1) The document discusses different perspectives on wealth, risk, and happiness. It explores how one's views on money and investing are shaped by their upbringing and environment. 2) Luck and risk are interconnected - achieving success requires hard work but circumstances outside one's control also influence outcomes. Small changes can have large, compounding effects over time. 3) Having enough money for one's needs is more important than amassing wealth. Comparing oneself to others often breeds dissatisfaction. Focusing on savings is key to maintaining wealth.

1. The
psychologyof
money
“Timeless lessons on wealth, greed and
happiness.”
By Morgan Housel Summary by Krisha Jariwala
1

2. Content
No one’s crazy
Luck and Risk
Never enough
Confounding
Compounding
Getting wealthy vs
staying wealthy
Tails, you win
Freedom
Man in the car
paradox
Wealth is what
you don’t see
Save money
Reasonable >
Rational
Surprise!
Room for error
You’ll change
Nothing’s free
You and me
The seduction of
pessimism
When you’ll
believe anything
All together now
Confessions
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2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
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3. No one’s crazy
“Not intelligence, or
education, or
sophistication. Just
the dumb luck of
when and where
you were born.”
“A topic that is
so influenced
by emotion
versus fact, this
is a
problem.”
• Housel puts forward the different
mindsets of different people grown in
different economies.
• Those differentiated thoughts regarding
knowledge of money are based upon
different beliefs, goals and forecasts
• Equally smart people have different
ideas upon investments, risks, etc.
• A person’s investment behaviour is
influenced by his or her upbringing.
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4. Luck and Risk
This chapter throws light on crucial terms in finance,
risk and luck. With sheer hard work and intelligence
one can achieve success but luck also plays some
part in it. For eg: financial outcomes of person born
in prosperous family differs from person born in
impoverished family.
Risk is the possibility of something bad happening. It
goes hand in hand with luck which is based on
random events. A single risk trigger a chain reaction
of related risks which is known as chain of risk,
whereas tail events refers to uncommon and
surprising events with repercussions.
”Nothing is as good or as bad as it seem
“Luck and risk are siblings
4

5. U.S.
18 M
Washingto
n
270 K
Seattl
e
100 K
Lakeside school
300
18 million high school age people live
in US
270,000 lived in Washington state.
100,000 lived in Seattle area.
300 of them attended lakeside
school and 1 of them was Bill Gates
This data shows that out of 303 Million high school age students, only 300 students
got the opportunity to study in lakeside school which provided the facility of
computers, which acted as luck factor in Bill Gates’ life.
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6. Never enough
1 Desire
Despite prosperity or
success now, there is
a persistent desire
for money.
3 Comparison
Habit of matching
own lifestyle with
peers, which in
turn leads to
excessive
spendings.
2 Hedonic treadmill
Even after reaching
financial goals, people
do not satisfy and try
pursuing bigger goals
4 Contentment
It can be achieved
when a person
can define
‘enough’ for
oneself.
• "Enough” is realizing that the
opposite—an insatiable appetite
for more—will push you to the
point of regret.
• There are many things never
worth risking, no matter the
potential gain.
• The good news is that the most
powerful tool for building enough
is remarkably simple, and doesn’t
require taking risks.
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7. Confounding Compounding
1
2
Some small changes can lead to some big changes.
Small amount of growth serves as the fuel for future growth.
3 This is known as the process of compounding in which growth
is done through investments.
4 Here author explains the importance of compounding in life of
Warren Buffet.
“Lessons from
one field can
often teach us
something
important about
unrelated field.”
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8. • Earning a large income is crucial to
being wealthy, but it’s also critical to
concentrate on savings.
• People’s spending rises as their
income rises, which makes
accumulating wealth a challenge.
• Journey of getting wealthy involves
risk and once wealth is acquired, one
needs to focus on managing those
risks.
• Social comparison is root cause of
dissatisfaction.
Getting wealthy vs staying
wealthy
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9. Tails, you win
Few events in businesses and
investments lead to the majority of
results. Some of them have huge impact
on profits or growths. Those elements that
promote growth are known as tail product.
For eg: For amazon, prime and web
service is a tail product while for
apple it is Iphone.
technology
Materials
Utilities
Health
care
Financials
Industrials
0%
10%
20%
30%
40%
50%
60%
percentage
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10. Freedom
A person’s greatest happiness is not income, education
or geography, but to have control over time. Money’s
greatest power is to give control over time, i.e., ability
to do anything, anywhere at any time. It is said that, it
is the highest dividend money pays.
Man in car paradox
People often think having luxury cars make them look
rich. But author shows an ironic situation here, i.e.,
no one looks at the driver, the only noticeable thing is
the car which makes other wish for it. Luxurious items
are not the factor that can earn you respect and
admiration but it’s the humanity, kindness and
empathy. This factor is said that, it is the lowest
dividend that money pays.
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11. - Wealth is what you don’t see
- Save money
“your savings is the gap between your ego and your incom
Rich is usually depicted by current
income. Rich is income that is spent
on luxurious items.
Wealth is income that is not spent.
Wealth is financial assets that haven’t
yet been converted into stuff
Only way to stay wealthy is to save
money. Without high income, one
can build wealth through savings.
A person should save money with or
without any reason. Saved money
provides flexibility for new challenges.
There is a difference between being
wealthy and being rich.
Importance of saving money.
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12. Rational decisions are based on facts, math, data,
science, etc. whereas reasonable is usually personal
thinking.
In the decision making process, it is not necessary
that rational decisions would work. There is a need
for reasonable decision too.
Calculating the future outcomes is what humans do
which makes them rational decision maker but
predicting is a human nature, it’s reasonable.
Reasonable > Rational
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13. Based on historical decisions one
should never guide to future
investments.
01
Many changes occurs in the
world, it is full of surprises, no
one knows what will happen next
02
While planning, one should always
consider a safe side to avoid
uncertainty. This is known as margin of
error.
01
To create margin of safety,
savings should be done without
setting any future goals.
02
- Surprise - Room for error
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14. Long term
planning do not
always work.
People change
both mentally and
emotionally, our
surroundings too
changes over
time.
01
02
Those changes do
not necessarily
bring positive
impact on
formulated plans.
These changes
creates differences
in decision making.
So it is better to
avoid long term
plans.
03
04
You’ll change
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15. 01
02
03
04
Market returns are
usually profitable but
are never free.
Marketers have to
face volatility of
market.
Less volatile assets,
pays off less returns,
while more volatile,
pays off more.
One should consider
volatility as an
investment not
expense.
Once this concept of
volatility is
understood, one can
earn good returns
through process of
compounding.
Nothing’s free
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16. There are two types of investors, one
that invests for long term and that
does for short term.
People are usually more
pessimistic rather than being
optimistic.
People tend to tell stories to
themselves that they want to
believe in.
Forecasts cannot reduce risks,
still people use forecast and
believe they can control.
Growth takes time, but
destruction takes only a moment.
This is how pessimism is
seductive
Decisions made by both of them
are very different, so comparing
investments done by others is
wrong.
You and Me
The seduction of pessimism
When you’ll believe anything
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