“Psychology of Money” author Morgan Housel discusses the financial power of behavior, patience at VCU Business event
Growing up in Squaw Valley, Calif., Housel aspired to be an Olympic ski racer. He trained six days a week, admittedly neglecting most of his high school studies in the process.
“My entire teenage years were spent skiing,” said Housel during a discussion on Thursday, February 16 hosted by the VCU School of Business Kornblau Real Estate and Risk Management and Insurance Programs “It wasn’t until I was 20, when my ski racing career ended, that it became clear that I needed to get serious about what I was going to do with my career and future.”
Housel pivoted to pursue a career in investment banking — ordinarily a prudent choice, but not by the time he graduated from college in 2008.
“The world was melting down and coming apart at the seams,” said Housel, referring to the 2008 financial crisis. “Every bank, every hedge fund, every private equity firm was not only not hiring, but they were cutting their workers as fast as they could. It was brutal.”
Housel told Markel CEO Tom Gayner, who led the casual, collegial conversation, about how he instead found himself becoming a writer at The Motley Fool, a private financial and investing advice company. He had had no interest in becoming a writer, but eventually fell in love with the work and the idea of being an outside observer.
“I wasn’t a fund manager, I wasn’t a financial adviser,” said Housel. “I just enjoyed being an observer, up on the balcony, watching how it all happens. Trying to piece together what I see.”
It was through this mindset that Housel began to see the financial world differently. “I started as a financial analyst,” said Housel. “But then I realized it’s not about the numbers or the formulas — not to diminish those things, they certainly are important. But everything that really moves the needle in finance is really just what’s going on inside of peoples’ heads.”
This thought is what opened him up to the idea of writing his 2020 book, The Psychology of Money.
The Psychology of Money
Housel had been collecting data-driven ideas for years as a student and during his time as a writer at The Motley Fool. But when he needed to try and use financial models to explain what happened during the 2008 financial crisis, he kept coming up short.
“As the years went on, I realized you can’t explain what happened in 2008 by looking through the lens of finance and economics,” said Housel. “But if you look at it through the lens of psychology, sociology, politics, biology — all these other fields that have nothing to do with finance — you are able to explain exactly what happened in 2008 in a way that economics textbooks couldn’t. It gets you closer to the truth.”
In his book, Housel examines how doing well with money is more so about how you behave than what you know. Most investors early on want to ask how they can earn the highest return. And while this may seem like the most obvious question, it isn’t what makes a difference at all, says Housel.
“In any given year, it doesn’t matter what you earn,” said Housel. “But if you can earn average returns for an above-average period of time, you’re in the top five percent of investors.”
Patience, says Housel, is the key to success in finance. Gayner mentioned Warren Buffet as an example, who is a billionaire thanks to his 75+ years of steady investments.
“To the college students in the room, the good news is that every single one of you is a time millionaire, no matter what your financial net worth is today,” said Housel. “Time is not just part of the equation, it’s the entire magic of investing.”
The Three Sides of Risk
Risk is a concept that matters deeply in the world of finance, and it has become a topic of expertise for Housel.
During his conversation with Gayner, Housel recalled a tragic, life-altering experience from his teenage years, sharing how it opened his eyes to the idea that there are three distinct sides to any risk: 1) the odds that you will be hit by a bad event, 2) the normal consequences of that risk, and 3) the extreme consequences of that risk.
“These extreme, oddball risks make all the difference in the world,” said Housel. “That’s true in the economy, in investing, in your careers, in your health. In investing, we spend all of our time in the media talking about the risk of an interest rate hike, or the risk of inflation rising by half a percent. None of that matters. The only financial risks that have moved the needle in the last 20 years are 9/11, the Lehman Brothers and Covid.”
To Housel, once someone has experienced those extreme, oddball consequences, it’s hard to think about risk in any other way.
Advice for Emerging Professionals
When addressing the VCU students at the event, Housel urged them not to get caught up in the career pressures that often flare up at the end of college and after graduation.
“People are always saying, ‘You need to get the right career. Get the right internship. Get on the right path, time is running out,’” said Housel. “Time is not running out. Take your twenties to figure out what you want to do. There is so much of your career that is going to occur serendipitously, in ways that you can’t even fathom today.”
Prior to Housel and Gayner taking the stage, Isabel Waldbauer, a senior in the Kornblau Real Estate Program, and Dr. Naomi Boyd, dean of the VCU School of Business welcomed attendees to the program.
Waldbauer, a recipient of the Richmond Real Estate Group Scholarship, talked about how transformational the program has been for her as a student and budding professional.
“Through the Richmond Real Estate Group meetings, I connected more with Ashley Peace of Sauer Properties, and was offered an internship,” said Waldbauer. “I am now currently learning about the ins and outs of development from an amazing group of people.”
In Boyd’s greeting, she shared how the psychology behind finance is what drove her to study the field early on in her career.
“Financial literacy and education are a passion of mine,” said Boyd. “They are some of the most important topics we can cover, both for adult-learners as well as for the students sitting in our classrooms.”
Following the discussion, attendees at the VCU Business event were given signed copies of The Psychology of Money.
For more information about the VCU School of Business, the Kornblau Real Estate Program or the Risk Management and Insurance Program, visit the School of Business website. For a complete list of upcoming events at VCU Business, visit the events page.