Becoming Systems-Oriented in Your Career With Author Morgan Housel

by Ryan Goulart

We all want to be happy, but why do we get in our own way? One reason might be because we’re wired to pursue status and goals instead of practicing the systems that lead to success and true happiness.

In this episode of Making the Ideal Real, Ryan Goulart is joined by Morgan Housel, partner at the Collaborative Fund and the author of “The Psychology of Money.” They discuss why people should become more systems-oriented, how emotions affect decision-making and how to decide what’s “enough” to have.

Choose Systems, Not Goals

Morgan believes that people’s lives should be systems-oriented instead of goal-oriented. Goals are about chasing status and figuring out to engineer an outcome, rather than who you are and what you’re about. If your entire life it is, “Oh, I’m chasing X” — X can be a net worth, it can be a job title, whatever that might be — you will never win that game because you’re constantly going to be redefining what it is,” Morgan says. 

To illustrate the difference, Morgan uses himself as an example. 

“If I said, ‘My entire goal as a writer is to write five books and they all got to be bestsellers,’ I want to sell this many copies,’ that’s a goal. I think that’s a terrible way to be a writer,” he says.

“If you said, though, I love writing every day, I love researching. I love trying to find little stories. I’m going to do that today. I’m going to do that tomorrow.’ That’s just a system. It’s a process,” he continues.

Disconnecting Our Happiness From Our Status in Society

Human beings face a battle of desires versus wiring. We want happiness, Morgan says, but we’re wired to seek status. Status is a goal-oriented concept that many people aspire to as it allows us to show off how successful we are. 

Many people chase money and career success to find happiness, “but then you realize that status doesn’t make you happy,” he says. “It’s so disconnected from what’s actually going to make you happy.”

What’ll make people happy is their connections to other people and pursuing something that’s bigger than themselves. Morgan credits New York Times columnist David Brooks for pointing out the difference between “resume virtue” and “eulogy virtue.” 

A resume virtue looks at a person’s job title, their income, the size of their house, etc. A eulogy virtue is what people would say at your funeral. “The eulogy virtues are, I think, things that will actually make you happy in life — being a good person, being a great friend, being a great spouse, being a great parent. Eulogy virtues are actually the great things.”.

Understanding Your Concept of Enough

In a goal-oriented culture, the idea of enough is often misconstrued. On a societal level, never having enough is a good thing because that mindset drives innovation, experimentation and creativity. 

“If everyone woke up tomorrow and they said, ‘This is enough,’ society would collapse instantly,” Morgan shares. 

But on an individual level, the idea of never having enough can be a source of anxiety, agony and hardship. For Morgan, saying “this is enough” is being able to look at the cost of what you want and be willing to do that. He offers investing as an example.

“Dollar cost averaging is so boring and basic on an annual basis, but that’s the fee if you want to do well. You got to put up with that monotony and the boredom to do well over a very long period of time,” he says. “So I think that’s the simple realization. It’s just everything has the cost, and once you go out of your way to define the cost and realize what the cost is, then you just have to be willing to pay it. If you can do those two things, life is great.”

People in This Episode

Morgan Housel: LinkedIn, Twitter, Instagram, Podcast, Writing

Transcript

Morgan Housel:

If I said, “my entire goal as a writer is to write five books and they all got to be bestsellers and I want to sell this many copies,” that’s a goal, and I think that’s a terrible way to be a writer. It’s a terrible way to be a successful writer. If you said, though, “I love writing every day, I love researching. I love trying to find little stories. I’m going to do that today. I’m going to do that tomorrow.” That’s just a system. It’s a process. You’re much more likely to be successful doing it that way and you’re likely to actually enjoy the process rather than just chasing the goal that you’ll never actually be satisfied with.

Ryan Goulart:

That’s Morgan Housel, author of “The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness.” We’re talking about the habits of growth, financial and otherwise. I’m Ryan Goulart, and you are Making the Ideal Real. 

I have with me today Morgan Housel, author of “The Psychology of Money.” Morgan, welcome to Making the Ideal Real.

Morgan Housel:

Good to be here. Good to see you again. Thanks, Ryan.

