The Art of Manliness - #511： Mastering the Psychology of Investing

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

00:00:11.280 to investing, your brain can be your best friend or your worst enemy. My guest today explains how

00:00:15.780 and what you can do to ensure your brain is a staunch ally in your quest for financial security.

00:00:20.020 His name is Daniel Crosby. He's a psychologist, behavioral finance expert, and the author of the

00:00:23.600 book, The Behavioral Investor. We've begun a conversation discussing the surprising ways

00:00:27.300 sociology and physiology influence our financial decisions. We then delve into the psychological

00:00:31.660 factors that cause us to make bad investing choices, including ego, conservatism, attention,

00:00:36.620 and emotion. Daniel then walks us through ways you can mitigate those factors in your financial

00:00:40.100 choices, and we enter a discussion outlining what an investing framework looks like based on the

00:00:44.360 principles of behavioral science. While the principles discussed in the show relate to making

00:00:47.600 sound choices in the area of financial investing, they're actually pretty relevant to making good

00:00:51.260 decisions of every kind. After the show's over, check out our show notes at aom.is slash behavioral

00:00:55.940 investor. And Daniel joins me now via clearcast.io.

00:01:09.920 Daniel Crosby, welcome back to the show.

00:01:12.860 Great to be back.

00:01:13.940 So we had you on a couple years ago to talk about your book, The Laws of Wealth. You got a new book

00:01:18.620 out, The Behavioral Investor. It looks really cool. It's got this awesome inkblot bowl, which looks pretty

00:01:24.140 badass. How is this book a continuation of The Laws of Wealth?

00:01:27.680 So this is the graduate level version of, I think, The Laws of Wealth. The Laws of Wealth was my

00:01:32.480 10 rules for getting your finances right, and it was sort of a paint by number. This book is

00:01:37.920 admittedly a little more complex. And you know, I write in the first introduction there that my aim

00:01:43.180 with this book was to be the most comprehensive look at the psychology of financial decision-making

00:01:48.560 that had ever been written. And so that was sort of my audacious goal from the outset. So that's

00:01:53.880 what I tried to do here is look at money and decision-making from every possible angle.

00:01:59.300 Well, so you specialize in behavioral investing. This is what this book's about. For those who

00:02:03.560 aren't familiar with that, what is behavioral investing? When did it become a thing? And

00:02:07.660 what are the fields it brings together to do what it does?

00:02:11.220 So you're right. It is an absolute mutt of a field, of a discipline. It sort of sits at the 0.67

00:02:17.280 intersection of finance and behavioral science and sociology and psychology and decision theory

00:02:24.680 and game theory. And so one of the things that I love about behavioral finance, which is sort of

00:02:29.540 the name from my field, the proper name from my field, is that it does incorporate all of these

00:02:34.780 things. And it's immensely challenging because there are so many fields and sub-disciplines involved.

00:02:40.400 So you never feel like you quite get your hands around all of it. But to me, it's a really

00:02:45.120 gratifying challenge. So it's risen to prominence in recent years because in the late 20th and early

00:02:52.040 21st century, there have been a number of Nobel Prizes given out in behavioral finance and behavioral

00:02:57.240 economics. So people like Daniel Kahneman and Richard Thaler and Robert Schiller have all won Nobel

00:03:03.320 Prizes for their work. But the ideas that undergird a lot of what I'm writing about today go back to

00:03:10.000 even biblical times. You know, there's references in Ecclesiastes to, you know, humility and

00:03:16.740 diversification. It says in Ecclesiastes 11.2, invest in seven ventures. You do not know what

00:03:22.740 disasters may come upon the land. And, you know, so I'm writing about some of these things through a

00:03:27.340 scientific lens. But Shakespeare wrote about these things. They're written about in the Bible.

00:03:32.240 Adam Smith wrote about animal spirits and the theory of moral sentiments in the 1700s.

00:03:38.680 Keynes wrote about booms and busts in the early 1900s. So these ideas have been around for a very

00:03:46.200 long time. But we're just now through the lens of science and with scientific rigor, starting to call

00:03:52.700 them by their proper names and codify them and classify them the way that a scientist would.

00:03:58.560 Well, one thing I noticed that behavioral investing does, and you spend the first part of your book

00:04:01.940 discussing this, is looking at the ways our bodies, our brains, our psychology, our relationships,

00:04:10.000 all these things, how they cause us to make bad or good investment decisions. So let's talk about

00:04:16.080 like sociology, because that's something you wouldn't think of going to first, because people

00:04:19.660 think, oh, it's a decision. It's personal. It's just me. Psychology, we were to start. But you talk

00:04:23.800 about how sociology has a big influence on us as an investor.

00:04:26.760 Yeah, so I think the person that's written about this most beautifully is Yuval Noah Harari, who

00:04:32.420 wrote Sapiens and a couple of other wonderful books. But in there, Harari makes the point that

00:04:37.720 the thing that differentiates us from the rest of the animal kingdom is not communication, because

00:04:43.920 dolphins and chimps do that. It's not opposable thumbs. It's not tools, because crows use tools.

00:04:49.860 The thing that differentiates us from the rest of the animal kingdom is we are able to believe in what

00:04:55.860 he calls functional fictions. So these are things that are not strictly rationally true, but that

00:05:02.980 serve a species-wide purpose. And so to make that a little more concrete, he says that money and

00:05:09.420 economies are sort of foremost among these things. So everyone that's listening to this show spends most

00:05:16.280 of their day toiling away for these pieces of little green paper or numbers in their bank account that

00:05:23.340 have no intrinsic worth aside from the worth that we have ascribed them as a society.

00:05:29.060 And so he says this is where we differ from the rest of the animal kingdom is that we, you know,

00:05:33.460 we can create states and constitutions and economies and things that aren't literally true,

00:05:39.280 that don't have a basis and objective fact, but still have collective utility and collective truth

00:05:45.480 by virtue of our group agreement upon these rules. And so we learn that in a very real sense from the

00:05:54.780 time we're born, we believe in stuff that's not true because it's expedient. And so that's done great

00:06:00.560 things for us as a species, but it means that we tend to reason not in rational terms, but in group

00:06:06.840 terms. And when you apply that sort of herding behavior, that crowd mentality to something like trying to

00:06:13.160 choose a good stock or trying to time the market or, you know, decide how to invest that same

00:06:18.960 tendency that serves us very well when we're setting up a nation or a church serves us very poorly as

00:06:25.660 investors. My favorite bit of research on this in the book talks about this Ash experiment, which is an

00:06:32.600 experiment that was done, you know, 50 years ago plus where they had people look at three different

00:06:37.920 lengths of lines and they had, you know, a group of lines on the left and a group of lines on the

00:06:42.880 right and say effectively, you know, which, which line on which, excuse me, one line on the left and

