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Your personal experiences with money make up maybe 0.000000001% of what's happened in the world, but maybe 80% of how you think the world works.
People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons.
We tend to seek out lessons by observing successes and failures and saying, "Do what she did, avoid what he did." We have brains that prefer easy answers without much appetite for nuance. So identifying the traits we should emulate and avoid can be agonizingly hard.
Countless fortunes (& mistakes) owe their outcomes to leverage. The best (& worst) managers drive their employees as hard as they can. The line between "inspiringly bold" & "foolishly reckless" can be a millimeter thick, only visible w/ hindsight. Risk & luck are doppelgängers.
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.
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.
Social comparison is the problem here. A rookie baseball players who earns $500k a year envies Mike Trout who has a 12-year, $430 million contract envies a hedge fund manager who makes $340 million a year envies Warren Buffett who had a $3.5 billion increase in fortune in 2018.
There are many things never worth risking, no matter the potential gain. Reputation is invaluable. Freedom and independence are invaluable. Friends and family are invaluable. Being loved by those who you want to love you is invaluable. Happiness is invaluable.
If you are a good stock picker you'll be right maybe half the time. If you're a good business leader maybe 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. And that's if you're good.
When we pay special attention to a role model's successes we overlook that their gains came from a small percent of their actions. That makes our own failures, losses, and setbacks feel like we're doing something wrong.
The highest form of wealth is the ability to wake up every morning and say "I can do whatever I want today." 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.
You might be thinking about your project during your commute, as you're making dinner, while you put your kids to sleep, and when you wake up stressed at three in the morning. You might be on the clock for fewer hours than you would in 1050. But it feels like you're working 24/7.
People aspire to be respected and admired by others, and using money to buy fancy things may bring less of it than you imagine. If respect & admiration are your goal, be careful how you see it. Humility, kindness, empathy will being you more respect than horsepower ever will.
We tend to judge wealthy by what we see, because that's the information we have in front of us. We can't see people's bank accounts or brokerage statements. So we rely on outward appearances to gauge financial successes. Cars. Homes. Instagram photos.
History is mostly the study of surprising events. But it is often used by investors and economists as an unassailable guide to the future. Do you see the irony? Do you see the problem?
The further back in history you look, the more general your takeaways should be. General things like people's relationship to greed and fear, how they behave under stress, and how they respond to incentives tend to be stable in time.
A good rule of thumb for a lot of things in life is that everything that can break will eventually break. If there's one way to guard against damage, it's avoiding single points of failure.
Aiming, at every point in your working life, to have moderate annual savings, moderate free time, no more than a moderate commute, and at least moderate time with your family, increase the odds of being able to stick with a plan and avoid regret.
An idea exists in finance that seems innocent but has done incalculable damage. It's the notion that assets have one rational price in a world where investors have different goals and time horizons.
If a smart person tells me they have a stock pick that's going to rise 10-fold in the next year, I will write them off as full of nonsense. If someone who's full of nonsense tells me that a stock I own is about to collapse, I will clear my calendar and listen to their every word.
Money is ubiquitous, so something bad happening tends to affect everyone and captures everyone's attention. Stock rising 1% might be briefly mentioned in the evening news. But a 1% fall will be reported in bold, all-caps letters usually written in blood red.
When planning we focus on what we want to do and can do, neglecting the plans and skills of others whose decisions might affect our outcomes. Both in explaining the pst and in predicting the future, we focus on the causal role of skill and neglect the role of luck.
