BOOK EXTRACT |THE UNCOMFORTABLE TRUTH ABOUT MONEY: HOW TO LIVE WITH UNCERTAINTY AND THINK ABOUT YOURSELF

Paul Podolsky 's The Uncomfortable Truth About Money: How to live with uncertainty and think about yourself Harriman House Ltd., London, 2024. Pb. Pp. 240. Rs. 599

We are all stuck in a money cage. Money isn't the most important thing, but it is a thing and you can't get away from it. Birth costs money and death costs money. So even if you hate talking about money, you need to know the basics, the same way you need to know how to cook yourself a simple meal. The problem with most money books is that they are not written by practitioners and avoid hard truths. What a weathered investor knows is that stocks are not always good for the long run. They know that being stingy helps accrue wealth. They know the big thing when you buy property has nothing to do with the property. They know the big thing is less what happens to the markets in a day than if the entire system holds together. And they know what to look for if it's time to pull out. That's what this book will teach you, a lifetime of money learnings distilled to a thin volume, like a basic cooking recipe you can follow.

Paul Podolsky is the founder and CIO of Kate Capital, an investment management firm. He writes about macro–politics and money. For many years, he was the strategist and equity partner at the largest hedge fund in the world, Bridgewater Associates. Previous to that, he worked as a reporter. His work has been published in The Wall Street Journal, The Boston Globe and aired on National Public Radio.

Excerpted with permission from The Uncomfortable Truth About Money, Paul Podolsky, Harriman House/Pan Macmillan India.

Jaya Bhattacharji Rose

****

The Uncomfortable Truth About Money

Chaos was watching my mother slowly give way from the inside out, like a pear going bad when I was three, four, and five. Cancer does that.

Order was gaining self-reliance, whether it was learning how to cook eggs or scaling a cliff.

When I became a father, I realized creating order also meant learning to be good with money. Up until that moment, I thought people who focused too much on money were narrow, risk-averse souls who were missing out on life.

In fact, I can name the exact moment when I realized I had misjudged.

It was 1997. I was 29 and standing on a Brooklyn sidewalk holding the hand of my three-year-old son, Sasha, and watching a line of rotund rats lazily amble back and forth between the entrance of our building and a stack of leaking garbage.

The thought floated up: Paul, this is not working, something needs to change, fast.

I didn’t want to raise my kids among rats. But to change apartments, I needed money that I didn’t have.

So began a long journey from that time to today.

This book takes those money lessons learned, really a series of frameworks, and makes them accessible for any reader who, like me years ago, has no clue how money works.

Many things matter more than money.

Money certainly isn’t everything, but it is something. You can’t get away from money, but having a decent understanding is hard because money often means several things at once. For instance:

Money is cash today and cash for some distant tomorrow, like old age, if we are lucky enough to experience old age.

Money is cash but also credit.

Money is a dollar but also a euro or a yen to someone else in a different country.

Money is for things you know you need, like food, and for things you may or may not need, like emergency medical care, and for things you don’t need but want, like a snazzy shirt.

Money is numbers and facts but also emotions and sensations.

We are all caged by money. It contains us sometimes physically and sometimes mentally.

Knowing the mechanics of how the money cage works helps distinguish logic from emotion and, in the process, keeps us calmer and facilitates better decisions.

Yes, it would be easier if there were simple answers. But the truth is money is a series of trade-offs without fixed, permanent answers.

People have been worrying about money for thousands of years and will continue to do so.

We think about sex a lot, and most thoughts are probably happy ones. But we might think about money even more and many of the thoughts will likely be anxious ones, that terrible sense of being short or worrying about being short.

Talking about money makes people uncomfortable.

People are happy to tell you where they were educated. I’m told they will send naked photos of themselves on dating sites. But no one wants to tell you how much money they have.

Most everyone is insecure about the topic.

If they have too little money, they feel uncomfortable, like it is their fault. If they have a lot, they worry you will resent them for it or ask them for some. Sometimes rich people don’t feel rich.

Instead, they feel poor compared to other rich people to whom they compare themselves.

Few people know how money works, even though many are forced to behave in a certain way because of how much money they have, as any person who doesn’t have enough money can attest.

