The Psychology of Money by Morgan Housel PDF

The Psychology of Money by Morgan Housel PDF

Download The Psychology of Money by Morgan Housel PDF book free online – From The Psychology of Money by Morgan Housel PDF book for free download: Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behaviour is hard to teach, even to really smart people. GET FREE AUDIOBOOK

Money ― investing, personal finance, and business decisions ― is typically taught as a math-based field, where data and formulas tell us exactly what to do. But in the real world, people don’t make financial decisions on a spreadsheet. They make them at the dinner table, or in a meeting room, where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together. In The Psychology of Money, award-winning author Morgan Housel shares 19 short stories exploring the strange ways people think about money and teaches you how to make better sense of one of life’s most important topics.

Summary of The Psychology of Money by Morgan Housel PDF

Morgan Housel shows you how to develop a better connection with money and make better financial decisions in The Psychology of Money. Rather than believing that humans are ROI-optimizing machines, he demonstrates how psychology can both help and hinder you.

Important Points to Remember
Theory isn’t the same as reality.
“The problem is that no amount of learning or open-mindedness can truly duplicate the force of fear and uncertainty,” says the author.

We aren’t a bunch of numbers in a spreadsheet. As much as reading can teach us about what has happened in the past, such as stock market crashes or how stocks have trended up and down through time, learning about something in a book is not the same as experiencing it. So be cautious. You may believe that you can keep your stocks during a 30% market collapse because you know that only suckers sell at the bottom, but you won’t know what you’ll do until you’ve gone through one.

Chance and danger
It’s easy to believe that the quality of your decisions and behaviors determines your financial outcomes fully, but this isn’t always the case. It is possible to make sound decisions that result in negative financial outcomes. You can also make poor judgments that result in favorable financial outcomes. You must factor in the influence of chance and risk.

To avoid overemphasizing the importance of individual effort in deciding outcomes:

Keep a close eye on the people you admire and despise. Those at the top may have benefited from luck, while those at the bottom may have been exposed to danger.
Concentrate less on individuals and more on larger trends. It’s tough to duplicate successful people’s results, but you might be able to join in larger patterns.
“But, as much as we acknowledge the significance of luck in success, the role of risk means we should forgive ourselves and make room for understanding when judging failures,” says the author.

When you make a mistake or find yourself on the wrong side of a risk, be kind to yourself. The world is unpredictable, and if something goes wrong, it may not be your fault.

Buffett’s Lessons
“There is no reason to jeopardize what you have and need in exchange for what you don’t have and don’t need,” Warren Buffett says.

It’s simple to have a goalpost that moves. After you’ve accomplished your objectives, you’ll move on to the next one. And the cycle continues indefinitely. This is generally fueled by comparing yourself to others, and you’re usually comparing yourself to someone who is farther up on the career ladder than you.

Someone will always have more money than you when it comes to money. That’s OK. It’s great to try to make more money, but don’t start making hazardous wagers that put your assets at risk in exchange for something you don’t require.

“As of this writing, Warren Buffet has an estimated net worth of $84.5 billion. After his 50th birthday, he accumulated $84.2 billion. In his mid-60s, he qualified for Social Security and received $81.5 billion.”

Compounding has a surprising amount of power.

Obtaining vs. retaining funds
“Making money necessitates taking chances, believing in yourself, and putting yourself out there.” Keeping money, on the other hand, necessitates the polar opposite of risk-taking. It necessitates humility and the fear of losing everything you’ve built just as quickly. It necessitates frugality and an acceptance that at least some of what you’ve achieved is due to luck, and that past success cannot be counted on indefinitely.”

Getting and maintaining money are two completely different talents. While making money entails taking risks, working hard, and maintaining a positive attitude, preserving money is a different talent. It necessitates risk mitigation, avoiding greed, and remembering that things can be taken away from you at any time.

The adversary is not money.
“A plan is only valuable if it can withstand the test of time. And everyone’s reality is a future full of unknowns.”

If you’re young and earn more than you spend, investing the majority of your money in a diversified portfolio of low-cost index funds is the greatest method to maximize your long-term investment gains. Holding more than a few percentage points of your net worth in cash is a bad idea because cash’s value depreciates with time, and that money may be better spent on assets like equities, which have historically compounded at a rate of 6-7 percent.

