Keep You Broke | Impact Theory Podcast | Morgan Housel | Podcast Summary | The Pod Slice
In this discussion between Tom Biyleu and bestselling author Morgan Housel, they explore the fundamental concepts of creating wealth. Morgan emphasizes that making money is not directly correlated to intelligence, but rather avoiding common financial mistakes. Viewers are urged to figure out their personal goals, risk tolerance, and determine what exactly it is they want to achieve with their finances.
A major issue addressed is the general advice provided by financial content. Morgan questions the validity of blanket advice given online or on television, as it disregards the specific needs of individuals at different ages and stages in life. Also, disagreements in financial methods are often subjective and based on the specific objectives and timeframes set by the individual investor.
Morgan goes onto breakdown the concept of compounding, stating that a lot of wealth comes from compounding interest. However, its mathematical complexity often confounds people. He explains it through Warren Buffett’s wealth accumulation, stating that 99% of his wealth was accumulated after his 60th birthday. This demonstrates that financial success doesn’t always come from strategic investment alone, but also from maintaining a disciplined approach to investing over a long span of time.
The phenomenon of individuals relentlessly pursuing quick financial gains is explored. They note that focusing on getting rich as fast as possible often results in unsuccessful outcomes. Conversely, sustaining average returns for an extended period can yield significant wealth. Additionally, Morgan stresses that sticking to a plan of spending less than your earnings, saving the difference, and exercising patience, are the key factors in successful wealth creation.
An interesting aspect discussed is the societal pressures that compel people to continually expand their wealth through excessive spending, thus preventing the accumulation of wealth. Drawing attention toward peoples’ desires for independence and autonomy, Morgan illustrates that wealth is the portion of your income that remains unspent. To achieve this goal, individuals are advised to focus on generating a net worth that allows them to live independently, free from external pressures and obligations.
In the end, while the goal of achieving financial independence may seem simple, different individuals may have divergent objectives based on their circumstances and society’s influence. Recognizing these unique objectives can help in formulating viable financial strategies.
In the dialogue, Tom Biyleu and Morgan Housel continue their discourse on wealth creation. They contemplate the paradox between the simplicity of financial success principles and human reluctance to comprehend and implement those. Housel argues that the high influx of fabricated, picture-perfect lifestyles on social media fosters a culture of envy and creates unrealistic expectations, leading to reckless financial habits.
Housel cites Charlie Munger’s reflection that some people either get financial acumen instantly or never at all. However, Biyleu refutes this, attributing it to factors like a lack of discipline and the predominance of destructive thought patterns. They both conclude that a large percentage of people who fail to generate wealth is owing to bad advice or falling prey to guiding incentives that lead them away from optimal financial behavior.
The conversation takes an interesting turn as they address the manipulative practices in the industries. They discuss how companies, especially in finance and food, often prioritize profits over societal well-being, encouraging poor financial and dietary habits. They reference a quote from a Russian poet about how external conditions can transform anyone into a monster, potentially hinting at how adverse circumstances or manipulative tactics by businesses can lead individuals to make suboptimal choices.
Drawing on personal experience, Biyleu notes how he consciously compromised potential millions when he prioritized nutritional value over addictive taste in his food business. He admits there might be stubborn individuals in the food industry who prioritize profit over health, projecting a grim reality where commercial self-interest might sideline the societal good.
They underline the idea that some individuals may not value six-pack abs enough to work for them or conceptualize that consistent calorie deficit naturally leads to a leaner body. Similarly, some people may not value wealth enough to implement the simple principle: spend less than you earn, save, and invest the difference consistently over time. This lack of discipline, clarity of goals, or falling into the trap of bad habits or deceptive marketing seemingly prevents most people from achieving their desired financial or health status.
Tom Biyleu and Morgan Housel discuss in-depth about the mindset that has driven them towards financial success. They caution us that it is naive to believe that achieving one’s dreams and goals is an easy process. Rather, we constantly need to overcome the obstacles within ourselves, our circumstances, and societal expectations.
Bilyeu shares personal experiences where he was being underestimated by closest people in his life, even when he was on the right trajectory. His father-in-law initially did not support his decision to marry his daughter based on Bilyeu’s uncertain financial stability. However, Bilyeu utilized these rejections as motivators for his growth, proving that it’s the mindset and our perception of experiences that ultimately shapes our destiny.
There’s an elaboration on the paradoxical nature of entrepreneurship, stating that those that are successful lie within a precarious balance of confidence and uncertainty. Biyleu mentions entrepreneur Patrick O’Shaughnessy’s theory, suggesting that the essence of a successful entrepreneur lies on the attribute of being “tortured.” They are characterized by a relentless dissatisfaction with their present status and a commitment to their lofty ambitions, despite the discomfort and hardship that comes along.
