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Debt is fantastic. So if you're a poor person and you want to access opportunities you couldn't access otherwise, there's only 1 way to do that, through borrowing. You want to live in a house you don't have any right to live in, how do you do it? Borrow. You borrow.

Yeah. You want to invest in education, you don't have the resources, how do you do it? It's like a liberating thing. So people don't understand that piece of it, and then they don't understand the dangers.

All right, welcome back everyone to the School of Greatness podcast. We have a Harvard professor in the house today. His name is Mihir Desai.

Is that right? Exactly right. Mihir Desai. Exactly.

Good to see you, thank you so much for being here.

No, my pleasure, Luis.

We got connected through, I guess Eric Barker mentioned coming on the show. Exactly. And then I checked out your stuff. I always vet it with Christine, and I'm like, see if this guy's legit and if this would be interesting. And you passed the test for it to be interesting enough.

The Christine test, very good, excellent.

You've got this book called The Wisdom of Finance, Discovering Humanity in the World of Risk and Return. And you've been teaching finance, entrepreneurship, business. You teach at the entrepreneurship program and the law school at Harvard,

correct? For 18

years you've been teaching there. You've been writing journal papers for 18 years, right? And teaching and kind of in the weeds and the thick of it with your students.

Exactly right.

And so why did you decide to do this book and why is this topic so important? And share about that.

Yeah, so you're right. I was a totally traditional economist writing academic papers. And then basically over the last 5 years, I wanted new challenges. So the thing about academia that's crazy is you can look at your life 20 years forward once you get tenure and you know exactly what it is. And that's great and it's terrifying.

And so for me it was more terrifying. So I wanted to change. So I started an online course, I started teaching at the law school and then I wanted to write a book. It's really, to me, it's 1

of the biggest challenges I've taken on.

It's not the way I write. When you write in academia, you write totally tight. Yeah, you can only say so much. You've got to really, really, really be tight. This is loose, and it's like stories.

And so it was a massive challenge for me. What I really wanted to do with the book though is 1, challenge myself, but then B, I teach finance and finance has got some serious problems. And so I wanted to address them. And really the 2 big problems I wanted to address is 1, I wanna demystify finance Because I think it's way too important for people not to understand. And a lot of people demonize it for the wrong reasons.

And then the second thing is chunks of finance are broken. We gotta make it better. Right, we live through this massive financial crisis. We gotta make it better. And so this book is an effort to say, look, there's nobility in finance, and you should feel proud of that, and you gotta live up to it.

You can't just kind of behave in a bad way.

Yeah, how come we're never taught these things growing up in elementary school, high school, college? How come these things are never really taught until you get to college, unless you take those classes. And then we're just kind of illiterate with finance and we're broke and don't know what to do with the rest of our lives. I mean,

like you think about student debt, or you think about credit card debt, even as an example, I know doctors who come out, they start a private practice, they have no clue what they're doing financially. It's like- 0 clue. And it's kind of a crime, right? In fact, the level of financial literacy is so low. And if you think about

the mistakes people are making, like the terrible mistakes they make with debt,

I mean, they're life-changing decisions. And if you don't have some- It can haunt

you for the rest of

your life. Yeah, they hang over you forever. And we don't do anything. In fact, that's 1 of the, I was joking with my daughters, I have 3 daughters, and 1 of

my girls was telling me the next project should be the kids' book version.

It's true,

yeah, it's true.

It kind of struck me as crazy, but these ideas, you gotta get them to kids.

Because if

you don't get them to kids, they'll never learn it.

So is this like the advanced version of Rich Dad Poor Dad then? Is this kind of like, because that's the story of like, a rich dad and a poor dad and what they did and how they bought and how they whatever.

Yeah, you know it's funny because that book, it's kind of in a way it might

be easy to ridicule but it has had an amazing impact.

On so many people.

On so many people.

And opening them up and be like, oh if I just invest this way on something I make more money than just.

Well you know so it's funny as an academic you tend to look down on that kind of stuff, right? You look down on it, you're like, whatever. And the reality

is- You're more pissed that he's just created such an empire around a simple concept, right?

Right, but you kind of look down on it, frankly. Yeah, of course. And I don't want to write that book, but I want to speak to those people. And so, yeah, you're right, I'd like to think about this as a more elevated or advanced version of that. And I think, hopefully it could be.

I think if we get this into schools and we get these ideas out there, people want to know finance. They want to learn it because they know how important it is. It's really interesting, on Rich Dad Poor Dad, that thing has been on the bestseller list for like 25 years.

It's crazy, it just keeps selling and selling.

You look at the bestsellers in finance and investing, they're the same books for like the last 20 years. And Ben Graham, intelligent investor, rich dad, poor dad. There's like 5 books. Which makes you realize there's a ton of demand and there's not enough supply. Right?

And so this is like a version of that. Which is trying to say, well look, let's try to speak about finance in a clear way.

Yeah, so what are the things that we're confused about the most with finance in general as a world?

Well, as a society, yeah. So I think there's a couple. 1 is borrowing and debt. I think people either think it's terrible, which is wrong. It's wonderful.

Borrowing money and

having debt.

