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1. The Psychology of Money Timeless L >>
2. “A genius is the man who can do the average thing when everyone else around him is losing his mind.”—Napoleon >>
3. “The world is full of obvious things which nobody by any chance ever observes.”—Sherlock Holmes >>
4. The premise of this book is that doing well with money has a little to do with how smart you are and a lot to do with how you behave. And behavior is hard to teach, even to really smart people. >>
5. A genius who loses control of their emotions can be a financial disaster >>
6. Read saved what little he could and invested it in blue chip stocks. Then he waited, for decades on end, as tiny savings compounded into more than $ 8 million. >>
7. Ronald Read was patient; Richard Fuscone was greedy. That’s all it took to eclipse the massive education and experience gap between the two. >>
8. The fascinating thing about these stories is how unique they are to finance. In what other industry does someone with no college degree, no training, no background, no formal experience, and no connections massively outperform someone with the best education, the best training, and the best connections? >>
9. The fact that Ronald Read can coexist with Richard Fuscone has two explanations. One, financial outcomes are driven by luck, independent of intelligence and effort. That’s true to some extent, and this book will discuss it in further detail. Or, two (and I think more common), that financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know. >>
10. Two topics impact everyone, whether you are interested in them or not: health and money. >>
11. Finance has scooped up the smartest minds coming from top universities over the last two decades. Financial Engineering was the most popular major in Princeton’s School of Engineering a decade ago. Is there any evidence it has made us better investors? >>
12. I have seen none. >>
13. But has trial and error taught us to become better with our personal finances? >>
14. Are we less likely to bury ourselves in debt? >>
15. Most of the reason why, I believe, is that we think about and are taught about money in ways that are too much like physics (with rules and laws) and not enough like psychology (with emotions and nuance). >>
16. Money is everywhere, it affects all of us, and confuses most of us. Everyone thinks about it a little differently. It offers lessons on things that apply to many areas of life, like risk, confidence, and happiness. Few topics offer a more powerful magnifying glass that helps explain why people behave the way they do than money. It is one of the greatest shows on Earth. >>
17. My own appreciation for the psychology of money is shaped by more than a decade of writing on the topic. I began writing about finance in early 2008. It was the dawn of a financial crisis and the worst recession in 80 years. >>
18. To write about what was happening, I wanted to figure out what was happening. But the first thing I learned after the financial crisis was that no one could accurately explain what happened, or why it happened, let alone what should be done about it. For every good explanation there was an equally convincing rebuttal. >>
19. Finance is different. It’s guided by people’s behaviors. And how I behave might make sense to me but look crazy to you. >>
20. The more I studied and wrote about the financial crisis, the more I realized that you could understand it better through the lenses of psychology and history, not finance. >>
21. To grasp why people bury themselves in debt you don’t need to study interest rates; you need to study the history of greed, insecurity, and optimism. >>
22. I love Voltaire’s observation that “History never repeats itself; man always does.” It applies so well to how we behave with money. >>
23. 
