Our guest today is Shane Parrish. Shane runs the Farnam Street Blog, which has to be one of the most valuable collections of information that exists on the Internet. Farnam Street’s stated intention is mastering the best of what other people have already figured out and the site gets over a million visitors. The content is unbelievable in terms of improving yourself, thinking better, and learning better. Shane interviewed Ray Dalio not long ago and over time he’s spoken with some pretty serious people in his podcast, The Knowledge Project Podcast. This episode is a very peaceful, thoughtful, interesting conversation that we know listeners will love. Shane’s just got so much information in his head that we all can get a ton of value from. So, be sure to keep listening to hear more!

Key Points From This Episode:

• What mental models are and why they’re important. [0:02:07.0]

• Top list of mental models for making investing decisions. [0:03:39.0]

• The most harmful biases to investors. [0:04:44.0]

• Importance of process when making investment decisions. [0:07:51.0]

• Why Shane uses decision journals. [0:09:11.0]

• Being willing to look stupid. [0:12:36.0]

• How intuition and skills go together in investing. [0:14:16.0]

• Public markets versus private markets. [0:16:19.0]

• Avoiding negative outcomes and having positive outcomes. [0:20:41.0]

• Understanding uncertainty and risk. [0:24:35.0]

• Defining happiness for himself. [0:33:15.0]

• Lessons Shane learned about parenting . [0:36:28.0]

• Book that Shane loves to read. [0:43:55.0]

Read the Transcript:

I'd like to start by asking you about decision-making, which is one of the things that you're really well known for. Can you briefly explain what mental models are and why they're important? 

Mental models are a representation in your mind of how something works. If you think of concepts like gravity, they're elusive, but we come up with these models in our head that allow us to think about forward and backwards. Forward would be, if I drop this pencil, I know what's going to happen, because I have this idea of gravity, and backwards if I see something or I hear something hit the floor, I can work backwards and I can determine what happened, because I have this understanding of gravity. If you think about how we think, we think in models. 

The way that we determine what's important is through mental models. The way that we try to predict the future is by the models in our head. It's this unconscious layer and the better the models that you have in your brain, the better able you are to see reality. The way that you can think of this in multiple ways, but one way is like tracing paper where each piece of paper has just a little bit of the final picture, but by layering them one on top of each other, you can come to the conclusion that you can see what the picture supposed to be. 

The more models you have the better, but only if those models are relevant to the question in hand, right? It doesn't do any good to have a model for this question or this particular problem if it doesn't help you. 

That's really interesting. I know on the Farnam Street blog, there are 109 mental models in your lattice work is what you call it. Clearly if you could master all of them, that would be ideal. But for someone who's making investment decisions, do you think there are a top list of mental models that are the most important?

I think the ones from ecology and general thinking are the most important ones from an investing landscape. The ecology is, and then what, right? Just thinking through, obviously there's specific ones to understanding business vocabulary, but generally speaking, you want to have a general knowledge of the world and you want to have that knowledge of the world reliable. By reliable, we mean time tested. I think taking those models and applying them to investments can help make you a more rational investor if that's your goal. 

But it's really a bit thinking through problems or removing blind spots, if you will. If you think of poker, if you knew everybody else's hand, you would know what to play. If you can remove your blind spots when making an investment, you're better able to see the possible outcomes or avoid negative outcomes.

That makes a lot of sense. I think taking maybe a little bit of a different angle on that last question, you mentioned biases, which is one of the things mental models are important for overcoming. Which biases do you think are the most harmful to investors?

I think overconfidence is a huge one and also may be less talked about is just the bias for action. We feel like if we have a bank account balance or you're a fund manager or something, you have this imperative pressure to do something with that money. I think that causes you to overvalue information that you get. It causes you to take unrewarded risks because you're overvaluing information. I think that the confidence, every trade that you make is signaling to somebody else that you know more than they do. 

I think that you need to understand how you arrived at that conclusion, and then think through the other side a lot better than maybe the person who can tell it. That's a really tough game to play long-term, given some of the environmental constraints that investors face. If you're a stay at home investor trying to invest on the side, you don't really have the time and energy to invest in that. If you're somebody who manages money for a living, then that is your job. But much of that job is become selling and marketing and gathering assets, and then using leverage on your ideas to get a better return. 

