Psychology of Money

Psychology of Money. By Morgan Housel.

1,No One’s Crazy. Everyone has their own unique experience with how the world works. And what you have experienced is more complete than what you learn secondhand. For example, the person who grew up in poverty thinks about risk and reward in ways that the child of a wealthy banker cannot even believe even if he tried. or the person who grew up when inflation was high experienced something the person who grew up with stable prices cannot. The stock brokers who lost everything during the Great Depression experience something that tech workers the skin and the glory of the late 1990s cannot imagine. Individual investor’s willingness to bear risk depends on personal history. Local stock markets in Germany and Japan were wiped out during World War 2, entire regions were boomed out. At the end of the war German farms only produced enough food to provide the country’s citizens with 1000 calories a day compared to the US where the stock market more than doubled from 1941 through the end of 1945, and it has been in almost 2 decades..

2.Luck & Risk. Luck and risk are siblings. They are both the reality that every outcome in life is guided by forces other than individual efforts. NYU Professor Scott Galloway:" Nothing is as good or as bad as it seems" Take the example of Bill Gates: He got to study at the lakeside school, just outside Seattle, and even got a computer is remarkable. He has two friends Kent Evan and Paul Allen. Bill Gates and Paul Allen together made Microsoft which later became a huge success. Kent was as skilled with computers as Bill Gates and Paul Allen, kent was similar to Bill Gates in knowledge, but unfortunately, he died in a mountaineering accident. So in this example, we got to know that luck and risk both are the reality that every outcome in life is guided by forces other than individual effort. Luck and risk are doppelgangers, it is not an easy problem to solve and also we face problems when trying to learn about the best way to manage money. But two things can point out in a better direction 1) Be careful who you praise to admire. Be careful who you look down upon and wish to avoid becoming. 2) focus less on specific individuals and case studies and more on broad patterns. Bill Gates once said “Success is a lousely teacher it seduces smart people into thinking they can't lose" When you think that things are going extremely well, realize it's not as good as you think. You are not Invincible, and if you acknowledge that luck brought you success then you have to believe in Luck's cousin risk which can turn your story around just as quickly..

3. Never Enough. John Bogle told a story about money that highlights something we don't think about enough: At a party given by a billionaire Kurt Vonnegut informs his Pal, Joseph Heller, that their host, a hedge fund manager had made more money in a single day than Heller had earn from his widely popular novel "catch 22" over its world history. Hello responds, “Yes, but I have something that he will never have..... Enough" There are two examples of it Rajat Gupta and Bernie Madoff Rajat Gupta was born in Kolkata and orphaned as a teenager but he rose and became the CEO of McKinsey the world's most prestigious Consulting firm, he was worth $100 million but he did inside trading and lost everything. Similarly, Bernie Madoff was a well-known billionaire, he was a market maker a job that matched both buyers and sellers of stock. But he got involved in a Ponzi scheme and lost everything. From these two examples, we came to know that you should be satisfied with what you have and learn the word "enough".

4. Compounding Compounding. Warren Buffet, we all know that he is a brilliant investor but there is no formula in his investment strategy instead it’s time. He started investing when he was 10 years old so when he turned 30 he had a net worth of $1 million when at that time more people started investing. And now Warren Buffet has a net worth of $84.5 billion, of which $84.2 billion was accumulated after his 50th Birthday, and $81.5 billion came after he qualified for social security in his mid-60s. He started investing at the age of 10 to at least the age of 89 which made compounding work nicely, this is the power of compounding and time. Compounding only works when you invest in an asset for a longer period of and let it grow, good investing isn’t necessarily about earning the highest Returns, because the highest returns tends to be one of hits that can’t be repeated. It’s about earning a pretty good return that you can stick with and which can be repeated for the longest period. That's when compounding runs wild..

