The Psychology of Money

QHB's 10 Points of Focus and Summaries

The Psychology of Money 10 Points:

1. Behavior Over Knowledge: Financial success is more about how you behave with money than how much you know. Personal experiences and emotions drive financial decisions.

2. Luck and Risk: Life outcomes are often influenced by a mix of luck and risk. It's important to recognize that success stories, like Bill Gates, are not solely due to skill but also circumstances.

3. Knowing When Enough is Enough: Chasing more wealth without understanding the concept of “enough” can lead to disaster. Learning to set limits on your desires can prevent unnecessary risk.

4. Power of Compounding: Small, consistent efforts can result in extraordinary financial outcomes through the magic of compounding over time.

5. Getting Wealthy vs. Staying Wealthy: Building wealth requires skill, but keeping it requires survival—combining frugality with an appreciation for uncertainty and risk.

6. Value of Freedom: True wealth lies in the ability to control your time and do what you want, when you want, with whom you want.

7. Social Comparisons: Comparing yourself to others is a never-ending race. Learning to define “enough” for yourself is key to financial satisfaction.

8. The Role of Humility and Savings: Humility is crucial to saving money. Saving gives you flexibility, control, and the ability to make decisions on your own terms.

9. Pessimism vs. Optimism: Pessimism often sounds more convincing, but optimism, backed by patience and persistence, tends to yield better long-term results.

10. Personal Financial Strategy: There’s no one-size-fits-all approach to money. You must find a financial strategy that aligns with your personal goals and values.

QHB's Selected Book Quotes and Summaries

*** MH = Morgan Housel (The Author)

=== INTRODUCTION: The Greatest Show on Earth ===

# “Financial success is not hard science. It’s a soft skill, where how you behave is more important than what you know.” - MH

# “ “History never repeats itself; man always does.” It applies so well to how we behave with money.” - MH

=== Chapter 1. No One’s Crazy ===

# “No amount of studying or open mindedness can genuinely recreate the power of fear and uncertainty” - MH

# “Our Findings suggest that individual investor’s willingness to bear risk depends on personal history.” - Ulrike Malmendier and Stefan Negal

# “Do you know what my aunt did before she worked in one of these factories? She was a prostitute. The idea of working in a “sweat shop” compared to that old lifestyle is an improvement.” - Nephew of a Chinese Worker

# “Every decision people make with money is justified by taking the information they have at the moment and plugging it into their unique mental model of how the world works.” - MH

# “We are paying for a dream, and you may not understand that because that because you are already living a dream. That’s why we buy more tickets than you do.” - Person who buys lottery tickets instead of saving money

# “No one is crazy - we all make decisions based on our unique experiences that seem to make sense to us in a given moment.” - MH

=== Chapter 2: Luck & Risk ===

# “Bill Gates experienced one in a million luck by ending up at Lakeside. Kent Evans experienced one in a million risk by never getting to finish what he and Gates set out to achieve. … For every Bill Gates there is a Kent Evans who was just as skilled and driven but ended up on the other side of life roulette.” - MH

# “Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming. … Therefore, focus less on specific individuals and case studies and more on broad patterns.” - MH

# “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.” - Bill Gates

=== Chapter 3. Never Enough ===

# “Yes, but I have something he will never have … enough.” - Joseph Heller

# “They already had everything: unimaginable wealth, prestige, power, freedom. And they threw it all away because they wanted more. They had no sense of enough.” - MH

# “To make money they didn't have and didn't need, they risked what they did have and did need. And that’s foolish.” - Warren Buffet

# “There is no reason to risk what you have and need for what you don’t have and don’t need.” - MH

# “Remember a few things. 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 many things never worth risking, no matter the potential gain.” - MH

# “Happiness, as it’s said, is just results minus expectations.” - MH

# “The ceiling of social comparison is so high that virtually no one will ever hit it. Which means its a battle that can never be won, or that the only way to win is not to fight to begin with.” - MH

# “Enough is realizing that an insatiable appetite for more will push you to the point of regret” - MH

=== Chapter 4. Confounding Compounding ===

# “The Big takeaway from ice ages is that you don’t need tremendous force to create tremendous results. If something compounds - if a little growth serves as the fuel for future growth - a small starting base can lead to results so extraordinary they seem to defy logic. … And so it is with money.” - MH

# “His skill is investing, but his secret is time. That’s how compounding works.” - MH

=== Chapter 5. Getting Wealthy vs Staying Wealthy ===

# “Good investing is not necessarily about making good decisions. It’s about consistently not screwing up.” - MH

# “There is only one way to stay wealthy: some combination of frugality and paranoia.” - MH

# “They were both very good at getting wealthy, and equally bad at staying wealthy. Even if “wealthy” is not a word you’d apply to yourself, the lessons from the observation apply to everyone, at all income levels. Getting money is one thing, Keeping it is another.” - MH