00:06:48.520 then a group of lines on the right and say, which line on the right looks the most like the line on

00:06:53.180 the left. Well, what they would do is they would put people in groups so that confederates of the

00:06:58.700 experiment, six or seven people would go before and give the wrong answer. And so by the time they

00:07:04.320 get to the last person, 76% of the time, the last person who was not in on the joke, not in on the

00:07:11.580 experiment would also give the wrong answer. Now we used to think that this was just a simple

00:07:17.740 matter of peer pressure. But brain science, now we're able to observe what happens in an experiment

00:07:23.500 like this. When we monitor brain activity with an fMRI, we find that this person's the parts of their

00:07:31.160 brain that are lighting up during this experiment are those that are associated with sensation and

00:07:36.700 perception. So the groups thinking that the wrong line was, was the match actually changes the way

00:07:44.500 that last person physically sees it. They're not just getting pressured into doing something

00:07:49.940 different. They're actually seeing it differently than it is because the other people in the group

00:07:55.380 disagree. And so we have to understand this as investors, that other people's opinions of a

00:08:02.300 market of a stock actually can warp our perceptions in real ways.

00:08:07.760 No, I thought that's powerful. I've experienced that. I think if you grew up in the 80s and 90s,

00:08:12.960 you probably experienced this with baseball cards. That's a perfect example. I was convinced when I was

00:08:18.460 12 that I would pay for college in my retirement with my baseball card collection. And now it's in my

00:08:24.540 attic and it's worth nothing.

00:08:25.680 Yeah. So the baseball card bubble has been well documented. There was also a really profound

00:08:32.160 bubble, I think a few years later in Beanie Babies. And there was a book written on the

00:08:37.340 Beanie Baby bubble that is like an absolute thrilling must read. And the guy that was in

00:08:42.520 charge of, you know, the guy that invented Beanie Babies was like this salacious character and,

00:08:47.960 you know, just doing all kinds of shady stuff. But, you know, we had the Beckett monthly,

00:08:53.480 right? You remember Beckett, you would get your monthly thing and you would check. It's the

00:08:57.460 equivalent of a Bloomberg terminal for, you know, for little kids in the 80s where we would sit there

00:09:02.860 and every month it only went up, right? You know, your Frank Thomas card or your Ken Griffey rookie

00:09:08.540 card or your Jose Canseco card only ever went up. And you had these positive feedback loops with the

00:09:14.620 Beckett magazines. And then we had a glut of supply. You know, it used to be just tops, but then you had

00:09:20.660 Fleer and Donruss and Upper Deck and all these late entrants when this started to take off.

00:09:26.080 So yeah, the things that were present there, you had this collectivist mentality. Every person our

00:09:32.460 age thought that they were going to go to college based on their Ken Griffey rookie card. But we're

00:09:37.600 comparing that, you know, to a time when the Hannes Wagner card came in tobacco packs and, you know,

00:09:43.680 they had to shut them down because people got upset that they were selling cigarettes to kids

00:09:47.940 basically with these cards inside. So they're extremely rare. And you contrast that with a

00:09:52.780 time when you've got, you know, a new baseball card startup popping up every other year.

00:09:58.000 So these feedback loops, like I just talked about, precipitated this bubble. And you see

00:10:02.920 that that collectivist mentality was a lot of what propped it up until we no longer agreed that they

00:10:08.780 were worth what we thought they were worth. And you're seeing something similar with like

00:10:12.520 cryptocurrency, right? Like there's a two years ago, there's a huge spike in Bitcoin, but now there's

00:10:18.160 all these other cryptocurrencies and the market's still trying to like, the group's still trying to

00:10:23.280 decide like, what's this thing worth? And no one really knows yet.

00:10:27.600 Well, you know, cryptocurrency is a great example and everyone loves to dump on cryptocurrency. But the

00:10:33.460 thing is, our fiat currency, you know, our money is really no different than cryptocurrency,

00:10:38.920 except perhaps at this point in that it's backed up by big guns and big governments. But, you know,

00:10:45.420 cryptocurrency is a perfect example of this. You know, it was to whatever Thanksgiving last,

00:10:51.040 it was worth $20,000 a coin because that's what people thought it was worth. And today it's worth

00:10:56.300 whatever, $3,000 or $4,000 because some of that trust has been eroded and people no longer have this

00:11:03.200 sort of collectivist consensus around this. And so we need to understand that, you know,

00:11:09.120 you don't find stock prices, you don't dig up stock prices from the earth, and they don't have an

00:11:15.460 objective reality. They're worth what we all think they're worth. And understanding that human tendency

00:11:20.680 is a powerful first step towards being a good investor.

00:11:23.860 So another part of our self that you wouldn't think would influence investment decisions or financial

00:11:29.100 decisions is our physiology, right? Like our body can actually influence our decisions. Talk about

00:11:34.680 that a little bit. Yeah. So I think this one is perhaps the most ignored. And it's a little bit

00:11:41.080 candidly discomforting to learn about how central your body is to the way that you think about the

00:11:47.120 world. Because each of us has this subjective sense of being in control. Like, you know, being in

00:11:53.460 control, we're making good decisions based on the available information. And these decisions are more

00:11:59.100 or less objective. But in my research, I found a lot that sort of speaks against this strongest form

00:12:05.140 of free will and talks a lot about how our bodies have a huge impact. So, you know, a couple of

00:12:10.580 examples are, there's been research on the power of music. And so when liquor stores play French music,

00:12:18.500 the consumption of champagne goes up 75%. When they play German music, the consumption of German beer

00:12:24.740 goes up 50%. When they play music, classical music on the tube, violent crime drops dramatically.

00:12:32.500 So there's all these things that like what's going on in your body and your surroundings has a ton to do

00:12:38.160 with the way that you make decisions. And I cite a famous study in the book that talked about Israeli

00:12:43.260 judges. And it found that the best predictor of the harshness or the leniency of an Israeli judge's

00:12:51.480 ruling was how recently they had eaten. So, you know, the further they were away from a snack or a

00:12:59.700 meal time, the more punitive they became. And so we're talking about the best educated, the upper

00:13:05.820 crust, the intelligentsia of one of the most technologically advanced, great civilizations the

00:13:11.880 world has ever known. And the smartest 2% of Israelis are making decisions after, you know, eight years of 0.84

00:13:18.360 college based on how recently they've eaten lunch. But I promise you that if you ask someone who's

00:13:24.860 coming out of a liquor store, you know, why did you buy that beer? Or you ask an Israeli judge, why did

00:13:29.640 you throw the book at this prisoner? Neither one of them is going to say because of these subtle bodily

00:13:35.220 cues. And yet that's what the research tells us. And so it's a little unnerving to learn how sort of

00:13:42.620 fickle we are and how fallible and how quickly we can get moved away from this sort of homeostatic set

00:13:48.620 point where we make the best decisions.

