Finance Roundtable Podcast
Episode 18: The Psychology of Money by Morgan Housel
In this episode of The Finance Roundtable Podcast, the team talks about a personal finance book that has positively affected the narrative behind the emotions of money.
The Psychology of Money by Morgan Housel is a fabulous book that brings insight on greed and fear when it relates to money. Whether you are just starting out learning about money or are a veteran to money concepts, you will enjoy Housel’s stories and antidotes.
Listen how Professor Gold utilizes the Psychology of Money in his personal finance course at Arizona State University.
In this episode of The Finance Roundtable Podcast, the team talks about a personal finance book that has positively affected the narrative behind the emotions of money.
The Psychology of Money by Morgan Housel is a fabulous book that brings insight on greed and fear when it relates to money. Whether you are just starting out learning about money or are a veteran to money concepts, you will enjoy Housel’s stories and antidotes.
Listen how Professor Gold utilizes the Psychology of Money in his personal finance course at Arizona State University.
You are listening to Finance Roundtable, a podcast focused on demystifying money. The hosts, professor Jacob Gold, michael Koschel and Kelvin Gold, will educate and entertain you in all areas related to money. Sit back, relax and enjoy the show.
Speaker 2:Hello everyone, welcome to the Finance Roundtable podcast. I'm your host, professor Jacob Gold, and I'm Michael Kushel and I'm Kelvin Gold. Today we're going to be talking about books. When I was a young boy, I did not enjoy reading. It wasn't until after I graduated from college, when I was starting as a financial planner. I needed to find wisdom, I needed to find guidance, and I found that in books, especially nonfiction books. I needed to understand how to connect with people, how to lead people, understand portfolio theory, and I started a friendship with books that has endured time and time again. I now listen to audiobooks, I read books. Sometimes I'll read a book and listen to it, and as I'm listening to it, I'm highlighting sections of the book, so then I can go back to that book and use it as a reference. What's been your experiences with books, mike?
Speaker 3:You know I've always read books, started out more spy type of adventure books when I was younger and in high school. One of the classes I took was academic decathlon, which really opened my eyes to view books in a different way. With some of our teachers, we would actually do an in-depth analysis of some of the books that we would read, and so it allowed me to get a different perspective. These days, I tend to lean on some adventure books when I want to get away, so if I'm on vacation or something or other, but for the most part, I feel like I'm constantly reading some kind of whether it's a financial book or just experiences that other people have had, whether it's related to politics, finances, business in general. So, like you, I've found that it helps guide me and think differently, knowing that it's coming from a different perspective. Yeah, very cool. What about you?
Speaker 4:Kelly, that it's coming from a different perspective. Yeah, very cool. What about you, Kelly? Yeah, I would say in high school and in elementary school, books wasn't my favorite thing, but I did enjoy English as a subject and writing was always fun. So it kind of then eventually transitioned to okay, if I'm reading, I can get better at writing. So then I read more. My dad gave me so many recommendations about nonfiction books that I've read driving to ASU forever because it's a good 45 minute drive, so you can read a lot of books on your way to ASU. And then, yeah, it's been more recently that I've really began to enjoy like all types of books. I read nonfiction, I read fiction books, I'll even read some comic books. It's just been kind of all consuming for me. These days it's what I'm doing. I can read on my phone, I can get a book, read that, listen to the audiobook super accessible now, so it makes it much more fun.
Speaker 2:Absolutely, and it is. I mean, it's your own little world that you can control. Definitely, and if you need to go back and read something over again, it's all within your control, which is pretty awesome. At ASU, I've really noticed that very few kids read books. Maybe they read their textbook, but they're mainly on their phone. They're mainly on their phone, getting their news, their wisdom, from various social media platforms.
Speaker 2:And in my opinion, that just adds to the noise. There's a lot of noise out there and, let's face it, a lot of that content on those social media platforms it's misinformation. There's a lot of holes in that and yet people hear it. It might make sense to them based on their situation and what they've been exposed to, and then they move forward with that. My point is when I start a new semester at ASU, I have a list of 10 books that I encourage students to read. If they read any of those books during the semester, I give them extra credit. But I also recognize that they have a heavy load and they might not get around to reading a book or two during the semester, and so I have this written down and I encourage them at some point in their adult life to read these books. The two books that I refer to the most the first is a selfish plug and that's the Money Mindset book. My second book this is a great book that I use.
Speaker 2:Half of my students in my course at ASU are finance majors and they have a very good understanding of what a stock is, what a bond is and the risk that goes along with it. The other half of the students they could be studying to become teachers, social workers, engineers. It's a business elective that anybody can take. So I find that the first week of class there's my finance students that have a lot of knowledge about the financial world and then my other students that maybe haven't been exposed to a lot. So money mindset's been a great way for me to have them read it for the first two weeks. That way I can make sure that everyone's at the same level and then we can then progress through the semester all on the same page and learning everything together.