# “If I had to summarize money success in a single word it would be “Survival”. …He survived. Survival gave him longevity. … Skill of staying wealthy. Which, over time, is the skill that matters most.” - MH

# “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. … 2. Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. … 3. A Bar belled personality - optimistic about the future, but paranoid about what will prevent you from getting to the future - is vital.” - MH

# “A plan is only useful if it can survive reality. And a future filled with the unknowns is everyone’s reality.” - MH

=== Chapter 6. Tails, You Win ===

# “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

# “The military genius is the man who can do the average thing when all of those around him are going crazy.” - Napoleon Bonaparte

# “When we pay special attention to a role model’s successes we overlook that their gains came from a small percent of their actions. That makes our own failures, losses and setbacks feel like we’re doing something wrong.” - MH

=== 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.” - MH

# “Money’s greatest intrinsic value - and this can’t be overstated - is its ability to give you control over your time.” - MH

# “Aligning money towards a life that lets you do what you want, when you want, with who you want, where you want, for as-long as you want, has incredible returns.” - MH

=== Chapter 8. Man in the Car Paradox ===

# “What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does - especially from the people you want to respect and admire you.” - MH

# “Humility, kindness and empathy will bring you more respect than horsepower ever will.” - MH

=== Chapter 9. Wealth is what you don’t see ===

# “Spending money to show people how much money you have is the fastest way to lose money.” - MG

# “There is no faster way to feel rich than to spend lots of money on really nice things. But the way to be rich is not to spend money you have, and not to spend the money that you don’t have. It’s really that simple.” - Bill Mann

# “Exercise is like being rich. You think “I did the work and I now deserve to treat myself to a big meal.” Wealth is turning down that treat meal and actually burning net calories.” - MH

=== chapter 10. Save Money ===

# “Building wealth has little to do with your income or investment returns, and lots to do with your savings.” - MH

# “The Value of wealth is relative to what you need.” - MH

# “One of the most powerful ways to increase your savings isn’t to raise your income. It’s to raise your humility.” - MH

# “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.” - MH

# “You don’t need a specific reason to save. … Savings without a spending goal gives you the options and flexibility, the ability to wait and the opportunity you pounce. It gives you time to think. It lets you change course on your own terms.” - MH

# “Having more control over your tome and options is becoming one of the most valuable currencies in the world. That’s why more people can, and more people should, save money.” - MH

=== Chapter 11. Reasonable Mind ===

# “Aim just to 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.” - MH

# “It may be rational to want a fever if you have an infection. But it’s not reasonable. That philosophy - aiming to be reasonable instead of rational - is one more people should consider when making decisions with their money.” - MH

“ Let me suggest that you love your investments. Invest in a promising company you don’t care about, and you might enjoy it when everything’s going well. But when the tide inevitably turns you’re suddenly losing money on something you’re not interested in.” - MH

=== Chapter 12. Surprise! ===

# “The majority of what’s happening at any given moment in the global economy can be tied back to a handful of past events that were nearly impossible to predict.” - MH

# “The correct lesson to learn from surprises is that the world is surprising. Not that we should use past surprises as a guide to future boundaries; that we should use past surprises as an admission that we have no idea what might happen next.” - MH

# “Something becomes clear when you try applying some of these formulas: few of them actually work.” - MH

=== Chapter 13. Room for Error ===

# “The most important part of every plan is planning on your plan not going according to plan.” - MH

# “The purpose of the margin of safety is to render the forecast unnecessary.” - Benjamin Graham

# “The answer to those what ifs is “You won’t be able to retire like you once predicted.” Which can be a disaster. The solution is simple: Use room for error when estimating your future returns.” - MH

# “Leverage is the devil here. Leverage - taking on debt to make your money go further - pushes routine risks into something capable of producing ruin.” - MH

# “I just want to ensure I can remain standing long enough for my risks to pay off. You have to survive to succeed. … The ability to do what you want, when you want, for as long as you want, has an infinite ROI.” - MH

# “The Germans had the most sophisticated equipment in the world. Yet there they were, defeated by mice. … it’s equally important to save for things you can’t possibly predict or even comprehend- the financial equivalent of field mice. ” - MH

# “It was uncharted territory. Avoiding these kinds of unknown risks is, almost by definition, impossible. You can’t prepare for what you can’t envision.” - MH

# “A good rule of thumb for a lot of things in life is that everything that can break will eventually break. So if many things rely on one thing working, and that thing breaks, you are counting the days to catastrophe. That's a single point of failure.” - MH

# “Some people are remarkably good at avoiding single points of failure. Most critical systems on airplanes have backups, and the backups often have backups.” - MH

=== Chapter 14. You’ll Change ===

# “Long term planning is hardening than it seems because people’s goals and desires change over time.” - MH

# “An underpinning of psychology is that people are portrayed as 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.” - MH

