And I think it's always been like that, and always will be. There's a great quote from Carl Richards, a financial advisor. He says, risk is what is left over when you think you've thought of everything. So you can sit there and spend all day, trying to predict what the next risk is going to be, and that's great, that's a good activity. And then when you're done with that activity, what's not on your list is what's actually going to be the biggest risk that's going to throw you for a loop. So that was like a perfect example of you and I having breakfast of that in play.

MYLES UDLAND: So next week, obviously, everyone be careful.

MORGAN HOUSEL: Be careful

[LAUGHS]

MYLES UDLAND: So you dedicate your book to the reasonable optimists. And I was thinking about the title of the book, I was thinking about that framing, so many stories in the book. And I guess like-- I guess I would accept that I am maybe one of these people. However, everyone, I see a couple of colleagues out there, everyone thinks that I'm super cynical. That's, oh, I'm just Mr. Doomsday. How do you kind of square that, same as ever, It's going to be fine, But also, everything might actually be bad?

MORGAN HOUSEL: I think I'd frame it as, if you are a student of economic history, you should be an optimist on the future. People's ability to solve problems and become more productive is incredible. But if your definition of optimism is that everything's going to be great, that's a problem, that's complacency. So I think reasonable optimism is, the short term is a constant chain of surprises and setbacks and bear markets and recessions. But if you can survive and endure those, which that's the big if, then for those who can stick around the rewards are incredible.

One other way to frame it is save like a pessimist, and invest like an optimist. Save with the idea that what all of economic history is just a constant chain of surprises and setbacks. But if you can endure that, then it's great. So that requires like optimism and pessimism to coexist in the same mind, which is very difficult for most people to do. For most people it's you're either a full-blown optimist or a full-blown pessimist. And both of those two get into trouble.

You're the perma-bear or you're the leveraged maniac who goes over the cliff. And that tends-- that's a lot of people in markets. So I think getting those two to coexist of like, no clue what's going to happen over the next 5 or 10 years, but very confident it's going to be a constant chain of setbacks and surprises. But if you can endure that, it's going to be great. I was telling someone this morning, I've been investing since 2004, 20 years. During that period there's not been a single time when you could not have very rationally, very intelligently pointed out 20 things that were going wrong in the economy.

At no point did you look at it and was the market obviously cheap. At every point you could have looked at it and said stocks are overpriced, margins are climbing, businesses are not growing fast enough, the National debt is doing Y and Z, and you are completely right. And during that period, with dividends, the market's up four-fold. And I think that's actually like the pretty common path of history. At every given moment there's not only something to talk about that's bad, there's something that's actually bad happening. And yet, if you can endure it, that's where the rewards come down.

MYLES UDLAND: And like we kind of talked about this the other day, there's a reason why the market is expensive. Probably, because it's good, would be like, maybe, the answer. And I think in like the conversation around investor psychology, there's a wisdom of crowds is something that people talk about a lot, but it's framed as a negative. Like don't follow the crowd. And I'm kind of wondering if maybe we have that wrong. Maybe there is some wisdom in the crowd. And sure, there's all these kinds of risks and problems with that. But ultimately, what you're talking about is, we are aggregating good businesses, it does cost a fee, they do generally go up over time because they're good businesses.

MORGAN HOUSEL: Yeah I think it was 2014 when Robert Shiller of Yale, another economist whose name I'm forgetting, they shared the Nobel Prize. For both in their work in like efficient markets. And I'm very generalizing here, but Schiller's view was like markets are not efficient. We get booms and busts all the time. And the other economist, whose name I'm forgetting, was like, no, markets are very efficient.

And people thought that that was interesting that they shared the Nobel Prize for different views. And Schiller gave an interview and he was basically like, no, Shiller thinks markets are efficient 98% of the time, and some other economist believes that they're efficient 99.9% of the time. It's actually like the distinction is not that different. So I think the crowd is right. I'm kind of in the Shiller camp. The crowd is right 98% of the time.

And so, if you are just a dyed in the wool contrarian, you're going to be wrong a lot. Like the crowd is usually right. But once in a while, it's disastrously wrong. Like 1% of the time it's completely and utterly wrong. And very difficult to know without hindsight, when that moment is. I always use the example, like if you said the US housing market was in a bubble in 2004, you were right. By any definition, you were right. And it kept going for another 3 and 1/2 years.

Same with, in the 1990s, the market was obviously in a tech bubble. In 1995. And in hindsight, though, we had barely even begun the surge up. Marc Andreessen tells us a great story about he came to Silicon Valley in 1993. And his view at the time was he missed it, it's over. He missed it in 93. And in hindsight, it's ridiculous, but these things can go on much, much longer than people think. Even if the crowd is right most of the time.

