The Art of Manliness - #222： The Laws of Wealth

00:00:00.000 Brett McKay here and welcome to another edition of the Art of Manliness podcast. Now to the

00:00:18.280 layman, financial investing can look extremely complicated. And while financial markets are

00:00:22.920 certainly complex, the rules governing sound investment are actually pretty simple. The

00:00:26.960 problem most people have is following those rules. It's all about behavior. Well, my guest

00:00:32.140 today is a behavioral finance expert that has recently published a book crammed with practical

00:00:36.620 advice to help investors from all walks of life have better investing behavior. His name is Daniel

00:00:41.420 Crosby and his book is The Laws of Wealth, Psychology and the Secret to Investing Success. And today on

00:00:46.160 the show, we discuss the psychological biases we have that causes to make stupid investing mistakes, 0.95

00:00:50.480 what we can do to overcome them, why index funds aren't exactly passive investments. We also explore 0.89

00:00:55.500 how behavioral finance principles can help us live a happier, more flourishing life. Talk about why

00:01:01.020 the self-esteem movement was terrible for you, what you can do to avoid resentment. And then we're

00:01:06.140 also going to talk about another book he wrote, what's called Everyone You Know Will Die. It's for

00:01:10.520 kids. It's kind of more, it sounds morbid, but had a good purpose. We'll talk about that. After the show,

00:01:15.340 make sure to check out the show notes at aom.is slash Crosby, search of the C and you'll find links

00:01:20.560 to resources mentioned throughout the show. So without further ado, Daniel Crosby and the Laws

00:01:25.340 of Wealth. Daniel Crosby, welcome to the show. Awesome to be here. So you're a behavioral finance

00:01:37.060 expert. What is that and how did you get involved with it? Yeah, so behavioral finance is just sort

00:01:44.340 of simply sits at the intersection of psychology and investment management. And so my path there is

00:01:51.260 pretty circuitous and that's pretty typical of the two handfuls of people who work in this field.

00:01:56.860 So I started school as a business major with an eye to going into investment management,

00:02:03.040 which is what my dad does. And then I went on a mission for my church for two years and spent two

00:02:08.440 years in the Philippines. And in that time, sort of got a bigger heart, enjoyed working with people.

00:02:14.340 And came back and said, you know what, I want to do something that matters. I want to be a

00:02:17.820 psychologist. Got about halfway through a PhD in psychology before I said, you know, this is

00:02:23.380 bringing me down. Talking to sad people all the time is making me sad. And I need to, I want to

00:02:30.780 think deeply about why people do the things that they do, but I can't do it in this context and still

00:02:36.420 lead the life that I want to live. So I was lucky to stumble onto this sort of unique business

00:02:43.220 application of psychology. And so that takes, that takes two forms, you know, part of it is helping

00:02:47.980 people make better decisions. And then part of it is, can we actually manage funds in a way

00:02:54.220 that takes advantage of the irrational behavior of other market participants?

00:03:00.040 So you've got a new book out about using insights from behavioral psychology to be a better investor,

00:03:04.740 investor. But before we get to that, I'd like to talk about your previous book,

00:03:07.640 You Are Not So Great, where you take insights from behavioral psychology to help folks live a good

00:03:12.220 life. So let's talk about the title of that book. You Are Not So Great. So my mom and elementary

00:03:16.820 school teachers were lying to me. Why are we aren't so great? How did this word greatness get spread too

00:03:22.700 thin?

00:03:23.620 Yeah. So you're not that great. It's kind of built on the paradox that your ability to be great,

00:03:28.800 which I want for myself and everyone else, but your ability to be great is predicated upon not

00:03:35.060 thinking that greatness is your birthright. Um, and so, uh, you know, I, I not sure quite how old

00:03:40.940 you are. I think we're roughly the same age, but you know, I grew up in the eighties, um, at sort of

00:03:45.620 the height of the self-esteem movement where the thought was that, uh, self-esteem was the, was the

00:03:52.100 cure for all ills and, and thought that self-esteem was, was given, um, and not earned. And, and that took

00:03:59.900 the form of, you know, lots of gold stars, everyone's a winner, participation trophies, things like that.

