At Capital Portfolio Advisors, the team is encouraged to read books on investing and behavioural finance. We give below some nuggets, from the book “The Psychology of Money” by Morgan Housel:
- 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.”
- Things that have never happened before happen all the time
- Napoleon’s definition of a military genius was, “The man who can do the average thing when all those around him are going crazy”
- Independence, to me, doesn’t mean you’ll stop working. It means you only do the work you like with people you like at the times you want for as long as you want
- Be nicer and less flashy. No one is impressed with your possessions as much as you are. You might think you want a fancy car or a nice watch. But what you probably want is respect and admiration. And you’re more likely to gain those things through kindness and humility than horsepower and chrome.
- Progress happens too slowly to notice, but setbacks happen too quickly to ignore
- I love Voltaire’s observation that “History never repeats itself; man always does.”
- Saving is the gap between your ego and your income
- Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant.
- No matter how much you earn, you will never build wealth unless you can put a lid on how much fun you can have with your money right now, today
- Savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less about what others think of you.
- Bill Gates once said, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”
- Compounding works best when you can give a plan years or decades to grow. This is true for not only savings but careers and relationships. Endurance is key.
- Risk is what’s left over when you think you’ve thought of everything
- Effectively all of Warren Buffett’s financial success can be tied to the financial base he built in his pubescent years and the longevity he maintained in his geriatric years. His skill is investing, but his secret is time. That’s how compounding works
- Plan to survive reality. Future filled with unknown is everyone’s reality.
- Doing well with money has a little to do with how smart you are and a lot to do with how you behave.
- Money is everywhere, it affects all of us, and confuses most of us.
- 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.
- Luck and risk are siblings. They are both the reality that every outcome in life is guided by forces other than individual effort.
- If you give luck and risk their proper respect, you realize that when judging people’s financial success—both your own and others’—it’s never as good or as bad as it seems.
- There is no reason to risk what you have and need for what you don’t have and don’t need.
- Good investing is not necessarily about making good decisions. It’s about consistently not screwing up
- Getting money is one thing. Keeping it is another.
- 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.
- 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. This is freedom
- Spending money to show people how much money you have is the fastest way to have less money.
- People do crazy things with money but they are not crazy. People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons
- Michael Batnick says some lessons have to be experienced before they can be understood.
- Individual investors’ willingness to bear risk depends on personal history. It also depends on his perception of how the world works and would work
- Bill Gross admits that he would probably not be where he is today if he had been born a decade earlier or later. His career coincided almost perfectly with a generational collapse in interest rates that gave bond prices a tailwind
- Good investing isn’t necessarily about earning the highest returns, because the highest returns tend to be one off hits that can’t be repeated. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. That’s when compounding runs wild.
- Long term planning is harder than it seems because people’s goals and desires change over time
- Every job looks easy when you are not the one doing it
- Rising prices are like a drug that can turn value conscious investors into dewy eyed optimists, detached from their own reality by the actions of someone playing a different game than they are
- Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you
- For reasons I have never understood, people like to hear that the world is going to hell – Deirdre McCloskey
- Progress happens too slowly to notice, but, setbacks happen too quickly to ignore
- Coming to terms with how much you don’t know means coming to terms with how much of what happens in the world is out of your control. And that can be hard to accept
- 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
- Morgan Housel’s investment strategy relies on high savings rate, patience and optimism that the world will do well
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