Market Mayhem: Morgan Housel on Navigating Financial Storms | Speak Up with Anthony Scaramucci

Morgan Housel 0:00
I have no idea when the next recession is going to come. I have no idea what’s going to cause the market to fall 30% Next, but whenever it comes, or whatever causes it to fall 30% I’ll be prepared for it financially and psychologically.

Anthony Scaramucci 0:20
Right, well, welcome back to speak up speak up with Anthony Scaramucci. Today we have Morgan Housel, Morgan sold four and a half million copies of his collection of books. But I just told Morgan before the show started, he asked to promise me a drink when he gets to the 100 million copy, hopefully, obviously will drink before that. But he is going to get to the 100 million copy because of his writing style, his insight into life. He’s a modern day, Ben Franklin, if Ben Franklin and Charlie Munger had a baby, it would be Morgan Housel. Although you are a lot better looking than Ben Franklin,

Morgan Housel 1:00
I was, I was gonna say that’d be that’d be an ugly ass baby, no.

Anthony Scaramucci 1:04
Two of them, but you are the International Best Selling Author, you are a partner at the collaborative fund. And most recently, the author of same as ever, you also wrote the book called psychology of money. I gotta tell you, Morgan, I love both of your books. For different reasons, by the way, because the the money book and the same as ever book, they had similar themes. But it really crystallized some things that you need to do. If you want to have the great habits of success, become financially independent, but then just also understand what’s going on around you in life. And frankly, your books were humbling for me because it forced me out of my perspective box, that they give at a much broader perspective. And that’s what I hope we can do today. For our wealthy on customers that tune into the show, here at Wealthy on we want to help our community and audience learn as much as they can about money and investing so that they can build their own wealth and realize their financial goals. Morgan with all your research across your books, in your experience, let’s start there. What’s the most important lesson? What’s the one thing about money and wealth?

Morgan Housel 2:13
Well, I think you kind of hinted on it, Anthony. And thanks again for that, that that wonderful intro. I think the biggest thing with money that impacts everyone, whether you are broke, or a billionaire, and everybody in between is just the acknowledgement that it’s a very personal endeavor, there is no one right way to do it, there’s no one right way to invest, there’s no one right way to save or spend. It’s very personal. And what makes sense for me, might be crazy to you, and vice versa. And for everyone else listening. And I think that is like we are all just products of our past the past that I had my childhood, my teenage years, my adult years, shape and influence how I view the world, as does yours, as is everybody else’s. And I think most financial debates, whether it’s an investing debate, personal finance, debate, spending, debate, lifestyle debate, that people are not actually disagreeing with each other. It’s two people with different life experiences, different personalities, different goals, talking over each other, yelling over each other. That’s really what’s going on. So I think the single most important thing with money regards how much money you make, is spending more time looking in the mirror and trying to figure out who you are, what you and your family want out of this, like money is a tool to give yourself a better life. And there’s a bunch of different ways to use that tool. And I think a lot of money problems come when people are investing or spending or saving in a way that they think society wants them to do it. Like I’m supposed to do this, I’m supposed to invest this way. But it doesn’t fit their personality. And then they become frustrated with like, oh, I made I made some money and I’m investing in spending it but I don’t feel any different. Or maybe I even feel worse. I think that’s the core cause of a lot of problems. It’s just not figuring out who you are.

Anthony Scaramucci 3:51
In this. I think there’s so many aspects of the way you write as That’s brilliant. But I want to go into one aspect that I try to teach people particularly my children is the FOMO aspect. And so I watched this happen in the internet. Morgan, back in the year 2000. Everybody was chasing the Internet are now chasing AI. It looks like we’re chasing crypto again. We were running away from crypto we’re now chasing it again. Tell us about FOMO tell us about what happens to human psychology, steeped in bathed in FOMO the fear of missing out and how it affects their investment decisions.