Your life is easier if you are fluent with money. The thing that got me away from those rats was, pure and simple, studying how money works. It’s a basic life skill that doesn’t require more than high-school math, but it’s still difficult to learn because money flits like the flame of a candle in value and form, and requires both big-picture understanding and micro, detail-level understanding. That’s the goal of this book—to share that understanding with you so you don’t have to learn from scratch, as I did, which, while rewarding, is time consuming.

This book focuses less on “what should be” than “what is,” meaning how the system is set up. I find parts of the system to be unfair. The system is nonetheless a reality to be understood and navigated.

I got my money education in real-time, out of necessity, piece by piece. Money understanding appears gradually and for me was always tied to specific experiences.

At the time of the rat encounter in Brooklyn, I was toiling in the lowest rungs of financial journalism, filing reports about the cotton market. I was married, with a child, and living on $38,000 in New York City.

During the day, I’d interact with traders who seemed to understand things about money that I didn’t.

Tony, I’d say, this is Paul from Dow Jones.

Tony traded in the cotton pit, an institution that dated to the 19th century and established the price for cotton at some point in the future when the crop matured.

I got his name from a list of sources passed down from reporter to reporter.

Bid, weather, said Tony, then slammed down the phone.

At first, I had no idea what he meant. Then I got it. Cotton prices were rising (“bid”) because bad weather, like a tornado, risked hurting the crop and reducing supply.

Flash forward 20 years. I was now an equity partner at the biggest hedge fund in the world. By this point, I’d not only studied and traded commodities like cotton, copper and oil, but also bonds, stocks, real estate, and currencies.

I had more money, but I still worried about money. Earning it was stressful. I was now older and life was short.

How long would I live?

How much money did I need?

To the outside world and maybe my kids, I might have looked like a stodgy guy, off to work in the morning, home for dinner, appearing at my kids’ sports events or guidance counselor meetings.

Inside though, there was another reality. I knew that experiencing a meaningful life was more important than accumulating money.

Money was merely a tool to accomplish that goal, though an important one.

I felt and feel life requires us to mentally occupy two spheres at once—reverent awe and practical reality.

This belief in the importance of awe formed early on, well before

I knew anything about money.

The moments of connection with my Mom before she died were precious few. But they existed and left a deep impression, like an early morning bird-watching jaunt at a Woods Hole,

Massachusetts salt marsh, the scent of brackish water. Maybe I was three? Wet sneakers, my small hand in hers.

After that, I was always in search of moments that transcended the ordinary, that reminded me of what a miracle it is to be alive. I suspect we all are looking for such moments. Particularly after she died, I knew life was short and unpredictable and those magical, rare moments were to be both cultivated and treasured.

Sometimes these moments came on the side of a mountain, in a fierce snowstorm. Sometimes they came rounding a corner in a cobblestoned foreign city, picking up little smatterings of an unfamiliar tongue. Sometimes they came from reading the perfect sentence sitting quietly in a library or a cafe, like when I first tried a latte at a cafe in Berkeley while reading the poet Milosz.

I definitely felt it the first time I held my children, warm and defenseless.

Those were the times when I felt most alive. Life vibrated with possibility and connection.

Money wasn’t any part of it.

That feeling of awe was what I was chasing after when I lived in Moscow in my early twenties, working as a journalist. I wanted to be a writer and writers seemed to pursue writerly experiences early on, like Hemingway driving an ambulance in Italy during World War I.

Love fit right in among those elevated experiences. I met my wife Marina during that time. She was a guest at a party my boss threw. It was love at first sight, at least for me. Later, we drank wine and discussed everything, the kitchen window flung all the way open, Gorky Park’s verdant expanse visible across the river.

That dreamy state was rudely interrupted by very practical concerns, like needing to come up with the money to bribe the Moscow doctors and nurses to deliver our son, Sasha. In a place like Russia, and many other parts of the world, the doctors supplemented meager official pay with money under the table negotiated ahead of time. As I recall, it was about $2,000 in crisp $100s. The rat episode several years later only cemented my growing awareness of the need to focus on practical realities.

Money is a shackle that keeps us tethered to such realities, like rent, health insurance, and electricity bills. When I was young, I acted as if this chain did not exist. But it does. It is inescapable like our mortality is inescapable. That’s also why the very rich or famous often lose their way. When they become too rich or famous, they lose their tie to reality.

Having a frank conversation about money is sort of like having a frank conversation about sex—awkward, but better to have the talk than not.

When I grew up, my brother and I had an awkward sex talk with our father.

