Tony Robbins joined James Altucher to talk about his book, MONEY Master the Game: 7 Simple Steps to Financial Freedom. The conversation explores many ideas and stories from the book and besides getting the Tony Robbins attitude, the interview provides a nice overview of what the book offers.
Altucher begins the interview by telling Tony that he’s had a big effect on James’s life. He says that he read Tony’s book over and over a decade ago, and it made a big difference in his life. Robbins thanks Altucher for the kind words and says that he was glad to help, in fact, it’s wanting to help now that inspired him to write this book. He says that 2008, “made me sick.” Between the story told in Inside Job and the ruin he saw, Robbins felt for the people. Not only that, but he tells Altucher that he wrote this book too because “we didn’t just bail them (the bankers) out, we put them in charge of the recovery.”
As he watched what unfolded, he felt the need to do something and realized that his power was the power of connection. He tells Altucher: “I’m gonna go to 50 of the smartest people in the world financially.. and say, what did they do? How did they get there?” Later in the interview Altucher calls this the Tony Robbins method; find successful people and see what they do.
Very quickly Robbins saw that money was a complex subject and tells James that “complexity is the enemy of execution.” Fees alone are a swamp of hazards that can trip up your returns and knocked you down. Robbins found 17 different kinds of fees that may be attached to financial products and while they seem small, they add up.
Imagine, Robbins tells Altucher, that three people each invested money for 30 years and earned 7%. The only difference is that person A pays 1% in fees while person B pays 3%. It doesn’t sound like much but A makes more than one and a half times what B does ($7M v $4.2M for example).
Warren Buffet would suggest an index fund with minimal fees, and made a bet along those lines. In 2008 he bet Protege Partners that after fees were subtracted, Vanguard’s Admiral fund would outperform any five hedge funds of their choosing. Buffet is up 43% so far while Protege is up 12.5%. Those figures are from this very interesting Fortune article which that shares nuances of the original million dollar bet have changed its structure as well. Do read it.
Beyond the fees that active investors charge, there is also the “skin in the game” problem that inflicts money managers. It turns out that very few “eat their own dogfood” (or use their own lathe). In the book Robbins reports that nearly half of all fund managers, don’t own any shares in the fund they manage.
Past guest Nassim Taleb calls this the “skin in the game” problem, and says that it’s a big one, he writes:
Which brings us to the largest fragiliser of society, and greatest generator of crises, absence of “skin in the game.” Some become antifragile at the expense of other by getting the upside (or gains) from volatility, variations, and disorder and exposing others to the downside risks of losses or harm. And such antifragility-at-the-cost-of-fragility-of-others is hidden – given the blindness to antifragility by the Soviet-Harvard intellectual circles, this asymmetry is rarely identified and (so far) never taught.
In “Brooklyn English” this means that without bearing the consequences of your decisions, you learn nothing from them. Any parent knows this after seeing their child do something foolish and think, “well, I told you so.” The kid had to have skin in the game to learn.
Robbins tells James that “the goal of this book is to make you the chess player, not the chess piece” and he went out to find the best players. He tells Altucher that he learned this strategy – of finding the best of the best – early on when he had to teach the US Army how to shoot. He says that he showed up and asked the Army to give him the experts and masters in pistol shooting and he observed them. While watching he would say, “Stop, what are you doing in your head? What are you doing internally? Externally?” Robbins was look for the things experts consistently did and tried to model that for everyone else. It worked.
The biggest, consistent things he learned from those experts were:
- Diversify your holdings
- Minimize your taxes
- Don’t lose money
The average Joe has to learn these things because, as the poet once said, the times they are a changin.
What does that change look like? Robbins tells Altucher that it means being valuable to many. Growing up he wondered how his dad could work so hard as a parking garage attendant, but not make much money. He worked hard, but he was working hard at the wrong things. Robbins realized that there isn’t value in a job everyone can do. You have to find and build skills that are valuable.
In Average is Over Tyler Cowen makes the case that the valuable skills will be working well with computers. His proving ground is the chessboard where the human-computer teams are the most dominant, beating either human or computer. Ditto for medical surgery, teaching, or stock trading. The humans need to know how to leverage the computer, that’s the value proposition. Cowen wrote, “Writers and teachers need to consider what aspects of their work are better done by intelligent-machine analysis and look closely at the irreplaceable value they do provide.”
In the interview Tony Robbins provides a different example. He sees the light at the end of the tunnel, but rather than being the oncoming train, it’s the driverless truck. Robbins wonders if truck drivers see technology coming and changing their lives much like it did for farming. He writes, “In the 1860s, 80% of Americans were farmers. Today 2% of the US population work in farming and agriculture, and we feed the entire world.” What we aren’t doing then is looking toward the future at what our careers and financial futures look like. But how?
