May 6, 2021

Episode 148: Investing in Happiness

May 6, 2021

Today we dive deep into the connection between happiness and money, looking at a host of theories and studies that have examined the important factors in this discussion. The main material referenced is the fascinating, The Happiness Hypothesis by Jonathan Haidt, and during the episode, we get to look at a great selection of the findings and claims in the book. To kick things off, we consider the broad ideas around how money can stimulate happiness, as well as its addictive aspects, before examining a few of the most prominent lenses used for measuring different kinds of happiness. Talking about the ideas of Hedonia and Eudaimonia, the influence of forecasting and the future, and the effects of different kinds of spending, we see the common threads as well as the distinctions between these models of measurement. Ultimately all of this material should hopefully enable us to live out a better life with this information in mind, and we spend some time reflecting on some of the key takeaways that seem to come to the surface in the happiness debate. To finish off, we field some listener questions on avoiding spending, and returns on investment, before diving into this week's bad advice featuring a video starring Warren Buffett, Charlie Munger, and Mark Cuban!

Key Points From This Episode:

A great book recommendation for getting to grips with branding and building relationships with consumers. [0:03:52.2]
The interesting statement released by IIROC regarding conflicts of interest. [0:07:14.7]
Barry Ritholtz's interview with Jack Brennan and their perspectives on index funds. [0:10:44.1]
Books and studies on the subjects of happiness, finances, and addiction. [0:12:21.4]
Different theories for the largest determining factors for happiness. [0:20:21.3]
Hedonia and Eudaimonia; two different types of pleasure and their measurement. [0:24:47.6]
Experienced happiness and experienced unhappiness; statistics from around the world. [0:32:04.1]
Spending and happiness and the debate around the human ability to accurately forecast. [0:40:21.7]
Designing a happy life based on all the research in the field. [0:44:48.8]
Inverting the goal-setting process and working backward from what you don't want! [0:47:33.9]
Love and work as the two most crucial ingredients for human happiness. [0:49:47.3]
Avoiding the temptation of spending when aiming to save money. [0:51:15.6]
Examples of investments that have paid off for Cameron and Benjamin. [0:52:31.1]
Bad advice of the week; Buffett, Cuban, and Munger on diversification. [0:54:03.7]

Read The Transcript:

Ben Felix: This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision making for Canadians. We are hosted by me, Benjamin Felix, and Cameron Passmore, portfolio managers at PWL Capital.

Cameron Passmore: So, you want to kick it off, episode 148 with your latest bot.

Ben Felix: I mentioned this on the podcast before but we had a listener reach out a while ago just saying how grateful they are for the podcast content and how much its done for them and offered their professional skills if I was interested in having to build some bot parts. When they made that offer, I jumped at it and I don't know if they were actually expecting me to take them up on it but I did quickly. I shipped off the 3D renderings of my bot weapons, he built out of aluminum and steel. He machined this drum spinner. I don't know how well you can see that there.

Cameron Passmore: Look at that.

Ben Felix: Yeah. It's pretty cool. We'll be able to play a little video if you're watching on YouTube so you can see what it does. But, it's pretty cool.

Cameron Passmore: Bet that bot's archenemy doesn't stand a chance against that.

Ben Felix: That's not true, actually. I don't have the other bot to show you but the defensive wedge on the other bot, even though it's made out of plastic, it's thick enough and strong enough that it was able to absorb the hits from this metal weapon quite easily. I tested that, of course, as soon as it was ready.

Cameron Passmore: So, if you want to see the bot you're going to have to watch this on YouTube.

Ben Felix: Yeah, or I think we'll post it on our Rational Reminder Instagram as well.

Cameron Passmore: Just want to update people on the merch store. So, the new mug is available, the one with all the guests that were pre-2021. They're all listed properly now so those are available for order and they're on our merch site. Also completely restocked. Angelica loaded us up with hoodies, the blue and the charcoal. You still get free socks with every order and we're still waiting for details on the talking sense cards. I know a lot of people are waiting for them, but we should get an answer soon I am hoping.

Cameron Passmore: Earlier this week, so after we recorded this but before we released this, we had our first AMA. So, hopefully people checked out Paul Merriman on the AMA this week and we're going to have more AMA's in the future, we hope. Coming up, we have some amazing guests. So, each time Ben and I are on, just us, we're going to let you know the three upcoming guests. So, next week is Professor Robert Novy-Marx. Two weeks after that will be Professor Brad Cornell. And then, two weeks after that will be Professor Johanna Peetz 00:02:27. All three interviews were spectacular.

Cameron Passmore: A couple of recent reviews I want to give a shout out to. First, was Mark Pitt Blotto 00:02:35. I thought his comment was... we appreciate it very much, but he said Ben and Cameron have decided to not only share their expertise publicly, but to do so without advertisements, promotions or subscriptions. And, that that is deliberate. Gel.PSYD said, "Add these conversations to your week to expand your thinking and deepen your self-awareness." Again, very much appreciated. And, Tony Smiles 11 says, "Just keep doing what you're doing," which we are.

Ben Felix: Yes.

Cameron Passmore: We have lots of guests lined up. We have lots of ideas. So, we are going to keep this up. We love being connected to people, so, as we mentioned earlier, you can check us out on Instagram. That's where Angelica puts up all kinds of different things including Ben's bots. So, that's at Rational Reminder. We're both on Twitter. Easy to find. I'm on Goodreads. I love the Goodreads. There's so many good books. Unfortunately, not enough time to read them all but it's a lot of really great sharing going on there. I'm on Peloton as CP 313. We have a hashtag in that group as well hashtag Rational Reminder which is super fun to see people there. Anything else to add, Ben?

Ben Felix: No, it's good, now we can go ahead to the episode. Welcome to Episode 148 of the Rational Reminder podcast.

Cameron Passmore: So, quickly want to mention a book that was suggested to me by fellow advisor and friend, Justin Castelli. The book is called Obsessed: Building a Brand People Love from Day One by Emily Heyward. She's a co-founder and Chief Branding Officer of a company called Red Antler which is a branding and marketing company for startups and new ventures, and has helped build brands like Casper and Allbirds, which are two pretty good brands I would suggest to refer to.

Anyways, this book really dovetails nicely with the book we mentioned four weeks ago called, The Hidden Psychology of Social Networks, which actually got a lot of pickup in the community. I just thought this is an interesting book for anyone who has their own business or their own startup about how consumers build relationship with a brand, unknowingly. And, early in the book, the author says the most fundamental principle of building a beloved brand today is tapping into the real need for your consumers. So, you have to really define what your problem solves, and to really dig in and define the basic human problem and keep asking why.

