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S4.E2 - The Psychology of Money - Ch. 3-6
61 Plays5 months ago
This week marks the 25th episode of Books Brothers Podcast! Listen as Garrett leads our discussion of chapters 3-6 from The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel.
- Chapter 3: “Never Enough” - (0:43 - 18:51) Do any of you feel that you and your family have “stopped moving your goal posts?” Can you share an example where you refrained from moving your personal goal posts with a financial decision that you made.
- Chapter 4: “Confounding Compounding” - (18:52 - 23:48) Does anyone have any takeaways from this chapter?
- Chapter 5: “Getting Wealthy vs. Staying Wealthy” - (23:49 - 34:59) Would you say that you lean more toward having a pessimistic or optimistic mindset towards your personal net worth accumulation in both the short term and the long term?
- Chapter 6: “Tails, You Win” - (35:00 - 45:10) How do you all handle financial failures? How has this chapter impacted your perspective on these financial failures?
- Resources referenced or discussed in today’s episode:
- Bear market vs. Bull market- https://www.fidelity.com/learning-center/smart-money/bear-vs-bull-market
- Current average car payment- https://www.nerdwallet.com/article/loans/auto-loans/average-monthly-car-payment#:~:text=The%20average%20monthly%20car%20loan,determined%20by%20several%20different%20factors.
- Warren Buffet’s net worth- https://www.cnbc.com/amp/2024/05/03/most-of-warren-buffetts-wealth-came-after-age-65-heres-why.html
Next week we’ll discuss chapters 7- 11 (pages 81 - 120).
You can buy the book on Amazon by clicking here.
You can also borrow it at your local library. Don’t have a library card, or unsure where your local library is? Search on Google Maps, or find your local library by clicking here.
Follow us on Instagram @booksbrotherspodcast
Connect with us at [email protected]
Please subscribe and give us a review! We would really appreciate it.
See you next week! Until then - read, reflect, and connect.
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Transcript
Introduction to Books Brothers
00:00:05
Speaker
Welcome back to the 25th episode of the Books Brothers podcast, a group of friends from college that have stayed in touch through this book club. We read books together, and each week we discuss various chapters, reflect on them as they relate to our life, and connect with each other by sharing our experiences. I'm Garrett. I'm Staley. I'm Fuz. I'm Thomas. And I'm Rob.
Exploring 'The Psychology of Money'
00:00:29
Speaker
We continue our discussion today on this season's book, The Psychology of Money, Timeless Lessons on Wealth, Greed, and Happiness by Morgan Houssell. In today's episode, we will explore chapters three through six.
The Paradox of Wealth
00:00:42
Speaker
In chapter three, titled Never Enough, Hausl delves in to the paradox of wealth, where despite earning more, people often find themselves feeling financially insecure or unsatisfied. Hausl discusses how societal norms and personal desires continually shift the goalposts of what constitutes enough wealth, leading to a perpetual cycle of striving for more.
00:01:08
Speaker
Through anecdotes and research insights, he highlights the importance of understanding one's values and priorities to break free from the cycle of perpetual discontent and find greater satisfaction and fulfillment in life independent of monetary wealth.
00:01:24
Speaker
So do any of you feel that you and your family have quote stopped moving your goal posts? And if so, can you share an example where you refrained from moving your personal goal posts with a financial decision that you made? Honestly, I move different goal posts.
00:01:44
Speaker
different directions. It's kind of confusing.
Shifting Financial Aspirations
00:01:47
Speaker
But growing up in the Midwest, I always thought I'd have like a house and a yard and all this other stuff like you do in the Midwest.
00:01:55
Speaker
And then moving out to Hawaii, that goalpost basically turned into like a basketball hoop or something different because there's just really no comparison lacrosse goal, maybe. Yeah. So if I would have tried to move forward, like the, with the classic lifestyle progression that I grew up with here, I would be.
00:02:17
Speaker
in financial shambles at this point. But in other ways, I've traveled more, I've had really no major issues financially, and I guess from a perspective of saving
00:02:33
Speaker
I've always moved to the goalpost because I'm afraid I won't have enough and because of inflation and I mean there are certain goalposts. I think in terms of goalposts like what he's trying to say in the book is when do you stop increasing your expectations about what's enough in your own life?
00:02:51
Speaker
It's good. Rather than like a dollar value, like there will always be inflation. There will always be the need to work harder sometimes for the same amount of money or you might lose your job or whatever, but are you still going to be content over time with the basic things that everybody kind of just needs? And that is a difficult thing to do, especially if
00:03:15
Speaker
if you're kind of in our culture. So to make sure I'm understanding what you're saying, you feel like you've moved your goalposts in different directions for different sections of your life.
