The book is a great read about how money and wealth are acquired, preserved, and lost. And that too not because of the market but because of the individual’s psychology.
- Doing well with money has little to do with how smart you are and a lot to do with how you behave. How you behave is more important than what you know. There is no reason to risk what you have and need for what you don’t have and don’t need. Jesse Livermore became a billionaire by shorting the market in 1929. He lost everything in 1932.
- We all think we know how the world works. But we’ve all only experienced a tiny sliver of it. Bill Gates experienced one in a million luck by ending up at Lakeside. Kent Evans experienced one in a million risks when he died in mountain climbing instead. He never got to finish what he and Gates set out to achieve. The same force, the same magnitude, working in opposite directions.
- Everyone has their own unique experience with how the world works. And what you’ve experienced is more compelling than what you learn second-hand. Kennedy, in the 1950s, mentioned that I really did not learn about the Great Depression in 1929 until he read about it at Harvard.
- Someone else’s failure is usually attributed to bad decisions, while your own failures are blamed on the risk manifesting itself. When judging your failures I’m likely to prefer a clean and simple story of cause and effect, because I don’t know what’s going on inside your head.
- Imagining a goal is easy and fun. Imagining a goal in the context of the real-life stresses that grow with competitive pursuits is something entirely different. Define the cost of success and be ready to pay it.
- Wealth is financial assets that haven’t yet been converted into the stuff you see. You might think you want an expensive car, a fancy watch, and a huge house. But I’m telling you, you don’t. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does—especially from the people you want to respect and admire. One of the most powerful ways to increase your savings isn’t to raise your income. It’s to raise your humility. No one is impressed with your possessions as much as you are.
- Moderately cool summers, not cold winters, were responsible for the ice age. Avoiding downside is more important than ensuring a higher upside.
- Academic finance is devoted to finding mathematically optimal investment strategies. In the real world, people do not want the mathematically optimal strategy. They want a strategy that maximizes how well they sleep at night. The historical odds of making money in U.S. markets are 50/50 over one-day periods, 68% in one-year periods, 88% in 10-year periods, and (so far) 100% in 20-year periods. Anything that keeps you in the game has a quantifiable advantage.
- Buffett’s skill is investing, but his secret is time. Charlie, Warren, and Rick were equally skilled at getting wealthy. But Warren and Charlie had the added skill of staying wealthy. Which, over time, is the skill that matters most. The more you need specific elements of a plan to be true, the more fragile your financial life becomes. History is littered with good ideas taken too far, which are indistinguishable from bad ideas. If the cost of the downside is ruin, the upside the other 95% of the time likely isn’t worth the risk, no matter how appealing it looks. Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years spent on cruise control.
- End of History Illusion is what psychologists call the tendency for people to be keenly aware of how much they’ve changed in the past, but to underestimate how much their personalities, desires, and goals are likely to change in the future.
- Pessimism just sounds smarter and more plausible than optimism. Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant. Every job looks easy when you’re not the one doing it.
- Incomes among brothers are more correlated than height or weight.
- Power law: In the early 19th century, The great investors bought vast quantities of art, some of that turn out to be worth several times more the entire portfolio. The $8 million Snow white and the seven dwarfs earned in the first six months of 1938 was an order of magnitude higher than anything the Walt Disney company earned previously. Effectively all of the index’s overall returns came from 7% of component companies that outperformed by at least two standard deviations.
- Traders, speculators, and investors play different games. The rewards for correctly predicting what the stock market will do next week are in a different universe than the rewards for predicting what it will do over the next decade. I am just as susceptible to explaining the world through the limited set of mental models one has at their disposal.