In fact, she talks about length about how, in so many cases, the real true deep reason why someone wants your product and loves your brand is because they're going to die. I know that sounds morbid, but she says, in so many cases... You could take it for our business, for example, you talked about the value financial advice a couple weeks ago, like why would you want an advisor? Well, to help build better portfolio, better planning. Why is that important? Well, because I want to spend more time with my family. I want to be able to focus on my health. For whatever reason. Well, why do you want to do that? And, you keep pushing those why's. And invariably, it comes down to, because I'm going to die.

Ben Felix: It does. It's true. I guess, everything in life.

Cameron Passmore: And, she also talked about technology. She said, for example, in the early 2000s, a great user experience was a meaningful competitive advantage. So, Uber had an unbelievable head start, but then they had their branding problems. And then, other companies such as Lyft, came in and started chipping away at their market share. So, she talks about how the brand is much more important than technology or a logo, or a tagline. It's about this whole meaningful improvement in people's lives, because they're going to die.

Ben Felix: It's like what Dennis Mosley Williams talked about when he was on the podcast, the experience economy.

Cameron Passmore: For sure. But, the one great example I thought... as a side, she talks about Allbirds, which is a brand I love, and I never realized how much I love it till I look around and I've got six pairs of Allbirds shoes kicking around and got some for the kids for Christmas. And, they love them. And, they're just phenomenal, but there's a great story behind Allbirds other example that she gave was Airbnb, and Airbnb took off, they believe, when they identified the true problem they were solving. They learned that instead of having Airbnb just be a way for people at own places to make more money, they realized that travelers wanting to not feel like a tourist, they wanted to experience a city as if they lived there, not like a normal kitchen, a normal place and a normal neighborhood as opposed to a glass tower downtown. And, they wanted that better experience and they travel, because we're all going to die.

Super interesting, I thought. Anyways, great book, highly recommended. I loved it. It's an easy short read. So thanks, Justin for that recommendation. Second item I thought was neat was, earlier this year, the Investment Industry Regulatory Organization of Canada, IIROC, released a rules notice regarding client-focused reforms. And, one of the areas in these reforms was for better disclosure regarding conflicts of interest. So, our friend, Jason, tweeted a notice to clients that came from a big bank. I won't mention which bank it was. I'm guessing, they're probably similar for all of them. But, this notice was caused by these client-focused reforms. And, the title of the notice was... so this was from big bank to the end-consumer, understanding conflicts of interest.

I'm quoting here, at times our interest, as a financial services firm and those of our representatives, may be inconsistent with your interest as our client. We've adopted policies and procedures to assist in identifying addressing these material conflicts of interest.

Ben Felix: I think it's important to note that conflicts of interest exist in almost any business and disclosing them is very important. But, as you read on, people are going to see why these ones are particularly... I don't know what I'd call them, egregious maybe.

Cameron Passmore: This is a story that you must be aware. That is the point, to be aware of what is happening here. So, if we cannot effectively address a material conflict in your best interest or the conflict is otherwise prohibited by law, we avoid it. We inform you about the material conflicts that you can better understand them and assess how they may impact you. Disclosure is great, right? So, material conflicts may include... and, this is wehn you get into the list, a lot of people just, I think, probably don't know a lot about this conflicts and come from our being a member of our Bank Group, which may raise a perception or risk that we favor the Bank Group business interests over yours.

Examples of these complex may include investing your accountant Bank Group investment products or securities that our affiliate is underwriting or securities of an issuer with whom an affiliate has a meaningful relationship. It could be service arrangements with our affiliates, including trade routing and execution, custodial services, and introducing and carrying broker activities. Conflicts where we or affiliates earn revenue related to your investments, in addition to fees you pay us.

These may include trailing commissions. We earn from fund managers on investment funds in your account, spreads on fixed income trading. There's one, I guarantee you, so many people haven't got any idea what's going on there. And, it's completely invisible. Foreign currency exchange fees, principle trading of securities, lending activities that are secured by your investment account, securities lending. There's another one. Conflicts arising out of competing interest among our clients. For example, allocations of new security issues, securities lending and side by side management of different client accounts. This was in the letter.

Ben Felix: Which makes sense. We know these conflicts exist. We do, but other people wouldn't. So, the fact that they're disclosing them is good. I think that the existence of a lot of these comes out because the big banks tend to be vertically integrated, and they have all of the different services in-house. So, it makes sense to complex like this would arise. But, for the end-client, I think the question you have to ask yourself is, how likely is it that all of these things are going to work out to be in my best interest as opposed to the financial institutions, which is, of course, always a big question that investors have to be asking.

Cameron Passmore: I agree. Third interesting thing I picked up last week. So, our friend Barry Ritholtz, on Masters in Business, interviewed with the former CEO of Vanguard, Jack Brennan, who, by the way, just a great interview, really interesting guy. And, I thought part of the conversation linked back to our discussion a couple weeks ago, where we talked about the article in The Atlantic, entitled, Could Index Funds Be "Worse than Marxism"? This is around minute 40 of the conversation that Jack Brennan had a different perspective that I thought was interesting. He talked about how, with so much money in indexing, CEOs will have permanent shareholders who are more interested in strategy and not just the next quarter results.

So, he says, and I quote, this gives companies more freedom to plan long-term. He says, promoting a myth that indexing is anti-competitive or bad for markets, or is a bad investment strategy is just flawed logic and wishful thinking. There will always be plenty of market clearing activities, to value a company, but the idea that a CEO can talk to a handful of permanent investors will give the best management even more confidence. Goes on to say, markets will be advantaged by companies being able to think in a way that today they can't as there's so much noise in the system. I thought that was a neat perspective for someone who was a CEO of the second largest asset manager on the planet.

Ben Felix: Yeah, it is. Well, we have our episode with Brad Cornell coming up. He also talked about market efficiency and indexing and had some really interesting points. I won't spoil it, but even if there were no active trading, he argues the markets could still be efficient.

Cameron Passmore: That's quite the teaser. Anyways, on to the main topic.

Ben Felix: Yep, I hope people aren't tired of hearing about happiness, but I think this is the last time. In a bit, we're going to talk about it, but it's a topic that we, I guess, expressed our interest in this topic, largely by having a lot of guests in the last six months or so talking about this kind of thing. And, that was part of our own research. People may remember we said probably about a year ago now, that we wanted to expand our horizons away from factor investing a little bit. And, this is not just for the podcast, but also for the PWL Capital business and our interactions with our clients.

