Thread by @YatharthArora8

THE PSYCHOLOGY OF MONEY.

A long thread:

1/ No one is crazy. People make their decisions about money according to their own experiences. You can read history but cannot go through first hand experience. You can read about people loosing all their Life savings in stocks but cannot experience what they went through.

2/ John F Kennedy had a completely different experience about the Depression than the majority of the world. For him it was a fortune. We plug in all the notions & information floating around and formulate a plan and execute it because it seems to be correct at that very moment.

3/ Someone's idea may seem vague and bizarre to you but they are not CRAZY. This is how they see the world and no one can blame them. The modern financial system is still in an infant stage and thus we cannot expect people to take rational decisions all the time.

4/ LUCK and RISK are siblings. You cant believe in one without equally respecting the other. For every Bill Gates there is Kent Evans who ended up on the other side of the story despite the same individual effort and brain.

5/ For every Facebook there is a Yahoo who made the same financial decision but ended up with different stories. The problem with LUCK and RISK is that they are not quantifiable. We don't attribute the success of others to LUCK ...

6/ .. because it may make us appear jealous and we don't attribute our success to LUCK because it may make us feel demotivated. People don't respect the siblings although they play a major role in this game of LIFE with infinite moving parts.

7/ Make sure you follow the broad pattern and not a successful person. The more successful a person is, higher is the role of LUCK and RISK and then it becomes difficult to apply their learnings to your mental model. LUCK gives you success and RISK makes you forgive yourslves.

8/ For some nothing is ENOUGH while for others even something is ENOUGH. There is actually no definition of ENOUGH. In financial system there is no ceiling in the room of ENOUGH. The only way to know how much food can you eat is by eating it until you vomit.

9/ However only few try this since the pain of vomiting is more than the pleasure of having a meal. The same logic doesn’t work in finance, people try as long as they don’t fail in an investment. It is beyond a rational mind as to why someone will put everything ...

10/ ... they have at risk to get something they don’t have and more importantly don't even need. Warren Buffet once said and I quote -"If you risk something that is important to you for something that is unimportant to you, it just does not make any sense. And that's foolish."

11/ One of the most impt financial skill is to stop the moving goalpost. The idea might look pessimistic but it is not. Your reputation, family, being loved by someone you love is invaluable and ENOUGH is that limit beyond which you put all these intangible relations at stake.

12/ Financial skills are important but the secret is TIME. You don't need tremendous force to create tremendous results. Even a small compounding for years produce results that are logic defying and difficult for the brain to think intuitively.

13/ The brain easily calculates 11+11+11+11 but blows away the moment expression changes to 11*11*11*11. This is because the brain doesn’t think intuitively about compounding and hence does not comprehend the outcomes. Same goes with money

14/ The point is not to get the highest returns because it is a one time hit, but to get a good return for the longest period of time. Buffett srsly got into investing when he was 10. The secret of his success is not bcoz of his good investments bt bcoz of his good investments.

15/ It is easy to become Wealthy but never easy to stay wealthy. Everyone talks about money making techniques but the most important part of staying wealthy goes undiscussed. It is important to realize that all the money that you have can disappear faster than you earned.

16/ It is all a matter of survival. As long as one has the fear of loosing out everyday and not taking things for granted, people stay wealthy.Yesterday's success does not guarantee tmrw's fortune. evry1 has a plan but only a few plan on the plan not going according to the plan.

17/ A Pilot has to be perfect all the times. A Chef has to be reasonably perfect most of the times. However with money and investing it is completely different. You don’t have to be correct all the times.

18/ What matters is how much profit you make while you are right and how much loss you suffer while you are wrong. You can be wrong 99% of the times but what matters is that 1%. That 1% chance of hitting it off at the correct time and place.

19/ For Amazon the Fire Phone was a disaster. What saved Jeff was Amazon Web Services. Disney was on the verge of bankruptcy but the 83 minute long Snow White saved and increased their business tenfold.

