The Psychology Of Money In Practice

Last week, I was in Las Vegas and Phoenix for a mix of business and pleasure.  I had several interactions that provided real-life, end-game examples of what I wrote about in my last blog entry about the book The Psychology of Money, and now I have to share them.....

Vegas is a great venue to observe how people spend money.  More than anywhere on earth, it's a place to stay in your lane when it comes to money, because the opportunities to spend are relentless.

For those who could afford it, the Vegas strip has expensive, even exclusive places to stay, eat, shop, and gamble. For others, the strip has options for more modest lodging, fast food, convenience stores, and yes, gambling.

I saw people staying at $1,000 per night hotel rooms, and I saw people staying at $100 a night rooms.  I saw people dining at celebrity chef restaurants where no prices are posted, and I saw people eating at food courts. I saw people carrying Gucci and Tiffany shopping bags, and I saw people carrying CVS shopping bags.  I saw people playing $100 minimum blackjack, and I saw people playing penny video slot machines.

The psychology of money matters a lot in Vegas.  If a person has a disciplined spending psyche (or is very wealthy), Vegas is a fun and amazing place.  If a person doesn't have a fiscally responsible psyche, Vegas will chew them up and spit them out.

Phoenix provided a more specific example of the psychology of money.  Late winter golf has always been expensive there, with most courses charging well over $100 per 18-hole round.  Above-average resort courses charge far more, some exceeding $500 per round.  Regardless, all golf courses there are packed with players at this time of the year, so prices are much higher than normal.

My attitude has always been one of being willing to pay these higher prices.  By this time of year, I haven't played for a few months, so I haven't spent anything on golf for a long time.  I'm perfectly willing to spend up that savings on winter resort golf.

Meanwhile, other golfers I know who travel or winter there -- people with a materially similar or greater net worth -- won't spend that for golf.  They don't want to pay more than would at other times and places during the year, so they either don't play, or they only play on the lowest-priced (worst conditioned) courses.

In summary, my mindset is, it's more than I want to spend on golf, but I'm willing to do it.  The others' mindset is, it's more than they want to spend, and they aren't willing to do it.

These opposing views are another manifestation of the psychology of money.  Being able to afford / not afford things is one subset.  Being willing to buy / not buy them is another.

The Psychology Of Money

I recently purchased a book called The Psychology of Money.  Not just one book, but dozens of them, which I gave to clients.

It isn't the best finance book I've read, nor is it close to being the best behavioral book I've read.  But it is one of the better behavioral finance books I've read.

I'd summarize it this way -- The Psychology of Money explores the different ways people think about money, and how personal experiences with family, friends, and neighbors will often influence their financial behavior – for better or worse.

Put differently, if a person is around others who are (un)disciplined with money, they're more likely to be the same way.  That may not be a revelation, but it should also make one think about how the same philosophy can be applied to other things.

If you're consistently around people of a certain political view, you're more likely to share it.  Same for religion.  Same for social issues.

This makes it pretty simple to understand the formations of group-thinking a/k/a cultish behavior.  The lack of exposure to other views leave one to believe there are no alternatives.

I'm old enough to remember when the internet was supposed to solve all of this.  It made the world smaller and accessible, so presumably humans (with internet access) would be able to see humanity in a broader context.

Unfortunately, that idea has come crashing down under the weight of unregulated social media apps.  Now people just follow other people online who think the same way.  And let's face it, some of this people are ignorant and malevolent, increasing the likelihood their followers will be that or worse.

Which brings me back to the broader lesson of The Psychology of Money.  You learn what you live, which may or may not be a good thing.

Winning At Betting Without Gambling

In the past two years, some states have legalized sports gambling via apps, which use GPS technology to confirm the device being used is in that state.  I don't have any particular expertise to pass along about sports gambling, but I have plenty to say about how easy it can be for people to make money by simply downloading the apps, without really putting any money at risk.

All of these gambling apps need to acquire customers to be profitable.  For that reason, they all offer specials for new users.  These specials are usually given as an easy one dollar bet at 100-1 odds (ensuring a $100 win), or some form of gambling credit.

The 'free bet' credit is the most typical form or credit, meaning it must be used on one or more wagers.  It's often capped to equal the amount of initial funding up to a certain level.  But it isn't that hard to turn this 'free bet into 'free money' though conservative wagering.  For example, if you have $500 of free bets at $25 per free bet, just find a game with a wager close to even odds, and bet on both sides.  At a minimum, you'll make $200.)