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24. Everyone has their own unique experience with how the world works. And what you’ve experienced is more compelling than what you learn secondhand. >>
25. So all of us—you, me, everyone—go through life anchored to a set of views about how money works that vary wildly from person to person. What seems crazy to you might make sense to me. >>
26. Here’s the thing: People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons. >>
27. You know stuff about money that I don’t, and vice versa. You go through life with different beliefs, goals, and forecasts, than I do. That’s not because one of us is smarter than the other, or has better information. It’s because we’ve had different lives shaped by different and equally persuasive experiences. >>
28. The challenge for us is that no amount of studying or open-mindedness can genuinely recreate the power of fear and uncertainty. >>
29. I can read about what it was like to lose everything during the Great Depression. But I don’t have the emotional scars of those who actually experienced it. And the person who lived through it can’t fathom why someone like me could come across as complacent about things like owning stocks. >>
30. Spreadsheets can model the historic frequency of big stock market declines. But they can’t model the feeling of coming home, looking at your kids, and wondering if you’ve made a mistake that will impact their lives. Studying history makes you feel like you understand something. But until you’ve lived through it and personally felt its consequences, you may not understand it enough to change your behavior. >>
31. As investor Michael Batnick says, “some lessons have to be experienced before they can be understood.” We are all victims, in different ways, to that truth. >>
32. In theory people should make investment decisions based on their goals and the characteristics of the investment options available to them at the time. But that’s not what people do. >>
33. The economists found that people’s lifetime investment decisions are heavily anchored to the experiences those investors had in their own generation—especially experiences early in their adult life. >>
34. If you grew up when inflation was high, you invested less of your money in bonds later in life compared to those who grew up when inflation was low. If you happened to grow up when the stock market was strong, you invested more of your money in stocks later in life compared to those who grew up when stocks were weak. The economists wrote: “Our findings suggest that individual investors’willingness to bear risk depends on personal history.” >>
35. Not intelligence, or education, or sophistication. J ust the dumb luck of when and where you were born. >>
36. The Financial Times interviewed Bill Gross, the famed bond manager, in 2019. “Gross admits that he would probably not be where he is today if he had been born a decade earlier or later,” the piece said. Gross’s career coincided almost perfectly with a generational collapse in interest rates that gave bond prices a tailwind. That kind of thing doesn’t just affect the opportunities you come across; it affects what you think about those opportunities when they’re presented to you. To Gross, bonds were wealthgenerating machines. To his father’s generation, who grew up with and endured higher inflation, they might be seen as wealth incinerators. >>
37. Take stocks. If you were born in 1970, the S& P 500 increased almost 10fold, adjusted for inflation, during your teens and 20s. That’s an amazing return. If you were born in 1950, the market went literally nowhere in your teens and 20s adjusted for inflation. Two groups of people, separated by chance of their birth year, go through life with a completely different view on how the stock market works: >>
38. 
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39. No one should expect members of these groups to go through the rest of their lives thinking the same thing about inflation. Or the stock market. Or unemployment. Or money in general. >>
40. No one should expect them to respond to financial information the same way. No one should assume they are influenced by the same incentives. >>
41. No one should expect them to trust the same sources of advice. No one should expect them to agree on what matters, what’s worth it, what’s likely to happen next, and what the best path forward is. >>
42. Their view of money was formed in different worlds. And when that’s the case, a view about money that one group of people thinks is outrageous can make perfect sense to another. A few years ago, The New York Times did a story on the working conditions of Foxconn, the massive Taiwanese electronics manufacturer. The conditions are often atrocious. Readers were rightly upset. But a fascinating response to the story came from the nephew of a Chinese worker, who wrote in the comment section: My aunt worked several years in what Americans call “sweat shops.” It was hard work. Long hours, “small” wage, “poor” working conditions. Do you know what my aunt did before she worked in one of these factories? She was a prostitute. The idea of working in a “sweat shop” compared to that old lifestyle is an improvement, in my opinion. I know that my aunt would rather be “exploited” by an evil capitalist boss for a couple of dollars than have her body be exploited by several men for pennies. That is why I am upset by many Americans’ thinking. We do not have the same opportunities as the West. Our governmental infrastructure is different. The country is different. Yes, factory is hard labor. Could it be better? Yes, but only when you compare such to American jobs. >>
