Lewis Howes The School of Greatness - Become a Master of Finance with Harvard Professor Mihir Desai


Mihir A Desai is a Professor of Finance at Harvard Business School and a Professor of Law at Harvard Law School. He also completed his advanced degrees at Harvard University, earning a Ph.D. in political economy and MBA as a Baker Scholar from Harvard Business School. Prior to Harvard, Desai studied history and economics at Brown University.


This is such an effective episode of Lewis Howes' School of Greatness podcast because Mihir Desai simplifies finance, which clearly identifies his efficiencies as a teacher. Lewis asks specific questions, and Mihir breaks down concepts in a way that's easy to understand.


Show Notes:

  • Author of "The Wisdom of Finance"

  • Claims to be a "totally traditional economist"

  • When you Academia is your career, you can see your life 20 years in the future

  • "Finance has some serious problems"

  • His goal is to demystify finance, "chunks of finance are broken, and we need to make it better."

  • "There is nobility in finance, and you have to live up to it."

  • He speaks about the book "Rich Dad Poor Dad" by Robert Kiyosaki and Sharon Lechter. He said that although it may be easy to ridicule because of its simplicity, it's had an amazing impact on countless people, and has been on the bestseller list for seemingly forever


What are the things our society is confused about when it comes to finance?

  • Borrowing and debt is not terrible and is not wrong

  • Socrates said it was immoral to charge interest

  • If you are a poor person and want access to opportunities - you borrow

  • Borrowing can be a very liberating thing


However, sometimes people don't understand the magnitude and dangers of borrowing


"Debt overhang" - you have so much debt you can't actually do the best things for yourself"


Ignore the real virtues of it, or think that it’s not that big of a deal


Think hard about the upfront investment

Think about the incremental wages as a result of this investment


On average, education is a great investment


There’s a labor market, you need to have skills that are going to be valued


If you want to get a degree in something that’s not valued in the labor market, this is essentially consumption, and don’t be surprised about a lack of return


A house - you live in it and consume it all the time


Stocks are an investment, and food is consumption


Common misconception - people think there is a lot of skill

  • It’s almost impossible to tell the difference between luck and skill, except for in the long term


You get 80 people in a room, you toss a coin 10 times, you’re almost guaranteed to have someone get 10 heads


Very hard to beat the market persistently


Massive rise in indexation (buying ETF’s and index funds) tends to be better than trying to play the game


Buffett - monetizes his halo - when he invests in a company, people come rushing in, he has a massive influence which he turns into performance


What should we be doing with our money? It depends on who you are

  • Person who is working, income, family - save.

  • The truth is, very few people oversave (depriving today to retire comfortably, have more later). You should be saving from the time you start earning money


Put your money anywhere you can stay away from taxes

  • IRA’s, Roth IRA’s, Pension plans, health savings accounts (forced savings)

  • If you save 30% up front because of taxes, that’s a huge win

  • Put it into something tax advantaged

  • Don’t pay a lot of money to manage your money (unless you have serious coin)


If you wanna have fun, take a small chunk, don’t take it too seriously, and go have fun

Save more than you think you need

Try to think about taxes (indexation)

Don’t pay a lot of money to manage your money

Create some fun space


80-90% of start-ups are going to ZERO

  • Very bimodal


When you’re young, you should be taking more risk, which should taper down over time

  • This is something I feel people don’t do enough of


Tend to overestimate abilities - if you look at your long term investment results, it’s probably not that great


Once you’re in immigrant, you never lose that sense of reality


Risk Management (options, diversification, complex derivatives)

  • Jane Austen - Pride and Prejudice (young women facing risk in the marriage market)

  • Guy who’s nice with no money, guy who is a drunk with a lot of money

  • You have to weigh your options


“The trouble with Optionality”

  • People in finance over-learn the idea of options


Options - you want to have choices

  • These are contracts, you have the right to own something

  • Young people are obsessed with optionality

  • School, prestigious companies

  • These people never exercise the option

  • Buying options is addictive - then the time comes to do something big, and they opt for more optionality

  • The more safety nets you buy, the more you value safety nets, and the less you do the risky thing you’ve always wanted to do


People in finance talk about marriage as the “death of optionality”

  • Especially in the relationship world

  • That’s how great things happen, when you close off options


Bankruptcy and the Bankruptcy Chapter

  • Robert Morris (richest man in the colonies)

