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

Harvard Professor Mihir Desai discusses the power and pitfalls of debt, demystifies finance, and shares insights on financial literacy and decision-making.

Key Takeaways

Debt is a liberating financial tool but must be managed carefully to avoid long-term negative consequences.
Financial literacy is essential and currently insufficiently taught, leading to widespread financial mismanagement.
Understanding finance can empower individuals to make better life and investment decisions.
Finance has inherent nobility and ethical responsibilities that should be embraced rather than demonized.
Excessive debt can create a 'debt overhang' that limits personal and financial growth.

What the video covers

Debt can be a powerful tool for accessing opportunities like housing and education, especially for those with limited resources.
Many people misunderstand both the benefits and dangers of debt, leading to life-altering financial mistakes.
Financial literacy is critically low, even among professionals like doctors, which can result in poor financial decisions.
The concept of 'debt overhang' explains how excessive debt can trap individuals, preventing them from making optimal life choices.
Mihir Desai transitioned from traditional academic economics to writing and teaching finance in a more accessible way.
His book, The Wisdom of Finance, aims to demystify finance and restore its nobility while addressing systemic problems in the field.
There is a significant demand for clear financial education, which is often missing from early schooling.
Making informed investment decisions requires careful consideration of upfront costs and long-term benefits.
Finance should be understood as a noble discipline that requires responsible behavior and ethical standards.
The discussion includes historical perspectives on debt and finance, as well as practical advice for managing personal finances.

Chapters

Why does Mihir Desai believe debt can be beneficial?

Mihir Desai explains that debt allows people, especially those with limited resources, to access opportunities like housing and education that they otherwise couldn't afford, making it a liberating financial tool.

What is 'debt overhang' and why is it important?

'Debt overhang' is a financial concept where excessive debt burdens an individual so heavily that it prevents them from making the best decisions for their future, effectively trapping them financially.

Why does Mihir Desai want to demystify finance?

He believes finance is too important for people not to understand and wants to challenge the negative perceptions around it, emphasizing its nobility and the need for ethical behavior in the field.

Full Transcript — Download SRT & Markdown

Speaker A

Debt is fantastic. So, if you're a poor person and you want to access opportunities you couldn't access otherwise, there's only one way to do that: through borrowing. You want to live in a house you don't have any right to live in? How do you do it? Borrow. You borrow. You want to invest in education but you don't have the resources? How do you do it? Borrow. It's like a liberating thing. So, people don't understand that piece of it, and then they don't understand the dangers.

Speaker A

live in how do you do it borrow you borrow you want to invest in education you don't have the resources how do you do it borrow it's like a liberating thing so people don't understand that piece of it and then they don't

Speaker A

[Music]

Speaker A

exactly good to see you thank you so much for being here no my pleasure L we got connected through I guess Eric Barker mentioned coming on the show exactly and then I checked out your stuff I always vet it with Chris

Speaker A

All right, welcome back everyone to the School of Greatness podcast. We have a Harvard professor in the house today. His name is Mihir Desai. Is that right?

Speaker A

um and you've been teaching Finance entrepreneurship business you you teach at the entrepreneurship program and the law school at Harvard correct for 18 years you've been teaching there yeah you've been writing journal papers for 18 years right and teaching and kind of

Speaker A

Exactly right. Mihir Desai.

Speaker A

was a totally traditional Economist writing academic papers and then basically over the last five years I wanted new challenges you know so the thing about Academia that's crazy is you can look at your life 20 years forward once you get tenure and you know exactly

Speaker A

Exactly. Good to see you. Thank you so much for being here.

Speaker A

it's one of the biggest challenges I've taken on it's not the way I write you know when you write an Academia you write totally tight you you can only say so much you got to like really be really

Speaker A

No, my pleasure.

Speaker A

problems and so I wanted to address them and the Really the two big problems I wanted to address is one I want to demystify finance because I think it's way too important for people not to understand and a lot of people demonize

Speaker A

We got connected through, I guess, Eric Barker mentioning you coming on the show.

Speaker A

say look there's nobility in finance and you should feel proud of that and you got to live up to it you can't just kind of behave in a bad way yeah how come we're never taught these things growing

Speaker A

Exactly.

Speaker A

and don't know what to do with the rest of our lives I mean like you think about student debt or you think about credit card debt even as an example I know doctors who come out they start a

Speaker A

And then I checked out your stuff. I always vet it with Chris.

Speaker A

terrible mistakes they make with debt I mean they're they're life-changing decisions and if you don't have some haunt you for the rest of your life yeah they they hang over you forever um and we don't do anything in fact that's one

Speaker A

I'm like, see if this guy's legit and if this would be interesting. And you passed the test for it to be interesting.

Speaker A

struck me as crazy but uh these ideas you got to get them to kids because if you don't get them to kids they'll never they'll never learn it so is this like the advanced version of Rich Dad Poor

Speaker A

Very good.

Speaker A

know it's kind of in a way it might be easy to ridicul but it has had an amazing impact on so many people on so many people opening them up and like oh if I just invest this way on something I

Speaker A

Excellent. You've got this book called The Wisdom of Finance: Discovering Humanity in the World of Risk and Return.

Speaker A

Empire around a simple concept right right and you kind of but you kind of look down on it frankly of course and I don't want to write that book but I want to speak to those people and so yeah

Speaker A

And you've been teaching finance, entrepreneurship, business. You teach at the entrepreneurship program and the law school at Harvard, correct?