MYLES UDLAND: Yeah, the Greenspan irrational exuberance was, I think, December--

MORGAN HOUSEL: 94 or something. 96, something like that,--

MYLES UDLAND: 96? Back in 96.

MORGAN HOUSEL: --when he first used irrational exuberance. And he was totally right.

MYLES UDLAND: Obviously, both of us were in markets at the time.

[LAUGHS]

MORGAN HOUSEL: Right. So it's one thing to point out that the market is unsustainable, and completely a different thing to know when it's going to turn.

MYLES UDLAND: So we're kind of talking here about investing and investor psychology. I'm curious for your view on personal finance, however you want to define that. Because I think, for me, something that I always struggle with in my coverage and thinking about investing, is the difference between investing and personal finance, and whether they overlap, whether they are the same thing perhaps. And just kind of how you've worked that out through the years in your own writing and your own kind of coverage, thinking, speaking, et cetera.

MORGAN HOUSEL: I think the biggest difference is investing and finance taught like a math-based field, where there is a right answer. And there is, it's just like math. Like 2 plus 2 equals 4. Doesn't matter who you are or where you're from, that's the right answer. And personal finance is just not like that at all. Every household, you're not making decisions on a spreadsheet, you're making them at the dinner table where all these other emotions and family goals and social prospects, like all these things blend together, different risk tolerances, different time horizons.

Your spouse has this risk tolerance, you have another risk tolerance. Everything blends together. And then, so I think a lot of personal finance decisions that look wrong or look crazy are actually the right thing for that household to do. Even if on the textbook, in the spreadsheet, it's not the right thing. So in psychology money I made the distinction of like reasonable versus rational.

And we should not pretend that individuals are rational, because they're not, no nobody is . This is not a spreadsheet endeavor. This is a dinner table endeavor, particularly for the average ordinary mom and pop investor. This is not trying to please the capital asset pricing model. This is just like, these are family goals, what's the most reasonable way to get there?

And so I think that's like a big distinction between academic finance and real-world finance. One is taught like it's a hard science, like it's a cousin of physics. And the other is just more messy and emotional, and it's closer to psychology.

MYLES UDLAND: And of course, everyone in America wants a right answer. Millennials, they're taught it's either got to be right or wrong.

MORGAN HOUSEL: It's easy, like you want someone to say like, what's the answer, just tell me to do this. Like the spreadsheet pops out a number and you do it. But in reality, it's just not how it is. Like just the difference in risk tolerances. I think most financial debates are not actually people disagreeing with each other. It's people with different risk tolerances talking over each other.

And I can sit here and say you're doing it wrong, you're doing it wrong. But nine times out of 10, we just have different risk tolerances, different time horizons. And it's right, something that would be like disastrous for me, could be perfect for you, and vice versa. And I think that goes overlooked a lot.

MYLES UDLAND: Another asset that has come up in the last few years, certainly playing into psychology, would be crypto. And I'm just curious. Let's just start with how you've thought about it, kind of in your writing, and doing-- and speaking and talking to folks about it. Like where it has come from, when I think we all became aware of it? Call it 2011, 2012. And kind of where we are right now ?

MORGAN HOUSEL: Two things. One is-- I mean, I wrote this about a year ago. I said, if you don't think that some of crypto is interesting and exciting, then you're not paying attention. And if you don't think that the vast majority of it is absurd, then you're not paying attention. But most people fall into one of those camps. It's either completely and utterly absurd. Or it's the it's literally the greatest technology in human history.

But almost every new technology, even the ones like the car and the airplane. 99% of the companies in those industries went out of business. There were 2000 car companies in the United States in the early 1900s, and ended up at 3, GM, Ford, and Chrysler. So you can have the right technology that does change the future, and still 99% of what's going on is absurd and not going to last. That's one part of it.

The other part of it is every financial valuation is a number from today multiplied by a story about tomorrow. It's just a number, like earnings per share this year multiplied by a story of what you think the future's going to be. That's every valuation. In a zero interest rate environment, the number from today doesn't matter. It's all just the story about tomorrow. And particularly in the social media world, like the stories can get ridiculous. And the number of people who will believe it can just be fanatical about it.

In a way that I think this is the-- like crypto is the first bubble that we've seen in the social media age, where the power of narratives and how fast they could travel is just exponentially more than it was in the 90s. I can't fathom what the dot-com bubble would have been with Twitter. It would have been a completely different thing just because narratives can spread so much faster.