5. Getting Wealthy VS. Staying Wealthy. There are a million ways to get wealthy and plenty of books on how to do so. But there’s only one way to stay wealthy: some combination of frugality and paranoia. And that’s a topic we don’t discuss enough For example: Jesse Livermore was the greatest stock market trader of his day. But by 1929 he was already one of the most well-known investors in the world. The stock market crash that year that occurred in the Great Depression cemented his Legacy in history. When most of the people were long in the market that is bullish due to the crash most of the value of the stock market was wiped out in an October 1929 week whose days were later named black Monday black Tuesday and black Thursday. As Livermore was bearish and short in the market so he did not lose anything instead gain profits. But he became overconfident and made larger and larger bets. He wound up far from the debt and eventually lost everything in the stock market and then took his own life. Abraham Germansky was a multi-millionaire real estate developer who made a fortune during the roaring 1920s. As the economy boomed he did what Virtually every other successful New Yorker did in the late 1920s: heavily bet on the stock market. Which led to a huge loss for him. The timing was different but both Shadow character traits: They were both very good at getting well and equally bad at staying wealthy. In this, we learn that getting money is one thing but keeping it is different. Financial success can be summarized by one word that is "survival" Applying the survival mindset to the real world comes down to appreciating three things: 1)more than I want big Returns, I want to be financially Unbreakable. And if I am Unbreakable I actually think I will get the biggest Returns, because I will be able to stick around long enough for compounding to work wonders 2) planning is important, but the most important part of every plan is to plan on the plan not going according to plan If there's room for errors in your savings rate you can say" It would be great if the market returns 8% a year over the next 30 years but if it only does 4% a year I will still be okay”.

1)1.3 million Americans died while fighting 9 major Wars 2) roughly 99.9% of All companies that were created went out of business 3) Four US presidents were assassinated 4) 675000 Americans died in a single year from a flu pandemic. 30 separate natural disasters killed at least 400 Americans each 5) 33 recessions lasted a cumulative 48 years 6) the number of forecasters who predicted any of those recession rounds to zero 7) The stock market fell more than 10% from a recent high of at least 102 Times 8) Stocks lost a third of their value at least 12 times. 9) annual inflation exceeded 7% in 20 separate years 10) the words" economic pessimism" appeared in newspapers at least 29000 times according to Google.

6. Tails,you win. “I’ve been banging away at this thing for 30 years. I think the simple math is, some projects work and some don’t. There’s no reason to belabor either one. Just get on to the next.” —Brad Pitt accepting a Screen Actors Guild Award. You can be wrong half the time and still make a fortune. Take the example of Heinz Berggruen’s art collection. In 2000 he sold part of his massive collection of Picassos, Braques, Klees, and Matisses to the German government for more than 100 million euros. It was such a bargain that the Germans effectively considered it a donation the private market value of the collection was well over $1 billion. From these, we learn that perhaps 99% of the works someone like Berggruen acquired in his life turned out to be off little value. But that doesn't particularly matter if the other 1% turns out to be the work of someone like Picasso. He could be wrong most of the time and still end up stupendously right. Similarly, it happened with Walt Disney his films usually used to be flop but his one movie Snow White was a huge turnaround for him. It is not that the person can be wrong have the time and still make a fortune. It means we underestimate how normal it is for a lot of things to fail which causes us to overreact when they do but if we keep patience then we can make a fortune. Similarly, Amazon and Netflix are also an example: Amazon had a big failure due to the fire phone but it was okay for Amazon because it set something like Amazon Web Services that earn tens of billions of dollars. And Netflix intentionally adds more content ideas because they know that some might get failed, but few may get hit which will cover the value of that loss..

In venture capital investment there are many investments that fail, some go normally, and some become a huge success. The concept of high-risk high returns is something that can give you a good fortune or it can be a huge loss. Take for example 65% lost money, 2 and a half percent of investments made 10x to 20x, and 1% made more than a 20 X return. Russell 3000 index: 40% of this index lost 70% of its value and never recovered over this period but the 7% of Companies outperformed, which recovered the loss and made overall gains for the index. Companies like Microsoft and Walmart are examples of this they outperform the returns when the others made losses or lost their value. At the Berkshire Hathaway shareholder meeting in 2013, Warren Buffet said he owned 400 to 500 stocks during his life and led most of his money on 10 of them. "It's not whether you are right or wrong that's important", George Soros once said," but how much money you make when you are right and how much you lose when you are wrong". you can be wrong half the time and still make a fortune you should focus on long-term trends, understand tail events and embrace the uncertainty..