Ryan Goulart:

I’m super pumped to have you here. Our audience knows what my first question is, because this is the one that we ask every single guest, and it’s the name of our podcast: What does Making the Ideal Real mean to you? So Morgan, what does Making the Ideal Real mean to you?

Morgan Housel:

I think what pops in my head when I hear that question is two things. One is that the ideal is going to be so different from person to person. My ideal is different from your ideal, et cetera. There’s no one right answer. But it’s even deeper than that, which is that for everybody, including myself, your definition of ideal is going to change dramatically over the course of your life. So if you asked me when I was 19 years old, what does the ideal life look like, I would’ve said Lamborghinis and mansions and diamond watches and whatnot. Now, at age 39, that’s a joke to me. Never in a million years would I want that life. Some people my age might want that, but I have changed so much in the last 20 years, and I also know that I’m going to change dramatically over the next 20 years and the 20 years after that.

To me, that’s the most important because when you’re trying to chase the ideal life, in the process of chasing it, the definition is going to change. It’s always going to change. I myself, I try to focus on things that I’m almost positive will never change, which is, I want independence and autonomy. It’s almost impossible for me to imagine a life where 20 years from now I say, “I don’t want to be independent. I want a boss telling me what to do all day. I want to be beholden to the calendar.” Impossible for me to imagine that. So I can put a lot of focus and emphasis on independence today as my ideal life.

It’s impossible for me to imagine a world in which I don’t want the respect and admiration of my children and my wife. Impossible for me to imagine that. So I’m going to put a lot of effort in that today. Other than those kind of really basic tenets, my definition of what is ideal in terms of the games I’m playing, the lifestyle that I’m living — those are all very fluid. So I struggle to define it, even if I could put some definition on it today, because it’s always such a moving target.

Ryan Goulart:

Yeah. Great, and sets up our conversation well because one of the things that you astutely articulated is that ideal changes all the time, but there are some core tenets. There’s those core things. One could argue that those are also values that you hold near and dear to your heart. That these are the things that you want no matter what is happening. Even as you kind of think about using that example of your 19-year-old self to your 39-year-old self, love that. The idea of growth is different, though. And so from your perspective, what’s some advice that you have — as someone who has studied behavior and has studied money — what are some advice that you would have for individuals that are chasing growth for the sake of growth? How does that resonate to you?

Morgan Housel:

This is all so cliche and bland and whatnot, but when you realize how much you change, and you realize what change is, you are moving the goalposts, you’re redefining where the end zone is, then you realize that it’s not about — your life should not be that goal-oriented. It should be process and system oriented. If you’re entire life it is, “Oh, I’m chasing X” — X can be a net worth, it can be a job title, whatever that might be, you will never win that game because you’re constantly going to be redefining what it is. I did this constantly at various points in my life: “As soon as I have X dollars, all my problems will go away.”

It’s always nonsense, not because the money is not going to fix your problems, just because as soon as you hit X, you just move it down the line, and okay, how about 2X, how about 3X? Constantly, it never wins. So once you realize that’s the case, you realize — the cliche is it’s not the destination, it’s the — that’s true. But I think a better way to phrase it is it’s not the goal, it’s the system that you have in place. So for myself as a writer, if I said, “My entire goal as a writer is to write five books and they all got to be bestsellers, I want to sell this many copies,” that’s a goal. I think that’s a terrible way to be a writer. It’s a terrible way to be a successful writer.

If you said, though, “I love writing every day, I love researching. I love trying to find little stories. I’m going to do that today. I’m going to do that tomorrow.” That’s just a system. It’s a process. You’re much more likely to be successful doing it that way, and you’re likely to actually enjoy the process rather than just chasing the goal that you’ll never actually be satisfied with.

Ryan Goulart:

It’s so insightful, too, because many of our clients are financial services individuals. They might be an individual that is helping support a financial professional. They might be a lead advisor or owner of a firm. You can go even bigger than just that client base. You go to someone who’s a leader at an organization, or is a small-business owner, an entrepreneur. So much of uncertainty is out there. As one grows and uses those systems and processes to help navigate uncertainty, what’s your thoughts on what is the mindset that an individual should have, must have, to be successful in management of their money and also chasing growth with some sort of idea of purpose or ideality?

