Psychology of Money

This is a great book. I read it many years and someone recently asked me about it so I am re-reading it now. I have found in this reading my perspective is considerably different - though I still think it’s worth a read.

In the first chapter, Housel mentions the story of Ronald Read.

“Read died in 2014, age 92… <during his life he> saved what little he could and invested it in blue chip stocks. Then he waited, for decades on end, as tiny savings compounded into more than $8 million. That’s it. From janitor to philanthropist.”

That reflects that following accepted financial advice will likely not change your life during your lifetime. If your goal is to live poor and make news after you die then buy all means follow Read’s strategy. Which is one of two strategies wall street pushes. Investing, which benefits asset managers. The other is day-trading which benefits market makers.

Both are not likely to change your life positively anytime soon.

There are many cases like Ronald Read. For example, Grace Groner has a similar story. These stories are heart-warming on the surface. Depressing if you take a second thought. These people lived alone and saved/invested in a way that did not benefit them at all.

You can’t judge a person by the account balance on the day they die. But THAT IS ALL WE SEEM TO DO.

In chapter three, Housel tells the story of Rajat Gupta saying,

“was born in Kolkata and orphaned as a teenager. People talk about the privileged few who begin life on third base. Gupta couldn’t even see the baseball stadium.”

This is a bad metaphor. People in India play cricket not baseball. And it is misrepresentative of reality. Gupta’s father was a professor and then moved to New Delhi to start a newspaper. He died when Rajat was 16. Gupta’s mother taught a private school and she died when he was 18.

But, Rajat attended a private school and went to India’s equivalent of M.I.T and then went to graduate school at Harvard. Housel is evoking a kid from the slums when in reality Rajat was very well educated and positioned to suceed.

And, what the narrative misses is not that greed was Rajat’s weakness. Everyone on Wall Street is greedy. He just fit into that system and got caught.

In chapter 4, Housel discusses Buffett and Jim Simons. I’ve talked about Buffett, a lot, Munger and Ben Graham before. What is important in this chapter is to realize that both Buffett and Simons sacrificed their entire young lives to setup to be able to make a lot of money in old age.

The reason I haven’t discussed Simons, RenTech and Medallion Fund, is because I believe that the returns produced by Simons et all, are just from collusion and manupulation.

The fact no one understands what the code does makes it easy to just ignore that what it is doing might actually be illegal.

This is something AI researchers have begun to figure out. Learning algorithms… learn to cheat.

What Housel misses completely is that all of these men made the most via “compounding” only after quantitative easing started post the 2008 financial crash.

If you are following very close behind a vehicle carrying money with the back doors open on a bumpy road you will be first to pick up what falls out. And can pick up the most.

In chapter five, Housel states,

“Jesse Livermore was the greatest stock market trader of his day. Born in 1877, he became a professional trader before most people knew you could do such a thing.”

No he wasn’t. Kennedy was. Kennedy also didn’t need to sell his wife’s jewelry after going bankrupt.

Three times.

Kennedy and Livermore differed in many ways. Livermore saw money as a way to feel loved. Kennedy saw money as way to control other men.

Before you read chapter six, you need to keep in mind that everything is dependent on whether or not you pay your bills from trading or if you have income and are just trying to have a modest retirement.

You can not win 50% of the time and pay your bills. You have to be much better. But, then again no one mentioned in this book or the Housel himself, make their living trading only their brokerage account.

And that is something almost no one ever mentions. There are thousands of books on how to invest for the future almost none on how to make a living solely from managing your own money.

It’s ridiculously easy to make a living managing other people’s money. Because you have a guaranteed salary and all you have to do is buy the index.

In chapter eight, Housel states,

“Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time. ”

No. Money is your time. It’s important to realize this. Whatever money you have is directly derived from some previous hour of your life you will never get back if that dollar came from work.

The trick is to figure out how to get money without doing work.

It’s a really good book caveats above aside. I recommend this.

So add it to Where Are The Customer’s Yachts? on your reading list.