Housel: 'No One Hires a Luck Manager'

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Our guest for this week's installment of The Long View podcast is Morgan Housel. Morgan is a partner at the Collaborative Fund, a venture capital firm that makes investments in firms that in its words are "at the intersection of for-profit and for-good." A former columnist at The Motley Fool and The Wall Street Journal, Morgan has become one of the most prolific and insightful writers on the investment decision-making process, as evidenced by his impressive body of work on the Collaborative Fund website's blog. Morgan joined us in this live recording of The Long View from the 31st annual Morningstar Investment Conference in Chicago. Our interview covered a lot of ground, from how Morgan found his way into the finance world, to the role he plays at Collaborative Fund, to a host of other personal and behavioral finance topics that draw on his work.

Show Notes The accidental writer: Morgan's background and how he came to write about financial topics (0:55-3:04)

"The ability to write a check is no longer a competitive advantage": What Collaborative Fund does, why Morgan was drawn to it, and the role content plays in its strategy (3:05-5:05) Authorial license: "It's really important to write what … you yourself would find interesting" (5:06-5:58) Transparency and impact: "We're looking for companies whose ability to do good is their competitive economic advantage" (5:59-8:21) Public vs. private investing: "If I made a Venn diagram of public and privates, the overlap is much greater than I ever thought it would be" (8:22-9:19) Theory vs. practice: How private-market "lock-ups" can make sense for individual investors but are still inappropriate for the vast majority (9:20-10:24) The future of public-private investing: "There's some liquidity in private markets but it's not very efficient" (10:25-11:16) Be honest with yourself: Don't try to fight behavioral biases which can't be eliminated anyway; work around them (11:17-13:13) "That's what works for me": How Morgan reckons with his own behavioral biases (13:14-13:44) Financial advisors' job one? Don't allow events or emotions to interrupt compounding (13:45-15:52) History and psychology: "The most important intersection in investing" (15:53-18:24) Scarred, not complacent: Investors are still licking their wounds from the global financial crisis (18:25-20:12) You can't shake investors out of their experiences; it takes a new generation to come along (20-13-21:17)

"There's no other industry in the world where the rewards are as big as in finance": How big paydays can distract focus from everyday work (21:18-23:42) How fee arrangements can impact portfolio managers' risk and reward calculations (23:43-24:26) Avoiding confirmation bias and bringing in diverse perspectives: "Find someone who you admire their thought process in one aspect of thinking … but you disagree with them about something else" (24:27-26:10) A crank whose views Morgan respects--"Jake" on financial Twitter (@econompic) (26:11-26:45) "No one hires a luck manager": Morgan explains how investors tend to account for risk, but not luck, in their decisions (26:46-29:17) "Investing isn't the study of finance. Investing is the study of how people behave with money." Morgan explains why he doesn't read investing books (29:18-30:03) How people deal with uncertainty and opportunity: The importance of content aggregators and of ditching bad books (30:04-31:14) Perishable: Morgan's favorite non-investing book of the last few years is about how much things can change, on average, in everyday life (31:15-33:03) "You're not proven until you've survived a calamity": Why it's so hard to distinguish skill from luck (33:04-35:16) Good advice (that Morgan doesn't follow himself): Carry a little bit of debt to hone your focus (35:17-36:56) "You have to pay the fee": How thinking of volatility as an ongoing price for the opportunity to grow capital can help investors put risk in the right context (36:57-38:56) Are investors giving up on investment skill? Yes, but that's probably OK (38:57-40:41) The importance of financial planning: Telling clients the truth (i.e., that they're not on a path to a secure, comfortable retirement, not matter how much they want to believe otherwise) (40:42-43:09) On Jack Bogle: "The biggest undercover philanthropist of all time." (43:10-44:48) What matters is how well you behave: The psychology of investing (44:49-45:41)

References The Collaborative Fund blog Morgan Housel's collected works Morgan Housel, bio "You Played Yourself" by Morgan Housel (Apr. 24, 2019) "You Have to Live it to Believe It" by Morgan Housel (Apr. 9, 2019) "Useful and Overlooked Skills" by Morgan Housel (May 1, 2019) Jake (@econompic) and Econompic Patrick O'Shaughnessy, "The Investor's Field Guide" Abnormal Returns "The Big Change: America Transforms Itself 1900-1950" by Frederick Lewis Allen Books recommended by Charlie Munger "Origins of Greed and Fear" by Morgan Housel (Jan. 31, 2019) George Soros "A Man in the Mirror" by William H. Gross (April 2013) 10-year Treasury Rate "Counterintuitive Competitive Advantages" by Morgan Housel (Mar. 13, 2019) "Fees vs. Fines" by Morgan Housel (Apr. 2, 2019) "Statement of Principles" by Jason Zweig "When You'll Believe Anything" by Morgan Housel (Apr. 15, 2019) Jack Bogle Morgan Housel's tweet about Jack Bogle

About the Podcast: The Long View is a podcast from Morningstar. Each week, hosts Christine Benz and Jeff Ptak conduct an in-depth discussion with a thought leader from the world of investing or personal finance. The podcast is produced by George Castady and Scott Halver.

About the Hosts: Christine Benz and Jeff Ptak have been analysts and commentators on investments and the investment industry for many years. Christine is Morningstar's director of personal finance and senior columnist for Morningstar.com. Jeff is head of global manager research in Morningstar Research Services, overseeing Morningstar's team of 120 manager research analysts in the U.S. and overseas.

To Share Feedback or a Guest Idea: Write us at TheLongView@morningstar.com

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Episode 1: William Bernstein: 'I Don't Think the System Needs Nudges. It Needs Dynamite.'

Episode 2: Don Phillips: 'We're All in the Behavior-Modification Business'