So anyway, we identified a bunch of resources, books, papers, and otherwise, spoke with many of the authors, which is pretty cool to be able to do that, read a book and then talk to the author about it. Kind of, a neat perk of having the podcast. This is basically my expression of all of the information that we've absorbed over the last, however long, six months or so on the relationship between happiness and how we make financial decisions.

Cameron Passmore: It's also an area that's so data rich. Lots of study has been done on this that lends itself to the way you kind of, come at tackling problems, right?

Ben Felix: Yeah, there's a lot of data. The data scares me, though, to be honest with you. There's a study from Kahneman and Deaton from, maybe, 2010, that showed... We talked about this, we've talked about a study on the podcast, and it's also in some of the other books that I read on this topic, but they show that experienced happiness stops increasing after a certain point of income. And, that study was $75,000. But, reflective happiness in that study kept increasing. We talked about this in the Meir Statman paper, I believe, that we talked about on the podcast a while ago. They talked about that same data point where your reflective happiness may continue increasing with increasing wealth.

And, that has a lot of important implications for financial planning and financial decision-making. In a more recent paper, I think this one was a 2018 paper, if I remember correctly, they looked at a bigger sample, they looked at a global sample, and they had better quality data. And, they actually found that, that was no longer true. I'm getting way ahead of myself. This is in the middle of my notes, but it's just on the topic of the reliability of the data in this field. It makes me a little bit nervous. The way that we talked about having to take financial data with a grain of salt because economics is still a social science, it feels even more so like that with this data, but still interesting insights.

And, one of the books that I used to familiarize myself with this topic, and I referenced it in what we're about to talk about is, the happiness hypothesis, which I've mentioned before by Jonathan Haidt and he looks at the more modern positive psychology data but he also draws from Ancient philosophy like Buddhism and stoicism in Chinese philosophy and kind of, compares, what does modern science say? What does the ancient stuff say? And, what are the differences?

So, that gives some pretty interesting insight, too, because there's a ton of overlap, but there are also some marginal differences. Anyway, we'll jump into this topic. So, I've called this, investing in happiness.

Cameron Passmore: Catchy.

Ben Felix: One of the things, actually, that maybe really finally sit down and write this because I've been thinking about it for a while, there was a massive discussion in the Rational Reminder community that's still going on. And, I'm so far behind now, I would feel like a foreigner if I go in there, at this point.

Cameron Passmore: You will, my gosh.

Ben Felix: But, there's a huge discussion on the optimal mix of factors and the optimal amounts of diversification versus concentration. I mean, this is massive. Last time I looked, it was over 300 hours of reading time to read the whole thing. I can't even imagine what it would be now. Yeah, just a huge... Or, maybe 300 minutes, maybe that makes more sense. Yeah. 300 minutes. 300 hours is CFA preparation time. Yeah, so tons of material, but it's all about basically, what is the optimal portfolio? What is the optimal mix between different types of financial products and different factor exposures and all that kind of, stuff?

And, that's interesting that there's so much discussion about that. Because, I think that type of behavior where you're looking for optimizations that are going to result in more money... I think it's the same when you're looking for the next big win, like investing in Bitcoin a few years ago, all that kind of stuff, or even working really hard at a job that you maybe don't like that much to get to the next promotion, all of those behaviors are physiologically addictive.

And, that sounds like an extreme statement, but there's a 2001 paper that used fMRI to measure brain activity under different circumstances. It's by Hans Maeder, and some co-authors, including Daniel Kahneman. And, they found that obtaining more money activates the same regions of the brain as illicit drugs, which sounds crazy, but that's what they found. Now, when you hear that for money, I think that the common perception is, maybe being addicted to having more money is not so bad. More money doesn't hurt. But, I think that the problem is that, for our brains, that experience of getting more is always relative. Having a lot of money doesn't satisfy the desire for more money.

And, there's lots of research that shows this. Even very wealthy people, when they're asked in a survey, how much more money would they need to feel happy, in many cases, it's like twice as much as they currently have. There's a study, it was in Ashley Whillans book, where the survey asked, people with $10 million or more, how much more money they would need to be happy. I think it was 75% of the people responding to the survey, said that they would need at least 5 or 10 more million to be perfectly happy with the amount of wealth that they have.

So, knowing that getting more money, and getting more basis points from your portfolio, is truly addictive in the same way that drugs can be. I think it's this question of enough versus wanting more, which we talked about with Morgan Housel, and Brian Portnoy as well. But, figuring out that enough piece is obviously critically important, at least when you think of it. But, I think it requires taking that big step back and asking, what is the objective? And, what I'm going to argue in this discussion, is that the objective is living a happy life. Loaded statement there.

So, we're going to try and pick apart what are the contents of a happy life? And, what is its relationship with money? And, when you think downstream, which we'll talk about in a minute, there can be some pretty significant implications on financial planning, when you shift the thinking. I've made offhand comments about how this might change financial planning in past episodes, but, hopefully, this is a tighter delivery of the whole thing.

Money has this unique ability to move economic value through time. Obviously, work today, make money, and you can use that to store value. Store value, one of the things that money is to fund spending in the future. Time and money are both finite resources, and every day we make allocation decisions, how are we going to use our money? How are we going to use our time? And, those decisions absolutely interact with each other. In many cases, they're traded off against each other. I don't think that there is an objectively optimal way to allocate time and money just like I don't think there's an objectively optimal way to build a portfolio. Same kind of idea.

But, I think that if we anchor those allocation decisions, in the objective of living a happy life, they can help make those decisions more beneficial from that perspective of leading a happy life. So, we have to figure out where this happiness actually come from. This is such an interesting data point, but a large part of relative happiness, like if you take a group of people, and this is done, I think with twin studies... but, a large portion of happiness is heritable. And, when I was reading about this stuff, there has been criticism about assigning percentages to these things because the data quality issues that we talked about earlier, or reliability issues, I don't know, the most notable piece of research on this seems to suggest that it's about 50%. I've seen between 30 and 50%, of relative happiness, is determined by your heritable setpoint.

You can't really change it. The biological setpoint is a big piece. Martin Seligman suggested this equation. So, he called it, happiness equals your biological setpoint plus your circumstances plus the factors under your voluntary control. So, biological setpoint is a huge piece. Circumstances, small. Again, from the same source that gives the 50% for heritable. They say 10% for circumstances. 10% of happiness is determined by your circumstances. And then, the remaining 40% is determined by your voluntary activities. Basically, what you do with your time and money.