What do you do then? In Choose Yourself, Altucher gives rules for getting started with something.
- Take out the middleman.
- Pick a boring business.
- Get a customer.
The book lists four more, but that’s good enough to start (and if you haven’t read it yet, what are you waiting for?)
One way that Robbins focuses on becoming valuable is another tip he learned from the successful people he’s coached. “Every great person I know spends 1% of the time on the problem and 99% of the time on the solution.” In the interview he uses the Occupy Wall Street protests as an example, wondering how people making over $30,000 a year can be outraged when they themselves are the global 1%. This limited scope is what Taleb calls domain dependence, where our thinking in one area doesn’t translate to another. You may be poor in America, but globally you’re not. Cowen takes a similar angle, suggesting that even though there is a stagnation in earnings, our lives still get better. The stock market took five years to bounce back, but few would want the medical treatment, entertainment, and food choices of five, ten years ago. For a more tangible example look at your smartphone, even the iPhone is only 7 years old.
What Robbins is suggesting in the interview – and book – is to construct what you need in realistic stages. He tells Altucher that financial security and absolute financial freedom are two different ideas, but that we should know what both mean for us. The first includes the five basic areas for security; housing, utilities, food, transportation, and basic insurance. Once you have these things taken care of you have a peace of mind. Plus, getting to that stage is a lot easier.
One modern day model of this is Mr. Money Mustache (MMM). In 2014 he lived the luxurious life for a total of $25,330. He is living one version of what Robbins is telling Altucher, find what you really want in life and work for that. For MMM it meant retiring at 30 but he hardly feels deprived. One action he took is to ask, “will buying this really improve my overall lifetime happiness?” In many cases the answer is no, and he’s happy without.
For MMM, $600,000 is what he needed for complete financial security. Robbins wants his readers to find their own number, because like many of the people he’s coached, bringing our target closer makes it easier to achieve. In his own life he found that moving to Florida saved him enough in state income taxes to pay for his new house there. In six years! Florida’s zero state income tax is the opposite of Californias 10+% bracket.
Part of what Robbins wants everyone to do is just to start, start thinking, investing, and acting in a way that leads to your dreams. He tells Altucher that people project the best motivations on themselves and less great ones on others. This is known as the fundamental attribution error (FAE) and it’s a problem for people like you (just kidding, that’s the error right there). The problem is that we tend to see mistakes by other people as their fault, and our mistakes as conditional. Your brother lost money in the stock market because he’s reckless, you lost because the market tanked. Robbins wants you to be thinking with less bias, to realize that it’s your choices too that affect what happens.
Altucher asks Robbins what would happen if he had to start from scratch, and Tony says that this happened to him after his divorce. Needing money, he got back to work and he leveraged his skills of serving many to build up his income again. That’s what he calls “a winter in life” and tells James “we all have them.” Being born in 1928, or graduating in 2008 was bad luck, but there’s nothing you can do about that. The thing you can do is make the best of what you have.
In the book Robbins outlines financial products and themes to fight these financially winds, and while even good plans go down, we always have our frame of mind. In Robbins’s other books like Awaken the Giant Within he has quotes from the stoics in regard to our mental fortitude. In our pursuit of wealth we may never get the beach house, but maybe we don’t need one. In Meditations Marcus Aurelius wrote:
People try to get away from it all – to the country, to the beach, to the mountains. You always wish that you could too. Which is idiotic: you can get away from it anytime you like. By going within. Nowhere you can go is more peaceful-more free of interruptions-than your own soul.
Near the end of the interview the pair talk about effective communication being important, even when you’re right it doesn’t matter if you can’t communicate with people who disagree with you. If you haven’t read it yet, go get Getting to Yes as the de-facto starting point for thinking about negotiation and communication. You’ll also be following Warren Buffett’s best piece of investment advice – invest in yourself. Buffett spends 80% of his work day reading, accumulating facts and corralling ideas. After investing in yourself, you can begin the investing strategy he suggests to Robbins. From MONEY Master the Game:
All he would tell an individual investor today is to invest in index funds that give you exposure to the broad market of the best companies in the world and hold on to them for the long term.
And when he dies, what will he suggest for his family?
Put 10% . . . in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors— whether pension funds, institutions, or individuals— who employ high-fee managers.
The interview ends with Robbins telling Altucher; “most people overestimate what they can do in a year and underestimate what they can do in a decade.” What action will you take?
Notes: Robbins’s book is good, but has had a fair amount of criticism online. Do educate yourself, but taking a motto from the book, diversify where you learn and what.