116: Dr. Daniel Crosby — The Science of Money and Happiness with Dr. Daniel Crosby

[00:00:00] Dr. Daniel Crosby: We make decisions that prioritize presentism. We make decisions that prioritize right now. Right, or we make the decisions that prioritize safety and good investing requires us to make decisions that require 50 years from now and that prioritize a potential lack of safety. We’re always moving through the world, operating with these operating systems that serve us well in some respects, but, but serve us very poorly in an investment context, usually.

[00:00:39] Intro: Do you think money takes up more life space than it should? On this show, we discuss with and share stories from artists, authors, entrepreneurs, and advisors about how they mindfully minimize the time and energy spent thinking about money. Join your host, Jonathan DeYoe, and learn how to put money in its place [00:01:00] and get more out of life.

[00:01:08] Jonathan DeYoe: All right. Welcome back on this episode of the Mindful Money Podcast. I’m chatting with Dr. Daniel Crosby. Dr. Crosby is a psychologist and a behavioral finance expert who helps organizations understand the intersection of Mind and Markets. His first book, we’re gonna go through ’em all here. His first book, Personal Benchmark: Integrating Behavioral Finance and Investment Management, was a New York Times bestseller, something I covet, but it’s not gonna happen for me. Uh, his second book, The Laws of Wealth, was named the Best Investment book of 2017 by the Axiom Business Book Awards that’s been translated into 14 languages. His third book, The Behavioral Investor, was Axiom’s best investment book of 2019. It’s kind of a comprehensive look at neurology, physiology, and psychology as it relates to financial decision making.

[00:01:51] Jonathan DeYoe: Now I wanted to have him on the podcast to talk about that arc and to talk about his latest book, The Soul of Wealth, that comes out in October of 2024. So [00:02:00] Daniel, welcome to The Mindful Money Podcast.

[00:02:02] Dr. Daniel Crosby: Hey, it’s great to be here.

[00:02:04] Jonathan DeYoe: I’m excited to have you. Uh, so first of all, where, where do you, where are you calling from? Where do you call home?

[00:02:09] Dr. Daniel Crosby: I call Alabama home. Got my ring here. My wedding ring is in Alabama quarter. Uh, I’m from Alabama. I live in Atlanta, but I don’t, I don’t claim Atlanta, even though I do love it too, from Alabama. Live in Atlanta, currently in San Diego where I spend the summer because Atlanta’s too hot for, for two months.

[00:02:28] Dr. Daniel Crosby: I love Atlanta dearly. 10 months out of the year in the summer, you can have it. So I come to come to Coastal California. Sweet. You know what’s actually nicer

[00:02:38] Jonathan DeYoe: in Northern California?

[00:02:39] Dr. Daniel Crosby: My sister’s down here though. My kids, um, my kids hang with the cousins and go boogie boarding and hang with the cousins and, and play in their garage bands and stuff.

[00:02:48] Dr. Daniel Crosby: So my dad’s from Northern California, so, uh, it is gorgeous. Yeah.

[00:02:53] Jonathan DeYoe: So you grew, you grew up in Alabama.

[00:02:55] Dr. Daniel Crosby: I did.

[00:02:56] Jonathan DeYoe: So I’m curious, what age did you leave Alabama [00:03:00] and while you were there, was it, was it old enough to have learned lessons about money and entrepreneurship? And if so, what were those lessons?

[00:03:07] Dr. Daniel Crosby: We have a sort of an interesting family.

[00:03:08] Dr. Daniel Crosby: My dad is from Monterey, California and was from a very sort of blue collar working class family. My mom is from Alabama and is from a very wealthy family. So not what, not what you think when you think Alabama and Monterey, but yeah, so my dad is a financial advisor. He’s still practicing. So growing up with money, like being discussed at the dinner table, being very top of mind was something I was privileged to have, be a part of my growing up from a very young age.

[00:03:39] Dr. Daniel Crosby: My dad got his job the day I was born. My dad had dropped out of his MBA program ’cause he hated working with computers. So my dad had dropped out of his MBA program and was mowing lawns and was trying to figure out what he was gonna do with his life. I. My mom was working at McDonald’s. My [00:04:00] grandparents were surely concerned about my dad’s prospects, and my dad got his job as an advisor, then a broker, really on the day I was born, and he’s been at it ever since.

[00:04:12] Dr. Daniel Crosby: You know, I sort of grew up in the business and grew up learning all about investing. I mean, quite literally discussing it at dinner, talking about the power of compounding, all the stuff we nerd out on Now, I. Very lucky to have that be part of my youth.

[00:04:27] Jonathan DeYoe: So you were born, I, I don’t want to guess your age.

[00:04:29] Jonathan DeYoe: Are you in your forties? I’m 44, yeah. Okay. So 44 years ago, the state of the industry was largely brokerage, right? Slinging stock, maybe a mutual fund, right. A hundred. A hundred. Hot

[00:04:41] Dr. Daniel Crosby: dot, like dialing for dollars, cold calling. Like I, I vividly remember my dad, you know, coming home. Just brutal, brutal life.

[00:04:51] Dr. Daniel Crosby: Dejected. Yeah. Like just, just like absolute, like a broken, A broken man after a day of cold calling. And [00:05:00] it’s interesting. So I’m like, look, there’s a lot of weird stuff going on with me. I’m Mormon like, and so I’m from Alabama and the way that my dad got his job is he had been a Mormon missionary. And they were like, we don’t think you’re ready for rejection.

