Day 11: Morgan Housel’s “The Psychology of Money”

(Note: Our Internet was down for three days, so this post is being posted on July 14, 2022, though I wrote it yesterday, the day I consider it “published”)

A few days ago, my wife ordered me a new book, Morgan Housel’s “The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness.” The book had been on my wish list for some time, so I mentioned it when my wife asked me if there were any books I wanted to read. In short order, she, like Tinkerbell, made my wish come true. Also in short order I gobbled it up, finding it straight-forward and enjoyable to read. 

Morgan Housel is a very smart thinker who makes some original points about money, investing, and why people make the choices they do. I wanted to share some passages I especially liked and why I liked them:

Interesting Passage #1: Most of the Time Today is Not that Important

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.

“The Psychology of Money,” by Morgan Housel, p.76

Commentary:  Much of my self-education about investing has been intended to prepare myself to navigate exactly these rare types of situations, where the market seems to be in a meltdown and everyone is going bananas! I was pleased with how I handled the Coronavirus crash in early 2020, my first real downturn as an investor. I also feel satisfied with my mindset so far this year during the extended down market. Yet I remain forever aware of my humanity, knowing that it only takes one bad decision to screw up a good thing. So I appreciate the reminder.

Interesting Passage #2: It’s Fine to Be Reasonable

There’s a well-documented ‘home bias,’ where people prefer to invest in companies from the country they live in while ignoring the other 95%+ of the planet. It’s not rational, until you consider that investing is effectively giving money to strangers. If familiarity helps you take the leap of faith required to remain backing those strangers, it’s reasonable.

p.119

Commentary:  Housel writes,“You’re not a spreadsheet. You’re a person. A screwed up, emotional person.” (P113). I appreciate this approach. His comment about investing internationally hits home for me. Yes, my wife and I both invest internationally, yet I have at times been skeptical about doing it. I appreciate the room Housel gives here for us to be human. As he says, we don’t have to be perfect to be successful investors. Let’s simply be reasonable.

Interesting Passage #3: Market Returns are Never Free

Market returns are never free and never will be. They demand you pay a price, like any other product. You’re not forced to pay this fee, just like you’re not forced to go to Disneyland. You can go to the local county fair where tickets might be $10, or stay home for free. You might still have a good time. But you’ll usually get what you pay for. Same with markets. The volatility/uncertainty fee—the price of returns—is the cost of admission to get returns greater than low-fee parks like cash and bonds.

p.163

Commentary: In this particular chapter, Housel compares investing to paying a fee. He says you need to pay the fee to gain access. However, as he points out, most people think of the risks of investing as more like a fine—that is, a punishment or unwanted price to pay. No! The risk that come from uncertainty and volatility are merely the price of admission! The flip side of risk is reward, which everyone wants. Great point from Housel here.

Interesting Passage #4: Identify the Investing Game You Are Playing

We call everyone investing money “investors” like they’re basketball players, all playing the same game with the same rules. When you realize how wrong that notion is you see how vital it is to simply identify what game you’re playing.

p.173

Commentary: In this chapter, Housel talks quite a lot about how in bubbles, short-term investors start a feeding frenzy to maximize profits, and that the problem really starts when long-term investors start acting like short-term investors, sucked in by greed.  Yet every investor is essentially playing a different game controlled by their risk tolerance, time horizon, and perhaps other investing goals that are personal to them. To me, this reminds me of Buffett’s ‘Inner Score Card,” or the Abraham idea of doing what is in alignment for you, regardless of what others are doing. Discernment is a must!

There are definitely more fine points in Housel’s book. I am still musing on them. Perhaps I will comment on them later.

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