Patrick Donohoe

The Principle Of Grit with Angela Duckworth

TWS 8 | Principle Of Grit

 

American academic, psychologist, and popular science author Angela Lee Duckworth talks about the principle of grit and why it is an important component to success. She is a Christopher H. Browne Distinguished Professor of Psychology at the University of Pennsylvania where she studies grit and self-control. Angela takes us into the science behind these characters as she also imparts her non-profit called Character Lab. Learn how she discovered this principle as she shares its opposite and how DNA plays a part. She talks about the roles models that exemplify those characters plus developing grit among children, exploring how failure is not a bad thing while sharing the differences among generations when it comes to society’s pressures.

Listen to the podcast here:

The Principle Of Grit with Angela Duckworth

My guest is Angela Duckworth and she is the Christopher H. Browne Distinguished Professor of Psychology at the University of Pennsylvania. She’s also the Founder and CEO of Character Lab, which is a not for profit whose mission is to advance the science and practice of character development. She’s also the author of the New York Times bestselling book, Grit: The Power of Passion and Perseverance. Angela, thanks for joining me. It’s awesome to have you on.

I’m so happy to have this conversation.

For those who don’t know you, you’re right next to Simon Sinek as far as TED Talk views are concerned. Would you mind going into your experience in discovering the principle of grit?

I am a psychologist by training. Before I was a psychologist, I was a teacher. I taught kids math in middle school and high school. The fascination I have with grit and with achievement in part stems from being a teacher and watching kids. Some of them do fantastically well. Others in the same exact classroom, under the same roof, using the same books and of seemingly a comparable intelligence were not doing well. One of the reasons that some do well in life and some don’t is the ability to muster perseverance and passion for something over long periods of time, not giving up. Also thinking about something because you want to be in adulthood, at least voluntarily obsessed by something so that you’re always working on it in the back of your mind.

One reason that some do well in life and some don't is the ability to muster perseverance and passion for something over periods of time. Click To Tweet

This helps me sometimes to understand a word or an idea is by knowing what the opposite is. What would you say the opposite of grit is?

The opposite of grit would be apathy, not caring and certainly not doing anything about a goal that means something to you.

That’s what I thought it is. It’s not caring about something. It’s being okay with mediocre things and mediocre results.

TWS 8 | Principle Of Grit

Grit: The Power of Passion and Perseverance

There are some people who would say, “I have a good work ethic,” but they are working on one thing after another. There’s no consistency in the direction in which they’re working. That’s also a failure of grit is to be working hard but on very different things all the time. There’s nothing immoral about that but I do think it’s hard to be excellent at something unless you work at it for a while.

I would also say the drive behind the effort is also important in a sense to identify. As you’ve done a tremendous amount of study and research around the principle, what is the common denominator as far as where it comes from?

One of the things that I should say at the outset is that this question of, “Is it in my gene? Was I born gritty?” There are people that we know who are like, “They were like that when they were two years old.” There is a genetic component to grit. In other words, your DNA does influence how gritty you are, but that’s also true of extraversion and your height and your preference for broccoli. I’m not kidding. These have all been studied in twin studies and everything about you is partly your genes. I should acknowledge that, but I don’t think it’s worth obsessing over in part because it’s true for everything. It doesn’t mean that our experiences don’t matter, they enormously matter. Maybe the most important thing about grit is having a role model. Somebody that you’ve seen work hard, get up again and somebody who wears it on their sleeve that they love what they do, which is why leaders and also anybody who considers himself a mentor or a teacher to another person, they play a very important role in cultivating grit in other people.

What are some of the societal archetypes of grit now that you’re talking about role models and actual people that exemplify some of those characteristics?

If you look carefully at the life stories of the people that you admire, literally pick your favorite coach, sport, musician, politician or entrepreneur. It’s hard not to find stories of passion and perseverance of people who have been toiling for hours a little bit behind the scenes. If you look at Dwayne Johnson, The Rock, who comes from professional wrestling and makes it into Hollywood where he is signing these blockbuster deals more than once a year. If you ask him, it wasn’t luck and it wasn’t talent. It was that he was incredibly gritty. Also the hours of work that he puts in behind the scenes. They never show up on YouTube. You could, in a way, nominate your favorite high-achiever. Then when you start digging, have an open mind and look for whatever you want to look for, I do often find, at least I have found when I did that, I find grit.

It's hard to be excellent at something unless you work at it for a while. Click To Tweet

Character Lab, which is a nonprofit where you’re at right now, also something you spend a great deal of time with. I have three children and they’re all different. They all are born with different personalities and some are driven this way or some are driven that way. From a children’s standpoint, what are some of the techniques and the things you do to get kids to understand the importance of the principle of grit?

I’m also a parent, mine are sixteen and fifteen years old. There are two things parents can keep in mind when they want to bring out grit in their own children. One is about perseverance and work ethic. I do think kids are not born spontaneously wanting to work hard. It’s part of being an animal. You don’t see squirrels and the park doing push-ups. Effort is something that all animals try to avoid. In a way, we’re all lazy. When you want your kids to work hard, practice, take feedback, come at it again and go to a track meet even though it’s raining. These are things that parents have to play a role. You cannot expect your kids to do those things on their own.

When your kids are about the age that mine are, you will see that all of those times that you made them do things and maybe nag them a little bit, they do pay off. I used to think when I was raising my kids that they would do it on their own. I thought they would see my husband and myself work hard and do it on their own. They do need more direct parenting than I thought. On the passion side though, which may be even more important or at least as important, is that you have to watch your kids for what they’re interested in. Encourage them to sample widely, to try things and to develop those interests.

Nothing is sadder to me than a 22-year-old graduating from, for example, the Ivy League school where I teach. They’ve got great skills. They know how to read, how to write. They’ve got great math skills but they have no interest. You’re like, “What are you passionate about?” They’re like, “I don’t know.” That is so sad. Kids do have interests that are emerging in them, but their parents can help them. If you noticed that your kid seems to throw the ball around a lot, encourage them to try some sports. My own daughter, Lucy, she was thinking about food all the time. She was baking or trying to bake. I said to her when she was about thirteen or fourteen, “You could probably get a job like volunteering in a kitchen at a restaurant.” She’s like, “That’s ridiculous. I’m too young.” She was scared. She was shy and I made her do it. Now, she works in kitchens. She has a Saturday job. She would fully own that baking as one of her core interests that she’ll have her whole life. Don’t just work on work ethic as a parent, also be vigilant at trying to get your kids to develop interests.