43. 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. >>
44. Those people can be misinformed. They can have incomplete information. They can be bad at math. They can be persuaded by rotten marketing. They can have no idea what they’re doing. They can misjudge the consequences of their actions. Oh, can they ever. But every financial decision a person makes, makes sense to them in that moment and checks the boxes they need to check. They tell themselves a story about what they’re doing and why they’re doing it, and that story has been shaped by their own unique experiences. >>
45. Take a simple example: lottery tickets. Americans spend more on them than movies, video games, music, sporting events, and books combined. And who buys them? Mostly poor people. The lowest-income households in the U.S. on average spend 400 in an emergency. Which is to say: Those buying 400 in an emergency. They are blowing their safety nets on something with a one-in-millions chance of hitting it big. >>
46. We live paycheck-to-paycheck and saving seems out of reach. Our prospects for much higher wages seem out of reach. We can’t afford nice vacations, new cars, health insurance, or homes in safe neighborhoods. We can’t put our kids through college without crippling debt. Much of the stuff you people who read finance books either have now, or have a good chance of getting, we don’t. Buying a lottery ticket is the only time in our lives we can hold a tangible dream of getting the good stuff that you already have and take for granted. We are paying for a dream, and you may not understand that because you are already living a dream. That’s why we buy more tickets than you do. >>
47. 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. >>
48. the modern foundation of money decisions—saving and investing—is based around concepts that are practically infants. >>
49. We all do crazy stuff with money, because we’re all relatively new to this game and what looks crazy to you might make sense to me. But no one is crazy—we all make decisions based on our own unique experiences that seem to make sense to us in a given moment. >>
50. NYU professor Scott Galloway has a related idea that is so important to remember when judging success—both your own and others’: “Nothing is as good or as bad as it seems >>
51. Luck and risk are siblings. They are both the reality that every outcome in life is guided by forces other than individual effort. >>
52. Bill Gates went to one of the only high schools in the world that had a computer. The story of how Lakeside School, just outside Seattle, even got a computer is remarkable. Bill Dougall was a World War II navy pilot turned high school math and science teacher. “He believed that book study wasn’t enough without realworld experience. He also realized that we’d need to know something about computers when we got to college,” recalled late Microsoft co-founder Paul Allen. In 1968 Dougall petitioned the Lakeside School Mothers’ Club to use the proceeds from its annual rummage sale—about $ 3,000—to lease a Teletype Model 30 computer hooked up to the General Electric mainframe terminal for computer time-sharing. “The whole idea of time-sharing only got invented in 1965,” Gates later said. “Someone was pretty forwardlooking.”Most university graduate schools did not have a computer anywhere near as advanced as Bill Gates had access to in eighth grade. And he couldn’t get enough of it. Gates was 13 years old in 1968 when he met classmate Paul Allen. Allen was also obsessed with the school’s computer, and the two hit it off. Lakeside’s computer wasn’t part of its general curriculum. It was an independent study program. Bill and Paul could toy away with the thing at >>
53. their leisure, letting their creativity run wild—after school, late into the night, on weekends. They quickly became computing experts. >>
54. During one of their late-night sessions, Allen recalled Gates showing him a Fortune magazine and saying, “What do you think it’s like to run a Fortune 500 company?” Allen said he had no idea. “Maybe we’ll have our own computer company someday,” Gates said. Microsoft is now worth more than a trillion dollars. >>
55. 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. >>
56. When judging others, attributing success to luck makes you look jealous and mean, even if we know it exists. And when judging yourself, attributing success to luck can be too demoralizing to accept. >>
57. Economist Bhashkar Mazumder has shown that incomes among brothers are more correlated than height or weight. If you are rich and tall, your brother is more likely to also be rich than he is tall. I think most of us intuitively know this is true—the quality of your education and the doors that open for you are heavily linked to your parents’ socioeconomic status. >>
58. When judging your failures I’m likely to prefer a clean and simple story of cause and effect, because I don’t know what’s going on inside your head. “You had a bad outcome so it must have been caused by a bad decision” is the story that makes the most sense to me. But when judging myself I can make up a wild narrative justifying my past decisions and attributing bad outcomes to risk. >>