Having debt, I mean, the thing what people don't realize is, and it's always been demonized through history, right? Like, so Socrates said it was immoral to charge interest. And religions, a lot of religions don't allow payment of interest, but they don't realize that actually debt is fantastic. So if you're a poor person and you wanna access opportunities you couldn't access otherwise, there's only 1 way to do that, just through borrowing. You wanna live in a house, you don't have any right to live in, how do you do it?

Borrow. You borrow. You wanna invest in education, you don't have the resources, how do you do it? Borrow. It's like a liberating thing.

So people don't understand that piece of it, and then they don't understand the dangers. They don't understand the dangers, which is, once you do that, It is a really, really serious commitment. And you can find yourself in a world, and I tell the story of what's called debt overhang, which is this finance idea, which you have so much debt that you can't actually do the best things for yourself, because it's like looming over you. And that is the trap people fall into. So they kind of either ignore the real virtues of it or they kind of just say, well it's great and I'll just do it, it's not a big deal.

So that I think is 1 big piece on the personal side.

How do we make a decision of knowing like, okay, I'm stuck in this rut and if I go to this school that costs me 50 grand a year, I don't know what Harvard is, maybe it's 80 grand a year now, then I'm gonna get the opportunities and the insights that will help me for the rest of my life, but I'll have a half a million in debt from 4 years. That's gonna take me the rest of my life to pay off.

So how do you

make that decision? Well,

and the short version is, so you gotta really think hard about what the upfront investment is.

And

then the hard part for people is you gotta think about the incremental wages. Like how much more am I gonna make? Not how much am

I gonna make, but how

much more am I gonna make? Not how much am I gonna make, but how much more am I gonna make because of this investment?

How much better is my lifestyle gonna be, right?

Exactly, because of this investment. And people don't usually do that. And there's also, you know, the truth about education, and I'm not just saying this because it's my business, I'm not just talking my own book, but the truth is, on average, it's a great investment. That doesn't mean it's always a good investment. There's a lot of crappy investments out there.

There's a lot of really bad investments out there. But on average, it's great. What you gotta think about is, there's a labor market out there, and You gotta have skills that are gonna be valued.

You don't develop the skills that are valued, then you're not gonna be able to make money.

You're not gonna be able to make money. And then you have to ask yourself, if you wanna do a degree and you wanna do something that's not really valued in the labor market, you know, whatever it might be. Let's say you wanna go to cooking school, just to learn cooking. You should understand that's basically consumption. It's not an investment.

You're just having a good time. And if you want to do that, you go do that. But don't kid yourself and think you're gonna get it paid off. That's just you having fun, like you go on the Super Bowl or some big thing you want to go do. So people have, I think that's what's confusing about a lot of these things.

They're both investment and consumption. It's like a house, right? It's a big investment, but you live in it and you consume it all the time, right? And so it's got these, there are these things that are weirdly both. There's stuff you invest in and there's stuff you like, really, really enjoy.

Not like stocks, which are an investment, and not like food, which is consumption. These things are actually in between, and that makes it really confusing, I think, for people.

Got it. What else should we be aware of? What are the other big things that we do?

So I think The other big thing that people struggle with in finance and outside of finance is they think there's a lot of skill in finance.

In what, in managing, making,

investing money? In managing money and investing money and when they get good results, they think it's their skill. So the lesson of finance is it's almost impossible to tell the difference between luck and skill, other than over the long run. Right, so you got a buddy, I got a buddy, and that buddy says, you know what, I beat the stock market like 3 years in a row, 5 years in a row, I'm awesome. And the answer is, I have no idea if you're awesome.

You may be awesome.

The market may have just been going up.

Exactly. And

you just got in at the right time and whatever.

And in fact, there's this old coin tossing trick, which is you get 80 people in a room, you toss a coin 10 times, and you kind of go through it. And then you say, who got 9 heads? Maybe 1 or 2 people. Who got 10 heads? You're pretty much guaranteed to get somebody in that room get 10 heads.

And then you ask that person, how did you do it? And the person, of course, will usually answer honestly, which is, it was luck. But when you're a mutual fund manager and you beat the market 10 years in a row.

I'm the

man, or the woman. I'm the man, I'm the woman. And I did it, right? And so I think people think there's a lot of skill and the truth is it's really almost very, very hard to beat the market persistently. There may be a few people out there who can do it well over the long run, I don't know who they are, you don't know who they are, don't believe the hype.

So for example, as you may know, there's this massive rise in indexation, right? So like people basically just buying exchange-traded funds or index funds, and that's because people have figured out. Paying-

That is what has worked over the years.

That's what's worked over

the years? Just invest in the index fund, and in 30 years, you're gonna make more than if you try to play-

You try to play the game yourself, or frankly, if you try to pay somebody who tells you they know how to play the game.

Isn't this what Buffett does? He just invests in index funds?

Well, so Buffett is like a guy who's, Buffett's super interesting, right? Because he actually, people think he's beaten the market for a long period of time, and he may have. But he also doesn't believe in a lot of these things, right? He doesn't believe you can just kind of be successful, no problem. And in fact, the way he works now, it's so interesting about Buffett, he basically monetizes his halo, right?

So when he invests in a company, people rush in. And so what does he do? He kind of like, during the financial crisis, He bought preferred stock at Goldman and GE. He kind of rescued them. He got terms that you and I could not get.