Speaker A

there um people want to know Finance they want to learn it because they know how important it is it's really interesting on Rich Dad Poor Dad that thing has been on the bestseller list for like 25 years it's crazy keep

Speaker A

For 18 years, you've been teaching there?

Speaker A

you realize there's a ton of demand and there's not enough Supply right and so this is like a version of that uh which is trying to say well look let's try to speak about Finance in a clear way yeah

Speaker A

Yeah.

Speaker A

wrong it's wonderful borrowing money and having debt having debt I mean the thing what people don't realize is and it's always been demonized through history right like so Socrates said it was you know immoral to charge interest and

Speaker A

You've been writing journal papers for 18 years, right, and teaching and kind of in the weeds and the thick of it with your students?

Speaker A

want to live in a house you you don't have any right to live in how do you do it borrow you borrow you want to invest in education you don't have the resources how do you do it borrow it's

Speaker A

Exactly right.

Speaker A

yourself in a world and I tell the story of what's called debt overhang which is this Finance idea which you have so much debt that you can't actually do the the best things for yourself because it's like booming over you and that is the

Speaker A

Right. So, why did you decide to do this book and why is this topic so important? Share about that.

Speaker A

personal side how do how do we make a decision of knowing like okay I'm stuck in this rut and if I go to this school that cost me 50 Grand a year I don't know what Harvard is maybe it's 80 grand

Speaker A

Yeah, so you're right. I was a totally traditional economist writing academic papers, and then basically over the last five years, I wanted new challenges. You know, the thing about academia that's crazy is you can look at your life 20 years forward once you get tenure, and you know exactly what it is. And that's great, and it's terrifying, right? And so, for me, it was more terrifying, so I wanted to change. So, I started an online course, I started teaching at the law school, and then I wanted to write a book. It's really, to me, one of the biggest challenges I've taken on. It's not the way I write. You know, when you write in academia, you write totally tight. You can only say so much. You got to be really tight. This is loose, and it's like stories. And so, it was a massive challenge for me.

Speaker A

the rest of my life to pay off yeah well so here how do you make that decision well and the short version is so you got to really think hard about what The Upfront investment is and then the hard

Speaker A

What I really wanted to do with the book, though, is one, challenge myself, but then, B, you know, I teach finance, and finance has got some serious problems. And so, I wanted to address them. And really, the two big problems I wanted to address are one, I want to demystify finance because I think it's way too important for people not to understand, and a lot of people demonize it for the wrong reasons. And then the second thing is chunks of finance are broken. We got to make it better, right? We live through this massive financial crisis. We got to make it better. And so, this book is an effort to say, look, there's nobility in finance, and you should feel proud of that, and you got to live up to it. You can't just kind of behave in a bad way.

Speaker A

investment how much better of my lifestyle going to be right exactly because of this investment and people don't usually do that and there's also you know the truth about education and I I'm not just saying this because it's my

Speaker A

Yeah, how come we're never taught these things growing up in, you know, elementary school, high school, college? How come these things are never really taught until you get to college unless you take those classes?

Speaker A

Investments out there but on average it's great what you got to think about is there's a labor market out there and you got to have skills that are going to be valued if you don't develop the skills that aren't valued then you're

Speaker A

Yeah, and then we're just kind of illiterate with finance, and we're broke and don't know what to do with the rest of our lives. I mean, like, you think about student debt or you think about credit card debt even as an example. I know doctors who come out, they start a private practice, they have no clue what they're doing financially. It's zero CL. It's kind of a crime, right? In fact, the level of financial literacy is so low. And if you think about the mistakes people are making, like the terrible mistakes they make with debt, I mean, they're life-changing decisions, and if you don't have some, haunt you for the rest of your life.

Speaker A

valued in the labor market you know whatever it might be let's say you want to go to cooking school just to learn cooking you should understand that's basically consumption it's not an investment you're just having a good time pleasure and if you want to do that

Speaker A

Yeah, they hang over you forever. And we don't do anything. In fact, that's one of the—I was joking with my daughters. I have three daughters, and one of my girls was telling me, like, the next project should be the kids' book version.

Speaker A

people have I think that's what's confusing about a lot of these things they're both investment and consumption it's like a house right it's a big investment but you live in it and you consume it all the time right and so

Speaker A

MH, it's true.

Speaker A

right these things are actually in between and that makes it really confusing I think for people got it what else should we uh be aware of what are the other big things that we do so I think the other big thing that people

Speaker A

Yeah, it's true. It kind of struck me as crazy, but these ideas, you got to get them to kids because if you don't get them to kids, they'll never learn it.

Speaker A

skill so the lesson of Finance is it's almost impossible to tell the difference between luck and skill other than over the long run right so you got a buddy and I got a buddy and the Buddy says you

Speaker A

So, is this like the advanced version of Rich Dad Poor Dad then? Is this kind of like, because that's the story of the Rich Dad and the Poor Dad and what they did and how they bought and how they whatever?

Speaker A

going up exactly and you just got into the right time and whatever and in fact like you know there's this old coin tossing trick right which is you get 80 people in a room you toss a coin 10

Speaker A

Yeah, you know, it's funny because that book, you know, it's kind of, in a way, it might be easy to ridicule, but it has had an amazing impact on so many people, opening them up and like, oh, if I just invest this way on something, I make more money than just—

Speaker A

did you do it and the person of course will honest usually answer honestly which is it was luck yeah but when you're a mutual fund manager and you beat the market 10 years in a row I'm the man I'm the woman I'm the man I'm

Speaker A

Yeah, well, you know, so it's funny. As an academic, you tend to look down on that kind of stuff, right? You look down on it, you're like, whatever. And the reality is you're more pissed that he's just created such an empire around a simple concept.