59. Benjamin Graham is known as one of the greatest investors of all time, the father of value investing and the early mentor of Warren Buffett. But the majority of Benjamin Graham’s investing success was due to owning an enormous chunk of GEICO stock which, by his own admission, broke nearly every diversification rule that Graham himself laid out in his famous texts. Where does the thin line between bold and reckless fall here? I don’t know. Graham wrote about his GEICO bonanza: “One lucky break, or one supremely shrewd decision—can we tell them apart?” Not easily. >>
60. Countless fortunes (and failures) owe their outcome to leverage >>
61. The difficulty in identifying what is luck, what is skill, and what is risk is one of the biggest problems we face when trying to learn about the best way to manage money. But two things can point you in a better direction. Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming. >>
62. Or, just be careful when assuming that 100% of outcomes can be attributed to effort and decisions. After my son was born, I wrote him a letter that said, in part: Some people are born into families that encourage education; others are against it. Some are born into flourishing economies encouraging of entrepreneurship; others are born into war and destitution. I want you to be successful, and I want you to earn it. But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself. >>
63. . The more extreme the outcome, the >>
64. less likely you can apply its lessons to your own life, because the more likely the outcome was influenced by extreme ends of luck or risk. >>
65. My favorite historian, Frederick Lewis Allen, spent his career depicting the life of the average, median American—how they lived, how they changed, what they did for work, what they ate for dinner, etc. There are more relevant lessons to take away from this kind of broad observation than there are in studying the extreme characters that tend to dominate the news. >>
66. Bill Gates once said, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.” >>
67. When things are going extremely well, realize it’s not as good as you think. You are not invincible, and if you acknowledge that luck brought you success then you have to believe in luck’s cousin, risk, which can turn your story around just as quickly. >>
68. The trick when dealing with failure is arranging your financial life in a way that a bad investment here and a missed financial goal there won’t wipe you out so you can keep playing until the odds fall in your favor. >>
69. Gupta and Rajaratnam both went to prison for insider trading, their careers and reputations irrevocably ruined. >>
70. The question we should ask of both Gupta and Madoff is why someone worth hundreds of millions of dollars would be so desperate for more money that they risked everything in pursuit of even more. >>
71. Crime committed by those living on the edge of survival is one thing. A Nigerian scam artist once told The New York Times that he felt guilty for hurting others, but “poverty will not make you feel the pain.”13 >>
72. What Gupta and Madoff did is something different. They already had everything: unimaginable wealth, prestige, power, freedom. And they threw it all away because they wanted more. They had no sense of enough. >>
73. Warren Buffett later put it: To make money they didn’t have and didn’t need, they risked what they did have and did need. And that’s foolish. It is just plain foolish. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense. >>
74. There is no reason to risk what you have and need for what you don’t have and don’t need >>
75. But a measurable percentage of those reading this book will, at some point in their life, earn a salary or have a sum of money sufficient to cover every reasonable thing they need and a lot of what they want. If you’re one of them, remember a few things. >>
76. But it’s one of the most important. If expectations rise with results there is no logic in striving for more because you’ll feel the same after putting in extra effort. It gets dangerous when the taste of having more—more money, more power, more prestige—increases ambition faster than satisfaction. In that case one step forward pushes the goalpost two steps ahead. You feel as if you’re falling behind, and the only way to catch up is to take greater and greater amounts of risk. 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. >>
77. The point is that the ceiling of social comparison is so high that virtually no one will ever hit it. Which means it’s a battle that can never be won, or that the only way to win is to not fight to begin with—to accept that you might have enough, even if it’s less than those around you. A friend of mine makes an annual pilgrimage to Las Vegas. One year he asked a dealer: What games do you play, and what casinos do you play in? The dealer, stone-cold serious, replied: “The only way to win in a Las Vegas casino is to exit as soon as you enter.”That’s exactly how the game of trying to keep up with other people’s wealth works, too. >>
78. 4. There are many things never worth risking, no matter the potential gain. >>
79. Reputation is invaluable. Freedom and independence are invaluable. Family and friends are invaluable. Being loved by those who you want to love you is invaluable. >>
80. Happiness is invaluable. >>
81. And your best shot at keeping these things is knowing when it’s time to stop taking risks that might harm them. Knowing when you have enough. >>
82. Lessons from one field can often teach us something important about unrelated fields >>
83. 
