Season 6, Episode 4
April 12, 2021
episode-hero-page
Season 6, Episode 4
April 12, 2021

Morgan Housel is a partner and financial writer at Collaborative Fund and a former columnist at The Wall Street Journal as well as The Motley Fool. 

As a financial writer, he has unique takes on money, risk, greed, opportunity, and how decisions in the business world can be applied to so much more.

Morgan Housel is a partner and financial writer at Collaborative Fund and a former columnist at The Wall Street Journal as well as The Motley Fool. 

As a financial writer, he has unique takes on money, risk, greed, opportunity, and how decisions in the business world can be applied to so much more.

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About Cash In On Better Thinking with Morgan Housel

It’s not what you know, it’s how you act. 

This is Morgan Housel’s most basic belief about investing. He is a partner and financial writer at Collaborative Fund, and former columnist at The Wall Street Journal as well as The Motley Fool. Taken together, his award-winning blog posts, columns, and news articles over the last 13 years would comprise 30 or 40 books about one of the most important topics in our lives – money. He also delves into behavior, risk, fear, greed, history, and the ways they intertwine. Morgan’s writing offers some fascinating perspectives about why people do the things they do with money, and how each of us can enhance our wealth by improving our thinking.

Through his writing, Morgan is helping people navigate the complex issue of money and understand how virtually every decision in life can be tied to fear, risk, and opportunity – the same principles that guide investing.

In this episode, you’ll learn:

  • The dream job Morgan knew right away wasn’t for him
  • The theme he looks for in every book
  • The major (but simple) financial literacy point that most people don’t understand, and the book he recommends to learn it
  • What positive impacts the COVID pandemic could have on society
  • The one vital emotion required for philanthropy

Win a Copy of Morgan’s Book – Free

Morgan’s recently published book, The Psychology of Money, uses 19 compelling stories to illustrate different ways peoples’ actions influence their wealth, both positively and negatively. These vignettes prove that success at keeping and growing money is determined by your thoughts and deeds, and not your education level or knowledge of investing. 

We’re giving away 50 copies of Morgan’s book to our listeners and fans for free. One lucky winner will also receive three of Morgan’s favorite books that teach more about happiness and greed, innovation and social change, and turning trauma into advantage. Click here to enter to win, but don’t wait – the contest ends April 19.

Morgan Housel Interview

FRANK BLAKE: All right. So let’s start with the book you published last year, The Psychology of Money: Timeless Lessons on Wealth, Greed and Happiness. A book like this, for me, is a crazy good turn in itself because you’re helping people with an important aspect of their life where it’s so easy to go wrong and that is their relationship with money and investing. What got you to write this book? What’s behind it?

MORGAN HOUSEL: Well, I’ve been a financial writer for my entire career. I graduated from college in 2008, which was a really important time because this was the teeth of the great financial crisis and that’s where I began my career as a financial writer. In the early years of my time as a financial writer, I wanted to answer the question: why did the financial crisis happen? What caused it? Why did people behave the way that they did? I realized over time, there was no ah-ha moment, but over the years, I’ve realized that the answer to that question, why did the financial crisis happen, could not be found in any economics textbook or finance textbook. You could not explain why people did the things that they did through the lens of economics.

FRANK BLAKE: I will tell you, I’ve looked for that and I haven’t found it, so you’re exactly right.

MORGAN HOUSEL: That’s because it’s not there, but you can start to explain why people did what they did through the lens of psychology and sociology and political science and history had a lot to say about these things. That just opened my eyes to this idea that investing and economics is much broader than we give it credit for. If you only view economics and business and investing through the lens of corporate finance and market, if you view it through a narrow lens of business, you’re missing so much of explanations about why people do the things they do, why they behave the way that they do, how they think about greed and fear and risk. That just opened my eyes to investing being a broader field. And I started looking for investing lessons through the lens of other fields.

I started spending all of my time reading about things that had nothing to do with business or investing, but I thought had very good insight into how people think, how people make decisions. The whole topic of what we do with our money was important to me too because I think there are two things in life that apply to everyone, regardless of whether you’re interested in them, and that is health and money. If you don’t have an interest in health and money, it doesn’t matter because they have an interest in you. Those two fields are going to impact everybody. You can go through life without understanding how chemistry and nuclear physics works, but you can not go through life without understanding how health and money works. You have to understand them.

