AI Summary #
Here is a summary of the podcast transcription:
The host, who recently recovered from illness, discussed the importance of understanding behavioral traits for achieving financial success. He shared his list of 10 essential rules, which are not about complex formulas or academic knowledge, but rather about recognizing and adapting to human behavior.
Key Points:
- No one is as impressed with your possessions as much as you are.
- Suppressing ego is crucial in living below your means and saving for the future.
- Having a spouse who sees eye-to-eye on spending is vital to maintaining financial stability in a relationship.
- Avoiding trouble and debt is essential to long-term financial success.
- Developing a “bullshit radar” to detect exaggerated promises of easy gains without sacrifice is crucial.
- Picking a career that may not be your passion but pays a decent wage can provide financial freedom and independence.
Notable Quotes:
- “Nobody survives open heart surgery better than the guy who did not need the procedure in the first place.”
- “If you can get to a point in your career where you enjoy half of it, that’s great. That’s like the picture of success when you can enjoy half of your career.”
Actionable Advice:
- Recognize and adapt to human behavior in financial decision-making.
- Prioritize comfort and security over short-term gains and instant gratification.
- Cultivate a “bullshit radar” to detect exaggerated promises.
- Develop emotional intelligence and self-awareness to make better financial decisions.
Overall, the host emphasizes the importance of understanding behavioral traits and adapting to human nature in achieving financial success. By recognizing and applying these essential rules, listeners can improve their financial well-being and achieve long-term stability.
AI Transcription #
Alright, we’re back.
I just take a couple weeks off.
Like many of you, I got sick from what my kids brought home from school and I lost my voice.
Sounded like death for a couple weeks.
Sounded like I was trying to swallow a chainsaw, but we’re back.
Thanks for being patient.
My wife recently bought this book from an old bookstore.
It’s called The Mathematical Theory of Investment.
It was written in 1913, which is why she bought it.
It’s this beautiful, old leather bound, weathered book.
And she thought I’d be interested in it.
And I love it.
It looks great on my bookshelf.
This old, ancient book sitting there.
It looks great.
But it’s so funny to flip through it.
That this book, written in 1913, called The Mathematical Theory of Investment, is as dry and boring as it sounds.
It’s just a bunch of formulas about how compound interest works.
It written in the driest academic pros you could possibly imagine.
And look, when I think about things like that, like the analytical, mathematical, deep academic side of finance, do I think it is wrong or unnecessary?
No.
I think we know a lot today that we did not even a hundred years ago when this book was written that we are better off for.
But it’s just so true that what actually matters in people’s lives, in terms of using money as a tool to live a better life and be happier, and what actually works, are things that are not found at all in a book like this.
The essence of what matters with money is not the formulas.
It’s not the education.
It’s not the academics.
It’s just the behavior.
It’s just the understanding in your own head about what your goals are, what your temperament is, how risk work, that’s what actually matters.
So I have been jotting these things down for a while.
I just wanted to share with you what I think are the 10 most important rules that exist in money, that anyone should be able to understand and wrap their heads around, that are both A, understandable, which everything in this book I’m holding is not.
And B, are not analytical at all.
They are just behavioral in nature.
So look, this is just my list.
Your results may vary.
Your opinions on money may vary.
But if I had to make a list of the 10 most important financial traits for anyone to grasp and think about in their own lives, here’s what they would be.
Number one, realize that it can happen to you.
A lot of 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.
To people in good financial shape, these things tend to be viewed as something that happens to quote other people.
But they can happen to you.
They can happen to me.
They will happen to everyone listening to this in some given period of time.
So given enough time, one of those things will happen to you.
Some people, of course, more susceptible than others, but nobody is exempt in life from being humbled on occasion.
That should make you think about room for error and risk in a deeper and more profound way than you normally would if things are going well for you in your life.
Look, if you can just survive and endure long enough financially to stick around for the longest period of time, you do not need to make many great decisions in life to do well financially.
