Psychology of Wealth
src: Psychology of Wealth
No one’s crazy
- everyone has their unique experience with how the world works
- ex: someone that grew up when inflation was high will invest less
- no correlation with intelligence, education or sophistication, just luck
Luck & Risks
- luck & risks are siblings
- it’s hard to quantify luck
- rude to suggest people’s success is owned to luck
- focus less on specific person and case studies, more on broad patterns
- specific individuals ⇒ tend to study extremes
- broad patterns ⇒ more actionable takeaways
Success is a lousy teacher. It reduces smart people into thinking they can’t lose.
Never enough
- danger of not having enough
- take risk in the quest for more ⇒ lose everything
- foolish to make money they didn’t have and didn’t need, they risked what they did have and did need
- modern capitalism is a pro at 2 things:
- generating wealth
- generating envy
- happiness is just results minus expectations
- social comparison is the problem here
Confounding Compounding
- if a little growth serves as the fuel for future growth, a small starting base can lead to results so extraordinary
- ex: Warren Buffet, his skills is investing, but his secret is time
Getting Wealthy vs Staying Wealthy
- more success = survival
- getting money requires taking risks, being optimistic and putting yourself out there
- keeping money requires the opposite of taking risks
- requires humility & fear
- requires frugality & acceptance that at least some of what you’ve made is attributable to luck
- plan on the plan not going according to plan
- a plan is only useful if it can survive reality
- you need short term paranoid to keep you alive long enough to exploit long term optimism
Tails, you win
- tail == rare, unpredictable but extremely influential outcomes that drive most results
- tails drive progress, innovation and wealth building
- tails depend on rare breakthrough, not steady, predictable increments
- survival matters more than perfection
- goal is not to forecast tail events, it’s to stay in the game long enough to benefit from them
- you don’t need to be right often, you just need to be right big once in a while and avoid catastrophic losses