[00:03:13] Kyle Grieve: But before we get into that, I’d like to ask David to give an introduction to of himself to the audience. 

[00:03:18] David Fagan: Yeah, thank you, Kyle. After being a husband, a father, and maybe the worst paid athlete in history, I’m the managing partner of MBF Chartered Professional Accountants. We operate in a rural market in Nova Scotia, Canada, and we focus on owner managed clients, entrepreneurs, professionals who run their own corporations.

[00:03:38] David Fagan: And really, at the end of the day, my business partner, James Allen, and I, we’re deeply passionate about leading our clients on their path to prosperity. 

[00:03:47] Kyle Grieve: Now that, we got that short introduction out of the way, let’s just dive right into the book. Basically what we’re going to do is, we’re just kind of going to go back and forth talking about some of the different chapters that we really got a ton of key lessons from.

[00:04:00] Kyle Grieve: We’re not going to be covering every single chapter in the book, otherwise this would take up, multiple hours. So I’ll get started. The first chapter I want to cover was the first chapter of the book, which is No One’s Crazy. The summary of this chapter for me was that, essentially we all do crazy things with our money because, as Morgan highlighted, money is a relatively new concept, and it’s hard to understand what’s exactly right, what’s exactly wrong, and because we all have money in some sort of way, we come at it with all sorts of different perspectives.

[00:04:29] Kyle Grieve: And just because I do something with money and it might be completely different than what David does because I have a different perspective from David. So a couple of the quotes that really stuck out to me here was, so quote, so equally smart people can disagree about how and why recessions happen, how you should invest your money, what you should prioritize, how much risk you should take and so on.

[00:04:50] Kyle Grieve: So this was a really good quote just because especially in markets, right? It’s so easy for one person and another person to have completely different opinions on, let’s say a stock idea. I really liked that. And it’s, important to really key in on that and understand that because if you talk about a stock.

[00:05:07] Kyle Grieve: You’re probably going to find that very few people actually agree with exactly what you’re saying. I mean, at the end of the day, what really matters is yourself and having that self reliance to know what you’re looking for and what you want. So there’s another quote here that was not intelligence or education or sophistication, just the dumb luck of when and where you were born.

[00:05:26] Kyle Grieve: So I’ll be talking a little bit about luck after in my next chapter, but I really like this because And I remember Buffett talking about how he’s like he won the ovarian lottery being born in America when he did and we can bring that into different people from different countries. Obviously, you’re going to think about money differently.

[00:05:42] Kyle Grieve: I mean, David and I are both Canadian. We probably think about money maybe a little bit differently than Americans. we have free health care so that changes things. But even in Canada, even in your own little like even if you mean in your own city, there’s probably going to be many people with drastically different opinions on money.

[00:06:00] Kyle Grieve: My key takeaway from this chapter was basically that it’s very hard to judge other people’s financial decisions because all we really have is our own opinions and we always want to think that our opinions are correct, but in reality, they’re not. And you really just have to kind of worry about yourself.

[00:06:15] Kyle Grieve: That’s it. You worry about yourself, worry about the people that matter to you. And accept that, what other people are doing is, irrelevant. It kind of reminds me of this one quote, I believe, Mohnish Pabrai talked about saying, and this was, I think, back in 2020 or 2021, when Tesla was really expensive.

[00:06:30] Kyle Grieve: And he was saying, Tesla’s fun to watch, but I have no skin in the game. So I can basically just sit back, eat popcorn and watch the show, Imagine Tesla is just there for entertainment. We don’t have to necessarily have an opinion on it. We don’t have to act on it. And more importantly, yeah, so those were kind of my main points from that chapter.

[00:06:47] Kyle Grieve: So I wanted to pose a question to you, David. Do you think there are universal truths to money that would be deemed crazy in any geography or demographic? 

[00:06:56] David Fagan: I mean, this could definitely be a complicated question. So I think I’m going to apply Occam’s razor to this and try to simplify it a little bit. And when I was thinking about this, I mean, I came up with three that I think are really applicable and, especially if you’re starting out early in life to really get the grasp of.

[00:07:15] David Fagan: One is invest in yourself early and often in life. One of your biggest returns is going to be kind of investing in your own education and that will lead into many different aspects of your life and of course money being one of those. Also, no matter where you are, you really need a system for money management.

[00:07:36] David Fagan: Whether that’s budgeting, saving, and investing, if you do have more wealth than you need to spend. it’s critical that you develop good financial habits early. I mean, at the end of the day, if you’re going to spend 110 percent of your income that you make every year, you’re going to have issues later on.

[00:07:55] David Fagan: I think that can be a universal truth, in terms of understanding good money management and having good practices that way. And then the third one, really, as the book suggests, money does have a really strong psychological aspect to it. It can influence one’s health, or lack of health, security in the world, perceived successes, behaviors, and choices.

[00:08:20] David Fagan: I mean, we’re probably going to get into all of these concepts throughout the review of this, and that’s going to happen no matter where you live in the world. 

[00:08:29] Kyle Grieve: David, why don’t you take the reins on the next chapter? 

[00:08:32] David Fagan: I thought we’d maybe skip to chapter four and talk about the confounding, compounding conundrum, and just how we really have to get our heads around understanding the power of compounding.

[00:08:47] David Fagan: Morgan talks at the beginning of the chapter. He has a stat actually about how hard it is to think about compounding, and he states that $81.5 billion of Warren Buffet’s, $84.5 billion net worth. came after his 65th birthday. Now, this book was written in 2020. So these numbers are, will have to be adjusted from there, but that it’s astounding, like to think about longevity and staying in the game.

[00:09:18] David Fagan: And that’s when the real multiplier effect happens with compounding. I mean, when you do the stat on that, it’s 96 percent of his wealth has come after his 65th birthday. And that only goes up from there. that number is still going to increase. I mean, if he has good health and fortune, that could be 99 percent of his wealth someday, all after his 65th birthday.