00:13:51.120 So you could like be hungry and decide to sell all your stock and go all in on something else just because

00:13:59.220 you're hungry. Yeah.

00:14:01.020 That's a possibility.

00:14:01.660 Absolutely. That's absolutely plausible. And I mean, I think, you know, there's, you know, substitute hunger

00:14:08.940 for myriad other emotions, you know, upset with your spouse, you know, didn't sleep well the night

00:14:14.680 before, you know, two nights of missed sleep is the equivalent of a hit of acid. So I mean, all of these

00:14:20.860 things impact our decision making in really, really powerful ways. And so let's say you got a young, you

00:14:27.160 know, a young kid in the house, I got, you know, I have a young son who wakes me up just about every

00:14:31.360 night. And he's really messing with my investment decision making, right? You all these, you know,

00:14:36.080 all these sort of very quotidian everyday factors, like how recently you've eaten, you know, how your

00:14:42.200 kids are sleeping, all of this kid could wreak havoc on the way you manage money.

00:14:46.800 Well, and this is the art of manliness, testosterone, I think they've done studies on that. Testosterone has a

00:14:51.040 big influence on how stockbrokers make investment decisions. Like if they have higher levels of

00:14:56.280 testosterone, they take more risks. That's what testosterone does. 0.91

00:15:00.960 Yeah, there's a great book by John Coates. It's called The Hour Between Dog and Wolf. That's all

00:15:06.120 around his studies of testosterone on traders on the floor of stock exchanges back when we did that,

00:15:12.440 you know, had open outcry markets. But what they found was that testosterone increased in winning

00:15:19.080 traders. So like you're on a hot streak, you're trading, you know, you're trading your face off,

00:15:23.600 you're doing great, you're, you know, compounding your money, doing great. Testosterone increases and

00:15:28.540 increases and increases until we take dumber and dumber risks. Like for a while, it's helpful. 0.98

00:15:34.940 You know, this increased level of testosterone is actually helpful. It makes you, you know,

00:15:39.480 your sense is more acute. It makes you sharper and more confident. But then at some point,

00:15:43.880 it spills over into overconfidence. And he talked about observing this in the animal kingdom as well.

00:15:49.940 You know, rams and different animals who would, you know, fight for a mate. They would win a couple

00:15:55.980 of matches in a row. They'd win a couple of, you know, these head-to-heads in a row. And then they'd

00:16:00.360 start taking stupid risks. And so, yeah, it's a real consideration. And, you know, at the risk of 1.00

00:16:06.640 being booed off the art of manliness stage here, women on average are much better investors than men. 0.99

00:16:13.660 Part of it's the way that they're socialized, but part of it's genetic. I mean,

00:16:17.280 part of it's biological, physiological. And maybe like it's why older men do better too,

00:16:22.120 like a Warren Buffett type. Like he's probably doesn't have the testosterone levels of a

00:16:26.240 25-year-old Warren Buffett. Well, the worst, the worst traders are young, unmarried men. 1.00

00:16:33.520 The best traders are married, older married women, and then older married men are just behind them. 0.98

00:16:40.120 And I think that that has a lot to do with it. All right. So our sociology can jack us up. The people

00:16:46.200 we associate with, the group can mess us up. Our physiology can influence our decisions. Sometimes

00:16:52.320 good, like the testosterone can be good, but at a certain point, it's diminishing returns and

00:16:55.980 actually negative returns. Let's talk about the psychology. And you talk about there's four

00:17:00.200 factors in our psychology that can cause us to make bad investing decisions. There's ego,

00:17:06.000 and there's conservatism, attention, and emotion. Let's start with ego. So first off,

00:17:11.680 like, what do you mean by ego? Because people have different ways of describing that. And then

00:17:16.000 how does our ego cause us to make bad investment decisions?

00:17:19.540 Yeah. So ego in this case is not like ego in the Freudian sense. This would be ego in the sense of

00:17:25.000 overconfidence. So overconfidence, again, research suggests men are more prone to overconfidence than

00:17:31.060 women, especially with respect to money. But overconfidence takes a couple of forms, 1.00

00:17:36.440 cup three, to be exact. So overconfidence, we tend to think we're luckier than other people.

00:17:43.180 We tend to think we're smarter than other people. And we tend to think that we can forecast the future

00:17:47.780 better than we actually can. And so if you think about each of these, the luckier thing,

00:17:52.800 people tend to say, if you ask someone, what are the odds of you getting divorced? They'll say,

00:17:57.580 oh, never happened. What are the odds of you winning the lottery? Like, oh, well, maybe.

00:18:02.300 And we see this across contexts that when we ask people about bad things, they dramatically

00:18:07.940 underestimate the risk of bad things happening to them and dramatically overstate the probability of

00:18:13.580 really positive things happening to them. So this systematic sort of misapprehension of the world

00:18:19.080 leads us to take outsized risk, leads us to do all sorts of dumb things because we think it can't

00:18:24.780 happen to us. The second piece there is just thinking we're better than other people. We're smarter

00:18:30.920 than other people. There's great research that the last paragraph of this research said that the

00:18:37.240 average man thinks that he's two sit-ups away from dating a supermodel because they found that 90 plus

00:18:43.040 percent of men think they're friendlier than average, smarter than average, and more athletic than

00:18:48.000 average. And so we all think we're better than we really are. And the thing about this and a theme

00:18:56.340 throughout the book is that this serves us very well in many respects, this overconfidence. I mean,

00:19:04.380 it helps us bounce back from tough times. It helps us bounce back from rejection. It gets us out of bed

00:19:10.440 in the morning. It leads us to approach the girl at the bar that we probably have no business talking to 1.00

00:19:16.160 and we end up marrying. There's a lot of good stuff that comes from overconfidence and a rosy look

00:19:23.080 at the world, but you can't bring it to the world of investing. And that's just a theme you see again

00:19:28.100 and again in the book is, look, this stuff evolutionarily exists for a reason, but Wall

00:19:33.100 Street is a different animal and you have to leave this overconfidence to the side.

00:19:37.580 I mean, so how does that manifest itself that you've seen where there's overconfidence amongst

00:19:42.540 investors? Well, one is day trading. People just thinking they can go it alone,

00:19:49.980 thinking they can go it without any real education or any assistance from a professional

00:19:55.400 over trading accounts. I see a lot of people holding two large positions in a single stock.

00:20:02.900 All of this is ego, right? Because they think, well, I know something. I have insider information.

00:20:08.120 It's not going to happen to me. I talked to a gentleman at a conference who had $2 million.

00:20:13.300 He came up to me and was like, look, I have $2 million. Half of it's in a diversified portfolio.

