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Published May 14, 2023, 2:20 p.m. by Courtney
When it comes to finance, there are a lot of different things that you need to understand in order to be successful. That's why it's so important to get a good education in finance. And there's no better place to get an education in finance than at harvard University.
That's because harvard University is home to some of the world's most renowned finance professors, like Mihir Desai. professor Desai is a world-renowned authority on finance, and he's going to be teaching a class on finance at harvard University this year.
If you want to get the best education in finance possible, then you need to take this class. It's an online class, so you can take it from anywhere in the world. And it's being taught by one of the best finance professors in the world.
So, if you're interested in getting a world-class education in finance, then you need to sign up for this class. It's going to be an invaluable experience, and you'll come away from it with a much better understanding of finance.
You may also like to read about:
debt is fantastic so if you're a poor
person and you want to access
opportunities you couldn't access
otherwise there's only one 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 borrow it's like a liberating thing
so people don't understand that piece of
it and then they don't understand the
dangers
[Music]
all right welcome back everyone to the
school of greatness podcast we have
a harvard professor in the house today
his name is mihair mihir dey size all
right exactly right here decide exactly
good to see you thank you so much for
being here no my pleasure louise 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 this would be
interesting and you passed the test for
it to be interesting very good excellent
uh you've got this book called the
wisdom of finance discovering humanity
in the world of risk and return
um and you've been teaching finance
entrepreneurship business you you teach
at the entrepreneurship program and the
law
school at harvard correct exactly 18
years you've been teaching there yeah
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 right and so why did you
decide to do this book and why is this
topic so important and
sure about that yeah so you're right i
was a totally traditional economist
writing academic papers and then
basically over the last five years i
wanted new challenges
you know 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 right 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 one of the biggest challenges
i've taken on it's not the way i write
you know when you write in academia you
write totally tight yeah you can only
say so much you gotta like 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 the book
though is one challenge myself but then
b you know i teach finance and finance
has got some serious problems
and so i wanted to address them and the
really the two big problems i wanted to
address is one i want to demystify
finance
because i think it's way too important
for people not to understand and a lot
of people demonize it for like the wrong
reasons and then the second thing is
chunks of finance are broken we've got
to make it better right we live through
like this massive financial crisis we
got to 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 got to live up to
it
you can't just kind of behave in a bad
way yeah we're never taught these things
growing up and you know elementary
school high school college how come
these things are never really taught
until you get to college unless you take
those classes yeah 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 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 a clue it's 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 they're life-changing
decisions and if you don't have
something to haunt you for the rest of
your life yeah they they hang over you
forever um and we don't do anything
in fact that's one of the i was joking
with my daughters i have three daughters
and uh
one of my girls was telling me like the
next project should be the kids book
version mm-hmm and it's true
that's true it kind of struck me as
crazy but uh these ideas you got to get
them to kids because if you don't get
them to kids they'll never 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 i
reached out on the poor dad and what
they did and how they bought and how
they whatever yeah you know it's funny
because that book you know 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 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 you
like whatever and the reality is you're
more pissed that he's just created such
an empire around a simple concept right
right and you kind of but you kind of
look down on frankly 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 um
and i think hopefully it could be i
think if we get this into like schools
and we get these ideas out there um
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 best
seller list
for like
25 years it's crazy
and keeps selling and selling you look
at the best sellers in finance and
investing they're the same books for
like the last 20 years
and you know ben graham intelligent
investor rich dad poor dad there's like
five books um
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 uh 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 you know well as a society
yeah
so i think there's a couple you know one
is
borrowing in debt
i think people either think it's
terrible
um which is wrong
it's wonderful borrowing money yeah
having debt having debt i mean i think
what people don't realize is and it's
always been demonized through history
right like so socrates said it was you
know 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 want to access opportunities you
couldn't access otherwise there's only
one 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 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
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 one
big piece on the personal side
how do we make a decision of knowing
like okay i'm stuck in this rut you know
if i go to this school that cost me 50
grand a year i don't know what harvard
is maybe it's 80 grand a year now
um
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 four years exactly that's
going to take me the rest of my life to
pay off yeah well so here's how do you
make that decision well and the short
version is so you got to really think
hard about what the upfront investment
is and then the hard part for people is
you got to think about the incremental
wages like how much more am i going to
make not how much am i going to make but
how much more am i going to make because
of this much better of my lifestyle
going to 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 yeah 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've got to