Morgan Housel:

I think it really does come back to the goals-versus-system things. I remember this example, I wrote about this in a blog post a long time ago — 10, 12 years ago — that in 2007, Lehman Brothers’ annual report, which was the last year before they went bankrupt. Their annual report basically says, not basically, it says in the annual report, “Our goal is to earn X billion dollars in profit and our goal is to earn 10% return on equity.” It was very goal-oriented. Then if you looked at Facebook’s annual report when they went public, which I think was 2012. Facebook’s annual report was like, “We love building great productsm and if we’re good at building great products, the profits are going to come naturally, but we don’t really think about the profits.” Mark Zuckerberg wrote, he’s like, “We are not a profits-oriented company. We’re a products-oriented company, and the profits will eventually come.”

I remember thinking there’s two different ways to run a company. Lehman Brothers was profit-first and we’ll figure out how to get there. Facebook was product-first, and if we’re good at that, the profits will come automatically. Lehman Brothers was goal-oriented, and Facebook was systems-oriented. It’s not to say that Facebook is not without its faults and whatnot, but I remember thinking that’s a very important distinguishment between two different ways to run a company. You could also say there’s two different ways to run a career. You could have one career goal being like, “My goal is to make partner, my goal is to be a managing director,” whatever it might be. Another person is like, “My goal is to serve my clients as best as I can.” Ten times out of 10, I’m going to bet on the latter person. The latter person is the one who’s actually going to become partner or managing director or whatever that goal might be.

So I think that’s really what it is. I think if you view it through that lens, you can see it black and white everywhere you look. Every person you come across, every business that you’re analyzing, if you’re looking at it through that lens, it’s black and white. You’re like, “This person’s goal-oriented, this person’s process-oriented.” Every single time, I’m going to bet on the process versus the goal, every single time. Scott Adams, who created the “Dilbert” comic — I think his career imploded a couple months ago for saying some terrible things — but he framed it in a way that I really liked. He said, “If someone says I want to lose 10 pounds, that’s a goal. If someone says, I want to exercise every day, that’s a system.” The person who’s goal-oriented, it’s never going to work. The person who’s systems-oriented, that person’s actually going to achieve some great stuff.

Ryan Goulart:

So what role do you think emotions play or that behavior mindset because there’s something intrinsically motivating for someone, or extrinsically, based on someone who is goal-oriented versus process-oriented. There’s obviously some sort of natural gratification for someone, in either case, behaving with money, running a company. I mean, emotions are impacting their decision-making one way or the other. What are your thoughts there?

Morgan Housel:

I heard this quote recently. I forget who said it. So I’m sorry for not giving this person enough credit, but they said, “Humans are wired to seek status, not happiness.” We want happiness, but what we actually are wired to pursue is status. Status is really a goal-oriented thing. Job title, the size of your house, the speed of your car, that’s what we’re wired to pursue. It’s to show off to other people how successful you are, but what people actually want is to be happy. That’s what everybody wants. I think a lot of people conflate those two, that if your status is high enough, you’ll be happy. I think that’s where the emotions in it really comes in.

Both the ambition of like, “I got to make this much money. I got to have a successful career.” By and large, people are doing that for status. But when you realize that status doesn’t make you happy, it’s so disconnected from what’s actually going to make you happy. What’s actually going to make you happy is independence and autonomy and pursuing something that is bigger than yourself and your connections to other people and progress in whatever you’re pursuing. Those are the kind of things that actually make people happy, not your job title and whatnot.

I heard this thing recently, too, I think it was David Brooks of the New York Times who said this, too. He said, “There’s a difference between resume virtues and eulogy virtues.” Resume virtues is your job title, your income, the size of your house. Eulogy virtues is, at your funeral, what are people going to say about you? Ryan was a nice guy, he was a great father, he was a great husband. Very different kinds of things that you can pursue. The eulogy virtues are, I think, things that will actually make you happy in life, being a good person, being a great friend, being a great spouse, being a great parent. Eulogy virtues are actually the great things. The resume virtues are almost always status, job title, income, the square footage of your house. I think when you frame it in those terms, it’s like that’s what I want to pursue. I want to pursue the eulogy virtues much more than the resume virtues.

