This post is part of the 📖 The Psychology of Money series.


Today, I am reading Surprise! chapter from the book The Psychology of Money: Timeless lessons on wealth, greed, and happiness written by Author, Morgan Housel.

TL;DR! 💬

Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior is hard to teach, even to really smart people.

In The Psychology of Money, award-winning author Morgan Housel shares 19 short stories exploring the strange ways people think about money and teaches you how to make better sense of one of life’s most important topics.


Yesterday, I finished reading the 11th short story Reasonable > Rational from the book The Psychology of Money.

Surprise!

History is the study of change, ironically used as a map of the future.

Stanford professor Scott Sagan once said something everyone who follows the economy or investment markets should hang on their wall: “Things that have never happened before happen all the time.”

History is mostly the study of surprising events. But it is often used by investors and economists as an unassailable guide to the future.

  • Do you see the irony?

  • Do you see the problem?

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.

Two dangerous things happen when you rely too heavily on investment history as a guide to what’s going to happen next.

  1. You’ll likely miss the outlier events that move the needle the most.

  2. History can be a misleading guide to the future of the economy and stock market because it doesn’t account for structural changes relevant to today’s world.

Key Takeaways

  • Innovation and change are the life-blood of progress.

  • In the investing world, the experience could lead to overconfidence more than forecasting ability.

Summary

  • Historians are not prophets. History can be a misleading guide to the future of the economy and stock market.

  • History is not in any way a map of the future. History is mostly the study of surprising events. But it is often used by investors and economists as an unassailable guide to the future.

  • Historians are not prophets. History can be a misleading guide to the future of the economy and stock market.

That’s it for today. Tomorrow, we will read the next chapter Room for Error, the most important part of every plan is planning on your plan not going according to plan.

What we learnerd so far
  1. No One’s Crazy

    Every decision people make with money is justified by taking the information they have at the moment and plugging it into their unique mental model of how the world works.

  2. Luck & Risk

    Nothing is as good or as bad as it seems. More important is that as much as we recognize the role of luck in success, the role of risk means we should forgive ourselves and leave room for understanding when judging failures.

  3. Never Enough

    There are many things never worth risking, no matter the potential gain. Knowing when you have “enough” is an invaluable skill. Building a sense for “enough” is remarkably simple: Stop taking risks that might harm your reputation, family, freedom and independence.

    Don’t forget that being loved by those “whom you want to love” is invaluable than risking everything for money.

  4. Confounding Compounding

    Good investing isn’t necessarily about earning the highest returns. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time.

  5. Getting Wealthy vs Staying Wealthy

    Good investing is not necessarily about making good decisions. It’s about consistently not screwing up. There are a million ways to get wealthy and plenty of books on how to do so. But there’s only one way to stay wealthy: some combination of frugality and paranoia.

    Getting money is one thing. Keeping it is another. If you have to summarize money success in a single word, it would be “survival”.

  6. Tails, You Win

    Gains come from a small per cent of your actions called “Long Tail Events”. You can be wrong half the time and still make a fortune. Remember, tails drive everything. Just do the average thing when all those around you are going crazy.

  7. Freedom

    Controlling your time is the highest dividend money pays. The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.

  8. Man in the Car Paradox

    If respect and admiration are your goals, be careful how you seek them. Humility, kindness, and empathy will bring you more respect than horsepower ever will.

  9. Wealth is What You Don’t See

    Wealth is hidden. It’s income not spent. Wealth is an option not yet taken to buy something later. Its value lies in offering you choices, flexibility, and growth to one day purchase more stuff than you could right now.

  10. Save Money

    Savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less about what others think of you.

  11. Reasonable > Rational

    You’re not a spreadsheet. You’re a person. A screwed up, emotional person. When it comes to investing, try to be reasonable rather than rational.

  12. Surprise!

    Don’t rely solely on history when predicting the future of the economy and stock market.

Buy or not to buy

If you want to be wealthy and then stay at the totem pole forever, you must immediately read this book. I bought several copies of this book to gift friends and family. It’s an easy read with a lot of anecdotes and real-life lessons. I already implemented several hacks in my life whistle taking investment decisions.

The Psychology of Money

Author(s): Morgan Housel

Short Blurb: Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior … Read more
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Part 14 of 23 in the 📖 The Psychology of Money book series.

Series Start | The Psychology of Money: Timeless lessons on wealth, greed, and happiness - Day 13 | The Psychology of Money: Timeless lessons on wealth, greed, and happiness - Day 15



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