The Psychology of Money

by Morgan Housel

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.

Genres: Finance, Nonfiction, Psychology, Business, Self Help, Money, Economics

252 pages, Paperback

First published January 1, 2020

About the author

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.

Reviews

[Riku Sayuj · Rating 4 out of 5]

Pithy book. Here's some for you:


1. People act from their experiences. Don't judge from yours.

2. Luck & Risk is all around you. They don't fit the stories you want to tell.

3. If you can't recognize when you have enough, you will soon have nothing.

4. Warren Buffet could have been an ordinary investor if not for his longevity.
Investing - if done well - is utterly boring.
It’s because the chief ingredient in the growth of a portfolio is time.

5. More than big returns, be financially unbreakable. If you are unbreakable you actually will get the biggest returns, because will be able to stick around long enough for compounding to work wonders.

6. The tail wags the dog in Finance and Business.
Long tails—the farthest ends of a distribution of outcomes—have tremendous influence, where a small number of events can account for the majority of outcomes.

7. People want to become wealthier to make them happier. Happiness is a complicated subject because everyone’s different. But if there’s a common denominator in happiness—a universal fuel of joy—it’s that people want to control their lives.
It is the highest dividend money pays.

8. The Man in the Fancy Car is irrelevant, because the observers are busy imagining themselves in it.

9. There is no faster way to feel rich than to spend lots of money on really nice things. There's no faster way to not be rich as well. That's the paradox of wealth.

10. One of the most powerful ways to increase your savings isn’t to raise your income. It’s to raise your humility.
Dont spend money to show you have money.
Savings = Income - Ego

11. Adopt a reasonable strategy, not an ultra rational one. The plan that you are able to stick to is better than the one that looks good on a spreadsheet.

12. "Things that have never happened before happen all the time.”
History is mostly the study of surprising events. 2020 should have taught us this, of course.

13. Margin of Safety—you can also call it room for error—is the only effective way to safely navigate a world that is governed by odds, not certainties.

14. An underpinning of psychology is that people are poor forecasters of their future selves.
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.

15. Don't think of market losses from fluctuations as a fine, but as an admission fee. It'll help you stay in longer.

16. The financial game has one fundamental parameter - the time horizon.
Never copy someone working with a different time horizon than you.

17. Optimism is the best bet for most people because the world tends to get better for most people most of the time.
Progress happens too slowly to notice, but setbacks happen too quickly to ignore.
Pessimism sounds smarter, but optimism is the long game.

18. Trying to make sense of the world is the cause of most mistakes.
Psychologist Philip Tetlock once wrote: “We need to believe we live in a predictable, controllable world, so we turn to authoritative-sounding people who promise to satisfy that need.”
Respect the mess.

[Jacob · Rating 4 out of 5]

This was a short but enjoyable read. The main point is that we are complicated creatures who have complicated relationships with money. It’s ok and expected to not base every decision off of cold Excel calculations. Instead of pretending we will, here is some of the advice he recommends:

Don’t try and time the market. Dollar cost average. 85% of large cap fund managers did not beat the S&P 500. Stock picking isn’t the worst thing ever but know the odds are not in your favor. Doing some of that is OK but you should primarily stick with low cost index funds.

Always keep an eye on greed creeping in. Make sure to avoid the psychological treadmill of keeping up with the Joneses.

Investing a lot when you’re younger is so important. The vast majority of Warren Buffett’s wealth is because of how early he started investing, more so than having a higher rate of return. compounding is a wonderful thing.

Wealth usually ends up being more about how much money you save rather than how much you earn from your job or the right investments.

Saving is the gap between your income and your ego.

Having money saved gives you flexibility in many facets of life and immeasurable peace of mind. It allows you to do what you want, when you want it.

It’s OK to do something that gives you peace of mind even if it’s not the best financial decision. For example, finishing student loan payments with a 4% interest-rate even though you could make more by reducing payments and investing some of that in the market.

Expect the unexpected when it comes to the stock market, and don’t pull out money during downturns. Have a 1/3 buffer. For example, if the US stock market usually returns 6.9% after inflation, prepare for 4.6%. You may retire in a bear market or the past may not repeat itself.

To the point of not trying to time the market: only 9% of tactical mutual funds, those that try to re-allocate stock versus bond percentage based on economic forecasts, ended up doing better than just leaving it in. Enduring downturns is the cost of compounding, and it’s well worth the price. Think of market volatility as a fee. You get what you pay for.

Remember that people, especially the media, tend to air on the side of pessimism even if things usually get better over time.


All things considered, I would recommend this book!

[Sanford Chee · Rating 4 out of 5]

The blog post that turned into a book
http://www.collaborativefund.com/blog...

Teh Hooi Ling’s review
https://www.businesstimes.com.sg/weal...

CFA webinar
https://annual.cfainstitute.org/speak...

https://blogs.cfainstitute.org/invest...

The hardest financial skill is getting the goalpost to stop moving.
Lesson from Rajat Gupta of McK.
https://www.ft.com/content/bb5fb31c-4...

Freedom with your own time is the highest dividend money pays. The ability to do whatever you desire with your time. The ability to do WHAT you want, WHEN you want, with WHO you want, for as long as you want is priceless. That’s what having money is good for. Money is a concentrated form of energy.

Biggest cause of financial ruin is spending beyond your means.
The quicksand of overspending https://www.straitstimes.com/business...