So, here's my quick-step guide on how you (and perhaps a spouse) can make hundreds of dollars while sitting on your couch with a smartphone:

• Download the apps.

• Electronically fund them, preferably to the max amount of free bets allowed.

• Make your easy one dollar bet, or over time, make your free bets, leaving the amount you funded untouched.

• Cash out your original deposit and winnings!

So why aren't more people doing this?  I don't know.  Maybe people are afraid of technology.  Maybe they're afraid of getting addicted to gambling, losing what they initially funded plus a lot more.

Or maybe they just aren't good at calculating the return of making hundreds of dollars for a couple of hours of work.

Let It Hit The Fan

Money.  In America, it's the number one reason why most people will do most things.  If you want to understand why adults are motivated to do things, follow the money.

Attention.  In America, it's the runner-up reason why most people will do most things.  If you want to understand why adults are motivated to do things besides for money, it's for attention, which is often monetized.  (See reason one.)

Is there a way to combine these two powerful motivators to accomplish something larger?  Absolutely.  And one of the main vehicles for this has to be the major organized sports leagues.

We've seen professional sports leagues and players, most notably from the NBA / WNBA, use their platforms to drive political and social change.  Just last year, players in those leagues so far as to boycott games in response to social unrest over the treatment of blacks in America.  It had limited economic impact due to the pandemic, but it got people's attention.

There are much better, broader examples from the past.  In the 1990s, states that didn't recognize MLK Day were eliminated as hosts for crown jewel sporting events.  (The NFL pulled the Super Bowl from Arizona.)  Something similar happened later in North Carolina and Indiana when those states passed anti-LGBTQ laws, and the leagues (along with the NCAA) avoided or pulled out from those states as hosts for events like the NBA All-Star game or the NCAA basketball tournament.

These actions also had a domino effect of making corporations not host conventions in those states.  Suddenly, when states realized the loss of revenue, not to mention the embarrassing attention, they got rid of those laws.

Examples like these highlight why organized sports leagues could be doing more now, as republican-led states pass anti-voting laws, and/or anti-LGBTQ laws.  If the NFL, NBA, NCAA, or Major League Baseball had their act together, they'd simply tell these states that they won't do business there, at least not outside of regular franchise operations.  An even more effective approach would be the players associations of the pro leagues boycotting games, ending the public's great desire to watch them.  Then things would hit the fan (pun intended!) although it would be a monetary sacrifice some players would not want to make.

This year, the Major League Baseball All-Star game is supposed to be in Atlanta, Georgia, the state most actively passing voter suppression laws.  They should move that game, and let the money and attention flow to states with smarter elected officials.  Then let's see what happens -- if the past is prologue, things will change fast.

All Fo(u)r Twenty

Today is 4/20, making it a perfect time to again comment on the movement to decriminalize and expand the availability of cannabis in America.  You know, marijuana, the drug that is safer than alcohol but treated like cocaine.

We're up to ten states now that have legalized marijuana in some non-medical way.  Ten now, but what will it take to get to twenty and beyond?

Unfortunately, while the polls continue to show an increasing majority of Americans support marijuana legalization, the federal government and most states still don't allow it.  They don't even allow medical marijuana usage, which has an even larger majority of American support.

So, what gives?  Let's just use my home (red) state of Iowa as an example.  It has a Republican governor and legislature, so even though legalization is popular overall, it isn't so popular inside their conservative constituencies.  The Rs basically have a bend-but-don't-break attitude, where they act like they're doing something without actually doing anything.

For example, Iowa does some medical cannabis usage through a few approved dispensaries, but prescriptions can only be filled with minimal amounts of THC.  It's so little, in fact, Iowa isn't even considered a medical marijuana state.  This in spite of calls by doctors and pharmacists to increase the maximum THC dosage.

This is the worst, dumbest way to do things, because lots of effort produces zero positive results.  People / patients aren't getting better, and the state gets no tax revenue.  The fact that a neighboring state (Illinois) this year legalized cannabis just makes it even worse / dumber, since motivated Iowans simply drive across the border.  The result is, the people get what they want, but another state benefits from the commerce.