[00:09:41] David Fagan: So it’s just crazy to think about the power of compounding. And there’s a really good quote on page 53 I like. It says, good investing isn’t necessarily about earning the highest returns because the highest returns tend to be one off hits that can’t be repeated. It’s about earning a pretty good return that you can stick with and which can be repeated for the longest period of time.

[00:10:04] David Fagan: That’s when compounding runs wild. And I think it just brings home a lot of the stuff that you read in this chapter. I mean, some of the connections to this, we’ve been reading a lot in our TIP Mastermind community. And you just did a book, review, I think on, you released an episode on, We Study Billionaires about what I learned from investing from Darwin.

[00:10:29] David Fagan: And talks about the compounding powers and evolution. And in fact, in Morgan’s new book, Same as Ever, he’s got a chapter dedicated and states that, evolution is the ultimate compounder. And like, it’s just neat to kind of see, like, a lot of people learn the concept of compounding within investments, but then you start looking for it in other areas in your life.

[00:10:52] David Fagan: And it’s just really fascinating to connect the dots. And before I kind of pose a question for you about this, I’ll share a couple personal experiences with compounding that I’ve had outside the investment world. I’m in my early 40s, and I can tell you that the skill of my trade has compounded over the last 2 decades.

[00:11:11] David Fagan: I mean, I’m a much better practitioner today than I was, as a kid starting out. There’s compounding effects to sports and fitness, albeit mother time is undefeated, as Shaquille O’Neal talks about. I mean, there is a, you do get to the end game when it comes to peak physical ability, but you know, I can remember being in my thirties, my mid thirties, and just having, almost two decades of sports under my belt at that point.

[00:11:38] David Fagan: And just the game came so much easier, the sports that I was playing. And of course, relationships of, I’m at the age now where I’ve had some amazing relationships, 25 year, 30 year relationships, and that’s stuff that I feel compounds. It’s just, some of the stuff you can’t replace.

[00:11:57] David Fagan: I mean, I guess I’ll, throw it over to you, Kyle. I’m wondering where you’ve seen some avenues of compounding that may be outside the investment world. 

[00:12:07] Kyle Grieve: I mean, this kind of got me thinking mainly about basically knowledge and the compounding of knowledge. And, I know Charlie has said this, basically.

[00:12:15] Kyle Grieve: try to go to bed a little smarter each and every single day. And that’s really, stuck with me. And that’s part of the reason why I love reading so much and reading almost every single day and reading for hopefully multiple hours a day is, I want to go to sleep just a little bit smarter each and every day, because if you do that over decades and decades, and you’re able to really grasp the concepts that you’re learning and connect them with other concepts.

[00:12:39] Kyle Grieve: You’re going to be smarter. You’re going to make, hopefully better decisions and we all start at square one, right? you start as, a baby then like I have a baby now. And I mean, I think about him compounding and it’s just like, it is compounding, right? Cause he learned something that he had no idea how to do like yesterday.

[00:12:57] Kyle Grieve: And it’s just like, man, like he is learning and not only like learning mentally, but physically how to use his body at such a fast pace. And obviously it, it does slow down. Yeah. And I was recently interviewed and I, talked a little bit about how, a lot of people, they get into their twenties and then essentially everything they learn just kind of stops.

[00:13:14] Kyle Grieve: They go to school, learn whatever they need in school and then work their job for the rest of their life. And, there’s people that never pick up a book after, after university. And that just, it goes in reverse too, right? I mean, if you’re not trying to learn, not trying to, to build, you’re not going to be compounding.

[00:13:31] Kyle Grieve: So you don’t get the, you don’t get those positive effects. So That was kind of my main kind of thing outside of finance, that compounding. 

[00:13:39] David Fagan: I’m really glad you used that one. That reminds me of William’s podcast that he did on the tribute to Charlie Munger and how Charlie had the ability to get to the answer in 30 seconds or less.

[00:13:51] David Fagan: That was a quote I think that maybe Bill Gates said about Charlie. He was the fastest thinker he ever knew. And I can only imagine that’s from his deep development of his mental models and thinking and his education. 

[00:14:04] Kyle Grieve: Exactly. And speaking of Bill Gates, I’ll go on to, the next chapter. This is Chapter 2, Luck and Risk.

[00:14:10] Kyle Grieve: Essentially, it’s just all about how luck and risk can impact our, lives in very, different ways. And so this chapter was really, good because he basically spoke about Bill Gates and then Bill Gates also had a friend named Kent Evans. Just how luck impacted both of them. So Bill Gates essentially was super lucky.

[00:14:30] Kyle Grieve: He went to the right school. This school had the funding to buy a computer. And, all these things were very rare events and he easily could have never been exposed to any of them, in which case, we would never have Bill Gates, we wouldn’t have Microsoft that we know today. But then he had a friend who apparently was just as brilliant and he as he was, and he, unfortunately passed away in school due to a, like a mountaineering accident.

[00:14:52] Kyle Grieve: And, they, so who’s to say one of them couldn’t have replaced the other just by pure luck or unluck, unfortunately. And the other thing that I also thought about with this chapter especially is how outcomes are affected by luck and how we like to, if something good happens to us, we like to attribute that to, our own personal skill and, those are all biases.

[00:15:13] Kyle Grieve: But the fact is that a lot of luck impacts us in ways that maybe we can’t even imagine, but. In my opinion, you should accept the fact that luck helps you and accept that it’s going to help you because, you have to put yourself in front of that luck in order to take advantage of it.

[00:15:28] Kyle Grieve: One of my favorite quotes here was that, when judging others, attributing success to luck makes you look jealous and mean, even if we know it exists. And when judging yourself, attributing success to luck can be too demoralizing to accept. So that just kind of shows you how, we have double standards, right?

[00:15:45] Kyle Grieve: Other people’s success is different than our success, but when you think about it rationally, that’s not the case. 

[00:15:51] David Fagan: I really like this chapter at the start of the book because it has very little to do with investing, but it encourages the reader to think about where they are in their life and what risk Reward and luck has put you to where you’re at.

