September 2, 2024
Your mind, your money
and my unsolicited TED talk
Dear Reader,
I never wanted to do this.
Write one of those ‘book club’ emails.
You know, the ones where the writer does the email equivalent of sidling up to you and chewing your ear off about ‘this fantastic’ book they’ve been reading…
How you’ve ‘just got to read it’…
Please.
If it’s so good why don’t you go back to reading it instead of administering an unsolicited TED talk.
With that, Reader, I hereby lower myself to the level of the book review email writer.
Technically, it’s not my first time, but the last time I wrote to you about a brilliant investing book, I did not have my hands on a physical copy.
Today, I’m going all the way. Here’s the offending article:
Luck, risk and the profound
power of financial subjectivity
The Psychology of Money isn’t your average investing or finance book.
If it were, I wouldn’t be writing to you about it.
Author Morgan Housel isn’t your average investment writer, either.
While most bestsellers in this space come from portfolio managers, economists, advisors or personal finance gurus, Housel was a journalist, columnist and analyst before he wrote his book.
He spent the best part of a decade at financial publisher The Motley Fool — competitors to my former employer, Agora.
I think this is what makes The Psychology of Money so good.
Because I know, first-hand, that analyzing and writing about the markets for independent publishers demands you look outside the mainstream for rare insights readers can’t get from the usual channels.
Having spent so long writing for such a business seems to have resulted in one of the finest, clearest books on investing and personal finance you’ll likely ever read.
You can sprinkle in his contributions to the Wall Street Journal as testament to his journalistic pedigree.
Part of the reason for this is that Housel hasn’t really written ‘a book’ per se.
Rather, he’s edited and collated 20 essays from his career, with the goal of shedding light on why we think and feel certain ways about money and investing.
Here’s three of the my favourite insights from the book.
The 0.00000001% mindset
What seems to make perfect financial sense to me might seem insane to you.
Such is the profound impact of our individual experience, that it largely defines how we think and feel about money.
Here’s one of many great examples:
‘The person who grew up in poverty thinks about risk and reward in ways the child of a wealthy banker cannot fathom if he tried…
The stock broker who lose everything during the Great Depression experienced something the tech worker basking in the glory of the late 1990s can’t imagine.’
Housel reckons our personal experiences make up about 0.00000001% of what’s happened in the world.
But, they also account for about 80% of how we think the world works.
Nothing is what it seems
Housel explains the extent to which confirmation bias distorts our perception of success and luck (both good and bad).
Bill Gates is renowned as a pioneer of personal computing and a gifted businessman.
Turns out, he just happened to attend one of the only schools on the planet that had a computer.
Thanks to a forward-thinking teacher, Gates and his friends — one of whom joined Gates in founding Microsoft — got to play with a Teletype Model 30 computer as early as 1968.
Out of 303 million high school-age people in the world at that time, Gates was among the 300 who attended the school that had a computer.
When Housel interviewed Nobel Prize in economics-winner, Robert Shiller (of Shiller P/E ratio fame), he asked him: ‘What do you want to know about investing that we can’t know?‘
Shiller’s answer: ‘The exact role of luck in successful outcomes.’
The time dividend
University of Michigan psychologist, Angus Campbell, sums up the ‘common denominator of happiness’ thus:
‘Having a strong sense of controlling one’s life is a more dependable predictor of positive feelings of wellbeing than any of the objective conditions of life we have considered.’
Money’s true value to us an individuals, Housel writes, is its power to give us control over our time.
Having worked as an intern investment banker and managing to last only one out of the four months he signed up for, Housel experienced what it feels like to be a time slave, working longer hours than most human beings could handle.
In fact, even doing something we love on a schedule we can’t control can turn that activity into something we hate.
Money can only make you happy when it hands you more control of your time.
This should be obvious by now, but I highly recommend you read The Psychology of Money — I’ve only scratched the surface of this book’s brilliance in this email!
3 ETF tax mistakes hurting Aussie investors
One way investors try to get back their time is by investing in ETFs for capital appreciation and income.
In principal, this is a great approach. But, there’s some pitfalls few investors know about.
Navarre just published his latest YouTube video explaining three ETF investing hurting Australian investors at tax time.
Click the player to watch now:
Quote of the week
‘The world is full of obvious things which nobody by any chance ever observes.’
— Sherlock Holmes
That’s it for The Benchmark this week.
Forward this to someone who’d enjoy reading.
If one of our dear readers forwarded this to you, welcome.
Until next week!
Invest in knowledge,
Thom
Editor, The Benchmark
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All information contained in The Benchmark and on navexa.io is for education and informational purposes only. It is not intended as a substitute for professional financial or tax advice. The Benchmark and any contributors to The Benchmark are not financial professionals, and are not aware of your personal financial circumstances.
