Yahoo Finance Author Q&A with Morgan Housel: Banking on the things that never change
'The Psychology of Money' author writes about the value of low expectations in increasing our happiness.
People tend to have shockingly short memories. Most of the time, they forget the bad experiences and don’t bother to learn from them.
So says Morgan Housel, author of the new book "Same as Ever: A Guide to What Never Changes," and "The Psychology of Money: Timeless lessons on Wealth, Greed, and Happiness," which has sold over 4 million copies since it was published in 2020.
"The big lesson from history is realizing how much of the world hangs by a thread," Housel writes. "Some of the biggest and most consequential changes in history happened because of a random, unforeseeable, thoughtless encounter or decision that led to magic or mayhem."
You can plan for everything before getting hit by something you never imagined, and, according to Housel, it’s been like this forever.
Here's what Housel recently told Yahoo Finance about the idea that many of the most important things in life never change, edited for length and clarity:
Morgan, how does "Same as Ever" expand on your ideas about the psychology of money?
In finance, most people do not make decisions in a spreadsheet. They make them at the dinner table. They make them in the conference room with their coworkers. It's not just numbers and charts. It's this whole collision of emotions and psychology and hormones and your past experiences all colliding against each other.
What about when worrying about a recession or market plunge spurs us to make bad investment choices or simply have sleepless nights?
It’s better to have expectations that risk will arrive, though you don’t know when or where, than to rely exclusively on forecasts — almost all of which are either nonsense or about things that are well-known. Expectations and forecasts are two different things, and in a world where risk is what you don’t see, the former is more valuable than the latter.
You write that there is a misconception many people seem to have that money can buy happiness. Can you riff on that for a second?
I think it's not necessarily that money doesn't buy happiness, but there is a truth that expectations tend to rise with a new amount of money. And rising expectations can extinguish virtually any level of happiness that you have in your life.
Imagine a world in which our grandchildren are living a much better life than you and I are. They're earning more money. They have better medical technology. Maybe they live in a more peaceful world, and they're no happier for it because they just expect that to be the case.
An important life skill is getting the goalpost to stop moving. It’s also one of the hardest.
Why do you think having low expectations is a good idea?
Charles Munger, who you know was vice chairman of Berkshire Hathaway, is the one who said something along the lines that the first rule to a happy life is low expectations. And I think he was just summarizing the idea that if your expectations are always rising, it will never feel like it's enough and you're not going to be happy.
What actually happens when it never feels like it's enough is some people keep on taking more risk, more risk, more risk. They work longer hours in their career, more hours, more hours, more hours. And that eventually blows up in their face.
How does that translate to how we manage our money?
Investing mistakes happen not because people don't have the right information, or they don't have the right details, the right formulas. It's because people are trying to take the average return that markets are willing to give you, and they're saying, "well, what if I wanted a little bit more? What if I just squeezed a little bit more out of it?"
That's the majority of investing mistakes. When you don't have any sense of what is enough, you're going to naturally gravitate toward taking those risks that a lot of people cannot actually afford to take.
What is the right amount of savings to have based on your looking in the rearview mirror approach?
People are systematically underprepared for the risks that they face in their individual lives. So if you’re saving for retirement, save more. If you think you've saved enough, keep saving. That’s what history shows us.
If someone asks me, "Morgan, what are you saving for? Are you saving to buy a new house, buy a new car?" I'd say, "no, I'm saving for a world in which unpredictable things get thrown in your way all the time." If you have to attach your savings to a specific event, that's when I think you're doing it wrong.
Stress and hard times have actually proven to be a good thing when we look back, right?
The biggest breakthroughs in society, the biggest technologies, the biggest societal breakthroughs do not come when the world is going great, when everyone is gainfully employed and has a full stomach, and everyone sees the future is bright.
The biggest technological innovations come when the world is on fire, so to speak. In the Civil War, it was railroad and telegraph technology. During World War I, it was radio technology. In World War II, it was nuclear energy and rockets and jets and penicillin, all these things. We would've figured those things out anyways. But we probably figured them out about 30 years sooner than we would have.
Can you bring it down to the personal level — why shouldn't I be blown away when something goes wrong in my life?
The boundaries of what you think you are capable of extend by more than you ever thought possible when times get tough. Everyone has a view in their head of what their boundaries are, of what they're capable of. I'm capable of working this hard. I have this skill, I have this intelligence. If things got a little bit tougher, you would realize that the boundary is actually much further. It's much wider than you think.
That's a pretty optimistic realization that when the times get tough the incentives to work harder or to be more creative are there, and that's actually a great thing.
People should plan like a pessimist, but dream like an optimist, in your opinion. Can you elaborate?
There's this great anecdote from admiral Jim Stockdale, who was the highest-ranking POW in Vietnam. And he told this story about how the POWs who did the worst in Vietnam were the optimists. That’s because the optimists would say, "we're going home by Christmas," and then Christmas would come and go, and they would be depressed. They'd be despondent.
And he said, the people who did the best were the people who said, "We're going home eventually. This war's going to end. We're going to see our wives again someday, but we're not going home by Christmas. This is going be a really long war." Those who did the best were very optimistic about the future, but they were very realistic about how hard it was going to be between now and then.
I think that applies to businesses, investing, careers, relationships, almost anything. You need to be very optimistic about where you're heading, but very realistic about the challenges to get there between now and then.
People get some of their best and most important work done outside of the office, outside of work, in your view. I know I do, I know you do. Why do we need to pay attention to this?
Historically, most jobs were physical labor jobs. And so you were only productive if you were swinging the ax, digging with the shovel. You actually had to be doing what looked like work.
As we shifted to thought jobs, where many people make decisions with our brain, we're not working with our backs and our arms.
The most productive thing that you and I can do is to think, which might be sitting on the couch. It might be going for a walk. It might be talking with a friend. That's when you get your best thinking done.
But it's hard for a lot of employers to let you do that because they're still glued to the world where you're only working if you're sitting at your desk moving your fingers on the keyboard.
By and large, we don't give people time to think, which is the craziest thing if you piece it all together. I think most people will realize that good ideas do not come in meetings. They don't come when you're sitting at your desk. They come in the shower. They come at the gym. They come when you're walking your dog. They come when you're doing the dishes. That's when you're like, oh, I figured that problem out. Now I get it.
Giving people time to do that, giving yourself time to do that, giving your employees time to do that is really critical.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including "In Control at 50+: How to Succeed in The New World of Work" and "Never Too Old To Get Rich." Follow her on X @kerryhannon.
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