In this long weekend (of course, thanks to covid) I am able to complete this book. It is about the money management in daily lives (it is not about where do we have to invest) and our behavior with money.
Suggested by world's best authors like James Clear (Everyone should own a copy), Daniel H Pink, Annie Duke..
Still hard to find the name of the book??? Written by Morgan Housel.
Yeah your guess is correct, it is "The Psychology of Money" (it is already in title na???). The best book in finance , I read. But I felt bad because i should have read it before (In my 20's at least).
Morgan Housel presented his experiences and human behavior with money with short real life stories in simple layman's language.
I know what you think, we all know about money and it's management. But in this book, author say like this "Doing well with money isn't necessary about what you know. it's about how you behave. And behavior is hard to teach, even to smart people".
Yeah its all about behavior required with money. For instance, we all make business decisions by taking consideration of our personal risk management, personal history, our unique view of the world, ego etc., so our decision is being influenced by our own emotions / our financial experiences that means with our behavior.
In this book, the author shares 19 short stories exploring the strange ways people think about money and teaches us how to make better sense of one of life's most important matters.
In introduction, the author narrates a story about 'How a gas attendant Ronald James Read had a net worth of over $8 Million with his disciplined savings habit and he made it in international headlines when he passed away. And about How a Harvard educated Merrill lynch executive Richard Fuscone loss his fortune and went to bankrupt due to his unnecessary expenses and high debt'.
"History never repeats itself, man always does" - Voltaire.
Let's have look on chapters :
- No One's Crazy
Everyone has his own experience with the money. No one is crazy with their financial decision. So, our experience with the money is very very less of what is happened in the world but may be most of the time it works.
- Luck & Risk
Nothing is as good as bad as it seems. Every outcome in our life is guided by forces (luck & Risk) other than individual effort. To explain these luck and risk, author quotes the story of Bill gates and his childhood friend Kent Evans and how they experienced their luck and risk respectively.
- Never Enough
The hardest financial skill is getting the goal post to stop moving. Many of us do compare with other's social status, so we never be happy and we can't achieve our goal as it is not stable. There are many things never worth risking, no matter the potential gain. There are any invaluable things like reputation, freedom, family, friends, Happiness etc.,
- Confounding Compounding
Many of us already heard about this, Warren buffet earns $81.5 billion of his networth $ 84.5 billion after his 65th birthday. But our minds are not build to handle such absurdities. It's about earning pretty good returns that you can stick with and which can be repeated for the longest period of time thats when compounding runs wild.
- Getting Wealthy vs. Staying Wealthy
Good investing is not necessarily about making good decisions it's about consistently not screwing up. You know warren buffet, charlie and rick, these three were started their journey But warren and charlie made it to staying wealthy but Rick was in hurry that time and he forced to sell his shares to buffet once the market was down heavily as he was levered with margin loans.
- Tails, You Win
You can be wrong half the time and still make a fortune. Yeah it is true, by looking at venture capitals, they can get more than expected returns even after most of their investments (in startups) are failed. Tails drive everything.
- Freedom
Controlling your time is the highest dividend money pays. The ability to do what you want, when you want, with whom you want, for as long as you want, is priceless. Financial freedom = Freedom of time
- Man in the Car Paradox
No one is impressed with our possessions as much as you are. By seeing a costly car (to show our richness) on road, we thought to have such car (No one think car owner is very rich or something else).
- Wealth is What You Don't See
Spending money to show people how much money you have is the fastest way to have less money. Money and Wealth are different things. Money gives you instant happiness but wealth gives you the most valuable thing in your life is your time.
- Save Money
Building wealth has little to do with your income or investment return and lots to do with your savings rate. You don't need specific reason to save. Just save.
- Reasonable > Rational
Aiming to be mostly reasonable works better than trying to be coldly rational. A rational investor makes decisions based on numeric facts and A reasonable investor make them in conference room with his colleagues or with spouse at home or comparing with life time competitors like neighbors, relatives.
- Surprise!
History is the study of change, ironically use as a map of the future. We can use the history to forecast the future but to much dependency is not advisable. For example, Corona is not in the history, but now total world suffers.
- Room for Error
The most important part of every plan is planning on your plan not going according to plan. Means no one knows for sure, there should be margin of safety (room for error). We always forecast the future with probability, needs to give room for error.
Read: Grow your Passive income
- You'll Change
Long term planning is harder than it seems because people's goals and desires charge over time. So, First rule of compounding is to never interrupt your investment unnecessary.
- Nothing's Free
Everything has a price, but not all prices appear on labels. The volatility / uncertainty fee- the price of returns - is the cost of admission to get returns greater than low fee like bonds / cash.
- You & Me
Beware taking financial cues from people playing a different game than you are. Yeah, in recent days, so many people became masters in stock market, they always try to give stock picks. But never take stock tips from others, you do your own analysis before investing. Because risk appetite is always different from one another.
- The Seduction of Pessimism
Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you. Pessimism just sounds smarter and more plausible than optimism. The short sting of pessimism prevails while the powerful pull of optimism goes unnoticed.
- When You'll Believe Anything
Appealing fictions, and why stories are more powerful than statics. Of course, when we are in bad situation, we believe anything to come out of it. But be conscious about your decision on what basis you are taking it.
- All Together Now
This chapter is like Mix of last 18 chapters.
Ok.. Guys.. This is the overview of this book study. Must read book for all age groups.
The best definition of investing genius is the man or woman who can do the average thing when everyone else around them are going crazy. I hope you wanna become an investing genius by doing the average thing (reading this book).
You can buy this book from here -
Hello, welcome to my blog, Smart Investor. I'm Satyanarayana, a banker & blogger, Investor from Visakha -patnam, India. You can read more about SML here.
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