Order of Man - How to Invest, the Right Way

00:00:00.000 If building wealth was simply about math, we'd all be independently wealthy because we

00:00:04.060 all know how to add and subtract. Seeing as how we're not all independently wealthy,

00:00:08.600 there must be something else at play. And it might surprise you to know that it's you that

00:00:13.900 has the potential to become your own worst enemy. Today, I'm joined by repeat guest,

00:00:18.420 Dr. Daniel Crosby, to talk about human psychology and why it hinders your ability to build the

00:00:23.960 level of wealth that you're after. We cover how your behavior dictates investing success,

00:00:28.600 how our physiology and psychology work against us, how a contrarian mindset will help us succeed,

00:00:35.480 and how to invest the right way. You're a man of action. You live life to the fullest.

00:00:40.780 Embrace your fears and boldly chart your own path. When life knocks you down, you get back up one more

00:00:46.480 time. Every time. You are not easily deterred or defeated. Rugged. Resilient. Strong. This is your

00:00:53.720 life. This is who you are. This is who you will become at the end of the day. And after all is

00:00:59.420 said and done, you can call yourself a man. Gentlemen, what is going on today? My name is

00:01:05.100 Ryan Mickler and I am the host and the founder of this podcast and the movement that is Order of Man.

00:01:10.080 My job is to help us as men reclaim and restore what it means to be a man in a society and a media and

00:01:18.300 social media outlets that seem to be constantly and continually rejecting the notion of traditional

00:01:24.380 masculinity. So what I do each and every week is interview some of the most successful men on the

00:01:28.940 planet. These are New York Times bestselling authors, athletes, scholars, warriors, entrepreneurs,

00:01:34.000 and any man out there, frankly, who's had and achieved some level of success in his life.

00:01:39.760 I've got a very interesting one lined up for you today from a behavioral psychologist in front of

00:01:43.860 mind, Dr. Daniel Crosby. But we've had guys like Jocko Willink, David Goggins, Grant Cardone,

00:01:49.640 Andy Frisilla, Tim Kennedy, TJ Dillashaw. The list is just incredible. And I'm so blessed and

00:01:55.620 fortunate to be able to have the opportunity to have conversations with guys like these. And

00:01:59.700 frankly, I wouldn't be able to do it without you. And I've noticed that there's a lot of new men here.

00:02:03.880 So if you are new, I want to welcome you. And of course, if you're joining us again, or you've been

00:02:08.320 with us for any amount of time, I want to thank you for the support. So guys, like I said, got a good one

00:02:13.020 lined up. Before I get into that, I want to make a couple of quick mentions. The first one is my

00:02:17.920 friends and partners over there at Origin, Maine. Now, usually I talk about their nutritional

00:02:22.340 supplements, which are great. You should definitely check it out. Jocko's Joint Warfare, Super Krill,

00:02:27.620 Mulk, Discipline. Head to OriginMaine.com and use the code ORDER at checkout. But I want to

00:02:33.780 specifically talk with you about their immersion camp, their jujitsu immersion camp coming up August 25th

00:02:39.160 through September 1st. If you head to OriginMaine.com slash order camp, OriginMaine.com slash order camp,

00:02:47.060 you can get registered. Do that very quickly. Cause I think they're going to sell out here within

00:02:50.560 probably the next couple of weeks. I imagine based on where I know they are right now,

00:02:54.320 again, OriginMaine.com slash order camp. And the second announcement, and I've been talking about

00:02:59.920 this for the last couple of weeks is our Hoyt Helix giveaway. If you're a bow hunter or have a desire to

00:03:05.260 be one, then I would encourage you to go to order of man.com slash Hoyt, because on April 1st,

00:03:10.280 we are giving away a brand new Hoyt bow. It's the Hoyt Helix. And I know you guys will just be blown

00:03:15.700 away with this piece of equipment that will help you become a better hunter. Again, order of man.com

00:03:21.940 slash Hoyt, go check it out, get registered there. And we'll wish you luck on April 1st when I draw the

00:03:28.780 winner. All right, guys, that's all I have by way of announcements. Let's get into this conversation

00:03:33.080 today. Again, I want to introduce you to Dr. Daniel Crosby. He's a trained psychologist.

00:03:38.100 He's a behavioral finance expert and also an asset manager. Specifically though, he studies

00:03:43.320 market psychology to really understand the nature of why we as humans do what we do and how it impacts

00:03:49.720 our ability to invest successfully in financial markets. He's a New York times bestselling author

00:03:54.700 and his ideas have made him a critical voice and expert in the financial community. As a former

00:04:00.600 financial advisor myself, I have been connected with Dr. Crosby for years and really have applied

00:04:06.040 a lot of his ideas and his teachings into my previous financial planning practice. But guys,

00:04:12.020 he brings a very unique and refreshing perspective to building wealth and one that has the potential to

00:04:17.720 help you finally invest successfully. Daniel, great to have you back on the podcast. Looking forward

00:04:24.420 to this one. Man, my pleasure. Thanks for having me back. Yeah. I mean, we're going to be talking

00:04:28.100 about some of my background a little bit with the financial planning stuff. So it's always a

00:04:32.120 fascinating conversation, even though I'm not, you know, last time we talked, I know I was still

00:04:36.760 a financial advisor. I'm not doing that anymore. So anxious to see what's changed and what you have

00:04:41.520 to share with us today. Very little has changed. I mean, it's one of those fields where I think

00:04:44.920 there's some best practices and the hard parts, putting them in play, just implementing them

00:04:49.060 behaviorally. So I doubt much has changed and congrats on making your enterprise big enough that it can

00:04:53.980 be a full-time gig. Yeah, no, I appreciate it. I think you bring up a great point in that

00:04:57.540 things haven't changed because it seems to me that we're always looking for the latest and greatest,

00:05:02.600 the new Gidget and Gadget and Wismo and financial advice. And, you know, we saw Bitcoin, for example,

00:05:08.740 I don't know, maybe what, eight months or a year ago, everybody was into that. And now you don't

00:05:12.800 hear about that so much. And then there'll be something else. And I think at the end of the day,

00:05:17.040 if we can just get our behaviors and our patterns, right, a lot of that would just solve itself.

00:05:21.860 Yeah. It's interesting because investment management is one of those disciplines that doesn't

00:05:26.180 really lend itself to innovation all that much. I mean, it really shouldn't. And if you're hearing

00:05:31.060 about something, it's different in technology, like fintech, there's plenty of innovation, but

00:05:35.760 the world of managing money, if it's innovative, it's likely to be scammy. So not much has changed.

00:05:42.400 But how do you know when it's scammy or it's actual true innovation that you should incorporate? Is that

00:05:49.060 like a certain amount of time or is there some proven principles in there? Like, how would you actually

00:05:52.940 dictate that? Because there have been some advancements that have proven to be fairly

00:05:57.740 successful financially. I really look for three things if a trait's going to be an enduring sort

00:06:03.140 of principle of finance. So first of all, I look for data. It has to show up in the data. There has to

00:06:07.940 be some empirical evidence that it exists. So that's the first thing. The second thing is it has to make

00:06:14.920 philosophical sense. Like it has to theoretically make sense. And there's lots of interesting examples of

00:06:21.060 things that show up in the data, but then don't pass the second test of making sense, right? Like

00:06:25.440 there's the Super Bowl indicator. And I forget if it's the NFC or the AFC, but you know, there's the

00:06:30.420 Super Bowl indicator. And if you follow it, it's like, if the NFC team wins, then we're going to be in a

00:06:34.900 bear market. It's worth like 80% of the time, but it doesn't pass the smell test of being philosophically

00:06:41.200 sound or theoretically. It's that idea of correlation does not equal causation, right?

