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  • Writer's pictureJeran Van Alfen, CFP®

Book Notes: The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness

One of the books that I read recently was particularly helpful when it comes to approaching

financial decisions. The book is The Psychology of Money: Timeless lessons on wealth, greed, and happiness by Morgan Housel.

As I was reading this book, I found myself highlighting so many sections that I thought would be helpful in conversations with clients, so I decided to create a post and share my favorite quotes. With the state of market volatility right now, I think it is a good idea to take a step back and evaluate how we approach our money decisions. However, even without volatility, I think that most of these snippets can be useful. Enjoy!

My favorite quotes in no particular order:

“A genius is the man who can do the average thing when everyone else around him is losing his mind.” —Napoleon

“…doing well with money has a little to do with how smart you are and a lot to do with how you behave. And behavior is hard to teach, even to really

smart people.”

“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.”

“If you were born in 1970, the S&P 500 increased almost 10-fold, adjusted for inflation, during your teens and 20s. That’s an amazing return. If you were born in 1950, the market went literally nowhere in your teens and 20s adjusted for inflation.”

“…if you were born in 1990, inflation has been so low for your whole life that it’s probably never crossed your mind.”

What’s interesting about this data is in the book he points out how difficult it is to expect people from these different generations to agree on what’s likely to happen next and what the best path forward is.

“…so important to remember when judging success—both your own and others’: “Nothing is as good or as bad as it seems.””

“You are one person in a game with seven billion other people and infinite moving parts. The accidental impact of actions outside of your control can be more consequential than the ones you consciously take.”

“…someone else’s failure is usually attributed to bad decisions, while your own failures are usually chalked up to the dark side of risk.…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.”

“Conservative is avoiding a certain level of risk. Margin of safety is raising the odds of success at a given level of risk by increasing your chances of survival. Its magic is that the higher your margin of safety, the smaller your edge needs to be to have a favorable outcome.”

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

“…That can be hard to deal with, even if you understand the math. It is not intuitive that an investor can be wrong half the time and still make a fortune. It means we underestimate how normal it is for a lot of things to fail. Which causes us to overreact when they do.”

“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 highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today.”

“Using your money to buy time and options has a lifestyle benefit few luxury goods can compete with.”

“You might think you want an expensive car, a fancy watch, and a huge house. But I’m telling you, you don’t. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does—especially from the people you want to respect and admire you.”

“…If respect and admiration are your goal, be careful how you seek it. Humility, kindness, and empathy will bring you more respect than horsepower ever will.”

“When most people say they want to be a millionaire, what they might actually mean is “I’d like to spend a million dollars.” And that is literally the opposite of being a millionaire.”

“Rich is a current income.”

“…wealth is hidden. It’s income not spent.”

“When you define savings as the gap between your ego and your income you realize why many people with decent incomes save so little. It’s a daily struggle against instincts to extend your peacock feathers to their outermost limits and keep up with others doing the same.”

“Investment returns can make you rich. But whether an investing strategy will work, and how long it will work for, and whether markets will cooperate, is always in doubt. Results are shrouded in uncertainty. Personal savings and frugality—finance’s conservation and efficiency—are parts of the money equation that are more in your control and have a 100% chance of being as effective in the future as they are today.”

“…And you don’t need a specific reason to save. Some people save money for a downpayment on a house, or a new car, or for retirement. That’s great, of course. But saving does not require a goal of purchasing something specific. You can save just for saving’s sake. And indeed you should. Everyone should.”

“Saving is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment.”

“…the most important part of every plan is planning on your plan not going according to plan.”

“What do you own, and why?”

“For reasons I have never understood, people like to hear that the world is going to hell.” —Historian Deirdre McCloskey

“Real optimists don’t believe that everything will be great. That’s complacency. Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way.”

“The more you want something to be true, the more likely you are to believe a story that overestimates the odds of it being true….There are many things in life that we think are true because we desperately want them to be true….I call these things “appealing fictions.”

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

“The ability to do what you want, when you want, with who you want, for as long as you want to, pays the highest dividend that exists in finance.”

I really enjoyed this book and I am sure I will be revisiting it in the future. For more writing from Morgan Housel, you can check out his blog here.

Centered Financial, LLC is a registered investment adviser offering advisory services in the State of California, Utah, Texas and in other jurisdictions where exempted. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the techniques, strategies, or investments discussed are suitable for all investors or will yield positive outcomes. To determine which strategies or investment(s) may be appropriate for you, consult your financial adviser prior to investing. Any discussion of strategies related to tax or legal planning is general and is not intended as tax or legal advice. Please consult appropriate tax and legal professionals for recommendations pertaining to your specific situation.

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