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Notes from @morganhousel 's "Psychology of Money" with my commentary.
This is going to be a long one. Brace yourself.
Notes from @morganhousel 's "Psychology of Money" with my commentary.
This is going to be a long one. Brace yourself.
"Money has little to do it how smart you are and a lot to do with how you behave."
Take your call.
Be rich and wealthy.
Or
Be rich and poor. Really poor.
Take your call.
Be rich and wealthy.
Or
Be rich and poor. Really poor.
Finance needs no real skills. All it needs is the right investments and immense patience to sit tight.
There is no other industry which can do you good without having relevant skills.
There is no other industry which can do you good without having relevant skills.
"Financial outcomes are driven by luck, independent of intelligence and effort.
Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know."
Focus on what you do with your money. Everything else will fall in place.
Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know."
Focus on what you do with your money. Everything else will fall in place.
We are taught about money like it's physics. But no, it has emotions attached to it.
Reflect on how you dealt with your money and the kind of thoughts and opinions you have had about it.
Reflect on how you dealt with your money and the kind of thoughts and opinions you have had about it.
"To grasp why people bury themselves in debt you don’t need to study interest rates; you need to study the history of greed, insecurity, and optimism."
Borrowing money to buy a shiny car to impress your neighbor is no fun. Real money is the debt not taken.
Borrowing money to buy a shiny car to impress your neighbor is no fun. Real money is the debt not taken.
"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."
Cannot agree more. I don't like taking risk with my money or have debt. I like to sleep well.
My past experience has shaped this.
Cannot agree more. I don't like taking risk with my money or have debt. I like to sleep well.
My past experience has shaped this.
"Focus less on specific individuals and case studies and more on broad patterns"
Understand the bell curve and the law of averages. You will never want to do things like the outliers have done.
Understand the bell curve and the law of averages. You will never want to do things like the outliers have done.
Bill Gates said, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.” If you acknowledge that luck brought you success then you have to believe in luck’s cousin, risk, which can turn your story around just as quickly.
"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."
Use the barbell strategy.
Use the barbell strategy.
"The hardest financial skill is getting the goalpost to stop moving."
If you want a bigger car with every increase in income, you are never going to be satisfied.
You will be happy when you stop comparing and the goal post stops moving.
If you want a bigger car with every increase in income, you are never going to be satisfied.
You will be happy when you stop comparing and the goal post stops 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. "
"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"
Plan your risks carefully.
Plan your risks carefully.
"There are many things never worth risking, no matter the potential gain."
- Reputation
- Security of your family
- Life (Russian Roulette?)
What else?
- Reputation
- Security of your family
- Life (Russian Roulette?)
What else?
"There are books on economic cycles, trading strategies, and sector bets. But the most powerful and important book should be called Shut Up And Wait. It’s just one page with a long-term chart of economic growth."
"Getting money is one thing. Keeping it is another. If I had to summarize money success in a single word it would be “survival.”"
You keep money by taking lesser risks. Along with wealth creation, learn wealth preservation.
You keep money by taking lesser risks. Along with wealth creation, learn wealth preservation.
"Keeping money requires the opposite of taking risk. It requires humility, and fear that what you’ve made can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you’ve made is attributable to luck"
"Room for error often called margin of safety is one of the most underappreciated forces in finance. It comes in many forms: A frugal budget, flexible thinking, & a loose timeline anything that lets you live happily with a range of outcomes."
Create margin of safety in your life
Create margin of safety in your life
"Conservative is avoiding a certain level of risk. Margin of safety is raising the odds of success at a given level of risk by increasing your chances of survival. Its magic is that the higher your margin of safety, the smaller your edge needs to be to have a favorable outcome"
There is the old pilot quip that their jobs are “hours and hours of boredom punctuated by moments of sheer terror.” It’s the same in investing. Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years spent on cruise control
Money’s greatest intrinsic value—and this can’t be overstated— is its ability to give you control over your time. To obtain, bit by bit, a level of independence and autonomy that comes from unspent assets that give you greater control over what you can do and when you can do it.
In his book 30 Lessons for Living, Karl Pillemer interviewed 1000 elderly Americans looking for the lessons they learned from decades of life experience. Not a single person said that to be happy you should try to work as hard as you can to make money to buy the things you want.
People tend to want wealth to signal others that they should be liked & admired. But in reality those other people often bypass admiring you, not because they don’t think wealth is admirable, but because they use your wealth as a benchmark for their own desire to be liked.