At that point, the man’s penis becomes...lectured my father, as my brother and I exchanged looks. But we never had the money talk. That’s probably because my father didn’t understand money.

I had the sex talk with my kids, too, but we also never had the money talk. Part of that is due to reasons I shared in Raising a Thief.

Each of my kids had pressing challenges that didn’t leave space for the money talk.

This book is for the general public but also for my kids, in place of the money talk we should have had.

Money awareness, while practical, doesn’t preclude awe. At least it doesn’t have to.

I still crave those transcendent moments and hope I have more before I am gone. But even a funeral costs money, so there will be money questions right up until the end.

Figuring out money is in part about finding your spot in life, which can seem an impossibly large question, particularly when you are young.

When you do something others need, you get paid. When you spend less than you earn, your wealth increases. It’s that simple. The question is how much you will get paid and at what rate will your savings grow. The longer it takes you to figure out what you can offer, the slower this process will be.

Answering those questions requires figuring out what you are made of, which requires courage and honesty. We all worry whether our particular defects preclude a happy life. Everyone is insecure. Earning a living and building up savings will help you feel more secure.

My own fear about being able to earn a living crystalized under florescent light, in a small room off of the college green.

I sat opposite a kind, older woman with a warm voice and a face lined like a walnut.

Take a piece of paper, roll it up, and look out of it like a telescope, she said.

Holding the white paper with my left hand, I scrunched shut my left eye and held the ‘telescope’ up to my right eye. In other words, I was left-handed and right-eyed, neither side was dominant.

That sequence was part of what led her to believe that my wiring was wacky. I was 19. I had struggled with school my whole life. Geometry was a breeze, grammar a nightmare. I didn’t think anything was wrong with me, only that I was unpredictably stupid.

I never knew what subject would crush me and what would be unexpectedly easy. The diagnosis was an initial relief, quickly followed by a wave of anxiety.

Who would hire someone with dyslexia?

I already knew I wanted to be a writer. Were there any dyslexic writers?

Writers were either brilliant and independently wealthy, like Tolstoy, or indigent and crazy, like Dostoyevsky, or locked alone in a room with no dependents, like Proust. I wasn’t rich, didn’t want to be crazy, and didn’t want to live my life as a hermit in a cork-walled room. In short, I couldn’t envision a spot in the work world that suited me.

I slowly figured out there was another option. I could write if I had enough money to not need to depend on writing for money.

The problem was, I didn’t know anything about money.

One way or another, you need to bring what you are interested in in line with the need for positive cash flow. To figure out what you are interested in, observe your hobbies. What do you do involuntarily? If it is, say, skateboarding, what is it about skateboarding? Being outside all day? Being physical? The gear?

Whatever it is, it is a riddle only you can answer and a first step in solving the money question.

The basics of money are deceptively simple. Beyond spending less than you earn, there is getting the best job you can, investing your savings into a mix of stocks and bonds using the cheapest, simplest instruments, and avoiding getting stuck in things that destroy wealth—like addictions and divorce. Retire when you’ve got enough and share your excess savings with your kids.

It’s like diet advice, which is also deceptively simple. Don’t eat much, mostly vegetables. Yet, many people in rich countries are overweight and feel they don’t have enough money. Reality defies simple slogans.

Following a good food practice is hard because we live in an era of abundance and are wired for scarcity. A food industry that injects what it can with addictive substances, like sugar, doesn’t help. Eating healthy doesn’t just mean choosing some foods and avoiding others; it means rewiring our brains for abundance, training ourselves to abstain, getting used to mild bouts of hunger.

A scale helps. Diet books don’t want to say that because abstaining from cake is hard, weighing yourself is humbling, and they want weight loss to be easy. It ain’t easy and it never will be.

Money is also not easy.

A fundamental issue is the inescapable fact that money isn’t stable.

The stock that was trading at $100 a month ago is worth $10 today. The company that looked like a safe place to work, General Electric, became financially fragile. What looks from afar to be an oasis—a career making horse bridles or combustion engines—can, upon arrival, be an illusion, when first cars and then electric cars gain traction.

Conditions that prevail for a protracted period of time lull participants into believing those conditions will last forever. Thus, the relative stability of Europe in the 19th century made the rapid shift of conditions during World War I wildly unexpected.

Similarly, falling inflation from 1980 until roughly 2020 led savers to believe inflation would never be a problem. Then came the pandemic. Oops.

