Thread by @alpha_pls

Doing well with money & crypto has a little to do with how smart you are and a lot to do with how you behave.

This is 𝐞𝐬𝐬𝐞𝐧𝐭𝐢𝐚𝐥 reading if you want to build wealth.

18 important lessons from The Psychology of Money:

1. No One’s Crazy

"Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works."

"Every decision people make with money is justified by taking the information they have at the moment and plugging it into their unique mental model of how the world works."

"People do some crazy things with money. But no one is crazy."

2. Luck & Risk

"Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort."

"They 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."

"Therefore, focus less on specific individuals and case studies and more on broad patterns."

"You should like risk because it pays off over time. But you should be paranoid of ruinous risk because it prevents you from taking future risks that will pay off over time."

3. Never Enough

"Life isn’t any fun without a sense of enough. Happiness, as it’s said, is just results minus expectations."

"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."

"Maintaining a lifestyle below what you can afford is avoiding the psychological treadmill of keeping up with the Joneses."

4. Confounding Compounding

"If something compounds—if a little growth serves as the fuel for future growth—a small starting base can lead to results so extraordinary they seem to defy logic."

"It can be so logic-defying that you underestimate what’s possible, where growth comes from, and what it can lead to."

"$81.5 billion of Warren Buffett’s $84.5 billion net worth came after his 65th birthday. Our minds are not built to handle such absurdities."

"His skill is investing, but his secret is time."

"If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon. Time is the most powerful force in investing."

5. Getting Wealthy vs. Staying Wealthy

"There are a million ways to get wealthy … but there’s only one way to stay wealthy: some combination of frugality and paranoia."

"If I had to summarize money success in a single word it would be ‘survival."

"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."

"The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference. This should be the cornerstone of your strategy."

6. Tails, You Win

"A lot of things in business and investing work this way. 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."

"That can be hard to deal with, even if you understand the math. It is not intuitive that an investor can be wrong half the time and still make a fortune.

"It means we underestimate how normal it is for a lot of things to fail. Which causes us to overreact when they do."

"A good definition of an investing genius is the man or woman who can do the average thing when all those around them are going crazy. Tails drive everything."

7. Freedom

"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."

"The highest form of wealth is the ability to wake up every morning and say, ‘I can do whatever I want today.’"

"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."

"Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time."

8. Man in the Car Paradox

"No one is impressed with your possessions as much as you are."

"There is a paradox here: people tend to want wealth to signal to others that they should be liked and admired."

"But in reality those other people often bypass admiring you, not because they don’t think wealth is admirable, but because they use your wealth as a benchmark for their own desire to be liked and admired."

"If respect and admiration are your goal, be careful how you seek it. Humility, kindness, and empathy will bring you more respect than horsepower ever will."

9. Wealth is What You Don’t See

"Spending money to show people how much money you have is the fastest way to have less money."

"The truth is that wealth is what you don’t see. Wealth is financial assets that haven’t yet been converted into the stuff you see. That’s not how we think about wealth, because you can’t contextualize what you can’t see."

"Rich is a current income."

"Wealth is hidden. It’s income not spent."

"People are good at learning by imitation. But the hidden nature of wealth makes it hard to imitate others and learn from their ways."

10. Save Money

"Building wealth has little to do with your income or investment returns, and lots to do with your savings rate."

"Independence, at any income level, is driven by your savings rate."

"Personal savings and frugality—finance’s conservation and efficiency—are parts of the money equation that are more in your control and have a 100% chance of being as effective in the future as they are today."

"Savings in the bank that earn 0% interest might actually generate an extraordinary return if they give you the flexibility to take a job with a lower salary but more purpose, or wait for investment opportunities that come when those without flexibility turn desperate."

"Less ego, more wealth. Saving money is the gap between your ego and your income, and wealth is what you don’t see."

11. Reasonable > Rational

"Do not aim to be coldly rational when making financial decisions. Aim to just be pretty reasonable. Reasonable is more realistic and you have a better chance of sticking with it for the long run, which is what matters most when managing money."

"What’s often overlooked in finance is that something can be technically true but contextually nonsense."

"Investing has a social component that’s often ignored when viewed through a strictly financial lens."

12. Surprise!

"The correct lesson to learn from surprises is that the world is surprising. Not that we should use past surprises as a guide to future boundaries; that we should use past surprises as an admission that we have no idea what might happen next."

"The most important driver of anything tied to money is the stories people tell themselves and the preferences they have for goods and services. Those things don’t tend to sit still. They change with culture and generation. They’re always changing and always will."

"The most important economic events of the future—things that will move the needle the most—are things that history gives us little to no guide about."

13. Room for Error

"Margin of safety—you can also call it room for error or redundancy—is the only effective way to safely navigate a world that is governed by odds, not certainties. And almost everything related to money exists in that kind of world."

"The most important part of every plan is planning on your plan not going according to plan."

"Worship room for error."

"The biggest single point of failure with money is a sole reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future."

14. You’ll Change

"Long-term planning is harder than it seems because people’s goals and desires change over time."

"An underpinning of psychology is that people are poor forecasters of their future selves."

"We should avoid the extreme ends of financial planning
We should also come to accept the reality of changing our minds."

15. Nothing’s Free

"Everything has a price, but not all prices appear on labels."

"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."

"The trick is convincing yourself that the market’s fee is worth it. That’s the only way to properly deal with volatility and uncertainty."

"Define the cost of success and be ready to pay for it. Because nothing worthwhile is free."

16. You & Me

"Beware taking financial cues from people playing a different game than you are."

"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."

"The formation of bubbles isn’t so much about people irrationally participating in long-term investing. They’re about people somewhat rationally moving toward short-term trading to capture momentum that had been feeding on itself."

"A takeaway here is that 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."

17. The Seduction of Pessimism

"Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you."

"Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way.”

"Pessimists often extrapolate present trends without accounting for how markets adapt."

"It’s easier to create a narrative around pessimism because the story pieces tend to be fresher and more recent.

"Optimistic narratives require looking at a long stretch of history and developments, which people tend to forget and take more effort to piece together."

18. When You’ll Believe Anything

"Stories are, by far, the most powerful force in the economy. They are the fuel that can let the tangible parts of the economy work, or the brake that holds our capabilities back."

"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."

"An appealing fiction happens when you are smart, you want to find solutions, but face a combination of limited control and high stakes. They are extremely powerful. They can make you believe just about anything."

"The illusion of control is more persuasive than the reality of uncertainty. So we cling to stories about outcomes being in our control."

And those are the 18 lessons!

I highly recommend purchasing and reading the full book.

I read it again every few years to refresh myself.

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The markets are tough right now and there is some great advice here that can help people in these difficult moments.

Thanks friends!

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