July 14, 2024

Become a Master of Finance with Harvard Professor Mihir Desai (with Lewis Howes)



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.

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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 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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