Finance is Psychology, not Physics: The Psychology of Money by Morgan Housel
8/10 - Made me question my finance degree.
High-Level Overview
This book is a great look into the psychological biases and mental models that shape our understanding of money. As someone who loves game-changing frameworks, this was great.
Let’s just say this book made me very skeptical of my finance degree.
Fairly new concepts like money and tech are more like psychology than physics.
Experience is much more profound than anything you learn in a textbook. That's why finance is learned better through experience.
Give luck and risk their proper respect - you'll realize that financial success is never as good or as bad as it seems.
The same advice can lead to opposite outcomes. It's luck that determines the "winners."
Modern capitalism is a pro at two things: generating wealth and generating envy. Perhaps they go hand in hand.
The ceiling of social comparison is so high that no one will ever hit it. It's a battle that can never be won. The only way to win is to not play.
The most important finance book should be called: Shut Up And Wait.
The human brain cannot intuitively grasp the power of compounding. Even the smartest of us overlook its power.
"If I'm unbreakable, I think I'll get the biggest returns because I'll be able to stick around long enough for compounding to work wonders."
Anything that is huge, profitable, famous, or influential is the result of a tail event - an outlying one-in-a-thousands or millions event.
Actively seek out actions with possible 'tail' events. Take risks, but prioritize survival.
The highest form of wealth is the ability to wake up every morning and say "I can do whatever I want today."
Doing something you love on a schedule you can't control can feel the same as doing something you hate.
Money brings less respect than you think. A nice car, watch, or jacket just makes people think about their own situations.
Humility, kindness, and empathy will bring you more respect than horsepower ever will.
Wealth is the nice cars not purchased, the diamonds not bought, the watches not worn. Wealth is financial assets that haven't yet been converted into the stuff you see.
Building wealth has little to do with your income or investment returns, and lots to do with your savings rate.
The biggest reason we overcame the oil crisis is because we became more energy efficient
We grew "energy wealth" not by increasing the energy, but by decreasing the energy we needed.
The important thing is that finding more energy is largely out of our control and shrouded in uncertainty.
Meanwhile, becoming more efficient with the energy we use is in our control
Building wealth has little to do with your income or investment returns. It has lots to do with your savings rate. We solved the energy crisis by becoming more efficient with the energy we needed, not by generating more energy.
Longevity often beats rationality.
The majority of what's happening at any moment in the global economy is tied to a handful of past events - events that had no precedent when they happened.
We know one thing: we have no idea what might happen next.
Your goals will change as you do. The quicker you accept and move on, the sooner you can get back to compounding.
Everyone has their own time horizon, goals, and narratives. Therefore, it's impossible to objectively compare and generalize subjective desires.
Optimism is the best bet for most people because the world tends to get better for most people most of the time
Pessimism sounds smarter and more plausible than optimism.
A 40% drop in the stock market in six weeks draws more investigations and attention than a 140% gain over six years.
Stories are the most powerful force in the economy. They're the fuel that can let the tangible parts of the economy work.
When dealing with complicated and emotional issues, there's no right answer. There is no universal truth.
True success is exiting some rat race to modulate one's activities for peace of mind.
People do crazy things with money, but no one is crazy. What looks crazy to you might make sense to me.
No amount of studying or open-mindedness can genuinely recreate the power of fear and uncertainty.