The Psychology of Money in 20 minutes

Summary

This script explores the complex relationship between humans and money, emphasizing that financial decisions are influenced by personal experiences and emotions, not just logic. It highlights the power of compounding, the importance of time in investment, and the role of luck and risk in success. The script challenges the notion of material wealth as the key to happiness, advocating for the value of time control and the understanding of true wealth beyond appearances. It concludes by discussing the inevitability of risk in investing and the concept of 'tail events,' which can significantly impact financial outcomes.

Takeaways

• 💰 **Money's True Nature**: Money is not just about numbers and math, but also deeply intertwined with human nature, including ego, pride, fear, and personal history.
• 🌐 **Financial DNA**: Our attitudes towards money are shaped by our unique life experiences, generational backgrounds, and economic environments, which create a 'financial DNA'.
• 📈 **Impact of Market Experience**: The formative years' exposure to stock market and inflation significantly influence one's investment behavior and financial decision-making.
• 🤔 **Personal Rationale**: Every financial decision is justified by an individual's information and worldview at that moment, even if it seems misinformed or incorrect to others.
• 👑 **Compounding Power**: The power of compounding is key to financial success, as demonstrated by Warren Buffett's wealth accumulation, which emphasizes the importance of starting early.
• 🕰️ **Time's Role in Wealth**: Time is a critical factor in wealth creation, with the potential for wealth to grow exponentially over time through compounding.
• 😟 **Pessimism Bias**: People tend to be pessimistic about money due to the visibility of negative events and the slow, unnoticed progress of positive changes.
• 🍀 **Luck and Risk**: Success in finance and business often involves elements of luck and risk, which can significantly influence outcomes despite talent and hard work.
• 🎉 **Control Over Life**: True happiness and wealth are associated with having control over one's life and time, rather than just accumulating material wealth.
• 🎨 **Tail Events**: In investing and business, a few significant 'tail events' can lead to the majority of success, emphasizing the importance of a diversified approach and patience.
• 🏛️ **True Wealth**: Wealth is not about current possessions or income but about the financial assets one has yet to spend, highlighting the importance of saving, investing, and self-control.

Q & A

What is the main argument presented in the script about the nature of money?

The script argues that the nature of money is not just about numbers and calculations, but it is deeply intertwined with human emotions and personal history, making financial decisions complex and influenced by factors beyond mere arithmetic.

How does the script describe the impact of one's formative years on their financial attitudes?

The script suggests that a person's experience with financial events like the stock market and inflation during their formative years greatly shapes their attitudes and behavior towards investing and financial decision-making.

What is the concept of 'Financial DNA' mentioned in the script?

The concept of 'Financial DNA' refers to the unique set of experiences, values, and worldviews that individuals develop towards money, influenced by factors such as generation, parental income, and economic environment.

Why does the script mention Warren Buffett's investment journey starting at a young age?

The script mentions Warren Buffett's early start to highlight the power of compounding. By investing from a young age, Buffett was able to harness the power of compounding interest, which significantly contributed to his vast wealth.

What is the significance of compounding in the context of Warren Buffett's wealth accumulation?

Compounding is significant because it allows earnings to be reinvested, thereby earning returns on both the initial investment and the accumulated interest. This is a key factor in Buffett's wealth accumulation, as it demonstrates how early and consistent investing can lead to substantial gains over time.

How does the script address the common bias towards pessimism when it comes to money?

The script points out that people tend to be pessimistic about money because negative financial events, such as market crashes, are more attention-grabbing and immediate compared to the slow and often unnoticed positive progress over time.

What role does luck play in financial success according to the script?

The script suggests that luck, along with risk, plays a significant role in financial success. It uses the example of Bill Gates to illustrate how rare opportunities and strokes of luck can provide a competitive advantage, while also acknowledging the role of talent and hard work.

Why is the ability to control one's time considered the highest dividend money pays?

The script posits that having control over one's time is the key to happiness and well-being. It suggests that the pursuit of wealth without valuing time can be futile, as it may not bring lasting happiness if one cannot enjoy the fruits of their labor.