Balancing Contentment and Security
00:03:24
Speaker
So when it comes to the Midwest, quote unquote ideal life of home ownership, white picket fence,
00:03:32
Speaker
That is something where it's like, Hey, I'm, I'm not striving to, you know, keep up with any of my peers. It's just completely different here. And so in that sense, you, you are content with enough, whether that's renting or whatever, but then at the same time, there's a, my expectations of what I need to save. And what I need to do to feel financially secure is to move the goalposts of how much I say, you know, which I don't think those are bad things of
00:03:59
Speaker
how much to save, stuff like that. Is that an accurate summary and recap of what you just shared? Yeah, absolutely. And I think the biggest question in my mind is like, am I putting too much stock in saving instead of, you know, at 33 years old without kids kind of living it up and doing things that I can do now in my life that I won't be able to do in five, 10 years, you know? So I guess for me,
00:04:26
Speaker
There's always a question of like, should I sort of move the cold post a little bit right now or am I not going to regret doing a little bit more with my money at this particular moment, which is probably a really privileged place to be, of course, but it still is a question in my mind because tomorrow's not guaranteed.
00:04:48
Speaker
I think Ruth and I have really tried to do our best to kind of keep our goalposts, like keep what we're spending on things comparable through the years. We've been doing a budget now
00:05:06
Speaker
And we basically do like an every dollar budget. And I would say that we, for the most part, do follow through with our budget. We're probably like 90% of the time we're on budget. I mean, sometimes we're below, sometimes we're above. But I feel like that's for us has been helpful to kind of maintain goalposts where they're at. But I mean, on the same note, though, I don't feel like our financial situation has changed drastically over that
Budget Adjustments for Life Changes
00:05:31
Speaker
time period. It's kind of just incrementally
00:05:34
Speaker
to seek to live with under means. One thing that when you have these big changes, that's when it does get a little bit more challenging. Buying a house, you get out of the rental game, but then there's just bigger expenses that you have to do sometimes like your AC goes out. And so you end up probably paying less than you would per rent, but then you end up spending a lot more on just housing repairs, but those are also investments. So another one though for us that was kind of a big change was when we had Daphne.
00:06:04
Speaker
we've tried to do to kind of live within our means. I mean, that's really, you know, how I would...
00:06:10
Speaker
The terminology I would use to talk about this is when we've had these big changes, whenever we've had job changes, when we've had raises, we've went back for a budget and adjusted our budget. Not really like to say, oh, we can spend more on this now, but to say, like, oh, where do we need to adjust? Are we spending too much here or is there too much there? And then there's a reality of like, yeah, just having to make adjustments secondary to inflation. I remember what we used to save for groceries is probably double.
00:06:40
Speaker
That was eight years ago but i mean it's honestly i don't really not really eating that differently is just groceries are maybe up towards twice as expensive. I don't know the exact number but i wouldn't be surprised if it was like you know fifty percent seventy percent more without. I think what i'm hearing to it both your answers is.
00:07:01
Speaker
what I would say a more appropriate and healthy moving of goalposts. I think what the author is saying when he talks about moving the goalposts, it's an issue with identity. Keeping up with the Joneses. Exactly. It's like, okay, shoot. My friends just got this or bought this house or whatever, and so we need to keep up or whatever.
00:07:28
Speaker
I almost feel like you're guys examples of, hey, there's inflation, we should save more or hey, there's like we have a kid, our, you know, diaper budget, our grocery budget has gone up.
Inflation and Identity in Financial Decisions
00:07:41
Speaker
I don't feel like that's moving the goalposts and what the author is saying in the sense of like, yeah, our identity. It sounds like what I'm hearing is like, hey, we're comfortable in our own skin with where our family's at and we're going to have to adjust things because life costs change.
00:07:58
Speaker
but it's not out of a necessity or a temptation to keep up with the Joneses or whatever. I would say that, again, I'll be the one that portrays the failure of the financial group. Everybody else seems to be so wonderful with their finances. Thanks for taking one for the team. I'll be the overall ego buster for the group.
00:08:27
Speaker
No, I got a story too, Fles. You're not the only one. You're not by yourself. Yeah. But, uh, you know, obviously in my previous relationship, we'll just call it that, uh, keeping up with the Jones is definitely something that I don't think was ever really talked about, but I think it was just present as far as like, here are the stages and you know, the Midwest, like Thomas has said, you know, you get married, you buy a house, like you picket fence and all that, but you don't have the money for it.