I think there's a whole swath of people that are in between that or they want this knowledge of investing. As Alexander Pope said in one of his poems, a little knowledge is a dangerous thing. I think we convince ourselves that we're probably smarter than we are. If you look at anybody who started investing post 2009, they've known nothing but this hockey stick up slope of returns, whether they invested individually or in index funds or mutual funds, it's almost like every asset class and every type of investment has done really well over the past 10 years.

Right. Are there any investors that you think have done a very good job of practicing inaction?

None that would be public. If you think of money management, one of the things that's really interesting to me is that, people who manage family money or family offices have a structural advantage that active investors don't really have, or even passive investors don't have, and that is that they can let money just sit on the sidelines. They're more concerned with wealth preservation than necessarily accumulation. That gets you out of the relative return bias that we have now, where you might take risks just to keep your relative return up, and you start focusing on an absolute return. 

For some people that makes a lot of sense, and it depends on your circumstances and how much capital you have and what you want to do with that capital. For some people that doesn't make sense. If you're 20 and you're younger, you might want to take a lot more risks than if you're 50 and older, and trying to cement your children's education or your retirement or preserve the wealth that you've spent your lifetime building.

You mentioned process when you were talking about family offices and that's one of the things that I wanted to talk to you about. Can you just speak a little bit about the importance of process, particularly when we're making investment decisions?

Yeah, I think, well with any decision process is super important, because you're making, in investing, you're making a repeat decision, so you're constantly choosing to invest or not invest, and then you have to find some way to calibrate those decisions. The way that you can calibrate them, one of the ways that you can calibrate them is to give yourself feedback on the quality of those decisions. I think that following a reasonably consistent process will help you calibrate easier and identify gaps in your decision-making and identify gaps in your knowledge. 

Those gaps will become more transparent to you. It's only through that transparency that you have any really hope of systemically overcoming them. Then you can also change the process to accommodate for where you're strong or where you're weak. The process can be both individual and it can be team-based. You can have processes within teams and organizations. You can have individual processes, and you can have organizational processes. 

Those decisions might have more heavy handed processes for something that's large and consequential and irreversible, and they might have smaller lightweight processes, for something that's relatively inconsequential and reversible. 

Interesting. One of the things you mentioned, documenting decisions is that like decision journals, which I know you've written about quite a bit.

Yeah. Decision journals are just super helpful for keeping your ego in check. But one of the problems is that they help keep your ego in check, so people don't actually like the feedback that it gives them sometimes, it's because you're outlining not only an outcome, but you're outlining why you think that outcome will occur. The people that we've implemented them with, like one-on-one, a lot of those people get outcomes that they thought they were going to get, but they happen for different reasons and they thought. 

That can be a very humbling experience, because then you go back and you start to convince yourself that I knew that all along or I was right all along, and that's not the case because you've written it out, and you've written it out in your own writings, so you can't even convince yourself that somebody else did it. I think that decision journals can be super helpful for also ... One of the underrated things of a decision journals is knowledge sharing. We talk in large organizations about how we actually transfer knowledge from one generation to another or from one person to another. 

Too often, that's like, "Here's what I would do in this situation." Those types of questions don't actually transfer knowledge. They transfer what to do in this particular circumstance, but that particular circumstance is probably not going to crop up again. There'll be a variation on that. If we don't understand the thinking behind the decisions, we're not going to be able to make those decisions as effectively moving forward. By understanding thinking, what I mean is you don't go to a ... If you're trying to find a doctor, you don't go to a doctor and say, "Who would you recommend?"

Because that's just giving you an answer to your question, but it doesn't actually help you in the future. What you want to ask is, go to a doctor and ask, "What would you consider if you were looking for a doctor? What variables would matter to you?" If you can calibrate that over two or three people, then you can start to actually learn what matters and what doesn't matter. That helps you not only make this one decision, but it helps you make multiple decisions in the future. The next time you have to pick a doctor, you don't have to reestablish that knowledge. 

You might have to update it to see if something has changed, but now you've really transferred some degree of knowledge from somebody else into yourself, and you've been able to use that knowledge and put it to use. 