Morgan Housel 4:32
This is great story from Marc Andreessen, the venture capitalist. He also founded Netscape back in the 90s of course, and he tells a story about he got to Silicon Valley. I think it was 1993 and as he told the story, he thought that the internet era was over then like he like his fears fear when he got there 93 was oh, I missed it. All of the big opportunity for the internet. It’s gone. Everyone’s heard and in hindsight, it’s ridiculous hadn’t even started yet. But the the idea that like oh There was a little bit of of gains yesterday, last month last year, and like, Oh, I’m late, I’m missing it, I gotta go get it. That is the cause of so many investing mistakes. And the Andreessen example is actually perfect. Because what happens when you zoom out? And like, you’re like, No, let’s look at this over a 10 year period, a 20 year period, a 30 year period, you’re like, that’s, that’s where the gain was, you think the gain last month was big? Like, look what happens if you can actually stick around for a reasonable period of time. That’s when you don’t just make some money. That’s when you get rich when you get wealthy. And so much investing problems are people just like chasing returns that look good in the short term at the explicit expense of way bigger returns in the long run. I’ll give you another crazy example here. Because we have a lot of time to record, I can stretch my legs and tell some stories here. There was a story that I heard recently that in 2002, the wreckage of the.com, bubble, Amazon bonds, were like in wreckage people that Amazon is going to go out of business, maybe they almost did. And there were like two kinds of bonds that were trading. One was a short term bond that was trading for I think it was like, it was like 10%. And the other was a 10 year bond, a longer term bond trading for like 9%. Now that shouldn’t be the case, the longer term bonds should yield more. I don’t want to get too wonky here. But like that, of course, that’s how it should work. But it turned out that the the investor who was buying the long term bonds for a lower yield was Warren Buffett. And he was asked later, he was like, why would you buy a long term bond at 9%, when you can earn a short term bond at 10%? Makes no sense. And he said, No, it makes perfect sense. Because earning 9% For 10 years is way better than earning 10% for two years. And so it’s just like, once you once you take a longer view, all of these things start to make sense. And I view that for myself, like how I invest my money, we can go into that in more detail. But I dollar cost average into index funds. I don’t recommend other people do that. I don’t think that’s the best way to invest. But it’s what I do. And the reason I do it is that if you can earn average returns for an above average period of time, like make the thing that you’re trying to maximize time not returns, you end up ironically with oftentimes the biggest returns. And so I think so much of investing is just like, if you can take yourself out of the short term game and zoom out a little further, everything makes sense. And you’ll probably make more money doing it. So

Anthony Scaramucci 7:20
it’s it’s a seminal thing. And I’ve told this to wealthy on viewers and listeners before, by accident, I miss pate placed a $1,200 investment in Microsoft. This is when we slide paper accounting and so forth. I had left Goldman Sachs, they couldn’t find me they were sending it to the wrong address. 30 years later, somebody recognizes my name and Colvin calls me and there’s $71,000 in the account. This is all the dividends, all the accrual. And by the way, Morgan, I would have sold that 10 times 10 times to Tuesday, during the steep bomber years when the stock was flat, actually went back and looked at the chart, there were three, five and an eight year period of time where the stock flatlined over the 30 years. And if you just hung in there, you have this massive gain massive long term capital gain accruing interest, dividends that are increasing annually. And so this is a very, very big lesson. This is the Warren Buffett lesson in something that he mastered alongside of Charlie Munger, let’s switch gears talk about risk your book same as ever, Timeless Lessons on risk. Tell our viewers and listeners something you’ve learned in your Odyssey and investing but also life such as managing money and the risk of money, but also how you think about life, put it into perspective for us. And you are correct. This is a show where we do a deep dive so you have plenty of time.