00:04:05.340 Um, and the, the science bears out that that's not the case at all. You know, I talk about a few

00:04:10.040 things, but you know, I'll focus on two in specific, uh, one, uh, you're not that great talks about how

00:04:15.260 special people are quitters. And I mean, make, make no mistake about it. I mean, I wrote this book.

00:04:20.040 It was a, it was a Ted talk that I turned into a book, but you know, I wrote this book for myself,

00:04:24.540 um, because I was a kid who grew up, um, many things, especially academically came easy for me.

00:04:31.440 I was praised for being, you know, special, intelligent, whatever. Um, and then I just

00:04:36.440 fell apart the first time I quit, uh, the first time I came upon any sort of bump in the road or

00:04:42.420 any sort of obstacle, I just fell apart. And so I cite the work of Carol Dweck, uh, quite a bit in,

00:04:49.420 in the book. And she just talks about working with kids, um, and even yourself to focus on,

00:04:55.600 uh, to focus on process over outcomes. You know, I think early in my educational life,

00:05:01.060 my outcomes were good because I was just, um, I was just bright and it came easy to me,

00:05:05.900 but you, you can only coast on that for, for so long and then you fall apart. So found pretty

00:05:11.440 consistently in the book cases where people who just, uh, are leaning back on being special don't,

00:05:17.220 don't get very far because they, they just quit. And then the second thing that I found at

00:05:21.580 citing the, uh, example of Bernie Madoff is that special people are cheaters.

00:05:26.320 You know, in the book, I talk about research done by Dr. Carol Dweck who worked in the New York

00:05:31.660 City public school systems. And she divided kids into two groups. One, she praised for being special

00:05:38.620 and gifted. And the other, she praised for being hardworking and following the rules. So then she

00:05:44.640 asked the kid to, uh, write a letter to what is, turns out to be a fictional pen pal. And then this

00:05:51.160 letter to this pen pal that she's, uh, they're supposed to, uh, tell a little bit about the

00:05:55.340 things they like to do, their hobbies, and then they're supposed to transcribe, uh, their report

00:06:00.080 card. Well, uh, of the group that were praised for being hardworking and following the rules,

00:06:05.560 nobody fudged the grades on the report card. Uh, but of the group praised for being special and gifted,

00:06:11.740 nearly half of the kids gave themselves better grades than, than they had actually received.

00:06:17.080 So they effectively lied, uh, when writing to their pen pal. And we see this also in the case

00:06:22.460 of Bernie Madoff, you know, a lot of people don't understand that Bernie Madoff was already

00:06:27.200 enormously wealthy and successful before he started defrauding Holocaust victims. You know, 0.92

00:06:33.380 he had already invented a market making technology, uh, that serves as a part of what we now know

00:06:39.000 as NASDAQ. So he had made all this money, tens of millions of dollars, but he said he never felt

00:06:45.320 special. He never felt special. He says, uh, in his deposition that he felt like a picked on

00:06:51.580 little Jewish kid from Brooklyn. So again, he needed to be special, never got there in his mind.

00:06:57.680 And you see that in both case, both cases, it led to cheating. So that's the second reason is that

00:07:03.040 special people are cheaters. Yeah. And I think that ties in with research I've, um, seen about

00:07:08.600 straight A students or kids who think of themselves as straight A students or gifted students is they're,

00:07:12.640 they're, they're the ones who are more likely to cheat. Um, and I even saw this like anecdotally

00:07:17.080 in my own life, the, the really, the friends I were with that had this pressure of being the smart

00:07:22.420 kid, like they cheated all the time, like on tests or they would, you know, look at someone's homework

00:07:28.240 so they, cause they didn't have time to do the homework the night before. So they would ask for

00:07:31.380 their friend, they would copy their answers very rampant. And it was because they had this pressure

00:07:35.540 to like maintain that image. Absolutely. I saw that in my own life. I mean, frankly,

00:07:40.680 everyone writes a book to themselves, I think is the case. And, uh, this was absolutely written

