The Psychology of Money – Morgan Housel | Book Review

 

 

This book is very good. It has taught me many lessons about financial management, far more than any financial self-help book I have read recently.

I will be sharing what I got from the first ten chapters.

 

 

 

Chapter One – No one is crazy

This is the first chapter of the book, and it deals with people’s experiences with money.

Morgan Housel writes that, “your personal experiences with money make up maybe 0.01% of what’s happened in the world, but maybe 80% of how you think the world works.” That’s why people behave differently with money.

Also, what happens at a particular time, either economic hardship, inflation, depression, etc., depends on people’s actions towards money.

Being rich has nothing to do with one’s intellectual capacity. It depends on your behavior with money. For money to be used properly, some lessons have to be experienced before they can be understood.

 

 

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Chapter Two – Luck and Risk

Morgan talks about careful planning, which is not the requirement for a productive result, opining that nothing is as bad as it seems. “Someone else’s successful story is someone else’s failure.”

While making investments, or doing business with people, you either get lucky to come out victoriously, or fail miserably.

Luck and risks are siblings, and he related the chapter with Bill Gates’ successful story. Bill Gates and Kent Evans were classmates and best friends in eight grade.

They planned to own a computer company. They documented every idea and stored them in a briefcase during their teens at Lakeside School in 1968.

Unfortunately for Kent, he experienced one in a million risks by never getting to finish what he and Gates set out to achieve in future. Kent died in a mountaineering accident before he graduated high school, leaving Gates to enjoy what he is enjoying today.

I have learned to be careful and not to assume that it is 100% of outcomes that can be attributed to effort, careful decisions, or poor investment that brings success, but “Sheer Luck.” When you don’t give risk and luck their proper billing, they’re often invisible.

 

 

Chapter Three – Never Enough

A measurable percentage of those reading this post right now are itching to read the pages of this amazing book if they haven’t read it before.

It has a whole lot of sense to pick from. What I learned from this chapter is that you should be okay with what you have. “Enough is not too little.”

Regardless of the rise in our expectations, there is no logic in striving to have because you are not satisfied.

Morgan cites an example from The New York Times, that Gupta and Madoff are successful businessmen alive who have got enough in their tank to take life upward, yet they were trading illicit businesses behind dark corners, which landed them in prison, therefore, destroying their reputation and accomplishments.

The good name you make would be destroyed if you don’t have the Sense of Enough.

That’s just a pure way of making money to quench your hardest financial effort earned over a long period of time. He advises us to stop craving for more when we have enough that will sustain our invaluable existence.

He sums it up with this statement, “there is no reason to risk what you have and need for what you don’t have and don’t need.”

 

 

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Chapter Four – Confounding, Compounding.

The Psychology of Money will make you realize that your knowledge about money is much smaller than what you think. Well, you have too much evidence to argue with me otherwise.

Morgan Housel promises that accumulating wealth is not a year’s job. It has to do with a ridiculous amount of time.

Money, just like any other thing, can grow into becoming absolutely extraordinary. And the amazing thing in this chapter is how Warren Buffet’s successful story is shared.

Warren Buffet is one of the richest investors of all time with a staggering net worth of $84.5b. He started accumulating money during his teens. But he became foremost in his mid-60s. It took him many years to attain that feat.

Money might not come in your 20s or 30s. Your constant investment during your pubescent years is the secret of pronounced wealth over time. And consistency is what we need. Money in billions would come towards 40 something years and beyond.

 

 

Chapter Five – Getting Wealth Vs. Staying Wealthy

Good investing is not necessarily about making good decisions. It’s about consistently not screwing up.

Once you have money, invest heavily when the prices of things are going down. But don’t invest all of it at once in case things translate into unfortunate situations.

Learn to survive in times of adversity by protecting your business with extra savings, knowing fully well that tomorrow won’t be like yesterday.

Morgan writes that planning is important, but the most important part of planning is to plan on the plan not going according to plan.

Staying rich is not good, invest twentyfold of your wealth. The standard of living is increasing but never decreasing.

 

 

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Chapter Six – Tails, You win.

The interesting thing about this chapter is how he writes about investing when everyone else is not investing. A good definition of an investing genius is the man or woman who can do the average thing when all those around him are going crazy.

Arguably, this is the longest chapter of the book with 5 pages and different stories about Google, Facebook, Disney cartoon movies, Amazon, Apple and other individual films.

He writes about public companies too, stating that before one becomes the owner of a public company, he has to have achieved a certain level of success first. The reason is that business has a lifespan which is measured in years, not generations.

You win privately before becoming a public figure over a period of time. Things can be wrong half the time but you can still make a fortune with the experience you have. At the same time, they can crash while investing.

Morgan tells the story of Russell 3000 Index films which failed to gain public recognition but bounced back to produce the first three Rambo films, Terminator 2, Basic Instincts and Total Recall, all of which were sold worldwide in large amounts of dollars.

I can’t stress this enough, when you make 50 investments into businesses, you should expect half of them to fail and 10 to do pretty well, especially in “Venture Capital.” This is the work of Tail Event. It deals with profit, famous and influential projects surrounding the stock market.

 

 

Chapter Seven – Freedom

The pages of this chapter are strictly concerned with happiness and time.

The highest dividend money pays is when happiness and time are considered.

As much as we are occupied with business and other individual engagements, peace and happiness are the only habits that make us successful business men and women.

If you don’t have peace, you won’t have happiness, which is the main power behind the intellectual capacity.

Another lesson to take from the chapter is the power of silence, which is an ingredient towards having a successful business career.

Learn to listen to your workers. Don’t talk to them, allow them to make suggestions. Listen to the public and never give out the secrets of your success.

Also, money brings freedom and that freedom shouldn’t be ignored, no matter how hectic the business boom is.

 

 

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Chapter Eight – Man in the Car Paradox

This is the shortest chapter of the book, with just a page.

Morgan states the fact that people use money to buy things, to be admired. But in the minds of the aforesaid admirers, they don’t admire them, they wish to have them instead.

He further insinuates that it is not by having expensive things that count, but having a horsepower name after one’s supposed success. And in truth, no one is impressed with your possessions as much as they are.

 

 

Chapter Nine – Wealth is What You Don’t See.

People are rich, but it doesn’t show on their bodies. What they do indoors is what matters.

Spending money to show people how much of it you have is the fastest way to have less money. Using money to buy expensive or fancy things brings less of it than you can imagine.

I also read right, he writes clearly that if respect and admiration are your goals, be careful how you seek it. You might be running out of money without noticing.

Morgan has triggered my nerves to think as if I have known all about money. However, I now know that when someone is parading fancy things, we shouldn’t rush to admire them, we should try to know how they got them.

It would make better sense than pushing to have them as our role models. For imitating people is what is causing the financial crisis today.

And the danger here is that their wealth is what we can’t see. Of course that’s the most important thing to keep in mind.

 

 

Chapter Ten – Save Money

Do people really need to be motivated or convinced before they save money? Yes, many do.

This is the beautiful lesson about the 10th chapter. He pens that, some people can survive on their own but others need to be pushed in order to save.

They don’t save as much money as they spend, which is the only factor that can generate the only things that matter the most.

Wealth is just the accumulated leftovers after you spend what you take in. You can build it without a high income, and a little savings rate is the foundation of wealth.

 

 

Thanks for reading my review of the Psychology of Money. If you want to know more about financial management, make time to read this book if you haven’t. It’s a recent book, written in 2020. Part of the reasons why I reviewed just the first 10 chapters.

 

 

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