Morgan Housel 8:56
I think there’s two things about risks that stick out. And these apply very well to investing but they apply to almost every endeavor in your life and everybody’s life, the whole society at large. One is that risk is what we don’t see. Which at which by by which I just mean, we can spend all day trying to calculate risk. Think about risk, talk about risk, read about it in the newspaper, watch about it on TV. And that’s great, you should do that. But it’s always the case that in hindsight, looking back, the biggest risk is the thing that was not on any of those lists that nobody was talking about. It’s always a surprise. And people always talk about investing that experts are not very good at seeing the future. At like seeing the next recession seeing next bear market. I actually don’t think that’s really the case. I think we are very good at predicting the future, except for the surprises, which tend to be all that matter. Those are the risks that actually move the needle. So if you think about the biggest economic risks over the last 20 or 25 years, I would say it was September 11. Lehman Brothers not being able to find a buyer During One Crazy Night in September 2008, and COVID, those are the three economic stories that like really move the needle for everybody. And the common denominator of all of those is that nobody saw them coming. Lehman is a little different, because obviously there weren’t, it was, you know, there was a good 12 month leeway until like, you could see things hitting the fan coming up to it. But the idea like Barclays was like hours away from buying Lehman Brothers would have been a completely different story, the fact that they didn’t get approval from the regulator, is what completely changed the course of the global economy. And so it’s always the case that in any 12 month period, or an indefinitely, a longer period than that, you look back and you’re like, Oh, if I had to make a list of the biggest risks, in hindsight, the thing was, the thing that sticks out is that those risks is that nobody saw them coming. And it’ll be like that going forward, you can easily say, with so much confidence that the biggest risk over the next year and five years, definitely 10 years is something that you and I are not talking about today. It’ll be some crazy surprise. Whether it’s a war or a new pandemic, or like whatever it would be like, by definition, you can’t think of it. That’s always what it is. And so for me, the takeaway for that is this great quote from from Talib, when he says, invest in preparedness, not in prediction, don’t waste your time thinking like fooling yourself into thinking that you can predict what the economy is going to do over the next 12 or 24 months, like whatever it is, by and large, virtually nobody can do that. I’m not gonna say nobody can do that. I’m not gonna say it’s, it’s not worthwhile. But that’s not really where the good financial activity comes from. Spend your time in preparedness by saying like, regardless of what’s going to happen anyway, I have no idea when the next recession is going to come, I have no idea what’s going to cause the market to fall 30% Next, but whenever it comes, or whatever causes that to fall 30%, I’ll be prepared for it financially and psychologically. And so this is why I think room for error is so important in investing of like, of like, when you’re forming your asset allocation, your desire for cash, your desire to avoid debt, whatever it might be, is so important, once you take the humility that we don’t know what the biggest risk is going to be next. And I think most financial problems don’t come from people like making a bad prediction. It’s like they made a prediction that needed to be 100%. Right, they had no room for error in their asset allocation, or in their psychology, they were completely just mind blown when there was a big risk that came like COVID. That’s the first thing about risk. That the second thing that I think is really important is just the idea of of tails. That it’s not and this really relates to the first part that it’s not the average risks that do damage, it’s not Oh, is the Fed going to raise interest rates by a quarter of a point or half, or half a percent, that doesn’t make any difference? Over the long term, the average risk is Microsoft going to beat earnings by two cents, like that does not matter, it does not matter. Once a decade on average, the world breaks. There’s a huge event roughly once per decade, Pearl Harbor 911, those kinds of things. And that’s the only risk that matters. That’s the only thing that makes any difference whatsoever. And the irony in the industry is that we spend 99% of our time and our energy. And our analysis focused on risks and in hindsight, don’t matter at all make no difference whatsoever. While at the same time, we are completely ignorant to the massive risk that is going to move the needle. And so I think once you focus your attention more on tail risks versus the mundane, what’s in the newspaper today, I think your whole perception, your asset allocation and your psychology of risk completely changes. See,

Anthony Scaramucci 13:36
I learned something from you that I really want to expound upon, I have gone back and I’ve read both of your books twice, actually, because I just find them thoughtful. And I’m the type of guy that if I was in college, I would underline almost every word and your books. But you know, risk is also a mindset. I think, you know, it’s something you’ve taught me actually because if I’m too overzealous, or I’m too overconfident, I could also cause a risk situation to me and I’ll give an example of to our viewers and listeners i i thought Lehman Brothers was going to the moon. In fact, I was at Lehman Brothers, I sold my first business to gleeman. I had the stock at 40. And I was so confident Morgan that that was going to the moon I went, when I left the form skybridge I went to Dick fold, they said Could I please keep my stock and options? So well, that’s got to go to the committee to decide. And that committee decided no, and so I was forced to sell everything. I sold it at like 42 While the stock went to 89 and I was like stabbing my eyeball out with like a butter knife. And but then lo and behold, it went from 89 to zero and oh, by the way, what I had been smart enough to have sold on the way down who knows? The point being Morgan, I thought I knew more than I actually did. And this is something that resonates in your books. It’s often it’s not just is the tail risk. But it’s also overconfidence. Sometimes the biggest risk is you think, you know something with great certainty, absolute certainty that you actually don’t know. And in my case, it was Lehman Brothers, I got saved by that executive compensation committee. But I think due to my certainty and overconfidence, I would have, I would have gotten malate. So I guess my second question on this topic of risk, you say, same as ever? What never changes? What do you mean, when you say that?

