196 - 10 Timeless Lessons for Crypto Investors With Morgan Housel

look I'm a very optimistic guy but the answer is no there's absolutely no hope whatsoever I I would bet I would bet so heavily that a hundred years from now we're going to have bubbles that would look exactly like they did in 1999 exactly like they would have during the housing bubble like pick your bubble 100 years from now 200 years from now that's going to be the case welcome to bankless where we explore the frontier of Internet money and internet Finance this is how to get started how to get better how to front run the opportunity this is Ryan Sean

Adams and I'm here with David Hoffman and we're here to help you become more bankless guys a lot has changed in crypto throughout the Cycles but some things haven't we're here to talk about the things that haven't changed we've got Timeless investing wisdom applied to crypto from writer and investor Morgan howel on today's episode it's a few different things you need to know for different parts of the cycle we've got lessons for the be Market lessons for the bull market and lessons for the apathy Market a few takeaways for you number one why the bare Market was painful necessary and yet good number

two why those that survived the bare market now have an advantage number three how to manage your brain during a bull market when things get frothy number four how to actually be happy no matter how much wealth you have number five the traps that you're going to fall into during the bull market unless you know how to spot them well in advance number six optimism versus pessimism how to balance them to become a better investor David I could have like listed 10 more of these because I feel like the insights per minute on this episode

today were absolutely off the charts we we put in the title 10 Timeless lessons for crypto but the truth is there's probably like a hundred here there's like too many to count and we didn't really count them what's the significance of this episode for you I think the most significant thing about this episode is the timing in which Morgan's book just happened to come out along with all of the bullishness that's coming out of the crypto CTO space we are about to enter a time in which the bull market beer goggles are on and we need advice like this to merge into our

brain and have deep understanding of as we navigate that bull market because this is when the time in the market in which this advice is the hardest to follow yet it is going to have the most Roi if you can follow it this is like trying to flex your own discipline as an investor and so like listen to this episode write notes listen to it twice do something that you need to do to merge this information into your brain because it will save you multiples of

your portfolio as you navigate the bull market it is timeless wisdom it's wealth generation strategy it's wealth preservation and it's also I would say just like the perfect Ryan and David episode one part investing one part psychology uh and then like I said just the timing of it all I think is perfect yeah the wise investor wins the discipline investor wins this isn't true I think this is even trer in crypto than it is in traditional markets actually David and so we hope you enjoy this episode with Morgan howel we're going to begin in a minute but before we do we

want to thank the sponsors that made this possible B station Morgan howel is a writer and investment partner at the collaborative fund we had Morgan on a year ago to talk about the principles in his book called the psychology of money I got it right behind me on the bookshelf I don't know if you can see it guys it's one of the best investing books that I've read in the last decade and that episode is my recommendation for one of our top 10 must listen to episodes for crypto investors particularly if you're starting on the bank list Journey but today Morgan

brought some new Timeless advice for us because he's just published a new book it's called the same as ever and this is a guide to what never changes it's a series of 23 Punchy stories Timeless truths about people societies and how to live this my friends is important wisdom as we go into the crypto bull market Morgan welcome to bank list welcome back I should say yeah Ryan David thanks for having me looking forward to it all right man let's start with the theme of this book uh why are you focusing on stuff that's the same isn't isn't the same stuff boring like why not new things it is boring which is why we

don't pay attention to it but that's always at our own detriment and I've so I've been a financial writer for going on 18 years now and a big part of that journey and what I've written about was just how like frustrated cynical disgruntled I became at how bad the entire industry was at forecasting the next bare Market the next recession like anything no matter what it was I mean one here's one little example of this that I was just thinking about this morning I remember uh I'm pretty sure it was in Fortune Magazine it was one of the Big Business magazines they published an article in 1999 that was 10

stocks for the decade ahead and it was like 10 safe Blue Chip stocks that like you can count on for the decade ahead and I swear it was it was Enron AIG Kodak it was like like go down the list of the companies that went out of business so this is one like everyone knows how bad the community is not just the media Community but economists financial advisers analysts portfolio managers at predicting what's going to happen next so there's two things you can do with that realization you can become even more angry about it about