[00:05:14] Dr. Daniel Crosby: You know, like, you’re too young. You’re not ready for rejection. And he is like, buddy, let me tell you about rejection. Yeah. Like, I’ve been, I’ve been knocking doors for two years. I’m very, like, I’m very comfortable with rejection. And that was like kind of how he got his job. But man, I, I remember him coming home just.

[00:05:32] Dr. Daniel Crosby: Beat up by not making any money, cold calling all day, getting the phone slammed on him.

[00:05:38] Jonathan DeYoe: That’s, uh, that’s the first five years of my career on, on Wall Street as well. Like, I did that 300 dials a day, you know, contacting 10 people, everyone else getting sh you know, just getting shut down constantly. I totally, that’s, that’s the most painful period of my life.

[00:05:51] Jonathan DeYoe: So I. Kudos to your dad. The question that kind of pops in my head is that’s the hot.world. I was trained to basically sell my company’s ability to research and [00:06:00] pick stocks, which was, you know, Morgan Stanley at the time, you know, followed by, you know, was at Smith Barney for a while. How do you come out of that?

[00:06:06] Jonathan DeYoe: Like, I know what your books say, it says that’s not possible. So how, how does that develop?

[00:06:12] Dr. Daniel Crosby: Yeah. Well, you know, we’ve, we’ve grown since then and, and he’s grown since then. But, you know, I remember the re like going to visit my dad. There’s, there’s like two things. I remember the, the cloud of smoke. Like for, you know, first of all, in the eighties, you know, the absolute cloud of smoke.

[00:06:31] Dr. Daniel Crosby: And I think Alabama had like cigarette vending machines until like. Two years ago or something, you know, the, the absolute cloud of smoke when I would go to my dad’s office and then the binders of value line, right? Like just value line binder. He’s trying to like, whatever, figure it out. Yeah. So this all came about, I mean, if I can kind of tell a little story here.

[00:06:56] Dr. Daniel Crosby: I went to school to become a clinical psychologist. I mean, that’s what my PhD is [00:07:00] in, is that I was gonna be a shrink and I, I. Started to burn out. I was 23 when I started my clinical psychology PhD, which is like a great time to be dispensing life advice 23 years old. But, but you know, by the time, by the time I was finished, I was just, I.

[00:07:19] Dr. Daniel Crosby: I was so beaten up by, you know, seeing 40, 40 people a week who were having the worst week of their lives and just going through unspeakable things. And I came to my dad and I said, look, I, I love psychology. I do, I, I love studying human behavior, but I don’t think I love it in this capacity. Like I don’t love it in this context.

[00:07:40] Dr. Daniel Crosby: And he said, you know, look, there’s a ton of psychology in my work. And I was like, what are you talking about? You know, because I had always viewed my dad as sort of primarily a salesperson, you know, like what we would call an asset gatherer Today, primarily he’s a salesperson, and then [00:08:00] secondarily, he’s a stock picker.

[00:08:02] Dr. Daniel Crosby: Like, you know, that was sort of how I viewed his world. And my dad, you know, this is whenever, however many years ago, 16, 17 years ago, my dad did not know the term behavioral economics or behavioral finance. Like he didn’t, he didn’t go say, Hey, go check out Kahneman and Dsky. He just, he knew there was a lot of human behavior in his work.

[00:08:25] Dr. Daniel Crosby: That simple acknowledgement on his part set me on a path to discover a lot of what has come to constitute my work and my

[00:08:33] Jonathan DeYoe: books. And has your dad changed his practice to like include some of your work and some of this process? Or does he, he doesn’t still pick stocks, does he?

[00:08:41] Dr. Daniel Crosby: No, my dad’s great. Like my dad is, um, a great advisor and my dad is my biggest fan.

[00:08:47] Dr. Daniel Crosby: And if you go in my dad’s office, you’re gonna hear about me. So he’s, yeah, he’s a great, he’s a great fan and a great believer in this stuff.

[00:08:55] Jonathan DeYoe: So I wanna, I wanna look at the most recent works, but um, just before we do that, could you sort of describe for the [00:09:00] audience the arc of your research and the writing that you’ve done?

[00:09:03] Jonathan DeYoe: ’cause it’s, it’s quite broad.

[00:09:05] Dr. Daniel Crosby: Yeah, so I’ll talk about, I’ll talk about my solo work. My first two books really came out of trying to answer very specific questions. I’ve long believed in this idea of a behavioral policy statement. You know, we have investment policy statements where we sort of make a pact with the people we served to say, Hey, these are sort of the rules and the strictures by which I’m gonna manage your wealth, like, right.

[00:09:30] Dr. Daniel Crosby: This is sort of my articles of. Faith articles are moving forward, but they don’t sign one in return. And like we know that their choices are as material as our own. And so I’ve always believed in this sort of two-way street of saying like, okay, so here I, your advisor will abide by these principles, you the client.

[00:09:51] Dr. Daniel Crosby: Also have some rules and responsibilities and, and here they are. So early in my career, I was introducing this concept to a group of advisors in one of my [00:10:00] presentations, and somebody asked the question, like, uh, I like this idea. What would yours look like? I. Sort of bullet point by bullet point, what would be the specifics of your behavioral policy statement?

[00:10:13] Dr. Daniel Crosby: And I said, well, hey, let me get back to you. And then I wrote a book about it. So, so, um, so yeah, I mean that’s, that’s really what that, that book is, it’s like the, this side believe of sort of behavioral finance for mom and pop investors. Like what are the, what are the 10, 12 rules you need to follow that are gonna get you 99% of the way there?