So, that 40% is where we, as people, making financial decisions, can hopefully exert some influence on living a happy life. The 10%, the circumstances being so low or relatively low, I think, is a huge point for people to understand. I know, I first read that in happiness hypothesis, and to me, that kind of blew me away. It's one of those things where I look back on it now and try to remember, did I really think that circumstances would change happiness before that? I guess, I did, because when I read it, it was like, wow, I couldn't couldn't believe it.

Cameron Passmore: That's about, humans are so adapted to the situation, correct?

Ben Felix: It's largely about adaptability, for sure. But, it's just crazy to think that where you live, your health, your age, education, intelligence, gender, race, all of these things, have a relatively small impact on happiness. But, if you think about when someone sits down to make a financial plan, where you live is a big one. People want to move to a warmer part of the country or a bigger house or close to a lake or whatever. That can become a very big financial decision, but based on the research, there seems to be some level of consensus about your circumstances don't actually matter a whole lot. That to me, is pretty profound.

So, the voluntary activities, which, like I said before, is how you choose to allocate your time, money, that is the big piece that we can exert some control over and it has a big impact on happiness. Now, like you said, Cameron, circumstances don't seem to matter that much, probably because we adapt quickly to changes and circumstances. You can move to a bigger house, that just becomes normal very quickly. If you move close to a lake that becomes normal, very quickly.

Moving close to a lake is an interesting one because there's also research suggesting that time in nature is important for happiness, and also changes perception of time. I didn't dig too much into that research for this. It's probably just confirmation bias, because I'm moving close to nature.

Cameron Passmore: So, you'll be happier this summer.

Ben Felix: There is real published literature suggesting that being close to nature increases happiness and slows down the speed of perceived time. This is another one from happiness hypothesis that I found just fascinating, on circumstances. So, we're saying circumstances don't really matter because we adapt quickly, but Jonathan Haidt... I think he gives four examples. But, I'm going to talk about three of them.

Noise. So, variable or intermittent noise, interferes with concentration and increases stress. And, we do not adapt to that. So, living in the city close to a busy intersection, not a good idea for happiness. So, that's a circumstance that we can relatively easily change or at least factor into decision making. They can have a big impact. Commuting. Only in heavy traffic though. Commuting in a nice, easy, relaxing drive doesn't seem to be an issue, but commuting in heavy traffic increases stress. It's again, not something that we adapt to. And then, the other big one is, feeling like you're in control. If people don't feel like they're in control, they are not happy. That's maybe a harder one to change, in some cases.

Cameron Passmore: I agree with all three.

Ben Felix: To talk about happiness, we have to define the two types so there's experienced happiness which is best described as good feelings, feeling good, pleasure, and reflective happiness which is best described as a deeper sense of fulfillment or being your best self. Good feelings like pleasure and comfort is referred to as hedonia. Like, eating chocolate, petting a soft bunny, that's hedonic. People have heard of hedonic pleasure.

Cameron Passmore: Petting a soft bunny?

Ben Felix: It was in one of the books I read, and I thought it was actually pretty good. It does feel nice to pet a soft bunny. I mean, if you want to offer some other examples of hedonic pleasure, be my guest, but those are the ones that I thought were tame enough to use. Then, hedonia contrasts with eudaimonia, which was first described by Aristotle and is best translated as flourishing. So, hedonia, the good feelings and pleasure, that's pretty easy to think about. I think, you know it when you feel it. But, eudaimonia takes more reflection and deeper thought.

One way to measure eudaimonia, which we talked about on the podcast a while ago, is using the Cantril ladder. So, you imagine a ladder. In a lot of these studies, this is how they measure reflective happiness. So, you imagine a ladder with 10 steps numbered from 0 to 10. The top step represents the best possible life for you and the bottom step is the worst. And, you have to ask yourself, on which step of the ladder do you feel you were standing on?

So, eudaimonia is more about living well, living a good life, while hedonia is more about feeling good. Feeding actual physical feelings of pleasure or enjoyment. Now, one of the things that came out of Martin Seligman... he's the guy that kind of, founded the positive psychology, body of literature that since exploded. He came out after his initial hypothesis. He changed the direction of positive psychology, and instead said, we shouldn't be thinking about happiness, we should be thinking about well-being.

Well-being basically just encompasses... at least this is my interpretation... both types of happiness. Experienced happiness and reflective happiness. And, the way that Seligman captured that... And, we've talked about this on the podcast before as well... the way that he captured that, is with a five factor model. I hope people like that because we know we like factor models around here. But, he has the PERMA model of, positive emotion, which is the feeling good peace. Engagement, which is finding flow or being absorbed in activities. Strong, healthy relationships. And, that's one that all throughout this literature is a common theme. Strong, healthy relationships being extremely important. Meaning, which is having a sense of purpose beyond yourself, and accomplishment, which is setting and achieving valued goals. There's a fascinating piece about goals, which I'll talk more about later.

But basically, there's this thing called The Progress Principle. We get good feelings from making progress toward a goal. And, we also get good feelings from achieving a goal. But, when you achieve a goal, it's over. You get the good feeling, and then that's it. And, it's done. On the way there, taking the steps toward the goal, and you get a lot more enjoyment than you do by actually achieving it. It's called the Progress Principle. So, setting and achieving valid goals. It's almost more about the process of getting there.

Cameron Passmore: It's similar for travel, right? The anticipation of the trip is often as much fun as the actual trip.

Ben Felix: For sure. This comes up in material purchases versus paying for experiences as well.

Cameron Passmore: Mm-hmm (affirmative)

Ben Felix: That same idea of anticipation seems to be stronger for experience than it does for things. The PERMA model highlights the idea that happy life is more than experiencing pleasant feelings. But, I think this is where it gets really interesting in terms of psychology. And, this is something where, like I mentioned my concerns with the type of data that we're working with earlier, this piece seems to be less problematic, the system one and system two thinking.

Looking for both experienced and reflective happiness, knowing that is required for overall well-being. That the challenge introduced by our two speed brains. So, that's the Kahneman, thinking fast and slow, system one and system two, where people might know this but I'll talk about anyway for people that don't. System one is the automatic quick thinking, little or no effort to engage voluntary control system. That sort of, responding to your environment throughout the day. Most of your decisions, I think it's like 98%. I hope I'm not overstating that, I can't remember the actual number. Out of the vast majority of the decisions we make every day, are carried out by system one. And then system two, allocate attention to the effortful mental activities that demand it including complex computations.

We have to actively engage system two. It's not on all the time. It demands more resources, so our bodies have been designed to keep running on system one as much as possible and gauge system two when it is necessary. Which, one of the things I read, I can remember where, might have been happiness hypothesis, it can be physically uncomfortable to engage system two-

Cameron Passmore: Oh, for sure.

