I recently finished reading The Psychology of Money by Morgan Housel. Keeping up with sharing what I learned, here are a few of my key takeaways.
How you invest is based on your personal experience.
Most of the time, success is not due to intelligence, education, or sophistication — just the dumb luck of when and where you were born.
Everyone's investment strategy is based on personal history. If you grew up with a high inflation rate, you'll make different choices than someone growing up in a bull market. Your risk tolerance is just calibrated differently.
Luck vs. Risk.
When things are going exceptionally well, realize it's not as good as you think. You are not invincible, and if you acknowledge that luck brought you success, you have to believe in luck's cousin, risk, which can turn your story around just as quickly.
More than big returns, you should aim to be financially unbreakable. This lets you stick around long enough for compounding to work wonders.
There will be moments of terror.
There is the old pilot quip that their jobs are "hours and hours of boredom punctuated by moments of sheer terror."
It's the same in investing. Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years spent on cruise control.
Having a few poor investments is ok.
It is fine to have a large chunk of poor investments & a few outstanding ones. Judging how you've done by focusing on individual investments makes winners look more brilliant than they were, and losers appear more regrettable than they should.
"The hardest financial skill is getting the goalpost to stop moving."
Probably my favourite line of the entire book.
Maintain a lifestyle below what you can afford. This removes a tremendous amount of social pressure that many people subject themselves to. I see this with friends, family, and "influencers" all the time.
Real 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.
Real wealth is the ability to do what you want, when you want, with who you want, for as long as you want. It is the highest dividend money pays.