00:07:45.900 for me. You know, I was early on labeled gifted and a smart kid, uh, and didn't have to work very

00:07:51.980 hard for it. So I learned bad skills and I learned to sort of coast on my natural gifts and then ended

00:07:57.700 up being a pretty horrible student for a lot of years and a very lazy, uh, lazy cheater, frankly,

00:08:03.760 and had to sort of reteach myself later in life, how to function because I had been given bad

00:08:09.100 messages and hadn't taken personal responsibility. And I mean, what did you have to do? Like, how did

00:08:14.140 you reprogram yourself? Well, I, uh, it, I was a horrible student all through middle school and high

00:08:20.220 school, um, had to go to a junior college, um, had to go to a junior college because my grades were

00:08:26.000 so poor. Um, and it was at that point that it really sort of dawned on me that I was going to live

00:08:30.740 in a van down by the river if I didn't get things together. Um, and so at that point I really, uh,

00:08:36.440 started to work hard, got great, you know, great grades. My first year of junior college went on a

00:08:41.780 mission for my church where I grew up quite a bit. And then after that I was on a better path.

00:08:47.320 So you talk about contingent self-esteem and the two responses that humans take towards it.

00:08:53.420 What are the, what is contingent self-esteem and what are our typical responses towards it?

00:08:58.480 So contingent self-esteem is self-esteem. That's basically predicated on your self-esteem is

00:09:04.440 predicated on someone else's lack of self-esteem. So the, the two things that we tend to do are either

00:09:09.860 we build ourselves up, uh, to sort of this unrealistic, uh, unrealistic, unrealistic level

00:09:16.260 of overconfidence or else we feel like we have to put others down. And in study after study people,

00:09:22.160 uh, it's been shown that people would rather make, uh, less money if it means making more money

00:09:28.340 than their neighbors, right? So you'd met, you'd rather be, uh, poor in a neighborhood where you're

00:09:33.020 slightly richer than your neighbors than to be more objectively wealthy. So we really think about

00:09:38.140 wealth and success and all these things in relative terms and it's contingent on the people around us.

00:09:44.980 Gosh. And how do you overcome that?

00:09:47.180 You know, I think the, I think the, the answers that I give in the book are just really sort of

00:09:52.460 old fashioned and, and simple, but not easy. I mean, I think you have to learn to develop sort

00:09:58.660 of a personal benchmark for greatness to, to compare yourself today to the man you were yesterday

00:10:04.160 and not to your neighbor. And then the second thing that's just, uh, unequivocal in the research

00:10:09.880 on self-esteem is that there's no shortcut to self-esteem. And the only way that you can get genuine

00:10:15.400 self-esteem is by doing hard things and persisting in doing hard things until you've achieved something,

00:10:21.960 uh, noteworthy. So people have a really strong BS meter. And so if you're telling someone, Hey,

00:10:27.640 well, you know, I'm so proud of you did so great when they didn't really work for it,

00:10:30.900 it doesn't stick. It's only when we do hard stuff and, and learn to do it well,

00:10:35.260 that that gets internalized.

00:10:36.900 Gotcha. So let's talk about your latest book, the laws of wealth, uh, where you take a look at

00:10:41.900 the research coming out of behavioral psychology and how people can invest their money better.

00:10:46.260 Cause I think for a lot of just average Joes, like investing money in the stock market is just super 1.00

00:10:51.360 intimidating. Uh, I mean, I, I invest in like, I feel like I'm a pretty smart guy, but like,

00:10:56.180 even like I'll look at the stock market, like, I don't understand how this thing, this thing,

00:11:00.500 this crazy thing works. Um, but in the, in the, the book you make the case that most investing comes

00:11:06.380 down to behavioral management. Uh, it's not so much, you know, what you put in your portfolio. I mean,

00:11:12.400 that, that is important, but more importantly is how you just manage your behavior when you go,

00:11:16.540 when you invest. So what are the, the biggest behavioral or psychological ticks that get in

00:11:22.860 the way of us making wise investing decisions? Yeah. So, so the first thing you mentioned there

00:11:28.760 is one of the most powerful is just not realizing how empowered we are. Um, you know, Ben Graham,

00:11:35.080 who taught Warren Buffett, everything he knows, uh, Buffett would say, uh, says that the investor's

00:11:40.400 chief problem is, is himself. And that is absolutely, again, what the research bears out.

