Rules of the Money Game

AI Summary

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Here is a summary of the podcast in 30 points:

Introduction

• The host introduces the concept of “The Rules of the Money Game” and explains that he’s created a list of 30 rules to help listeners navigate personal finance.

Rules of the Money Game

1. Expectations vs. Reality: Be aware that your expectations may not align with reality, and be prepared for surprises.
2. Risk and Luck: Recognize that risk and luck are fundamentally the same thing, and both can impact outcomes.
3. Independence is Key: Value independence and autonomy over material possessions.
4. Don’t Show Off: Building wealth should be about control and freedom, not showing off to others.

Common Financial Mistakes

5. Optimism vs. Pessimism: Understand that optimism and pessimism are both valuable, but pessimism can help you prepare for the unexpected.
6. FOMO (Fear of Missing Out): Recognize that FOMO can be a recipe for disaster, and prioritize your own goals over others’ success.

Investing

7. Different Time Horizons: Acknowledge that different people have different time horizons and risk tolerances.
8. Avoid Overthinking: Don’t overthink your investments; instead, focus on long-term growth.
9. No FOMO: Be immune to the temptation of others’ success.

Personal Finance

10. Expectations vs. Income: Grow both your income and net worth to achieve financial stability.
11. Keep Expectations in Check: Don’t let your expectations grow faster than your income.
12. Don’t Panic: Avoid making impulsive decisions during market downturns.

Tribes and Biases

13. Be Aware of Your Tribe: Recognize the influence of your tribe on your thinking and try to stay objective.
14. Avoid Bad Habits: Be mindful of your own biases and avoid repeating bad financial habits.

Investing Strategies

15. Don’t Overthink: Avoid overcomplicating investment strategies.
16. Simple is Better: Prioritize simplicity in your investments.
17. Understand Your Biases: Recognize your own biases and try to overcome them.

Family and Kids

18. Teach Kids about Scarcity: Help kids understand the value of money by teaching them about scarcity.
19. Be Mindful of Emotions: Avoid letting emotions override financial decisions.

Behavioral Finance

20. Embracing Flaws: Accept your flaws and build a financial plan around them, rather than trying to change yourself.
21. Intelligence is Not Enough: Recognize that intelligence alone is not enough for financial success; behavioral skills are key.
22. Comedians are Good Thought Leaders: Understand how comedians can provide valuable insights without being preachy.

Conclusion

23. Luck and Nicerness: The luckier you are, the nicer you should be to others.
24. Prioritize Humility: Prioritize humility and a growth mindset in your financial decisions.
25. Don’t Panic: Avoid panicking during market downturns.
26. Focus on Long-term Growth: Prioritize long-term growth over short-term gains.
27. Be Patient: Be patient and avoid making impulsive decisions.
28. Avoid Overthinking: Don’t overthink your investments; focus on long-term growth.
29. Understand Your Biases: Recognize your own biases and try to overcome them.

Final Rule

30. The Luckier You Are, the Nicer You Should Be: Prioritize kindness and humility in your financial decisions.

AI Transcription

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Hey everyone, welcome back.

We made it to a third episode.

I didn’t think we would really get this far, but I’ve been having a good time doing this.

This has been a lot of fun.

So thank you for listening.

I hope to do some more of these.

I still don’t know how long it’s going to last, but this has been a lot of fun.

What I want to talk about today is what I call the Rules of the Money Game.

I’ll tell you kind of where I got this idea.

Jason’s Wig, who is someone I have really looked up to and admired for my entire career.

He’s a columnist at the Wall Street Journal and who I think is kind of the greatest financial journalists of our time.

He’s really just an absolutely wonderful person, a very smart person.

He wrote this thing several years ago that his job as a financial columnist is to write the same thing 50 times per year without anyone realizing that he is repeating himself.

The reason, as he explained, was because there’s only like 10 things worth talking about in investing.

You know, compound interest, diversification.

There’s not that many topics to cover, but the topics are very, very important and they’re also very complex.

There’s a lot of nuance in those.

So if you can explain the same topics 50 different ways, number one, you’re not pandering to people by just making up something to talk about this week.

And number two, I think you’re actually getting like really close to the truth of what matters in what needs to be reiterated and driven home.

There’s an author named John Reed who wrote this book called succeeding.

And in the book, he has this quote that I think is so, so good.

He writes that quote, when you first study a field, it seems like you have to memorize a zillion different things.

You don’t.

What you need to identify are the three to five core principles that govern a field.

The million things you thought you had to memorize are just various combinations of those core principles.

That I think is so important in so many fields of health, relationships, your career, anything, but it’s so true in money too.

And I’ve really noticed that in my 15 years as a financial writer, similar to Jason, I’ve probably covered like 10 or 20 topics.

And everything I’ve written is hopefully just some variation, some little tweak on those same topics.

So what I want to do with you today on this podcast is I came up with 30 of what I think are the rules of the money game that are so important to doing well with your money over time.

Okay, let’s jump right into this.

Number one, it can happen to you.