Morgan Housel 15:36
What never changes? There’s a great quote from Voltaire, who said this, you know, I don’t know when he was around hundreds of years ago, he says, history never repeats itself, but man always does. History never repeats, but man always does. I think what he meant by that is like, the details of what’s gonna happen, have of new technologies, new wars, new new cycles with with presidents and politics, that never changes, there’s never repeat, it is a new story every single time. But man never changes the behaviors of how people react to greed and fear and risk and uncertainty is the same today as it was 1000 years ago, and it will be 1000 years from now. And to me, as an amateur student of history, as I know you are as well, what’s so interesting to me about history is the obvious things is when you read about what America was, like 100 years ago, let’s say, and you see what’s changed the new technologies, the new social norms, whatever it would be, to me, what’s more interesting is reading about, you know, what was going on during the Great Depression and realizing the similarities and how people responded to the uncertainty to the greed and fear and realize it’s the exact same as it is today. And so people’s propensity for overconfidence, their willingness to panic, their willingness to cling to a good story, their willingness to stand behind a politician who promises a better way that has never changed. It’s the same today as it was forever it was forever ago. And so when you become more humble in your ability to predict change, by which I mean, like your ability to predict the next recession, I have no idea when the next recession is going to come. But whenever it comes, I know exactly how people are going to respond to it, because that has never changed throughout history. And I think it never will. And so that was where the idea for savings ever came in.

Anthony Scaramucci 17:21
Listen, I think I think it’s brilliant. I run into wealthy on viewers on the street, and I was walking on Third Avenue guy stopped me I watched these shows, how do you have so much confidence is with this gentleman said to me about the future? Wall Street? Aren’t you just buying a piece of paper when you buy a stock? Or how could you buy a crypto graphic code known as Bitcoin on the internet? Like, like, Where does the confidence come in, in terms of the society and in terms of the notion of investing? Okay, and so this is obviously from a person who had never read an investment book, but likes investing is watching our show, but he just doesn’t have the sense for it all. And therefore a result of it he’s uncomfortable, how, how would you make somebody comfortable more than in what you and I do for a living every day?

Morgan Housel 18:26
I think there’s a great quote that I heard from one of the Navy SEALs who shot Bin Laden, he wrote a great book. And he said, the key skill for a Navy Seal is the ability to be comfortable being uncomfortable. And it’s like, it’s it’s it’s not how to be comfortable in the environment, it’s being completely comfortable with the idea of saying we don’t know what’s gonna happen next, being completely comfortable with being like, there are huge risks. That’s why and obviously,

Anthony Scaramucci 18:51
that’s why it shouldn’t be because I don’t like being uncomfortable being angry. But go ahead. No, it’s

Morgan Housel 18:57
the same. And obviously, what you and I do is a little different than Navy SEALs, rating buildings. But I thought that was a great philosophy for a lot of things. And so my advice to that viewer who stopped you on the street is don’t try to become comfortable once like, most of the time and investing. Comfort is correlated with risk that you’re taking, you feel comfortable because you tell yourself, you know what’s gonna happen next, you feel comfortable, because you say, I know the stocks are gonna go up by this amount. And that is associated with the risk that you’re taking. That’s like, that’s the danger zone. So people were very comfortable in March of 2000. They were very comfortable in the summer of 2007. Very comfortable in January 2020. And in hindsight, those are the moments when it was like no actually risk was staring you in the face. You just didn’t know it, you are oblivious to it. And so rather than being comfortable, I think the acknowledgement is saying you get paid to be uncomfortable in investing. Now that’s what you’re getting paid for. dealing with uncertainty is the cost of admission to doing well in investing over the long term. That’s what you’re getting paid for. And so the fact that back to your Microsoft example, the fact that there were five 710 year periods of pancaked returns where nothing happened. That is specifically why the stock has done well over time, because you had to put up with that nonsense that BS. If you want an investment that’s going to go up by a set amount every year they exist. It’s an FDIC insurance savings account, you’re gonna get the meager return that you deserve, from that certainty that you get from that. So I think that’s, that’s the takeaway, I think, I understand why the knee jerk reaction is, how do I become comfortable with this. But I think actually, what you want to become comfortable with is dealing with an uncertain future.