00:08:57
Speaker
It's like, or if you do, but it's like barely do, is that the best decision? Probably not, but there's just so many emotions involved with all of that and keeping up with the Joneses. Now, fast forward though to me last year, I almost moved into a much nicer apartment where my rent would have been like twice as expensive and I decided not to.
00:09:24
Speaker
And thank God I didn't because going through a job change now, you know, would have been really tough. So that was definitely a really good move, not moving the goal post there, you know, fast forward to last year or whatever. But yeah, and then I think that I think it's easy to get cocky sometimes with money. Like if it's just really easy to get arrogant, like if you have it, you know, it's like, oh, you just assume that you're never going to not have it.
00:09:54
Speaker
And then it gets easy to start making poor decisions or easier. But again, like the failures, it's like one of those things where I think he talks about it in that one.
00:10:06
Speaker
It was a previous chapter that we discussed last episode, but understanding our failures and risk-taking, so to learn from them, basically, so that we make better decisions next time. But keeping up with the Joneses, though, I
Peer Pressure vs. Personal Contentment
00:10:23
Speaker
feel like that's just a cultural thing. Have you guys ever felt that need, personally, to do things? To keep up with the Joneses, yeah.
00:10:35
Speaker
Oh, for sure. Yeah. We, we rent this house. So as you've been over, it's like probably, if it were to go on the market, it'd be like 250, 300, but right across the street is 600 to a million.
00:10:51
Speaker
And it's funny because I walk my dog every day and I see these people that are living in the 700, the million dollar houses. And there's like one couple, they have a Porsche SUV and then another nice SUV. But then across the street is a guy and his house is really nice, but he drives probably a 1990 Honda Civic.
00:11:19
Speaker
and his wife drives a Honda van. And it's like, okay, maybe there's some keeping up with the Joneses on the house aspect, but it's pretty interesting to see two houses that are worth the same amount, but the cars are that much different, like drastically different. And it's, I don't know, I just saw a stat today that like the average car payment today is like $740. And it's like,
00:11:48
Speaker
My goodness. Cash is king or shall you say like the car people will all be like, okay, you can get into it zero down today. And how much can I get it for in the long haul when people
00:12:03
Speaker
that can afford it, they'll just be like, how much is it? I'll like buy it straight up today because I don't want to fall for the financial trap of a loan and ending up paying more on it in the long run. It's been interesting. There are some good quotes. I'll read one, but on page 39, it was like,
00:12:20
Speaker
greed and the wanting for more will not only make enough feel not as enough, but will also make you lose in the end. So you can take those trips with family or friends or you could, and maybe you can't afford it, but you don't want to miss out on it. And it's like just hanging back for a weekend or, um, not golfing every weekend or twice a week with your buddy that wants to. It's like,
00:12:47
Speaker
Okay, if I sacrifice some, it means that I'll have more for the moments or the resources or the experiences that I want to spend money on. So there's some sacrifice, I think, that we see or I see rather than jumping up at every opportunity to keep up with the Joneses. We're maybe a little bit more selective than that.
00:13:12
Speaker
Plus, I really appreciate you sharing that, though, because I mean, as you kind of were ending there, like you asked, you know, have you all been through like that? And I remember one time whenever I came, we came back from Arizona to visit friends and family back to Missouri. And this is something that I think Thomas and I both shared a little bit about some of the past.
00:13:33
Speaker
We had been here a couple of years, didn't have a house yet, no kids. I feel like a lot of our friends back in Missouri had houses and were having kids. Things were going really well with their jobs, their promotions. I would say in Arizona when we first moved here, first couple of years we were here, I feel like
00:13:53
Speaker
Seem like just seem like a lot of our friends here had like very high paying jobs is wrote it seem like initially and ever like really having a lot of envy with that it was something that i think reason i talked through a lot and i think i've never been someone that i don't i don't envy the stuff.
00:14:08
Speaker
but i can be like i can be the prestige that comes with this stuff and i know he talks about that somebody talks with the lamborghini because it's like i wanna i want people to respect me you know i want people to think well of me and i remember you know these are the these are the conversations that we have to have with our wife's or close friends because like ruth was like very good about talking me down from it and
00:14:32
Speaker
Really just encouraging me to, you know, say like, that's not who we are. You know, she's like, I, as your wife, like, I don't care as long as, you know, we're getting our needs met and such. And so, um, but I definitely had, I remember particularly in one visit we came back and I really had felt that way. Um, and it's something that I would say I still work and working on the comparison side of things. Cause it's tough, you know, you.