00:11:45.840 There's, uh, there's research by a company called Dalbar that talks about the gap between what the

00:11:51.980 market return has been and what the average mutual fund investor has gotten. Um, and like over the last

00:11:58.520 30 years, the market has given you about eight and a quarter percent. Uh, but the average investor in

00:12:04.240 the market has only kept about half of that, uh, because they get in and they get out at,

00:12:09.540 at the wrong times. And so the first law of wealth, if you will, is just realizing that your behavior

00:12:17.060 matters so much. And so financial professionals get this, you know, a recent, a recent study I read

00:12:23.020 said that 83, 83% of financial advisors said that the biggest thing that they do for their clients

00:12:29.480 is hold their hands and keep them from freaking out. Uh, but only 6% of the end clients thought that

00:12:36.260 was the case. So there's this real disconnect where clients are, are looking for, um, this sort of

00:12:42.480 expert investment management, which is, uh, uh, in a lot of cases, an effort and futility, whereas the 0.99

00:12:49.380 real value is delivered by just keeping you from making a handful of stupid decisions over your 1.00

00:12:54.280 lifetime. Gotcha. So they're more like a coach. Yeah. More of a coach and people don't want to see 1.00

00:12:59.440 them that way. People want them stock picking and doing the sexy stuff. And, and really, uh, they're 1.00

00:13:04.940 saving you from their, from yourself if they're doing it right. Gotcha. So, I mean, you list in

00:13:09.680 the book, several biases that we have that, um, that make us, that cause us to create, you know,

00:13:16.500 make poor decisions. Um, so you mentioned earlier, like the, we get out whenever things are tanking and

00:13:22.000 then we get in when things are awesome. What bias is going on there that causes us to, uh, I guess

00:13:28.300 it's sell high and or no, it's sell low by high. So I guess it's what people are doing. Right. I mean,

00:13:34.160 there's a, there's a number of things at play there, but one of the things that's at play is

00:13:38.200 something called the affect heuristic, which is just a fancy way of saying that your emotions color

00:13:43.340 your perceptions of risk. And so, um, there's been studies about emergency room admissions on days that

00:13:49.320 the market is down and emergency rooms, uh, uh, admissions dramatically, uh, skyrocket whenever

00:13:55.500 the market crashes. So we are just so immersed in this and it's such a big part of our lives,

00:14:01.140 um, that it has an impact on our mood. So if you're in a bad mood, you tend to see risk everywhere.

00:14:07.060 Uh, if you're in a great mood, you, you tend to not be very tuned into risk. And there's,

00:14:11.280 there's interesting, there's interesting research on this with respect to, um, the spread of sexually

00:14:16.480 transmitted diseases as well. It's like when people are in a cold emotional state, they know

00:14:21.560 exactly what they're supposed to do, um, to have safe sex. And then when people are feeling amorous,

00:14:26.920 it's like kind of all out the door. So, um, so yeah, it's just, uh, it's managing those emotions.

00:14:33.060 And this is why I wrote a book on what I call rule-based behavioral investing, just trying to

00:14:38.200 set forth a couple of simple rules so that you can kind of put this process on autopilot and really not

00:14:43.800 think about it, um, because your thinking is colored by your emotion.

00:14:47.940 Gotcha. Well, yeah, that's, that's really interesting. So, um, how, how do most people

00:14:52.320 invest their money? I mean, so like you, you promote this thing called goals-based investing.

00:14:58.960 Um, how's that different from the way most people go about investing their money?

00:15:03.300 Yeah. So the, the traditional model of finance has, has talked about, uh, mean variance optimization,

00:15:10.000 which we totally won't get into, but it's basically trying to get the most return for every, uh, every

00:15:16.240 extra bit of risk you take on. And so in this paradigm, your goal is to try and beat the benchmark,

00:15:22.200 let's say. So you want to do, you want your portfolio to do better than whatever, uh, you're

00:15:27.380 measuring it against. So let's just say for stocks, you want your portfolio to beat the S and P 500.

