The Psychology of Money

money
psychology

#1

A great read:

Let me tell you the story of two investors, neither of whom knew each other, but whose paths crossed in an interesting way.

Grace Groner was orphaned at age 12. She never married. She never had kids. She never drove a car. She lived most of her life alone in a one-bedroom house and worked her whole career as a secretary. She was, by all accounts, a lovely lady. But she lived a humble and quiet life. That made the $7 million she left to charity after her death in 2010 at age 100 all the more confusing. People who knew her asked: Where did Grace get all that money?

But there was no secret. There was no inheritance. Grace took humble savings from a meager salary and enjoyed eighty years of hands-off compounding in the stock market. That was it.

Weeks after Grace died, an unrelated investing story hit the news.

Richard Fuscone, former vice chairman of Merrill Lynch’s Latin America division, declared personal bankruptcy, fighting off foreclosure on two homes, one of which was nearly 20,000 square feet and had a $66,000 a month mortgage. Fuscone was the opposite of Grace Groner; educated at Harvard and University of Chicago, he became so successful in the investment industry that he retired in his 40s to “pursue personal and charitable interests.” But heavy borrowing and illiquid investments did him in. The same year Grace Goner left a veritable fortune to charity, Richard stood before a bankruptcy judge and declared: “I have been devastated by the financial crisis … The only source of liquidity is whatever my wife is able to sell in terms of personal furnishings.”

The purpose of these stories is not to say you should be like Grace and avoid being like Richard. It’s to point out that there is no other field where these stories are even possible.

In what other field does someone with no education, no relevant experience, no resources, and no connections vastly outperform someone with the best education, the most relevant experiences, the best resources and the best connections? There will never be a story of a Grace Groner performing heart surgery better than a Harvard-trained cardiologist. Or building a faster chip than Apple’s engineers. Unthinkable.

But these stories happen in investing.

That’s because investing is not the study of finance. It’s the study of how people behave with money. And behavior is hard to teach, even to really smart people. You can’t sum up behavior with formulas to memorize or spreadsheet models to follow. Behavior is inborn, varies by person, is hard to measure, changes over time, and people are prone to deny its existence, especially when describing themselves.

Grace and Richard show that managing money isn’t necessarily about what you know; it’s how you behave. But that’s not how finance is typically taught or discussed. The finance industry talks too much about what to do, and not enough about what happens in your head when you try to do it.

This report describes 20 flaws, biases, and causes of bad behavior I’ve seen pop up often when people deal with money.

Read more:


#2

A very solid read. Look. It’s not hard to understand. But the missing link is discipline.
Wanna be rich?

Discipline.


#3

This needs driven home in our space. So many asking for price predictions and when lambo. This says it all.
"But the most powerful and important book should be called “Shut Up And Wait.”" Take a lesson from WB and invest for 3/4 of a century.

This has to be my favorite excert from the article.
Singer Rihanna nearly went broke after overspending and sued her financial advisor. The advisor responded: “Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?”

You can laugh. But the truth is, yes, people need to be told that. When most people say they want to be a millionaire, what they really mean is “I want to spend a million dollars,” which is literally the opposite of being a millionaire. This is especially true for young people.

Great read thank you for posting @john


#4

One of my mantras is to live a minimalistic and fugal lifestyle to reap the benefits from saving money a few years down the line (if possible). Yes it may not be as exciting as getting that shiny new phone or leasing a car from the newest model year, but having discipline financially will allow you to have all of these things and more. Granted it does take me a lot of time, dedication, and effort (roughly 6 years for me), but I promise it does pay off.


#5

“The Millionaire Next Door” is a good book along those lines.

Much as I’d like a Lambo, that also lights you up as a theft target.


#6

not really. i’ve owned exotic cars since 2006.
i’ve never had a problem with theft as… well… it’s an exotic.

parking in wide open places always helps too :slight_smile:


#7

Good resfvugcit kg og to lg