TWS 8 | Principle Of Grit

Principle Of Grit: There is always something to be learned from mistakes because mistakes are information.

 

I’m going to break down a couple of things that you said, which I’ve struggled with in a sense because my two oldest are girls. I have a four-year-old too. I grew up with all boys and I played sports. I’ve got a huge wake-up call with my wife and two girls as far as understanding how they work and what they’re driven by and the care and the difference than men. For girls, especially at that age where you drive and you push, failure can have a different context, especially when it comes to the social side of things. What are some of the ways in which you have helped your children or you’ve seen children taught or influenced? That helps them get through those difficult times as you’re trying to push them into a class or push them to do this or have them do that. What are some things you use as opposed to just fighting their belligerence?

It’s true that everybody fears making a mistake and failure. It’s also true that there does seem to be a female perfectionism like, “It’s not perfect.” That seems to be more common among girls than it is among boys. It plays out in all kinds of ways. Boys raising their hand before they even know what the question is, they’ve got their hand raised in class to answer it, whereas girls would be much more hesitant on average and then mortified if they make a mistake. There might be many boys out there who are like, “Whatever, I’m going to raise my hand the next time.” What do you do then if you feel like that’s maybe not going to be ideal for your daughters?

First of all, times are changing. I sometimes say to my girls, “I’m going to be a boy about it.” What I mean by that is I’m going to take a risk, I’m going to stand up for myself and I’m going to be bold and effectively raised my hand, but the times are changing. For me, that means something. I grew up in the ‘70s and that to me is how boys act. My own teenage girls get annoyed at me when I say that. They’re like, “What do you say that for?” There’s no reason why boys would be more confident than girls. The times are changing and yet I still think that there are some persistent differences that we can do something about. If we can teach our girls and our boys that mistakes are information, if you raise your hand and you get the wrong answer, then there’s something to be learned there.

It’s like, “Why did you say seven? The answer is nine, not seven.” There was a reason why you said seven and there’s a huge amount to learn from that. If we can get the emotion out of it, and the paralyzing fear of embarrassment, shame and like, “I’m not perfect.” Then take mistakes and correct answers as information, we’ll be like this Rudyard Kipling poem that is called If. There’s a stanza that’s the last thing that you see before you enter the center court at Wimbledon. The players all have to walk onto the center court under the same. It was like, “If you can meet with triumph and disaster and treat those two impostors just the same.” What that poem means in that line is that whether you get the right answer or the wrong answer, you win the game, you lose the game, you get picked for the fellowship or you don’t. They are impostors because it’s just information. It’s life and your job is to learn from it. Good, learn from it. Bad, learn from it; always learning.

Whether you get the right answer or the wrong answer, you still win the game. Click To Tweet

Where does the idea behind, “Failure is a bad thing and I’m afraid of it,” come from? Failure is a positive thing that is necessary to learning, especially learning in a meaningful way.

Nobody knows, honestly. I was having a meeting with neuroscientists about this very question, “Why are mistakes so terrifying and why do we not want to make them in front of other people in particular?” It’s one thing to fail on your own, but it’s terrifying to fail in front of other people. I don’t think anybody really knows but here are our guests, the collective group of scientists that have been working on this that I’ve been meeting with. There is something that happens when you’re five and you go to kindergarten and you’re in school and you’re now being evaluated. If you noticed two and three-year-olds, they drop stuff all the time. They’re making messes, they break things and they don’t care. They’re like wrecking balls but crucially, you don’t see a lot of shame or embarrassment when they fall down.

If I fell down in front of you, I would be embarrassed before I even felt pain physically. It would be like I’m humiliated before I get worried about whether I broke my kneecap or something. What happens between four and where you and I are? There’s something about going to school, being evaluated and everyone is seeing how worthwhile they are relative to others. I don’t think it’s the fact that we go to school. Maybe it’s about being older. If we can remember what it was like to be a young kid and to go back to where we started, that is how the people that I study who are continuously improving, it’s how they’ve evolved. They have a beginner’s mindset.

I think about that all the time especially with kids. There’s this paradox where you want them to succeed and you want them to be happy, but you realize that success isn’t going to come about by always being happy. There’s going to be instances and pressures and failures are going to make them very upset. I’m not sure if it’s avoidable but I’ve thought about the same thing. I have a bigger team here and we try to provide good context around the principle of failure. The principle of failure is a socially designed idea if you think about it. It’s good because the biggest successes I’ve seen, they failed the biggest. It’s interesting that I don’t know if it’s a failure muscle or something that you stretch and build, but I see that. The grit idea, as I’ve thought about having this interview with you, is what happens when you experienced that.

TWS 8 | Principle Of Grit

Principle Of Grit: As immense innovation continues to occur, so does the pressure from society’s expectations.

 

It’s such a profoundly insightful thing that you just said. I have a student who is working with me and she finds that people can have two different attitudes about failure. There are people who think that failure is debilitating. It’s destructive and bad like a typhoon, you should avoid failure at all costs. The alternative is that there is a silver lining to failure that, of course, you would rather be successful at least in the instance, but that failure is the way to learn that failure can be strengthening. To see failure as a cloud with a silver lining. I want to emphasize that it’s not that we know anybody who’s like, “I hope I trip every time I take a step. I hope that all my ventures go bankrupt,” but to see the cloud and then to also look for the silver lining is adapted. What she finds is that when parents have failure and is potentially also enhancing as well as painful that their kids can be much more growth-oriented and less fearful about making mistakes.

I would say adding to that, it isn’t this one-time mental shift. It’s a philosophy or it’s a way of living if you think about it. I do believe some of the books that you reference in your book and also in other instances, Carol Dweck’s Mindset book, there’s a lot of talk around this idea. It’s exciting because I look at generations and we’re in the similar generation and the generation of my kids and the generations in between. It is fascinating to me how their mindset associated with life is different. Would you maybe speak to that as you look at Millennials, you look at your kids? I’m not even sure what the generation is called. What you’ve seen is their exposure to more information. Their exposure to more judgment in a sense because 30 years ago it was your class, it was where you went to church, who was your neighborhood. Now it’s exposed to a very wide audience. I’m not sure if that has any correlation to what their potential is. How have you seen the different generations deal with this idea of perseverance based on the expectation that society has for them?