00:15:32.840 Okay. So there's, that's intuitive enough. But what I'm saying is, uh, you want the best

00:15:38.480 anxiety adjusted returns, uh, because we're all different. We all have different goals. We all have

00:15:44.060 different wants and needs. We all have different meanings of wealth and expectations about how we

00:15:49.240 want to live. And so all you need is the returns. Uh, you want to maximize the probability that you

00:15:56.040 get the returns. You want to live the life that you want to live. And that looks very different for

00:16:01.640 different people. And that, uh, that requires a deep consideration of what matters to you, uh, from

00:16:07.640 sort of a meaning and purpose standpoint. And that requires a deep consideration of your personal

00:16:12.900 risk tolerance and, uh, traditional modes of finance have sort of, uh, kept that static across

00:16:19.020 all market participants and assumed sort of similar goals and similar risk appetites. And obviously

00:16:25.580 that's not the case. And so with goals-based investing, the goal isn't to beat the market.

00:16:30.440 So it's just, Oh yeah, yeah, yeah. So one, one of the studies on goals-based investing that I love

00:16:36.780 is they were, they were working with, um, low income savers, like people who are just barely

00:16:42.140 scraping by. Um, and they're, they're rightly having a hard time setting aside money. And so

00:16:48.760 they tried carrots and sticks, you know, rewards and punishments. And then finally they said, you know

00:16:54.020 what, we're going to try this. We're going to prime these people with a picture of their children,

00:16:58.120 um, before they make a financial decision. We're going to sort of flash up a picture of their

00:17:02.440 children before they make a decision to spend or save. And we'll see how that impacts it.

00:17:07.260 And with these low income folks, it helped them set aside more than 200% more money than they had

00:17:13.460 been before, just when they were thinking about that, that meaning and purpose before making a

00:17:18.860 financial decision. So goals-based investing simply tries to reconnect money with the life that it

00:17:25.100 serves. So this was interesting. You had a whole section about index fund investing. I'm a big

00:17:30.740 index fund guy. That's what I do. Um, but you, and it could, because like you, you highlight,

00:17:36.240 even highlight in the book, the reasons why index funds are so appealing is that actively managed

00:17:41.240 funds, right? Where there's a guy in charge, he's selling and, you know, rearranging the fund in order

00:17:47.000 to get the best return. Those don't do very well compared to the S and P 500. In fact, most people,

00:17:53.020 most of them don't even meet their benchmark, but you still make the case that actively managed

00:17:58.100 funds might be better than index funds. I'm curious. Why is that?

00:18:03.180 So, um, this is, I think a conversation that takes a lot of nuance. So I'm going to, I'm going to draw

00:18:07.880 on the words of a guy that I love his stuff, Nassim Taleb, who wrote the black Swan. And he says,

00:18:15.160 never ask a man in his opinion, only ask to see his portfolio. So I'll tell you that when I was

00:18:20.640 recently putting together my will, um, and, and putting together this, you know, for my wife who

00:18:27.100 doesn't, uh, isn't as interested in investing as I am, I said, if I get hit by a truck tomorrow,

00:18:34.360 here are the allocations and put it all in Vanguard. Because if you just want to not worry about it and

00:18:41.800 manage fees, which is a great way to go, um, there is, it's, it's hard to beat index investing.