While investing in methods that maximize your returns is appealing, these theories frequently fail to account for your personality. Assume you have 95% of your money invested in equities and 5% in cash. The stock market drops by 20% to 25%. Having such a small percentage in cash may make you more likely to panic sell some of your stocks during the downturn, depending on how that crash impacts your mindset. And that panic sell could cost you significantly more money than if you had kept a higher percentage of your portfolio in cash and didn’t sell because you felt safer.

During the March 2020 dip, this happened to me. Because I was overly invested and had insufficient cash reserves, I panicked and sold a portion of my portfolio, which proved to be a costly financial and psychological blunder as we witnessed one of the fastest market reversals in history. And it caused me to reconsider my investment strategy.

Humans are not calculators!

0 So, even if the algorithms imply that holding 1-5 percent cash maximizes returns, you might actually retain 10-20 percent cash to buffer yourself from your emotions when things go wrong. And if having a greater cash reserve prevents you from making a major financial mistake, it may be the finest move you can make for your portfolio.

Tails that are long
“In finance, where a small number of events can account for the majority of outcomes, long tails – the extreme ends of a distribution of outcomes – have enormous significance.”

The majority of the time, the investing decisions you make don’t matter. It’s the judgments you make on a few days when something huge happens — a massive downturn, a bubbly market, a speculative bubble, etc. – that determine your fate. Throughout his life, Warren Buffet has owned between 400 and 500 stocks. On ten of them, he’s made the majority of his money.

The highest level of riches
“Having the freedom to do anything you want, whenever you want, with whomever you want, for as long as you want is priceless.” It’s the best return on investment.”

More freedom and control over your time is significantly more valuable than gaining an extra 2% on your earnings by working all-nighters or placing speculative wagers that interfere with your sleep.

Ferraris do not inspire admiration.
People purchase mansions and expensive automobiles in order to get respect and admiration from others. What they don’t grasp is that people admire the object, not the person with the expensive house or automobile. They admire the object and fantasize about owning it. Buying spectacular stuff to garner others’ admiration and respect is a fool’s errand — these things cannot be purchased.

Being wealthy vs. being wealthy
You have a high current income if you’re wealthy. Being affluent, on the other hand, is a different story; wealth isn’t visible. It’s the money you have that hasn’t been spent. It refers to the ability to buy or accomplish something at a later date.
Being affluent provides you with possibilities in the immediate term, but it also gives you the flexibility to have more of the things you want in the future — freedom, time, and assets.

What is the best portfolio?
A portfolio that allows you to sleep at night is ideal. It enables you to maximize your quality of life and control over your life while still generating respectable profits. It will withstand difficult economic downturns and other bumps along the road. The majority of academic definitions of the optimal portfolio disregard the very real human issues that can drive you to diverge from the strategy.

Allow for some room for error.
You must leave room for error if you want to stay in the game for the long haul. “Room for error allows you to tolerate a variety of possible outcomes, while endurance allows you to remain around long enough to benefit from a low-probability outcome.”

Accepting that there is a difference between what you can technically endure vs. what you can emotionally suffer is a major gap in most people’s notion of room for error.

For instance, suppose you have enough money set up to last two years. So you quit your job to chase your goals, expecting that you’ll be able to find work as soon as your savings account reaches zero. You can accomplish it technically, and you won’t even be in debt. However, when you’ve spent 30% of your funds, you may begin to feel anxious, and you may find yourself psychologically depleted. If that’s the case, even if you have another year or more of financial runway, you might as well abandon your aspirations and return to a day job.

As a result, if your models do not account for your emotions, you may find yourself in undesirable scenarios.

Long-term financial planning is challenging.
Humans have a tendency to underestimate how much our personalities and ambitions change over time. Long-term financial planning becomes difficult as a result of this. We may believe that we would never have children or a large house while we are young, so we prepare accordingly, only to find ourselves with a house and children that the plan did not anticipate. So, when planning your financial strategy, keep the unknown in mind.

