Foreword:

“The world is full of obvious things which nobody by any chance ever observes.”

- Sherlock Holmes

Introduction:

• 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, even to really smart people.

• Ronald James Read - philantropist, investor, janitor, and gas station attendant.

• Richard Fuscone - Merill Lynch executive, was rich rich, then went broke because of reckless spendings on his mansion and global financial crisis in 2000s.

• Have we become better investors because of the advancements in science as did other fields like engineering, architecture, healthcare, etc.? There is no compelling evidence because:
  • “We think about and are taught about money in ways that are too much like physics (with rules and laws) and not enough like psychology (with emotions and nuance).”

“History never repeats itself; man always does.”

- Voltaire

Chapter 1: No One’s Crazy

• Everybody has a different experience with money, which makes their perceptions about economy and finance completely different.

• John F. Kennedy was not well aware of the Great Depression because he was from a well-off family with a hugely lavish lifestyle, servants, and many travels.

• “We see the world through a different lens.”

“Some lessons have to be experienced before they can be understood.”

- Michael Batnick

Chapter 2: Luck and Risk

• Bill Gates
  • studied in Lakeside School, outside Seattle
  • the school had its own computer, which was a rarity back in 1968
  • there were about 303 million high schoolers in the world back in 1968,
    • 18 million of them were in the US,
    • 270,000 of them lived in Washington state,
    • 100,000 of them lived in Seattle area,
    • and only 300 of them attended Lakeside School.
    • 300 / 303 million → 1 in a million high-school-age students attended the high school that had the combination of cash and foresight to buy a computer.

• Paul Allen
  • Gates’ classmate
  • met when Gates was 13 in 1968
  • was also obsessed with computers
  • would tinker around the computer together after school

• Kent Evans
  • Gates’ friend
  • experienced equally powerful dose of luck’s sibling - risk
  • became best friends at 8th grade
  • was the best student in the class
  • they thought they will go to college together, Kent becoming the founding partner of Microsoft with Gates and Allen
  • he dies in a mountaineering accident before he graduated high school
    • every year, about 30 deaths happening during mountaineering in the US
    • the odds of being killed on a mountain in high school are 1 in a million.
    • Gates - 1 in a million luck of being at Lakeside and having access to computer
    • Kent - 1 in a million risk by never getting to finish what he and Gates set out to achieve.

“If you give luck and risk their proper respect, you realize that when judging peoples financial success - both your own and others’ - it's never as good as bad as it seems.”

• Robert Shiller - won Nobel Prize in economics

“Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming.”

• or just be careful when assuming that 100% of outcomes can be attributed to effort and decisions.

“Therefore, focus less on specific individuals and case studies and more on broad patterns.”

• studying a specific person can be dangerous because we tend to focus on extreme examples.

• 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.

• you’ll get closer to actionable takeaways by looking for broad patterns of success and failure.

• the more common the pattern, the more applicable it might be to your life.

• Frederick Lewis Allen - historian

Chapter 3: Never Enough

• John Bogle - the Vanguard founder

• there is no reason to risk what you have and need for what you don’t have and don’t need.

1. The hardest financial skill is getting the goalpost to stop moving.
2. Social comparison is the problem here.
3. Enough is not too little.
4. There are so many things never worth risking, no matter the potential gain.

Chapter 4: Confounding Compounding

• Lessons from one field can often teach us something important about unrelated field. Take the billion-year history of ice ages, and what they teach us about growing your money.

• If something compounds - if a little growth serves as the fuel for future growth - a small starting base can lead to result so extraordinary they seem to defy logic.

• There are books on economic cycles, trading strategies, and sector bets. But the most powerful and important book should be called Shut Up and Wait. It’s just one page with a long-term chart of economic growth.

• But good investing isn’t necessarily about earning the highest returns, because the highest returns tend to be one-off hits that can’t be repeated. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. That’s when compounding runs wild.