[00:10:35] Dr. Daniel Crosby: The second book, the Behavioral Investor is born out of my. Belief that the physiology, the neurology and things had been understudied. There had been a lot of work done on the psychology, right? Which is sort of my, my love and, and my expertise. And that’s great and that’s important work, and I love it. And I use it every day.[00:11:00]

[00:11:00] Dr. Daniel Crosby: But there’s more to it than the neuroeconomic side of things is powerful. Like even the physical side of things. You know, things like inadequate sleep and poor nutrition and drug use and caffeine use and all, all these things have a material impact on how we spend our money, and nobody was really writing about that much.

[00:11:20] Dr. Daniel Crosby: And so that was just my own geeky like wanting to answer those questions. Like I write truly to know what I think. And so it’s almost like I have to write a whole book to be able to give a good answer. And so that was, you know, I wanted better answers for that. And so. I wrote that book. And then The Soul of Wealth, the new book is really just born out of, one of the things about working in finance is that you rub shoulders with some very wealthy people.

[00:11:52] Dr. Daniel Crosby: Right? So I work with and on behalf of some people who have gobs of money. Right. And one of the [00:12:00] things that you observe. Is that they’re a lot like you and I in terms of their happiness, the meaningfulness of their lives, their contentment, and some of them are quite happy and are using their wealth to to great ends and some of them are quite miserable and sort of inexplicably so, and kind of can’t give up bad habits.

[00:12:23] Dr. Daniel Crosby: And so I wrote this new book, the Soul of Wealth, which is just sort of 50 essays about money and meaning just like, okay, you’ve made money, right? Like you, you read the first two books. You followed what they said about being smart and thoughtful and long term you made some money good for you. But that’s sort of necessary, but not sufficient for a good life.

[00:12:47] Dr. Daniel Crosby: How do we go that final mile?

[00:12:48] Jonathan DeYoe: I love that. And, and, and actually that’s the, I think of the, my own writing as I have, I sort of five books in my, in myself. And the last one sort of talks about some of that same stuff. Like I Wealth is in the title, right? And my, all my [00:13:00] titles have mindful and then wealth.

[00:13:01] Jonathan DeYoe: But then how do you, how do you live the good life now that you’re successful? Like how do you make that? So we’re gonna get to come some questions on that, that I have. Just going back a second. In the intro we mentioned that you help organizations. I. And when I read your books, when I look at your books, it looks like they’re really, really would be great for individual investors.

[00:13:17] Jonathan DeYoe: So why in the intro and why in the, in the stuff that you guys provided, you talk about helping organizations with mind and money matters and the books seem to be focused on individuals.

[00:13:27] Dr. Daniel Crosby: The. First and the third book are definitely focused on individuals. The middle book is really sort of institutional.

[00:13:34] Dr. Daniel Crosby: Yeah. And you know, my job is institutional. Like I, I work with organizations kind of day to day in my job, but then the, you know, the people that I serve serve individuals. So it’s more fun to write for mom and pop than it is to write for Goldman Sachs. Love you Goldman Sachs. But yeah,

[00:13:52] Jonathan DeYoe: of course. Right. Mom and Pop can really appreciate it.

[00:13:54] Jonathan DeYoe: Goldman Sachs. Less appreciation. Goldman Sachs can pay you though. Yeah, that’s true. That is, that is the [00:14:00] facts. I wanna start by laying a little bit of, a little bit of groundwork, and I think you’re gonna agree that there are evolutionary influences that make us sort of limited in our decision making or, or fallible in our decision making.

[00:14:11] Jonathan DeYoe: So you mentioned neurology, physiology, psychology. Could you sort of lay out. Rather, not the whole conversation, but at least some basics around the argument about our limitations. Why are we limited?

[00:14:21] Dr. Daniel Crosby: Yeah. I mean there’s, there’s a couple of reasons. You know, a lot of it is like, what are we optimized for?

[00:14:27] Dr. Daniel Crosby: Many of the things that we sort of count as cognitive biases, I. Are just sort of human tendencies that service well in one domain and, and very poorly in another. Right? So you think about we haven’t had a, a, a brain upgrade in nearly a quarter of a million years. You know, I mean, we’re, we’re wired for physical hardiness and like, if you even look at just the human lifespan, if you compress human history down into a [00:15:00] year.

[00:15:00] Dr. Daniel Crosby: You get the pyramids on Christmas day. You know, you get the founding of this country laid on December 29th, and as of the founding of this country, the average life expectancy is 35. You know, you’ve got 90% of the world living in abject poverty. So like many of the things that we’re faced with today, the onslaught of ever present media abundance enough money to do what you want and like have some leisure, a long enough lifespan that you’re just not a.

[00:15:39] Dr. Daniel Crosby: Clawing and scraping to not die of some weird disease. All of this has happened in sort of an evolutionary blink of an eye, and so we’re wired for a time and place that could not be more different than the time and place we find ourselves in. And we’re not wired to be happy. We’re wired to not [00:16:00] die. I mean, you know, you sort of invoked this evolutionary perspective, and I think it’s a good one.

[00:16:05] Dr. Daniel Crosby: We’re not wired to thrive, we’re wired to pass on our genes. Hmm. And so you, you look at something like, you know, Daniel Kahneman’s seminal Finding Prospect theory, that that says we’re two and a half times as upset about a loss as we are happy about a, a gain. Well, evolutionarily, that makes good sense because if you have one really bad day, you are dead, right?

[00:16:31] Dr. Daniel Crosby: So, so like da dangerous stuff, bad stuff needs to be very, very sticky, right? Like that has got to stick with you. Like the mistakes that you make, the errors that you make. Evolutionarily, it makes sense for them to be sticky because if you do a dumb thing twice, it might kill you. Like, you know, 10,000 years ago.