think about is there's a labor market
out there
and you got to have skills that are
going to be valued if you don't develop
the skills that aren't valued then
you're not going to make money you're
not going to be able to make money and
then you have to ask yourself if you
want to do a degree and you want to do
something that's not really valued in
the labor market
you know whatever it might be let's say
you want to go to cooking school yeah
just to learn cooking you should
understand that's basically consumption
it's not an investment right you're just
having a good time pleasure and if you
want to do that you go do that but don't
kid yourself and think you're going to
get it paid off right that's just you
having fun like you go on the super bowl
or some big thing you want to go to
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 sure um not like stocks which are
an investment and not like food which is
consumption yeah right 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
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 the buddy says you know what i beat
the stock market like three years in a
row five years in a row i'm awesome yeah
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 you just got into the right time
and whatever and in fact like you know
there's this old coin tossing trick
right 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 nine heads maybe one or
two 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 you know how did you do
it
yeah and the person of course will
honest usually answer honestly which is
it was luck yeah but when you're a
mutual fund manager and you beat the
market 10 years in a row
and i did it right and so i think people
think there's a lot of skill and it's
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 you know as you may know
this is this massive rise in indexation
right so like people basically just
buying uh exchange traded funds or index
funds
and that's because people have figured
out payments
that is what has worked over the years
that's what's worked over the years
invest in the index fund in 30 years
you're going to 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 is this what buffett does
he just invests in the index well so
buffett is like a guy who's buff it'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
no you and i could not get of course
right because he's buffett
and then he does
yeah he gets and he gets like he got
like 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 one of the big problems in
finance which is we think that there are
these super skillful people out there
and they're super smart
reality is some of them maybe but you
don't know who they are mm-hmm yeah what
should we be doing with our money then
so that's a great question um so it kind
of depends on who you are right so let's
think about a
typical kind of person yes let's say
working and they have a income stream
maybe they have a family so in terms of
savings the first thing is
save
how much
as much the truth is um very few people
over save
right so what does oversaving 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 universal as much as you
can yeah i mean as much as you can and
at some point you're going to 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 yeah
i don't need to live in a shame ramen
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
um second thing you got to think about
is where should you be saving it so the
first thing is um
and this is going to sound a little
nitty-gritty but it's really true
to 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 five in your mind
so iras roth iras you know pension plans
that are sponsored by companies people
don't opt into them it's crazy yeah if
you're a private entrepreneur you can
set up your own
so like if you think about like uh fees
and management fees and returns
if you save 30
up front because of taxes
like that's a victory you know like that
cares about the fees yeah exactly and
it's like a lot of people will say like
these iras are bogus and you're not
going to really
earn money over time it's like all these
fees and all this like well it depends
on marketing and blah blah blah well
once we get into the ira that's fine but
first put it into something tax
advantage yeah any tax thing 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 that's 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 all that you got to
max out on that i do it all and it's
forced savings too the cool thing about
it is it's kind of for savings because
they take it out right before you even
get to touch it
and the final thing is uh 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 yeah 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 yeah if you
want to 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 yeah
you're just gonna like have fun with
this money over here and you're gonna
invest it because this your buddy told
you right his company is 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 yeah so i think
the big rules are you know 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 yeah um if
you have a lot of money you can take ten
percent of it and your buddy comes to
you and says i got a business i want you
to invest in about 10 grand and put it
in there yeah then that's fine but don't
pretend like you're gonna get it back
and now i've invested in many startups
that i've had zero
i've made zero return over the last
eight 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 five percent if you're lucky
will be
10x 5x yeah 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 going to lose this all
like it's 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 yeah this is like my
investment in something that's well
you're learning yeah you're meeting
people yeah um and you are having fun
sometimes yeah right like it's just it's
fun it's interesting um i think as you
get older it gets harder to do that yeah
because
you know
when i was 30 i was willing to do that
stuff i was willing to write checks
three kids now you got three 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
sure right because i'm 49 and you know
you've got to 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 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 well let me just say
what i do right now
well i used to i used to write checks uh
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
um i think the thing i do wrong is i
like everybody i tend to overestimate
you know 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 you know 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 yeah um
i actually worry sometimes that i save
too much like i worry that i'm
i'm too worried about things in the
future
um that's like the good indian way right