Housel and Bilyeu highlight the importance of psychological resilience. They note that it isn’t just about knowing what to do, but also battling against the distractions and hurdles that could potentially derail one’s journey towards success, a critical point that is often overlooked. They reason that it is not the lack of principles but the failure to implement them effectively due to the complexities of human behaviour and society that leads to financial downfall for most individuals.
They end with a cautionary note against the notion of entitlement and the dangers of comfort, as seen in the example of spoiled children. The key takeaway being that privilege can sometimes inhibit growth, while adversity often provokes it.
In their discussion, Bilyeu and Housel focus on the role of self-control in success, an aspect often underestimated. Housel cites a case study of weight loss drug, OIC, which showed that controlling certain hormones in the pancreas can lead to breaking addictions like smoking and alcoholism. This discussion highlights the nature versus nurture debate in determining an individual’s self-control.
Bilyeu’s strategy of investing, drawn from his personal experiences, reflects a high level of self-control, a trait that Housel finds to be unusual. However, Bilyeu believes it’s more about applying the principle of nature versus nurture to unique personal circumstances. The duo concedes that everyone has inherent personality traits but agrees that most of us probably haven’t fully leveraged our potential for behavioral change or malleability.
They delve into the paradoxes that Bilyeu has faced, particularly around anxiety, which has seemed resistant to his efforts of self-control. Here, Bilyeu brings attention to the fact that it’s often the unseen psychological battles that pose the biggest hurdles. He believes that people tend to underestimate the efforts put into maintaining an emotional balance, and their perception is mostly skewed by a person’s outer appearance of stability and control.
The malleability of human behavior came next in the conversation, where they touch upon the controversial theory presented by Robert Sapolsky, a noted psychologist, who proposed in his new book that humans don’t possess free will, that actions and beliefs are dictated by our DNA and experiences. However, Bilyeu and Housel diverge on the interpretation and extent to which they agree with this theory. Bilyeu suggests the reframing of “free will” as “free won,” implying that people have some degree of control over their actions not necessarily absolute freedom to act in any way they wish. This adds another intriguing perspective to the debate on human behavior and success.
In this progression of the conversation, the duo shifts their focus to the concept of fate and free will and questions whether our paths are preordained or if we have any degree of control over them. Bilyeu suggests a reframing of the term “free will” to “free want”, highlighting the concept of people having some level of control over their desires, decisions, and actions, even if absolute freedom to act in any way is not attainable.
This conversation continues towards the subject of financial stability and investment, providing valuable insights about managing finances. Bilyeu emphasizes the necessity of having enough saved to be financially comfortable for six months to a year. Both of the interlocutors agreed on the importance of having a financial cushion. However, in discussing ways to achieve this, they highlight the role of luck and timing, especially when capitalizing on opportunities, as was in the case of Housel’s valet job.
The duo admitted that while they can narrate the explicit steps they took to achieve financial success, replicating their experiences may not yield the same results due to the specificity of circumstances, the influence of timing, and external variables that played substantial roles in their successes. Despite acknowledging the role of luck and timing, they maintained that adhering to principles such as diligence, hard work, and decisiveness in decision-making is critical to success.
Bilyeu shares his experiences of establishing ‘Quest University’ and teaching employees valuable skills. He mentions that even though only a small percentage (which Bilyeu termed as 2%) maximized the opportunity and brought about change in their lives, the critical takeaway was the power of mindset. In terms of resources and circumstances, while it would be significantly harder for people borne to poverty to achieve certain financial goals, he emphasized that mindset plays a crucial role in catalyzing change.
Another point of discussion was certain requirements besides mindset for financial success. Some were inherent, like intellectual horsepower, but their conversation highlights the power of consistency and dedication. Despite differing circumstances, both agreed that maintaining an exceptional work ethic would potentially yield recognition and increase as it can bring value to others, particularly employers.
The dialogue also brought to light certain harsh realities faced by individuals from lower socio-economic backgrounds, with their entrapment in the cycle of poverty. Bilyeu discussed the transformative potential of empowerment through education, although he accepted that it might not be a foolproof formula for drastic change. The conversation provides a blueprint for financial stability, considering one’s circumstances, optimizing opportunities, and leveraging personal strengths. Bilyeu restates his belief in the power of mindset, stating that even if one can’t control every factor in life, having a specific mindset could significantly improve their ability to steer their life in a desired direction.