So because it was such a universal thing that applies to everyone and because we are so apt about going astray and making bad decisions that we regret, it’s just an endlessly fascinating topic to me. I spent 13 years writing about this topic and then I just took the biggest insights that I had come across and what I thought were the most compelling stories and turned them into this book.

FRANK BLAKE: Do you have a background in psychology? Did that come to you naturally to look at it through that lens?

MORGAN HOUSEL: Not in the slightest. I have a bachelor’s degree in economics and that was it. I actually started as a full-time financial writer when I was a junior in college, so it’s all I’ve ever done. But no, I don’t have any background in it. But I think what’s interesting about psychology in particular, is that unlike physics or chemistry, the actual hardcore science background that you need to understand it is much less in psychology than it is in other fields. I feel like psychology you can wrap your head around a lot of the big topics without a formal college background.

FRANK BLAKE: I’m curious, If you’ve been writing about finance from when you were in college, how did that come about? Why? What was it that grabbed your attention on that subject matter?

MORGAN HOUSEL: See, that’s an interesting story as well. All throughout college, which for me was the mid 2000s, my plan was to go into investment banking, which before the financial crisis was as glamorous as it got. If you could be an investment banker at Goldman Sachs, there was no higher calling in the universe. That’s how it was viewed back then, very different today. In my junior year, I got an investment banking internship in Los Angeles. I thought, “Great, I’ve won the lottery. This is my ticket to the big leagues. This is it.” Day one – not even day one, hour one – I realized that it was not for me. I realized that it was never going to work, and this was my dream.

The culture of investment banking, and this was especially true back then, it’s a little different today, but the culture of it was so geared towards hazing and geared towards how can we make you work 24 hours a day? How can we grind you into the ground like you’ve never been ground before? They had this saying where if you don’t come to work on Saturday, don’t bother coming back on Sunday. It was this quote they had. I am all for hard work, I’m a hard worker. I can get things done, but this was just, it had a hazing mentality to it. It was not about doing good work, it was just about how can we punish you. So from the first day, I said, “I’m out of here. I don’t want to do this.”

So then I got a job, I got an internship at a private equity firm, and private equity I really enjoyed because it was a good mix between business and finance. It was not just finance. It was, after we finance this company, we run the business. It was a good mix between the two. But this was the summer of 2008 and everything started blowing up. The world started falling to pieces. The firm I was at said, “Hey, we’re not going to have a full-time position for you.” They were struggling to hold on at the point. So me staying on full-time after I graduated wasn’t an option. And then I had a friend who was a writer for The Motley Fool at the time, and he said, “Morgan, you’re interested in finance, you’re interested in investing, they’re hiring writers, why don’t you become a full-time financial writer for The Motley Fool?” And I had no interest, I had no background, no experience writing, but I thought okay I’ll do this for six months until I find a finance job that I like, but I ended up staying there for 10 years and just fell in love with the process of writing, and what writing does to our thoughts.

I think a lot of people miss something really important with writing, which is the person who benefits the most from writing is the author. It’s not the reader, it’s the author. Because all of us have these vague ideas floating around in our head that are kind of unstructured and we don’t really know what they mean, but just gut feelings in our head. And when you sit down and you force yourself to write about those feelings, they clarify, they crystallize in ways that once you write something down, you’re like oh I’ve been thinking about this topic for years but now that I write it, it makes sense, it’s crystallized in front of me. Or the opposite. You have this idea you really think is true, and you go and sit down and try to write about it, and as you put it into words you realize it’s ridiculous. You realize it doesn’t make any sense, it’s wrong, that you had this gut feeling that you wanted to be right, but once you put it in words you realized it’s not right at all. So writing is a great way to crystallize your thoughts in a way I really enjoyed.

FRANK BLAKE: Well it is also really difficult, for any of our listeners who tried to write, writing is hard to do, and that actually leads to another question I have, I read somewhere in my extensive notes that you’ve written over 3,500 articles, blog posts, et cetera just in the last four or five years, and you write really well and writing is extremely difficult, can I just ask how do you do that? You talk about if you’re not in on Saturday don’t come in on Sunday, the work ethic involved in that is pretty damn intense too.

