The Psychology of Money - Morgan Housel

Book Notes

• Everyone's context of money is personal
• We all experience Luck and Risk, a lot of outcomes are outside of our control
• Nothing is as good or as bad as it seems
• Learn when "enough is enough". Greed is Excessively corrupting
• The hardest financial skill is getting the goalpost to stop moving.... Manage your expectations.
• Social Comparison is a problem (+ Social Validation)
• "Enough" is not too little
• There are many things not worth risking, no matter the potential gains
• Reputation is invaluable, Same with Freedom, Independence, Family, Friends, Happiness and Love
• How to stay wealthy (Survival) = Frugality + Paranoia
• Keeping money requires humility & loss aversion
• It's always Day 1
• Success resets after every outcome. There are very few streaks...
• Margin of safety is raising the odds of success at a given level of risk by increasing chances of survival
• Be optimistic about the future, but paranoid about what will prevent me from getting there.
• Good times are not always the end of bad times
• There are seasons of plenty and seasons of lack. plan accordingly
• Time is your friend. Think in decades
• A few things accounts for the most results
• ‘Tail events’ are very significant
• Invest consistently over time. Ignore short term fluctuations and focus on long term growth
• In every index, most returns comes from 5%-1% of the companies
• The bulk of gains comes from a small percentage of actions
• You can be wrong half of the time and still make a fortune

A 5% annual return on $100 million will generate $600 per hour

Questions

• How much money on a 10% annual return will generate enough to cover my monthly expenses?
• How much will a million dollars generate on a 10% annual return?
  • $100,000 ($8333.33 p/m) = ₦150,000,000 = ₦12,500,000 p/m

Quotes

Tails drive everything

• Morgan Housel

It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and goes much money you lose when you’re wrong

• George Soros

To make money they didn't have and didn't need, they risked what they did have and did need. And thats' foolish... There is no reason to risk what you have and need for what you don't have and need

• Warren Buffet commenting on the actions of the Long-Term Capital management Hedge fund

Not all success is due to hard work and not all poverty is due to laziness

• Morgan Housel

Success is a lousy teacher, It seduces smart people into thinking they can't lose

• Bill Gates

Failure can be a lousy teacher because it seduces smart people into thinking their decisions were terrible when sometimes they just reflect the unforgiving realities of risk

A genius is the man who can do the average thing when everyone else around him is losing his mind -Napoleon

The World is full of obvious things which nobody by any chance ever observes

• Sherlock Holmes

Having an 'edge' and surviving are two different things: The first requires the second. You need to avoid ruins at all costs" -Nassim Taleb

Good returns sustained uninterrupted for the longest period of time -especially in times of chaos and havoc- will always win

• Morgan Housel

People to Study

• Benjamin Graham (Warren Buffet's mentor)
• Frederick Lewis Allen (Historian who depicted the lives of average Americans)
• Jesse Livermore - 1929 Stock trader
• Abraham Germansky 1929 Real Estate Developer
• Micheal Moritz Head of Sequoia Capital
• Warren Buffet
• Charlie Munger
• Rick Guerin - The unofficial "third partner" to Warren Buffett and Charlie Munger in the 1970s, who frequently co-invested with the duo on major deals.

Action points

1. Set the goalpost to stop moving (How much is enough?)
2. Create and follow a frugal monthly budget
3. Avoid bad debt
4. Don't be reckless with money
5. Protect your reputation