[00:16:06] David Fagan: It’s a nice framework to jump into. 

[00:16:09] Kyle Grieve: So before I pose my question to you, David, just an interesting concept that he had on here was on process and outcomes, which is something I learned a lot reading Howard Marks. So essentially, it’s basically, especially in investing, right? Year to year, your results are, I’m not going to say completely up to luck, but it’s a bit of a crapshoot.

[00:16:29] Kyle Grieve: Anything can happen, right? You can have a really good year. You can have a really bad year. So in the short term, luck definitely has an impact on your results, but in the long term, it becomes more and more skill that produces your outcome. So Howard Marks kind of taught that the process is more important than the outcome, because if you have a good process over a long period of time, the outcome is going to be basically derived off of what your skill base is.

[00:16:53] Kyle Grieve: So yeah, I found that, just a really important concept. So my question for you on this chapter is, can you discuss an event in your life where luck had a part in helping you succeed? 

[00:17:04] David Fagan: From a macro level, sometimes I think about how lucky I’ve been to be born in Canada. How I’ve had loving parents growing up, and grew up in a stable household.

[00:17:15] David Fagan: I mean, I really do think about this stuff. And just how happy I am to have been married to my high school sweetheart. And it’s been a very, it’s been great, right? And, it allows us to accomplish many great things in life, having that relationship. But I mean, if I’m going to get down to a specific event, it’s probably my first job.

[00:17:36] David Fagan: I mean, one of my best friends growing up was working in the office where I was given my first job opportunity. And it was a unique office that gave me unbelievable experience in public practice, and it gave me the ability to have the skillset to run my own public practice. and I know I was only there for three or four years, but I had so much experience early on touching many aspects of public practice.

[00:18:02] David Fagan: And, here it is, 20 years later, I’ve got a, I’m the managing partner of a, almost a 25 person firm. I was kind of lucky to get my start. Okay, so chapter 10 is probably my favorite chapter in the entire book. And it’s so simple. Save money. And for me, I really resignate like this. And some of the key points that Morgan’s making.

[00:18:28] David Fagan: is saving can increase happiness, and you might ask yourself why. really, it’s the control over your time. And much like the points made in chapter 7 about freedom, having control over one’s life is the best predictor of well being, right? And there’s a couple really good quotes I’d like to read, and they’re just short.

[00:18:49] David Fagan: The only factor that you can control generates one of the only things that matters. And the first idea is simple, but easy to overlook. It is that building wealth has little to do with your income or investment returns and a lot to do with your savings rates. And I just think, how wonderful is that? Like, you can hire people to do your investments.

[00:19:13] David Fagan: You can hire people to do your taxes. A savings is a DIY adventure. You’ve got to do it yourself. And, that’s part of what we talked about in Chapter 1 about, having good financial management as a key concept in your life. DIY savings will always be the thing, right? And as I internalize this chapter, I’ll just share my experience.

[00:19:38] David Fagan: Again, I said I’m in my early 40s. My wife and I have been really good savers, in our twenties, we probably saved about 20 percent of our income as our income grew in our thirties, we were able to save 30 percent of our income and I can tell you now into our forties, we’re probably saving close to 40 percent of our income and I can tell you like from starting my investment portfolio with 0 on it, like probably most people in this world are the people listening to this podcast.

[00:20:09] David Fagan: My savings rate is still outpacing my returns for the most part. I’m getting close to that flipping, but early on it starts with savings. And I don’t know what year Charlie Munger talked about this, but he said, you have to get to a hundred thousand dollars. You have to eat Kraft dinner, whatever the cheap food is in those years.

[00:20:32] David Fagan: And you’ve got to get that snowball started so you can get it rolling down the hill. And of course, understanding the power of compounding and all that good stuff. I’ve got to look that up because I’ve got to know if that’s going to be inflation indexed to today’s dollars or what that 100, 000 means, but it’s a really key concept.

[00:20:54] David Fagan: I might flip back to a little more discussion on this, but I’ll just throw it over to you, Kyle, about what strategies you and your family have put in place to save. 

[00:21:02] Kyle Grieve: Yeah, so for me, I’m unfortunately, I wish I learned about saving a lot younger. I did save a very, small amount when I was in my, late teens and early and my twenties, but, essentially my savings rate didn’t really skyrocket until I, I learned just about financial independence in my thirties.

[00:21:20] Kyle Grieve: So now it’s been about four years and I’ve done a pretty good job considering I’m in Vancouver and it’s hard to save here. So I managed to save anywhere for almost basically since COVID started, I’ve been able to save approximately 20, 20 to 25 percent of my income. And, so that’s been really helpful and just basically building my portfolio and my wife’s also saved, a decent amount of money as well and kicked that into our portfolio that I manage.

[00:21:45] Kyle Grieve: So that’s been really, helpful. And, yeah, I mean, without saving, it’s hard to get ahead in life. so I just actually interviewed, JL Collins, who’s wrote a couple of really, good books. And he had one really good little part from his latest book called Path Finders, where this woman was saying that she felt like saving was deprivation.

[00:22:04] Kyle Grieve: And so he kind of reframed it in a brilliant way. He said, I actually haven’t saved a penny in my entire life. I’m paraphrasing here. He says, every single time I get cash, I spend it immediately. But the difference is I spend it on freedom for later on in life. And I just love the way he worded that because it really takes that deprivation angle out.

[00:22:24] David Fagan: I can tell you with certainty that savings also has a multiplier effect. And, what I mean by that is because you’re training yourself to live within your means and save. Your savings end up growing, and because you’ve trained yourself to spend less and live within your means, financial freedom comes much, faster.

[00:22:44] David Fagan: And then, you don’t need as much as you think you need to retire. So it’s got this multiplier effect to it that’s beautiful. 