MORGAN HOUSEL: I think you’ve kind of answered the question by asking the question, because the reason, if I’ve gained any writing aptitude it’s because I’ve written every day for 13 years.

And I’ve written the equivalent, if you add up all the blog posts, it’s the equivalent of 30 or 40 books. If you do anything to that degree and you don’t gain some skill at it, then there’s a problem with you. A lot of people assume that because they went to high school, they went to college, they know how to write. Of course I know how to write. But writing really takes a lot of practice to do it well. So I think most people can write to get by, they can write an email, but to actually sit down and write something that is going to compel the reader, capture their attention, keep their attention, is a skill that like anything else in life, you have to work really hard at it. If you want to become a great athlete, you’ve got to work every day. You want to become a good computer coder, you work every day at it.

So I think that’s just what writing requires as well. And I think a lot of people want to do it part time, they want to do their day job but they also want to be a great writer, but unless you’re working on it 60 hours a week, working on your writing ability, it’s hard to gain, it’s just a muscle that needs to be worked consistently, like anything else.

FRANK BLAKE: So I’d love at some point, I want to get to it later, some discussion around blogging and the difficulty of blogging. But one of the things that occurred to me as I’m reading these is your most recent blogs are terrific, and in my mind, blogging is a little bit like when I was doing real estate for stores at Home Depot, your best stores are typically located earlier on because that’s where the best real estate is and as you go through time you get to more and more on the outskirts. Not true with your writing, and I’m wondering why isn’t there sort of “what do I write about now? I’ve written about everything, I’ve exhausted the universe.” Is that not a function for you?

MORGAN HOUSEL: The first thing I would say is, I’ve made this point, and several other writers have made this point about their own careers, is that in my 13 years doing this, I’ve probably covered 10 topics, no more than that. But I’ve said those 10 things very different ways hundreds and hundreds of times. Once you view it through that lens, then you don’t really feel like you’re stretching or making stuff up anymore. And just be like look, these are the 10 things that are really, the foundations that I believe about business and investing, and how can I find stories that explain those things in different ways? I think that’s one aspect to it.

The other thing is that I write much less than I used to. I used to write two or three blogs per day. Now I write one per week. So I’ve scaled down over time-

FRANK BLAKE: That’s still a lot.

MORGAN HOUSEL: It’s still a lot, but relative to what it used to be, it’s much less. So I’ve definitely scaled down over time, and I also, I just was thinking about the science of writing, what worked and what didn’t? The good thing about blogging and being on Twitter is that you get instant feedback and it is unfiltered, unvarnished feedback. People tell you exactly how they feel. If you write a bad post, people will tell you in no uncertain terms that it’s bad and why it’s bad. So you get such good feedback writing that you learn over time what worked and what didn’t. What did people like, what did people not like? What writing style really connected with people and what flopped? That’s the skill, is paying attention to that feedback. You can learn really well over time by paying attention to it, which doesn’t that apply to a lot of things in life?

FRANK BLAKE: Yeah.

MORGAN HOUSEL: It’s the speed and the quality of feedback that you get that’s going to improve you over time.

FRANK BLAKE: Now do you read voluminously? What’s the intake mechanism for this as you go through your 10 fundamental points?

MORGAN HOUSEL: I read quite a bit. I’ve found that I probably read less than people imagine I read, I read one or two books a month, something like that, which is more than average, but it’s not crazy. It’s not a crazy amount. And then I read a lot online. My strategy for reading is this, I want to have the widest funnel available, so if anything is even remotely interesting to me, I will start reading it. I will buy the book, I will start reading it. If it’s even slightly interesting. But I have a very tight filter, which means that if I start reading a book, and even after two or three pages I realize it’s not working for me, I stop reading it.

I think a lot of people burden themselves with bad books, and they think that if they start a book they have to finish it. And I am the opposite. I will cut a book very quickly and realize this is not for me. Even good books. If people start reading my book and they say this isn’t for me, you will not offend me. Don’t burden yourself with a book that’s not working for you. So I start with a really wide funnel and I cut it down with a really tight filter, and that’s my whole strategy for reading.

