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. 

 

- If something compounds - if a little growth serves as the fuel for future growth - a small starting base can lead to results so extraordinary they seem to defy logic. 

 

[CH5. Getting Wealthy vs. Staying Wealthy]

  Good investing is not necessarily about making good decisions. It's about consistently not screwing up. 

 

There are a million ways to get wealthy, and plenty of books on how to do so. 

But there's only one way to stay wealthy: some combination of frugality and paranoia. 

 

Applying the survival mindset to the real world comes down to appreciating three things. 

1. More than I want big returns, I want to be financially unbreakable. And if I'm unbreakable I actually think I'll get the biggest returns, because I'll be able to stick around long enough for compounding to work wonders. 

2. Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. 

3. A barbelled personality - optimistic about the future, but paranoid about what will prevent you from getting to the future - is vital. 

 

[CH6. Tails, You Win]

You can be wrong half the time and still make a fortune. 

 

"It's not whether you're right or wrong that's important," George Soros once said, "but how much money you make when you're right and how much you lose when you're wrong." You can be wrong half the time and still make a fortune. 

 

[CH7. Freedom]

Controlling your time is the highest dividend money pays. 

 

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

People want to become wealthier to make them happier. Happiness is a complicated subject because everyone's different. But if there's a common denominator in happiness - a universal fuel of joy - it's that people want to control their lives. 

The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays. 

 

[CH8. Man in the Car Paradox]

No one is impressed with your possessions as much as you are. 

 

The letter I wrote after my son was born said, "You might think you want an expensive car, a fancy watch, and a huge house. But I'm telling you, you don't. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does - especially from the people you want to respect and admire you. 

 

If respect and admiration are your goal, be careful how you seek it. Humility, kindness, and empathy will bring you more respect than horsepower ever will. 

 

[CH9. Wealth is What you don't see]

Spending money to show people how much money you have is the fastest way to have less money. 

 

Money has many ironies. Here's an important one: Wealth is what you don't see. 

 

The only way to be wealthy is to not spend the money that you do have. It's not just the only way to accumulate wealth; it's the very definition of wealth. 

 

The world is filled with people who look modest but are actually wealthy and people who look rich who live at the razor's edge of insolvency. Keep this in mind when quickly judging others' success and setting your own goals. 

 

[CH10. Save Money]

The only factor you can control generates one of the only things that matters. How wonderful.