Quick disclaimer from me: I take notes while on the go into my iPhone so not only will you find spelling and grammar mistakes but many incomplete thoughts as well. Sorry about that.
- All of us have a very unique perspective when it comes to money. Our grandparents and their parents went through the Great Depression. They look at money different than our parents or us.
- Investor Michael Batnick says, “some lessons have to be experienced before they can be understood.”
- Studies show that of you grew up when the stock market was booming you’re more likely to invest later on life. The opposite is also true for when the stock market is bear.
- Unemployment in 2009 was 10% total but it was 49% for blacks. Caucasian women was 4%.
- People see things differently.
- Americans spend more on lottery tickets than movies, games, music, books, and sporting events combined.
- Mostly poor people buy them
- Lowest income households spend $412 a year on them. Meanwhile 40% of Americans can’t come up with $400 in the event of an emergency.
- Saving for retirement is a new concept. Before World War Two most Americans worked until they died.
- The 401K didn’t exist before 1978. The Roth IRA was not born until 1998.
- “Now let me tell you a story about how Bill Gates got rich”
- Nothing is as good or bad as it seems
- Bill Gates went to one of the only high schools in America at that time that had s computer.
- Rockefeller And Vanderbilt broke laws. They took huge risks to amass their fortunes.
- Benjamin Graham, an early mentor of Warren Buffett, broke his own rules of investing and became rich by owning a disproportionate amount of Geico stock.
- Be careful who you praise and admire.
- Be careful who you look down upon and wish avoid becoming.
- Look at broad patterns instead of specific individuals.
- People who have control over the their time tend to be happier. That’s a pattern.
- Bill Gates: success is a lousy teacher. It seduces smart people into thinking they can’t lose.”
- Failure can also be a lousy teacher because it seduces smart people into thinking their decisions were terrible and 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 I missed financial go there might be well so you can keep playing until the odds fall in your favor.
- Kurt Vonnegut’s “enough” quote/ story
- Rajat Gupta story
- Born in Kolkata, orphaned as a teen
- Went on to be CEO of McKinsey and is worth 100 million
- Worked with Bill Gates, sat on the board of Goldman Sachs
- He wanted to be a billionaire
- 2008 crisis struck, Warren Buffett infused 5 billion into Goldman Sachs to help it survive. Gupta found out, phoned a buddy who bought 175,000 shares of Goldman Sachs. His friend made a quick million dollars. He did this often and led to $17 million in profits.
- They both went to prison for insider trading.
- Bernie Madoff
- Why risk everything for more money when you’re already rich? They had no sense of enough.
- The day will (hopefully) come when you have more than enough to cover your basic needs. Remember this:
- The hardest financial skill is to get the goalpost to stop moving
- Generating wealth comes with generating envy.
- Happiness is results minus expectations.
- Social comparison is a problem. A rookie MLB player that makes $500K is rich. But if he shares a team with Mike Trout who makes $430 milion over 12 year contract he feels broke.
- “The only way to win in Las Vegas is exit as soon as you enter.”
- Many things are never worth risking. Don’t risk your reputation, freedom, family and friends, happiness, and love.
- 81.5 billion of Warren Buffet’s 85.5 billion net worth came after his 65th birthday.
- He started investing in his 30s and retired in his 60s. He was a millionaire when he was 30 (adjusted for inflation, he had 9/3 million).
- Ice age analogy of snow compounding to make things colder. Compounding money can help you see tremendous results also.
- Jesse Livermore was a stockbroker who foreshadowed the Great Depression and stock market collapse and made $3 billion in one day when it finally did collapse.
- He ended up losing it all and killing himself.
- Getting wealthy and staying wealthy are two different skills.
- Warren Buffet didn’t panic and sell during any of the 14 recessions he’s lived through.
- Nobody wants to hold cash in a bull market. They want to hold assets like stocks. If cash goes up 1% and stocks go up 10% then you want stocks.
- 1 ill timed sale during a bear market can eat up dozens of big time winners.
- You need a plan. Plan for 8% returns but make sure you’re OK if it’s only 4% returns. The number one thing you want to avoid is ruin.
- A LOT of bad things happened to the world in the past 100 years that no one could predict. Yet, we’re 20-fold better off than we were before. Holding and not panicking is the answer.