Chapter 5: Getting Wealthy vs. Staying Wealthy

• Jesse Livermore
  • Born in 1877
  • became a professional trader before most people knew you could do such things.
  • by 30 he was woprth inflation-adjusted equivalent of 100$ million.
  • by 1927 was one of the well-known investors in the world
  • the stock market crash in an october 1929 wiped out more than a third of the stock market’s value.
  • october 29th - his family was distraught, hearing the news of Wall Street speculators hanging themselves.
  • he then reveals that he was shorting stocks and that 29th october was his most profitable trading day yet.
  • he made an equivalent of more than $3 billion that day.
  • after his 1929 blowout, Livermore, overflowing with confidence, made larger and larger bats. he wound up far over his head in increasing amount of debt and eventually lost everything in the stock market.
  • Livermore eventually took his own life, after his disappearance for 2 days in 1933.

• 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 have made is attributable to luck, so past success can't be relied upon to repeat indefinitely.

“Having an ‘edge’ and surviving are two different things: the first requires the second. You need to avoid ruin. At all costs.”

- Nassim Taleb

• Applying the survival mindset to the real world comes down to appreciating three things:
  1. More than I want big returns, I want to be financially unbreakable. And if I’m unbreakable I actually think I’ll get the biggest returns, because I’ll be able to stick around long enough for compounding to work wonders.
  2. Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.
     1. a plan is only useful if it can survive reality. and a future filled with unknowns is everyone’s reality.
     2. a good plan doesn’t pretend this weren’t true; it embraces it and emphasizes room for error. the more you need specific elements of a plan to be true, the more fragile your financial life becomes.
     3. room for error = margin of safety
     4. conservative is avoiding a certain level of risk. margin of safety is raising the odds of success at a given level of risk by increasing your changes of survival. its magic is that the higher your margin of safety, the smaller your edge needs to be to have a favorable outcome.
  3. A barbelled personality - optimistic about the future, but paranoid about what will prevent you from getting to the future - is vital.
     1. you can be optimistic that the long-term growth trajectory is up and to the right, but equally sure that the road between now and then is filled with landmines, and always will be. those two things are not mutually exclusive.

Chapter 6: Tails, You Win.

“I’ve been banging away at this thing for 30 years. I think the simple math is, some projects work and some don’t. There’s no reason to belabor either one. Just get on to the next.”

- Brad Pitt accepting a Screen Actors Guild Award

• The great art dealers operated like index funds. They bought everything they could. And they bought it in portfolios, not individual pieces they happened to like. Then they sat down and waited for a few winners to emerge.

• Perhaps, 99% of the works someone like Berggruen acquired in his life turned out to be of little value. But that doesn’t particularly matter if the other 1% turn out to be the work of someone like Picasso. Berggruen could be wrong most of the time and still end up stupendously right.

• Anything that is huge, profitable, famous, or influential is the result of a tail event - an outlying one-in-thousand or millions event.

• When most of what we pay attention to is the result of a tail, it’s easy to underestimate how rare and powerful they are.

• In 2018, Amazon drove 6% of the S&P 500’s returns. And Amazon’s growth is almost entirely due to Prime and Amazon Web Services, which itself are tail events in a company that has experimented with 100s of products, from the Fire Phone to travel agencies.

• Apple was responsible for 7% of the index’s returns in 2018. And it is driven overwhelmingly by the iPhone, which in the world of tech products is as tail-y as tails get.

• Google’s hiring acceptance rate is 0.2%; facebook’s is 0.1%; Apple’s is about 2%.
  • So, the people working on these tail projects that drive tail returns have tail careers.

• A good definition of an investing genius is the man or woman who can do the average thing when all those around them are going crazy.

“The man who can do the average thing when all those around him are going crazy.”

- Napoleon’s definition of a military genius

• Peter Lynch - “If you’re terrific in this business, you’re right six times out of 10.”

• No one makes good decisions all the time. The most impressive people are packed full of horrendous ideas that are often acted upon.

• Amazon’s disastrous launch of the Fire Phone:
  • Jeff Bezos shortly after the launch: “If you think that’s a big failure, we’re working on much bigger failures right now. I am not kidding. Some of them are going to make the Fire Phone look like a tiny little blip.”

“There are 100 billion planets in our galaxy and only one, as far as we know, with intelligent life. The fact that you are reading this book is the result of the longest tail you can imagine. that’s something to be happy about.”

Chapter 7: Freedom

• The highest form of wealth is the ability to wake up every morning and say, I can do whatever I want today.”