it's like well
you know where you're raised and how
it's supposed to be yeah so i'm i was
born in bombay i mean my parents
you know when we came we
you know 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 when
since i was age seven or eight wow and
you're right once you're an immigrant
you're never
you know you never lose that you never
lose that sense of wait a second you
know
we don't have as much as we need
we have to fight a little harder we got
to work a little hard we got to save a
little more because who knows what's
going to happen right um and i think
indians always you know 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 other lessons we should be
knowing or understanding about finance
and
the wisdom behind it well so in the book
risk in 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
about graphs no graphs no equations
stuff that hurts my brain and they hurt
a lot of people's brains yeah 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 and pride and
prejudice so there's like a she's a
fantastic english novelist and she
basically tells the 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
want to do i want to have this debt of
someone mean to me for the 40 years
exactly or do i want to like be with
someone i'm happy with but we'll never
make it you
know exactly
that's 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 so weird your options you have to
weigh your options so she actually
describes options and diversification as
like strategies for dealing with risk
wow and it's kind of nice because then
options aren't some crazy derivative
thing
but they're actually
like something in your life right and in
fact
actually one of the i think the things
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 right because they think give
me the give me the breakdown of options
so the idea of options is you know you
want to have choices right 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 right and people
love it because that's what optionality
is right so a lot of young people i see
are obsessed with optionality right
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 going to be in part
of networks because i need more
optionality i'm going to 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
you 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 yeah and so then they end up and
i've seen this with so many kids because
they're these are kids who are really
smart they got like the best safety nets
in the world right right and then they
keep buying more safety nets and you're
like what the heck are you doing just go
do it go do something
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 one because i'm
so used to doing it and then you end up
like 40 years old and you're like
i 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 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
um and then you say look it actually
applies to your life
and like you 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
right that's what you know and it sounds
kind of like a ridiculous thing to say
but that's the way you people think
about it the relationship world sure
yeah it's the death of absolutely yeah
and but people don't also realize like
that's how great things happen right
when you close off options
and so people in france get consumed by
that so i do that with options in the
book um
i do that with bankruptcy
so the i really like the bankruptcy
chapter comes at the end um 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
uh he finances the battle of yorktown
with his personal script okay 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 got to rebuild my
wealth
he goes back he rebuilds his wealth he
owns uh 40 of new jersey
like the state
he owns a quarter of the district of
columbia which is going to become the
capital
and then he goes bankrupt
and what did we do to people who went
bankrupt back then
he went to jail
wow and
he went to jail and he was sitting in a
jail in philadelphia he went from the
richest man in the colonies
to jail because that's the only 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 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 going to protect
you from the creditors
right we're going to actually get you a
clean slate we're going to get you a
stay we're going to 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 want to stigmatize it
historically what do we do with failure
we stigmatize it like i failed i'm bad
you know you failed you're something's
wrong with you the way we should think
about failure is the way finance thinks
about failure which is it happens
let's get a clean slate right 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
you know bankruptcy and this idea in
finance actually applies to the way you
can think about your life in that case
um
failure
the other example that i i kind of like
is leverage
so this is all 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 um 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
um so i do this via the merchant of
venice shakespeare's story right
nominally it's about debt this is the
play where is this money lender
and he's like i want to pound 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 two artists one is george
orwell who wrote 1984
and one is jeff coons who's a modern
artist you may have heard of he makes
these massive sculptures yeah 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 three 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
right jeff coons 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 kind
of like the the visionary he's the
visionary and he's he actually literally
in one interview says i'm the idea guy
he's gone bankrupt like three times he's
bankrupted dealers wow 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
no so the point is kind of like to say
commitments um 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 right
did 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 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 like
buffett yeah like exactly like that
exactly what buffett does when he
monetizes 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 the 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 one of your classes
wow so i've had i've had the good
fortune to
you know teach a lot of great people
god you know i have had uh
i am so proud of a lot of my former
students so it's kind of hard for me to
think about which is what i get it yeah
yeah um there may be a few that you
could 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
um so an entrepreneur there's you know
entrepreneur who i think is really
spectacular um sarah house she built
swell you know the water bottles yep as
well
very popular right now she's spectacular
and i you know i i don't think she might
be telling you you know i had her as a
