Morgan Housel on his latest book 'The Psychology of Money'

Morgan Housel, 'The Psychology of Money' Author, joined The Final Round to discuss his latest book, his views on the difference between investment effort and investment results, and how psychology ties into finance and money.

Video Transcript

MYLES UDLAND: Pretty much the only thing people are thinking about is staying healthy and what they're going to do about their money. And joining us now to talk about the money side of things is Morgan Housel. He's the author of the new book, "The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness." Morgan, thanks so much for joining the program.

So let's kind of start it with-- through the lens of what's happening right now. You and I talked I think it was, like, mid-February. The world was just about to end. The book was pretty much in the can, and now it seems like we have this great new panic to see your book through again. How have you kind of thought about what you wrote, in light of what's happened over the summer?

MORGAN HOUSEL: Yeah, it's interesting, Myles. You and I had breakfast back in mid or late-February, as you just mentioned, and we discussed during that breakfast this idea that the economy was never going to slip back into recession, that the Federal Reserve had figured it out. And we were kind of tongue-in-cheek, but we were probably, like, 30% serious. And I look back at that as kind of my own personal peak disconnect from what was going on in the economy.

But you know, I finished writing this book in January. And of course, that was pre-COVID, pre-anything that was going on. And so I had a long discussion with the publisher, do we need to update it now that the world has changed so much with COVID-19?

And we decided on no because we tried to make everything that was in the book to be timeless, things that have-- that describe how people think about the emotional, psychological side of investing, in terms of fear and greed and opportunities and scarcity, in ways that they've been doing it for hundreds of years, if not thousands or millions of years, and ways that people will still be making mistakes with their money years and decades and centuries from now. So I think there are some things in investing that truly are timeless. And those are the most important things that we can focus on because we could put so much energy into them, knowing that they are going to be a part of our investing journey years into the future, regardless of what the economy is doing this month, this quarter, or this year.

MYLES UDLAND: And I think an idea that's in the book-- and, you know, not to just plug our, you know, off-the-record conversations-- but something we talked about, I remember, years ago, the seduction of pessimism is a chapter in the book. It's the idea that the pessimists-- and I think we saw this in March and April-- there's always a complete story that they can tell. They can say, so the pandemic happens then the financial system breaks then I need to hide in my bunker.

Well, that's not exactly how things played out. But you could see so clearly, I guess, during that time-- and we see it now as people outline what 2021 is going to be like, what the rest of time is going to be like, work from home, all this kind of stuff. You see that theme, I guess, come up now. And to me, that's just one of the chapters that perhaps is the most, you know, transferable, at least, you know, if you're going to be talking about how people communicate on the internet.

MORGAN HOUSEL: Yeah, I think there's two things about pessimism. One is that pessimism is always more seductive than optimism, and the main reason why is because pessimism sounds like someone trying to help you. Hey, there's something running after you, and I'm trying to help you and get you out of the way. Whereas optimism can so often sound like a sales pitch, like I have something to sell you. I got this goody over here that I'm trying to give you. And it's easy to discount from there.

The other thing is that if you look historically, progress happens very slowly. It's not something that happens overnight. There are no overnight miracles in the economy, but there are overnight tragedies. We had one of them this year, of course. So progress happens slowly. Setback happens very quickly, even though the progress over the long term is obviously much more powerful. Setbacks are much more likely to be in the news, making the headlines today and this week and this month, whereas things going well is just kind of just a slow grind over time, even if it's more powerful.

So that's why pessimism is always more attractive. It's more seductive. And it's always more-- it's in the headlines more than optimism.

DAN ROBERTS: Morgan, Dan Roberts here. I know that in the book and on Twitter, you get into the psychology of money a lot, and you also talk about the idea of a store of value. I'd be curious your current thinking on Bitcoin and cryptocurrency, which we talk about from time to time here on the show, especially as you alluded to, it's some people trying to sell you on a certain concept. And sure enough, that's the community there. It's all about the psychology and the belief in something that's just around the corner always in that space.