Anthony Scaramucci 20:37
Alice, I think is brilliant. I think it’s brilliantly insightful. And I think I think you’re making a bigger point, which is you have to ride out the storm. So yes, you are going to have some unpredictable things happen to you. But if you’re in really high quality investments, and you’re able to hold those investments through the storm, the 911, the Lehman crisis, the COVID experience, you do quite well. And this has to do with compound interest. So tell us about compound interest. Why you love it, why it’s sort of this mathematical alchemy, if you will, this is the secret formula to success. I

Morgan Housel 21:23
think the math behind compounding is counterintuitive to almost everybody. It’s just our brains are not meant to handle compound returns. The way I’ve described it is like if I say, Anthony, what is eight plus eight plus eight plus eight, you can figure that out in your head in five seconds. But if I say what is eight times eight times eight times eight times eight, even if you’re a math genius, you’re like, I got it, I gotta think hard about this. That’s that’s a really tough one. We’re just not meant to handle compound returns. And in you see that in investing as well. And I think a lot of this is comes down to why it’s easy to be pessimistic about the future. And I’ll show you what I mean. If I said, my, my kids are going to earn an average median real income, have double what you and I are, that seems crazy. It seems like you got to boil the ocean to double the income of the average worker in the United States. It seems like such a massive leap. But if you’re looking at like, if you say what does it take to double incomes over 30 years? It’s an average annual growth of 2% per year 2.2%, something like that. It’s so when you frame it like that, you’re like, oh, it’s it actually seems very achievable. But when you think about like, what is it going to take to double incomes in one generation, it seems crazy. So it’s just always easy to underestimate what you can do over a very long period of time. And I’ve been investing for 20 years, I think I made my first investment in 2004. there abouts. During that period, there has never been a single day, when you couldn’t complain about 100 things going wrong in the world. At every single period, the market looked overvalued, the government was screwing up, companies were not performing good enough, the national debt was too high and every single day, and during that period with dividends, the s&p 500 is up fourfold during that period, so you take this time period, when everything went wrong, you had the financial crisis, you had COVID, you had everyone screwing up. And actually, if you look at what happened during this period, you’re like, it was amazing. It was great. You four folded your money during that period. It’s astonishing. And so it’s just the difference between what small incremental returns can grow into over a long period of time, the difference between that and what our intuition is. So it’s this ridiculous powerful force that virtually nobody can fully wrap their head around, because our nines are not meant to deal with compound growth.

Anthony Scaramucci 23:41
But I think the most resonating thing from your work, or Mr. Buffett or Charlie Munger, if you can just hang in there, and you can start that doubling effect, right. And there’s a good rule, the rule of 72, if you’ve got a 7% return, well, it turns out with a 7%, return about 10 years, you double your money, if you had a 15% return turns out about five years, you double your money, everything sort of works out to the rule of 72. And we sometimes have short term thinking or we need to pay for a sweet 16 or a bar mitzvah. But if you hang in there and try to put as much money as you possibly can, on a weekly or monthly or semi annual basis. It does pay off all the way over the long pole. It certainly has for my family. We’re gonna want to take some questions from our audience. We we have questions come in by email, I tell our audience who our guests is going to be. And this is a great question from Tim from Missouri arena secret recession. I am a contractor and work is slow. I see with my peers while the economy is good on paper what’s really going on?