first year student at hbs and she was
she was really nervous about finance and
she was really you know nervous
and she has just built like a great
company yeah out of something that
you know the water bottle business you
might not have even thought about but
she's made it into something
aesthetically beautiful like that's
spectacular yeah um i'll give you
another type of person because that's
like an entrepreneur type of person
uh another type of person as i've had a
couple of authors so
um lee carpenter has written a book
about navy seals uh gail lemon wrote
ashley's war which is a spectacular
story i think they like took a totally
different path yeah yeah like you know
they go to business school and then they
go write novels and yes journalism it's
spectacular
um
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 guy who used to run the irs
doug shulman um
he was a former student so i guess i
picked those three kind of random irs he
used to yeah um
and so i picked those three people
because
i think it's one 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 louis i don't
you know as you get older i think smarts
become
less and less which you know let me put
it differently i surround i'm surrounded
by a lot of smart people yeah and i can
have that luxury smarts don't matter
unless you can execute well unless
you're a good person unless you care
about people and make an impact it's
like and especially because how smart
you are and you know i hate to say that
but like at some level like smarts are
cheap right at some levels smarts are
the valuables the scarce resource and
then at some level smarts are not the
scarce resources especially at harvard
everyone's you know
a thousand smart people in one room yeah
and so like is one person smarter than
the other yeah sure fine whatever
i mean it is true and it's when you see
people like that and i especially in the
undergrad population sometimes you see
kids like that and it's law school
sometimes you see kids like that
they're just
they they're special like they're way
off the tail yeah um but the thing i
really care about is
attitude
and like i hate to be it's like a
traditional indian immigrant thing right
but um like work ethic
like just
hard workers who
are hungry
and they're smart then you're like damn
that's that's the package because that
is really powerful
yeah so i hate to say that but i think
smarts are um
i don't focus on it as much you know i
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 it's lazy exactly 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 harder isn't talented
you keep them on the team because it's
like they lift everyone up yeah 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 they're
the most tragic stories right the worst
because you feel like you give me some
of that talent and you have no idea what
you have oh my gosh and in fact just
just to go back to the book a little bit
the
one of the there's a story in the bible
um 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 one with the the father
gives the son talents or something how
does it go it's great so here's the
story which is um there's a master who's
supposed to be god okay and he's going
out of town and he's got three three
servants and he says i'm going out of
town you got to 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 yeah the origin
of the word talents is money so he gives
one guy he's like look here are five
talents
take care of this i'm going out of town
because another guy three talents just
take care of this and go downtown he
gives the third guy one 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 five talents
comes to him and says
you know master i took your five talents
and i invested it and i lent it out and
i made it into ten talents
and he gives it back to the master and
the master says wonderful enter the
kingdom of god
the second person says i took your three
talents and i made it into six talents
and the master says great job
welcome into the kingdom of god third
guy
is like you know i only had one 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 want to give it back to
you
and the master says
you're out you know you're damned
you didn't do what you were supposed to
do
so the reason i love that story is it's
about um 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 got to do more than people
expect you to do
in finance that's called beating your
cost of capital
because otherwise you've wasted
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 um
it's a really weird parable right
because this young this one guy who had
one talent he's like the poorest guy
and he just because of his fear
he gets damned he gets like literally
cast out of the kingdom of god but it's
a powerful story for saying you know we
are all given
a lot and you have to make everything
you can out of it yeah um
it's it's 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
and it's not going to have five talents
sometimes yeah we'd have one little
talent but it's like what's what how can
you make that into ten 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 of 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 yeah and
you know so there are a lot of people
who have found that parable
um
you know in a way that's almost
terrifying right because you're like
geez am i making the most of my talents
yeah and so the story in the book is
about these two guys john milton who
wrote paradise lost and samuel johnson
they were haunted by that parable really
yeah because they like spent their life
like oh my god and these are two
seriously talented people right samuel
johnson wrote the first dictionary
right in eight months i mean he's like
he's a crazy guy john milton wrote
paradise lost when he was blind these
are crazy people and yet they were they
were always asking themselves am i doing
enough i've 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 yeah because we all are
very lucky uh in different ways i think
it's important to live in urgency too
you know i'm not just like oh i'll wait
until i'm ready to have a feeling yeah
i'll wait till 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 yeah 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
um i really like that idea of not just
like you've been given something so do
it but like you've 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 uh
well let me say a couple let me say two
things right so one is i learned
something about teaching
um
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
right like you've got to 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 on to you
and fundamentally it's about empathy
like if you if you can get in other
people's shoes
then you can help them understand
something yeah um
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 um i
think the big lesson though you learn