Speaker 2:The other book that I recommend highly to all my students is Morgan Housel's the Psychology of Money, and that's what we're going to be talking about today is the Psychology of Money. It's a phenomenal book. It's a quick read. Morgan Housel, who is a New York Times bestselling author, includes a lot of antidotes, a lot of stories about his own life, and he puts into perspective that we need to use money as a tool. It is not the end all. It's just a way for us to, over time, capture power and independence, because that's what we're really looking for through money is to have opportunities opportunities for ourselves, opportunities for our families. But in that we have to recognize the difference between risk and opportunity and a lot of fundamental psychological things that we need to recognize the difference between risk and opportunity and a lot of fundamental psychological things that we need to take into account. Mike, we've all read the Psychology of Money.
Speaker 2:What were some big takeaways for you?
Speaker 3:You know, when I began reading it, what I really liked about it was all the different stories and I've learned as I've read books at different periods of time in my life those stories apply differently and so this book, the story, stood out to me and I always take notes as I've got my notebook here and I think one of the key things that stood out to me is the psychology aspect of trying to understand your own behavior in making some of the decisions. And, of course, our ages make a bit of a difference, our previous experiences, the people that were around. So I think what stood out is trying to really dive in and understand the purpose of the story. What is he trying to share, what is he trying to get out to his audience? And what really stuck with me is trying to understand your own behavior and the more you can do that. I think it's powerful and it allows you to read the book for yourself and how it can help you and maybe those around you.
Speaker 2:Oh, that's so good, and actually that reminds me of something that Morgan Housel spoke to early on in the book. He said this about money. We think about and are taught about money in ways that are too much like physics, with rules and laws, and not enough like psychology, with emotions and nuance. Money is everywhere. It affects all of us and confuses most of us. Everyone thinks about it a little differently. It offers lessons on things that apply to many areas of life, like risk, confidence and happiness. Few topics offer a more powerful magnifying glass that helps explain why people behave the way they do than money. It's one of the greatest shows on earth, and I think that that's powerful because, it is true, we tend to think money in absolute terms, but in reality, when it comes to earning money, investing money, spending money, so much of it is emotions. It's emotions when the markets are down.
Speaker 2:People want to get out. They don't want to lose money or times are good and economically we're in a boom stage. People want to show off their money. They want to buy cars and have fancy clothes, and what Morgan talks about is like wealth is invisible. Wealth is money that you could spend today, but you're not. You're investing for tomorrow, and he talks about the difference between being rich versus wealthy. Someone that is rich, they want to show it, they want to show it in their car, they want to show it in their clothes, but someone that's wealthy, you may not know that an individual has a business or has a tremendous amount in stocks that are paying dividends, that is providing income for him and his family, and so wealth is invisible. And I think there's a lot of wisdom to that and there's a lot of psychology to how to earn money and how to have confidence in the future.
Speaker 2:Morgan talks about how the two most important time periods are one, the present, and two, eternity. So what's it going to be like forever and what is taking place right now? And we have to have that perspective of long-term and also in the current present to be able to see full picture what we can and should be doing. Kelly, what are your thoughts of that?
Speaker 4:Yeah, when I read Psychology and Money, there's so many stories, like Mike was saying, and every single one it's almost like a short story that just covers one subject. So he goes in this story and then he talks about how can we apply this to finance, to the economy, to investing. And that's what was really great is you don't have to read it cover to cover. You can say, oh, this story looks good, let's read this one and you can understand it. It doesn't have, you don't need a lot of exposition to get it, it's pretty easily digestible. And then, yeah, I think that's what really stood out to me and I was reading it and I was like, oh, I wonder if he'll talk about this. He does. He literally covers every single aspect you could ever think of about investing in this little book. It's pretty amazing.
Speaker 2:It is pretty amazing, and I think that money creates a lot of emotion, mainly probably negative, because it's a scarcity and many people don't have enough. But you know, we have to remember that in those emotions we tend to fear what we don't know. That recognizes those fears and can talk through those fears using stories, then that fear can go away and in its place is confidence and wisdom. And we do have to look at money as a tool. And one thing that he talks a lot about is risk and luck, and he said this about risk and luck.
Speaker 2:Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort. And I think that's powerful because we can only do so much in a specific time period and, depending on when we do it or how we do it, we might face lady luck or we might have the dangerous side of risk. And if someone has that lady luck, sometimes we attribute that luck to ourselves. And Bill Gates once said that success is a lousy teacher it seduces smart people into thinking they can't lose.
