The Psychology of Money: Timeless lessons on wealth, greed, and happiness (Summary)
How did a gas station attendant and janitor named Ronald Read secretly amass an $8 million fortune by the time he died? And how did a Merrill Lynch executive with a Harvard MBA, Richard Fuscone, go bankrupt at the same time? The answer reveals that your success with money has less to do with how smart you are and more to do with your behavior. Financial success is not a hard science; it’s a soft skill.
True Wealth is What You Don't See
We mistakenly equate wealth with lavish spending—fast cars, big houses. But real wealth is the opposite: it's the money you haven't spent. It's the assets in the bank and in portfolios that provide freedom, flexibility, and control over your time.
When you see someone driving a $100,000 Ferrari, your first thought is 'that person is rich.' But the only data point you have is that they have $100,000 less than they did before they bought it. We see the car, but we don't see the car loan or the depleted savings. True wealth is invisible.
Warren Buffett's Real Secret is Time, Not Genius
We obsess over Buffett's stock-picking genius, but his real superpower is that he has been investing consistently for over 75 years. The biggest returns from compounding come not from the highest growth rates, but from good-enough rates sustained for the longest possible period.
Of Warren Buffett's ~$85 billion net worth at the time the book was written, over 95% of it—$81.5 billion—was accumulated after his 65th birthday. His skill is investing, but his secret is time.
Getting Wealthy and Staying Wealthy Are Two Different Skills
Getting wealthy requires taking risks, being optimistic, and putting yourself out there. Staying wealthy is an entirely different skill set that requires humility, fear, and an obsession with not losing what you've made.
Stock traders Jesse Livermore and Abraham Germansky were brilliant at making fortunes during the 1920s boom by taking on massive leverage. But when the crash of 1929 hit, they lost everything because they didn't have the opposite skill: the paranoia and risk-aversion required to keep their wealth. They couldn't turn off the risk-taking.
Volatility is the Price of Admission, Not a Fine
Everything has a price, but not all prices appear on a label. The 'price' of market returns is enduring fear, uncertainty, and volatility. If you view this volatility as a fee for future gains, you're more likely to stick around. If you see it as a fine for doing something wrong, you'll panic and sell.
From 1950 to 2019, the S&P 500 increased more than 100-fold. But during that time, it experienced drops of 20% or more on four separate occasions. The price of admission for those incredible long-term gains was enduring the gut-wrenching drops without cashing out. The fear you feel during a downturn is the cost of admission.