There is a comforting delusion when people think about money, where it is so common to think that other people’s bad circumstances that you witness could not have also happened to you or might happen to you in the future.

I’m talking about things like job loss, divorce, a string of disastrous investments, succumbing to your emotional flaws, being a victim of fraud, getting hit by a risk that you didn’t see coming.

All of these things to people who are in good financial shape, these things tend to be viewed as things that happen to other people.

But they can happen to you and given enough time, at least one of them almost certainly will.

Of course, some people are more susceptible to than others, but nobody is exempt from being humbled in life.

And I’ll tell you what this really comes from.

Behavioral finance is a process of reading about yourself, but so many people think they are reading about other people.

When you read about the biases and the flaws and the weird quirks of people’s thinking about how they think about risk and greed and fear and how they go wrong in those endeavors, it is so easy and common.

When you learn about these things to think that you are reading about other people, but nine times out of ten, you are reading about the person in the mirror.

And this of course has a huge impact on how we think about risk management in life.

Shade and Freud, the German word that is like taking pleasure in others misfortune, is such a terrible trait for this reason.

And not because it’s just a jerk thing to do to take pleasure in other people’s misfortune and their suffering and their financial mishaps, it’s a terrible thing just because almost by definition, it signals denial about the risks that you yourself face in the future and will be hit by in the future.

There’s a long-standing joke you’ve probably heard that the definition of a recession is when your neighbor loses their job and a depression is when you lose yours.

People would say that joke for decades, but I think that just highlights this idea that so many people think that risk in the economy and with their finances is just what happens to other people.

Mark Dow, a great investor who I follow on Twitter, he had this tweet this week and he’s commenting on the Silicon Valley bank drama in plosion that we have witnessed this week.

And he says, quote, the worst people, the absolute worst people are those who only think about fairness after unfairness happens to them.

Same idea here, when you see something unfair happening in the world, when you see someone suffering making a mistake with their money, the lesson from that is not to look at them and say, wow, look at the mistake that person made.

It’s to realize that that person almost certainly has very similar views and mindset and personality and behavioral flaws that you do as well.

One takeaway from this that I found important is the idea of reading fewer forecasts, but reading more history.

The reason that is is because most forecasts tend to be what people want to happen.

Most forecasts tend to be this is going to be okay, I’m going to be okay, my investments are going to go up a lot.

It’s things that people wish to have happened, but if you read history, you realize it’s so much what history is.

Are there people being hit by surprise?

Things they didn’t see coming.

Did they say never imagined?

That is what drives so much of history.

So reading more of that and fewer of the forecasts tend to be what we want to have happened.

To me is one of the only anecdotes to this.

Number two, I value independence more than anything else out of money.

Money is greatest intrinsic value in my view is the ability to give you control over your time.

It’s not necessarily to buy nicer things, although there is that, of course, and I wanted to finish that.

But the biggest benefit that money provides most people is just a sense of independence and autonomy and doing what you want when you want with whom you want for as long as you want.

That is the most incredible thing that money offers that so often goes overlooked in a world where money just equals more stuff.

If you can use your money and your savings and your accumulated wealth to control your time, control your calendar, just to be able to wake up every morning and do what you want on your terms.

Buy your bosses terms, not your creditors terms, not your bankers terms, just what you want to do.

That I think for the huge majority of people will give you an enduring and lasting level of happiness or just a better life than anything material that you can buy.

One way of viewing this that I’ve thought about is view that every additional dollar that you save is a little bit of is a piece of your future that you now own and you now control.

Even on the flip side, every dollar of debt that you have is a piece of your future that somebody else owns.

And that independence I think is what actually makes people happy in life.

Or at least it’s a big part of it that tends to go overlooked.

Because everybody knows that the nice car, the nice house, the nice clothes, it’s not that those things don’t make you happy.

That’s not my belief because a lot of those things do and they’re great and I like them too.

But you tend to get used to those things and everybody knows that even if they are still attractive to that.

But independence and autonomy and just waking up and being able to do what you want.

That is something that I think you will never get used to so to speak that they will always give you a permanent and enduring level of happiness.

Any assets ability to let you do what you want when you want with whom you want has an ROI that cannot be found on a spreadsheet and is so powerful and easy to overlook.

Okay.

Number three.

Building money to show people how much money you have is the fastest way to have less money.

The only way to build wealth.

Especially for people listening to those who buy and large have an above average income, the only way to build wealth is to have a gap between your ego and your income.

Now I understand if you are younger and you are trying to put out a message to the world about who you are and show the world who you are and put up your peacock feathers, that can kind of understand as you get older in life, your ability to generate wealth and accumulate wealth is almost entirely dependent on your ability to suppress your ego and not use the money that you have to show off or show people how much money you have but to use it for your own independence and autonomy.

One way I’ve thought about this, it’s been really practical in my own life and helpful in my own life is just remember that nobody is thinking about you as much as you are.

Nobody is paying attention to you as much as you are.

Nobody is as impressed with your stuff as much as you are.

