Summary of The Psychology of Money – Morgan Housel

1. How do you define money?
– Means to buy more stuff (commodity)
– Freedom?
– How do I define money? I define it in terms of freedom and choices

2. Getting Rich vs Building wealth?

– Rich vs Wealth: difference
– Money is more important about Psychology than your money making skills.
– Ronald Reed: 8mn$ portfolio

3. Wonders of compounding
– $81.5 billion of Warren Buffett’s $84.5 billion net worth came after his 65th birthday
– It is not just related to money, it also relates to other things.
– #1 thing Warren Buffet is known for is? What is that #2 thing it is known for?

4. Each of us have our own investment philosophy and none of us are wrong.
– Eg. Parents FD
– Why? we have grown up in different times

5. Now don’t go around investing like a crazy person: (Reasonable vs rational)
– You can’t be hard core rational: eg. buying a house — is an emotional decision
– But, your decision should still be reasonable (now don’t go buy a palace)
– Similarly, Iphone– if you are making not a very high salary

6. Volatility is the price you pay by staying in the market:
– Market will always be volatile.

7. Tail events are major drivers

8. You are in for a surprise with your investments:
– Every thought about why does the stock market crash ~10 YEARS?
– 90s Dot Com Crash, 2000s Financial Market Crash, 2020, Corona crash
– Reason is different every year.

So what can be done?

9. Diversification is the key:
– Eg. Invest in Debt vs Equity

10. Save every penny you can
– Understand the definition of investments vs expenditures
– Identify what you need vs what you want

11. Create room for error:
– Don’t do FnO
– Don’t Option buyers (risk is unlimited)
– These things can wipe you out.

12. Greed is not always good, we each have our own definition of enough:
– The hardest financial skill is getting the goalpost to stop moving
– Social comparison is the problem
– Lead to dire results: eg Rajat Gupta

13. Personal finance is ‘personal’ for a reason:
– You need to define HOW much you want
– Which assets work best for you
– What return are you hunting?

14. How do I invest?
– I am a risky investor.
– I aim for 15-30% return in a year.
– Stock market is not my full time job, so I don’t have to sell stuff to manage my cash flows.

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