The Psychology of Money

Morgan Housel

Highlights

  • “A genius is the man who can do the average thing when everyone else around him is losing his mind.” —Napoleon
  • “The world is full of obvious things which nobody by any chance ever observes.” —Sherlock Holmes
  • financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know.
  • Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works.
  • The more extreme the outcome, the less likely you can apply its lessons to your own life, because the more likely the outcome was influenced by extreme ends of luck or risk.
  • There is no reason to risk what you have and need for what you don’t have and don’t need.
  • The hardest financial skill is getting the goalpost to stop moving.
  • A barbelled personality—optimistic about the future, but paranoid about what will prevent you from getting to the future—is vital.
  • Optimism is usually defined as a belief that things will go well. But that’s incomplete. Sensible optimism is a belief that the odds are in your favor, and over time things will balance out to a good outcome even if what happens in between is filled with misery.
  • Having a strong sense of controlling one’s life is a more dependable predictor of positive feelings of wellbeing than any of the objective conditions of life we have considered.
  • Do not aim to be coldly rational when making financial decisions. Aim to just be pretty reasonable. Reasonable 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.
  • The correct lesson to learn from surprises is that the world is surprising.
  • Leverage is the devil here. Leverage—taking on debt to make your money go further—pushes routine risks into something capable of producing ruin.
  • Only 27% of college grads have a job related to their major, according to the Federal Reserve.
  • Several years went by before the public grasped what the Wrights were doing; people were so convinced that flying was impossible that most of those who saw them flying about Dayton [Ohio] in 1905 decided that what they had seen must be some trick without significance—somewhat as most people today would regard a demonstration of, say, telepathy.
  • The more you want something to be true, the more likely you are to believe a story that overestimates the odds of it being true.
  • there is no greater force in finance than room for error, and the higher the stakes, the wider it should be.
  • Manage your money in a way that helps you sleep at night. That’s different from saying you should aim to earn the highest returns or save a specific percentage of your income.
  • We also keep a higher percentage of our assets in cash than most financial advisors would recommend—something around 20% of our assets outside the value of our house.
  • everything I’ve learned about personal finance tells me that everyone—without exception—will eventually face a huge expense they did not expect—and they don’t plan for these expenses specifically because they did not expect them.
  • think for most investors, dollar-cost averaging into a low-cost index fund will provide the highest odds of long-term success.

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