00:20:17.480 Half of it's in this single stock. What do you think about the prospects for this single stock?

00:20:24.000 And I was actually incredibly bullish on the stock at the time and it's done very well since.

00:20:29.280 But I told him, I'm like, you have to sell this. You have to diversify away from this position

00:20:34.160 because you can be right and still be a moron. And good investing, good behavioral investing 0.99

00:20:40.980 is about playing the probabilities. It's like playing cards. You tilt probability in your favor

00:20:47.720 at every turn and you never make an outsized bet that can ruin you. So even if that, I have no idea

00:20:54.300 what he did with that million dollar holding in a single stock. But even though it's gone up since

00:20:59.640 then, I hope he sold it because that was the right thing to do. That's how you win as a long-term

00:21:05.100 investor by tilting the odds in your favor, not by getting lucky. We're going to take a quick break

00:21:11.100 for your word from our sponsors. And now back to the show. Well, I thought another key takeaway for

00:21:17.380 me on this section about ego is that particularly in regards to the stock market is that we actually

00:21:22.640 become more egocentric. And by egocentric, I mean like we have overconfidence when there's more

00:21:28.560 complexity in our environment. And like the stock market, it's like one of the most complex things

00:21:32.620 out there because it's just, it's all based on groups of people trying to decide the value of

00:21:37.660 this fictitious thing out there. Yeah. So you make a great point. And one of the,

00:21:44.000 you know, there's so many paradoxes about human nature as they butt up against the stock market.

00:21:49.160 But one of them is that the more complex and dynamic a system is, the more simple your solution

00:21:56.800 needs to be. So this is, you know, profoundly counterintuitive. We think, you know, that the more

00:22:02.240 complicated a system is, the more dynamic it is, we need complex dynamic rules to beat it. And the

00:22:08.620 opposite is true. And I talk about this in the book. So yes, the stock market is enormously complicated.

00:22:15.080 It has effectively an infinite amount of inputs. And because that is the case, you will never,

00:22:22.060 ever figure out, you know, the rules. There will never be a perfect formula. And accordingly,

00:22:28.840 the people that tend to do well in the market tend to follow a handful of simple rules. You know,

00:22:34.300 they don't try and time it. They automate their decisions and they kind of let it run. And it's

00:22:39.820 not a sexy thing. It kind of flies in the face of where we want to be. But because the market is so

00:22:46.220 complicated, for that very reason, your solution necessarily needs to be simple.

00:22:52.260 And I imagine the folks who come up with complex solutions, because the solution is so complex and

00:22:57.600 they feel like they thought this through a lot, they're going to be more certain of their solution,

00:23:02.940 even though it's probably the wrong solution. Well, there's great research on that. They talk

00:23:07.500 about betting, you know, betting in college sports and how folks do if they're given, you know, let's

00:23:13.780 say I'm from Alabama. So let's say Auburn and Alabama are going to play. And, you know, I give you

00:23:19.580 four variables. You know, I give you the average weight of the offensive line and, you know, a couple other

00:23:23.860 variables, right? And then they ask people to bet on the outcome of the game. So they do this with

00:23:29.500 four variables, eight variables, 10 variables, 25 variables. So people's ability to predict the

00:23:36.380 outcome of a game is flat across all those variables. But their confidence increases with

00:23:43.680 the complexity, increases with the number of variables. So people with four pieces of information

00:23:48.700 are no better at guessing who's going to win that football game than people with 25 pieces of

00:23:53.500 information. But they're much more confident in their ability to predict it and accordingly

00:23:58.480 take more leveraged bets, take bigger bets, take stupider bets. And, you know, the same thing is true 0.98

00:24:04.800 in the stock market. You see some of the brightest people around have figured out complicated systems to

00:24:11.700 try and master the market. But what has invariably happened to them is that they've blown up.

00:24:17.240 You know, they've blown up. They'll do well for a time and then they blow up. Look up long-term

00:24:22.220 capital management or any number of others. And so the complexity becomes the undoing in the long

00:24:28.980 term. And the complexity is also, just as you said, the very thing that leads them to take stupid bets 1.00

00:24:34.760 in the first place. You know, another thing that I like to tell people to do to try and mitigate this 0.96

00:24:39.900 overconfidence is to define the problem as precisely as possible. Because when the question is

00:24:47.060 vague, you know, when you ask people, you know, are you smarter than average? Almost everyone says

00:24:53.100 yes. Because smart is kind of this vague thing. You know, some people think it looks like street

00:24:58.420 smarts. Some people think, you know, it looks like having an advanced degree. There's not much

00:25:03.340 agreement on what smart is. And so most people go, yeah, I'm smarter than average. But if I ask you,

00:25:09.280 are you a better oil painter than most people? You know, then you go, oh, well, no. You know,

00:25:16.000 I'm definitely not a better oil painter than most people. And so the more precisely you can define a

00:25:22.740 problem, the more likely you are able to be to sort of match your own skills up against your ability to

00:25:28.900 complete that problem.

00:25:30.000 Well, besides that, is there anything else that you can do to mitigate the downsides of ego when

00:25:34.940 you're investing?

00:25:36.740 So in investing, I mean, the easiest way to manage ego is to just diversify, you know, to diversify

00:25:43.340 across a number of different asset classes. And then, you know, with within each of those asset

00:25:48.180 classes to make sure your holdings are diversified within and across asset classes. Because diversification,

00:25:55.540 we've all, you know, we've all heard about it as, you know, don't keep your eggs in one basket. And

00:25:59.700 that's right. That is what it is. But psychologically, you're basically saying,

00:26:05.060 I don't know what's going to happen. You know, diversification is effectively saying,

00:26:10.540 shrugging your shoulders, right? Saying, I have no idea what's going to happen.

00:26:14.260 I have no idea if stocks or bonds or real estate or gold or, you know, whatever other thing is going

00:26:20.360 to be the next big winner. So I'm just going to own them all. And so that is one of the most humble

00:26:25.320 things you can do. And it's not sexy, but it, but it works. And then, you know, the last thing I would

00:26:30.220 say is to become a teacher. I follow Richard Feynman's admonition here, the great physicist.

00:26:37.020 And he used to ask people this sort of cheeky question. He would ask people, you know, do you

00:26:42.140 know how a toilet works? And, you know, everyone's like, yeah, I mean, I know how a toilet works. Like

00:26:47.620 I use a toilet a couple of times a day. So yeah. And then you go, okay, well, great. Teach me how a

00:26:52.680 toilet works. And then people would stutter and stammer and, you know, realize they had no idea

00:26:57.560 how a toilet works. And so, you know, for me, the process of writing books is one of the ways that

00:27:04.340 I keep myself in check because when I try to tackle these big problems and write, write these

00:27:09.440 comprehensive books, I end up, you know, finding the holes in my logic, the gaps in my understanding.