# “two things to keep in mind when making what you think are long-term decisions: We should avoid the extreme ends of financial planning. … We should also come to accept the reality of changing our minds.” - MH

# “Assuming you’ll be happy with a very low income, or choosing to work endless hours in pursuit of a high one, increase the odds that you’ll one day find yourself at a point of regret.” - MH

# “Compounding works best when you can give a plan years or decades to grow. This is true for not only savings but careers and relationships. Endurance is key.” - MH

# “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.” - MH

=== Chapter 15. Nothing’s Free ===

# “Everything has a price, but not all prices appear on labels… the key to a lot of things with money is just figuring out what that price is and being willing to pay for it.” - MH

# “Say you want a new Car. It cost $30,000. You have 3 options: 1) Pay $30,000 for it, 2) find a cheaper used one, or 3) steal it. … Like the car, you have a few options: You can pay this price, accepting volatility and upheaval. Or you can find an asset with less uncertainty and a lower payoff, the equivalent of a used car. Or you can attempt the equivalent of Grand Theft Auto. Try to get the return while avoiding the volatility that comes along with it. Many people in investing choose the third option.” - MH

# “Why do so many people who are willing to pay the price of cars, houses, food and vacations try so hard to avoid paying the price of good investment returns? The answer is simple: the price of investing success is not immediately obvious.” - MH

# “You’re not forced to pay this fee, just like you’re not forced to go to Disneyland. You can go to the local county fair where tickets might be $10, or stay at home for free. You might still have a good time. But you’ll usually get what you pay for.” - MH

# “The trick is convincing yourself that the market’s fee is worth it. … If you view the admission fee as a fine, you’ll never enjoy the magic.” - MH

=== Chapter 16. You & Me ===

# “People are greedy, and greed is an indelible feature of human nature.” - MH

# “People often make financial decisions they regret, and they often do so with scarce information and without logic.” - MH

# “When investors have different goals and time horizons - and they do in every asset class - prices that look ridiculous to one person can make sense to another, because the factors those Investors pay attention to are different.” - MH

# The main thing I can recommend is going out of your way to identify what game you’re playing.” - MH

=== Chapter 17. The Seduction of Pessimism ===

# Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.” - MH

# “There are two topics that will affect your life whether you are interested in them or not: money and health.” - MH

# “Progress happens too slowly to notice, but setbacks happen too quickly to ignore.” - MH

# “Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happens in an instant.” - MH

# “Consider the progress of medicine. Looking last year will do you little good. Any single decade won’t do much better. But looking at the last 50 years will show something extraordinary.” - MH

# “Reputations take a lifetime to build and a single email to destroy.” - MH

# “The short sting of pessimism prevails while powerful pull of optimism goes unnoticed.” - MH

=== Chapter 18. When you’ll Believe Anything ===

# “There are many things in life that we think are true because we desperately want them to be true. I call these things “appealing fictions.” … An appealing fictions happens when you are smart, you want to find solutions, but face a combination of limited control and high stakes. They are extremely powerful. They can make you believe just about anything. … willing to believe anything. Not just try anything, but believe it.” - MH

# “When you have no money and your son is sick, you’ll believe in anything. … You’ll believe just about anything when the stakes are that high.” - MH

# “Everyone has an incomplete view of the world. But we form a complete narrative to fill in the gaps.” - MH

=== Chapter 19. All Together Now ===

# “Few short recommendations that can help you make better decisions with your money : Go out your way to find humility when things are going right and compassion when they go wrong. … Less ego, more wealth. … Manage your money in a way that helps you sleep at night. … If you want to do better as an investor, increase your time horizon. … Become OK with a lot of things going wrong. … Use money to gain control over your time. … Be nicer and less Flashy. … Save, just save. … Define the cost of success and be ready to pay it. … worship room for error. … avoid the extreme ends of financial decisions. … you should like risks because it pays off over time. … define the game you’re playing. … Respect the mess. “ - MH

=== Chapter 20. Confessions ===

# “There is no universal truth. There’s only what works for you and your family, checking the boxes you want checked in a way that leaves you comfortable and sleeping well at night.” - MH

# “What works for one person may not work for another. You have to find what works for you.” - MH

# “I did not intend to get rich. I just wanted to get independent.” - Charlie Munger

# “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.” - MH

# “If I had to summarize my views on investing, its this: Every investor should pick a strategy that has the highest odds of successfully meeting their goals.” - MH

=== Postscript: A Brief History of Why the US Consumer thinks the way they do ===

# “I don't live in the world I expected. That pisses me off. So screw this. And screw you! I’m going to fight for something totally different, because this - whatever it is - isn't working.” - MH

# “History is just one damned thing after another.” - MH

=== END OF BOOK ===