00:18:48.020 So that said, I think that people who care enough to give it a little time and attention

00:18:54.880 can do better than indexing over long periods of time, uh, for, for a couple of reasons. So

00:19:00.800 before I sort of go into that, I want to say that for the average investor who doesn't care about

00:19:06.300 these things and just wants to live their life and set aside a little money each month, index investing

00:19:11.960 and diversifying across many asset classes is absolutely the way to go. Um, so there are a

00:19:19.360 couple of psychological problems with, with indexing though, I think. And one of them is that most

00:19:25.760 indexing tends to concentrate you in the largest and most expensive stocks, uh, which have historically

00:19:32.860 not done that well. So the, the way that an index works is a stock takes up a bigger or smaller

00:19:39.360 percentage of an index, um, based on how well it's done recently and how, uh, the, the market cap of

00:19:45.820 that company. So how big it is. And so if you have an index like the S and P 500, you are overweight

00:19:52.680 companies that are large and expensive, which of course, um, you're in effect, um, buying high and

00:20:00.760 buying big. And over time, smaller stocks outperform larger stocks and cheap stocks outperform expensive

00:20:06.680 stocks. So with that in mind, I think there are some small tweaks that you can, uh, do to, to make

00:20:13.000 it a little better. Um, the other thing that I talked about in the book is how a lot of people think

00:20:18.620 of indexes as being sort of, um, mined from the earth or existing in a natural state. And what, what

00:20:26.020 we see is that the S and P 500 again is, uh, uh, nine, uh, a secret group of nine people decides which

00:20:34.400 stocks go in the S and P 500. So, uh, unfortunately these nine people are subject to the same errors

00:20:41.180 and bias thinking that you or I are. And so they've tended to do the wrong thing again. They've

00:20:46.940 tended, um, you know, at the turn of the century, the S and P 500 was loaded with tech stocks, uh, to

00:20:52.820 agree that was sort of, uh, not historically where they had been, but they loaded the boat with tech

00:20:57.600 stocks because of the, the mania going on in the tech world at the time. And they were, uh, grossly

00:21:03.260 overweight banking stocks, uh, in the 2000, 2007, 2008. And so because of this bias on their part,

00:21:12.000 uh, you, you, the investor gets screwed, um, by their bias entering the equation. So I'm talking

00:21:19.140 about, uh, what I call rules-based behavioral investing. If, if you put it on a continuum

00:21:24.700 between what's commonly referred to as passive investing is an active investing, it's probably

00:21:30.100 somewhere in the middle. Gotcha. I'm curious, what are your thoughts? Um, so as I was reading

00:21:34.980 that whole thing about index funds, like, Hmm, maybe I should switch strategies. Um, but there's

00:21:41.080 all these, but I'm, but at the same time, like, man, like, I don't know if I can have, I have the

00:21:45.320 time, but like twiddles my portfolio all the time. There are these companies coming out, uh, like

00:21:51.300 wealth front where they, I'm going to figure out what the other one is where they basically create

00:21:55.640 your portfolio via algorithm. Are they applying some of the, the research and behavioral science

00:22:01.680 and just that to help people create a portfolio that fits for them?

00:22:07.420 So, uh, there's a couple of things that wealth front and betterment, those is sort of the big

00:22:12.320 two. And they're, they're referred to in the industry as robo advisors. I think there's a couple

00:22:16.200 of things they do well. And I think there's a couple of things that are either a room for improvement

00:22:20.240 or we haven't, maybe they haven't been fully tested yet. So what they do exceptionally well,

00:22:26.060 uh, is they, they allocate you across a number of assets in a very scientific way. I mean, it's,

00:22:32.380 it's unbeatable. It's very, very good. Uh, the way that they diversify your portfolio and do so,

00:22:38.900 uh, with, with reasonable fees. So that, that aspect is, is hard to beat. Um, I think where the,

00:22:45.960 where the jury is still out, most of these companies are relatively new.

00:22:50.240 Um, and they haven't really seen periods of great market volatility. Most of these companies are

00:22:55.740 like five, six, seven years old. And I mean, it's been a great, it's been a great seven years.

00:23:00.180 So what we find in the research is that people who work with a financial professional

00:23:04.480 tend to outperform those who don't, uh, pretty dramatically by about two to 3% a year.