In the end, Iowa and other non-cannabis states would be better off financially just not allowing any marijuana usage, rather than limiting it the way they are.  Of course, if they legalized it, those states would see a multi-million dollar tax revenue bonanza -- but since the Rs don't want to look so bad politically, they do things one drip at a time, showcasing the insanity of their ways

One small irony in all of this is that Iowa does consider its dispensaries to be essential businesses, so they remain open during the COVID-19 pandemic.  Wouldn't it be nice if there was an effective, natural drug that could help everyone through the pandemic, not only physically but mentally?  And regulated selling of that same drug could create millions in tax revenue being lost by the state due to the same pandemic?

Maybe by next 4/20.

The Catholic Reformation

Looking back on the label-tags on this blog site, I'm surprised to see that 'religion' is one of the most used.  I didn't recall writing much about the topic, I suppose because it's been a few years since I've made more than a passing reference to it, and frankly, I haven't been a big fan of religion for a while.

That streak gets broken today, in order to write about the sexual abuse scandals that are (still) engulfing the Catholic Church.  We've known for many years now that some of the clergy have used their positions to abuse children.  It's widespread enough that I had to reflect on whether I, a product of Catholic schooling and a former mass server, may have been abused.  (I decided No.)

We've known for a lesser time, however, that despite promises to the contrary, the church has done virtually nothing to stop the perpetrators, nor to keep it from happening further.  And now we're finding out that nuns have also been part of the abused, and part of the abusers.

Of course, this is outrageous.  As I write this, the church hierarchy is meeting in Rome at the pope's request, trying to figure out how to stop the cover-ups, and somehow move forward.  No one knows what's going to happen, if anything, but it seems one thing that must happen isn't even on the table -- publicly identifying and prosecuting those known to have committed abuse in the past.

Of course, this is even MORE outrageous.  The old men who collectively run the Catholic Church, including the pope, continue to close ranks to protect their own.  They somehow seem to think this is a winning strategy, as they have for the past decade or two.  They continue to fiddle while Rome burns, semi-literally.

This inaction is immoral at the least, and criminal at the most.  Speaking for myself (but probably parroting others), Catholics aren't going to come back to the church unless the abusers and their protectors are arrested, placed in handcuffs, prosecuted, and jailed if proven guilty.

In the meantime, since the church is a benevolent (or maybe malevolent?) dictatorship and the leaders can't be voted out, I believe there's only one thing true Catholics can do to effect change:  Reduce or cut off the money supply.  In other words, limit alms giving to non-monetary or specified local needs.

The fact is, in today's modernized world, institutions fail without funding. Therefore, to remain viable, such institutions are motivated to reform.

Make no mistake, stopping the flow of money to dioceses and the Vatican will reform them, and fast.

Unfortunately for the needy, doing this will create collateral damage, no doubt.  But at this point, does anyone what to argue it's better to serve a vulnerable population with unchecked, potential pedophiles than it is to simply reduce services?

Desperate times call for desperate measures.  The Catholic Church needs swift and permanent reform, and it's going to take more prosecution and/or less money for it to happen.

The Butcher, The Baker, The Candlestick Maker

I officially started my own business six months ago.  While I've had my own professional practice employment for nearly ten years, it was always couched inside a larger firm, and in fact I was technically an employee of that firm.  But now I'm on my own.

Until a full year has gone by, I won't have a clear view of what start-up decisions I made that I could've and should've done differently.  Like anything else in life, I know that with the experience I've had, I'd be better at it if I had another chance.

Having said that, I can make a few conclusions about starting a new venture.

It takes more time than you think.  There are so many unforeseen tasks, things like vendor contracting, record keeping, compliance, accounting, etc.  These things must be taken care of at the same time you're trying to work on activities that actually generate revenue.  So plan on plenty of extra hours.  (The fact I haven't been spending as much time on this blog is directly correlated to this time-suck.)

It costs more than you planned on.  There are a lot of one-time, initial start-up costs for any business.  Sometimes it's expenses on which you didn't plan.  Other times it's expenses that you planned for, but which cost much more than you thought.  Regardless, there's a good chance you've under-budgeted for these costs, so I might include a sub-heading to this section that says, "...so make sure you have a good banking relationship."

It takes a lot of self-motivation.  When you start your own operation, you aren't going to be motivated to work by other people, whether it be management or peers.  Nobody and nothing are going to be pushing you to accomplish anything.  You have to get up every day with a plan and ready to work, all without any guarantee of success.  You aren't going to accomplish the above-mentioned items without being self-motivated.

In summary, it isn't easy being the butcher, baker and candlestick maker.  I hope the next six months don't offer too many more lessons about starting a new business.