Right, because he's Buffett. And then he does- Influence. Yeah, and he gets like, he got terms I would never get in the market if I went to go buy that stock. And then he turns it into performance. So, you know, it's really interesting.

I think that's 1 of the big problems in finance, is we think that there are these super skillful people out there and they're super smart. Reality is, some of them may be, but you don't know who they

are. Yeah. Yeah. What should we be doing with our money then?

So that's a great question. So it kind of depends on who you are, right? So let's think about a typical kind of person. Let's say working and they have an income stream, maybe they have a family. So in terms of savings, the first thing is, save.

How much? As much? The truth is, very few people over-save. So what does over-saving mean? Over-saving means I'm depriving myself today so that when I retire I have more.

Very few people make that mistake. Like 98% of people are making the mistake of not depriving themselves today so they can have more later. So for almost all people it is, save more than you're doing now. That's almost universally. As much

as you can.

Yeah, I mean as much as you can. And at some point you're gonna be saying to yourself, you know, I'm skimping too much. I'm making myself unhappy because I'm living in a shack and I'm like, I don't need to live in a

shack. Robbing noodles.

Yeah, and at some point you know, like you have to kind of get a little bit better

and

you have to move up. But first is you should be saving from the time you're earning money. It's really, really important. It's like a tiny little bit as much is great. Second thing you gotta think about is- Where

should you be saving

it? So the first thing is, and this is gonna sound a little nitty gritty, but it's really true, do anything that lets you save money on taxes. There's all a lot of tax advantaged ways to save, do it.

What are the top 5 in your mind?

So IRAs, Roth IRAs, pension plans that are sponsored by companies, people don't opt into them, it's crazy. If you're a private entrepreneur, you can set up your own. So if you think about fees and management fees and returns, if you save 30% up front because of taxes, that's a victory. You know, like that is a- Who cares about the fees? Yeah, exactly.

And it's like- Because a lot

of people will say these IRAs are bogus and you're not gonna really earn money over time. It's like all these fees and all this

like, marketing and blah, blah, blah. Well, once we get into the IRA, that's fine, but first put it into something tax advantaged. Got it, yeah. Any tax thing you have.

Work Grows, Tax Deferred.

Exactly, and just max out on tax stuff. The government's telling you You should, you should do it.

So that's IRAs, pensions, is that insurance policies as well?

Even like health savings accounts, flexible spending accounts, people don't use that stuff. It's also kind of- I max out all the- You gotta max out on that stuff.

I do it all.

And it's forced savings too. The other cool thing about it is it's kind of forced savings because they take it out before you even get to touch it. And then the final thing is, don't pay a lot of money to have people manage your money. Now this is like, you know, anathema to people in finance because there's a lot of wealth advisors and brokers out there. And the reality is, unless you have serious coin.

Don't pay a lot in fees is what you're

saying,

I'm assuming, right?

Yeah, so like for example, take like half your money, put it into like a government bond fund, take like half your money, put it into an equity index fund and then sit back. If you wanna play and have fun, take a small chunk of your wealth and just go have fun. But don't do it with all your wealth and don't pretend like you're doing something serious. You're just having fun.

Yeah, if you lose it, you lose it.

You lose it. It's just like buying tickets to the movies. You're just gonna like have fun with this money over here and you're gonna invest it because your buddy told you his company's great. That's fine, but don't pretend, it's like consumption again, right? You're having fun, you're not investing.

You're just going and goofing off. So I think the big rules are, save more than you think you need. Second, try to think about taxes. It sounds boring, but it's so first order. Third, don't pay a lot of people money for managing your money.

And then fourth, create a little fun space and then go have fun. If you have a lot of money, you can take 10% of it. And your buddy comes to you and says I got a business I want you to invest in. Give me

05:10 grand and put it in there.

Yeah then that's fine but don't pretend like you're gonna get it back.

No I've invested in many startups that I've had 0 I've made 0 return over the last 8 years.

Well, and you're not alone, right?

So many people have.

So what do we know about startups, right? Like, so like 80, 90% of them are gonna be zeros. Yes. And then 5%, if you're lucky, will be 10x, 5x. Yeah, exactly.

And then there's a bunch of junk in the middle. But basically it's totally bimodal.

And for me, I went into it thinking, I'm gonna lose this all. Like it's a way for me to learn, to build relationships, to like get in with a certain industry.

Well, that's interesting.

And so I was like, this is my Harvard degree.

This is like my investment in something that's... Well, you're learning, you're meeting people, and you are having fun sometimes, right? Like it's just, it's fun, it's interesting. I think as you get older, it gets harder to do

that

because, you know, When I was 30, I was willing to do that stuff. I was willing to write checks. Now you have 3 kids and you're like, geez, I don't know if I should be doing that. But that's the other big thing, which is when you're young, you should be taking more risk. And that should taper down over life.

Because I'm 49 and you gotta start tapering down your risk profile. So when you're young, you should be taking a little bit more risk. And that I think is something people don't do enough of.

Yeah, do you feel like as a professor, you follow your own advice? Because there's a lot of people that teach that don't actually do what

they say you should do. I do most of it right. Well, what I just said. I'll tell you what I do wrong. Let me just say what I do right.

