Over the last 1.5 years there has been a lot of buzz about Morgan Housel's "The Psychology of Money" and last weekend I buckled. While I am not disappointed, the lessons in the book were not 100% novel especially if you have already burnt your fingers in your investing journey over the years.
Nevertheless, this quick read has a set of super relevant lessons for everyone to reflect upon and here are my summary takeaways
1) The fundamental principle according to Housel is that doing well with money has nothing to do with how smart you are, but it is rather about how you behave with your money
2) No one is crazy because every financial decision is justified based on a person’s circumstances, life experiences and the information at hand. In fact, at every price a stock is sold (high or low) someone thought that it was a good price to sell and someone else found it a good price to buy
3) Luck & Risk are the true realities in a world that is too complex to allow 100% of your actions to dictate 100% of outcomes. Do not let very good outcomes or very bad outcomes to get to your head
4) Have a sense of "Enough". Happiness is Results minus Expectations and if you can’t have a sense of what is “enough” you will never be happy
5) Compounding is very confusing for humans. $81.5 billion of Warren Buffet's $84.5 billion of wealth came after he was 65 years old. Time is the most powerful force in investing. Start early and stay invested as long as possible
6) The best reason to build wealth is to have the ability to do what you want, when you want, with who you want, for as long as you want, and this freedom is priceless
7) 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. So, build a habit of living much below your means
8) We cannot always be rational. Rather try to be Reasonable. Be comfortable making financial decisions that make you feel good and not just what is good on spreadsheets and financial models
9) Always have room for errors. He puts this nicely "The most important part of every plan is planning on your plan not going according to plan"
10) You will change – Our goals and plans change over time. So be comfortable with the idea of changing your approach. Realize that each one of us is playing a different game as per our own circumstances and life experiences
11) Finally, narratives and stories are everything. People cling to stories and stories can act as the fuel for the economy and also as the brakes to hold things back. Everyone has an incomplete picture of the world; it is stories and narratives that help complete these gaps
In a nutshell, I would still say that the book is worth a read to get an understanding of the behavioral side of money and wealth.
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