00:27:16.200 And so becoming an educator on these things, trying to teach, you know, a friend or a spouse

00:27:22.500 about finance is one way that you're going to realize you don't know as much as you perhaps

00:27:26.980 thought you did.

00:27:28.500 Or if it's really hard to explain your investment strategy to your 13-year-old daughter or son.

00:27:33.280 Yeah, exactly.

00:27:34.420 That might mean you need to do something different.

00:27:36.360 Exactly.

00:27:37.280 So the other psychological factor that can get in the way of us making good decisions is

00:27:41.220 conservatism. Talk about that a bit.

00:27:43.400 So conservatism is the tendency for us to confuse what we're familiar with, with what

00:27:50.060 is safe or desirable. So you see this in a couple of ways. You know, the first way is

00:27:55.520 that people tend to dramatically overinvest in their company stock. A second way that we

00:28:01.920 see this is, you know, by geography. So, you know, people in the Northeast, Northeastern

00:28:07.060 U.S. tend to be very overweight financial sectors and people in the Midwest tend to be

00:28:12.920 overweight agriculture stocks, say. And so we also see this on a national level. You

00:28:18.780 know, I spent three months in Canada last summer. I lived in Western Canada last summer and it

00:28:24.280 was absolutely gorgeous. Can't wait to go back. But, you know, Canada was interesting

00:28:28.900 because there are about 4% of global GDP comes from Canada. And yet the average Canadian had

00:28:36.680 about 65% of their wealth in Canadian stocks. And so the reason they did this is because they

00:28:43.540 knew them and they thought by virtue of them knowing, you know, knowing about these companies

00:28:48.040 that they were safer or better. But a good rule of thumb is to own stock in relative to proportion

00:28:54.440 to its, you know, share of the equity pie worldwide. So the U.S. is just over half. So, you know,

00:29:01.600 as a good rule of thumb, about half of your stocks should be in the U.S. and the other

00:29:07.340 half should be international. So, yeah, we see this all over the place, though, where it's

00:29:11.880 like, because I know it, because I'm familiar with it, therefore I'll invest in it. And it's

00:29:16.840 actually quite dangerous. And, you know, we saw during the Greek debt crisis, you know,

00:29:21.580 Greek is some teeny tiny percentage of the world economy. And yet Greek investors had a majority 0.98

00:29:27.480 of their wealth in Greek stocks, and it ended very poorly for them. So something we have to be aware

00:29:32.780 of. And I imagine too, this can get in the way. It's like, it's that loss aversion, right? So like,

00:29:38.740 as soon as we own something, like it's ours and like, we don't want to lose it, even though it's

00:29:43.100 like, it would make sense just to get rid of it. So like you buy a stock and it's doing terrible,

00:29:48.280 you don't want to dump it because like, that's the devil, you know.

00:29:51.080 Yep, absolutely. There is a, there's a real devil, you know, factor. So, you know, you're,

00:29:56.280 you're talking about loss aversion and also endowment effect, which is this,

00:30:00.420 this idea that by virtue of owning something, it becomes more valuable. You know, this is why people

00:30:05.840 have trouble selling their houses or, you know, selling their junk at a garage sale.

00:30:10.360 Because we think just because it's ours, you know, it's, it's worth more than,

00:30:14.680 than the market will bear. That's a very, very common tendency. And the reason this is so dangerous is

00:30:20.160 because it basically, you're stacking risk. So, you know, I live, I live here in Atlanta

00:30:25.480 and so let's say I live in Atlanta and I work for Coca-Cola and I, you know, I invest in Coke stock,

00:30:32.880 you know, heavily through my personal investing. And then I invest in Aflac and UPS and other,

00:30:39.180 you know, Cox Communications and other local companies because I know them and I have friends

00:30:43.360 there. So they feel like known entities to me. Well, if the Atlanta economy hurts, if something

00:30:49.560 happens to Coke and people stop drinking, you know, as many soft drinks, my, my house value goes down,

00:30:55.160 my stocks go down, I may lose my job and my local economy is impacted. So you're like quadruple

00:31:01.160 loaded when you do this, when you fall prey to this conservatism bias.

00:31:05.720 And we can become more conservative based on our environment. So I think they've done,

00:31:09.300 you highlighted studies when like the stock market is going down, like people like,

00:31:14.540 like stop, like stop investing in the market. They might even sell and they just go put everything

00:31:20.100 into cash or bonds or gold or whatever. And it's just because the group decided, well,

00:31:26.340 it's not as, the stock is not as worth as much as we thought it was.

00:31:29.780 Yeah. It's, it's fascinating because I'm, I'm one of my big projects at work right now is developing

00:31:35.040 this tech simulation of the stock market, basically a stock market game that, that monitors people's

00:31:40.540 behavior and tries to make inferences about how to keep them from, from making bad decisions.

00:31:46.400 And what you see again and again is people do the exact opposite of what they should do.

00:31:50.640 You know, when the stock market has run up, you know, for years at a time, they go, okay, now let's get,

00:31:56.200 you know, now let's take some risk. Well, at that very moment, it's riskier than it's ever been.

00:32:02.160 And then when the market crashes, they go, okay, let's take some risk off the table.

00:32:05.800 So, you know, Howard Marks, this billionaire famed investor calls this the perversity of risk,

00:32:12.140 which is that risk is, is most felt when it is least present and it's least felt when it's most

00:32:18.000 present. So it's a tricky paradox again, but just about the moment you're starting to feel safe,

00:32:24.200 you should start to worry. And just when you're at your period of maximum worry, you should start to,

00:32:29.520 to take some risk.

00:32:30.840 But the thing is though, is like, that's hard to figure out, right? Like you don't know,

00:32:34.440 it's like, okay, is it going to, this, this rally we're having, like we had like that big

00:32:38.320 bull market going on for, you know, and it started going down in July. You're like, oh,

00:32:43.100 should I, should I sell now? Like, is this the point? I mean,

00:32:46.380 Yeah, it absolutely is. And you know, the thing is it will never,

00:32:51.000 it will never really feel safe. I mean, when you look back over, you know, a hundred years of,

00:32:56.780 of the S and P or the Dow, there's always been a reason not to invest. I mean, you look at,

00:33:02.080 well, you know, Warren Buffett's lifetime where he's compounded his wealth so extravagantly,

00:33:06.300 you know, there have been numerous world wars, there've been flu outbreaks, there've been pandemics.

00:33:11.460 I mean, there's just been political scandals. I mean, there's always going to be a reason to worry.

