The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
by Morgan Housel
Financial success is a soft skill, writes Morgan Housel, “where how you behave is more important than what you know.” This is a book about developing the mindset of a long-term investor, with a realistic attitude towards risk and reward. The book is conspicuously free of financial jargon and math. Here are some key points.
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The Laws of Wealth: Psychology and the Secret to Investing Success
by Daniel Crosby
Psychologist Daniel Crosby works in the field of behavioral finance. “Given that you, as a member of the human family, have tendencies toward impatience, arrogance and a fetish for complexity, it is very likely that you will screw this up… At my last count, psychologists and economists had documented 117 biases capable of obscuring lucid financial decision-making.”
Crosby presents 10 rules of behavioral self-management.
Rule #1 – You Control What Matters Most. “The behavior gap measures the loss that the average investor incurs as a result of emotional responses to market conditions.” As an example, the author notes that the best performing mutual fund during the period 2000-2010 was CGM Focus, with an 18.2% annualized return; however the average investor in the fund had a negative return! The reason is that they tended to buy when the fund was soaring and sell in a panic when the price dipped. More on volatility later…
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The Key Point 