Ben Felix: Right. Because, our bodies are averse to using the extra energy. In happiness hypothesis, Haidt uses the metaphor of an elephant, system one, and a rider on top of the elephant, system two. The elephant responds to its surroundings, acts on animalistic instinct, including wanting to impress others and rise in the social ranks. Like some real ancient evolutionary stuff. The rider on the elephant can think into the future, plan, learn, but it does not have, at any time, full control over the elephant. Because, if the instincts are strong enough, the elephant's going to do what it wants to do.

Cameron Passmore: It's a great metaphor.

Ben Felix: Right. I think it's pretty good. I explained that metaphor to my wife once because we were talking about... one of our kids was doing something, I don't know, and I explained the elephant and the rider. And she was like, "Did you just think of that?" No, I was-

Cameron Passmore: Yeah sure.

Ben Felix: This is where it ties back into the overall well-being. The elephant wants to seek pleasure and avoid pain, climb the social ranks, but, in many cases, that can be in conflict with the other factors in the PERMA model with the other aspects of well-being. For that, we have to engage the rider, like we just talked about, can be uncomfortable to turn on. The elephant wants the kind of pleasure that comes from eating good food, or getting a massage or petting a soft bunny, or winning big on a stock pick, or not wanting to miss out on seeing somebody else winning on a big stock pick.

But, the actions that satisfy the elephant can often be in conflict with flourishing. I think that the challenge is that, in many cases, people, day-to-day, making financial decisions, and then not even realizing it probably, end up letting the elephant make the decision. It's hard to sit back and reflect. It's easy to gamble, or act on impulse or do what feels right in the moment. But, that's where it leads to conflict with the overall model of well-being.

So, this is where that relationship between we've got the two speed brains elephant and the rider, we've got the five factor understanding of well-being, and we can use that information to help us make decisions about how we use our time and money. The topic we did recently in the CSI video on, what is good financial advice, I kind of, alluded to this, that a big part of advice should be, being able to offer feedback and context on a lot of this stuff. Because, most people, I don't think... Maybe, just think about sitting down and setting goals. If you tell someone to sit down and set, what are your financial priorities, in many cases, it's, I want a bigger house or I don't want to work or I want a cottage. And, in a lot of cases, the goals that people will think they should have will be at odds with this model of well-being they we're talking about.

Letting the system one brain, the elephant, determine financial priorities, can result in, maybe, short-term experience happiness. With stock picking and stuff, it's a little more questionable, because you're more likely to lose than win. Maybe, just the act of gambling feels good. I don't know, I didn't look into that too much. Those short-term experienced happiness episodes come at the expense, in most cases, of sustained reflective happiness.

Cameron Passmore: Mm-hmm (affirmative)-

Ben Felix: We trade our time for money at work, which is fine, people need to work. But I mean, they don't always need to work, but work is important psychologically as well as economically. But, working more to make more money, or to get a promotion or whatever, is not always an obvious trade-off. We talked about this at the beginning when I got ahead of myself, but this is that 2018 paper that I mentioned. Happiness, income, satiation and turning points around the world. And, it's by Jebb, Tay, Diener and Oishi. And, they had a global representative sample of over 1.7 million people. They found that the income satiation point for experienced happiness, that's hedonic pleasure, is $60,000, globally, and $65,000 in North America.

So, above $65,000 per year of income per individual, people did not experience more happiness day-to-day. That's the point that I think a lot of people are familiar with. That's the one that's been thrown around a lot. Experienced unhappiness, this is a really interesting one. Experienced unhappiness stopped decreasing at about $75,000 globally and $95,000 in North America. So, people making more than $95,000 per year in North America, their feelings of sadness, stop decreasing at higher levels of income, or unhappy feelings stopped decreasing.

Then, reflective happiness, which is the big one that until not long ago, maybe until four days ago, when I read this paper in detail, I thought there wasn't a cap that you could keep having more reflective happiness with more income. Not the case, at least in this sample. For this one they found, in North America, the satiation point for income on reflective happiness was $105,000 per year.

Cameron Passmore: So, interesting.

Ben Felix: Right. So, above that level of income, people no longer evaluated their lives more positively.

Cameron Passmore: This goes back to your discussion of base rates that you talked about two weeks ago and in your video. They used to have the awareness around these base rates that you can start framing the decision as a rider instead of the elephant.

Ben Felix: Exactly. The base rates are critical to the elephant. Otherwise, you can't do all the planning and thinking.

Cameron Passmore: Yeah.

Ben Felix: Now, one of the other really interesting insights from this paper is that in not all regions, but in some regions, including the North America region, that they looked at sub samples for, there's actually a turning point. Only for life evaluation. I couldn't actually find the dollar amount. Maybe, I just didn't look hard enough in the paper. But, there was a turning point where above a certain level of income, life evaluation, reflective happiness, started to decrease. So, not only does it plateau, it actually starts to decrease. And, the author's speculate that it could be because high incomes are typically accompanied by high demands on time, which can also limit opportunities for positive experiences like leisure activities.

Cameron Passmore: That's an interesting one.

Ben Felix: Not only does happiness or life evaluation stop increase, it can actually turn around with higher levels of income. But, it may not be the income and maybe what goes along with it. money can increase positive emotion, like we talked about, it can decrease negative emotion, and it can increase positive life evaluation. But, in all cases, there's a satiation point. I think that's really important. Understanding money's role... In well-beings, we talked about the PERMA model. We've talked about the fact that there's a cap on how happy money can make you, but I think it's worth thinking through the PERMA model and the relationship that money has to the different elements.

It's a necessity to meet basic needs, obviously. And, that's where that $60,000 threshold is believed to be above that level. You've kind of, met your basic needs. So, necessity to meet basic needs, reduce stress. Probably pay for positive experiences, like maybe taking some time off, and that kind of thing. So, that's all important for positive emotion. Money allows us to invest in skills, hobbies, and other activities that drive engagement. Money affords shared experiences, memberships and clubs and things like that and the time needed to build and maintain relationships. So, that's the relationships piece. It frees up time to be involved in things greater than the self like family, politics, work, community, social causes, volunteering. Money can fund the path to achievement and mastery in sports, hobbies and work.

So, there's definitely a role that money has to play. I think the mistake that people get caught in is focusing on money rather than on what money affords. I do think that within the sample of the people in the Rational Reminder community, which I know is a relatively small sub-sample of overall listeners... maybe, it's influenced by the discussions we've had in the community. But, a lot of this stuff seems to be appreciated by the people in there, which is reassuring. Maybe, I'm preaching to the choir to an extent.