What is the concept of 'tail events' as discussed in the script?

Tail events refer to the phenomenon where a small number of occurrences can account for the majority of outcomes. In the context of investing, it means that most investments may not yield significant returns, but a few successful ones can greatly outweigh the losses.

How does the script differentiate between being rich and being wealthy?

The script differentiates by stating that being rich is about current income and material possessions, while being wealthy is about the financial assets one has yet to spend. True wealth is about self-control, restraint, and building assets for the future.

What is the 'hedonic treadmill' and how does it relate to the pursuit of wealth?

The 'hedonic treadmill' is a concept where individuals continually raise their expectations and desires as they achieve goals, never feeling satisfied. The script relates this to the pursuit of wealth, suggesting that without knowing when enough is enough, one can become trapped in a never-ending cycle of wanting more.

Outlines

00:00

💰 The Human Side of Money

This paragraph explores the complex relationship between humans and money, emphasizing that financial decisions are influenced by personal experiences and emotions rather than just numbers and calculations. It introduces the concept of 'Financial DNA,' which is shaped by generational differences, economic environments, and individual life experiences. The paragraph highlights how attitudes towards investing and financial decision-making are formed during one's formative years and are justified based on personal worldviews. Warren Buffett's success is also discussed, attributing it to his early start in investing and the power of compounding, which allows earnings to accumulate not only from the initial investment but also from the interest earned on it.

05:02

📊 The Power of Compounding and the Role of Luck

The second paragraph delves into the concept of compounding, illustrating how even a modest initial investment can grow significantly over time with consistent interest application. It contrasts the wealth accumulation of Warren Buffett, who started investing at a young age, with a hypothetical scenario where he delayed his investments, resulting in a vastly different outcome. The paragraph also introduces the story of Jim Simons, whose later start in investing despite higher average returns resulted in a lower net worth compared to Buffett. The importance of time in compounding is underscored, along with the acknowledgment of luck and risk in financial success, using the example of Bill Gates and the tragic story of Kent Evans to highlight the unpredictable role of chance in life outcomes.

10:20

🎭 The Pursuit of Happiness and Control Over Time

This section discusses the misconception that wealth automatically equates to happiness. It suggests that true happiness is linked to the autonomy over one's life and time, rather than material possessions or income. The paragraph points out that despite increasing wealth, many people sacrifice control over their time, which is a more reliable indicator of well-being. It uses the example of Heinz Berggruen, a successful art dealer, to illustrate the 'long tail' concept in investing, where a few significant successes can outweigh numerous failures. The importance of accepting the risks and uncertainties associated with investing, and the futility of trying to avoid these inherent aspects of the market, are also highlighted.

15:21

🏛 The Illusion of Richness and the Path to True Wealth

The final paragraph distinguishes between being rich and being wealthy, clarifying that the latter is about the financial assets one has yet to spend, not the immediate possessions or income. It emphasizes the importance of self-control and restraint in building wealth, as well as the accumulation and investment of assets. The paragraph warns against judging wealth by appearances, as many may live beyond their means and rely on debt. It also touches on the idea of 'hedonic treadmills,' where individuals continually move the goalposts of satisfaction, leading to a never-ending pursuit that can result in unhappiness and dissatisfaction, as exemplified by the downfall of Bernie Madoff and Gupta.

Keywords

💡Money

Money is a medium of exchange for goods and services, typically in the form of currency. In the context of the video, it is portrayed as more than just a numerical concept or a tool for transactions; it embodies human emotions and behaviors such as ego, pride, and fear. The script suggests that financial decisions are influenced by personal history and are often made away from calculators, highlighting the complex relationship between humans and money.

💡Financial DNA

Financial DNA refers to the unique set of experiences, values, and attitudes towards money that a person develops over time, often influenced by their upbringing, generation, and economic environment. The video emphasizes that these factors shape an individual's financial behavior and decision-making, such as their inclination to invest or their awareness of inflation, as illustrated by the different attitudes towards the stock market and inflation among people born in different decades.

