The Psychology Of Money

MORGAN HOUSEL
 No One’s Crazy
 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—go through life anchored to a set of views about how money works that
vary wildly from person to person. We all think we know how the world works but
we’ve all experienced only a tiny fraction of it.
 We all are from different generations, raised by different parents, born into different
economics, have different experiences with money.
 No one should expect them to respond to financial information the same way. No
one should assume they are influenced by the same incentives.
 No one should expect them to trust the same sources of advice.
 No one should expect them to agree on what matters, what’s worth it, what’s likely
to happen next, and what the best path forward is.
 We all do crazy stuff with money because we are all relatively new to this game and
what looks crazy to you might make sense to me.
 If you grew up when the stock market was strong, you would invest more money in
stocks than those who grow up when stocks were weak.
 But no one is crazy—we all make decisions based on our own unique experiences
that seem to make sense to us in each moment.

Conclusion:

No One’s Crazy emphasizes the subjectivity with we approach the topic of money. Every
person has a unique view of the world, which indicates that people also respond to financial
information differently. People base their money decisions on what seems logical to them at
a given moment of time.

Luck & Risk

  Luck and Risk are siblings. They are both the reality that every outcome in life is
guided by forces other than individual effort.
 Luck and Risk are so similar that you can’t believe in one without equally respecting
the other.
 They both happen because the world is too complex to allow 100% of your actions to
dictate 100% of your outcomes.
 You are one person in a game with seven billion other people and infinite moving
parts.
 The accidental impact of actions outside of your control can be more consequential
than the ones you consciously take.
 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.
 Focus less on specific individuals and case studies and more on broad patterns.
 Some people are born into families that encourage education; others are against it.
Some are born into flourishing economies encouraging of entrepreneurship, others
are born into war and destitution.
 But 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.
 You will get closer to actionable takeaways by looking for broad patterns of success
and failure.
 The more common the pattern, the more applicable it might be to your life.

Conclusion:

Luck and Risk warns us that there are other factors, such as luck and risk, that play an
important role in the outcomes of our actions. It also discourages us to base our decisions
and actions on highly unique success stories and people. As a matter of fact, it advises us to
look for broad patterns of success and failure.

Never Enough
 If you risk something that is important to you for something that is unimportant to
you, it just does not make any sense.
 There is no reason to risk what you have and need for what you don’t have and don’t
need.
  The hardest financial skill is getting the goalpost to stop moving. But it’s one of the
most important.
 If expectations rise with results, there is no logic in striving for more because you’ll
feel the same after putting in extra effort.
 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. It’s not right.
 Having enough doesn’t mean you will not have a comfortable lifestyle. Enough
realizing that point ahead of which you will start regretting. The regret may come in
the form of burning out at work for “extra money” or the risky investment allocation
you can’t maintain.
 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.

Conclusion:

Never Enough sheds light on a particularly hard financial skill, which is realizing when
enough is enough. Having ‘enough’ is not an indicator that you’ve missed opportunities to
invest and make more money. It’s an indicator that you are not willing to make a decision
you would regret. It also stresses the fact that some things in life are invaluable like family,
freedom, independence, etc. So no potential gain is worth the risk of losing them.

Confounding &
Compounding
 There are more than 2000 books on Warren Buffet, which focus on his investment
strategies.

 But no one focus on simple things that he is investing in since he was 10 years old.

 The Buffet is the richest investor of all time. But this doesn’t mean he is the greatest
investor.
  In fact, Jim Simons, head of the hedge fund Renaissance Technologies, has
compounded money at 66% annually since 1998. No one comes too close to his
income.

 And Warren Buffet has compounded at roughly 22% annually.

 Simons Net worth is $21 billion & Buffet’s net worth is $84 billion.

 It’s because Simons did not find his investment stride until he was 50 years old. He
had less money to compound.

 More than the investment strategies, Buffet’s financial success lies in the simple fact
that he started investing at the age of 10.

 A good investment is not about trying the strategies to earn the highest interest
rates.

 It seems intuitive, but the highest interest rates tend to be one-off hits that can’t be
repeated.

 Instead, good investing is about earning pretty good returns for a long period of
time.

 And knowing enough is knowing how small investment over a long period of time
can fuel huge returns.

 To do this, we don’t need to risk valuable things for the huge potential gain.

 The opposite of compounding-earning the highest returns that can’t be held onto-
leads to some tragic stories.

Conclusion:

Confounding Compounding reveals what good investing is. It emphasizes the importance of
having “little growth” that will prompt more massive “future growth”. Since compounding
may not be easily visible, people tend to underestimate its potential. At last, it’s all about
timing, indirectly your period decides your investment returns.
 Getting Wealthy Vs
Staying Wealthy
 Money success in a single word can be derived as “survival”.

 Earning Money and keeping Money are two different things.

 Earning money requires taking risks, putting yourself out there, being optimistic. 

 Keeping money requires humility. It requires having fear in mind that whatever we
have earned can be lost. It requires acceptance that some part of our earning is
dedicated to luck & past success can’t repeat infinitely.

 One of the secrets of Warren Buffet’s success is survival. And the survival gave him
longevity and it helped compounding to make wonders for him.

Three Aspects should kept in mind to learn the survival game:

1. Having what you have now is better than being richer than broke later.

o More than I want big returns, I want to be financially unbreakable. And if I am

unbreakable, I think I will get the biggest returns because I will be able to stick
around long enough for compounding to work wonders.

2. Make room for the unpredictable.

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

3. Be optimistic but also paranoid.

o A barbelled personality-optimistic about the future but fearful about what will
prevent you from getting to the future- is vital.

Conclusion:
Getting Wealthy Vs. Staying Wealthy draws a parallel between the behaviour. Getting
wealthy is inevitably linked to taking risks and being bold, whereas staying wealthy is linked
to shying away from risks and being more modest.