An analysis of the book Psychology OF Money by Morgan Housel

1. PSYCHOLOGY OF
MONEY
BY
MORGAN HOUSEL
SUMMARIZED BY
PARSHEUS KAPADIA

2. PREFACE
I. The author through this book has tried to explain to us the important lessons of
money that evolve in our lives.
II. The book teaches us important lessons about the financial market as well as
gives us many life lessons that enlighten our thoughts and make us question
how some of these experiences can change the way we think.
III. A book that is worth spending time on is what you can expect from this book
and it delivers that.

3. Everyone in life has a different take on money and investing. One
might think he knows almost everything about money but in the
end, we just know a tiny silver of it
Every financial or life decision that an
individual makes in their lives makes
sense to them even though it might
seem
crazy to others.
High inflation rates
means while growing
up means that you
react to investing in
bond negatively
Low inflation rates while
growing up means that
you will react to investing
in bonds positively
What seems normal to me
Might seem crazy to you

4. Luck and Risk are like siblings
.
Bill Gates
Founder- Microsoft
Extremely smart and talented
An idol to many
One of the richest businessmen in the
world
Kent Evans
As smart and talented as Bill Gates
Died during a mountaineering hike
Went to the same school.
Could have been a future billionaire.
There are always
2 sides of a coin.
One will never know
what side of the coin
they might face.
Behind every Bill Gates, there exists a Kent
Evans—equally skilled and driven, yet
positioned on the opposite side of life's
roulette wheel.

5. “A big example of what money can’t buy today is
the ability to be satisfied with what you have.”
Rich guys want to be
millionaires
and millionaires want to
be billionaires
but no one wants to say
that
they have
‘Enough’
to be satisfied in their
lives.
The hardest 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.
Reputation is invaluable.
Freedom and
independence are
invaluable.
Family and friends are
invaluable.
Being loved by those
who you want to love
you is invaluable.
Happiness is invaluable.

6. Compounding not only means growth but growth so significant that it can be extraordinary.
A big reason for Warren
Buffet’s immense wealth and
success is because of his
experiences throughout his
investing career.
The counterintuitive nature of
compounding leads even the
smartest of us to overlook its
powers
Good investing is not always
about earning high returns but
rather earning good returns for
a longer period of time.

7. The market is like a seesaw
Loss for one is gain for the other.
The capacity to endure over an
extended period, without
succumbing to setbacks or
relinquishing one's efforts, is
what truly sets individuals
apart.
Conservativeness and Margin
of error are 2 different
aspects.
A well-designed plan should
anticipate the possibility
of errors and incorporate
the flexibility to adapt and
address them effectively.
More than I want big returns, I
want to be financially
unbreakable. And if I’m
unbreakable I actually think
I’ll get the biggest returns,
because I’ll be able to stick
around long enough for
compounding to work
wonders.
Planning is important, but the
most important part of every
plan is to plan on the plan not
going according to plan.
A barrelled personality—
optimistic about the future,
but paranoid about what will
prevent you from getting to
the future—is vital.

8. “Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years
spent on cruise control.”
An investor's success relies on
their ability to respond to
moments of terror, despite the
chaos around them.
The finished product doesn’t
show the failed ideas and
failed attempts that
eventually led to the finished
product.
“One failure doesn’t
mean that there is no
hope for success in
the future.”

9. “Freedom is not the right as you please
It is the liberty to do as you ought.”
“The feeling of
doing whatever you
want whenever you
want and with
whomever you want
is priceless”
“CONTROLLING
YOUR TIME IS THE
HIGHEST DIVIDEND
MONEY PAYS.”
Individuals aspire
to generate income
not solely to
acquire possessions,
but rather to
achieve financial
autonomy and control
over their
endeavors.