That's great. Now, I know that you've been involved with hedge funds in the past, and I think currently applying some of the ideas that you were just talking about. Can you talk a little bit about your experience doing that and what you might've learned from it?

Yeah, so I was on the board of a small RA in the US for four years. One of the things that became very clear in that process was that, structurally there's a lot of pressure to be all invested all the time. That doesn't necessarily align with maximizing investment returns. If you look at, take something like Berkshire Hathaway or the Daily Journal Corporation, at various points in each of their life spans that people have followed them, they've had a massive amount of cash for years. 

If you think of activists investors, had those companies not been controlled at some point an activist investor would have come in, taken control of the company, dividend of that money out and then put the company back up. Then we wouldn't be talking about Berkshire Hathaway or the Daily Journal Corporation in any way, shape or form. Structurally they had this advantage and that advantage is, the ability to do nothing and the ability to look stupid. I think the ability to look stupid is an absolutely underrated aspect to not only investing but life. 

There's a great quote by Lou Brock, who said, "If you show me a man who's not willing to look stupid, I can show you a man that I can beat every time." If we could look at famous investors and we go look at, Warren Buffet who was on the cover of Time Magazine in 2000 as this old guy, who's out of touch and doesn't know what's going on, because he had all this money and he wasn't invested in internet stocks. He was willing to look stupid in the most noticeable way possible. 

If we're not willing to look stupid, we're deemed as average results, average results compared to not the world, but compared to people with the similar means to us, as more education to us. If we're not willing to do something different, we're just going to be part of the herd. If we're not part of the herd, it's usually luck that gets us out of it. But if we are willing to be different or we are willing to look stupid and we are willing to do something that's different, that's where we move away from the Gaussian distribution, and we start moving either left or right. 

Left being negative and right being a positive outcome. If you can move one standard deviation away, that's worth a lot of points of leverage if you can manage a lot of people's money. If you can get that and lock and you can move two or three standard deviations away, well, now you have something that we look up to and try to reverse engineer as success, and how did they do that?

Wow. Do you think there are some circumstances where skill is more important and some circumstances, where intuition is more important when it comes to investing?

I think they go together. I don't know if they're necessarily opposite each other. I think you need a good intuition for where to look and what opportunities and what patterns might be profitable. I think you also need the skills to ascertain the quality and degree of opportunity there. I think a lot of people have one and not the other, and it's rare that you can put them both together. Part of the skill would be looking at a pattern that you've determined, like cannabis stocks or technology, and then going back and looking at these massive shifts. 

This is one of the things Buffett said in an interview that very few people have ever read, which I find surprising given the degree to which people study him, is that everybody goes back and looks for what's different in this circumstance? The more intelligent you are, the more reasons you can find why this circumstance is different. Then you convince yourself with this great story about why the circumstance is different, why you're right. One of the things that he went back and looked at was, what's the same, what's the same between technology stocks coming on and airlines, right? We had this big massive disruption. 

We had this technology that benefited a lot of people and he started looking for not only what's different, but what's the same. I think that comes back to the mental models that we think help us think through problems. We need to be able to take the other side of the argument, but importantly, we need to be able to walk around the problem in a three-dimensional way, so that we have a good view of what we're dealing with. I think too often intelligent people and by nature, people who go into investing are type a massively intelligent in a way, we're more prone to convince ourselves that we're right, and we can tell ourselves better stories about why we're right, more convincing stories about why we're right.

I know you have experience investing both in public companies and also in private companies. What do you think is different for someone making decisions about those two different types of equity investments? 

They're massively different markets. In public, you can get in and out in nanoseconds. You can easily correct mistakes. You have way more information availability. Private markets offer potentially higher returns, but they also, you can't get in and out easily. You have to figure out who's running the company. There's a whole host of variables that now you're now actively involved in, including strategy of the company, board level oversight, financial controls. It goes pretty deep in the rabbit hole. If you're the majority investor in a private company, and something happens to that CEO, who's going to step in? 

There's different scales of private investment too, right? If you're a company earning between 500,000 and maybe four million, that's one like traunch. If you're earning between four million and 10 million, maybe you have a more management depth in place, where you can go over these permutations and it's less dependent on one person. Each situation is completely unique. I think you're more apt to get fooled in the private market and the public market, and there's a lot more on the line.

