in Charlie Munger, Daniel Kahneman, Luck, Margin of Safety, money, Morgan Housel, Risk, The Psychology of Money

The Psychology of Money

The first book that I’ve finished this calendar year is Morgan Housel‘s, The Psychology of Money.

Overall review: great book, great writing and easy read.

Like many great writers who know their subjects, Housel is a clear thinker that writes about the first principles of the psychology of money in simple ways. There’s not too much filler (which I appreciate a lot) and it flows well between chapters where the end of each chapter teases into the next.

Probably my favourite Chapter is 13 about leaving Room for Error. Ingrained in me as a junior Engineer working to build nuclear power plants, margin of safety is the only way to go.

Below are my favourite quotes that I’ve highlighted on my first read.

“Some people are born into families that encourage education; others are against it. Some are born into flourishing economies encouraging of entrepreneurship; others are born into war and destitution. I want you to be successful, and I want you to earn it. But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself.”

Chapter 2, Luck and Risk

“Exercise is like being rich. You think, “I did the work and I now deserve to treat myself to a big meal.” Wealth is turning down that treat meal and actually burning net calories.”

Chapter 9, Wealth is What You Don’t See

“Savings in the bank that earn 0% interest might actually generate an extraordinary return if they give you the flexibility to take a job with a lower salary but more purpose, or wait for investment opportunities that come when those without flexibility turn desperate.”

Chapter 10, Save Money

“the purpose of the margin of safety is to render the forecast unnecessary.”

Chapter 13, Room for Error

“Room for error lets you endure a range of potential outcomes, and endurance lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor.”

Chapter 13, Room for Error

“The ability to do what you want, when you want, for as long as you want, has an infinite ROI.”

Chapter 13, Room for Error

“…good rule of thumb for a lot of things in life is that everything that can break will eventually break.”

Chapter 13, Room for Error

“The biggest single point of failure with money is a sole reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future.”

Chapter 13, Room for Error

“sounds trivial, but thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favor.”

Chapter 15, Nothing’s Free

This underscores an important point made previously in this book: In investing you must identify the price of success—volatility and loss amid the long backdrop of growth—and be willing to pay it.

Chapter 17, The Seduction of Pessimism

“An appealing fiction happens when you are smart, you want to find solutions, but face a combination of limited control and high stakes.”

Chapter 18, When You’ll Believe Anything

“Hindsight, the ability to explain the past, gives us the illusion that the world is understandable”

Chapter 18, When You’ll Believe Anything

Carl Richards writes: “Risk is what’s left over when you think you’ve thought of everything.”

Chapter 18, When You’ll Believe Anything

“Kahneman once laid out the path these stories take:
When planning we focus on what we want to do and can do, neglecting the plans and skills of others whose decisions might affect our outcomes.
Both in explaining the past and in predicting the future, we focus on the causal role of skill and neglect the role of luck.”

Chapter 18, When You’ll Believe Anything

“Luck and risk are both real and hard to identify. Do so when judging both yourself and others. Respect the power of luck and risk and you’ll have a better chance of focusing on things you can actually control.”

Chapter 19, All Together Now

“Worship room for error.”

Chapter 19, All Together Now

Charlie Munger once said “I did not intend to get rich. I just wanted to get independent.”

Chapter 20, Confessions