Paranoid. Frugal. Contrary. Boring.
Those traits probably won’t get you invited to a lot of parties. But if it’s long term financial security you seek, they might be just the ticket, according to award-winning behavioral finance journalist Morgan Housel.
Housel’s 2018 article and subsequent book The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness are a treasure trove of arguably counterintuitive words of wisdom on personal finance. They are the culmination of years of studying investor behavior and outcomes, and the upshot is this:
“Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know.”
No one’s arguing that concepts like risk management, asset allocation, tax efficiency, safe withdrawal rate, etc., are unimportant. But in Housel’s view, the industry emphasizes these far in excess of what they contribute to results. The reality is that, unless technical proficiency goes hand-in-hand with certain behavioral tendencies, it can easily add up to, well, not so much.
“A genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioral skills that have nothing to do with formal measures of intelligence.”
Based on what I saw during my decade as a financial planner, this rings true. And today’s climate of persistent uncertainty, market volatility, and inflation offers up even more opportunities for geniuses — and others — to “lose control of their emotions.” Housel’s findings provide common sense insights that can help counteract this detrimental impulse.
Just because the advice is simple to grasp doesn’t mean it’s easy to implement. Au contraire. But the book is filled with engaging anecdotes, cautionary tales, personal experiences, and research to convince, motivate, and support readers seeking a saner path.
Here’s a sneak peek in the form of a few of my favorite Housel quotes.
“The correct lesson to learn from surprises is that the world is surprising. Not that we should use past surprises as a guide to future boundaries; that we should use past surprises as an admission that we have no idea what might happen next.” Therefore…
"There's only one way to stay wealthy: some combination of frugality and paranoia.”
“Spending money to show people how much money you have is the fastest way to have less money.”
“The hardest financial skill is getting the goal post to stop moving.” (i.e. When it comes to spending, letting enough be enough instead of getting lured onto the hedonic treadmill.)
“Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.”
“The purpose of the margin of safety is to render the forecast unnecessary.” (Here, Housel’s quoting groundbreaking financial guru Benjamin Graham.)
Translation: sh*t happens. It won’t be the same sh*t that happened last time or the time before. But rest assured. Some sh*t will happen at some point. Probably when you least expect it. And when it does, Chicken Little-inspired media coverage will whip the populace into a frenzy of investors behaving badly.
But not you. Because once you've absorbed Housel’s teachings, you’ll be expecting sh*t to happen. And you'll be armed with the knowledge and tools you need to make paranoid, frugal, contrary, boring (read: rational) choices. You’ll continue to spend beneath your means, protect against large losses, invest per a long-term financial plan designed for all economic climates, yada yada yada. Giant yawn?
OK, maybe it’d be a lot more exciting to reap the returns cryptocurrency promises than purchase umbrella insurance or stash emergency cash in an anemic-interest-rate savings account. But if it's thrills and chills you're looking for, maybe go ride a roller coaster.
If it's financial peace of mind, Housel asserts, and I agree: “Boring is perfectly fine. Boring is good.” You'll sleep a whole lot better — and be less inclined to make wealth-damaging choices — when the next COVID, market crash, or international incident is visited upon us.
So even if you’re already paranoid, frugal, contrary, and boring with your money management, put The Psychology of Money at the top of your reading list. It’s a fun read, and the additional moral support will only serve to strengthen your resolve the next time sh*t happens.