When we're talking about the public market, one of the things that you've written about quite a bit as complex adaptive systems. Can you talk a little bit about what that means and why it makes it challenging to approach public markets?

Well, let's think of it in a bit of an evolutionary sense, because I think it's a very simple way to understand this. We're all familiar with evolution, whether ... Some people don't agree with it. That's their opinion, but evolution is basically gene mutation and selection of those genes to give an advantage. Evolution doesn't have a memory. One of the interesting things about evolution not having this memory is that, it'll make the same gene mutation it might've made 2,000 years ago and retest it. Too often, we don't think about that, because the environment has changed. 

Maybe that mutation is valuable today and it wasn't valuable back then. Because the environment is always changing, we have to realize that we have an impact on that environment, not just in a climate change sense of the world, but everything is always changing. Everybody is getting smarter. Information is becoming more available and more ubiquitous. Any information advantage is harder and harder to come by, and we have to structurally change. If you look at Berkshire Hathaway, it's structurally changed how they've invested multiple times. 

They've gone from activist investing to equity investing, to private company investing. Now they're more, you can view it ... They have a ton of capital aligned with partnership investing, where they're aligning with people who can operate companies more efficiently than them. If you look at the 50, something years of Berkshire Hathaway, you've had four massive changes in how he's invested the majority of his capital. I think that that's worth studying and realizing, because the advantage is, he's going where the puck is going instead of where it's been. 

It's super competitive in one area and the better opportunity you have to go into another area, the more diversity will be, the more you can survive different environments, the better opportunities you have. If you can invest in equities and private companies, you're likely to have more advantages than somebody who just specializes in one or the other. Now, that's really hard to do. He makes it look easy and it sounds pretty easy, but in reality, that's incredibly difficult to have different skillsets. But if you think about life, we have the same thing, right? 

We have skillsets that are available to us today, and we can develop skillsets that we know will be relevant in the future like reading, thinking critically, critical problem solving, or we cannot develop those and develop something that's niche that might change, and where we put that emphasis makes a huge difference on our personal trajectories.

Charlie Munger who you write about a lot, he's talked about the benefits of avoiding stupidity, as opposed to trying to be brilliant. Or an investor who's maybe investing their own money, maybe investing somebody else's that might be listening to this podcast, how do you think people can implement the idea of trying not to be brilliant, and instead just trying not to be stupid? What does that look like for the average investor?

Ultimately, if you can avoid negative outcomes, you're going to have a positive outcome. I think part of the problem we have in society today and this applies to investors as well is, a lot of people in the world is that we're always looking at other people who are doing better than we are. We have this relative comparison bias. It used to be in the early 1900s or late 1800s that relative comparison bias was like 30 people, right? It was our street, our neighborhood, and those neighborhoods were very homogeneous. Now we have comparisons to everybody. 

My comparison network is like Instagram and it's all of my friends and their friends, and I see people riding around yachts or selling their company, or going on vacation or buying a new car or going out for fancy dinners. I see that every hour of every day and it bombards me and what it bombards me with is, other people are getting some, I deserve some. If you look at Starbucks plays on this and I don't know if they consciously did it or not, but they had this advertising campaign that came out recently, which was, you're worth it, reward yourself. 

Which is a play on you work hard, you need to reward yourself. I think that we take that also internally, and we think that other people are getting ahead of us and we need to either catch up, and that catch up makes us focus overly on the potential rewards of what we're doing instead of the downfalls of what we're doing or the possible angles. We don't think about the ways that things could go wrong. We just think about the way that they can go right. If we try and we lose, we convince ourselves that they're lucky. 

We let our ego off the hook instead of trying and losing and thinking, "Oh, that was a stupid decision. I can learn from that and move on." I think that by inverting, you're naturally, if you can eliminate all bad outcomes, you will get a good outcome. The problem with getting wealthy is that, it's simple, but not easy, right? People just want to do it at a pace that is naturally quicker, than just looking around and seeing other people sort of like, "We want to get rich quick." I think that's one of the biggest problems. 