I think that is buy and large true and if you take that to heart and if you believe that, that is the easiest way to suppress your ego in a way that does not impact your happiness in life.

It’s not you’re not depriving yourself of anything.

Once you get rid of the idea that no one is paying attention to you, you desire to show off diminishes substantially.

What’s up, Evan?

Number four, there is an optimal amount of bullshit in life.

This I think is so important and easy to ignore that so many people strive to live perfectly efficient lives where there is nothing in their way, they have no hassles, they have no hurdles to overcome.

It’s completely fictitious, nobody has that and I think there is an optimal level of bullshit to accept as an unavoidable part of life that once you accept it, you are just have a much more realistic view of the world.

There is this great little story that I like about Franklin Roosevelt, the former US president who of course was paralyzed in a wheelchair and he said one time he said, look, when you are crippled and in a wheelchair, if you ask for milk and somebody brings you orange juice, you learn how to say, well, okay, that’s just fine and move on with it and accept it.

That I think is a really important treat like accepting a level of hassle and nonsense when it’s just an inevitable part of life.

I experienced this thing, this was maybe five or ten years ago when I was on a flight and there was a CEO on my flight.

I know that because he let everybody know in the boarding area that he was a CEO, he was literally wearing a pinstripe soup so you can picture what this guy looks like and our plane had to change gates.

Kind of a hassle, kind of a pain, but it happens and he lost his mind.

He was so angry, he was dropping, f-bombs at the gate agent and I’m just sitting there watching and thinking, how could you have possibly made it this far in life without the ability to put up with and handle petty annoyances?

I think the answer to that question, I think there is an answer to that question.

The answer is he probably lives in a life of denial, thinking that he can control things that he actually can’t and the people who are around him in his job are probably not bringing and exposing him to a lot of the problems in the company because they know that’s how he’s going to react.

There just the idea that there is a certain level of hassle and nonsense that you have to accept is so important.

It’s not very intuitive because look, if you own a grocery store, shoplifting is a big problem.

It is at every grocery store.

But now you could bring shoplifting down to zero.

You could guarantee it’s zero if you strip search every person who shopped at your store.

But then of course nobody would shop at that store anymore.

So therefore the optimal level of shoplifting is not zero.

There is an optimal level that you just accept and put up with and work into your budget as just a fact of life.

Having no tolerance for hassle or nonsense or inefficiency is not an admirable trait.

It’s just denying reality.

And once you accept a certain level of bullshit in the world, you stop denying its existence and you have a clearer view of how the real world actually works.

Okay, number five.

And this one is related to number four.

And by the way, these are as vulgar as I get in this podcast.

I promise you that.

Few things are as valuable in the modern world as a good bullshit detector.

That I think no matter what your field is, what your career is, what you’re doing in life, there is so much of what happens in the world is sales and people putting on a face and people performing for one another and trying to get your attention that if you do not have a good bullshit detector, you are going to have a very difficult time in life.

A lot of this BS by the way comes from good, well-meaning, well-intentioned, innocent people who are in a situation where they have poor incentives.

Because look, if you asked me if you said, how many people are truly evil in the world?

I would say I don’t know.

One percent, five percent, I’m making that up, and that seems about right.

But if I said, what percentage of people are willing to do something evil because they have bad incentives?

I would say, oh, I’m 50 percent, 75 percent.

And so once you accept that, you realize how important it is to have your BS alarm detector go off, particularly in things like financial services when there are so many good, well-intentioned people out there who can make an ungodly amount of money if they sell you the right product or tell you what you want to hear.

If you don’t have a good antenna for those kind of things, it’s going to be very difficult to get ahead financially in this world.

Okay, number six.

A lot of financial debates are just people with different time horizons talking over each other.

So many investors play different games.

The everything from day trading penny stocks to endowments that are investing for the next century and everything in between.

And we should never pretend that everyone in that spectrum is playing the same game by the same rules with the same goals with the same risk tolerances they are so obviously not.

The stock market, I think, is rational.

But investors play different games.

And those games look irrational to people who are playing a different game.

That I think once you understand it, you really start only paying attention to the news and the information and the people who are playing a similar game to you.

But so often that’s not the case.

I think that most of the time when people debate about finance of should you buy the stock?

How much money should you save?

How should you spend your money?

They’re not actually debating.

They’re not actually disagreeing with one another.

It’s people with a different time horizon or a different risk tolerance or just a different view of the world talking over each other.

Everybody in investing in finance is making a bet on an unknown future.

It’s only called speculation when you disagree with somebody else’s bet.

When you are playing a different game than they are but you don’t even realize it.

I heard this great story years ago.

It was this dad played a game every week with his son.

This son was a child and the dad said here’s a dime and here’s a nickel.

Pick one.

You can keep one of these.

And the son took the nickel every single time.

And his older brother said you’re crazy.

A dime is worth more than a nickel.

Why do you keep taking the nickel if he’s offering you the…

If he’s offering you a dime?

And the son said because if I pick the dime, dad would stop playing this game with me.

