To mitigate the risk of overweighting the role of individual effort in determining outcomes:

1. Be cautious about the people who you admire and look down upon. Those at the top may have been the benefactors of luck while those at the bottom may have been the victims of risk.
2. Focus less on individuals, and turn your mind to broader patterns. It’s difficult to replicate the outcomes of successful individuals, but you may be able to participate in broader patterns.

Be kind to yourself when you make a mistake or end up on the wrong side of risk. The world is uncertain, and it may not be your fault.

“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 yourself to others, and you’re often comparing yourself to someone who is above you in the ladder that you benchmark yourself against.

When it comes to money, someone will always have more of it than you. That’s okay. It’s fine to pursue more money, but don’t start making risky bets for that.

“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.”

Getting money and keeping money are two distinct skills. While getting money necessitates risk taking, hard word, and an optimistic disposition.

“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 portfolio of low-cost index funds. Holding more than a few percentage points of your net worth in cash is silly because the value of cash erodes with inflation, and that cash can otherwise be put into assets like stocks that historically have compounded at a rate of 6-7%.

"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 number of days when something big is happening – a massive downturn, a frothy market, a speculative bubble, etc. – that make all the difference. Warren Buffet has owned 400 to 500 stocks during his life. He’s made the majority of his money on 10 of them.

“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 or making speculative bets that impact your sleep.

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 respect from others is a fool’s pursuit – these things can not be bought.

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 wealthy provides you the flexibility of having more of the items you want – freedom, time, possessions – in the future.

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 portfolio ignore the very real human factors that come into play and that may cause you to deviate from the strategy.

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 gap in most people’s understanding of room for error is accepting that there is a difference between what you can technically endure vs. what you can emotionally endure.

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 the plan didn’t account for. So when thinking about your investment strategy, try to account for the unknown.

“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 try to compound your wealth, there is a price. And that price is often hidden – it’s the ups and downs of Mr. Market that take you on a ride. It’s the uncertainty and fear that pop into your mind from time to time, as market conditions and your personal conditions change. You have to be willing to pay that price .

“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 want to play that game, you really need to consider if that aligns with your goals. If you have a 20-year time horizon and like the simple nature of passive investing, it would be stupid for you to start playing your buddy’s game. You may be able to profit, but at what cost? Know the game you’re playing.

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 leads to ingenuity that creates changes that only the optimist might believe in.

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 our stories delude us into thinking that there is some lesson we can learn to better predict the future.

Avoid the illusion that you have full control in the uncertain world in which we live.

• 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 you’re an emotional creature that may have different needs than an ROI-optimizing model may suggest.
• If you can do everything you want without trying to outperform the market, then why try to outperform the market and endure the price tag that this pursuit requires?