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84. Warren Buffett is a phenomenal investor. But you miss a key point if you attach all of his success to investing acumen. The real key to his success is that he’s been a phenomenal investor for three quarters of a century. >>
85. The big takeaway from ice ages is that you don’t need tremendous force to create tremendous results. If something compounds—if a little growth serves as the fuel for future growth—a small starting base can lead to results so extraordinary they seem to defy logic. It can be so logic-defying that you underestimate what’s possible, where growth comes from, and what it can lead to. And so it is with money. >>
86. Effectively all of Warren Buffett’s financial success can be tied to the financial base he built in his pubescent years and the longevity he maintained in his geriatric years. >>
87. His skill is investing, but his secret is time. That’s how compounding works. >>
88. There are books on economic cycles, trading strategies, and sector bets. But the most powerful and important book should be called Shut Up And Wait. >>
89. But 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. >>
90. The opposite of this—earning huge returns that can’t be held onto—leads to some tragic stories. >>
91. But there’s only one way to stay wealthy: some combination of frugality and paranoia. >>
92. Getting money is one thing. Keeping it is another. >>
93. If I had to summarize money success in a single word it would be “survival.” >>
94. Capitalism is hard. But part of the reason this happens is because getting money and keeping money are two different skills. >>
95. Getting money requires taking risks, being optimistic, and putting yourself out there. >>
96. 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. >>
97. . Moritz mentioned longevity, >>
98. We assume that tomorrow won’t be like yesterday. We can’t afford to rest on our laurels. We can’t be complacent. We can’t assume that yesterday’s success translates into tomorrow’s good fortune. >>
99. Here again, survival >>
100. The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference. This should be the cornerstone of your strategy, whether it’s in investing or your career or a business you own. >>
101. There are two reasons why a survival mentality is so key with money. >>
102. One is the obvious: few gains are so great that they’re worth wiping yourself out over. >>
103. Compounding only works if you can give an asset years and years to grow. >>
104. But getting and keeping that extraordinary growth requires surviving all the unpredictable ups and downs that everyone inevitably experiences over time. >>
105. He didn’t get carried away with debt. He didn’t panic and sell during the 14 recessions he’s lived through. He didn’t sully his business reputation. He didn’t attach himself to one strategy, one world view, or one passing trend. He didn’t rely on others’ money (managing investments through a public company meant investors couldn’t withdraw their capital). He didn’t burn himself out and quit or retire. >>
106. Buffett >>
107. Survival gave him longevity. And longevity—investing consistently from age 10 to at least age 89—is what made compounding work wonders. That single point is what matters most when describing his success. >>
108. Rick Guerin. You’ve likely heard of the investing duo of Warren Buffett and Charlie Munger. But 40 years ago there was a third member of the group, Rick Guerin. Warren, Charlie, and Rick made investments together and interviewed business managers together. Then Rick kind of disappeared, at least relative to Buffett and Munger’s success. Investor Mohnish Pabrai once asked Buffett what happened to Rick. Mohnish recalled: [ Warren said] “Charlie and I always knew that we would become incredibly wealthy. We were not in a hurry to get wealthy; we knew it would happen. Rick was just as smart as us, but he was in a hurry.”What happened was that in the 1973– 1974 downturn, Rick was levered with margin loans. And the stock market went down almost 70% in those two years, so he got margin calls. He sold his Berkshire stock to Warren—Warren actually said “I bought Rick’s Berkshire stock”—at under $ 40 a piece. Rick was forced to sell because he was levered.18 >>
109. 1. More than I want big returns, I want to be financially unbreakable. And if I’m unbreakable I actually think I’ll get the biggest returns, because I’ll be able to stick around long enough for compounding to work wonders. >>
110. Compounding doesn’t rely on earning big returns. Merely good returns sustained uninterrupted for the longest period of time—especially in times of chaos and havoc—will always win. >>
111. 2. Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. >>
112. A plan is only useful if it can survive reality. And a future filled with unknowns is everyone’s reality. >>
113. The more you need specific elements of a plan to be true, the more fragile your financial life becomes. >>
114. Many bets fail not because they were wrong, but because they were mostly right in a situation that required things to be exactly right. >>