10. Man In The Car Paradox
Contemporary society often witnesses individuals taking
great pride in their affluent possessions, believing that
such assets will command respect for their owners. However,
the reality is that others are often more focused on the
possessions themselves rather than the individuals who own
them.
A person characterized as "rich" tends to acquire expensive
possessions for the purpose of showcasing their wealth,
while a person described as "wealthy" prioritizes saving
their resources rather than succumbing to societal
expectations regarding material displays of affluence.
“Kindness, Empathy and humility will bring you more respect
than horsepower will ever will.”-

11. Modern capitalism helps people fake it until they make it a cherished industry.
Wealth is often reflected in the choices we make—opting
for the house we truly desire instead of settling for
something less, or selecting the SUV we initially
envisioned rather than compromising with a sedan. In
essence, wealth is the accumulation of assets and money
that could have been spent but has been wisely preserved.
Accumulating wealth hinges on
prudent financial management,
emphasizing the importance of
mindful spending and strategic
allocation of resources.
It is very easy to find rich
role models but it is very
hard to find a wealthy role
model because their wealth
is usually hidden.

12. You can make money 2 ways- make more or spend less
JOHN HOPE BRYANT
Past a
certain level
of income,
what you need
is just what
sits below
your ego.
More
importantly,
the value of
wealth is
relative to
what you
need.
Building
wealth has
little to do
with your
income or
investment
returns, and
lots to do
with your
savings rate.
1.That
flexibili
ty and
control
over your
time is
an unseen
return on
wealth.
Saving
doesn't
require a
specific
justifica
tion.
Being
wealthy is
about saving
as much as
you can while
still being
satisfied
with your
lifestyle.

13. REASONABLE > RATIONAL
A reasonable investor is someone
who invests to meet their own
needs and doesn't solely rely on
in-depth research for their
investment decisions.
A reasonable investor considers
investing in stocks while having
dinner and aims to outperform
friends, neighbours, and family.
A smart investor puts money into
a company they really like and
stays with them through good
times and bad.
A Rational investor relies on
concrete data and engages in
thorough research before making any
investment decisions.
Being emotionless about your
investments is not advised and is
never healthy. It's called being
rational and it's only possible if the
money you are investing is not yours.
It's better not to be overly focused
on pure logic when making investment
decisions.
REASONABLE RATIONAL

14. You never know what the future upholds and relying on the past to secure your
future is never a smart way of living.
1.You’ll likely miss the outlier events
that move the needle the most.
Individuals often assess
potential future risks and gains
by comparing them to those
experienced in the past.
Investing without thinking
about the future and only
analyzing past events cannot
lead to constant and successful
returns.
Events like World War and
depression didn’t have any
precedent when they occurred and
we don’t know if anything bigger
will happen in the future.
1.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.
There are many formulas and theories that
seems to be universal and meant to be the
base of investing ignoring the time period
but they don’t result in impressive returns
and are just good to be looked into on
paper.
We should derive lessons from history by
understanding the underlying reasons
behind events, rather than solely fixating
on the outcomes.
History is the study of change, ironically
uses as map for future

15. ROOM FOR ERROR
Achieving absolute certainty is rare, and it's
unwise to wager everything based on the
assumption of being infallibly correct.
Life is unpredictable, and it's important to
acknowledge that things may not always go as
planned.
Allowing for some margin of error and
understanding that your initial plans may
deviate is a prudent approach.
“The most
important part
of every plan
is planning on
your plan not
going
according to
plan.

16. A well-executed plan flourishes best when provided with ample time
and space for development.
35%
15%
50%, of individuals find employment in industries
unrelated to their academic degrees
25% of the population opts for a non-professional
role, choosing to stay at home as parents.
.
15% of people pursue careers directly
aligned with their educational
qualifications.
The data illustrates the
percentage of individuals
in the United States
employed in roles
corresponding to their
academic degrees.
Individuals are in a constant state of
evolution, with shifting goals and
objectives that reflect their dynamic
nature.
While long-term planning remains a
crucial aspect of life, the
unpredictability of external
circumstances adds an element of
uncertainty.
Adapting to change is essential, as
circumstances may take unexpected
turns, either favorably or unfavorably.
We can't be sure if the market will
reach new highs or if a significant
downturn will occur in the next year.
It's crucial to be ready for whatever
circumstances come our way.

