The Psychology of Money - Morgan House

Overview

Delves into the intricate interplay between human behavior and financial decisions, reveals the impact of emotions and biases on our monetary choices. It offers principles for wealth accumulation and management, stressing the necessity of understanding our own psychology to achieve financial success. Through anecdotes and practical wisdom, the book serves as a roadmap for making informed decisions and securing a stable financial future.

Notes

• "But more important is that as much as we recognize the role of luck in success, the role of risk means we should forgive ourselves and leave room for understanding when judging failures.”  

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

• “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.”

• “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 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.”

• "Financial success is not a hard science. Its a soft skill. Where and how you behave is more important than what you know.

• Pay the Price: The price for long-term financial success is to deal with the volatility that is the stock market and to just keep putting money in and staying the course.

• Capitalism pushes you to create wealth but also to create envy. Social comparison could make you feel like you are not enough and waste your most precious resource...your time.    

1. No One's Crazy - Your personal experiences with money make up 0.000001% of what's happened in the world, but about 80% of how you think the world works"

2. Luck & Risk - Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort

3. Never Enough - "Life isn't any fun without a sense of enough. Happiness as it's said is just results minus expectations"

4. Confounding Compounding - "If something compounds, a small starting base can lead to results so extraordinary they seem to defy logic"

5. Getting Wealthy vs Staying Wealthy - "There's only one way to stay wealthy; some combination of frugality and paranoia"

6. Tails, You Win - "Long tails (the farthest ends of a distribution of outcomes) have tremendous influence....a small number of events account for the majority of outcomes."

7. Freedom - "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."

8. Man in the Car Paradox - "no one is impressed with your possessions as much as you."

9. Wealth is What you Don't See - "Spending money to show people how much money you have is the fastest way to have less money"

10. Save Money - "Less ego, more wealth. Saving money is the gap between your ego and your income, and wealth is what you don't see"

11. Reasonable > Rational - "Do not aim to be coldly rational when making financial decisions. Aim to just be pretty reasonable."

12. Surprise! - "The correct lesson to learn from surprises is that the world is surprising."

13. Room for Error - "The only effective way to safely navigate a world that is governed by odds, not certainties."

14. You'll Change - "Long-term planning is harder than it seems because people's goals and desires change over time."

15. Nothing's Free - "like everything else worthwhile, successful investing demands a price volatility, fear, double, uncertainty, and regret"

16. You & Me - Beware taking financial cues from people playing a different game than you are

17. The seduction of Pessimism - Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you

18. When you'll believe anything - Stories are the most powerful force in the economy