💡Compounding

Compounding is a financial concept where interest or earnings are added to the principal amount, and the new total becomes the base for future earnings. The video script uses the power of compounding to explain Warren Buffett's wealth accumulation, emphasizing that his success is not only due to his investment skills but also the early start and longevity of his investments, which allowed his wealth to grow exponentially over time.

💡Pessimism

Pessimism, in the context of the video, is a tendency to focus on negative outcomes or to expect the worst. The script discusses how people are biased towards pessimism when it comes to money, often paying more attention to economic downturns than to gradual improvements. This bias can affect financial behavior, as people may be more cautious or reactive to negative news, overlooking the long-term trend of progress.

💡Luck and Risk

Luck and risk are presented in the video as external factors that can significantly influence financial success or failure. The script uses the story of Bill Gates and the contrasting fate of Kent Evans to illustrate how rare strokes of luck can provide a competitive advantage, while rare risks can lead to unexpected setbacks. The video suggests that acknowledging the role of luck and risk can bring humility and a broader perspective to financial endeavors.

💡Control Over Time

Control over time is the ability to manage one's own schedule and priorities, which the video identifies as a key to happiness. It argues that the pursuit of wealth often leads people to sacrifice this control, working harder and giving up more personal time, which can ultimately diminish well-being. The script contrasts material wealth with the true value of being able to enjoy life according to one's own terms.

💡Tail Events

Tail events refer to rare but significant occurrences that can disproportionately affect outcomes. In the video, the concept is used to explain how a small number of exceptional successes can outweigh numerous failures, as seen in the art collecting strategy of Heinz Berggruen and the business model of Amazon. The script suggests that understanding and embracing the possibility of tail events is crucial for long-term success in investing and business.

💡Wealth vs. Richness

The video distinguishes between wealth and richness, with richness being about current income and material possessions, while wealth is about the financial assets one has yet to spend. It emphasizes that true wealth is not about visible consumption but about self-control, restraint, and building assets for the future. The script warns against judging wealth by appearances and highlights the importance of saving and investing for long-term financial health.

💡Hedonic Treadmill

The Hedonic Treadmill is a psychological concept where people continue to pursue more to maintain a certain level of happiness, despite increasing their income or wealth. The video uses this concept to caution against the endless pursuit of wealth without recognizing when enough is enough, as seen in the cases of Bernie Madoff and Gupta. It suggests that a lack of contentment can lead to criminal behavior and a never-ending, unfulfilling chase for more.

💡Investment Volatility

Investment volatility refers to the fluctuations in the value of investments over time, which can be both high and low. The video script likens the stock market to a new car, where the higher the return potential, the greater the risk and volatility. It argues that successful investing requires accepting the emotional toll of this volatility and the inherent uncertainty and risk, much like accepting the price of a new car.

Highlights

Money is not just numbers and math; it's deeply intertwined with human emotions and personal history.

Financial decisions are influenced by factors like ego, pride, fear, and personal history, not just rational calculations.

The 'Financial DNA' concept suggests that our attitudes towards money are shaped by our unique life experiences and generational context.

Different generations have varying perceptions of the stock market and inflation due to their formative experiences.

People's financial decisions make sense to them based on their personal worldview, even if they are misinformed or make mistakes.

Warren Buffett's success is attributed not only to his investing skills but also to the power of compounding and investing over time.

Compounding allows earnings on both the initial investment and the interest earned, leading to exponential growth over time.

Jim Simons, despite higher average returns, has a lower net worth than Buffett due to starting his successful investing later in life.

Pessimism towards money is common because negative events are more noticeable and impactful than slow, incremental progress.

The story of Bill Gates illustrates the role of luck and unique opportunities in financial success.

Luck and risk are unpredictable factors that can significantly influence the outcomes of our financial endeavors.

Control over one's time is identified as a key component of happiness, more so than material wealth.

