Julia's notes on The Psychology Of Money

P.4 Financial outcome are driven by luck, independent of intelligence and effort ( to some extend). The financial success is a soft skill, where how you behave is more important than what you know. Example: story of a janitor ( Hausmeister ) Ronald Read who could donate millions of dollars to his local hospital and library.

P.11 People do some crazy things with money. But no one is crazy. People born into different economies, experiencing different job markets, learn very different lessons. Everyone has their own unique experience with how the world works. The person who grew up when inflation was high experienced something the person who grew up with stable prices never had to.

P.41 It gets dangerous when the taste of having more - more money, more power, more prestige - increases ambitions faster than satisfaction. You feel as if you are falling behind, and the only way is to catch up is to take greater and greater amount of risk… But life isn’t any fun without a sense of enough. Happinesses is just results minus expectations.

P. 42 The idea of having “enough” might look like conservatism, leaving opportunity and potential on the table. Enough ist realising that the opposite- an insatiable appetite for more - will push you to the point of regret. Ex: Top Managers with 340 million per year will compare themselves to top 5 who earned 770 million. And someone like Buffett could look ahead to Jeff Bezos, whose net worth increased by 24 billion.

P. 63 Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. A good plan emphasises room for error, often called margin of safety. “It would be great if the market returns 8% a year, but is it only does 4% a year, I will still be ok”.

P. 85 Controlling your time is the highest dividend money pays. Doing something you love on a schedule you can’t control can feel the same as doing something you hate. Psychologist call it reactance. Rather than feeling like they made the choice, they feel like we made it for them. So they say no or do something else, even when they might have originally been happy to go along.

P. 53 Compounding effect Good investing isn’t necessarily about earning the highest returns, because the highest returns tend to be one-off hits that can’t be repeated. It is about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. Another example: Buffet began his investing when he was 10 years old. By the time he was 30 he had a net worth of $1 million.

P.59 Getting money are keeping money are two different skills. Getting money requires taking risks, being optimistic… But keeping money requires the opposite of taking risk. It requires humility (Bescheidenheit), and fear that what you’ve made can be taken away from you just as fast.

P.64 You can be optimistic that the long-term growth trajectory is up and to the right, but equally sure that the road between now and then is filled with landmines, and always will be. P.65 Economies, markets, and careers often follow a similar path - growth amid loss.

P. 73 The distribution of success among large public stocks over time is not much different than it is in venture capital. Most public companies are duds, a few do well, and a handful become extraordinary winners that account for the majority of the stock market‘s returns. Example: Russel 3000 Index - a big, broad collection of public companies - since 1980. Forty percent of all Russel 3000 stock companies lost at least 70% of their value and never recovered over this period.

P. 75 Carolco, a Former member of Russel 3000 Index. It produced some of the biggest films of the 1980s and 1990s, including Terminator 2, Basic Instinct… It went public in 1987. It was a huge success, churning out hit after hit. It did half a billion dollars in revenue in 1991. And then it failed. It went bankrupt in 1996.

P.78 There are fields where you must be perfect every time. Flying a plane, for example. Then there are fields where you want to be at least pretty good nearly all the time. A restaurant chef, let's say. Investing, business, and finance are just not like these fields. …no one makes good decisions all the time. Take Amazon. It’s OK for Amazon to lose s lot of money on the fire phone because it will be offset by something like Amazon Web Services.

P.80 …we overlook that their gains came from a small percent of their actions. George Soros once said, „it’s not whenever you’re right or wrong“, „bur how much money you make when you’re right and how much you lose when you’re wrong“. You can be wrong half the time and still make a fortune.

P.105 …the value of wealth is relative to what you need. Say you and I have the same net worth. And say you’re a better investor than me. I can earn 8% annual returns and you can earn 12% annual returns. But I am more efficient with my money. In the end I’m getting more benefit from my investing despite lower returns. Having lower expenses means your savings go farther.

P.108 The world used to be hyper-local. That’s now changed. A hyper-connected world means the talent pool you compete in has gone from hundreds or thousands spannning your own town to millions or billions spanning the globe. This is especially true for jobs that rely on working with your head versus your muscles: teaching, marketing…

P.123 History is often used by investors and economists as an unassailable guide to the future. Instead it should be used as a rough guide of what tends to work. Example: practical guide on how to invest, was applicable at the time it was written, but does not seem to work well now (time and conditions changed).

P.150 …as a lawyer they face such long working hours that they rarely see their families. So perhaps they take a lower-paying job with flexible hours instead…then they realise that childcare is so expensive that they decide ti be a stay-at-home parent. Many of us wind through life on a similar trajectory.

P.169 When investors have different goals and time horizons - and they do in every asset class - prices look ridiculous to one person can make sense to another, because the factors those investors pay attention to are different. Are you day trader? Then the smart price to pay is “who cares”? because you trying to squeeze a few bucks out of whatever happens between now and lunchtime…