I almost never read business investing or economic books, I’m always trying to read about other topics, I’m on this kick lately about the missions to the moon in the 1960s and ’70s. For years it was World War II. I wanted to learn everything about World Word II. Right now, it’s the Apollo missions. I kind of go in those chunks and I just want to read as much as I can. And through that reading, I’m constantly looking for how does the lessons from this topic about the Apollos missions, about World War II, apply to investing? And if you’re always thinking through that filter, you’ll see these stories everywhere. That how people think about greed and fear and risk and opportunity in the Apollo missions, also applies to investing-

FRANK BLAKE: Interesting.

MORGAN HOUSEL: And how people strategized in World War II, also teaches us something about investing. It’s all just under this big umbrella of how do people think and make decisions. That’s what business and investing is, and that applies to so many other things.

FRANK BLAKE: All right. So I’m just going to pick from quotes of some of your recent blogs and just ask you to expound a little bit. You did a great one that was titled A Few Things That I’m Pretty Sure About. And in that you have a, quote here, “That the key to investing is having a well calibrated sense of your future regret.” Is that about risk tolerance or something more?

MORGAN HOUSEL: I think it’s mostly risk tolerance, that all we’re trying to do with risk is make sure that we don’t cross the point in which we’re going to cry uncle. That’s really what risk is, and whether that’s in business or investing or anything else in life, once you cross the point where it’s too much, then you incur permanent damage where you can’t go back. If you’re an investor, that’s when you sell. If you’re a business that’s when you maybe want to quit, or you get fired, whatever it is. And I think the best way to think about investing risk is just how can I endure damage without it really affecting me and causing permanent loss. So how can I endure volatility? How can I endure uncertainty? Not try to avoid it, not try to get rid of uncertainty, but just endure it up to the point and make sure I never go past the point of regret. Up to the point where I’m going to look back and say this is too much, I need to throw in the towel.

That’s all that investing is, is understanding where that line is, and the hard thing is it’s different for everyone. Where that line exists is different for me and you and everyone else. Even people from the same generation, same income, identical backgrounds, will have a different location of where that line exists. And I think that confuses a lot of people. We want to think of investing as it’s like math, like 2 + 2 = 4 for me and everyone. It’s the same for everyone, there’s one right answer. And it’s just not. That’s not how it works. Everyone has a different risk tolerance, different feelings, and because of that, lots of the arguments in investing and business are really just people reflecting that they have different risk tolerances.

If I’m saying you should buy this stock, and you say that stock is too risky, we could both be right, we’re not disagreeing with each other. It’s just we have a different line, and that’s where you need to understand your calibrated sense of future regret. Not where is the economy going or what the market’s going to do, but what is your personal degree of future regret for these decisions if these decisions go wrong. Because the most important part that I’ll end with is realizing that all of business and investing, what we’re trying to do is put the odds of success in our favor. There are no certainties. We’re just trying to put the odds of success in our favor. And one thing that comes from that is the odds of success are almost always less than 100, which means that you can make the right decision, you can make a good choice, a good decision, and it still goes wrong. It still goes against you. And you need to understand that if and when it goes against you, if you’re going to regret that in a way that’s going to cause permanent damage to your career, to your portfolio, your reputation, you need to make sure you never go past that point.

FRANK BLAKE: Do you find as a general matter as you interact with folks that they are more financially literate than you expect, or less?

MORGAN HOUSEL: Less, for sure.

FRANK BLAKE: Yeah.

MORGAN HOUSEL: And I would even say that is true for some financial professionals. I think it’s really true. Not necessarily financial literacy, I think it’s risk literacy is what it is. Because a lot of financial professionals can make a discounted cash flow model, they understand the capital asset pricing model, they know the formulas, but do they understand the psychology of their own risk? The psychology of how other people think about risk? That is what actually drives the market, whether it’s the business market or the financial markets, that’s actually what’s moving the needle is just what are people thinking? It doesn’t matter whether your model says right or wrong, but how do people actually think? I think a lot of financial professionals and ordinary people, it’s not necessarily financial literacy, it’s risk literacy that really is what’s lacking. But there is of course a lot of lacking of financial literacy as well, of people that just don’t necessarily understand the mechanics. But we’re seeing that have been written lately, whether it’s with Bitcoin or with GameStop, that a lot of these people who were fortunate enough to sell GameStop after it went up 100 fold, don’t understand that capital gains taxes are a thing, and a lot of them will go out and spend all that money.

