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The Psychology of Money

• bytematic 8y ago
  I think that almost any motivator for working or keeping society together would have been abused. This is truly interesting.
• empath75 8y ago
  > In what other field does someone with no education, no relevant experience, no resources, and no connections vastly outperform someone with the best education, the most relevant experiences, the best resources and the best connections? I’ve seen it happen a bunch in the IT field.
  • Swenrekcah 8y ago
    I guess in this case you are measuring performance in money earned then, not in quality of work. In which case they’re not outperforming in the field of IT but field of finance.
  • ithkuil 8y ago
    Probably elsewhere too, especially where there are no artificial obstacles to limit the ingress of "external" people to a field. IMHO the missing metric is "potential": the ability of an individual to thrive and get better over time despite possible previous misfortune, change of mind/hearth (or even just plain laziness) that might have made them score badly in the aforementioned metrics.
  • sokoloff 8y ago
    It’s quite easy to outperform one of the worst performers in an industry. My own financial condition is unremarkably stable and I’m crushing Mr Fuscone.
  • justherefortart 8y ago
    Examples would be nice, because I've never seen it in 25 years. No education No relevant experience No resources No connections Bullshit.
• ramen-san 8y ago
  This is a great list of investment advice and wisdom. Notice that most of it is focused on the psychology of investing rather than tricks or tactics. Understanding the psychology of how humans behave and why we make investing mistakes is the first step toward correcting them. Some would say Buffett’s greatest strength is his psychological edge. Personally, to keep myself honest, and cut out psychological mistakes, I follow some key investment rules every time I put money to work: https://ramenretirement.com/2018/02/13/investment-rules/ https://ramenretirement.com/2018/02/13/investment-rules/ Also, for those interested, the power of compounding over time is so unintuitive to our human mind that it’s worth reviewing in detail - the numbers will shock you: https://ramenretirement.com/2018/01/26/the-incredible-power-of-compound-returns/ https://ramenretirement.com/2018/01/26/the-incredible-power-... Enjoy!
  • tedmiston 8y ago
    This comment comes off a little too shamelessly self-promotional for the HN crowd. If the content of your post(s) is relevant to the thread at hand, it's better to just inline the important parts than make people jump through links. It's not a great look here that each of your comments is mostly just links back to your own blog.
    • astura 8y ago
      You aren't kidding, only 1-2 of this poster's comments don't contain a link to their blog.
• roenxi 8y ago
  It is worth reflecting that, if Grace happened to be have a world outlook that was a smidge more venal and materialist, she wouldn't have been able to do what she did. This is because dying with $7 million in savings means that she could have spent about $7 million more on enjoying herself in life. I completely agree with her apparent outlook, and would rather have security and the pride of knowing I'd given a lot more to my fellows than I've taken back. And if everyone thought this way then society would be a lot better about preserving and growing what we have. However, I've met countless people who behave like the executive in the opening paragraph not because they have 'bad behaviors', but precisely because they are clever and in practice wanted to maximise money spent/personal resources consumed. I doubt they would word that as harshly as I have, but the implicit meaning behind the behavior is very clear. Now, if you start with a value proposition that the purpose of the economy is to maximise the resources available for individual consumption, it is actually quite hard to argue for dying with savings. The families who try to maintain inter-generational family wealth actually cop a fair bit of flack socially (in times of stress, they seem to near inevitably get branded 'hoarders', and times of extreme stress they have their wealth confiscated). Basically, I like the argument and the value structure it comes from - but there are other views of the situation that are reasonable and deserve mention. EDIT Fun fact, apparently $7 million gets you very close to the top 1% by wealth [1]. So technically, the sort of people who want "the 1%" to do more have people like Grace in their sights. We all know they don't want that, but it shows the normal attitude to wealth and savings imo. [1] https://www.investopedia.com/articles/personal-finance/050615/are-you-top-one-percent-world.asp https://www.investopedia.com/articles/personal-finance/05061...
  • vorg 8y ago
    > because dying with $7 million in savings means that she could have spent about $7 million more on enjoying herself in life The point of much of the article is that dying with $7 million in savings means that she could have instead spent about $7 million more on enjoying herself, not in life, but on the day before she died. She probably couldn't have even enjoyed children and a car "in life".