from teaching and especially where i
teach it's it's you know humility
you don't know who
who
the kids are who are going to go to
great things yeah you know 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
you come they come talk to you later and
they're like spectacular and then like
these people who you know are always
talking and always saying stuff and
sound really smart they're actually kind
of empty vessels you know so you're
you're a little bit judge people yeah
don't judge people you're a little more
humble about um
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 capacity is all right you know i
don't know what you're in 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 you know
encouragement is so important
i used to be a little bit more of a hard
ass i used to be like when people would
you know when you're younger you're a
little bit tougher right i think and as
i've gotten older i kind of feel like
encouragement is so important because
you don't know who
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 yeah because if you err on
the side of being
you know like pushing too hard
that can do damage to people yeah um
so i think those i think that's the most
important thing 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 yeah um
and you just have to help them
it's like raising children you know you
have to help them be the best person
they can be in like this very limited
way in a classroom
not like being a parent yeah
let's um let's imagine
that
it's your it's your final class you're
ever going to teach
and
the world is connected to your mic right
now
and they're all going to 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 if you're gonna 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 if you had
one 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 two things um
and one is gonna sound very current but
the other one is gonna be a little more
transcendental so
i think the current thing i would say is
we have got to figure out
uh
and i'm not like a big environmental guy
but we got to figure this out and like
we're really in a very perilous
situation
and you got to take that seriously i
mean this isn't even my area right 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
you know
fundamentally
you know kindness and generosity are
massively underestimated
the power of those things
uh 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
um
but
you know i 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 on we layer on top of it you know
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 the
next generation and the generation after
that yeah so saving the planet and
kindness and generosity well i think you
know
you know by the way i would do it with a
story
because i think well you know 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've got to
be more ex it's hard to remember it's
hard to remember
like you know 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 your class together
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
um
because i'm an economist and i was you
know we only believe things in data
and we get distrustful we become
distrustful of stories and this book
taught me that
you know not all stories are true but
stories help people understand the world
absolutely and if you don't tell stories
people aren't going to understand you
um and the greatest communicators
politicians you you understand that like
stories
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
yeah it's funny one of my uh your
friends and early kind of business
mentors
would always say facts tell stories sell
so if you want to sell any idea yeah
product business
whatever yeah tell a story yeah
yes i think facts are important to
understand that's part of the story yes
absolutely and you don't want to tell
stories that violate facts right that's
really important because that's living
in truth um 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 mm-hmm right
like there's got to be a narrative in
your head yeah about who you are
and
how things are going to play out so
one of my narratives everybody's got
different narratives right so one of my
narratives is it's not the most
important one but one of them is
i tend to
fall behind and then come back
like so that's like one of my narratives
right like i tend to
kind of
do something that's almost like
self-defeating
because i want to come back
and claim victory yeah
that's something that i just do and it's
a narrative in my head right and you
know we all have those narratives like
the immigrant narrative that you talked
about earlier right
you're like an outsider a little bit you
know you don't know if you're going to
gitmo you know you know you got to like
you got to work harder and you got to
save more and you got to do all these
things more these are all narratives
they're like 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 uh make sure
you guys go pick this up do you guys do
you have a website for this as well um
so my personal website is me here
dayside.org and it's got dayside.org
exactly and it's got links to the book
as well cool we'll have it all linked up
in the show notes
um before i ask the final question i
want to acknowledge you me here for
uh doing a book that i think is going to
help people through stories because for
me it's impossible for me to read
something that has numbers and graphs
and characters it's like it's i shut the
book right away yeah 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 thank you
thank you
for for stepping out of your comfort
zone to create something to use your
talent and multiply it for the world to
to receive it because
um you know if you didn't do this only
your
you know the students would have got the
information and not the world so i think
this is so that's very kind of thing i
appreciate it with that story yeah um
are you on social media as well i just
got on all right so i'm on twitter and
linkedin no i'm not going to pretend
twitter you're on there like once a week
i you know the truth is i am on it but i
don't know what i'm doing sure sure so
all i'm doing is promoting the book got
it like i'm not actually learning how to
use twitter
so i should probably figure it out from
you but i think you know i got to get
better at kind of creating a personality
yeah yeah um right now i'm just kind of
pimping the book
that's all i'm doing
we'll have everything linked up um but
the final question is what's your
definition of greatness
wow my definition of greatness
uh
you know it goes back to what what we
talked about earlier um 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 uh 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 yeah but
it's in everybody awesome thanks so much
for coming on thanks so much for
watching thank you
you
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