The Psychology of Money by Morgan Housel

 

Wisdom

  • Over-indexing on your personal experience is to be avoided
    • Your experience is 0.000001% of what’s happened in the world
    • a lot of how you invest and think about money depends on how markets were when you first started investing
    • Nothing is as good or bad as it seems
    • Luck & Risk are two sides of the same coin
      • You can’t be lucky if you don’t take risks
  • When learning from others, focus less on individuals, focus more on broad patterns
    • Survivorship Bias - keep this in mind and ignore a lot of advise you get
    • Forbes Magazine covers don’t show folks who made good decisions but were unlucky
    • There is simply no one way or one right advise
      • Vanderbilt vs Enron
        • scrappy visionary who didn’t get outdated laws get in the way of innovation &
        • example of a white collar criminal
      • Customer is always right vs Customers don’t know what they want
  • Learning from your own experience
    • Success is a lousy teacher - it makes people think they’re invincible
    • Failure is also terrible teacher - it makes smart people into thinking they’re dumb

Wealth

  • Know when enough is enough
    • Rajat Gupta & Bernie Madoff had everything but they wanted more
    • Every level you reach you get exposed to the next circle
    • The hardest financial skill is to get the goalpost to stop moving
    • Abhor social comparison - it can confuse you
  • Know the truly invaluable things
    • Relationships - Friends & Family
    • Reputation
    • Happiness
      • Feeling like you have control over your time & your fate is a major contributor to happiness
    • Having free time
  • Material possessions are over-rated
    • What you own doesn’t impress people about you most of the time
    • Instead they aspire to acquire those things
  • You’re judging wealth incorrectly
    • Wealth is that which is not spent - cars not bought, diamonds not bought, first class upgrades declined
    • Wealth is that which is not seen

Money

  • Keeping Money & Earning Money are different skills
    • Earning Money requires risk, ambition, optimism
    • Keeping Money involves humility, fear and paranoia
  • Keep this in mind and barbell your wealth into that you’re willing to risk and that you’re looking to protect

Investing

  • Long term planning is hard because your goals & needs are going to change in ways you’d not anticipated
    • Accept the reality of possibly changing your mind
  • Investing & Responding to results
  • Survival first, growing capital next - first rule is don’t screw up
  • Compounding only works over really long time horizons
    • 99.9% of Buffet’s wealth came after he was 60 years old
    • As far as possible do not get in the way of compounding
  • Don’t expect to be right all the time
    • If you’re a kick-ass CEO maybe half of all your ideas will work (if you’re lucky)
    • CEO Jeff Bezos said shortly after the disastrous launch of the company’s Fire Phone: If you think that’s a big failure, we’re working on much bigger failures right now. I am not kidding. Some of them are going to make the Fire Phone look like a tiny little blip.
  • Aim to be reasonable with your investing
    • You’re going to miss some big positive moves and not avoid some big negative moves
    • Don’t over-rely on historic data because the world is constantly structurally changing
  • Not every market participant is playing the same game
    • There are short term investors who need to be right for 5 mins
    • There are those who need to be right for 1 quarter or 2-3 years
    • If you’re a long term investor you need to be right over 30 years - remember this because the world is constantly structurally changing
  • Barbell - keep one portion in safe assets and take risk with the rest
  • Long term planning is hard because your goals & needs are going to change in ways you’d not anticipated
  • Accept the reality of possibly changing your mind