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Ideas From Morgan Housel

11 Jul, 2020 | People Notes, Writing, Investing, Personal Finance

Summary

He puts an emphasis on personal finance and being okay with enough. You can always earn more and risk more, at some point you have to be okay with what you have. Plus, that is in your control.

The process of writing forces you to think through something and iron out any creases in your thinking. If you can’t write it well, you would have shown yourself it is not clear in your mind.


Sources

We are constantly trying to find hacks. Ways of doing things more quickly, more effectively. The truth is, the most valuable things can’t be hacked. They take time. They take effort. So what do real life hacks look like? Reducing your ego. Writing every day. Working hard in your job, etc (Real Useful Hacks).

On Writing

We are all full of ideas and opinions on things. But often they aren’t fully developed. We become distracted by other things to really iron them out. When we write, we are forced to spend the time to iron them out. Writing leads to better thinking. Sometimes writing is encouraging - we realise we understand a topic better than we thought. Other times it’s not - we realise there are errors in our logic, our thought or biases. You don’t have to publish it, it’s the process that is important (Everyone Should Write).

Readers value substance, not words. So write succinctly. Look at every sentence and ask “would they still get it without this” rather than “does this make sense”. Ever paragraph should add value (Make Your Point, Then Get Out The Way).

On Personal Finance

American’s have a problem with weight. Part of the problem is they exercise, but binge after because they think it’s justified. Same dynamic happens in finance. Peoples earnings increasing, but they spend more afterwards because they think its justified. This means they are never actually saving more. Part of growing wealthy is acknowledging you could spend more, but saying no and putting it away instead (Wealth Is What You Don’t Spend).

“The importance of every endeavour is its potential multiplied by the odds of it working and how long it will work for.” Consider an investing strategy, it may have high return, but be risky and not work for a long time. Contrast this with personal finance and being frugal, it may have a lower ‘return’ but is guaranteed to work and work for a long time. Personal finance is something you can control completely (without relying on any external market forces). The difficult part if being happy with less. People stress so much about increasing their salary and earnings, but the second side of the equation is more controllable (how much you spend and how much you are happy with). A la Jeff Bezos, focus on things that don’t change. This is your personal efficiency (The Biggest Returns).

Personal finance is full of hacks that don’t work. So what are some that do:

  • Have a smaller ego than your spending. Save the difference.
  • Have a spouse with similar spending expectations. Don’t get divorced.
  • Avoid trouble to begin with, like crazy debt.
  • Utilize high efficiency, low status services. Like community college.
  • Tune your BS radar for things that seem too good. I.e. filter out bullshit which could potentially lose you money.
  • Pick a career that will pay you well. It may not be your passion, but a low paid job can kill your passion anyway. A well paid career over time will buy your freedom and allow you to pursue your passions for fun.

So keep it simple and manage your personal finances well (Real Personal Finance Hacks).

On Investing

It’s better to be an optimist than a pessimist, because more people want to be good in the world. It’s better to have simple investments than complex, because they should be so obviously better. Personal finance is better than investing nouse, because you need to be able to live below your means no matter what (Short Investing Truths).

Keeping money is harder than making money, because you can get rich by luck, but staying rich is almost always due to a series of good, hard decisions. The skills needed for getting rich and staying rich are often opposites---be bold and brave, then diversify and remain paranoid. Then there’s the mental momentum that getting rich creates that staying rich has to step in and try to block. It goes like this: The more successful you are at something, the more convinced you become that you’re doing it right. The more convinced you are that you’re doing it right, the less open you are to change. The less open you are to change, the more likely you are to trip in a world that changes all the time. I’d be more impressed with a Forbes list of billionaires ranked by longevity vs. amount (Investing Idea That Changed My Life).

Some important ideas. Tribes are everywhere and effect our behaviour more than we think. Multi-disciplined learning is important - you can learn as much about your profession from other professions too. Your personal experience makes up 80% of what you believe about the world but 0.0000001% of actual knowledge (Ideas That Changed My Life).

In theory, investors want to maximise for long term returns. But in reality, you also want to sleep well at night. So the relationship between risk and return has an interesting tension. It might be rational to take on more risk, but it may be unreasonable to accept it. The truth is, being completely rational is extremely difficult. In general, people would rather reduce regret of potential loss than gain absolute maximum returns (Reasonable vs. Rational).

He tells the story of his two friends that died in a ski avalanche. There are 3 sides of risk. The chance you’ll get hit. The average effect of being hit. The tail end effect of being hit. People are good at understanding the first two, but the last one is what makes history books (3 Sides of Risk).

There are degrees of confidence in everything. Sometimes, you know very little about something, but people state things with confidence. Then they gain a bit more knowledge and they also appreciate what they do not know. But at some point you move up the scale and you fall into the same trap, falsely applying expertise in one area as if it works everywhere. The trick is to stay humble (Degrees of Confidence). To a man with a hammer, everything is a nail.

On Learning

There are two types of information in investing: stuff you’ll still care about in the future, and stuff that matters less and less over time. There’s so much information these days that it’s vital to align what you read with how relevant that reading will remain over time. Quarterly earnings are important, but the relevance declines over time and expires with a long enough time horizon. Same with economic news, market news, and many company missteps---asking whether news is important misses the bigger question of, “How long will this remain important given my strategy and time horizon?” I have a rule of thumb: Read more books and fewer articles (Long-term vs. Expiring Knowledge).

Podcasts

Jason Zweig & Morgan Hounsel on Invest Like The Best

  • 3.20 - Two elements of business. Some element of change that drives competition (new entrants) and some element of stability that drives compounding (business moats).
  • What does leverage actually mean? How do people use it? Why is it dangerous? 
  • James Anderson - Edinburgh based stock picker at Bailey Gifford 
  • 26 - What pain are you healing and how much does it hurt?
  • Idea - End of Life financial planning (pension, wills, university saving, etc.) 
  • 44 - You should give up all the time but you should never quit. Sometimes you need to listen to what your mind and body is saying and start again. Is there too much resistance?
  • 45 - edges that you can find in behaviour - both patience and long term thinking are valuable and hard to arbitrage away. What can you do that other people are not willing to do? (Not just be smarter).
  • 55 - Morgan also completely in passive in public side investing now (Vanguard and Berkshire). So why does he do private VC? 1. It’s less efficient. 2. You can also layer in some of the philosophy like diversify.
  • CircleUp buy baskets of startups
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