Transcript: Caroline Woods: How should people be thinking about money when it comes to making investments?

Morgan Housel: One of the biggest things with money is that I think most investors want to be long term investors. If you ask them, are you a long term investor. They’ll tell you, Yes, the majority of investors will tell you that. But then if you actually ask them what long term means, like what’s the time horizon we’re talking about a lot of them will tell you one year or in practical terms, it’s a year or less than a year. And by the way, what is the definition of a long term capital gain. It’s one year. And so I think but if you look historically at the history of markets, a good definition of what you actually need to ride out a cycle might be 10 years or more. And so there’s a big disconnect between what people think is a long term and historically. Is that. If you want to be a good long term investor with the odds of success in your favor, riding out the unprotectable ups and Downs, your time horizon should be at least a decade.

Caroline Woods: Talk to me about some of the biggest mistakes people make when it comes to spending money?

Morgan Housel: This has always been the case, but I think it’s just gone supernova in the last decade that is FOMO is one of the most pernicious problems in investing because, as you pointed out, there is always somebody getting richer faster than you. That’s always been the case, but now you’re very likely to know about it. And when you engage in FOMO and it’s so common to do it, you’re basically outsourcing your critical thinking to somebody else who’s own critical thinking is going to be flawed because they got rich so quickly. And it’s a very difficult thing to overcome. It’s almost impossible to imagine yourself doing well financially over the course of your life. If you are always going to be chasing people who appear to be doing better than you this year.