  • WalterBright 8y ago
    Consider the role of luck and risk. If you go to Vegas and gamble, your returns are pretty much luck. But for the casino, the quantity of bets makes their profits a virtual mathematical certainty, even though the outcome of each bet is luck. Transferring this idea to the stock market, outcomes from an individual stock have a high degree of luck, but an investment in an index of stocks reduce the luck factor by quite a bit and move towards mathematical inevitability.
• fragsworth 8y ago
  > Richard Fuscone, former vice chairman of Merrill Lynch’s Latin America division, declared personal bankruptcy, fighting off foreclosure on two homes It's worth noting (and not mentioned in the article) that this was a Chapter 11 bankruptcy, which is a reorganization of debts, and Mr. Fuscone did not actually lose everything, and probably still has a lot of equity.
• ogennadi 8y ago
  > 3. Rich man in the car paradox. > When you see someone driving a nice car, you rarely think, “Wow, the guy driving that car is cool.” Instead, you think, “Wow, if I had that car people would think I’m cool.” Subconscious or not, this is how people think. Just realized that that is how I think... :facepalm:
  • odonnellryan 8y ago
    I think I generally think, would it be fun to drive that car?
    • tibbetts 8y ago
      The I think “maybe I should rent one on vacation sometime.” And after three days with a BMW Z4 convertible, I get that out of my system for well under $1k. I also resolved my interest in Jeep Wranglers this way.
      • odonnellryan 8y ago
        It's a good idea. Renting in general has proved to be too much trouble for me. I actually bought my last car because it was too much a pain in the ass to rent a SUV! I needed a new car anyway, so I figured it was a $1,500-$2k discount if I just bought one. The Honda CRV has been fairly decent: I use it for what it is good for, too. Winter trips with multiple people.
  • robertAngst 8y ago
    I look at those cars and think that someone has a monthly payment and cant manage their money. I rather give money to charity than have an expensive car to sit in traffic with. I find people around me similar, there seems less of a desire to chase luxury products.
    • tedmiston 8y ago
      Personally, I'd rather hold the money and maintain financial independence and lifestyle optionality than have the luxury car or anything else.
• peter303 8y ago
  Pretty much Orman's thesis the past 20 years, especially early books
  • q-base 8y ago
    Who is Orman? And which book could you recommend?
• ChuckMcM 8y ago
  Copied that one into Evernote. That is a lot of received wisdom distilled down into some really useful bits.
• shmerl 8y ago
  > I want to spend a million dollars,” which is literally the opposite of being a millionaire. As the saying goes, you don't take money with you to the next world. So the goal of spending money (on some good cause of course) is incomparably better than the goal of gaining money itself.
  • dgacmu 8y ago
    If you know exactly when you'll die and the sequence of future expenses you'll incur between now and then. Having money is useful insurance. It's all about asking the marginal benefit of saving or spending each additional dollar. At some points, you derive more out of spending -- such as when you're spending them on basic necessities, or when you have a large pile that can already cover those 99th percentile emergencies. And, of course, being able to estimate your own utility for those. Which is hard.
  • lurcio 8y ago
    What if it were the case that neither would help you?
• linkmotif 8y ago
  > and you cannot believe in risk without believing in luck, because they are two sides of the same coin. Huhhh? Risk and luck are not at all obviously two sides of the same coin. How does this duality work at all?? Risk can be measured, modeled, etc. It may not be accurate, but at least it’s something you can define and attempt to model. Sure, sometimes you may behave risky and not even realize it, given that future events may be totally different from what you expected. But in reality risks are much more transparent than luck. You can’t go and plausibly seek out luck, but you can seek and easily find risk of any variety. Want some risk? Smoke a cigarette. Unlike risk, luck is a far less tangible concept. How it occupies the same side of the coin as risk—I have no idea. Where do you go to get luck? Risk may yield reward, but why call that luck and not the “outcome”, which like all outcomes carries a certain probability. Luck is just a pseudo-religious moralization of outcome, mostly employed by people who are unlucky.
  • j7ake 8y ago
    Risk and luck can be two dies of the same coin. In your cigarette example, if you smoked 2 packs of cigarettes a day and you did not get lung cancer, that could be considered luck.