[00:22:51] Kyle Grieve: So the next chapter I want to go to was chapter six titled Tales You Win. So I really like this chapter is essentially the gist of it is that you can be wildly successful based off of just a few decisions that offer super outsized returns, despite being wrong very often investing is, kind of the perfect vehicle to explain this concept, which is, look at Warren Buffett, for instance, I mean, he said that his entire career essentially has been based off of 12 decisions.

[00:23:20] Kyle Grieve: And if you remove those 12 decisions, he’s an average investor. he’s made, I think someone’s counted up. It’s somewhere between four and 500 investment decisions over his entire lifetime. And only those 12 decisions really have made him into the person that he is today. If he hadn’t made them, he’d be, just some other hedge fund manager that probably most of us have never even heard of.

[00:23:41] Kyle Grieve: I found this chapter really interesting and it kind of made me connect to a really cool concept that Gautam Bade actually shared with Clay on We Study Billionaires and that’s basically, he was talking about concavity and convexity and how powerful compounding is and how it can easily carry your success even when you have some major losers.

[00:23:59] Kyle Grieve: So he gave an example, let’s say you have two investments, say you have 10, 000 or 20, 000 so you can put 10, 000 into each investment. One goes up by a 26 percent compound annual growth rate for 10 years and one goes down by a 26 percent compound annual growth rate for 10 years. If you don’t understand compounding or the math of it, you would think, okay, one goes up, one goes down.

[00:24:19] Kyle Grieve: I just end up with the same amount of money. But no, that’s not how it works because yeah, your loser goes down significantly. You lose a ton of money, but. Your winner goes up so high that you’re actually making a 17. 76 percent annual return over that period of time, which is just crazy. And that basically means you’re wrong.

[00:24:36] Kyle Grieve: You’re completely wrong. 50%. That was really interesting. And then another interesting concept was, so Pulak Prasad in his book, “What I learned about investing from Darwin”, he discussed this concept of punctuated equilibrium and how powerful it can be when used correctly. Basically tying it into this was he essentially just buys things at very concentrated period of the time.

[00:24:57] Kyle Grieve: It’s not very often, he’ll have years to go by where he literally doesn’t buy anything. And so that kind of just goes to show you that when these events happen that open up opportunities, you have to pounce on them as quickly as possible. So I’m just going to pose a question to David here.

[00:25:13] Kyle Grieve: How have you positioned your investments to amplify the effects of winning and decrease the effects when you lose? 

[00:25:20] David Fagan: I thought about this in contemplation of our chat, and I don’t know if I have a great answer for you, but I’ll, try to work it through in a couple ways. If we get to it, we’ll talk about in chapter 12 about market volatility.

[00:25:34] David Fagan: And for the most of my career as a DIY investor, I’ve been fully invested. And I haven’t been in a position to be as opportunistic as I would have liked in, key moments. Morgan has a great quote about your success as an investor will be determined by punctuated moments of tear, not in the years spent on cruise control.

[00:25:55] David Fagan: And I can tell you that my ability to stay in the game has been tested a few times at this stage in my career, and I’ve managed to do just fine with that. I haven’t set myself up to be like a punctuated moment that, Pulak Prasad talks about in his book. I haven’t positioned myself. enough yet to take advantage of a 2008 market correction or the V shaped correction that happened during COVID.

[00:26:20] David Fagan: But in terms of decreasing the effects of loss, I can tell you that I do index with part of my portfolio. I put it in the believe in the market, don’t think about it too much and be financially unbreakable category. I’ve got probably 25 percent of our family’s net worth in index funds. I don’t borrow to invest, and I don’t invest money that I may need to run my day to day life.

[00:26:48] David Fagan: So I think I can prevent the downside by those three things, and I’m still working on the upside, Kyle. So in Chapter 9, Morgan’s talking about wealth is what you don’t see. And I think this is a key concept to learn early on in life. What some of the key points that Morgan makes is be careful what you think when you see someone else and It kind of ties into chapter 8 the man in the car paradox as well And I’m going to read you a quote that actually comes from chapter 8 that ties in really nicely here it’s a subtle recognition that people generally aspire to be respected and admired by others and Using money to buy fancy things may bring less of it than you can imagine If respect and admiration are your goals, be careful how you seek it.

[00:27:40] David Fagan: Humility, kindness, and empathy will bring you more respect than horsepower ever will. And I can tell you in my role as an accountant, you can imagine what I can see into people’s personal lives. It’s like going to the doctor and disclosing your health issues. I mean, when you come to your accountant, you’re seeing all the financial stuff, right?

[00:28:00] David Fagan: I really struggle personally with fake rich, I’ll call it. It’s, you see someone drive up in a fancy car and you know that they have two years taxes owing that they haven’t paid for. I, and I really struggle with that. And I just think you have to watch in life who you’re emulating and who you’re respecting and oftentimes, it’s hard not to judge people by nature, I think we do become judgy sometime, but you have to really train yourself not to do it.

[00:28:32] David Fagan: And I mean, I had an experience when I was young. I was working for my parents. they have a clothing store and it was Christmas time and the store was really busy and, I was a kid. I was maybe 16, 17 years old. And this gentleman came in and I didn’t pay any attention to them, to this man. And, I didn’t think I was going to make any sales.

[00:28:52] David Fagan: Anyways, by the end of the night, he was 1 of the best customers I had all Christmas season. And I can remember, like I, I’m talking about it today, I judged the guy when he walked through the door, and I was young enough to not beat myself up about it, but I was old enough at that point in my life to know that I was very aware of my air in those moments, and I’ve never forgot about it.

[00:29:15] David Fagan: In fact, Chris Mayer, who was on one of our zoom calls in the mastermind community, actually talked about meeting someone at an investment conference, who is dressed up like a farmer. And I was like, yes, that happened to me. Exactly. So early on in life, you’re going to make mistakes and you’re going to learn this lesson sometime throughout the years, but maybe learn it from me.

[00:29:39] David Fagan: I don’t know, Kyle, have you ever been in a position where that happened to you? 