Yes We Cannabis

It’s time to catch up on the good news in world of cannabis!

In sum, the news is positive enough that I’m almost ready to declare that January 2018 will one day be considered the ‘tipping point’ in time for full decriminalization of marijuana in America.  (There’s only one thing standing in the way of that right now, more on that in a few paragraphs.)

The thing getting the most attention now is the legalization of recreation marijuana in the state of California.  That became effective on January 1, 2018, and now like several other (mostly western) states, they allow anyone at least age 21 to buy a limited amount of cannabis daily.

The difference here is, California is the most populous state in the country.  As such, the implications are more profound.  One of these implications is the amount of tax revenue this law will bring to a state that sorely needs it.

Make no mistake, money (i.e. tax revenue) is why cannabis will ultimately be legalized in all 50 states.   That isn’t the only reason, nor the best reason, but it’s the main reason.

[This would normally be where I go on a rant about how marijuana should be no more controlled than alcohol, and probably less controlled than prescription drugs.  But I’ve covered society’s asinine attitude about that more than once before, and specifically in regard to medical marijuana.]

One lesser but still important pot-related action happened just this week in Vermont (Vermont!), where the governor signed a bill making it the ninth state to legalize marijuana effective July 1, 2018.  The difference is that Vermont was the first state to do it via legislation, rather than by a voter-approved ballot initiative.  That is a big deal, and the first admission that states want to grab the tax revenue.

Regarding that one thing standing in the way of ‘tipping point’ actualization…..we currently have an old white male dominated (Republican) party in charge of the executive and legislative branches of the U.S. government, along with an old white guy U.S. attorney general that thinks marijuana is evil.  That means marijuana, for now, will likely maintain its federal designation as a Schedule I drug along with things like heroine and LSD – good grief.

These will all need to be changed before the pro-cannabis world can truly take over.  It’s only a matter of time, however, and that time is much shorter than it seemed only a few weeks ago.

Just Name Three

Last year on election day, I wrote about my disgust for bandwagon-ing fans, and, for that matter, bandwagon-ing voters.  Today I'm going to write about a larger offshoot of bandwagon-ers, which essentially includes the bandwagon-ers plus the 'fear of missing out' (FOMO) folks.

To identify, these are people who spend money, sometimes hefty amounts, to attend events for which they have little or no passion.  They go solely because they know other people are going.  You see this all of the time with both sporting and music events.

An example:  Last week, I attended a Tom Petty and the Heartbreakers concert.  The following day at lunch, I overhead a 30-something year-old woman talking to others about it.  She admitted she didn't really know any of his music, but tagged along with friends anyway.  This way she could say she was there, not to mention she could party / drink beer.

Who knows, maybe she didn't have to pay between $60 - $100 to go to the concert like the rest of us.  But probably she did, and regardless, she took away a ticket for a sold out show from a real fan who wanted to go.

I've called people out on this before, and when they get all defensive about it I give them a simple test.  That is, for a big-time concert, can you name three songs (just titles, not even the lyrics!) by that artist?  And for a sporting event, can you name three players on the team for which you're supposedly a fan?

The vast majority of those I ask cannot successfully answer.  If you can't do that, you aren't a fan, and definitely not a passionate one.

However, that isn't going to stop them from paying big bucks to take a seat that a true fan would love to have.  (By and large, the artist or athlete would love for the true fan to have that seat as well.)  But never mind all that.  What's important is being seen as a cool person partying with others at a big event.  And of course, posting their fake superfan-dom on social media.

I suppose it's really not that surprising, in the age of reality TV and social media stars.  People make entire careers out of being seen at events they couldn't care less about.

The difference is, those people get paid, rather then paying for the right to do nothing more than warm a seat.

Coffee And Doughnuts (And Terrorists)

I don't understand coffee and doughnuts.

Oh, I know what they are, I just don't understand the people who are willing to buy and consume them.  Let me explain.

I recently met a colleague at a local Starbucks (his choice, not mine, I don't drink coffee).  I got there around 10am, and during the next hour, I observed a steady stream of customers walk through the door.  There were men and women of all ages, some dressed for work, some clearly not working.  If I had to categorize them under one group, I suppose I'd say they were upper-middle class Caucasians.

These customers all had one other thing in common:  They were perfectly willing to pay several dollars for a cup of heavily sweetened, coffee bean-flavored hot water.  No doubt, this same thing was going on in thousands of other coffee shops in America, and perhaps every other country in the developed world.

