I am, after all, cleverly disguised as a responsible adult.

Hope is a good thing, maybe the best of things, and no good thing ever dies.

Life Lessons | Novel Notes | The Psychology Of Money by Morgan Housel – Part 1

Posted by shreyasvjoshi on July 25, 2021


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Experimenting with Audible – audiobooks are a difficult to get used to. And probably not completely focussing on the text might lead to not absorbing all the knowledge, I feel. But let’s see how this goes.

Money is a topic that is central to (almost) everyone’s life yet few people speak about it openly. Money management / investment are life skills not taught in school / college / even B-schools explicitly. People discover their personal risk appetites with time and unfortunately, time / patience / initial know-how are crucial in this field as in so many others. One of my favourite quotes about money, although not a one-size-fits-all truth but context is important as always, goes as follows (slightly edited) –

Money. That which separates the haves from the have-nots. But what is money? It’s everything if you don’t have it, right? Half of all American adults have more credit card debt than savings. 25% have no savings at all. And only 15% of the population is on track to fund even one year of retirement. Suggesting what? The middle class is evaporating? Or the American Dream is dead? You wouldn’t be sitting there listening to me if the latter were true. You see, I think most people just have a fundamentally flawed view of money. Is it simply an agreed-upon unit of exchange for goods and services? $3.70 for a gallon of milk? Thirty bucks to cut your grass? Or, is it an intangible? Security or happiness – peace of mind. Let me propose a third option. Money as a measuring device. You see, the hard reality is how much money we accumulate in life is not a function of who’s president or the economy or bubbles bursting or bad breaks or bosses. It’s about the American work ethic. The one that made us the greatest country on Earth. It’s about bucking the media’s opinion as to what constitutes a good parent. Deciding to miss the ball game, the play, the concert, because you’ve resolved to work and invest in your family’s future. And taking responsibility for the consequences of those actions. Patience. Frugality. Sacrifice. When you boil it down, what do those three things have in common? Those are choices. Money is not peace of mind. Money’s not happiness. Money is, at its essence, that measure of a man’s choices.

Ozark TV Series, opening lines

The basic premise of the book is:

Doing well with money has a little to do with how smart you are and a lot to do with how you behave. And behaviour is hard to teach, even to really smart people. A genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioural skills that have nothing to do with formal measures of intelligence.

As I have got older, I have realized that the books / advices that I prefer (and also dish out, when asked) are not specific tactics or formulas on success but rather the strategies / mental models / thought processes that result in success. Also, anecdotes always help. 🙂 and the insights are accompanied by metaphorical stories from which they are derived.

Quotes that stuck out for me, and some of the related thoughts or additional discussions on them follow:

Financial outcomes are driven by luck independent of intelligence and effort. That’s true to some extent.

Personally, I have started to acknowledge the role that luck plays in (generally everyone’s, but specifically my) life a lot more in my late 20s than I did in my teenage years. To the adolescent me, successful people clearly were smarter, more intelligent and driven / motivated than others. But one of the lessons life has taught me is that a lot of success is due to luck, where you are born, to whom you are born, where you grow up etc.

A common counterpoint to this view is “Luck is what you’re dealt, fate is how you play your cards.” Which, again, I agree, is 100% true. But some people are born privileged. The worst thing is – they (we) never realize it, and act as if they’re self-made and everything they have earned was owed to them and the fruit of their own solo efforts. Robert Shiller has said, “Your own thoughts are not really your own thoughts. Everything you think is a product of the people you meet and the experiences you’ve had, both of which are largely outside of your control.” The intangible elements that shape our life play a significant role towards all outcomes apart from our own individual outputs.

This is the irony of investing: Risk and luck are different sides of the same coin, but we treat one as critically important, and the other like it doesn’t exist – at least for you, when you succeed.

One of the important messages at the start of the book also is – “I would rather make 20 short points you finish, than make 1 long profound one, that you never complete.” 🙂 so if this topic seems interesting – do let me know in comments or via email and I will publish the other parts over the coming days.

References:

  1. https://www.imdb.com/title/tt5071412/?ref_=tt_ch
  2. https://www.goodreads.com/book/show/55077476-the-psychology-of-money
  3. https://qaspire.com/2020/12/15/book-review-the-psychology-of-money-by-morgan-housel/
  4. https://www.morningstar.in/posts/58009/role-luck-investing-2.aspx

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