Tail events, like a few highly successful investments, can account for the majority of financial outcomes.

Amazon's success is driven by a few key products, demonstrating the impact of tail events in business.

Understanding the difference between being rich and being wealthy is crucial for long-term financial health.

True wealth involves self-control and restraint, focusing on building assets rather than spending.

The 'real price' of investing includes accepting the emotional toll of volatility and risk.

Hedonic Adaptation suggests that a continuous pursuit of more without knowing when enough is enough can lead to dissatisfaction.

Transcripts

Money.

Some have it.

Some Don’t.

Some have mastered it.

Most are still chasing it.

You may think of money as just numbers, and spreadsheets and math.

Or An equation that needs to be solved.

But The real financial decisions are made away far from calculators, around dinner tables

- with ego, pride, fear and personal history.

The true nature of money is the dance between the cold arithmetic of a spreadsheet and human

nature.

When it comes to money we are complicated creatures and financial success is not so

much about how much you know but how you behave.

This video was inspired by Morgan Housel’s amazing book “ The Psychology of Money”

Let’s delve into the strange and human side of money.

Financial DNA

We all come from different generations, with parents earning different incomes and holding

different values, living in various parts of the world, born into different economic

environments with varying incentives and varying opportunities, we all have very different

experiences towards money.

Take for example the stock market and inflation.

People born in 1970 saw an almost tenfold increase in the S&P 500 during their teens

and 20s, leading most to have a positive view of the stock market and a higher inclination

to invest.

People born in 1950 saw the stock market go nowhere in their teens and 20s, leading to

a more negative view of the stock market and less inclination to invest.

People born in the 1960s experienced significant inflation during their teens and 20s, leading

to a higher awareness and more negative view of inflation and its effects.

People born in 1990 experienced relatively low inflation during their lifetime, leading

to less concern and awareness of its effects.

A person's experience with the stock market and inflation during their formative years

greatly shapes their attitudes and behavior towards investing and financial decision-making.

People justify every financial decision they make based on the information they have at

that moment and their mental model of the world, which has been passed onto them from

their parents and is shaped by their unique life experiences.

Although they can be misinformed, lack information or make bad decisions, their actions make

sense to them in that moment and align with their own personal story.

According to Housel, “People do some crazy things with money.

But no one is crazy.”

We all have unique worldviews and since there is no universally correct way to manage money

successfully, none of us are crazy.

WE MAKE FINANCIAL DECISIONS BASED ON OUR PERSONAL LIFE EXPERIENCES AND OUR WORLDVIEW.

Compound Kings

There is no doubt that Warren Buffett is considered one of the greatest investors of all time.

What is staggering is that $81.5 billion of Warren Buffet's $84.5 billion net worth was

earned after he reached his mid-sixties.

Housel explains that “few pay enough attention to the simplest fact: Buffett’s fortune

isn’t due to just being a good investor, but being a good investor since he was literally

a child.”

As a result of investing from the early age of 10, Buffet was able to harness the power

of compounding.

Let's say you invest $1,000 at an interest rate of 8%.

Your initial investment would earn you $80 after one year.

If you compounded your total of $1080 at 8% interest the next year, you would now earn

$86.4

You've earned money on your initial investment as well as the interest you earned on the

principal.

An investment compounded over time gains interest not only from the original investment but

also from the interest generated on top of the original investment.

The counterintuitive nature of compounding makes many of us not realize how extreme the

results can be.

Compounding, however, can help you earn more money over time.

Warren Buffett began serious investing at age 10 and had a net worth of $1 million by

age 30.

Let’s imagine an alternate reality where Warren Buffet behaved more like most young

men in their 20’s and used a lot of his early income on traveling and a few nice cars.

If he started with a net worth of $25,000 at age 30 and retired at 60, but continued

to generate the amazing average returns of 22% annually - his net worth today would be

around $11.9 million (99.9% less than his actual net worth today of $84.5 billion).