[00:16:53] Dr. Daniel Crosby: Well, today you and I live pretty soft lives, right? But yet the [00:17:00] one thumbs down on my YouTube video hurts a lot more than the hundred thumbs up. Feel good? That sucks. And so we’re just wired. We’re wired for immediacy. Markets require patience. We’re wired for certainty. You know, markets require, uh, the ability to, to tolerate ambiguity.

[00:17:22] Dr. Daniel Crosby: So we’re just mis wired for the moment that we find ourselves in. And I guess the good news is, in a few million years, maybe we’ll come around,

[00:17:31] Jonathan DeYoe: we’ll get an upgrade, maybe there, we’ll get an upgrade. So that’s how we’re wired. How does that then show up in our decisions? I.

[00:17:38] Dr. Daniel Crosby: It shows up in our decisions because I think we, going back to the safety thing, we make decisions that prioritize presentism.

[00:17:48] Dr. Daniel Crosby: We make decisions that prioritize. Right now I. Right, or we make the decisions that prioritize safety and good investing requires us to make decisions that [00:18:00] require 50 years from now and that prioritize a potential lack of safety. And so like we’re just, we’re always moving through the world, operating with these operating systems that serve us well in some respects, but, but serve us very poorly in an investment context usually.

[00:18:20] Jonathan DeYoe: Before this got brought into sort of behavioral economics, it was, you know, behavioral psychology. So one thinks, or I see it in, in the world of, of behavioral economics and, and behavioral finance. But this came out of psychology, right? So this comes out of, or the whole conversation comes out of the problems we have with our relationships and the problems we have with our boss and the problems we have, you know, with other things.

[00:18:43] Jonathan DeYoe: What other areas besides finance, well I wanna talk about finance, but what other areas besides finance, does this really affect us?

[00:18:48] Dr. Daniel Crosby: Are are bad wiring. Yeah. Yeah. You know, if you think about like, let’s go outside of finance, right? Well, one of my favorite models is the perma model from, from Martin Seligman.

[00:18:59] Dr. Daniel Crosby: And, [00:19:00] and he talks about sort of the five facets of a, of a good life. Right? And so it’s p it’s for a positive experiences. This is like. Having fun, like eating ice cream, walking on the beach, whatever. Going to see a movie E is for engagement. This is deep, meaningful work. R is for relationships. Who loves you?

[00:19:22] Dr. Daniel Crosby: Who do you love? M is for meaning, working for something bigger than yourself. And A is for advancement. You know, being better today than you were yesterday. Well go back to our present bias, right? Of those five things like, and you’re kind of nodding along as I’m saying these with like, yeah, the listeners are hearing these and go, yeah, like, that makes sense.

[00:19:43] Dr. Daniel Crosby: Like, yeah, we wanna be having fun, working hard, loving hard, you know, working for something bigger, getting better, like that all sounds like good stuff. But you go back to something like this, present bias that’s so deeply wired into us from an evolutionary perspective. [00:20:00] Aside from that first one, all of these take effort, labor.

[00:20:05] Dr. Daniel Crosby: Uncertainty and time and we’re really wired to sort of over index on having fun. You, I mean, you even see this, if I may bring it back to money a bit like you see this in retirement, people are super prepared to golf. You know, like, I wanna, I wanna have enough money to, to golf. Like I’m gonna hit my number, now I can retire and now I can, you know, go to the lake and and golf all the time.

[00:20:32] Dr. Daniel Crosby: Well, yes you can. You can feed yourself and you can do those things. But like, what’s gonna be the source of your work? What’s gonna be the source of your relationships? What’s gonna be the source of your growth? What’s gonna be the source of your other centeredness or your spirituality? And we just don’t think about those things.

[00:20:51] Dr. Daniel Crosby: And we deprioritize them because they’re not immediate. We are wired for this immediacy and it, it ends up harming us. And I, I think if you [00:21:00] look, if you look at all the ways a person can screw up their lives and like we won’t. Go through all of them. Right? But if you think about, like, think about all the ways you can screw up your lives, like drug, sex, and rock and roll and like it’s.

[00:21:14] Dr. Daniel Crosby: Have a,

[00:21:15] Jonathan DeYoe: I have a 19-year-old at UCLA studying music, so all those things are on my, on my worry list. Every one of ’em.

[00:21:21] Dr. Daniel Crosby: Yeah. I mean, you know, I Immediacy plays a big role in all the ways that you can get addicted and make decisions that will run your life out of bounds.

[00:21:32] Jonathan DeYoe: Is there anything we can do to overcome the evolutionary foibles?

[00:21:35] Jonathan DeYoe: I mean, I. I preach mindfulness. Does that work? Is there something else that works?

[00:21:39] Dr. Daniel Crosby: Yeah, so Danny Kahneman does a great, does a great job, and it’s certainly been my experience. And, and he says that, you know, knowing about these things is not very predictive of doing otherwise. That’s true. Like, and I’ve, I’ve observed it to be true.

[00:21:54] Dr. Daniel Crosby: All my deathbed, I’m gonna be lecturing my kids about this. Like, one of the biggest things that I [00:22:00] think we misapprehend as a human race. Is the weakness of an intellectual understanding, like how weak a predictor of behavior knowing something is? Yes. And, and the strength of, of environment. So what, what do I mean by that?

[00:22:18] Dr. Daniel Crosby: Okay. If you look at the smoking rates of doctors and nurses, doctors smoke at a slightly higher rate than the general population. Nurses smoke at double the rate of the general population. If you ask a nurse who is smoking a cigarette like, Hey, is this a great idea? Don’t, don’t do that, but like every single one of them will tell you no, I.