and just a fatalist and say nobody knows anything don't even try or you can say okay what what does never change we have no ability to predict what is going to change that's probably too blanket of a statement but it rounds to that for most people but if you look across economic history and not just economic history but a lot of history it's the same behaviors over and over and over again it's like how we respond to Greed and fear and risk and uncertainty that never changes and if you read about financial crises from a 100 years ago 200 years ago it's the same it's the same thing

it's the same thing over and over and over again so then I was like okay well let's just focus on that let's just focus on what we know is never going to change I have no idea when the next bare Market's going to come but I know exactly how people are going to respond to it and what they're going to think about it how they're going to feel because that's never changed so that was that was kind of where like it came into play for me was just starting with a frustration and then saying like Okay well what's the positive way out of that observation rather than just becoming more of a cynic Morgan if I can make a prediction about the content that we were about to discuss there's that old

quip of one fish swims back past the other and says how's the water I think like the the and the fish replies like what's Water right implying that like there's so many things that happen so frequently that we just can't identify it I think the bank list version of this was like our first few episodes was about identifying money because it's such a invisible force that we never really approach an attack headon that when you do your kind your your brain opens up and all of a sudden there's a world that's expanded to you I feel like

that's about what we're about to get with you in a variety of different lessons there are so many fundamental truths about the way that the world works that we just are not awoke to because of how like default they are how common denominator that are that's that's my prediction about this and and and here's what I love about this I've been pretty open I I'm not a crypto investor I'm not I'm not a crypto uh you know completely negative it's it's all going to hell it's all a joke I'm not that person either but here's why I think that doesn't matter in this and this is the same for psychology and money the overlap between the behaviors

among a crypto investor versus an index fund investor versus a mutual like a b like a municipal Bond investor there's a lot of overlap there how people respond to Greed fear risk uncertainty it's all the same and so much of what I've Loved about the kind of research that I get to do is I'm a financial writer but I actually don't read or research that that much about Finance I love reading about all kinds of different history all kinds of different fields and recognizing when those behaviors in medicine or military or like physics or

any take take any field and seeing how how they respond to these topics applies perfectly to investing Morgan can I can I ask you so another another thought I have you were talking about your frustration you decided to channel that frustration with all of the you know um noise in the your Finance industry into into a book the psychology of money and now and now kind of this book um I still predict that people like you people like me maybe people like David people who are listening to this advice and this

wisdom and actually applying it will still continue to be frustrated because I think we are still in the minority of people who are actually applying these lessons oh so I'm zooming out crypto is probably about to enter a next uh bull market and Morgan I guarantee you we are going to make many of the exact same mistakes we made in the previous bull market and we're going to do it over and over and over again and that frustrates me for um folks that have been through

many Market Cycles it's just you're looking at this and you're like it's going to happen again isn't it we're going to do the exact same thing is is there any hope in this book of breaking us out of that cycle or does does that just um is the Hope only at the individual level that an individual can kind of wake up and be like hey I don't have to do this I can see all the other dumb humans repeating the same mistakes but I don't have to do it or is there is there hope that we could actually break this cycle as kind of a a society as an industry as a you know a market uh look I'm a very optimistic guy

but the answer is no there's absolutely no hope whatsoever I I would bet I would bet so heavily that a hundred years from now we're going to have bubbles that would look exactly like they did in 1999 exactly like they would have during the housing bubble like pick your bubble 100 years from now 200 years from now that's going to be the case you can state it confidently for a couple reasons one of which is that the bubbles of 99 and 2007 are exactly how they played out a 100 years ago and 200 years ago it's the same it's the same thing over and over again and I think I think to say to make

a statement along the lines of we will learn our lesson and never have another bubble is equivalent to saying we've learned our lesson and we'll never have another War like it's it's very it's very uh fun to think about it's very just like oh wouldn't that future be great and of course we should learn our lesson because after every war there was some sense of like God that was so dumb like how could we have possibly done that we'll never do that again but you will of course you will and it's the same for finance particularly with bubbles there's a chapter in same as ever what that talk that talks about comp