Warren Buffett's financial success can be attributed to the financial base he built

in his early years and his longevity in investing.

His skill is investing, but his secret to success is time and the power of compounding.

Consider this from another perspective.

The richest investor of all time is Warren Buffett.

However In terms of average returns, he is not the greatest.

Jim Simons, for instance, is a hedge fund manager who has compounded money at a staggering

66% annually since 1988.

A much higher rate than Buffet.

The net worth of Simons however is 21 billion - which is 75% less than Buffett's.

How is this possible?

According to Housel, the reason for this is that Simons wasn't able to find his stride

in investing until he was 50 years old.

Effectively giving him less than half as many years to compound as Buffett.

Housel estimates that if he had invested over a time frame as long as Buffett, his net worth

today would be…..

“sixty-three quintillion nine hundred quadrillion seven hundred and eighty-one trillion seven

hundred eighty billion seven hundred and forty-eight million one hundred sixty thousand dollars.”

($63,900,781,780,748,160,000)

It's important not to underestimate the power of compounding.

No matter how counterintuitive the results of compounding may seem, they should never

be ignored.

Pessimism and money.

Optimism is a belief that the odds of a good outcome are in your favor over time, even

if there are setbacks along the way, but when it comes to money, we all have a bias toward

pessimism that we hold dear in our hearts.

Looking back however, things have generally improved over the years.

So what is it about pessimism that we are inclined to embrace rather than optimism?

The answer is because GOOD THINGS TAKE TIME and don’t happen overnight.

Money is a subject that attracts pessimism for a variety of reasons.

Let's start with the fact that money matters to all of us.

When we hear about something bad happening in the economy, we're more likely to pay attention.

For example, a 40% decline in the stock market over six months is likely to attract attention

immediately and may even attract government intervention.

However The incremental nature of a 140% gain over six years can go largely unnoticed.

Every year, half a million American lives are saved by the progress of medicine over

the last 50 years.

Slow progress, however, attracts less attention than quick, sudden losses such as terrorism,

plane crashes, and natural disasters.

There are many overnight tragedies, but few overnight miracles.

To be practical, we don't have to be pessimistic.

Despite setbacks, we can hold onto the belief that over time, the odds of a positive outcome

are in our favor.

When watching the news highlighting a stock market crash, economic woes, or other money

problems - try to remember that things tend to improve over time.

Two Forgotten Elements.

In 1968, there were roughly 300 million high-school-age people in the world, and of those 300 million,

300 students attended a small school in Seattle called Lakeside.

Lakeside happened to be the only high school in the world at the time that had a professor

with the foresight to lease a computer, the Teletype Model 30.

This was no ordinary computer, it was advanced for the time and the type of computer that

even Graduate students didn’t have access to.

And for one lucky student at Lakeside this would change everything.

That student was Bill Gates.

From 300 million to 300.

In 1968 there was roughly a one in a million chance of being a high school student with

access to a computer.

Bill Gates and his school mate Paul Allen, would go on to create Microsoft together.

Even as a teenager, Gates showed exceptional intelligence, hard work, and a vision for

computers unlike anyone else.

But going to Lakeside also gave him a one-in-a-million competitive advantage and head start.

And Gates is not shy about this, in 2005 he said “If there had been no Lakeside,

there would have been no Microsoft,”

What is not often mentioned in the early Microsoft story was a third member of this gang of

high-school computer prodigies.

Kent Evans.

Just as intelligent, just as visionary.

Kent could very well have been one of the founders of Microsoft, Alongside Gates and

Allen.

However, that would never happen.

A mountaineering accident took Kent's life before he graduated high school.

The odds of a high school student being killed in a mountaineering accident are around one

in a million.

Just as the extremely rare stroke of luck would propel Bill Gates and Paul Allen to

great success.

Kent Evans would experience an extremely rare event and an encounter with what housel calls

the close sibling of luck, risk.

Luck and risk are like the wind and the waves that determine the course of a sailboat.