Investor Bill Mann once wrote: “There is no faster way to feel rich than to spend lots of money on really nice things. But the way to be rich is to spend money you have, and to not spend money you don’t have. It’s really that simple.”
Live below your means, not within your means
Live below your means, not within your means
"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."
No one know how much your neighbour is worth.
No one know how much your neighbour is worth.
Wealth is just the accumulated leftovers after you spend what you take in. And since you can build wealth without a high income, but have no chance of building wealth without a high savings rate, it’s clear which one matters more.
Savings rate tracker - https://gum.co/QyyTk
Savings rate tracker - https://gum.co/QyyTk
"Past a certain level of income, what you need is just what sits below your ego."
We barely know the games ego plays. Write about the things you do every day and see where your ego played you.
We barely know the games ego plays. Write about the things you do every day and see where your ego played you.
"Most powerful ways to increase your savings isn’t to raise your income. It’s to raise your humility."
Again, ego vs. humility. you pick.
There is no fun in driving a ferrari alone.
Again, ego vs. humility. you pick.
There is no fun in driving a ferrari alone.
"So people’s ability to save is more in their control than they might think. Savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less about what others think of you."
I WANT A HINDI VERSION OF THIS BOOK FOR MY FAM,
I WANT A HINDI VERSION OF THIS BOOK FOR MY FAM,
"Saving does not require a goal of purchasing something specific. You can save just for saving’s sake. And indeed you should. Everyone should. Only saving for a specific goal makes sense in a predictable world. But ours isn’t."
Save for the risks you are not aware of.
Save for the risks you are not aware of.
"Savings without a spending goal gives you options and flexibility, the ability to wait and the opportunity to pounce. It gives you time to think."
But your friends might ask, what is the point of making and saving money if you won't spend it? Gift them this book.
But your friends might ask, what is the point of making and saving money if you won't spend it? Gift them this book.
"Every bit of savings is like taking a point in the future that would have been owned by someone else and giving it back to yourself. That flexibility and control over your time is an unseen return on wealth."
Money is unlimited. Time is limited. FOCUS.
Money is unlimited. Time is limited. FOCUS.
"The average time between recessions has grown from about two years in the late 1800s to five years in the early 20th century to eight years over the last half-century."
Don't get carried away with bull markets. Bears would be sharper than ever. Example - March 2020.
Don't get carried away with bull markets. Bears would be sharper than ever. Example - March 2020.
If something has 95% odds of being right, the 5% odds of being wrong means you will certainly experience the downside in your life. & if the cost of the downside is ruin, the other 95% isn’t worth it. Taleb says, You can be risk loving and yet completely averse to ruin.
"To get around this, I think of my own money as barbelled. I take risks with one portion and am terrified with the other. This is not inconsistent, but the psychology of money would lead you to believe that it is."
"The ability to do what you want, when you want, for as long as you want, has an infinite ROI."
Independence is underrated. Do not trade it for things.
Independence is underrated. Do not trade it for things.
"Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret—all of which are easy to overlook until you’re dealing with them in real time."
Market volatility is a fee.
Market volatility is a fee.
"Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant."
Avoid decisions that can cause ruin.
Avoid decisions that can cause ruin.
"Less ego, more wealth. Saving money is the gap between your ego and your income, and wealth is what you don’t see. So wealth is created by suppressing what you could buy today in order to have more stuff or more options in the future."
"No matter how much you earn, you will never build wealth unless you can put a lid on how much fun you can have with your money right now, today."
"If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon."
I think that even if we invest less, if we can stay invested for long periods, it can do wonders.
I think that even if we invest less, if we can stay invested for long periods, it can do wonders.
"Be nicer and less flashy. No one is impressed with your possessions as much as you are. You might think you want a fancy car or a nice watch. But what you probably want is respect and admiration."
No one will ever admit this.
No one will ever admit this.
"Independence, to me, doesn’t mean you’ll stop working. It means you only do the work you like with people you like at the times you want for as long as you want."
Check your hourly income and compare it with someone who loves their job. It's not much different.
Check your hourly income and compare it with someone who loves their job. It's not much different.
"All lifestyles exist on a spectrum, and what is decent to one person can feel like royalty or poverty to another."
Pick your place on the spectrum very very carefully.
Pick your place on the spectrum very very carefully.
That's it guys. A more detailed one will come on the blog soon.
This thread does no justice to the book. It is filled with loads of examples.
You must get your copy. https://amzn.to/3iWXtEe
This thread does no justice to the book. It is filled with loads of examples.
You must get your copy. https://amzn.to/3iWXtEe
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