Book Review: The Psychology of Money

I have read many personal finance books over the years.  Coincidentally, I have become quite adept at managing my finances over the years.  It made me arrogant, thinking there is nothing more to learn in this realm.  How surprised was I to pick up the Kindle version of The Psychology of Money by Morgan Housel.  I finished it in just a few hours, a record time for reading an entire book!

Here are the key and refreshing takeaways from the read: 
  • Be Humble: If you are successful, it is very likely because you got lucky despite what your altered ego may think.  Bill Gates and Paul Allen had access to a personal computer at the high school they studied - a rare gem in the 1960s.  Of course, they had the smarts to take advantage of the situation and the rest was history.  Little did we know that Kent Evans, who was Gates best friend at school and actual first partner in business, could have been a major success too had he not died in a freak mountain climbing accident at 17.  Same circumstances.  Different luck.  Unimaginable outcomes.  The moral?  Alway stay humble, because you can easily be the lucky or unlucky person despite facing largely similar circumstantial advantages in life 
  • The Gap between Your Ego and Income is Your Savings: I could not have said it better.  Buy what you really need, not what you want to impress people with.  After all, no one is impressed with your posessions as much as you do
  • Make Sure You can Sleep at Night: People have different tolerance to the risks associated with their investments. Make sure you know yours so you can sleep tight at night despite of the ups and downs in your portfolio
  • Be OK with Everything Going Wrong: That's just life in a nutshell.  Applied to investments, it is ok to have a bunch of losers (bad picks) throughtout your investment journey.  As long as you have a few brilliant winners, you will do well.  This is how most successful people win anyway.  Most experience more downs than ups -- it's just that the losses are often less publicized as their wins.  I also found resemblance in a Venture Capital's portfolio distribution.  The VCs are bound to invest in bad picks, but as long as they have a few unicorns, the portfolio is a winner.  Sometimes a big winner!
  • Time is Your Single Most Important Factor: To grow your wealth.  It is also a very limited resource to many.  Use your wealth in turn, to gain back control of your time!
  • Take Risks but Avoid Ruinous Risks: Not all risks are born equal.  In investments, risks present a certain level of reward so it is wise to take calculcated risks for the right rewards.  The key is to not take too much risk that can cripple you from recovering to fight another day.  If it takes you 20 years to accumulate $1M, losing it all in one risky investment may prevent you from ever coming back with another million dollars to invest again.  Apply sound judgment.

I found the book portraying personal finances in a way that is common sense, but with intrigue.  The content pushes beyond my supposed comprhension just enough to keep me interested and think there is more to learn.  And there certainly is.  There are no boring formulas, just good examples of real life people living through the topics in discussion.  As for his personal finances, Housel is the typical boring investor who lives below his means, had a high savings rate on his income, and invested in low-cost index funds.  All said, he is not big into risks, even quickly paying off his mortgage to feel more secure.  But it allows him to sleep at night, which is one of his golden rules. 


- PTS

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