The sailor can control the rudder and the sails, but ultimately the direction and speed

of the boat are influenced by external factors that cannot be fully predicted or controlled.

The pursuit of success is full of twists and turns, and the role luck and risk play in

shaping our lives is an important perspective to keep in mind.

Understanding that Success is a complex combination of factors, including both talent and luck

can help us approach our own financial decisions with greater humility and perspective.

The

Key to Happiness.

People want to become wealthier to make themselves happier, but according to Housel “ the key

to happiness is the ability to do what you want, when you want, with who you want, for

as long as you want”

The pursuit of material wealth has led to many people working harder and giving up more

control over their time, despite being richer than ever before.

However, studies show that having control over your life is the most dependable predictor

of positive feelings of wellbeing, more than your salary, house size, or career prestige.

Ultimately, controlling your time is the highest dividend money pays.

Pursuing money without valuing time is like filling a bucket with a hole in it.

No matter how much water you pour in, it will continue to leak out.

Similarly, no matter how much money you accumulate, it won't bring lasting happiness if you don't

have control over your time and can't enjoy the fruits of your labor.

Tail Events

Heinz Berggruen, a man who fled Nazi Germany and settled in America, became one of the

most successful art dealers of all time.

He collected a massive amount of art, including works by famous artists like Picasso, Klee

and Matisse.

In 2000, he sold part of his collection for over 100 million euros.

What was his secret to acquiring so many masterpieces?

Was it skill, Was it luck?

According to Horizon, a Research firm, great investors buy vast quantities of art and hold

onto them for a long period of time.

They wait for a few of those paintings to become well known and worth a lot of money,

even though most of the paintings they bought were not worth very much.

In other words, it's not about being right all the time, but having a diversified portfolio

and waiting for a few winners to emerge.

Perhaps 99% of the works someone like Berggruen acquired in his life

turned out to be of little value.

He could be wrong most of the time, But that doesn’t particularly matter if the other

1% turn out to be the work of someone like Picasso.

These events are known as long tails.

When a small number of events can account for the majority of outcomes.

The long tails of Berggruen's art collection are what led to his ultimate fortune.

The story of Berggruen teaches us a valuable lesson about investing and this long tail

concept also applies to many aspects of business and investing.

The obvious example is Venture Capital.

Most of the startups in a VC fund will fail and lose money for the fund, but all they

need are a few outlier startups which make 20x + returns to make up for losses.

____________________

Take Amazon, for instance.

In 2018, it drove 6% of the return on the S&P 500 even though it is just one company.

If we look inside Amazon.

Its growth was largely driven by two tail events: Amazon Prime and Amazon Web Services.

These two products alone more than made up for all of Amazon’s less successful experiments,

such as the Fire Phone or travel agencies.

After the disastrous release of the Amazon Fire phone, rather than apologizing to shareholders,

Jeff Bezos said:

“If you think that’s 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 little blip”

Bezos understands that it is OK to make mistakes and fail with most products if the process

creates the 1% of Tail event products that drive everything.

Tail events are mostly unintuitive and hidden from us because we only see the finished products

and not all the failures along the way that led to that finished product.

Housel in the book uses a real life example of a stand up comedian.

When you are watching the Netflix special you are saying to yourself, Wow this comedian

is amazing.

What you aren't seeing are all the trial and error failed jokes that the comedian tried

out in small clubs all around the country before doing the special.

The Netflix special is the 1% compendium of all the tail event jokes that actually made

people laugh.

99% of the jokes along the way were probably just OK.

When it comes to investing Even though long tails are prevalent, most of us ignore them.

When things go wrong, we tend to overreact.

As soon as you accept that tails drive everything in business, investing, and finance, you realize

lots of things may go wrong, fail or fall apart.

Remember:

Out of the nearly 500 stocks Warren Buffet has picked, only 10 have made the majority

of his money.

Good Stock pickers will only be right half of the time.

Good leaders will only make good decisions half of the time.

The fact that you might be wrong sometimes doesn't mean that things won't work out over

time.

