RD x's Key Ideas from The Psychology of Money
by Morgan Housel

So, Don't Judge.

Don't Judge any person's decisions about anything (not just money), as we are people from different-

• Generations
• Parents
• Income Levels
• Value Systems
• Geographical Regions
• Economies
• Job Markets
• Salaries/Incentives
• Degrees of Luck
• Lessons Learned.

We all have different-

• Beliefs
• Goals
• Forecasts
• Knowledge.

Focus less on specific individuals/case studies. It is dangerous because we tend to study extreme examples either very successful CEOs & Billionaires or Massive failures that dominate the news.

They are least applicable to other situations, given their complexity.

More extreme outcome --------- less likely we can apply lessons in our lives.

And that something is........ENOUGH.

We should have the sense of ENOUGH.

Examples of Rajat Gupta (Insider Trading) and Madoff (Ponzi Scheme), states that despite having everything like unimaginable wealth, prestige, power and freedom, both went to jail for pursuit of making more and more money.

What they didn't have was SENSE OF ENOUGH.

This is the hardest finance skill to learn and apply.

If expectations rise with successful 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 (power, money, prestige, control) increase the ambition faster than satisfaction. 

In this case, one step forward pushes the goalpost two step ahead.

Modern Capitalism is pro at 2 things-

1. Generating wealth &
2. Generating envy.

And they go hand in hand because you want to supress the peers.

But Happiness = Results minus the Expectations.

Because there will always be someone, who is superior or richer than you.

Example- A rookie basketball player with $500,000 yearly contract, is rich by definition, but not when when he compares himself with a veteran who has a $430 M contract of 10 years. By comparison, he seems broke & veteran rich.

Now if veteran compare himself to top 10 fund managers of his country, they get an average of $340M/year, he feel sad.

These top 10 wants to be in top 3, who earns $770M/year and these top 3 wants the wealth of Warren Buffet ($3.5B) and then they want to be on the position of Jeff Bezos ($24B).

Everyone from you cannot hit these spots.

It is a battle that can never be won, or the only way to win it is to not fight to begin with.

"Enough" is realising that the opposite (an insatiable appetite for more) will push you to the point of regret.

Like the only way to know how much you can eat is to eat until you're sick.

Vomiting (Result of regret) hurts more than the meal (Process).

There are many things never worth risking, no matter the potential gain-

• Reputation (Invaluable asset of one)
• Freedom and independence
• Family and friends
• Being loved by those, who you want to love you
• Happiness and satisfaction.

And the best shot of yours will be the knowledge that comes to you, when it's time to stop taking risks, that might harm them.

Knowing you are ENOUGH.

Slowly but Surely.

Good investing is not about earning the highest returns, because it tend to be one-off hits that can't be repeated. Its about getting good returns that you can stick with and can be repeated for longest period of time.

That's when compounding runs wild.

1. Taking Risks
2. Being Optimistic
3. Putting Yourself Out There.

It is quite opposite of Getting Wealthy, as it requires

1. Humility
2. Fear of losing what you've earned
3. Carefulness
4. Conservation
5. Acceptance the part of luck.

If you acquire/have a portfolio of 100 shares, only a few will hit highest and make you a fortune, they are called TAILS. Despite the 98 shares lose, the 2 tails will not only cover, but can make you wealthier than others.

Take the example of Amazon- They lose money on FIRE PHONE, But earned tens of billions from Amazon Web Services.

It is same like every artist or comedian try his works in small clubs for a long time to see what works, before he goes to the world tour or for bigger programmes.

There are 100 billion planets In our galaxy and only 1 (as far as we know) with intelligent life.

Money = Freedom (Control over time and what you do).

"Controlling your time is the highest dividend money pays."

No one is impressed with your possessions as much as you are. We don't admire the person in an expensive car, we just wish that if I had this car, people would think I am cool.

They won't respect you with your fancy things or expensive watches, You need to gain your respect and admiration from your work, your behaviour, your habits, and your qualities in the long-term.

