The Psychology of Money by Morgan Housel — My Key Takeaways
1) If you want to be wealthy, attitudes and behaviours > income and talent
This is a great read, and an easy recommendation if you enjoy non-fiction or are trying to define your philosophy when it comes to personal finance. Words in bold correspond to chapter titles.
- Introduction: Here is my one-line takeaway of the book: Your wealth depends more on your attitudes, behaviours and habits around money than your earning capacity, talent, and fame.
- (A great story here: the Janitor and the Millionaire).
- Luck and Risk: They are two sides of the same coin — if you respect one, you must respect the other.
- Don’t overweight outliers — there’s likely to be a role of luck that you can’t reliably emulate. Easier to learn from the average outcome. Nothing is as good or as bad as it seems — luck was involved.
- Never Enough: The hardest financial skill is to get the goalpost to stop moving. But if your expectations don’t grow slower than your income, you will never be able to have enough.
- Confounding Compounding: Good investing isn’t about earning the highest returns but about earning pretty good returns repeatedly for the longest period of time. See Warren Buffet.
- Getting Wealthy vs Staying Wealthy: The two are different — the skills needed to get wealthy (ambition, optimism, desire) can be liabilities when you need to stay wealthy (where you need patience, paranoia, saving).
- Tails, you win: Long tails have a disproportionate impact on outcomes — Lots of things can go wrong, but one or two immense successes in your portfolio will make up for it. Don’t expect everything to work reliably, you can fail half the time and still succeed if part of your portfolio performs well.
- Freedom: The highest dividend that money pays is the ability to do what you want, when you want and with who you want, for as long as you want.
- And that often involves holding money conservatively, rather than aiming for the highest returns.
- The Man in the Car Paradox: Wealth is what you don’t see. The person who owns a 100,000 car is not rich…