THE PSYCHOLOGY OF MONEY

● Doing well with money has a little to do with how smart you are & alot to to do with HOW YOU BEHAVE.

● A genius who loses control of their emotions can be a financial disaster.

● Finance is a soft skill, where HOW YOU BEHAVE is more important than what you know.

● Save 10% of your Salary & have Six months emergency fund.

● The two Topics that impact everyone: HEALTH & MONEY.

● We think & taught about money in ways that are too much like physics (with rules & laws) & not enough like Psychology. (with emotion & nuance)

● Finance is guided by people's behaviors & how I behave might make sense to me but look crazy to you.

● You could understand finance crisis better through the lenses of psychology & history, not finance.

CH:1
NO ONE'S CRAZY

● Your Personal experience with money makes up maybe 0.00000001 % of what's happened in the world, but maybe 80%. of how you think the world works. So equally smart people can disagree about how & why recession happen, how you should invest your money, how much risk you should take, what you should prioritize & so on.

● We all make decision based on our own unique experience that seems to make sense to us in given moment.

● "Some lessons have to be experienced before they can be understood."

● In theory people should make investment decisions based on their goals & investment options available to them.
                         But
People lifetime investment decisions are heavily anchored to the experiences those investors had in their own generation.

● You know stuff about money that I don't, and vice versa. You go through life with different beliefs, goals & forecasts, than I do. That's not because one of us is smarter than the others or has better information. It's because we've had different lives shaped by different & equally Persuasive experiences.

CH:2
LUCK & RISK

● Nothing is as good or as bad as it seems.

● The difficulty in identifying what is luck, what is skill, what is risk, is one of the biggest problems we face when trying to learn about the best way to manage money.

● BE CAREFUL WHO YOU PRAISE & ADMIRE. BE CAREFUL WHO YOU LOOK DOWN UPON & WISH TO AVOID BECOMING.

● Realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself.

CH:3
NEVER ENOUGH.

● There is no reason to risk what you have and need for what you don't have & don't need.

● Don't compare your money with someone else. Social comparison is so high that virtually no one will ever hit it. It's a battle that never can be won.The only way to win is to not fight. 

● Reputation is invaluable.
freedom & independence are invaluable.
Family & friends are invaluable..
Bring love by those who you want to love is invaluable..
Happiness is invaluable.

CH.4
CONFOUNDING COMPOUNDING.

● 81.5 billon of warren buffett's 84.5 billion net worth came after his 65th birthday.

● You don't need tremendous force to create tremendous results.

● Buffett's fortune isn't due to just being a good investor, but being a good investor since he was literally a child.

● Buffett's skill is investing but his secret is time. That's how compounding work.

● Investing is about pretty good returns that you can stick with and which can be repeated for the longest period of time. That's when Compounding runs wild.

CH: 5
GETTING WEALTHY VS STAYING WEALTHY

●  Good investing is not necessarily about making good decisions. It's about Consistently not screwing up.

● Getting money is one thing keeping it is another.

●  If I had to Summarise money success in a single word it would be "SURVIVAL".

● Not "growth" or "brains" or "insight". The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference. This should be the cornerstone of your strategy, whether it's in investing or your career or a business you own.

CH: 6
TAILS, YOU WIN.

● You can be wrong half the time & still make a fortune. It means we underestimate how normal it is to for alot of things to fail but we tend to overreact when they do.

● The great investors bought vast quantities of art.

● Your Success as an investor will be determined by how you respond to recessions, not the years spend on bull run.

● Your 20% of Companies will give you 80% of return.

-- If you're good stock picker you'll be right maybe half the time
-- If you are good investor must year will be just ok, and plenty will be bad.
-- If you're a good business leader maybe half of your product & strategy ideas will work.

● There are some fields where you must be perfect every time but it's not the case with investing, business and finance.

●  Something I have learned from both investors & entrepreneurs is that no one makes good decision all the time. The most impressive people are packed full of horrendous ideas that are often act upon.

● Warren buffett said he's owned 400 - 500 stocks his life & made most of the money on 10 of them. Charlie Munger followed up: "If you remove just a few berkshire's top investment, it's long term track record is pretty average."

● When we pay attention to a role model's successes we overlook that their gains came from a small percent of their actions.

● "It's not whether you're right or wrong that's important but how much you make when you're right and how much you lose when you're wrong".

CH:7
FREEDOM.

● The highest form of wealth is the ability to wake up every morning and say "I can do whatever I want today."

● The ability to do what who you want, when you want,  with who you want, for as long as you want, is priceless. It is the highest dividend money pays and is a broadest lifestyle variable that makes people happy.