00:33:16.800 And we always think that our time is sort of uniquely bad. And, you know, this is cutting to

00:33:22.540 the chase. This is where I think that one of the biggest tools in a behavioral investor's arsenal

00:33:27.320 is automation. You know, just being able to take the decision-making process off the table,

00:33:33.020 having some solid rules about investing consistently, escalating those investments as

00:33:37.900 your, as your income grows. And frankly, just worrying about more important stuff because,

00:33:43.040 you know, life is, is much more than the things we're talking about today.

00:33:46.600 And the sooner you can automate these things, you know, the happier you're going to be and the

00:33:51.160 richer you're going to be.

00:33:51.980 All right. So the, the, the, to counter out conservatism, just put your investment on autopilot.

00:33:57.460 Yeah. Yeah. Put it, put it on autopilot. You know, another thing you can do is to take away

00:34:02.500 the fear of loss. You know, I talk, I talk in the book about a Hyundai, Hyundai, the carmaker

00:34:07.680 program during the great recession, you know, automakers were getting destroyed and Hyundai says,

00:34:13.560 you know, what can we do to sell some cars in this awful environment? They, they started a program

00:34:19.320 that said, you know, buy a Hyundai. And if you lose your job, we'll buy it back at full price.

00:34:25.280 You know, we're going to buy it back at full price. And they had an 8% increase that year

00:34:30.740 in a horrible market. You know, everyone else was getting killed and they were up 8% that year

00:34:36.120 in terms of their sales, because you took the worst case scenario off the table.

00:34:41.360 So this is, you know, this is something that me and my wife do once we passed, you know,

00:34:45.700 sort of our first significant milestone, our first significant financial milestone, we said,

00:34:50.780 look, we don't want to go back from this place. You know, so we have a bucket of money and a safety

00:34:56.900 bucket and it's, you know, candidly not getting market returns is getting two and a half, 3%

00:35:01.780 and has been for a couple of years, but it helps us sleep well at night and it takes away the fear of

00:35:07.800 loss so that we can be more aggressive with, with some of our other assets. So that's another big one.

00:35:14.460 And then finally procrastinating. We're much less likely to, to rely on the status quo or to do

00:35:21.300 what's always been done. If we sleep on it, we're about 30% less likely to just take the default

00:35:26.880 option. If we just take a day, think it over. So never get pressured by a financial salesperson.

00:35:33.620 Never make a big decision about your money in a hurry. Always take that day, that 24, 36 hours to

00:35:41.040 sleep on it, think on it, and you're going to be much less likely to, to fall prey to this.

00:35:46.000 Yeah. The bucket strategy sounds like Nassim Taleb's barbell strategy.

00:35:49.300 Yeah.

00:35:49.640 Right. Where you have one, you have one, like a bit like 10%, like in just CDs, bonds,

00:35:55.200 like the safest thing you could possibly have. And, or no, it's like most of it's in CDs and bonds.

00:35:59.500 And then you use 10% to take, and he's like a hedge fund guy. So he's like taking like big time risk.

00:36:04.020 And so the downside, like it mitigates the downside, but the upside is really great if it works out.

00:36:09.680 Yeah. Yeah. There's, there's really something to it. I use, I use sort of three buckets. I have like

00:36:14.380 safety, you know, a safety bucket, a, you know, a market bucket, and then a sort of shoot the lights

00:36:19.800 out, drive a Bentley one day bucket. So, you know, these are, these are sort of my three,

00:36:25.160 but that safety bucket is such peace of mind. And I mean, it's not, again, mathematically,

00:36:30.640 it's not optimal. You know, I'm getting suboptimal returns on that. But one of the

00:36:35.200 things you learn when you study behavioral investing is the best portfolio is the one

00:36:40.780 that you can stick with. So let's talk about attention. The stuff we pay attention to in

00:36:45.460 the world can influence our decisions. How so? Yeah. So attention is all about this human tendency

00:36:51.500 to confuse what's scary and lurid and vivid and newsworthy with what is likely, you know? So

00:36:59.120 the silliest example that I cite in the book was that many, many times more people died last year

00:37:05.360 of taking selfies than died in, in shark attacks. And yet, you know, we're very scared of sharks and

00:37:12.640 we're, you know, not, not all that scared of taking selfies. And it's because we just don't think about

00:37:17.920 the world in probabilistic terms. You know, the things that we hear about on the nightly news

00:37:22.440 are what scares us. You know, odds are that you and I are going to die of, you know, cancer or heart

00:37:29.300 attack or something. And yet here we are, you know, worried about terrorism and crashing in a

00:37:34.540 Boeing 737 and, you know, all kinds of things that are statistically unlikely. And yet, you know,

00:37:40.580 I'm going to go eat a hamburger tonight and, you know, bring myself closer to something that's very

00:37:46.000 likely like a heart attack. And so part of becoming a behavioral investor is learning to think in terms

00:37:52.700 of base rates, to think in terms and assess probability on the terms in which it actually

00:37:58.900 happens and not just on the terms in which you can recall it.

00:38:02.120 But it sounds like the way the attention can infect our investing is like, you just remember the bad

00:38:06.600 things that happen. Like if you're a millennial, you just remember the great recession. You're like,

00:38:09.940 well, that sucked. I'm not going to invest in stock anymore. If you're a greatest generation guy, 0.75

00:38:13.820 you remember the great depression. It's like, well, I'm going to put all my money under the

00:38:17.760 mattress, but you ignore like all the other times where things were great in the stock market.

00:38:23.180 Yeah. So that is a, that is a, an absolutely fantastic example. So, you know, you look at

00:38:27.900 someone like me. So I got out of grad school in 2000, in 2008. So, you know, I get my first,

00:38:35.000 you know, big boy job in 2008 and I start saving and immediately it's just crushed, right? You know,

00:38:41.360 immediately whatever meager sum I had put aside was halved because, because of the great recession.

00:38:48.520 And so, you know, there's something in psychology called a primacy and a recency effect where we have

00:38:53.420 a better memory for, for events that happened to us early in a sequence and late in a sequence.

00:38:58.920 And so we tend to be overly influenced by things that happen early in our investing lives and things

00:39:04.420 that have happened recently. And so, yeah, someone like, you know, you think about Q4 of last year,

00:39:10.960 we had such a choppy market in November and December. So someone my age in Q4 of last year

00:39:16.840 is going, well, look, I got into the market, I got crushed. Here we are again, it's getting crushed.

00:39:22.960 All this stupid market does is go down, you know, ignoring the fact that it's up 400%, 0.99

00:39:28.600 you know, in, in that, in that intermediate period. 1.00

00:39:32.060 So that's the tension at work is these big high profile events sticking in our minds and looming

00:39:39.020 larger than life than the actual numbers and the actual reality.

00:39:43.440 So how do you overcome that?