115. Room for error—often called margin of safety—is one of the most underappreciated forces in finance. It comes in many forms: A frugal budget, flexible thinking, and a loose timeline—anything that lets you live happily with a range of outcomes >>
116. It’s different from being conservative. Conservative is avoiding a certain level of risk. Margin of safety is raising the odds of success at a given level of risk by increasing your chances of survival. Its magic is that the higher your margin of safety, the smaller your edge needs to be to have a favorable outcome. >>
117. 3. A barbelled personality—optimistic about the future, but paranoid about what will prevent you from getting to the future—is vital. >>
118. Sensible optimism is a belief that the odds are in your favor, and >>
119. over time things will balance out to a good outcome even if what happens in between is filled with misery. >>
120. You can be optimistic that the long-term growth trajectory is up and to the right, but equally sure that the road between now and then is filled with landmines, and always will be. Those two things are not mutually exclusive. >>
121. The great art dealers operated like index funds. They bought everything they could. And they bought it in portfolios, not individual pieces they happened to like. Then they sat and waited for a few winners to emerge. >>
122. A lot of things in business and investing work this way. Long tails—the farthest ends of a distribution of outcomes—have tremendous influence in finance, where a small number of events can account for the majority of outcomes. >>
123. By the mid-1930s Disney had produced more than 400 cartoons. Most of them were short, most of them were beloved by viewers, and most of them lost a fortune. Snow White and the Seven Dwarfs changed everything. The $ 8 million it earned in the first six months of 1938 was an order of magnitude higher than anything the company earned previously. It transformed Disney Studios. All company debts were paid off. >>
124. 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. >>
125. Some tail-driven industries are obvious. Take venture capital. If a VC makes 50 investments they likely expect half of them to fail, 10 to do pretty well, and one or two to be bonanzas that drive 100% of the fund’s returns. Investment firm Correlation Ventures once crunched the numbers.20 Out of more than 21,000 venture financings from 2004 to 2014: 65% lost money. Two and a half percent of investments made 10x– 20x. One percent made more than a 20x return. >>
126. , tails drive everything. >>
127. The idea that a few things account for most results is not just true for companies in your investment portfolio. It’s also an important part of your own behavior as an investor. Napoleon’s definition of a military genius was, “The man who can do the average thing when all those around him are going crazy.” >>
128. Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years spent on cruise control. >>
129. At the Berkshire Hathaway shareholder meeting in 2013 Warren Buffett said he’s owned 400 to 500 stocks during his life and made most of his money on 10 of them. Charlie Munger followed up: “If you remove just a few of Berkshire’s top investments, its long-term track record is pretty average.” >>
130. “It’s not whether you’re right or wrong that’s important,” George Soros once said, “but how much money you make when you’re right and how much you lose when you’re wrong.” You can be wrong half the time and still make a fortune. >>
131. 
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132. The highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today.” >>
133. But if there’s a common denominator in happiness—a universal fuel of joy—it’s that people want to control their lives. >>
134. 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. >>
135. Having a strong sense of controlling one’s life is a more dependable predictor of positive feelings of wellbeing than any of the objective conditions of life we have considered. >>
136. 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. >>
137. A small amount of wealth means the ability to take a few days off work when you’re sick without breaking the bank. Gaining that ability is huge if you don’t have it. A bit more means waiting for a good job to come around after you get laid off, rather than having to take the first one you find. That can be life changing. Six months’ emergency expenses means not being terrified of your boss, because you know you won’t be ruined if you have to take some time off to find a new job. >>
138. More still means the ability to take a job with lower pay but flexible hours. Maybe one with a shorter commute. Or being able to deal with a medical emergency without the added burden of worrying about how you’ll pay for it. Then there’s retiring when you want to, instead of when you need to. >>
139. Throughout college I wanted to be an investment banker. There was only one reason why: they made a lot of money. That was the only drive, and one I was 100% positive would make me happier once I got it. I scored a summer internship at an investment bank in Los Angeles in my junior year, and thought I won the career lottery. This is all I ever wanted. >>