00:06:45.200 Exactly. I mean, the Fed releases 45,000 pieces of economic data each year. You regress those

00:06:52.680 against enough other variables and like some things are going to shake out that shouldn't be

00:06:56.680 there. Then the third thing is it needs to be sort of psychologically difficult. Like there needs to be

00:07:01.460 a behavioral trait to it. Most good ways to invest are relatively painful. You know, you think about

00:07:08.060 things like value investing and like they work because they hurt. So how would you suggest that that

00:07:13.540 hurts? So value investing for the uninitiated is just this idea of trying to buy good companies

00:07:19.000 that are sort of beaten down, you know, good companies at a cheap price. Well, the reason that

00:07:24.320 it hurts is because you're going against the consensus. You're swimming upstream. You're making

00:07:29.000 a contrarian bet. And psychologically, that's difficult for us. You know, I talk in my new book,

00:07:34.880 The Behavioral Investor, about how being a value investor, when you look at people's brains in an

00:07:40.860 fMRI machine, it bears a lot in common with being passed over on the dance floor or being picked last

00:07:48.000 for kickball. You know, it's sort of the same sort of social isolation and loneliness we feel when we're

00:07:55.040 making a contrarian investment that we feel in other parts of our life. So yeah, we need the data

00:08:00.120 points. We need it to be logically sound. And then it also has to hurt a little bit. There's no easy way

00:08:05.180 to get excess returns. I'm interested in this concept of being a contrarian. And I think this is just

00:08:10.500 psychologically hardwired into our DNA for acceptance for survivability and being part of the quote

00:08:16.520 unquote tribe. And I've noticed that when my clients do something different, or something contrary

00:08:22.100 with their tribe, whether it's their family or co workers or friends are doing, they are mocked and

00:08:27.840 ridiculed and made to feel stupid. And then they'd come back to me and say, I can't do this anymore. Not

00:08:33.620 because it was a sound investment strategy, but because the quote unquote tribe didn't approve of

00:08:38.060 it. The whole first part of my book, it talks about these social fictions and how we think in

00:08:44.640 crowds. And this is really the fundamental difference between us and the rest of the animal kingdom is

00:08:51.180 if you look at a deer, a deer reasons in black and white, you know, if it hears a rustling in the

00:08:56.100 bushes, it takes off because it's like, okay, well, there might be something here. I'm gone.

00:08:59.980 I mean, you don't almost make the argument that that's not even reason as much as it is just

00:09:03.280 simply intuition, right?

00:09:05.380 Sure. Impulse or animal instinct, right? But whatever it is, there's no social component to it.

00:09:11.340 A human that's looking about, you know, changing political parties or exploring a new church or,

00:09:17.180 you know, trying a new job. The first thing that they're going to think of is, you know,

00:09:21.480 what's my mom going to say? What's my spouse going to say? You know, what will the neighbors think?

00:09:25.860 Our tendency to reason in social terms to the upside, it allows us to build civilizations. It

00:09:32.560 allows us to build economies because all of these function on a social chassis. But then to the

00:09:38.580 downside, when we're trying to make rational, important decisions about our money and our

00:09:42.980 happiness and other things, we're also reasoning in ways that privilege the crowd. And this can be

00:09:48.740 profoundly, you know, saddening and can lead us to make poor financial decisions as well.

00:09:53.500 This is such a challenge because the reason that we have financial markets, and you make this argument

00:09:58.820 in the book as well, is because we are social creatures. You know, I think of social media. I

00:10:03.140 think about our ability to connect across the country on Skype and have this conversation. And

00:10:08.780 I think about communities. The reason we have the markets and trade and everything else and commerce

00:10:13.260 is because we're social creatures. But what happens to be some of our greatest strengths can actually be

00:10:19.260 our demise when it comes to how we individually manage our money.

00:10:22.640 You know, one of the themes of the book is things that have served us well,

00:10:26.080 evolutionarily serve us poorly when it comes to dealing with money. So you look at,

00:10:31.300 you know, there used to be a dozen different humanoid species. There were Neanderthals,

00:10:35.860 there were Denisovans in Asia, there was a group called the Hobbits in Indonesia, like we weren't

00:10:41.260 always the only humans on the block. But the reason that Homo sapiens exist today, and the others

00:10:47.460 are gone, is in large part because we were fearful, like we were the most scared, we were the most

00:10:53.320 risk averse and loss averse of all the other humanoid species. And so when things got dicey,

00:10:58.900 or, you know, the mammoth got too big, or whatever, we sort of ran the other way,

00:11:03.240 where our braver counterparts perhaps took on the mammoth and died trying. This loss aversion,

00:11:09.100 this risk aversion has served us well historically. It's the reason you and I are alive today.

00:11:14.540 But it doesn't serve us well in financial markets. The same thing can be said of this social

00:11:19.480 tendency. There's so much good that it does, right? It leads you and I to have this communication from

00:11:24.340 2000 miles apart. It leads you to form the tribe that you formed and help men in the ways that you

00:11:30.420 do. But it can also lead us to compare on social media, our lowest moments with a highlight reel of

00:11:37.940 what's going on with other people. So I think it's neither good nor bad. It's really what I'm trying

00:11:43.160 to do in the book is to help people understand the psychological and evolutionary basis of a lot of

00:11:49.120 these things and then make informed decisions accordingly. It seems a little counterintuitive

00:11:54.080 to me though, because the way that I look at this and correct me if I'm wrong, I think you probably

00:11:58.280 will just because I've gone through the book is that collectively we are more intelligent, that we

00:12:06.060 are more capable. And it seems like the same would hold true when it comes to money, that if we put

00:12:11.860 enough heads together and we think about this and we experiment with it over hundreds and hundreds of

00:12:17.460 years, thousands of years even, that we will come to a better consensus than if we just are that

00:12:24.000 contrarian or we go at it alone or we buck the system, if you will. It's an interesting thesis and

00:12:29.740 one that I think my answer to will be a little nuanced. Because if you wanted to just go along

00:12:35.720 with the crowd, which we'll call what index investing, right? If all you wanted to do was say,

00:12:40.420 look, the crowd is never precisely right, but they're not really precisely wrong either. I'm

00:12:46.580 just going to take my 401k money and every month I'm going to put it away and like do what the crowd

00:12:51.560 does. You'd do better than most investors. So in some respects, you can really do fine by just sort

00:12:58.760 of taking the ride. You mentioned Bitcoin, right? If you followed the crowd there, you would have gotten

00:13:05.180 it profoundly wrong. Now, there are plenty of people who've made tons of money in cryptocurrency,

00:13:10.440 but the way that they did it was by taking a contrarian position, was they got excited about it

00:13:16.220 when other people were laughing at it. And when everyone was talking about it last Thanksgiving,

00:13:22.160 right? When everyone was so excited about it, when it was at $20,000, they maybe were taking money

00:13:30.640 off the table. So you can be an okay investor by following the crowd. I mean, you absolutely can.

00:13:37.840 But if you want to be exceptional, you need two things. You need to take a contrarian position

00:13:42.900 and you need to be right. There are plenty of people who are contrarians, sort of for contrarianism

00:13:48.440 sake. But you know, you have to be different and you have to be right if you want to outperform the

00:13:54.100 market. Those are tough things for people. Yeah. I mean, we're not talking about just bucking the

00:13:57.900 system just so you can be stubborn or say that you're a contrarian. Although I think there's

00:14:02.300 probably people that do that. You know, I want to be the bad boy, right? So I like the second

00:14:07.140 qualifiers that you have to be right. And I imagine to that end, then we get into the three traits that

00:14:12.760 you talked about. The data, the philosophical approach, and then the psychological component as

00:14:17.200 well is what will determine ultimately if you're going to be right. You make a great point. I take a shot

00:14:23.000 in the book at nickel and dime contrarianism because, you know, there are plenty of ways that

00:14:27.600 people think that they are bucking the system when they're really just buying into a new system.

00:14:32.480 I remember being in high school and having, you know, red hair and a mohawk and, you know, wearing

00:14:36.980 black t-shirts everywhere. And it's like, look, that's every bit as conformist as wearing penny loafers

00:14:44.520 and a blue blazer. You just, you're part of a different group. I wasn't a true contrarian. I was just

00:14:49.940 dressing like a punk the same way that other people dressed like a preppy or whatever.

00:14:54.740 Right. The way that other punks were dressing.

