Sandy Gottesman, a billionaire investor who founded the consulting group First Manhattan, is said to ask one question when interviewing candidates for his investment team: “What do you own, and why?”

Confessions

History is the study of change ironically used as a map of the future. The past doesn't predict the future.The four most dangerous words in investing are, “it’s different this time.”

Surprise!

Good investing is not necessarily about making good decisions. It’s about consistently not screwing up.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 Wealthy vs Staying Wealthy

Savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less about what others think of you.

Everything has a price, but not all prices appear on labels. Be willing to pay the price of success.

Nothing's Free

The most important part of every plan is planning on your plan not going according to plan.

Less ego -> more savingsA high savings rate means having lower expenses than you otherwise could and having lower expenses means your savings go farther than they would if you spent more.Spending beyond a pretty low level of materialism is mostly a reflection of ego approaching income, a way to spend money to show people that you have (or had) money. Think of it like this, and one of the most powerful ways to increase your savings isn’t to raise your income. It’s to raise your humility.

Save Money

Have a margin for safety.It’s fine to save for a car, a home, or for retirement. But it’s equally important to save for things you can’t possibly predict or even comprehend — the financial equivalent of field mice.

Room for Error

Riches are displayed. Wealth is hidden.We tend to judge wealth by what we see because that’s the information we have in front of us. We can’t see people’s bank accounts or brokerage statements. So we rely on outward appearances to gauge financial success. Cars. Homes. Instagram photos.The truth is that 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.

Wealth is What You Don’t See

Avoid taking financial cues from people playing at a different game than you are.“Medicine is a complex profession and the interactions between physicians and patients are also complex.” You know what profession is the same? Financial advice. I can’t tell you what to do with your money, because I don’t know you. I don’t know what you want. I don’t know when you want it. I don’t know why you want it.Charlie Munger once said “I did not intend to get rich. I just wanted to get independent.”

You and Me

Leverage the power of compounding.More than 2,000 books are dedicated to how Warren Buffett built his fortune. Many of them are wonderful. But few pay enough attention to the simplest fact: Buffett’s fortune isn’t due to just being a good investor, but being a good investor since he was literally a child.

Confounding Compounding

Be ok with failures, they are the norm.A good definition of an investing genius is a man or woman who can do the average thing when all those around them are going crazy.“It’s not whether you’re right or wrong that’s important,” George Soros once said, “but how much money you make when you’re right and how much you lose when you’re wrong.” You can be wrong half the time and still make a fortune.

Tails, You Win

Aiming to be mostly reasonable works better than being coldly rationalReasonable 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.

Reasonable > Rational

Controlling your time is the highest dividend money pays﻿A small amount of wealth means the ability to take a few days off work when you’re sick without breaking the bank. Gaining that ability is huge if you don’t have it.

Freedom

“Some people are born into families that encourage education; others are against it. Some are born into flourishing economies encouraging of entrepreneurship; others are born into war and destitution. I want you to be successful, and I want you to earn it. But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself.”

Nothing is as good or bad as it seems.Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort. They are so similar that you can’t believe in one without equally respecting the other.

Luck & Risk

People have different views about money.<ul><li>You know stuff about money that I don’t, and vice versa. You go through life with different beliefs, goals, and forecasts, from what I do. That’s not because one of us is smarter than the other, or has better information. It’s because we’ve had different lives shaped by different and equally persuasive experiences.</li><li>We all do crazy stuff with money because we’re all relatively new to this game and what looks crazy to you might make sense to me. But no one is crazy — we all make decisions based on our own unique experiences that seem to make sense to us.</li></ul>

No One’s Crazy

Expect your future self to changeWhen you consider our tendency to change who we are over time, balance at every point in your life becomes a strategy to avoid future regret and encourage endurance.We should also come to accept the reality of changing our minds. Some of the most miserable workers I’ve met are people who stay loyal to a career only because it’s the field they picked when deciding on a college major at age 18.

You’ll Change

No one is impressed with your possessions as much as you are. Moeny doesn't buy respect.When you see someone driving a nice car, you rarely think, “Wow, the guy driving that car is cool.” Instead, you think, “Wow, if I had that car people would think I’m cool.” Subconsciously or not, this is how people think.

Man in the Car Paradox

“Less ego, more wealth. Saving money is the gap between your ego and your income, and wealth is what you don’t see. So wealth is created by suppressing what you could buy today in order to have more stuff or more options in the future. No matter how much you earn, you will never build wealth unless you can put a lid on how much fun you can have with your money right now, today.”

Happiness = results - expectationsThe only way to know how much food you can eat is to eat until you’re sick. Few try this because vomiting hurts more than any meal is good. For some reason, the same logic doesn’t translate to business and investing, and many will only stop reaching for more when they break and are forced to.

Never Enough

Beware of your stories. Stories trump statistics.Carl Richards writes: “Risk is what’s leftover when you think you’ve thought of everything.”We focus on what we know and neglect what we do not know, which makes us overly confident in our beliefs.

When You’ll Believe Anything

<ul><li>Financial outcomes are driven by luck, independent of intelligence and effort.</li><li>Financial success is not hard science. It’s a soft skill, where how you behave is more important than what you know.</li><li>To grasp why people bury themselves in debt you don’t need to study interest rates; you need to study the history of greed, insecurity, and optimism. To get why investors sell out at the bottom of a bear market you don’t need to study the math of expected future returns; you need to think about the agony of looking at your family and wondering if your investments are imperiling their future.</li></ul>

Doing well with money has little to do with how smart you are and a lot to do with how you behave. And behavior is hard to teach

Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.Tell someone that everything will be great and they’re likely to either shrug you off or offer a skeptical eye. Tell someone they’re in danger and you have their undivided attention.There are two topics that will affect your life whether you are interested in them or not: money and health. While health issues tend to be individual, money issues are more systemic.

The Seduction of Pessimism

“Nothing is as good or as bad as it seems.”

Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior is hard to teach, even to really smart people. Money—investing, personal finance, and business decisions—is typically taught as a math-based field, where data and formulas tell us exactly what to do. But in the real world people don’t make financial decisions on a spreadsheet. They make them at the dinner table, or in a meeting room, where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together. In The Psychology of Money, award-winning author Morgan Housel shares 19 short stories exploring the strange ways people think about money and teaches you how to make better sense of one of life’s most important topics.

moneyandinvestments

Money & Investments

habits

Habits

books

Books

Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior is hard to teach, even to really smart people. Money—investing, personal finance, and business decisions—is typically taught as a math-based field, where data and formulas tell us exactly what to do. But in the real world people don’t make financial decisions on a spreadsheet. They make them at the dinner table, or in a meeting room, where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together. In The Psychology of Money, award-winning author Morgan Housel shares 19 short stories exploring the strange ways people think about money and teaches you how to make better sense of one of life’s most important topics.

Morgan Housel is a partner at The Collaborative Fund. He is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers, winner of the New York Times Sidney Award, and a two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism. He lives in Seattle with his wife and two kids.

Room for Error

Similar ideas to Room for Error

Leave Room for Error

Paying for retirement

Margin of safety or magin of error