Book Summary: Psychology of Money, by Morgan Housel
I'm posting it for the lulz. Maybe some of you guys will get a kick out of reading it, and maybe your takeaways will differ from my own.
Author is an ex ibanker who quit and joined Motley Fool. While everyone else was focused on stock-picking, author was focused on the psychology of investors and people's attitude towards risk and money.
This is a cute book. It is light and high-level, not a detailed, prescriptive or technical investment book. Book opens with the story of a janitor who made little money, but invested it in lower-risk compounding equity assets and retired very wealthy, and contrasted to the story of a high flying Merrill Lynch banker who retired in his mid 40s with millions, and was broke a few years later.
- The book seeks to impart certain lessons, but does so without being heavy handed. "It depends" and "your situation is unique" seem to be the themes.
- Invest for the long run, don't trade. The most important organ in investment is not your brain but your stomach, as you will see significant corrections in your investment lifetime, but you must stomach those falls and stay in. Don't try to beat the market and outsmart it. Use low-management style (ETFs?). Benefit from the magic of compounding.
- Live within your means and squirrel away money. Don't spend it, invest it. Don't get caught up in spending on fancy/flashy things that add little value to your actual life. Value relationships and experiences instead.
- Manage your money in a way that lets you sleep at night. Low hassle and low stress has a real life value.
- A long time horizon is the key to investing success. Time in the market is more important than timing the market.
I rarely read books like this— I read a lot of finance books, but mostly technical, practical stuff. But this was fantastic, one of the best books I’ve ever read. I bought it for my dad for Christmas with no intention reading it myself; cracked open the first page then couldn’t put it down— finished the next day. Then my dad read it and he liked it so much he bought 2 more copies to give away. The lessons outlined above are nothing novel; most sensible people in finance should be familiar with them. However, they are presented in such an accessible perspective with fresh anecdotes (aka this is far from science, as the title sort of suggests). I 100% recommend this book to anyway
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