Morgan Housel 24:58
I think this it’s a great question. Tim, thanks for sending in the two words that I want to pick apart from your question. And I don’t mean this, but with any sort of criticism is that you say, are we in a recession, and the next sentence, you say, I am a contractor and work is slow. This is the difference. Whenever we’re talking about are we in a recession, you have to say, well, who there’s not one economy, there’s 350 million people in this country who are all in their own unique situation. So at any given period of time, no matter what the economy is doing. Some people, sometimes a lot of people are going to be hurting. And some people, sometimes a lot of people are going to be doing very well. And so overall, right now, the median worker in the United States is doing very well. But that’s the median by definition, that means there are half half the country is doing less than that, and half is doing better. I do think there is a sense that politics is playing more of a role in people’s perception of the economy today than it ever has. It’s always been like this, that if the guy you voted for is not in the White House, that you feel glum about the economy. And if the person who you voted for is you feel great, regardless of what’s going on, but that skew is wider today than it’s ever been. So by and large, this is not black and white. There are exceptions. But by and large, the majority of the people who say the economy’s in the dumps right now are Republican. And the majority of people who say the economy is going great right now are Democrats against always been like that. It’s just so much more potent today than it’s ever been. The overall numbers right now, if you’re like, look, the unemployment rate is 3.7%. Inflation has come back down to 3%. The stock market’s at an all time high, you can earn 5% on your cash. There’s all these data you can look at and say, things are great right now. And I think you can even say, if you are not happy with today’s economy, then things are going to be very difficult in your life. Because historically, this is very good. If you feel glum right now, I understand I can understand that. But this is actually very good overall. But I don’t think you there are a lot of economists right now who say that people who feel glum about the economy are wrong, because the economy is very strong. And I think that’s a mistake. If somebody feels gloom about the economy, that’s their final verdict. And you can’t have some ivory tower guy say no, you’re wrong about how you feel. No, it’s how you feel. That’s the that’s the end of it. And so I think it’s, it’s always been the case that it’s, it’s so bifurcated. I mean, think about 2020. During the peak. COVID lockdowns, if you owned a laundromat, in April of 2020, your business went to zero, it was worse than the Great Depression. If you were a tech worker, in April 2020, it was the best job environment you’ve ever had, you got the biggest bonus you had the most job security you’ve ever had. And so the bifurcation of that was so extreme. And it’s like that right now. So I guess my answer to Tim is, is your economy in a recession? Maybe? And I’m sorry, if that’s the case for you and your peers and your co workers? Is the overall economy in a recession? No, not whatsoever. And those two statements are not are not contradictory.

Anthony Scaramucci 27:58
It’s fascinating. And Tim, I’m sorry, you’re actually from Mississippi. That’s my New York bias there. Tim, I hope you forgive me for that. I said, Missouri. But you’re Tim from Mississippi. And I wish you well with your contracting business. And we’ll take the next question, what percentage of my funds should be in precious metals, a non from Brooklyn via email?

Morgan Housel 28:22
I don’t know. And I’ll tell you, it’s obviously different for everyone. So without knowing you whatsoever, it’s difficult, I can tell you, for me, it’s zero. But for other people, it can be and should be much higher than that. The thing with precious metals is that if you look at the history of gold over the last 50 years or so, since the gold window ended in 1973, whatever it was, gold has over a long period of time, kept up with inflation, it has protected your money against inflation. But there are two big Asterix within that. One you can say is that any investment that merely keeps up with inflation over 50 years, is a terrible investment, I want my money to grow much faster than inflation, as stocks have as real estate as all these other investments that are going to do much, much better than that. The other Asterix on this for precious metals is that over a very long period of time, they will keep up with inflation, most likely, but you can have just like Anthony’s Microsoft stock 20 year periods when it does nothing of the sort. So if you look at gold from the mid 1980s, to the late 1990s, you know, a 1520 year period, you had a reasonable amount of inflation during that period, and the price of gold went down and down and down and down and down. There’s other periods where inflation is moderate, and gold is going through the roof. So just because over time it’s going to maintain your purchasing power doesn’t mean that in any given time period, even a 20 year time period. There’s much correlation there. The reason I don’t is because I think that the investment the reason that I don’t own any precious metals is that I think that the equities that I hold the stocks that I own well over a 10 or 20 year period, not only keep up my purchasing power, but grow it substantially. And but look, if you have a different risk tolerance, for inflate for inflation for whatever it would be that maybe it makes sense. And I know people that have 10% of their money in precious metals, and that works for them. I also know people who are precious metals experts about what the market might do over the next year or two, they might have 100% of their net worth in it. That’s not right. For me, I think that is right, for very few people. But it just depends on who you are.