It’s a hard question but it’s a great question. How are the Millennials different from the greatest generation? How are the kids growing up now different from our generation? It’s something that you wish you had a time machine for. As a scientist, I can’t do what scientists do, which is do an experiment. I have to get a kid from the 1950s to come into the lab with the kid from now and that’s a real limit. If you think about what it was like to grow up in our generation, I want to take you back in time even more. Imagine you’re growing up in a village 300 years ago. You don’t even know any more than 100 people. There are the people in the village. You might be the best musician in the village. You could be the second-best baker in the village. To be the best baker, it’s out of seven billion people because the world is flat and we can make all comparisons. You’re very unlikely to be the best musician because there are seven billion people around. I do think of that and this is a guess because I don’t have a time machine. My guess is that that does produce a lot of stress, pressure, uncertainty and insecurity.

One of the mysteries that science hasn’t figured out is that rates of depression and anxiety, in particular, are going up. Not only in the United States and not only among teenagers but in other age groups and also all around the world. You have to ask, we have more food, we have more entertainment, we have more safety, crime is going down, but still anxiety is going up like, “What’s going on?” I do wonder whether it’s in part because these comparisons are not with 30 people anymore, they’re not with 100 people, they’re not with 1,000 people. You’re comparing yourself to everyone. You’re not as cool as Beyoncé. You don’t sing as well as Adele and you’re not as fast as Usain Bolt and you’re not as good looking as, fill in the blank. Those can be difficult to manage for the people who are growing up now.

Success isn't going to come about by always being happy. Click To Tweet

This is what I thought of when you were speaking. My next-door neighbor who just moved, they moved from Palo Alto. There are a lot of people moving from California for a number of reasons, financially. His two little kids, there’s pressure growing up there because of the expectations set by the community and the immense amount of innovation that is occurring. Having a startup and starting a business and innovating, that is the label most are trying to achieve which I’m not sure is realistic for everyone. It’s a fascinating statement because the pressure is building. The significance of teaching some of the principles that you’re focusing at with your nonprofit, the Character Lab, that’s vital. I don’t think kids can get enough of it.

I would say parents these days, and I’ve put myself into this position. I have to work a lot and the amount of time I spend focused on understanding their experiences in life and then helping them to process them the right way and put them in the right context has been hard. That’s where services like yours are profound and it’s not just kids, it’s everyone. It’s adults too but more so with kids because kids are our future. I love the principle of grit because it’s one of those fundamentals to success. That also made me think of a couple other questions in regard to your study of success and achievement. What are maybe some of the other compliments or principles associated with the success or achievement equation or is it grit alone?

Definitely not grit alone. I won’t say much about luck, although I do believe there is luck. Definitely good luck, bad luck and anybody who believes differently just don’t they’re facing reality. There’s also talent. I don’t study talent, but I do think some people are better at us naturally. It doesn’t mean that we can’t change our talent, but I do think that there are advantages. Other than luck and other than talent and other than grit, what else? There are two things that highlight as general categories of things. One is interpersonal or social skills. I call these character strengths of heart, their generosity, gratitude, empathy, social agility, being able to manage different social situations. There are some careers where you don’t need it very much. Like I sit in this room and I program on this computer, and nobody talks to me. Almost all careers require that you interact in a harmonious and positive way with other people. CEOs tell me all the time that in addition to grit, they want people with social skills with these teams.

The second category would be curiosity or what I call character strengths of mind, curiosity, creativity, intellectual humility. This is essentially being a very good thinker and being somebody who has a fallback, who will always be like, “Let me think about that. Let me keep thinking about it because it’s clear from this conversation that that’s you. It’s not everyone because you can also stop thinking about it. A lot of people don’t think about it.” In terms of this equation, there’s luck, there is a talent, there’s grit. There are character strengths of heart, these social character strengths. There are character strengths of mind and being a curious, thoughtful, person who likes to flex the muscle of their mind. If you have all of those things, the odds are going to be in your favor.

One of the final questions that I wanted to ask you is as you studied this, and you’ve clearly put a lot of time, effort and resources behind studying this and helping others understand it, how has it impacted you as an individual, whether it’s professionally or with your family or personally?

Before I get out of bed every day, I do three blessings, three good things. It doesn’t take more than 60 seconds and sometimes it’s the same list. I’m like, “Jason, Lucy, Amanda,” because those are three good things in my life. Sometimes it’s like, “The avocados finally got ripe.” That’s one good thing, “It’s not raining now. I had a good meeting.” One of the things that is often on my list is that I love what I do. I feel like I have meaning and I have purpose. I can tell you feel the same. For those people who can wake up and get out of bed and say, “I don’t know how far I’m going to get, but this is a good road to walk down,” that’s me.

I know a lot of people who have almost infinite wealth or they have fame or they have power, but if they don’t have a sense of purpose like, “This road is worth walking down. I don’t know how far I’m going to get.” I emailed a student that I’d been studying. He’s gritty. I literally sent my email, “Cody, I will take my dying breath trying to figure out how to get kids to thrive.” He wrote me back and it was like, “We’re going to work on that together.” That, itself, is the greatest blessing and it’s possible for anyone. It doesn’t mean you have to win the Nobel Prize or the Super Bowl. Could everyone in this world wake up and feel like they’re working on something that has purpose and try their best to do a better job the next day? The answer is yes, everyone can. I hope everyone does do that.

The feeling you get of seeing somebody achieve and accomplish something, there are very few circumstances that serve better than that. I believe, and this is what I try to teach my kids and my team here and what I try to learn about, that whatever level you’re at, that level doesn’t dictate having that feeling. Being able to be of influence for somebody else and also driving towards something else yourself. The discovery of purpose is the whole Simon Sinek’s The Infinite Game and Game Theory. It’s not something you wake up one morning and have a thought pop in your mind but it’s a constant pursuit. It’s one of the greatest pursuits ever. There’s a high suicide rate in Utah that they’ve been talking about. I look at kids and with the limited experiences that they’ve had as far as understanding the meaning behind their experiences. The school system frustrates me sometimes. Their intention is genuine but the ability to talk to some of these skills and principles are absent unfortunately. Would you mind talking more about Character Lab and what you guys are doing and how you’re being of influenced to, whether it’s on an individual level or a school system level?

