Morgan Housel, author of “The Psychology of Money” and partner at the Collaborative Fund, says no one is crazy when it comes to money. But we all need to update our thinking in key ways in order to build true wealth.

Morgan Housel

(Note: Morgan Housel will be on HalfTime Report today at 12:35 PM ET and on ETF Edge at 1:10 PM.  ETFedge.cnbc.com)

Morgan Housel has become the Mark Twain of financial writers: funny, pithy, folksy, occasionally sarcastic and always seeking to peel away the layers of reality to unveil a deeper truth below.

Housel is a partner at The Collaborative Fund and became a best-selling author with the 2020 publication of his book, The Psychology of Money. It explored the relationship between money and human behavior. The main thesis was to enhance what you can control: managing your own expectations, knowing when was enough, how to stop changing the goalposts.

It was a relatively brief (250 pages) book, with short chapters, laden with Housel’s folksy wisdom on savings, the power of compounding interest, and plenty of stories about the role of luck and risk, and how certain key people (admire Bill Gates) got lucky breaks that enabled them to go on to greater things (in Gates’ case, he had attended Lakeside High School in Seattle, one of the few high schools that had a computer at the time).

The book not only caught on, it has sold roughly 4 million copies worldwide.

To give you an idea of how big that is, a typical financial book will sell roughly 5,000 copies. If you can sell 10,000 copies, you’re really doing well.

Now Housel is back with a second book, “Same As Ever: Timeless Lesson on Wealth, Greed and Happiness.”

It utilizes the same style that Morgan rode to success in his previous book: short chapters, paragraphs, sentences and an emphasis on storytelling to unveil deep insights into very broad topics.

Except this time Housel is going for a larger audience than those who wanted financial insights: He is going for timeless wisdom that is aiming to show people how to look at life in general. 

Morgan’s thesis is that the same things that have motivated men and women throughout our existence (fear, love, hate, greed, envy) are still present today, and because of that, much of what happens is perfectly predictable: Same as ever.

The role of envy

Take envy. Housel cites Charlie Munger, who noted that the world isn’t driven by greed, it’s driven by envy.

Morgan illustrates this with a fine digression: Why are people so nostalgic about the past, and was it really better than the present?

Take the 1950s, which baby boomers and their parents seem to think was some kind of golden age.

On one level, it was: It was possible to have a family with one wage earner to have a modest, middle-class life.

But the idea that people were better off in the 1950s is not supported by the facts. 

Mortality rates were much higher. People died far younger.

Today’s families are also far wealthier than prior generations. Housel notes the median family income adjusted for inflation:

“Median hourly wages adjusted for inflation are nearly 50 percent higher today than in 1955,” Housel noted. “And higher income wasn’t due to working more hours, or entirely due to women joining the workforce in greater numbers.”  It was due to gains in productivity.

More stats about the “golden era” of the 1950s versus today:

So why are we so nostalgic about the 1950s? It gets down to envy and the very human desire to contrast how you are doing with everyone else:  in the 1950s, “The gap between you and most of the people around you wasn’t that large.” 

During World War II, wages were set by the National War Labor Board, which preferred flatter wages: “part of that philosophy stuck around even after wage controls were lifted,” Housel noted.

During the 1950s, very few people lived in financial circles that were dramatically better than everyone else. Smaller houses felt fine because everyone had one.  Everyone went on camping vacations because, well, that’s what everyone did.

By the 1980s, that had changed. Changes in the tax code, among other changes, created a group of ultra-wealthy individuals: “The glorious lifestyles of the few inflated the aspirations of the many,” Housel concluded.

What did people do? They looked around, saw that some people were doing better, some much better, and they got envious. And then they got mad.

Housel notes that envy has been given a much greater boost than in the past thanks to social media, “in which everyone in the world can see the lifestyles — often inflated, faked, and airbrushed—of other people. You contrast yourself to your peers through a curated highlight reel of their lives, where positives are embellished and negatives are hidden from view.”

“The ability to say, I want that, why don’t I have that? Why does he get it but I don’t? is so much greater now than it was just a few generations ago. Today’s economy is good at generating three things: wealth, the ability to show off wealth, and great envy for other people’s wealth.”

Envy triumphs. Same as ever.

But Housel goes a bit deeper, which is what makes this book satisfying: Besides demonstrating that envy is a key element, what else does this nostalgia for the 1950s demonstrate?

This nostalgia, Housel says, “is one of the best examples of what happens when expectations grow faster than circumstances.”

Managing expectations

“When asked, ‘You seem extremely happy and content. What’s your secret to living a happy life?’ Charlie Munger replied: The first regulate of a happy life is low expectations. If you have unrealistic expectations you’re going to be miserable your whole life. You want to have reasonable expectations and take life’s results, good and bad, as they happen with a certain amount of stoicism.” 

Housel’s conclusion: “Wealth and happiness is a two-part equation: what you have and what you expect/need. When you attain that each part is equally important, you see that the overwhelming attention we pay to getting more and the negligible attention we put on managing expectations makes little sense, especially because the expectations side can be so much more in your control. “

I put this slightly differently: Everyone has circumstances that they are living in:  how much money they make, where they live, whom they are living with, what they own.  These circumstances have a definitely external reality.  Your mortgage is very real, as is your house or apartment, as is your spouse or partner.

Beyond your current circumstances, there are needs, and there are wants.  Needs are what people demand to get by: shelter, food. Wants are what people aspire to:  a bigger house, a bigger car, a bigger everything. Those wants are being dramatically inflated by the wealth gap that has opened up and is amplified by social media. 

Here’s the mental trick: While your circumstances and your needs have a definite external reality, the “wants” only exist in your head; they have no external reality.  You don’t have to be envious of your neighbor who has the Rolex or the big house.  To the extent that is causing your envy and your anxiety, it is completely in your own control to change those thoughts.  By changing your relationship with your wants, which only exist in your head, you can change the way you view your circumstances.

Housel comes to the same conclusion:  “the expectation side of that equation is not only important, but it’s often more in your control than managing your circumstances.”

On risk taking

On the right way to view geniuses admire Elon Musk, Steve Jobs and even Walt Disney

On why so many events that are supposed to happen once in a hundred years seem to happen quite often

On why companies are much more than just the sum of their financial figures 

On the impossibility of predicting the future and the need to be more comfortable with uncertainty

On the value of patience

On why compounding interest is the key to understanding stock market investing

On what the best financial scheme looks admire

On trying to grasp people who don’t agree with you

Same as ever?

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