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Book Discussion: The Psychology of Money Part 2

Book Discussion: The Psychology of Money Part 2
This is the second part of our discussion of Morgan Housel’s book The Psychology of Money.

We continue to explore some of the key points, like the role that luck plays in success, why poor people buy lottery tickets, and the differences between getting wealthy and staying wealthy.

Here are some of the highlights from our discussion:

“A good investor is someone who can do the average thing while those around them are going crazy”

When it comes to numbers, we’re naturally taught to interpret things through the average but this is rarely the meaningful statistic to be talking about. The real questions we need to be asking are what is the maximum and minimum of this list and what exactly does this average figure represent – the mean or median?

Happiness is hard to define but a common denominator is autonomy. The ability to do what you want and controlling your time is the broadest variable that makes people happy.

If we are richer than ever, why are we not happier than ever? One explanation is that if we assume that happiness is directly tied to our control of time, we find that even though we are getting a lot richer, we are not in control of our time, we’re working more hours on the job, we have less autonomy in our lives than we did 50 years ago even though we are making more money which explains why happiness levels have stagnated or even declined in many Western nations.

It’s easy to find rich role models, it’s harder to find wealthy ones. Most people don’t want to be rich, they want to wealthy – they want freedom and flexibility which is what financial assets that are not yet spent can give you. But it’s so ingrained in us that to have money means to spend money that we don’t see the restraint that it takes to be wealthy and because we can’t see it, we can’t learn from it.

You want to aim for moderation on all fronts when it comes to money. Any time that you are operating at the extremes of anything you are increasing the odds that you’ll regret that decision further down the line.

People are playing different games and yet people don’t realise that people are playing different games. For example, people trade over different time horizons and as such there is no rational price to pay for any stock – it depends on the game and time horizon that you are ‘playing’ over. This has extractable lessons for life more broadly – we need to think more about the game that we are playing and whether others are playing with the same parameters and measures to avoid getting caught up in trying to copy them when they are likely engaged in a different game. For example, getting anxious because someone is spending 18 hours in the library and you’re only spending 6 misses the point that perhaps you are happy with the result that you get whereas they are specifically aiming to come top of the year.