  • Finances the battle of Yorktown

  • Was asked to be the first Secretary of the Treasury - said no because he lost some wealth during the war - Alexander Hamilton ends up taking the position

  • Rebuilds his wealth, owns 40% of New Jersey, 25% of D.C. - then he goes bankrupt and went to jail because he was bankrupt

  • Washington revisits him in jail - 1800 bankruptcy act

  • Now when you go bankrupt - you are protected from the creditors - which is analogous of failure, it happens, let's get a clean slate and protect you from all the people have claims on you


Leverage (Debt) - people in finance love leverage, fortunes have been built on leverage, especially in real estate


If things go well, your returns are out sized


Debt is totally analogous to commitments (Merchant of Venice)

  • The point of the story - commitments are like debt, they allow you to do things you wouldn't be able to do otherwise

  • George Orwell - low leverage, goes to Scottish islands and writes 1984

  • Jeff Koons - arguably the greatest modern artist

  • 150 people in his factory (doesn’t know how to use the material, relies on other people to use the material)

  • Has gone bankrupt several times, has bankrupt others


Embedding yourself in a world of networks and commitments, you’re able to do stuff you wouldn’t be able to do otherwise


Leverage comes down to a lever, when you push down on it, you get to move something you would otherwise have no right moving


Give me a place to stand and a lever, and I’ll move the world


Jefferson - the biggest lever in life is your reputation

  • If you’re good to the world - the world will give you the ability to do anything

  • “I trust you, you’re good”


Who is the smartest person you’ve taught? People have impacted the world differently

  • Entrepreneur - Sara Kaus - built swell, the water bottles, had her as a first year student, she was really nervous about finance, and now she has built a great company, made it into something aesthetically beautiful

  • Authors - Lee Carpenter - book about Navy Seals

  • Government Service - Doug Shulman - went on to run the IRS


At some level, smarts are cheap


The thing you really care about is attitude and work ethic, hard workers who are hungry, and you’re smart, that’s the package


In sports, when you have a talented person who doesn’t work hard, they are the most tragic stories, they have no idea what they have


Parable of the Talents (in the Bible)

  • A Master (God) who is leaving town, 3 servants

  • Take care of my talents, 5 talents, 3 talents, 1 talent

  • 5 talents → invested, lent, and made it into 10 talents

  • 3 talents → 6 talents

  • 1 talent → buried the talent, buried it, and gave the talent back

  • Wasn’t allowed into the kingdom of god

  • Because of his fear, he is damned

  • You are given these gifts, and you have to use them, it is your duty


If you sit on things, that’s actually value destroying, not value creating


You have to make everything you can out of your situation and what you’re given


John Milton (Paradise Lost) - haunted by that parable - he was blind


Samuel Johnson - wrote the first dictionary in 8 months


“People over incubate” - wait for ideas to become more clear


What’s the greatest lesson you’ve learned over the last 18 years of teaching?

  • I learned something about teaching - when I teach best, it’s an act of empathy, you need to think about how the other person is thinking. If you can get into other people's shoes, then you can help them understand

  • Humility - you don’t know who the destined person is. Everyone has something different in them. Don’t judge people and be humble about everyone’s capacities


Encouragement is so important - you don’t know who is struggling with what and what they are good at - always heir on the side of encouragement. People are incredible in different ways and you don’t know - you have to help them be the best version of themselves


Imagine it’s the final class you’re ever going to teach - the last lesson you ever teach? What is the greatest thing you could teach?

  • “We have got to figure out (I’m not a big environmental guy), what’s going on with the environment?”

  • Fundamentally, kindness and generosity are massively underestimated

  • These are the most important attributes, and the attributes that we need more of


Teach in a story - stories are everything. People remember stories


Not all stories are true, but stories help people understand the world


Stories anchor every bodies thinking - you need a narrative to organize your life


Facts tell, stories sell.


You don’t want to tell stories that violate facts.


At difficult times of your life, you need to tell yourself a story


“One of my narratives, I tend to fall behind, then come back.”


The immigrant narrative - you’re an outsider, you need to work harder, you need to save more.


What is your definition of greatness?

  • Making the most of what you’ve been given

  • We can all be great, make more than you could have made with what you’ve been given