plants the seeds of crazy and it's really just like the origin of boom and bust and I love there's a story about this economist back in the 1960s named Heyman Minsky and during the 1960s there was a lot of like scientific optimism across all scientific communities like we had just landed on the moon and like eradicated polio so there was this big surge of like if smart people put their heads together we can solve any problem in the entire world and a lot of economists back in the 60s came together and said it's time to eradicate recessions we need to figure out the

science of monetary policy and fiscal policy to make sure that we will never have another recession again and honestly when you've just landed on the Moon it doesn't seem that crazy to think that you can avoid two recessions of negative G or two quarters of negative GDP like it it doesn't seem like that big of a deal to try to figure this out hman msky said [ __ ] it's never going to happen you're never you are never ever going to eradicate recessions and he came up with this idea called the financial instability hypothesis and very briefly what it to grossly generalize it it basically says if you

never have a recession people get very optimistic when they get optimistic they go into lots of debt and when they go into lots of debt you're eventually going to have a recession so he was like look the lack of recessions is what creates the next recession so if you like if you eliminated recessions you would just guarantee a massive recession in the future and the same thing applies to investing markets stock markets crypto markets if if the stock market never went down there would be no risk if there's no risk you would very rationally bid valuations up very high

and when valuations get very high you're going to have a crash because the Market's so fragile to uncertainty at that point so I think that's like that's the that's why we will never learn from these C plants the seeds of of crazy what what himman MSY said was stability is destabilizing the more stable something becomes the more it is pushed towards destabilization and so during every Market Bust or recession there's always a finger pointing like who screwed up here whose fault was this because you broke the system and to to

some extent that that's usually true to some degree but when when you really take Minsky's ideas to the heart you realize like no this is just a normal functioning of any capitalistic society and so and like the to me the takeaway from that is you're never going to get rid of it you're never going to get rid of it because if you try to get rid of it it literally just makes it worse so that's that's that's why I'm an optimistic person but to answer your question there's no hope whatsoever yeah it's interesting I I noticed the very beginning of your your book you kind of addressed it to for the reasonable Optimist maybe that's what you are

Morgan is a reasonable Optimist and anyone who's reasonable maybe they come to the conclusion that you have which is we're never going to break out of this cycle so let's stop trying and we've certainly seen our periods of of calm and we've certainly seen our periods of of crazy in crypto and there are 23 different lessons in this I don't think we'll have time to touch on them all but what I want to do is I I want to break this into three different uh kind of sections of the conversation for different lessons different advice that applies to to every single um every

single one of the these three sections the first is bare Market advice so when we're feeling low when we're in the bare Market some of the principles from your book that spoke most to me and then bull market advice when things are going really well when things are exuberant what lessons should we be listening to most then and then the advice when you're in between is is neither nor bear we call it the build Market or or maybe more accurately the bore Market when things are just really boring and you feel like you want to do something so let's start with the bare Market because that has been impressed upon everyone

listening at bank list certainly crypto has been in a bare Market recently the last time you were on it was uh September 2022 and we were already in a bare Market uh in crypto Morgan and then we saw a lot more [ __ ] happen Okay because two months later FDX happened and that was November 22 and I think a lot of people who are who are listening to bank lists and crypto investors they got a massive dose of of humility at that point um we now are coming out of this we have wounds we have scars it's

actually the last chapter of your book is called wounds heal and scars last can you can you talk about the value of scars is there any case that uh some of this pain was actually good for us what would you say about that I wouldn't even frame it as good or bad but it's just the idea that everybody has their scars from life and therefore everyone based off of the personal experiences that they've had I view the world differently than you do even if we're roughly the same age and same education we read the same information I've lived a different

life than you have and and and to to everybody everyone is like that so everyone thinks that they are looking at the world objectively and trying to figure out the world objectively but everyone is just like a set of mirrors reflecting what they've experienced in life and I use the example in in the started that chapter of if you drive past the Pentagon in Washington DC there's no sign whatsoever of 911 you you they they rebuilt the building they play they put the trees all back there's not a single Mark that a plane hit that building 22 years ago but if you go one mile down the road to Reagan Airport the