And I thought that was such a great little story because it just highlights that some people who do things that look inefficient or look like they are not doing the right thing, look like they are leaving money on the table are actually just playing a different game than you are.

Okay, number seven.

You cannot believe in risk without also believing in luck because they are fundamentally the same thing just in the opposite direction.

Both of them luck and risk are just an acknowledgement that things outside of your control can have a bigger impact on outcomes than anything you do on your own.

So many people in investing spend all of their day.

They are so aware of the concept of risk.

Everything they do all day is risk, risk, risk, risk, risk, risk management.

You have risk adjusted returns.

You hire risk managers.

There is almost a complete ignorance though of luck.

Nobody talks about luck adjusted returns.

Nobody hires a luck manager.

But they are fundamentally the same thing and risk and luck I think impact the world, particularly financial markets in the same way.

Part of the reason I think this is is because if I were to say you got lucky, the success that you have, you just got lucky.

I look like a jerk.

I look like I am jealous.

I’m looking like I’m a little bitter.

So I don’t, and most people tend not to do that.

And if I were to look in the mirror and say that my success just came from luck, that’s pretty painful to accept for myself.

And so it is so easy to ignore luck when we are so cognizant of risk even when they are fundamentally the same thing.

And important to keep in mind here, risks greatest fuel in life are leverage, overconfidence, ego, and impatience.

So it tends to drive risk.

The greatest antidote to risk the getting rid of it is having options, humility, and other people’s trust.

Number eight, save like a pessimist and invest like an optimist.

Getting rich and staying rich are two completely different skills.

They are often contradictory skills that, but you need them in equal parts to do well over time.

It is so important to know the difference between rosy optimism and periods of chaos that tend to trend upward.

And the idea, if you are an optimist, like that’s great, like people should be an optimist, but optimism does not mean that you think everything is going to be great.

That is just complacency.

What I think real optimist is realistic optimism is this idea that things will work out in the long run, but the period between now and then is going to be a constant chain of chaos and misery and setback and recession and pandemic that you need to be able to survive and endure financially for your long-term optimism to actually pay off.

So that barbelled personality is so incredibly important, but it’s rare because those skills contradict each other.

Most people I’ve found are either optimists or pessimists.

They’re either full-blown, diarit optimists who get washed out when the economic cycle turns.

And one knows those people, everyone has seen those people, or they are full-blown pessimist, and they never believe in long-term optimism and they never take advantage of the progress and productivity that happens over time.

One thing that’s important here is that there is more to learn from people who have endured risk than those who have seemingly conquered it or avoided it, because the kind of skills that you need to endure risk are more likely repeatable and relevant to the future risks.

So if you can just avoid disaster and be patient, you don’t need to make many smart decisions to do well over time for your optimism to actually pay off.

If you can focus on survive that using half of your capital and your net worth to survive a continuous chain of surprises and setbacks and then the other half to stick around and do well and have endurance in your finances, that is so powerful.

Another way to think about this that is so critical and investing is that most investors want to answer the question, how can I earn higher returns?

It seems like the obvious question that you should want to answer, but that’s not actually the most important question that exists in investing.

By far the most important question is, what are the best returns that I can earn for the longest period of time?

What are the returns that I can earn for the next 10, 20, 30, 40 years?

By and large, those are not the highest returns that you might be able to earn in any given year, but if you can stick around and endure the ups and downs and the nonsense that’s going to take place between now and the long run, those are where the big returns occur over time.

Number 9.

Nothing too good or too bad lasts indefinitely.

When you are in the middle of a powerful economic trend, it is difficult to imagine a force strong enough to turn things the other way.

That’s true when things are going very good, it’s true when things are going very bad.

What we tend to miss is that what turns trends around usually isn’t some big outside force.

It’s when the subtle side effects of that trend itself erode what made it powerful to begin with.

So, let me give you an example.

When there are no recessions, people get confident.

When they get confident, they take risks.

And when they take risks, you get recessions.

The same force that caused the thing to keep going is what eventually turns it in the other direction.

Same in investing.

If the stock market never crashed, stocks would go up.

When stocks go up, valuations go up.

Valuations go up, markets are prone to crash.

It’s the lack of crashes that plants the seed of the next crash.

Whenever there is a crisis, by the way, people get motivated.

When they get motivated, they frantically try to solve problems and when they solve problems, crises tend to end.

So, the same thing works in reverse.

Sometimes, plant the seeds of their own destruction through complacency and leverage.

And bad times, plant the seeds of their turnaround through opportunity and panic driven problem-solving, we know that in hindsight, it’s almost always true.

Almost everywhere.

But we tend to only know it in hindsight because we are extrapolating machines.

And drawing straight lines when forecasting is easier than imagining how people might be able to adapt and change their behavior as the trend goes on.

Here’s another example that I love from nature.

When alcohol from fermentation grows, it reaches a certain point where it kills the yeast that made it in the first place.

So like when alcohol gets so potent, it tends to like reverse in the whole process collapses.

Most powerful economic trends, finance trends, and the exact same way.

And that kind of force is not intuitive.