Investing costs money.
“Successful investing, like everything valuable, comes at a cost. Its currency, however, is not in dollars and cents. Volatility, anxiety, doubt, uncertainty, and regret are all simple to dismiss until you’re confronted with them in the moment.”

There is a cost to investing and attempting to compound your money. And that price is frequently hidden — it’s Mr. Market’s ups and downs that take you for a ride. It’s the dread and uncertainty that arise from time to time as market conditions and your own circumstances change. If you want to invest, you must be willing to pay that price, especially if your strategy is very aggressive.
Accepting that this market cost exists and being willing to pay the price is the only way to cope with it. You must be ready to deal with the turbulence and unpredictability. It’s all part of the fun of the game you’re playing.

What game are you now engaged in?
“When it comes to money, few things are more important than knowing your own time horizon and not being swayed by the acts and behaviors of those who are playing different games than you.”

If you have a friend who is making a lot of money trading short-term options and you feel FOMO and want to play the game, you should think about if it is a good fit for your goals. It would be foolish to start playing your buddy’s game if you have a 20-year time horizon and enjoy the simplicity of passive investing. You might be able to make money, but at what price? Know the game you’re playing, as well as the game others are playing as they inform you about their latest strategies.

Pessimism has a lot of power.
Pessimism typically comes across as more intelligent and compelling than optimism. It’s natural to assume that if something isn’t going well, it will continue to go wrong. And that makes a lot of sense. However, this way of thinking overlooks the fact that issues frequently necessitate change and solutions. And this inspires innovation, resulting in developments that only the most optimistic believe in.

The issue with hindsight is that it is impossible to predict what will happen in the future.
When we reflect on the past, we make up stories to explain why certain events occurred. And those stories let us believe that the world is understandable and, in some way, makes sense.

The issue is that these stories could be completely false. Despite the fact that what happened was utterly random, our stories lead us to believe that there is some lesson we can take from it in order to better anticipate the future.

In the uncertain world we live in, don’t fool yourself into thinking you have complete control.

Investing outcomes
You’ll overstate the brilliance of your winners and feel too much regret about your losers if you judge your performance by focusing on individual assets rather than your total portfolio.
Good choices aren’t always logical. It’s sometimes necessary to remember that you’re an emotional being with distinct demands than a ROI-optimizing model could suggest.
If you can do whatever you want without trying to outperform the market, why would you want to try to outperform the market and pay the price for it?

Introduction to The Psychology of Money by Morgan Housel PDF

I worked as a valet at a beautiful hotel in Los Angeles throughout my undergraduate years.
A technology executive was a frequent visitor. He was a genius, having invented and patented a fundamental component in Wi-Fi routers when he was still in his twenties. He had founded and sold a number of businesses. He was a huge success.
He also had a money relationship that was a combination of insecurity and immature studIaILy.
He was carrying a stack of $100 bills that was several inches thick. He showed it to everyone who wanted to see it, as well as to a lot of people who didn’t. He brags about his fortune freely and loudly, often when inebriated and always apropos of nothing.


“Go to the jewelry store down the street and bring me a few $1,000 gold coins,” he said one day as he handed one of my colleagues a large sum of money.
The computer executive and his buddies gathered on a wharf overlooking the Pacific Ocean an hour later, gold coins in hand. They then started to toss the coins into the sea, skipping them like rocks and giggling as they competed to see who could throw the coins the farthest. Just for the sake of amusement.
He destroyed a lamp in the hotel restaurant a few days later. A manager informed him that the lamp was worth $500 and that he would have to replace it.
“You want $500?” the CEO asked, withdrawing a wad of cash from his pocket and handing it to the manager. “I’m going to give you $5,000. Get out of my face now. Also, don’t insult me like that ever again.
If you’re wondering how long this behavior will last, the answer is “not long.” I found out afterwards that he had gone bankrupt.


The thesis of this book is that being successful with money has less to do with intelligence and more to do with behavior. Even for the most intelligent people, behavior is difficult to teach.
A brilliant person who loses control of their emotions might be financially disastrous. Likewise, the inverse is true. Ordinary people with no financial education can become wealthy if they possess a few behavioral abilities that have nothing to do with IQ tests.
My favorite Wikipedia entry starts like this: “Ronald James Read was a philanthropist, investor, janitor, and gas station attendant from the United States.