00:14:55
Speaker
You see someone in your, you know, a group of guys like us, for example, it's like maybe someone you went to college with or someone that you had spent a lot of time with and you like, you're like, okay, we're kind of around like, you know, similar abilities and you see them doing this or that. And I think envy is just a very easy thing to fall into. I think especially like Adam, you're talking about when you first started kind of making some money and stuff right out of college. That's a very common time. I think all people do get themselves into trouble and
00:15:25
Speaker
If you look back at it, I can't speak for you, Adam, but I imagine if there's a time to have more financial failures, it's probably in your early 20s or mid-20s because life is long. Ruth and I used to always joke about adulting mistakes whenever we'd forget to do something and it would cost us money.
00:15:50
Speaker
We like forgot to, we thought we had to give 30 day notice on our rent, but it was 60 day notice. And it's like, it was like a one month rent mistake, you know? And it's like, at the end of the day, not a big deal. But like, those are the ones that it's like, for us, it was like a learning thing of like, oh, that's dumb. Got to stay on top of this stuff.
00:16:09
Speaker
We had another funny one recently. Our water bill was absurd over last summer. I didn't catch it until it was absurd for three months. I'm talking $400 a month for water. We had a leak. We had a slow leak. I just didn't know. It was in the pipes on the way to the house.
00:16:31
Speaker
Um, it's just like the graphic, you know, the ground kind of soaks it in a little bit more. We don't have as much, you know, whereas I feel like growing up that you would have kind of like notice it if it's in like grassy area, but we just didn't notice it. Cause it was 110 degrees outside. Yeah. Cause it would probably like dry up every day. Yeah. I thought it was the Oasis soaking it all up. Oh, there you go.
00:16:54
Speaker
Stalin's stories mimic mine very similarly. And I've shared that a lot, and I mean, this is a few months back, but the mask and masculinity discussions.
00:17:06
Speaker
athlete mask and, um, whatever the chapter was about, about money of promotions, peers. Yeah. You're, you're not by yourself less by any means. And I identify a lot with, with stainless story for sure. I don't think anyone is saying, Oh, we've, we, we're all just great with our money. We're perfect with our identity and never move our goalposts. That's not true at all. You are not the only one. Let's take a quick break for a word from our sponsors.
00:17:35
Speaker
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00:18:16
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00:18:49
Speaker
And now, back to the show. In chapter four, confounding, compounding. Household emphasizes the immense power of compounding and how it underpins wealth creation over time.
Power of Compounding
00:19:02
Speaker
He illustrates how even small, consistent contributions can grow into significant wealth through the magic of compounding.
00:19:09
Speaker
Through relatable examples and anecdotes, Hausl demonstrates the importance of patience and long-term thinking in harnessing the potential of compounding to achieve financial goals. He shared the example of Warren Buffett, who began investing at age 10. At the time of the book's writing in 2020, $81.5 billion with a B of Buffett's $84.5 billion net worth came after his 65th birthday. I actually just looked this up.
00:19:39
Speaker
And four years later in 2024, his net worth is now 130... Lord have mercy. Despite making 22% returns year over year, he's actually not the best investor in terms of annual returns.
00:19:59
Speaker
Jim Simon's return is 66% annually, so three times as much as Buffett. But because Simons hit his wealth building stride at age 50, so 40 years later than Buffett started investing,
00:20:15
Speaker
Simon's net worth in 2020 was 21 billion or 75% less than Buffett's at the time. And today it's 31.4 billion. So now it's 77% less. So again, these are astronomical numbers, but it still emphasizes the effect of compounding over a long period of time.
00:20:38
Speaker
So maybe one or two of you, if you just want to highlight this, we're still relatively young. We talk about how we're in our 30s and to some people listening that might feel old, but we're still very young in terms of our investments compounding and confounding values. So regardless of how old you are, and especially in our position, does anyone have like one or two takeaways from this chapter? Yeah, page 52. Shut up and wait.
00:21:07
Speaker
Yeah, it's good. And just the thinking of linear versus exponential growth as well. Page 50, his skills investing his secret is time. Yes, it's good. You know, uh, compounding works with debt interest too. So it's a double-edged sword compounding.
00:21:27
Speaker
I'm serious. I mean, a lot of people play around with debt and not realizing that it is not a big deal for the first couple months. But if you let it go, it compounds just like interest will for your investments. It's exactly the same concept except in reverse. So it makes your net worth decrease super fast if you let it go or you get into trouble with it. Stop paying the minimums on those student loans. Yeah, they'll just be forgiven.