scars of 911 are everywhere take your shoes off take your belt off take your liquids off take you know when you're going through security the scars of it are everywhere and I think that is a lot that that that idea applies to so many things of like the Great Depression look by the 1940s it was done it was gone we're back at new Highs but the scars of the Great Depression lasted through today there are still people who you know if your parents live through the the Great Depression they taught you and told you X Y andz about how you can lose your

money so easily and that is in is influencing behaviors at this moment even if the scars or the the wounds of the depression are done the scars are still lasting so the idea that just everyone is a reflection of the experiences that they've had and since everyone has had very different experiences we all view the world completely differently and look I am as I said earlier I am not a crypto investor I I I couldn't really tell you why that is uh I I I I I couldn't be able to articulate X Y and Z of why I'm not but I bet if you put me on the

therapist's couch for a couple hours I would I would we would tie it back to some experience that I've had in my adult life that said I would rather invest the way that I do today than invest the way that you do it's not because we disagree with each other it's because we're different people talking over each other I think that's a big Point particularly with um an asset class like crypto that tends to be controversial loud handwavy uh it it's it's easy to miss that every Financial debate where you have people disagreeing

with each other nine times out of 10 the people don't actually disagree with with with each other it's people with different risk tolerances different time Horizons different goals talking over each other and so that's I think it's really it's very common in financial markets to look at other people making other decisions and and say you're you're crazy you're dumb why why are you doing that you should be doing this thing that I'm doing without this idea that there is no right answer in finance we're all just kind of mirrors of the scars that we've been put through in life and so as I I always talk about

like what's a thing that I've changed my mind about in investing I think 10 years ago I was much closer to the idea of no there is one right way to invest it's the the way that I do it and if you're doing it differently you're doing it wrong I think that's that's kind of what that's kind of how I believed and now I'm just so far of just like whatever works for you just just do that just do that there's a million ways to do it there's this great quote from keano reiz where he's like I'm too old to argue with people and even if they say 2 plus 2 equals 5 like if it's working for you

like just have fun man if it's working for you just just go to I'm too I'm too old to argue with people and I feel like I because of my uh belief that everyone is kind of guard in their own way I think I I am the equivalent of that with financial matters I want to see if I can underhand you something because I think you'll be able to to take it and run you and I Morgan have Shar an interest in in Psychology and I bring this up basically any given moment I can on the bankless podcast uh I want to talk about this specifically the way that like uh lessons and memories are formed in a

negative perspective with the with parts of the human brain where which is the amydala which is the fear uh center of the brain the fear and uh stress and Trauma center of the brain where like emotions get spawned and then the hippocampus which is where memories form and these things are really really close uh negative memories get encoded into people at like 10x the rate as any other type of memory because humans have this very strong aversion to fear how does this component how does this property of like the way that we encode lessons this

very strong aversion to fear and pain how does this like work its well way into your lesson well let me tell you how it works for me as a writer I'm sure you guys can relate this too being being in Media One good review kind kind of just like like just waves over you you know it's like oh that was a good review they like the podcast they like the book okay great I forget about it three seconds later a negative review a negative comment can stick with me for a month oh my God have you have you ever read YouTube comments they are the Absol fre worst I I try not to because I know it's going to be there it's assess pool

and but but but even if you read the YouTube comments if there's a guy saying hey Ryan and David love your podcast so great I guarantee you you guys forget about it 10 seconds later right it does like that brushes that blows right over you and I think so that just aversion to bad news or just like you take bad news so seriously and good news is like all right like whatever just just move along um I think it's I think that idea like socially with the comments applies to investing as well so the idea that you know the very common this is almost like cliche to say that losses hurt more than

gains feel good so doubling your money like cool feels great like okay cool dou my money awesome losing 50% like you'll remember that for the rest of your life and a lot of that is just because of like you're investing to make money so when you make money you're like yeah that was the point that was why I'm doing this that was my expected outcome but losing money you're like no I invested to have more money and now I have less what the hell happened here so I think a lot of it is just even just at the knee-jerk like soul level you're like this was not what I intended to happen and then I think the bad behavior comes into play when you say oh like I