This is why the terrorists hate us.  We live in a society where people are willing and able to spend hundreds / thousands of dollars every year on foo-foo coffee.  In the meantime, there is human suffering occurring in the U.S., and especially in the rest of the world.  Make no mistake, the terrorists don't intend to lessen the suffering, they simply want everyone else to suffer like them.  (Oh, and there's that religious thing, too.)

I don't blame Starbucks for any of this.  They are branding geniuses, able to get consumers to not only feel good about paying a lot for something unhealthy, but to also get those folks to waste the equivalent of many hours per year to stand in line for it!  As a capitalist, I say props to them.

I observed this same sort of hypnotic consumer behavior a few days ago at another brand name juggernaut, Krispy Kreme.  They were giving away free doughnuts on National Doughnut Day (yup, that's a thing), and the line reportedly when around the block for hours.  All of this for an unhealthy, warm, super-sugary blob of dough.  At least people weren't paying for it that day, which accounts for why I presume the crowd to have been made up of all economic classes and ethnicity.

So let's recap.  Starbucks and Krisy Kreme = admirable brand name juggernauts.  Their customers = free-spending hypnotized calorie consumers.  Coffee and doughnuts = super-expensive comfort food.  Terrorists = still and always a-holes.

The Circle Of Competence

Among the many profound investing philosophies of Warren Buffett and Charlie Munger are some that extend beyond the area of finance.  Today I select one it seems I've cited a lot lately, that being the idea of staying within one's own "Circle of Competence."

The basic premise is simple:  When you don't really know what you're doing, it's much riskier than when you do know what you're doing.  This is one of those premises that everybody knows, but most still violate from time to time, even very smart people.

This concept is straightforward in finance, where another quote Buffett often refers to (not his) works as an explanation:  "When a man with money meets a man with experience, the man with experience leaves with the money, and the man with money leaves with the experience."

Consider, however, the practical, non-financial life applications to the Circle or Competence.  How often don't you hear from someone giving you unsolicited and unqualified advice on issues of relationships?  What about on issues of fashion?  Or how about my most recent favorite, those who have no medical or health training, but want you to accept their understandings and beliefs on all sorts of specific medical or health related issues?

Those offering opinions that are outside their Circle of Competence are doing even more than nothing to help you or themselves.  They're actually going into negative territory, because you may be able to take advantage of their incompetence.  Here again, this may be most readily apparent in the world of finance, but applies to other walks of life.

The most important part of all this is knowing one's own Circle of Competence. Munger was once quoted as saying, in a bit of a self-fulfilling prophetic way, "It isn't a competency if you don't know the edge of it."

Abusing Money

This week the NFL is in the midst of a full-blown scandal over its handling of the domestic violence charges against one of its star players.  Among the side issues is why the victim, engaged at the time, still married her assailant.  She is in fact still married to him, and supporting him.

My initial reaction was probably ignorant; I felt like money was the motivating factor.  This NFL player was making millions of dollars a year, why else would you stay?

However, a more holistic view of this revealed that it's not unusual for victims of abuse to handle things this way.  For a variety of reasons, many people in an abusive relationship will stay with their abuser.  The nation learned that in cases of domestic violence, we should not judge the victim.

Look, I don't know why she stayed with him.  Maybe she grew up in an abusive household and this seemed normal to her.  Maybe she was scared of him.  Maybe her family pressured her.  Maybe she wanted to keep her family together, since she already has a 2-year old child with the man.  Like I said, I don't know.

But there's a more than zero percent chance that maybe, just maybe, she stayed (stays) with him because he's a multi-millionaire, and by marrying him, she'll never have to work another day in her life.  Ignoring the role that money may have played in her decision is unreasonable.  Might it also have made her family encourage her to forgive and forget?

However, it's so politically incorrect for anyone right now to suggest that money was a factor, I haven't seen anyone even mention it.  Heck, I probably wouldn't mention it if I made my living off of writing or broadcasting about it, because you'd be suspended or fired.

That said, it's not insensitive to bring it up the role that money plays IN ANYTHING.  Money changes people.  Money makes people do dumb things, like making men think they can smack around their girlfriends.  And yes, money can be a reason some of those girlfriends stay.

It doesn't make it right -- actually, it makes it more wrong.  But let's at least agree that in this situation (obviously it isn't true in most domestic abuse), we can at least mention the money factor, for those of us not afraid of being judgmental.