I think that causes us to blind ourselves to the possibility of avoiding errors. I think inversion works in two ways, right? One is avoiding bad outcomes. The other less known idea of inversion is asking yourself like, what else would have to be true for this to be true? There's different ways that you can think about that. But that goes back again to the general thinking concepts and thinking about problems in a three-dimensional way, and walking around things so you can see it from different angles, and through those angles you get more texture into what you're dealing with.

Can you frame inversion for say someone thinking about investing in crypto or someone thinking about investing in a marijuana stock, how would they invert their decision making process?

I don't know anything about either of these things. I think with crypto, I don't even know how to frame that, because I don't know much about crypto currencies, and I don't know much about cannabis stocks. I think you want to deal with things that you understand. I think that part of understanding is knowing where things can go wrong. I've yet to hear a coherent definition of cryptocurrency that makes sense to me. That's not to say it doesn't exist. It's probably to say that I'm just really stupid and I don't understand what people are telling me, but it's also the case that no two people see the same thing, and for me that becomes really strange. 

Then you have the shared belief that's taking over Investing it'd be interesting to look back historically what happens when shared beliefs fall apart.

Along those same lines, can you just talk briefly about the difference between uncertainty and risk, and why it's important for investors to understand that?

Yeah. I have a bit of a different take on this than a textbook take. For me, there's certainty, there's risk and uncertainty. If you view them on a continuum, certainty is going back to the pencil, if I drop it I know a great degree of precision that it's going to fall. Risk is like roulette, where I know all of the possible outcomes, and I know the odds of each individual outcome, but I don't know which outcome I'm going to get on any given play. Uncertainty by nature is, I don't know all of the possible outcomes, therefore I can't know the odds of any outcome. 

We live in a world of mostly uncertainty and we're taught to deal with those problems, mostly like the risk, and we have this false confidence that only the things that we see or we can anticipate are the things that happen, and that's destructive to our thinking processes. I think one of the things that Buffett's done that's been massively underappreciated is moving away from uncertainty and towards risk. How does he do that? I haven't heard very many people talk about this, but I think one of the ways that he does that is he focuses on industries that are not prone to technological disruption. 

He focuses on industries where, if I learned something about the railroads in 1960, and I keep learning about it until 2008, that's cumulative knowledge. It doesn't change because technology has changed it. That cumulative knowledge takes me a little more out of uncertainty and towards risk. Not only towards risk, but towards risk in a way where I probably know where the odds are skewed in my favor and whether or not. I think that anything we can do that removes uncertainty and moves us towards risk from an investing point of view, probably gives us better options, although the path may be a little less than if we nail uncertainty and we bet on double zeros in roulette and we'd get the payoff. 

I think that we need to develop tools in the world outside of investing to better deal with uncertainty in a way that we can't always know all possible outcomes. This is like where inversion comes in, which is like in version as a means to move you back from uncertainty to risk, where I don't know all the possible outcomes, but I know these outcomes would be really bad and how can I avoid those outcomes? That's another way to slide yourself back towards risk.

There's an ongoing debate regarding the financial markets on whether markets are efficient, so whether they incorporate all information all the time or not, and if markets are not efficient, you should be trying to beat the market. If they are efficient, you should just be indexing. Both sides of that debate are typically very entrenched. I want to ask you a couple of questions about this, but the first one is, can you talk a little bit about gray thinking and why that's important.

I think you know we just live in a world where everything is black and white, right? You're either liberal or you're conservative. You're one thing or you're another, and those things are becoming increasingly extreme and they're increasingly pervasive in our lives. I think that either or thinking is just poor thinking. It's very rare that something is literally one thing or another always. I think the question that we need to think about is under what circumstances would I change my mind on this? What are the degrees or the edges of my knowledge on this? 

When did this work? When is it likely not to work and how do I understand that? I think that that moves us automatically towards more great thinking, like I'm not always conservative or liberal. I'm something in between them. I think that that type of thinking allows us to frame problems better. Another way to work that is like, black or white thinking is basically saying that you're 100% certain in your opinion. If 100% certain in it, well, we don't even need to talk. Because there's no chance that I'm going to change your mind. 