In her book, Time Smart from Ashley Wilkins, who is obviously a guest on the podcast, and a listener favorite... that was such a good episode... she explains that people who value time more than money are likely to be happier, make more frequent social connections, have a strong relationship with their spouse, which is another important thing for happiness and be more satisfied with their job. And, she also makes a supported claim argues, that valuing time over money is also pro-social. When we feel that we have more time, we're better able to serve other people, which in turn increases our own happiness.

And, one of the problems with this is, that she argues that we're living in a time poverty epidemic. People who are time poor are less happy, less productive, more stressed out. This is where it comes back to money. Some of the biggest causes of time poverty relate directly back to money. People incorrectly believe that earning more money today will allow them to be happy in the future, and they tend to undervalue their time. So, instead of trading time for money, which is what most people I think, do, working less and trading money for time by outsourcing unpleasant tasks can increase happiness.

So, time influence, important aspect of a happy life. Also, though, what you do with your time is important. So, active leisure activities like volunteering, socializing and exercising directly related to happiness. Flow, the state of immersion in a task that is both challenging and aligned with your abilities. That's a state that some researchers suggested that flow is valued more highly than feelings of pleasure, which is pretty interesting. So, being in that state of flow is... you can't be in a state of flow all the time. That is one of the times when people are happiest. And, if you ask somebody this is... I can't remember which book, I've got like, four different books on positive psychology open here... if you ask somebody who's in a state of flow, what they're thinking about, they'll say nothing, which is another just interesting aspect of flow.

Now, unless you're into driving race cars or something, which is one of the things that can lead to the state of flow, I think the activities that tend to result in persistent happiness, like all those things that I just mentioned, they're not big expensive trips or material purchases. I think it's kind of, safe to say that the best things in life are the things that make people happy are often free or they don't cost very much and they're definitely not luxury goods, or at least they don't have to be.

Cameron Passmore: That, I couldn't agree more with. Completely emphatically agree, at least for me.

Ben Felix: Yeah, for me, too. Maybe, this is all just confirmation bias. I actually can't stand big trips like traveling and the whole big orchestrated trip and the hotel and the... Oh, I can't stand it. Whenever my wife and I talk about traveling, I say, we need to at least explore all of Ontario before we start traveling.

Cameron Passmore: I enjoy a good trip, I would say that. But, I get an extreme pleasure out of sitting here in the morning and reading for a couple hours at that cost for whatever a downloadable book costs.

Ben Felix: Yeah. Now, this doesn't mean that all spending is bad. We just talked about a bunch of the things you can do that don't cost a lot of money that are directly related to happiness. There's a paper with a very provocative title, 2010 paper, If Money Doesn't Make You Happy, Then You Probably Aren't Spending It Right by Dan Gilbert and Wilson. And, they explained that one of the biggest problems is our inability to make accurate, affective forecasts. In this paper, they offer a bunch of ways that people can be better at spending to align spending more with happiness, but the effective forecasting piece is big. People are often wrong about what will increase their happiness in the future, and for how long that happiness will last.

Some of the ways to overcome that, spending experiences is more impactful to happiness than spending on things. And, this one's almost feels cliche at this point. Everybody's kind of, heard this, but we're saying it again. People are happiest when they're engaged in what they're doing, and experience can provide that engagement, that state of flow, depending on the experience, obviously. Reflecting on past experiences enhances mood more than reflecting on past material purchases, and people tend to anticipate and remember experiences more than things. That's an anticipation piece that we're talking about earlier.

It's harder to adapt to experiences than to things since each experience is unique, while things are static. That one I thought was pretty interesting. They gave the example in the paper, I think... maybe, I'm paraphrasing the example, but anyway. If you do your kitchen, if you renovate your kitchen, it's gonna be the same kitchen every day, you're going to adapt to it. If instead you pay for a... I can't remember, a weekly or monthly cooking class, each time for a year, each time that you go, it's going to be an unique experience, which makes it much harder to adapt to.

Then, the other big one, and it comes back to that relationships piece, is that experiences are more likely to be shared with other people. And, strong relationships are one of the most important pieces of living a happy life. The point here that I think is interesting, though, is that as much as we can say it's better to spend on experiences than things, I can't help but wonder if it's just better to do experiences that don't cost money. I'd much rather go for a walk in the forest than pay for some other experience. Maybe, a cooking class with my wife would be a worthwhile experience. I don't know.

Another way to deal with the adaptation issue. This one is so intuitive when you think about it. But, if you buy frequent small pleasures, rather than fewer large ones, you're much less likely to adapt to it. So, doing things like dining out, going for coffee, getting a pedicure, or getting a massage, doing those things more frequently, rather than buying a very expensive car, much more likely to lead to happiness. Your happiness per dollar should be much higher, doing those frequent, small pleasures rather than one big thing. And again, it comes back to adaptation.

Then, another big one is pro-social spending. This comes up everywhere in this literature, spending on other people makes people happy.

Cameron Passmore: So, it could be gifts, it could be charity.

Ben Felix: Yep. Any pro-social spending. Spending that benefits other people. We're hardwired to want more money and nicer things. And, this is again, that evolutionary stuff where we want to climb the social ladder because that's how we survive. But, adaptation very quickly leads to a desire for even more once we have more. We just want more. Happiness tends to stop increasing at moderate to high but not unattainable levels of income.

Like, 105,000 was the cap for reflective happiness. That's a high income. I don't want to sound out of touch but it's not a crazy high income. So, somewhere between 60,000 and above, but up to 105,000, happiness stops increasing. Valuing time over money, engaging in active leisure activities, finding flow, building and maintaining strong relationships, spending money on experiences rather than things, spending money on other people and indulging in frequent small pleasures rather than fewer big ones, are all principles that can lead to happiness. Then, interestingly, a lot of them don't really cost money. They cost less money than what people might do otherwise.

In Geometry of Wealth, Brian Portnoy summarizes what matters to humans as the four C's; connection, the need to belong, control, the need to direct one's own destiny, competence, the need to be good at something worthwhile, and context, the need for a purpose outside oneself. Money plays a role in underwriting a life with all those things, with connection, control, competence, and context. But, money itself is not the objective. There's that trap of thinking, once you have more money, you can figure all this stuff out. But, that's just not how it tends to play out. Now, here's where the rubber hits the road, is that designing a happy life based on all the stuff that we just talked about, probably looks a lot different from what a lot of people would design if they just sat down without having any of this context and then tried to figure out what their financial objectives are.