You invest

in startups.

Well, I used to write checks to friends and former students and I do that less now because I just, you know, I'm just more measured about the way I think about things. And I think the startup scene is so crazy right now, frankly, in addition. I think the thing I do wrong is, like everybody, I tend to overestimate my abilities a little bit. So I like investing. I do it a little bit.

I think if you actually look, I think I've done pretty well, but I think if you actually looked at my returns.

Over time.

I think I'm probably way overestimating my ability. And if you thought about like if I just parked it somewhere, I would have probably done better and I would have spent less time in my life like wasting on that. So I probably overestimate my abilities and I think everybody

does.

But I do follow all the tax stuff. I do follow all the indexation stuff, no paying fees. I actually worry sometimes that I save too much. Like I worry that I'm too worried about things in the future.

That's like the good Indian way, right? It's like, that's the way you're raised and how it's supposed to be.

Yeah, so I was born in Bombay. I mean, my parents, when we came, money was something you thought hard about. I mean, I remember my parents had a little notebook where I had all my little accounts and what I spent since I was age 7 or 8. And you're right, once you're an immigrant, you never lose that. You never lose that sense of, wait a second, we don't have as much as we need.

We have to fight a little harder, we gotta work a little harder, we gotta save a little more because who knows what's gonna happen. And I think Indians always, Indians save a lot in gold and in otherwise, right? They do a lot of crazy stuff. But especially on money stuff, they worry about that stuff more than they probably should.

Yeah. What are some of the lessons we should be knowing or understanding about finance and the wisdom behind it?

Well, so in the book.

Risk and return and all that stuff.

Yeah, so in the book, what I try to do is take these ideas that people in finance would be in a textbook, right? And I basically try to explain them just using stories.

Without graphs

and charts. No graphs, no equations.

Stuff that hurts my brain.

And they hurt a lot of people's brains. And there's no reason to do that that way, right? So for example, risk management, which is about options and diversification, like some of the most complex derivatives. So in the book, the way I try to explain it is I use Jane Austen in Pride and Prejudice. So there's like a, she's a fantastic English novelist, and she basically tells a story of these young women who are facing risk in the marriage market, right?

There's like these suitors who come along and some of them are drunks and some of them have a lot of money, but they're mean and some are nice, but they don't have any money. You know, it's all about that. It's like that's the whole plot line.

What do I wanna, do I wanna have this debt of someone mean to me for the 40 years

exactly or do I want to like be with somebody I'm Happy with but we'll never make it, you know This is exactly what Jane Austen is about right

and

so these young women are really exposed and men by the way She points out have it really easy Because if men make a mistake, it's okay. In the 19th century, right? But women, if you make a mistake in the marriage market,

it's over.

You have

to weigh your options. You

have to weigh your options. So she actually describes options and diversification as like strategies for dealing with risk. And it's kind of nice, because then options aren't some crazy derivative thing,

but

they're actually like something in your life. And in fact, actually 1 of the, I think the thing I'm proudest about this book is I wrote a piece for The Crimson, which is the Harvard newspaper, called The Trouble with optionality. So the reason I really like that piece is people in finance overlearn the idea of options. Because they think-

Give me the breakdown of options.

So the idea of options is you want to have choices. And the more choices you have, the better. And options are contracts which basically say you don't own something, but you have the right to own something. And people love it because that's what optionality is. So a lot of young people I see are obsessed with optionality.

They're like, okay, I'm gonna go to school because I need more optionality in my life because then I'll have more opportunities available to me. I'm gonna be in part of networks because I need more optionality. I'm gonna go work at a prestigious firm because I need more optionality in my life, because then I'll have more opportunities available to me. I'm gonna be in part of networks because I need more optionality. I'm gonna go work at a prestigious firm because I need more optionality in my life.

So the thing I, and that sounds great, right? Because then you get to do more things in the future. So what I tried to point out in the book and I do this essay is, you know what? Most of those people, they get obsessed with buying optionality and that's all they ever do.

They never make a decision.

They never go and exercise the option. They never make the big investment because buying options is addictive. Just buy more and more and more, and then you have to pull the trigger on something big, and you're like, no, more optionality, more optionality. That's all I want. And so then they end up, and I've seen this with so many kids, because these are kids who are really smart.

They got the best safety nets in

the world.

And then they keep buying more safety nets. And you're like, what the heck are you doing?

Just go do something.

Go do something. Take a risk. And the truth, what's weird is people don't understand, like the more safety nets you buy, the more you value safety nets. You're like, I gotta buy another 1 because I'm so used to doing it. And then you end up like 40 years old and you're like, ooh.

I've got all these degrees, I've got all this stuff.

And I have all these safety nets, but I've never really done the risky thing that I wanted to do. And it's really sad. And so that's what I see with optionality. That's an example that's kind of throughout the book, which is you take this finance idea, which sounds really weird and abstract, options and optionality, you try to explain it with Jane Austen, and then you say, look, it actually applies to your life. And you may be getting it wrong, right?

So even if you're in finance, because People in finance talk about this all the time. They talk about marriage as the death of optionality. It sounds kind of like a ridiculous thing to say, but that's the way people think about it.

Which is the way

they do.

In the relationship world, sure.