Simple (but not easy) prescription for financial independence: mindset of frugality + independence (don’t bother keeping up w/ the Joneses, prize freedom & independence, appreciate the free things in life: reading, long walks in the park, podcasts, YouTube, time at the beach etc) => save prodigiously & invest savings for uninterrupted long-term compounding through regular dollar cost averaging in diversified low cost index funds (eg Vanguard S&P, international & China funds) as the core of one’s portfolio. Asset allocation: own house (to hedge inflation), [20%] cash (avoid mkt timing but may vary from defensive to aggressive depending on where we are in the mkt cycle), balance [80%] in low cost diversified index funds (US & international incl. China) that’s the core, explore with stock picking in great businesses run by great mgmt (compounders) if you’re so inclined towards stock picking but be realistic & realise that the odds of beating the mkts are slim.

How to be frugal
https://www.asiaone.com/lifestyle/sav...

Inner vs outer scorecard: sailing around the world w/ Moitessier vs Crowhurst
http://www.collaborativefund.com/blog...

Trung Phan's 8 takeaways:
1/ For financial success, psychology is more important than smarts (Ronald James the janitor vs Richard Fuscone the investment banker)
2/ Ultimate prize = controlling your time
3/ Being rich vs. being wealthy
4/ Volatility is the price you pay for higher returns
5/ Buffett's skill is investing, but his secret is time
6/ The best financial heuristic = "can I sleep at night"
7/ You only need a *few big wins* to succeed
8/ It's crucial to define your investing goals
https://twitter.com/TrungTPhan/status...

Dopamine hunt 31 Jan 2023
https://collabfund.com/blog/everythin...

[Manoj Arora · Rating 5 out of 5]

I, hereby, list down 43 fabulous financial lessons from this awesome book.

1/ Ordinary folks with no financial education can be wealthy if they have a handful of behavioral skills that have nothing to do with formal measures of intelligence.

2/ Financial success, to an extent, is driven by luck irrespective of intelligence and effort

3/ Financial success is not hard science, unlike engineering or doctorate or any other profession. It is a soft skill, where how you behave is far more important than what you know. Knowledge is good but knowing what to do has nothing to do with what goes in your mind before you try to do it.

4/ All subjects are governed by defined rules - be it physics, chemistry, mathematics, or any other. Finance, however, is driven by emotions and the psychology and behavior of people.

5/ Studying the history of money makes you feel that you understand something pretty well. Once you understand you assume that you will behave according to the understanding. That's not life at all. We have a lot of knowledge but we hardly implement it in our lives. Until we have lived through those historical experiences and experienced the scars, the triumphs, the emotions, we may not understand it enough to change our behavior.

6/ Luck and Risk are both the reality that every outcome in life is guided by forces other than individual effort. They are doppelgangers. When you are in the stock market, you are one person in a game with 7 billion players and infinite moving parts.

7/ Someone else's failure is usually attributed to bad decisions, and our own failure is usually attributed to bad luck. Not all success is due to hard work and not all failures are due to laziness. Keep this in mind when judging anyone, including yourself.

8/ People who have control over their time tend to be happier in life.

9/ The hardest financial skill, and one of the most important ones, is to get the goalpost to stop moving. It gets dangerous when the taste of having more - money, power, or prestige - increases ambition faster than satisfaction. One step forward pushes the goalpost two steps ahead, and the vicious circle starts. You always feel you are falling behind in spite of achieving so much.

10/ There are certain things which are never worth taking a risk, and they define your 'enough of money' in life e.g. Character, Family and friends, freedom, being loved, happiness - to name a few. If you need or rather, greed for money makes you compromise on these, you got to re-think and define your money boundaries. A clear financial freedom plan helps you define your boundaries.

11/ Warren Buffett is a great investor, but his wealth is not just because of being a great investor. There are far better investors than him. His wealth, apart from being a great investor, is driven by the number of years for which he has been investing now - 75 years. His skill is investing but his secret is time. Of his USD 84.5 billion net worth, USD 84.2 billion was accumulated after the age of 50 ie after investing for 40+ years. That is the maximum period for which most of us would invest, and therefore we stand little chance to make it that big, unless we start pretty early in life.

12/ Good investing is not about getting very high returns. That's not replicable over many years. Good investing is about getting decent enough returns over decades. That's when compounding turns wild.

13/ Getting money, and being able to keep that money are two vastly different skills. Getting money requires action, taking risks, being positive. Keeping money requires just the opposite skills - playing safe, being fearful, and a lot of inaction.

14/ As in the case of airline pilots, investing is all about hours and hours of cruise control punctuated by moments of sheer madness. An investing genius will do ordinary things when everyone around is going crazy.

15/ Tails drive everything in finance. It's normal for a lot of things to go wrong a lot of times. No one makes good decisions all the time. Buffet has owned 400-500 stocks in his lifetime and made most of his money in at most 10 stocks. Rest was just average.

16/ We will all go right as well as wrong in our decisions. But how much money we make when we are right, and how less we lose when we are wrong - will decide our future wealth.

17/ The freedom to do what you want, when you want, with whom you want, for as long as yo want, is true freedom. This is the highest form of dividend that your money can pay you. Money's greatest intrinsic value is its ability to get you control over your time.

18/ Doing something you love on a schedule you don't want, is equivalent to doing something you hate.

19/ We, as humans, in spite of all the technological advancements have lost control over our personal time, and loss of this control is the key to unhappy lives today
[Recommended Read: Happiness Unlimited]

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

21/ You might think you want a big house, a fancy car, and an expensive watch. But this is not the inner truth. The fact is that you want respect and admiration. You might think that the expensive stuff may help you get respect and admiration, but it rarely does, especially from the people you want to admire or respect you.

22/ Wealth is what you do not see. House, cars, vacations, etc is not wealth. Assets, investments that have not yet been converted into houses, cars, and vacations define your wealth.

23/ Rich is the current income. Wealth is income not spent. Wealth is hard because it requires self-control.

24/ The world is full of people who look modest but are really wealthy, and also those who look rich but are almost insolvent.

25/ Building wealth has little to do with your income or investment returns but a lot to do with your savings rate. There is a lot of uncertainty and risk in the first two. 3rd is the only factor that you control. You can build wealth without a high income, but there is no way you can build wealth without a high savings rate.

26/ Being rational and technically correct may not be enough to stick in the game. It is more important to be reasonable to yourself. Being reasonable allows you to stay in the game longer, and the longer you stay, the more wealth you create.

27/ History rarely tells you anything about the future of investments, because unlike the planet for astroscientists, or the human body for doctors, investors are indeed emotional.

28/ Past surprises cannot be used as a guide to define future boundaries. Use past surprises as an admission of the fact that we have no idea what might happen next.

29/ Risk comes from the unknown. There will always be unprecedented events, for which we will never be prepared, and therefore, will have a massive impact on how the world operates.

30/ Since economies evolve, recent history is often the best guide to the future because it is more likely to factor in conditions that are still relevant today. The farther back you go in history, the more general your takeaways would be e.g. human emotions haven't changed much over the last 100 years.

31/ The best way to achieve felicity is to aim low.

32/ People are poor forecasters of their future self. Only 27% of college graduates have a job related to their major subject. Plans will change because we change. Hence, your plan has to be adaptable to changes as you move along creating wealth.

33/ The price that you pay for good investment returns is to withstand the market volatility. It is definitely not an easy price to pay. Not everyone will be able to pay for it. Most people who try to go in and come out and try to time the market is trying to get good returns without paying the price - something that never works.

34/ Bubble formation is not so much about people irrationally participating in long term investing. It's about people rationally moving towards short-term trading to capture the momentum that is self-feeding. Short term trading is rational, natural, and expected. But long term investors cannot afford to be driven with that.

35/ Spend enough time identifying your game and stick to it. And realize that different players are playing different games with a different set of rules. A lot of money is lost in trying to copy the actions of other players, resulting in financial disasters.

36/ Extremely good and extremely bad circumstances rarely remain that way for long because supply and demand adapt in hard to predict ways.

37/ Growth is driven by compounding, which can take decades, and therefore, hardly gets to be noticed. Destruction is driven by single points of failure or loss of confidence, which happens almost instantly, and grabs instant attention.

38/ We know a lot less about how the world works than what we think we do.

39/ History cannot be interpreted without applying our selection process, which happens to be an art. This indicates that the same history can teach different things to different people. The ability to explain the past gives us the illusion that the world is understandable. That's enough to do blunders in personal finance.

40/ We all want the complex world we live in to make sense, and therefore we create stories to fill in the things that we do not understand.

41/ Risk is what is left over when you think that you have thought through everything. Any predictions are illusionary.

42/ Good decisions are not always rational. At some point in time, you got to choose between being happy or being right.

43/ My investing strategy doesn't rely on picking the right sector or timing the next recession. It relies on a high savings rate, patience, and optimism that the economy would generally do well in the decades to come.

Hope these 43 fabulous financial lessons will help shape up your thought process to some extent and help you manage your money better.

[Sumirti Singaravelu · Rating 5 out of 5]

2020 is one of those years where I took my personal finance management seriously not only because I turned 30 but I also became very aware of all the financial options available for investment and the great necessity for a woman, especially a married one, to be financially literate and independent.

The Psychology of Money is one of the those books that lays the fundamentals required for investment and saving your money without pushing and punishing with a lot of jargons, technical terms, and read-the-offer-documents-carefully-before-investing kind of mundane warnings (mind you, I am academically qualified and work in Finance and a Legal field). The book speaks in a very clear manner, chapters being crisp and brief, in a language which is assertive with a lot of understanding of the psychology of an individual average investor/human who wants to secure the future.

This book helped me to understand, something I never really did till now, that saving/investing money is a habit which is greatly guided by the relationship which one establishes with money itself. Do you see money as a tool/ enabler to pursue goals which brings you happiness or do you see money itself as happiness? Do you want to earn money because you want to buy 'things' (tangible, and as a show) or do you want to earn money because you want to secure a future that is stable, well-grounded, good-enough to weather through all the rough corners of life? Do you want to be rich or wealthy?. It's these fundamental questions which will guide in forming solid habits towards savings and investments.

The chapter explaining why money should be saved although there's no visible goal gave me words for thoughts I never could articulate otherwise. Money has to be saved not because one aims to buy a house or achieve a dream but rather it helps to buy one of the most valuable of all things - TIME. Also, the chapter on how debt erodes wealth gives a clear picture on the actual (opportunity) cost of debt, which for an individual investor, is too huge and substantially toxic in the long term (NOTE: This book does not talk about the educational debt and has not much to offer on the same. All the debts mentioned are those incurred for purchasing an asset/developing an asset/maintaining a lifestyle).

Although the chapters on compounding are too known to me, as someone from Finance field, to read the same in a clear language is such a pleasure in itself. I loved the insistence on being 'reasonable' in one's investments and expectations of returns rather than being completely 'rational'. Nothing helps to act as a motivation to save ourselves from the spiral of consumerism than the simple sentence, "If you buy too many things from your money, all you have is too many things and no money."

Although almost all the examples in this book is about a guy, and it really made me feel bad that there isn't a name of a woman in the list of best investors around the world, it did help me to understand that the true value of money is not in its value of amassing assets but rather in its purchasing power to leverage oneself in life - in terms of freedom, independence, security, and ability to achieve dream, which one doesn't have to let go.

Definitely a book I will get back to read every year - again and again!

[Dr. Appu Sasidharan (Dasfill) · Rating 4 out of 5]

I have been seeing this book on my Goodreads feeds almost every day since it was published.

Nearly all of my friends have rated it 4 or 5 stars. My expectations were high when I decided to read this book.

I have all three formats of this book with me. I decided to go for the audiobook version. I heard this whole book last weekend when I went for a long solo drive.

When the first chapter was over, I was hugely disappointed. My expectations were high, and I was expecting something extraordinary. Instead, the author simply said the basics of investing and the stock market in the initial chapter. Still, I decided to continue hearing it as I was not ready to discard it after just one chapter.

I slowly started liking it and found out that the author is not trying to tell anything extraordinary in this book but trying to make us clearly understand some simple things and make our basics correct. I finished hearing this book during my drive itself. When I returned home, I took the physical copy of this book and started rereading it. I simply loved the audiobook experience, and I wanted to go through the concepts discussed by the author once again as I thought it would benefit me in one way or the other. This will be a great choice if you are interested in reading a book discussing about wealth.

[Dao Le · Rating 3 out of 5]

I honestly don’t get the hype for this book - most of the ideas are not particularly insightful nor original. The most interesting ones came from Nassim Taleb (i.e., tail risks, role of luck & risk), Charlie Munger (i.e., compounding, savings) and Benjamin Graham (i.e., margin of safety). While the advices are no doubt helpful (but common sensical) like don’t keep of with the Joneses, save, invest in low-cost index funds, etc. and written in a easy-to-follow way (albeit too LinkedIn-esque for my taste), this book leaves much to be desired and it’s obvious I am not particuarly impressed by it.

Regardless, a few interesting ideas below:
- The hardest financial skill is getting the goalpost to stop moving
- When you see someone driving a nice car, you don’t think “wow, the guy drving that car is cool,” but rather “wow, if I had that car people would think I’m cool”
- The first rule of compounding is never interrupt it unnecessarily
- When you spend money on things, you will end up with the things and not the money
- Rich is current income but wealth is hidden - spending money to show people how much money you have is the fastest way to have less money
- Understand your own time horizon is key in the money’s game. Don’t be persuaded by the actions and behaviors of people playing different games than you are (i.e., short-term traders, being 100% rational, driving up the price)
- Pessimism is persuasive. Assuming that something ugly will stay ugly is an easy forecast to make because it doesn’t require imagining the world changing.

[Liong · Rating 4 out of 5]

I love the title of this book "The Psychology of Money".

A great book to learn the psychology of money that we do not learn in school.

How do we feel about money?

What is money to us?

How do we treat money every day?

Getting money is one thing. Keeping it is another.

We need to learn how to save money.

The highest form of wealth is the ability to do what you want, when you want, with who you want, for as long as you want.

[Ammit P Chawda · Rating 5 out of 5]

4.75 ⭐

GENRE - NON FICTION / SELF HELP.

I haven't been a regular reader so far but I always had a craving and attraction to books,this book was suggested to me by my good old friend Mr. Aditya Salvi owing to my recklessness with finances 😂 However this book did help me reinvent my intrest for reading not to forget to mention this was the 11th book I have read so far and started reading this book in May 2021.This book also brought within me a craving for Non Fiction Philosophy Literature.

About the book:-
Well most importantly this is not a book that will teach you to grow rich within the snap of your fingers, however it's a book which will give you insights on financial decisions and how making the right decision will help you accumulate a good amount of savings in a good period of time.

This book will be in good demand for sure in the years to come and will be at par when it comes to books like Rich Dad Poor Dad.
A very well written and well explained book and must read for all those people who are careless with money specifically.

Thank you 😊

[Arunothia Marappan · Rating 5 out of 5]

An excellent book that covers how to think about one's money and wealth. Titles of the 20 pointers the author enlists in this book -

(1) No one's crazy : 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.
(2) Luck and Risk : Nothing is as good or as bad as it seems.
(3) Never enough : When rich people do crazy things.
(4) Confounding Compounding : $81.5 billion of Warren Buffet's $84.5 billion net worth came after his 65th birthday.
(5) Getting wealthy vs staying wealthy : Good investing is not necessarily about making good decisions. It's about consistently not screwing up.
(6) Tails, you win : You can be wrong half the time and still make a fortune!
(7) Freedom : Controlling your time is the highest dividend money pays.
(8) Man in the Car Paradox : No one is impressed with your possessions as much as you are.
(9) Wealth is what you don't see.
(10) Save money
(11) Reasonable vs Rational
(12) Surpise! : History is the study of change, ironically used as a map of the future.
(13) Room for Error : The most important part of every plan is planning on your plan not going according to plan.
(14) You'll change
(15) Nothing's free : Everything has a price, but not all prices appear on labels.
(16) You & Me : Beware taking financial cues from people playing a different game than you are.
(17) The seduction of Pessimism
(18) When you'll believe anything : Appealing fictions, and why stories are more powerful than statistics.
(19) All Together Now :

"Use money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness"

(20) Confessions: The psychology of author's own money.

The book also includes a postscript - A brief history of why the US consumer thinks the way they do - where he describes how post WW2, the US dealt with the economic crisis of millions of returning youth soldiers by adopting to a debt market - cheap credit cards and housing loans and a market that highly encouraged spending of all forms. This worked great for everyone, because the economy grew equally for everyone but things have changed dramatically since then, though the consumer attitude seems to have stuck through.

I loved the book ❤️ and highly recommend it to anyone who is looking to be proactive with their finances!

[Tanu · Rating 5 out of 5]

"The hardest financial skill is getting the goalpost to stop moving.

It's a Timeless Lesson on Wealth, Greed, and Happiness, one of the best books on personal finance, by award-winning author Morgan Housel. This book is neatly written and contains a lot of wisdom and high-quality content.

Morgan Housel provides 19 stories in this book that explore the unusual ways people think about money. It includes observations on our relationship with money as well as information on how our financial thinking influences our life's most important decisions.

The premise of this book is that – doing well with money has little to do with how smart you are and a lot to do with how you behave. It inspires you to live a wealthy life by making smart decisions.

The psychology of money is one of the few books you’ll read back to front, multiple times. It’s been said that “Most books should be articles, most articles should be blog posts, and most blog posts should be tweets.” I couldn’t agree more.

Grab your copy here.

[Bradley · Rating 5 out of 5]

This is very good mostly because it's very simple. Twenty common-sense ideas that are so absurdly obvious if you think about but are hardly ever engaged with, seriously, basically account for all successes and failures when it comes to money.

The more obvious points:

Professional traders are about as good at it as random non-professional investors.
Compound interest is an ungodly cheat mode.
Getting your head on right is much more important than anything else you could do.
Prepare for the idea that shit might get real, good or bad, and figure it into everything you do.


Honestly, it's a great book. You don't have to be super financially literate in order to BECOME financially literate.

And it shouldn't surprise anyone that the current system is designed to appear horribly complicated and chaotic in order to discourage all but the top tier, but it IS possible to simplify just about anything if you have the will.

Books like this are very valuable for that very reason.

[Harsha Varma · Rating 4 out of 5]

Such a short book with so much wisdom and generally good advice. Highly recommended.

On a side note, this book also made me realise that Hans Rosling’s Factfulness has such great advice on investing. We often get bogged down on what’s happening in the short run and do not appreciate the progress we’ve made in the long run. Progress happens too slowly to notice, but setbacks happen too quickly to ignore. And thus, in life and investing, optimism trumps pessimism in the long run.

Quotes:
1. The highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today."

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

3. “Enough” is not too little. “Enough” is realising that the opposite—an insatiable appetite for more—will push you to the point of regret.

4. Few things matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviours of people playing different games than you are.

5. Optimism is the best bet for most people because the world tends to get better for most people most of the time. Optimism is a belief that the odds of a good outcome are in your favour over time, even when there will be setbacks along the way. The simple idea that most people wake up in the morning trying to make things a little better and more productive than wake up looking to cause trouble is the foundation of optimism. It’s not complicated. It’s not guaranteed, either. It’s just the most reasonable bet for most people, most of the time.

6. 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.

7. The first rule of compounding is to never interrupt it unnecessarily.

8. Nothing is as good or as bad as it seems.

[Hamad · Rating 4 out of 5]

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“Things that have never happened before happen all the time.”

Contrary to most people reading this book, I read it because I have a saving problem!! It is weird but I think a lot of past experience makes me always scared of what the future hides so I feed bad when I spend money which is a bit illogical. There are a lot of positive reviews for this book and it has a staggering average rating of 4.4 which encouraged me to pick it up.

The book is a bit different from what I expected. It does not have the typical preachy voice of non-fiction author who makes you feel that they have unlocked the secrets of the universe. The author tries to present facts here through studies and real life examples which is a very good way to convincing readers.

It will not tell you to do so and so to get rich but it will try to explain why are we likely to do some things and those are written in 20 chapters each focusing on a simple concept. I said that I have a saving problem and it makes me sound a bit crazy and funnily enough the first concept was that no one’s crazy and that we tend to judge people from our own experiences which compose a really tiny fraction of what’s happened in the world. And by the end I was convinced that I was doing a lot of good things that I thought were bad.

A simple yet very intriguing book about money that tries to make us understand our financial selves without sounding preachy. It was different from what I expected but still a very useful book!

[Piyush Bhatia · Rating 4 out of 5]

I believe that any book that makes you ponder over and over and simultaneously stimulates your diligent concentration before you reach any conclusion - has served the purpose of the time invested in reading. The psychology of money did this and I found the perspectives that Morgan Housel has put forward quite intriguing.

The power and the importance of compounding is explained with a simple yet interesting way.

All in all, a good read for developing new perspectives about finances while keeping both your need and wants in your mind .

4/5

[Milan · Rating 5 out of 5]

When your favorite financial writer comes out with a book, its okay to drop everything to read it. I've been a fan of Morgan Housel's writing for many years. The idea for the book 'The Psychology of Money' came from his long article by the same name. He likes to keep his writing concise but it packs a punch. The best part of his writing is that he takes the lessons from history, finance, psychology, etc. and applies it to everyday personal finance. He has this uncanny ability to look at something as everyone else and see something different in it. This book can be read very quickly, but the whole point of reading it is to stop and think about how these stories apply to our own behavior. He makes us think about our relationship with money. Our behavior impacts our financial success, more than intelligence or anything else. Wealth is not really about what others think about us, it’s more about using our money to control how we spend our time and live our lives. Investing isn’t a race to be won; it’s a more of a test of our character. He examines personal finance through the lens of human behavior.

A few gems in Morgan's own words:

• How you behave is more important than what you know about money.
• Manage your money in a way that helps you sleep at night.
• Time is the most powerful force in investing.
• A small minority of things account for the majority of outcomes.
• Define the game you’re playing, and make sure your actions are not being influenced by people playing a different game.
• There is no single right answer; just the answer that works for you.
• No one is impressed with your possessions as much as you are.
• 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.
• Endurance is what makes compounding magic over time.
• The highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today.”

You can check a longer version of the review at my blog:

https://milandeep.substack.com/p/the-...

[Aakanksha · Rating 2 out of 5]

The title and the blurb both are misleading.

The book is divided into 20 chapters and focuses only on what people did with their money in different eras, like during World War II, the Great Depression, the fall of the Soviet Union, etc. The sections are filled with reports, figures that bored me to death.

Also, if you're a beginner-level reader, do not pick this one. But if you're deep into this genre and an American, then maybe you can. I can go for an eternity to point out my disliking about this book, but I already waste enough time reading it, so not anymore.

Read the detailed review here - Books Charming

[Jashan Singhal · Rating 3 out of 5]

DISCLAIMER: If you are looking for a book that would give you "tips" on investing or trading, don't pick this one up.

First thoughts - A super easy and fun read, but it was a little different than what I had expected. Just going by the title of the book, I had anticipated that the author would probably take a deep dive into the behavioral economics and decision analysis of all aspects of money in our life but it turned out to be a rudimentary take (albeit an insightful one) on these topics.

This book can be read by people of all ages and it would probably make sense to them, you don't need to have much background in investing, trading or finance in general. Each chapter of the book is essentially a broad "psycho-financial" concept (if at all "psycho-financial" is a word, if not I just coined it and you likely understand what it means) which the author tries to elucidate by a mixture of real-world examples both of finance and non-finance flavors, quotes from renowned people and excerpts from other famous books. For example, when explaining the concept of compounding assets, the author uses the example of ice ages, and how a small starting base can lead to results so extraordinary just because a little growth serves as the fuel for future growth. You just need to give it time. Warren Buffet's skill is investing but his secret is time.

Most of the lessons in the book are trivial commonplace by nature but as it is often said, cliches exist because they work quite well in real life. Some major personal takeaways from the book which I can safely recall are:

1. Finance and investing is not HARD SCIENCE. Your success is driven by luck and how you behave and often your intelligence and efforts don't play a role.

2. Set your own financial goals, what works for someone else might not work for you because their goals are different. When people start following each other randomly, just because something is
"talk of the town", it leads to bubbles. Depending on your goal, follow a long term strategy and stick to it, even in lean economic years.

3. There is a semantic and experiential difference between being rich and being wealthy. One should focus on being the latter rather than the former. Simply put, rich folks flash money while people become wealthy by saving money. Unfortunately, we often underestimate the power of frugality and savings, and put more faith in investing strategies. If we just try to focus on being less extravagant, it can often have more compounding long term effects on our wealth than a supposedly high return investing strategy.

4. You're an emotional entity. Trust your gut more than what your rational mind asks you to do. If you are not comfortable in investing in the stock market, as it makes you more anxious, don't do it. Invest in something safer which at least guarantees you a good night's sleep. Your rational mind might say that it is probably better to invest in the stock market for high ROI but if it leads to anxiety, then what's the point of it?

The book is replete with great quotes which I hope I'll remember. Some of my favorites were:

The line between “inspiringly bold” and “foolishly reckless” can be a millimeter thick and only visible with hindsight.

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.

Money’s greatest intrinsic value—and this can’t be overstated— is its ability to give you control over your time.

YOU’RE NOT a spreadsheet. You’re a person. A screwed up, emotional person.

It sounds trivial, but thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favor.

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.

[Simon Eskildsen · Rating 5 out of 5]

I've read Housel's content for years and years. I can't recommend this book and its absurd density of insight enough. Don't let the title fool you: this book is just as much about designing a good life. For example, that a nice new car impresses yourself more than anyone else. On one of the first pages Morgan writes that "financial success is a soft skill, not a hard skill." That about sets the stage.

[AngelFA · Rating 3 out of 5]

I came for Money lesson, yet I got a life lesson

You know what irony is?
At the first, I'm going to say as my opening for this review, "This book is what I called short, but memorable." Believe me, I'm that girl who's ready to give it 5 stars.

BUT just after chapter 6, I think, "I SNAPPED!"
like, "snap-snap!"
All of the examples he sets for us sound like fiction to me, like when he did a rough calculation and served it right to the pages.

And I recalled almost throwing my book like, "What the hell?" It's exciting to read."

UNTIL...... It wasn't

God spoke to me, and he said, "You're wrong, my child." And I was like, "WTF I'm reading right now?!"

The author gave us a lot of examples after a very legit story, and of course with all of the "WISE RICHMEN SAY STUFF."

Me at early chapters:
"OMG, this man is amazing with his thoughts and his words."

But then I gave some thought to his thought, and then BOOM! It hits you differently.

It went from PERFECT
to HUH...??? HOLD ON FOR A SEC! 🤔

MY THOUGHTS:
•I love that this book is short, so it's easy to read, but instead it backfired. The author gave us a legit story from an actual event, but he left out the legit example that he needed to set off, in order to balance this legit story.

Okay, I will get this straight (so you could understand me, and if you didn't, then we're on a different server.)

I give u example how this book like:
Real Event: 🙂😢💸😫😨😵‍💫😵💩☠️🪦💔
His Example: 🤓🤑💰

Hope you get it. He sets his examples without any of "WHAT IF?". Even Mathematics solution have an "IF", so do the stories you told. Yet your example didn't give any ifs

•This book is more teach you

"HOW NOT FUCKED UP YOUR LIFE".

Instead of

"STEP TO NOT GET FUCKED UP YOUR LIFE BY ARRANGING YOUR MONEY IN THE WISE WAY".

I get it.... not fucked up with your life means you didn't messed up your money. So they both come together. Yes yes yes i fucking get it, but girl this is not the one i wished for when i picked up this book.

What I thought when I picked up this book was that I would get the steps for "How to Deal with My Money." But I didn't get that "THE STEPS."

🐥

[The Conch · Rating 4 out of 5]

The essence of the book is:

1. Fall in love for saving. Don't ask why or for what is the purpose. Life is full of bouncers, so only saving can help you.
2. Don't believe all financial forecast
3, Always cut your coat in less than the clothes. Extra portion throw into few index funds.
4. Move toward - "that lets you do what you want, when you want, with who you want, where you want, for as long as you want" - This is financial freedom.

One may read chapter 19 and 20 to know what the book is all about. Author's narration of entire economical history from WW-II till date is just like cheery on top of the cake.

[Laura Noggle · Rating 3 out of 5]

Did I miss something?

Might have to reread this shortie or read some kind of analysis — this was nothing new and not very groundbreaking. Not that it needed to be, but I was expecting more based on the raving reviews I've seen online.

Not bad, not great, just generally good things to know if you don't already or feel like you need a reminder.

[Prem · Rating 4 out of 5]

Being able to wake up one morning and change what you’re doing, on your own terms, whenever you’re ready, seems like the grandmother of all financial goals.

[Andy · Rating 4 out of 5]

This is a clear updated explanation of investing concepts going back to Ben Graham. The author does a better job than most investment books explaining that what matters is what lets you sleep at night, and so there's no single strategy that's best for everyone. I appreciated that he says what he does with his own money and why. There's not much new in terms of the concepts like Mr. Market, the rarity of fat pitches (long tail) and all that, but he doesn't pretend to have invented any of it. Tobias's book (below) is funnier and more practical. Nevertheless, this one could be extremely helpful to many people.

There's one chapter that seemed bizarrely off, about how the financial press has a bad-news bias. When CNBC every day, Barron's every week, and most every thing else all say "Buy! Buy! Buy!" it's hard to see where he's coming from on this. The default advice from Wall Street and its parasite media is that stocks will always keep moving up over the long term, often based on a BS graph of the Dow Jones Industrial Average that doesn't explain how they just keep removing from the index all the companies (like Kodak) that go bankrupt. I can see how pessimistic stories stick out in his memory in that context, but that's proving the opposite point, i.e. the financial press has an optimistic bias. Within this chapter he invokes Hans Rosling's Factfulness, but that's a completely different topic.

Further reading:
The Only Investment Guide You'll Ever Need: Expanded and Updated Throughout
Factfulness: Ten Reasons We're Wrong About the World – and Why Things Are Better Than You Think

[Sri Shivananda · Rating 4 out of 5]

Easy to read book that was a recommendation from multiple people. It explores luck, risk, behaviors, patience, rationality, earnings vs. savings, ego, outliers, delayed gratification and more as factors in building wealth. The author illustrates all this with relatable examples.

[Poonam · Rating 2 out of 5]

Morgan Housel does well with this book.

But only for readers who consider themselves novices with money. Anyone outside that category could possibly find themselves uninspired to get to the end. At the beginning of the 19th chapter, the author congratulates the reader for making it that far. *eyeroll*

Credit where due, the book is well written. It’s easy to read and understand. However, it fails to generate any interest or excitement about the subject. The author, I felt, consciously included several stories to keep the reader engaged. But I didn’t buy the book for the stories, did I?

If you find yourself as unmotivated as I was while reading this book, jump to chapter 19 for a summary. You’ll read about every chapter the author labored over in two sentences or less.
Save yourself time, money and other finite resources.

[Shraddha Agrawal · Rating 5 out of 5]

I picked up this book as a fresh graduate, high on my first few earnings, thinking it might give me insight about how, where and why to manage and invest my money knowledgeably. As I read this book, I was shocked, as you can imagine, when the author presented instances after instances of how experienced investors made poor money decisions one after the other, highlighting the fact that those decisions weren't isolated incidences stemming from a sole, particularly bad investor.

Rather the only way to succeed at investing, also true for almost all other areas of life, is by persistently keeping at it, even when things don't seem to be in your favor, playing for the long haul to let compounding work its magic, without falling prey to what others are doing and taking all advice with a grain of salt by realizing that everyone doesn't have the same goal and experiences as you do and most importantly, addressing the fact that not everything is a result of your efforts, by giving luck its due acknowledgment and embracing risk by leaving room for error in your planning. It is a good book that focuses more on how to think about your personal finances rather than what to do with your money.

The various points author makes are extremely valid to many aspects of life outside of the context of money which, apart from being a very pleasing surprise, made this book far easier to read than I envisioned while picking it up. Arguably, for me, the last few pages, the postscript titled, A Brief History of Why the US Consumer Thinks the Way They Do, was the most enjoyable part of the entire book, so if you're planning to skip that bit in a hurry to finish the book, don't!

[Barun Patra · Rating 5 out of 5]

"No matter how we save or invest I’m sure we’ll always have the goal of independence, and we’ll always do whatever maximises for sleeping well at night."

I think this is a good financial goal to set up. At least this works for me. I have been recommending "Let's talk Money" to a lot of my friends. Now I have two books to recommend. There are some really valuable lessons that this book opened my mind to. Simple yet quite valuable. Moreover, the book is not just about financial learnings but is filled with life lessons as well. All in all, a must read!

[Manu · Rating 5 out of 5]

My job is at the intersection of marketing and personal finance, and that's the reason why I appreciate this book even more. It is a difficult subject to communicate, but a job that needs to be done. What makes this book really good is that it views money not (only) through the technical lens, or the "get rich" advice, but explores the emotional aspects of personal finance, and then articulates in a way that is relatable. I might be a little biased because I subscribe to the author's worldview, and apart from index fund investing, have exactly the same approach. But I think everyone should read this book, because, as the author quotes (Voltaire), "History never repeats itself; man always does."
I will try not to paraphrase the lessons because they need to be read in the author's narrative style for them to (hopefully) sink in. He begins with calling out the fact that personal finance is well, personal, and while there are definitely rules in finance and investing might, one's behaviour is based on one's experiences and emotions. And some of it is very generation specific. For instance, the idea that one is entitled to a dignified retirement life took root only in the 1980s!
He then moves on to risk, and the role of luck, followed by the importance of knowing what you really want, and then, some excellent illustrations of the "magic pill" - compounding - at work. The next couple of chapters make some key points that are often ignored- the difference between getting wealthy and staying wealthy, and the importance of "tail events".
The definition of "freedom" is something I could completely relate to. I'd flip the original maxim for a quick understanding - "money is time". The more agency over time I have, the happier I am. The next two chapters about wealth are extremely insightful - no one is as impressed as your possessions as you are, and spending money on showing others that you have money is the fastest way to lose it! Wealth is income not spent, and it increases optionality. And while, one cannot control externalities, what is possible is an efficiency in savings. "One of the most powerful ways to increase your savings isn't to raise your income. It's to raise your humility."
The following chapters get deeper into the how emotions play a large role in financial decision making, how it is better to be reasonable than trying to be coldly rational, and also, how important it is to leave room for error. I really loved the Benjamin Graham quote - "the purpose of margin of safety is to render the forecast unnecessary." This is also important because our own desires and notions of happiness change with time. There are also some nuanced perspectives on optimism, and my views about it have changed now! :)
Another extremely important lesson is not taking financial cues from others without really understanding what game they are playing - what are they optimising for, and why. e.g. day traders vs long-term investors, at a transactional level. The author uses the final chapter to show what he is aiming for, and therefore the rationale behind his own investments.
As I mentioned earlier, the author's goals resonate with me - "..you only do the work you like with people you like at the times you want for as long as you want." But at the risk of repeating myself, I think this book will help you frame your relationship with money, irrespective of where you are in your thinking and understanding of personal finance. So I insist you read it! Now!

P.S. The postscript is an excellent read on how the US economy and its people got to where they are, both in terms of macro economic events and trends, and expectations. It's superbly insightful in terms of understanding consumer psyche. Wonder if someone has done this for India.

[Betsy Robinson · Rating 4 out of 5]

I put this book on my TBR list after reading a quoted passage from it about some millionaire ragging the writer Joseph Heller about how he’d never have as much money as the rich guy. And Heller answered, true, but he had something the rich guy would never have. “What?” asked the rich guy. “Enough,” answered Heller.

That was enough to stir my hunger and this book fed me well.

Everyone who is interested in a psychological approach to behavior with money will find something valuable here. I read mercenarily for my specific questions and life and skipped or skimmed chapters and large sections that had nothing to do with me.

All my life I’ve felt insecure and often stupid about money, and this book shifted those feelings dramatically. I went from feeling precarious to stunned and grateful to some stubborn inner self for the rightness (for me) of my actions: my tortoise-like steadfastness around saving, my intuitive understanding of compounding both in money matters and in that which I value and therefore focus my time, a lifelong habit of “leaving room for error” and accepting the reality of surprises, and most importantly my dedication to knowing myself and making decisions based on how I really feel (i.e., I have a very low tolerance for risk, so I have not risked much financially, and this has worked for me. It would not work for somebody with different tolerance and goals). In other words I was surprised to learn that I’m financially competent.

But, beyond myself, this book taught me to see the sense in other people’s decisions—how, depending on your experiences, something that sounds nuts to one person can be reasonable to another. And rather than feeling guilty about the luck I sometimes have had, I learned that this is another truism about money—having it or not having it has an enormous amount to do with luck; that’s just how it is. And it’s so interesting how luck and tiny things—one person having unique experiences or one major movement in history (“tail” events)—can have outsized influence not only on one’s own wealth but on the wealth of nations. Poof go your notions about blame or credit. Uneducated, unsophisticated people can make a lot of money. Economists with PhDs and tycoons at the top of their game can lose it all. Talent and worth do not correlate with money success at all!

This is a sane, logical book about money. I highly recommend it to anybody who is confused about this subject.

That said, I would be as remiss as the book not to mention that this is a myopically White book for this day and age. The point of view is firmly lodged in segregated White America, with almost no mention of the larger economic world. Even in the discussion of luck, there is no mention of race, racism, redlining, legacy wealth or lack thereof. (This is particularly bizarre because in the first video I punched up for Housel, he is instantly talking about wealth inequality. I don’t get it.) But people are people, so I’m sure the psychological principles are applicable across races. However, after reading Elizabeth Warren’s Persist , a virtual college course in economic inequity baked into our system, it is impossible not to know what’s missing in The Psychology of Money.