- There’s always a reason for pessimism. That doesn’t mean you should embrace it.
- Heinz Berggruen fled Nazi Germany in the 1930s and sold $1 billion of his art collection to Germany in the 2000s. It was luck, it was skill, but most of it was because he bought a lot of art and held onto it. A few pieces ended up being nearly priceless. Great art dealers treat their collections like index funds.
- Berggruen was right 1% of the time and still ended up stupendously right in the end.
- Walt Disney struck out on over 400 cartoons and went bankrupt. In 1938 he struck it big with Snow White at a cool $8 million.
- VC firms expect half their investments to fail. Over 65% lose money. 2 1/2% made 10-20x return. One percent made a 20x return. And half a percent make 50x or more.
- Public companies aren’t always the safest bet either. 70% of companies on the Russel 3,000 lose their value and never recover. The ones that succeeded more than offset the losers.
- Tails drive everything. The mark of a true investing genius is doing the average thing when people are going crazy.
- Peter Lynch says the best investors are right 6 times out of 10.
- “If you think the Fire Phone is a big failure, we’re working on much bigger failures right now. I am not kidding. Some of them are going to make the Fire Phone look like a tiny blip.” – Jeff Bezos
- At the Berkshire Hathaway shareholder meeting in 2013 Warren Buffett said he’s owned 400 to 500 stocks during his life and made most of his money on 10 of them. Charlie Munger followed up: “If you remove just a few of Berkshire’s top investments, its long term track record is pretty average.
- The highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today.”
- Money’s greatest intrinsic value is its ability to give you control over your time.
- Six month’s emergency expenses means not being terrified of your boss because you know you won’t be ruined if you have to take some time off to find a new job.
- A refinery worker who occasionally had Rockefeller’s ear once remarked: “He lets everybody talk, while he sits back and says nothing.” When asked about his silence during meetings, Rockefeller often recited a poem:
- A wise old owl lived in an oak,
- The more he saw the less he spoke,
- The less he spoke, the more he heard,
- Why aren’t we all like that wise old bird?
- Rockefeller’s job wasn’t to drill wells, load trains, or move barrels. It was to think and make good decisions. His deliverable wasn’t his hands or his words, but what he figured out in his head. We’re constantly working in our heads like Rockefeller did back then. We’re thinking about our job during our commute, during dinner, and when we lay down to sleep.
- Control over your time has diminished. And since controlling your time is such a key to happiness it should come at no surprise that people aren’t as happy as they used to be. There’s no separation between work and leisure.
- Your kids don’t want your money or the opportunities it provides them. They want YOU. They want you to spend time with them. That’s more important.
- People generally aspire to be respected and admired by others, and use wealth to buy fancy things will rarely get you there. Humility, kindness, and empathy will get you more respect than a Ferrari ever will.
- Wealth is what you don’t see.
- When most people say they wan’t to be a millionaire what they really mean is they want to spend a million dollars. That’s literally the opposite of being a millionaire.
- Most people don’t want to be wealthy. They want freedom and flexibility, which is what financial assets not yet spent can give you.
- The first idea-simple, but easy to overlook-is that building wealth has little to do with your income or investment returns, and lots to do with your savings rate.
- Past a certain level of income, what you need is just what sits below your ego.
- Think of it like this, and one of the most powerful ways to increase your savings isn’t to raise your income. It’s to raise your humility. People with enduring personal finance success–not necessarily those with high incomes–tend to have a propensity to not give damn what others think about them.
- The less you care what others think, the less you buy to impress others, the more you save, the higher gym returns and wealthier you become.
- Sometimes spending less is more important than making more.
- You’re not a spreadsheet. You’re a screwed up emotional person. Aim to be pretty reasonable when making financial decisions, not coldly rational. It’s more sustainable.
- But if lacking emotions about your strategy or the stocks you own increases the odds you’ll walk away from them when they become difficult, what looks like rational thinking becomes a liability. The reasonable investors who love their technically imperfect strategies have an edge, because they’re more likely to stick with those strategies. There are few financial variables more correlated to performance than commitment to a strategy during its lean years.
- Stanford Professor Scott Sagan once said something everyone who follows the economy or investment markets should hang on their wall: “Things that have never happened before happen all the time.”
