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Forwarded from BUSINESS SUCCESS TUTORSHIP

The Psychology of Money by Morgan Housel Part-3

The Neglected Element In Investing Money: Surprises

Two dangerous things happen when you rely too heavily on investment history as a guide to what’s going to happen next.
• You will likely miss the outlier events that move the needle the most.
• History can be a misleading guide to the future of the economy and stock market because it doesn’t account for structural changes that are relevant to today’s world.

Surprises:

• The most common plot of economic history is the role of surprises.
• Realizing that the future might not look anything like the past is a special kind of skill.

Mistakes and Errors

• Good ideas taken too far are indistinguishable from bad ideas.
• People underestimate the need for room for error in almost everything they do that involves money.
• Room for error lets you endure a range of potential outcomes. Endurance lets you stick around long enough to let the odds of benefiting from a low probability outcome fall in your favour.
• The biggest gains occur infrequently, either because they don’t happen often or because they take time to compound.

The Uncertain Future

• The ability to do what you want, when you want, for as long as you want has an infinite ROI.
• You can’t prepare for what you can’t envision.
• Avoid single points of failure. If many things rely on one thing working, and that thing breaks, you are counting the days until catastrophe.
• The biggest single point of failure with money is a sole reliance on a paycheck to fund short-term spending needs.
• The most important part of every plan is planning on your plan not going according to plan.

Nothing Is Free

• Everything has a price and the key to a lot of things with money is figuring out what that price is and being willing to pay it.
• Most things are harder in practice than they are in theory. This is often because we are not good at identifying what the price of success is, which prevents us from being able to pay it.
• The price of successful investing is volatility, fear, doubt, uncertainty, and regret.
• The inability to recognize that investing has a price can tempt us to try to get something for nothing.

The Psychology Of People

• Short-term traders ignore the rules governing long-term investing, particularly around valuation. Because those rules are irrelevant to the game they are playing.
• Bubbles do their damage when long-term investors playing one game start taking their cues from short-term traders playing another game.
• It is hard to grasp that other investors have different goals than we do.
• An anchor of psychology is not realizing that rational people can see the world through a different lens than their own.

Gravitating Towards a Negative Outlook

• Optimism is the belief that the odds of a good outcome are in your favour over time, even when there will be setbacks along the way.
• Two topics will affect your life whether you are interested in them or not, money and health.
• An iron law in economics: extremely good and extremely bad circumstances rarely stay that way for long because supply and demand adapt in hard to predict ways.
• Progress happens too slowly to notice, but setbacks happen too quickly to ignore.

Believing In Narratives

• Stories are, by far, the most powerful force in the economy.
• The more you want something to be true, the more likely you are to believe a story that overestimates the odds of it being true.
• Everyone has an incomplete view of the world, but we form a complete narrative to fill in the gaps.
• Coming to terms with how much you don’t know means coming to terms with how much of what happens in the world is out of your control.
• The illusion of control is more persuasive than the reality of uncertainty.

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