[00:22:42] Dr. Daniel Crosby: Every single one of them would tell you no. And yet they have stressful jobs, they have long hours, they’re looking to unwind, and so they smoke. Right? The environment they find themselves in is a better predictor of their behavior than their knowledge. Right. You know, you look at the marital affair or overeating or a hundred other [00:23:00] things, and you know.

[00:23:01] Dr. Daniel Crosby: When I’m getting a donut on my way home from a stressful business trip instead of a salad, it’s not because I think the donut is good for me, it’s ’cause I don’t give a damn. I’m tired, like, you know, I’m just tired. And so to understand how to overcome these things, I think we first have to honor how little.

[00:23:24] Dr. Daniel Crosby: Understanding plays a part and just try to situate our lives and surround ourselves with people, places, and ideas that get us to where we wanna go.

[00:23:35] Jonathan DeYoe: I wanna get specific with money here. How does the Evolutionary Legacy show up in the relationship, specifically with money and finance? And I know that there’s spending issues and there’s investing issues, and there’s, let’s start with that.

[00:23:44] Jonathan DeYoe: And I have a, I have a follow up on those. One of the

[00:23:47] Dr. Daniel Crosby: things that I, I did in my book is there’s like 200. Biases, right? There’s like two a zillion, and you’ll see these things like the codex of behavioral biases. And it looks [00:24:00] super cool, like, I mean, it looks super cool to see ’em all laid out and it’s kind of a fun party trick to know them, but it doesn’t do much.

[00:24:09] Dr. Daniel Crosby: And so what I did in the behavioral investors, I’ve boiled them down into like these four meta biases. These four biases that that account for for many of the biases and their ego. Emotion, attention and conservatism. So I’ll talk about each of those briefly from an evolutionary perspective, right, so ego is basically the various forms of overconfidence.

[00:24:32] Dr. Daniel Crosby: We think we’re smarter, better, faster, more handsome than the next person. We think we’re more prescient about the future and we think we’re luckier than average. And from an evolutionary perspective, a lot of this ego. Is all about getting us through the day, like life is hard. The fact that I think I’m a better driver and better looking and smarter and whatever than the next person [00:25:00] helps get me through the day.

[00:25:01] Dr. Daniel Crosby: And there’s an evolutionary advantage to that. And I mean, look, you don’t have to look very hard at our politicians and other people to see that, you know, people with giant egos tend to do very well in life, and that confidence tends to be rewarded, right? So ego probabilistically, it’s bad. But the fact that you don’t think you’ll get divorced even though you’ve got a 50% chance and the fact that you don’t think you’ll get cancer even though you’ve got a really good chance makes your day nice and like there’s an evolutionary advantage to that.

[00:25:36] Dr. Daniel Crosby: So emotion is the tendency for us. I mean, that’s, this one’s pretty easy, right? It’s the tendency to confuse like our, our heart and our head. And this is one of those where it’s powerful in some areas and it just doesn’t work in finance. Every decision that you make is emotional when you look at the people.

[00:25:57] Dr. Daniel Crosby: We can study people who have, [00:26:00] you know, traumatic brain injuries and have the emotional processing centers of their brains damaged. And when you look at these people and you say, Hey, what flavor of ice cream do you want? They’re paralyzed. Because even like the difference between chocolate, vanilla, strawberry has an emotional substrate to it.

[00:26:17] Dr. Daniel Crosby: That I don’t think we commonly recognize. So I think, you know, point number one is every decision is emotional and it’s just a shortcut, right? Emotions teach us. They help expedite decision making and in certain contexts they’re super helpful. I can meet you for the first time. We can talk for five minutes before we hit record and I can go, that’s a good dude.

[00:26:38] Dr. Daniel Crosby: Like he’s smart, he’s affable, he’s nice, like he’s gonna ask good questions and That’s right. My emotional intuition of that is correct. I think and then, but then in o but then in other places it’s, it’s way wrong. You know? In, in other places, like when it comes to making mathematical decisions or financial decisions, our emotions tend to lead [00:27:00] us 180 degrees in the wrong direction.

[00:27:02] Dr. Daniel Crosby: So I. From an evolutionary perspective, emotion facilitates decision making and expedites decision making. Attention is, uh, our tendency to confuse things that are loud with things that are likely, you know, you think about some, like I’m hearing a lot about, I’m in hearing California, I’m hearing a lot about shark attacks.

[00:27:22] Dr. Daniel Crosby: You have a better chance of your pajamas spontaneously catching on fire. Literally, you have a better chance of your pajamas spontaneously catching on fire than getting bit by a shark. And yet I. It’s high profile and so it seems scary. It’s loud. Acts of terrorism are loud. In the wake of nine 11, roughly 3000 people died in the sort of the, the immediate attacks on nine 11, and that’s a tragedy that we’ll never forget.

[00:27:52] Dr. Daniel Crosby: But then there were thousands of people who are forgotten, who lost their lives in the months that followed nine [00:28:00] 11. ’cause people started driving when they normally would have flown. So driving, like getting in the car to drive 200 miles when you, when you normally would’ve taken a plane, people were scared to get on a plane after nine 11 because of the single high profile attack.

[00:28:18] Dr. Daniel Crosby: While, as awful as that is, probabilistically speaking, flying is still a lot more, a, a lot safer than driving and people. Didn’t conceive of it that way. And lots of people died. Lots of people died in in auto accidents. That wouldn’t have happened. Save the occurrence of that terrorist attack. So that’s that tendency to confuse things that are loud with things that are likely, which again, evolutionarily has a protective element, right?