- The most important events in historical data are the big outliers, the record-breaking events. They are what move the needle in the economy and the stock market. The Great Depression. World War II. The dot-com bubble. September 11th. The housing crash of thie mid-2000s. 15 billion people were born in the 19th and 20th centuries. But try to imagine how different the global economy – and the whole world – would be today if just seven of them never existed: Adolf Hitler, Joseph Stalin, Mao Zedong, Gavrilo Princip, Thomas Edison, Bill Gates, Martin Luther King.
- The correct lesson to learn from surprises is that the world is surprsing. No that we should use past surprises as a guide to future boundaries.
- The 401K is less than 50 years old. The Roth RIA was created in the 1990s. Venture capital barely existed 25 years ago. There are venture capital firms that exist today that are larger than the entire industry a generation ago.
- The average time between recessions has grown from about two years in the late 1800s to five years in the early 20th century to eight years over the last half-century. The last recession was in December 2007 (13+ years ago) which means we’re in the longest gap between recessions since before the Civil War.
- There’s a lot of speculation as to why the recession gap has increased, but what we know for certain is things have clearly changed.
- The Intelligent Investor isn’t the bible to investing anymore. The advice is outdated and few of the “formulas” actually work. Despite it being one of the greatest investment books of all time, he doesn’t know a single investor who has done well implementing its strategies. There’s some wisdom in it but it can’t be used as a “how-to guide” anymore. Graham himself was constantly updating his books and throwing out old formulas that no longer applied. He died in 1976, so it’s safe to say his formulas are useless now.
- “The four most dangerous words in investing are, ‘it’s different this time.’” – John Templeton
- Don’t ignore history. But the further back you go in history the more you should treat their thinking about money as general principles versus hard fast rules.
- History is littered with good ideas taken too far, which are indistinguishable from bad ideas. The best thing you can do is leave yourself a margin of safety so you live to fight another day. Benjamin Graham once said “the purpose of the margin of safety is to render the forecast unnecessary.”
- Forecasting with precision is hard. Room for error is underappreciated and misunderstood. It lets you endure a range of potential outcomes, and endurance lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor. The biggest gains occur infrequently, either because they don’t happen often or because they take time to compound.
- The person with enough room for error in part of their strategy (cash) to let them endure hardship in another (stocks) has an edge over a person who gets wiped out, game over, insert more tokens, when they’re wrong.
- Bill Gates knew about the room for error. When Microsoft was a young company he stashed away enough cash to pay a year’s worth of payroll even if they didn’t have any payments coming in.
- Warren Buffet thought similarly and once said to shareholders, “I have pledged – to your, the rating agencies and myself – to always run Berkshire wire more than ample cash … When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.”
- Use room for error when estimating your future returns. It’s more art than science. Morgan assumes his future returns he’ll earn in his lifetime will be 1/3 lower than the historic average of 6.8%. He saves more than he would if he assume the future will resemble the past. That’s his margin of safety. It helps him sleep at night.
- Morgan thinks of his money as barbelled. He takes risks on with one portion and he’s terrified with the other. He wants to make sure he can stay standing long enough for his risks to pay off.
- “You have to survive to succeed. The ability to do what you want, when you want, for as long as you want, has an infinite ROI.” – Morgan Housel
- Most critical systems on airplanes have backups, and the backups often have backups. Modern jets hae four redundant electrical systems. You can fly with one engine and technically land with none, as every jet must be capable of stopping on a runway with brakes alone, without thurst reverse from its engines. Suspension bridges can similarly lose many of their cables without falling. The biggest single point of failure with money is a role reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future.
- Charlie Munger says the first rule of compounding is to never interrupt it unnecessarily.
- How do you not interrupt a money plan when your careers, investments, spending, budgeting, whatever constantly changes?
- The point of this chapter was that you’re going to go through cycles in life that are largerly out of your control. You’ll pursuit a career only to find out you’re miserable and want to spend more time with your kids. You’ll take lower paying jobs to spend more time with your kids and find out your not on track to retirement. You’ll change a lot over your lifetime and those changes will affect your financial planning.
