I read and loved the book The Psychology of Money by Morgan Housel and it had a profound impact on me. For those who have been around me recently know that I have adopted and paraphrased a mantra from the book:
There is a difference between being wealth and being rich. Being wealth is doing what you want, with who you want, for as long as you want. Being rich is having lots of money.My adaptation and realization is that I am very wealthy 🙌
Below is a collection of my notes and thoughts from the book – meant as an almost “open” book report of sorts that is a collections of notes and thoughts that I took down while reading.
Making money and keeping money are different things.
Nobody can really fathom the power of compound returns – its inverse thinking to growing risk.
Having thought about this for awhile its absolutely true. I have only “seen” this a few times and most of the time it has been by accident. Watching a venture scale company grow in value and the power law associated with venture is the closest I have gotten. I used to joke around that I didn’t know about the power of exponential until having 2 children – the same feels true for compound returns.
Luck and risk play huge roles in finance.
This is so obvious, but the more I read about the real story, biographies, or how other external factors affected a company or persons trajectory this is a reminder I want to come back too – often.
Longevity and surviving is a huge part of the strategy of investing.
“Don’t blow up” is a common refrain I have heard from “finance” people and it rings true. If you can survive, you can thrive. If you are not around, then it doesn’t matter anyways. Patience can mean survival – if you are not there to play the game, you lose.
Nobody loves cash in a bull market – going against the grain in these conditions is hard.
As a crypto asset investor this one rings true. I have been active in this “market” since 2015 and in a bull market everyone feels like a genius. This is a reminder that taking profits, and some liquidity is always a good idea. Cash is hard to come by in another environment. The best advice I have heard about bear markets is that “when the tide goes out, all boats go down” and it rings true. If you can live to fight another day – you win (see above).
“Good” returns over a long time beat “great” returns in a year.
What a mantra! This one is about patience, outcomes, and longevity in the market. What comes to mind for me here is the idea of a “one-hit-wonder” investment. Better to have diversified good returns over a long time horizon then have a big hit, then spend a decade losing everything.
Everyones investment decisions are right for them based on their worldview – where and WHEN You grew up makes a difference.
This was an eye opening moment to me – specifically as it relates to everyone watching things like CNBC and a talking head saying to “buy” or “sell
Optimistic about the future – paranoid about what will prevent you from getting there.
Up and to the right doesnt mean smooth sailing.
Good things come to those who wait and many (most?) growth stories look like loops or stairs and only the beginning or the end looks great like an up and to the right.
Reminder that first Disney studio went bankrupt.
I didn’t know about this one and is such a reminder of how hard things are.
Everything happens in the tails – 2000 to 2008 was nothing compared to 2008-2000.
This one was a great reminder since I got started in my VC career right around the financial crisis. During this financial storm I weathered things in a great position. Seeing what was created and started during that time taught me volumes. So many people changed jobs, lost jobs, and more and seeing WHY they did something new were a number of “tail” events. When crisis hit, some take advantage more than others.
Experience leads to overconfidence with money.
This reminds me of the quote that you should treat every project like it was your first, because you don’t want things to go wrong.
Planning on your plan not going to plan should be part of your plan.
I loved this line. It’s a great way to prepare for the unexpected.
Avoid enduring regrets – a lifetime of chasing money without a retirement plan can leave you in bad shape.
I have seen this happen with people close to me and its not pretty. Cashing out earlier than you think, taking profits, and preparing for a rainy day are always a good idea. To also say the opposite – why not leave yourself in good shape is how I like to think about it.
Compounding works best when not interrupted – not just with money, but with relationships and more.
I need to read this and re-read this 100 more times.
Moderate time spent on anything is best – job, family, hobbies – optimizes for change and happiness.
Thinking about market volatility as a fee vs a fine is a important part of this mindset shift.
Wrapping my head around this made me think about the risk and reward ratio in a entirely different way. If you view volatility as a fee (vs fine) things look different.
Playing diff games with money.
This one may not be a exact quote but I wrote it down during reading to remind myself of the stories of narratives around the different games people play with money. A great example was a buy/sell signal on TV. To think that a 21 year old entering the market, a finance expert making trades, or a soon to be retiree could use the same buy/sell signals is ridiculous. Recognize that everyone is playing a different game.
Stories are the most powerful force in the economic markets.
I lived through this during the 2017/2018 crypto bear market. The stories and narratives that came out each month (each week?) are going to be written about one day. I saw the crypto Twitter world change on a dime and certain articles and themes changes perspectives. It’s amazing to see in real time and I never would have expected it.
Everyone has an incomplete view of the world but we fill in gaps in our minds to make it work.
Humility when things go right, forgiveness and compassion when things go wrong. Its never as good or bad as it looks.
This still feels hard in the moment!
Less ego = more wealth. saving money is the difference between your ego and income. Wealth is more important.
See main point above about being wealthy. It’s more important to be wealthy than have lots of money.
Respect luck and risk.
Time is the most powerful force in investing – increase your time horizon.
Anything you can do to increase your time horizon can be a net benefit.
Use money to gain control over your time – doing what you want when you want with who you want for as long as you want is wealth. This is the highest dividend in finance.
Nobody is impressed about your physical objects more than you – you probably want respect and admiration.
Save. Save more. Save for the impossible.
Endurance allows compounding – leave room for error and worship it.
Take risks but avoid ruinous risks.
The risk of ruin is real. To take risks is key, but never so much risk that you risk blowing up.
Be aware of what someone chooses to do themselves vs what advice they give you to do.
This was eye opening to be and now I have seen the pattern many times. Two great example; the first is to look at what cancer doctors do when they themselves get cancer – rarely to they take the same course of action they tell patience to take. The other are mutual fund managers – they rarely invest all their assets in the funds they manage (which would align incentives) but rather use a risk adjusted diversified approach.
Cash is the oxygen of independence
This section struck me because like the author I never want to sell the stocks I own. This feels like the HODLing of traditional finance, but hearing stories and seeing new instruments abound of what to do with long term stocks its clear that hanging on makes sense.
Save for curveballs – not specifically for items
Control over doing what you want
Income, geography, or education – so many are unhappy.
Having a strong sense of controling ones life is a more dependable predictor of positive feelings of well being than any of the objective conditions of life we have considered.
Leading thinking and my new mantra
What you want, when you want, with who you want, for as long as you want = wealthy. Having a lot of money = rich.
- more than salary
- More than size of house
- More than prestige of job
Money’s value is to give you control over your time. Obtain bit by bit to give you control over what you want to do, when you want, with who you want.
Nobody out of 1,000 seniors said working for money for things was worthwhile
Kids want you with them.
Controlling your time is the highest dividends money pays.
This was a powerful book, a quick read, and these notes should help remind me what is most important in the future.