[00:28:47] Dr. Daniel Crosby: We want to avoid big, high profile risks. And then the last one is conservatism, which is just playing it safe status quo, proneness going with what we know. And this is again, like, don’t stray too far [00:29:00] from home. Don’t eat the berry you’ve never seen before. Don’t touch that weird animal you’ve never seen before.

[00:29:05] Dr. Daniel Crosby: This sort of tendency to play it safe and be conservative was just a thing to keep us alive long enough to pass our gene on. And it doesn’t, doesn’t serve us great today in an age when there’s a Starbucks on every corner.

[00:29:18] Jonathan DeYoe: I wanna kind of pivot just a little bit because your dad’s an advisor and because I know your day job, uh, at Orion.

[00:29:24] Jonathan DeYoe: Who I used by the way, for many years when I ran my own firm. Uh, so, so thank you for that great company. What is the real value of financial advice? I think when your dad started, and actually when I started, we thought our value was we picked better investments than the public. Or maybe we had access to information that the public didn’t have, you know, 40 years ago, three years ago.

[00:29:42] Jonathan DeYoe: Or maybe we just read value line research and no one else did. But more and more research is done on the value of advice, and I don’t think it’s the same anymore, and I’m not sure the public knows. So what is, what is the real value of financial advice?

[00:29:54] Dr. Daniel Crosby: Yeah,

[00:29:54] Jonathan DeYoe: this is,

[00:29:55] Dr. Daniel Crosby: uh, this is chapter two of the Laws of Wealth goes into this in some detail, but, you know, one [00:30:00] of my favorite studies about this is a meta-analysis done by Merrill Lynch in 2016.

[00:30:07] Dr. Daniel Crosby: So a meta-analysis is just dork talk for a, a study of all the studies, right? So they, they looked at all the studies on how advisors add value, and so the, the good news is just about everything an advisor does, adds value. You know, what they found is that things like asset allocation, that adds value, tax savings, that adds value, you know, all these things, rebalancing, all, all that stuff, sort of the blocking and tackling what people think they’re getting when they hire an advisor is additive.

[00:30:42] Dr. Daniel Crosby: And if you look at that old school stuff, asset allocation, tax alpha, rebalancing, it’s additive at about 30 to 60 basis points per year.

[00:30:52] Jonathan DeYoe: Just lemme interrupt for a second. I love that you call it old school stuff. ’cause actually when I started, that’s not what we talked about at all. Like that. So 20, 25, [00:31:00] almost 30 years ago, that’s not what we talked about.

[00:31:01] Jonathan DeYoe: We talked about stock selection, market timing, which is not value added at all. Okay. But

[00:31:07] Dr. Daniel Crosby: that’s, we’ll call old school. That’s, that’s fair enough. We’ll call it the technical part, right? Right. The technical part. Yeah. Or, or again, like I said, what, what I think people think they’re getting. This person’s going to tell me what to buy and when to sell, and how much, right?

[00:31:24] Dr. Daniel Crosby: They’re gonna give me the ingredients for the cake in the right proportions. But if we look at things like client assessment, like understanding your client’s personality and using that deep understanding of their psychology to personalize their risk tolerance and their, you know, the way that you communicate with them.

[00:31:43] Dr. Daniel Crosby: And even more than that, we look at stuff like behavioral coaching, right? So helping them not sell and buy at the wrong times, helping them think through investing in their son-in-laws, whatever tech business, right? Like, you know, [00:32:00] helping them with the emotional parts that they found added an average of about 240 basis points.

[00:32:07] Dr. Daniel Crosby: So, you know, the sort of two takeaways. Everything’s additive. A financial advisor wears many hats. All of them work. The second takeaway is, though, the sort of off label stuff. The thing that I think people don’t think about, like decisional guidance, I. Emotional management, personalization, that adds an order of magnitude more value than the analytical, technical blocking and tackling that I don’t think people are necessarily looking for, but it’s why now a handful of studies show that people who work with an advisor do a couple percentage points a year better than those who don’t on average.

[00:32:52] Jonathan DeYoe: And your work. Informs that second bucket. The MM-Hmm. You know, the four X benefit that an advisor can [00:33:00] provide is really the behavioral. Decision making and that process. Yeah. Which is, which is I think, absolutely critical. Um, and, and Morningstar says it. Vanguard says it. Everyone says it like it’s, it’s part of every single study I’ve seen.

[00:33:11] Jonathan DeYoe: Now there’s two things that I, I, I, I want to move along ’cause there’s a couple things I wanna talk about in the Soul of wealth. The first is, what is true wealth? What is it you’re talking about when you think about the soul of wealth? What is that

[00:33:21] Dr. Daniel Crosby: wealth? Yeah. Well, I think one of the things you’ll, you’ll learn when you, when you read the book is that it’s, it’s a little bit individualized.

[00:33:28] Dr. Daniel Crosby: For me, it has everything to do with freedom. Like for me, the only thing, I’m just an obstinate person, I guess, like money’s highest and best use, is being able to say no to things I dislike. And being able to say yes to things that I, that I deeply like. And I think that that’s true of many people, but I think, you know, your mileage may vary and it’ll be a little bit different for, for everyone else, but, but what it isn’t is numbers on a page.

[00:33:55] Dr. Daniel Crosby: The very first chapter is, you know. Talking about each of the 50 [00:34:00] chapters has sort of a, a, a historical anecdote. It sort of goes anecdote data application. And the first anecdote is about Alexander the Great. He had second richest person of, of all time by some measures. If you combine the 10 richest people in the world today, by even the most conservative estimate, he had 10 times as much wealth as the 10 richest people in the world today, and his buddy died.

