One of my favorite books of the year was written by Morgan Housel titled, The Psychology of Money. It may be the most accessible lesson on money that I have ever read. I judge the quality of the book based on how much I highlight it, and I highlighted this book as much as any. Below, I will share a few of my favorite quotes from just two chapters.
My favorite quote is in the visual above and is one I now recite to myself.
“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.”
For me, this was a quote I had to pause and think about because just about everything we buy loses value or deteriorates over time. So, when we purchase things (typically for our own ego’s sake), we end up with less money in the end.
I grew up on the rivers of southeastern Virginia and any time my grandfather would see a guy riding an aluminum boat around (a jon boat), he’d routinely say, “The richest man on the river right there Bubba.” That’s because he knew the folks in big yachts were spending their money, not saving it.
Housel goes on,
“Wealth is the nice cars not purchased. The diamonds not bought. The watches not worn, the clothes forgone and the first-class upgrade declined. Wealth is financial assets that haven’t yet been converted into the stuff you see.
That’s not how we think about wealth, because you can’t contextualize what you can’t see.
When most people say they want to be a millionaire, what they might actually mean is ‘I’d like to spend a million dollars.’ And that is literally the opposite of being a millionaire.”
I have written a few posts about the philosophy of “enough” and these quotes reinforce the idea that the fastest way to accumulating real wealth is to acknowledge the line between satisfaction and excess.
Pessimism vs. Optimism
The second chapter I pulled from is titled, The Seduction of Pessimism. I spend an inordinate amount of time offering a positive view of the world and encouragement to stay the course because I believe that optimism is the only realism. I say this because optimism is the only viewpoint that squares with the historical record. That said, pessimism is seductive and Housel explains why.
“Pessimism just sounds smarter and more plausible than optimism.
Tell someone that everything will be great and they’re likely to either shrug you off or offer a skeptical eye. Tell someone they’re in danger and you have their undivided attention.”
While I wholeheartedly believe this is the way the world views pessimism, it isn’t inherently logical. This is mostly because I believe people look at optimism all wrong. They look at all optimists as if they are wearing rose-colored glasses. But in reality, it’s centered around a logical view of the world.
“Real optimists don’t believe that everything will be great. That’s complacency. Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way. The simple idea that most people wake up in the morning trying to make things a little better and more productive than wake up looking to cause trouble is the foundation of optimism.”
In October, I wrote an article titled, The Enduring Reason for Optimism, in which I answered the question, “When is the stock market going to stop going up?” The short answer is when people stop wanting more for themselves. When we see the entirety of the general public becoming complacent and their material desires declining, perhaps we’ll see the beginning of the end. But we seem to be heading in the opposite direction – more toward greed and envy – which may not be good for people’s happiness overall, but might be good for the markets.
In any case, I hope you decide to purchase Mr. Housel’s book as I believe every investor from advanced to perfectly novice will find plenty of valuable takeaways.
Stay the course,
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This post is not advice. Please see additional disclaimers.
Raymond James is not affiliated with and does not endorse the opinions or services of Morgan Housel or The Psychology of Money.