00:23:10.660 And it's not because financial advisors are good stock pickers. It's because they're holding your hand

00:23:15.580 and they're keeping you invested, uh, when times are tough, they're, they're a coach again. And so I,

00:23:21.640 I think where the jury is still out for me with, with robo advisors is how did their participants 0.96

00:23:28.240 react, um, in a very, in a, you know, a 30, 40, 50% drawdown. And interestingly this week, you know,

00:23:35.140 we're talking the week of, uh, the week after the Brexit vote. And, uh, I believe it was Monday of this

00:23:40.880 week, Betterment actually shut down, um, they, they made their funds illiquid. Like you couldn't

00:23:46.660 get to your account. So they basically said, Hey, um, you know, we feel like people are going to make

00:23:52.160 dumb decisions today, which they were to be fair, probably right about. They said, you know, we think

00:23:56.900 people are going to make dumb decisions today. So we're just going to lock up your money. Well, um,

00:24:02.980 you know, maybe that's well-meaning, but it's also sort of not what their investors signed up for.

00:24:07.360 So, uh, it'll be interesting for me to see how they try and manage the behavioral side of this

00:24:11.960 over time, but their, uh, their, their credentials in diversifying your portfolio are, are unassailable.

00:24:18.860 Um, so we've talked about some of the rules, um, kind of tangentially, uh, and I know we can't get

00:24:25.360 the specifics of all of them, but what are some of the rules in your rule-based investing, uh, idea

00:24:31.100 that people can follow to start being a better investor?

00:24:34.800 Yeah. So one, one of the things that I talk about, uh, is consistency. So just having rules,

00:24:41.200 I mean, and you know, uh, whether it's as simple as setting aside X amount of dollars each month,

00:24:46.780 or just making a hard and fast rule to, you know, buy every dip of 10% or more, just,

00:24:52.660 just so you don't have to think about it. I mean, there's just an increasing literature

00:24:56.800 on how really exceptional people just try and, uh, streamline their decision-making process.

00:25:03.200 And I think this is, this sort of checklist manifesto mentality is more applicable to

00:25:08.200 investing than just about anywhere else. I mean, you see people like Obama who wear the same,

00:25:12.740 you know, the same two types of suits day in and day out, you know, people like Nick Saban who eat

00:25:17.780 the same thing for breakfast and lunch every day. You just want to free up that headspace for the

00:25:22.940 stuff that matters. And I mean, investing, you know, it frankly doesn't matter very much

00:25:28.340 in terms of living, in terms of living a great life. So consistency is one of the things that I

00:25:33.400 advocate. Um, the other thing that I talk about is conviction, which, you know, it's, uh, back to

00:25:40.520 the active versus passive debate. It's a, it's a dirty little secret in the, in the investing world

00:25:45.420 that most, most funds that are marketed as being active don't differ meaningfully from their benchmark.

00:25:52.100 And so what you get is expensive index funds basically. Um, and so you're eroding your

00:25:58.460 performance and a recent study found that basically three quarters of funds that were marketed as

00:26:04.500 active didn't really have an opinion. They were just basically what we call closet indexes. And so

00:26:11.180 that's, that's another principle is, is be in one camp or be in another camp, either, either index like

00:26:18.040 you do, which is sensible and a great approach and, and just save your fees or, or seek out a fund

00:26:24.060 that's truly differentiated and has an opinion, but never, never be in the middle. All right. So

00:26:29.540 consistency, consistency and conviction. Yeah. It's one of those, those two, I guess there are two C's.

00:26:34.960 Yeah. Um, so before we go, I mean, we've talked about living a good life finances. We've got to talk

00:26:41.460 about this other book you wrote because when you, I remember I got in the mail, I was like, what in the

00:26:45.320 world is this? It's, it's a book for kids and it's a child's book about how people die. And I think it's

00:26:53.120 called everyone, you know, will die, right? Everyone you love will die. It's a little more morbid than 0.93

00:26:57.500 you thought. Right. Everyone you love will die. Uh, I'm curious, what was the impetus behind writing

00:27:02.980 this book and why, why did you do it? So, um, to, to scare the children of America. No, um, I wrote this

00:27:10.240 book. So I have two children and next week I'll have three children. So I have, you know, soon,

00:27:16.040 soon to be three children and, uh, you know, they're the loves of my life. And one of, uh,

00:27:21.880 one of the great struggles for me is finding ways to talk about the, uh, talk with them about sort of