Yeah, it's the death of optionality. But people don't also realize That's how great things happen, right? When you close off options. And so people in finance are consumed by that. So I do that with options in the book.

I do that with bankruptcy. So I really like the bankruptcy chapter comes at the end. But I tell the story of this guy, Robert Morris, who I'm sure, I imagine you've never heard of, nobody's ever heard of. That's what's great about the story, nobody's ever heard of him. So he's the richest man in the colonies.

He finances the Battle of Yorktown with his personal script. George Washington asks him to be the first secretary of the treasury before he asks Alexander Hamilton. And he says no. So why does he say no? He says no because he lost some wealth during the Revolutionary War helping the young republic.

And Washington says become the first secretary of the treasury. He's like, no, go ask Hamilton. I gotta rebuild my wealth. He goes back, he rebuilds his wealth. He owns 40% of New Jersey, like the state.

He owns a quarter of the District of Columbia, which was gonna become the capital. And then he goes bankrupt. And what did we do to people who went bankrupt back then? He went to jail. And he went to jail and he was sitting in a jail in Philadelphia.

He went from the richest man in the colonies

owning

to jail. Because that's how.

He probably owned the land where the jail was.

So that's actually, the reason I tell that story is, that's how we used to think about failure. Wow. We used to think about failure, people fail, they're morally problematic, they need to be punished. Wow. So the reason I tell that story is George Washington visits him in the jail in Philadelphia.

And actually, it's a great story because George Washington risks yellow fever. I mean, these jails were terrible. And he and other founding fathers look at Robert Moore sitting in jail, and they're like, something's wrong. This guy helped us finance the revolution and he's sitting in jail. That leads to the way we rethink bankruptcy with the 1800 act of bankruptcy, 1800 Bankruptcy Act, which where we basically say, no more punishing people who fail.

So now what do we do with people who go bankrupt? We actually prioritize them starting again, right? We're like, we're gonna protect you from the creditors, right? We're gonna actually get you a clean slate. We're gonna get you a stay.

We're gonna actually do all the things to help you, which I think is really analogous to how you should think about failure, right? Which is, you don't wanna stigmatize it. Historically, what have we done with failure? We stigmatize it, like, I failed, I'm bad. You know, you failed, something's wrong with you.

The way we should think about failure is the way Finneas thinks about failure, which is, it happens. Let's get a clean slate, let's start again, and let's protect you from all the people who have claims on you, and then let's kind of get you started. So that's another example of kind of saying, bankruptcy and this idea in finance actually applies to the way you can think about your life. In that case, failure. The other example that I kind of like is leverage.

So this is about the- Talk

about that.

Yeah, so that's about debt, right? And people in finance love leverage. They're like, because their fortunes have been built on leverage. Think about a lot of people, especially in real estate, a lot of areas, it's been built on leverage. They borrow money and then it allows them to own assets they have no right

to own. They leverage that asset.

They leverage that asset and then if things go well, their returns are outsized, right? Because leverage, that's what leverage does to your returns. And so I kind of talk about that, but then what I try to do in the book is say, you know, that's totally analogous to commitments. You know, what is debt? It's a commitment.

It's like a really, really serious commitment. So I do this via The Merchant of Venice, a Shakespeare story, right? Nominally it's about debt. This is the play where Shylock is this money lender, and he's like, I want a pound of your flesh because you didn't pay me back. People think it's about debt.

It's really about commitments. Like, it's about commitments between people. So the point of the story is that commitments are like debt. They allow you to do things you wouldn't be able to do otherwise. Commitments to people, to spouses, to families, to jobs, to organizations.

You get to do things you can't do by yourself.

For example, what do you mean?

So I give a couple of examples. So I talk about these 2 artists. 1 is George Orwell, who wrote 1984. And 1 is Jeff Koons, who's a modern artist. You may have heard of him.

He makes these massive sculptures. So George Orwell is a low leverage guy. He is like living in London. Everybody wants a piece of him after World War II, he's like, I'm going away. He goes to the Scottish islands, Hebrides Islands, and he spends 3 years alone, and he writes 1984 by himself.

That's low leverage. He's not committing to anybody, he's doing it all by himself. Jeff Koons, I think is arguably the greatest modern artist. The Whitney Museum in New York had a retrospective of just him for the whole building. He creates these sculptures that are the size of this room.

One's called Play-Doh, They're made of metal and glass and just incredible stuff. He has 150 people in his factory. He doesn't actually know how to use the material that he's working with. He relies on other people who use that material.

It's kind of like the visionary.

He's the visionary. And he actually literally in 1 interview says, I'm the idea guy. He's gone bankrupt like 3 times. He's bankrupted dealers. He is living a high leverage life.

And he produces art that he wouldn't be able to produce otherwise. You can't do that by yourself. So the point is kind of like to say Commitments and embedding yourself in a world of networks and commitments actually allows you to do stuff that you wouldn't be able to do otherwise. I end that chapter with a great quote from Jefferson. Actually, the picture on the cover of the book is Archimedes.

So Archimedes has a famous quote about leverage, which is leverage comes down to a lever, right? And a lever is this amazing thing in engineering. When you push down on it, you get to move stuff. You've got no right to

move, right?

