by Morgan Housel
Finance and investing is unlike high-skill demanding work because one does not need a high level initially starting point to outperform — a surgeon needs to be trained and reach a certain proficiency in medicine to outperform his peers while an investor doesn’t need any skill or large sums of money to become wealthy.
“The aim of this book is to convince you that soft skills are more important than the technical side of money.”
We’re approaching money matters from the perspective of science when we should be approaching it from the perspective of behavioral psychology. Reframing money and spending is more crucial than understanding economic trends and patterns. The scientific approach hasn’t helped people be more likely to save for retirement or avoid debts.
Patterns have been analyzed and labeled by economists, and yet economic conditions are never the same in any two places across all of history. Always there is a new policy implemented, or a change in the condition of the economy to create new variables for the analyst to consider. Across all the variables in finance, including employment rates, inflation, economic growth, there will be no or little expereince of them together that form an experience similar to that of others living in different times or places.
The person who grew up when inflation was high experienced something the person who grew up with stable prices never had to. - Psychoogy of Money by Morgan Housel
Other factors that may influence an analyst’s conclusions are the Great Depression, Wars, stock market growth, socioeconomic class, country, social security.
Both statistics and our heuristics render a warped picture of what kind of an event leads to success and failure.
Fringe events like massive successes or failures are always a product of sheer, dumb luck — where you were born, what high school you went to as is the case with Bill Gates. We should take confidence in the fact that fringe events likely don’t apply to you and that nothing can be as bad or as good as we can imagine it could be.
If it’s not enough that this is statistically true, something we experience every day, then consider also our mental bias toward admonishing failures and coveting successes. The stories we tell and the praiseworthiness of any one character’s acts are colored by legal troubles, freak accidents, positioning and timing. For instance, Vanderbilt and Rockefeller got different reputations for doing a similar thing: ignoring the laws of the time to develop their businesses. Vanderbilt was a hero and Rockefeller was a thief.
Years ago I asked Robert Shiller, who won the Nobel prize in economics, “What do you want to know about investing that we can’t know”
”The Exact role of luck in successful outcomes,” he answered.