The Psychology of Money by Morgan Housel
Excerpts from the book
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.
Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming.
Therefore, focus less on specific individuals and case studies and more on broad patterns.
"Success is lousy teacher. It seduces smart people into thinking they can't lose"
There is no reason to risk what you have and need for what you don't have and don't need.
- The hardest financial skill is getting the goalpost to stop moving.
- Social comparison is the problem here.
- "Enough" is not too little.
- There are many things never worth risking, no matter the potential gain.
- Linear thinking is so much more intuitive than exponential thinking.
- The danger here is that when compounding isn't intuitive we often ignore its potential and focus on solving problems through other means. Not because we're overthinking, but because we rarely stop to consider compounding potential.
Good investing is not necessarily about making good decisions. It's about consistently not screwing up.
There's only one way to stay wealthy: some combination of frugality and paranoia.
Getting money requires taking risks, being optimistic, and putting yourself there.
Having an 'edge' and surviving are two different things: the first requires the second. You need to avoid ruin. At all costs.
Applying the survival mindset to the real world comes down to appreciating three things:
- More than I want big return, I want to be financially unbreakable. And if I'm unbreakable I actually think I'll be able to stick around long enough for compounding to work wonders.
- Planning is important, but the most important part of every plan is to plan the plan and not going according to plan.
- A barbelled personality - optimistic about the future, but paranoid about what will prevent you from getting to the future - is vital.
You can be wrong half the time and still make a fortune.
Controlling your time is the highest dividend money pays.
A wise old owl lived in an oak,
The more he saw the less he spoke,
The less he spoke, the more he heard.
Why aren't we all like that wise old bird?
No one is impressed with your possessions as much as you are.
Humility, kindness, and empathy will bring you more respect than horsepower ever will.
Spending money to show people how much money you have is the fastest way to have less money.
Wealth is what you don't see.
The only factor you can control generate one of the only things that matters, How wonderful.
The first idea - simple, but easy to overlook - is that building wealth has little to do with your income or investment returns, and lots to do with your savings rate.
More importantly, the value of wealth is relative to what you need.
Past a certain level of income, what you need is just what sits below your ego.
People's ability to save is more in their control than the might think. And you don't need a specific reason to save.
That flexibility and control over your time is an unseen return on wealth.
And that hidden return is becoming more important.
Having more control over your time and options is becoming one of the most valuable currencies in the world.
Aiming to be mostly reasonable works better than trying to be coldly rational.
Aiming to be reasonable instead of rational - is one more people should consider when making decisions with their money.
two dangerous things happens when relied heavily on investment history:
- You will likely miss the outer events that move the needle the most.
- History can be a misleading guide to the future of the economy and stock market because it doesn't account for structural changes that are relevant to today's world.
The most important part of every plan is planning on your plan and not going according to plan.
The wisdom in having room for error is acknowledging that uncertainty, randomness, and chance - "unknowns" - are an ever-present part of life. The only way to deal with them is by increasing the gap between what you think will happen and what can happen while leaving you capable of fighting another day.
The ability to do what you want, when you want, for as long as you want, has an infinite ROI
Long-term planning is harder than it seems because people's goals and desires change over time.
An underpinning of psychology is that people are poor forecasters of their future selves.
We should avoid extreme ends of the financial planning.
Optimum sounds like a sales pitch. Pessimism sounds like someone trying to help you.
One is that money is ubiquitous, so something bad happening tends to affect everyone and captures everyone's attention.
A third is that progress happens too slowly to notice, but setbacks happens too quickly to ignore.
There are lots of overnight tragedies. There are rarely overnight miracles.
Appealing fictions, and why stories are more powerful than statistics.
The more you want something to be true, the more likely you are to believe a story that overestimates the odds of it being true.
Everyone has an incomplete view of the world. But we form a complete narrative to fill in the gaps.
Go out of your way to find humility when things are going right and forgiveness/compassion when they go wrong.
Less ego, more wealth.
Manage your money in a way that helps you sleep at night.
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 fortune.
Use money to gain control over your time.
Be nicer and less flashy.
Define the cost of success and be ready to pay it.
Worship room for error.
Avoid the extreme ends of financial decisions.
You should like risk because it pays off over time.
Define game you are playing.
Respect the mess.
The first rule of compounding is to never interrupt it unnecessarily.
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