The thing that made it strong is what’s going to actually kill it.

It really requires you to consider not just how a trend impacts people, but how that impact will change people’s behavior in a way that could end the trend all together.

Number nine.

Having no fomo might be the most important financial skill.

Being immune to the siren song of other people’s success, especially when that success is sudden and extreme and caused by factors outside of their control is so powerful and important that it’s practically impossible to do well financially without it over time.

When he was strategizing Dwight Eisenhower, the former president in general used to quote Napoleon and used to say, quote, a military genius is the man who can do the average thing when everyone else around him is losing his mind.

I think it’s the exact same thing with money.

And this is why having no fomo is so important.

You don’t need to be brilliant.

If you can just be average when everyone else is going crazy, that’s all you need to get ahead.

Fomo is, this is why it’s so dangerous.

Fomo is recklessness masked as ambition.

You see somebody else getting rich and you think, well, if they can do it, I could do it too.

And that feels like a good emotion.

It feels like you’re learning through observation and you’re following a data-driven path to success.

But what’s actually happening is that you are outsourcing your emotions to people whose quick windfall has probably left them in a fragile emotional state to begin with.

There’s this great quote that I love from Charlie Munger where he says, somebody will always be getting richer than you.

And that is not a tragedy.

Such a good, powerful quote that more of us should pay attention to, particularly in times like 2020 and 2021, when a lot of people around us were getting very rich very quickly.

If you remove Fomo from the equation, think about what’s left though.

You only care about your own goals.

You tend to avoid getting sucked into bubbles.

You tend to think long-term.

And you don’t really need much else than that to do well over time.

Okay, number 10.

If your expectations grow faster than your income, you will never be happy with your money.

No matter how much you accumulate, wealth is a two-part equation.

You need to grow your income, grow your net worth.

Everyone knows that part.

But then you need to keep your expectations in check relative to those numbers or else you are never going to be satisfied with what you have.

And it is so common in the financial services industry to spend all of your attention, a hundred percent of your attention, on the growing your wealth side of the equation.

That’s where all of the commentary and the money and the effort goes into, which is great.

That part makes sense.

But I think there’s almost a complete ignorance on the second half of the equation, which is keeping your expectations in check.

And we all know, we all have seen someone who got very wealthy, did very well in their careers, did very well with their investments.

But if their expectations rise by just as much, not only are they going to be unhappy with that success and unsatisfied with that success.

But what really happens here is if you are never satisfied with the money that you have, you tend to take more risk, more risk, work longer hours, longer hours in this chase, in this pursuit for something that has no end.

So they keep doing that, taking more risk, working more hours until it backfires on them.

It’s like if you have it, if you’re appetite for money is insatiable, it’s eventually going to catch up with you.

And there are criminal forms of this.

Bernie made off as a great example of someone who was very successful in his career before the fraud, but took every risk that he could to earn more money.

He started this fraud in a way that of course blew up on him, ruined his life, ruined his family’s life.

But the innocent version of this are the people who just have no appetite for more so they keep taking more risk, working more hours until they end up regretting it.

And it’s a tragic thing to watch.

And one thing that’s important here is that having some idea of enough money does not mean that you have no aspirations for more.

I want more money.

I want a higher net worth than a higher income.

Of course, everybody does.

The concept of enough just means that you realize and you pay attention to the idea that if your expectations are growing just as much or faster than your income, you will never be satisfied with what you have.

Number 11.

There is rarely more or less economic uncertainty.

There are just changes in how ignorant people are to potential risks.

This is something there are all these periods in the economy.

When you go through periods where people say, there’s so much uncertainty right now.

Hiding uncertainty, living in a time of uncertainty.

And their idea, they’re like, what is implicit in that, is that the amount of uncertainty about the future can be higher at one point than another.

But I think if you think this through, it’s really not the case.

There have been studies that try to track economic uncertainty and they look about things like policy change and how much people are talking about uncertainty in the newspaper.

And if you look at these studies, it tends to show that uncertainty bottomed as in certainty over the future peaked in two periods.

One is right before 9-11.

The other is in 2007, right before the financial crisis.

Which makes no sense at all.

Those were the periods when actually the future was as uncertain as it had ever been.

We were staring down these enormous societal risks.

We were just oblivious to it.

And look, on September 10th, 2001, the risk of a terrorist attack was enormous.

It was the highest it had ever been.

We were all just oblivious to it.

In on September 11th, the risk of terrorist attacks, not in Greece, we just suddenly became aware of a risk that we were previously oblivious to.

Asking what the biggest risk in the economy is, is like asking what you expect to be surprised about.

Because if you knew what the biggest risk was, you would do something about it.

And doing something about it makes it less risky.

So what your imagination cannot fathom is the dangerous stuff.

It’s why risk can never be mastered.

Risk by definition is what is left over when you think you’ve thought of everything.

Number 12.

An extreme adherence to an investing strategy is dangerous in a world that changes all the time.

I’ll tell you a little story that I think is underappreciated and more people should know this story.

Benjamin Graham’s great book, The Intelligent Investor.

