Hi everyone, Happy Monday!
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It’s been a long time but I swear I am going to be way more consistent from now on, so after a long absence I have the perfect person that I want to write about today!
Morgan Housel (@morganhousel) is a partner at The Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal. Morgan is an expert on behavioral finance and investing history. His writing draws from psychology, history, neurology, and sociology. I absolutely love his writings and am a fan and hopefully, you will become one (or are one) too.
1 STORY FROM HIM
An interesting story on how Morgan looks at successful investing.
Ralph Wanger was born in 1933, almost to the day of the bottom of the Great Depression. He went on to be not only a great investor but a great investment writer, sharing wit and wisdom in his quarterly shareholder letters.
Wanger once analogized the stock market to a man walking his dog in New York. The man has done the same walk for years, starting at Columbus Circle, strolling through Central Park, and ending at the Metropolitan Museum of Art.
The dog has boundless energy and never walks in a straight line. He leaps randomly from one direction to the next, stops to smell every leaf, barks at other dogs, and jumps on you for no reason.
At any moment, there is no predicting what the dog will do or which way he'll leap. His movements are totally unpredictable. But you know he's heading northeast at about three miles per hour, toward the museum, where he'll eventually end up – because that's where the owner is taking him.
"What is astonishing," Wanger said, "is that almost all investors, big and small, seem to have their eye on the dog, and not the owner."
As you navigate your life as an investor, pay more attention to the owner (businesses) and less to the dog (markets).
2 QUOTES FROM HIM
“What we see is what people have spent money on, that’s what’s visible in the world. The cars they drive, the homes they have, the things they’ve spent money on…Wealth though is what you don’t see.”
“Everyone has a different view of the world based off of their own experiences and because of that we all think about money in very different ways”
3 LEARNINGS FOR YOU
It is impossible to grow wealthy if your expectations grow faster than your income
A thing that’s obvious but easily overlooked is that feeling wealthy has little to do with what you have. It’s more about the gap between what you have and what you expect. And what you expect is driven by what other people have around you.
Expiring skills vs Permanent skills
Every field has two kinds of skills:
Expiring skills, which are vital at a given time but prone to diminishing as technology improves and a field evolves.
Permanent skills, which were as essential 100 years ago as they are today, and will still be 100 years from now.
Both are important. But they’re treated differently.
Expiring skills tend to get more attention. They’re more likely to be the cool new thing, and a key driver of an industry’s short-term performance. They’re what employers value and employees flaunt.
Permanent skills are different. They’ve been around a long time, which makes them look stale and basic. They can be hard to define and quantify, which gives the impression of fortune-cookie wisdom vs. a hard skill. But permanent skills compound over time, which gives them quiet importance.
Save like a pessimist, Invest like an optimist
The world breaks about once every ten years, on average. For your country, state, town, or business, once every one to three years is probably more common.
Save like a pessimist means you acknowledge the cold statistics of how common bad news is. It’s common at the global, national, local, business, and personal level. Save heavily, knowing with certainty that you’ll need a cushion to deal with the next banana peel. Be a little bit paranoid, knowing the assumptions you hold today could break tomorrow, and you’ll need enough room for error to make it to the next round.
So - “Save like a pessimist”
In blackjack, casinos usually have a 0.5% edge over players, which is enough to guarantee they’ll win over time. The best card-counters give themselves about a 2% edge over the house, which is enough to ensure they’ll win over time.
Same thing in the economy.
As long as more people try to get better than screw up, the long-term odds are in an economy’s favor. And that’s virtually always the case because of the screw-ups – the declines, the recessions, and panics, the wars – fuel the problem-solving.
Once the odds are in your favor, compounding takes hold. And then …. boom.
If the odds are in your favor and you can keep them in your favor for a long time, you shouldn’t just be an optimist. You should be a ridiculous, full-blown, giddy optimistic.
So - “Invest like an optimist”
Writing this issue was made extremely easy for me because of a few WhatsApp newsletters that I subscribe to who curate interesting reading material from the internet. Join them :)
Do check out his new book where he shares 19 stories about the strange ways people think about money and teaches you how to manage it, I just received mine and can’t wait to get started :)
Sources & Extra stuff to read, listen or watch
https://www.collaborativefund.com/blog/the-seduction-of-pessimism/
https://www.perell.com/podcast/morgan-housel-writing-for-the-internet
https://podcastnotes.org/the-readers-journey/morgan-housel-on-the-readers-journey/
https://www.fool.com/investing/general/2015/06/19/probability.aspx
That’s it from me, until next time! Feel free to reach out to me by replying to this email or on twitter 👋
Also, if you have recently signed up or have missed reading a few before, you can check them out here or read my favorite one about Tim Ferriss here.
Do like or comment on the post, not for vanity purposes but purely as a feedback loop for me so I know what kind of people you want me to write about :)