Conversation with Morgan Housel — Behaviors that Influence our Money Decisions and Habits | The Prof G Pod with Scott Galloway

Intro

In this episode of “The Prof G Pod with Scott Galloway,” Scott Galloway is joined by Morgan Housel, author of “The Psychology of Money,” to discuss his latest book, “Same as Ever: A Guide to What Never Changes.” They delve into the collective behaviors that influence our money decisions and habits.

Main Takeaways

Understanding Collective Behavior

• Morgan Housel’s book, “Same as Ever: A Guide to What Never Changes,” explores the collective behaviors that people exhibit repeatedly.
• Financial crises throughout history are characterized by the same behaviors of greed, fear, and uncertainty.
• Easy money can lead to poor financial decisions, as investments made during periods of easy access to capital may not be well thought out.
• Investing in real estate solely due to the fear of missing out (FOMO) or to provide for your family without considering affordability can be problematic.
• Verbalizing your investment strategy can help you focus on the right information and people to pay attention to.

Managing Risks and Expectations

• Financial forecasting is unreliable, but being aware of unexpected risks, such as 9-11, Lehman Brothers, and COVID-19, is crucial.
• Pessimism is popular due to recent surprises, but it’s important to unlearn what you think you’ve learned to avoid making emotional investment decisions.
• Mechanizing your investment strategy and using dollar cost averaging can help remove emotions from the equation and lead to better results.
• The best way to prepare for a recession is to be ready for it at any given moment, similar to how California prepares for earthquakes.
• Scenario planning involves predicting a series of actions that perform best across a number of scenarios, rather than predicting the future.

The Impact of Money on Happiness and Success

• Money is a tool to improve one’s life, but people use it for different purposes, some of which can lead to disastrous outcomes.
• Seeking respect and admiration through material wealth is not a lasting and enduring way to gain it.
• Healthy relationships and emotional support from loved ones are more valuable than showing off wealth and success.
• Financial security is necessary for providing for one’s family, but being rich is subjective and can be achieved with lower incomes.
• Happiness is influenced by wealth, but unrealistic expectations and comparisons to others can lead to dissatisfaction.

Summary

Understanding Collective Behavior

Morgan Housel’s book, “Same as Ever: A Guide to What Never Changes,” delves into the collective behaviors that people exhibit repeatedly. Financial crises throughout history have shown consistent patterns of greed, fear, and uncertainty. The accessibility of easy money can lead to poor financial decisions, as investments made during periods of abundant capital may not be well thought out. It’s important to consider affordability and avoid making decisions based solely on FOMO or providing for your family without considering your financial capabilities. Verbalizing your investment strategy can help you focus on the right information and people to pay attention to.

Managing Risks and Expectations

Financial forecasting is unreliable, but being aware of unexpected risks is crucial. Recent surprises may lead to pessimism, but unlearning what you think you’ve learned is essential to avoid making emotional investment decisions. Mechanizing your investment strategy and using dollar cost averaging can help remove emotions from the equation and lead to better results. Being prepared for a recession at any given moment, similar to how California prepares for earthquakes, is more effective than trying to predict when it will occur. Scenario planning involves predicting a series of actions that perform best across various scenarios, rather than predicting the future.

The Impact of Money on Happiness and Success

Money is a tool to improve one’s life, but people use it for different purposes. Seeking respect and admiration solely through material wealth is not a lasting and enduring way to gain it. Healthy relationships and emotional support from loved ones are more valuable than showing off wealth and success. Financial security is necessary for providing for one’s family, but being rich is subjective and can be achieved with lower incomes. While wealth can influence happiness, unrealistic expectations and comparisons to others can lead to dissatisfaction. It’s important to prioritize emotional well-being and seek fulfillment beyond material possessions.

Conclusion

Understanding collective behaviors and managing risks and expectations are crucial aspects of making sound financial decisions. Money can impact happiness and success, but it’s essential to prioritize emotional well-being and seek fulfillment beyond material possessions. By being aware of historical patterns, avoiding emotional decision-making, and focusing on long-term goals, individuals can navigate the complexities of personal finance and achieve financial security.