As a new investor, it is critical to know what the masters are saying. The author of bestselling book The Psychology of Money, Morgan Housel is a partner at The Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal. His book has already sold over two million copies and translated in 49 languages.
The author, via his hard-hitting philosophy enshrined in the book, shares a number of valuable investing and money lessons for first time investors. We elaborate what those lessons are:
1. There is only one way to stay wealthy: There is no denying the fact that there are a number of ways to become rich but there’s “only one way to stay wealthy i.e., a blend of frugality and paranoia.”
To be able to earn money, one must learn to take risk whereas to keep that wealth, it is imperative to do the opposite i.e., to be frugal. The idea behind is to ensure that you don’t lose the money you have earned by taking a number of risks and through a host of actions.
2. Success and failures are just events. Don’t over analyse them: It is said that one should stay humble in success and compassionate during failure. This is because it is never as good or as bad as it looks.
He says that a host of factors determine the overall outcome of a particular action. The result of actions taken by someone does not emanate from the efforts of one individual but is guided by a number of forces. The world is too complex to enable 100 percent of your actions to determine all of your outcomes.
3. Stay true to your goals: The hardest financial skill is getting the goal post to stop moving. In other words, when you set your financial goal, you knew what you were aiming for. And after a course of time, i.e., after having achieved the goal, you should cease to save and invest at the same pace.
This is an important lesson to remember particular for those who are aiming for FIRE (Financial Independence and Retire Early). For instance, there is no reason to continue with the investment journey to FIRE after having already achieved your goal.
4. Confounding compounding: It is important to remember that good investing isn’t about earning the highest returns, because the highest returns are one-off hits that cannot be repeated.
Once, ace investor Warren Buffet said that $81.5 billion of his net worth of $84.5 billion came after he turned 65th. These high returns come only by investing and remaining invested. In other words, it is the power of compounding that enables investors to build wealth over a long period of time.
5. Wealth is what you don’t see: Wealth is, in fact, the money that you don’t see. This means if someone has a car worth ₹10 lakh we assume that he has a wealth amounting to this. But in fact, he may have 10 times more wealth which he decided not to spend or show off. So, actual wealth is something you have decided not to spend on belongings.