17. Everything comes with a cost
some are visible some are not.
Every job looks
easy when you’re
not the one doing
it because the
challenges faced
by someone in the
arena are often
invisible to those
in the crowd.
PEOPLE MISUNDERSTOOD MARKET RISK AND VOLATILITY
AS A FINE RATHER THAN UNDERSTANDING IT AS A FEE.
If something doesn't cost money, it could still
have significant drawbacks and choices to
consider.
The question is why aren’t people ready to pay the
pill when it comes to investing terms?
The answer is simple. Investors cannot see the
bill when its due and it doesn’t feel like a fee.

18. Everyone is different and
So should their investing methods
Every investor
is different and
has different
trading
techniques.
Someone is a day
trader, someone has a
strategy to sell
within a year, and
someone forgets he
has even bought the
stock.
Many individuals
frequently
replicate the
strategies and
trading patterns of
fellow investors
without taking the
time to comprehend
the nature of the
investment game
they are
participating in.
What seems
absolutely fine
to me might seem
crazy to others.”
Every trader is
different and has
different techniques,
methods, and ideas and
his way of earning
might be the complete
opposite of what the
trader next to his
house might be
planning.
Being swayed
by the
actions of
individuals
engaged in a
different
game than
oneself may
lead to
undesirable
outcomes.

19. THE ALLURE OF PESSIMISM
Optimism involves maintaining a positive outlook
while acknowledging the challenges that may accompany
the anticipated rewards.
Pessimism involves focusing primarily on the
potential negative outcomes and maintaining a
negative perspective even when optimism is a viable
option.
“Assuming that something ugly will stay ugly is
an easy forecast to make. And it’s persuasive
because it doesn’t require imagining the world
changing. But problems correct and people adapt.”
Pessimism is a short-term poison that kills
immediately as optimism is a slow medicine that
takes its time to grow and recover.

20. Everything seems to be true,
when you want it to be true
The impact of stories and narratives on an economy
is profound, capable of either fostering its
prosperity or leading to its complete demise.
Each individual possesses a limited perspective of
the world, yet we construct comprehensive
narratives to bridge the gaps in our understanding.
At times, individuals may find themselves distant
from certain outcomes, yet they willingly embrace
them due to the allure of a 1% probability of
realization.
Many people may not be aware
that their understanding is
limited, as they often
construct explanations that
align with their unique
perspectives and life
experiences, even if those
experiences are relatively
narrow.

21. ALL TOGETHER NOW
1. Go out of your way to find humility when things are going right and
forgiveness/compassion when they go wrong.
2. Less ego, more wealth.
3. Manage your money in a way that helps you sleep at night.
4. If you want to do better as an investor, the single most powerful thing you can do
is increase your time horizon.
5. Become OK with a lot of things going wrong. You can be wrong half the time and
still make a fortune.
6. Use money to gain control over your time.
7. Be nicer and less flashy.
8. Save. Just save. You don’t need a specific reason to save.
9. Define the cost of success and be ready to pay it.
10. Worship room for error.
11. Avoid the extreme ends of financial decisions.
12. You should like a risk because it pays off over time. But you should be paranoid of
ruinous risk because it prevents you from taking future risks that will pay off
over time.
13. Define the game you’re playing.
14. Respect the mess .
KEY POINTS TO TAKE AWAY FROM THE BOOK

22. HOW DOES THE AUTHOR INVEST?
The author advocates for purposeful saving,
emphasizing the importance of building a financial
reserve to navigate unforeseen challenges that life
may present.
He and his wife embrace a modest lifestyle,
characterized by a lack of extravagant expenses.
However, this does not imply living on the edge;
rather, they have intentionally chosen a lifestyle
that aligns with their highest level of comfort.
The author advocates for the principle of hard
compounding and opposes the idea of selling stocks
to fund significant expenses.
The author has his ways of saving and investing
which he is comfortable with and doesn’t promote it

23. THANKS!
BOOK:- PSYCHOLOGY OF MONEY
AUTHOR:- MORGAN HOUSEL
PUBLICATION:- JAICO BOOKS
Summed Up By,
Parsheus Kapadia
parsheus15@gmail.com