Psychology of Money by Morgan Housel [quotes and notes]

Many personal finance books recycle the same content: build frugal habits, buy assets not liabilities, dollar cost average into indexes, understand power of compound interest, reframe your mindset etc.

Despite this, it’s no surprise they continue to capture people’s attention. Wealth, greed, and happiness are timeless themes that remain on the top of many people’s minds.

“People tend to want wealth to signal to others that they should be liked and admired.

But in reality those other people often bypass admiring you, not because they don’t think wealth is admirable, but because they use your wealth as a benchmark for their own desire to be liked and admired.”

Psychology of Money by Morgan Housel stood out for me for three reasons:

(i) It’s rich in highly relevant and very digestible short stories to supplement each key point.

(ii) It articulates the essence of slightly more sophisticated concepts not typically covered in bestsellers targeted to everyday readers. And it does so without using any fancy words: antifragility, ergodicity, optionality, global vs local optimization, hedonistic adaptation etc.

(iii) Author’s crisp writing style is admirable. And one that I’m aspiring to replicate. Consistent with his Collaborative Fund newsletters I’ve been enjoying for years.

This post is a compilation of 18 quotes that resonated most with me.

The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, Morgan Housel, 2020

Most under-estimate the role of luck and chance. 

Economics Nobel Prize winner Robert Shiller was asked, “What do you want to know about investing that we can’t know?”

He answered, “The exact role of luck in successful outcomes.” 


Be careful who you praise and admire.
Be careful who you look down upon and wish to avoid becoming.”

Focus less on specific individuals and case studies and more on broad patterns. (As I alluded to in Psychological vs Sociological Narratives)

“Studying a specific person can be dangerous because we tend to study extreme examples – the billionaires, the CEOs, or the massive failures that dominate the news – the extreme examples are often the least applicable to other situations, given their complexity.”

More practical advice:

Go out of your way to find humility when things are going right and forgiveness/compassion when they go wrong.

Because it’s never as good or as bad as it looks. The world is big and complex. Luck and risk are both real and hard to identify.”

The tragedy for many ambitious people is that they have no sense of enough.

“If expectations rise with results there is no logic in striving for more because you’ll feel the same after putting in extra effort.”

While not mentioned in the book, another term for this is hedonistic adaptation.

“Modern capitalism is a pro at two things: generating wealth and generating envy.”

Check out this video for more on this:

True wealth is having true control over your time:

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

Even if you love what you do:

“The hardest thing about this was that I loved the work… But doing something you love on a schedule you can’t control can feel the same as doing something you hate.”

On the silliness of using wealth as a cue for social recognition:

“There is a paradox here: people tend to want wealth to signal to others that they should be liked and admired.

But in reality those other people often bypass admiring you, not because they don’t think wealth is admirable, but because they use your wealth as a benchmark for their own desire to be liked and admired.”

But instead of “wow the guy driving that car is cool,” most people think “wow if I had that car people would think I’m cool.” Hence, the paradox.

This resonates with one of my favorite quotes:

It’s perfectly okay to factor in irrational emotional needs in investment strategy. 

If your pain from seeing a 5% loss exceeds the joy of seeing a 5% gain, then volatile assets are not for you.

“The independent feeling I get from owning our house outright far exceeds the known financial gain I’d get from leveraging our assets with a cheap mortgage.

Eliminating the monthly payment feels better than maximizing the long-term value of our assets.

It makes me feel independent.”

While not mentioned in the book, I think this is a common cause of many arguments in relationships. Differences in opinion about what constitutes an investment into emotionally well-being versus mere financial stupidity.

“Good decisions aren’t always rational.

At some point you have to choose between being happy or being ‘right’.”

How much you should be willing to pay for a stock should depend on your time horizon:

“Investors often innocently take cues from other investors who are playing a different game than they are.”

On bubbles:

“Bubbles form when the momentum of short-term returns attracts enough money that the makeup of investors shifts from mostly long term to mostly short term.”

Bubbles aren’t entirely irrational:

“The formation of bubbles isn’t so much about people irrationally participating in long-term investing. They’re about people somewhat rationally moving toward short-term trading to capture momentum that had been feeding on itself.”

For most people, the best strategy is to dollar cost average into indexes. 

“One of my deeply held investing beliefs is that there is little correlation between investment effort and investment results.

The reason is because the world is driven by tails – a few variables account for the majority of returns.”

Pessimists often extrapolate present trends without accounting for how markets adapt:

“There is an iron law in economics: extremely good and extremely bad circumstances rarely stay that way for long because supply and demand adapt in hard-to-predict ways.”

Progress happens too slowly to notice, but setbacks happen too quickly to ignore. For instance, when the Wright Brothers’ made the first flight, no one seemed to notice. People just couldn’t believe that flight was practically feasible.

“First, it was seen mainly as a military weapon. Then a rich person’s toy. Then, perhaps, used to transport a few people.”

This shows that:

“It’s easier to create a narrative around pessimism because the story pieces tend to be fresher and more recent.

Optimistic narratives require looking at a long stretch of history and developments, which people tend to forget and take more effort to piece together.”

Stories are more powerful than statistics.

“The more you want something to be true, the more likely you are to believe a story that overestimates the odds of it being true.”

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If you enjoyed this, you may also like:

Antifragility, Modernity, and Dancing with Disorder

Debt: The First 5,000 Years by David Graeber [quotes and notes]

Man’s Search For Meaning by Viktor Frankl [quotes and notes]