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  • Interesting viewpoint on money and psychology

    Interesting viewpoint on money and psychology

    The Psycholog of Money by Morgan Housel grounded me on my current belief about money and investment. To some extend it was a relieve to learn that it is not about how smart you are but has a lot to do with how you behave. While on the other hand this seems to be the hard part when it comes to investing.

    What you’ll find inside:

    I was always under the impression that I don’t know enough about how investing works in detail. Because I am not familiar enough with KPIs and what to keep an eye on etc. But what the author aims to teach us here is that the psychology of money is not a hard science. It is a soft skill first, where how you behave is more important than what you actually know about it.

    Emotions Guide Your Financial Actions

    I can relate to that since a lot of people are in the game of investing and who not aware of how much their emotions influence their behaviour. How I behave might make sense to me, because of my past experiences and conclusion I derive from, but I might look crazy to you. And this characteristic makes it hard to predict a system with a lot of emotional decisions using hard facts alone. And also explains, why simply asking a friend for an investment advice might not work out for you the same way as it does for your friend.

    The emotions are on both sides of the investment outcomes. There is FUD (fear, uncertainty and doubt) when your investment is in the red where you are tempted to sell to avoid further loss. Or FOMO (fear of missing out) when greed may guide you to invest in raising and trending assets like we have seen with crypto recently.

    About luck and risk

    There is sometime you get everything right, but still loose the game. These failure situation can be a lousy teacher, because it seduces us to think we made the wrong choices. Because the accidental impact of actions outside of your control have a bigger impact than the ones you consciously take. See also “happy money” by Ken Honda.

    The book made me acknowledge the role of luck in investment success but also the role of risk. And especially for the later to arrange my financial life in a way that the bad investments won’t wipe me out of the game, so I can keep playing until the odds fall in my favour.

    Gordon Gekko from Wolf of Wallstreet about greed

    I still recall this phrase from Wolf of Wall Street about greed and how it leads to exceptional results. Greed lets you take more risks and push your luck. This might be OK when you are young, because you have enough time left to learn and experiment. But keep in mind: once greed is fueled by envy, you will sabotage your sense of enough risk to loose it all and being pushed out of the game.

    The million dollar advise about money and investment

    The profound advice on money I understood from this book is taking calculated risks, being optimistic and patient.

    In order to make calculated risks, you have to have a plan about your investments. A plan with enough room for failures, because with most often likely not everything will be going according to plan.

    Being optimistic and having fate when investing into the future is true beyond the relevance for investment. If you don’t believe that the future is going to be better than today, even if your life situation dropped compared to yesterday, you will not have enough mental strength to stay committed.

    Last but not least it is about being patient with your investments. Over time, compound will do the heavy lifting of your financial gains. But this is nothing our brains understand naturally. We are more used to linear growth. Exponential growth like compound is therefore hard to grasp since also the results take some to materialise.

    And if there is a habit you’d want to think of when it comes to patience and investment, then to stop looking at your brokers app every minute. Set a notification instead and be aware of what your emotions are telling you when things don’t work out as planned.

    Conclusion

    • Focus more on broad patterns and less on specific individuals.
    • Keep calm and diversify your investment.
    • Be patent and establish an anti habit to stop checking your brokers app for the most current balance. Set a notification instead.

    Next on my reading list is “fast lane millionaire” by MJ DeMarco, who shares a different path to wealth.

  • Challenge Your Relationship with “Happy Money” by Ken Honda

    Challenge Your Relationship with “Happy Money” by Ken Honda

    I chose this book to broaden my money and investing views beyond “buy and hold.”

    What you’ll find inside:

    What I liked about the book is that it raised my awareness about the importance of how I earn and spent my money. While I already was cautious about what my spendings, I neglected the earning side.

    There is only scarcity of money, if you choose to believe it.

    As with life itself, it is the attitude we have towards financials that drives our beliefs. If we had bad experiences on how to pay our bills, we perceive money as a scarce resource – it needs to be protected. This may make us blind towards the fact that in today’s world there is more than enough. Federal Reserve is not printing it, but effectively adding funds to the money supply – we just have to somehow get on hold of it.

    Be appreciative for your financial income

    This brings me to the topic of earning money. For most of my life I believed that I did not deserve it. Be it my monthly salary, my earnings from all the side hustles I enjoy or gains and dividends from my investments on the stock and crypto market. I simply didn’t think much of getting paid for my time and skills.

    But this is something the author aims to educate us on. To observe whether the money you receive is based on an activity that you enjoy, and understand that you and your productivity are the money’s worth. If you are not happy with what you do to get paid for, then instead of suffering daily find something you enjoy or a reason to enjoy your daily work beyond the financial aspect. Maybe by reframing your purpose in what you do for living.

    Think of Norman Lawson who figured out 39 ways of not working lubricant formulas, but with WD40 found a rust preventive, penetrant and moisture displacer most of use already used.

    Say “arigato” to the money that leaves your wallet

    The author encourages us to apply the same mindful exercise while spending money. Also being thoughtful, about if the money spent is for something that really makes you happy on the long run. This implies, that you are aware of what makes you truly happy.

    Take for example a new shirt that you always wanted, think of the all the necessary steps that are required to produce it. Starting from someone who had an idea to design the shirt, compose the materials and colours, create the fabric, sew everything together, transport it to the shops or distributors and finally reaching you after you bought it.

    So when you say arigato (thank you in Japanese) while spending your money on that shirt, it is acknowledging that there are several people involved in producing this shirt and to be thankful for their work. But this is also acknowledging that you are also part of some value creation you deserve to get paid for.

    As addition to that book, I recommend the following TED talk, that wraps the topic up.

    What I derive from “Happy Money” by Ken Honda:

    • Get mindful about money and try the habit of saying arigato while spending and receiving it.
    • Occasionally, we overspend and lose money, but sometimes it’s due to changing financial rules, so avoid being too hard on yourself for the latter.
    • Before buying, consider if your happiness comes from spending or the product/service itself.

    Next book on my list is “the Psychology of Money” by Morgan Housel. Stay tuned.