Podcast & Book Reviews

June 9, 2021

Book Review | The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness

By Nelson DeMestre | Associate Analyst at NAOS Asset Management


“The Psychology of Money” by Morgan Housel is a genuinely interesting book to read and is interesting enough to finish in one go. It expands upon the 1995 lecture Charlie Munger gave to an audience at Harvard University titled ‘The Psychology of Human Misjudgement’, which charted the innumerable pitfalls the human psyche is prone to. Housel summarises these truths into 20 key rules of financial psychology, including success, elements of human nature (from envy to greed), how great fortunes were built (and the many more that were lost) and durable lessons from history. The headline of each rule is listed below.

Housel also discusses the rise of societal fascination in money, beginning with King Alyattes of Lydia (now part of Turkey) in 600 BC, who is credited with the creation of the first official currency. What makes this book interesting is that it preaches balance, investing consistently (not speculating) and saving - yet pleads against the obsessing over wealth. One of the most interesting anecdotes Housel cited on this emanates from a story Jack Bogle (the Father of Index Investing) used to retell:

“At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel ‘Catch-22′ over its whole history. Heller responds, “Yes, but I have something he will never have…enough.”

Housel moves to other interesting concepts, such as just how underappreciated compound interest is by wider society. The stat he references:

“$81.5 billion of Warren Buffet’s $84.5 billion net worth came after his 65th birthday. Our minds are not built to handle such absurdities.”

20 Rules at a Glance

  1. No One’s Crazy
  2. Luck & Risk
  3. Never Enough
  4. Confounding Compounding
  5. Getting Wealthy vs. Staying Wealthy
  6. Tails, You Win
  7. Freedom
  8. Man in the Car Paradox
  9. Wealth is What You Don’t See
  10. Save Money 101
  11. Reasonable > Rational
  12. Surprise!
  13. Room for Error
  14. You’ll Change
  15. Nothing’s Free
  16. You & Me
  17. The Seduction of Pessimism
  18. When You’ll Believe Anything
  19. All Together Now
  20. Confessions

Link to book 


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