I think if you start ascribing mentally or even out loud, the degree to which you think that you're probably right, even if it's 99% that opens you up mentally to being able to change your mind. That in and of itself is a move towards great thinking, because now I'm more receptive to what you have to say, and I also admit that I'm not one thing or another.

This is the second question I want to ask you on this topic, can you talk a little bit about your personal thoughts on indexing versus stock-picking or market timing or whatever it may be, when each might make sense for the average investor?

I don't know. I don't give investment advice. I don't want people to walk away, do something that I would recommend and get in trouble. I think, I don't even know if markets are ... They're inefficient and efficient, right? It's under which conditions are they inefficient, where would I gain an advantage? Then also acknowledging that you're playing in a field of the most competitive, leveraged field in the world, and I think that thinking you have an advantage in that field is a very dangerous place to be.

With that said, index investing doesn't always make a ton of sense either, right? You wouldn't want to take a million dollars, which represents your entire net worth and your family's future and put it all in an index fund on the top day, right before a bear market. I think that there's more conservative ways of preserving wealth. I think that maybe those are all individual in terms of your goals and your aspirations. I think the thing to think about is, changing your goals and aspirations and moving more towards a wealth preservation mindset, more towards, "It's okay to have a bank balance full of cash. I don't need to spend it. 

I don't need to do anything with it. I don't need to invest it." Then when opportunities become super compelling, you can act and you can act and size and magnitude. I think that that is the way, if you're going to be a personal investor, that's probably the best way to do it. When there's blood on the streets, you have to invest, but we've just seen through the financial crisis that very few people can actually put that into practice. What would probably work best for most people is just this passive investing in a low cost index approach over time, where you're not putting it all in on one day. 

You're just putting it in consistently. Maybe you put double payments when the market's been down 20% or more, and you cut those in half when it's up to a high watermark and you can get a little complicated in that. Or you can just put it aside every month. We know historically the markets have gone up, I don't know what six, 7% from an index approach. Now, the other thing we haven't seen with index funds in a massive panic with all the money we have in index funds now, do people act like we think they will or do they act differently?

I don't think we've ever lived through a world where this much money has been passively invested. I think that it'll be interesting to see how the next downturn is. If somebody like Vanguard were to get 500 million people calling them, trying to cash out because they're reading headlines that could have a huge impact on the market. The other thing I think you want to think about with index investing is, what sort of role do those companies play in corporate governance? Are they just sitting out, are they passive to management? 

Are they activist index investing, where they're taking a stake with companies and they're taking a stand and they're trying to more align compensation and management? Are they your advocate or are they just passive? We think of passive index investing as you put money in it and they do this and it's a low cost, or is there a value add to that in terms of, "Actually no we're advocating for you and here's how we're advocating for you, and here's the transparency around how we're advocating for you." 

I think you might be willing to pay more, slightly more from an index fund approach if somebody is actually doing things that you agree with, interacting with management.

Those are really, really interesting insights about indexing. Definitely makes me think a little bit. I do want to shift from investing a little bit. I know we talked a lot about decision-making, but I was trying to relate it to investing as much as possible, but I want to get away from that completely now. You Shane, you've got an interesting life because you run Farnam Street. I presume you've got lots of flexibility. You've got a lot of time to learn and think, how do you define happiness for yourself?

The absence of desire is happiness, right? I'm super fortunate to have been born in Canada, to go through a world-class public education system, to have free healthcare. I'm fortunate to have given back to that country for 15 years when I worked for the government. I think being able to do what I want to do is happiness. Every year I want to do more. We all do things that we don't want to do, and every year I just want to do more of what I want to do and less of what I don't want to do. I want to arrange my life around that. 

But I think there's not a lot that I want in life that's material or there's not a lot of things that I'm jealous of. I think that the key to happiness is letting go of expectations, letting go of the feeling that people are going to reciprocate, letting go of the idea that the world is fair and just going at each moment as this moment matters, and this is the most important moment in your life. Life is so fragile. We never know when it's going to end. That doesn't mean you need to maximize the next four hours. We're not going to go out and shoot heroin after this. 

