Let's celebrate #WorldBookDay with a thread on highlights from wonderful book "The Psychology of Money" by @morganhousel #WorldBookDay2021 
Behavior Matters
Genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioral skills that have nothing to do with formal measures of intelligence.
Genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioral skills that have nothing to do with formal measures of intelligence.
Engineers can determine the cause of a bridge collapse because there’s agreement that if a certain amount of force is applied to a certain area, that area will break. Physics isn’t controversial. It's guided by laws....
...Finance is different. It's guided by people’s behaviors. And how I behave might make sense to me but look crazy to you.
Luck and risk
But more important is that as much as we recognize the role of luck in success, the role of risk means we should forgive ourselves and leave room for understanding when judging failures.
But more important is that as much as we recognize the role of luck in success, the role of risk means we should forgive ourselves and leave room for understanding when judging failures.
Getting money vs. keeping money
Getting money requires taking risks, being optimistic, and putting yourself out there. But 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...
Getting money requires taking risks, being optimistic, and putting yourself out there. But 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, so past success can’t be relied upon to repeat indefinitely.
Cash is not the enemy
A plan is only useful if it can survive reality. And a future filled with unknowns is everyone’s reality.
A plan is only useful if it can survive reality. And a future filled with unknowns is everyone’s reality.
Long tails
Long tails – the farthest ends of a distribution of outcomes – have tremendous influence in finance, where a small number of events can account for the majority of outcomes.
Long tails – the farthest ends of a distribution of outcomes – have tremendous influence in finance, where a small number of events can account for the majority of outcomes.
Psychology of happiness
More than your salary. More than the size of your house. More than the prestige of your job. Control over doing what you want, when you want to, with the people you want to, is the broadest lifestyle variable that makes people happy.
More than your salary. More than the size of your house. More than the prestige of your job. Control over doing what you want, when you want to, with the people you want to, is the broadest lifestyle variable that makes people happy.
Ferraris don’t generate respect
People purchase luxury homes and cars because they want respect and admiration from others. What they don’t realize is that people don’t admire the person with fancy house or car; they admire the object and think of themselves having that object.
People purchase luxury homes and cars because they want respect and admiration from others. What they don’t realize is that people don’t admire the person with fancy house or car; they admire the object and think of themselves having that object.
Being rich vs. wealthy
If you’re rich, you have a high current income. But being wealthy is something different – wealth is not visible. It’s the money that you have that’s not spent. It’s the optionality to buy or do something at a future time.
If you’re rich, you have a high current income. But being wealthy is something different – wealth is not visible. It’s the money that you have that’s not spent. It’s the optionality to buy or do something at a future time.
Being rich offers you opportunities in the short-term, but being wealthy provides you the flexibility of having more of the items you want – freedom, time, possessions – in the future.
Power of habit
You can find a new routine, a slower pace & think about life with a different set of assumptions. The ability to do those things when most others can't is one of few things that will set you apart in a world where intelligence is no longer a sustainable advantage.
You can find a new routine, a slower pace & think about life with a different set of assumptions. The ability to do those things when most others can't is one of few things that will set you apart in a world where intelligence is no longer a sustainable advantage.
What’s the optimal portfolio?
The optimal portfolio is one that allows you to sleep at night. It allows you to generate reasonable returns, while also maximizing your quality of life and control over your life.
The optimal portfolio is one that allows you to sleep at night. It allows you to generate reasonable returns, while also maximizing your quality of life and control over your life.
It will stand the test of tough recessions and other blips in the road. Most academic understandings of the ideal portfolio ignore the very real human factors that come into play and that may cause you to deviate from the strategy.
Leave room for error
Room for error lets you endure a range of potential outcomes, and endurance lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor.
Room for error lets you endure a range of potential outcomes, and endurance lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor.
The price of investing
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.
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.
Uncertainty, doubt, and regret are common costs in the finance world. They’re often worth paying. But you have to view them as fees rather than fines.
What game are you playing?
Few things matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviors of people playing different games than you are.
Few things matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviors of people playing different games than you are.
Book ends with @morganhousel's minimal financial plan
Effectively all of our net worth is a house, a checking account, and some Vanguard index funds.
Effectively all of our net worth is a house, a checking account, and some Vanguard index funds.
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The Psychology of Money 🧠, by @1PageFinance 1pagefinance.substack.com/p/the-psycholo…
The Psychology of Money 🧠, by @1PageFinance 1pagefinance.substack.com/p/the-psycholo…
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