Lance's Takeaway from 'The Psychology of Money' by Morgan Housel

So I just started reading “The Psychology of Money” by Morgan Housel... as a financial life changer…I put it up there with:

1. The millionaire next door, by Stanley and Danko, and

2. Think and Grow Rich by Napoleon Hill.

Each week I will post a thought/takeaway/paragraph from my readings… F*ing brilliant stuff here.

For week #1 (Sept. 22, 2020): 2 thoughts.

Financial outcomes are driven by luck, independent of intelligence and effort, may be true to an extent…but Financial success is not a hard science, but a soft skill where how you BEHAVE (my bold, capital here) is more important than what you know!!!!  Morgan gives lots of examples which I will share over the coming weeks, but if you have heard me at all our BEHAVIOR trumps almost every other aspect of achieving financial success….Starting early, being disciplined in our spending/savings habits, living below our means, not REACTING to current events…all things we can control.

For week #2 (Oct. 6, 2020): Art Dealer

This Chapter talks about a renowned art dealer who started to collect art, tons of it, most of which, it turns out, was crap, but ended selling all the art for $100 million dollars even tho it was worth $1 billion dollars. How did this happen if most of it was crap? Because there was that 1% that was not. When he started collecting the art, he had no idea what was going to be the good stuff and what was going to be the lousy stuff. This made me realize, that is much akin to investing in an index fund than investing in a broad scope (500 to 1000 different companies). In the Russell 3000, 40% of the companies in the last 40 years have gone out of business, but the reality is that the return has been 8-9% a year, same in the S&P 500. You don't have to pick the best one. In fact, most of them might not being worth that much of anything, but it is that 1% that ends up that makes you money, and the key is, instead of trying to pick the best one, buy a bunch and hold it for a long time. 

For week #3 (Oct. 22, 2020): Margin of Safety

This chapter is about Margin of Safety. I need a metaphor sometimes to understand a point, so behind me is my pool, and on top of my pool is my pool cover. The pool cover says it can take up to 10.000 pounds meaning I can run back and forth and there is absolutely zero risk, or near zero risk, that we're going to fall in the pool and that it'll rip. In fact, if I got my entire family and their friends we could run back and forth with no problem. But if I drove my car over it, or maybe two cars, we might be having a different margin of safety. What does margin of safety means relative to your personal planning? The only way you, or we, can figure out the margin of safety for your future lifetime financial goals is by creating a financial life plan! Because it is exactly what the FLIP measures. I want you to start thinking of that margin of safety. What is your number?