The Psychology of Money

Author – Morgan Housel

Fooled by Randomness – Nassim Taleb
Thinking Fast and Slow – Kahneman

Economists found that people’s lifetime investment decisions are heavily anchored to the experiences those investors had in their own generation; especiallyexperiences
early in their adult life.
They wrote: “Our findings suggest that individual investors’ willingness to bear risk depends on personal history.”

Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming.

It is not necessarily the amount of snow that causes ice sheets but the fact that snow, however little, lasts. The big takeaway from ice ages is that you don’t need tremendous force to create tremendous results.
→ If something compounds, a small starting base can lead to results so extraordinary they seem to defy logic.

Getting money is one thing.
Keeping it is another.

To summarize, money success in a single word: survival.

Few gains are so great that they’re worth wiping yourself out over.

If a VC makes 50 investments, they likely expect half of them to fail, 10 to do pretty well, and one or two to be bonanzas that drive 100% of the fund’s returns.

More than half of all public technology and telecom companies lose most of their value and never recover.
Even among public utilities, the failure rate is more than 1 in 10.

If you’re a good stock picker, you’ll be right maybe half the time.
If you’re a good business leader, perhaps half of your product and strategy ideas will work.
If you’re a good investor, most years will be just OK, and plenty will be bad.

“If you’re terrific in this business, you’re right six times out of 10.”
— Peter Lynch

Warren Buffett has owned 400~500 stocks during his life and made most of his money on 10 of them.
“If you remove just a few of Berkshire’s top investments, its long-term track record is pretty average.” — Charlie Munger

The highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today.”

Having a strong sense of controlling one’s life is a more dependable predictor of positive feelings of wellbeing than any of the objective conditions of life we have considered.

Control over doing what you want, when you want to, with the people you want to, is the broadest lifestyle variable that makes people happy.

Money's greatest intrinsic value is its ability to give you control over your time.
Building wealth has little to do with your income or investment returns, and lots to do with your savings rate.

Personal savings and frugality are parts of the money equation that are more in your control and have a 100% chance of being as effective in the future as they are today.

Learning to be happy with less money creates a gap between what you have and what you want; similar to the gap you get from growing your paycheck, but easier and more in your control.

One of the most powerful ways to increase your savings isn’t to raise your income. It’s to raise your humility.

Define savings as the gap between your ego and your income.

Stop extending your peacock feathers.

What is the return on cash in the bank that gives you the option of changing careers, or retiring early, or freedom from worry? — incalculable.

Intelligence is not a reliable advantage in a world that’s become as connected as ours has. — But flexibility is.

If you have flexibility, you can wait for good opportunities, both in your career and for your investments. You’ll have a better chance of being able to learn a new skill when it’s necessary.
You will have more leeway to find your passion and your niche at your own pace.
You can find a new routine, a slower pace, and think about life with a different set of assumptions.

Having more control over your time and options is becoming one of the most valuable currencies in the world.

A one-degree increase in body temperature has been shown to slow the replication rate of some viruses by a factor of 200.

It may be rational to want a fever if you have an infection. But it’s not reasonable.
That philosophy-aiming to be reasonable instead of rational-is one more people should consider when making decisions with their money.

You have to survive to succeed.

The ability to do what you want, when you want, for as long as you want, has an infinite ROI.

A good rule of thumb for a lot of things in life is that everything that can break will eventually break.
If many things rely on one thing working, and that thing breaks, it is a single point of failure.

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.

You don’t need a specific reason to save.

Compounding works best when you can give a plan years or decades to grow.
This is true for not only savings, but careers and relationships.
Endurance is key.

Every job looks easy when you’re not the one doing it.

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.

Few things that matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviors of people playing different games than you are.

Go out of your way to identify what game you’re playing.

In investing, you must identify the price of success-volatility and loss amid the long backdrop of growth-and be willing to pay it.

Consider that 85% of active mutual funds underperformed their benchmark over the 10 years ending 2018. That figure has been fairly stable for generations.

If you just assume that the market goes up every year by its historic average, your accuracy is better than if you follow the average annual forecasts of the top 20 market strategists from large Wall Street banks.


Save. Just save. You don’t need a specific reason to save.

Saving for things that are impossible to predict or define is one of the best reasons to save.

Define the game you’re playing, and make sure your actions are not being influenced by people playing a different game.

Every investor should pick a strategy that has the highest odds of successfully meeting their goals.

For most investors, dollar-cost averaging into a low-cost index fund will provide the highest odds of long-term success.