140. On my first day I realized why investment bankers make a lot of money: They work longer and more controlled hours than I knew humans could handle. Actually, most can’t handle it. Going home before midnight was considered a luxury, and there was a saying in the office: “If you don’t come to work on Saturday, don’t bother coming back on Sunday.” The job was intellectually stimulating, paid well, and made me feel important. But every waking second of my time became a slave to my boss’s demands, which was enough to turn it into one of the most miserable experiences of my life. It was a four-month internship. I lasted a month. >>
141. People like to feel like they’re in control—in the drivers’ seat. When we try to get them to do something, they feel disempowered. Rather than feeling like they made the choice, they feel like we made it for them. So they say no or do something else, even when they might have originally been happy to go along.25 >>
142. reactance. J onah Berger, a marketing professor at the University of Pennsylvania, summed it up well: >>
143. When you accept how true that statement is, you realize that aligning money towards a life that lets you do what you want, when you want, with who you want, where you want, for as long as you want, has incredible return. >>
144. A refinery worker who occasionally had Rockefeller’s ear once remarked: “He lets everybody else talk, while he sits back and says nothing.”When asked about his silence during meetings, Rockefeller often recited a poem: A wise old owl lived in an oak, The more he saw the less he spoke, The less he spoke, the more he heard, Why aren’t we all like that wise old bird? >>
145. Rockefeller’s job wasn’t to drill wells, load trains, or move barrels. It was to think and make good decisions. Rockefeller’s product—his deliverable—wasn’t what he did with his hands, or even his words. It was what he figured out inside his head. So that’s where he spent most of his time and energy. Despite sitting quietly most of the day in what might have looked like free time or leisure hours to most people, he was constantly working in his mind, thinking problems through. >>
146. More of us have jobs that look closer to Rockefeller than a typical 1950s manufacturing worker, which means our days don’t end when we clock out and leave the factory. We’re constantly working in our heads, which means it feels like work never ends. >>
147. If the operating equipment of the 21st century is a portable device, this means the modern factory is not a place at all. It is the day itself. The computer age has liberated the tools of productivity from the office. Most knowledge workers, whose laptops and smartphones are portable allpurpose media-making machines, can theoretically be as productive at 2 p.m. in the main office as at 2 a.m. in a Tokyo WeWork or at midnight on the couch.29 >>
148. The letter I wrote after my son was born said, “You might think you want an expensive car, a fancy watch, and a huge house. But I’m telling you, you don’t. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does—especially from the people you want to respect and admire you.” >>
149. 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. >>
150. 
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151. We tend to judge wealth by what we see, because that’s the information we have in front of us. >>
152. We can’t see people’s bank accounts or brokerage statements. So we rely on outward appearances to gauge financial success. Cars. Homes. Instagram photos. >>
153. Wealth is the nice cars not purchased. The diamonds not bought. The watches not worn, the clothes forgone and the first-class upgrade declined. Wealth is financial assets that haven’t yet been converted into the stuff you see. >>
154. Investor Bill Mann once wrote: “There is no faster way to feel rich than to spend lots of money on really nice things. But the way to be rich is to spend money you have, and to not spend money you don’t have. It’s really that simple.”31 >>
155. The only way to be wealthy is to not spend the money that you do have. It’s not just the only way to accumulate wealth; it’s the very definition of wealth. >>
156. R ich is a current income. Someone driving a $ 100,000 car is almost certainly rich, because even if they purchased the car with debt you need a certain level of income to afford the monthly payment. Same with those who live in big homes. It’s not hard to spot rich people. They often go out of their way to make themselves known. >>
157. But 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 options, flexibility, and growth to one day purchase more stuff than you could right now. >>
158. We don’t see the savings, retirement accounts, or investment portfolios >>
159. The danger here is that I think most people, deep down, want to be wealthy. They want freedom and flexibility, which is what financial assets not yet >>
160. spent can give you. But it is so ingrained in us that to have money is to spend money that we don’t get to see the restraint it takes to actually be wealthy. And since we can’t see it, it’s hard to learn about it. >>
161. The world is filled with people who look modest but are actually wealthy and people who look rich who live at the razor’s edge of insolvency. Keep this in mind when quickly judging others’ success and setting your own goals. >>
162. 
