The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness - By Morgan Housel
04 Jun 2021 |
Date Finished: 9th February 2021 How strongly I recommend it: 10/10 |
A must read for personal investing! As it’s said, “Your behavior of investing is much more important than the amount you invest,” this book highlights the different pitfalls of investing. It helps us identify many of the wrong mental blueprints we might have and suggests improvements in a language easy to understand.
Details and review: Amazon Page
My Notes:
The hardest financial skill is getting the goalpost to stop moving.
“Enough” is not too little. The idea of having “enough” might look like conservatism, leaving opportunity and potential on the table. I don’t think that’s right. “Enough” is realizing that the opposite—an insatiable appetite for more—will push you to the point of regret.
There are many things never worth risking, no matter the potential gain.
The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference. This should be the cornerstone of your strategy, whether it’s in investing or your career or a business you own.
Compounding doesn’t rely on earning big returns. Merely good returns sustained uninterrupted for the longest period of time—especially in times of chaos and havoc—will always win.
A good definition of an investing genius is the man or woman who can do the average thing when all those around them are going crazy. Tails drive everything.
The idea that a few things account for most results is not just true for companies in your investment portfolio. It’s also an important part of your own behavior as an investor.
Doing something you love on a schedule you can’t control can feel the same as doing something you hate. This feeling is called reactance.
In his book 30 Lessons for Living, gerontologist Karl Pillemer interviewed a thousand elderly Americans looking for the most important lessons they learned from decades of life experience. He wrote: What they valued were things like quality friendships, being part of something bigger than themselves, and spending quality, unstructured time with their children. Your kids don’t want your money (or what your money buys) anywhere near as much as they want you. Specifically, they want you with them.
Controlling your time is the highest dividend money pays.
Humility, kindness, and empathy will bring you more respect than horsepower ever will.
Money has many ironies. Here’s an important one: Wealth is what you don’t see.
Wealth is hidden. It’s income not spent. Wealth is an option not yet taken to buy something later. Its value lies in offering you options, flexibility, and growth to one day purchase more stuff than you could right now.
Building wealth has little to do with your income or investment returns, and lots to do with your savings rate.
The ability to do those things when most others can’t is one of the few things that will set you apart in a world where intelligence is no longer a sustainable advantage.
Aiming to be reasonable instead of rational—is something more people should consider when making decisions with their money.
Things that have never happened before happen all the time.
“The twelve most dangerous words in investing are, ‘The four most dangerous words in investing are, ‘it’s different this time.’’” That doesn’t mean we should ignore history when thinking about money. But there’s an important nuance: The further back in history you look, the more general your takeaways should be. General things like people’s relationship to greed and fear, how they behave under stress, and how they respond to incentives tend to be stable in time. The history of money is useful for that kind of stuff.
The biggest single point of failure with money is a sole reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future.
Part of the reason people like Ronald Read — the wealthy janitor — and Warren Buffett become so successful is because they kept doing the same thing for decades on end, letting compounding run wild.
We should avoid the extreme ends of financial planning. Assuming you’ll be happy with a very low income, or choosing to work endless hours in pursuit of a high one, increases the odds that you’ll one day find yourself at a point of regret. The fuel of the End of History Illusion is that people adapt to most circumstances, so the benefits of an extreme plan—the simplicity of having hardly anything, or the thrill of having almost everything—wear off. But the downsides of those extremes—not being able to afford retirement, or looking back at a life spent devoted to chasing dollars—become enduring regrets. Regrets are especially painful when you abandon a previous plan and feel like you have to run in the other direction twice as fast to make up for lost time.
We should also come to accept the reality of changing our minds. Some of the most miserable workers I’ve met are people who stay loyal to a career only because it’s the field they picked when deciding on a college major at age 18. When you accept the End of History Illusion, you realize that the odds of picking a job when you’re not old enough to drink that you will still enjoy when you’re old enough to qualify for Social Security are low.
Embracing the idea that financial goals made when you were a different person should be abandoned without mercy versus put on life support and dragged on can be a good strategy to minimize future regret.
Every job looks easy when you’re not the one doing it because the challenges faced by someone in the arena are often invisible to those in the crowd.
It sounds trivial, but thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favor.
The trick is convincing yourself that the market’s fee is worth it. That’s the only way to properly deal with volatility and uncertainty—not just putting up with it, but realizing that it’s an admission fee worth paying.
Bubbles aren’t so much about valuations rising. That’s just a symptom of something else: time horizons shrinking as more short-term traders enter the playing field.
Another is that pessimists often extrapolate present trends without accounting for how markets adapt.
There are two topics that will affect your life whether you are interested in them or not: money and health. While health issues tend to be individual, money issues are more systemic.
There is an iron law in economics: extremely good and extremely bad circumstances rarely stay that way for long because supply and demand adapt in hard-to-predict ways.
Growth is driven by compounding, which always takes time.
In investing you must identify the price of success—volatility and loss amid the long backdrop of growth—and be willing to pay it.
Coming to terms with how much you don’t know means coming to terms with how much of what happens in the world is out of your control. And that can be hard to accept.
The illusion of control is more persuasive than the reality of uncertainty.
You should like risk because it pays off over time. But you should be paranoid of ruinous risk because it prevents you from taking future risks that will pay off over time. Define the game you’re playing, and make sure your actions are not being influenced by people playing a different game.
The foundation of, “does this help me sleep at night?” is the best universal guidepost for all financial decisions.
If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon.
Become OK with a lot of things going wrong. You can be wrong half the time and still make a fortune, because a small minority of things account for the majority of outcomes.
Use money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness.
Be nicer and less flashy.
Save. Just save. You don’t need a specific reason to save.
Define the cost of success and be ready to pay it. Because nothing worthwhile is free.
Worship room for error.
Avoid the extreme ends of financial decisions.
Smart, informed, and reasonable people can disagree in finance, because people have vastly different goals and desires.
Every investor should pick a strategy that has the highest odds of successfully meeting their goals. And I (author) think for most investors, dollar-cost averaging into a low-cost index fund will provide the highest odds of long-term success.
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