- The largest company in the world in 2004 was General Electric. It was worth a third of a trillion dollars. the 2008 crisis sent FE’s financing division into chaos. It supplied more than half the company’s profits. Subsequent bets in oil and energy were disasters also. The CEO Jeff Immelty was blamed for everything. He stepped down in 2017 and said this on his way out to critics: “Every job looks easy when you’re not the one doing it.”
- The challenges faced by someone in the arena are often invisible to those in the crowd. Immelt’s successor at GE lasted only 14 months. Most things are harder in practice than they are in theory.
- Netflix traded below it’s all time high on 94% of its days but returned more than 35,000% from 2002 to 2019. Monster beverage returned 319,000% from 1995 to 2018 (among the highest returns in history) – but traded below its previous high 95% of the time during that period.
- The point is that you’ll have to accept volatility and upheaval. Or you can go looking for an asset with less uncertainty and a lower payoff.
- So many people want returns without paying the price. They try to “time” the market and pull out before recessions. Few people are able to do this successfully. Buying and holding is the best option.
- Beware taking financial cues from people playing a different game than you.
- The housing bubble cut away $8 trillion from household wealth, and the dotcom bubble cut away $6.2 trillion. Financial bubbles are devestating and literally ruin lives.
- There are a myriad of reasons for why bubbls ooccur. One often overlookd reason is that investors innocently take cues from other investors who are plaing a different game than they are.
- Everything is relative. Does it make sense to buy Google stock at $2,601? If you’re a day trader that’s going to turn around and sell it for a bit of profit that’s nothing. If you’re just getting started in investing maybe not. Does a $700,000 home in Florida make sense to raise a family in? Maybe not. But to an investory looking to flip the property for $1 million in a hot market it makes perfect sense.
- When a commentator on CNBC says, “you should buy this stock.” Keep in mind they have no idea who you are. If you’re a teenager trading for fun, an elderly widow on a limited budget, or a day trader you’re going to invest differently. These people have different priorities.
- Make it a point to figure out what game you are playing.
- Optimism sounds like a sales pitch. Pessimism sounds like someone is trying to help you.
- 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.
- Pessimism often 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. The same is true about stocks. If you tell someone you have a stock that’ll 10x their profits they’ll be skeptical of you. If you tell them the stock their heavily invested in is falsley inflated by an accounting error and it’s about to drop you have their undivided attention also.
- Things are better in the world across nearly every spectrum yet everyone seems to be obssessed with bad news and write off the good news.
- THe 2008/2009 crash was inflicted by narrative damage. People stopped believing the story about the stability of housing prices, the prudence of bankers, and the ability of financial markets to accurately price risk. Our manufacturing plants weren’t obliterated like Germany in WW2. We weren’t Japan in the 2000s whose working-age population was shrinking. That’s tangible economic damage. 2009 was simply narrative damage on ourselves.
- We all want to believe in something. We tell ourselves stories to fill gaps we can’t explain. We so badly want things explained that we listen to TV pundits who are rarely right and pay gobs of money for financial forecasts that are little better than guessing.
- Psychologist Philip Tetlock once wrote: “We need to believe we live in a predictable, controllable world, so we turn to authoritative-sounding people who promise to satisfy the need.”
- NASA’s New Horizons spacecraft passed by Pluto several years ago after a decade-long journey and it arrived within 99.99998% accuracy of NASA’s predictions. Astrophysics is a field of precision. It isn’t impacted by the vagaries of human behavior and emotions like finance is.
- Summary chapter of sorts with lots of stories.
- Patient consent wasn’t a thing in the early 1900s. Patients would die because “the doctor knew best.” In the last 50 years medical schools have subtly shifted away from treating the disease toward treating patients. That meant laying out treatment plans and letting the patients decide the best path forward.
- Medicine is a complex profession and the interactions between physicians and patients are also complex. You know what profession is the same? Financial advice.
- If you don’t know someone you can’t tell them what to do with their money. It’s that simple. Doctors and dentists aren’t useless. Neither are financial advisors. They have knowledge, understand odds and trends. They know universal truths.
- Things are never as good or bad as they seem. Go out of your way to find humility when things go right and have some forgiveness and compassion when they go wrong. Luck is a major factor in the financial world.
- Wealth is created by suppressing what you could buy today in order to have more stuff or options in the future. No matter how much you earn you’ll never build wealth unless you put a lid on how much fun you can have with your money today.