FRANK BLAKE: Right.

MORGAN HOUSEL: And realize next April what happened. There’s quite a bit of that that goes on. And back to what I said earlier about the two topics that affect everyone, health and money, we have to promote financial literacy. It’s not just a nice to have, it’s incumbent in the success of everyone’s lives that we understand how money works, because it’s going to affect everyone no matter who you are, what you’re doing, what your income is, money is going to affect you.

FRANK BLAKE: Other than reading your book, what is the one thing you’d suggest to the folks who are listening now and don’t necessarily count themselves as either financially or risk literate?

MORGAN HOUSEL: There’s a really good book by a German professor named Gerd Gigerenzer and the book is called Risk Savvy. And he talks about this, what we’re lacking in society is risk literacy. And he has devoted his career, he has a PhD in understanding how people think about and measure risk.

FRANK BLAKE: Sounds like a tough read.

MORGAN HOUSEL: In all aspects of life.

FRANK BLAKE: I’m going to your book, that sounds like a hard book to go through.

MORGAN HOUSEL: That’s a great point to bring up, because it’s not. It’s an easy read. He tells stories that are easy to think about. It’s not academic in the slightest. But he makes so many great points about how it’s so easy to interpret risk in different ways. He makes these points about really simple things like if you log onto your weather app in your phone and it says there’s a 50% chance of rain today, what does that mean? Some people will think that it’s going to rain in 50% of the locations in your town. Some people think that it will rain one in two days. People interpret it totally differently, and that’s a simple example, but when you start talking about financial risk, investing risk, and we don’t even agree on what risk means, we don’t know what it means, just like we don’t know with the weather, he gives so many examples about this in life. He also talks a lot about how risk is different culturally.

FRANK BLAKE: Interesting.

MORGAN HOUSEL: How Germans, where he’s from, how Germans think about risk is very different from how Americans think about risk. There’s this point that he makes that I love which is that in Austria, nuclear power plants are viewed as the riskiest, most dangerous thing you could ever imagine, they view it as just the dumbest thing you could do. The French are the opposite.

FRANK BLAKE: Right.

MORGAN HOUSEL: The French are like oh let’s build as many as we possibly can.

FRANK BLAKE: Right.

MORGAN HOUSEL: Look, the Austrians have the same data as the French, they have the same engineers, it’s just a difference in culture, and that’s just one example of how we think about really important things in completely different ways.

FRANK BLAKE: Yeah. All right. So I’ve got to give you another quote from another recent blog, the title of which was The Reasonable Optimist, which I think is a great title, and there’s a quote that says, “Progress happens when people learn something new, and they learn the most as a group when stuff breaks and gets painful.”

MORGAN HOUSEL: Yeah.

FRANK BLAKE: That feels like COVID.

MORGAN HOUSEL: That’s exactly true in the last year.

FRANK BLAKE : What do you think, where’s the progress from COVID? What do you think we’re going to learn from it?

MORGAN HOUSEL: Let me back up a little bit. I would say the best example of this is kind of the combination World War II and Cold War, where so many of the technologies, including ones that you and I are using right now, were borne out of World War II and the Cold War. The biggest progress doesn’t happen when everything is great and people have full bellies and big bank accounts and they say, “Let’s go out and do some innovation.” That is not when innovation occurs. Innovation comes when people are panicked, and they’re innovating to save their lives, and that is their incentive. So the amount of innovation that took place during World War II is off the charts.

World War II began on horseback and ended with nuclear fission, and what happened in between there, whether it was the birth of rockets, jets, antibiotics, radar, go down the list, the number of things that came specifically from World War II is ridiculous. Same with the Cold War. During the Cold War we were fighting for our lives, we were fighting against the annihilation of planet Earth, and because of that we came up with rockets, GPS, we became experts on nuclear energy, microchips, helicopters, it goes forever. These things that came out of this traumatic period in our lives, and the last 12 months is of that of course as well.