It’s like the Bible of value investing.

Most of you have probably read it.

That book was updated.

I think it had four different editions.

And in every edition, Ben Graham changed the formulas that he would recommend people use.

So in one edition, he would say, you know, I’m making a sub by stocks on the trade for less than two times book value, whatever it would be.

And then in the next edition, he would change it.

He came up with a new formula.

Jason Zwagin, the Wall Street Journal, who’s kind of a Graham historian, he wrote one time that, look, of course Graham did that because the old formulas that worked suddenly became outdated and outmoded.

They didn’t work anymore.

So he came up with new formulas that did work.

Is it like there was a shelf life on what worked on the strategy that worked at that time?

And the crazy thing is that Benjamin Graham died in the 1970s.

So if he was updating his formulas every few years back in the 50s and 60s, imagine what he would think about today’s market that has changed so much since then.

Just drives home the point that having a dogmatic adherence to a single investing strategy that you never change can be so dangerous and difficult.

Number 13, there are few universally right answers in finance.

There are just lots of shades of gray that happen to work for people’s unique personality and their certain situations.

So many finance arguments happen when people get upset after realizing that not everybody has or wants the same life as you.

One thing I’ve often thought about is the single most important decision that most people will ever make in their life is whether, when and whom to marry.

It’s the most important decision that you will ever make for most people.

But that topic of how to find a spouse, when to marry, who you should marry, is never taught in schools.

It never will be taught in schools because it can’t be taught in schools.

It’s not something that you can just distill down to a formula.

So the idea that some of the most important decisions in your life just are things that cannot be taught, cannot be formed or are not formulaic, I think it’s the same in money.

And why is by and large is financial education not taught in high schools or colleges?

I think there’s a lot of answers to that.

This is not black and white.

But one of them I think at least is that it is very difficult to teach money because everybody has different views and goals and time horizons and family dynamics.

It’s very difficult to teach something where people who are equally smart, equally educated, equally informed can come to a vastly different answer in terms of what they want in life.

Number 14, pessimism always sounds smarter than optimism because optimism sounds like a sales pitch.

Well, pessimism sounds like somebody trying to help you.

It pays to be a long-term optimist.

We talked about that earlier, but my God is pessimism more common and more able to catch your attention.

There is a historian named Geardron McCloskey who has this quote that I love, she says, for reasons I have never understood, people love to hear that the world is going to hell.

And if you are familiar with financial news and financial commentary, you see that everywhere pessimism gets people’s attention, even if the optimism was what actually pays off in the long run.

Number 15, most of what people call conviction is just a willful disregard for new information that might make you change your mind.

That is when beliefs turn dangerous.

It’s when you say, I have so much conviction about this stock.

I have so much conviction about this strategy, about this company, whatever it might be.

So often what that is, the reason you have so much conviction is because you have a brick wall that is not letting in the counter examples and the counter information that might make you change your mind because that idea of changing your mind is too uncomfortable.

You can’t handle the cognitive dissonance of saying, you’re putting your money into this investing strategy.

You are all in on this career, even if there is an odd, there are odds that it might not work out over time.

Charlie Mugger says you could only have an opinion when you can state the other side’s position as well as they can.

You want to have conviction in what you’re doing, you better be able to state the opposing side’s view as well as they can.

Number 16, your willingness to believe it prediction is influenced by how much you want or need that prediction to come true.

There was this documentary that I watched many years ago, it was called How to Live Forever.

And it asked these centenarians, over 100 years old, what the happiest day of your life was.

You’ve lived for over 100 years, what was the best day?

And there was this old French woman, I think she was like 106.

And she said the happiest day of her life was Armistice Day.

The deal in 1918 that ended World War I.

And the producer said, why?

Why was Armistice Day the happiest day of your life?

The old woman said, quote, because we knew that there would be no more wars ever again.

And of course World War II began 21 years later and killed 75 million people.

There are so many things in life that we think are true because we desperately want them to be true.

People do this with their relationships, their careers, their investments, their political views.

Anything forward looking is subject to being swayed by your desire to have a pleasant life.

And everyone is a dreamer because it is hard to go about your day when you genuinely believe the future will be difficult.

So there is an appealing fiction in life, which is believing in the outcome that you want, even if it’s unlikely to come true.

And it’s often your only comfort in an uncertain world.

And the higher the stakes, the truer this becomes.

Before modern medicine came about, for centuries we did bloodletting and starvation therapy and cutting holes in your body to let the evils out whatever those were, all these treatments that made everything worse.

But they gave people a little bit of hope that something might work, that these treatments might make them better.

And that was as good as you could get.

So people clung to it, even if it didn’t work, they clung to it because it gave them a little hope.

And people do this all the time with their finances as well.

If you desperately need a solution and a good one isn’t known or it’s not readily available to you, the path of least resistance is willingness to believe anything.

Not just try anything but believe anything.

The same thing happens at investing when people are so eager to listen to forecasters, whose track record is abysmal.