But it does mean that you have to be conscious about being present in the moment with the people your way. It means that you, when I'm with my kids, I'm 100% with my kids. It means that you're not looking towards the future. I'll give you a parenting anecdote, because I know we have a parenting question coming up soon. But one of the things that I've seen derail parents the most in happiness, so derail their happiness as a parent is they're always waiting for the next phase of their kids' lives, so that when their kids are born, it's like, "Oh, I can't wait until they sleep through the night." 

Then they sleep through the night and it's like, "Oh, I can't wait until they're out of diapers. Then they're out of diapers it's like, "I can't wait until they go to school." It's always this theory that the next stage of life is always going to be easier. Those people I'm generalizing here, so not everybody who goes through this obviously has this opinion, but they also tend to regret that approach, but they don't realize it until it's too late. Their kids go away to university and they're like, "Man, I wish I took more time to cuddle with them. 

Or I wish I would have invested more my relationship with them. I wish I wouldn't have worked so hard, because now after it's gone, I realized what's important." I think by living in the moment and not fast-forwarding to the future and not being overly focused on the past, we want to focus on the past just to learn so we don't to the extent possible, we don't make the same mistakes over and over again. That doesn't mean we have to regret those mistakes. It means that we just want to avoid them in the future, and staying in the moment that you're in is really the key to happiness. 

Because in that moment you don't need a new car. You don't need a vacation. You don't need a better iPhone. You just need what you have right now. I think that we lose track of that.

The absence of desire as a definition of happiness that's one of the best definitions that I've ever heard. I think that's very insightful. I know you touched on parenting and we do have a question coming up right now. Can you talk a little bit about a lesson that you've learned yourself about parenting in the last year?

I think my kids point out how much I don't know on a regular basis, even things that I think I know. Kids are infamous for their five why's like ad nauseam, right? I think that the deeper my kids get, the more I realize that I don't understand. But I think the big lesson I've learned with my kids as a single parent is just connecting with them and that's tougher than it sounds. It's hard to go out to guy friends and be like, "how do you emotionally connect with your kids?" But I think exploring that with my kids and taking the time to just be with them, and be present with them and develop routines around what works for them, but also what works for us bonding has been super important over the last year.

We have them trained. Every morning they can go to bed and they come for cuddles in my bed. It's the best 10, 15 minutes of my day. They're eight and nine now. I know it's eventually going to stop, but that's a good chance for us to connect. It's a good chance for us to set expectations of the day. It's a good chance for us to wake up slowly. I think physical connection is important too. I think cuddles are massively important for kids. Too often, we get busy and we forget about connecting and that's not only in parenting, that's relationships, right? 

We disengage; we focus on what's right in front of us, which is not necessarily what's most important. What's most important is our relationship with our kids or our spouse. We can lose track of that. I think that kids are really good at pointing that out if you let them, and you're receptive to that. Too often, we just block them out and they let you know when they want attention. We have this unconditional love with kids that we can also apply to other people in our lives. I think we do that naturally with children and we don't do it as naturally with adults. 

I'd say that is probably the other big lesson that I've learned is that, it's possible to connect with adults in the same way that you connect with kids.

We posted on Twitter to see if anybody had questions they'd want us to ask you. Something that came up in a few different tweets, answering that we're asking you about how can we teach kids, do a better job teaching kids about money? I know financial literacy is not necessarily your expertise, but learning definitely is. Do you have any thoughts on how we can be better with teaching young kids about money and finances as they grow up?

I don't know. I can tell you what I do with my kids, but to the extent that we can teach kids about money, money's important, but it shouldn't be the most important thing. You need it to enable your life, but it shouldn't control your life. I think any lessons that you can show your kids are just living what you want them to learn, right? If you're over leveraged and you're fragile and an interest rate going up a quarter of a basis point is going to change your lifestyle, that's also what you're showing your kids. Maybe that's a choice you're making, and maybe it's not a choice. 

For a lot of people, I understand completely that that is not necessarily a conscious choice they're making. They just don't have any alternatives. But I think if you do have alternatives and you're living that way, then I think you're just really modeling that for your kids. We think that we hide it from our kids, but our kids know. They know how we spend money. They watch us spend money. They know the frequency to which we say no to them, or I don't even like saying no to my kids especially when it comes to buying something, I'm like, "Oh, that costs this much. 

