Learn more about moneyandinvestments with this collection
How to develop a healthy relationship with money
How to create a budget
The impact of emotions on financial decisions
Doing well with money is not necessarily about what you know, but about how you behave. Is what Morgan Housel explores in his popular book, where he shares 19 stories that explore the behavioral aspects of personal finance.
To Note:
4.63K
35.2K reads
Everyone looks at money through the lens of their past experiences.
You can read what it was like to lose everything during, say, The Great Recession, but you will never bear the emotional scars of those who survived it and are now afraid to invest again. Itās important to remember, then, that until youāve lived through a financial crisis and felt its consequences, you will never understand why people behave the way they do.Ā
3.89K
16.7K reads
Nothing is as good or as bad as it seems. Every outcome in life is guided by forces other than individual effort. Bill Gates had a competitive advantage over millions of other students because he attended one of the only high schools in the world that had the cash and foresight to buy a computer. In finance, luck is as much a force as risk.
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22.2K reads
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Rich people do crazy things. Bernie Madoff had everything only to lose everything because he had no sense of enough. The lesson? There is no need to risk what you have and need for what you donāt have and donāt need.
4.34K
19.5K reads
Our minds are not built to handle the reality that compounding leads to logic-defying results.
Warren Buffettās fortune isnāt due to just being a good investor. Rather itās due to being a good investor since he was a child. Simplifying we can say he then just waited. The counterintuitive nature of compounding leads even the smartest of us to overlook its enormous power.
Linear thinking is so much more intuitive than exponential thinking. You never get accustomed to how quickly things can grow with compounding.
3.89K
15.8K reads
Good investing is not about making good decisions. Itās about consistently not screwing up.Ā There are a million ways to get wealthy. The only way to stay wealthy is some combination of frugality and paranoia.
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13.5K reads
You can be wrong half the time and still make a fortune.
Anything that is huge, profitable, famous, or influential is the result of a tail event, an outlying one-in-thousands or millions event.
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10.8K reads
Controlling your time is the highest dividend money pays. The highest form of wealth is the ability to wake up every morning and say, āI can do whatever I want, when I want, with who I want, for as long as I want.ā This is the highest dividend money pays:
4.21K
9.79K reads
No one is impressed with your possessions as much as you are.
People tend to want wealth to signal to others that they want to be liked and admired. But in reality, those other people often bypass admiring you, not because they donāt think wealth is admirable, but because they use your wealth as a benchmark for their own desire to be liked and admired.
3.96K
9.08K reads
Spending money to show people how much money you have is the fastest way to have less money.
We tend to judge wealth by what we see because thatās the information we have in front of us. But the truth is that wealth is what you donāt see. Rich is a current income. Nice cars purchased. Diamonds bought. But wealth is hidden. It is an option not yet taken to buy something later. Not knowing the difference is a source of countless poor money decisions.Ā
Someone driving a $100,000 car might be wealthy. Or he may just be poorer by $100,000.
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8.66K reads
Aiming to be mostly reasonable works better than trying to be coldly rational.
āDo 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.ā Youāre not a spreadsheet, remember. Youāre a person.
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8.64K reads
Building wealth has little to do with your income or investment returns and more to do with your savings rate. The value of wealth is relative to what you need. A high savings rate means having lower expenses than you otherwise could, and having lower expenses means your savings go further than they would if you spent more.
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8.01K reads
History is an unassailable guide to the future.Ā A trap many investors fall the āhistorians as prophetsā fallacy: an over-reliance on past data as a signal to future conditions in a field where innovation and change are the lifeblood of progress. Past performance is not indicative of future resultsāthe world changes.
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7.15K reads
Long-term planning is harder than it seems because peopleās goals and desires change over time.
Weāre such poor forecasters of our future selves that thereās a term for this phenomenon: The End of History Illusion. Weāre aware of how much weāve changed in the past, but we grossly underestimate how much our personalities, desires, and goal will change in the future.
You canāt prepare for what you canāt envision.
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6.68K reads
The most important part of every plan is planning on your plan, not going according to plan.
Have room for error when estimating your future returns. For his own investments, Housel assumes the future returns heāll earn in his lifetime will be ā lower than the historic average. So, he saves more than he would if I assumed the future will resemble the past. Itās his margin of safety.
3.76K
6.77K reads
Everything has a price, but not all prices appear on labels.
The price of investing success is not immediately obvious. Itās not a price tag you can see, so when the bill comes due, it doesnāt feel like a fee for getting something good. It feels like a fee for doing something wrong.
Most things are harder in practice than they are in theory. This is often because we are not good at identifying what the price of success is, which prevents us from being able to pay it. The price of successful investing is volatility, fear, doubt, uncertainty, and regret.
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6.28K reads
Avoid taking financial cues from people playing a different game than you are.
Few things matter more with money than understanding your own time horizon and not being persuaded by the actions & behaviors of people playing different games than you are. Go out of your way to identify what game youāre playing and ignore the rest.
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6.24K reads
Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.
In finance, pessimism is paid more attention than optimism and is, therefore, more persuasive. āItās easier to create a narrative around pessimism because the story pieces tend to be fresher and more recent"
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5.97K reads
Stories trump statistics. The more you want something to be true, the more likely you are going to believe a story that overestimates the odds of it being true.
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6.04K reads
Total food specialist. Friendly webaholic. Coffee fan. Proud analyst. Tv expert. Explorer. Travel nerd. Incurable beer advocate.
The Psychology of Money is a collection of short stories exploring the strange ways people think about money and teaches you how to make better sense of it.
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Curious about different takes? Check out our The Psychology of Money Summary book page to explore multiple unique summaries written by Deepstash users.
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