Ronald Read grew up in a little town in Vermont. He was the first in his family to graduate from high school, which was all the more astounding given that he hitchhiked to campus every day.
There wasn’t much else worth mentioning for those who knew Ron Read. His life was as unassuming as they come.
For 25 years, Read worked at a gas station repairing automobiles, and for 17 years, he swept floors at JCPenney. At the age of 38, he purchased a two-bedroom house for $12,000 and remained there for the remainder of his life.
At the age of 50, he was widowed and never remarried. His main passion, according to a pal, was cutting firewood.
Read passed away in 2014 at the age of 92. That’s when the simple country janitor became a global figure.
In 2014, there were 2,813,503 deaths in the United States. When they died, less than 4,000 of them had a net worth of more than $8 million. One of them was Ronald Read.


The former janitor left $2 million to his stepchildren and almost $6 million to his local hospital and library in his will.
Those who knew Read were perplexed by his behavior. Where did he obtain so much cash?
There was no mystery, as it turned out. There was no winning the lottery and no inheritance. Read put aside what he could and put it into olue chin stocks. Then he sat and waited. During decades as small savings accumulated to more than $8 million


That is all there is to it. From janitor to philanthropist, he’s come a long way.
Anthr dude, it’s been a couple months. Richard was recently featured in the media…

He was once named to a “40 under 40” list of successful businesspeople by a business journal.
Everything fell apart after that, just like the gold-coin-skipping tech executive.
Fuscone borrowed significantly in the mid-2000s to extend an 18,000-square-foot property in Greenwich, Connecticut, with 11 bathrooms, two elevators, two pools, and seven garages that cost more than $90.000 per month to maintain.
Then came the financial catastrophe of 2008.
Almost everyone’s finances were affected by the crisis. It seemed to have reduced Fuscone’s to dust. He became bankrupt due to his high debt and illiquid assets. In 2008, he allegedly informed a bankruptcy judge, “I currently have no income.”
His Palm Beach home was foreclosed on first.
In 2014, it was the turn of the Greenwich mansion.


Richard Fuscone’s home, where guests recalled the “thrill of dining and dancing atop a see-through covering on the home’s Indoor swimming pool” five months before Ronald Read left his fortune to charity, was sold in a foreclosure auction for 75 percent less than an insurance company estimated it was worth.


3
Richard Fuscone was greedy, but Ronald Read was patient. It only took that to bridge the vast educational and experience difference between the two.
The message here isn’t to be more like Ronald and less like Richard, but that isn’t always a bad thing.
The thing that fascinates me about these stories is how unique they are in terms of finance.
In what other industry does a person without a college diploma, no training, no background, no formal experience, and no connections surpass someone with the highest education, training, and connections?
I’m having trouble coming up with any.


A narrative about Ronald Read conducting a heart transplant better than a Harvard-trained surgeon is impossible to imagine. Or creating a tower that outperforms even the most well-trained architects. A story about a janitor outperforming the world’s top nuclear engineers will never be told.
However, these types of events do occur in the world of investing.
There are two possibilities for Ronald Read’s ability to cohabit with Richard Fuscone. One, financial outcomes are determined by chance rather than intelligence or effort. That will be true in the future, pytent, and this hook will go over it in further depth. Or two, and this is the one I believe is more popular), that financial success is not a science. It’s a soft skill in which your behavior is more significant than your knowledge.


This soft skill is referred to as “money psychology.” The goal of this book is to persuade you that soft skills are more essential than technical abilities when it comes to money. I’ll do it in such a way that everyone—from Read to Fuscone and everyone in between—will be able to make better financial judgments as a result.
These soft abilities, I’ve discovered, are grossly undervalued.
Finance is largely taught as a math-based discipline, in which you enter data into a formula, the model tells you what to do, and you just execute it.
This is true in personal finance, where you’re told to save 10% of your paycheck and have a six-month emergency fund.
It’s true in investment, where we know the exact historical interest rate and Valliarione correlations.
It’s especially true in corporate finance, where CFOs can calculate the exact cost of capital.
None of these things are inherently harmful or incorrect. It’s just that knowing what to do doesn’t tell you anything about what goes on in your thoughts when you try to execute it.