The biggest successes have been the biggest failures. Click To Tweet

Character Lab provides actionable advice to parents and teachers all based on science. For those grown-ups in the world who think about kids a lot and how to help them develop grit and gratitude, curiosity, self-control, creativity, honesty, all the things that Aristotle said make a good life, make a life worth living a life of meaning and purpose as you put it. There is a science behind those character strengths and we try to share it. Everything that we offer, watch this video, try this activity, try saying this to your kid, it’s all based on science. It’s supported by foundations and individuals, it is 100% free.

What are ways in which the audience can learn about Character Lab and follow you? Are there any other social media that you use to communicate?

I do have social media. I’m so bad at social media that I can’t even tell what the handles are. If you go to CharacterLab.org, you’ll see that there is a newsletter that I’m starting to write for parents and speakers and that’s free too.

Angela, it was awesome to have you on. Thank you so much for sharing your wisdom with us and I wish you the best.

Thank you. I enjoyed this.

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About Angela Duckworth

TWS 8 | Principle Of GritIn her late twenties, Angela left a demanding job as a management consultant to teach math to seventh graders in New York City public schools. Several years in the classroom taught her that effort was tremendously important to success.

To begin to solve the mystery of why some people work so much harder and longer than others, Angela entered the PhD program in psychology at the University of Pennsylvania, where she was a 2013 MacArthur Fellow and is now a professor.

With Dave Levin and Dominic Randolph, she founded Character Lab with the aim of radically accelerating the science and practice of character development. Angela is the author of the New York Times bestseller, Grit: The Power of Passion and Perseverance, and shared her expertise in a 2013 TED Talk.

Property As A Wealth Strategy with Paul Moore

TWS 7 | Property

Wealth isn’t simply a bank account balance or a dollar amount of monthly cashflow, rather, it’s a state of mind. John Locke, the philosopher whose words we used as the backbone of this season, argued that the law of nature obliged all human beings not to harm another in their inalienable pursuit of life, liberty and property. He lived at a different time period, the mid-1600s, yet the liberties he fought for would produce a similar mindset we are seeking when it comes to wealth. One of the keys to wealth is the principle of property. Paul Moore, managing director of Wellings Capital and host of the podcast How To Lose Money, talks about the importance of understanding knowledge, education, and experience, and how that relates to property.

Listen to the podcast here:

Property As A Wealth Strategy with Paul Moore

What is the key to wealth? Is there a magic bullet or a fast track? This year in the podcast, my focus has revolved around these questions. 2018 is almost over, as is season three where we are focusing on the principle of property, where are we? First, I chose the phrase, “Life, liberty and property,” because it’s a simple way to describe the foundational principles to achieve wealth. What I came to realize is that there is a natural human inclination to be wealthy. There always has been. There is an essential variable to consider when determining whether or not there is a key or a magic bullet. That variable is the definition of wealth. Ultimately, what I believe we are seeking is the combination of two mindsets, the state of mind that comes from being free and the feeling of certainty regarding your vision of the future.

Wealth isn’t simply a bank account balance or a dollar amount of monthly cashflow rather than a state of mind. Think about it. John Locke, the philosopher whose words we used as the backbone of this season, “No one ought to harm another in their inalienable pursuit of life, liberty and property,” lived in a time period, the mid-1600s, that’s impossible to fathom. Yet, the liberties he fought for would produce a similar mindset we are seeking when it comes to wealth. This mindset is available to all and is why I wrote the book and why I do this podcast. It’s so that you too can believe that it’s possible for you.

Season one, life. Do you consider yourself your most important asset and invest in ways to be more valuable to others? Season two, liberty. What are you pursuing? Independence and freedom or retirement? Season three, property. Does your wealth strategy, including your investments align with what you know or do you delegate that responsibility to someone else? My guest is the co-host of an insightfully charming podcast, How to Lose Money, which is one of the best ways to learn about business and financial strategy. Paul Moore is an experienced businessman, a real estate investor and the Managing Director of Wellings Capital. Let’s turn our brains on and get ready to learn.

TWS 7 | Property

The Perfect Investment: Create Enduring Wealth from the Historic Shift to Multifamily Housing

My guest is Paul Moore. Paul is the Managing Director of Wellings Capital. He’s also one of the hosts for the How to Lose Money Podcast. He is an acquaintance of mine and I can’t wait for this interview. Paul is also the author of The Perfect Investment. Paul, welcome to the show. Thanks for taking the time.

Patrick, it’s great to be here. Thanks.

I had a wonderful time in your podcast when I was invited to it. I had heard of it before, but the theme is amazing. It’s an incredible opportunity for you as a business person to learn from the failures of others through the theme of losing money. It’s pretty fascinating. I told the story on it that I’ve never told before and it was a great opportunity. I’d love to hear your background and how you got to the point you’re at right now with your real estate investment company as well as the podcast.

I wanted to be a parapsychologist in junior high. I’d seen the movie Ghostbusters at some point and it seemed like a good idea. I didn’t have any counsel. No one told me, “You’d probably be good at this or bad at that.” I found out there was no degree in that, especially not at the University of Utah or out in that area. I went and got a petroleum engineering degree, which sounded like fun drilling oil wells but I never used it. I went on and got an MBA. I went to Ford Motor Company for about five years. After that, I started my own company. We’re an HR outsourcing company, a staffing firm. About five years into it, it turned out that a lot of publicly traded companies were interested in gobbling up companies like ours.

When we sold our company after five years for almost $3 million, I thought, “We are smart.” I started investing and I thought, “I’m an investor now. I’m semi-retired at 34 and I’m an investor.” I found out that I wasn’t an investor at all and I wasn’t at all qualified to make the decisions I was making. I confused investing with gambling. I ended up losing a lot of the money I had made in that company, but I did get into real estate, which was a great move.

It’s much easier to avoid failure than it is to copy success. Click To Tweet

Losing money is one of the best investments you can make. We approach life knowing certain things and we try to go to school. We try to gain an education by reading books or listening to podcasts, but there’s nothing that’s a better education than losing and feeling a level of pain. From a human standpoint, it’s an indicator that something needs to change. You experienced that firsthand as do most successful investors. What was the early lesson that you had that woke you up to the fact that you weren’t necessarily the investor you thought you were?

