Seriously Calm

The Psychology of Money - By Morgan Housel

Real optimists don't believe that everything will be great. That's complacency. Optimism is a belief that the odds of a good outcome are in your favour over time, even when there will be setbacks along the way.

Key Info

• As the title suggests, this book primarily delves into the mindset surrounding money, rather than delving into the intricacies of financial maneuvers. It does not specifically address how to develop a money-earning mentality, but rather focuses on cultivating the right way to handle money and navigate risks.
• One aspect I appreciate about Morgan Housel's perspective is his recognition that rational choices can sometimes be unreasonable. He also emphasizes the importance of maintaining flexibility to account for risks. However, it is the aforementioned quote that resonates with me the most — it serves as a reminder to acknowledge the existence of hardships and setbacks while still finding contentment in what life has to offer. It instils in me a desire to become a true optimist.

Notes

1. Survival is the ultimate secret to build wealth. Wealth differs from income; it encompasses the things that can accumulate money even while one sleeps.
2. One can't control the external world because:
• Attempting to align the plans of seven billion individuals, who constantly change their minds and goals, with one's own mind is nearly impossible
• Randomness and uncertainty are fundamental features of the world. Predictions and plans are inevitably influenced by luck and risk, which no one can control or forecast
3. Factors that contribute to the challenges of forecasting include:
• Mistakenly projecting the future based on the present situation without realizing that the world will adapt
• Our inclination to think our mental model or world view are comprehensive and to bend the reality to fit our own perspective
• The difficulty to discern the slow compounding effects (both positive and negative) and their tipping point; it's not a linear progress
• Challenges in forecasting also ensures that risks always include unforeseen elements, and therefore redundancy is important
4. Accumulating wealth is best achieved through a long-term horizon and a high savings rate. This approach allows room for uncertainty and randomness in the world. Understanding the price to pay for such uncertainty and randomness, or risk, is essential to attain the ultimate reward.
5. Financial perspectives vary based on individuals' life experiences and time horizons. It is unreasonable to assume an objective standard applicable to all. This is why short-term traders can be rational within their own context (rationality vs. reasonability).
6. Being optimistic about the future is rational in the sense that most of us, most of the time, strive to make the world a better place. It is statistically more possible that the world will improve, despite the occasional occurrence of disasters and hiccups - I am not an optimist. I am a very serious possibilist
7. Pessimism aligns our mental inclination towards loss aversion and tends to capture our attention easily, as bad things often occur swiftly and have clear effect
8. A reasonable choice sometimes may be preferable to a rational choice. It's down to personal preference and goals. For example, having a fever may be rational since it helps to fight infection, but it's not a reasonable choice
9. Flexibility rules in today's interconnected world, even surpassing intelligence, given the vast pool of genius available. Flexibility can be gained from:
• External flexibility by sufficient savings
• Internal flexibility by a flexible mindset that acknowledges the ever-changing nature of facts: "When the facts change, I change my mind"
10. Don't judge an action by its results; an outcome can be affected by luck and risk. Instead, judge an action based on its methodology and rationality.