I'm trying to make money but now I have less I need to change what I did I need to CH I need I need a different strategy I need to turn turn the dials and pull the levers to do something differently and that intuition is the cause of the majority of bad investing Behavior where because you're experiencing run-of-the-mill volatility you're experiencing a normal am amount of volatility but you think you need to go do do something differently now that at that's the core of bad investing behavior and I think it all stems from the fact that you're going to experience the the the pain of loss so much more

vividly than you do the joy of gain there's one Twist on this if there's like a devil like Devil's Advocate to this I I I think it's really inter I I've been reading a lot lately about Nostalgia and just the the science of nostalgia and whatnot and a lot of it is because we remember the past not as it was but as it should have been wow so if you so you look back a lot of people look back at their childhood and be like oh it was so great it was so much fun played with my friends great house love 1990s were great I'm just saying like fantastic there's well here's this is as

comedians usually do they sum it up perfectly John Stewart says the only reason you think the world was better during your childhood is because you are a child and that's I think I think there I think there's there's a lot of that too but we remember the past as like as how it should have been so when you were a kid you when you're an adult today you look back and you're like I as a kid I had no responsibility no mortgage no bills I just got to hang out with my friends and eat junk food and I never gained weight and everything was perfect but I guarantee you like as a kid you're actually everybody myself everybody was stressed about what was going on at

school and you had the stress of this and the anxiety of that it's like but you remember it because it should have been good even if it wasn't I had this experience recently with my wife about uh 10 years ago before we had kids we had this amazing apartment in in Belleview Washington and it overlooked the lake and it was in downtown great location we didn't have kids so we could sleep in and like go out to brunch and like everything was perfect and and I told her I I said something along the lines of like God life was like that was perfect that was the perfect life and then she reminded me and she was right and she said Morgan during that period

when we lived there was the period that I was the most anxious the most maybe mildly depressed that I've ever been but I remember it as good because it should have been good even if it actually wasn't so that's that's the other Twist on like negative versus positive is I think a lot of times we look back at even the the economy of the 1990s and think oh it was great it was a perfect bull market no it wasn't there was a real estate crash in the early 90s there was a interest rate surge in '94 the Global Financial system damn near fell apart in 1998 like in hindsight we think

it was great but it wasn't it wasn't like that's that's not what people were actually experiencing during that time so the pain is always worse on the downside then and that's what people in like feel during the bare Market most uh acutely and you said that um you know scars are just kind of a a story they are what they are they're neither good nor bad but yet you also wrote a chapter called It's supposed to be hard and the subtitle of this chapter is called Everything worth pursuing comes with a little pain can you tell us about the value of of hard things like should we

in order to reap the gains of uh future um bull investing markets sh should we be satisfied with this pain what is the value of hard things well I think in in investing it's really clear that what do you get paid for you get paid for dealing with and putting up with uncertainty and volatility and periods of decline period of no gains that's what you're getting paid for in the long term so yes you can make a lot of money investing no matter what asset you're investing in but why like the world is not so kind that it's just going to give

you dynastic money for doing nothing you have to like anything else in life there's a price that you have to pay so the pain the pain is the cost of Entry basically it's it's the cost of admission for getting this but I think the the knee-jerk reaction when you're experiencing pain is I or somebody else did something wrong in my investing process either I screwed up or the FED screwed screwed up that's it's usually one of those two things is what people usually how it's framed and sometimes that might be the case but run-of-the-mill volatility which is what you experience 98% of the time is the

cost of admission for doing well there's also this other thing that this really applies to crypto there's this quote from shth that I love where he said however fast any investment can double in price that's the halflife for how quickly it can decline so if you want if you want to own an investment that can double in a year you also own an investment that can easily lose 50% in a year you want to own investment that can go up 5x in a year you also own an investment that can lose 80% of its value in in a year and so I think that's that's really true and and you see that a lot in in crypto of course like this

is an asset that can and sometimes has gone up tenfold in a year don't be surprised when off of very little news it can fall 80 90% in a year as well or in the case of a lot of shitcoins 100% that's that's that's what you're getting that's what you're getting and so don't be surprised because that's what you signed up for that's the cost of admission that you're paying like if you if you want like like an amazing vacation don't be surprised when you get a massive credit card bill that's what you signed up for so I think just acknowledging what that cost is does a like makes a lot of difference and