I started losing money. I invested $100,000 with a guy who had this amazing foreign options trading thing. He was showing us how we could make 3% a month on our money. He was doing them. At least my paperwork said I was getting 3% a month. It’s $3,000 a month and it looked great on paper. Then I went down to visit him in Charlotte and I had this funny feeling. Something he said didn’t add up with what I had heard about him. I had this gut. I went to consider investing another $100,000 and I left there with a distinct impression, “I should not invest more with this guy.” I wish I had followed my gut and withdrawn the $110,000 or whatever I had in there but instead I didn’t.

About two months later, the FBI caught up with him. He still won’t tell me and the other 2,000 investors where he hid the $18 million offshore. He’s even faced with 153 years in the federal penitentiary. He still hasn’t told anybody where he hid the money and I’m not sure why. That was one of the many examples of things I invested in where I confused investing and speculating or gambling. I think investing is when your principal is almost completely safe, and you’ve got a chance to make a return. Gambling or speculating is when your principal is not at all safe and you’ve got a chance to make a return. I confused the two and found myself about $2.5 million in debt for those reasons and other reasons ten years after I sold my company in 2007. It was a tough time.

How did you piece it all together? I introduced you to the theme of this season’s podcast where we are combining the first two seasons, which talk about the importance of understanding knowledge, education, experience and how that relates to property. That combination is what creates an element of value. Looking at investments or property, you experienced investments that didn’t create value, they did the opposite. You have seen successful investments now, I’m assuming. What are some of the differentiating factors between the investments that lost money and the investments that gain money? We’ve talked about gambling versus investing. What are some of those variables that determine whether it’s a successful investment?

There was this guy on a TV commercial from the ’70s. He was a little whiny guy. He was sitting across the desk from this guy with his huge chair and he said, “Son, we only hire people with experience.” The kid turns around the camera and said, “How do I get the experience?” The experience of losing money and the experience of doing a lot of these things gave me a lot of the wherewithal I needed to make money now and to make smarter investments. Lack of due diligence was a big part of it. Trusting one other person’s word who was investing or who was paid to tell me to invest with them was helpful. This is the experience thing and the reason I told that little story is I was always surprised.

We put together a lot of successful real estate deals through the 2000s and beyond. I was always surprised when people say, “No, I don’t want to invest in that. I don’t know anything about it.” I’d say to myself at least, “You’ve got tens of millions of dollars, but you don’t want to invest $200,000 in this wireless internet project?” Warren Buffett said, “I invest in things I understand. I don’t invest in general on the internet because I don’t know where it will be in ten or twenty years. The internet will never change the way people chew gum.” When I stopped investing in things like the wireless internet or throwing money down to a bottom of an oil well or things that had a risk and things I didn’t know the outcome of, I began to do much better. The bottom line is I stopped swinging for the fences and I started trying to hit singles and doubles and that’s when everything changed.

Tell us about Wellings Capital. What are some of the projects? Who’s on the team? How do you determine who’s on the team? Tell us the story behind how you put that company together, which has resulted in some successful investment.

TWS 7 | Property

Property: The experience of losing money and doing a lot of things gave me a lot of the wherewithal I needed to make money and to make smarter investments.

 

Wellings Capital has three principals: Wade Myers, Dr. Brian Robbins and myself. Wade and I had been talking since 2007. He’s a Harvard MBA. He’s got a property management firm that has 220,000 doors under management. It’s not multifamily. It’s doing condos, HOA, POA type of work. He bought quite impressive companies. He’s had some big failures and big successes. He told me he never had any experience in real estate. He didn’t understand it. When I showed him a draft copy of my book, he read about four chapters and skimmed the rest and two hours later he said, “I want it. I want to invest.” We invited him to join our team because he’s got an incredible 55 different M&As and startups, acquisitions, plus some failures. He has invested a lot of money in Hollywood films. A big hit was I Can Only Imagine. The big money guys were behind that. He’s done well over the years and made a lot more money than he has lost.

My other partner, Dr. Brian Robbins, has been a serial entrepreneur as well as a pain management physician. I had asked him to invest with me in a multifamily project I built from the ground up in North Dakota and he said, “It’s too risky.” A Hyatt hotel that my friend built that I helped him with, “It’s too risky,” wireless internet, “It’s too risky,” something else, oil and gas, “It’s too risky.” When he heard about multifamily and I showed him the demographics that I think are going to make multifamily a great investment for decades to come, he was fairly stunned. He said, “This is something I can get behind,” then he jumped in with both feet.

What year was that when he joined up?

That was in 2013.

What’s your take in the multifamily space now? I’ve observed, and I have a personal investment in several multifamily projects in various states. I look at what the market has done even in the last four years and how much money has come into it, how much syndication is being done to either do a ground up or acquire and remodel and value-add play. I see more and more as weeks go on. How are you looking at the multifamily space these days? What are some of the conclusions you’ve come to?

First of all, we’ve concluded at the title of my book. It’s The Perfect Investment because it does a great job balancing risk and return. The Sharpe ratio measures return divided by risk for a whole lot of different asset classes. Multifamily and self-storage are at the very top of the list. They’re performing about 460% better than the Dow Jones and the S&P 500 in the return divided by the risk because the beta, the up and down of multifamily is much more stable. It’s much more predictable. Freddie Mac and Fannie Mae, according to a report I read, haven’t had a single foreclosure in multifamily in three or four years. Where else can you get something like that? We’re talking about nationwide. That does speak to the great underwriting and the conservative underwriting that they do.

Multifamily has got a lot of big things going forward. Number one, in 1995, the government tampered with the housing market and they thought that anybody who could fog a mirror should be able to get a loan. Homeownership skyrocketed from its historical low 60s to 69.2%. In 2005, I had a friend who was making $40,000 or $50,000 a year who bought a $600,000 mansion as his second home. He had no business doing it, no way of paying the mortgage. It was before Airbnb. I don’t know what he was thinking. He lost that back to the bank in a matter of months. That was happening all over the US homeownership. When things plummeted from 69% to about 63% from 2005 to 2015 and every percent dropped meant a million new renters.

