Insights from the Psychology of money
This book is so good.
You'd think studying some successful people in finance would be enough for you to derive the methods and ways to succeed but, alas, just like in medicine, the world of finance is pretty complicated and depends on the one hand, on the vagaries of human nature and on the other hand, on the complexity of markets and economics.
Why do one set of people make financial decisions that don't make any sense to other set of people?. The reason is that when it comes to finance, things are complex; humans have different pasts, different goals, and different life experiences that dictate the financial decisions they make. Adding insult to the injury is the world in which these people make their financial decisions; it is a world rife with wars, economic bubbles, recessions, and bull and bear markets. It is for that reason that beating the market is almost impossible. And it is not as if you'd do things by the book and come off the other end unscathed. In his book, the intelligent investor, Benjamin Graham lays out the roadmap to what he thinks is a good strategy to invest your money.. that until the last page when he declares that the time he succeeded the most was when he applied a totally different strategy from the one he preaches in the book. Taking advice on what to do with money is pretty tricky too. A long term investor wouldn't benefit from a day-trader's advice on how to maximize profits, because one is thinking short-term gain while the other is thinking long-term gains.
To succeed financially, your actions should converge with you surviving whatever the world throws at you: recognize that, in life, few actions lead to the highest dividends; you can be wrong most of the time and then right one time and make huge strides; taking risks is part of the game but never take it to the extreme: Avoid ruin! acknowledge the price of admission( regret, doubt, uncertainty); pessimism draws a lot of attention owing to human's nature of paying attention to events that might threaten their survival. Acknowledge the dangers but be an optimist to succeed. You're on a quest to become independent and autonomous. Building wealth( wealth is what you don't see; the McLaren you drive can only tell us how much of your wealth is gone or how much credit you owe the bank, nothing else) is all about having more options in your life so save more to have more options down the line, so that you can have enough to wake up in the morning and work on whatever you like, with whomever you like, whenever you like. You have to determine what enough is for you( people will respect and admire you for being kind and humble not for how much possessions you own) Get greedy and you go broke. Eventually. Define what game you're playing and, besides the universal truths, never allow other people playing different games to influence your own decisions. Always have room for error aka safety margin between what you want things to be and what you need them to be. Since you understand how much luck plays a role in life, be humble and kind when things go right, and compassionate when things go wrong. Be willing to update your investing strategies constantly. Be like Ben Graham and Daniel Kahneman. They were always updating their own dated theories and acknowledging the error in their ways. Panic in the short term is necessary in order to succeed in the long term.
Warren buffet (with 22% return a year made 99% of his wealth after age 60 ) was far wealthier than Jim Simon's( 66% return per year), because of Buffet's endurance and longevity.
Expectations are slow to catch up to reality. The US had experienced an unprecedented economic growth in the 2 decades following WWII what with Low interest rates, The prevalent borrowing culture at the time, Housing booming, and People returning from the war. Any American could now enjoy the same lifestyle. But then the gap between the middle class and the rich started to increase and lifestyles started to diverge, leaving in their wake people's old expectations of how things should work_ Everyone can have the same lifestyle, that is . This is no longer the case.