Psychology of Money – Morgan Housel

The Psychology of Money 

During sell-offs, similar to the one we all experienced recently, many people are shaken out the market ?  In the Psychology of Money, Morgan Housel highlights an absolutely fundamental point. A game changer when it comes to building wealth. Market Meditators, your behaviour with money is oftentimes more important than how intelligent you are ? It can be the key variable for surviving market volatility.

“A genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioural skills that have nothing to do with formal measures of intelligence.”

Let’s explore this through some examples.

1️⃣Accepting Volatility. Bitcoin’s bull run has been a rollercoaster. Many people were shaken out during the bear market and many, who were able to maintain their conviction, are reaping the benefits today. In a recent example, 100 bitcoins worth $8 and now $5 million ? have been moved for the first time in 11 years from an early BTC miner. It is essential to know that trading and investing comes at a price: we must all align ours behaviour such that we are comfortable with volatility and view it as the price you pay for a brighter future.

2️⃣‘Never Enough’ Mentality. Capitalism is great at doing two things: creating wealth and creating envy. People are happy with making a million dollars in the markets. That is, until they realise their neighbour made 10 million. And turns out the neighbour isn’t happy because his boss made 100 million. The point is: there is always a bigger fish ? Those with a ‘Never Enough’ mindset are at risk of using too much leverage in their portfolios in order to move up the pyramid. We shouldn’t adjust our behaviour such that we are not ambitious but it is important to accept, at some point, that enough is enough ? Don’t risk what you have and need for what you don’t have and don’t need.

3️⃣No One’s Crazy. The lowest income households in the U.S. on average spend $412 a year on lottery tickets, four times the amount of those in the highest income groups. What’s more, 40% of Americans cannot come up with $400 in an emergency ? So, people are blowing their safety nets on something with a one-in-millions chance of hitting it big. It might seem crazy to you but we all have different perspectives and values. The sooner you realise this, the sooner you will see the error in copying other people’s trading or investing strategies ✅ These will be suboptimal to your own goals and objectives.

4️⃣The Seduction of Pessimism. Our evolutionary mindset is not one that compliments investing and trading. Given 3 reasons why the economic outlook will be negative and 3 for why it will be positive, most people are inclined to agree with the negative. In fact, pessimism is usually regarded as more intelligent, with optimism considered naive. This stems from the fact that organisms that treat threats as more urgent than opportunities have a better chance of survival ? When forming a trading or investment strategy, understand that pessimism appeals more to your survival instincts than optimism does. And so, you might not naturally give the optimistic viewpoint as much credit as it is due.