The Psychology of Money - Morgan Housel

[Introduction: The Greatest Show on Earth]

  Money is everywhere, it affects all of us, and confuses most of us. Everyone thinks about it a little differently. It offers lessons on things that apply to many area of life, like risk, confidence, and happiness. Few topics offer a more powerful magnifying glass that helps explain why people behave the way they do than money. It is one of the greatest show on Earth. 

  

[CH1. No One's Crazy]

- Your personal experiences with money make up maybe 0.00000001% of what's happened in the world, but maybe 80% of how you think the world works.  

- Everyone has their own unique experience with how the world works. And what you've experienced is more compelling than what you learn second-hand. So all of us - you, me, everyone - go through life anchored to a set of views about how money works that vary wildly from person to person. What seems crazy to you might make sense to me. 

- The economists found that people's lifetime investment decisions are heavily anchored to the experiences those investors had in their own generation - especially experiences early in their adult life. .... The economists wrote: "Our findings suggest that individual investors' willingness to bear risk depends on personal history."

-  We all do crazy stuff with money, because we're all relatively new to this game and what looks crazy to you might make sense to me. But no one is crazy - we all make decisions based on our own unique experiences that seem to make sense to us in a given moment. 

 

[CH2. Luck & Risk]

- Nothing is as good or as bad as it seems. 

- Risk and luck are doppelgangers. 

- Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming. 
Or, just be careful when assuming that 100% of outcomes can be attributed to effort and decisions. ....

Realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself. 

- Failure can be a lousy teacher, because it seduces smart people into thinking their decisions were terrible when sometimes they just reflect the unforgiving realities of risk. The trick when dealing with failure is arranging your financial life in a way that a bad investment here and a missed financial goal there won't wipe you out so you can keep playing until the odds fall in your favor. 

  But more important is that as much as we recognize the role of luck in success, the role of risk means we should forgive ourselves and leave room for understanding when judging failures. 

  Nothing is as good or as bad as it seems. 

 

[CH3. Never Enough]

-  When rich people do crazy things.

-  There is no reason to risk what you have and need for what you don't have and don't need. 

- A measurable percentage of those reading this book will, at some point in their life, earn a salary or have a sum of money sufficient to cover every reasonable thing they need and a lot of what they want. 
  If you're one of them, remember a few things.

1. The hardest financial skill is getting the goalpost to stop moving.

... It gets dangerous when the taste of having more - more money, more power, more prestige - increases ambition faster than satisfaction. In that case one step forward pushes the goalpost two steps ahead. You feel as if you're falling behind, and the only way to catch up is to take greater and greater amounts of risk. 

   Modern capitalism is a pro at two things: generating wealth and generating envy. Perhaps they go hand in hand; wanting to surpass your peers can be the fuel of hard work. But life isn't any fun without a sense of enough. Happiness, as it's said, is just results minus expectations.

2. Social comparison is the problem here. 

... The only way to win in a Las Vegas casino is to exit as soon as you enter. That's exactly how the game of trying to keep up with other people's wealth works, too. 

3. "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. 

4. There are many things never worth risking, no matter the potential gain. 

... Reputation is invaluable. Freedom and independence are invaluable. Family and friends are invaluable. Being loved by those who you want to love you is invaluable. Happiness is invaluable. And your best shot at keeping these things is knowing when it's time to stop taking risks that might harm them. Knowing when you have enough. 

 

[CH4. Confounding Compounding]

$81.5 billion of Warren Buffett's $84.5 billion net worth came after his 65th birthday. Our minds are not built to handle such absurdities.