You just need to avoid catastrophe and realizing that it can happen to you.
The bad news, the bad luck that you see happening to other people can happen to you is the first acknowledgement, the first skill that you need in order to have the appropriate route for error to do well over time.
Alright, number two, realize that no one is as impressed with your possessions as much as you are.
No one is thinking about you as much as you are, nobody cares about your stuff as much as you do.
It’s so easy to overestimate the social signaling benefit of having nice stuff.
But the cork is that people who see your nice stuff spend more time imagining themselves with your stuff than they do actually admire you for having that nice stuff.
So look, I like nice stuff, I like nice homes, I like nice cars, all of it.
But I try to only want it when it’s comfortable and convenient and efficient or delicious rather than fooling myself into imagining that it will bring some level of higher status and importance.
Alright, number three, accepting that living below your means requires suppressing your ego to below your income.
Spending money above some certain level of basic needs and basic leisure, oftentimes is just ego and social climbing.
That’s why you’re doing it.
You’re doing it to show other people how much money you have.
So in that equation, then, savings is just a diversion from boosting the appearance of your status today for more productive use tomorrow.
And when you define savings as the gap between your ego and your income, you realize when many people with decent incomes save so little.
It’s a daily struggle against the natural instincts to extend your peacock feathers to their outermost limits.
People with enduring personal finance success, which is not necessarily those with the highest incomes, tend to have a propensity to not give a damn what others think about them.
They’re concerned with their own happiness, their own individual family, maybe a couple of people around them close friends where they want to love and admire them.
With their ability, their willingness, their need and desire to show off, to strangers is minimal.
I saw this podcast recently and the guest on it was Steve O, which if you remember to the early 2000s show on MTV called Jackass, he’s one of the characters in there who his role on the show Jackass was doing the most a name things to put himself through crazy amounts of pain and get beat up and to take crazy risks.
They asked when the podcast they said, do you just have like an above average tolerance for pain?
And he said, no, not whatsoever.
He said, my desire for attention has always exceeded my need for comfort.
And like that’s a profound statement in itself, but I was thinking that that applies to a lot of things.
Your desire for attention from other people exceeds what you actually need to be happy in your own life.
If you could just avoid that, that’s an incredible financial power.
All right, number four, a spouse who sees eye to eye on spending.
This is a really important one and it’s one that a lot of people do not want to address.
The fastest way to break your finances is to marry somebody with wildly different spending expectations.
It’s not only going to break your finances, it’s going to break your marriage as well, by the way, two people who spend a lot is probably safer in a relationship than having one saver and one superspender.
Since money disputes are the leading cause of divorce, it’s not even spending too much, it’s just disagreeing on how much you should spend.
By the way, a related personal finance hack from my friend James Osborne.
He says the number one financial hack for most people to follow don’t get divorced.
All right, number five.
Avoiding trouble to begin with.
Charlie Munger, rest of soul passed away recently, he says quote, nobody survives open heart surgery better than the guy who did not need the procedure in the first place.
That is so good, so true.
And a corollary to that is that nobody gets out of debt faster than the person who avoided it to begin with.
Count how many programs are to consolidate and manage student loans compared to those encouraging strategies to get a degree without any debt to begin with.
It’s a hundred to one at least.
It’s the same in investing.
Part of why get rich quick schemes are popular is because so many people need to get rich quick after delaying their savings for too long and they can’t retire.
An underappreciated truth in finance, especially in investing, is that you don’t need to make many great decisions to do well over time.
You just have to consistently not blow it and not screw up for a very long period of time.
All right, number six, maybe my favorite one here.
A very finely tuned bullshit radar that screams red alert when promise of abnormal gains without abnormal sacrifice are offered to you.
Anytime that somebody is promising you something to gain a reward faster or in bigger amounts without any other cost of admission that you have to put in is almost certainly always pulling your leg.
And they are so pervasive in finance because the opportunity for them to make so much money from so many gullible people is enormous.