Now the thing is, the reason why I like talking about World War II and the Cold War is because we have a lot of hindsight to look back and see what actually came. We don’t have that hindsight with the last year yet, but there’s this incredible headline that I think is giving us an indication. The headline is from two weeks ago, this is not my domain, but it seems like we are close to creating an mRNA vaccine for malaria, and we are doing that specifically because of what we have learned in the last 12 months.

FRANK BLAKE: Yeah.

MORGAN HOUSEL: In mRNA research for creating a vaccine for COVID. That is one example, malaria. In sub Saharan Africa is an absolute savage of a disease that kills countless people, and if we can create a vaccine for that, and specifically create it because of COVID, that would be incredible, but that’s also consistent with how these things tend to work. There’s a lot of discussion, again this is not my domain at all, but people who are smarter than me say the idea that we can make a big leg up on cancer with mRNA treatments as well, maybe over the next decade, is pretty high. And that might not have happened if we had not had this ridiculous surge of activity and innovation around mRNA treatments in the last 12 months. So historically, that’s always been the case, that whenever there is a big upheaval to society, good things come out of it.

So there’s so many of these changes, and I don’t think we’ve even scratched the surface in terms of where it’s going to go.

FRANK BLAKE: All right. This will be the last one I’m pulling from your blog. I love your one on the Best Story Wins, because I found that true in business, in running a business that the stories give you enormous leverage to tackle complexity. And then you have a great discussion around psychological moon shots, if you would sort of give a…summary of what your insights are there.

MORGAN HOUSEL: Well the biggest thing with Best Story Wins is this idea that people are inpatient, and people do not have the patience to hear you spell out the right answer. Let’s say you have the right answer but it’s going to take you two hours to tell me that right answer, I don’t have the patience for that. No one has the patience for that.

FRANK BLAKE: Right.

MORGAN HOUSEL: But if you have an okay idea, or even a wrong idea, but it’s very compelling and you can explain it to me in 10 seconds, I’m going to listen to you, and you’re going to get most people’s attention. And whenever you get people’s attention, that’s where the world goes. For better or worse, that’s what happens. Best story always wins. The example that I give in the article is Ken Burns, the famous documentarian.These are not new events, but Ken Burns can tell a better story than anyone else. The music that he adds to it, the narration that he adds, the images that he adds in better than anyone else can do.

How many books are there on the Civil War? Hundreds, maybe thousands, but when the Ken Burns Civil War documentary came out, more Americans watched it that year, I think it was 1991, than watched the Super Bowl.

FRANK BLAKE: Wow.

MORGAN HOUSEL: Just by telling a good story about this.

FRANK BLAKE: Wow.

MORGAN HOUSEL: The thing about psychological moon shots came from an author named Rory Sutherland. The example he gives is this, to make a train 10 times faster, really difficult. Engineering, the cost, very, very difficult. But to make a train 10 times more enjoyable, maybe not that hard. Make the boarding process a little bit better, give you more legroom, make the air smell a little bit better. To give you a psychological moonshot is way easier than a technology moonshot, and I think that’s his point was that’s where most improvements will lie in the coming century. Maybe the last century or two centuries was technological moon shots. The engine, the railroads, electricity, air conditioning, those are technology moon shots. There is so much more room to move the needle now with psychological moon shots.

The other example he gives is Uber, which just the fact that on your phone you can see how far away your driver is, and you can see on the map that he is coming to you, that makes it so much easier than when you used to call a Yellow Cab and just cross your fingers that he was coming.

FRANK BLAKE: Right.

MORGAN HOUSEL: So it’s just a tiny little improvement that makes things better, and I think that idea is almost like telling a better story. It’s not that you need to move mountains to create a better business, you just have to figure out how to make it a little bit easier and more compelling for people.

FRANK BLAKE: No, the Uber example is perfect because the experience of whatever the vehicle is coming to you, I now can attach the progress, I can make my own story, I feel better about it. The certainty has been provided.

MORGAN HOUSEL: It’s the certainty, that’s it.

FRANK BLAKE: Yeah. So money ties also to generosity and attachment to money to the difficulty in generosity. As you’ve read and written and watched this, are there some observations that you have just around generosity as either a vehicle for driving wise financial decisions, bad financial decisions, or has nothing to do with it?