• 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.

• Angus Campbell - was a psychologist at the University of Michigan.
  • Campbell wanted to know what made people happy
  • The most powerful common denominator of happiness was simple. Campbell summed it up:
    • 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.

• Doing something you love on a schedule you can’t control can feel the same as doing something you hate.

• Psychologists call it reactance.
  • Jonah Berger - marketing professor at the University of Pennsylvania - summed it up well:
    • People like to feel like they’re in control - in the drivers’ seat. When we try to get them to do something, they feel disempowered. Rather than feelings like they made the choice, they feel like we made it for them. So they say no or do something else, even when they might have originally been happy to go along.

Chapter 8: Man in the Car Paradox

• No one is impressed with your possessions as much as you are.

• The paradox: people tend to want wealth to signal to others that they should be liked and admired. but in reality those other people often bypass admiring you, not because they don’t think wealth is admirable, but because they use your wealth as a benchmark for their own desire to be like and admired.
  • 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.” Subconscious or not, this is how people think.

• Humility, kindness, and empathy will bring you more respect than horsepower ever will.

Chapter 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.

• Someone driving a $100,000 car might be wealthy. But the only data point you have about their wealth is that they have $100,000 less than they did before they bought the car (or $100,000 more in debt). That’s all you know about them.

• Wealth is financial assets that haven’t yet been converted into the stuff you see.

• Singer Rihanna nearly went bankrupt after overspending and sued her financial advisor. The advisor responded: “Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?”

• Rich is a current income. Someone driving a $100,000 car is almost certainly rich, because even if they purchased the car with debt you need a certain level of income to afford the monthly payment. Same with those who live in big homes. It’s not hard to spot rich people. They often go out of their way to make themselves known.

• But wealth is hidden. It’s income not spent. Wealth is an option not yet taken to buy something later. Its value lies in offering you options, flexibility, and growth to one day purchase more stuff than you could right now.

Chapter 10: Save Money

• The first idea - simple, but easy to overlook - is that building wealth has little to do with your income or investment returns, and lots to do with your savings rate.

• Investment returns can make you rich. But whether an investing strategy will work, and how long it will work for, and whether markets will cooperate, is always in doubt. Results are shrouded in uncertainty.

• Personal savings and frugality - finance’s conservation and efficiency - are parts of the money equation that are more in your control and have a 100% chance of being as effective in the future as they are today.

• More importantly, the value of wealth is relative to what you need.

• Learning to be happy with less money creates a gap between what you have and what you want - similar to the gap you get from growing your paycheck, but easier and more in your control.

• A 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.

• Past a certain level of income, what you need is just what sits below your ego.

• People with enduring finances - not necessarily those with high incomes - tend to have a propensity to not give a damn what others think about them.

• So people’s ability to save is more in their control than they might think.

• 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.
  • money relies more on psychology than finance.

• And you don’t need a specific reason to save.

• Only saving for a specific goal makes sense in a predictable world. But ours isn’t. savings is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment.

• The flexibility and control over your time is an unseen return on wealth.

• Intelligence is not a reliable advantage in a world that’s become as connected as ours has. But flexibility is. In a world where intelligence is hyper-competitive and many previous technical skills have become automated, competitive advantages tilt toward nuanced and soft skills - like communication, empathy, and, perhaps most of all, flexibility.

Chapter 11: Reasonable > Rational

• Aiming to be mostly reasonable works better than trying to be coldly rational.

• You’re not a spreadsheet. You’re a person. A screwed up emotional person.

• Do not aim t be coldly rational when making financial decision. 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.

• Julius Wagner-Jauregg:
  • was a 19th-century psychiatrist with two unique skils:
    • he was good at recognizing patterns, and what others saw as “crazy he found merely bold.
  • his specialty - patients with severe neurosyphilis - then a fatal diagnosis with no known treatment.
  • he began noticing a pattern:
    • syphilis patients tended to recover if they had the added misfortune of having prolonged fevers from an unrelated ailment.
    • fevers play a role in helping the body fight infections.
  • began injecting patients with low-end strains of typhoid, malaria, and smallpox to trigger fevers strong enough to kill off their syphilis. dangerous as it sounds.
  • some died from this treatment
  • eventually settled on a weak version of malaria - could be effectively countered with quinine after a few days of bone-rattling fevers.
  • reported that 6 in 10 syphilis patients treated with “malariotherapy” recovered, compared to around 3 in 10 left alone.
  • won Nobel Prize in medicine in 1927.