That traditional idea of sitting down and setting your financial goals based on some projected retirement date, and this rosy vision for the future, which people tend to have, it's an inherently flawed process. Because, we have this weak ability to forecast what will make us happy in the future and we have a tendency to adapt to whatever circumstances we're in whether they're good or bad. If they're worse than we expected, it might feel bad for a little bit, but you adapt. If they're better than expected, you feel-

Cameron Passmore: Right. Exactly.

Ben Felix: Yeah. Now, the other piece, and I mentioned this earlier, because I always get ahead of myself, is the progress principle. We get pleasure from making progress toward a goal and from achieving the goal. But while, progress toward the goal offers continued pleasure along the way, post-goal pleasure is short-lived. So, another way to describe that is, when it comes to pursuing goals, it's more about the journey than the destination. I know, not everybody does this, but just as an example, someone decides they want a really big house, so they're going to make a bunch of sacrifices, and maybe feel not super happy for a period of time, while they save up for the down payment. That's not enjoying the journey for a destination that probably won't actually make you as happy as you expected.

The other crazy to think about aspect that makes long-term goal setting really challenging, is this thing called the End of History Illusion. And, this was documented by Quoidbach, Gilbert and Wilson, in a study that they did. At any point in time, if you talk to somebody, they'll believe that they have recently become the person that they're going to be for the rest of their lives. It's great. When you think about it, it makes sense, I reflect that on myself. You think that. You think you are you. But, in reality, people change. People change over time. So, people may believe that who they are today is pretty much who they're going to be tomorrow, but, in reality, that's not likely to be the case. And, people do tend to change over time, so this is what they documented in their study. That the reality is people do tend to change over time, but people don't believe they will change in the future, despite the fact that they have changed to that point.

So, the End of History Illusion is this idea that we don't think that we're going to change, but you probably will, which makes that effect of forecasting an even bigger issue. So, I think one of the ways to address all of these issues, is by inverting the goal setting process. Instead of setting goals, try and setting anti-goals. Instead of thinking about the future life that you really want to have, just think about what are the things in your life that you don't want to have, now and in the future, instead of looking far into the future... it's like my example of the big house, instead of looking far into the future and making sacrifices today to achieve some future life, that in reality, you may not like as much as you expected, it might be more sensible to design the life that you want today by finding ways to remove your least favorite parts, and make the journey more pleasurable since it's hard to know what life you will actually want and be happy with in the future.

I think the practical implications here could be things like scaling back an aggressive savings goal to instead pay for maybe a house cleaner, or a meal delivery service. If those are things that you don't like doing. Taking a lower paying but more enjoyable job that results in daily states of flow, donating to local charities and volunteering instead of going on fancy vacations, sticking to a sensible diversified investment strategy with a low dispersion of outcomes and a reasonable expected return instead of trying to hit the lottery with individual stock picks. That's a real practical implication. You don't need to win the lottery once you've designed the life that you're happy living.

Cameron Passmore: You're setting up the bad advice of the week perfectly.

Ben Felix: A couple last points. Eliminating work. When you think about this, when you think about what does someone do when they sit down to make a financial plan, generally speaking, eliminating work is typically the focus. You're planning for financial independence, which is still important because we talked about earlier... I mentioned, briefly, and maybe it deserves more emphasis, that control or feeling like you're in control, is one of the most important components of circumstances that makes people feel good. Lacking control makes people feel really bad. Financial independence, I think there's a pretty strong argument that it does increase control or that it can increase control. But, I still think that the idea of eliminating work is flawed. They are, at least, making that the primary objective of financial planning.

It's definitely a point to factor into a plan, but making it the centerpiece, I don't know, if it makes sense. In the happiness hypothesis, Haidt argues that love and work are the two most important ingredients for human happiness. And this is a quote from the book. Love and work are crucial for human happiness because when done well, they draw us out of ourselves and into connection with people and projects beyond ourselves.

In the book, there's a whole chapter on finding meaningful work and work that aligns with your strengths. But, I do think that the idea of eliminating work rather than finding work that meets those criteria could be a valid component of many financial planning exercises. And, the last piece is that, none of this is static. And we mentioned this, and we talked about the financial advice, too, you don't just do this once and forget about it. Like we mentioned, personalities, values, preferences, people, generally, change over time. And, so the pursuit of happiness, like any other goal, is more about the journey than the destination. And, there's a good chance that there will have to be many recalibrations along the way to keep things set up in a way that makes the person that you are at that time, happy.

Cameron Passmore: That was great.

Ben Felix: I hope so. I hope people aren't tired of hearing about happiness. I don't think I have any more to say about this.

Cameron Passmore: No, yeah, that was good. You dug in a lot of corners, and it puts it all in one nice, tight pockets. It was great.

Ben Felix: Cool. This will be a CSI video. Yeah, at some point in the next few weeks, and then I'm shifting to inflation hedging.

Cameron Passmore: Back to your happy place. All right, so I'll give you a voice a break and I'll pick a card here. So, we'll do the talking sense from the University of Chicago financial education initiative. So, these are cards, a whole deck of cards. So, I picked two. First one, when your goal is to save, how do you avoid the temptation of spending money? So, I've never really been a huge saver so I don't really have temptation. And, Lisa and I are in complete alignment and now the kids are both in alignment on this as well. So, we actually don't spend a ton. I don't honestly enjoy it as much as I used to. Maybe, I'm changing.

You mentioned change earlier, but I don't find myself tempted to spend money on stuff. Maybe, it's affected by the pandemic and being at home, but I just don't get a charge out of it as I used to. Simple as that. How about you?

Ben Felix: I don't know if I have any good tricks or anything. But, I have tried budgeting in the past. Not really a fan. I do put money into buckets. I'll put money into an account designated for some thing, and I won't spend that. So, instead of budgeting, I guess I just allocate what I need for stuff. And then, if there's excess, I can use that for discretionary spending. But like you say, I'm not a big spender. I save pretty aggressively just by default. So, I unfortunately don't have any good tips.

Cameron Passmore: Here's a long one. An investment involves doing something today with the expectation that it will pay off for you in the future. Investments can involve things like money, time or work. What is an investment you have made that has paid off for you?

Ben Felix: Well, a lot of my time has been dedicated over the last seven years to my job at PWL. And, I think that's worked out okay. And, maybe even to drill down further into that. I've been doing this podcast and the common sense investing YouTube videos, that's been a pretty significant time commitment, over the last, whatever it is, three years we've been doing that stuff. And, I think that's paying off. What about you?

Cameron Passmore: Yeah, I'll link it back to work as well. Over time, we've invested in ourselves, our people, in new people and developing the team, and focus has always been on the quality of the work, not about the return. But, to be focused on the right people in the right environment, it does pay off for everybody. So, that's the example I can think of.