MORGAN HOUSEL: If there’s a point on this topic that is most interesting to me, it’s that what we, I think particularly people in the western world need when we’re thinking about money is empathy for people who have not had it as well as we have. That’s particularly true for most people listening to this podcast, that point before, and I think this is true for yourself, I am a college-educated white American male, and I need to remind myself that other people see the world differently who are different. It’s not my fault and I’m not ashamed of that, but because of that I’m going to see the world differently than other people would. And I think it’s really important to have empathy for other people who have seen the different world, who have experienced different things, whether that’s in the past or today, to try to put yourself in their shoes.

I make this point in the book that if you look at lottery tickets, the vast majority of lottery tickets are bought by the lowest quartile of Americans. People for whom they are literally struggling to buy food, spend on average $400 a year on lottery tickets. It would be very easy for me and you to look at that and say, that’s a bad decision, you people are crazy, why are you doing this? You can’t even afford food and you’re buying scratcher tickets. But I think if you try to empathize a little bit and you put yourself in their shoes and you say look, if you are one of the lowest paid Americans, you might feel like you don’t have the opportunity to advance your career, to save and build wealth that you and I might, and therefore if you feel stuck in your low income job, there’s no way out for you, there’s no path for advancement, then maybe buying a lottery ticket is the only time in your entire life that you could say I have a ticket out. This is my map out of my current circumstances, this is the only thing that’s going to get me out.

If that’s the only thing that gives you financial hope in your life, then maybe it makes a lot more sense of why these people who are struggling to feed themselves are buying scratcher tickets. If you try to become empathetic with their situation, maybe it makes a little bit more sense. And I think this all filters down to charity and giving as well, because what charity and giving requires is empathy. Empathy for other people who are not in the same situation that you are.

Now that’s not a topic that I’ve done a lot of research on in terms of charitable giving in general, but I think that’s what it requires. I know that’s been the case for the giving that my wife and I have done in various ways. There’s a lot of times when you learn about someone else and it’s just unfathomable, the situation that they’re going through seems completely unfathomable to you. I think there’s so much of that in the world, no matter who you are, on both sides. To me that’s the core of giving, is just empathy for other people’s financial situations and the backgrounds that they’ve come from.

FRANK BLAKE: I also think it ties into your reasonable optimist, you have to be a little bit optimistic to be generous, because you’re trying to make a difference and you’re trying to see how progress can happen. So I love that phrase, the reasonable optimist, because I think that’s an important structural capability to hold onto.

So this is a question I ask everyone, someone who’s done a crazy good turn for you? Someone who’s made a difference in your career, personally, could be anyone, that you just want to acknowledge, here’s someone that people don’t even know about but did an amazing thing for Morgan.

MORGAN HOUSEL: I think about a guy named Brian Richards who was my first boss at The Motley Fool, who was maybe the first person who believed in me as a writer and was willing to take a chance, was willing to take a risk for me, to help my career as a writer, during a time when maybe I showed a little bit of promise but not much. And he really stuck his neck out for me in a way that if he didn’t I wouldn’t have been here today. And whenever someone takes the chance on you, especially when they don’t need to and it doesn’t really benefit them, but they’re going to take a chance on you in a way that might hurt their reputation if it goes wrong, but they’re still going to do it, at the time I was thankful for it, but now I look back and it was life changing for me. And he didn’t need to do it. 

So I look at things like that as not just grateful, but how can I return that favor to someone else? How can I take a chance on someone else when I don’t need to and maybe there’s some risk for me, but it might pay off for them. It’s a hard thing to do but I think about that a lot in terms of just someone who made a little decision 12 years ago for my writing career as my boss at The Motley Fool, that changed everything for me, and I’m so grateful for it. He’s still one of my best friends, we talk all the time. 

FRANK BLAKE: So I’ve got to do something for our listeners here because I loved your book so much, we’re going to give out 50 copies of your book free to listeners, but I want you to add to that, I know you did a blog on books that you like, but add to that three books. So if you’re going to give three books plus your book that everybody, that those folks could get, what would they be and why?

