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.
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
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