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In the Psychology of Money, Morgan Housel teaches you how to have a better relationship with money and to make smarter financial decisions. Instead of pretending that humans are ROI-optimizing machines, he shows you how your psychology can work for and against you.

The Psychology of Money

The Psychology of Money

by Morgan Housel

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620 reads

- Theory isn’t reality

The challenge for us is that no amount of studying or open-mindedness can genuinely recreate the power of fear and uncertainty.

We are not spreadsheets. As much as reading can inform us about what has happened in the past, like stock ...

It’s easy to convince yourself that your financial outcomes are determined entirely by the quality of your decisions and actions, but that’s not always the case. You can make good decisions that lead to poor financial outcomes. And you can make bad decisions that lead to good financial outcomes. ...

“There is no reason to risk what you have and need for what you don’t have and don’t need. – Warren Buffet

It’s easy to have a goalpost that keeps moving. Once you achieve your goals, you look toward the next goal. And the cycle never ends. This is often driven by comparing yoursel...

“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 s...

“A plan is only useful if it can survive reality. And a future filled with unknowns is everyone’s reality”

If you’re relatively young and earn more than you spend, the best way to optimize your long-term investment returns is to invest the majority of your money into a diversified ...

"Long tails – the farthest ends of a distribution of outcomes – have tremendous influence in finance, where a small number of events can account for the majority of outcomes.”

The investment decisions you make on 99% of days don’t matter. It’s the decisions you make on a small numb...

“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.”

Having more flexibility and control over your time is far more valuable than getting another 2% on your returns by working all-nighters...

People buy mansions and fancy cars because they want respect and admiration from others. What they don’t realize is that people don’t admire the person with the fancy house or car; they admire the object and think of themselves having that object. So buying impressive items to gain admiration and...

If you’re rich, you have a high current income. But being wealthy is something different – wealth is not visible. It’s the money that you have that’s not spent. It’s the optionality to buy or do something at a future time.

Being rich offers you opportunities in the short-term, but being wea...

The optimal portfolio is one that allows you to sleep at night. It allows you to generate reasonable returns, while also maximizing your quality of life and control over your life. It will stand the test of tough recessions and other blips in the road. Most academic understandings of the ideal po...

If you want to be in the game for the long run, you need to leave room for error. “Room for error lets you endure a range of potential outcomes, and endurance lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor.”

A big g...

As humans, we tend to underestimate how much our personality and goals will change with time. This makes long-term financial planning hard. We may think we’ll never have kids or a big house when we’re young, so we plan as if that’s the case, but then we find ourselves with a house and kids that t...

“Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret – all of which are easy to overlook until you’re dealing with them in real time.”

If you choose to invest and...

“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.”

If you have a buddy who’s making lots of money trading short-term options and you start getting FOMO and...

Pessimism often sounds smarter and more persuasive than optimism. If something is not going well, it’s easy to think that it will continue not going well. And that sounds very plausible. But what this line of thinking misses is that problems often create demand for change and solutions. And this ...

When we look back at the past, we create stories about why certain things happened. And those stories make us think that the world is understandable and makes sense in some way.

The problem is that these stories may be complete nonsense. What happened may have been completely random, yet ou...

  • If you evaluate how well you’ve done by focusing on your individual investments, versus your entire portfolio, you’ll overestimate the brilliance of your winners and feel too much regret about your losers.
  • Good decisions are not always rational. Sometimes, you have to consider that y...

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