Speaker A

there who can do it well over the long run I don't know who they are you don't know who they are don't believe the hype so for example you know as you may know there's this this massive rise in

Speaker A

Right.

Speaker A

the index fund and 30 years you're going to make more than if you try to play you try to play the game yourself or frankly if you try to pay somebody who tell tells you they know how to play the game

Speaker A

Right, and you kind of look down on it, frankly, of course. And I don't want to write that book, but I want to speak to those people. And so, yeah, you're right. I'd like to think about this as a more elevated or advanced version of that. And I think hopefully it could be. I think if we get this into schools and we get these ideas out there, people want to know finance. They want to learn it because they know how important it is.

Speaker A

doesn't believe in a lot of these things right he doesn't believe you can just kind of be successful no problem and in fact the way he works now it's so interesting about Buffett he basically monetizes his Halo right so when he

Speaker A

It's really interesting on Rich Dad Poor Dad. That thing has been on the bestseller list for like 25 years. It's crazy. Keeps selling and selling. You look at the bestsellers in finance and investing, they're the same books for like the last 20 years. And, you know, Ben Graham, Intelligent Investor, Rich Dad Poor Dad, there's like five books, which makes you realize there's a ton of demand and there's not enough supply.

Speaker A

right because he's Buffett and then he does influence yeah he gets and he gets like he got like terms I would never get in the market if I want to go buy that stock and then he turns it into

Speaker A

Right, and so this is like a version of that which is trying to say, well, look, let's try to speak about finance in a clear way.

Speaker A

don't know who they are mhm yeah yeah what should we be doing with our money then so that's a great question um so it kind of depends on who you are right so let's think about a typical kind of

Speaker A

Yeah.

Speaker A

right so what does over saving mean over saving means I'm depriving myself today so that when I retire I have more very few people make that mistake like 98% of people are making the mistake of not depriving themselves today so they can

Speaker A

So, what are the things that we're confused about the most with finance in general as you know, as a society?

Speaker A

to yourself you know I'm skimping too much I'm making myself unhappy because I'm living in a shack and I'm like I don't need to live in a shack Robin noodles yeah and at some point you know like you have to kind of get a little

Speaker A

Yeah, so I think there's a couple. You know, one is borrowing and debt. MH, I think people either think it's terrible, which is wrong. It's wonderful borrowing money and having debt, having debt. I mean, the thing people don't realize is, and it's always been demonized through history, right? Like, Socrates said it was immoral to charge interest, and religions, a lot of religions don't allow payment of interest. But they don't realize that actually debt is fantastic. So, if you're a poor person and you want to access opportunities you couldn't access otherwise, there's only one way to do that: through borrowing. You want to live in a house you don't have any right to live in? How do you do it? Borrow. You borrow. You want to invest in education but you don't have the resources? How do you do it? Borrow. It's like a liberating thing.

Speaker A

be saving it so the first thing is um and this is going to sound a little nitty-gritty but it's really true do anything that lets you save money on taxes there's all a lot of tax advantaged ways to save do it what are

Speaker A

So, people don't understand that piece of it, and then they don't understand the dangers. They don't understand the dangers, which is once you do that, it is a really, really serious commitment, and you can find yourself in a world—and I tell the story of what's called debt overhang, which is this finance idea, which is you have so much debt that you can't actually do the best things for yourself because it's like looming over you. And that is the trap people fall into. So, they kind of either ignore the real virtues of it or they just say, well, it's great and I'll just do it. It's not a big deal.

Speaker A

and management fees and returns if you save 30% upfront because of taxes like that's a victory you know like that who cares about the fees yeah exactly and it's like a lot of people will say like these IRAs are bogus and

Speaker A

So, that I think is one big piece on the personal side. How do we make a decision of knowing, like, okay, I'm stuck in this rut and if I go to this school that costs me 50 grand a year—I don't know what Harvard is, maybe it's 80 grand a year now—then I'm going to get the opportunities and the insights that will help me for the rest of my life, but I'll have a half a million in debt.

Speaker A

advantage any tax thing you have taer exactly and just max out on tax stuff the government's telling you you should you should do it so that's IRAs pensions that's is that insurance policies as well even like health savings accounts

Speaker A

flexible spending accounts people don't use that stuff it's also kind max out all that you got to max out on that stuff I do it all and it's forced savings too the other cool thing about it is it's kind of forced savings

Speaker A

because they take it out right before you even get to touch it and then the final thing is uh don't pay a lot of money to have people manage your money now this is like you know anathema to

Speaker A

people in finance because there's a lot of wealth advisers and Brokers out there and the reality is unless you have Serious Coin don't pay a lot in fees is what you're saying I'm assuming right yeah so like for example take like half

Speaker A

your money put it into like a Government Bond Fund take like half your money put it into an equity index fund and then sit back yeah if you want to play and have fun take a small chunk of your

Speaker A

wealth and just go have fun but don't do it with all your wealth and don't pretend like you're doing something serious you're just having fun yeah if you lose it you lose it you lose it it's just like buying tickets to the movies

Speaker A

you're just going to like have fun with this money over here and you're going to invest it because this your buddy told you his company's great that's fine but don't pretend it's like consumption again right you're having fun you're not

