Morgan Housel is a former columnist at The Wall Street Journal and a partner at Collaborative Fund. In 2020, he published The Psychology of Money, a book about a universal topic, courageously different. And if you expect this book to preach about personal finance as an expert / motivational guru à la mode, you are mistaken. Morgan Housel helps us… to see the Big picture about money through short stories.
If you haven’t read The Psychology of Money yet, here are some of the most enlightening sentences per chapter, that echoed in my brain.
No One’s Crazy
Here’s the thing: 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.
Luck & Risk
Luck and Risk are siblings. They are both the reality that every outcome in life is guided by forces other than individual effort.
NYU professor Scott Galloway has a related idea that is so important to remember when judging success – both your own and others: “Nothing is as good or as bad as it seems”.
At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds, “Yes, but I have something he will never have… enough.”
There are books on economic cycles, trading strategies, and sector bets. But the most powerful and important book should be called Shut Up And Wait. It’s just one page with a long-term chart of economic growth.
Getting Wealthy vs. Staying Wealthy
I sometimes think that no price is too high for a speculator to pay to learn that which will keep him from getting the swelled head. A great many smashes by brilliant men can be traced directly to the swelled head.
Tails, You Win
There are 100 billion planets in our galaxy and only one, as far as we know, with intelligent life. The fact that you are reading this book is the result of the longest tail you can imagine. That’s something to be happy about.
A wise owl lived in an oak,
The more he saw the less he spoke,
The less he spoke, the more he heard,
Why aren’t we all like that wise old bird?
No one – not a single person out of a thousand – said that to be happy you should try to work as hard as you can to make money to buy the things you want.
No one – not a single person – said it’s important to be at least as wealthy as the people around you, and if you have more than they do its real success.
No one – not a single person – said you should choose your work based on your desired future earning power.
Man in the Car Paradox
It’s a subtle recognition that people generally aspire to be respected and admired by others, and using money to buy fancy things may bring less of it than you imagine. 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.
Wealth is What You Don’t See
Wealth is the nice cars not purchased. The diamonds not bought. The watches not worn, the clothes forgone, and the first-class upgrade declined. Wealth is financial assets that haven’t yet been converted into the stuff you see.
Singer Rihanna nearly went bankrupt after overspending and sued her financial advisor. The advisor responded: “Was it really necessary to tell her that if you spend money on things, you will end with the things and not the money.”
Having more control over your time and options is becoming one of the most valuable currencies in the world. That’s why more people can, and more people should, save money. You know what else they should do? Stop trying to be so rational.
Reasonable > Rational
You’re not a spreadsheet. You’re a person. A screwed-up, emotional person.
It took me a while to figure this out, but once it clicked, I realized it’s one of the most important parts of finance.
When it comes to something that often goes overlooked: 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.
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.
Room for Error
Predicting what you’ll use your savings for assumes you live in a world where you know exactly what your future expenses will be, which no one does. I save a lot, and I have no idea what I’ll use the savings for in the future. Few financial plans that only prepare for known risks have enough margin of safety to survive in the real world.
In fact, the most important part of every plan is planning on your plan not going according to plan.
An underpinning of psychology is that people are poor forecasters of their future selves. Imagining a goal is easy and fun. Imagining a goal in the context of the realistic life stresses that grow with competitive pursuits is something entirely different.
This has a big impact on our ability to plan for future financial goals.
Most things are harder in practice than they are in theory. Sometimes this is because we’re overconfident. More often it’s because we’re not good at identifying what the price of success is, which prevents us from being able to pay it.
You & Me
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.
The main thing I can recommend is going out of your way to identify what game you’re playing.
The Seduction of Pessimism
Expecting things to be great means a best-case scenario that feels flat. Pessimism reduces expectations, narrowing the gap between possible outcomes and outcomes you feel great about. Maybe that’s why it’s so seductive. Expecting things to be bad is the best way to be pleasantly surprised when they’re not. Which, ironically, is something to be optimistic about.
When You’ll Believe Anything
Most people, when confronted with something they don’t understand, do not realize they don’t understand it because they’re able to come up with an explanation that makes sense based on their own unique perspective and experiences in the world, however limited those experiences are. We all want the complicated world we live in to make sense. So, we tell ourselves stories to fill in the gaps of what are effectively spots.