All right, number seven, picking a career that may not be your passion but pays a decent wage.
Chris Rock, the comedian, has this advice that I love.
He says, stop telling kids that they can be anything they want when they grow up.
He says, you can be anything you’re good at as long as they’re hiring.
I think that’s it like a lot of comedy.
It’s funny because it’s true.
Scott Galloway, he has related advice.
He says, people who tell you to follow your passion are already rich.
They made their money in iron or smelting most likely.
That’s also great advice.
This, of course, is on popular to say, but a career that isn’t your passion, yet earns a good income, can actually be preferable to the alternative.
And this is less about money and it’s more about freedom and independence.
A low income job that is your passion may breed resentment as you age and have kids and get a mortgage and have higher bills that become burdens long enough that suffocate the joy that you get from working in a career that is your passion.
But a job that you merely like that pays a decent income, provided that you live below your means and save a chunk of that income can eventually offer a level of financial flexibility that lets you pursue passions as hobbies, purely for their pleasure.
Jeff Bezos has this other related advice that I think is very strong.
He says, if you can get to a point in your career where you enjoy half of it, that’s great.
That’s like the picture of success when you can enjoy half of your career, which means the other half is going to feel like work.
And his point was, that’s good.
That’s about as best you can get.
So pick something that you can enjoy and earn a good living from.
Even if it’s not the thing that is feeding your soul, I think it can actually be preferable to living a long-term healthy life than just following the advice of follow your passion.
Number 8.
The willingness to adapt to views that you wish were permanent.
All economies grow because businesses and consumers and technologies change and adapt.
In its ironic how many investors attempt to ride this wave of change with rigid beliefs.
Now of course there are a set of truly timeless investing ideas, timeless investing philosophies.
But most of what guides us are beliefs that reflect what we have into experience and the narrow view of our own lives.
Even when investor study history, they put more weight on stories that align with their own experiences.
Because those are stories that are easier to understand and they confirm their own beliefs.
It’s painful to contemplate, but a lot of what all of us believe about investing is either right but temporary or wrong but convincing.
And if you are unwilling to update, if you are unwilling to update your views when the world changes or be open-minded enough to realize that some of your views or anecdotal to begin with, that’s going to be tough to succeed in this field.
Number 9.
This actually might be one of the most important of the list.
The ability to be comfortable being uncomfortable.
You cannot enjoy the benefits of exercise without some sort of discomfort because being out of breath and soar and tired is the sign that you’ve put in enough effort to deserve a reward.
It’s the same in investing.
The financial rewards for being comfortable as an investor are the same as a physical reward for somebody who sits on the couch.
Returns do not come for free.
They demand a price and they accept payment for that price, not in dollars.
That’s not how you pay it.
You pay for it with uncertainty and confusion and short-term loss and surprise and nonsense and stretches of boredom, regret, anxiety, fear.
That’s how you pay the bill.
Most markets are efficient enough to not offer any coupons either.
You have to pay the bill in full.
There are four psychological states of investing, an order of lucrativeness.
The first is miserable but confident in its eventual rewards.
The second is miserable and giving up.
The third is comfortable in accepting of its future downside.
The worst is comfortable and oblivious of what is to come.
That’s the complete list.
The ability to distinguish when analytics versus psychology is necessary.
If investing were only about numbers like the book that my wife got me recently is, nobody would be any good at it because computers would arbitrage away all the opportunity.
But if it were only about psychology, nobody would be any good at it because every investor has different arbitrary goals and markets would never coalesce around something objective.
Good investing is some part analytical and is some part psychological.
It’s an art and a science.
The trick is knowing which skill is necessary, when it’s necessary, and how one affects the other.
That’s all we got for this week.
By the way, if you want to hear another podcast with my good friend Doug Bonaparte and I talking about what we learned from Charlie Munger after he passed away recently, go check out our podcast with public.com.
It’s called Mind Your Money.
I’ll leave a link in the show notes.
Thanks again.
We’ll see you all next week.