Speaker A

investing you're just going and goofing off yeah so I think the big rules are you know save more than you think you need second try to think about taxes it sounds boring but it's so first order third don't pay a lot of people money

Speaker A

for managing your money uh and then fourth create a little fun space and go then go have fun yeah um if you have a lot of money you can take 10% of it and your buddy comes to you and says I got a

Speaker A

business I want you to invest in 5 10 grand and put it in there whatever then that's fine but don't pretend like you're going to get it back and no I've invested in many startups that have had zero I've made zero return over the last

Speaker A

eight years well and you're not alone right so so many people have so what do we know about startups right like so like 80 90% of them are going to be zeros yes and then 5% if you're lucky

Speaker A

will be 10x and then there's a bunch of junk in the middle but basically it's totally bodal and for me I went into it thinking I'm going to lose this all like it's it's away from me to learn to build

Speaker A

relationships to like get in with a certain industry well that's interesting and so I was like this is my Harvard degree you know this is like my investment in something that's well you're learning you're meeting people um and you are having fun sometimes right

Speaker A

like it's just it's fun it's interesting um I think as you get older it gets harder to do that yeah because you know when I was 30 I was willing to do that stuff I was willing to write check three

Speaker A

kids and now you got three kids and you're like geez I don't know if I should be doing that but that's the other big thing which is when you're young you should be taking more risk and that should taper down over life sure

Speaker A

right because I'm 49 and you know you got to start tapering down your risk profile so when you're young you should be taking a little bit more risk and that I think is something people don't do enough of yeah do you feel like as a

Speaker A

as a professor you follow your own advice cuz there's a lot of people that teach that don't actually do what they say you should do I do most of it right what I just said I'll tell you what I do

Speaker A

wrong let me just say what I do you in startups kid well I used to I used to write checks uh to friends and former students and I do that less now because I just you know I'm just more measured

Speaker A

about the way I think about things and I think the startup scene is so crazy right now frankly in addition um I think the thing I do wrong is I like everybody I tend to overestimate you know my

Speaker A

abilities a little bit so I like inv I do it a little bit I think if you actually I think I've done you know pretty well but I think if you actually looked at my returns over time I think

Speaker A

I'm probably way overestimating my ability and if you thought about like if I just parked it somewhere I would have probably done better and I would have spent less time in my life like wasting on that so I probably overestimate my

Speaker A

abilities and I think everybody does everyone but I do follow all the tax stuff I do follow all the indexation stuff no paying fees um I actually worry sometimes that I save too much like I worry that I'm I'm too worried about

Speaker A

things in the future um that's like the good Indian way right it's like well that's the way you're raised and how it's supposed to be yeah so I'm I was born in Bombay I mean I my parents you

Speaker A

know when we came we you know money was something you thought hard about I mean I remember my parents had a little notebook where I had all my little accounts and what I spent when I since I was age seven or eight wow and you're

Speaker A

right once you're an immigrant you're never you know you never lose that you never lose that sense of wait a second you know we don't have as much as we need we have to fight a little harder we

Speaker A

got to work a little harder we got to save a little more because who knows what's going to happen right um and I think Indians always you know Indians Save A Lot in gold and in otherwise right they do a lot of crazy

Speaker A

stuff um but especially on money stuff they they worry about that stuff more than they probably should yeah huh what are some other lessons we should be knowing or understanding about finance and the wisdom behind it well so in the

Speaker A

book can return and all that stuff yeah so in the book what I try to do is take these ideas that people in finance would be in a textbook right and I basically try to explain them just using stories

Speaker A

about graphs and charts no graphs no equations stuff that hurts my brain and they hurt a lot of people's brains and there's no reason to do that that way right so for example um risk management which is about options and

Speaker A

diversification like some of the most complex derivatives so in the book The Way I try to explain it is I use Jane Austin and Pride and Prejudice so is like a she's a fantastic English novelist and she basically tells a story

Speaker A

of these young women who are facing risk in the marriage market right there's like these suitors who come along and some of them are drunks and some of them have a lot of money but they're mean and some are nice but they don't have any

Speaker A

money you know it's all about that it's like that's the whole plotline what do I want to do I want to have this debt of someone mean to me for the 40 years exactly or do I want to like be with

Speaker A

somebody I'm happy with but we'll never make it you know this exactly what Jane Austin is about right and so these young women are really exposed and Men by the way she points out have it really easy because

Speaker A

if men make a mistake it's okay in the 19th century right but women if you make a mistake in the marriage Market it's over you have to weigh your options you have to weigh your options so she actually describes options and

Speaker A

diversification as like strategies for dealing with risk wow and it's kind of nice because then options aren't some crazy derivative thing but they're actually like something in your life right and in fact actually one of the I think the things I'm proudest about this

Speaker A

book is I wrote a piece for the Crimson which is the Harvard newspaper called The Trouble with optionality so the reason I really like that piece is people in finance overlearn the idea of options right because they think Give me

Speaker A

the give me the breakdown of options so the idea of options is you know you want to have choices right and the more choices you have the better and options are contracts which basically say you don't own something but you have the

Speaker A

right to own something buy it and people love it because that's what optionality is right so a lot of young people I see are obsessed with optionality right they're like okay I'm going to go to school because I need more optionality

Speaker A

in my life because then I'll have more opportunities available to me I'm going to be in part of networks because I need more optionality I'm going to go work at a prestigious firm because I need more optionality in my life so the thing I

