Book review - Psychology of Money

Here is a first of many. 

As many know, I do enjoy reading books and I think writing the insights gain from each book helps distill what we learn. After all, everyone can pick up a book but not everyone picks up the same takeaways. 

This is a fine read on finance in a different lens. Highly recommended!

The Psychology of Money by Morgan Housel

An excellent book discussing fundamental concepts of life, investing and mindset. It will tickle your senses, and add the most useful tool to your toolkit, understanding the psychology of what makes us human and why we do what we do.

Here are my top 3 takeaways.

1. Finance is the greatest show on earth, how else would a JCPenny janitor known as Ronald Read accumulate US$8mil at the time of his passing at 92 while a former Merrill Lynch CEO David Komansky ended bankrupt in 2008 when a court declared him so.

Lesson 1: It is not mere education or career success that determines our end point but living within our means, avoiding outsized debt and investing for the long run that builds wealth.

2. Never enough. What is enough for you? By any standard being the CEO of McKinsey and being worth US$100m should have been enough for Raj Gupta. But he didn’t stop there, playing insider trading on news of a Goldman-Berkshire deal, he ruin his reputation went to jail for a mere additional 7% to his networth (which he probably couldn’t keep either).

Lesson 2: Don’t wage what you can’t lose for what you don’t need. The hardest thing is to get the goalpost to stop shifting and this may have a lot to do with peer pressure and culture influences, like what it looks like to be a “success and being of importance to society”. Warren Buffett is a primer of this discipline as he never moved to New York, never upgraded beyond his old Cadillac and house.

Ultimately, there are some risks that are never worth taking despite the upside.

3. Compounding is confounding. Warren Buffett’s wealth just crossed US$100b, of which US$97B of that came after his 65th birthday. A little less known fact was that once upon a time, there were 3 individuals running Berkshire Hathaway, Warren, Charlie and Rick. Rick was just as smart as the other two, but he was in a hurry. When the 1970s recession hit, he was over leveraged and forced to sell his assets. 

Lesson 3: Having an edge also means surviving. It is the one that survives over a long period of time that allows the compounding of wealth to happen. Don’t disrupt the compounding unnecessarily.

Till next time. Invest well.

Joel Siew