Speaker 2:And I think we all can recognize some people that we've known throughout our lifetime that maybe they had some success early on and they attribute that to some attributes that they have, and then they begin to take on more risk because they feel that they're invincible and they've got it down. But what we do know is that this economy, this world, is constantly evolving and changing, and if you're not evolving and changing, that risk that you took that ended up being profitable may have the exact opposite outcome if the macro environment changes, and so I think that there's a lot of wisdom in what Bill Gates said is that success is a lousy teacher.
Speaker 2:And another thing that is, I think, quite impressive is you know, what we're trying to do is we're trying to understand that if we can put our money to work, if we can live below our means and we can constantly save for our future and we invest it wisely, at some point we'll have enough money working for ourselves that we ourselves don't have to work. Our money can be working for us. We can be taking income from that and we don't have to outlive our income because you don't want to run out of money before you run out of life. And what Morgan Housel talks about is that the highest form of wealth is the ability to wake up every morning and say I can do whatever I want, and that's pretty powerful to wake up and say what do I want to do today?
Speaker 2:And you can't do that unless you have the financial ammunition behind yourself. And let's face it, wealth doesn't get created like that. We see people win the lottery and, statistically speaking, they might be filing for bankruptcy 10 years later. Because sometimes easy come, easy go, they get this money. Friends and relatives are wanting a loan or to start a business. And when you earn it yourself over time, when you earn it yourself over time, there's this sense of pride but also this sense of obligation to protect it. And Morgan Housel also says the ability to do what you want when you want, with who you want, for as long as you want, is priceless. It's the highest dividend money pays, and that's what we're trying to do when we're investing our money for the future. Mike, any comments on that?
Speaker 3:Yeah, you know I actually there were two things that, since we're talking about on the investment side of it rather than the psychology, and of course they intertwine quite a bit Two things that I noted down that I thought would be well worth stating.
Speaker 3:Is he also identified that so much is based on chance, luck and I watched an interview quite some time ago and Mark Cuban shared some thoughts and, of course, having the success that he's had for many years, he does express a big piece of chance and luck and timing of when he looked at, you know, building the business that he did, not just how smart he is, what school he went to, as you mentioned earlier, the details or the analytics to have some financial success.
Speaker 3:So that's one thing that stood out. So sometimes it's not about, as you mentioned, all the work that you do, but maybe chance, maybe luck and timing can make a big difference. The other thing that stood out and I wrote this down is that, as far as investments, I think it's good to base decisions on a specific goal and an opportunity at that time. As you can imagine, someone in their 20s or 30s or 40s with a family, without a family, can make a big of a difference on what their goals are at that time. And we read so much and there's so much social media out there about opportunities to look at this.
Speaker 3:Consider that, but what if that opportunity didn't make sense for someone at that time. Kelly being in college right now, you may hear about some 30-year-olds having significant success with whatever it might be, but you might not be at that stage to grab on that opportunity. So that's something that I think is specific. At whatever age or life situation someone's in, it's important to, I think, stay focused on the goal for the opportunity, given their time, rather than what you hear about, because then we're chasing something rather than holding it true to themselves of what they can do at that time. So those are two things I might relate to. You know the investment side of it, but then I think it does factor into psychology. So that stood out to me.
Speaker 2:Those are great antidotes and it's true. I mean people want success, they want to hit it out of the park, they want to know what's going to be the next big stock that's going to make them a multimillionaire. And in reality it's not about timing the market. It's about being diversified in a way where you can give your portfolio time in the market. And what Morgan Housel said in the Psychology of Money is, he said, good investing isn't necessarily about earning the highest returns, because the highest returns tend to be one-off hits that can't be repeated. It's about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. That's when compounding runs wild. So we need time in the market.
Speaker 2:But because there are so many noises out there and if someone doesn't have the basic financial knowledge, they can really get skewed on the good times and bad times, on what to do, and instead of looking long term, they're trying to time things. And it's best to be well diversified and to do the research to know what does that mean? It means having a little bit of your assets in everything, not all of your eggs in one basket in one stock. You need stocks of different types. You need bonds of different types and you have that yin and yang. When one does well, maybe the other one's not doing so well, but as the economic environment changes, the roles reverse and what didn't do so well last week or last year now becomes one of your biggest earners. And so if you have that balance, you can leave the money alone and it can slowly begin to compound for you.
Speaker 2:And the longer it's compounding, that's when the magic happens. And that's Albert Einstein once said that compound interest is the sixth wonder of the world he who earns it makes it and he who doesn't understand it ends up paying it. And I think that that's very relevant to our time period where everybody wants the trick, everybody wants to know how can I make $100,000 in a week, a month, a year, when in reality steady wins the race and the psychology of money really says put the brakes on trying to become wealthy overnight. It's a long race, it is not a sprint, it's a marathon. It begins with living below your means and managing that risk and knowing that along the journey you're going to have some luck, you're going to have some bad risk, but it's always staying focused long term, kelly. Anything to add to that?