00:14:56.840 You know, it's still a uniform and there's still no original thought to what I was doing in high

00:15:01.460 school. And so, you know, what I'm talking about here is true principled contrarianism. And the

00:15:07.500 principled piece is the part about being right. And principled contrarianism is lonely and it hurts

00:15:13.480 and you doubt yourself for a long time.

00:15:16.160 Hmm. So we're going to get into more of that, but I want to fast forward a little bit here,

00:15:21.820 because if we are going to take that approach towards the way that we invest and we're going

00:15:25.920 to buy into the philosophies and the things that you teach here, that's going to be a very difficult

00:15:30.140 challenge because you're going to be met with psychological pressure. You're going to be met

00:15:35.020 with societal pressure to conform the way everybody else has. So what are some strategies that you can

00:15:41.140 implement in your life to combat the natural tendency we have to go with the flow and with

00:15:46.200 everybody else and the tendency of other people to say, do it the way I did it?

00:15:50.580 I think one of the reasons why this whole sort of avenue of inquiry appeals to me is I think akin to

00:15:57.620 what you're doing with your platform. And it's a journey of self-discovery and self-improvement.

00:16:03.600 I only became interested in investing when I understood the deeply personal and deeply

00:16:10.500 psychological dimensions to it. So for me, this is just an act of trying to make good decisions

00:16:16.420 and the market's the way that I keep score. So it's a search for truth, a search for mastery over

00:16:22.780 my emotions, my worst impulses, my most low conviction populist impulses. And so for me,

00:16:30.780 the market is how I keep score, but the journey is all about becoming a better man, becoming a deeper

00:16:35.980 thinker, seeing the world the way that it is. So if you can take it on those terms, I think it becomes

00:16:42.920 exciting. I think to the extent that people want to just ape what other people have done to try and

00:16:48.280 make a quick buck, you're going to fail. So if you can see this as a journey of self-exploration, a desire

00:16:54.140 to learn greater truth and to learn about yourself in the process and learn some things that are going to

00:16:58.800 suck and hurt about who you are and how you think, that to me is where the excitement comes in.

00:17:04.640 Because your background is psychology. It's not necessarily finance, although you've been in this

00:17:09.240 field for quite a while now. You've just applied psychology and behavioral psychology to the world

00:17:14.600 of markets, correct? Yeah, that's right. I'm a clinical psychologist by education. I got into this world

00:17:21.260 of psychology because I wanted to work with eating disorder patients. And so, I mean,

00:17:25.460 I got into the world of psychology in quite a different avenue, but I was the son, or I am the

00:17:31.680 son of a financial advisor. And so about three or four years into my doctoral program, when I started

00:17:37.460 to sort of burn out on 40 hours a week of people having the worst weeks of their lives, I was taking

00:17:43.880 it home with me. And I said, look, I love to think about why people do the things they do, but I need to

00:17:48.400 apply this in a non-clinical setting. So yeah, long story short, being the kid of a financial advisor

00:17:53.380 helped me bring these two worlds into a meet at the crossroads there.

00:17:58.460 I like the crossroads because when I was in the financial planning field, I was being taught by

00:18:03.580 marketers and salesmen. And don't get me wrong. There's nothing wrong with that. There's a place

00:18:07.940 and a time for that. But very rarely, if at all, were we ever taught about human emotions,

00:18:14.180 human behavior, psychology, and how people respond to both positively and negatively to their money.

00:18:19.720 That's exactly right. And you make a great point. There's nothing dirty or wayward about sales. We're

00:18:26.420 all selling something. And I think persuasion lies at the heart of almost every important thing that we

00:18:32.220 do. But for a very long time, the world of financial services emphasized salesmanship to the

00:18:37.720 detriment of clients. And I think we're entering the dawn of a new era now in the last couple of years

00:18:43.120 where we say, look, the products are kind of commoditized. Everyone has more or less the same

00:18:48.280 products. The salesmanship's a bit commoditized. The value is added by helping you to take the ride

00:18:54.580 to helping you to manage your emotions. And that's, I think, a good place to be.

00:18:59.220 Yeah, that is a really good point. I had a good friend of mine come over over the weekend and him

00:19:03.500 and I actually got into our financial planning practices at about the same time. And I sold my

00:19:07.320 planning practice to him. In fact, anyways, we're having this conversation and he grew up in the same

00:19:13.160 thought process and same philosophies that I did with regards to how to build a financial

00:19:17.060 planning practice. And what we noticed and what we were talking about is that this old,

00:19:21.980 outdated, antiquated way of thinking, which is the gatekeeper thinking that some sort of advisor

00:19:26.780 is the gatekeeper to all of the information. Well, that's not true. A consumer has just as much

00:19:33.000 access to any information that a qualified advisor has access to. So it's not about, do I have access to

00:19:40.320 these funds or do I have access to this information? Because that is commoditized and it's very easy to find

00:19:45.020 that stuff. The people who will be successful in the financial planning field, and this will tie

00:19:48.820 into consumers as well, is those who realize that they're not necessarily money managers,

00:19:53.700 but that they're people or emotion managers. I have a couple of what I think are great examples

00:20:00.600 here. In my last book, The Laws of Wealth, I talked about the highest performing mutual fund

00:20:05.540 of the early 2000s. So from 2000 to 2010, this mutual fund got 18.5% per year average return,

00:20:15.020 absolutely bonkers. That's incredible, incredible performance. And the average investor in that

00:20:22.580 fund had a realized loss of 11%. In that specific fund.

00:20:28.380 In that specific fund. Interesting.

00:20:30.380 What would happen is the fund would run up, it would perform very well the way that they do.

00:20:34.700 It was a concentrated stock fund. It would run up, people would hear about it, they would pile in,

00:20:39.460 it would revert to the mean, it would have a period of underperformance, everyone would question

00:20:43.720 their judgment and jump out, it would do well again, back in, you know, sort of rinse and repeat

00:20:48.400 until you're broke. And so, yeah, that's a great example of even if you knew what to pick, like even

00:20:55.100 if you knew if you could identify a good fund from a fund that's not great, which, you know, most people

00:21:00.740 can't, it's still your ability to profit from that decision is entirely predicated on your ability to

00:21:07.640 take the ride. And most people can't do it. You know, information is cheap, but good behavior is

00:21:13.840 expensive. And you know, I give the example too of in the 90s, in the early 90s, we started to label

00:21:19.940 all our food, you know, the government started to mandate that you list the sodium and the fat and the

00:21:25.180 calories and all that on all our food. And you know, since that time, the rate of obesity in the US has

00:21:31.460 doubled, the rate of morbid obesity is tripled. It's because it's not that we're making decisions

00:21:37.600 about what to eat on, you know, what we read on the side of the label. It's just hard behaviorally

00:21:42.460 to abstain from eating sweet, salty food and to exercise. People don't need more information,

00:21:48.140 they need more willpower, more stick-to-itiveness, more good behavior. And that's why there will always

00:21:53.440 be a market for good financial advisors and for good, you know, personal trainers.