• Normal fevers between 100º and 104º F are good for sick children.

• It may be rational to want a fever if you have an infection. But it’s not reasonable.

• Harry Markowitz - won the Nobel Prize for exploring the mathematical tradeoff between risk and return. When asked how he invested his own money, he described his portfolio allocation in the 1950s, when his models were first developed:
  • “I visualized my grief if the stock market went way up and I wan’t in it - or if it went way down and I was completely in it. My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities.”
  • he eventually diversified the mix. but 2 things are important here:
    • one is “minimizing future regret” is hard to rationalize on paper but easy to justify in real life.
    • Investing has a social component that’s often ignored when viewed through a strictly financial lens.
    • second is that it’s fine.

• What’s often overlooked in finance is that something can be technically true but contextually nonsense.

Chapter 12: Surprise!

• History is the study of change, ironically used as a map of the future.

• History is mostly the study of surprising events. But it is often used by investors and economists as an unassailable guide to the future.

• History helps us calibrate our expectations, study where people tend to go wrong, and offers a rough guide of what tends to work. But it is not, in any way, a map of the future.

• Investing is a massive group of people. making imperfect decisions with limited information about things that will have a massive impact on their wellbeing, which can make even smart people nervous, greedy, and paranoid.

• Experience leads to overconfidence more than forecasting ability.

• 2 dangerous things happen when you rely too heavily on investment history as a guide to what’s going to happen next:
  1. You’ll likely miss the outlier events that move the needle the most.
     1. The correct lessons to learn from surprises is that the world is surprising.
  2. History can be a misleading guide to the future of the economy and stock market because it doesn’t account for structural changes that are relevant to today’s world.
     1. 401(k)
     2. venture capital
     3. The Intelligent Investor is one of the greatest investing books of all time. But I don’t know a single investor who has done well implementing Graham’s published formulas. The books is full of wisdom - perhaps more than any other investment book ever published. But as a how-to guide, it’s questionable at best.
     4. An interesting quirk of investing history is that the further back you look, the more likely you are to be examining a world that no longer applied to today.
     5. But since economies evolve, recent history is often the best guide to the future, because it’s more likely to include important conditions that are relevant to the future.
     6. The further back in history you look, the more general your takeaways should be. General things like people’s relationship to greed and fear, how they behave under stress, and how they respond to incentives tend to be stable in time.
     7. But specific trends, specific trades, specific sectors, specific causal relationships about markets, and what people should do with their money are always an example of evolution in progress.

Chapter 13: Room for Error

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

• The fundamentals of blackjack card counting:
  • No one can know with certainty what card the dealer will draw next.
  • But by tracking what cards have already been dealt you can calculate what cards remain in the deck.
  • Doing so can tell you the odds of a particular card being drawn by the dealer.

• As a player, you bet more when the odds of getting a card you want are in your favor and less when they are against you.

• There is never a moment when you’re so right that you can bet every chip in front of you. The world isn’t that kind to anyone - not consistently, anyways. You have to give yourself room for error. You have to plan on your plan not going according to plan.

• Two things cause us to avoid room for error:
  • One if the idea that somebody must know what the future holds, driven by the uncomfortable feeling that comes from admitting the opposite.
  • The second is that you’re therefore doing yourself harm by not taking actions that fully exploit an accurate view of that future coming true.

• A few of the issues that startups didn’t expect to have but ended up having:
  • water pipes broke, flooding and ruining a company’s office.
  • a company’s office was broken into three times.
  • a company was kicked out of its manufacturing plant.
  • a store was shut down after a customer called the health department because she didn’t like that another customer brought a dog inside.
  • a CEO’s email was spoofed in the middle of a fundraise that required all of his attention.
  • a founder had a mental breakdown.

• Everything that can break will eventually break.

Chapter 14: You’ll Change

• Long-term planning is harder than it seems because people’s goals and desires change over time.