How do you think we can make that money?" Instead of me offering the money, and it's also a way to gauge how much they really want this thing, right? We can sell brownies, we can make lemonade. We can go door to door. We can do a host of things and I will help you do all of those things. But what I won't always do is pull out my wallet and buy something for you. The other thing I do with my kids personally, is I just make them save half their money. If they get a birthday gift and it's 10 bucks, five bucks goes into their savings jar and they can spend that $5 any way they want and then five bucks in the bank. 

We invest that money in the bank. I give them dad bank rate of interest. They get about 15% interests a year and we invest in companies. One of the things, one of the cutest things that have happened with my kids is, I invest in companies for them that we can talk about. They own one share of Kraft Heinz. The reason they own that is because they understand ketchup. Ketchup becomes the means by which I educate them about money. What we do is we take 100 pennies and we go through the Kraft income statement. 

We're like, "Well, 100 pennies came in and here's what happened with that money," and so they can visualize it. Then we think about what would cause more pennies to come in, right? What would cause fewer pennies to go out? We try to conceptualize it. This became a hilarious, because we went to Wendy's for lunch one day. My oldest at the time, he was six at the time and we had just finished talking about this, and he was so excited that he ran up to the counter and grabbed a handful of these Heinz ketchup packages. Then he went around to every table and he's like, "You need more ketchup because the more ketchup you consume, the more money I'm going to make." 

It was hilarious, but it was funny and cute, but it was also, it demonstrated understanding of what we were talking about. Too often we think, kids won't understand financial statements and that's because they're in quantities kids can make sense of. But if you break it down into 100 pennies or even 100 loonies or whatever it is, some mechanism where they can see it and you visualize, "Well, this money went to management and this money went to producing the food." Well, now they start to conceptualize not only money coming in, but where that money is being spent. 

A lot of adults don't even have a grasp of that. It would be a good exercise for them to better understand the investments they have. But if you invest in things kids understand like Disney or food products that they consume or toy companies, then I think that that's a way to just have conversations with your kids about money. The other thing is teaching them that money works for you, right? Every time they get a dividend, it's like, "You didn't do anything over the past three months, but here's what happened. 

That happened because you saved." I think that that ultimately is a really good lesson. But going back to happiness the absence of desire is the ultimate lesson you want to teach your kids. Whatever circumstance you're in, in life, it doesn't have to be better. I think like Viktor Frankl who survived the Holocaust, he said, "The last freedom that can be taken from a man is the ability to choose how you respond to any given situation." I think there's something not only stoic in that, but I think that there's something quite profound in terms of our overall happiness.

Frankl's book on his experience in the Holocaust is an unbelievable read. The last question that I have for you, Shane, you write a lot about reading and how to read properly in a way that you'll retain information. My favorite part about that, I think is that you talk about reading a book, putting it down and then coming back to read it again later, because you're at that point a different person based on the information that you've taken from the book and on your experiences since you finished it the first time. Are there any books that you've read and then changed your mind on the second time?

Yeah, I would say Marcus Aurelius Meditations is one that I picked up in university and hated it. Absolutely hated it. Then I got divorced and it had a whole new context, a whole new meaning, a whole new understanding for me. There's been a lot of books where it hasn't been that black and white, that stark, whereas like I pick up a book and it's a struggle to read it. Often when I read, "Geez, now, I'm not ready for the book. I'm not ready for the messages in the book. I'm not receptive to them," so I can put it down. 

Maybe it's above my level. Maybe it's something that's way more niche or esoteric than I thought it would be, and then I can come back to it. But what I do get out of rereading books when I reread is a deepening fluency in the subject. If you understand, if you read a book the first time and you understand the arc of the story, the second time you read it, you're going to pay attention to different details. You're going to pay attention to different facts, different arguments, because you already know where it's going and now you're layering that stuff on. 

You have a skeleton of the book, but now you're layering that on to the skeleton. That enables you in and of itself just to retain more and understand deeper in terms of where the nuances are. I think that that's super important, but we're so focused on reading the wrong things these days that I think we lose track. 

Book From Today’s Episode:

Meditations — https://amzn.to/3iFYJLv

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