[00:29:43] Kyle Grieve: I can’t  really think of too many positions where I’ve really misjudged someone based on their wealth. I think that a big part of my upbringing was just, you treat everyone equally. And, my mom and dad both really instilled that into me and not that, your parents probably taught you the exact same thing, but, I also wasn’t in sales, right?

[00:30:03] Kyle Grieve: So I didn’t quite have those, same types of opportunities, but, I definitely observed that, especially now that I’m, I find financial independence a lot more interesting because I’m, trying to live it now. I observe things that other people do with their money. And like we said, we’ve about with people being crazy with the money, no one’s crazy, but you can still observe it and you can still see what they’re doing.

[00:30:22] Kyle Grieve: And you can probably assume that some people are saving money and assume that some people aren’t saving money. And you obviously would have the best insights into this because you’re seeing people’s actual money coming in and out. The 12, which is surprise. Many people use history to help guide the near future, but history only tells us so much.

[00:30:41] Kyle Grieve: History does a great job of showing us how events impact greed and fear in a variety of emotional states. So it’s great for using to understand, sweeping generalities, but as you get more and more focused and specific, looking at specific industries or trends and investing, for instance, using history to aid in decision making becomes a lot less useful.

[00:31:01] Kyle Grieve: So you can look to history for human, I think for human psychology and emotion. I mean, you can go back hundreds and hundreds of years and, starting with Tulipomania and the South Sea China bubble and, all these bubble events, they happen a long time ago. They’re still happening today.

[00:31:15] Kyle Grieve: They’re still going to happen in the future. But you know, if you want to look at, one specific industry, that’s brand new and try to take lessons from history. You’re going to have a hard time because those things just didn’t exist. So some of those generalities work really well in history. When you kind of dive into really, specific events, you can maybe try to use history to help guide you, but it’s not exactly going to help you.

[00:31:39] Kyle Grieve: I don’t think just as much as. trying to learn as much as you can about what’s happening right now and taking experiences that you have to help build your own thesis. So a quote I really liked from this was about historians as profits. So quote, a trap many investors fall into is what I call historians as profits fallacy, an over reliance on past data as a signal to future conditions in a field where innovation and change are the lifeblood of progress.

[00:32:04] Kyle Grieve: I mean, yeah, this just kind of goes on to what I was saying that, you can use data from the past to help you with some of your decisions, but not all of your decisions. And you have to be really, aware of that because, leaning too much on that can, I think, make you make some pretty big mistakes.

[00:32:18] Kyle Grieve: a couple of my big takeaways is that, the world is really surprising. I think you need to accept that and give yourself permission to be wrong and keep your ego in check because you’re going to be wrong a lot. I don’t think of myself as a macro guy. I think of myself, more of someone who looks at specific businesses, but even, the specific businesses I, choose sometimes I’m wrong.

[00:32:37] Kyle Grieve: I’m often I’m wrong. I’m wrong often. And that’s okay. And then also just I feel this chapter kind of ties into relying on experts for their opinion because even experts who should know more than anyone else on the subject are wrong often and you can look at people who make their little macro predictions and they’re right on 1 out of 10, but I mean, what’s the difference of, just closing your eyes and flipping a coin?

[00:33:01] Kyle Grieve: Because that would at least hopefully be about 50 percent right. 

[00:33:03] David Fagan: I love how Morgan talks about the outlier events that really moved the needle in this chapter and how unpredictable those events have been like. 

[00:33:13] Kyle Grieve: Exactly. And so I wanted to know your angle on this. So you’re obviously a business owner.

[00:33:18] Kyle Grieve: How do you best prepare and cope with unprecedented events from COVID or whatever to your personal business? 

[00:33:25] David Fagan: I think, I’ll generalize and then I’ll get specific about our business. You do, I think every business needs to operate with some sort of margin of safety in it. And whether that’s, ensuring that you have excess working capital, like, make sure that your current assets are more than your current liabilities.

[00:33:46] David Fagan: It’s not a complicated concept, but it is important and you don’t want to over leverage your business. To be a little more specific about, my experience, I mean, at our firm, one of our strategies is to always be slightly overstaffed. As an office of close to 25, by doing that, it allows us to navigate the unpredictable nature of staff not being here, or maybe we get behind in work, and just having, being conscious about being slightly overstaffed, allows us to meet our deadlines.

[00:34:19] David Fagan: And it also allows us to be aggressive if an opportunity pops up to buy another, accounting firm and, just have the resources available and the horsepower when we need it. And I mean, obviously the last unprecedented event for us was the pandemic. And, with it, as as a fellow Canadian, I mean, within two weeks, people had to be out of their office.

[00:34:41] David Fagan: Like you were not allowed to be in a group of more than five people in a spread out office. And our systems weren’t prepared at that time to handle that much decentralization. another coping strategy and that it for, us is to have the right people on the bus. And because in those two weeks, I can tell you, we hustled and you can only do that if you’ve got the right people on the bus and driving in the same direction with the business’s purpose.

[00:35:12] David Fagan: Chapter 18 is When You’ll Believe Anything, and the main theme in this chapter is appealing fiction and why stories are more powerful than statistics, and we often focus on what we know and we neglect with what we don’t know. And the more you want something to be true, the more likely you’ll believe a story about it.

[00:35:34] David Fagan: And I think when I read this chapter and I think about it, Daniel Kahneman is all over this chapter in terms of some of the things he writes about in his book. And I’ll share a quote that Morgan actually wrote in his book by Daniel on page 198. It says, hindsight, the ability to explain the past gives us the illusion that the world is understandable.

[00:35:58] David Fagan: It gives us the illusion that the world makes sense even when it doesn’t make sense, and this is a big deal in producing mistakes in many fields. And it just comes back to, are you making up some of the story when you don’t have all the information? Are you really going through your due diligence?

[00:36:18] David Fagan: Charlie Munger talks about no one’s smart enough to operate without a checklist. are you getting through everything you’re supposed to get through when you’re doing analysis on stuff? I think it’s easy to develop. I think we all have incomplete views. And then it’s very natural for us to complete the full narratives around our view.