Speaker A

and that sounds great right because then you get to do more things in the future so what I tried to point out in the book and I do this essay is you know what most of those people they get obsessed

Speaker A

with buying optionality and that's all they ever do they never make a decision they never go and exercise the option they never make the big investment because buying options is addictive you just buy more and more and more and then

Speaker A

you have to pull the trigger on something big and you're like no more optionality more optionality that's all I want and so then they end up and I've seen this with so many kids because they're these are kids who are really

Speaker A

smart they got like the best safety nets in the world right right and then they keep buying more safety nets and you're like what the heck are you doing just go do something R and the truth what's weird is people don't understand like

Speaker A

the more safety nets you buy the more you value safety nets you like I got to buy another one cuz I'm so used to doing it and then you end up like 40 years old and you're like I've got all these

Speaker A

degrees I've got all this stuff and I have all these safety units but I've never really done the risky thing that I wanted to do and it's it's really sad and so that's what I see with optionality that's an example that's

Speaker A

kind of throughout the book which is you take this Finance idea which sounds really weird and Abstract options and optionality you try to explain it with Jane Austin um and then you say look it actually applies to your life and like

Speaker A

you you may be getting it wrong right so even if you're in finance because people in finance talk about this all the time they talk about marriage as the death of optionality right that's what you know and it sounds kind of like a ridiculous

Speaker A

thing to say but that's the way you people think about it the relationship World sure yeah it's the death of optionality and but people don't also realize like that's how great things happen right when you close off options

Speaker A

and so people in finan just consumed by that so I do that with options in the book um I do that with bankruptcy so the I really like the bankruptcy Chapter comes at the the end um but I tell the

Speaker A

story of this guy Robert Morris who I'm sure I imagine you've never heard of nobody's ever heard of that's what's great about the story nobody's ever heard of him so he's the richest man in the colonies okay uh he finances the

Speaker A

Battle of Yorktown with his personal script okay George Washington asks him to be the first Secretary of the Treasury before he asks Alexander Hamilton and he says no so why does he say no he says no because he lost some

Speaker A

wealth during the Revolutionary War helping the you know young Republic and Washington says become the first Secretary of the Treasury he's like no go ask Hamilton I got to rebuild my wealth he goes back he rebuilds his wealth he owns uh 40% of New Jersey like

Speaker A

the state he owns a quarter of the District of Columbia which was going to become the capital and then he goes bankrupt and what did we do to people who went bankrupt back then he went to jail wow and he went to jail and he was

Speaker A

sitting in a jail in Philadelphia he went from the richest man in the colonies owning to jail because own the land where the jail was so that's actually the reason I tell that story is that's how we used to think about

Speaker A

failure wow we used to think about failure people fail they're morally problematic they need to be punished wow so the reason I tell that story is George Washington visits him in the jail in Phil in Philadelphia and actually

Speaker A

it's a great story because George Washington risks yellow fever I mean these jails were terrible and he and other founding fathers look at at Robert mois sitting in jail and they're like something's wrong mhm this guy helped us

Speaker A

Finance the Revolution and he's sitting in jail that leads to the way we rethink bankruptcy with the 1800 Act of bankruptcy 18 1800 bankruptcy act which where we basically say no more punishing people who fail so now what do we do

Speaker A

with people who go bankrupt we actually prioritize them starting again right we're like we're going to protect you from the creditors right we're going to actually get you a clean slate we're going to get you stay we're going to

Speaker A

actually do all the things to help you which I think is really analogous to how you should think about failure right which is you don't want to stigmatize it historically what have we done with failure we stigmatize it like I failed

Speaker A

I'm bad you know you failed you're something's wrong with you the way we should think about failure is the way finance things about failure which is it happens let's get a clean slate let's start again and let's protect you from

Speaker A

all the people who have claims on you and then let's kind of get you started so that's another example of kind of saying you know bankruptcy and this idea in finance actually applies to the way you can think about your life in that

Speaker A

case um failure the other example that I I kind of like is leverage so this is about yeah so that's about debt right and people in finance love leverage they're like because their fortunes have been built on Leverage um think about a

Speaker A

lot of people especially in real estate a lot of areas it's been built on Leverage they borrow money and then it allows them to own assets they have no right to own they leverage that asset they lever that asset and then if things

Speaker A

go well their returns are outsized right because leverage that's what leverage does to your returns and so I kind of talk about that but then what I try to do in the book is say you know that's totally analogous to commitments you

Speaker A

know what is debt it's a commitment it's like a really really serious commitment um so I do this via The Merchant of Venice Shakespeare's story right nominally it's about debt this is the play where is this money lender

Speaker A

and he's like I want to pounder your flesh because you didn't pay me back people think it's about debt it's really about commitments like it's about commitments between people so the point of the story is that commitments are

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like debt they allow you to do things you wouldn't be able to do otherwise commitments to people to spouses to families to jobs to organizations you get to do things you can't do by yourself for example what do you mean so

Speaker A

I give a couple of examples so I talk about these two artists um one is George Orwell who wrote 1984 and one is Jeff Coons who's a modern artist you may have heard of he's makes these massive sculptures yeah so

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George Orwell is a low-leverage guy he is like living in London everybody wants a piece of him after World War II he's like I'm going away he goes to the Scottish islands Hees islands and he spends three years alone and he writes

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1984 by himself that's low leverage he's not committing to anybody he's doing it all by himself right Jeff Coons I think is arguably the greatest modern artist um the Whitney Museum in New York had a retrospective of just him for the whole