00:21:57.520 Well, so you say good behavior is expensive. Are you saying that it's expensive

00:22:01.220 in the form of sacrifice then that you have to be disciplined, that you have to be committed,

00:22:05.720 that you have to potentially absorb some losses? Like what is it that's expensive about behaving

00:22:11.220 the way we know we should when it comes to money? It's metaphorically expensive. We see

00:22:15.700 the studies on willpower show that willpower is easily used up and that if you use up your willpower

00:22:22.200 in one place, you're more likely to let it slip in another place. So, you know, people who are

00:22:27.340 dieting are more prone to cheat on their spouse. We see all sorts of things like that, that we have

00:22:32.900 sort of a finite pool of willpower. And so, when it gets used up in one place, we let something slip

00:22:39.160 through the cracks in another. And so, I think we can do a lot to promote good behavior, you know,

00:22:44.740 A, by surrounding ourself with a coach who in real time is going to sort of slap the donut or the bad

00:22:51.240 financial decision out of our hand. That frees up some brain power. And then I think even just as

00:22:56.960 importantly is just putting ourself in the right places. I liken it to a recovering alcoholic not

00:23:02.940 wanting to go to bars. You know, we should, if we want to behave a certain way, we need to put

00:23:07.800 ourselves in places that bring that behavior out in us because the studies all suggest that that's a

00:23:13.720 much better predictor, you know, the place you're standing in is a much better predictor of what you're

00:23:17.920 going to do than your ideals or your willpower. So, if we're talking about this in the context of

00:23:23.780 finances, what does that mean? Like, where would you put yourself in the right places in order to

00:23:28.420 achieve some of the success? Is it just a matter of the right people who are successful? Is it reading

00:23:32.360 the right books? I think obviously it's part of that, but what else? Getting the right information

00:23:36.220 is a big piece of it. Living in the right neighborhood is part of it. You know, I've been publicly

00:23:41.380 critical of my own decision to move into a big house a couple years ago because it's stupid. Like,

00:23:47.440 I mean, it makes you unhappy. All the research shows that to maximize your happiness, you should

00:23:52.160 live in the smallest house on the block and you should surround yourself with people who are living

00:23:57.180 frugally because we don't compare ourselves in absolute terms because if we did, the average

00:24:03.580 American with a decent job is, you know, in the top 1% of earners and high quality living in the world.

00:24:10.220 But we don't compare ourselves, you know, to the 7 billion people in the world. We compare ourselves to

00:24:16.420 our neighbors and, you know, my neighbor has a Lamborghini. And so, like, you know, I don't feel

00:24:22.460 great about how I'm doing even though objectively I'm doing really well. So part of it's living in

00:24:27.780 the right neighborhoods, surrounding ourselves with friends who are humble and frugal and striving for

00:24:34.120 the same things that we are. Part of it's turning off financial news and not sort of buying into the

00:24:40.040 melodrama of what financial news is selling. I think all of those things are sort of the consistent with

00:24:47.000 this admonition to put yourself in the right places. What's the balance between being aware

00:24:53.040 and literate about money and investments and funds and all of this and then just being a little cog in

00:24:59.400 the wheel and Cal Newport calls it the attention economy where you're just giving your attention

00:25:03.340 for no real value or nothing in return? How do you strike that balance?

00:25:07.740 The key is, this is something that I think most people don't understand. But I mean, if you could

00:25:13.320 read three or four good books on finance and investing, you're set for life. You know everything

00:25:21.200 you need to know then. And everything else, all the minute to minute gyrations of the market are just

00:25:28.380 so much financial pornography basically. I mean, you need to read, you know, read books by Jack

00:25:34.720 Bogle, read my book, The Laws of Wealth. You know, I'm sure you've got some. Read The Richest Man in

00:25:40.800 Babylon. You know, read a couple of these classic books about how to invest. And then the rest, all

00:25:47.400 the day-to-day stuff, it's not informative. And all of the research shows that the more you tune in

00:25:52.740 to these sort of daily market updates, the worse your investment performance tends to be.

00:25:58.800 There is a fantastic study that was done a while back. Jim O'Shaughnessy talks about it in his book,

00:26:05.280 What Works on Wall Street. But Fidelity did a study of their retail investors, their sort of mom and

00:26:10.360 pop investors. And they said, what are the hallmarks? We're going to look at the data and see what are the

00:26:15.600 hallmarks of the people who have the best performance. And they found two things. They found that they had

00:26:20.540 either forgotten that they had a Fidelity account or that they had died. These were their two best

00:26:25.720 performing groups. And there's a huge lesson in that for us. So yes, you need some education,

00:26:30.940 but you can get there so fast. A handful of good books, not articles, not news, handful of classic

00:26:38.400 books on the subject. You're going to be there and then tear up your statements, turn off the news and

00:26:43.760 go about your life and do more important things. Yeah, that's really interesting. I mean,

00:26:48.500 we're certainly entertained, but we're not necessarily better off. I think what we have a tendency of doing

00:26:52.700 is mistaking action for prudence. I see it in the financial services industry. I see it in even with

00:26:58.380 fitness is people think if I bounce from program to program and diet to diet, that somehow I'm being

00:27:02.440 prudent and I'm making the right decision. It's like, you know, more often than not, you just need

00:27:06.280 to stick to something that's principally sound and then do it forever and you'll be just fine.

00:27:11.680 That's so well said. I love the mistaking action for prudence. And, you know, one of the primary

00:27:16.680 biases that psychologists have identified in humans is this thing called action bias,

00:27:21.000 which is the very thing you're talking about. There's great study done in Europe on soccer

00:27:26.760 goalies that found that goalies stop the most goals when they just stand in the middle of the goal.

00:27:31.600 I've seen this study instead of anticipating where the ball's going to go, they just stand there. And

00:27:36.020 I have actually seen that study. It's really fascinating.

00:27:38.940 Yeah, but you know, your average EuroLeague or Premier League goalie is still jumping all over the

00:27:43.520 place, throwing their body, you know, to violently to one side or the other, trying to anticipate where

00:27:48.320 a PK is going to go. We can't get this through our heads that sometimes the best thing to do is

00:27:53.860 nothing or at least to stick with a proven something. Why do we struggle with that? I think a lot of us

00:27:59.620 inherently maybe know that, that we're already on the right track, but why do we struggle so hard to

00:28:04.620 just stay on it and not be caught up by the bright and shiny object? Some of this is domain specific

00:28:10.900 because yeah, like if you want more knowledge, you should read more books. If you want more fitness,

00:28:16.940 you should run more miles. But if you want more money, you should do nothing, right? Like you

00:28:21.580 should die or forget that you have an account. So I think sometimes we take, you know, we take these

00:28:27.320 lessons from other parts of our lives and we misapply them to the world of Wall Street, where I think

00:28:33.280 things are profoundly different. It's hard to wrap your head around the fact that it might,

00:28:37.860 it might be different than other avenues of life because principles are principles.

00:28:42.140 They apply universally. And I imagine there are some financial principles that apply universally to

00:28:48.340 other areas, but in what ways is it different than fitness, for example, or dieting or some business

00:28:54.580 and some of these other areas we're talking about? I think there are some things that are the same and

00:28:58.560 some things that are different, right? Like I think just as I think we've overcomplicated diet and

00:29:03.260 exercise and we'd all do better to just move more and eat less and eat better. I mean, you know,

00:29:10.000 those three things would get us a lot of the way. I think that fitness and finance have a lot in common

00:29:16.120 in that it's easy to say and hard to do. All those things I just said, like I know very well. And yet

00:29:23.060 here I sit with my beer belly. Yeah, right. Yeah. We're all, we're all still broke and overweight,

00:29:27.700 even though we know the principles. Right. And so, um, I think knowing the principles is not enough

00:29:34.340 and what we need to do, we need education, which is necessary, but not sufficient. We need to stand

00:29:40.960 in those right places. And then we need as sort of a last line of defense that coach to help us make

00:29:46.720 that tough decision at the very moment when it's hardest. So I think if you can put those three lines

00:29:52.120 of defense and play, you're off to the races. Yeah. This actually ties into what you were talking

00:29:57.500 about earlier with that mutual fund that did roughly 18% and everybody in there got, you know,

00:30:01.400 negative 11. I think that we have this incredible ability to overestimate our abilities and how

00:30:07.340 effective and how profitable and how intelligent that we actually are. Cause you know, if you ask

00:30:13.340 people, what's the first rule of investing, even if I say that now, I know most people listening

00:30:18.300 or a large percentage of people listening would say, well, buy low, sell high. Right. And yet when

00:30:24.140 you look at the research and you look at the statistics and data, like this mutual fund scenario

00:30:27.900 you're telling me about, everybody knows buy low, sell high. And yet nobody does it. They do the exact

00:30:34.620 opposite to the thing they know they should be doing. I sat by a woman on a plane, uh, last year

00:30:40.700 and she asked me what I did for work. And I, you know, I told her I was a financial psychologist