• Imagining a goal is easy and fun. Imagining a goal in the context of the realistic life stresses that grow with competitive pursuits is something entirely different.

• The End of History Illusion is what psychologists call the tendency for people to be keenly aware of how much they’ve changed in the past, but to underestimate how much their personalities, desires, and goals are likely to change in the future.

• Harvard psychologist Daniel Gilbert once said:
  • At every stage of our lives we make decisions that will profoundly influence the lives of the people we are going to become, and then when we become those people we are not always thrilled with the decisions we made. So young people pay good money to get tattoos removed the teenagers paid good money to get. Middle-aged people rushed to divorce people who young adults rush to marry. Older adults work hard to lose what middle-aged adults worked hard to gain. On and on and on.

• “All of us”, he said, “are walking around with an illusion - an illusion that history, our personal history , has just come to an end, that we have just recently become the people that we were always meant to be and will be for the rest of our lives.”

• We should avoid the extreme ends of financial planning.

• Aiming, at every point in your working life, to have moderate annual savings, moderate free time, no more than a moderate commute, and at least moderate time with your family increases the odds of being able to stick with a plan and avoid regret than if any one of those things fall to the extreme sides of the spectrum.

• We should also come to accept the reality of changing our minds.

• Embracing the idea that financial goals made when you were a different person should be abandoned without mercy versus put on life-support and dragged on can be a good strategy to minimize future regret.

• The quicker it’s done, the sooner you can get back to compounding.

Chapter 15: Nothing’s free

• Everything has a price, but not all prices appear on labels.

• Every job looks easy when you’re not the one doing it because the challenges faced by someone in the arena are often invisible to those in the crowd.

Chapter 16: You & Me

• Beware taking financial cues from people playing a different game than you are.

• People are greedy, and greed is an indelible feature of human nature.

• An iron rule of finance is that money chases returns to the greatest extent that it can. If an asset has momentum - it’s been moving consistently up for a period of time - it’s not crazy for a group of short-term traders to assume it will keep moving up. Not indefinitely; just for the short period of time they need it to. Momentum attracts short-term traders in a reasonable way.

• Many finance and investment decisions are rooted in watching what other people do and either copying them or betting against them. But when you don’t know why someone behaves like they do you won’t know how long they’ll continue acting that way, what will make them change their mind, or whether they’ll ever learn their lesson.

Chapter 17: The Seduction of Pessimism

• Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.

“For reasons I have never understood, people like to hear that the world is going to hell.”

- Historian Deirdre McCloskey

• Pessimism isn’t just more common than optimism. It also sounds smarter. It’s intellectually captivating, and it’s paid more attention than optimism, which is often viewed as being oblivious to risk.

• Real optimists don’t believe that everything will be great. That’s complacency.

• Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way.

“I am not an optimist. I am a very serious possibilist.”

- statistician Hans Rosling

• 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 got their undivided attention.

“I have observed that not the man who hopes when others despair but the man who despairs when others hope, is admired by a large class of persons as a sage.”

- John Stuart Mill

• A few other things make financial pessimism easy, common, and more persuasive than optimism:
  • One is the money is ubiquitous, so something bad happening tends to affect everyone and captures everyone’s attention.
  • Another is that pessimists often extrapolate present trends without accounting for how markets adapt.
    • there is an iron law in economics: extremely good and extremely bad circumstances rarely stay that way for long because supply and demand adapt in hard-to-predict ways.
  • A third is that progress happens too slowly to notice, but setbacks happen too quickly to ignore.
    • there are lots of overnight tragedies. there are rarely overnight miracles.

• In investing you must identify the price of success - volatility and loss amid the long backdrop of growth - and be willing to pay it.

• Expecting things to be great means a best-case scenario that feels flat. Pessimism reduces expectations, narrowing the gap between possible outcomes and outcomes you feel great about.

Chapter 18: When you’ll believe anything

• Appealing fictions, and why stories are more powerful than statistics.

• In 2007, we told a story about the stability of housing prices, the prudence of bankers, and the ability of financial markets to accurately price risk.

• In 2009 we stopped believing that story.