Anthony Scaramucci 30:32
Yeah, I think the, you know, for us, I mean, we have positioned in gold, and I think a lot of people listening in, or have accounts that gvi, which is called Boolean International. And, to your point, Morgan, you know, it’s peace of mind. You know, some people are super comfortable investing, they put all their money in it. I’ve got an 80 year old friends that are 100% in equities. And yet, other people would say, Well, if you look at the thing, you should probably only be 20% in equities at this point in your life, but it’s their comfort levels. And so we typically, you know, I’m a big believer in Bitcoin, I have a position in Bitcoin, I have a position in gold. But I get why you, Buffett, others, they won’t have positions in those things. But I don’t know, like you I want to sleep safely. And for whatever reason, it makes me sleep better. On this is why we have accounts at GPI. Let’s go to the next question. I am. I am 75 years example is I am 75. I have assets in liquid savings around 5%. I would like to start putting money into the s&p, or solid index funds. Am I being too conservative? My heirs are my concern, Dennis from Colorado?

Morgan Housel 31:49
Well, that’s it. The question is, is the s&p 500 to conservative is that’s that’s my interpretation of the question, or should we take more risk? I don’t think it is whatsoever. I mean, I’m, I primarily invest in index funds. And I want to say for the millionth time, I’m not recommending other people do that. I don’t just say that to make the lawyers happy. It’s just because everybody’s different. And my personality might not match yours. And so but over time, you know, historically, if you look over the last 100 years or so, the s&p 500 After inflation, so real returns adjusted for inflation is about six and a half or 7% per year. So back to like the rules haven’t to it means adjusted for inflation, you will double your money, double your wealth every decade or so, to a young, two young person, that’s incredible. If you’re 20. And you’re like, look, I’m investing for the next 50 years or 60 years, and I can double my money every decade, adjusted for inflation. That’s amazing. It’s amazing. If you’re the kind of person who like I’m trying to make up for lost time, and that’s not good enough, I need to take a lot more risk. I need to double my money every five years whatsoever. Well, the people who out there might be able to do that, but you’re taking you’re taking more risk to do it. So I think there is it is common for people when they hear that I invest in index funds to kind of have a sense of pity of like, Oh, I’m so sorry. Like your returns aren’t very good. And I always want to point out like, you realize the s&p 500 like the total stock market index funds were up 23% Last year, it’s pretty good. So it’s really not that bad. And as I mentioned earlier, is since 2004, last 20 years, the s&p 500 is up fourfold during and during the period, you didn’t have to do anything. You didn’t have to make a single decision during that period other than it is buy and hold on for dear life. And so I don’t think it’s too conservative whatsoever. I think it’s a great path to grow your money substantially over time. Well,

Anthony Scaramucci 33:36
I had the CEO of gold bullion international on over the Christmas break, and he pointed out something that I liked sharing with people. The s&p 500 is Darwinian, it’s selecting companies that they perceive to be the s&p 500. So they’re, they’re taking companies out of the s&p 500. And they’re putting other companies in, and they’re doing the work for you. And so yes, it goes up because these companies are doing well. They’re compounding their earnings, buying back their own stocks. But they’re also self selecting my right, Morgan, they’re chipping out the ones that are not working and adding the ones that they think are working and that is also giving it a benefit. Yeah,

Morgan Housel 34:19
so there is activity after

Anthony Scaramucci 34:21
you and index one, we don’t have to pay the tax. Right? Exactly.

Morgan Housel 34:25
So there is movement in the index funds for a cap weighted index like that. It’s being in the the movement is based around how big the company is. And so in a cap weighted index, the larger companies like Microsoft, Amazon and Vidya have more weight than the smaller companies. And every year there’s rebalancing. Like there’s companies that are too small, they get kicked out. There’s other companies I’m sure I’m not saying this as a fact that I imagined 10 or 15 years ago in video was not in the s&p 500. And now it’s what it’s now it’s one of the it’s the second largest company in the entire world right now. Just because it’s gone bonkers over the last two years. And so yes, if you own an index fund, and you own it for 10 years, the stocks that you own within that that fund are going to change every year. And they’ll change substantially over a 10 or 20 year period, which