Ryan Goulart:

My least favorite question is, what do you do?

Morgan Housel:

Yeah, my understanding —

Ryan Goulart:

It’s my least favorite question. Yeah.

Morgan Housel:

My understanding, too, maybe I’m wrong about this, but I’ve heard that’s a very American question. That if you are in Spain or London or whatnot and you ask that question, it’s rude, because what it implies is that’s how you’re valuable. You are valuable by your job title. In America, I think for better or worse, probably for worse, that is how we value people for the most part. Because I think Americans — and this is not all bad, I think there’s part of this that really makes America a wonderful place — but we are very goal-oriented and we are very status-oriented, more so than other even Western nations.

Ryan Goulart:

Just even reflecting on your comments and then even thinking about the emotional appeal of what it is when someone says that they work for IBM or Google or whatever. I mean, there’s an emotional value. So I think definitely, it’s a reinforcement loop of just making sure that like, “Oh, I’m going to always answer that question the same way the next time to make myself feel better.” It’s part of society, it’s part of that, “Where did you go to college?” I mean, all those little small-talk conversations that I don’t like.

Morgan Housel:

There was a thing years ago, this was five or six years agom that I remember seeing, it was an old guy, a very successful businessman who died, and his three sons wrote his obituary. Most obituaries are everyone is lionized in death. He was so wonderful, he was so great. The sons, and I give them a lot of credit for how brave this was, were honest in the obituary and they said, I’m paraphrasing here, “Our father was a selfish jerk who only cared about himself, and he only cared about his own money, and he never showed us any love as children.” The kids, they just went on, they were brutally honest in the obituary. I remember thinking, “It does not matter how much money that guy made or how many jobs, if that’s your obituary written by your kids, your life has been a complete and utter catastrophic failure.”

Warren Buffett, just a couple weeks ago, he said, “One great life strategy is to write your own obituary and then work backwards from there.” So what do I want my obituary to say? Well, I want it to say, “Morgan was a great father and a great husband, and he helped his community and he did — ” OK, so that’s what I wanted to say, so let’s work backwards from there and say, “What do I have to do to achieve that?” I thought that was a really great way to look at life. It’s almost like the reverse goal. Rather than a goal is like, what do I want to achieve in the future? Whereas Buffett was saying, it was like, “Let’s just start with what you want to achieve and work backwards from there rather than working forwards.”

Ryan Goulart:

Hey listeners, Ryan here. Isn’t Morgan great? Come see him live October 3 and 4 here in Minneapolis at the Marriott City Center. Hope you can join. 

Rtan Goulart:

There’s a couple of things that are just standing out to me, too, even bringing up Buffett and some of the things that he articulates, even Charlie Munger — the things that the two of them simplify for the rest of us to be able to take as advice — are basic habits, basic tendencies. So to your point, goal-oriented versus systems-oriented, if you’re able to take their advice or take the save money —  or let’s just use health, for example. You got to eat less, exercise more to lose weight. I mean, but that’s it right there, yet it’s so hard for many people to remain healthy. 

This is a two-part question question, so here it comes. What role do systems play? Then the second question, assuming that systems play a role, how does one not get distracted by not getting bored with the basics?

Morgan Housel:

I think with that, with money and health, which are so analogous because the key to doing well with money is spend less than you earn and invest the difference. Very simple. The key for health, by and large, or the key to let’s say, 90% of health, is eat and sleep eight hours and get some exercise. That’s the huge majority of it. The Buffet example is really important, because he and Munger have been saying this for decades, that the reason so few people have copied them and have emulated their success is because the natural tendency to assume that what they did must be more complicated than it is.

Most people who try to pursue it, particularly the big brain geniuses and the Harvard MBAs, it is such a natural tendency that if you say, “Oh, let’s just buy cheap companies and hold them for 10 years,” the natural tendency is to say, “Yeah, but let’s try to make it a little bit better. Let’s try to tweak it, and use some more intelligence, and we’ll build a better model and we’ll use some leverage and we’ll do this.” Without just keeping it just so plainly boring and simple. For all of it, it’s the pursuit of shortcuts is what everybody wants in health and investing. In health, it’s “what’s the magic pill? Literally the pill that I can take that’s going to give me health because diet and exercise is not very fun. It costs a lot. If you’re just going to eat a healthy diet and exercise, there’s a cost to that. Eating cheesecake and sitting on your ass is a lot more appealing.