7.Freedom. “Controlling your time is the highest dividend money pays". The ability to do what you want, when you want, with whom you want, for as long as you want, is priceless. It is the highest dividend money pays. More than your salary, more than the size of your house, more than the prestige of your job, more than anything is the highest dividend money pays. When you accept that money towards the life that lets you do what you want, when you want, with you you want, where you want, for as long as you want has incredible returns. Money doesn’t buy only things but also time. For example, a person may like to have a job with flexible hours even if the salary is low or average. Money's greatest intrinsic value is its ability to give you control over your time, leading to independence and autonomy. Gerontologist Karl Pillemer interviewed thousands of elderly Americans looking for the most important lesson they learn from life: No one said that you should work as hard as you can to earn money and from that you can buy things And not a person says that to be wealthy you should be wealthier than the people around you to get success And no one says that you should choose your work based on your desired future earning power. Take for example Derek Sivers, a successful entrepreneur who once wrote about a friend who asked him to tell the story about how he got rich he said that his cost of living was about $1000/month, and he was earning $1800/ month. He did this for 2 years and saved up to $12000 and he was just 22 years old at that time. Then he quit the job and became a full-time musician. Also, he sold his company and when his friend asked he said that it didn't make a big difference in my life that was just more money in the bank the difference happened when he was 22..

8. Man in the Car Paradox. No one is impressed with your possessions as much as you are. 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. For example, take a person driving a Ferrari. You will think that you should have a Ferrari, but you will not admire or like the person who is driving a Ferrari. It is a subtle recognition that people generally Aspire to be respected and admired by others, and using money to buy fancy things may bring less of it than you imagine. If respect and admiration are your goals, be careful how you seek them. Humility, kindness, and empathy will bring you more respect than horsepower ever will..

9.Wealth is what you don’t see. Spending money to show people how much money you have is the fastest way to have less money. For example, take a person who drives a Porsche you will feel like he is rich, but you don't know that he is in high debt because he has taken a loan for that car. We tend to judge well by what we see because that's the information we have in front of us. We can't see people’s bank accounts or brokerage statements. So we rely on outward appearances to gauge financial success. Cars. Homes. Instagram photos. Modern capitalism helps people Fake it until they make it a cherished industry. But the truth is that wealth is what you don't see. A wealth of financial assets that haven’t heard is being converted into the stuff you see. Investor Bill Mann once wrote" There is no faster way to fail rich than to spend lots of money on really nice things. But the way to be rich is to spend money you have, and not to spend money you don't have. It’s really that's simple" There is a huge difference between rich and wealth: Rich is a current income where wealth is hidden. Rich exercise is like being rich. You think," I did the work and I now deserve to treat myself to a big meal" is turning down that treat meal and actually burning net calories. It's hard and requires self-control. But it creates a gap between what you could do and what you choose to do that accrues to you over time. There are of course wealthy people who also spend a lot of money on stuff. But even in those cases what we see is their richness, but not wealth. We see the cars they bought, and the school they send their children to. But we don't see their investment, retirement accounts, or savings..

10.Save Money. The only factor you can control generates one of the only things that matters. How wonderful. 1) the first idea- simple, but easy to overlook- is that building wealth has little to do with your income or investment Returns and lots to do with your savings rate. Investment returns can make you rich. But whether an investing strategy will work, how long it will work for, and whether the market will cooperate, is always in doubt. Results are shrouded in uncertainty. Personal savings and frugality—finance’s conservation and efficiency—are parts of the money equation that are more in your control and have a 100% chance of being as effective in the future as they are today. Savings can be created by spending less. we spend because we think that spending means being wealthy, but If you don't think about what people will say or think about you then you can save money and use it when required. 2) more importantly the value of wealth is relative to what you need: You should know how to manage your money. Learning to be happy with less money creates the gap between what you have and what you want- similar to the gap you get from growing your paycheck, but easier and more in your control. 3) past a certain level of income, what you need is just what sits below your ego: One of the most powerful ways to increase your savings isn't to raise your income. It’s to raise your humility. People with enduring personal finance success—not necessarily those with high incomes—tend to have a propensity to not give a damn what others think about them..