people just understanding what they're getting into and also making that volatility just a little bit more palatable when you experience it I think transferring this into the the crypto context I think is just only too easy the classic meme of someone that comes into crypto is that they come in for their first time in the middle of a b market like halfway through and then they think that there's a lot more bull market ahead of them than there actually is and then they quickly find themselves on the other side of the curve and then they're in the bare market and then

they're experiencing the full length of the bare market and that's all of a sudden when it gets hard and then we have some like more than half of those people leave and this is where me and Ryan talk about like congratulations you are now a settler not a tourist but also you have like one one more year of bare Market to like grind your teeth and yes it is hard and so like there's the outside perception of P crypto people of like you guys had it so easy your assets just went up but then everyone in crypto understands like you don't understand

what I had to go through Terri to get here so it's so hard yeah I mean one one thing that that comes to mind here is that I think anytime in financial matters when you are when you can complete the sentence I am a blank and doesn't matter what it is I am a investor I am a crypto investor I am a bond investor you are almost by definition attaching your identity to how you invest your money and to some extent it's unavoidable I I I do this everybody does it but it really gets

dangerous when during the bull market you complete that sentence by saying I am rich I am smart I am a genius I am Savvy but then what do you do during the bar Market what do you say it's the oppos I'm a bag holder I'm I'm poor I'm an idiot and so that's when it really so it really get it's a dagger to your identity because you built your identity based off of Market movements most of which was just like beta it was it wasn't even you it was just the market movements that and then you tie you tie

that to your identity and then on the way down it could be hard to the the easiest way to deal with it is to just not even check just not even think about it don't even open your brokerage account don't even open anything it's just like because you don't want to complete the sentence of what you are now and so that's why like attaching your identity to how you invest or like this applies to a lot of things attaching your identity to your politics this is like a very dangerous thing because all those things are outside of your control and by by definition they're going to go in a different direction at some point than you wanted to no matter what your politics are

somebody on the other side's going to win some election and if your identity is I am a blank like that it's going to hurt you it's gon to it's going to hurt so that's why there's the like it's a classic Paul Graham quote keep your identity small you want to have very few things in your life where where you say I am a blank you know I I like saying I am a father I am a good spouse like those I like but I I kind of I I push back personally at attaching my identity to any kind of investing strategy I think all of this uh reminds me David was talking about the difference between

settlers and tourists of this quote that you put in from Harry Truman and he says this the Next Generation never learns anything from the previous one until it's brought home with a hammer I've wondered why the Next Generation can't profit from the generation before but they never do until they get knocked in the head by experience nothing is more persuasive than what you've experienced first hand that is a subtitle of of one of your chapters and that's certainly something that we see in crypto is basically there there's a set of crypto people who've been through multiple

Cycles you know kind of the crypto ogs they're basically bomb proof and these are like oracles for our space but every single time they observe uh newbies people who are entering crypto for the first time making the exact same mistakes and I guess the value of coming through a bare market and holding uh onto your conviction and going through all of this pain is that you get to join their ranks you get to become a veteran you get that uh hardfought um experience

firsthand um but why do we always have to learn the hard way Morgan that's kind of a question we have like why can't we just learn from the ogs and not repeat the same mistakes why is it always this next Generation has to be hit in the head with a hammer I think it's it's because as I say in the book nothing is more persuasive than what you've experienced firsthand so I can look I'm a I'm a I'm a history buff and I and I really like military history but I've never served in combat never served in the armed forces never in a million years no matter how many books I read about what it was like will I understand

1% of what it's actually like to be shot at in combat never in a million years will I come remotely close to it and there's a lot of research on this like there's a lot of uh stories like from World War II about in training a lot of the a lot of the soldiers will come out with full of bravado I'm I'm going to go in there and I'm going to blast them down like that and then they actually get to the front lines they get shot at and they're absolutely terrified it's a it's complete nothing you don't understand anything until you've experienced firsthand and so in financial matters if you've never lived through a 50% decline it's very easy to