That's like leverage in finance. You get to own a house you have no right to own. So Archimedes says, you know, give me a place to stand and a lever and I'll move the world. So Jefferson says, the biggest lever in life is your reputation. So if you commit to the world.

It's like Buffett.

Yeah, like exactly, like that, exactly what Buffett does when he monetizes his halo. So Jefferson says basically, if you're good to the world, then the world, because you have a good reputation, will let you do things you have no right to do. Which is true, right? That's what reputations do. And that's why it's so hard when you lose your reputation.

Because reputation is the stuff that lets you say, I trust you, go ahead, you can do it. So you commit to good behavior and then you get to do things you have no right to do. And that's the essence of commitments and that's kind of the essence of leverage as well.

That's powerful. Who's the smartest person you've taught come through 1 of your classes.

Wow, so I've had the good fortune to teach a lot of great people. God, I have had, I am so proud of a lot of my former students, so it's kind of hard for me to think about that.

Startup is what I get, yeah, yeah. There may be a few that you can think of who've done extraordinary things or.

God, you know, I'll tell you, I'll give you kind of a bunch of different people because I think it's useful to kind of, they're different types of people, right? So an entrepreneur, there's, you know, an entrepreneur who I think is really spectacular, Sarah Kaus, she built Swell, you know the water bottles?

Yep, yeah, very popular right now.

She's spectacular and I don't think she might be telling you, I had her as a first year student at HBS and she was really nervous about finance and she was really nervous. And she has just built a great company out of something that, the water bottle business, you might not have even thought about, but she's made it into something aesthetically beautiful. That's spectacular. I'll give you another type of person, because that's like an entrepreneur type of person. Another type of person is I've had a couple of authors.

So Lee Carpenter has written a book about Navy SEALs. Gail Lemon wrote Ashley's War, which is a spectacular story. I think they took a totally different path. Like, you know, they go to business school and then they go write novels and journalism. It's spectacular.

And then I had a former student who went to government, I've had a number of students who've gone to government service. So a guy who used to run the IRS, Doug Shulman. He was a former student. So I guess I picked those 3 kind of randomly.

He runs the IRS.

He used to, yeah. And so I picked those 3 people because I think it's 1 of the luxuries I have is I see people who have impacts on the world in very, very different ways. I don't really know who's smartest. You know, the truth is, Lewis, I don't, you know, as you get older, I think smarts become less and less, you know, let me put it differently. I'm surrounded by a lot of smart people.

And I have that luxury.

Smarts don't matter unless you can execute well and unless you're a good person, unless you care about people and make an impact.

And especially kind of- Who cares how smart you are? And you know, I hate to say that, but at some level, smarts are cheap. At some level, smarts are the valuable, the scarce resource. And then at some level, smarts are not the scarce resource.

Yeah, especially at Harvard. Everyone's, you know, a thousand smart people in 1 room.

Yeah, and so like, is 1 person smarter than the other? Yeah, sure, fine, whatever. I mean, it is true, and when you see people like that, and I, especially in the undergrad population, sometimes you see kids like that, and at the law school sometimes you see kids like that. They're just, they're special. Like they're way off the tail.

But the thing that you really care about is attitude. And like, I hate to be, it's like a traditional Indian immigrant thing, right? But like work ethic, like just hard workers who are hungry and they're smart. Then you're like, damn, that's the package because that is really powerful. Yeah, so I hate to say that, but I think smarts are, I don't focus on it as much.

You know, I love smart people and I like to be around them, but like small gradations in smarts.

It's kind of like in sports too, you know, when you have just a talented player who doesn't work hard and is lazy. You're like, get off my team, or you're just like, oh, I wish you would work hard, because then you'd be incredible, and you've got someone who works hard but isn't talented. You keep them on the team, because it's like they lift everyone up. But if

you can put it together, it's like.

And in

fact, those people who have talents and who don't work hard, they're the most tragic stories.

Oh, it's the worst.

Because you feel like you have no.

Give me a son without a talent.

And you have no idea what you have.

Oh my gosh.

And in fact, just to go back to the book a little bit, there's a story in the Bible called the Parable of the Talents. It's like this great story in the Bible.

It's a parable of the talents, right?

Yeah. Is this

the 1 with the father gives his son talents or something, how's it go?

It's great, so here's the story, which is there's a master who's supposed to be God.

Okay.

And he's going out of town, and he's got 3 servants, and he says, I'm going out of town, you gotta take care of my talents. So talents today are like these special things we have, like that make us special. Back then it was money. The origin of the word talents is money. So he gives 1 guy, he's like, look, here are 5 talents.

Take care of this, I'm going out of town. Gives another guy 3 talents. He says, take care of this, I'm going out of town. He gives the third guy 1 talent, and he says, I'm going out of town, take care of it. He comes back.

And obviously he's supposed to be God in this story, and these are like normal people. So the guy with 5 talents comes to him and says, you know, master, I took your 5 talents and I invested it and I lent it out and I made it into 10 talents. And he gives it back to the master. And the master says, wonderful, enter the kingdom of God. Second person says, I took your 3 talents and I made it into 6 talents.

And the master says, great job. Welcome into the kingdom of God. Third guy is like, you know, I only had 1 talent and I was a little nervous and I wanted to make sure and have it. So I buried it. It's here and I wanna give it back to you.

