This is not so much a book review as a summary of key quotes and my notes of the book “The psychology of money” by Morgan Housel
Financial outcomes are driven by luck, independent of intelligence and effort. Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know. I call this soft skill the psychology of money. The aim of this book is to use short stories to convince you that soft skills are more important than the technical side of money.
To grasp why people bury themselves in debt you don’t need to study interest rates; you need to study the history of greed, insecurity, and optimism. To get why investors sell out at the bottom of a bear market you don’t need to study the math of expected future returns; you need to think about the agony of looking at your family and wondering if your investments are imperiling their future.
Be careful who you praise and admire. Be careful whom you look down upon and wish to avoid becoming.
Therefore, focus less on specific individuals and case studies and more on broad patterns.
You’ll get closer to actionable takeaways by looking for broad patterns of success and failure. The more common the pattern, the more applicable it might be to your life.
Nothing is as good or as bad as it seems.
The hardest financial skill is getting the goalpost to stop moving.
“Enough” is realizing that the opposite—an insatiable appetite for more— will push you to the point of regret.
There are a million ways to get wealthy, and plenty of books on how to do so. But there’s only one way to stay wealthy: some combination of frugality and paranoia.
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.
More than I want big returns, I want to be financially unbreakable. And if I’m unbreakable I think I’ll get the biggest returns, because I’ll be able to stick around long enough for compounding to work wonders.
Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.
A barbelled personality—optimistic about the future, but paranoid about what will prevent you from getting to the future—is vital.
“I’ve been banging away at this thing for 30 years. I think the simple math is, some projects work and some don’t. There’s no reason to belabor either one. Just get on to the next.” —Brad Pitt accepting a Screen Actors Guild Award
Anything that is huge, profitable, famous, or influential is the result of a tail event—an outlying one-in-thousands or millions event. And most of our attention goes to things that are huge, profitable, famous, or influential. When most of what we pay attention to is the result of a tail, it’s easy to underestimate how rare and powerful they are.
Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time. To obtain, bit by bit, a level of independence and autonomy that comes from unspent assets that give you greater control over what you can do and when you can do it.
Controlling your time is the highest dividend money pays.
Wealth is what you don’t see.
The first idea—simple, but easy to overlook—is that building wealth has little to do with your income or investment returns, and lots to do with your savings rate.
Past a certain level of income, what you need is just what sits below your ego.
Sunk costs—anchoring decisions to past efforts that can’t be refunded—are a devil in a world where people change over time.
“Every job looks easy when you’re not the one doing it” Jeff Immelt
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.
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.
