summary ofThe Psychology of MoneyBook by Morgan Housel

first KEY POINT

No one is crazy

Have you had this experience before? You were reading the biography of someone you respect then came across an incident where they made a bad money decision and you thought they were crazy!Or, maybe you were told of a relative or neighbor who was once wealthy that lost almost all their wealth in a short time —and got angry at how they couldn't manage their money. Many of us have had such experiences one way or another.When you see how people handle money, you will be tempted to think some of them are crazy. But no one is crazy. People make terrible money decisions all the time, but it's not because they don't think properly. It's just that when it comes to money, we are all different.Housel estimates that your experience with money makes up 0.00000001% of what the rest of the world experiences. People born in different generations tend to have varying views of money and this affects everything, including how they invest. For example, if you were born when inflation was low, you're more likely to invest in bonds compared to someone born in the heights of economic inflation.

We have been programmed to believe the results we get are 100% the consequences of our actions. When you fail, it's because you did something wrong. And when you succeed with an investment, you're a good investor. But reality isn't always so. Smart, well-calculated investment decisions have failed, and many profits have been obtained from seemingly unwise ones. Clearly, there is more to success than smarts and hard work.Luck plays a role. We can't tell how much luck goes into success, but we do know it's undeniable. Success is usually not untraceable to favorable events like meeting mentors or being in the right place at the right time — that's the uncontrollable factor, that's the luck.

The opposite is also true. Some failures are due to unfavorable circumstances. Death, accidents, uncontrollable world events, etc., have shortchanged people and made them appear to be failures. The bottom line is, don't be quick to judge people's finances when you don't know the whole story.We can do almost nothing about luck and risk and how they affect our finances. But there are other things in our control. And it's wisdom to focus on maximizing the things you can control...let's talk about those things.