[00:36:42] David Fagan: So we have to be so, careful about what we’re telling ourselves. And there’s a really good chapter in Daniel Kahneman’s Thinking Fast and Thinking Slow about an outside view. I think it’s chapter 23. And for those of you who may not have ever read this book or not familiar with it, it’s where people maybe underestimate.

[00:37:07] David Fagan: How long it may take them to do something without getting expert advice involved and sharing an outside view on what they know because they’re experts in the field and shedding some light on the situation that they’re in. And it’s like running a business and thinking you have all the answers yourself, you probably don’t.

[00:37:25] David Fagan: And to be able to get to fill in the blanks is really important. And I guess I’ll just kind of backtrack a little bit in terms of some of the examples that Morgan gives in this chapter. It’s back to that we’ll believe anything and stories are more powerful than statistics. We overestimate the truth all the time.

[00:37:49] David Fagan: 85 percent of fund managers cannot beat the index, but there’s over 5 trillion invested in it as people are looking for the next Warren Buffett. I mean, I love that quote in the book. Made off. He was the most notorious Ponzi schemer since Mr. Ponzi himself. And his returns never varied. He had an auditing firm that was unknown, yet he raised billions.

[00:38:13] David Fagan: And I just think what an amazing storyteller that, that gentleman must have been to be able to, have people invest with such little due diligence on their end. Yeah, it’s just, it’s almost like FOMO is real. the fear of missing out. there’s so much psychology in this chapter. It’s unreal.

[00:38:35] David Fagan: Yeah. I don’t know, Kyle, have you ever completed? Yeah. Have you ever like work through something only get to the end of it and realize that you did kind of fill in some blanks when maybe you actually didn’t know the answer itself? 

[00:38:48] Kyle Grieve: Yeah, absolutely. And investing all the time. So I talked a little bit about, I try at the end of the year to think about, what my most cherished belief was that I destroyed in a particular year based off of what Charlie Munger said.

[00:39:01] Kyle Grieve: And I love it. So last year I was thinking about that. And to me, So last year I exited a lot of, three, three investments I had in China and, while I still think China is a great country and we’ll probably have some very good outperformers. I did a lot of research. I spent a lot of time trying to understand the country and I thought I had a really good understanding of it, and I spent years essentially building up this thesis of on three of the companies that I owned and, I thought I had a pretty good picture of, the country.

[00:39:28] Kyle Grieve: And, so I had my thesis and you can kind of think of as a thesis is the same thing as a story, right? You, build it, you hopefully you use as many facts and data. As possible, there’s some story stock investors, they just look for the story. That’s it. And they don’t pay any attention to any of the fundamentals.

[00:39:43] Kyle Grieve: And that’s definitely not the way I am. But even with using data and trying to back up my story with, with the fundamentals of the business, I feel like I, I was wrong on that. It’s easy to kind of fool yourself. And for me, it was really hard. It took me years to basically admit that I just don’t understand China in terms of business as well as I thought I did.

[00:40:03] Kyle Grieve: And, maybe I’ll, continue probably learning more and more about it and who’s to say I won’t go back in at some point. But, it just felt like, that was a story that I, and to some degree was telling myself and I made some errors on that end. 

[00:40:17] David Fagan: I can tell you from my own experience, I’ve made the air hiring before, where, I’ve read a resume and I’ve given an interview to an individual and they’ve started with our firm.

[00:40:30] David Fagan: And, I’ve filled in a complete narrative of that person before I really knew who they were. I mean, I don’t, I think I feel like I’m a little bit better these days, but earlier on in my career, I used to do that. And it was only through experience and kind of learning my own omissions. To be able to develop the skill to kind of get through that.

[00:40:50] Kyle Grieve: My last chapter that I wanted to go over was chapter 15, which is nothing’s free. I really liked this chapter because essentially what he’s talking about is that any benefit that you observe comes with a fee. And for instance, let’s take this into the investing realm. If you’re indexing, your fee is volatility.

[00:41:07] Kyle Grieve: You have to pay the volatility fee in order to stay in and hopefully get the benefit of owning indexes for a long term, which are very good benefits. But a lot of people don’t get those benefits because they’re not willing to pay the fee. Essentially, it’s, any success that has a benefit is going to come with some form of fee.

[00:41:26] Kyle Grieve: and, but the, problem is that sometimes that fee is hidden and you don’t know. So he used the example of an executive who had done a really good job. It appeared that he did a really good job, but under the veil of all the success, there was a lot of issues that he made. And there was a lot of, I guess, fees you could say that he had to pay.

[00:41:45] Kyle Grieve: And that, I think, just goes along with anything. I mean, in investing, for sure, you have to pay volatility. That’s always a fee. And that’s whether you index or if you invest in individual stocks. Because even if you own Berkshire, that’s one of the best perform I think it is the best performing stock ever.

[00:42:00] Kyle Grieve: And it’s had four different 50 percent drawdowns. So that means that, even with all the success they’ve had, and even though their success has been relatively linear, if you wanted to capture all of that success, you had to live with paying the fee of volatility. A question I had for you on this chapter, Dave, was, what fees of the market are you willing to pay in order to reach your financial goals?

[00:42:23] David Fagan: Yeah, I mean, for me, it’s simple. It’s volatility. And I know we’ve discussed this already, but I mean, I’ve been in the markets long enough to see a couple of very large downturns with my portfolio. And, I know I’ve got the temperament and the ability to withstand that. I wasn’t prepared to be as opportunistic as I would have liked, but even withstanding the volatility is an experience in itself and being able to not make a brash decision when you see your investments go down by 40%.

[00:42:52] David Fagan: I mean, I can share an experience with you that I learned from a client. I mean, it’s great to learn from other people’s mistakes. In 2008, I was, in my 20s, late 20s, pretty young chartered accountant in Canada. and, I remember this gentleman panicked a little bit, sold all his investments and put it in a GIC.

