The Psychology of Money
Series: books
In this book, Morgan explores the relationship between people and money. We strive for security, comfort, love, respect while our brains are inherently tuned to be selfish and greedy. Successful investing requires long term thinking and the ability to delay our instant gratification. Morgan conveys his thoughts through very good stories.
This is easily the best book in this genre, Morgan sells nothing. It takes you ahead of the curve. Must read!
Few points that I wrote down for myself.
Everyone is different, and their experiences with money are varied. Your investment strategy is shaped by your upbringing. For a person who has lived through great depression, investments are risky.
Don’t underestimate luck. We don’t value the contribution of luck in our success. Bill Gates went to the only private school that has computer, isn’t that luck?
You have to know what is enough for you. Otherwise, you end up running a race which will never end.
Compounding works. Think about Ice Age. Small amounts of ice which did not melt carried over to the next season and this compounding created a large effect like Ice Age.
Getting wealthy vs staying wealthy. Behave wisely with your money. Getting money is easy( ~ if you work), keeping it needs work.
Failure is okay, don’t worry. If you fail in an investment, pick your losses and move on.
The most important return on money is time. If you have enough money to not worry about money anymore, that is the most important freedom.
Wealth is what you don’t see. If you see someone driving a Ferrari, you immediately assume that he is rich, but do you really know what loans he has?
Save money because it will give your life back.
Be reasonable. Nuclear reactors give the cheapest form of energy but as we learned they come with a lot of risk. The reasonable choice would be to look at alternative sources of energy that are less risky. You can’t be rational all the time.
Don’t think about history. Hindsight is not a valuable tool in investing.
Leave room for error. If you are banking on something, leave 1-2% room for error.
Be flexible. You will change in the future.
There is no free lunch. The returns on investment are the reward for you to sit tight.
Don’t trust anyone even the author.
There is no right answer in investing/ every one is doing equally bad.