00:30:44.900 and she started to ask questions. She goes, are you, you're a doctor? And I was like, yeah,

00:30:48.740 I'm a doctor. And she goes, you needed to go to eight years of college to tell people to buy low

00:30:54.020 and sell high. And this is, you know, uh, then, you know, I'm trying to explain to her that, you

00:31:00.180 know, the very thing that you just said that in Burton Malkiel's book, a random walk down wall

00:31:05.420 street, he looked at professional investors, you know, hedge fund managers, mutual fund managers,

00:31:09.520 and they buy high and sell low. Knowledge is a weak predictor of behavior. And I think that that's one

00:31:16.760 of the most important things that people can take from my research, knowing the right thing to do and

00:31:22.560 doing the right thing have almost nothing in common. And, you know, one of the things that,

00:31:27.420 that we found too, that I research, I cited in my, in my last book was that we lose 13% of our IQ

00:31:34.640 under stress. Like when we're stressed out, we lose 13% of our IQ, you know, the average IQ is a

00:31:40.780 hundred developmental delay is like 75 or 80. So you got to think the average person's at 87

00:31:47.500 when they're stressed out. And, you know, some people do not have an extra 13 IQ points to work

00:31:53.440 with. And so we need to, we need to do everything we can to not make it all rest on education.

00:32:00.820 And this is hard for us to grasp because we think, you know, knowing the right thing and doing the

00:32:06.220 right thing, uh, should line up nicely. And they just don't like, I mean, you know, nearly, I think

00:32:11.500 it's 44% of, um, married couples cheat on their spouses and it's, you know, basically none of those

00:32:17.720 44% of people would say, you know, I did this cause I thought it was a good idea. Sure. Yeah. I'm sure

00:32:24.300 the large majority of them consider it a mistake. Sure. Yeah. Yeah. So knowing what to do and doing it,

00:32:30.160 I just have, have almost nothing in common, which is a little depressing.

00:32:33.900 This is why I'm a fan to some degree. And I know there's, there's some hangups here,

00:32:37.460 but robo advisors, but then you also have index investing, which you alluded to earlier,

00:32:42.560 but you almost made it sound like, Oh, well that's like an inferior way to potentially doing it. I

00:32:47.100 don't want to put words in your mouth, but I'm a fan of those things because they take at least to a

00:32:52.300 degree, some of the human mess ups and baggage that we bring to the table and pull that out of the

00:33:00.020 equation for potential success that wouldn't be there if we had that baggage. Does that make sense

00:33:05.920 how I'm saying that? It definitely does. And I'm, I'm happy to speak to those. I don't find index

00:33:10.560 investing to be inferior. I find it, I think it should be the go-to choice for, you know,

00:33:15.180 I misunderstood you then. So I'm glad you clarified. No, I probably misspoke. So I think,

00:33:20.560 you know, index investing is the way to go for almost everyone. This is anecdotal. I'm,

00:33:25.940 I'm sort of spitballing here, but like 10% of the world is going to just be so disciplined,

00:33:32.720 have such a level of rigor and discipline to their process that they can do this all. They can index

00:33:38.560 and, you know, just buy those index funds every month, never touch them, never look at the

00:33:42.960 statements and ride off into the sunset. 10% of the world is like degenerate gamblers and idiots

00:33:49.380 won't listen to good advice. For most of us in the middle, we're somewhere along that continuum of,

00:33:56.860 you know, we mean well, we may know what to do, but we may need a little help. And so whether that

00:34:02.280 comes in the form of, of robo advice or personal advice, I think is, is down to the individual,

00:34:07.940 but I think most of us need help. But no, index investing is a lovely way to invest. And

00:34:13.440 the best thing about indexing is that it just frees you up to think about other things. I mean,

00:34:18.280 it's funny that I work in finance and I love finance, but I don't find it to be all that

00:34:23.500 consequential. Like, I mean, I think a good life, you know, money is sort of necessary,

00:34:28.100 but not sufficient to have a good life. And so the quicker you can get money sort of squared away

00:34:33.940 and put in its proper place, the sooner you can worry about friendship and relationships and the

00:34:40.300 meaning of life and all the stuff that really matters. It's just a factor of life. It's not the

00:34:45.180 primary factor. And in fact, I think in a lot of ways, it's just means to a meaningful or

00:34:50.620 significant life, but it isn't the objective itself is to, to be wealthy. It's what is that

00:34:55.500 going to create for you? What opportunities, what relationships, what businesses, those types of

00:35:00.440 things is what wealth and having that in line can do for you. Nobody wants to be wealthy just so they

00:35:04.920 can have a bunch of money in the bank. They want to be able to have the experiences and the,

00:35:08.360 in the friendships and the vehicles and the things that they use money to obtain.

00:35:13.020 It's interesting. You say that nobody wants to just have money in the bank. I actually cite

00:35:17.900 research in the book that says that people like money for its own sake. Like, I think the most

00:35:23.720 sane way to think about money is as a tool, you know, and especially like you, you talked about,

00:35:29.540 it's a tool to buy freedom. Like it's, you know, it's something to get us to move on to the more

00:35:34.320 important things in life. But unfortunately, um, I think while we should look at money as a means to an

00:35:41.760 end, many of us look at money as an end unto itself. Right. And I think that is where the

00:35:47.440 problems come in. So if you are approaching money as an end unto itself, and the research says that

00:35:52.380 many of us do, that's where things get a little goofy. Yeah. I'm glad you clarified. I'm trying to

00:35:57.500 think about in my own life and, and right now my wife and I have managed to save and specifically

00:36:03.000 save, not to be confused with investing, but save a significant amount of money over the past 60 to 90

00:36:08.560 days. But there's a very specific reason for it, uh, because we're buying a property across the

00:36:13.660 country. And so we have a very specific reason for that. I go in and I check my account every single

00:36:18.560 day. I look at it every day because I want to know where do I stand? Where am I falling behind? Where

00:36:22.620 do I need to make adjustments? How do I need to figure this stuff out? Again, I'm not talking about

00:36:26.540 investing, just savings here, which is different when you make sure that people know that there's a

00:36:30.360 distinction between the two. Anyways, it's means to an end. It's for the property itself. I'm wondering

00:36:35.940 why so many people in your experience then want the money, want the bank account, want,

00:36:43.560 want the zeros behind the ones, you know, like what is it about having a lot of money in the account

00:36:48.280 that would be appealing to people without having a means or, excuse me, an objective for that money

00:36:54.040 itself? I think it's a, one of the most important questions you could ever ask. And, you know, I think

00:36:59.460 the best answer I can give is that it's become a proxy for, for happiness and for the good life,

00:37:07.180 rich relationships and love and meaning and spirituality, like all these things that really

00:37:13.300 matter and have more lasting, provide more lasting joy. They're all hard to measure, right? Like they're

00:37:19.360 necessarily hard to measure. They're hard to quantify. And so we've come up with this sort of cheap proxy

00:37:25.380 for all these things that we really want. And money is in many cases that proxy. So it becomes this

00:37:31.260 counterfeit stand in for the good life and people pursue it as such. But all of the research says

00:37:38.100 money makes you happy when you use it to buy freedom from stuff you hate doing. You use it to buy freedom

00:37:44.400 from missing dumb meetings and cutting your own yard or what, you know, whatever, whatever it is that you

00:37:49.920 don't want to do. Uh, and it, it buys us happiness when we spend it on helping others and being

00:37:55.760 charitable. And it buys happiness when we spend it on experiences, seeing the world with the people

00:38:01.040 we love. So that's basically how you can spend money to make yourself happy. And anything else,

00:38:06.300 if you're thinking that money is going to make you happy that way, the research would suggest you're

00:38:10.400 wrong. Well, not only the research, I imagine that most people anecdotally understand that,

00:38:16.160 right? Because they've said in their mind, let's say they're making 50 a year, 50,000 a year. And

00:38:20.560 they said, well, once I reach 80, when I reach 80,000 a year, then, then I'll be set. And they get

00:38:26.460 to that 80 mark and they're like, Oh, you know what? I'm not really happy. I'm still a miserable human

