The Psychology of Money - Distillation, Chapter 3 - 12
Chapter 3. Never Enough
The author listed Rajat gupta and Bernie Madoff who both had enormous amount of money ended fraud because they always wanted to make more money even they had a lot already. There is no reason to risk what you have and need for what you don’t have and don’t need. The author also listed the following advices:
- The hardes financial skill is getting the goalpost to stop moving.
- Social comparison is the problem here.
- Enough is not too little.
- There are many things never worth risking no matter the potential gain.
Chapter 4. Confounding Compounding
The author used Milankovitch Cycles(a slightly warmer summer cannot melt ice in the winter ended up componudnig to glacier time) to prove that compounding grows faster than you think. In addition, the author also compared James Simons who had 66% return with Warren Buffet with 22% return. The reason why Buffet made more money is not because his strategy outperformed James’, but because Buffet invested longer than James did. Therefore, the author wanted to show that good investing is more about you can stick with it.
Chapter 5. Getting Wealthy vs Staying Wealthy
The author showed us Jesse Livermore, who made a ton of money during recession, ended up losing all his money during his larger bets later, to prove his points that survival is extremely important in investing. The author also shoed that a barbelled ppersonality - optimistic about the future but paranoid about whwat will prevent you from getting to the future - is vital.
Chapter 6. Tails, You Win
The author explained that the reason why Heinz Berggruen could possess massive collection of Picassos, Braques, Klees to the German government was because he invested in lots of other artwork, including those become masterpiece later. In addition, Disney got famous because of Snow White and Seven Dwarfs. The author wanted to prove that anything that is huge, profitable, famous, or influential is the result of tail event. Therefore, it’s okay to fail as long as you try a huge amount. Realizing the power of tail makes you feel less worried about failures because most of things will fail, but the successful things will give you big returns.
Chapter 7. Freedom - Controlling your time is the highest dividend money pays.
The author depicted freedom as you can do what you want, when you want, with who you want, for as long as you want. Money gives you the power of doing so. The author also showed that in previous generations, working requires specific tools, and it’s easy to detach your hand from work just because you get detached from the tool. Nowadays, it’s harder because you work with your brain, and it’s hard to detach from your brain. Then, it’s more cherished that money can give you some freedom.
Chapter 8. Man in the Car Paradox - No one is impressed with your possessions as much as you are.
The author used his own personal anecdote to show that people tend to want wealth to signal to others that they should be liked and admired. But in reality those other people often bypass admiring you, not because they don’t think wealth is admirable, but because they use your wealth as a benchmark for their own desire to be liked and admired. If respect and admiration are your goal, be careful how you seek it.
Chapter 9. Wealth is what you don’t see - Spending money to show people how much money you have is teh fastest way to have less money.
Wealth is what you don’t see.
Chapter 10. Save Money - The only factor you can control generates one of the only things that matter. How wonderful.
- Saving rates is the only thing that you can control.
- The value of wealth is relative to what you need.
- Past a certain level of income, what you need is just what sits below your ego.
- So people’s ability to save is more in their control than they think.
- And you don’t need a specific reason to save.
- That flexibility and control over your time is an unseen return on wealth.
Chapter 11. Reasonable > Rational - Aiming to be mostly reasonable works better than trying to be codly rational.
The author used fever as an example to illustrate that even though fever is rationally good for your body, but people also take pills right away when they have fever because people feel pain. Here, reasonable is bigger than rational. Also, in investment, there are lots of strategies that are rational but not reasonable for people to implement. Rather, it’s more profitable for a person to implement reasonable strategy because in the long run, the market favors long-term strategy and you are more likely to implement a reasonable strategy.
Chapter 12. Surprise - History is a study of change, ironically used as a map of the future.
Things that have never happened before happen all the time. Outlier event move the needle the most. History can be a misleadding guide to the future of the economy and stock market because it doesn’t account for structural chagnes that are relevant to today’s world.