.. 4) so people's ability to save is more in their control than they might think: Savings can be created by spending less. You can spend less if you desire less. And you will Desire less if you care less about what others think of you. 5) And you don’t need a specific reason to save: You can save just for saving sake. And indeed you should. Everyone should. Savings without a spending goal gives you options and flexibility, the ability to wait, and the opportunity to pounce. It gives you time to think. It lets you change course on your terms. 6) that flexibility and control over your time is an unseen return on wealth and that hidden return is becoming more important: If you have flexibility you can wait for good opportunities, in your career in your investments. You will get a chance to learn new skills, you will get time to know your passions and flexibility for your working hours.

11. Reasonable > Rational. Aiming to be mostly reasonable works better than trying to be coldly rational Do not aim to be coldly rational when making financial decisions. Aim to just be pretty reasonable. Reasonable is more realistic and you have a better chance of sticking with it for the long run, which is what matters most when managing money. Take for example: Julius Wagner-Jauregg, a 19th-century psychiatrist. He noticed that people with syphilis were getting cured by having a fever, so he started injecting patients with low-end strains of typhoid, malaria, and smallpox. Some of his patients got cured but some died. This example shows that the doctor was being rational rather than being reasonable. Harry Markowitz won the Nobel Prize for exploring the mathematical trade between risk and return. He divided his money into stocks and bonds so that his future regret would be minimal. In 2008 a pair of researchers from Yale published a study on using debt for buying stocks (two Dollars of debt for every dollar of their own money). The math works on paper. But it's a rational strategy. Because if the market drops then a person would be wiped out. You should have emotions in the stock you invest because that makes you invest in good companies and stay updated on them and also it helps you to stay in the long-term game. If you just invest it not analyzing the company in which you invest then it may lead you to loss. 'Home bias': There are people who only invest in their own country and not in others even if the companies in which they invest are small globally..

Day trading and picking individual stocks is not rational for most investors- the odds are heavily against your success. But it makes a person engaged in them and makes the rest of the diversified investment alone. Being updated about the stock market is good. Most forecasts about where the economy and the stock market are heading, but making forecasts is reasonable. Financial decisions don't need to be mathematically perfect or "rational." Being reasonable- balance your emotions, personal preferences, and the realities of life. This way, over the long term, you can make decisions you can stick with, which matters more..

12. Surprise!. History is a study of change, ironically used as a map of the future. History is mostly the study of surprising events but it cannot always help to forecast the future. You should use history as a guide but not heavily rely on investment history as a guide to what's going to happen next. Two dangerous things happen when you do it: 1) you will likely miss the outliner events that move the needle the most 2) history can be a misleading guide to the future of the economy and stock market because it doesn't account for structural changes that are relevant to today's world. History can help us to know where people went wrong and give a rough idea to make our investment strategy but in any way, it is not a map for the future. Take for example: 9/11 prompted the Federal Reserve to cut interest rates, which helped drive the housing bubble, which led to the financial crisis, which led to a poor jobs market, which led 10 million to see a college education, which led to $1.6 trillion in students loan with a 10.8% default rate. It’s not into creative to link 19 hijackers to the current weight of student loans, but that's what happens in a world driven by a few outliner tail events. The majority of what happened at that time was totally unpredictable. The forecasters Who assume the worst and best events of the past will measure the worst and best events of the future is not following history; they are accidentally assuming that the history of unprecedented events doesn’t apply to the future..

There a various other examples like the Great Depression, World War 2, Fukushima disaster, etc. Which are unpredictable and there are many things that can happen, that have not happened in the past. Even stock markets are changing with new technology, trends, etc. For example the 401(k) and venture capital rise. Or take the time between US recessions that has changed dramatically over the last 150 years Graham’s criteria instructs conservative investors to avoid stock trading for more than 1.5 times book value which is no longer useful in the market. Investors need to learn humility and accept that they cannot know everything about it and be prepared for the corrections that will come as circumstances evolve. For instance, even the most successful investor of his time, Benjamin Graham, realized that he had to revise the strategies and formulas he adopted over time..