As the discussion continues, Bilyeu and Housel delve deeper into the impact of trauma on mindset and behavior, shedding light on some profound truths about human nature. They examine instances when intense stress might rewire the individual’s brain and alter their characteristics profoundly – a phenomenon likened to that experienced by Pavlov’s dogs during a massive flood.
Essentially, they discuss that trauma and stress could alter one’s personality and mindset in ways unanticipated, even disrupting long-established practices or attitudes. For instance, war veterans who faced profound trauma during service often returned as entirely different individuals, with their brains fundamentally rewired by their experiences.
However, the pair also acknowledge the potential for traumatic experiences to catalyze positive change. Housel suggests that hitting rock bottom may, for some, be beneficial in the long term. This viewpoint echoes the idea that adversity often teaches valuable lessons, with post-trauma individuals being potentially wiser and more resilient.
Bilyeu and Housel also touch on an impactful quote from Albert Einstein: “The most important decision anybody will ever make is whether they live in a friendly or a hostile universe,” further expanding on the idea that our perception of the world can significantly influence our attitude and actions.
Examining the story of a Holocaust survivor in a book called ‘The Choice,’ they discuss how she chose to transform her traumatic experience into a catalyst for growth and helping others. This anecdote reiterates the previous point, emphasizing our ability to consciously choose our attitudes and reactions, regardless of circumstances.
The conversation strays into the realm of language acquisition and how it becomes significantly more challenging after a certain age. Housel shares various anecdotes highlighting this concept while linking it back to the broader theme of how age and experiences can influence our ability to change or acquire new traits or skills.
On the matter of COVID-19, they debate the potential learnings and positive outcomes from such a large-scale traumatic event. Housel argues that despite the pandemic’s globally traumatic impact, it has fundamentally increased everyone’s understanding of viral illness.
Finally, the pair navigate their conversation towards the concept of free will. Despite the challenges and difficulties that can occur, Bilyeu argues that possessing an optimistic and joy-filled response can significantly influence one’s outcome and attitude, emphasizing the power of maintaining an empowering mindset.
Diving deeper into the economic aspects of their conversation, Bilyeu and Housel discuss the implications of the current housing market conditions. They touch upon how unprecedented high home prices accompanied by an 8% mortgage rate create a challenging environment, especially for those buying their first home. Surprisingly, despite this shift in mortgage rates, home prices have not decreased as one might expect from economic logic.
Bringing into consideration the broader economic scenario, Housel argues that unemployment rates at present are impressively low, marking the lowest it’s been since the late 1990s. Availability of job opportunities is thus, a significant factor in propelling the current economy. Furthermore, the considerable stimulus dispersed during the COVID-19 pandemic has resulted in an excess of savings, which has substantially improved the financial condition of households, particularly those on lower incomes.
However, they also delve into the phenomenon of existing homeowners who capitalized on low mortgage rates due to buying in prior years or refinancing in 2021. For these individuals, being locked into 3% mortgages during a time of 8% raises every year is incredibly advantageous. This blend of various economic elements creates a complex landscape with both challenges and opportunities simultaneously.
The discussion proceeds towards an analysis of recent recession predictions, which Bilyeu acknowledges from his experience tied to advertising. However, Housel emphasizes that while the economy may be weaker than it was in 2021, this doesn’t necessarily signify it’s weak in absolute terms, highlighting 2021 as an anomaly. Meanwhile, they also recognize the influence of Apple’s alteration of the tracking feature, impacting the effectiveness of advertising.
Delving into the hypotheticals on a more personal level, the pair also explores various scenarios regarding personal sacrifices in dire situations. They contemplate situations such as those involving life-threatening circumstances for family members, events leading to wide-scale mortality, and the survival instinct’s nuances in different moments of crisis. These reflections further deepen the conversation, adding a profound layer of personal contemplation.
As the conversation continued on, investment strategies in light of unpredictable economic landscapes were discussed in detail by Bilyeu and Housel. Bilyeu posits the hypothesis that a looming debt crisis exists based on alarming metrics. Housel then elucidates on the financial instability hypothesis which was a concept advanced by economist Hyman Minsky in the 1960s. According to Minsky, optimism leads to debt, debt destabilizes the economy, and the destabilization leads to a recession. This inevitability of market crashes is something Bilyeu and Housel advise accepting, to be psychologically and financially prepared for them.
When queried on how to navigate these crashes, Housel advocates for at least two assumptions: expecting a minimum of two recessions per decade and one major financial downturn. His advice is to be prepared for these eventualities and not allow surprise or blame to deter from the fact these recessions are a natural part of the system. He suggests individuals should have enough cash, liquidity, and a margin of safety in their finances. Alongside this, the need to maintain a certain level of cash, although variable for different people, is reinforced. His own preference for a higher cash allocation is driven by a desire to provide for his family in uncertain times, demonstrating how subjective risk tolerance levels can be.