[00:43:14] David Fagan: And I can’t tell you exactly what month that was, but that had a profound impact on me because six months later, the market pops back and this gentleman had permanent capital erosion. And it stuck out like a sore thumb for me, and I’ve always been one who’s been able to learn from other people’s mistake.

[00:43:34] David Fagan: And that one’s seared into my memory. It’s really interesting because oftentimes, like, if you’re explaining how financial compounding works. You use, you always use simple terms and you take an interest rate without volatility to illustrate its power, right? Like you’re going to say, here’s 100, 000 invested today.

[00:43:53] David Fagan: If you make a 9 percent return for the next 20 years, this is what your investments are going to be worth. the market rarely returns the average. And so you really need to be tested a few times. And I think it’s important early to get tested. So that, as your wealth grows later in your life, that you’ve been battle tested in terms of volatility and I can’t tell you where, I think I read this in William Green’s book, Richer, Wiser, Happier.

[00:44:23] David Fagan: Someone calling it a learner’s fee. I could be wrong on, on which book that came from, but I think the learner’s fee is true. It’s a very important lesson to earn, to learn early in life and it will only be a fine if you sell your investments. 

[00:44:41] Kyle Grieve: Why don’t you take off with the, the last chapter and then after that we’re going to go into, the confession, which I think is going to be a lot of fun.

[00:44:48] David Fagan: Okay. So chapter 13, Room for Error. The main theme in this chapter is that the most important part of every plan is your plan not going according to plan. You have to, leave room for error. And, just gotta throw this Mike Tyson, quote in, Everyone has a plan until they get punched in the face. Have you heard that one, Kyle?

[00:45:12] David Fagan: Oh yeah. Yeah, You’ve got to prepare for a Black Swan event. That’s a key point in this chapter. And you are always going to know why, what, or how something’s going to happen to challenge you, whether it’s in your investments or the business that you’re running. But you’ve got to prepare for it. And Morgan has this beautiful concept that runs through a lot of the book about being financially unbreakable, and I love it.

[00:45:42] David Fagan: I say it all the time. Now, you don’t want to take yourself out with leverage or sell your investments during a market downturn. I mean, we’ve talked about that. Some of the examples that Morgan has in this chapter is Berkshire leaves enough cash in its insurance claims and, Warren’s been public about saying, I’m not going to lose one night’s sleep over not having enough cash on the sidelines.

[00:46:05] David Fagan: And of course, early in Microsoft’s days, Bill Gates said, I’m going to have one year’s cash and expenses so I can meet payroll. And it’s just an unbelievable commitment to being financially unbreakable. And I think it’s just so important. And we’ll see if I can tell this story well enough to get some humor out of this.

[00:46:28] David Fagan: This happened to me. With my car twice in my life, so I just get a kick out of every time I see this story. In World War II, Germany had the best tanks in the world, and in one of the great battles of that war, where they were trying to occupy the Soviet Union, they weren’t successful, and Morgan writes that the scholars all agree that battle marked the turning point in the war in favor of the Allies, the Germans lost, and do you remember what took out the German and their great tanks in that battle?

[00:47:03] David Fagan: Do you remember what it was? I do, yes. Mice. Yeah. Mice. Mice chewed the wires to their tanks and they were inoperable. And talk about a black swan event. Like who could have ever prepared for that? And I love, actually in Morgan’s new book, Same as Always, which just came out I think in November of 2023, which we’ve already done a book club review on in our TIP Mastermind community.

[00:47:33] David Fagan: Risk is what you don’t see and you’ve got to prepare for it, but you don’t know what it is. And it’s just so important to be, to position yourself to be financially unbreakable. 

[00:47:47] Kyle Grieve: Yeah, absolutely. and, for me personally, To be financially unbreakable is probably all the same types of things that you’re doing, which is, obviously stay away from leverage.

[00:47:57] Kyle Grieve: I mean, that’s, you have to do that. If you want to be financially unbreakable, if you’re using leverage, I mean, you’re just exposing yourself to so much risk because bad things happen. And when they do, if you’re leveraged, the people are going to want their money back. and, oftentimes all your investments or however you’re looking at it is going to be depressed.

[00:48:16] Kyle Grieve: And that means it’s going to be very hard for you to stay afloat. And then in terms of, my portfolio, I try to buy businesses and own businesses that have some degree of, an ability to withstand big financial events. But I mean, let’s be honest, it’s hard, right? I mean, even right now, are we in a recession?

[00:48:34] Kyle Grieve: Are we not a recession? But you look at certain businesses and they have very, slowing fundamentals. And that this isn’t a, this is nothing close to like a 2, 0 8, right? So I guess part of it also is being willing to look long term. That’s I think to me helps me be financially unbroken.

[00:48:49] Kyle Grieve: Because, if something were to happen to my portfolio, to draw 50 or more, whatever. I’m honestly fine holding on to it, obviously I, look at individual businesses I have, I’d have to probably reassess them to see, how the, whatever the event is going to affect the, the operating fundamentals of those businesses, but, I’m willing to wait a couple of years for it to make that money back or reallocate to something else, as value investors, those events, those are the things that we hope to see, because if you have some money to deploy, that’s where you’re going to get amazing returns.

[00:49:22] Kyle Grieve: I wanted to finish this off looking, I think it was chapter 19 or 20 that, Morgan has this, it’s called confession. So he basically talks about two things, how my family thinks about savings and how my family thinks about investing. So Dave, why don’t you start just go over a little bit, a couple of points about how your family thinks about savings, and then I’ll do the same thing.

[00:49:43] David Fagan: Morgan writes the two ethos in medicine in this chapter are that every patient wants to be cured and there is a universal right to cure them. And so if I define my business and investment ethos and kind of tie it into my wife and I’s financial, personal financial situation is We are, and we being my wife and I, very much on the same page, are amazing savers, and I’ve talked in this episode already about our savings rate.