00:38:30.040 being. So maybe, maybe it's not that the money thing is the issue. Maybe I just don't have enough of

00:38:35.820 it. Maybe that's the problem. So, so once I hit a hundred, once I make six figures a year,

00:38:41.520 then I'll be happy. And then they just do this for their entire lives. And they realize that

00:38:46.740 regardless of whatever income they chase, they're never happy. It's not the money. I mean, we need

00:38:52.960 to have some money obviously to create experiences and feel like we're making a difference and living

00:38:58.520 up to some measure of our potential. But man, the more that I've ever chased money that it just

00:39:03.900 hasn't created additional happiness for me. The thing you're talking about the fancy shrink term for

00:39:09.600 it is hedonic adaptation. So, you know, the things, the things that give us happiness,

00:39:15.080 basically our level of consumption and expectation arises to meet our earnings. And so, you know,

00:39:21.540 this person that's making 50 says, you know, wow, when I make a hundred that, you know, then I'll be

00:39:27.020 happy. And the person who's making a hundred says when I make 200. So every study, you know, Gallup did

00:39:33.320 this study that said, how much money do you need to be happy? And everyone across every income bracket,

00:39:40.720 they named like 10% higher than what they had. So it's like happiness, you know, next level,

00:39:47.680 just the next level. Yeah. It's like happiness is just around the corner, whether you make 50,000 or

00:39:52.580 500,000, this is a real damning psychological tendency. And it's something that if we don't get a

00:39:58.940 hold of and we don't, you know, become aware of, it's something that can lead you to live your life

00:40:05.240 running down the wrong paths for your entire life. Gents, let me hit the pause button real quick on

00:40:11.820 the conversation. One of the first things to go for a man when he gets busy with a wife and family and

00:40:18.460 a career is himself. It's his hobbies and frankly, his growth. And I completely understand. I fell into

00:40:24.720 the same trap early into my marriage and career as well. But what I found is that the less that I

00:40:30.540 took care of myself, the less capable I was of taking care of the people that I had an obligation

00:40:36.820 and responsibility for. And this is why our exclusive brotherhood, the iron council is so powerful.

00:40:42.260 When you band with me and the other 500 men inside the iron council, you'll give yourself the tools and

00:40:47.660 resources and connections that you need to make yourself a success. And one of the best parts about the

00:40:53.180 iron council is that you can engage on your time so that you're not cutting into other important

00:40:58.300 obligations and priorities that you have. So if you want to learn more about what we're doing,

00:41:02.400 and again, make those powerful connections and unlock the tools that you need to make yourself a

00:41:07.500 priority, then visit order of man.com slash iron council. Again, order of man.com slash iron council.

00:41:14.460 You can learn more over there and lock in your spot. Guys, you can do that after the show,

00:41:18.600 but for now, let me get back to and finish up the conversation with Dr. Cross.

00:41:23.180 How have you talked with people or coached individuals to realize that money is just a

00:41:29.000 medium? It's just a tool. It's only as valuable as the objective that it's completing for us.

00:41:34.560 How do you begin to shift their framework and their frame of reference and their idea that

00:41:38.780 it's not that you need to make 10% more. It's that you need to be more fulfilled with what you have.

00:41:44.380 Do you teach on that? Do you touch on that subject?

00:41:47.320 You know, I try and approach it from two different areas. You know, the first is that I share the

00:41:50.900 research around it because, you know, some people are numbers oriented, they're facts oriented. And

00:41:54.860 so I try to share some of the research around it and there's plenty on a more visceral level. I mean,

00:42:00.080 I just share my own experience. I mean, I, I'm living proof that knowing what to do and doing the right

00:42:07.620 thing don't always go hand in hand. I've written all these books about this stuff and then I just

00:42:12.060 continue to screw it up. I remember sitting down with my wife and saying, you know, when we hit X

00:42:18.960 dollars in savings, you know, then we're going to be able to, you know, let off the, you know,

00:42:23.900 take the foot off the pedal a little bit with some of my work stuff. We're at double that number

00:42:28.260 now. And, you know, no, no letting up in sight. I think what you have to do is you have to burn the

00:42:34.980 ships a little bit. I mean, you have to, you know, you know, the story of the conquistador who,

00:42:39.860 you know, brings people to the new world and they burn the ships and it's like, Hey, you know,

00:42:43.880 nope, we live here now. You know, there's no, there's no going back to Europe. Right. And so

00:42:49.720 I think, you know, what we're working on is sort of burning the ships, like setting some things in

00:42:53.920 place, picking a number, making a public declaration around that number, deciding what comes next,

00:43:00.260 and then making firm commitments to act in a way that's in accordance with what we know to be best

00:43:07.140 for producing a happy life. Because I can promise you that you will never have enough money. Like it

00:43:12.460 will never, it will never seem like enough. And if you continue to do things you hate,

00:43:18.160 or you continue to, you know, um, chase money as the ultimate God, you're going to end up at the

00:43:23.260 end of your life with a lot of regrets. I've already got some, and that's something I'm trying

00:43:27.540 to shortcut in my own life. Yeah. I like this because I think what you're alluding to in a way

00:43:32.840 here is I've talked about this at length, a code of conduct, right. Or standard operating procedures

00:43:37.800 or a credo. I mean, there's a thousand different ways to look at this, but at the end of the day,

00:43:40.940 it's just having a set of core principles or statements that keep you on the path that,

00:43:46.640 you know, you want to be on. And a lot of people look at this and they think, well,

00:43:49.260 this is limiting, right? It's, it's hindering my ability to create freedom or excitement or

00:43:53.100 adventure in my life. But in all reality, it's actually helping you focus on what matters.

00:43:58.640 Cause we don't want to live life uninhibited. We want to place voluntary restrictions and

00:44:05.140 parameters in our life so that we can live a good life, a meaningful life. So for me,

00:44:09.220 I think about three, I just think of right offhand is as infrequently as possible. I buy depreciating

00:44:15.360 assets. So a computer, for example, or a vehicle, or you name it, I don't want to spend a bunch of

00:44:22.380 money on depreciating assets. Number two is that we value experiences over items. So Christmas time,

00:44:31.060 we're not buying a bunch of junk toys that are going to be obsolete in two months. Or if that

00:44:35.140 we want to create experiences. So we do vacations and have memories. And then the third one is we

00:44:40.820 don't go into debt for smaller item purchases, you know, maybe a home or an investment appreciating

00:44:46.320 asset, but nothing that's going to depreciate. We don't go into debt for. So these are principles

00:44:50.640 that we've put into place that allow us to stay on track when we're tempted to buy the new vehicle

00:44:56.060 that we can probably afford or buy a bunch of toys for our kids and Christmas. When we know we don't

00:45:01.920 really want to live our life that way. Do you just keep us on track? These are great principles. And it

00:45:06.560 goes back to the Covey idea about having one of the biggest things about having a credo or, you know,

00:45:11.740 something you're striving for is one, it's a decisional guidepost for you because it tells you what to

00:45:17.820 say yes to. But I think even more importantly, it tells you what to say no to. And, you know, Warren

00:45:23.260 Buffett talks about he attributes so much of his success to just basically saying no to anything

00:45:29.300 that's non-essential. And having a credo like the one you just laid out is fantastic for that.

00:45:35.340 Things that we know intuitively, like I try and write about the science of them, you know,

00:45:39.080 you talk about Christmas presents and not giving your family a bunch of junk Christmas presents and

00:45:43.620 trying to give them experiences instead. You know, one of the reasons why stuff doesn't buy much

00:45:50.020 happiness is because we so quickly become habituated to it. The car that looked amazing on the dealer's

00:45:57.460 lot, you know, after a year or two, it's just your car, like, right, you know, and it's just the dumb

00:46:02.080 car you get in and go grocery shopping. It's the new norm, right? Yeah, you just get habituated to

00:46:07.300 it quickly. But travel, like meeting new people, going new places, it does something different to

00:46:13.420 the brain, we can't habituate to it. Because if you spend a week or two in Europe, or you know,

00:46:17.280 wherever you want to go, it's new. And the whole thing is so new and different that it sticks with us.