Given these insights, Housel proposes mechanising investment strategies, like dollar-cost averaging, to mitigate the influence of emotions on investing decisions. This way, individuals can invest a planned amount periodically, regardless of what’s happening in the economy. However, when investing, he advises focusing on long-term benefits rather than immediate returns. In terms of stock selection, Housel himself opts for broad-based index funds for simplicity and endurance. Lastly, he underscores the value of ‘good enough’ as a benchmark for financial success. Whether in terms of returns, cash buffers, or risk tolerances, knowing one’s limit and adhering to it could be a successful strategy for a stable financial future.
Bilyeu and Housel then delve deeper into the psychological underpinnings within the pursuit of wealth. Housel cites the well-known John D. Rockefeller quote to illustrate his viewpoint, stating that people, regardless of their current wealth, invariably desire more than what they currently hold. Ambition and contentment, however, need not be mutually exclusive. In Housel’s perspective, vigilantly managing personal expectations alongside improving circumstances is key to gaining happiness with wealth.
Housel acknowledges that balancing contentment with ambition can be challenging. For him, he finds joy in simple life activities such as walking, hiking, reading, and podcast listening—pleasures that don’t require a significant financial input. What he cherishes most is the freedom and independence wealth can provide, a sentiment held by many successful entrepreneurs.
He goes on to discuss the FIRE (Financial Independence, Retire Early) movement, which encourages extreme savings and investment to achieve early retirement. While he acknowledges retirement can be initially enjoyable, he suggests that prolonged inactivity can lead to boredom or even depression. The desire to contribute and be productive remains strong for many people, emphasising the value of work even after financial independence.
Housel points to Mr. Money Mustache (Pete Adeney), a figurehead of the FIRE movement, as an example of someone who achieved the freedom to work on his own terms as against strict retirement. Adeney continues to engage in productive activities like starting businesses post-retirement because he finds it rewarding, suggesting that financial independence should complement meaningful work rather than replace it.
As the conversation turns towards the economy, the discussion focuses on the risks associated with debt. Housel downplays the fear, arguing that while there are always macroeconomic risks, they are not significantly more severe than those that have been present throughout history. He brings up the 2006-2007 period, a time of economic prosperity, which, retrospectively, was one of the most dangerous periods for the economy.
Despite the potential for economic calamities, Housel displays optimism in our ability to survive, adapt, and eventually thrive. Citing historical instances of fast economic recovery after catastrophes, such as World War II, he underscores the resilience and adaptability of global economies. Thus, while acknowledging the potential future economic disasters, Housel remains confident in our capacity to weather these storms and achieve even higher levels of prosperity.
The narrative then shifts as Bilyeu explores an aspect of Ray Dalio’s theory on the debt cycle. Dalio has mapped out the predictable nature of humans, which has significant implications for the economy, in six stages. Financial stability can foster instability as people engage in heavy borrowing that is inevitably unsustainable. This can lead to debt restructuring often instigated through war. Dalio suggests we are currently on the precipice of the sixth and final stage of a complete financial and martial meltdown.
Bilyeu paints a picture of a global landscape with America laden with debt and engaged in proxy wars, while other powers, like China, rise. These volatile conditions could create an opportune time for powers like China to make strategic international plays. However, hindsight provides numerous examples of shifting global dynamics that defy predictions, such as Japan’s rise in the late twentieth century and the earlier decline of the United Kingdom as a global superpower.
While recognizing these shifts of power and potential crisis, Housel cautions against absolute certainty in any forecast. He cites historical examples where predictions seemed logical but were upended by unforeseen events. These reflections remind us of the inherently unpredictable nature of global affairs, despite human attempts to construct logical narratives.
The discourse on risk and predictions highlights the appeal of pessimistic narratives, which provide a seemingly tangible roadmap allowing people to plan and eliminate uncertainty. Housel, however, accentuates that this can be a futile exercise. He underscores that most historical events, like terrorist attacks or worldwide economic crashes, seemed ridiculous and impossible beforehand.
Housel emphasizes the crucial difference between expecting chaos, which is a universal constant, and anticipating a specific disaster, which is impossible. Using the example of unexpected global crises like the Israel-Hamas conflict and the Covid-19 pandemic, he presents the inherent unpredictability of our world.