And so the other thing is that, if crypto were just a pure bubble that's going to-- it would have died 10 years ago. So the people who believe in it, believe in it so fanatically that I think it's hard to just dismiss it out of hand when there are enough people who believe in it so much that are that fanatical. The last thing I'd say is the book Number Go Up, by Zeke Faux is phenomenal. It does such a good job detailing the emotions and the absurdity behind what happened over the last three years.

MYLES UDLAND: Well, and do you feel like looking at that, I think we can agree there was that bubble period coming out of COVID. Did we need an "Avatar for it? Like was Sam Bankman-Fried essentially what we all needed to realize like, oh, this was like-- oh, this is totally wild.

MORGAN HOUSEL: I think every bubble has a face and maybe for dot-coms, fairly or unfairly, it was Henry Blodget and a couple other people. And for the housing bubble, it was the Wall Street bankers. Everyone has like a caricature. And a lot of times it's deserved. Sometimes it's not. SBF is obviously like the face of it. And we all know what happened in the last week. So I think every bubble has that face of like a cult of personality that ends up, in hindsight, being the opposite of what you thought it would be.

MYLES UDLAND: I want to talk about something that we were chatting about just before, which is basically like communication and where it has come from and where it is headed. If you look at like your own career, writing for Motley Fool, writing on the internet. That was a big thing. Then, I feel like it was just getting big on Twitter, and then everyone-- you guys still have a newsletter, now you're writing books. Like what is now, I guess, would be the question. And what is next, as best as you can tell, as a creator, kind of, in this space?

MORGAN HOUSEL: I think what's interesting about it is that, despite as powerful as the internet is, the physical book market is by and large bigger. Like people still like holding a piece of paper more than they like reading a blog. The other thing that's completely shocked me is that the audio book market, getting a book through your ears, is bigger than the physical book market. And that's just exploded in the past five years with podcasts. There are way more people that want to learn through their ears than learn through their eyes.

And anyone who starts a podcast will know that like the audience size is enormous. Like so many people don't have time to read, but they will gladly listen to a podcast or a book on their commute, or while they're doing the dishes or while they're exercising, like way more time for that. So podcasts and audiobooks have massively expanded, like, learning potential in a way that, like, I was oblivious to it just a couple of years ago. So the difference it's easy to think like, oh, if you put your content out there, then it's out there and people will find it. But the different mediums have vastly different audience sizes.

MYLES UDLAND: The Bible was just early.

[LAUGHS]

MORGAN HOUSEL: That's right.

MYLES UDLAND: Like they really had that thing going. I'm curious, as you kind of travel around, talking to a lot of different investors, how has the tone of like where you are-- I mean, because you're often speaking, maybe you're getting some questions. But just what are people interested in now? How has that changed over the last few years? Certainly, you're getting back out on the road more now than you have been over the last few years. But what are the things that people are interested in, people are anxious about? What are the ways, maybe, if you're a therapist of sorts, to a lot of financial advisors, how are you calming them down these days?

MORGAN HOUSEL: There's that Louis CK skit like a decade ago, where he said everything's amazing and nobody's happy. And I think economically that could be like the phrase today. And you could look like unemployment rate less than 4%, market's doing pretty well. You can earn 5% on your cash. And yet, like consumer confidence and economic growth was like very tightly correlated forever. And it totally split apart in the last year or two.

And you could say like there's really three things that drive consumer confidence, inflation-- not even inflation, gas prices, the stock market, and politics are the three things that are like very correlated with consumer confidence. And maybe it's just because for the first time since the 80s we're experiencing significant inflation, and it's just a scarring event for a lot of people. And even if it's come down, someone made this point this morning that, particularly for just the ordinary, non-financial professional, you don't want inflation to come down. You want prices to come down. So even though inflation went from 10% to 4% or whatever, gas prices are higher than they were in 2019. And until they're lower than they were in 2019, people are going to feel bad about it.

But the odds that they're going to-- like the odds that we're going to have-- people are like praying for deflation at this point, which is a danger in itself. So I think that's a lot of it, is that even if there's a handful of variables, or even a lot of variables that are great, people really cling to the one or two that have like emotionally scarred them.

There's also, someone made this point this morning that like, a financial professional on Twitter should not tell 90% of the country like, you should feel good right now. If they don't, then that's what it is. And it's a real thing, like how pessimistic people are in the economy right now.

MYLES UDLAND: Wisdom in the crowd, same as ever. Morgan Housel, thanks so much

MORGAN HOUSEL: Thank you.