And the master says, you're out, you're damned. You didn't do what you were supposed to do. So the reason I love that story is it's about how you're given these incredible gifts, and you have to use them. It also, in the value creation chapter, it's kind of exactly what finance says about value creation you know, which is you're a steward for resources. You gotta do more than people expect you to do.

In finance, that's called beating your cost of capital because otherwise you've wasted an opportunity And if you just sit on things, that's actually value destroying. It's not value creating. So that parable, it's just like your story about this athlete, right? It's a really weird parable though, right? Because this young, this 1 guy who had 1 talent, he's like the poorest guy.

And just because of his fear, he gets damned. He gets literally cast out of the kingdom of God. But it's a powerful story for saying, we are all given a lot, and you have to make everything you can out of it. I really like that story, because it has to do with finance, but it's also this really interesting story,

you know,

more generally.

Making the most in the world, and making the most of what we all have. We're not gonna have 5 talents sometimes. We're gonna have 1 little talent, but it's like, how can you make that into 10 exactly in your own way

and it's like it's your duty Yeah, right. It's not like you can if you want like the story the parable is it's your duty You gotta you've been given something and you have to make the most of it so I like that right Because it's almost like it's incumbent upon us to realize what our talents are and then make the most of it. So there are a lot of people who have found that parable in a way that's almost terrifying, right? Because you're like, jeez, am I making the most of my talents? And so the story in the book is about these 2 guys, John Milton, who wrote Paradise Lost, and Samuel Johnson.

They were haunted by that parable. Really? Yeah, because they spent their life like, oh my God. And these are 2 seriously talented people, right? Samuel Johnson wrote the first dictionary.

Like in

8 months. I mean, he's a crazy guy. John Milton wrote Paradise Lost when he was blind. These are crazy people. And yet they were always asking themselves.

Am I doing enough?

Have I been given so much? Am I doing enough? And it's kind of an interesting way to live, you know? You don't want to take it too far because you'll beat yourself up all the time. But I think more of us should probably be doing that.

Because we all are very lucky in different ways.

I think it's important to live in urgency too. You know, and not just like, oh I'll wait until I'm ready type of feeling. I'll wait until I get the degree. No, start something now, even if it's gonna fail, at least you're learning something and you're trying to do something with your talents.

Right? I agree. I mean, I think people over incubate a little bit, right? So they kind of wait for their ideas to get a little bit more clear. But the reality is just go and just do it because, and in that version of the story, it's incumbent on you.

Like you gotta go do it. I really like that idea of not just like you've been given something so do it, but like you got to go do it. Because if you're not, you're wasting like this really, the privilege you've been given.

What's the greatest lesson you've learned over the last 18 years of teaching?

You know, well let me say a couple, let me say 2 things, right? So 1 is I learned something about teaching.

The art of connecting with your students.

And it's really, it's fundamentally, when I teach best, and I don't always teach great, but when I do, it's like an act of empathy. Like you gotta go into the other person's, you have to think about how the other person is thinking about it. So too many people who are teachers are, especially in an academic environment, it's like about my ideas, I'm projecting it onto you. And fundamentally it's about empathy. Like if you can get in other people's shoes, then you can help them understand something.

And then the second thing, that's about teaching, just about what it is really, because it is kind of my life's work along with research and writing. I think the big lesson though you learn from teaching and especially where I teach, it's humility. You don't know who the kids are who are gonna go do great things. You sometimes see them and you kind of get a sense, but everybody has something different in them. And people who in a classroom don't say anything or don't do anything, they come talk to you later and they're like spectacular.

And then like these people who are always talking and always saying stuff and sound really smart, they're actually kind of empty vessels. You know, so you're a little bit.

Don't judge people.

Yeah, don't judge people. And you're a little more humble about, everybody has different capacities. And I don't, I judge people much less than I used to. Because I just, I don't know what your capacities are. I don't know what you're

really great. Getting the back of the class who doesn't speak could be like the next best whatever.

Yeah, and I think that's the related part is encouragement is so important.

I

used to be a little bit more of a hard ass. I used to be, like when people would, when you're younger, you're a little bit tougher. Right, I think? And as I got older, I kind of feel like encouragement is so important because you don't know who's struggling with what, and you don't know what they're good at. So you always want to err on the side of encouragement.

Because if you err on the side of being, like pushing too hard, that can do damage to people. Yeah. So I think that's the most important thing. I think humility and just this sense of, you know, people are incredible in different ways, and you don't know, and you shouldn't pretend to know. And you just have to help them.

It's like raising children. You have to help them be the best person they can be. In this very limited way in a classroom, obviously. Not like being a parent.

Let's imagine that it's your final class you're ever gonna teach. And the world is connected to your mic right now. And they're all gonna be in your classroom, listening to you, they can all understand English. And you have your final lesson to share to the largest classroom and you'd have 60 seconds to share any lesson you want. Roughly 60 seconds.

I thought if you're

going to ask questions like this, you should send them in advance.

I should.

This is unfair. No, this is a great question.

It's a

spectacular question.

If you had 1 lesson that you had to share to the world, and this was like, all right, after this lesson, you don't get to hear any more from me, you don't get any more books from me, you don't get any more research, here's my greatest thing I could teach.