00:39:44.780 So, you know, there's this idea of, of base rates, right? Which is just planning around

00:39:50.520 probabilities. So if you look at some of the probabilities in the market, the market in the

00:39:55.720 last 35 years has dropped 14% a year on average. Okay. So on average, there has been a drawdown

00:40:04.340 sometime in the year, uh, from a, from a, from a peak to a trough of 14%. And yet every time we have

00:40:12.300 an eight or 9% drop in the market, CNBC has a markets and turmoil special. We're freaking out.

00:40:18.480 Like we've never seen this before. And it happens as regularly as, you know, Christmas and your

00:40:24.840 birthday. I mean, it, it happens all the time. It's because people have forgotten about base rates.

00:40:30.860 So I think one of the things to do is become, uh, you know, become a bit of a market historian to,

00:40:36.140 to know what average looks like. You know, I think about, cause I think about this with marriage too,

00:40:41.840 you know, if you ask someone on their wedding day and you really shouldn't do this, but if you,

00:40:46.900 if you ask someone on their wedding day, you know, what's the likelihood of you getting divorced,

00:40:52.080 if they're honest with you, they should say, well, you know, 50, 50, 50. And yet we, we don't think in

00:40:58.380 those terms. And because we don't think in those terms, we don't prepare adequately. And we don't

00:41:02.920 maybe treat marriage with the, with the care and the, you know, the, the care that it deserves.

00:41:09.160 And the same is true of markets. If we knew the odds better, we'd know better. Uh, we'd better

00:41:14.440 know how to react. So becoming a market historian and attending to those base rates is extremely

00:41:19.820 important. So maybe like you tape it up, tape up like a chart of the base rates, like next to your

00:41:24.780 computer. So if you make a decision, like you look at that first. Yeah. Well, you know, I think there's

00:41:29.400 just a couple of things to know. Like, I mean, the markets, the market tends to be up. The market

00:41:34.360 tends to be up about two days for every one day that it's down. So, you know, if you have a down day

00:41:40.580 or even a down year, it's not that rare. I mean, it happens about a third of the time.

00:41:45.080 That's no excuse for you to get off course. You know, the average, uh, bear markets about a year

00:41:50.260 and a half to two years long, and it has about a 37% loss of, you know, destruction of capital.

00:41:56.740 But I promise you that the next time that the market drops 30%, people are going to think that

00:42:02.480 it's going to zero, right? So they, we don't understand the base rates. We don't understand the

00:42:08.120 history. We don't understand what normal is. And because we don't understand what normal is,

00:42:13.420 everything seems scary to us. So I love your idea of just having a note card with a couple of those

00:42:19.120 basics and keeping it, keeping it right there. Well, another, you just mentioned something that

00:42:23.420 I thought would be useful too, is like, don't check your portfolio every day because you're going to

00:42:27.640 see this go, it's going to go up and it's going to go down. It's going to go down more and it's going

00:42:31.340 to go up like maybe once a month, maybe like once a quarter. Yeah. So, so what's interesting is the,

00:42:37.260 the longer you can go between checking it, the more likely you are to be up, right? I mean,

00:42:42.300 because if you look at, you know, if you look at any given day, the market's up about 60% of the

00:42:47.320 time and down 40% of the time. You look at any given year, it's about 66, 33. You look at any 10 year

00:42:54.300 period, I think there has only been one rolling 10 year period in, in US history where the market was

00:43:00.340 down. So, you know, the, the longer you can go between looking, the better off you'll be.

00:43:06.460 And one of the things that is actually very much to the detriment of everyday investors is the ease

00:43:12.560 with which we can check our accounts. Now, you know, back even 20 years ago, you had to wait on

00:43:18.080 a quarterly statement. Now you can check your, you know, you can check your account 15 times a day.

00:43:24.140 And I know many people do. And the tricky thing is one of the findings of behavioral finance,

00:43:30.320 this is what Daniel Kahneman won his Nobel prize for is that a loss hurts two and a half times as

00:43:36.860 much as a gain feels good. And so if the market's down 40% of the time daily, and it hurts two and a

00:43:45.280 half times as much as the 60% feels good, it feels like it's down 90% of the time. So in a,

00:43:51.980 in a very real sense, if you're checking it daily, it's going to feel like you're always losing money,

00:43:57.480 even though that's not the case. All right. So don't check your portfolio every day or 15 times

00:44:02.020 a day. So emotions, we talked about emotions a little bit at the beginning, like being angry,

00:44:06.040 being hungry, being hangry, thirsty, happy, sad, like that can all influence our decision.

00:44:12.340 But the weird thing with emotions though, it's like we, there's been studies that showed you talk

00:44:16.200 about this in the book that like we actually need emotions to make decisions. So how can you,

00:44:21.980 how can you make decisions while mitigating the downsides of emotions? Cause you need them,

00:44:27.480 right? Yeah. You know, the book is some interesting research. I cite in the book that you brought up

00:44:33.780 talks about how people who had the emotional processing centers of their brain damaged,

00:44:39.120 they couldn't do, they couldn't decide which flavor of ice cream they wanted. They couldn't,

00:44:44.260 you know, figure out which color suit they wanted to wear that day. They couldn't make even

00:44:49.040 very sort of garden variety decisions because what the researchers found is that, you know,

00:44:54.440 even the simplest decision has an emotional substrate, even the most common decision you

00:44:59.620 make has an emotional underpinning to it. That's important and guides our decisions.

00:45:03.940 So there's no getting away from emotion entirely, but what's fascinating is they found that these people

00:45:10.960 who couldn't pick out, you know, their favorite flavor of ice cream were actually great gamblers and

00:45:16.240 great investors because they approached investing and gambling from a strictly mathematical place.

00:45:23.420 There was no emotion involved in their day-to-day decisions, but there was likewise none involved in

00:45:28.120 their, in their investing decisions. And they, they beat people with normal brain function.

00:45:33.200 So people with brain damage were better than, than you or I at making financial decisions.

00:45:38.700 And so the, the key to me is avoiding emotional extremes, you know, so there's a, there's an

00:45:44.660 acronym that I've stolen from the, the 12 step program called HALT. And it stands for hungry,

00:45:51.180 angry, lonely, or tired. And, you know, the, the advice of people in AA or narcotics anonymous,

00:45:57.200 or, you know, any of those 12 step groups is to avoid making an important life decision when you

00:46:02.700 were hungry, angry, lonely, or tired, and, you know, fill in your emotion of choice. And, you know,

00:46:08.640 I would say the same thing about investments. If you're, you know, if you're fearful, if you're

00:46:13.400 greedy, if you're excited, like all of these are bad places to be like good investing is enormously

00:46:19.320 boring. And so if you find yourself in one of these elevated mood states, it's not a good place to be

00:46:24.720 in terms of doing anything with your money.

