April 27, 2020

The Psychology of Money | Morgan Housel on Infinite Loops Podcast

The psychological element of money explains it’s taboo; emotions like embarrassment and ego are involved with what people do with their money
Money and sports are non-violent forms of figuring out where you stand in society
The best value money can provide to you is the freedom to control your time and do whatever you like, this brings lasting happiness
As you get more successful, the goal post keeps moving, and you keep chasing it
- The most important financial skill: Getting the goal post to stop moving
When choosing your life partner, it’s important they are in sync with your expectations and style of living
The behavioral side of investing is the most important: learn about your emotions, your endurance and how you deal with volatility
Advice for fresh college graduates – Learn about 2 topics: health and money – here is why:
- They will influence your life greatly regardless of your interest in them

In The Bonfire of the Vanities – author Tom Wolfe talks about how a lot of the super-rich masters are actually miserable
In The Hypomanic Edge: The Link Between (a Little) Craziness and (a Lot of) Success in America, author John D. Gartner discusses how genes may be a factor in American success

The title of the book is inspired by Charlie Munger’s famous speech The Psychology of Human Misjudgement
The book takes a holistic view of how we think about money, not necessarily risk or investing
- There are many life lessons that can be learned from how people think about money, greed, relationships, and networks

The psychological element of money explains it’s taboo; emotions like embarrassment and ego are involved with what people do with their money
- Additionally, money is involved with any decision you make (e.g. accepting a job offer or not, marrying someone, etc.)
Many activities have a visible impact (going to the gym for example), but money is hidden – you don’t see bank accounts or brokerage statements
- So people can look up to someone’s physique, writing, creativity, etc. but not their money activities
Some people talk about being open on money matters, but they would never follow up with sharing their income statements
- Besides, being full transparent about money comes with repercussions – For instance, workplace fairness
- One exception is wealth fund managers who don’t invest personal money in the fund they manage – This is mostly a red flag

Historically, wars were how tribes determined their status and prestige. Money and sports are non-violent forms of figuring out where you stand in society
- For instance, people view sports teams as their tribe – “My team”
- Wealth is also a way of identifying where one stands in the pecking order
One of the reasons the mainstream media is melting down is because they are being replaced with individuals questioning their authority and instead just creating superior content
- Their high prestige is being decimated by the Internet

Getting a lot of social media engagement can be a false signal of what people would like to see more of
- Similarly, earning more money can represent a false signal for success and happiness
Desiring more money is completely fine, but you have to understand what it can and can’t do for you – for example:
- Money doesn’t buy you class or friendships
- People will think highly of you when you are empathetic, nice, and providing value to the world – Not when you own a bigger house or a more expensive car
The best value money can provide to you is the freedom to control your time and do whatever you like, and this brings lasting happiness
Case of using a false signal of money: smart people getting into a finance career because it pays more, even though they don’t find it fulfilling
- These are brilliant minds that could have been curing cancer or developing products, instead they stare at spreadsheets all day
As you get more successful, the goal post keeps moving, and you keep chasing it
- The most important financial skill: Getting the goal post to stop moving

Experiences shape how people think about and manage money, with different impact on societies
- For instance, physical destruction in Europe during WWII could be a reason for moving towards a better social safety net, whereas Americans demanded lower taxes
- Social security became normal after the great depression. Taking off shoes, belts, and jackets in airports became normal after 9/11
- An interesting question is what long-standing effect will the economic impact of COVID-19 have on Americans, what will be the new normal?
When choosing your life partner, it’s important they are in sync with your expectations and style of living
- Money matters are among the highest causes of divorce, especially in times of economic hardship. Partners being on the same page means less arguments
- Couples have different ways of handling their finances – For instance, some have merged bank accounts, others have one person handling money decisions
For Morgan, the family house represents the top family expenditure – his reasoning
- Working from home means it’s important to have a nicer house
- It represents a way of avoiding debt and deriving satisfaction from the simpler things in life

The behavioral side of investing is the most important: learn about your emotions, your endurance and how you deal with volatility
- Put simply: It doesn’t matter if you are the best stock picker in the world if you panic in an economic crisis
- Find something that works uniquely for you, and make it work
Morgan prefers investing in indexes over active investing, for a simple reason:
- Lower risk tolerance – Optimizing for better sleep at night rather than for maximized annual returns
- Additionally, index funds have done well over the past 10-20 years
- An old wall-street saying: “Sell until you sleep well at night”

Advice for fresh college graduates – Learn about 2 topics: health and money – here is why:
- They will influence your life greatly regardless of your interest in them
  - The biggest concepts of money are the psychological concepts
  - Additionally, learn the math and mechanics of compounding