Ryan Goulart:

Right.

Morgan Housel:

So if I can do that and take a pill, great, let’s do that. It’s the same in investing. Dollar cost average and then be patient for 30 years is not very — what people want is, “What’s the trading strategy that’s going to make me rich tomorrow?” It’s always the pursuit of a shortcut. I think in both of those, the realization is everything good in life has a cost, everything. It’s such a simple idea. How could it be any different? If you want a great life, there’s a cost you have to pay. The cost for health is you’re going to have to forego some of the best-tasting food, and you’re going to have to exercise a lot. That’s the cost. It’s worth the price, but you got to pay that fee.

In investing, it’s the same thing. Dollar cost averaging is so boring and basic on an annual basis, but that’s the fee if you want to do well. You got to put up with that monotony and the boredom to do well over a very long period of time. So I think that’s the simple realization. It’s just everything has the cost, and once you go out of your way to define the cost and realize what the cost is, then you just have to be willing to pay it. If you can do those two things, life is great. Frame this a different way: If I want to fill my refrigerator up with food, I need to go to the grocery store and pay the cost. That’s what, by and large, everybody does, and they know the cost is worth it, so I’m just going to pay the cost at the register.

But imagine if you were like, “Oh, but what if I robbed the grocery store, or what if I tried to barter with them or something?” You’re like, “God, just pay the cost. It’s worth just paying the cost. Don’t try to figure out the shortcut, just pay the damn thing.” So I think that’s really the key for things like money and health, just figure out what the price is and then be willing to pay it.

Ryan Goulart:

Yeah. Just something that’s resonated even six months-plus from when you spoke at our conference last year, and I’m anchoring on the word “enough” because the idea of enough is almost counterculture to life here in America, and in other places it may be less, but there’s oftentimes a pursuit of “more.” As it relates to your comments on a system and a process, how does one manage the tendency to lose focus of “enough”?

Morgan Housel:

The first realization is that, at the society level, we will never, ever have enough. By the way, that’s great because that’s what pushes people to innovate and to come up with a new process and to move forward. If everyone woke up tomorrow and they said, “This is enough,” society would collapse instantly. So the fact that the huge majority of people wake up a little anxious and wanting more is wonderful, but at the individual level, it’s the source of a lot of agony and hardship. If you have the ability to just wake up and say, “Hey, this is enough,” that to me is a prerequisite for genuine happiness.

I think what’s really important about enough is that having enough does not mean that you have no desire for more. I want more money, I want a higher net worth. But I think I have a good sense of enough because it’s a realization that, if you don’t go out of your way to manage your expectations with as much effort as you manage your circumstances, you’re playing a game that can’t be won. So I have career ambitions and whatnot, and I like to work, but I also go out of my way to just — I mean, this sounds so cheesy and cliche, but it’s just being grateful for what I have right now, and kind of the Stoic mindset of envisioning, “What would happen if this all ended tomorrow, if this career ended tomorrow, if the stock market crashed tomorrow?”

Then you go out of your way to say, or to think about things like, “Well, what do I have that does not rely on my income and net worth?” Well, my children, my health, my relationships, my friendships, going out and enjoying nature, those kind of things. So it’s just a mindset that pushes you to start being appreciative and grateful for things that don’t require money, per se. I think that’s really the only way to do it. That’s very philosophical and almost religious at that point. But I think that’s really the key to it is once you have the idea of enough, you start thinking about the things that don’t require dollars and net worth to pursue.

Ryan Goulart:

Again, too, I mean, it’s the living one’s values. We talk a lot about values-based decision making here at think2perform. So our listeners know exactly what I’m talking about, whether it’s understanding one’s values. My top five values are family, integrity, excellence, health and achievement. On my best day, I’m living all five of those.

Morgan Housel:

Yeah, yeah.