Simplest definition- WEALTH IS WHAT YOU DON"T SEE.

• Modern capitalism makes helping people "fake it until they make it" a cherished industry.
• But the wealth is the nice cars not purchased, diamonds not bought, watches not worn, the clothes for gone and the first class upgrades declined.
• Wealth is financial assets that have not been converted into the stuff you see. For example, Someone driving a 1 crore car have 1 crore less than they did before they bought the car.

Rich-

• Money is SHOWN,
• Current income is HIGH,
• Keeps you INTACT in the job paying you the income.

Wealthy-

• Money is HIDDEN,
• It is income NOT SPENT,
• Offers you OPTIONS, FLEXIBILITY & GROWTH.

• Richness means exercising and burning calories but consuming double calories after workout thinking that you deserve a heavy meal post workout.
• Wealth is turning down that treat meal and actually burning net calories. It’s hard, and requires self-control. But it creates a gap between what you could do and what you choose to do that accrues to you over time.

• It is easy to find rich role models but not wealthy ones, because by definition their success is more hidden.
• It is difficult to learn from what you don't see, that's why it is so hard for many to build wealth.
• People who look modest but can be actually wealthy, and people who look rich may be living at the razor's edge of insolvency.

KEEP THIS IN MIND BEFORE JUDGING.

It is simply to overlook but

Building Wealth = Your SAVINGS RATE

• We cannot control the amount of incomes, but we can control how much to save/spend.
• Wealth = the accumulated leftovers after spending what you take. So, it needs a high savings rate to be wealthy.
• Past a certain level of income, what you need is just what sits below your ego.

Process to attract wealth-

• Your savings can be created by spending less,
• You can spend less if you can desire less,
• You will desire less if you care less about what others think of you,
• That's why money relies more on the psychology, then finance.

• Everyone knows the tangible stuff that money buys but the intangible stuff go unnoticed because it is not visible and it is more valuable and capable of increasing happiness.
• Saving without a spending goal gives you options and flexibility, the ability to wait for the right and best opportunity. It provides you with the time to think, it lets you change course on your terms.
• The flexibility and control your time are the unseen returns on wealth. They can't be measured and are incalculable, we can't put any price on them, that's why we tend to overlook them. 

We change our decisions over time and that's completely ok.

For example- First we get to pay a lot of money to have tattooes as teenagers, then we pay a lot more money to remove them as youngster. 

First, we spend a lot of money on marriage, then again spend a lot for divorce.

• All of us are walking with this illusion that our personal history has just come to an end, and we have become the people that we always wanted to be and will be the same for the rest of our lives.
• Accept the reality of change and move on as soon as possible.

The Price might be invisible or not immediate. There is no FREE LUNCH.

Every job looks easy when you're not the one doing it because the challenges faced in the arena are often invisible to the crowd. 

All investors have different goals & time horizons e.g. when CNBC says 'you should buy this stock', they don't know who you are.

Are you-

• A teenager trading for fun,
• an elderly widow on a limited budget or
• a hedge fund manager to match your targets?

All 3 have different goals & time horizons (investing periods).

Play according to your needs.

People want to hear negative (like the world is going to hell) because pessimism sounds smarter and plausible than optimism. We listens to negative news very attentively.

Keep in mind that Progress happens too slowly to notice, but setbacks happens too quickly to ignore. There are lot of overnight tragedies but rare overnight miracles.

• Manage your money in a way that helps you sleep at night.
• Investing needs a large time horizon.
• Become OK with a lot of things going wrong.
• Be nicer & less flashy.
• Less ego, more wealth.
• Define your cost of success, be ready to pay for it.
• There is no single right answer, just the answer that works for you.
• Have simple, little cost yet good hobbies like walking, reading, podcasts etc.
• Don't be in social pressure/Keep up with joneses.
• First rule of compounding is to never interrupt it unnecessarily.
• True success is exiting the rat race to modulate your activities for peace of mind.

Comment/Add your ideas.