Fall in love with the numbers. Don't fall in love with the property. Try to be as objective as you can. Click To Tweet

There were all kinds of other renters coming into the renter pool as well. Number one, Baby Boomers, the smallest group of renters are the fastest growing group. The statistics say that when a Baby Boomer starts renting, they’ll never purchase a home again on average. The second group is Millennials. That’s the largest demographic group in US history with about 80 million strong. In general, they don’t see the reason to be tied down to a 30-year contract on a seemingly overpriced home when they might have new friends, new opportunities, new jobs in another part of the city, the state or the country next year. They’re much more transient and they have much more debt as well. They’re on the position with the slightly more difficult qualifications than 2005 house standards to qualify for a mortgage. They’re not quite there. Even though Millennials are starting to get married, starting to move into homes, on average, they rent far more and for far longer than Baby Boomers historically. Third, we’ve got immigration. Immigration is still playing a very significant and increasing role in the US demographic picture. Immigrants rent more often and for longer than people born in the US. I think we can look out for many years and say that this is a great investment.

In my book, I called it the perfect investment because it seemed to balance. It was a property, which is a big thing. You own a hard asset. You get all the tax benefits. There are twelve significant tax benefits you get from owning real estate directly and you get this fairly stable, fairly predictable, single or double typically. Although a lot of multifamily syndicators have been hitting homeruns for a long time. I see that coming to a place where maybe they won’t happen anymore. I’m even wondering how people are affording and why are people even investing in multifamily right now because the perfect investment is no longer perfect if you can’t find a deal that makes sense.

That’s where I was going to go because what I talked about on your show was the product could make all the sense in the world. There could be the right cap rates, there could be the right market. It doesn’t mean the investment is going to be successful or the apartment complex is going to be successful. My first question is going to be around not necessarily the market or the metrics that you do due diligence on, but how do you know you’re working with the right person? Then the second thing is there were a lot of apartment investors back in 2007 and 2008. I know in the single-family market why people were leaving their homes.

Another tangent that’s interesting and this came from the chief economist at Fannie Mae where people during 2008, 2009 weren’t even in default about leaving their homes. Fannie Mae went into bankruptcy or was taken into receivership. Because of that, people thought that they had to leave their house. That’s another side issue. My underlying question is what constitutes a good investment, not necessarily from the return, cap and market standpoint, but the operator’s standpoint? Talk to us about how important that team is.

We think that the right property manager and the right market make up about two-thirds of the likelihood of success in buying a multifamily asset. It’s incredibly important to have a market that’s large enough to support multiple significant national or regional property managers. If you might have one that goes South, and we’ve had that happen, you want to have other options. That’s one thing, the property manager. Going back to more of the philosophical level, it’s incredibly important. In our design, we have a built-in gut check thing, like the guy who invested $100,000 within Charlotte years ago. It’s incredibly important to follow your gut. I don’t know about you. I know you’re married. If you’re like me, your wife might have better instincts in some ways than you. She may not know anything about business and my wife doesn’t, but she can somehow spot a phony or a fraud and say, “I don’t know why.” I go, “I want reasons.” She goes, “I just don’t think you should invest with them.” We need to learn to listen to our gut and sometimes it sounds like the voice of our wives.

TWS 7 | Property

Property: Our brain at a very deep level allows us to be able to see things in a deeper and a more sensible way than we do.

 

Have you done that with your wife, had her do gut checks with the people that you’re doing business with?

Yes. I ignored her many times. Those were some of the things I lost money on. The wireless internet company in North Dakota, several of us started that company. She was like, “I don’t think that’s going to work.” I said, “It’s got to work. Let me show you.” I thought we were going to make a huge profit in the third month and here we are seven years into it, shutting it down. There are other times I have listened and now I eagerly seek her out. Even if she doesn’t meet the people in person, I lay it all out for her and I try to get her feedback. Now that she knows I listen, she’s way more likely to try to take a deep breath, be reasonable and not let fear drive for what she had some in the past. That’s why I was able to discount her advice. I said, “That’s just fear. I’m not listening.” That was not a great thing. She didn’t go with me on that trip to Charlotte but she if she had, I know she would have seen through that guy.

I’ve had my wife be part of business discussions and retreats and off sites but as far as bringing on key people, I’ve never had her involved. That’s an incredible idea. It depends on your spouse and their knowledge of people in business investment and so forth. I would definitely agree that she’s one to understand body language and understand the tonality at a level that is almost instinctive.

There are 3,000 signals we send off between tone, eyebrows and body language and all this stuff. We don’t consciously know what those things are, but our brain at a very deep level can make 40 quadrillion calculations per second. Our brain at a very deep level is involved with some quantum physics that I don’t understand. It allows us, and especially our wives in general, to be able to see things in a deeper and a more sensible way than we do. I’ve found that over the years, I’ve often shut that part of me off because on paper it looked like such a good profit and the wireless internet was a perfect example. It was a lot of greed on my part and it was one of the worst investments I ever made of time and money.

The balance of human emotions. That’s a game we’ll always be playing. Maybe talk through some of the elements of your book because using the word perfect could be a slippery slope in a sense. Talk to us about how and why you chose that word to define the core theme of the contents of the book.

One of my favorite internet marketers is Perry Marshall. We had him on as a guest on our How to Lose Money show. He has a book called The Ultimate Guide to Google AdWords so I named my book The Definitive Guide to Multifamily Housing. I thought it was great but everybody I talked to about it seemed indifferent or yawned. I had a friend who goes, “Multifamily, after skimming your book, it’s like the perfect investment. You should call it that.” That’s too big of a claim.

Age, wisdom, and counsel all goes into the mix of knowing when to cut your losses and get out and when it's time to start another business. Click To Tweet

I didn’t know much about self-storage at the time. I realized that I couldn’t think of any investment I’ve ever seen, and I was a couple of years into this that was a better investment with a better balance of risk and return. That’s why I had the audacity to name it that. It’s selling quite well. I just don’t know what to do with my next book because I might write a book on self-storage someday. A lot of people in BiggerPockets, which is the ultimate forum for real estate investors with a little over a million strong, a lot of people want to come in and they want a house hack. They want to be a single-family landlord. They want to build up a portfolio of 100 single-family homes and they don’t realize the incredible toll it takes emotionally and in every other way on you to do that.