Anthony Scaramucci 35:12
is good. And so it’s a good idea. I’ve received an inheritance, I was able to buy two Bitcoin, when Bitcoin tops off, where can I find out more about tax implications? And how to maximize my gains? This is John from Boston, the email? Well, I’m

Morgan Housel 35:28
not a Bitcoin expert or a tax expert, but whatever you sell anything you’re going to pay tax. I mean, I don’t think there’s much else to say from that. I don’t know if you have much more to say about it. Anthony, other than, you know what, here’s here’s one thing I would say, if you look at the wealthiest people over time, and use Warren Buffett, because he’s an investor, and he’s crazy successful, a huge percentage of a not insignificant percentage of that wealth is been by managing taxes by not selling. And you can, you can take a counter example of like, imagine Warren Buffett, where every single year, over the last 80 years, he had to pay 20%, capital gains tax on whatever he made that year, you’d probably be worth 10% of what he is today, just because not only are you paying 20%, but now that 20% Can’t compound the next year and the next year and the next year. And so I don’t know if there’s much else to say other than like, yes, if you hold on for dear life, you’re deferring your taxes and the benefit from that and compounding is astronomical.

Anthony Scaramucci 36:31
Well, yeah, I mean, again, when you say talking about more about the tax implications, your Bitcoin the IRS is D as deemed Bitcoin intangible property is interesting. I had two officers slash agents of the IRS at a Duke University event on Bitcoin that I was at a few weeks ago. And the intangible property nature is just straight up, you know, plain vanilla, you sell that Bitcoin, you sell it at a gain, you’re going to pay your commercial capital gains taxes, if you’re in Boston, you’re going to pay the taxes for the state of Massachusetts, as well. And so that rate is probably about 28 or 20 29%. blended. But I think Morgan’s making a broader point. I’m a Bitcoin bull. And so I’ll just state publicly and again, it’s not a specific recommendation for you, John, or anybody. It’s more of a broad statement, I do believe that that asset will track to the eventual market capitalization of gold. And we’re a long way from that. So I would hold the position to the extent that you can, but when you do sell it, you’re gonna end up paying taxes. Let’s go to the next question. Congrats. SpeakUp has more episodes than days you spent in the white you see, these guys are bad. Is that a nice thing to say? You know, I was in the flow was having a good time with my friend. And yes, we are now on our 12th episode. More Morgan, so Mike and Dave are breaking my balls. But, you know, let me tell you something. We’re talking about compounding. Don’t go into politics. It’s very hard to compound a career in politics. I mean, unless you’re Nancy Pelosi, you know,

Morgan Housel 38:15
the one the way I heard the stat the other day. And of course, you can take this in many different directions that Joe Biden has been a politician for one quarter of the history of the United States. There you

Anthony Scaramucci 38:25
go. That’s, that’s compounding. There you go. And but I think this guy, Chuck Grassley, I mean, he’s been in there, even longer than Joe Biden. He’s like, 89 years old, he’s running for reelection, which means is his next term, it’ll be 95. But you know, Morgan, you’re, you’re fascinating. I know, you probably can’t tell us the next book that you’re writing. But can you give us some general things that you’re working on? What’s the future look like? For Morgan Housel,

Morgan Housel 38:52
I’m writing a new book right now probably won’t be out for two years or so. But I’m writing a book about spending money. My first book psychology money was largely geared towards investing. And, and that’s important, I think that’s great. But for the majority of people, the financial decisions that they’re making in their own lives geared around how to spend money correctly, and how to spend money to make them happier, and what lifestyle they choose to live. So that’s what the next book is about. Alright, well,

Anthony Scaramucci 39:18
we look forward to reading that book. I’m a big follower of yours. And I watch your interviews if you want to see our interviews or other shows, on wealthy on go to wealthy on.com. You can subscribe and share and check it out there. And also, guys, send us your ideas. We get a lot of ideas from the community. The community demanded you, Mr. Morgan Housel. And so here you are. I appreciate you coming. And I want you to take a picture of that bookshelf for me behind you and texted to me so I can buy every one of those books, so I can someday be as smart as you my friend. Thank you so much. Thank you so much for joining us on Speak up with Anthony Scaramucci. Have a great weekend everybody.