The Psychology Of Money

Intro

• Financial behavior is governed by people and their habits and emotions rather than Ridged rules and laws

No One is Crazy

• Your habits and money psychology depend on your experience of how the economy is and what makes sense, based on your age. Did you grow up with inflation or strong stocks or strong bonds or high unemployment or war or poverty or silver spoons. -> what people think and how diverse opinions are, is a consequences of this.
• Be humble when you're successful and forgiving of others actions keeping the above in mind

Luck and Risk

• Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming.
• Focus less on specific individuals and case studies and more on broad patterns. These tend to be truer and factor in luck and risk less

Never Enough

• Don't risk what you have and need for something you don't

• Social comparison is bad as you will always want more

• Never worth risking

  • Reputation is invaluable.
  • Freedom is invaluable.
  • Family and friends are invaluable.
  • Happiness is invaluable.

Confounding Compounding

• A good investment is not about trying the strategies to earn the highest interest rates. It seems intuitive, but the highest interest rates tend to be one-off hits that can’t be repeated. Instead, good investing is about earning pretty good returns for a long period of time.

Getting wealth vs staying wealthy

• Be financially unbreakable, More than I want big returns, I want to be financially unbreakable. And if I’m unbreakable, I think I’ll get the biggest returns because I will be able to stick around long enough for compounding to work wonders.
• Planning is important, but the most important part of every plan is to plan on not going according to plan.
• You might fear the loss in the short term, but after a loss, you will see the growth. This cycle will continue.

Tails you Win

• You can be wrong 70% the time and still make a ton of money if when your right you get 100x returns. This is how most marker returns are generated, for every company success like Amazon Prime, AWS or the iPhone there are dozens of flops and that's fine.
• "The man who can do the average thing when everyone around him are going crazy"

Freedom

• The most consistent indicator of happiness is whether or not you have control over what you do, when you do, with whom you do.

Man in the Car Paradox

• When you have something like a nice car, people don't think of you as wealthy, they think of how much they want to be wealthy.
• People who buy expensive things tend to want respect and admiration and expensive things can't / don't buy that. Empathy, kindness, generosity, humility, will get you further

Wealth is What You Don't See

• For wealth to be wealth if has to stay as money or an asset, thus it is largely invisible, assuming someone is wealthy based on what they've bought doesn't really make sense when loan, knock offs and such exist and many could afford them on the verge of bankruptcy and do.
• Exercise metaphor, you think, I did the work and not I get to treat myself but in reality, wealth is saying no to the treating yourself part for actual results

Save Money

• Learning to live with less is much easier than getting more salary but is often under utilized. Also avoid life style inflation with rising pay checks
• Savings gives you options and flexibility, like taking longer to find a better job because you have time to be a bit picky.

Reasonable > Rational

• A rational strategy might be optimal but if you as a person cannot deal with the stress it creates and cannot stick with it, it's worthless and it would be much better to pick a less optimal but still good strategy that you could stomach which would be more reasonable to you.
• Example, high risk assets might be good when you're young but if it bothers you a lot and you find yourself anxious about your money all the time that rational but not reasonable. If you instead take a 40/60 bond stock split and are more comfortable with that this is more reasonable even if it's just a tad less rational.
• It's hard to wake up in the morning and tell yourself that no one has a clue what the future holds even if it's true. Acting on investment forecasting is dangerous.

Surprise

• Things that have never happened before happen all the time
• Using history and assuming that it's seen everything that's happened before and can be used to predict the future is Ludacris
• On top of that our systems are fundamentally changing all the time -> during the great depression we didn't have computers and Internet stock trading.

Room for Error

• You can't prepare for what you can't envisions so having a large margin of safety for the future to be worse than the past is good. Also for just things you can't possibly anticipate.
• German tanks being destroyed by nesting field mice which could never have been anticipated because of the region.

You'll Change

• People underestimate how much they will change over time. Your goals will probably look vastly different in the future. So it's good to be somewhat flexible and avoid the extreme ends of financial planning
• Nothing is free
• Cost of investing and compounding is fear uncertainty and doubt. Prices for things can be invisible until you experience them.
• Think of volatility as a fee rather than a fine and you will feel better about it

You & Me

• Everyone who invests has different goals and time horizons and tolerance for risk. Don't be persuaded by the actions of those playing different games than you are.
• Also said games differences in games are responsible for market bubbles and crashes

Pessimism

• Expect things to be bad and be surprised when they're not

When you'll Believe Anything

• There are many things in life we believe because we want them to be true. This has a big impact on how we think about money and how people interact with it.

Outro

• There is no right answer to finance but simply a right answer for you.