00:46:22.820 And the positive feelings of that newness linger well beyond, whereas, you know, a house or a car

00:46:29.240 or anything, a toy, anything you buy, we quickly become habituated to it and sick of it and take

00:46:34.860 it for granted. I felt that way. I drove, I bought a 2015 GMC 2500. And I think I bought it maybe a year

00:46:45.160 or a year and a half ago. And before that, I drove a 99 Toyota Tacoma. That was my last vehicle that I ever

00:46:50.980 bought. So it's interesting, because when I got in the GMC, it's got the video and the backup camera

00:46:58.820 and all of this stuff. And at first, I was like, Whoa, look at all this stuff, right? Like, because

00:47:02.900 I wasn't used to that. And now it's like, Oh, yeah, every vehicle's got to have that. Like, if I'm

00:47:08.200 gonna buy a new vehicle, what else does it have that's going to exceed my expectations that I've got

00:47:12.940 now my standard that I have set for myself? That's exactly right. I the first time I walked

00:47:18.140 through my house, we were moving from Alabama to Georgia. And I came alone without the rest of my

00:47:24.000 family to check out this house. The first time I remember calling my wife and saying, you know,

00:47:29.120 like, it's a dream, you know, like, it's a dream, you'll never, you'll never believe this place. And

00:47:34.100 now, you know, it's where I put my dirty socks. You know, it's just not, it's just, you know, it's

00:47:39.500 still a nice house. But it's, you know, it's just where I like, sleep and poop and throw my dirty

00:47:44.980 socks. Yeah, yeah, my house. That's funny. Yeah, let's go back to index investing, because I think

00:47:53.760 we glossed over that. And I know a lot of guys that are going to that are going to want to get

00:47:56.620 tactical to a degree. We've talked a lot about the psychology and thought processes behind money

00:48:01.360 and investing. But for those of us who maybe not be familiar with what index investing is, will you

00:48:07.720 explain to that? Or explain to us what that is? And then we'll move on to some of these other

00:48:11.720 more tactical, tangible strategies here. So index investing basically says that instead of paying

00:48:18.660 a manager to try and pick winner and loser stocks, you'll just own all the stocks. And the most popular

00:48:25.280 form of index investing is cap weighted index investing. So basically, you own all of the

00:48:31.080 stocks relative to how big they are. So the larger a company is the larger proportion of your portfolio,

00:48:37.620 it will comprise. There's nothing magical about index investing. The reasons that it works and it does

00:48:44.360 work is because it's well diversified and it's cheap. Morningstar did a study of funds and found

00:48:50.900 that the best predictor of performance on a go forward basis was not anything. It wasn't, you know,

00:48:57.000 it wasn't any of sort of the usual suspects. It was just what was the fee for the fund. And so one of the

00:49:03.320 reasons why index investing works is because it's highly diversified. And then, you know, the other

00:49:08.240 reason it works is because it's low turnover. And the third reason it works is because it's cheap.

00:49:13.180 And so, you know, there are all different flavors of index. Some are tilted in favor of some of these

00:49:18.480 research-based qualities like high quality stocks or, you know, cheap stocks or stocks with momentum.

00:49:25.780 All of those are sensible ways to invest. You just want to look for stuff that is

00:49:29.880 fairly priced, low turnover, and well diversified. That's the big thing.

00:49:35.020 So when you say you just want to look for funds or investment vehicles that have those

00:49:39.340 characteristics, what specifically would you do? Where specifically would you suggest going?

00:49:45.480 How do you recommend going about doing this? Because there's people who are listening to this

00:49:48.640 that are saying, okay, yeah, I'm on board. I'm all in. What do I do next?

00:49:52.900 You make a great point. And I'll be somewhat limited by my compliance about what it is.

00:49:59.860 Sure, right. Yeah. No, I understand how that goes.

00:50:01.840 I would compare deciles of expense, right? So I think most people don't have an intuitive sense of,

00:50:08.780 you know, how many percentage points is cheap and how many is expensive.

00:50:12.540 Yeah, they wouldn't know what to compare it to.

00:50:14.640 Yeah. So I think if you just look around at percentages, you can find some good numbers.

00:50:19.640 And it's going to vary too, right? Like you can get the S&P 500 now for free from certain providers,

00:50:26.760 you know, or three, you know, as low as anywhere from free to, you know, three one hundredths of a

00:50:32.920 percent. So enormously cheap, but you're going to pay more for junk bond fund, or you're going to pay

00:50:39.360 more for an emerging markets fund. And you should have fixed income exposure in your portfolio. You

00:50:45.060 should have international exposure and you're going to pay more for that. So don't get turned

00:50:50.180 off by, you know, the fact that they're not all going to be free or close to free. Make sure you

00:50:55.680 get diversified. But, you know, a lot of the ways that we vet funds are kind of behaviorally

00:51:01.620 counterintuitive. You know, I had a friend call me the other day and say, hey, I'm, you know,

00:51:06.640 I'm signing up for my 401k. I'm just going to pick the fund that had the best performance over the

00:51:11.080 last five years. Sure. And I was like, no, no, no, no, don't do that. Don't do that. You know,

00:51:16.040 because all of the research shows that, you know, styles tend to go in and out.

00:51:20.860 Right. That's a cycle for sure. The truest words in investing are this too shall pass.

00:51:26.360 Stocks that are funds that have done well over the last five years tend to do poorly over the next

00:51:31.080 five years. And so it's not as simple as looking at, you know, star ratings or performance. You really

00:51:37.400 want to look for, you know, keeping those fund expenses low, making sure it's, it has broad

00:51:43.060 exposure and making sure they're not trying to do too much. And what's your philosophy on

00:51:48.200 rebalancing portfolios? Because just in case maybe somebody doesn't know one fund or one stock may

00:51:53.740 perform well, or one sector may perform well relative to another. And now your balances are,

00:51:59.680 are out of whack again. Do you, do you suggest that they rebalance that frequently or how often would

00:52:04.820 you go about rebalancing a portfolio? I've seen a research on everything from quarterly to every

00:52:10.880 two or three years. And I think the most sensible approach is still just to do it yearly. I think,

00:52:16.560 you know, yearly makes a lot of sense. You want to do it for exactly the reasons you said,

00:52:20.960 let's say you have a 60% stock and 40% bond portfolio or something like that. You know,

00:52:27.620 stocks tend to be more volatile. So there's a good chance that you're going to get out of whack.

00:52:31.980 You want to bring it back into harmony every year. I don't think there's much point. I've never seen

00:52:37.520 anything in the research that suggests that doing it any more than that helps very much. So, you know,

00:52:43.260 once a year is adequate. And one of the questions or one of the topics you brought up and mentioned

00:52:48.200 quite a few times, and I didn't want to gloss over this is the power of having a coach. And I think you

00:52:54.180 did a pretty good job. If I remember correctly, it's been, I think it's been a couple of years since

00:52:57.440 the laws of wealth, right? That you wrote that book. Yeah. But I remember a segment in there

00:53:03.260 where you actually listed out questions to ask yourself and ask a potential coach slash advisor.

00:53:11.680 So would you recommend somebody have a financial advisor or do it themselves or a combination of

00:53:16.580 the two? How do we figure that out? Yeah. So chapter two of the laws of wealth is called,

00:53:21.500 you need a financial advisor, but not for the reason that you think. In there, I cite research

00:53:26.840 from a handful of sources that shows that people who work with advisors have tended to do much better

00:53:32.900 than those who have not to the tune of about three to 4% per year. Which is significant over a course of

00:53:40.160 20, 30, 40 years. 30, 35 years, it would double your returns, right? You know, on an average

00:53:47.000 diversified portfolio. But most people think that the reason why they're getting that extra

00:53:51.760 two or 3% or whatever it is, is that they're, you know, this advisor is putting them in high

00:53:56.800 flying stocks. Right. Managing the portfolio. Exactly. Well, you know, the dirty little secret

00:54:01.980 is most financial planners, most advisors have you in a pretty basic setup and, you know, one that

00:54:07.920 candidly you could do by yourself pretty easily. But the benefit that they're adding is they're keeping

00:54:13.520 you in your seat. They're keeping you from making a handful of catastrophic decisions over that time.