Speaker 4:There's a video we did about a month or two months ago where you said you have to be lucky twice to time the markets, and that really has stuck with me. You have to be able to time it when it's at its cheapest and then sell it when it's at its highest. To get lucky once is nearly impossible. To get lucky twice is even less likely. So that's really interesting. And when you're talking about luck and risk, I think luck has a much more positive connotation, Risk has a much more negative connotation and being pessimistic is much more acceptable in this environment and being optimistic is a little bit shunned upon. But you can't be just all pessimistic and you can't just be all optimistic. You have to be somewhere in between. And when taking on risk, you have to have balanced risk so you're not relying on luck for your returns. Yeah, that's. I was just reminded of that when we were talking about luck and being lucky twice. It just really reduces the probability that it'll happen.
Speaker 2:It's true, and you are right, there's there's a certain level of credibility, that is accepted when people lead with scare tactics or risk Don't do that and all of a sudden a sudden, you go defensive and you're listening, you are trying to hear okay, what do I do to avoid risk or pain? And if someone were to say, hey, do this and this will positively happen for you, in this day and age, with all the noise out there, people are very skeptical of that, and so if you have a portfolio or you have a game plan that really focuses on the positives and the negatives and a lot in between, then you don't have to guess, and I think that's the big thing about creating wealth is try to take a lot of the guesswork out of it. You want it to be bland, you want it to be diversified, middle of the road. That way, you can live your life. If you're taking on too much risk and you're relying on luck to help you, then you're going to be on pins and needles.
Speaker 2:The moment that the Federal Reserve makes a decision to raise rates or unemployment goes up, you're going to feel like you have to react to that, and many times, if you're just middle of the road, you can focus your life on things that are more important than money, and that's your relationships, your health, and it allows you to have that freedom to have your thoughts in other things other than you know, just trying to capitalize on what is available in the present, because it's not black and white. There's so much gray there and in the present we can't really decipher what is more white or what is more black. We just have to recognize it's gray and know long term, as we make little tweaks, we're going to stay middle of their way and just have that compounding work for us. So these are just a few things that we are pulling from the psychology of money.
Speaker 2:Money is complicated. Money causes a lot of emotions, positive ones and negative ones and in order for people to get ahead financially, we really have to have an understanding of the psychology of money. So if you are an investor that has been around for decades and you want a good refresher, check out the Psychology of Money. If you're just learning about financial strategies and you want to get ahead financially, start with the Psychology of Money. It's a great place to start and, logically, it will help you put the needle in the right direction so you can move forward. Any last thoughts about the psychology of money.
Speaker 3:Yeah, you know I'll finalize. When we read the title psychology of money we apply that psychology to money or things that are outside of our realm. But I think the psychology is really understanding ourselves.
Speaker 3:The more clarity that you have about yourself. Then it helps to maybe work with an investment advisor or someone that you know that has experience about money and connecting those dots. So when I read the title you think that's psychology. I got to figure all these pieces out but it's actually truly figuring yourself out and then possibly working with someone to be able to find that guidance and make more educated decisions. So that would be my final thought on it.
Speaker 1:I love the book.
Speaker 3:It really stood out and I hope others get to enjoy it as well. This is why we call him the Buddha yeah that was great you summed it up, man that's really
Speaker 4:good, that's exactly right.
Speaker 2:Help understand ourselves. So once we know ourselves, then we know what direction we should take. That helps us accomplish our goals. But start from within. Yeah, good point. Thank you everybody, thank you, thank you. Bye-bye.
Speaker 1:Thank you for listening to Finance Roundtable. Make sure to check out our episodes at wwwfinanceroundtablepodcastcom. We also encourage you to explore wwwjacobgoldcom to find articles, research videos and more from Jacob Gold and Associates Inc. If you have a question for the show, please email Jacob at jacob at jacobgoldcom. Jacob at JacobGoldcom.
Speaker 2:Jacob Gold and Michael Koschel are financial advisors offering securities and advisory services through Cetera Advisor Networks LLC, doing insurance business in California as CFGAN Insurance Agency LLC, member FINRA SIPC, a broker-dealer and registered investment advisor. Cetera is under separate ownership from any other named entity. Jacobs California Insurance License 0E55425. Michaels California Insurance License 0K90130. The views depicted in this material are for information purpose only and are not necessarily those of Cetera Advisor Network. They should not be considered specific advice or recommendations for any individual. Neither Cetera Advisor Networks nor any of its representatives may give legal or tax advice. Kelvin Gold is a marketing associate. Registered address is 14850 North Scottsdale Road, suite 255, scottsdale, arizona, 85254.