Morgan Housel, author of the best-selling "Psychology of Money," is back with more real-life tales imparting wisdom about wealth and the wider world we live in.
In his new book, "Same as Ever: A Guide to What Never Changes" (out Nov. 7), the former financial reporter uses nearly two dozen engaging vignettes as jumping-off points to examine everything from the folly of financial forecasting to the inevitabilities of capitalism and the benefits of inefficiency. The stories that inspire his thinking often hail from unexpected origins — nature, history, evolutionary biology — though Housel consistently brings his narrative back to what we can learn from distinct patterns of human behavior. If we can understand those things that never change, Housel posits, we'll have better insight to what the future holds.
Financial Planning spoke with Housel in October. The interview has been edited for length and clarity.
Financial Planning: How did you make the jump from writing about "The Psychology of Money" to focusing on what is the "Same as Ever"?
Morgan Housel: Even if on the surface they look like very different topics, I think they're actually very related. Trying to figure out what is going through people's heads is really the core of both of them, so I feel like there's actually quite a bit of overlap. I've always been interested in what's going through people's heads.
Our collective track record of predicting the next recession or the next bear market is so bad. There's two things you can do with that. One, is you can become kind of a cynic and say nobody knows anything. But the second is, well, what if we just focus our attention on what we know is never going to change, rather than fooling ourselves into thinking that we can predict the next change? What do we know for certain is going to be part of our future? And let's just put all of our emphasis on that. That's been a big theme that I've been picking out for years, trying to find those stories. That's really the genesis of the book.
FP: From a wealth management perspective, how can focusing on what's never going to change be beneficial?
MH: Nobody has any idea what the
FP: You write that having a good imagination can help people be better prepared for unforeseen risks.
MH: Think about the two biggest risks to hit financial markets in the last 20, 25 years. In my view, it's Sept. 11 and
The biggest risks are the things that you don't see coming. It's almost certain that the biggest economic risks of the next five years — the next 10, 20 years — are things that nobody is talking about today. It's going to be some out-of-the-blue surprise. That's why, from a tactical standpoint, I think the level of liquidity and savings and cushion that everybody has in their finances should feel like it's too much — it should make you wince a little bit. If it feels like it's too much, you'll have a fighting chance to handle the surprise you cannot even envision right now. If you're only saving for the risk that you can foresee, you're going to miss a surprise every single time.
FP: In "Same as Ever," you see connections to investing or investing behavior in areas far afield from finance, whether it's history or evolutionary biology or sports. How are you drawing those lines?
MH: I always view investing not as the study of finance but the study of how people behave with money. And that's a very wide umbrella. Virtually every topic is the study of human behavior and how people make decisions.
There's a lot we can learn about investing by studying politics and military history and biology and medicine and sports — all these things that look completely unrelated but still deal with people's ability to live in a world with risk and uncertainty and greed and fear. Once you have that wider lens, to me, at least, it's more interesting. It gets you closer to the truth of what's actually happening out there.
FP: You also talk about the dangers of certainty and overconfidence.
MH: If you were to take an accurate view of the economy, you would come up with something along the lines of "nobody knows." And that hurts. Like, that's not a fun thing to think about. Certainty reduces the uncomfortable feeling in your head that you get from uncertainty. So, if you turn on CNBC, and you see a guy who says, "I know with 100% certainty that the economy is going to do X, Y and Z over the next year," that makes you feel good, because you just reduced the uncertainty in your head.
But if you go on and say, "I don't know — 20% chance it could go up, 20% chance it could go down," that's the last time you're ever going to be on TV. Nobody wants to listen to that, even if that person is historically and statistically way more accurate. That's the kind of person who you should be listening to — but the person who pounds the table is going to get all the attention.
FP: Can you talk about the idea "calm plants the seeds of crazy" — that stability is destabilizing?
MH: Back in the 1960s, there was this great economist named Hyman Minsky, who came up with this idea that he called the financial instability hypothesis. When the economy is stable, people get optimistic. And when they get optimistic, they go into debt. And when they go into debt, the economy becomes unstable. So the reason the economy becomes unstable is because it used to be stable. Therefore, he said, you can never imagine a world in which there are no recessions, no booms and busts, because the absence of recessions is actually what creates recessions.
I think it's the same in the stock market. When there's no volatility, people think there's no risk. When they think there's no risk, they're going to bid up valuations very high. And once valuations are really high, it gets risky. So you can never get rid of bear markets because their absence is what plants the seeds of the next bear market.
Once you come to terms with that, you become much more comfortable with volatility, with recessions. And you don't view it as a flaw of the system — you view it as an inevitable structure of how capitalist economies work. Whenever there's a boom and bust of a recession, there's a tendency to point fingers. "Who's responsible?" You view it as somebody screwed up, somebody made a mistake. I think a healthier way to view it is that this is just an absolute inevitability of this system. It's not like a car accident where somebody made a mistake. This is just like a thunderstorm — not fun, but an inevitability that there's not much we can do about.
FP: On the Collaborative Fund blog
MH: It's a natural thing that so much of our society is based off of — consumption to impress other people. Everybody does it. I do it. But nobody is thinking about your house or your car or your clothes or your jewelry as much as you are because they're thinking about themselves. Once you realize that, then I think your aspiration to show off and impress strangers diminishes. And that's a tremendously powerful financial asset.
So many people have a degree of lifestyle bloat, or lifestyle debt, and the core of that debt is this desire to impress strangers. And once you can — probably not remove, that's probably impossible — but at least tamp down on that, you realize that that's an asset that is more valuable than picking the right stocks or having the right investments.
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FP: You've
MH: This December is going to be almost the opposite. I'm writing a new book called "The Art of Spending Money," writing most of it in December and in January. It's about personal finance, almost nothing about investing. It's [about] how we think about what we want in life. Society has really ingrained in virtually everyone that you want to be rich and materialistic, because that will make you happy. But evidence of that is so lacking. People who've gotten there, reached the mountaintop, so to speak, found that very underwhelming. [The book] is digging into their stories, what can we learn from that, how we can spend our money better and what our financial goals and mindset should be. It's all outlined, but I haven't written it yet.
FP: So no December break for you this year.
MH: Four years in a row, I took the whole month of December off, and it's always so fun to think about in October and November. Every single time it's played out the same way. It's really great for about five days, and by Dec. 5, I'm bored. By Dec. 10, I'm like borderline depressed. That happens every year but still, it's so fun to think about.
I think a lot of people who do the early retirement process, they imagine a life in which early retirement would be so big — and then they actually do it. And it's the same thing. They go from boredom to depression very quickly. Most people want to be productive, they want to wake up and do the best work that they can do. That's what's actually going to make them happy. It's a great reminder that even if work can be hard and stressful, sometimes not working and not being productive is even worse.