00:54:19.220 They're helping you with taxes. The benefit is there. And I do recommend it for all of the

00:54:24.960 behavioral reasons we've talked about. I have written three books on behavioral finance. I know

00:54:29.440 every, I could tell you every study, everything to do, everything not to do. I work with a financial

00:54:34.920 advisor and it's the, you know, the reason. You personally do. I personally do. Interesting.

00:54:39.260 The reason that I do is because I know I'm just as stupid as the next person the next time,

00:54:44.960 you know, a bear market comes around. And I know that for all my study and all my writing,

00:54:49.800 I'm no different than anyone else when it comes to panicking about my own money. And I need someone

00:54:55.620 to, you know, keep me from doing something dumb. Yeah. So I work with a financial advisor and that's

00:55:00.640 the best testament I could give to that. So yes, I think people would be wise to consider it,

00:55:05.740 just not for the reasons why they might initially think.

00:55:09.000 Right. Well, you bring up a good point is that you know of yourself that you could potentially

00:55:13.720 fall into that panic as well. But I think the other trap that you as an educated individual in

00:55:19.720 this sector of the markets is you could fall into the ego and arrogance trap, probably a lot easier

00:55:27.440 than somebody who may not know as much as you do about investing.

00:55:31.520 There's, I think, two traps that it's easy for me to fall into. One of them is the ego trap. Like,

00:55:36.780 hey, like, I can pick great stocks. Like, you know, I'm a New York Times bestselling author. I

00:55:40.760 can, you know what I mean? So it's like, what are you going to tell me? I don't already know.

00:55:44.340 That's right. Yeah. So it's like, you know, I write about these things. These other schmucks

00:55:47.980 can't do it, but I can't. Right.

00:55:50.240 One is the ego trap. And then the second trap is just paying too much attention to it. One of the biggest

00:55:55.560 detriments to my own, you know, investing success is the fact that it's an occupational hazard of

00:56:02.360 mine that I have to stay up on the markets. Like, I'm going to be asked what's going on. I'm going to

00:56:07.900 be asked for my reaction to different political happenings. And if I could just turn it off and

00:56:13.960 forget about it, I promise you I would do better than I do by keeping my finger on the pulse of every

00:56:19.860 dumb thing that's going on. It is to my detriment that I have to follow what's going on in financial

00:56:25.300 markets. And I think that that's something the average investor just doesn't understand.

00:56:29.460 They probably think I've got all this great insider info because I keep such a close eye on it.

00:56:34.340 More than that, I'm just induced to do stupid things and stray from my plan. Right.

00:56:39.020 Yeah. Yeah. Well, you know, what's funny is before I had sold the practice, I would have clients,

00:56:44.080 I would call them and say, you know, have you received your statement? Do you have any questions?

00:56:47.560 Yada, yada, yada. And they would always be ashamed to admit that they don't look at their

00:56:53.420 statements. They're like, you know what, Ryan, I get those statements. I usually just throw them

00:56:56.600 away or put them in my folder. I don't even look at them. And they're embarrassed to say that. And

00:57:00.840 my response is good. That's actually probably the better way to do it. I mean, I want you to know

00:57:05.400 what's in your account and what you're doing, but I don't want you to be so consumed with it that

00:57:09.160 you're looking at it and pouring over the details and trying to figure out where you can sell and where

00:57:13.300 you can buy. You're actually in a better situation by just throwing those things away than

00:57:17.500 actually looking at them. My wife laughs at me because the big, you know, the big folder comes

00:57:21.660 and I just shred that baby. Yeah. Yeah. I don't even look at, I may pull it up occasionally just

00:57:26.820 to kind of get a pulse on where things are, but I don't even, I don't look at it because I know it's

00:57:31.360 doing its thing and I did it right from the get-go. So we're good. We're set. Yeah. Well, good. Well,

00:57:37.300 Daniel, we're winding down on time here. I want to ask you a couple of additional questions as we do.

00:57:41.540 The first one I prepped you for a little bit, but what does it mean to be a man?

00:57:45.000 When I think about being a man and when I think about, you know, raising a young man, which is,

00:57:50.660 you know, something I'm doing, I think it's about moving with intentionality and acting with purpose.

00:57:56.380 This is sort of the number one lesson that I try and teach my son is that I think every man should

00:58:01.820 have a North Star, something that guides his life and something that he can strive for. So that to me is

00:58:09.500 sort of the pinnacle of manhood is to have a burning passion, something that fuels everything

00:58:15.780 you do and something you can strive for. Right on. I love it. How do we connect with you,

00:58:20.880 pick up a copy of The Behavioral Investor and The Laws of Wealth? And then it sounds like you

00:58:25.220 wrote one more that I'm not familiar with. So how do we find out everything about what you're doing?

00:58:28.980 You can follow me on Twitter at Daniel Crosby. I'm super active on LinkedIn, Daniel Crosby, PhD.

00:58:36.280 The books that I'd recommend to you would be The Laws of Wealth and The Behavioral Investor. They're

00:58:40.480 both available on Amazon and, you know, everywhere else, fine books are sold.

00:58:45.140 Excellent. I would recommend them both as well. As a former financial advisor, I can attest to

00:58:50.260 the validity of it. The message there is powerful if people adopt this. So guys, if you're looking to

00:58:55.940 invest and starting to build your wealth, then these are good foundational books to read. So

00:59:00.280 Daniel, I just want to let you know, man, I appreciate you. I appreciate our friendship

00:59:03.360 over the past couple of years. I love your work. I've always been inspired by what you're doing

00:59:07.680 and how you're taking a different approach to finances. You're not just pouring over the data,

00:59:12.320 although you are doing that. You're looking at how we behave as humans, which I think is probably

00:59:16.860 the more significant factor. So I really appreciate your time and you imparting some of your wisdom

00:59:21.740 with us today. Well, it means a lot. And I thank you for sharing your

00:59:25.340 significant platform with me. There it is, gentlemen, my conversation

00:59:30.440 with Dr. Daniel Crosby. I hope you enjoyed that one as much as I did. We don't talk a whole lot

00:59:35.020 about wealth building and investing, but we have over the past month, month and a half. And I've

00:59:40.060 really got a lot of positive feedback from you guys because building wealth, frankly, is something

00:59:43.860 all of us want to do. All of us should have the desire to build more wealth in our lives because

00:59:49.560 it makes us more capable. Certainly it's not the only thing, but it does make us more capable

00:59:54.440 of being the men that we need to be for ourselves and those we have a responsibility for. So connect

01:00:01.260 with Daniel Crosby on social media, connect with me on Instagram and Twitter at Ryan Mickler. And let

01:00:07.080 me know what you thought about the show, what you'll be implementing in your investment portfolio and

01:00:10.920 how you'll be taking this advice to heart. And also pick up a copy of his book, The Behavioral

01:00:15.900 Investor. If you are interested in investing on your own or even with a coach, you will not be

01:00:21.260 disappointed by picking up a copy and increasing your financial IQ, if you will. So that's all I've

01:00:27.000 got for you guys today. I hope again, you enjoyed it. We'll be back tomorrow for our Ask Me Anything.

01:00:32.400 And then of course on Friday for our Friday Field Notes. But until then, go out there, take action

01:00:37.040 and become the man you are meant to be. Thank you for listening to the Order of Man podcast.

01:00:43.080 If you're ready to take charge of your life and be more of the man you were meant to be,

01:00:47.460 we invite you to join the order at orderofman.com.

01:00:51.260 Thank you for listening to the Order of Man podcast.

Order of Man - March 19, 2019

How to Invest, the Right Way ｜ DR. DANIEL CROSBY

Episode Stats

Length

Words per Minute

Word Count

Sentence Count

Hate Speech Sentences

Summary

Transcript