Bilyeu and Housel agree that while certain behaviors tied to human misunderstanding, greed, fear, and risk will always be present, specific outcomes are impossible to foresee accurately. However, being prepared for the fact that things can and will change, often in unexpected ways, is prudent. This acknowledgement of potential change is different from predicting specific outcomes. The conversation focusses on human adaptability in times of crisis and the resilience of economies in the face of financial ebbs and flows, economic disasters, and shifts in global power. They also highlight the underlying human behaviors that can create or exacerbate these situations.
Despite the conversation’s pivots and winding roads, the subject-matter is rooted in what it means to navigate our unpredictable world. Bilhyeu and Housel concur on two constants that are always going to influence our lives: health and money. Even those disinterested in these subjects are nonetheless impacted by them. Their discourse highlights the absurdity of these critical topics being continuously sidelined in traditional education. As Housel points out, the present system is more invested in drilling trigonometry rather than instilling an understanding of health and money, which constitute the very fabric of our daily lives.
Expounding further, Housel discusses how significant, life-altering decisions like marriage aren’t provided any framework within formal education. This gap lies in the complex, multifaceted nature of such decisions, where unlike trigonometry, there exists no clear formula to guide our choices. Bilhyeu, however, presents a counterpoint, outlining his belief in certain directional principles capable of optimizing decisions. Despite each circumstance’s unique elements, he argues that some guiding principles exist. These include finding a partner with aligned values but diverse perspectives and ensuring a reciprocal relationship of support and elevation.
This discussion ties back to their larger conversation around the inherent unpredictability of our world and the caution against over-reliance on projections and forecasts.
Bilyeu introduces his vision for ‘Impact Theory University’, an alternate model of education that would comprise global teachers exceptionally skilled in their respective fields. This model addresses the difficulty of finding experts in real-world topics like health, money, and relationships for traditional school setups. Instead of a choreographed curriculum with one-size-fits-all solutions, Impact Theory University would draw on these experts’ nuanced understanding. Housel echoes this sentiment, underlining the critical role of nuanced learning in navigating our intricate world.
In the context of success, the dialogue circles back to the concept of what Housel calls ‘wild minds’. Successful individuals, lauded for their unique and brilliant thinking, often exhibit erratic traits that may be offputting or controversial, such as Elon Musk’s online persona versus his skills as an engineer. Housel suggests that you can’t separate these aspects. The characteristics that propel someone to incredible success often come packaged with extreme risk-taking or unconventional personal views.
The exchange between Bilhyeu and Housel unearths an interesting debate stirring around the pursuit of success. Both agree that one cannot selectively adopt the desirable traits of accomplished individuals without embracing their unfavorable attributes. As Housel articulates, wanting to emulate Warren Buffet’s exceptional focus would require accepting his often overlooked disregard for family time.
Bilhyeu extends this dialogue to influencers and their representation of success, where he appreciates the hustle but acknowledges the possible downsides. If one relentlessly pursues their ambitions while neglecting personal relationships, the outcome may fall short of satisfying. Drawing a line between aspirations and reality, both agree that wishing to be someone else can lead to disappointment and frustration.
The conversation transitions into discussions of wealth and self-fulfillment. Drawing from personal experience, Bilhyeu shares that owning a fancy home doesn’t improve his self-esteem or instill a sense of coolness. What it does, however, is satisfy his aesthetic tendencies, likening his residence to a piece of art that he can appreciate every day. Similarly, his in-house movie theater immensely contributes to his happiness, largely because of his affinity for films. Here, Housel and Bilhyeu strike upon a significant realization – the value of small, more subjective elements in shaping one’s satisfaction and contentment.
On a political note, Housel illuminates the habitual labeling of every election as ‘the most important’. He rejects the notion that politics become nastier with each passing phase, asserting that such claims are generally overblown. Yes, individual leaders can catalyze significant societal changes, as in the Adolf Hitler example, but one must also remember the facilitating circumstances. Economic upheaval, social disparities, and other contributing conditions enable drastic shifts in power and ideology. However, perpetuating the demonization of differing political opinions fosters further divisions and may thrust society down a dangerous path, dehumanizing others and fueling the ‘us versus them’ narrative. This concern is part of a broader caution about collective consciousness and our human capacity to ‘break bad.’
Dwelling on the individual level, they agree that personal bias, coupled with an obsession for always being right, can blind us to opposing viewpoints and potentially valuable discourses. An awareness of our potential to veer towards negative extremes serves as a crucial reminder to keep ourselves in check. Maintaining a balance between conviction and humility, as well as seeking disconfirming evidence to our views with tenacity, is beneficial in business and personal growth.
In short, this segment explores significant themes, including the pursuit of success and its costs, the role of personal satisfaction and small elements in one’s happiness, the political landscape’s interpreted intensity, and the importance of self-reflection and self-awareness in personal development.
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