This is a great read, and an easy recommendation if you enjoy non-fiction or want to be good with money without making it your life.
After this, Morgan Housel’s has written Same as Ever, a book about the few things that never change. You can read my takeaways for Same as Ever here.
Chapter titles are in bold.
- Introduction: Here is my one-line takeaway of the book: Your wealth depends more on your attitudes, behaviours and habits around money than your earning capacity, talent, and fame.
(A great story here: the Janitor and the Millionaire).
- Luck and Risk: They are two sides of the same coin – if you respect one, you must respect the other.
- Don’t overweight outliers – there’s likely to be a role of luck that you can’t reliably emulate. Easier to learn from the average outcome. Nothing is as good or as bad as it seems – luck was involved.
- Never Enough: The hardest financial skill is to get the goalpost to stop moving. But if your expectations don’t grow slower than your income, you will never be able to have enough.
- Confounding Compounding: Good investing isn’t about earning the highest returns but about earning pretty good returns repeatedly for the longest period of time. See Warren Buffet.
- Getting Wealthy vs Staying Wealthy: The two are different – the skills needed to get wealthy (ambition, optimism, desire) can be liabilities when you need to stay wealthy (where you need patience, paranoia, saving).
- Tails, you win: Long tails have a disproportionate impact on outcomes – Lots of things can go wrong, but one or two immense successes in your portfolio will make up for it. Don’t expect everything to work reliably, you can fail half the time and still succeed if part of your portfolio performs well.
- Freedom: The highest dividend that money pays is the ability to do what you want, when you want and with who you want, for as long as you want.
- And that often involves holding money conservatively, rather than aiming for the highest returns.
- The Man in the Car Paradox: Wealth is what you don’t see. The person who owns a 100,000 car is not rich, they’re 100,000 poorer than they used to be.
- Save More: Savings is the part of the money equation that you do control. And no matter what your income is, your ability to drive growth in your wealth will depend on how much of it you don’t spend.
- Reasonable > Rational: The most rational thing is not reasonable once you consider the psychological implications of it. Aim to do what you can reasonably do, even if it is not rational.
- For example, holding a large proportion of your wealth in cash may not be the rational way to get high returns, but if it allows you to sleep better at night, it’s the reasonable thing to do. (same with choosing a money habit that is more enjoyable and easier to maintain even if it’s only good and not the most optimal).
- Surprise!: History is the study of surprising events, and several impactful historical events were impactful because they couldn’t be predicted from previous experience. Thus, expect to be surprised in ways that we haven’t been surprised before (both on personal and global scales)
- Room for Error: Leaving room for error allows you to stay in the game after shocks when you otherwise would have been knocked out. This is a manifold return on investment. (same as redundancy in Taleb’s Antifragile).
- You’ll Change: avoid assuming future you will remain on the extremes of psychological need (either living on very little money or being okay to sacrifice 12 hours a day to work). As you change, the reasonable assumption is that you will want what most people want, etc.
- Nothing’s Free: Everything has a cost. The cost of achieving pretty good returns on the stock market over 10 – 20 years is dealing with the volatility, anxiety and risk as the market moves up and down, and sometimes crashes.
- Accepting the cost upfront will allow you to be ready to pay it rather than freaking out and quitting.
- You and Me: Identify the game you are playing, don’t compare to others playing different games. (This includes time horizon, returns, income, psychological needs, etc.)
- All Together now: wealth is created by suppressing what you could buy today in order to have more options in the future.
- Manage your money in a way that helps you sleep at night. Reasonable, not rational.
- If you want to be a better investor, the single most powerful thing you can do is increase your time horizon. It can’t neutralize luck and risk but it pushes things closer to what people deserve.
- It’s okay to be wrong on a lot of things as long as the average is lifted up by the long tails. Don’t judge the winners and losers too strongly, understand luck and risk.
- Define the cost of success and be ready to pay it. Uncertainty, doubt and regret are common costs in the finance world.
- Like risk because it pays off over time, but always avoid ruinous risk that could take you out of the game. Room for error is invaluable.
- Confessions: Doctors don’t die like the rest of us – there’s no optimal plan, be reasonable not rational.
- Chasing the highest returns has hidden risks. Independence at any level has hidden risks.
- “We own our house without a mortgage, which is the worst financial decision we’ve ever made but the best money decision we’ve ever made. … Eliminating the monthly payment feels better than maximizing the long-term value of our assets. It makes me feel independent.”
- “Effectively all our net worth is a house, a checking account, and some Vanguard index funds…. There is little correlation between investment effort and investment results”.
- “My investing strategy doesn’t rely on picking the right sector, or timing the next recession. It relies on a high savings rate, patience and optimism that the global economy will create value over the next several decades. I spend virtually all of my investing effort thinking about those three things—especially the first two, which I can control.”
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I write once a month, sharing ideas from other writers and insights of my own on building an exceptional life.