13.Room for Error. The most important part of every plan is planning on your plan not going according to plan. Room for error means you should be prepared for unexpected events like Plan B. Take for example blackjack card no one can know for sure what card the dealer will draw next. But by tracking what cards have already been dealt you can calculate what cards remain in the Deck. Doing so can tell you the odds of a particular card being drawn by the dealer. Benjamin Graham is known for his concept of the margin of safety he mentioned in an interview “The purpose of the margin of safety is to render the forecast unnecessary" A person should have enough money to recover from the unpredictable event that occurred take for example two percent edge over the casino. Forecasting with Precision is hard. So the best we can do is think about the odds. Learning that we can't know everything and uncertainty is part of it, is one of the important qualities one should have. A person should never be over-confident because it can lead to poor decision-making and a lack of room for errors. Room for errors lets you endure a range of potential outcomes, and endurance lets you stick around long enough to let the odds of benefiting from a low probability outcome false in your favor. Both Bill Gates and Warren Buffet understood, that you should have cash for unpredictable events..

Having a gap between what you can technically endure versus What's emotionally possible is an overlooked version of room for error. You should have a backup plan for the bad or unpredictable events. In a nutshell, smart financial behavior speaks of recovery by way of margin of safety; having the means, resources, and what it takes for you to survive bad outcomes; and possibilities of what you can't predict. It's not a question of making the perfect prediction but rather standing long enough to let time and compounding work in your favor..

14.You’ll Change. Long-term planning is harder than its scenes because people's goals and desires change overtime. An underpinning of psychology is that people are poor forecasters of their future selves. Imagining a goal is easy and fun. Imagining a goal in the contacts of the realistic life stresses that grow with competitive pursuits is something entirely different. This has a big impact on our ability to plan for future financial goals. The end of history illusion is what psychologists call the tendency for people to be keenly aware of how much they have changed in the past, but to underestimate how much their personalities, desires, and goals are likely to change in the future. Harvard psychologist Daniel Gilbert’s research shows people from age 18 to 68 underestimate how much they will change in the future. Take for example a fire boy who wants to drive a tractor, in his teenage he dreams of becoming a lawyer, and then they decide to be a stay-at-home parent because they realize that child care is so expensive that it consumes most of their paycheck. We should avoid the extreme ends of financial planning: goals and Desires may change in the future therefore making long-term decisions is difficult. Mostly we should avoid financial plans like very low income because then a person may not be able to plan his retirement and endless working hours. After all, then it may make you regret in the future that to earn money you neglected flexibility..

Charlie Munger says the first tool of compounding is to never be interrupted unnecessarily. Compounding works when you let it grow for some years and it happens when there is a balance. You should aim for free time, flexibility, family, moderate savings, etc. which will not make you regret in the future. We should also come to accept the reality of changing our minds: You should make a new plan instead of going according to the old plan which is no longer beneficial for you Sunk costs—anchoring decisions to past efforts that can’t be refunded—are the devil in a world where people change over time. They make our future selves prisoners to our past, different, selves. It’s the equivalent of a stranger making major life decisions for you. Kahneman's ability to move on to a new chapter comes from his belief that he isn't anchored to the past by sunk costs. It's time to let go of your financial goals, as made when you were another person. That will help prevent you from developing regrets about the future. The sooner you do this, the sooner you can begin making progress..

15. Nothing’s free. Everything has a price, but not all prices appear on labels. Take for example: General Electric was the largest company in the world in 2004. But the 2008 financial crisis sent GE's financing division- which supplied more than half the company's profit- into chaos. It was eventually sold for scrap. GE stock fell from $40 in 2007 to $7 by 2018. Immelt told his successor," Every job looks easy when you are not the one doing it". Most things are harder in practice than they are in theory. sometimes this is because we are over-confident. More often it's because we are not good at identifying what the price of success is, which prevents us from being able to pay it. Jack Welch was a former CEO, he used to always beat the Wall Street estimates by messing with the numbers, pulling games from future quarters into the current quarter. Freddie Mac and Fannie Mae under-reported earnings to show that they're stable. But then this led to big financial problems in investing in the market: Even achieving success in investing is not free, a person has to pay in terms of market volatility, uncertainty, and fear. To have long-term returns a person has to endure short-term losses. To hold stocks for a long time is a good idea but it's hard to maintain when the stocks are collapsing. Take for example the market crashes of the dot-com bubble, the 2008 financial crisis, etc.) To get success in long-term market Returns a person has to endure market volatility and Downturns. Tactical find the fund that manages their strategies according to the market change..

