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Dev: For most common investors, it’s suggested that they should Dollar-Cost Average* through mutual funds. Not trade much in individual stocks. Buy some shares directly here and there. Tell me what is wrong about this that these people fail to understand? *Rupee-Cost Average (in Indian context)
Morgan: I think it’s a great approach, and it’s how I manage my own money. There is, and always will be, a tendency for people to try to squeeze a little more return out of their money by buying this, selling that, hedging this, shorting that … the bias is toward activity because it gives you the impression that effort is synonymous with results. But it rarely is in investing. Investing is one of the few professions where “don’t do anything; just find a hobby and go away” is some of the best advice.
Dev: How do you manage your own money? Funds? Direct Stocks? How do you go about it?
Morgan: I dollar-cost-average from every paycheck into Vanguard index funds, and buy individual stocks occasionally when I think an idea is really attractive. I own about 10 individual stocks. Too many people argue over whether you should be passive or active; I don’t see it as a contradiction to be both. I also have a lot of my assets in cash.
Dev: As someone who spends his day in midst of financial data and news, how do you filter out what is good and what is not to get to your daily reading list? How to become a good consumer of financial content?
Morgan: There’s no substitute for creating a list of trusted sources. If you go into your reading blindly, you’ll step on landmines of terrible content left and right.
Dev: What is your daily reading list?
Morgan: Easiest way is to see the list of those I follow on Twitter.
Dev: So given the importance of reading and researching for someone like you, how does Morgan Housel spend a typical day at office? What about weekends?
Morgan: I do most of my reading in the morning, and most of my writing in the evening. A lot of writers do the opposite, but it’s what works for me. I can’t write or focus until I’ve consumed an inhumane amount of coffee. So from about 6am to noon, I’m usually just reading, browsing Twitter, skimming books, trying to think of something to write. I have meetings and other obligations throughout the day, and most of my writing is done between about 3pm and 7’m. I read books in the evenings and on weekends.
Dev: 5 quotes that should be framed and put on every investor’s desk?
“Timing the market is a fool’s game, whereas time in the market is your greatest natural advantage.” — Nick Murray
“In expert tennis, 80 percent of the points are won, while in amateur tennis, 80 percent are lost. The same is true for wrestling, chess and investing: Beginners should focus on avoiding mistakes, experts on making great moves.” — Erik Falkenstein
“Risk is what’s left over when you think you’ve thought of everything.” — Carl Richards
“If you look carefully, almost all Old Money secrets can be traced to a single source: a longer-term outlook.” — Bill Bonner
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” — Charlie Munger
Dev: 5 books that everyone looking to become better investor must read. Atleast one each from domains of building mental models, psychology and financial analysis.
Risk Savvy by Gerd Gigerenzer. It’s about how humans are bad at interpreting statistics and how that causes us to make bad decisions.
The Great Depression, A Diary by Benjamin Roth. Roth was a lawyer during the Great Depression, and kept a detailed diary about what life was like in America was like during the chaotic 1930s. His son published it in 2010, and it is the single best economics book I think I’ve ever read.
The Better Angels of Our Nature: Why Violence Has Declined by Steven Pinker. Violence — war, murder, rape, torture, execution, robbery, lynching, racism, you name it — has declined substantially almost everywhere in the world over the last several hundred years. We are, on average, living in the most peaceful and safe period the world has ever seen, but few want to admit that.
The Half-Life of Facts: Why Everything We Know Has an Expiration Date by Samuel Arbesman. Textbooks used to teach that a human cell had 48 chromosomes. More than one-third of all animals once classified as extinct are later rediscovered. Depending on the field, huge numbers of studies once considered “groundbreaking” can’t be reproduced in subsequent trials.
This Will Make You Smarter by John Brockman. It’s a long collection of short (one-page) essays by some of the smartest people in the world who were asked the question, “What Scientific Concept Would Improve Everybody’s Cognitive Toolkit?” You won’t put it down.
Dev: What is your advise for those who are just starting their investing journey?
- Read as much as you can.
- Be twice as humble as you currently are.
- Realize that time is your most powerful weapon, and one that older investors can only dream about.
Dev: Final question. I love to read what you write in various columns at Fool and WSJ. But when do I get to read a book authored by Morgan Housel?
Morgan: Stay tuned. Might be a busy year for me. 🙂
Dev: That’s all from my side. Thanks a lot for sharing your wisdom with us Morgan
Morgan: Thanks Dev.