I’ve seen one person after another who gets up to ten or twenty single-family rentals of whether they’re duplexes or mobile homes or whatever. They sell off the portfolio in frustration. They never make any money because there are so many hassles involved. My argument in the book is there’s a better way. There’s a better way than dealing with toilets, tenants and trash, and that is to invest with a great trustworthy syndicator. The book goes through all the different reasons. Multifamily is a great investment and then a lot of the demographics, a lot of the reasons Freddie Mac and Fannie Mae love it. Then how to find a great syndicator using that same test, that gut-level test. One of the great things toward the end is I talk about a couple of things. Number one, I talked about the various tax savings that commercial real estate provides, which are incredible. I talk about my big why which is my, “Why I’m doing this?” at the very end.

I look at the Trump tax cuts and a lot of the stuff that went through a lot. There are some big benefits to investors, especially in commercial.

A friend of mine showed me how you could take $20 million and turn it into $211 million and throw off $130 million in cashflow over twenty years. He said, “Where else can you get returns like this?” I was like, “That’s amazing.” He said, “If you play your cards right, this passive investor might pay virtually zero in taxes over those two decades.”

Your podcast is fascinating and some of the topics are fascinating. I’m going to definitely start listening because I had seen the best lessons in failure, especially when money is lost. As you have experienced, you’ve learned firsthand 100 ways that people are losing money. What are some of the primary lessons you’ve taken from that and applied to your businesses?

It’s great because it’s a weekly reminder of what not to do and that’s a key for this. I could tell you how we grew our company and sold it for $3 million in under five years in Detroit. That was great. That seemed smart and everything, but I couldn’t replicate that. If I heard that story, if you heard that story from me, it worked out well. The timing, the relationships, all these things, there’s no way to easily replicate that. The lessons I learned from that and the lessons I could teach from that, were pretty small. If I hear all these guests and if they hear me talking about how I lost $500,000 or how one guest lost $70 million, I can say, “I’m not going to do that.”

TWS 7 | Property

Property: Making a good investment comes down to not just investing because of an idea, but investing in the people that are actually supporting and running it.

 

Failure is much easier to avoid than success is to copy I think. People like Tony Robbins might say, “No. I can show you how to get successful.” I agree that’s a point as well. For me, it’s been easier to replicate not failing than it is succeeding. One lesson we’ve learned is lack of due diligence, jumping in quickly and falling in love with the property. A lot of our investors, a lot of our How to Lose Money guests are real estate investors. For some reason, a lot of them seem to lose a lot of money in 2007, 2008 and 2009. That’s when I was $2.5 million in debt. Thankfully, that was all tied to real estate, so I was debt-free thirteen months later right in the middle of the recession. Speculating versus investing has been another big lesson. Picking things for wrong reasons, like saying, “I like the Buffalo Bills. I want to invest in Buffalo.” Not that Buffalo is a bad market, I just picked that out of the air but you get the point. It’s easy to do things like that or it’s easy to justify things. It’s easy to fall in love with the property. Donald Trump when he was about 30 or 40, I heard an interview with him. The only thing I remember about it was he said, “Don’t fall in love. It’s so easy to fall in love with the property and then use every argument after that to justify why that’s a great purchase.” We all do this with cars. We do it with future spouses. We do it with investments, “It’s got a leaky basement, but the kids need a wading pool. Right, honey?” It’s maddening in all the way we justify what we want to do. My thing on that will be fall in love with the numbers. Don’t fall in love with the property. Try to be as objective as you can.

Another piece of advice would be to get great counsel. I know you spend a lot of money every year on coaching and masterminds and all that and I am starting to dive back into that as well. We’ve got a mentor. We paid $25,000 one time for this mentor and they’d been worth their weight in gold. That’s in the multifamily space and I recommend them to people all the time. We still use them four or five years later for questions. Another harder to quantify thing would be what you do with the lessons you’ve learned. I can argue both sides of this. I’ve heard both of them on the podcast. You’ve got somebody who says, “You just paid all your tuition in this horrible loss. Are you going to quit and start some new business?” Ours was, “Are you going to start out as a freshman in another business, a freshman in college again? Or are you going to dive back in and take all you’ve learned since you’ve paid the tuition and go deep and use that lesson to expand on and succeed?” That’s one argument.

The other argument on the other side of the coin is you’ve got to know when to cut your losses and get out. I’ve heard guests passionately tell that story of why you’ve lost enough and that with the wireless internet business. If we would have cut our losses four years ago and had just taken the $300,000 or $400,000 loss, then we would have been way better off than where we are now. That’s another argument but those don’t seem the same. Years, age, wisdom, counsel, all that goes into the mix and we’ve got to know when to do the one and when it’s time to do the other. Those were some of the main lessons we’ve learned from our How to Lose Money guests.

We’re in this information sharing world and oftentimes information has a candy wrapper on top of it. I thought it was refreshing to see the theme of your podcast. It was a pleasure to be on there because that’s when things get real and that’s where the true education is not by the shiny objects on the surface, but what went on to create them in the first place. There are so many points you’ve made throughout this interview that I would echo. In the end, financial tools, whether it’s real estate. Whether it’s a stock, a business, some startup or venture, it’s one of those things where the less you understand, the less involvement and value you can bring to the table the more risk you have.

As it pertains to real estate, it’s a fundamental need that we have and it’s always going to exist. It’s not necessarily just investing because of that idea, but it comes down to investing in the people that are supporting and running it. It is where I’ve seen the majority of issues. It’s not just your failure to learn from but one of the criteria I have is I won’t ever put money with people that I’ve earned who have not failed. It’s understanding what happened, what they learned from it and what they did in those moments of failure. Oftentimes it’s not even what they say but what those who were involved as an investor said during those times.

That’s what tells the story about things not going as planned, which tends to be the case with humanity. You want to know what their principles are, what their mission is and what drives them. Also what values they have so that you can get a barometer as to what decision they’re going to make and how it will affect the money you’ve given them and invested with. In your book, you talked about real estate. You talked through certain details of your story. One thing you said in there was where you talked about your purpose, the purpose of that company, your why with what you’re doing.

Real estate is a fundamental need that we have so it's always going to exist. Click To Tweet

I don’t know how much you’ve heard about human trafficking, but people are starting to hear about it thankfully now.

The Operation Underground is here in Utah, the big one that Tony Robbins sponsors. There are tons of money in there. The ex-Special Forces guys.