Take volatility as a fee and not as a fine: You should take market volatility as a fee and not as a fine. You should look at it like you are paying a fee for long-term Returns. Take for example: buying a ticket to Disneyland for fun, if you think of volatility as a fee for long-term market growth so that you can earn quite good returns in the future. In short to approach the price: accept volatility, stay focused on the long term, avoid 'good to be true' strategies'- make strategies that give you good Returns with less risk, and manage risk..

16.You and Me. Beware of taking financial cues from people playing a different game than you are. A bubble is where the Asset price Rises, and when the bubble bursts it leads to a downfall. Example: Dot com bubble and Housing Bubble Bubbles are hard to learn from is that they are not like cancer, where a biopsy gives us a clear warning and diagnosis. They are complex there closer to the Rise and fall of political changes- the outcome is known as hindsight but the cause and blame are never agreed upon. Dot com bubble: stocks like Yahoo were insanely high. Investors in the short term gained profit but in long term losses. The bubble is nothing but the time when short-term investors dominate the market. Momentum attracts short-term traders. When an asset rises continuously and steadily, it attracts traders who think that it will continue Rising. As the short-term traders heavily enter the market, prices go up and then it attracts more traders. This keeps going on causing to switch from long-term investment to short-term speculation. Housing bubble: In the mid-2000s, in the housing bubble people used to buy houses to sell and not for living. Flippers didn't care about the long-term price-to-rent ratio but cared about short-term gains. This bubble increased fivefold during that time..

Many times people start copying others. Long-term investors playing one game start taking the cues from those short-term traders playing another.- cisco stock rose 300% in 1999 to $60 per share, but its long-term value didn't justify that price. An investor should go according to their own goals they should avoid getting swept up by short-term market momentum. The financial decisions should be made while entering the market, whether you are entering short-term trading or long-term trading..

17. The Seduction of Pessimism. Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you. Optimism is a belief that the odds of good outcomes are in your favor. Optimism is the best bet for most people because the world tends to get better for most people most of the time. Optimism is about being realistic and aware of the possibilities and not just being positive. Pessimism seems more realistic and aware of the risks, it can be more persuasive and attention-grabbing than optimism. Example: Igor Panarin predicted that the US would be divided into 6 pieces by 2010. This prediction gained a lot of attention and was widely reported. Japan was gutted by defeat from World War 2 in every way. But it recovered and made a growth and became a major economic power. The media mostly focuses on negative news. Example: If a stock price rises then the news is normal, but when the stock Falls the media dive deep into the reason. Kahneman says that a symmetric aversion to loss is an evolutionary shield. When directly compared a weighted against each other. This asymmetry between the power of positive and negative Expectations or experience has an evolutionary history. Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce..

Money is everywhere, so something bad happening tends to affect everyone and capture everyone's attention. For example, the crash of 1929 sparked the Great Depression. Only 2.5% were the owner of the stocks but most Americans- if not the world-watched in amazement as the market collapsed, wondering what it signaled about their Own Fate. Pessimists often assume present Trends without accounting for how markets adapt. Progress happens Slowly to notice, but setbacks happen too quickly to ignore. Example: The Wright brothers crafted the airplane, but the people didn't realize its importance. The work was not recognized until their first flight. Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant. pessimism reduces expectations, narrowing the gap between possible outcomes and outcomes you feel great about. Expecting things to be bad is the best way to be pleasantly surprised when they are not. Which, ironically, is something to be optimistic about. For example, Stephen Hawking, the scientist whose incurable motor neuron disease left him paralyzed and unable to talk at the age of 21, in one of his interviews in the New York Times he said “My expectations were reduced to zero when I was 21. Everything since then has been a bonus".