Ryan Goulart:

Can I say that happens often? No. Because I order cheeseburgers on Uber Eats all the time, so.

Morgan Housel:

But to that point, really important, if you did achieve those every single day, they wouldn’t be actual values. I heard this great saying recently that every company’s values should be something that’s difficult to do. So when you have companies that are like, “We value integrity,” I’m like, “Well, I hope so. I hope you do.” That shouldn’t be hard for your employees. So your company’s mission statement should be something that’s actually kind of difficult. I thought that was a great point. I think it’s true at the individual level, too, that if you are achieving your goals and filling your bucket, so to speak, every single day, you’re probably not being quite ambitious enough. It’s actually great that you don’t achieve all five of those every single day. If you did, you’re not setting the bar high enough.

Ryan Goulart:

That’s great. Thanks, Morgan. In the time you have remaining, too, I just wanted to get your perspectives because, again, even that little small bit advice is ever-evolving. I’m sure you get asked questions about this stuff all the time, I’m going to take a little bit of a different tangent with it. Where do you see humans playing a role in the future of advice? Because there are a lot of different conversations right now about AI and all that stuff, and we’ll keep that over there because yes, it’s exciting and different and useful, but at the same time, where does Ryan, where does Morgan, where does listeners to this, where do we fit in? Where do we belong, and how do we continue our life with this?

Morgan Housel:

A really important kind of short history of financial advisors here, which is if you go back to, as recently as the 1990s, financial advisors, by and large, were information gatekeepers. Whereas if you were a dentist, and you wanted to invest the money in the stock market, you had to go to a financial advisor because he was the one that had all the information on what mutual funds you should buy or whatnot. The internet have obviously changed that, to where a lot of the information is now free and available to anyone. If you have a little bit of ambition, you can kind of figure out what it all means. So the information about investing, the data is now accessible. If you’re a financial advisor, you can no longer add value by being that gatekeeper.

But that does not mean in a million years that financial advisors are not as valuable as they used to be. I think they’re more valuable than ever these days. But it shifted from information gatekeeper to kind of emotional therapist, financial therapist. I think there’s another analogy here where what most people want out of their doctor — and leaving aside actual medical procedures like surgery — what most people want from their doctor is somebody in a white coat with a diploma on the wall who looks you in the eye and says, “You’re going to be OK.” That’s what they want. Even if someone can find medical information online and good accurate information, you still want somebody in a white coat to look you in the eye and say, “You’re going to be OK,” or, “Here’s what you need to do to be OK.”

I think financial advisors are very much the same, even if the information is all out there for free. A financial advisor saying, “You should invest in this fund,”’ doing that, I think, that’s not where the value is added. Where the value is added is a financial advisor who knows what they’re talking about, looking the client and their spouse in the eye and saying, “You guys are on the right track. You guys are OK.” I think that’s a massively important skill that people will be willing to pay a lot of money for that because it’s going to save them so many sleepless nights and worry and anxiety if you can pull that off as an advisor. But that’s the value. It’s not the information; it’s the emotional component to it where, I think, that’s where financial advisors add so much of their value now.

That will be the case in the future. If AI democratizes the information even more, to now, if you just go into ChatGPT and say, “Make me the perfect financial plan,” and it’ll spit it out, I think there will always be a market for a qualified human to look you in the eye and say, “You’re going to be fine.” It’s hard for me to imagine that ever going away because there are so many other instances in life, whether it’s politics or medicine or anything like that, where people still want the human interaction of that relationship of someone just setting their anxiety at ease a little bit.

Ryan Goulart:

Yeah. To that point, too, because we operate in that world, too, I have a very strong bias that everything you just said extremely resonates with me. I’m sure some of our listeners are like, “Yeah, Morgan, that’s 100% true. I do that.” So as it relates to managing that anxiety, too, one other element of that is uncertainty. So how does one guide a individual presenting anxious behaviors to you as the financial professional to help make sense of uncertainty? Because uncertainty is something that evolves over time and is always there, and it’s scary. What do you do with it?