People who have never accurately predicted the next recession or what the market’s going to do, but if they say what you want to hear and what you want to believe, you pay attention to them.

If you tell people what they want to hear, you can be wrong indefinitely without penalty.

Number 17, everybody belongs to a tribe and underestimates how influential that tribe is on their thinking.

Tribes are everywhere.

Countries, states, political parties, companies, industries, departments, investing styles, economic philosophies, religions, families, schools, majors, credentials, there are tribes everywhere.

And everybody loves their tribe because there is comfort in knowing other people who understand your background and share your goals.

But tribes have their own rules and beliefs and ideas.

Some of those ideas you might disagree with.

Some of them aren’t even objectively terrible ideas, but they remain supported, even maybe by you because nobody wants to argue with a tribe that has become so integral in such a big part of their identity.

So people either willingly not along with bad ideas or they become blinded by tribal loyalty.

This happens so often in money and economic views and political views you see it all over the place.

Liberating most financial mistakes come when you try to force things to happen faster than is required.

The root of most financial misery is not bad decisions.

It tends to be good decisions that you try to make happen faster than they should.

Investing in the stock market is great.

Investing in the stock market and demanding that you double your money over the next two weeks is not.

It’s very easy to conflate those two.

Cobbound interest does not like it when you try to use a cheat code and it is so easy to underestimate how much time is actually needed to put the odds of success in your favor that particularly in investing when people say long term they don’t mean six months or a year.

But if you look at a lot of financial history we’re talking five, ten, twenty years that is truly needed to put the odds of success in your favor.

It is so easy to underestimate that kind of time period.

So you have people who seem like they are making good decisions there that’s not giving it enough time to pay off.

One thing to think about here is that there are three edges in finance.

You can be smarter than other people.

You can be luckier than other people or you can be more patient than other people.

Only one of those, the patient part of course, is the one that most people can actually have a fighting chance of making work over time.

Number twenty, the goal of investing is not to minimize boredom.

It is to maximize returns.

So much of what happens in the financial media is designed for entertainment.

It’s designed just to get your attention and it’s no different than sports where it’s just trying to entertain you.

But so many people don’t really realize that.

And they spend so much time, they were so turned off by a simple investing strategy that might work because it seems too boring to them.

I think part of the reason this is is that money is one of the only fields where simplicity tends to equal better results.

If you want to be a great athlete, you should work out, you know, train, you know, a hundred hours a week.

If you want to be the best golfer in the world, you should go to a driving range and hit balls for six hours straight.

Most fields, if you want to get better, you put in more effort.

Finance, particularly money and investing, tends not to be like that, tends to be the opposite.

Where people who put in less effort and take a more simplistic approach tend to do better over time.

But there are so many big brain smart people in this field who can do that because it feels like a waste of their intelligence and a waste of their resources.

There tends to be a sweet spot in money.

And I’ve noticed where you grasp the important stuff, but you are not so smart that you end up bored with it.

It’s a hard balance to find.

Number 21, your personal experiences make up maybe 0.0001% of what has happened in the world, but maybe 80% of how you think the world works.

Everybody is a prisoner to their own experiences of what they have happened to experience in life, primarily based off of the dumb luck of where and when you were born.

And since nothing is more influential to people than what they have experienced firsthand.

And all of us have experienced something vastly different in life.

All of us who are equally smart as one another and maybe have the same information as the one another, think about the world and the economy and investing and spending and social habits in very different ways.

Where and when you are born can have a bigger impact on your outcome in life than anything you do intentionally.

This is especially true for looking at investing.

I’ve often I joked one time that the most important investing skill is being born during an era where your peak saving years happened during a 40 year decline in interest rates.

And for so many investors, it’s true that that was like the biggest, like the most important thing that they ever did was saving money and investing money from 1983 to 2021.

And of course that was completely outside of their control.

It was just the dumb luck of when they were born.

So just the acknowledgement that there are so many big things and our view of the world can be so far out of our control is a really important part of this.

Number 22.

All investing ability is unproven until it has survived a disaster.

It is so important to be careful when identifying skill when you’re trying to identify skill, whether it is yours or other peoples.

If you are only viewing it during the last market cycle.

One of the reasons that I admire people like Warren Buffett, even George Soros and those people, it’s not even the magnitude of their investing skills.

It’s the fact that they have earned money and outperformed the market during so many different market cycles.

Both of those people have done it for 50 or more years.

When during high inflation, during low inflation, during economic booms, during economic busts, they’ve made money and bonds, they’ve made money and stocks.

That is the only time that you can really separate luck from skills when you see somebody succeeding in multiple different environments.

And during every market cycle, every investing cycle, there are so many people who can succeed in that specific market cycle.

But as soon as the tide turns, they have no skill whatsoever.

Number 23.

Past success always seems easier than it was because you now know how the story ends and you can’t unremember what you know today when trying to remember how you felt about the past.

What I mean by this is it is much easier to quote Warren Buffett than it is to do what he does.

It is much easier to say, I’ll be greedy when others are fearful than to actually do it.

