The Psychology of Money by Morgan Housel | Book Analysis, Summary and Rating | Free Audiobook
📚 Best Book Summaries by StoryShots
Learn or review the key ideas of The Psychology of Money in minutes, for free. Get the text and animated versions here: https://go.getstoryshots.com/H1sN
If you don't already have the book, order it here or get the audiobook for free on Amazon to learn the juicy details
The Psychology of Money by Morgan Housel | Book Analysis, Summary and Rating | Free AudiobookMorgan Housel's PerspectiveMorgan Housel is a partner at Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal. He is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers. He is also a winner of the New York Times Sidney Award and a two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism. Morgan has presented at more than 100 conferences in a dozen countries.
IntroductionThe Psychology of Money delves into the psychology behind our financial weaknesses. Housel considers how past experiences, moving the goalposts and being coldly rational can worsen long-term financial gains. The alternative is having clear, reasonable financial goals that are not over-reliant on historical financial performance. If you can implement these approaches, you can be financially successful in the long run. So, you will also benefit from the wonders of compound interest.
StoryShot #1: We All Have Unique Experiences of InvestingOur current relationships with money are based on our past experiences. Housel uses the example of people who lived through The Great Recession and are now scared of reinvesting. Many of us won’t have lived through The Great Recession. So, the author recommends avoiding judging others for their financial decisions as no one is crazy. We have all simply had
StoryShot #2: Bill Gates’ Competitive AdvantageBoth luck and risk are an integral part of finance. Do not assume that individual effort alone will allow you or others to be successful. The author uses the example of Bill Gates. Bill Gates is highly talented and works extremely hard. But, he also obtained a competitive advantage because he attended one of the few high schools in the world at that time to own a computer.
There are infinite moving parts within the world. This means the accidental impact of actions outside of your control often have a greater influence than your conscious decisions. So, work hard and take risks but also consider the role that luck plays in finance. Focus less on specific individuals and case studies and more on broad patterns. This should also help you develop greater humility when things are going right and compassion when they are going wrong.
Rich people are often the ones who make crazy financial decisions. Housel explains the goalposts seem to move the more you earn. There are countless rich individuals who have lost everything because they felt the millions they had were not enough. The lesson you can learn from these failures is you shouldn’t risk what you have and need for what you don’t have and don’t need. Saying “enough” is realizing that an appetite for more will push you to the point of regret.
Compound interest can bring you financial freedom. That said, the human brain struggles to understand the power of compounding. Housel uses Warren Buffett as an example. Many believe his wealth is entirely due to his knowledge of sound investments. More importantly, he has been making good investments since a young age. His current net worth is $84.5 billion, but he accumulated $84.2 billion after his 50th birthday. This shows the power of compounding. The key to compounding isn’t about earning the highest returns. You want pretty good returns that you can stick with for the longest period of time.
Housel doesn’t describe effective investing as making sound decisions. Good investing is about consistently not screwing up. He believes that financial success can be summarized by one word: survival. The most financially successful are those who have been able to stick around for a long time. You can only grow your wealth if you have given an asset time to compound.
Getting money requires risk taking, optimism and putting yourself out there. Keeping money requires the opposite: humility. So, try to make yourself financially unbreakable rather than focusing on big returns. Humility is also about planning with the expectation your plan won’t go according to plan. This is your margin of safety and is one of the most underappreciated forces in finance. Here are a few examples of ways you can start establishing a margin of safety:
The most successful, rich and famous are there because of a one-in-a-million event. As most of our attention goes toward these huge events, it can be easy to forget their rarity. Try to avoid underestimating how rare and powerful these events are. These events mean that investors can be wrong half the time and still make a fortune. So, Housel describes an investing genius as an individual who can do the average thing when all those around them are going crazy.
The Rich Man in the Car Paradox is that if we see a man driving a nice car we rarely think “That driver is cool!”. Instead, we think if we had that car, people would think that we are cool. This is a paradox because others would have the same thoughts and not consider you cool. Housel applies this more broadly to wealth. People acquire wealth because they believe this will make them liked and admired. But, wealth just makes others use this as a benchmark for their own desire to be liked and admired.
