Book Review: The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel Part 1

The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel

In Money Psychology, Morgan Housel teaches you how to maintain a better relationship with money and make smarter financial decisions. Instead of humans pretending to be mechanical to optimize ROI, he shows how your psychology can work against you.

In the book, he discussed about few keytakets.

Theory is not Reality

We don’t have a spreadsheet. We know that reading has happened in the past, such as the collapse of the stock market, how inventories are rising over time, and that they tend to be appropriate over time. Learning about something in a book is very different from actually experiencing an incident, as you can tell. Therefore, please be careful. Knowing that only idiots are selling to the floor, it is possible to hold a stake during a 30% market downturn, but only experience such a downturn and know what you will do I am.

Luck and Risk

It is easy, but not necessarily, to convince yourself if your economic consequences are fully determined by the quality of your decisions and actions. You can make good decisions that worsen your financial results. And by making bad decisions, you can have good economic consequences. You have to consider the role of luck and risk. To reduce the risk of overestimating the role of an individual’s efforts in determining
outcomes:

  • Beware those you respect or despise Those above are likely to be benefiting from luck and those below may be victims of peril. Rather than focusing on the individual, the focus is on broader patterns.
  • While it is difficult to reproduce the results of successful individuals, there are cases wheretheycan participate in a widervariety of patterns.

Lessions from Buffet

Creating a goal that keeps moving is simple. Once you’ve achieved your goal, you’re on your way to the next goal. And the cycle never ends. This often happens by comparing yourself to others, often comparing yourself to someone higher on the ladder on the basis of its own.
When it comes to money, always someone has more money than you. Fine. Pursuing more money is a good thing, but you shouldn’t start such risky gambles as risking what you have for something you don’t need.
compound interest looks strong.

Getting money vs. Keeping money

“Saving money requires taking risks and being optimistic. But keeping money requires the opposite of taking risks. It requires humility and fear of being taken away as quickly as you make it. There is an ality f that depends on past success and cannot be repeated indefinitely because you need to accept that at least some of the numbers you have done are by chance.”
Making money and keeping money are two things. It’s a skill. Saving money requires an optimistic, risk-taking horse, but keeping money is another skill. Keep in mind that you can mitigate risk, avoid greed, and steal goods at any time.

Getting money vs. Keeping money

“Saving money requires taking risks and being optimistic. But keeping money requires the opposite of taking risks. It requires humility and fear of being taken away as quickly as you make it. There is an ality f that depends on past success and cannot be repeated indefinitely because you need to accept that at least some of the numbers you have done are by chance.”
Making money and keeping money are two things. It’s a skill. Saving money requires an optimistic, risk-taking horse, but keeping money is another skill. Keep in mind that you can mitigate risk, avoid greed, and steal goods at any time.

Friendly Cash

If you make more money than you spend relatively young, the best way to optimize your long-term return on investment is to invest most of your money in diversifying your portfolio of low-cost index funds. That is. Inflation erodes the value of cash, which can historically be invested in assets such as compounded stocks at a rate of 6-7%, holding more than a percentage point of net worth in cash It’s stupid to do.
Investing in ways to maximize profits is a fascinating outlook, but such theories often do not explain psychology. Imagine you have a 95% investment in stocks and 5% cash. The market will fall 20-25%. Depends on how the slump affects your psychology, but with this small amount of cash, you’re more likely to sell some of the stock that panicked in that recession. And if you hold most of that panic sell portfolio in cash and feel safer, you could miss out on much more returns than if you didn’t sell it.

Only 1% Matters

If you make more money than you spend relatively young, the best way to optimize your long-term return on investment is to invest most of your money in diversifying your portfolio of low-cost index funds. That is. Inflation erodes the value of cash, which can historically be invested in assets such as compounded stocks at a rate of 6-7%, holding more than a percentage point of net worth in cash It’s stupid to do.
Investing in ways to maximize profits is a fascinating outlook, but such theories often do not explain psychology. Imagine you have a 95% investment in stocks and 5% cash. The market will fall 20-25%. Depends on how the slump affects your psychology, but with this small amount of cash, you’re more likely to sell some of the stock that panicked in that recession. And if you hold most of that panic sell portfolio in cash and feel safer, you could miss out on much more returns than if you didn’t sell it.

Looking back on the past creates a story about why it was specific. And that story makes us think if there is something the world can understand and somehow make sense.
The problem is that this story is likely to be nonsense at all. What happened is likely completely random, but our story makes you think there are some lessons we can learn to predict the future well.
Avoid the illusion that we have complete control over the uncertain world we live in.

In the next part we’ll discuss more about it.

To Read the part Two, Click here


Book: The Psychology of Money
Author: Morgan Housel
Publisher: Harriman House/ Jaico Books
Year: 2020

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