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163. The first idea—simple, but easy to overlook—is that building wealth has little to do with your income or investment returns, and lots to do with your savings rate. >>
164. Investment returns can make you rich. But whether an investing strategy will work, and how long it will work for, and whether markets will cooperate, is always in doubt. Results are shrouded in uncertainty. >>
165. Past a certain level of income, what you need is j ust what sits below your ego. Everyone needs the basics. Once they’re covered there’s another level of comfortable basics, and past that there’s basics that are both comfortable, entertaining, and enlightening. >>
166. But spending beyond a pretty low level of materialism is mostly a reflection of ego approaching income, a way to spend money to show people that you have (or had) money >>
167. It’s a daily struggle against instincts to extend your peacock feathers to their outermost limits and keep up with others doing the same. >>
168. People with enduring personal finance success—not necessarily those with high incomes—tend to have a propensity to not give a damn what others think about them. >>
169. Saving is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment. >>
170. That flexibility and control over your time is an unseen return on wealth. >>
171. Intelligence is not a reliable advantage in a world that’s become as connected as ours has. But flexibility is. In a world where intelligence is hyper-competitive and many previous technical skills have become automated, competitive advantages tilt toward nuanced and soft skills—like communication, empathy, and, perhaps most of all, flexibility. >>
172. 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 >>
173. 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. That’s why more people can, and more people should, save money. >>
174. 
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175. With it comes something that often goes overlooked: 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. >>
176. Academic finance is devoted to finding the mathematically optimal investment strategies. My own theory is that, in the real world, people do not want the mathematically optimal strategy. They want the strategy that maximizes for how well they sleep at night. >>
177. Harry Markowitz won the Nobel Prize for exploring the mathematical tradeoff between risk and return. He was once asked how he invested his own money, and described his portfolio allocation in the 1950s, when his models were first developed: I visualized my grief if the stock market went way up and I wasn’t in it—or if it went way down and I was completely in it. My intention was to minimize my future regret. So I split my contributions 50/ 50 between bonds and equities. >>
178. Markowitz is neither rational or irrational. He’s reasonable. What’s often overlooked in finance is that something can be technically true but contextually nonsense. >>
179. No normal person could watch 100% of their retirement account evaporate and be so unphased that they carry on with the strategy undeterred. They’d quit, look for a different option, and perhaps sue their financial advisor. >>
180. Anything that keeps you in the game has a quantifiable advantage. >>
181. Day trading and picking individual stocks is not rational for most investors —the odds are heavily against your success. >>
182. 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.” >>
183. A trap many investors fall into is what I call “historians as prophets”fallacy: An overreliance on past data as a signal to future conditions in a field where innovation and change are the lifeblood of progress. >>
184. But investing is not a hard science. It’s a massive group of people making imperfect decisions with limited information about things that will have a massive impact on their wellbeing, which can make even smart people nervous, greedy and paranoid. >>
185. The mental trick we play on ourselves here is an over-admiration of people who have been there, done that, when it comes to money. Experiencing specific events does not necessarily qualify you to know what will happen next. In fact it rarely does, because experience leads to overconfidence more than forecasting ability. >>
186. The most important events in historical data are the big outliers, the recordbreaking events. They are what move the needle in the economy and the stock market >>
187. The thing that makes tail events easy to underappreciate is how easy it is to underestimate how things compound. How, for example, 9/ 11 prompted the Federal Reserve to cut interest rates, which helped drive the housing bubble, which led to the financial crisis, which led to a poor jobs market, which led tens of millions to seek a college education >>
188. The problem is that we often use events like the Great Depression and World War II to guide our views of things like worst-case scenarios when thinking about future investment returns >>
189. But those record-setting events had no precedent when they occurred. >>
190. rns. But those record-setting events had no precedent when they occurred. So the forecaster who assumes the worst (and best) events of the past will match the worst (and best) events of the future is not following history; they’re accidentally assuming that the history of unprecedented events doesn’t apply to the future. >>
191. urns. But those record-setting events had no precedent when they occurred. So the forecaster who assumes the worst (and best) events of the past will m >>