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building he creates these sculptures that are the size of this room one's called Play-Doh they're made of metal and glass and just incredible stuff he has 150 people in his Factory he doesn't actually know how to use the material

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that he's working with he relies on other people who use that material it's kind of like the the Visionary he's the Visionary and he's he actually like literally in one interview says I'm the idea guy he's gone bankrupt like three

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times he's bankrupted dealers wow he is living a high leverage life and he produces art that he wouldn't be able to produce otherwise you can't do that by yourself so the point is kind of like to say commitments um and embedding

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yourself in a world of networks and commitments actually allows you to do stuff that you wouldn't be able to do otherwise right did I end that chapter with a great quote from Jefferson actually the picture on the cover of the

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book is um Archimedes so Archimedes has a famous quote about leverage which is leverage comes down to a lever right and a lever is this amazing thing in engineering when you push down on it you get to move stuff you got no right to

Speaker A

move right that's like Leverage in fin you get to own a house you have no right to own so Archimedes says you know give me a place to stand and a lever and I'll move the world so Jefferson says the

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biggest lever in life is your reputation so if you commit to the world it's like Buffet yeah like exactly like that exactly what Buffett does when he monetizes his Halo so Jefferson says basically if you're good to the world

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then the world because you have a good reputation will let you do things you have no right to do which is true right that's what reputations do and that's why it's so so hard when you lose your reputation because reputation is the

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stuff that lets you say I trust you go ahead you can do it so you commit to good behavior and then you get to do things you have no right to do yeah and that's the essence of commitments and

Speaker A

that's kind of the essence of Leverage as well that's powerful who's a smartest person you've taught come through one of your classes wow so I've had I've Had The Good Fortune to you know teach a lot of great people

Speaker A

MH God you know I have had um I am so proud of a lot of my former students so it's kind of hard for me to think about that one I get it yeah yeah maybe a few that you can think of who've done

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extraordinary things or God you know I'll I'll tell you I'll give you kind of a bunch of different people because I think it's useful to kind of they're different types of people right um so an entrepreneur there's you

Speaker A

know entrepreneur who I think is really spectacular um Sarah cow she built swell you know the water bottles y as well yeah very popular right now she's spectacular and I you know I don't think she might me telling you you know I had

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her as a first year student at HBS and she was she was really nervous about finance and she was really you know nervous and she has just built like a great company yeah out of something that you know the water bottle business you

Speaker A

might not have even thought about but she's made it into something aesthetically beautiful like that's spectacular yeah um I'll give you another type of person because that's like an entrepreneur type of person uh another type of person as I've had a

Speaker A

couple of authors so um Le carpenter has written a book about Navy Seals uh Gail lemon wrote Ashley's War which is a spectacular story I think they like took a totally different path yeah yeah like you know they go to business school and

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then they go write novels and journalism it's spectacular um and then I had a former student who went to government I've had a number of students who gone to government service so a guy who used to run the IRS Doug Schulman um it was a

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former student so I guess I picked those three kind of randomly run the IRS he used to yeah um and so I picked those three people because think it's one of the luxuries I have is I see people who

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have impacts on the world in very very different ways um I don't really know who's smartest you know the truth is l i don't you know as you get older I think smarts become less and less what you know let

Speaker A

me put it differently I Sur I'm surrounded by a lot of smart people yeah and I have that luxury smarts don't matter unless you can execute well and unless you're a good person unless you care about people and make an impact

Speaker A

it's like and especially who cares how smart you are and you know I hate to say that but like at some level like smarts are cheap yeah right at some level smarts are the valuable the scarce resource and then at some level smarts

Speaker A

are not the scarce resource yeah especially at Harvard everyone's you know got a thousand smart people in one room yeah and so like is one person smarter than the other yeah sure fine whatever I mean it is true and it's when

Speaker A

you see people like that and I especially in the undergrad population sometimes you see kids like that and it's the law school sometimes you see kids like that they're just they they're special like they're way off the tail um

Speaker A

but the thing I really care about is attitude dude mhm and like I hate to be it's like a traditional Indian immigrant thing right but um like work ethic mhm like just hard workers who are hungry and they're smart then you're like damn

Speaker A

that's that's the package because that is really powerful um yeah so I hate to say that but I think smarts are um I don't focus on it as much you know I love smart people and I like to be

Speaker A

around them but like small gradations in smarts it's kind of like in sports too you know when you have just a talented player who doesn't work hard and is lazy exactly you're like get off my team or you're just like oh I wish you would

Speaker A

work hard because then you'd be incredible and you've got someone who works hard but isn't talented you keep them on the team because it's like they lift everyone up yeah but if you can put it together it's like and in fact those

Speaker A

people who have talents and who don't work hard they're the they're the most tragic stories right the worst because you feel like you give me some of that talent and you have no idea what you have oh my gosh and in fact just just to

Speaker A

go back to the book a little bit the one of the there's a story in the Bible um called the parable of the talents MH it's like this great story in the Bible parable of the talents right yeah is

Speaker A

this the one with the the father gives the son talents or something what how's it go it's great so here's the story which is um there's a master who's supposed to be God okay and he's going out of town and he's got these three

Speaker A

servants and he says I'm going out of town you got to take care of my talents so talents today are like these special things we have like that make us special back then it was money yeah the origin

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of the word talents is money so he gives one guy he's like look here are five talents take care of this I'm going out of town here's another guy three talents take care of this I'm going out of town