[00:34:27] Dr. Daniel Crosby: And he came unglued. And that was it. That like he was undone by the loss of his best friend. I mean, you, you couldn’t conceive of someone with more wealth, more power, or more prestige and relationships undid him. And that’s so human and that’s so true of all of us. So, you know, what it is, is gonna vary, you know, person to person.

[00:34:50] Dr. Daniel Crosby: But what it isn’t is, is a number.

[00:34:52] Jonathan DeYoe: Yeah, not money. So I have this, uh, this practice when I’m in a rough spot, maybe I had a bad week or a bad month. I go to the [00:35:00] ATM and I pull out some larger bills and next time I go to a coffee shop, I leave a $50 tip. Or I see the guy, there’s two guys that I know that are in sort of my neighborhood that are homeless that are, they’re i’ll, I’ll give them a larger bill.

[00:35:12] Jonathan DeYoe: Right. So, and then I feel really, I feel good, and I think a lot of what you talk about is this idea, or it’s not about money, but generosity. And this Buddhist concept of Donna as it relates to human happiness and wealth levels. So could you sort of just peel that onion back a little bit and talk about the benefits of specifically generosity for those of us that have wealth and maybe aren’t enjoying the wellbeing and the happiness that should maybe come with that.

[00:35:38] Dr. Daniel Crosby: One of the chapters in the book is called Giving is the Path to Abundance. And it talks about this, this very thing, and I’m going to not know word for word and I don’t wanna mess up anybody’s holy book. But, you know, I talk about, you know, I, I basically quote from every sort of major scripture and say, look, sort of every faith tradition has some sort of [00:36:00] teaching.

[00:36:00] Dr. Daniel Crosby: That giving is the path to abundance. And even as you give, you’ll be refilled. And practically that doesn’t, like, mathematically, that doesn’t make sense, right? Like you should be diminished by, you know, when you take out large bills and give them to a person experiencing homelessness, you are diminished by that much.

[00:36:19] Dr. Daniel Crosby: And yet you don’t feel that way. And what’s fascinating is I’ll cite two pieces of research. One looked at. Perceived financial wellness, like, do you feel rich? Basically was the question. And of course, again, rich is not a number, right? Like Rich is not like, oh, I, I, I wasn’t rich yesterday and then today I crossed the threshold and now I’m rich.

[00:36:43] Dr. Daniel Crosby: Rich is sort of a, a self-perception or a feeling. They looked at two things. There’s two things that are predictive of felt wealth. The first is your level of wealth, of course. Right? You know, of course the amount of money that you have has [00:37:00] something to do with how rich you are, right? I would never suggest that has nothing to do with how rich you are, right?

[00:37:06] Dr. Daniel Crosby: You can’t bleed a stone and at some point if you just don’t have money, you don’t have money. So, you know, one predictor of wealth was, was just having money. The second only other thing that predicted feeling wealthy was being generous. So at every income level, right? And like we’re all across, like at every stratum, you know, at every income level, the more you gave the wealthier you felt, and that’s taught the logical, right?

[00:37:35] Dr. Daniel Crosby: Like that’s, there’s a chicken and an egg relationship there. But that’s an incredible finding. The two things that predict you feeling wealthy are making money and giving it away. When we look at the research by Dunn and Norton who did sort of this seminal research into, into money and happiness, they find that there’s only a couple of ways that money can can [00:38:00] make you happy, right?

[00:38:01] Dr. Daniel Crosby: Like when we look at how we can spend money, how can it make us happy? One is by getting yourself out of stuff you hate, right? So like I. Hate mowing the lawn. I’ll never mow my lawn. Like kinda, you know, if you see me mowing my lawn like this has gotten, times are tough. Please, please help because that is, you know, that is not gonna happen as long as I’m, you know, doing okay.

[00:38:26] Dr. Daniel Crosby: So getting yourself out of work you hate is one. Spending time with people you love. Is another right. You know, buying yourself that, that vacation with your, with your loved ones, experiencing novelty is one. Travel’s good for that. Like you go, oh, I’m in Japan. Like, it’s new food, it’s new language, it’s new sight and sounds, you know, novelty’s one.

[00:38:48] Dr. Daniel Crosby: Then one of the biggest ones is giving it away, right? When we look at, there’s like a handful of ways that money can buy you happiness, and one of the biggest is, is giving it away. And the last thing that I’ll say [00:39:00] about this is nobody predicts this. Like when, you know, I, I talk in the book about, I, I’m gonna mess up the actual number, but it was vanishingly small.

[00:39:08] Dr. Daniel Crosby: I believe it was 2%. They’ll give people $20 and, and then sort of assign them. You have to spend it on yourself or spend it on others. And then they’ll ask them, you know, where would you have been happier? Right? And everyone goes, well, I would’ve been happier if I was in the spend it on me condition. And they’re not.

[00:39:26] Dr. Daniel Crosby: So it’s like, it’s this thing that. Everyone feels great when they give money away and no one expects that they will. So we have to have you help to get the word out.

[00:39:36] Jonathan DeYoe: That’s, that is incredible. Uh, I’m gonna actually cite those two studies if I can find them. If you, if you have links to ’em, send ’em away.

[00:39:42] Jonathan DeYoe: ’cause I, I, I would include ’em in the, in the, in the podcast, in the notes getting closer to the end here. So there’s a lot of noise and I love it. If you could simplify this for the audience. So when it comes to specifically building wealth, what’s the first thing that we should do today that’s gonna lead to greater personal and financial success?