00:27:29.120 the tough realities that we all have to confront. Um, and so I found that I, I do this well and that

00:27:37.440 it's, it gives me a window to talk to them if I, if I write it out as a poem first. So it's almost

00:27:42.740 like I get my thoughts straight with writing a children's poem, read this to them. And then we

00:27:47.640 kind of bond over this and then we can have a meaningful discussion over it. So I've written,

00:27:51.720 I've written poems about everything from, uh, you know, gay marriage to being a, being an individual to, 0.95

00:27:59.140 uh, everyone you love will die. And so everyone you love will die was the first one I wrote. And I wrote 0.73

00:28:04.780 this poem when I was, um, talking to my daughter, I believe after her fish died. And, uh, so I was

00:28:12.140 talking to my, my oldest child about this and I put it on Facebook. I put it on Facebook and I said,

00:28:18.100 Hey, this is just kind of a funny thing I did. And it is ultimately hopeful and hopefully endearing

00:28:23.340 and encourages you to spend time and make the most of every moment with the people that you love.

00:28:29.120 So I throw this thing on Facebook. The next day, a friend of mine sends me a file that she's

00:28:34.860 illustrated this poem. So long story short, we put it on Kickstarter. Kickstarter made it their

00:28:40.680 pick of the day. It was funded in like five hours and, uh, you know, we got enough money to print off

00:28:45.940 a couple hundred books. That's awesome. So memento mori for your toddler. Yeah. Memento mori for your

00:28:51.420 toddler. Yeah. I love that. I love that concept. Yeah. I think they need that. And it is true. Like,

00:28:56.880 I think particularly in our modern world, I mean, even adults, like we're so hidden,

00:29:02.280 like we're so, um, shielded from death. Right. I mean, I can, I can count on like maybe,

00:29:07.560 you know, one hand, probably more than that, but like the number of people I've known that have died

00:29:12.620 and, um, experienced that. So yeah, I mean, in the kids, even more so we shield them from that

00:29:17.180 stuff, but like, that's a natural part of life. Well, yeah. And for me, uh, the reality of death is

00:29:23.120 one of the things that most effectively animates me to try and live a meaningful life. And I think

00:29:27.940 that that we, we leave that value on the table when we, when we hide from it. And the, the, the

00:29:33.580 weird paradox is in a, in a day and age where you turn on the TV on any given Tuesday and there's been,

00:29:40.280 uh, you know, a suicide bombing or a mass shooting, it's almost like death has become so ubiquitous

00:29:45.780 that we're almost even that much more detached from it. So, um, I, I think there's an appropriate

00:29:51.580 and a meaningful way to reflect on the inevitability of, of loss as a way to animate a better life.

00:29:57.480 That's awesome. Well, Daniel, this has been a great conversation. Where can people learn more

00:30:01.260 about, uh, your different books you've got out there?

00:30:04.100 Yeah. So, uh, go check out the laws of wealth on Amazon. You can go to everyone you love will die.com.

00:30:10.180 If you're, uh, so, so moved, you can follow me on Twitter at Daniel Crosby and my, uh,

00:30:15.200 wealth management firm is Nocturne Capital.

00:30:17.560 Awesome. Daniel Crosby, thank you so much time. It's been a pleasure.

00:30:20.400 Thanks so much.

00:30:21.980 My guest today was Daniel Crosby. He's the author of the book, The Laws of Wealth. It's

00:30:25.700 available on amazon.com and bookstores everywhere. Also check out the show notes at aom.is

00:30:30.740 slash Crosby for links to resources mentioned throughout the show.

00:30:44.060 Well, that wraps up another edition of the Art of Manliness podcast. For more manly tips and advice,

00:30:48.400 make sure to check out the Art of Manliness website at artofmanliness.com. And if you enjoy

00:30:52.280 the show and have gotten something out of it, I'd appreciate it if you give us a review on iTunes or

00:30:55.760 Stitcher. Helps us out a lot. As always, thank you for your continued support. And until next time,

00:30:59.800 this is Brett McKay telling you to stay manly.

The Art of Manliness - August 02, 2016

#222： The Laws of Wealth

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