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he gives the third guy one talent and he says I'm going out of town take care of it he comes back and obviously he's supposed to be God in this story and these are like normal people so the guy

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with five talents comes to him and says you know master I took your five talents and I invested it and uh I lent it out and I made it into 10 talents and he gives it back to the master and the

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master says one wonderful enter the kingdom of God second person says I took your three talents and I made it into six talents and the master says great job welcome into the kingdom of God third guy is like you know I only had

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one talent and I was a little nervous and I wanted to make sure and have it so I buried it it's here and I want to give it back to you and the master says you're out you know you're damned

Speaker A

you didn't do what you were supposed to do so the reason I love that story it's about um it's about how you're given these incredible gifts and you have to use them it also in the value creation chapter it's kind of exactly what

Speaker A

Finance says about value creation you know which is you're a steward for resources you got to do more than people expect you to do in finance that's called beating your cost of capital because otherwise you wasted you've wasted an opportunity and if you just

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sit on things that's actually value destroying it's not value creating so that Parable it's just like your story about this athlete right um it's a really weird Parable though right CU this young this one guy who had one

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Talent he's like the poorest guy and he just because of his fear he gets damned he gets like literally cast out of the kingdom of God but it's a powerful story for saying you know we are all given a

Speaker A

lot and you have to make everything you can out of it yeah um it's I really like that story because it has to do with Finance but it's also this really interesting story you know more generally making the most in the world

Speaker A

and making the most of what we all have we're not going to have five talents sometimes times yeah we're have one little talent but it's like what's how can you make that into 10 exactly in your own way and it's like it's your

Speaker A

duty yeah right it's not like you can if you want like the story of the parable is it's your duty you got to you've been given something and you have to make the most of it so I like that right because

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it's almost like it's incumbent upon us to realize what our talents are and then make the most of it and you know so there are a lot of people who have found that terrible um you know in a way

Speaker A

that's almost terrifying right CU you're like am I making the most of my talents and so the story in the book is about these two guys John Milton who wrote Paradise Lost and Samuel Johnson they were haunted by that Parable really yeah

Speaker A

because they like spent their life like oh my God and these are two seriously talented people right Samuel Johnson wrote the first dictionary like in eight months I mean it's like he's a crazy guy John Milton wrote Paradise Lost when he

Speaker A

was blind these are crazy people and yet they were they were always asking themselves am I doing enough have I've been given so much am I doing enough and it's kind of an interesting way to live you know you don't want to take it too

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far because you'll beat yourself up all the time but I think more of us should probably be doing that yeah because we all are very lucky uh in different ways I think it's important to live an urgency too you know and not just like

Speaker A

oh I'll wait until I'm ready type of feeling I'll wait till I get the degree no start something now even if it's going to fail at least you're learning something and you're trying to do something with your talents yeah right I

Speaker A

agree I mean I think people over incubate a little bit right so they kind of wait for their ideas to get a little bit more clear but the reality is just go and just do it because and in that

Speaker A

version of the story it's incumbent on you like you got to go do it um I really like that idea of not just like you've been given something so do it but like you got to go do it because if you're

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not you're wasting like this really the privilege you've been given mhm what's the greatest lesson you've learned over the last 18 years of teaching you know uh well let me say a couple let me say two things right so one is I learned

Speaker A

something about teaching um the art of connecting with your students and and it's really it's fundamentally when I teach best and I don't always teach great but when I do it's like an act of empathy right like you got to go into

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the other person's you have to think about how the other person is thinking about it so like too many people who are teachers are especially in an academic environment it's like about my ideas I'm projecting it on to you and

Speaker A

fundamentally it's about empathy like if you if you can get in other people's shoes then you can help them understand something yeah um and then the second thing that's about teaching just about what it is really because it is kind of

Speaker A

my life's work along with research and writing um I think the big lesson though you learn from teaching and especially where I teach it's it's you know humility you don't know who who the kids are who are going to go do great things

Speaker A

yeah you know you sometimes see them and you kind of get a sense but everybody has something different in them and people who in a classroom don't say anything or don't do anything you come they come talk to you later and they're

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like spectacular and then like these people who you know are always talking and always saying stuff and sound really smart they're actually kind of empty vessels you know so you're you're a little bit don't judge people yeah don't

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judge people and you're a little more humble about um everybody has different capacities and I don't I judge people much less than I used to because I just I don't know what your capacities are I you know I don't know what you're really

Speaker A

K in the back of the class who doesn't speak could be like the next best whatever yeah and I think that's the related part is you know encouragement is so important I used to be a little bit more of a hard ass I used to be like

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when people would you know when you're younger you're a little bit tougher right I think and as I gotten older I kind of feel like encouragement is so important because you don't know who who's struggling with what and you don't

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know what they're good at um so you always want to air on the side of encouragement yeah because if you air on the side of being you know like pushing too hard that can do damage to people yeah um so I think I those I think

Speaker A

that's the most important thing I think humility and just this sense of you know people are incredible in different ways and you don't know and you shouldn't pretend to know yeah um and you just have to help them it's like raising

Speaker A

children you know you have you have to help them be the best person they can be in in like this very limited way in a classroom obviously not like being a parent yeah let's uh um let's imagine that it's your it's your final class

Speaker A

you're ever going to teach and the world is connected to your mic right now and they're all going to be in your classroom listening to you they can all understand English and you have your final lesson to share to the largest classroom and