MORGAN HOUSEL: Sure. I’m peeking at my bookshelf right now to pick out some good ones that I’ve read recently. There’s a book called Fortune’s Children I wrote a short blog post about this recently, but it’s such a good book. It’s written about how the Vanderbilt’s, how Cornelius Vanderbilt went from his net worth, adjusted for inflation, was about 250 billion when he died, and within two generations it was all gone. His heirs squandered every cent of it, and the book is about how they did it. How his heirs-

FRANK BLAKE: How they squandered it?

MORGAN HOUSEL: Squandered the largest fortune. How they squandered it. It just became a social battle to see who could live the most extravagant life, and the crazy thing about this was that they were all miserable. Every one of them. I don’t think that’s an exaggeration. They were all just fighting to see who could build the biggest house, who was the most loved by society, who could splash the most money on society, and they all had miserable lives. And there is so much to learn from that book in terms of what money can and cannot do for you. That book is called Fortune’s Children.

Another book by a historian named Frederick Lewis Allen, it’s called The Big Change. And it’s about how America changed from 1900 to 1950. And the amount of technology and social change that took place during those 50 years is off the charts. 1900 was horse and buggy, and 1950 was rockets into outer space.

FRANK BLAKE: Right.

MORGAN HOUSEL: He talks about how life changed for the average, ordinary American. Which is different because most historians talk about the big players, Winston Churchill, FDR, that’s who the story is about. Frederick Lewis Allen wrote about the average auto mechanic in the middle of Ohio. What was life like for him? How did life change for him during those 50 years? And it’s so well written, it’s so informative.

And then the third book, there’s a book called The Choice by a woman named Edith Eger, who, absolutely remarkable story, she was living in Hungary, and she and her family were taken to Auschwitz in 1944. Her parents were murdered as soon as they got there, her parents were sent to the gas chamber, and she and her sister who were teenagers at the time survived Auschwitz and the horrors of it. She eventually moved to the United States, got a PhD in psychology and became a therapist, and she focused on the psychology of trauma, which she understood because she was in Auschwitz. And the book is so well written and the stories are so jarring. When you hear a first-hand account of being in Auschwitz for a year, and also what she learned from it and how she was able to take that lesson, become a clinical therapist, and help people who have been through their own traumas.

It was a book that I read in a couple of sittings and I cried several times while reading it, and I put it down. It was a life changing book, so everyone should read that as well. It’s called The Choice.

FRANK BLAKE: Wow those sound like three outstanding books as well as your own book. So I look forward to giving those away. And for everyone who’s listening – honestly, I can’t describe how this is just sort of skimming the surface of a lot of your thoughts and insights – where are the best places for them to go to learn more about you, what you’re doing, what you think, and so on?

MORGAN HOUSEL: Most of where I live, where I spend my time, is on Twitter. My handle is Morgan Housel, my first and last name. Everything that I write and everything that I’m thinking about is going to end up on Twitter. And also our blog, which you can find via Twitter or if you just Google my name, and then the book, The Psychology of Money. And then in the future there’s going to be more books. It’s my goal to write a book every two years going forward. So there’s going to be more out in the future if you’re patient.

FRANK BLAKE: So I will, I’ll end with a question that I deferred from earlier on, just about blogging, because it seems to me actually one of the things of the new technology that is going to be a sustaining, different kind of format, because it is, it doesn’t take a lot of time to read it, but they are awfully well thought out and there was no, in my opinion, there was not as much of an affected mechanism to get at that sort of material as there is now. Do you enjoy that? Or do you go eh, gee I wish I could get past this format, do it differently.

MORGAN HOUSEL: Here’s what I love about blogs is that people are impatient, and if someone buys your book and is holding your book, they’re going to give you a little bit more time, little bit more patience to try to get through it. But on a blog, if you don’t capture people’s attention in five seconds, they’re gone. They’re going to click away, find something else. So blogs force the writer to be really succinct. And succinct writing is what makes all good writing, it’s just brevity. The person who can say the most stuff in the fewest words wins. Blogging forces you to do that in a way that books give you a little bit more leeway, but blogging is really what forces people to get to the point quickly.

FRANK BLAKE: That’s great. That’s terrific. Well you do a phenomenal job at it, and as I say, your book is terrific, your blogs are terrific, and I hope everyone who’s listening takes the time to just key into what you have to say, and thank you very much Morgan for participating. This has been great.

MORGAN HOUSEL: Thank you so much for having me, thank you.

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