00:22:00
Speaker
Oh, is that what you meant Rob? Sorry. This is not a, this is, I'm making a joke. This is not a podcast about politics. So we'll as the MC, I'll cut everyone off there. No, I'm kidding. That was funny, Thomas.
00:22:15
Speaker
No, I mean, yeah, it talked about the, um, let's see, it was buffet was one example. And then the other guy's name was Simon's and Simon's is 50 and he only has 22 billion. So since we're in our thirties, we'll be way ahead of him. If we start now.
00:22:33
Speaker
Well, the value, and I won't even attempt to read it out, but the author was like, hey, if Simon started investing at age 10, like Buffett, and had 66% return, like the number was like a number that doesn't even exist almost. He would run every country's GDP in the entire world or something crazy. Yeah, he'd run the world, literally.
00:22:59
Speaker
So yeah, I think this one's pretty straightforward. Compounding is very impactful. Be patient, shut up, wait as secret as time, a lot of really good stuff. Isn't that so opposite of how the financial strategies that are thrown around in popular culture are depicted though? I mean, if I get on YouTube and watch one video, it's
00:23:24
Speaker
I'm doing a real estate seminar in your city. And if you just follow these three steps in the next year, you'll be a millionaire like me. Oh, for sure. It's just so opposite of what we're bombarded with every single day about finances. No wonder there's so many people that are confused about it. Tom is hitting us deep, man. I like it.
00:23:47
Speaker
Okay, chapter five, getting wealthy versus staying wealthy. The author delves into the distinction between becoming wealthy versus staying wealthy, highlighting the psychological pitfalls that can lead to the erosion of wealth over time. He explores the concept of wealth transfer and how sudden windfalls often fail to translate into long-term financial security due to poor financial habits or behavioral biases.
00:24:16
Speaker
Drawing on historical examples such as investors in the stock market during the Great Depression and personal anecdotes, Hausl offers insights into the mindset and behaviors necessary for sustaining wealth over generations. So the author shared how a balance of paranoia and pessimism about how things can go south quickly in the short term needs to be paired with long-term optimism based on historical performance of the GDP in the stock market.
Balancing Pessimism and Optimism
00:24:44
Speaker
So you personally, would you say you lean more towards having a pessimistic or optimistic mindset towards your personal net worth accumulation in both the short term and the long term? I feel like mine's backwards.
00:24:59
Speaker
I feel like I have an optimistic view on me making the right decisions in the short term because I'm always too conservative. But then I have a really pessimistic view on the long term because I just don't believe that anybody at the highest levels that make big decisions about the state of the economy know what the heck they're doing. And so it's hard for me to trust.
00:25:24
Speaker
Oh, if I just do these same things that over the last 200 years have worked, I'm going to have the same result. Because what if I'm the one generation that doesn't? And I do the opposite of what I should have done, just like we mentioned about the people born in the 50s versus the 70s. Like, how do I know I'm not a 50s guy or a 70s guy in the grand scheme of things? So I think I need to work on trying to flip that back to being more optimistic at the state of where the world's going at large.
00:25:53
Speaker
So I've kind of been trying to work on that because it does paralyze me when it comes to making financial decisions. And then I just sit on cash too long or something like that. What's an example where you're paralyzed, Thomas, if you don't mind me asking?
00:26:08
Speaker
Yeah, no, that's a good question. I recently got a new job like a little over six months ago and I had worked at a company for about five years before that and I had a good amount in my 401k with that company and I rolled it over to an IRA so I could just have it all in one place. And I have yet to take it out of short term securities, which yield about like 4% right now, which is good
00:26:35
Speaker
Because that's the highest it's been like 20 something 30 something years. But it's bad because last year was like a monster year in the stock market and I missed out on like 20% gains since I rolled it over. So I had been expecting the market.
00:26:52
Speaker
to be kind of doing one of its, like, fake rallies because I figured some sort of shoe would drop after COVID and it hasn't yet. I mean, the economic strength since COVID has been outstanding, which it will, except for 2022. But overall, I've been really surprised. It's been so good. And that's where my pessimism has kind of shot me in the foot lately, at least.
00:27:21
Speaker
I would say full disclosure for me, and as you're sharing, Thomas, a lot of that to me is way above my head in terms of I haven't spent a lot of time really looking into long-term investment stuff.
00:27:36
Speaker
One of the reasons why I was really excited as doing this book, and I think we all have a lot of excitement about doing this book, is that I was hoping to kind of get more kind of a general thought of like, okay, where do I go next? And, you know, I know Ruth and I have had desires to start doing more in terms of
00:27:53
Speaker
Long-term investment as post right now like our goals are like building like a state like traditional retirement fund as well as like just having like savings for emergency those are that's kind of our main thing that we do right now and.