[00:50:17] David Fagan: We treat wealth like a game, not from ego. I think that’s really important to have some humility and kindness in what you do. My wife and I don’t have elaborate needs or wants, and in fact, the older we get, it’s actually the less we want, not the more we want, which, is kind of interesting. And, one of our ethos is to, be humble, kind, and compassionate, and.

[00:50:45] David Fagan: I know I talked about Fake Rich in one of the earlier chapters. I mean, personally, I identify as fake poor, and I think that actually might sound funny. I’ve taken that quote from Chris Rock. He’s used it in a comedy routine. I mean, that guy grew up dirt poor, and he’s worth a lot of money and has done extremely well in life.

[00:51:06] David Fagan: And he says he still identifies as fake poor to this day. And so I always get a kick out of that when, when I hear him say it. And, but it resonates with, me and my wife as well. And also one of my ethos at this stage in my life is just leading by example. If you’re familiar with the term Ikigai, it’s from an Island in Japan where people try to lead their life with purpose and, define that.

[00:51:35] David Fagan: And one of mine is to educate people. on business and finances and, lead them, and help teach and lead them in that. So that’s definitely one of my, one of my ethos. 

[00:51:49] Kyle Grieve: Yeah. So for me, I mean, I guess I’ve, I came to this conclusion from looking at the angle of, how I was raised and why certain members of my family taught me about saving and how they saved and my mom and dad.

[00:52:03] Kyle Grieve: They taught me a lot about saving. They both saved a decent amount. not as much as, I guess not as much as they should have to retire super early, but they both have savings and that’s awesome. And My mom really, she had some bad doubts of getting into debt. And so she really instilled into me how important staying out of debt was.

[00:52:21] Kyle Grieve: And, she helped me understand the strength of building an RRSP and savings in that end. And then my dad is, so my dad’s from Myanmar and he was actually a monk when he was a lot younger. So he understands a lot about just living below your means. I mean, Myanmar is not a super wealthy country.

[00:52:40] Kyle Grieve: And then being a monk on top of that is, you’re definitely not, you’re not eating very well. You’re eating rice, basically all the time. my dad is incredibly good at living below his means, and, I’ve definitely learned a lot from him on that end. that’s helped me really understand the power of savings and living below your means and staying out of debt.

[00:52:59] Kyle Grieve: So that’s kind of how, how I think about savings, how my family thinks about savings and how I learned. So do you have any other insights into, how your family thinks about investing? 

[00:53:09] David Fagan: If we, think about what we talked about in chapter one, about our lived experiences, accounting for so much of how we’re wired, you make a good point here that, not only our lived experiences, but I think our parents teach us so much.

[00:53:25] David Fagan: About their lived experiences become our lived experiences. And I think it’s really important to frame that early in your life. I mean, you might have amazing, you may have learned amazing habits from your parents from how they thought about money, but the reverse can also be true in terms of learning poor habits or just not understanding concepts.

[00:53:49] David Fagan: if you’re a 25 year old listener today, I would encourage you to really think about how you interpret money, what has been your thoughts, what has been your parents thoughts, and come to some agreement with yourself on what you think the right answer is. And I just think that’s really important to try to figure that stuff out early in life.

[00:54:12] Kyle Grieve: And if you, could think about that early, especially early, I think that opens up a lot of opportunities for you to start the compounding engine early, because, once you understand the power of the compounding, I mean, I wish when I was 10 years old, I could have started putting, 5 bucks a month or something like that away.

[00:54:30] Kyle Grieve: Because I mean, the amount of money that grows to, it’s incredible. And starting late obviously is It’s not an advantage, but you know, starting that no matter what your age is, always going to be an advantage. So if you’re not saving now’s the best possible time that you can have for saving 

[00:54:46] David Fagan: Warren Buffett has been quoted as saying, “when’s the best time to plant a tree 10 years ago? When’s the second best time? Today.” 

[00:54:53] Kyle Grieve: Exactly. Exactly. So David, I wanted to say thank you so much for coming on the show today, but before we go, can you just, we talked about a bunch of books that you referenced being part of the TIP mastermind community. So would you mind just maybe sharing some of your thoughts on the investment community for the audience?

[00:55:12] David Fagan: Yeah, so I’m really passionate about being involved in the TIP mastermind community. I’m really thankful to be part of it. Everyone is going to internalize why the community works for them. For me, it’s simple. It starts with the commitment to lifelong learning and pushing yourself to be better. And just ignoring the fact that we study and share investment ideas for a moment, I like to think of we’re the product of the five people that we associate most with, and I like to consider this community as one of my five people.

[00:55:45] David Fagan: I mean, this group is made up of amazing people who, at the end of the day, just want to better their knowledge. I mean, where else can you surround yourself? with like minded people who like to read, study, like to invest and share ideas on the same. I can almost assure you that it’s not your spouse and it’s probably not the people that you grew up with, right?

[00:56:07] David Fagan: it’s really, it really fills a need for a lot of people that are in the community. Circling back to the investment side, we do some cool things like, share one page stock pitch ideas that people have researched. If someone’s done a real deep dive into a business, and, developed a kind of a robust thesis on it, we’ll jump on a zoom call and have that individual pitch the pitch, the stock, some other cool stuff that we do, or that we did last year for me was we read the book, the joys of compounding.

[00:56:41] David Fagan: And then we were able to have Gautam Bade join us on a Zoom call, and we were able to talk to him about the book, and quiz him about his investment ideas, and we were also able to do that with Chris Mayer and 100 Packers as well, and so just having the access to talk to people that you wouldn’t otherwise is really special to me, and Kyle, I just want to give you a big shout out and thank you for all the work that you and Clay are doing organizing the community.

[00:57:08] David Fagan: And I want to personally thank Stig for some really meaningful conversations that we’ve had in the past year. And just like we talked about in chapter four, relationships are like investments, they compound over time. And that’s the hope that I have with this community. 

[00:57:24] Kyle Grieve: Okay, folks, that’s it for today’s episode.

[00:57:26] Kyle Grieve: I hope you enjoyed the show, and I’ll see you back here very soon. 

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