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you'd have 60 seconds to share any lesson you want roughly 60 seconds if you're going to ask questions like this you should send them in advance I should this is unfair no this is a great question it's a

Speaker A

spectacular question you had one lesson that you'd had to share to the world and this was like all right after this lesson you don't get to hear anymore from me you don't get any more books from me you don't get any more research

Speaker A

here's my greatest thing I could teach oh gosh so no pressure I know exactly so I would say two things um and one is going to sound very current but the other one is going to be a little more transcendental so I think

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the current thing I would say is we have got to figure out uh and I'm not like a big environmental guy but we got to figure this out and like we're really in a very perilous situation and you got to take that seriously I mean

Speaker A

this isn't even my area right but I've come to believe it and I think we don't even understand like the existential risk that we're facing and then the second thing I would say is you know fundamentally you know kindness and generosity are

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massively underestimated the power of those things uh is just incredible I'm not saying I've lived up to that by the way just to be clear I don't think I have um but you know I become convinced that that is the

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most kind of important when I see this in my children or I see it in many people I say that's the attribute we need more of and everybody has this capacity for it and yet on WE layer on

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on top of it you know intellectual stuff and other stuff but that core thing is the thing we all have to get back in touch with because it's so important to the Future and it's so important to the

Speaker A

Next Generation and the generation after that yeah so saving the planet and kindness and generosity well I think you know you know and by the way I would do it with a story because I think well you know the reason I wrote this this way is

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it's all stories because I don't think lectures like if I just say to you you got to be more X it's hard to remember it's hard to remember do like you know assimilate how do you assimilate it right and I think what I learned from

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writing this book is stories are everything because people remember stories like the parable of the talents like you get it right and then it stays with you if I say well value Christi is about beating the cost to

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God you know it's like it's hard to remember right but if I had that 60 seconds I would think hard about the story I would tell um because I'm an economist and I was you know we only believe things in data and we get

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distrustful we become distrustful of stories and this book taught me that you know not all stories are true but stories help people understand the world absolutely and if you don't tell stories people aren't going to understand you um

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and the greatest communicators politicians you you understand that like stories stories anchor everybody's thinking and without them you're just left in a sea of stuff you need a narrative to organize your life without a narrative it's like chaos are you yeah

Speaker A

it's funny one of my uh your friends and early kind of business mentors would always say facts tell stories sell so if you want to sell any idea yeah product business whatever tell a story yeah yes I think facts are

Speaker A

important to understand as part of yes absolutely and you don't want to tell stories that violate facts that's really important because that's living in truth um but it's also not just sell I think like I'm sure you've done this too right

Speaker A

like at difficult times in your life you have to tell a story to yourself about your life mhm right like there's got to be narrative in your head yeah about who you are and how things are going to play

Speaker A

out so one of my narratives everybody's got different narratives right so one of my narratives is it's not the most important one but one of them is I tend to um fall behind and then come back like so that's like one of my narratives

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right like I tend to kind of do something that's almost like self-defeating because I want to come back and claim victory yeah that's something that I just do and it's a narrative in my head right and you know we all have those narratives like

Speaker A

the Immigrant narrative that you talked about earlier right you're like an outsider a little bit you know you don't know if you're going to GMO you know you know you gota like you got to work harder and you got to save more and you

Speaker A

got to do all these things more these are all narratives that are like so important to the way you organize your life I like it this is awesome the wisdom of Finance discovering Humanity in the world of risk and return uh make

Speaker A

sure you guys go pick this up do you guys do you have a website for this as well um so my personal website is mehs side.org side.org exactly and it's got links to the book as well cool we'll have it all

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linked up in the show notes um before I ask the final question I want to acknowledge you me here for uh doing a book that I think is going to help people through stories because for me it's impossible for me to

Speaker A

read something that has numbers and graphs and charts it's like it's I shut the book right away yeah it's ex exhausting for a brain like mine well and you're not alone right I mean I think it's really really hard for people

Speaker A

yeah so you for for stepping out of your comfort zone to create something to use your talent and multiply it for the world to to receive it because um you know if you didn't do this only your you

Speaker A

the students would have got the information and not the world so I think this is a thing I appreciate it with that story yeah um are you on social media as well I just got on all right so

Speaker A

I'm on Twitter and Linkedin I'm not pretend Twitter you're on there like what once a week I you know the truth is I am on it but I don't know what I'm doing sure sure so all I'm doing is

Speaker A

promoting the book got it like I'm not actually learning how to use Twitter so I should probably figure it out from you but I think you know I got to get better at kind of creating a personality um

Speaker A

right now I'm just kind of pimping the book got it got that's all I'm doing it's all good it's all good uh we'll have everything linked up um but the final question is what's your definition of greatness wow my definition of

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greatness uh you know it goes back to what what we talked about earlier um which is it is making the most of what you've been given and so greatness resides in everybody I think the thing we make the

Speaker A

mistake of is you know that guy over there you know Mahatma Gandhi was great or whoever and the reality is I think we can all be great it's just about uh looking inside and making the more than you could have made out of what you've

Speaker A

been given I think that's greatness awesome and when we see it in like Muhammad Ali or muhad Gandhi it's like particularly spectacular yeah but it's in everybody awesome thanks so much for coming on thanks so much this was great

Speaker A

thank you

Topics:financedebtfinancial literacyMihir DesaiHarvard professorpersonal financeinvestingfinancial educationdebt overhangThe Wisdom of Finance

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