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The Psychology of Money - Clippings

  • The premise of this book is that doing well with money has a little to do with how smart you are and a lot to do with how you behave.

  • The more I studied and wrote about the financial crisis, the more I realized that you could understand it better through the lenses of psychology and history, not finance.

  • “History never repeats itself; man always does.”

  • People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons.

  • Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works.

  • The economists found that people’s lifetime investment decisions are heavily anchored to the experiences those investors had in their own generation—especially experiences early in their adult life.

  • view about money that one group of people thinks is outrageous can make perfect sense to another.

  • Every decision people make with money is justified by taking the information they have at the moment and plugging it into their unique mental model of how the world works.

  • Everything worth pursuing has less than 100% odds of succeeding, and risk is just what happens when you end up on the unfortunate side of that equation. Just as with luck, the story gets too hard, too messy, too complex if we try to pick apart how much of an outcome was a conscious decision versus a risk.

  • We tend to seek out these lessons by observing successes and failures and saying, “Do what she did, avoid what he did.”

  • Risk and luck are doppelgangers.

  • we tend to study extreme examples—the billionaires, the CEOs, or the massive failures that dominate the news—and extreme examples are often the least applicable to other situations,

  • The more extreme the outcome, the less likely you can apply its lessons to your own life,

  • You’ll get closer to actionable takeaways by looking for broad patterns of success and failure.

  • To make money they didn’t have and didn’t need, they risked what they did have and did need. And that’s foolish. It is just plain foolish. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense.

  • The hardest financial skill is getting the goalpost to stop moving.

  • It gets dangerous when the taste of having more—more money, more power, more prestige—increases ambition faster than satisfaction.

  • As I write this Warren Buffett’s net worth is 84.5billion.Ofthat,84.5 billion. Of that,84.2 billion was accumulated after his 50th birthday. $81.5 billion came after he qualified for Social Security, in his mid-60s. Warren Buffett is a phenomenal investor. His skill is investing, but his secret is time.

  • But there’s only one way to stay wealthy: some combination of frugality and paranoia.

  • getting money and keeping money are two different skills.

  • Getting money requires taking risks, being optimistic, and putting yourself out there. But keeping money requires the opposite of taking risk. It requires humility, and fear that what you’ve made can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you’ve made is attributable to luck, so past success can’t be relied upon to repeat indefinitely.

  • “Having an ‘edge’ and surviving are two different things: the first requires the second. You need to avoid ruin. At all costs.”

  • More than I want big returns, I want to be financially unbreakable. And if I’m unbreakable I actually think I’ll get the biggest returns, because I’ll 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 the plan not going according to plan.

  • The more you need specific elements of a plan to be true, the more fragile your financial life becomes.

  • A barbelled personality—optimistic about the future, but paranoid about what will prevent you from getting to the future—is vital.

  • “The great investors bought vast quantities of art,” the firm writes.¹⁹ “A subset of the collections turned out to be great investments, and they were held for a sufficiently long period of time to allow the portfolio return to converge upon the return of the best elements in the portfolio. That’s all that happens.”

  • Anything that is huge, profitable, famous, or influential is the result of a tail event—an outlying one-in-thousands or millions event.

  • Over the course of your lifetime as an investor the decisions that you make today or tomorrow or next week will not matter nearly as much as what you do during the small number of days—likely 1% of the time or less—when everyone else around you is going crazy.

  • Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years spent on cruise control.

  • A good definition of an investing genius is the man or woman who can do the average thing when all those around them are going crazy.

  • When you accept that tails drive everything in business, investing, and finance you realize that it’s normal for lots of things to go wrong, break, fail, and fall.

  • No one talks about the dud picks, the ugly businesses, the poor acquisitions. But they’re a big part of Buffett’s story. They are the other side of tail-driven returns.

  • Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time.

  • People like to feel like they’re in control—in the drivers’ seat. When we try to get them to do something, they feel disempowered. Rather than feeling like they made the choice, they feel like we made it for them. So they say no or do something else, even when they might have originally been happy to go along.

  • Take it from those who have lived through everything: Controlling your time is the highest dividend money pays

  • Wealth is what you don’t see.

    wealth is hidden. It’s income not spent.

  • There are professional investors who grind 80 hours a week to add a tenth of a percentage point to their returns when there are two or three full percentage points of lifestyle bloat in their finances that can be exploited with less effort.