Oh gosh, so. No pressure. I know, exactly. So I would say 2 things. And 1 is gonna sound very current, but the other 1 is gonna be

a little more transcendental. So I

think the current thing I would say is we have got to figure out, and I'm not like a big environmental guy, but we gotta figure this out. I mean, like we're really in a very perilous situation and you gotta take that seriously. I mean, this isn't even my area,

but I've come to believe it.

And I think we don't even understand like the existential risk that we're facing. And then the second thing I would say is, fundamentally, kindness and generosity are massively underestimated. The power of those things is just incredible. I'm not saying I've lived up to that, by the way. Just to be clear, I don't think I have.

But I've become convinced that that is the most kind of important, when I see this in my children, or I see it in many people, I say that's the attribute we need more of. And everybody has this capacity for it, and yet we layer on top of it intellectual stuff and other stuff, but that core thing is the thing we all have to get back in touch with, because it's so important to the future, and it's so important to the next generation, and the generation after that.

Yeah, so saving the planet in kindness and generosity.

Well I think, you know, By the way, I would do it with a story. Because I think, the reason I wrote this this way is it's all stories. Because I don't think lectures, like if I just say to you, you gotta be more X. It's hard to remember. It's hard to remember.

It's hard to assimilate.

How do you assimilate it, right? And I think what I learned from writing this book is, stories are everything. Because people remember stories, like the parable of the talents. Like you get it, right? And then it stays with you.

If I say, well value creation is about beating a cost of God, well blah blah blah. You know, it's like, it's hard to remember, right? But if I had that 60 seconds, I would think hard about the story I would tell. Because I'm an economist, and I was, we only believe things in data. And we get distrustful, we become distrustful of stories.

This book taught me that Not all stories are true, but stories help people understand the world. And if you don't tell stories, people aren't gonna understand you. And the greatest communicators, politicians, you understand that. Like stories anchor everybody's thinking. And without them, you're just left in a sea of stuff.

You need a narrative to organize your life. Without a narrative, it's like chaos. Are you?

Yeah, it's funny. 1 of my friends and early kind of business mentors would always say, facts tell, stories sell. So if you want to sell any idea, product, business, whatever, tell

a story.

Yes, I think facts are important to understand as part of the story.

Yes, absolutely. And you don't want to tell stories that violate facts. That's really important because that's living in truth. But it's also not just sell. I think, like I'm sure you've done this too, right?

Like at difficult times in your life, you have to tell a story to yourself about your life. Like there's gotta be a narrative in your head about who you are and how things are gonna play out. So 1 of my narratives, everybody's got different narratives, right? So 1 of my narratives is, it's not the most important 1, but 1 of them is I tend to fall behind and then come back. Like so that's like 1 of my narratives, right?

Like I tend to kind of do something that's almost like self-defeating because I wanna come back and claim victory. That's something that I just do, and it's a narrative in my head, right? And we all have those narratives, like the immigrant narrative that you talked about earlier, right? You're like an outsider a little bit. You don't know if you're going to get mo.

You know, you gotta work harder, and you gotta save more, and you gotta do all these things more. These are all narratives that are so important to the way you organize your life.

I like it, this is awesome. The Wisdom of Finance, Discovering Humanity in the World of Risk and Return. Make sure you guys go pick this up. Do you have a website for this as well?

So my personal website is meheardayside.org. Meheardayside.org. Exactly, and it's got links to the book as well. Cool, well I'll

have it all linked up in the show notes. Before I ask the final question, I want to acknowledge you and me here for doing a book that I think is gonna help people through stories. Because for me, it's impossible for me to read something that has numbers and graphs and charts. It's like, I shut the book right away. It's exhausting for a brain like mine.

Well, and you're not alone.

Right.

I mean, I think it's really, really hard for people.

Yeah. So

I acknowledge

you for stepping out of your comfort zone to create something, to use your talent and multiply it for the world to receive it because if you didn't do this, only the students would have got the information and not the world. So I think this is

a valuable thing. I appreciate it.

With that story, yeah. Are you on social media as well?

I just got on.

All right.

So I'm on Twitter and LinkedIn. I'm not gonna pretend.

Twitter, you're on there like what, once a week?

You know, The truth is I am on it, but I don't know what I'm doing. So all I'm doing is promoting the book. Like I'm not actually learning how to use Twitter. So I should probably figure it out from you. But I think I gotta get better at kind of creating a personality.

Right now I'm just kind of pimping the book. That's all I'm doing. It's all

good, it's all good. We'll have everything linked up. The final question is what's your definition of greatness?

Wow, my definition of greatness? You know, it goes back to what we talked about earlier, which is it is making the most of what you've been given. And so greatness resides in everybody.

I

think the thing we make the mistake of is, you know, that guy over there, you know, Mahatma Gandhi was great or whoever. And the reality is, I think we can all be great. It's just about looking inside and making the more than you could have made out of what you've been given. I think that's greatness.

Awesome.

And when we see it in somebody like Muhammad Ali or Mahatma Gandhi, it's like particularly spectacular, But it's in everybody.

Awesome, thanks so much for coming on.

Thanks so much, this was great.

Thank you. You