The Psychology of Money | Key Takeaways
Chapter 01: No one is crazy
Different people from different generations, raised by different parents with different income levels, who are from different parts of the globe that hold different beliefs have very different views on money and lessons learnt from it. Do not argue with people when it is about hard money or easy one. Everyone does differently crazy things with money, cause we all are newbies on this topic. We think that we know how the world works, yet we are aware only of tiny part of it!
Chapter 02: Luck and Risk
Luck and Risk are siblings. They are both the reality that every outcome in life is guided by forces other than individual effort. When we are about exemplify the success, we should not focus on the specific TOP 5% successful people in the world, as it may end in risk when we take action upon our future!
Chapter 03: Never enough
“Enough” – is realizing that the opposite, an insatiable appetite for more, will push you to the point of regret. Raja Gupta’s case of failure for not stopping himself wanting more (1-billion-dollar mistake). There is a really meaningful quote from Warren Buffet, the number 3rd billionaire of the planet, that goes: “There is no reason to risk what you have and need for what you do not have and do not need”. Clear!
Chapter 04: Confounding and Compounding
Moderate cool summers, not cold winters, were the reason for Ice Ages. When it comes to investing our money, we are recommended to play long term games, meaning that we should let our money to compound itself for the long period of time. Warren Buffet started investing at the age of 10 and the his current net worth is $84.5 billion, which $81.5 billion was, reportedly, earned after his 65th birthday. Look: our mind must be ready for such big numbers!
Chapter 05: Getting wealthy vs Staying Wealthy
We plan, God laughs. Our plan is only useful when it can survive the reality, and a future filled with unknowns. There were a lot of surprises in the history, for example: Great Depression in 2008. Staying wealthy in such periods is once in a blue moon. Chapter suggests that we should choose long run investmets no matter what happens with economics. Stay quiet, but survive!
Chapter 06: Tails, you win
This section explains that everything is just a perspective. We can be half of the time way more wrong and still be winners in the game. Author also writes about remaining the same when things does not work in your way. The life itself is built to make you learn things. Speaking of investments, Warren Buffet’s stock wealth is generated in the long run, and the most interesting is that only a few top investments make up the 99% of the revenue. Take it easy, man!
Chapter 07: Freedom
The highest form of wealth is the ability to wake up in the morning and say: “I can do whatever I want today!”. It is the biggest dividend that money pays. Rockefeller’s case: thinking and making good decisions. There is a poem that he recited often:
“A wise old owl lived in an oak, The more he saw, the less he spoke. The less he spoke, the more he heard, Why aren’t we all like that wise old bird?”
Chapter 08: “Man in the car” paradox
It is a fact that most people desire to be respected and admired by others. They buy houses, fancy cars, watches (and you name it) to be in the center of public eye. However, there is a harsh truth: people use our wealth as a benchmark of their own desire to be liked or respected. In short: no one cares about our “expensive” things as much as we do!
Chapter 09: Wealth is what you do not see
This part explains the difference between being rich and wealthy. When we are rich, it is usually shown in tangible stuff (like cars). It is retirement accounts, savings and stocks that is called wealth – even if do not see them.
Chapter 10: Save Money
The value (meaning) of wealth is relative to what you need. Yes, if we have some goals to accomplish with saving up money – is great. But we do not need a specific reason to save money. We just should. Savings can be created by spending less, and you can spend less if you desire less. You will desire less, when you care less about what others think of you. Savings give us control, options and flexibility and the ability to wait for the best opportunities. So start saving up from today!
Chapter 11: Reasonable > Rational
We are not MS Excel or Google Sheets. We are human being with mixed emotions. During making a decision, it is essential to consider being reasonable for our choices. “Minimizing future regret” is more important than how much money you make on calculations. In finance, something can be technically true, but contextually nonsense!
Chapter 12: Surprise!
“Imagine how much harder physics would be if the electrons have feelings!?” said Richard Feynman. The same here as well: investors (people) have emotions. No matter what kind of strategy you have, the Universe always has surprises for you. Making decision looking back at history is the step towards great mistakes. Be flexible and note: historians are not prophets!
Chapter 13: Room for error
Mistakes are obvious enough that we can easy fall into. We are suggested to have so called “margin of safety”, which means we should leave some space for predictable errors and we should agree with it. Interesting case of German army: the mice ate the insulating covering system of the tank during the battle, when they invade in Russia in World War Two.
Chapter 14: You will change
This chapter discusses the disadvantages of long term planning and the change that people make. We do not know what future holds. At every stage of our lives we make decisions that profoundly influence the lives of the people we are going to become, which sometimes results in regrets. Well, regrets are especially painful when you abandon a previous plan and feel like you have to run in the other direction twice as fast to make up for lost time.
Chapter 15: Nothing is free
From the market return on invest perspective, commissions and loss rounds are undeniable costs to be paid. Usually, investors – who try to avoid paying the price of market – end up to be charged double. Additionally, there are some invisible fees that are paid with stress, uncertainty, doubt and regret. The God does not look highly upon those who seek a reward without paying the price!
Chapter 16: You and Me
Understanding our own time of horizon gives us a clear path along the life we live. As mentioned above, everyone is different and we play different games according to our own scenarios. This is enough argument to get off the competition and live our meaningful life. Ignore the way that has no destination!
Chapter 17: The seduction of pessimism
Pessimism sounds like someone trying to help you, where optimism is usually ignored in contrast. The chapter also talks about the Great Depression in 2008: oil industry explained. The key insight from the section was announcing 1% decrease in stock market in bold, all-capital and red letters, while 1% increase is mentioned in the evening news just orally. Morgan, the author of the book, calls out not to panic during the worst circumstances at all. Cool!
Chapter 18: When you will believe anything
In this “cruel” world, we all try to get the most of it. We have worlds in our mind we designed and believe in it; however, the world fucks everything up and does whatsoever it wants to. Chapter is about people (us), who thinks that there are some things are true because we desperately want them to be true. In fact, when planning, we focus on what we want to do and can do, we neglect the plans and skills of others whose decisions might affect our outcomes. We all tell ourselves stories about what is going on based on the little we do know. Everyone has an incomplete view of the world, but we form a complete narrative to fill in the gaps!
Chapter 19: All together now
Brief summary of 18 chapters above and some useful suggestions are covered in this section. The very insight from the chapter was doctor, treating his patients without consent (agreement) before procedure. By describing such issue, he points out to be very careful while we are advising someone. Prior to giving financial guidance, we need to ask some questions like: who are they?, what do they want with it?, when do they want?, why do they want it?
Chapter 20: Confessions
The ultimate chapter is all about his (author’s) personal finance management. How he earns, saves and invest his money. “Doctors choose different end-of-life treatments for themselves than they are recommend for their patients. The final goal is to master our own psychology of money. To each their own, cause no one is crazy!
To sum up:
Financial success is not a hard science. It is a soft skill, where how we behave is more important than what we know!