A collection of stories demonstrating that people aren’t crazy, but they do sometimes fail to make reasonable decisions with their money. Being rational with money can sometimes be the unreasonable thing to do after you’ve factored in human psychology. This book is a fantastic starting point for anyone wanting to improve their relationship with money.
Favourite quotes:
“There is no reason to risk what you have and need for what you don’t have and don’t need.”
“Happiness, as it’s said, is just results minus expectations.”
“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.”
“Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.”
“The majority of what’s happening at any given moment in the global economy can be tied back to a handful of past events that were nearly impossible to predict.” For example… “9/11 prompted the fed 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, leading to $1.6 trillion in student loans with a 10.8% default rate.”
“Sunk costs - anchoring decisions to past efforts that can’t be refunded - are a devil in a world where people change over time. They make our future selves prisoners to our past, different, selves. It’s the equivalent of a stranger making major life decisions for you.”
“everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret - all of which are easy to overlook until you’re dealing with them in real time.”
“Like most products, the bigger the returns, the higher the price. Netflix stock returned more than 35,000% from 2002 to 2018, but traded below its previous all-time high 94% of days.”
“Why do so many people who are willing to pay the price of cars, houses, food, and vacations try so hard to avoid pay the price of good investment returns? The answer is simple: The price of investing success is not immediately obvious. It’s not a price tag you can see, so when the bill comes due it doesn’t feel like a fee for getting something good. It feels like a fine for doing something wrong. And while people are generally fine with paying fees, fines are supposed to be avoided.”
“It sounds trivial, but thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favor.”
“What do you expect people to do when momentum creates a big short-term return potential? Sit and watch patiently? Never. That’s not how the world works. Profits will always be chased. And short-term traders operate in an area where the rules governing long-term investing - particularly around valuation - are ignored, because they’re irrelevant to the game being played.”
“Bubbles do their damage when long-term investors playing one game start taking their cues from those short-term traders playing another.”
“You should like risk because it pays off over time. But you should be paranoid of ruinous risk because it prevents you from taking future risks that will pay off over time. Define the game you’re playing, and make sure your actions are not being influenced by people playing a different game.”
“If you can meet all your goals without having to take the added risk that comes from trying to outperform the market, then what’s the point of even trying? I can afford to not be the greatest investor in the world, but I can’t afford to be a bad one. When I think of it that way, the choice to buy the index and hold on is a no-brainer for us.”
4/5.