In the end, the outcome can be determined by only a small number of events.

True Wealth VS Being Rich

It's so important to understand the difference between being rich and being wealthy.Richness

is about your current income and the things you own, while wealth is about the financial

assets you have yet to spend.

True wealth isn't what you see, but what you don't.

It's easy to assume that someone driving a Lambhorghini is wealthy, but appearances can

be deceiving.

In reality, many individuals are living beyond their means and relying on debt to fund their

flashy lifestyles.

Wealth isn't about the cars you drive, the diamond rings or the homes you own; it's about

those financial assets that you have yet to spend.

Accumulating wealth takes self-control and restraint.

The diamonds, watches, and first-class upgrades that you decline all contribute to your overall

wealth.

It's easy to find rich role models who spend lavishly, but true wealth is hidden and therefore

harder to imitate.

We're conditioned to believe that having money means spending money, but the real key to

building wealth is to save and invest the money you have.

In fact, the only way to be wealthy is to not spend the money that you do have.

The next time you see someone driving a fancy car or living in a big house, remember that

you can't judge wealth by appearances alone.

The true key to wealth is self-control, restraint, building assets and investing in your future.

The Real Price

Imagine you are climbing a mountain with the goal of reaching the peak and admiring the

amazing view.

Maybe you will get sunshine that day, maybe rain.

You may get lost, you might fall and injure yourself….The difficulty of the climb is

not always apparent until you're in the thick of it.

From the ground looking up the path to take may seem obvious, but along the way you will

certainly need to reassess and change your path to the peak.

You are under no illusion however that there will be some golden escalator that will safely

take you to the peak.

You understand before the climb that this uncertainty and risk is just the price you

have to pay to get to the top.

But when it comes to investing in the stock market, many people think they can avoid the

uncertainty and risk and get something for nothing.

Housel likens the stock market to getting a new car.

If you want to get a car, you have three options.

You can buy a new car, buy a used one, or steal one.

The new car is a higher price, but the reward is greater.

Think of the new car like aiming for 12% returns from the stock market.

The used car is cheaper, but also comes with less reward.

The used car is like a much safer investment but only returns 4% per year.

Stealing a car, is like trying to get something for nothing.

99% of people would avoid stealing the car because the consequences outweigh the benefits.

However when it comes to the stock market, people seem to be under the impression that

they can take option three, and steal from the market.

They try all kinds of tricks and strategies to get good market returns without paying

the price.

Attempting to sell right before a dip or buy right before a boom.

Consider, for example, wanting to earn an 11% annual return over thirty years in preparation

for your retirement.

From 1950 to 2019, the Dow Jones Industrial Average has returned about 11% per year.

Over those 69 years however, of course there were many high highs and low lows.

For many the sight of their investments going up and down can be traumatic, so they try

to get in and out quickly, without paying the price of volatility and uncertainty over

the long term, akin to trying to steal the car.

The price you must pay is not just about dollars or cents when investing; it's about accepting

the emotions that volatility, fear and risk can bring.

Recognizing that successful investing comes with a price is crucial.

This price is not immediately obvious, but you have to pay it, just like you would for

any other product.

The key is to convince yourself that the market's fee is worth it, that it's an admission fee

worth paying.

There's no guarantee that it will be, but if you see the admission fee as a fine, you'll

never enjoy the experience.

Be willing to pay the price once you find it.

Hedonic Treadmills (enough)

Know when enough is enough.

Become familiar with the concept of Hedonic Adaptation or The Hedonic Treadmill.

Every time you hit the goal, you keep moving the goalpost further ahead.

You need only look at the demise of Bernie Madoff and Gupta, two men who already had

everything and were ultra-wealthy.

But All the money in the world would never have been enough, both resorting to crime

to make even more money.

The pursuit of wealth and success without a sense of knowing when enough is enough is

like climbing a never-ending ladder.

No matter how high one climbs, there is always another rung to reach for, and the pursuit

can become all-consuming, leading to a lack of happiness

and fulfillment.