00:28:10
Speaker
We go back to what we were talking earlier about keeping up with the Jones. This is one area where I'm like, shoot, I know there's a lot of people our age that are doing a lot of big stuff right now. I'm investing in stuff. That's an area where I'm like, I feel very novice. I don't have a clue. I'm hopeful with this book to get a better idea of some of the
00:28:36
Speaker
More kind of you know basic things that are recommended and just principles I think the principle of like we're just waiting I mean that's been kind of cool. You know I talked to my parents on a My dad and I everyone saw a chat about kind of their retirement. That's coming up for them here and
00:28:55
Speaker
you know, about a year from now, both of them are retiring. And from conversations with them, I know it's like, you know, he's looking at it like every day. And, you know, maybe not every day. That's probably not fair to say. But I mean, he's mindful of it. And I think that that's something that I want to get more literate about what's going on. Yeah. Staling on that topic of being a novice.
00:29:16
Speaker
identity-wise, I'll be brief, but I have an MBA and reading this book, I had to look up, is a bear market good or is it bad? And is a bull market good? What's an index fund again? So, hey, this is a safe space. Thanks for sharing in. No hablo espanol.
00:29:41
Speaker
You know I don't speak Spanish. What about Bull Moose Market? Dude, let's go. We got to tie in Teddy and every episode. What's up, Tom? I will school you guys up because I've spent way too much time reading about this stuff and not acting on it at all.
00:30:01
Speaker
It's like I love to read about it so I can make myself feel better as if I'm gonna do something and then I don't and I'm just like I better read it about it somewhere so I can do something. It's a perpetual loop. That's kind of how I am Thomas. Because I know a lot but I just don't act on it enough.
00:30:23
Speaker
Yeah. So I would say you're pessimistic then based off of what Garrett's question was like, so well, I'll ask you this. I want to assume it. What's playing the role of like you taking the next step? Like what's, what's stopping you? It's fear. Yeah, it's definitely fear. So pessimism then, right? Yeah. For sure. Cause I know if I keep, keep it close, I can control it. If I let it go out there and work for me, then I don't know what's going to happen.
00:30:47
Speaker
Yeah, I think it's just hard, especially if you're, if you're talking about like taking savings and putting it into the market. Like if you're going to do that, right? It feels like, okay, you have to be ready to play the long game because of the stock market tanks. It's like, well, if you just put 10 grand in, right? And tomorrow it's worth seven grand or eight grand. It's like,
00:31:12
Speaker
Well, shoot, it'd be foolish to take it out, right? Because you put it in there for a reason and probably not today trade, right? Like you want to see the long-term gains, but it's hard because yesterday was just in your account as 10 in savings, you know?
00:31:29
Speaker
It's kind of intuitive. But if you look at it of like, okay, this is 401k money, if I truly believe in putting it in Berkshire B, right, Warren Buffett's cheapest stock, right, that you can put it in, it's basically like a mutual fund of his stocks. And it's like, okay, if you believe that Berkshire Hathaway is going to take care of this stock,
00:31:55
Speaker
then you can put it in and that 10 grand, knowing that you're not going to touch it in a while, probably my double. Who knows? You know, but it's tough because it's like it depends on what you're going after. I know. Yeah. I know I shouldn't be pessimistic because it's kind of like betting against humanity in a sense and nobody wants to do that. Like everyone wants to believe the world's going to continue to evolve and get better and we're going to continue to be innovative and build things. But.
00:32:25
Speaker
Well, and I think that might segue as well to the last chapter talking about luck and risk again. That's all right. Yeah. Did you have anything to say though, before I segue us?
00:32:36
Speaker
Oh, yeah. Did you get that part from the part where he talks about sensible optimism? Elaborate for us. Basically, I think it's just the belief that odds are in your favor. But I don't know, there's a lot of stuff in this chapter, like God laughs at our plans, you know, we make plans, God laughs at them. I don't know, a sensible optimism. And he just talks about that on page 64. It's a belief that the odds are in your favor.
00:33:03
Speaker
Over time, things will balance out to a good outcome, even if what happens in between is filled with misery. So essentially, being able to hold out and wait when things are going really crappy. So people will make all these decisions when things are going poorly.