Ben Felix: Maybe, we think too much about work. My family's going great, too. I spend lots of time with him.

Cameron Passmore: So, there's our two cards of the week. So, on to the bad advice of the week, which came from Donald. As always, if you send us bad advice ideas, and we use it, we'll send you off one of these snappy Rational Reminder hoodies. So, he shared a YouTube video for this week's bad advice. The video was called, Why Buffett, Cuban and Munger all HATE diversification, the world's greatest investors. So, it's from a YouTube site called intelligent money investing, and the host's name is Tray. And, I must honestly say, I watched the video four or five times. I don't know what the point of the video is, as he never really says it, but I guess he's basically saying that diversification is not a great idea. But, he doesn't actually say it, he lets the guest clip say it.

The pinned comment down below links to Robin Hood. So, I presume there must be some sort of, rev share with Robin Hood referrals or something. Anyways, this is a video from January 27, 2019 and it's a discussion about diversification and Why Buffett, Cuban and Munger hate it. So, Tray starts a video out with Mark Cuban's opinion of diversification. So, we're going to play that little short clip now from an interview he had with the Wall Street Journal.

Mark Cuban: All that asset management, you know, diversification that's for idiots, right?

Cameron Passmore: Okay, Ben, so now we know that diversification is for idiots, which is good for us to know. And, as we always say, if you believe that, you're basically saying that you're smarter than the rest of the markets, which is one heck of a big statement to make. So then, Tray goes on to say, and show that in his Robin Hood account, he's very well diversified with my 30 holdings, but then he shows a screenshot of his holdings and his total account si worth $8200, with most holdings being a single share. So, I would say no big deal, except the video has had a million downloads and has 2300 comments underneath it. It's completely unreal.

So then, he goes on to include a response at a Berkshire Hathaway Annual General Meeting, where Warren Buffett was asked for his views on diversification. So, listen to what he had to say.

Warren Buffet: There's nothing magic, we like to put a lot of money in things that we feel strongly about. And, that gets back to the diversification question. We think diversification is, as practiced generally, makes very little sense for anyone that knows what they're doing. Diversification is a protection against ignorance. If you want to make sure that nothing bad happens to you relative to the market, you own everything. There's nothing wrong with that. That's a perfectly sound approach for somebody who does not feel they know how to analyze businesses. If you know how to analyze businesses, and value businesses, it's crazy to own 50 stocks or 40 stocks or 30 stocks, probably. Because, there aren't that many wonderful businesses, that are understandable to a single human being in all likelihood.
And, to have some super wonderful business, and then put money in number 30 or 35, on your list of attractiveness and forego putting more money into number 1, just strikes Charlie and me as madness. And, it's conventional practice. If all you have to achieve is average, it may preserve your job. But, it's a confession, in our view, that you don't really understand the businesses that you own.

Cameron Passmore: Then, of course, Warren Buffett turns to Charlie Munger, for his opinion on all of this.

Charlie Munger: Yeah, what he's saying is that, much of what is taught in modern corporate finance courses, is twaddle.
Warren Buffet: Do you want to elaborate on that, Charlie?
Charlie Munger: You cannot believe this stuff. It's a modern portfolio theory. It has no utility. It will tell you how to do average, but, I think, anybody can figure out how to do average in fifth grade, it's just not that difficult. It's elaborate and there's lots of little Greek letters and all kinds of things to make you feel that you're in the big leagues, but there is no value added.
Warren Buffet: I have great difficulty with it because I am something of a student of dementia.
Charlie Munger: We hang around a lot together.
Warren Buffet: I ordinarily classify dementia, on some theory structure of models, but the modern portfolio theory, it involves a type of dementia, I just can't even classify.
Charlie Munger: Something very strange is going on. If you find three wonderful businesses in your life, you'll get very rich.
Cameron Passmore: And then, to bring it all home, we go back to Mark Cuban, in that interview with The Wall Street Journal.
Interview Host: So, what are you investing in? What are the areas that you feel you know?
Mark Cuban: In 2008, 2009, I put everything into MLPs and Emirates. The mortgage backed security ones that I thought were the better companies. And, I just piled in. And, I also piled into Australian bonds because I thought the economy was good next to China. It was my way of playing China.
Interview Host: So, you make one-way bets. This isn't portfolio balancing your talking about-
Mark Cuban: No, all that asset management... diversification that's for idiots, right? Because, you can't diversify enough to know what you're doing.

Cameron Passmore: It's kind of, funny to listen to this now, especially that Berkshire Hathaway Annual Meeting was just this past weekend. Buffett has said this many times over the years, but he reiterated again last weekend, saying that most people will feel will fare better by owning an S&P index fund instead of betting against individual stocks. He said, the minute the novice investors who jumped into the market recently drove up the value of video game stock that we talked about, are essentially gambling. And he said that the stock trading platforms that allow people to buy and sell stocks, like a Robin Hood for free, are only encouraging this gambling.

If you're Warren Buffett and you can analyze a company and hold it for decades, then go ahead and build a concentrated portfolio. But, as we said many times, diversification is your friend. There's no need to be concentrated, there's way too much risk. If you go back to what you said about happiness, from happiness perspective, you don't need to feed the beast.

Ben Felix: I did a video a while ago on... I called it advice from Warren Buffett, I think, was the title. But, I talked about stuff that Buffett has said in his letters about indexing. I don't remember the numbers, but he said something like, he's known 10 people that he's confident can beat the market. He's met 10 people in his life that he's confident that could beat the market. And then, meanwhile, people use Buffett as the example for why you should try and beat the market. It's just that it's the most obvious example of the overconfidence bias that you could ever imagine.

Cameron Passmore: Right. That's what's going on here. So, we're only commenting on exactly that. Here's a YouTuber who's pulling selected clips of different AGMs for Berkshire Hathaway. Mark Cuban wrapping it up and loosely saying, this is what you should do without actually saying this is what you should do. Other than the title of the video. But, a million followers and all those comments is just incredible to me.

Ben Felix: The clips aren't wrong, they're not wrong. If you want a small chance and massive gains, then yes, diversification is the worst thing that you can do. Stocks are like lotteries. There's massive skewness, you're more likely to lose than win, but there's a small chance with a very concentrated portfolio that you win enormously. And, you don't get that with diversification. So, the statements aren't wrong, but to take that and use it as advice for the average investor trading in the Robin Hood account, hoping to save for a happy life, that is crazy to me.

Cameron Passmore: It's a great sum up. Anything else for today's episode?

Ben Felix: Nope. I think that's it.

Cameron Passmore: Beautiful. As always, thanks for listening.