The Psychology of Money. Morgan Housel

their wild ancestors. Yet here we are, with between 20 and 50 years of experience in the modern financial system, hoping to be perfectly acclimated.

      For a topic that is so influenced by emotion versus fact, this is a problem. And it helps explain why we don’t always do what we’re supposed to with money.

      We all do crazy stuff with money, because we’re all relatively new to this game and what looks crazy to you might make sense to me. But no one is crazy—we all make decisions based on our own unique experiences that seem to make sense to us in a given moment.

      Now let me tell you a story about how Bill Gates got rich.

      Luck and risk are siblings. They are both the reality that every outcome in life is guided by forces other than individual effort.

      NYU professor Scott Galloway has a related idea that is so important to remember when judging success—both your own and others’: “Nothing is as good or as bad as it seems.”

      Bill Gates went to one of the only high schools in the world that had a computer.

      The story of how Lakeside School, just outside Seattle, even got a computer is remarkable.

      Bill Dougall was a World War II navy pilot turned high school math and science teacher. “He believed that book study wasn’t enough without real-world experience. He also realized that we’d need to know something about computers when we got to college,” recalled late Microsoft co-founder Paul Allen.

      In 1968 Dougall petitioned the Lakeside School Mothers’ Club to use the proceeds from its annual rummage sale—about $3,000—to lease a Teletype Model 30 computer hooked up to the General Electric mainframe terminal for computer time-sharing. “The whole idea of time-sharing only got invented in 1965,” Gates later said. “Someone was pretty forwardlooking.” Most university graduate schools did not have a computer anywhere near as advanced as Bill Gates had access to in eighth grade. And he couldn’t get enough of it.

      Gates was 13 years old in 1968 when he met classmate Paul Allen. Allen was also obsessed with the school’s computer, and the two hit it off.

      Lakeside’s computer wasn’t part of its general curriculum. It was an independent study program. Bill and Paul could toy away with the thing at their leisure, letting their creativity run wild—after school, late into the night, on weekends. They quickly became computing experts.

      During one of their late-night sessions, Allen recalled Gates showing him a Fortune magazine and saying, “What do you think it’s like to run a Fortune 500 company?” Allen said he had no idea. “Maybe we’ll have our own computer company someday,” Gates said. Microsoft is now worth more than a trillion dollars.

      A little quick math.

      In 1968 there were roughly 303 million high-school-age people in the world, according to the UN.

      About 18 million of them lived in the United States.

      About 270,000 of them lived in Washington state.

      A little over 100,000 of them lived in the Seattle area.

      And only about 300 of them attended Lakeside School.

      Start with 303 million, end with 300.

      One in a million high-school-age students attended the high school that had the combination of cash and foresight to buy a computer. Bill Gates happened to be one of them.

      Gates is not shy about what this meant. “If there had been no Lakeside, there would have been no Microsoft,” he told the school’s graduating class in 2005.

      Gates is staggeringly smart, even more hardworking, and as a teenager had a vision for computers that even most seasoned computer executives couldn’t grasp. He also had a one in a million head start by going to school at Lakeside.

      Now let me tell you about Gates’ friend Kent Evans. He experienced an equally powerful dose of luck’s close sibling, risk.

      Bill Gates and Paul Allen became household names thanks to Microsoft’s success. But back at Lakeside there was a third member of this gang of high-school computer prodigies.

      Kent Evans and Bill Gates became best friends in eighth grade. Evans was, by Gates’ own account, the best student in the class.

      The two talked “on the phone ridiculous amounts,” Gates recalls in the documentary Inside Bill’s Brain. “I still know Kent’s phone number,” he says. “525-7851.”

      Evans was as skilled with computers as Gates and Allen. Lakeside once struggled to manually put together the school’s class schedule—a maze of complexity to get hundreds of students the classes they need at times that don’t conflict with other courses. The school tasked Bill and Kent—children, by any measure—to build a computer program to solve the problem. It worked.

      And unlike Paul Allen, Kent shared Bill’s business mind and endless ambition. “Kent always had the big briefcase, like a lawyer’s briefcase,” Gates recalls. “We were always scheming about what we’d be doing five or six years in the future. Should we go be CEOs? What kind of impact could you have? Should we go be generals? Should we go be ambassadors?” Whatever it was, Bill and Kent knew they’d do it together.

      After reminiscing on his friendship with Kent, Gates trails off.

      “We would have kept working together. I’m sure we would have gone to college together.” Kent could have been a founding partner of Microsoft with Gates and Allen.

      But it would never happen. Kent died in a mountaineering accident before he graduated high school.

      Every year there are around three dozen mountaineering deaths in the United States.9 The odds of being killed on a mountain in high school are roughly one in a million.

      Bill Gates experienced one in a million luck by ending up at Lakeside. Kent Evans experienced one in a million risk by never getting to finish what he and Gates set out to achieve. The same force, the same magnitude, working in opposite directions.

      Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort. They are so similar that you can’t believe in one without equally respecting the other. They both happen because the world is too complex to allow 100% of your actions to dictate 100% of your outcomes. They are driven by the same thing: You are one person in a game with seven billion other people and infinite moving parts. The accidental impact of actions outside of your control can be more consequential than the ones you consciously take.

      But both are so hard to measure, and hard to accept, that they too often go overlooked. For every Bill Gates there is a Kent Evans who was just as skilled and driven but ended up on the other side of life roulette.

      If you give luck and risk their proper respect, you realize that when judging people’s financial success—both your own and others’—it’s never as good or as bad as it seems.

      Years ago I asked economist Robert Shiller, who won the Nobel Prize in economics, “What do you want to know about investing that we can’t know?”

      “The exact role of luck in successful outcomes,” he answered.

      I love that response, because no one actually thinks luck doesn’t play a role in financial success. But since it’s hard to quantify luck and rude to suggest people’s success is owed to it, the default stance is often to implicitly ignore luck as a factor of success.

      If I say, “There are a billion investors in the world. By sheer chance, would you expect 10 of them to become billionaires predominantly off luck?” You would reply, “Of course.” But then if I ask you to name those investors—to their face—you will likely back down.

      When judging others, attributing success to luck makes you look jealous and mean, even if we know it exists. And when judging yourself, attributing success to