    • deleted 8y ago
      [deleted]
  • duwease 8y ago
    The way I read it is that they are using 'luck' and 'risk' in the colloquial sense, where 'risk' equates with 'danger' and 'luck' equates with 'good fortune'. Basically they are saying that, in a probabilistic outcome, we are comfortable acknowledging that a venture may encounter somewhat random danger, but are uncomfortable acknowledging that they may encounter somewhat random fortunes.
• anameaname 8y ago
  In Item 10 it says: > One study I remember showed that young investors should use 2x leverage in the stock market, because – statistically – even if you get wiped out you’re still likely to earn superior returns over time. And the linked paper says: > The mistake in translating this theory into practice is that young people invest only a fraction of their current savings, not their discounted lifetime savings. For someone in their 30's, investing even 100% of current savings is still likely to be less than 10% of their lifetime savings This makes a lot of sense to me and says what I haven't been able to about my own risk tolerance. What is OPs counter to this? That the paper's conclusions are flawed, or that no 20-something could execute it?
  • selestify 8y ago
    > For someone in their 30's, investing even 100% of current savings is still likely to be less than 10% of their lifetime savings What does that mean? Isn't the point of compound interest such that the more you invest early on, the more you'll get back decades down the line?
    • krageon 8y ago
      If I read it correctly, it means that 90% of a person's savings are made after their thirties. So if you invest all of it in your thirties, you've captured 10% of your lifetime savings in your investments.
  • jplewicke 8y ago
    Someone actually tried to follow this advice starting in September 2007: https://www.bogleheads.org/forum/viewtopic.php?t=5934 https://www.bogleheads.org/forum/viewtopic.php?t=5934 . Needless to say, it did not work out well for them and they almost went bankrupt due to spiraling margin debt. The difference between a mortgage and margin debt is that mortgages aren't constantly marked to market, and you can continue to own the house even if you're temporarily underwater on the mortgage. Whereas with margin, you can be forced to sell if the value of the assets you've bought underperforms.
    • 8y ago
• baxtr 8y ago
  She was, by all accounts, a lovely lady. But she lived a humble and quiet life. That made the $7 million she left to charity after her death in 2010 at age 100 all the more confusing. That made me wonder: Are there charities that are run like VCs?
  • mnx 8y ago
    Kinda, yes: https://app.effectivealtruism.org/funds https://app.effectivealtruism.org/funds
• tomcam 8y ago
  > she could have spent about $7 million more on enjoying herself in life Well no, because it got to that level through compounding.
• sametmax 8y ago
  Our mental model and relation to money is incredibly amusing. E.G: I travel a lot, and often end up with a few coins from countries remining in my bags. I have friends of mine in the same situation, and they all have "that drawer" filled with various coins that they will one day use again. Me, I put them in the trash can. Every time I do that, people look at me like I killed a puppy.
  • kaybe 8y ago
    And I put them in a wooden box and have a treasure hoard. Maybe one day I will bury it for future discovery.
    • sametmax 8y ago
      That's a good reason :)
  • tim333 8y ago
    Some charities take odd coins. Better than the trash bin.
    • sametmax 8y ago
      The time and energy that will be used to process said coins will excess their face value.
      • bloak 8y ago
        There are people with nothing better to do who enjoy sorting old coins. Personally I prefer untangling pieces of string or yarn. I don't normally have time for it, but on the rare occasions that I've had nothing "better" to do I've really enjoyed it.
      • IneffablePigeon 8y ago
        If that were true then the charities wouldn't take them in the first place. They're (ahem) not doing it for charity.
• grosjona 8y ago
  There is no way that Grace would be able to save so much money if she had to start today. Now rent is higher, interest rates on savings are nonexistent, salaries for low-skill office people are lower, companies are bigger and have less growth potential ahead of them, employees have more restrictive roles, less leverage over their employers and they rarely have access to high-value inside information.
• tr33house 8y ago
  Loved this letter to his son: Some people are born into families that encourage education; others are against it. Some are born into flourishing economies encouraging of entrepreneurship; others are born into war and destitution. I want you to be successful, and I want you to earn it. But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself."