Everyone Believes It; Most Will Be Wrong: Motley Thoughts on Investing and the Economy

by Morgan Housel

There are three types of business writing. The first is breaking news. That's what Reuters does -- just the facts. The second is analyzing news, or putting those basic facts into context. Think New York Times and Wall Street Journal. The third is taking existing facts and analysis and presenting them in a way that causes readers to think differently about a topic. That's what I try to do when I write.

Money isn't the key to happiness. What really gives people meaning and happiness is a combination of four things: Control over what they're doing, progress in what they're pursuing, being connected with others, and being part of something they enjoy that's bigger than themselves.

"What looks like tomorrow's problem is rarely the real problem when tomorrow rolls around."

"It's far better to be mostly right than precisely wrong."

most people would rather earn $50,000 when the average is $25,000 than earn $100,000 when the average is $250,000.

the biggest driver of economic success over time is productivity growth and population growth.

One of the most powerful forces in behavioral finance is called recency bias. It states that when we try to predict the future, we tend to just extrapolate the recent past. If an asset did well in recent years, our expectations of future returns jump. If it crashed in recent years, we give up on its future.

"The expected return isn't the return you should expect."

There have been 20,798 trading sessions between 1928 and today. During that time, the Dow went from 240 to 12,500, or an average annual growth rate of 5% (this doesn't include dividends). If you missed just 20 of the best days during that period, annual returns fall to 2.6%. In other words, half of the compounded gains took place during 0.09% of days.

"The fastest way to become rich is to socialize with the poor; the fastest way to become poor is to socialize with the rich." --Nassim Taleb