• Once the narrative that home prices will keep rising broke, mortgage defaults rose, then banks lost money, then they reduced lending to other businesses, which led to layoffs, which led to less spending, which leg to more layoffs, and on and on.

• At the personal level, there are two things to keep in mind about a story-driven world when managing your money:
  1. 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.
     1. There are many things in life that we think are true because we desperately want them to be true. → appealing fictions
     2. The bigger the gap between what you want to be true and what you need to be true to have an acceptable outcome, the more you are protecting yourself from falling victim to an appealing financial fiction.
  2. Everyone has an incomplete view of the world. But we form a complete narrative to fill in the gaps.

     “Hindsight, the ability to explain the past, gives us the illusion that the world is understandable . It gives us the illusion that the world makes sense, even when it doesn’t make sense. That’s a big deal in producing mistakes in many fields.”
     
     - Daniel Kahneman

     “We need to believe we live in a predictable, controllable world, so we turn to authoritative-sounding people who promise to satisfy that need.”
     
     - Psychologist Philip Tetlock

Chapter 19: All Together Now

• Go out of your way to find humility when things are going right and forigveness/compassion when they go wrong.

• Less ego, more wealth.
  • Savin 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.

• Manage your money in a way that helps you sleep at night.
  • The foundation of “does this help me sleep at night?” is the best universal guidepost for all financial decisions.

• If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon.

• Become OK with a lot of things going wrong. You can be wrong half the time and still make a fortune.
  • because a small minority of things account for the majority of outcomes.

• Use money to gain control over your time
  • because not having control of your time is such a powerful and universal drag on happiness.
  • The ability to do what you want, when you want, with who you want, for as long as you want to, pays the highest dividend that exists in finance.

• Be nicer and less flashy.
  • No one is impressed with your possession as much as you ar.
  • You might think you want a fancy car or a nice watch. But what you probably want is respect and admiration. And you are more likely to gain those things through kindness and humility than horsepower and chrome.

• Save. Just save. You don’t need a specific reason to save.
  • Everyone’s life is a continuous chain of surprises. Savings that aren’t earmarked for anything in particular is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment.

• Define the cost of success and be ready to pay it.
  • Nothing worthwhile is free.

• Worship room for error.

• Avoid the extreme ends of financial decisions.
  • Everyone’s goals and desires will change over time, and the more extreme your past decisions were the more you may regret them as you evolve.

• You should like risk because it pays off over time.
  • But you should be paranoid of ruinous risk because it prevents you from taking future risks that will pay off over time.

• Define the game you are playing.
  • and make sure your actions are not being influenced by people playing a different game.

• Respect the mess.
  • Smart, informed, and reasonable people can disagree in finance, because people have vastly different goals and desires. There is no single right answer; just the answer that works for you.

Chapter 20: Confessions (The psychology of Morgan Housel’s money)

• How his family thinks about savings
  • Independence has always been his financial goal.
  • Independence - doesn’t mean you’ll stop working. It means you only do the work you like with people you like at the times you want for as long as you want.
  • After school he had entry-level job with entry-level pay, and settled into a moderale lifestyle.
  • Despite more than a decade of rising incomes, they more or less stayed at that lifestyle ever since. Virtually every dollar of raise has accrued to savings - their “independence fund”.
  • They now live considerably below their means, which tells us little about their income and more about their decision to maintain a lifestyle that they established in their 20s.
  • Comfortably living below what you can afford, without much desire for more, removes a tremendous amount of social pressure that many people in the modern first world subject themselves to.
  • Nassim Taleb: “True success is exiting some rat race to modulate one’s activities for peace of mind.”
  • They own their house without a mortgage. Despite the interest rates being absurdly low when they were buying it, their goal wasn’t to be coldly rational; just psychologically reasonable.
  • They also keep higher percentage of their assets in cash than most financial advisors would recommend - something around 20%.

• How his family thinks about investing
  • Back in the day when he was working as a stock picker, he’d mostly have individual stocks, such as Berkshire Hathaway and Procter & Gamble.
  • Now, every stock they own is a low-cost index fund.
  • Life is about playing the odds, and we all think about odds a little differently.
  • Effectively, all of their net worth is a house, a checking account, and some Vanguard index funds.