If you took the total record profits from General Motors, Nike, Apple and Starbucks and combine those, double that number, and that’s less than what is believed to be the annual revenues from human trafficking worldwide. It’s a big deal. They say there are over 30 million people trafficked and a lot of those people are sex trafficked. I want to believe that if I was alive years ago, pre-civil war, that I would have been fighting for abolition. I’d be fighting to free slaves. If I would have been an adult in the 1960s, I want to believe that I’d be fighting for civil rights. We’ve got an emergency here that doesn’t get headlines and it’s not caused a civil war. It’s not causing marches on Washington, but it’s slavery and it’s a big deal.

My company Wellings Capital and I are dedicating ourselves to donating a significant portion of our profits to fighting human trafficking and rescuing its victims. We’re identifying organizations we can back and we’re already doing that. I’m also part of a group called FreedomPlaceProject.com. Our goal is to build a billion-dollar office complex in Dallas, to use that as a prototype and then build other office complexes around the country and say, “We’re giving 100% of our syndicator, of our internal profits to fight human trafficking.” That’s in the works and we’re excited about that. There’s nothing to do with that now except maybe visit the website, but I’m excited about that. My goal is to donate $1 billion to fight human trafficking and rescue its victims through my influence and personally over the next years.

Can you give out those website addresses again and if there are other new sources, feeds or groups that are out there that people can learn more about the human trafficking problem?

One I would go to is ExodusCry.com. They’re based near Kansas City. They’ve got an incredible gut-wrenching movie out called Nefarious. If anybody wants to get ahold of me, I’ll send you a copy of the film. I’m friends with the director. He’s got 800 hours of film footage and he’s making a lot of films. He’s made other ones since then but Nefarious is the one that had opened my eyes. We also have FreedomPlaceProject.com. We’re looking for a CEO to run that company. Then my company is Wellings Capital. We’re at WellingsCapital.com.

I knew it was a problem and you travel around and in airports there are signs everywhere to keep your eyes open and pay attention. From the numbers side of things, I didn’t know it was that big.

We talked about Apple, Starbucks, Nike and GM times two. Let’s go down to small. One preteen or teenage girl can generate up to $500,000 a year in revenue for her trafficker, for her slave owner. Think about that. Think about what that means to that girl.

I didn’t know it was this prevalent and this big. Thank you so much for sharing that and at a minimum, helping me be more aware of it. Thank you for what you’re doing by dedicating some of your profits to that cause. What are some of the groups that are getting together and what type of impact are they having? Is it slowing down or is it going to take a while to eradicate as it seemed like a social epidemic?

There are some great groups. There’s one well-known group that’s rescuing girls in places like the Philippines, but the reports I have are that 99% of those girls are going back to prostitution later. It’s a tough situation and now it’s becoming more prevalent. There are more ways to kidnap these girls and social awareness in airports and all over the place is going up. However, the problem I think is probably getting a little worse.

Where’s the concentration in the world? Is it international or is it the US?

It’s both. There are some statistics that say one out of every 500 girls will be trafficked. I don’t necessarily believe that because I know of people of the places I’ve visited, but I don’t know anybody in my personal sphere or anybody that I’ve ever heard of personally be trafficked, in the news but not myself. I think it’s probably more prevalent in other countries. This documentary, Nefarious, goes over some of that.

The Operation Underground Railroad, which is out of Utah, they have a documentary out as well. Hopefully, the awareness continues to rise. I didn’t want to end on that sad of a note but still inspiring that you are trying to do your part to make a difference. Thank you for that.

Thanks. I’m glad you asked about it. We all have a part to play in this. They asked Mother Teresa how to feed a billion starving kids and she said, “One mouth at a time.” We are making a difference and good will prevail. I’m sure of that.

Paul, we appreciate your time and thanks for joining us.

It’s been great. It’s been an honor to be on your show. Thank you so much.

Important Links:

About Paul Moore

TWS 7 | PropertyAn expert in the real estate space, Paul Moore of Wellings Capital graduated with an MBA from Ohio State and entered the management development track at Ford Motor Company. After five years, he departed to start a staffing company with a partner. They sold it to a publicly traded firm five years later for $2.9 million.

Along the way, Paul was Finalist for Ernst & Young’s Michigan Entrepreneur of the Year two years straight (1996 & 1997). Paul later entered the real estate sector, where he flipped over 50 homes and 25 high-end waterfront lots, appeared on HGTV’s House Hunters, rehabbed and managed rental properties, built a number of new homes, developed a subdivision, and started two successful online real estate marketing firms.

Three successful developments, including assisting with the development of a Hyatt hotel and a very successful multifamily project, led him into the commercial multifamily arena. Paul is the author of The Perfect Investment – Create Enduring Wealth from the Historic Shift to Multifamily Housing. Paul also co-hosts a wealth-building podcast called How to Lose Money, is a featured guest on numerous real estate podcasts, and is a regular author for Bigger Pockets. Paul is married with four children and lives in Central Virginia.

Patrick Donohoe Welcomes Rich Horwath as His Special Guest / Property, Episode 6

Rich Horwath has been described by Chief Executive Magazine as, “The world’s foremost expert on strategic thinking.” He is a New York Times, Wall Street Journal and USA Today bestselling author on strategy. As the CEO of the Strategic Thinking Institute, Rich leads executive teams through the strategy process and has helped more than 50,000 leaders around the world develop their strategic thinking capabilities.

Rich is the author of six books, including, Elevate: The Three Disciplines of Advanced Strategic Thinking, which a leader at Intel proclaimed: “If you only read one book on strategy, this has to be that book!”

 

Patrick Talks With Private Wealth Manager Frazer Rice / Property, Episode 5

Patrick Donohoe welcomes Frazer Rice as his special guest for Property: Episode-5!

Frazer Rice is a leading private wealth manager with 15 years of experience advising millionaire and billionaire families on finances, including fiduciary and estate matters. His clients include business owners, hedge fund managers, real estate developers, corporate executives, foundations, and established families.

Patrick Talks “Multi-Family” Real Estate With Michael Blank / Property, Episode -4

Patrick Donohoe welcomes Micheal Blank as his special guest for Property, Episode-4!

Michael is an entrepreneur, investor and personal development coach.  Originally, Michael made a large amount of money developing software during the dot com boom, and after diversifying is career, he found a passion for investing in multi-family properties.  His company Nighthawk Equity currently controls over $65 million in performing multi-family assets all over the United States and he dedicates tons of his time helping others become financially free in 3 to 5 years by investing in apartments buildings with a special focus on raising money.