● Rockefeller let everybody else talk, while he sits back & Says nothing.
A wise old owl lived in an oak,
The move he saw the less he spoke,
The less he spoke, the more he heard,
Why aren't we all like that wise old bird.

CH:8
MAN IN A CAR PARADOX

● Humility, kindness, & empathy will bring you more respect than horsepower ever will.

CH: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.

● Someone driving a $1,00,000 car might be wealthy. But the only data point you have about their wealth is that they have $1,00,000 less than they did before they bought the car or $1,00,000 more in debt.

● wealth is the nice cars not purchased. The diamonds not brought, the watches not worn, the clothes forgone & the first class upgrade declined. Wealth is the financial assets that haven't yet been converted into the stuff you see.

● There is no faster way to feel rich than to spend lots of money on really nice things. But the way to be rich is to spend money you have, and to not spend money you don't have. It's really that simple.

● The world is filled with people who look modest but are actually wealthy and people who look rich who live at the razor edge of insolvency.

CH:10
SAVE MONEY

● Simple but easy to overlooks is that building wealth has little to do with your income or investments returns, & lots to do with your savings rate.

● Wealth is just the accumulated leftover after you spend what you take in. And Since you can build wealth without a high income, but have no chance of building wealth without a high Saving.

● You don't need a specific reason to save.

● There are professional investors who grind 80 hours week to add a tenth of a percentage point to their returns when there are two or three full percentage points of lifestyle bloat in their finances that can be exploited with less effort.

● The ability to do things when most others can't is one of the few things that will set you apart in a world where intelligence is no longer a sustainable advantage. Having more control over your time and options is becoming one of the most valuable currencies in the world.

● Savings can be created by spending less. You can spend less if desire less. And you will desire less if you care less about what others think of you. As money relies more on psychology than finance.

CH:11
REASONABLE RATIONAL

● Do not aim to be Coldly rational when making financial decision. Aim to just be pretty reasonable. Reasonable is more realistic and you have a better chance of sticking with it for a long run, which is what matters most when managing money.

A rational investor makes decision based on numeric facts. A reasonable investor makes them in a conference room surrounded by Co-workers you want to think highly of you.

CH:12
SURPRISE

● Everyone who follows the economy or investment markets should hang on their walls! "Things that have never happened before happen all the time."

● Investment is a massive group of people making imperfect decisions with limited information about things that will have a massive impact on their wellbeing.

● Imagine how harder physics would be if electrons had feelings, well investors have feelings.

● One thing leads to another thing like 9/11 prompted the federal reserve to cut interest rates, which helped drive the housing bubble, which leads to financial crisis, which leads to poor job market, which leads to ten of million of people to seek education, which leads to 1.6 trillion in student loan.

● While investing don't bother about past but about present and future.

● Things changed. Recent history is often the best guide to the future. Because it's more likely to include important condition that are relevant to the future.

CH. 13.
ROOM FOR ERROR

● The most important part of every plan is planning on your plan not going according to Plan.

● Always have money in cash.

● Graham's margin of safely is a simple suggestion that we don't need to view the world in front of us as black or white. The grey area -- pursuing things where a range of potential outcomes are accepted -- is the smart way to proceed.

● The ability to do what you want, when you want, for as long as you want, has an infinite ROI.

CH:14
YOU'll CHANGE.

● Long term financial planning is essential. But things change -- both the world around you, and your own goals & desires.

● All of us are walking around with an illusion, that we have just recently become the people that we were always meant to be & will be for the rest of our lives."

● Charlie Munger says the first rule of compounding NEVER INTERRUPT IT UNNECESSARILY. But how do you not interrupt a money plan when what you want out of life changes? It's hard. Warren Buffett is so successful is because he kept doing the same things for decades. letting compounding run wild.

● Aiming at every point in your working life, to have moderate annual savings, moderate free time, moderate commute, and atleast moderate time with family increase the odds of being able to stick with a plan.

● WE SHOULD ALSO COME TO ACCEPT THE REALITY OF CHANGING OUR MINDS. is the thing you should keep in mind while making long term decision.

CH:15
NOTHING'S FREE

● Everything has a price, but not all prices appear on labels.

● Successful investing looks easy when you're not the one doing. "Hold Stocks for the long run," you'll hear. It's good advice. But how hard it is to maintain a long term outlook when stocks are Collapsing.

● Like everything else worthwhile, successful investing demands a price. But its currency is not dollars & cents. It's Volatility, fear, doubt, uncertainty, and regret -- all of which are easy to overlook until you're dealing with them in real time.

(Q) So why so many people who are willing to pay the price of cars, houses, food, & vacations try so hard to avoid paying the prices of good investment returns?
---> The answer is simple. The Price of investing success is not immediately obvious. It's not a price tag you can see. So when the bill comes due it doesn't feel like a fee for getting something good. It feels like a fine for doing something wrong.

● Thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favour.

CH:16
YOU AND ME

● Beware taking financial cues from people playing a different game than you are.

● Ask yourself how much should you pay for Google stock today? The answer depends on who you are.
Whether you have 30 years time horizon, 10, or 1. If 10 then it can be figured out by an analysis of the tech industry's potential over the next decade & whether google management can execute on its vision. If 1year then pay attention to google's current Product sales cycle & whether we'll have a bear market.

● When a commentator on CNBC Says, "you should buy this stock, keep in mind that they do not know who you are. Are you a teenager trading for fun? An elderly widow on a limited budget? Are we suppose to think these two people have the same priorities, & that whatever level a particular stock is trading at is right for both two of them?

● Few things matter more with money than understanding your own time horizon and not being persuaded by the actions & behaviours of people playing different games than you are.

CH. 17
THE SEDUCTION OF PESSIMISM.

● People tend to believe in pessimism more compare to optimism.
(i)One is money is ubiquitous, so something bad tends to affect everyone & captures everyone attention.
(ii) Second is that progress happens too slowly to notice, but setbacks happen too quickly to ignore.

CH:18
WHEN YOU'LL BELIEVE ANYTHING.

● The more you want something to be true, the more likely you are to believe a story that over estimates the odds of it being true.

● Everyone has an incomplete view of the world. But we form an complete narrative to fill in the gaps.

● Our ability to predict recessions isn't much better. And since big events come out of nowhere, forecast may do more harm than good, giving the illusion of predictability in a world where unforeseen events control most outcomes.

● Risk is what's left over when you think you've thought everything.

● Finance is impacted by the vagaries of human behavior and emotions. Business, economics  & investing are fields of uncertainty, overwhelmingly driven by decisions that can't easily be explained with clean formulas.

● Kahneman once laid out the path these stories take:
--- When Planning we focus on what we want to do & can do. Neglecting the plan & Skills of others whose decisions might affect our outcomes.
---  Both in explaining the past & in predicting the future, we focus on the causal role of skill & neglect the role of luck.
--- We focus on what we know & neglect what we do not know, which makes us overly confident in our beliefs.

CH:19
ALL TOGETHER NOW.

(A bit of Summary: A few short & actionable lessons that can help you make better financial decisions)

(i) Go out of your way to find humility when things are going right & forgiveness when they go wrong:
--- Luck & risk are both real and hard to identify, respect the power of risk & luck & you'll have a better chance of focusing on things you can actually control

(ii) Less ege more wealth:
--- Wealth is created by Suppressing what you could buy today in order to have more stuff or more options in the future.
--- No matter how much you earn, you will never build wealth unless you can put a lid on how much fun you can have with your money right now, today.

(iii) Manage your money in such a way that it helps you to sleep at night.

(iv) If you want to do better as an investor, the single most powerful thing you can do is INCREASE YOUR TIME HORIZON.

(v) Become ok with a lot of thing going wrong. You can be Wrong half the time & stil make a fortune:
--- You Should always measure how you've done by looking at your full portfolio, rather than individual investments.
--- It is fine to have a large chunk of poor investment and a few outstanding ones.

(vi) Be nicer & less flashy:
--- No one is impressed with your possessions as much as you are.
--- What you probably want is respect and admiration and you are more likely to gain those things through kindness and humility than horse power (Car) & Chrome (watch).

(vii) Just SAVE. You don't need a specific reason to Save:
--- Saving for thing that are impossible to predict or define. is one of the best reasons to Save.

(viii) Define the cost of success and be ready to pay it:
--- Remember that most financial cost don't have visible price tag. Uncertainity, doubt, and regret are common cost in the finance world.

(ix) Define the game you're playing:
--- Make sure your actions are not being influenced by people playing  different game

(x) Respect the mess:
--- People have vastly different goals and desires. There is no single right answer, just the answer the works for you.

(xi) Avoid extreme ends of financial decision:
--- Everyone goals & desire will change overtime, and the more extreme your past decision were the more you may regret them as you evolve.

CH:20
CONFESSIONS

● LIVE BELOW YOUR MEANS.

● We all have a high chance of meeting of all financial goals if we consistently invest money into a low cost index funds for decades on end, leaving the money alone to be compound.

● Always have plenty of cash in hand/bank. (Cause you don't want to interrupt your stocks/M.F by Selling it.)

● We can afford to not be the greatest investor in the world, but we can't afford to be a bat one. When we think of this way, the Choice to buy the index and hold on is a no brainer.

--- Morgan Housel.