18. When you’ll believe anything. Appealing fiction, and why stories are more powerful than statistics. Imagine an alien dispatched to Earth. He observed the New York City economy from 2007 to 2009 and how it changed during that period. He saw that there were not many changes there were the same infrastructure, technology, people, and tools. In 2007 he hovered over Time Square he saw that it was filled with happy people, billboards, and a bustling economy, and in 2009 he saw the same but the economy collapsed. The visible economy didn’t change but households were $16 trillion poorer, more than 10 million people were unemployed, and also the stock market became half of the value of what it was before 2 years. 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. For example, Ali Hajaji's son was sick. Elders in his Yemini village proposed a folk remedy: Shove the tip of a burning stick through his son's chest to drain the sickness from his body. He wanted a solution and therefore he preferred to willingly believe anything. Not just try anything, but believe it. We have to always remember that incentives can influence financial goals as well as outlooks, and how they impact our decisions. Example: invest in the stock that you want to rise, or believe the financial prediction that you want to be true. Room for error: The bigger the gap between what you want to be true and what you need to be true to have an acceptable outcome, the more you are protecting yourself from following victim to an appealing financial fiction. It can be achieved by diversifying investments, setting aside emergency funds, and avoiding over-leverage..

Everyone has an incomplete view of the world. But we form a complete narrative to fill in the gaps: Everyone has an incomplete knowledge then also we fill the gaps with stories that make sense to us. But these stories can lead to wrong judgments, and a lack of understanding of complex financial concepts, and this can lead to poor financial decisions. People tend to believe the financial narratives which offer the potential for great rewards although when the odds are against them. Therefore people should have knowledge, and make decisions according to it. We should be humble enough in our understanding of the world. We have to recognize our own limitations and biases and humility helps us to avoid being misled by appealing fictions..

19. All together now. Financial advisors should not give advice, until and unless they know about the goals and values of the individual, they should be aware of the danger while advising without considering the individual's circumstances. There are universal truths in money, even if people come to different conclusions about how they want to apply that truth to their Finances. Go out of your way to find humility when things are going right and forgiveness/ compassion when they go wrong: You should be humble enough to forgive yourself when things are not in your favor. Luck & risk are both real and hard to identify. Social focus is on things that you can control and respect the power of luck and risk. Less ego, more wealth: Saving money is the gap between your ego and your income, and wealth is what you don't see. No matter how much you learn you can never on wealth unless you learn to spend and save your money. Manage your money in a way that helps you sleep at night: You should focus on things that make you feel secure and comfortable. If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon: Time is the most powerful force in investing. It makes Little Things group big and big mistakes fade away..

Become OK with a lot of things going wrong. You can be wrong half the time and still make a fortune: A small minority of things account for the majority of outcomes. Be comfortable with a lot of stuff that is not working. Use money to gain control over time: Not having control of your time is such a powerful Universal drag on happiness. The ability to do what you want, when you want, with who you want, for as long as you want to pay the highest dividend that exists in finance. Be nicer and less flashy: As seen in chapter 8 (Man in Paradox)- people are not impressed with your possessions as much as you are- you have that possession because you want to be respected and admired. You can gain those things by humility rather than having fancy watches, cars, etc. save. Just save. You don't need a specific reason to save: Saving for things that are impossible to predict or define is one of the best reasons to save. Defined the cost of success and be ready to pay it: Nothing worthwhile is free. You should view costs as fees and not as fines. Worship room for error: room for error often looks like a conservative hedge, but if it keeps you in the game it can pay for itself many times over. Avoid the extreme ends of financial decisions: Everyone changes their goals and decisions over time, the more extreme your past decisions the more you may regret them as you evolve. You should like risk because it pays off over time Respect the mess: Smart, informed, and reasonable people can disagree in finance, people have different goals and desires are there is no single right answer, it’s just the answer that works for you..

20. Confessions. Independence: It is a key to achieving financial goals. Which means to have freedom, make choices, and live life according to your terms. Saving rate: Saving over income means maintaining high savings and then achieving high income. Even when your income becomes high you should continue your current lifestyle which will push your saving rate continuously higher. Invest in the long term: The author usually invests in low-cost index funds in prioritizing dollar-cost averages and patience in their investment approach. Cash as a buffer: A person should have a little bit more significant percentage of assets in cash so that in the future if any emergency occurs you can use that. Simplicity in investing: Going for a straightforward investment strategy, is safe and simple which can often be more effective, allowing investors to focus on the factors that drive performance. Avoid complexity in investing..

Thank You.