Health and money are two topics that affect everyone, whether they are interested in them or not.
With rising life expectancy around the world, the health-care industry is a triumph of modern science. Doctors’ traditional ideas about how the human body works have been supplanted by scientific discoveries. Because of it, virtualv evervone is healthier.
Another tale is the money industry, which includes investing, personal finance, and business planning.
Over the last two years, finance has snatched up the brightest minds from leading colleges.

Editorial opinions

Review

“It’s one of the best and most original finance books in years.” – Jason Zweig , The Wall Street Journal

“Morgan Housel is that rare writer who can translate complex concepts into gripping, easy-to-digest narrative. The Psychology of Money is a fast-paced, engaging read that will leave you with both the knowledge to understand why we make bad financial decisions and the tools to make better ones. ” – Annie Duke , Author, Thinking in Bets

” The Psychology of Money is bursting with interesting ideas and practical takeaways. Quite simply, it is essential reading for anyone interested in being better with money. Everyone should own a copy.” – James Clear, Author, million-copy bestseller, Atomic Habits

“Few people write about finance with the graceful clarity of Morgan Housel. The Psychology of Money is an essential read for anyone who wants to make wiser decisions or live a richer life.” – Daniel H. Pink , # 1 New York Times Bestselling Author of When , To Sell Is Human , and Drive

“Housel’s observations often hit the daily double: they say things that haven’t been said before, and they make sense.” – Howard Marks , Director and Co-Chairman, Oaktree Capital & Author, The Most Important Thing and Mastering the Market Cycle

“Morgan Housel is one of the brightest new lights among financial writers. He is accessible to everyone wanting to learn more about the psychology of money. I highly recommend this book.” – James P. O’Shaughnessy , Author, What Works on Wall Street.

I read Graham’s book when I was a teenager, learning about investing for the first time. The formulas presented in the book were appealing to me, because they were literally step-by-step instructions on how to get rich. Just follow the instructions. It seemed so easy.

But something becomes clear when you try applying some of these formulas: few of them actually work. Graham advocated purchasing stocks trading for less than their networking assets—basically cash in the bank minus all debts. This sounds great, but few stocks actually trade that cheaply anymore—other than, say, a penny stock accused of accounting fraud.

One of Graham’s criteria instructs conservative investors to avoid stocks trading for more than 1.5 times book value. If you followed this rule over the last decade you would have owned almost nothing but insurance and bank stocks. There is no world where that is OK.

Review of The Psychology of Money by Morgan Housel PDF

“Few people write about finance with the graceful clarity of Morgan Housel. The Psychology of Money is an essential read for anyone who wants to make wiser decisions or live a richer life.” – Daniel H. Pink , # 1 New York Times Bestselling Author of When , To Sell Is Human , and Drive

” The Psychology of Money is bursting with interesting ideas and practical takeaways. Quite simply, it is essential reading for anyone interested in being better with money. Everyone should own a copy. ” – James Clear , Author, million-copy bestseller, Atomic Habits

“Morgan Housel is one of the brightest new lights among financial writers. He is accessible to everyone wanting to learn more about the psychology of money. I highly recommend this book.” – James P. O’Shaughnessy , Author, What Works on Wall Street. See the Latest Waec timetable

“It’s one of the best and most original finance books in years.” – Jason Zweig , The Wall Street Journal

“Housel’s observations often hit the daily double: they say things that haven’t been said before, and they make sense.” – Howard Marks , Director and Co-Chairman, Oaktree Capital & Author, The Most Important Thing and Mastering the Market Cycle

“Morgan Housel is that rare writer who can translate complex concepts into gripping, easy-to-digest narrative. The Psychology of Money is a fast-paced, engaging read that will leave you with both the knowledge to understand why we make bad financial decisions and the tools to make better ones. ” – Annie Duke , Author, Thinking in Bets

About the Author

Morgan Housel is a partner at The Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal. He is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers, winner of the New York Times Sidney Award, and a two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism.

Share this:

Comment