00:46:27.220 So it sounds like, so we've talked about all the, the, the sociological, the physiological,

00:46:31.760 the psychological things get in the way of us making good decisions. And we've talked about some

00:46:35.900 solutions and the solutions, like they're very simple. Like this framework you've established,

00:46:40.060 it's basic and it's stuff that we know, but it now it's backed by science is diversify, automate,

00:46:45.900 don't check on it too frequently and don't make decisions when you're emotional.

00:46:50.800 Yeah. It's that, that's, what's fascinating about this is, you know, you write a 300 page book,

00:46:55.720 you read a zillion articles, and then at the end you go, okay, here's what you do. You automate

00:47:00.660 because simple rules be human discretion. 94% of the time, you know, you get an advisor because,

00:47:08.020 you know, there's about 10% of the world I think that can is, is so disciplined that they can do

00:47:13.180 these things on their own. And those people do exist, but most people need someone to hold their

00:47:19.180 hand and keep them from making a handful of dumb decisions. You know, you manage your fees, you, 0.93

00:47:24.160 you try not to be overactive and you have low turnover, you diversify.

00:47:28.580 So yeah, the, in, in some ways the suggestions are remarkably unsexy, but again, the degree to

00:47:35.380 which all of this is complicated in a weird way necessitates a simple approach.

00:47:40.900 Well, you mentioned advisors and you and I actually had a phone conversation a couple of

00:47:43.520 weeks ago about this. And I asked you like, who's the type of person who should get an advisor?

00:47:47.260 And you said like, it's, it's someone who probably needs help with like the behavioral aspect. It's not

00:47:52.020 so much like what to invest in, like, you know, having someone tell them what to like,

00:47:55.340 what to actually invest in, but they might do that. But it's more like you need an advisor to

00:47:59.660 make sure you stick to the plan and you do the thing you're supposed to do.

00:48:03.980 Yeah. So, you know, in the laws of wealth, chapter, chapter two of the laws of wealth was,

00:48:08.900 you know, it was titled, you need a financial advisor, but not for the reason that you think.

00:48:13.640 And so in that chapter, I make the case that the best, the highest and best use of a financial

00:48:18.380 advisor is to effectively save you from yourself. And the research shows that people who work with an

00:48:24.420 advisor on average do two to 3% better per year than those who do not. And that is a ton of money.

00:48:30.600 I mean, so, you know, 3% a year will double your, you know, double your wealth over, over a long

00:48:35.660 investment horizon. And so it's, it's tricky though, because, you know, candidly some, some automated

00:48:42.560 service like Betterment or, you know, another robo-advisor would give you in many cases, the very

00:48:47.880 same suggestions as a financial advisor at a, at a fraction of the cost. But, you know, the question

00:48:55.340 you have to be really brutally honest with yourself about is, is, is an automated service, you know,

00:49:02.400 is reading a book on asset allocation going to keep me in my seat when the, you know, and when the

00:49:08.220 market is ripping my face off. And, and for most people, candidly, the answer is no, you know,

00:49:13.820 there's, there's a really, really weak correlation between knowing the right thing to do and actually

00:49:20.220 doing it. You know, I, I love to give the example of, of nutrition labels on food. You know, we started

00:49:27.300 labeling all of our food about 28 years ago. And since that time, since this time when we've had

00:49:35.220 perfect knowledge of calories and fat and sodium and sugar and, you know, every other thing on

00:49:39.860 everything we put in our bodies, obesity is doubled, morbid obesity is tripled because knowledge is just

00:49:46.580 a weak predictor of behavior. And so even if you know just how to invest, even if you have a sound

00:49:52.340 asset allocation, your ability to stick with that allocation is far more predictive of whether or not

00:49:58.580 you reach your goals than, than you knowing what a good allocation is. That reminds me, I don't know

00:50:03.700 if this is going to going off in the deep end, but so I've been rereading Oedipus Rex, the, the Greek

00:50:08.840 tragedy. And I thought it was interesting. Oedipus, like he knew that he was going to kill his father

00:50:15.900 and marry his mother. Like he knew that that's why he left his hometown, but he still did it anyways, 0.96

00:50:21.600 because like he just got angry and like he killed the guy, an older guy. He shouldn't have been

00:50:26.400 killing anybody. So like he did. It's like, that's a great example of like, man, this stuff's been around

00:50:30.280 for long. You can still, you can know this stuff, but you can still screw it up.

00:50:33.840 Yeah. Yeah. You know, I, I saw something the other day on marital infidelity. It's something

00:50:39.500 like four, 40% of people cheat on their partners. And, you know, if you ask those people, you know,

00:50:45.480 Hey, was that, was that consistent with your values? You know, was that the thing you wanted

00:50:50.320 to do? They would all tell, you know, I mean, you know, or nearly all of them. And so it's,

00:50:56.080 it's just incredible how little education does. I mean, it's actually, it's actually quite depressing

00:51:01.560 when you, when you start looking into financial literacy initiatives as, you know, as a guy who

00:51:06.360 writes books that try and educate people on how to, how to manage their money and what to do with

00:51:12.020 their wealth. It's depressing. So really, I think education is necessary, but not sufficient. And

00:51:17.820 that, you know, the next thing you need to do is put in place structures, be they automated or be they

00:51:24.080 an advisor that are going to help keep you on the course. Education tells you which course to go on,

00:51:29.860 but you need some sort of commitment device that keeps you on that course. And that's going to be

00:51:35.060 a much better predictor. You want to be like Odysseus and tie yourself to the mast, tie yourself to

00:51:40.080 the mast, fill your ears with beeswax, just like Odysseus. There we go. We got, I like how we got

00:51:44.800 Greek here a little bit. Well, Daniel, where can people go to learn more about your work?

00:51:49.420 So a couple of places, I have my own podcast called Standard Deviations. I'm active on Twitter

00:51:54.660 at Daniel Crosby on LinkedIn a lot, Daniel Crosby, PhD, and you can find the books on Amazon.

00:52:01.000 Well, Daniel Crosby, thanks for your time. It's been a pleasure.

00:52:02.820 My pleasure.

00:52:03.800 My guest today was Daniel Crosby. He's the author of the book, The Behavioral Investor. It's available

00:52:07.460 on amazon.com. Also check out our show notes at aom.is slash behavioral investor, where you can find

00:52:12.520 links to resources, where you can delve deeper into this topic.

00:52:14.940 Well, that wraps up another edition of the AOM podcast. Check out our website,

00:52:25.640 artofmanliness.com, where you find our podcast archives, as well as thousands of articles written

00:52:29.600 over the years on personal finance, physical fitness, how to be a better husband, better father.

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00:53:01.240 this is Brett McKay, reminding you not only to listen to the AOM podcast, but put what you've heard into action.

00:53:11.960 Thank you.

The Art of Manliness - May 28, 2019

#511： Mastering the Psychology of Investing

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