Morgan Housel: How to Stay Rich

Morgan Housel and “The Psychology of Money” book cover.

If the initial goal is to get rich, how, then, do you stay rich? There’s only one way: Be guided by a mix of frugality and paranoia, Morgan Housel, financial writer and partner in the Collaborative Fund, tells ThinkAdvisor in an interview.

A former columnist for The Wall Street Journal and The Motley Fool, he is author of a new book, “The Psychology of Money: Timeless Lessons on Wealth, Greed and Happiness” (Harriman House-Sept. 8).

The volume grew from a report the popular blogger wrote in 2018 about the 20 most important causes of self-defeating money behavior, which drew more than 1 million readers.

Housel, 36, maintains that financial success pivots more on behavior than financial knowledge.

He has indeed made the case that soft skills are more important than the technical side as both a multi-award-winning financial writer and a speaker who has presented to more than 100 conferences worldwide.

In 2016, he joined the Collaborative Fund as a writer and partner. The firm, headquartered in New York City, invests in startups that use their prowess to do good as an economic advantage. These have included Kickstarter, Lyft and Sweetgreen.

Housel began writing for The Motley Fool as a junior at the University of Southern California, from which he graduated in 2008 with an economics degree. He acquired a FINRA Series 65 license during his decade-long stint at The Motley Fool, at which he also performed wealth management work.

During his 20s, he picked stocks for his personal portfolio and owned about 25 individual equities. Today, he invests exclusively in low-cost index funds.

In the interview, Housel stressed that even the best investors can be off-base half the time yet excel in the long run. In particular, he cited Warren Buffett.

ThinkAdvisor interviewed Housel on Aug. 28. He was speaking by phone from his base in Seattle. Born in New York City, he grew up near San Francisco and in Lake Tahoe.

At USC, he aspired to be an investment banker and interned at a big bank one summer. But he exited after only a month, he says, after finding the work to be “one of the most miserable experiences of [his] life.”

Here are highlights from our interview:

THINKADVISOR: Clearly, there’s a big disconnect between what’s happening in the U.S. economy and what’s happening in the stock market: America is in recession — some say, a rolling depression; an average of more than 900 people are dying of COVID-19 daily. At the same time, the stock market is hitting record highs. What do you make of it?

MORGAN HOUSEL: No one would have predicted that we’d have a 35% [market] decline in March and be back at all-time highs by July. If you don’t have a sense of humility after 2020 — that we don’t know what’s going to happen next — then there’s not a lot of hope for you. This should be at least the most humbling year for forecasters they’ve had in their careers.

What are the reasons for the market’s wild rise?

The S&P is heavily lopsided with just a few companies that are doing very well: Google, Amazon, Apple, Microsoft, Facebook. The other thing is that there’s so much intervention from the Federal Reserve, which is [pumping] trillions of dollars through the system with the express intention of propping up asset prices. That’s the goal; so we shouldn’t be surprised that is what’s happening.

You argue that “money relies more on psychology than finance.” Please explain.

Behavior is the most important side of investing. You can be the best stock picker in the world, have the most sophisticated economic forecast and models — be a financial genius — but if you don’t control your own relationship with greed and fear, your ability to take a long-term mindset, whom to trust, and how gullible you are, then none of those financial skills will matter.

But soft skills don’t get much attention in the financial services industry. Advisors have little training in them. Yet the soft side is apparently becoming increasingly important.

It’s incredibly important. [Investing and planning] seem like such an analytic field, with all the numbers, data, charts and formulas. It’s not that the analytic side isn’t important; but the softer side, the psychological side, is so much more important.

Why don’t financial advisors develop their soft skills to a greater extent?

When you start paying attention to sophisticated models and Excel spreadsheets, it’s easy for the psychological side to get swept under the rug because it feels like [the latter’s] topics are just soft and mushy. But it’s so clear to me that if you don’t have the psychological side, then the analytical side doesn’t matter at all.

“There’s little correlation between investment effort and investment results” because the market is “driven by tail events,” which “move the needle,” you write. Please elaborate. 

You could be wrong on half your individual investments and still do very well over time. It would be intuitive to think that if you’re a great investor, every investment you make is great; but that’s never how it works. This is what happens even with the best investors in the world.