How To Create & Manage Your Personal Wealth – Morgan Housel on Modern Wisdom, Hosted By Chris Williamson

Check out the Modern Wisdom Episode Page & Show Notes

Key Takeaways

• Wealth brings some respect and admiration, but not nearly as much as you think
• Wealth’s greatest power: having the freedom to do what you want, when you want (and people are happier when they have control over their schedules)
• If you make over $32k/year, you’re in the top 1%—it’s all a matter of perspective
• “Wealth is what you don’t spend” – Morgan Housel
  • Wealth is the Ferrari you didn’t buy; wealth is the bigger house you passed on; wealth is the first-class ticket you didn’t pay for
• The best thing you can do to increase your chances of becoming wealthy: live below your means
• No one can predict the stock market
• The number one variable that determines the success of your investments: whether or not you continuing holding an asset during a market downturn

Intro

• Morgan Housel (@morganhousel) is a partner at Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal
• Host: Chris Williamson (@ChrisWillx)

Books Mentioned

• Morgan’s next book is due out on September 8th, 2020: The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness

Have a Nice Car? No One Cares.

• Everyone wants to be wealthy, but not everyone has a reason: Do they want status? Do they want expensive cars? Do they think it’ll solve certain problems in their life?
• FACT: Buying a fancy car won’t make you cool; it only means you have a cool car
  • In college, Morgan worked as a valet, and whenever he saw someone pull up in a nice car, he pictured himself driving it, not caring the slightest about the car’s owner
    • “No one cares about the guy in the car, but everyone wants to be the guy in the car” – Morgan Housel
    • The lesson: Wealth brings some respect and admiration, but not nearly as much as you think

How Wealth Increases Happiness (Happiness = The Freedom to Choose)

• Wealth’s greatest power: having the freedom to do what you want, when you want (and people are happier when they have control over their schedules)
  • “When you can wake up every single morning, seven days a week, and say to yourself, ‘I can do whatever the hell I want today,’ that makes people happy” – Morgan Housel
• Buying material possessions does NOT bring lasting happiness
  • Sure, your overall happiness might increase after buying a new house, but after a week or so, you return to your natural set point
• Being rich won’t make you happy, but being poor will definitely make you unhappy
  • “Camping is fun; being homeless is miserable” – Morgan Housel

First World Problems Are Still Problems

• Once people gain wealth, they become paranoid about losing it; the psychology of money doesn’t change—it doesn’t matter if you have $1,000 or $1,000,000 to your name
• First world problems are real problems. Your problem may not be the biggest problem in the world, but it’s the biggest problem in your world.
  • After all: “We’re not absolute beings; we’re relative beings” – Chris Williamson
• Many people complain about being poor, but if you make over $32k/year, you’re in the top 1%—it’s all a matter of perspective

Wealth is the Ferarri You Didn’t Buy

• Being wealthy = having assets that you can spend in the future
  • (Having a large income doesn’t make you wealthy, especially if you aren’t saving any of it. You can make $5 million a year, but if you spend $6 million, you’re broke.)
• Wealth isn’t how much money you make; it’s how much money you have
  • “Wealth is what you don’t spend” – Morgan Housel
    • Wealth is the Ferrari you didn’t buy; wealth is the bigger house you passed on; wealth is the first-class ticket you didn’t pay for
• Someone can be wealthy and you’d never know it since their money is tied up in assets—you can’t see a person’s ownership of stocks, real estate, bonds, etc.

The Visible & Invisible Aspects of Wealth

• When you see someone in a Ferrari, you likely know they paid, but you don’t know the sacrifices they had to make
  • How many relationships were destroyed because they were working late nights? Did the owner decide not to have kids to advance their career?
  • “All you see are the shining wheels and the big growling engine; you don’t see working till midnight; you don’t see never getting to hang out with the kids” – Morgan Housel

Tips For Building Wealth

• The best way to become wealthy? Be born into a wealthy family
  • “Income among brothers is more correlated than height or weight” – Morgan Housel
    • (You’re more likely to make the same amount of money as your brother than you are to be the same height)
• Luck plays a HUGE role in becoming wealthy
  • Think: You can’t compare being born as a white male in America to being born in a poor Somalian village—they’re nowhere near the same playing field
• The best thing you can do to increase your chances of becoming wealthy: live below your means
  • How much money you make is only somewhat in your control. but how much you spend is 100% in your control

Should You Invest in Bitcoin?

• When it comes to the future price of Bitcoin; “No one has any idea; I really don’t think anyone has any idea” – Morgan Housel
• Morgan doesn’t own any Bitcoin, but a lot of his friends and colleagues do
• If you want to put 1% of your net worth in Bitcoin because you’re interested in cryptocurrency and find it intellectually stimulating, go for it

HOLD

• The number one variable that determines the success of your investments: whether or not you continuing holding an asset during a market downturn
  • Your ability to stick with investments during hard times will be rewarded in the future
  • The lesson: love your investments. If you love them, you’re more likely to hold on to them when things turn south temporarily.
• Think of volatility is an asset’s cost of admission
  • “With any asset, no matter what it is, you get paid to deal with uncertainty. That’s where paychecks come from in the investment world.” – Morgan Housel
  • It’s like going to the gym—the discomfort you feel during a market downturn is the price you pay in exchange for larger muscles (future gains)

No One Can Predict the Stock Market

• Even the world’s smartest people are horrible at making market predictions
• The biggest stories in the market are often ones no one could’ve predicted (no analyst wrote about the coronavirus in their prediction report for 2020)
  • Think: “The biggest market risk is what we’re not talking about, and we can’t talk about things we don’t know” – Morgan Housel
    • The biggest impacts on the economy are the unknowns: September 11th, Pearl Harbor, Lehman Brothers not being able to find a buyer, etc.
• There are 3 general dynamics that move stocks: The movement of the overall stock market, the movement of that industry, and the movement of that individual company
  • Think about all three dynamics:
    • For instance, if the stock market as a whole is going up, then even stocks in industries that are shrinking might increase in price
    • Or, as another example, if the stock market is going down as a whole, an individual company’s success doesn’t matter as much

Additional Notes

• When it comes to financial advice, there’s no one-size-fits-all answer
• Investors play different games—some investors only care about the next quarter while others care about the next 10 years
• One of the hardest things to do is minimize your spending—decreasing your quality of life hurts a lot more than increasing your quality of life feels good