Key takeaways from the Book 'Psychology of Money' by @morganhousel
Long thread, but worth the read.
#books #BookRecommendations #MONEY #wealth #psychology #investing #Review #reviews
1/n
1. No one's Crazy
Studying history makes you feel that you have understood it, but until you have lived through it & personally felt the consequences, you may not understand it enough to change your behavior
Some lessons have to be experienced before they can be understood
2/n
2. Luck & Risk
When judging others, attributing success to luck makes you look jealous & mean, even if we know it exists, but when judging yourself, attributing success to luck can be demoralizing to accept.
3/n
Someone else's failures are usually attributed to bad decisions, while your own failures are usually attributed to dark side of Risks.
Focus less on specific individuals/case studies and focus more on broad patterns.
4/n
3. Never Enough
It is not worth risking something that is important to you for something which is not important to you. There are things never worth risking, no matter the potential gain. (eg: Reputation, Friends/Family, Freedom)
Social comparison should be avoided
5/n
4. Compounding Confounding.
Good investing is not about earning better returns for some years, rather it is about earning good returns consistently for longer period of time.
Similarly in life, following a habit consistently rather than doing it for some time.
6/n
5. Getting wealthy vs Staying wealthy
Getting money is one thing, but keeping it is another thing.
One needs to plan properly and also plan on 'plan not going according to the plan'.
7/n
6. Tails, you win
Failing or making some wrong decisions is normal in life. One cannot be right all the time.
One can still make a fortune even if they have made some wrong decisions. Accept it, learn from them and make changes accordingly.
8/n
7. Freedom
The ability to 'do what we want, when we want, with whom we want, as long as we want' is priceless.
Money's greatest intrinsic value is "its ability to give you control over your time"
9/n
8. Man in the Car Paradox
People tend to want wealth to signal to others that they should be liked and admired, whereas the only thing which will bring you more respect is your kindness and empathy.
No one is impressed by your possessions as much as you are.
10/n
9. Wealth is what is you don't see
Nowadays, People rely on outward appearances to measure financial success i.e. cars, homes, social life etc. But the truth is, "Wealth is what you don't see"
11/n
Wealth is the financial assets that have not yet been converted into physical stuff/things i.e. 'wealth is income not spent'
"If you spend money on things just so that people should be impressed by you, you end up with things/stuff and not the money"
12/n
10. Save Money
Building wealth has little to do with your income and more to do with your savings rate.
A person earning less, but with a clear plan can manage finances properly, whereas a person earning lots of money can be a financial disaster if he/she does not save.
13/n
11. Reasonable > Rational
It is always better to go with a strategy that maximizes how well you sleep i.e. peaceful sleep at night rather than looking for some mathematically optimal strategy.
14/n
12. Surprise
History can be misleading guide to the future, so one can never predict what might occur in future i.e. past can never be the roadmap of future.
15/n
13. Room for error
You have to take risk to get ahead, but any risk that can wipe you out is never worth taking.
One should always plan room for error/downside.
Room for error helps us to protect from things you'd never imagine.
16/n
14. You'll Change
Times change, priorities change.
Imagining the goal is one thing, but imagining it in the context of real life stress that grows with competitive challenges is entirely different.
17/n
It is always difficult & painful to abandon a previous plan and feel the need to run in other direction in order to make up for the lost time.
Hence, we must accept the reality of changing minds/goals.
18/n
15. Nothing's Free
Everything has a price and key to many things with money is just trying to find out how much is one willing to pay for it.
In investing, that price is volatility, fear, doubts, uncertainty, regrets etc.
19/n
16. You and Me
You always tend to take advice from other people who are playing a different game than you are.
In terms of Investing, everyone has different risk capacity and time horizon.
Hence, what looks ridiculous to one person, might make sense for other person.
20/n
17. Seduction of Pessimism
People always tend to hold greater value for pessimism that to optimism.
Tell someone that everything will be great and they're likely to ignore you whereas tell someone that they are in danger and you have their attention.
21/n
18. When you'll believe anything
The more you want something to be true, the more likely you are to believe a story that overestimates the odds of it being true.
Everyone has an incomplete view of the world. But we form a complete narrative to fill in the gaps.
22/n
Coming to the terms with how much you don't know means accepting the fact that many things happening around is out of our control.
Since the illusion of control is more persuasive than reality of uncertainty, we stick to the stories about the outcome being in our control.
23/n
19. All Together Now
Less ego, more wealth.
Manage you money such that it helps you sleep at night.
Use money to gain control over your time.
Be humble & less flashy.
Avoid extreme ends of financials decisions.
Plan on room for error and define the game you're playing.
24/n
"Doing well with money has a little to do with how smart you are & a lot to do with how you behave & behavior is hard to teach.
A genius who loses control of their emotions can be a financial disaster and a normal person can be wealthy if they have handful of behavioral skills".
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