00:33:20
Speaker
when you need to just press pause a lot of the time so this chapter talked about survival and it talked about how innocence only the paranoid survive because they have contingencies built into all their investments so in case something goes bad they don't completely get wiped out like they have something to balance out a risky investment over here that
00:33:41
Speaker
most likely won't go to zero if the risky thing does. And it reminded me of another counterintuitive rule in investing is it takes twice the gain to offset a loss. So if you start with $1,000 and you lose 50% of that, you have to gain 100% from what you started at after your loss to get back to your initial $1,000.
00:34:08
Speaker
if that makes sense. So basically, if you make a big bet and it doesn't pay off and you lose 90%, I mean, you're basically wiped out because the compounding it takes to get back to your initial investment takes so long. Yeah. Yeah. That's just another thing that I thought about reading this. It's another counterintuitive thing that maybe is why Rob and I are fearful about putting stuff in the market.
00:34:37
Speaker
I think it goes back to last week's episode in chapter one of no one's crazy, right? We all have personal experiences that based on where we live at a very specific time, the environment we were raised in, we have our own unique perspective on life, finance, et cetera.
00:34:57
Speaker
We had a move into Chapter 6 titled, Tails You Win.
Luck and Risk in Success
00:35:03
Speaker
The author goes back to what we've talked about in last week's episode about the role of luck and risk, this time in financial success, challenging the conventional narratives that attribute success solely to individual merit or skill.
00:35:17
Speaker
He explores the phenomenon of fat-tailed distributions, where, quote, you can be wrong with your investments half the time and still make a fortune, end quote. He illustrates this in the example of Walt Disney.
00:35:32
Speaker
where he had created 400 cartoons and most of them lost a fortune before he created Snow White and the Seven Dwarfs. The success of that one movie generated so much earnings that it changed the course of Disney as we know the entertainment giant today.
00:35:52
Speaker
Similar to what we discussed last week, Hassel shared how acknowledging the role of luck can lead to a more humble and realistic approach to investing in decision-making. Through engaging stories and research findings, the author underscores the importance of humility, diversification, and probabilistic thinking in navigating the uncertainties of financial markets.
00:36:15
Speaker
So how do you all handle financial failures, such as potentially your 401k and a bear market or making a poor investment? And how has this chapter impacted your perspective on this, if any, and please say, if you don't want to answer no pressure, but I almost feel like.
00:36:33
Speaker
asking rob and thomas to answer because one thomas you just talked about this with rolling over your foreign k in your new job but also rob i remember you sharing during the mask of masculinity how you got on quite a kick of.
00:36:50
Speaker
investing in the stock market and looking at it daily, if not even more frequently than that and really having some high highs and some low lows depending on the day in day out performance of the stocks you invested in. So by no means this question is just for you to anyone can answer but I would be curious if either of you are willing to answer how
00:37:14
Speaker
You handle those experiences and how has reading this chapter impacted your perspective on that experience?
00:37:22
Speaker
It wasn't really a bear market though. It was just the wackiness of COVID. So I had met with like a financial advisor and had put some money in some like specific stocks like Amazon, Berkshire B and like some semiconductor stocks and they were doing okay. Like they were making some money and then COVID started to ramp up and I was like,
00:37:47
Speaker
Man, let me take this out, right? Like I was fully prepared to play some long game, but I was like, man, this cold hard catch could go down 25% overnight. And it did, it went down way more, but I had gotten out. So it was like, oh, thank goodness. But then it came back and rallied with a vengeance. And it's still to this day, I would have no joke five times my money. And it wasn't really a bold bear market, but it was like,
00:38:16
Speaker
The failure of not sticking to the sole reason why i invested in those companies in the first place like if i truly believed in them despite the catastrophic event of covid like.
00:38:30
Speaker
I should have just stuck in with them, right? But when the sky is falling, right? And it's like, holy crap, this could have gone down 40%, it could have halved. And like, that's money that you really need. Like if it was a part of a down payment on a house or whatever that maybe you were prepared to gamble with a little bit, but not at a 50% loss clip, right?
00:38:52
Speaker
Um, but I think hindsight's always 20 20, right? It's like, well, of course I should have stuck it in. But if it was like, we entered a recession, I would have been like, whoo, blonde, like, wow, I made the right decision. You know, um, it's just tough. But I think it comes back to maybe that last chapter where it's like, if you believe in it, shut up and wait.
00:39:14
Speaker
Be prepared, right? And stick to your guns, the fundamentals of if you invested in a good company and you believe in the future, then stay patient.
00:39:25
Speaker
I think it's interesting to hear that, Rob. Thanks for sharing. I think one thing that I noted whenever you were talking there is you mentioned the term money that you need. And I think that plays a big role is the money that you're utilizing. Is it money that you can't go without? Is it money that you're expecting and be able to expand on certain resources and stuff? Or is it something you're purely just using to work towards investing? But thanks for sharing, Rob.