These violent shifts relative to the past are massively wealth-destroying.

Beyond the intellectual challenge of understanding what is going on, there is the emotional challenge.

We want something from money—security—that money structurally cannot provide.

Your job is unstable, your savings are unstable, and the country you live in might be unstable. The whole thing is rickety.

Moreover, your functioning is unstable. One day you are healthy, the next day you aren’t. You go from earning money to being dependent on savings.

When your conditions change, your relationship to money changes, in the same way you look at a set of stairs differently after you sprain an ankle.

Some people come through this turbulence just fine, not ever realizing how unstable the structure itself is that they are inside.

Others get wiped out.

As I write this, it is less than 100 years since a hyper-developed country, Germany, lined up behind a maniac. He created hell on earth, obliterating lives and wealth. Millions of people enthusiastically followed him, both in Germany and elsewhere.

In the years since, people haven’t changed. If it can happen in Germany, it can happen anywhere and it has—Chile (1970s), Rwanda (1990s), Italy (1930s), Russia (1930s and 2020s).

This truth will not appear in money books for the same reason the diet books are deceptive—it’s uncomfortable, even unnerving, to consider that reality.

Never look away.

Institutions related to money retain a facade of solidity—heavy granite columns, stone, and steel. It is meant to look permanent, like the Colosseum in Rome, to disguise a chaotic reality. Similarly, money experts wear suits and ties, meant to show that they are serious people, as opposed to people making probabilistic judgments about an uncertain, ever-shifting future.

If you don’t want to get wiped out, study how things work. It’s like skiing in avalanche territory. Avalanches happen for a reason.

Study the reasons. Some of this is mechanics. Some of this is history. Some of it is psychology. Low-probability events can have enormous impacts. Freak storms occur and then the avalanche danger rises exponentially.

By study, I mean look at the entire system.

For instance, when I already had a graduate degree in economics and worked at a bank, I still didn’t understand much because up to that point I studied small chunks of information—like interest rates—as opposed to trying to understand how all the moving parts interacted. This book is in part a response to that sense of confusion, an effort to show how the moving parts connect. Not only was I clueless about the cotton market, I didn’t understand how the stock market worked, either, and the financial news talked about the stock market every day.

My job wasn’t directly tied to the stock market, so strictly speaking I didn’t need to understand equities—but this gap was, to put it mildly, a glaring hole in my knowledge.

And it wasn’t just me.

I once interviewed a Federal Reserve governor for a job. If I asked him anything about inflation or Fed policy, his answers were perfect. But if we moved one degree off of that knowledge base, like to long-term interest rates (versus short-term) or stocks, his answers were weak and uncertain. He too, a guy who actually ran the system, had a partial knowledge. With only partial knowledge, you get bad outcomes.

To fill in partial knowledge and build up understanding, good frameworks are invaluable.

What do I mean by a framework?

Most everything related to money can be simplified into a framework. Good knowledge of money is really a series of interlocking frameworks, maybe a few dozen of them.

Take one of the most basic challenges with money: inflation.

The general concept is known. Practically, it means the money you have buys less over time. But to understand what causes inflation you need to understand how a price is formed, and what forces determine supply and demand.

Inflation is roughly the equation below. To understand what is going on with inflation, you need to understand these components, all of which can rise or fall for different reasons. These frameworks

make a topic that can seem abstract concrete. Inflation is what we pay to drive around, have a place to sleep and pay or receive in wages. Oil prices can rise due to a conflict in some distant land that

has nothing to do with how much it costs to rent an apartment or buy a house.

Inflation = (roughly) 1/4 oil + 1/4 shelter + 1/2 wages

You can either be wiped out by inflation over your lifetime, or you can study it.

Your choice.

If you don’t want to be wiped out, you need to be familiar with the big episodes of inflation, like Weimar Germany, 1970s America, the post-COVID surge, and repeated bursts of inflation

in emerging markets. Moreover, you need to know how to protect your money against inflation. There are techniques that can help, like buying government-issued inflation-linked bonds.

The money system is complex, evolves, and doesn’t give a damn about you or your well-being. You need to adapt to it, rather than it to you. To do so, you need a strategy and the next chapters lay out that strategy step-by-step. Step number one is separating what you can control—your mindset—from what you can’t control—constant disruption.

2025-02-08T07:30:00Z