The following is a quick recap of the Book by Morgan Housel.
Everyone has a different set of experiences which can explain their financial decisions. Someone poor who spends 600 dollars a year on lottery tickets doesn't think it’s unreasonable. Someone growing up in a time when there was no money to be made from stocks might think it unreasonable to invest in stocks. Someone who’s never seen bonds make money wont invest in those e en if the facts change. So don’t be too quick to judge your own or others behavior.
If bill gates hadn't been to lakeside high school which was one of the only places where a computer was available at the time there wouldn't have been Microsoft. His buddy Kent or Keith or something was going strong with the group of bill and the other guy involved with Microsoft. He died before his 18th birthday in a mountaineering accident. The chances of dying in the mountains at that time were vanishingly small. If someone scores some nice gains in the stock market don’t be too quick to attribute it to his skills. Same goes for losses. Don’t be too hard on yourself.
Try to keep the goalposts from moving. If you allow lifestyle creep to take over, your not going to be more happy for it. At some point we set ourselves a goal and think we’ll be good when we reach that. Don’t fall into the trap of reaching for ever more. Enough is really enough. Cover your basic needs and maybe some extra. But do you really need a sports car and a home with more bedrooms than occupants? Don’t compare yourself to others. I once thought if I make 50k a year I’m pretty good. Now I make 60 and think I should be going more toward 75. Maybe that’s a mistake. I can afford all I need and then some, so maybe I can stop worrying and enjoy the good fortune that I have while I have it.
Play the long game. Warren buffet made like 80 billion of his 82 billion fortune in the last couple of years of his life. The compounding effect is something the mind can’t easily handle. If you stay invested the gains over time will be insane. Make sure to stay in the market and don’t get wiped out.
Those two are fundamentally different. Many people got rich over time but not all stayed rich. Some of the drops are due to greed. Taking every risk just to get another dollar when one already has more than enough can lead to ruin. When you've got money it should be relatively straight forward to diversify and be safe. Don’t let social comparisons drive you to think you need all the stuff your neighbor or even the people on a different plane of income have. And there’s always another plane of income.
When we look at other people’s nice cars we rarely if ever think about the person in the car. We rather think how it would be if we owned the car. Everyone wants to be respected, but this respect isn't granted if we get a nice car. We should rather strive to be respectable people than to impress with our possessions.
There’s a difference between being rich and being wealthy. Someone with a nice car is rich. He at least has the money which the car is worth. Whether that money is provided by the bank or not doesn't matter here. The thing is that the person might not be rich anymore tomorrow. Someone earning a high yearly salary is rich. He can afford a lavish lifestyle, car and a nice flat. He can be considered rich. These are the things other people see. What we can’t see is the persons savings account, his stocks and other investments. If the big salary suddenly stops and our high earner hasn't saved anything up, he goes from rich to poor very quickly.
Now consider a guy who doesn't look like he cares to much about his appearance, drives a beat up car or bicycle and doesn't throw money around. This person wouldn't be considered rich by a bystander. But what the bystander might not see is that this person could have substantial amounts of assets saved up. He might not appear rich but could be wealthy.
What sets our previously mentioned rich guy and our humble man apart is that one has freedom and the other does not. The rich guy might have lots of stuff but he doesn't really have options. He can’t stop working for a year if he feels like it. He can’t sleep well at night if the few investments he has plummet. Having more money than one needs to live enables us to have options. We might not even know what we will need those for, but it’s good to have them. It buffers stress.
Most investments fail. It’s enough if a few outliers drive all the gains of the portfolio. This small number of performers will offset the losses of the many failures.
See „Freedom“ above. One does not have to have a specific reason for saving. It’s just good to have some extra in the bank to be prepared for what you cannot know.
None of the era defining events in history are what anyone expected. Count on surprises.
Leave a margin of safety. If everything plummets you want to be able to stay in the game and still sleep well.
You’ll pay with sleepless nights for the gains you make in risky endeavors.
Consider that your needs and values will change in the future. You might be cool with living in a 20m2 flat right now, but be aware that you are certain to change. Same goes the other way. Maybe you don't need to stress about having to be able to afford your 400m2 house for the rest of your life.
Don’t buy just because it seems like everyone else buys. Same for selling. The people doing whatever they do might be playing a different game than you. A day trader is happy if the stock closed higher in the evening than it opened in the morning. It doesn't matter whether there is any value behind it. You might be playing a different game so don’t get pulled into a hype that might be only real for people playing a very specific game whose rules you don’t know.