- Manage your money in a way that lets you sleep at night.
- The greatest thing you can do to be a better investor is increase your time horizon. Time makes little things grow big and big mistakes fade away. It can’t neutralize luck and risk, but it can push results closer towards what people deserve.
- Become OK with a lot of things going wrong. YOU CAN BE WRONG HALF THE TIME AND STILL MAKE A FORTUNE.
- Use money to gain control over your time. Not having control of your time is such a powerful and universal drag on happiness. The ability to do what you want, when you want, with who you want, for as long as you want to, pays the highest dividend that exists in finance.
- Be nicer and less flashly. No one is imporessed with your possessions as much as you are. Kindness and humility will gain you respect and adimiration more than horespower and chrome.
- Save. You don’t need a specific reason why. Just do it. Life is a continuous chain of surprises and savings are a hedge against them.
- Worship room for error. A gap between what could happen in the future and what you need to happen in the future in order to do well gives you endurance and that is what makes compounding magic over time.
- Sandy Gottesman, a billionaire investor and founder of the consulting group First Manhattan, asks one question when interviewing candidates for his investment team: “What do you own, and why?”
- He’s not asking about what stock do you think are cheap or what economy is about to have a recession. It’s simply, “show me what you do with your money.”
- This question highlights what can often be a mile-wide gap between what makes sense (which is what people suggest you do) and what feels right to them (which is what they actually do.)
- According to Morningstar, half of all U.S. mutual fund portfolio managers to not invest a cent of their own money into their funds.
- Important financial decisions are often made at the dinner table. Not in spreadsheets or in textbooks. They’re made not to maximize returns but to minimize the chance of disappointing a spouse or child.
- Charlie Munger once said, “I did not intend to get rich. I just wanted to be independent.”
- Morgan says he “mostly wants to wake up every day knowing him and his family can do whatever they want to do on their own terms.” Every financial decision they make revolves around that goal.
- Independence doesn’t mean you stop working. It means you only do the work you like with people you like at the times you want for as long as you want.
- Nassim Taleb explained: “True success is exiting some rat race to modulate one’s activities for peace of mind.”
- Morgan subscribed to the same thing. The things he and his wife enjoy doing cost so little.e They like to go for walks, read books, and listen to podcasts. They rarely feel like they are missing out. When they question their high savings rate they remind themselves of their goal for independence.
- Facts about Morgan
- They own their own house without a mortgage which is the worst financial decision they’ve ever made but the best money decision they’ve ever made. Mortgage interest rates were absurdly low when they bought the house. It made more sense to take advantage of the cheap interest rates and invest the rest in extra savings in higher return assets. But the independent feeling he gets from owning a house outright far exceeds the known financial gains. Put simply, it makes him feel more independent.
- “Good decisions aren’t always rational. At some point you have to choose between being happy or being right.” – Morgan Housel
- They keep a higher percentage of their assets in cash than most financial advisors would recommend. Something around 20% of their assets outside of the value of their home. Again, it helps with feeling independent. They never want to be forced to sell stocks in an emergency.
- Everything he’s learned about personal finance tells him that everyone without exception will eventually face a huge expense they didn’t expect and didn’t plan for.
- He’s saving for a world of curveballs.
- We invest our money into index funds. A combination of US and international stocks. No set goal, just whatever is left over after we spend. They max out retirement accounts and contribute to our kids 529 college savings plans.
- That’s it. Effectively all our their net worth is a house, a checking account, and some Vanguard index funds. In his experience, there’s little to no correlation between investment effort and investment results.
- “every investor should pick a strategy that has the highest odds of successfully meeting their goals. And for most investors, dollar-cost averaging into a low-cost index fund will provide the highest odds of long-term success.” – Morgan Housel
- Statistics show 85% of large-cap active managers didn’t meet the S&P 500 over the decade ending in 2019. Beating the market is hard, as it should be.
- Morgan says, “I know people who think it’s insane to try to beat the market but encourage their kids to reach for the stars and try to become professional athletes. To each their own. Life is about playing the odds, and we all want to think about the odds a little differently.”
POST SCRIPT: A BRIEF HISTORY OF WHY THE US CONSUMER THINKS THE WAY THEY DO