The Psychology Of Money

Came across this. A bit long and equities focused but very thought-provoking.

The Psychology of Money

 

That was indeed a long read.

 

nice article

 

I particularly liked the pyramid diagram. Pains me to see alot of investors getting caught up in the minor details like taxes and fees without first developing a wealth mindset.

 

And I love this quote in part 11:

Singer Rihanna nearly went broke after overspending and sued her financial
advisor. The advisor responded: “Was it really necessary to tell
her that if you spend money on things, you will end up with the things
and not the money?”

 

He has a few articles written for the Fool also i.e.

The World's Smartest Investors Have Failed

Markets Change. So Should You.

 

Most people I speak to about investing in everyday life jump straight into the "Security Selection" or "Asset Allocation" tiers of the pyramid:

Where should I buy?
What should I buy?
Should I sell?
Shares are too risky
Property prices always go up
I just got a better paying job. I'm thinking of using all of my borrowing capacity to buy a PPOR

After that, there's usually an oversensitivity to fees (sometimes warranted), and minimal tax knowledge usually acquired second-hand with minimal research

Getting the cheapest accountant/conveyancing services
Being sold products from "free" advisors when really its baked into the price
Someone told me this

What I've observed is that the most important part, behavioural finance and investor behaviour, is generally not even in the vernacular of the dabbling investor. It's also the most difficult to shift. Can't change what you can't see.

 

Your relationship with money is important
And most importantly, the belief in yourself to create it

 

Most people don’t even know what money is. It is a means to get society to get up and go to work, that’s all. Not every system functions of money. Eg the Monguls didnt

 

For those that have so much of it and don't have to get up and go to work...it clearly means different things than what you have written above.

I tend to think it is a widely held medium of exchange accepted by the majority of society/the world.

People exchange goods/services/items of value/experiences for money and people with money exchange it for goods/services/items of value/experiences.

 

That’s right too. But if you think about it the strength of a country comes from everyone getting up to work hard, innovate. Printing notes does nothing if there’s no goods to be exchaned right?

 

Money has no psychology, its an inanimate object. What causes most people to not reach their full potential is the psychology (or rather, the poorly managed psychology) of humans. That's why so many people top in their fields (traders, athletes, entrepreneurs, astronauts, race car drivers, etc) pay a lot of attention to understanding and learning how to manipulate their own psychology to keep them in peak condition.

 

Interesting read. I particularly liked these quotes:

When most people say they want to be a millionaire, what they really mean is “I want to spend a million dollars,” which is literally the opposite of being a millionaire.

A key use of wealth is using it to control your time and providing you with options. Financial assets on a balance sheet offer that. But they come at the direct expense of showing people how much wealth you have with material stuff.​

 

Completely agree. For 4 years I have watched many posters try to understand why markets boom and bust. They point to credit, interest rates, tax incentives etc, etc

What they forget is that every seller is a person and every buyer is a person. Understand what motivates them and you will understand the market.