Morgan Housel:

I think it gets back to defining the cost of success, and in investing very clearly black and white, the cost of success, the cost of admission is dealing with uncertainty. That’s what it is. Why does the stock market have higher returns than bonds and cash historically? Because the stock market’s a hell of a lot more uncertain. That’s it. That’s all of it. Now, once you define the uncertainty and the volatility as the cost of admission, then paying it is a lot less painful. Because if you view the stock market going down 20% as an indication that you or your advisor screwed up and made a mistake, that’s painful, that hurts. Then every time it happens, you’re saying, “Well, what’s going on here? Who’s to blame here? Who should I fire here?”

If you instead view it as the cost of admission, then when it happens, you’re like, “Hey, this isn’t fun. I don’t enjoy it, but this is just the bill coming due. I will gladly pay this bill because the rewards over time are well worth it, so it’s easy for me to pay.” I think that really subtle mindset shift is how you can deal with uncertainty. Now, it doesn’t make it easy because in March of 2020, when the world was melting down, the market fell 40%, I was scared. I don’t know if that’s the right word, but it’s never fun, particularly because why the market will fall 20, 30, 40% is because there’s something going on in the world that is terrifying — a war, a terrorist attack, a pandemic.

So it’s easy for people when things are going well to say, “Oh, if the market fell 30%, I would view that as an opportunity, and I would buy more.” But the reason the market might fall 30% is because there is something happening in the world that is terrifying. It is easy to underestimate that you will be one of the people who are terrified. It’s easy to contextualize it as other people panicking and other people being scared. In late 2008 or in March of 2020, you realize sometimes it’s us who are the ones who are scared. But I still think viewing that emotion as the cost of admission makes it so much more palatable to deal with the volatility rather than viewing it as an indication that you or your advisor made a mistake.

Ryan Goulart:

Yeah. To that point, the interesting thing I recently learned, I intellectually understood this. Which was that one of our clients came to us and told a story about a client that was just coming to them, transitioned from a former financial professional, and they were the lucky ones to get this person. The individual was telling the value prop of what they do and how they do it. They mentioned that they help them when the market is down, that’s when we’ll buy, and when the market is high, that’s when we’ll sell. The client said, “I don’t like that.”

It’s that whole idea of just, it feels better to buy high than it does to sell when it’s low. It comes into play here with both this conversation of the individual still being relevant in the future, what anxiety and uncertainty looks like, and then the emotional component of saving and investing behavior — sell high, buy low — and yet it’s still emotionally hard. So as kind of your exclamation point here, what do you think?

Morgan Housel:

Well, without knowing anything about that client, sometimes when I hear those stories, sometimes I want to say, “Look, for that client, that actually might be the right thing.” Buying when it’s high actually might be the right thing to do because the whole purpose of money is to use it as a tool to give yourself a better life. If buying low is going to cause that client to lose sleep and be anxious and have a pit in their stomach, then you’re not using money to give yourself a better life. I think without knowing any other details, sometimes I want to tell people like that, “Hey, you’re going to earn lower returns than you otherwise could, but that’s fine for you. If this will help you sleep better at night, we’re all set here.”

I think too many people, and advisors, too, or even especially advisors, try to manage for the spreadsheet, and they try to say, “How can we earn the highest returns here?” By doing so, a lot of times they put their clients in emotional positions that they don’t want to be in. For so many clients, the better position is to say, “Hey, we’re going to earn lower returns, but you’re going to sleep just fine. You’re going to be totally fine.” I think for actually a pretty good percentage of people, that’s a better bet, because they have a higher chance of sticking with it, versus if you tell your client like, “Hey, we’re going to earn higher returns, but this is going to hurt and you’re not going to like it.” By and large, those clients will end up firing their advisor or abandoning it at some point. So I think dealing with the reasonable strategy rather than trying to pursue the perfectly rational, perfect strategy is actually a pretty important part of this.

Ryan Goulart:

Well done. Well, thank you so much for coming on.

Morgan Housel:

This has been fun. Thanks, Ryan.

Ryan Goulart:

As we wrap this episode, we’re committed to helping you make the ideal real. If you found this program helpful, share it and help someone else make their ideal real, too. Until next time, for Think2Perform, I’m Ryan Goulart. Take care.

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