An “Unbook” Review of Morgan Housel's The Psychology of Money

My favorite lines from “The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness.”

I’m a big fan of Morgan Housel. I have been for a long time.

This is a not a hot take.

His latest book, The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, which came out September 8th, has garnered some decent reviews.

  • “It’s one of the best and most original finance books in years.” —Jason Zweig

  • “Housel’s observations often hit the daily double: they say things that haven’t been said before, and they make sense.” —Howard Marks

  • “Few people write about finance with the graceful clarity of Morgan Housel.”  —Daniel H. Pink

  • “Morgan Housel is that rare writer who can translate complex concepts into gripping, easy-to-digest narrative.” —Annie Duke

Not too shabby.

This is not a typical finance or investing book, although it includes both themes. It’s also a psychology book (duh), a history book, an economics book, and more. This is a book of bedtime stories for the curious and engaged.

Each chapter covers a different topic, using history and anecdotes as a guide. Below, I share my favorite lines from each chapter. Enjoy!

Chapter 1. No One’s Crazy

Page 19

Few people make financial decisions purely with a spreadsheet. They make them at the dinner table, or in a company meeting. Places where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together into a narrative that works for you.

Chapter 2. Luck & Risk

Page 28

Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort. They are so similar that you can’t believe in one without equally respecting the other. They both happen because the world is too complex to allow 100% of your actions to dictate 100% of your outcomes. They are driven by the same thing: 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.

Chapter 3. Never Enough

Page 41

Modern capitalism is a pro at two things: generating wealth and generating envy. Perhaps they go hand in hand; wanting to surpass your peers can be the fuel of hard work. But life isn’t any fun without a sense of enough. Happiness, as it’s said, is just results minus expectations.

Chapter 4. Confounding Compounding

Page 53

Good investing isn’t necessarily about earning the highest returns, because the highest returns tend to be one-off hits that can’t be repeated. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. That’s when compounding runs wild.

Chapter 5. Getting Wealthy vs. Staying Wealthy

Page 60

Getting money requires taking risks, being optimistic, and putting yourself out there. But keeping money requires the opposite of taking risk. It requires humility, and fear that what you’ve made can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you’ve made is attributable to luck, so past success can’t be relied upon to repeat indefinitely.

Chapter 6. Tails, You Win

Page 73

Anything that is huge, profitable, famous, or influential is the result of a tail event—an outlying one-in-thousands or millions event. And most of our attention goes to things that are huge, profitable, famous, or influential. When most of what we pay attention to is the result of a tail, it’s easy to underestimate how rare and powerful they are.

Chapter 7. Freedom

Page 84

Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time. To obtain, bit by bit, a level of independence and autonomy that comes from unspent assets that give you greater control over what you can do and when you can do it.

Chapter 8. Man in the Car Paradox

Page 94

It’s a subtle recognition that people generally aspire to be respected and admired by others, and using money to buy fancy things may bring less of it than you imagine. 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.

Chapter 9. Wealth is What You Don’t See

Page 98

Singer Rihanna nearly went bankrupt after overspending and sued her financial advisor. The advisor responded: “Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?”

Chapter 10. Save Money

Page 109

If you have flexibility you can wait for good opportunities, both in your career and your investments. You’ll have a better chance of being able to learn a new skill when it’s necessary. You’ll feel less urgency to chase competitors who can do things you can’t, and have more leeway to find your passion and your niche at your own pace. You can find a new routine, a slower pace, and think about life with a different set of assumptions. The ability to do those things when most others can’t is one of the few things that will set you apart in a world where intelligence is no longer a sustainable advantage. Having more control over your time and options is becoming one of the most valuable currencies in the world.

Chapter 11. Reasonable > Rational

Page 113

Do not aim to be coldly rational when making financial decisions. Aim to just be pretty reasonable. Reasonable is more realistic and you have a better chance of sticking with it for the long run, which is what matters most when managing money.

Chapter 12. Surprise!

Page 123

It is smart to have a deep appreciation for economic and investing history. History helps us calibrate our expectations, study where people tend to go wrong, and offers a rough guide of what tends to work. But it is not, in any way, a map of the future.

Chapter 13. Room for Error

Page 139

Margin of safety—you can also call it room for error or redundancy—is the only effective way to safely navigate a world that is governed by odds, not certainties. And almost everything related to money exists in that kind of world.

Chapter 14. You’ll Change

Page 150

Imagining a goal is easy and fun. Imagining a goal in the context of the realistic life stresses that grow with competitive pursuits is something entirely different.

Chapter 15. Nothing’s Free

Page 162

It sounds trivial, but thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favor.

Chapter 16. You & Me

Page 173

Few things matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviors of people playing different games than you are.

Chapter 17. The Seduction of Pessimism

Page 180

When you realize how much progress humans can make during a lifetime in everything from economic growth to medical breakthroughs to stock market gains to social equality, you would think optimism would gain more attention than pessimism. And yet.

Chapter 18. When You'll Believe Anything

Page 195

Investing is one of the only fields that offers daily opportunities for extreme rewards. People believe in financial quackery in a way they never would for, say, weather quackery because the rewards for correctly predicting what the stock market will do next week are in a different universe than the rewards for predicting whether it will be sunny or rainy next week.

Chapter 19. All Together Now

Page 208

If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon. Time is the most powerful force in investing. It makes little things grow big and big mistakes fade away. It can’t neutralize luck and risk, but it pushes results closer towards what people deserve.

Chapter 20. Confessions

Page 215

Being able to wake up one morning and change what you’re doing, on your own terms, whenever you’re ready, seems like the grandmother of all financial goals. Independence, to me, doesn’t mean you'll stop working. It means you only do the work you like with people you like at the times you want for as long as you want.

I hope you enjoyed this “Unbook” Review of Morgan Housel’s The Psychology of Money, based on this blog post from two years ago. It’s a great book and I encourage everyone to check it out.

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