Sharing this post once more for those keen on the book (The Psychology of Money by Morgan Housel) that I shared for the following Event:

'What is Your Favourite Book that you've read so far and why?' @TigerEvents  

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Some interesting takeaways takeaways - 

1. Luck and Risk are siblings - every outcome in life is guided by forces other than individual effort. Risk and luck are doppelgangers. The difficulty in identifying what is luck, what is skill and what is risk is one of the biggest problems we face when trying to manage money. Countless fortunes (and failures) owe their outcome to leverage. The line between 'inspiringly bold' and 'foolishly reckless' can be a millimeter thick and only visible with hindsight.

2. Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming. Just be careful when assuming that 100% of the outcomes can be attributed to efforts and decisions. Realise that not all success is due to hard work and not all poverty is due to laziness. Therefore, focus less on specific individuals and case studies and more on broad patterns. Studying a specific person is dangerous because we tend to study extreme examples like billionaires and CEOs which can't be applied to us. The more extreme the outcome, the less likely you can apply these lessons to your life, because the more likely these outcomes were influenced by extreme luck or risk. Trying to emulate Warren Buffet's investment success is hard because because he could be extremely lucky and luck isn't something you can definitely and successfully emulate. 

3. Bill Gates once said "Success is a lousy teacher. It seduces smart people into thinking they can't lose." When things are going extremely well, realise it's not as good as you think. You are not invincible, and if you acknowledge that luck brought you success, then you'd have to believe that luck's sibling, risk, can turn your story around just as quickly. But the same is true in the other direction. Failure is a lousy teacher too. It seduces smart people into thinking their decisions were terrible when sometimes, they just reflect the unforgiving realities of risk. The trick when dealing with failure is arranging your financial life in a way that a bad investment here and a missed financial goal there won't wipe you out so that you can keep playing till the odds are in your favour.

4. Confounding compounding - good investing isn't about earning the highest returns because the highest returns tend to be one-off hits that can't be repeated. Investing is about earning pretty good returns that can be repeated for the longest period of time, and that's when compounding runs wild. 

5. There are plenty of ways to get wealthy but there is only one way to STAY wealthy - a combination of frugality and paranoia. Having 'an edge' and 'surviving' are two different things. However, the first depends on the second. You need to avoid ruin. At all costs. The best part about being a valet is driving some of the coolest cars. It was the author's dream to drive one of those cars because he believed that it sent a strong signal to others that he was smart and rich. However, the irony that he realised being a valet is that he rarely even look at the drivers (owners of the cars). When you see someone driving a nice car, you rarely think 'wow, that guy is so cool, smart and rich'. Instead, you think 'wow, if only I had that car, I'd be so cool'. That is the paradox here. People often want wealth to signal to others that they should be liked and admired. But in reality, 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. Having expensive stuff almost never bring you the respect and admiration from the people that you want. 

6. Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. A plan is only useful if it survives reality.

7. 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. The value of wealth is relative to what you need. Let's say persons A and B have the same net worth, but person A is a better investor than B. However, B is more efficient with his money while A's lavish lifestyle compound as fast as his assets. B would be better off than A, though B is a worse investor - B would be getting more benefit from his investments despite lower returns. Learning to be happy with what you have creates a gap between what you have and what you want, allowing you to be in control of growing your money. 

8. We don't need a particular reason to save the tirck that is often overlooked, even by the wealthiest, is to save. You don't need to specifically save for a car or a house. It is equally important to save for things that you can't possibly predict or comprehend. 

9. We are people with emotions. As much as people say to leave emotions at the door when it comes to investing, try not to be coldly rational when making financial decisions. Aim just to be reasonable. 

10. Margin of safety (allow room for redundancy and error) is the only effectively way we can navigate in a world that is governed by odds and not certainties. Forecasting with precision is hard. We do not need to view the world as black or white. The grey area - pursuing things where a range of potential outcomes are acceptable - is the smartest way to proceed. Room for error is often underappreciated and misunderstood. It is often viewed as a competitive hedge, used by those who don't want to take much risk, or aren't confident in their views. But when used appropriately, can be quite the opposite. Room for error allows you to endure a range of potential outcomes and endurance lets you stick around long enough to let the odds of low-probability outcome fall in your favour. 

11. Cousin of room for error - optimism bias in risk taking. You have to take risk to go ahead. However, no risk that can wipe you out is ever worth taking. If the cost of downside is ruin, the upside isn't worth the risk, no matter how appealing it looks.

So, what do you Tiger mateys think? Lemme know if these takeaways resonate with you in the comments down below 😀 

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