It is so easy to look back and hindsight and say, oh, if you just bought stocks in 2008, if you just bought stocks in 2002, if during the bottom of the Great Depression, if you just put all your money and stocks, you could have been a millionaire, it is so easy to do that.

Only reason that it’s easy to do that is because you now know how those stories ended.

You know that 1933 was the bottom and 2008 was the bottom.

At the time, people did not know that.

So it is so what’s, you want me to think about this is that every past market crash looks like an opportunity.

But every future market crash seems like a risk.

And when you understand the paradox of those two, then you become much more humble in your ability to try to forecast what is going to happen next.

Number 24, we are bad at imagining how change will feel because there is no context in dreams.

Everybody thinks they have a high risk tolerance when things are going great and then things turn around and they decline and then people say, ah, you know what?

Actually, this hurts more than I thought.

The reason this happens is because when thinking about the future, you tend to think in isolation.

If I said, how would you feel the stock market fell 40 percent?

Most people would say, oh, that would be an opportunity.

That would be an opportunity for me to invest more.

The reason they say that is because when you imagine stocks falling 40 percent, you imagine the market becoming 40 percent cheaper, but nothing about the world being different other than that.

But that’s not actually why the market might fall 40 percent.

It might fall 40 percent because there is a terrorist attack you didn’t see coming or a pandemic that might kill you and your family or a major recession or a political meltdown or whatever it might be.

But in that context, it is much harder to say I’m going to be greedy when others are fearful.

The same thing happens when we’re trying to imagine how a gain might feel.

I don’t think I’ve met a single person or no of a single person, anyone with outsized success who gained as much happiness than as an outsider might expect.

That doesn’t mean that success can’t bring pride or contentment or independence or whatever it might be, but it is rarely what you thought it would be before you achieved it.

Even Carrie, the actor, he once said, quote, I think everybody should get rich and famous and do everything they ever dreamed of so that they can see that it is not the answer.

I think part of the same reason is why prediction and predicting loss is so difficult.

It is hard to imagine the full context of what you’re up to experience.

If you think of your future self as living in a new mansion, you might imagine basking in the splendor and everything feeling great.

What is so easy to forget though is that people who live in mansions also get the flu and they have psoriasis and they become embroiled in lawsuits and they bicker with their spouses and they’re racked with insecurity and they’re annoyed with politicians.

All of those things that still are with you when you’re in your mansion have a huge impact on just your day-to-day well-being.

So future fortunes are always imagined in a vacuum, but reality has always lived with the good and the bad taken together competing for your attention.

Number 25.

The best way to teach your kids about money is to make them feel the power of its scarcity.

So I always get nervous when people talk about big louds or parents who always say yes to their kids.

Making sure your kids understand the power of scarcity with money teaches them the difference between necessary and desirable.

It forces them to budget.

It makes them learn to enjoy what they have and fix what’s broken.

Those are all essential life skills.

I mean that’s the only way to teach your kids about money is to make sure that if you have some means that you are withholding it from them so that they can learn firsthand the power of its scarcity.

Sorry to my two kids if you’re going to listen to this someday, that’s what we’re doing.

Number 27.

Getting to the end here.

Embrace and accept your flaws and build a financial plan around them rather than assuming that you can alter your susceptibility to dopamine and cortisol just by reading a blog post.

So many people try to look at their past financial mistakes and they will think, oh, they’ve learned their lesson.

Maybe you panicked and sold all your stocks in 2008 but now you’ve learned your lesson and you’ll never do that again.

Buy and large that tends to not be true.

I think most of the time, however you respond into the last crisis is how you are going is very likely how you’re going to respond to the next crisis.

But the same emotions are going to come flooding back when you’re in the same situation.

The solution to that is rather than assuming that you can fix your financial flaws, just accept and embrace what they are and build a financial plan around that.

Number 28.

Emotions can override any level of intelligence.

A genius who loses control over their emotions can be a financial disaster.

And the opposite is true.

Ordinary folks with no financial education can be wealthy if they just have a handful of behavioral skills that have nothing to do with formal measures of intelligence.

Patients, level-headed, low ego, those are the kind of things that actually make a difference over time.

Number 29.

Comedians are the only good thought leaders because they understand how the world works but they want to make you laugh rather than making themselves feel smart.

This really doesn’t have anything to do with money but I threw that in there just for communication in general it is such an important idea of understanding why comedians are so famous.

They are psychological geniuses but they just want to make you laugh rather than making themselves look good.

And number 30.

Your close us out by maybe the most important one.

The luckier you are, the nicer you should be.

So people have pointed out to me that the opposite is actually true, that the nicer you are, the luckier you will become.

To me what’s important about this is that this is the only way to protect against entitlement in a cyclical economy is to realize and recognize what you have going for you and when things are going a little bit abnormally good, the only way to protect against entitlement in that situation is to try to be nicer to the people around you.

That’s all I got for this week.

Thank you again for listening.

Maybe we’ll come back next week, maybe I’ll bring somebody on.

We’ll see.

But this has been a lot of fun as always.

Thank you again.