20/ Remember Tail drives everything. What we see is the finished product, the huge success but not its tail. We are not exposed to the 99 failed products that contributed to that one product.

21/ Happiness is a complicated subject because every one is different. But the denominator is same, people want to control their lives. In the last century our SOL has improved, our houses are huge, there are more bathrooms than the occupants. Has the happiness index increased?

22/ This is because the money was used in all sort of material things. More than all these material things, the ability to do what you want, when you want, with whom you want for how long you want is the highest dividend money pays.

23/ Money's intrinsic value is that it gives you the power to control your time. Driving a Ferrari or having a huge house will not give you the respect. People use your wealth as a benchmark for their own desire to be liked and admired.

24/ What you want is respect from other people and you think by having fancy things you'll get it. That’s not true atleast from the people you want to respect and admire you.

25/ The difference between Rich and Wealth is more than semantics. A person driving a Ferrari can be called rich but not wealthy. Wealth is hidden. Money not spent is wealth. Rich is the current income you see.

26/ It's easier to spot rich people because they themselves find out the way to get noticed. It is always easier to find a rich role model but never easy to find a wealthy one. Because wealth is unknown. It is the money that offers you options, flexibility and growth.

27/ As more and more fields become digitalized which erase the geological boundaries, you will have a direct competition with millions and billions spanning the world. You need flexibility to learn new things if needed which is guaranteed by wealth.

28/ Amongst the other 1000 other smart people what distinguishes you is wealth. You can increase your wealth not by increasing your earnings but by increasing your savings. You do not need a specific reason to save like for a house or for a car. Save only for the sake of saving.

29/ Sometimes it's important to be reasonable for a longer term than being rational. History is a map of the past and is in no way an indicator of the future. People often manipulate the past data to predict recessions. However the data is incomplete and misleading.

30/ The conditions back then are in no way similar to the present conditions. The World has changed, the infrastructure is different. The Housing Crises and The Great depression could not be predicted based on the events before them.

31/ Similarly you cannot predict something in the future based on those crises. The only thing to learn from a surprise is that the World is surprising and be prepared for the worst anytime.

32/ The first rule of compounding is that the thing that has to be compounded should be left uninterrupted for a long duration. This is true not only for savings but for relationships as well. However that's not the case because people's desire changes over a period of time.

33/ Young people pay money to get a tattoo removed that they got in their teens. Young adults rush to divorce people who once got rushed to marry. Thus Long term investing is never easy because it requires a definitive plan and even a plan if nothing goes according to the plan.

34/ Everything in this unpredictable world comes with a price. The only difference is that some price tags are visible while for others you get to know the price only when the bill is due. Investing is one such price tag. You need to pay a fee to get into the business.

35/ The only choice you have to make is to weather consider it as a fee or a fine. People are generally fine with paying fees but fines are to be avoided. Fine generally gives the notion that it could have been avoided if you had been more careful.

36/ Everyone out there has different intentions and aspirations. Some are there to stay for a longer duration in the game while some for a very short time. Stop following financial decisions of people who you don’t know anything about apart from their Life history.

37/ Imagine someone telling you that its going to be a good day, you''ll ignore them considering naïve while someone else warning you that the day ahead is full of red alerts, You'll immediately clear up your day plan and give them your undivided attention. Why do we do this?

38/ This is because pessimism sounds more plausible than Optimism. Optimism sounds like a sales pitch whereas pessimism sounds like someone is trying to. help you. This is the case with news channels.They sell pessimism day in and out and that is what people like.

39/ A person is more likely to hear you when you talk about doomsday than a 10% annual compounded interest per day in the future. There are two things that will effect you no matter what - Money and health. Money is ubiquitous, others decision will always affect you.

40/ No one knows everything about the world, but everyone tries to fill those voids with their own stories, based on their experiences. No matter how little the experience is, everyone tries to make sense of the chaotic world.

41/ Money is more about these fictional stories that you tell ourselves to make something sensible. It is more of a psychological thing.