[00:39:59] Dr. Daniel Crosby: Another [00:40:00] thing that I, I’m gonna mess up the name of the chapter. There are 50, be patient with me. But, you know, one of, one of them is basically like, you’re your best investment. You know, like you, you are the engine of your wealth if you’re looking to build wealth. I think a lot of times the first place people go is to investing and uh, like as we’ve discussed, investing’s gonna give you what it’s gonna give you, and there’s less than 5% of the world that can outperform what it’s gonna give you.

[00:40:28] Dr. Daniel Crosby: And so I. Trying to exploit that as a reliable path to wealth is just a, a loser’s game. It’ll get you rich slowly, but like you’re not gonna hit a grand slam by probably picking stocks. That’s gonna be low probability. The best thing you can do is improve the engine of your wealth, which is, you know, between your ears, right?

[00:40:49] Dr. Daniel Crosby: Like improve your skillset. I even talk in that chapter about. Stuff like people who go to therapy make substantially more money than people who don’t even getting your mental house in [00:41:00] order, getting your stress under control. People who work out make more money than those who don’t. People who have a mentor in their life make way more than people who don’t.

[00:41:09] Dr. Daniel Crosby: So it’s not always going back to school, even though I do love school, but it could be something like getting in shape. Getting a mentor, going to therapy, just fine tuning that personal engine is by far in away the most powerful thing you can do. It’s

[00:41:25] Jonathan DeYoe: just confirmation. Like 20 something years ago, I hired my coach and I started losing, I weighed 2 90, 2 90 pounds.

[00:41:33] Jonathan DeYoe: I went online one night and I got P 90 x and I did it like, like religion for like three years. Got down to like two 15, right? So lost 85 pounds. Had a coach. I did those two things in like a one year period. Change my life. Have a mentor, got my fitness in order, changed my life. Absolutely true. Absolutely true.

[00:41:52] Jonathan DeYoe: It works like magic. If you, if you just do it, that’s one thing to do. What’s one thing that maybe we’ve been sold on or we’re doing [00:42:00] because it’s habit that we should just stop doing

[00:42:02] Dr. Daniel Crosby: that one’s harder. That’s a good question. What’s one thing that is not as added? Well, I mean, I kind of talked about it like.

[00:42:08] Dr. Daniel Crosby: Trying to hit grand slams in the market. I’ll, I’ll share a piece of data to back that up, that I, that I really love. This is from the Laws of Wealth. You know, they looked at the lost decade in US stocks. So from 2000 to 2010, if you bought and held the index, you lost money, which is. Sucks. I mean, that’s brutal.

[00:42:27] Dr. Daniel Crosby: Like, I mean, you can, you can scarcely find another time in US history where you could be that patient and lose money, and yet he did. And so over that time, the best performing fund during that time was a focused equity fund that averaged 18.5% a year when the index average. Slightly negative, absolutely bonkers performance.

[00:42:50] Dr. Daniel Crosby: I mean, you would’ve doubled your money every couple years. The average investor in that fund lost money because what they [00:43:00] did is it would run up, everyone would hear about it. They would pile those dollars in. It would mean revert. They would go, ah, that was dumb. They would jump out. It would go up. They’d pile back in.

[00:43:12] Dr. Daniel Crosby: So even if you can pick, I won’t name specific securities to stay outta trouble with my compliance department, but if you think about high profile, high flying securities that are present in our lives today, I. There are certainly people like five.

[00:43:29] Jonathan DeYoe: There’s

[00:43:30] Dr. Daniel Crosby: five of them.

[00:43:32] Jonathan DeYoe: Not naming names.

[00:43:33] Dr. Daniel Crosby: Yeah, no names.

[00:43:35] Dr. Daniel Crosby: Compliance. But yeah, there’s plenty of people who’ve made money. There’s more people who have lost money. Like, I mean, in terms of the people who are trying to play those names individually and just not own them in an index that is, it’s just such a loser’s game. Spend much more time. Getting your mind right, getting your body right, getting your brain right, developing a side hustle, something so much more [00:44:00] reliable than trying to ring another percentage point or two out of the market.

[00:44:04] Dr. Daniel Crosby: Absolutely. So Dr. Crosby, what was the last thing you changed your mind about? I’m gonna be very vulnerable here. I’m here in California. I have long been an in and out sucks guy and. The fries are still terrible. The fries are still a nightmare, but the burgers for the price unbeatable. I’m going tonight in and out.

[00:44:31] Dr. Daniel Crosby: I owe you an apology. I’ve thought it was overrated. It’s very good and it fits my macros. I just thought I just lost 40 pounds myself. So I, I’m watching my calories, watching my macros and those hamburgers with, if you don’t get the sauce on ’em, they’re tasty and they’ll fit your macros. So in and out.

[00:44:49] Dr. Daniel Crosby: Maybe not the high profile thing you were looking for, but I do like In and Out now.

[00:44:53] Jonathan DeYoe: I love In and Out. That’s great. I, I, that’s always just something I wanna see what people come up with, so it’s just great. A good, good answer. Good answer. So, te tell people how to connect [00:45:00] with you.

[00:45:00] Dr. Daniel Crosby: Super active on LinkedIn, Daniel Crosby, PhD, Twitter at Daniel Crosby and go get the book, the Soul of Wealth.

[00:45:07] Dr. Daniel Crosby: Definitely

[00:45:08] Jonathan DeYoe: thanks for being on Daniel. I appreciate your time.

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