Author: Morgan Housel
Published year: 2020
Genres: Investment
Status: Done
The Book in 3 Sentences
Save money, just for the sake of saving, you do not need a particular reason to save. Saving leads to your independence.
The first rule of compounding is to never interrupt it unnecessarily.
The difference between rich and wealthy. Rich is how much you make, wealthy is how much you have kept.
Top Quotes
Getting money is one thing. Keeping it is another.
Manage your money in a way that helps you sleep at night. “Does this help me sleep at night?” is the best universal guidepost for all financial decisions.
Never risk what you have and need for what you don’t have and don’t need.
From author’s letter to his son:
“I want you to be successful, and I want you to earn it. But realize that 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. 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.”
Summary & Reflection
Nothing really new in this book, all the concepts sound familiar and pertinent. One biggest gain personally is the stronger persuasion that I should continue as long as possible to save to BMO saving builder account. Saving is the king, don’t think too much of higher return etc. Just save it like a clock, month to month, the real compounding power will show.
No one is crazy
What looks crazy to you might make sense to me. But no one is crazy—we all make decisions based on our own unique experiences that seem to make sense to us in a given moment.
Luck & risk
Nothing is as good or as bad as it seems.
Getting wealthy & staying wealthy
Good investing is not necessarily about making good decisions, it’s about consistently not screwing up.
Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know.
Doing well with money has a little to do with how smart you are and a lot to do with how you behave. And behaviour is hard to teach, even to really smart people.
Tail events
There is little correlation between investment effort and investment results. The reason is because the world is driven by tails—a few variables account for the majority of returns. No matter how hard you try at investing you won’t do well if you miss the two or three things that move the needle in your strategy.
Tail event, the probability of such an event is very low, but the consequence is huge. 9/11 was a tail event. The financial crisis of 2007/08 was a tail event.
The most important events in historical data are the big outliers, the record-breaking events.
A handful of outlier events play an enormous role because they influence so many unrelated events in their wake.
The most important economic events of the future—things that will move the needle the most—are things that history gives us little to no guide about. They will be unprecedented events. Their unprecedented nature means we won’t be prepared for them, which is part of what makes them so impactful. This is true for both scary events like recessions and wars, and great events like innovation.
Wealth is what you don’t see
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.
Spending money to show people how much money you have, is the fastest way to have less money.
Avoid single point of failure
A good rule of thumb for a lot of things in life is that everything that can break will eventually break. So if many things rely on one thing working, and that thing breaks, you are counting the days to catastrophe. That’s a single point of failure.
Margin of safety
Concept mentioned in The intelligent investor
Room for error (aka. margin of safety) is one of the most under-appreciated forces in finance. It comes in many forms: A frugal budget, flexible thinking, and a loose timeline—anything that lets you live happily with a range of outcomes.
It’s different from being conservative. 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 favourable outcome.
The correct lesson to learn from surprises is that the world is surprising. Not that we should use past surprises as a guide to future boundaries; that we should use past surprises as an admission that we have no idea what might happen next.