MORGAN HOUSEL: Yeah, Dan, you're absolutely right. I don't have any position in Bitcoin, and I honestly don't have any formed beliefs on it. I'm just kind of a fascinated observer from the outside looking at it. What's interesting is that, particularly if you go back two or three years ago, Bitcoin has every single hallmark that you would associate with a bubble-- everything, in terms of the hype, the fraud, the ridiculous performance that it's had. Everything you would associate with a bubble it had.

But the other thing is that nothing, if it was just a bubble, if this was just a temporary thing, would last this long, would survive this long where it's been a big thing in the financial universe for over a decade now. Just kind of the staying power that it's had-- and it wasn't just a big bubble and then crash and then it went away in 2017. It's back to, you know, decent prices now and good performance. It gives this idea that it's probably not going away anytime soon.

To me, the biggest thing about crypto-- and again, I don't have any dog in this fight, don't have any different investments in it. The thing about crypto is that you have some of the smartest people in the world working on it who are trying to solve problems, trying to do things with it that will actually provide a lot of utility in the world. But then you have some of the craziest, dumbest people in the world investing in it that creates these incredible price swings where you go from $200 to $20,000, back down to $500, whatever it is.

And I think if you attach to either one of those sides on their own, you can get kind of pushed, you know, to have this inflated view of where it's going. If you just focus on how smart people are working on it, you're probably going to miss the idea that you have so many people investing in it who are pushing it to crazy heights that it can suck a lot of the oxygen out of the world. And if you just focus on the boom and bust part of it, you're probably overlooking how many smart people are working in it trying to solve real problems with it. So it's kind of these two sides with it that I still haven't reconciled, and that's why I don't have any positions in it.

MELODY HAHM: Morgan, just thinking about the actual format of your book, as I understand it, it's 19 different short stories. Why did you decide to go the route of anecdata? What is it about these sorts of stories that you feel like people will take away? Doesn't it feel like it's almost too personalized in a sense, or do you feel like readers will connect with at least one of those stories?

MORGAN HOUSEL: I think what's important about investing is that investing is not the study of finance. Investing is just the study of how people behave with money. And since it's the study of behavior, it has all these things that we can learn and take away from other fields that also study behavior but fields that have nothing to do with investing. So I think there's so much you could learn about investing through the lens of things like medicine and biology and politics and military history, all these things I have nothing to do with finance. But they deal with how people deal with uncertainty, how people have a relationship with greed and fear, which is what investing is, too.

So most of the 19 chapters kind of start with a story that has nothing to do with investing. But it all comes back around to how can we think better about greed and fear and opportunity and those kind of topics.

The chapters are fairly short because I think most books drag on too long, drone on too long. I didn't want to waste anyone's time. So I would rather have 19 short points that people actually read than one long point that drags on for 250 pages. And since the stories are all tied together-- they all have a connecting theme, but they could all live independently, too. So you could start on chapter 17 if you wanted. Or if you didn't like one of the chapters, you can just skip it and move onto the next without missing anything important in the book.

MYLES UDLAND: And Morgan, you write that-- or you note that the chapters are quite short, and it kind of speaks to kind of how you came up in the financial world, being a blogger first. I just would ask, why write a book? Were-- was this your idea? Did someone pressure you into this?

Do you feel like it's now like a crowning achievement? I've done it, I did it, but I want to go back to blogging. And just we're at a weird time in the content business with, you know, email newsletters and all that kind of stuff coming up. The book I guess still has appeal for folks.

MORGAN HOUSEL: Well, look, I read a lot of books, but I rarely finish books. Maybe one in 10 books that I start do I actually finish, even books that I like. And I think the reason that is is because few topics actually require 250 pages of explanation to get your point across. So it's rare that you come across something where you can really be honest with yourself and say, I can turn this into a book.

And it took me a long time to get there, and it was until this broad topic and just the understand-- the realization or the hope, I thought, that I could turn this into 19 short stories that were not repetitive, were not just rambling on and droning on, that I can actually turn this into a full-length book. I think that's the challenge for it. But once I convinced myself that I could do it, it was pretty obvious that this was going to be a project that I was going to enjoy working on.

MYLES UDLAND: All right, Morgan Housel, author of the new book "The Psychology of Money." Morgan, great to get your thoughts. Thanks so much for joining the show.