00:39:55
Speaker
Yeah, we'll say it wasn't a failure of commission. It was a failure of omission, right? That's when omissions when you don't do something, whereas commission is like you committed something. So it was when we lived in Denver, when we first moved there, we decided to rent rather than buy. And a comment you made earlier, Stalen, we had some friends who bought, but they got a residency mortgage loan.
00:40:22
Speaker
for doctors who are in residency which my wife was in and i didn't know about that so i don't like. It doesn't require a down payment on the house but it's a variable mortgage payment so it could change monthly.
00:40:38
Speaker
Yeah, right. So, but regardless is like, Oh man, I'm so ignorant. Like, what if we, you know, so it's like, Oh, I didn't know that. Uh, did we make the right decision? And it's like, Oh no, we, we wanted to rant. That's fine. Well then COVID hit and in a place like Denver,
00:40:56
Speaker
It was like striking gold if you had real estate and our friends moved a few years later. And I don't know the exact amount that they netted, but based on just pure sale price, their house that they had bought three years prior went up like 250K.
00:41:12
Speaker
And it was like I struggled with that for a minute of like we could have bought like what if we had bought what if we had bought and it's like guess what we didn't buy and guess what a once in a hundred year pandemic who could have factored like it's it goes back to the concept of enough and I think that is Fles where I had struggled is competing with my peers in a sense of like
00:41:42
Speaker
I'm behind and now I'm even more behind like look at these folks now like my peers like netting all this additional income or profit and being okay with you know what this is our life we have our own family our own financial path
00:42:01
Speaker
And we're really grateful that we got to rent. And now we're grateful that we have a house. And if it grows a lot of appreciation, then great. And if not, like being content and stopping moving those goalposts based on where our peers are at. So it wasn't a failure of commission, but it felt like a failure. And I think this chapter was helpful of like what all this book's talked about is like being patient. What's our own personal wealth goals?
00:42:29
Speaker
and being content and satisfied with where we are at, regardless of where someone else is at, because there's always going to be somebody who makes more. That example of a rookie baseball player making 500K, super wealthy. But if he's on the team with Shohei Otani,
00:42:49
Speaker
He's broke. But if Shohei Ohtani compares his income to head fund managers, Shohei Ohtani's broke. And the comparison game never ends. It just never ends.
00:43:01
Speaker
Yeah, absolutely. I felt a lot of relief and peace reading the first six chapters of this book already because it puts everything in that perspective of like focus on your own path and just try and not attach yourself too much to any one aspect of your journey thus far.
00:43:24
Speaker
And I mean, Garrett, it probably would have been really easy for you to make a really quick decision to just go buy a house right then and there when you found out what your friends did and how much they made on their house. And you might have been buying at the top of the market in the worst possible time because you had some
00:43:43
Speaker
past experience where it burned you and then all of a sudden you swung too far in the other direction and made a bad decision. And that's I think the story unfortunately of a lot of people's financial lives forever. They just never get to a point to where they have like a tried and true system
00:44:04
Speaker
and discipline that they can just believe in and it's conservative enough but also risky enough to where they get what they need and it's predictable enough. It's just a really hard problem to solve depending on your context and your situation.
00:44:20
Speaker
The tales you win, I feel like this is a very mathematical chapter that's hard to explain. So he's talking a lot about statistics and talking about how the tale of a data set is like the least likely outcomes, but a lot of times it's those pieces of data in the tale that end up with the biggest returns. And so that's kind of where the tales term comes from.
00:44:48
Speaker
And I don't really know how to tie that to our life, but... Yeah. I think just another plug though of like, it's been a really good book so far. And I think for those who are listening and are not reading, it'd be a strong encouragement to go out and read along with us, go and get the book, read along with us. For sure. We've all really enjoyed it so far.
Conclusion and Community Engagement
00:45:09
Speaker
Thank you for listening to this week's episode of the Books Brothers podcast. Join us next week as we discuss chapters seven through 11 of the Psychology of Money, Timeless Lessons of Wealth, Greed, and Happiness by Morgan Houssell. If you haven't yet, go out and get the book so you can better follow along with us. If you have enjoyed listening or benefited from our conversations, please subscribe, give us a review, and share with a friend that you want to connect deeper with.
00:45:38
Speaker
Lastly, we would love to hear your thoughts. You can reach us by email at connect at booksbrotherspodcast.com or on Instagram at booksbrotherspodcast. Until next week, read, reflect, and connect.