The Psychology of Money
Doing well with money has little to do with how smart you are and a lot to do with how you behave.
Financial success is not a hard science, it’s a soft skill.
Knowing what to do tells you nothing about what happens in your head when you do it.
Finance is guided by behaviors, not laws.
History never repeats itself; man does.
Everyone’s personal experience with money contributes to their whole conception of how it works and shapes their psychology of money more than any book or second-hand experience.
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 the best ways to manage money.
The only way to stay wealthy is through some combination of frugality and paranoia.
Getting wealthy requires taking risks, but staying wealthy requires the opposite.
You need short-term paranoia to keep you alive long enough to exploit long-term optimism.
The returns in markets and businesses are predominately driven by the tails—the outlier companies and products achieving exceptional returns that more than make up for all the failures and underperformance elsewhere.
Controlling your time is the highest dividend money pays.
Most people who say they want to be a millionaire are really saying they want to spend a million dollars, which is the exact opposite of being a millionaire.
Rich is current income—income you see—but wealth is hidden, unspent money.
Building wealth has more to do with your savings rate than your income.
Savings is the gap between your ego and your income.
History mostly consists of events that have never happened before.
Financial goals and decisions should avoid viewing past decisions as sunk costs where time, effort, or prior commitments motivate you to keep or continue something you shouldn’t.
When investors have different goals and time horizons, there is no objective value for an asset.
Money chases returns to the greatest extent it can.
Pessimistic views are generally viewed as more reasonable. People heed prophets of doom far more than champions of optimism and are much quicker to entertain or believe negative possibilities.
Progress happens too slowly to notice, but setbacks happen too abruptly to ignore.
Everyone has an incomplete view of the world, but we still form a complete narrative to fill in the gaps.
Hindsight gives us the illusion that the world is understandable.
“Does this help me sleep at night” is a great universal guidepost for managing your finances.
You should like risk because it pays off over time, but you should be paranoid of ruinous risk because it prevents you from taking that future risk that pays off over time.
Independence at any income level is driven by your savings rate.
Most people can afford not to be the greatest investor in the world, but they can’t afford to be a bad one.